<PAGE>
$3,079,000,000
Auto Lease Asset Backed Notes
Honda Auto Lease Trust 1999-A,
ISSUER
Honda Titling C L.P.
and
Honda Titling D L.P.,
TRANSFERORS
American Honda Finance Corporation,
SERVICER
The sources for payment of the notes are a selected portfolio of Honda and
Acura lease contracts and the related Honda and Acura leased vehicles, payments
due on the lease contracts, cash and other interests 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 payment date is September 15,
1999.
BEFORE YOU PURCHASE ANY NOTES, YOU SHOULD REVIEW CAREFULLY THE RISK FACTORS
BEGINNING ON PAGE 9 OF THIS PROSPECTUS.
THE NOTES WILL REPRESENT OBLIGATIONS OF A TRUST AND ARE NOT INTERESTS IN OR
OBLIGATIONS OF HONDA TITLING A L.P., HONDA TITLING B L.P., HONDA TITLING C L.P.,
HONDA TITLING D L.P., AMERICAN HONDA FINANCE CORPORATION OR ANY OF THEIR
AFFILIATES.
The trust will issue the following classes of notes for sale:
<TABLE>
<CAPTION>
Original Underwriting Proceeds to
Principal Interest Rate Final Scheduled Discounts and the
Amount (per annum) Payment Date Price to Public Commissions transferors
<S> <C> <C> <C> <C> <C> <C>
Per Class A-1
Note............. $ 380,000,000 5.445% August 2000 100.000000% 0.100% 99.900000%
Per Class A-2
Note............. $ 360,000,000 5.875% October 2001 100.000000% 0.175% 99.825000%
Per Class A-3
Note............. $ 400,000,000 6.100% January 2002 99.703125% 0.190% 99.513125%
Per Class A-4
Note............. $1,000,000,000 6.450% September 2002 99.984375% 0.210% 99.774375%
Per Class A-5
Note............. $ 807,000,000 6.650% July 2005 99.968750% 0.250% 99.718750%
Per Class B
Note............. $ 66,000,000 6.650% July 2005 99.734375% 0.300% 99.434375%
Per Class C
Note............. $ 66,000,000 6.900% July 2005 99.984375% 0.350% 99.634375%
Total............ $3,079,000,000 $3,077,218,437.50 $6,316,500.00 $3,070,901,937.50
</TABLE>
- The price to the public and the proceeds to the transferors listed above
exclude interest accrued from July 29, 1999, the date the notes will be
issued.
- The proceeds to the transferors exclude expenses, estimated at $2,515,000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
---------------------
<TABLE>
<S> <C>
Global Coordinator and Bookrunner Joint Lead Manager
Credit Suisse First Boston J.P. Morgan & Co.
</TABLE>
Senior Co-Managers
<TABLE>
<S> <C>
Banc of America Securities LLC Chase Securities Inc.
</TABLE>
Co-Managers
ABN AMRO Incorporated
Banc One Capital Markets, Inc.
Barclays Capital
Salomon Smith Barney
SG Cowen
Prospectus dated July 23, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SUMMARY OF TERMS OF THE SECURITIES.............. 3
RISK FACTORS.................................... 9
You May Have Difficulty Selling Your Notes
and/or Obtaining Your Desired Price Due to the
Absence of a Secondary Market................. 9
You May Experience Losses on Your Investment
Resulting From Defaults on the Lease Contracts
or Residual Value Losses...................... 9
The Return on the Notes May Be Affected by
Payments by Lessees, Interest Rates and
Possible Termination of the Trust............. 10
Subordination of the Class B Notes and the Class
C Notes Makes It More Likely that the Class B
Notes and the Class C Notes Will Not Receive
Payments or Will Be Allocated Losses.......... 11
Allocation of Losses May Cause Notes with Lower
Priority to Experience a Greater Percentage of
Losses........................................ 12
The Geographic Concentration of the Lessees and
Performance of the Lease Contracts May
Increase the Risk of Loss on Your
Investment.................................... 12
Concentration of Certain Vehicle Types and
Related Factors May Increase the Risk of Loss
on Your Investment............................ 13
Failure to Comply with Consumer Protection Laws
Could Result in a Loss on Your Investment..... 13
If ERISA Liens Are Placed on the Assets of the
Honda Lease Trust, You Could Suffer a Loss on
Your Investment............................... 13
Possible Liability of the Trust due to a
Lessee's Operation of a Leased Vehicle........ 14
<CAPTION>
PAGE
-----
<S> <C>
The Bankruptcy or Other Insolvency of American
Honda Finance Corporation, Honda Titling A
L.P., Honda Titling B L.P., Honda Titling C
L.P. or Honda Titling D L.P. Could Delay or
Prevent Payments on the Notes................. 14
The Failure to Make Payments on the Notes Will
Generally Not Result in an 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 the Initial Ratings
of the Notes Will Affect the Prices for Notes
Upon Resale................................... 16
There are Limited Sources of Funds for Repayment
of the Notes.................................. 16
OVERVIEW OF TRANSACTION......................... 17
THE TRUST AND THE SUBI.......................... 18
General......................................... 18
The Trust....................................... 18
The SUBI........................................ 19
THE ORIGINATION TRUST........................... 21
General......................................... 21
Allocation of Origination Trust Liabilities..... 21
Honda Titling A L.P. and Honda Titling B L.P.... 22
The Origination Trustee......................... 22
Property of the Origination Trust............... 23
Contract Origination; Titling of Leased
Vehicles; Dealer Repurchase Obligations....... 23
USE OF PROCEEDS................................. 24
HONDA TITLING C L.P............................. 24
HONDA TITLING D L.P............................. 25
AMERICAN HONDA FINANCE CORPORATION.............. 25
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
General......................................... 25
Lease Contract Underwriting Procedures.......... 26
Maximum Advance................................. 26
Determination of Residual Values................ 27
Remarketing Program............................. 28
Insurance....................................... 28
Collection and Repossession Procedures.......... 29
Deferral and Extension Policy................... 29
Methods of Vehicle Disposal..................... 30
Year 2000....................................... 31
Delinquency, Repossession and Loss Data......... 31
THE CONTRACTS................................... 35
General......................................... 35
Characteristics of the Contracts................ 37
Representations, Warranties and Covenants....... 39
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS... 42
NOTE FACTORS AND TRADING INFORMATION REPORTS TO
NOTEHOLDERS................................... 53
DESCRIPTION OF THE NOTES........................ 53
General......................................... 53
Interest........................................ 54
Principal....................................... 56
Transfer of the SUBI Certificates............... 56
Reallocation Payments........................... 56
Calculation of Investor Percentage.............. 57
Distributions on the Notes...................... 58
The Accounts.................................... 65
Statements to Noteholders....................... 71
Termination of the Trust; Redemption of the
Notes......................................... 73
Book-Entry Registration......................... 73
<CAPTION>
PAGE
-----
<S> <C>
Definitive Notes................................ 78
The Indenture Trustee........................... 78
SECURITY FOR THE NOTES.......................... 80
General......................................... 80
The Reserve Fund................................ 80
The Contingent and Excess Liability Insurance
Policies...................................... 82
ADDITIONAL DOCUMENT PROVISIONS.................. 83
The Indenture................................... 83
Additional Agreement Provisions................. 86
The SUBI Trust Agreement........................ 87
The Servicing Agreement......................... 91
Amendment of Basic Documents.................... 99
CERTAIN LEGAL ASPECTS OF THE ORIGINATION TRUST
AND THE SUBI.................................. 100
The Origination Trust........................... 100
Qualification of HVT, Inc. as Fiduciary......... 101
Structural Considerations....................... 101
Allocation of Origination Trust Liabilities..... 101
Back-up Security Interest in Certain SUBI
Assets........................................ 102
The SUBI........................................ 102
Insolvency Related Matters...................... 104
Legal Proceedings............................... 105
CERTAIN LEGAL ASPECTS OF THE CONTRACTS AND THE
LEASED VEHICLES............................... 106
Back-up Security Interests...................... 106
Vicarious Tort Liability........................ 106
Repossession of Leased Vehicles................. 107
Deficiency Judgments............................ 108
Consumer Protection Laws........................ 108
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Other Limitations............................... 109
THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES.... 110
Federal Taxation................................ 110
Federal Income Tax Consequences to United States
Noteholders................................... 111
Federal Income Tax Consequences to Foreign
Investors..................................... 113
Backup Withholding.............................. 113
New Withholding Regulations..................... 114
Possible Alternative Treatment of the Notes..... 114
ERISA CONSIDERATIONS............................ 114
UNDERWRITING.................................... 116
NOTICE TO CANADIAN RESIDENTS.................... 118
<CAPTION>
PAGE
-----
<S> <C>
RATINGS OF THE NOTES............................ 119
LEGAL MATTERS................................... 119
EXPERTS......................................... 119
AVAILABLE INFORMATION........................... 119
FORWARD LOOKING STATEMENTS...................... 120
INDEX OF TERMS.................................. 121
INDEX TO AUDITED FINANCIAL STATEMENTS........... F-1
GLOBAL CLEARANCE, SETTLEMENT AND TAX
DOCUMENTATION PROCEDURES...................... I-1
SCHEDULE OF DECLINING AGGREGATE NET INVESTMENT
VALUE OF THE CONTRACTS........................ II-1
</TABLE>
iii
<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.
We include cross-references in this prospectus to captions in these
materials where you can find further related discussions. The preceding table of
contents provides the pages on which these captions are located.
LIMITATIONS ON OFFERS OR SOLICITATIONS
We do not intend this document to be an offer or solicitation:
(1) if used in a jurisdiction where the offer or solicitation is not
authorized;
(2) if the person making the offer or solicitation is not qualified to do
so; or
(3) if the offer or solicitation is made to anyone to whom it is unlawful
to make the offer or solicitation.
DEALER PROSPECTUS DELIVERY REQUIREMENTS
Until October 21, 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 dealers' obligation to
deliver a prospectus when acting as underwriters with respect to their unsold
allotments or subscriptions.
1
<PAGE>
[DIAGRAM OF TRANSACTION]
2
<PAGE>
SUMMARY OF TERMS OF THE SECURITIES
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT YOU NEED TO CONSIDER IN MAKING YOUR
INVESTMENT DECISION. YOU SHOULD CAREFULLY READ THIS ENTIRE PROSPECTUS TO
UNDERSTAND ALL OF THE TERMS OF THE OFFERING.
<TABLE>
<S> <C>
TRANSFERORS: Honda Titling C
L.P. and Honda
Titling D L.P.
ISSUER/TRUST: Honda Auto Lease
Trust 1999-A
SERVICER: American Honda
Finance
Corporation
INDENTURE TRUSTEE: The Bank of New
York
OWNER TRUSTEE: U.S. Bank
National
Association
ORIGINATION TRUST: Honda Lease Trust
ORIGINATION TRUSTEE: HVT, Inc.
DELAWARE TRUSTEE: Delaware Trust
Capital
Management, Inc.
DELAWARE OWNER TRUSTEE: Wilmington Trust
Company
CUT-OFF DATE: Close of business
on June 30, 1999
CLOSING DATE: Expected to be
July 29, 1999
CLEARANCE AND The Depository
SETTLEMENT: Trust Company,
Cedelbank and
Euroclear
TRUST ASSETS: Beneficial
interest in lease
contracts and
leased vehicles
and related
proceeds
NOTES TO BE ISSUED:
Class A-1 notes: $ 380,000,000
Class A-2 notes: $ 360,000,000
Class A-3 notes: $ 400,000,000
Class A-4 notes: $1,000,000,000
Class A-5 notes: $ 807,000,000
Class B notes: $ 66,000,000
Class C notes: $ 66,000,000
INTEREST RATES:
Class A-1 notes: 5.445%
Class A-2 notes: 5.875%
Class A-3 notes: 6.100%
Class A-4 notes: 6.450%
Class A-5 notes: 6.650%
Class B notes: 6.650%
Class C notes: 6.900%
ANNUAL SERVICING FEE: 1% of the
principal balance
of the lease
contracts
represented by
THE SPECIAL UNIT
OF BENEFICIAL
INTEREST, or SUBI
CREDIT ENHANCEMENT: A reserve fund,
the certificates
and certain
classes of notes
to other classes
of notes
PAYMENT DATES: The 15th of each
month or the next
business day
FIRST PAYMENT DATE: September 15,
1999
FINAL SCHEDULED PAYMENT
DATES:
Class A-1 notes: August 2000
Class A-2 notes: October 2001
Class A-3 notes: January 2002
Class A-4 notes: September 2002
Class A-5 notes: July 2005
Class B notes: July 2005
Class C notes: July 2005
RECORD DATE: Noteholders of
record for each
month are
determined one
business day
prior to the
payment date
</TABLE>
3
<PAGE>
OVERVIEW OF TRANSACTION
All of the motor vehicle dealers in the American Honda Finance Corporation
network of dealers have assigned closed-end lease contracts and the related
leased automobiles, minivans and sport utility vehicles to the Honda Lease
Trust. The leased vehicles will include the following:
- Acura CLs, Integras, RLs and TLs, and
- Honda Accords, Civics, CRVs, Odysseys, Passports and Preludes.
Some of these lease contracts and the related leased vehicles have been
allocated to a separate portfolio of assets and the Honda Lease Trust will issue
a SPECIAL UNIT OF BENEFICIAL INTEREST, or a SUBI. The SUBI will be transferred
to the trust by way of two SUBI certificates. The SUBI will represent the
beneficial interest in the lease contracts and the related leased vehicles that
are in the portfolio of assets. Payment on the notes offered pursuant to this
prospectus will be backed by the SUBI. Prospective noteholders should understand
that the lease contracts and the related leased vehicles will INDIRECTLY back
payments on the notes. Neither the trust nor the noteholders will have an
interest in any assets of the Honda Lease Trust other than the SUBI.
ISSUER
Honda Auto Lease Trust 1999-A, a Delaware business trust, will use the proceeds
from the issuance and sale of the securities to purchase the SUBI certificates
from Honda Titling C L.P. and Honda Titling D L.P. American Honda Finance
Corporation will service the lease contracts. The trust will rely upon
collections on the lease contracts and funds on deposit in specified accounts to
make payments on the securities. The trust will be solely liable for payments
made on the securities.
OFFERED SECURITIES
The following securities are being offered pursuant to this prospectus:
- $380,000,000 5.445% class A-1 notes,
- $360,000,000 5.875% class A-2 notes,
- $400,000,000 6.100% class A-3 notes,
- $1,000,000,000 6.450% class A-4 notes,
- $807,000,000 6.650% class A-5 notes,
- $66,000,000 6.650% class B notes, and
- $66,000,000 6.900% class C notes.
The trust is also issuing $214,558,289 aggregate principal amount of asset
backed certificates. The certificates are not being offered through this
prospectus.
CLOSING DATE
The trust expects to issue the securities on July 29, 1999.
TRUSTEES
- - HVT, Inc., a Delaware corporation, is the origination trustee for the Honda
Lease Trust and Delaware Trust Capital Management, Inc., a Delaware
corporation, is the Delaware trustee for the Honda Lease Trust.
- - U.S. Bank National Association, a national banking association, is the owner
trustee for the Honda Auto Lease Trust 1999-A and Wilmington Trust Company, a
Delaware corporation, is the Delaware owner trustee for the Honda Auto Lease
Trust 1999-A.
- - The Bank of New York, a New York banking corporation, is the indenture
trustee.
INTEREST AND PRINCIPAL PAYMENT DATES
On the 15th day of each month, the trust will pay interest and principal on the
securities. If the 15th is not a business day, the trust will pay the interest
and principal on the securities on the next business day.
FIRST SCHEDULED PAYMENT DATE
The first scheduled payment date on the securities will be September 15, 1999.
4
<PAGE>
RECORD DATES
On each payment date, the trust will pay interest and principal on the notes to
noteholders of record for that particular payment date. The record date for the
notes will be one business day prior to the payment date.
INTEREST PAYMENTS
Noteholders and certificateholders are entitled to receive payments of interest
and principal from the trust only to the extent that collections from the
trust's assets and funds on deposit in specified accounts are sufficient to make
those payments. Interest and principal collections will be divided among the
various classes of notes and the certificates in specified proportions and
priorities.
FOR MORE DETAILED INFORMATION CONCERNING PAYMENTS OF INTEREST, YOU SHOULD REFER
TO "DESCRIPTION OF THE NOTES--DISTRIBUTIONS ON THE NOTES--DISTRIBUTIONS OF
INTEREST" IN THIS PROSPECTUS.
INTEREST RATES
The applicable rate of interest for each class of notes is specified on the
cover page of this prospectus. Interest on the class A-1 and class A-2 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
On each payment date, to the extent funds from principal collections and excess
interest collections on the lease contracts and leased vehicles are available
from the preceding month, the trust will pay principal on the notes in an amount
generally equal to:
- 99.8% of the principal collections on the lease contracts, and
- reimbursement of 99.8% of losses until the notes have been paid in full.
Principal collections generally will equal all payments on the lease contracts
and leased vehicles allocable to principal, after the servicer discounts
principal payments on the lease contracts with low lease rates, as described in
this prospectus under "Description of the Notes-- Distributions on the Notes".
PRIORITY OF PRINCIPAL PAYMENTS
In general, the trust will make principal payments on the notes in sequential
order. This means that the trust will not pay the principal on any class of
notes until it first pays each class of notes with a lower numerical or
alphabetical designation in full. For example, the trust will not pay principal
on the class A-2 notes until it pays the class A-1 notes in full.
There are two exceptions to this rule of sequential payment. The first exception
is that, after the trust pays the class A-4 notes in full, it will make
principal payments on the class A-5 notes, the class B notes and the class C
notes, pro rata, based on the principal balance of the class A-5 notes, the
class B notes and the class C notes on the day the trust paid the class A-4
notes in full.
The second exception to the rule of sequential payment is that, if there is (1)
a default under the indenture and the maturity date of the notes is accelerated
or (2) an insolvency of either Honda Titling C L.P. or Honda Titling D L.P., the
transferors, the trust will pay principal received from a sale of trust assets
first to the class A notes on a pro rata basis, until they have been paid in
full, second to the class B notes until they are paid in full, and then to the
class C notes, until they are paid in full.
FOR MORE DETAILED INFORMATION CONCERNING PAYMENTS OF PRINCIPAL, YOU SHOULD REFER
TO "DESCRIPTION OF THE NOTES--DISTRIBUTIONS ON THE NOTES" IN THIS PROSPECTUS.
ALLOCATION OF LOSSES
The trust may experience losses on the lease contracts due to defaults, early
terminations and insufficient proceeds received upon disposition of the related
leased vehicles. If existing funds are unavailable to pay losses, those loss
amounts will be allocated in the following order of priority:
- to the certificates until the principal balance of the certificates has
been reduced to zero,
5
<PAGE>
- to the class C notes until the principal balance of the class C notes 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.
FOR MORE DETAILED INFORMATION CONCERNING ALLOCATION OF LOSSES ON THE LEASE
CONTRACTS, YOU SHOULD REFER TO "DESCRIPTION OF THE NOTES--DISTRIBUTIONS ON THE
NOTES" IN THIS PROSPECTUS.
FINAL SCHEDULED PAYMENT DATES
On each final scheduled payment date listed on the cover page of this
prospectus, the trust will be obligated to pay the unpaid principal amount of
the applicable class of notes in full, to the extent the trust has not paid the
amounts prior to the final scheduled payment date.
OPTIONAL REDEMPTION
The servicer has the option to purchase the assets of the trust if the combined
principal amount of the notes and the certificates is less than or equal to 10%
of the combined initial principal amount of the notes and the certificates.
On any payment date on which the servicer exercises its option to purchase the
assets of the trust, the trust will redeem any notes that remain outstanding in
full at the applicable redemption price. The redemption price for any class of
notes will equal the unpaid principal amount of that class of notes, plus
accrued and unpaid interest on such amount.
FOR MORE INFORMATION ABOUT THE SERVICER'S OPTION TO PURCHASE THE ASSETS OF THE
TRUST, SEE "DESCRIPTION OF THE NOTES--TERMINATION OF THE TRUST; REDEMPTION OF
THE NOTES" IN THIS PROSPECTUS.
TRUST PROPERTY
GENERAL
The trust's primary property will consist of:
- two SUBI certificates representing 99.8% of the SPECIAL UNIT OF BENEFICIAL
INTEREST, or SUBI, as described below, and
- monies on deposit in the reserve fund.
THE SUBI CERTIFICATES
Two SUBI certificates representing the SPECIAL UNIT OF BENEFICIAL INTEREST, or
the SUBI, will evidence a 99.8% beneficial interest, rather than a direct
ownership interest, in designated assets of the Honda Lease Trust. These
designated assets are a selected portfolio of lease contracts and leased
vehicles and particular rights and monies associated with the lease contracts
and leased vehicles. As the holder of the SUBI certificates, the trust will
receive 99.8% of all payments from the lease contracts and the related leased
vehicles. Honda Titling C L.P. and Honda Titling D L.P., the transferors, will
retain a collective 0.2% beneficial interest in the leased contracts and leased
vehicles and this interest will not be available to make payments on the notes
or the certificates.
The SUBI certificates will represent a beneficial interest in the following
assets of the Honda Lease Trust:
- lease contracts and related leased vehicles,
- collections on the lease contracts,
- specified bank accounts,
- rights to proceeds under selected insurance policies that cover lessees
and the leased vehicles but excluding any residual value insurance
policies,
- remedies for breaches of representations and warranties made by dealers
that originated the lease contracts, and
- other rights under documents relating to the lease contracts and leased
vehicles.
FOR MORE DETAILED DESCRIPTION OF THE PROPERTY OF THE TRUST, YOU SHOULD REFER TO
"THE TRUST AND THE SUBI" IN THIS PROSPECTUS.
COMPOSITION OF THE LEASE CONTRACTS AND THE LEASED VEHICLES
The lease contracts consist of retail closed-end lease contracts originated in
the United States for the lease of Honda and Acura motor vehicles. As
6
<PAGE>
of June 30, 1999, the cutoff date, the composition of the lease contracts was as
follows:
- the aggregate outstanding principal balance of the lease contracts was
$3,475,076,453.49,
- the discounted outstanding principal balance of the lease contracts was
$3,300,158,606.28,
- the aggregate residual value of the leased vehicles determined at the time
of origination of the lease contract, which is the expected value of the
leased vehicles at the time each individual lease contract is scheduled to
terminate, was $2,307,201,304.45,
- the weighted average lease interest rate of the lease contracts was 6.29%,
- the weighted average length of the lease contracts was 38.28 months, and
- the weighted average remaining term to maturity of the contracts was 30.48
months.
SERVICING
American Honda Finance Corporation will service the lease contracts. The trust
will pay the servicer a servicing fee each month equal to the product of
one-twelfth of 1.00% and the outstanding principal balance of the lease
contracts represented by the SUBI certificates at the beginning of the preceding
month.
ADVANCES
The servicer will be obligated to advance to the trust the aggregate monthly
payments on lease contracts due but not received during the related collection
period on lease contracts (1) that are 31 days or more past due as of the end of
the related collection period or (2) for which the servicer has granted a
deferral. However, the servicer will not be required to make an advance if it
believes that the advance is unrecoverable. The trust will subsequently
reimburse the servicer for these advances.
FOR MORE DETAILED DESCRIPTION OF THE SERVICER'S OBLIGATIONS WITH RESPECT TO THE
LEASE CONTRACTS, YOU SHOULD REFER TO "ADDITIONAL DOCUMENT PROVISIONS-- THE
SERVICING AGREEMENT" IN THIS PROSPECTUS.
CREDIT ENHANCEMENT
GENERALLY
This transaction includes certain features designed to provide protection
against losses and delays in payments to the class A noteholders and, to a
lesser extent, the class B noteholders and the class C noteholders. These
features are referred to as CREDIT ENHANCEMENT. Losses on the lease contracts or
other shortfalls of cash flow will be covered by allocating available cash flow
to the class A noteholders before making allocations to the class B noteholders,
the class C noteholders and the certificateholders and by withdrawing amounts on
deposit in the reserve fund. The reallocation of funds for payment on the class
A notes or class B notes, as applicable is referred to as subordination.
FOR MORE DETAILED INFORMATION CONCERNING THE CREDIT ENHANCEMENT FEATURES OF THIS
OFFERING, YOU SHOULD REFER TO "DESCRIPTION OF THE NOTES" IN THIS PROSPECTUS.
THE RESERVE FUND
The trust will establish a reserve fund to help cover any shortfalls in
distributions of interest and principal on the notes. The reserve fund will be
funded as follows:
- $115,274,540.12 will be deposited into the reserve fund on the closing
date;
- on any date during the time the notes and the certificates are
outstanding, the reserve fund will generally be required to have a balance
equal to 5.50% of 99.8% of the sum of the discounted outstanding principal
balances of the lease contracts and the residual value of terminated
contracts as of the Cutoff Date;
- on each payment date, if there are shortfalls in the funds available to
pay interest or principal on the notes, funds will be withdrawn from the
reserve fund for the payment of that interest and/or principal; and
- if funds are removed from the reserve fund for the payment of principal
and/or interest on the notes, these funds may be replenished through
excess interest
7
<PAGE>
collections received on the lease contracts in a subsequent collection
period.
FOR MORE DETAILED INFORMATION CONCERNING THE RESERVE FUND, YOU SHOULD REFER TO
"SECURITY FOR THE NOTES-- THE RESERVE FUND" IN THIS PROSPECTUS.
TAX STATUS
O'Melveny & Myers LLP, as special federal income tax counsel to the transferors,
is of the opinion that:
(1) the notes will be characterized as indebtedness that is secured by the
trust's assets for federal income tax purposes; and (2) the trust will not be a
separately taxable entity for federal income tax purposes.
Each noteholder and each note owner, by its acceptance of a note, or its
acquisition of a beneficial interest in a note, will agree to treat the note as
indebtedness for federal, state and local income and franchise tax purposes.
It is suggested that prospective investors consult their own tax advisors
regarding the federal income tax consequences of the purchase, ownership or
disposition of the notes, and the tax consequences arising under the laws of any
state or other taxing jurisdiction.
YOU SHOULD REFER TO "THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES" IN THIS
PROSPECTUS FOR ADDITIONAL INFORMATION CONCERNING THE APPLICATION OF UNITED
STATES FEDERAL INCOME TAX LAWS TO THE TRUST AND THE NOTES.
RATINGS
It is a condition to the issuance of the notes that:
- the class A-1 notes be rated in the highest short-term rating category by
at least two nationally recognized rating agencies,
- the class A-2 notes, class A-3 notes, class A-4 notes and class A-5 notes
be rated in the highest long-term rating category by at least two
nationally recognized rating agencies,
- the class B notes be rated in the double A category by at least two
nationally recognized rating agencies, and
- the class C notes be rated in the single A category by at least two
nationally recognized rating agencies.
ERISA CONSIDERATIONS
The notes are generally eligible for purchase by employee benefit plans subject
to the considerations discussed under "ERISA Considerations" in this prospectus.
YOU SHOULD REFER TO "ERISA CONSIDERATIONS" IN THIS PROSPECTUS FOR MORE
INFORMATION CONCERNING THE APPLICATION OF ERISA LAWS TO THE TRUST AND THE NOTES.
LEGAL INVESTMENT
The class A-1 notes are structured to be eligible for purchase by money market
funds under Rule 2a-7 of the Investment Company Act of 1940, as amended.
INVESTOR INFORMATION
The mailing address of Honda Titling C L.P., one of the transferors, is:
700 Van Ness Avenue
Torrance, California 90501
The telephone number is (310) 781-6146
The mailing address of Honda Titling D L.P.,
one of the transferors, is:
700 Van Ness Avenue
Torrance, California 90501
The telephone number is (310) 781-6148
The mailing address of American Honda
Finance Corporation, the servicer, is:
700 Van Ness Avenue
Torrance, California 90501
The telephone number is (310) 781-4100
8
<PAGE>
RISK FACTORS
YOU SHOULD CONSIDER THE FOLLOWING RISK FACTORS IN DECIDING WHETHER TO
PURCHASE ANY OF THE NOTES.
<TABLE>
<S> <C>
YOU MAY HAVE DIFFICULTY SELLING The notes will not be listed on any securities exchange.
YOUR NOTES AND/OR OBTAINING YOUR Therefore, in order to sell your notes, you must first
DESIRED PRICE DUE TO THE ABSENCE locate a willing purchaser. The absence of a secondary
OF A SECONDARY MARKET market for the notes could limit your ability to resell
them. Currently, no secondary market exists for the
notes. We cannot assure you that a secondary market will
develop. The underwriters intend to make a secondary
market for the notes by offering to buy the notes from
investors that wish to sell. However, the underwriters
are not obligated to make offers to buy the notes and
they may stop making offers at any time. In addition,
the underwriters' offered prices, if any, may not
reflect prices that other potential purchasers would be
willing to pay were they given the opportunity. There
have been times in the past when very few buyers of
asset backed securities existed and there may be similar
times in the future. As a result, you may be unable to
sell your notes when you want to do so or you may be
unable to obtain the price that you wish to receive for
your notes.
YOU MAY EXPERIENCE LOSSES ON YOUR The trust may experience losses if (1) there are
INVESTMENT RESULTING FROM defaults on, or early terminations of, the lease
DEFAULTS ON THE LEASE CONTRACTS contracts, or (2) the proceeds from the sale of a leased
OR RESIDUAL VALUE LOSSES vehicle following termination of the related lease
contract are less than the residual value established
for the leased vehicle. American Honda Finance
Corporation establishes the residual value for each
leased vehicle at the time the lease contract for the
leased vehicle is originated. 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
leased vehicles will be less than the residual values
and result in losses suffered by the trust. If losses
experienced on the lease contracts exceed the funds
available on the related payment date to make principal
payments on the notes, those losses will be allocated as
if the noteholder received a principal payment.
Consequently, you may incur a loss on your investment.
Losses will be allocated as principal payments in the
following order:
(1) to the certificates until the certificate balance
has been reduced to zero;
(2) to the class C notes, until the note balance of the
class C notes has been reduced to zero;
(3) to the class B notes until the note balance of the
class B notes has been reduced to zero; and
(4) to the class A notes, pro rata, based on the
outstanding principal balance of the notes.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
The following factors will affect the severity of the
trust's losses in disposing of leased vehicles:
- the servicer's lease maturity remarketing program,
- the supply of vehicles similar to the leased vehicles
being disposed of,
- the demand for vehicles similar to the leased vehicles
being sold in the new and used car market, and
- the economic and geographic conditions generally
existing at the time of disposition of the leased
vehicles.
THE RETURN ON THE NOTES MAY BE - THE TIMING AND AMOUNT OF PRINCIPAL PAYMENTS MAY VARY.
AFFECTED BY PAYMENTS BY LESSEES, You may receive payment of principal on your notes
INTEREST RATES AND POSSIBLE earlier or later than expected. The amount and timing of
TERMINATION OF THE TRUST principal payments on the notes depend upon the amount
and the times at which lessees make principal payments
on the lease contracts and the rate of defaults on the
lease contracts. The lessees' principal payments may
consist of regularly scheduled payments or unscheduled
payments resulting from prepayments of, or defaults on,
the lease contracts. If there are prepayments on the
lease contracts, it is likely that the life of the notes
will be shortened.
The rate of prepayments on the lease contracts may be
influenced by a variety of economic, social and other
factors. The servicer has limited historical experience
with respect to prepayments on lease contracts. In
addition, the servicer is not aware of publicly
available industry statistics that detail the prepayment
experience for contracts similar to the lease contracts.
For these reasons, the servicer cannot predict the
actual prepayment rates for the lease contracts. The
servicer, however, believes that the actual rate of
prepayments of the lease contracts will result in the
weighted average life of the lease contracts being
shorter than the period from the closing date to the
final scheduled maturity dates for the notes. If this is
the case, the weighted average life of each class of
notes will be correspondingly shorter.
In addition, to the extent available, funds will be
distributed to noteholders covering losses on the lease
contracts and leased vehicles as principal payments, as
discussed above. This will affect the total amount of
principal payments made on the notes.
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
- YOU BEAR THE 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 lease contracts and
produce less returns of principal when market interest
rates rise above the interest rates on the lease
contracts. As a result, you will likely receive more
money to reinvest at a time when other investments
generally are producing a lower yield than that on the
notes, and will likely 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 may prevent you from attaining your desired yield.
- FAILURE BY THE SERVICER TO PURCHASE ASSETS OF THE
TRUST. The servicer has the right to purchase all of the
assets of the trust when the combined balance of the
notes and certificates is 10% or less of the combined
initial balance of the notes and the certificates. If
the servicer does not exercise these rights, the
weighted average life of the notes may be longer than
you expected.
SUBORDINATION OF THE CLASS B NOTES - CLASS A NOTEHOLDERS ARE ENTITLED TO PRIORITY OF
AND THE CLASS C NOTES MAKES IT PAYMENTS. The class B notes and the class C notes are
MORE LIKELY THAT THE CLASS B subordinated to the class A notes. If available funds
NOTES AND THE CLASS C NOTES WILL are insufficient to make the payments on all of the
NOT RECEIVE PAYMENTS OR WILL BE notes, the trust will not pay the class C noteholders
ALLOCATED LOSSES some or all of the amounts otherwise distributable on
the class C notes and, to a lesser extent, the class B
notes. Consequently, the class B notes and the class C
notes are subject to a greater risk of nonpayment or
delayed payment or loss than the class A notes.
- ALLOCATION OF LOSSES. The class A-5, class B and class
C notes are scheduled to be outstanding longer than the
class A-1 notes, class A-2 notes, class A-3 notes and
class A-4 notes. As a result, if the trust incurs losses
on the lease contracts later in the transaction, the
credit enhancement provided by the certificates is less
likely to be available to support the class C notes and
the credit enhancement provided by the class C notes is
less likely to be available to support the class A-5
notes and the class B notes. If the certificate balance
is reduced to zero, the class C noteholders will bear
all the subsequent losses on the lease contracts and
leased vehicles since the certificates will not be
available to absorb such losses. If the principal
balance of the class C notes is reduced to zero, the
class B noteholders and to the extent not sufficient the
class A-5 noteholders, will bear all the subsequent
losses on the lease contracts and leased vehicles since
neither the class C notes nor the certificates will be
available to absorb such losses. As a result, the class
A-5 noteholders, class B noteholders, the class C
noteholders may experience a greater risk of loss on
their investment than the other noteholders.
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
ALLOCATION OF LOSSES MAY CAUSE If there are insufficient funds to make principal
NOTES WITH LOWER PRIORITY TO payments following the reduction of the certificate
EXPERIENCE A GREATER PERCENTAGE balance to zero, losses will be allocated:
OF LOSSES - first, to the class C notes as principal based on the
outstanding principal balance of the class C notes
until it has been reduced to zero,
- second, to the class B notes as principal based on the
outstanding principal balance of the class B notes
until it has been reduced to zero, and
- third, to the class A notes, pro rata, as principal
based on the outstanding principal balance for each
class of class A notes.
As a result of the order of allocation described above,
more losses will be allocated to the class C notes than
to the class B notes and the class A notes and to the
class B notes than to the class A notes.
In addition, since principal payments will be made to
the class A notes in sequential order, it follows that
the outstanding principal balance of the classes of
class A notes which have higher priority for principal
payments, such as the class A-1 notes, will be reduced
faster than the outstanding principal balance of the
classes of class A notes which have lower priority for
those payments, such as the class A-5 notes. Therefore,
because losses will be allocated to the class A notes on
a pro rata basis based on outstanding principal balance
and because the outstanding principal balance of some
class A notes will be reduced faster than will the
outstanding principal balance of other class A notes,
more losses will be allocated to:
- the class A-2 notes than to the class A-1 notes as a
relative percentage of their respective initial
principal balances,
- the class A-3 notes than to the class A-1 or class A-2
notes as a relative percentage of their respective
initial principal balances,
- the class A-4 notes than to the class A-1, class A-2
or class A-3 notes as a relative percentage of their
respective initial principal balances, and
- the class A-5 notes than to the class A-1, class A-2,
class A-3 or class A-4 notes as a relative percentage of
their respective initial principal balances.
THE GEOGRAPHIC CONCENTRATION OF Economic conditions in the states where lessees reside
THE LESSEES AND PERFORMANCE OF may affect delinquencies, losses and prepayments on the
THE LEASE CONTRACTS MAY INCREASE lease contracts and the leased vehicles. The following
THE RISK OF LOSS ON YOUR economic conditions may affect payments on the lease
INVESTMENT contracts:
- unemployment,
- interest rates,
- inflation rates, and
- consumer perceptions of the economy.
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
If a large number of lessees are located in a particular
state, these conditions could increase the delinquency,
credit loss or repossession experience of the lease
contracts and leased vehicles allocated to the trust. As
of June 30, 1999, the cutoff date, the lease contracts
(based on outstanding principal balance) were most
highly concentrated in California, New York, New Jersey,
Ohio, Florida and Pennsylvania. If there is a
concentration of lessees and lease contracts in
particular states, any adverse economic conditions in
those states may affect the performance of the notes
more than if this concentration did not exist.
FOR A DISCUSSION OF THE BREAKDOWN OF THE LEASE CONTRACTS
BY STATE, SEE "THE CONTRACTS--CHARACTERISTICS OF THE
CONTRACTS-- DISTRIBUTION OF THE CONTRACTS BY STATE" IN
THIS PROSPECTUS.
CONCENTRATION OF CERTAIN VEHICLE The existence of similar model types may affect the used
TYPES AND RELATED FACTORS MAY car market for any particular model type. In addition,
INCREASE THE RISK OF LOSS ON the used car market is affected by changes in consumer
YOUR INVESTMENT tastes, the economy and the discovery of a particular
model type's defects. These factors may negatively
affect the amount of proceeds received upon the
disposition of leased vehicles. The Accord, the Civic
CPE and the Civic SDN represent approximately 35.9%,
8.9% and 7.8% of the leased vehicles based on the number
of contracts allocated to the SUBI. Any adverse change
affecting a specific model type would reduce the
proceeds received upon the disposition of leased
vehicles of that model type. As a result, you may incur
a loss on your investment.
FAILURE TO COMPLY WITH CONSUMER Many federal and state consumer protection laws impose
PROTECTION LAWS COULD RESULT IN requirements on retail lease contracts. If any of the
A LOSS ON YOUR INVESTMENT lease contracts do not comply with these laws, there may
be delays or reductions in collections on the contracts.
This delay or reduction could result in a loss on your
investment. The trust requires American Honda Finance
Corporation, the servicer, to reimburse it for any
liability or loss of the Honda Lease Trust or the trust
relating to consumer protection laws.
FOR A DISCUSSION OF THE PARTICULAR FEDERAL AND STATE
CONSUMER PROTECTION LAWS, WHICH MAY AFFECT THE LEASE
CONTRACTS, SEE "CERTAIN LEGAL ASPECTS OF THE CONTRACTS
AND THE LEASED VEHICLES--CONSUMER PROTECTION LAWS" IN
THIS PROSPECTUS.
IF ERISA LIENS ARE PLACED ON THE Liens in favor of the Pension Benefit Guaranty
ASSETS OF THE HONDA LEASE TRUST, Corporation could possibly attach to the lease contracts
YOU COULD SUFFER A LOSS ON YOUR and leased vehicles to satisfy unpaid ERISA obligations
INVESTMENT of any member of a CONTROLLED GROUP that includes
American Honda Finance Corporation and its affiliates.
The transferors believe that the likelihood of this
liability being asserted against the lease contracts and
leased vehicles or, if so asserted, being successfully
pursued, is remote. However, you cannot be sure the
lease contracts and leased vehicles will not become
subject to an ERISA liability.
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
POSSIBLE LIABILITY OF THE TRUST State laws differ as to whether a party injured by a
DUE TO A LESSEE'S OPERATION OF A leased vehicle may sue the owner of the vehicle merely
LEASED VEHICLE by virtue of that ownership. Most states either prohibit
this liability or limit the owner's liability to the
amount of liability insurance that the lessee was
legally required to carry but had failed to maintain.
However, the laws of some states, such as New York, may
hold an origination trust, as owner, and/or the
servicer-agent of the origination trust, jointly and
severally liable with the lessee for the negligent use
or operation of a leased motor vehicle.
If liability imposed upon the Honda Lease Trust in
connection with any leased vehicles it owns exceeds the
coverage provided by the liability insurance policies
held by the Honda Lease Trust, or if lawsuits are
brought against either the Honda Lease Trust or American
Honda Finance Corporation involving the negligent use or
operation of a leased vehicle, you could experience
delays in payments or incur a loss on your investment
due to any liabilities resulting from those lawsuits.
FOR A DISCUSSION OF THE POSSIBLE LIABILITY OF THE TRUST
IN CONNECTION WITH THE NEGLIGENT USE OR OPERATION OF THE
LEASED VEHICLES, SEE "CERTAIN LEGAL ASPECTS OF THE
CONTRACTS AND THE LEASED VEHICLES--VICARIOUS TORT
LIABILITY" IN THIS PROSPECTUS.
THE BANKRUPTCY OR OTHER INSOLVENCY If American Honda Finance Corporation, Honda Titling A
OF AMERICAN HONDA FINANCE L.P., Honda Titling B L.P., Honda Titling C L.P. or
CORPORATION, HONDA TITLING A Honda Titling D L.P. were to become subject to
L.P., HONDA TITLING B L.P., bankruptcy or other insolvency proceedings, a court
HONDA TITLING C L.P. OR HONDA could conclude that American Honda Finance Corporation,
TITLING D L.P. COULD DELAY OR Honda Titling A L.P., Honda Titling B L.P., Honda
PREVENT PAYMENTS ON THE NOTES Titling C L.P. or Honda Titling D L.P. owns the special
unit of beneficial interest, the SUBI, conveyed to the
trust. This conclusion could be reached if a court were
to:
- determine that the transfer of the SUBI certificates
representing the SUBI, from Honda Titling A L.P.
and/or Honda Titling B L.P. to the trust did not
constitute a TRUE SALE, or
- determine that the transfer of the SUBI certificates
representing the SUBI, from Honda Titling C L.P.
and/or Honda Titling D L.P. to the trust did not
constitute a TRUE SALE, or
- treat Honda Titling A L.P., Honda Titling B L.P.,
Honda Titling C L.P., Honda Titling D L.P. or the trust
as the same entity as American Honda Finance
Corporation for bankruptcy purposes.
If a court were to reach any of these conclusions, you
could experience reduction, delay or elimination of
interest and principal payments due on your notes.
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
The parties to this transaction have taken steps in
structuring the transactions described in this
prospectus to minimize the risk that a court would
conclude that the transfer of the SUBI certificates by
Honda Titling A L.P. and Honda Titling B L.P. to Honda
Titling C L.P. and Honda Titling D L.P., and then by
Honda Titling C L.P. and Honda Titling D L.P. to the
trust was not a TRUE SALE or consolidate Honda Titling A
L.P., Honda Titling B L.P., Honda Titling C L.P., Honda
Titling D L.P. or the trust with American Honda Finance
Corporation for bankruptcy purposes.
FOR A DISCUSSION OF HOW A BANKRUPTCY PROCEEDING OF
AMERICAN HONDA FINANCE CORPORATION, HONDA TITLING A
L.P., HONDA TITLING B L.P., HONDA TITLING C L.P. OR
HONDA TITLING D L.P. MAY AFFECT THE TRUST AND THE NOTES,
SEE "CERTAIN LEGAL ASPECTS OF THE ORIGINATION TRUST AND
THE SUBI--INSOLVENCY RELATED MATTERS" IN THIS
PROSPECTUS.
THE FAILURE TO MAKE PAYMENTS ON You should be aware that the amount of principal or
THE NOTES WILL GENERALLY NOT interest required to be paid to you prior to the final
RESULT IN AN EVENT OF DEFAULT scheduled payment date for a class of notes generally
will be limited to amounts available for those purposes.
Therefore, the failure to pay principal of, 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 payment date for the class of
notes.
FOR A DISCUSSION OF THE CIRCUMSTANCES UNDER WHICH AN
EVENT OF DEFAULT MAY BE DECLARED UNDER THE INDENTURE,
SEE "ADDITIONAL DOCUMENT PROVISIONS--THE INDENTURE" IN
THIS PROSPECTUS.
COMPUTER PROBLEMS IN THE YEAR 2000 Many computers and computer chips do not recognize more
MAY RESULT IN LOSSES than two digits in a year of a date. As a result, in the
year 2000, those computers will not know whether the '00
refers to the year 1900 or the year 2000. American Honda
Finance Corporation will have significant obligations to
the trust in its role as servicer. If American Honda
Finance Corporation, its affiliates or an external
supplier were to experience a year 2000 problem in its
computer system, this could affect American Honda
Finance Corporation's ability to service the lease
contracts. This could result in errors or delays in
making collections on the leases and payments on the
notes. To address this problem, American Honda Finance
Corporation initiated, and recently completed, a
comprehensive program for the year 2000 conversion.
American Honda Finance Corporation believes that its
computer systems are year 2000 compliant. However, if
American Honda Finance Corporation's systems were to
experience unexpected problems or the computer systems
of third-party vendors were not to be year 2000
compliant, the amount and timing of payments to
noteholders could be adversely affected, due to, for
example, American Honda Finance Corporation's inability
to process payments or make distributions in a timely
manner.
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
The inability of American Honda Finance Corporation or
of third parties who deal with American Honda Finance
Corporation to make the necessary year 2000
modifications of their systems could also have a
significant adverse effect on American Honda Finance
Corporation's operations and financial results. Possible
adverse consequences include the inability to (1)
collect the receivables, (2) pay obligations, (3)
process new business and (4) occupy facilities. These
consequences could have a material adverse effect on the
value of your notes.
THE NOTES ARE NOT SUITABLE The notes are not a suitable investment for any investor
INVESTMENTS FOR ALL INVESTORS that requires a regular or predictable schedule of
payments or payment on specific dates. The notes are
complex investments. We suggest that only investors who,
either alone or with their financial, tax and legal
advisors, have the expertise to analyze the prepayment,
reinvestment and default risks, the tax consequences of
the investment and the interaction of these factors
should consider purchasing the notes.
WITHDRAWAL OR DOWNGRADING OF THE A security rating is not a recommendation to buy, sell
INITIAL RATINGS OF THE NOTES or hold securities. Similar ratings on different types
WILL AFFECT THE PRICES FOR NOTES of securities do not necessarily mean the same thing.
UPON RESALE You should analyze the significance of each rating
independently from any other rating. A 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 a rating will
likely affect the price that a subsequent purchaser
would be willing to pay for the notes.
THERE ARE LIMITED SOURCES OF FUNDS The only source of funds for payments on the notes will
FOR REPAYMENT OF THE NOTES be the assets of the trust. You may suffer a loss on
your notes if the assets of the trust provide
insufficient funds to fully pay the principal amount of
the notes. The notes are solely obligations of the trust
and will not be insured or guaranteed by American Honda
Finance Corporation, including in its capacity as
servicer of the lease contracts, Honda Lease Trust,
Honda Titling C L.P., Honda Titling D L.P. or any of
their affiliates. Consequently, you must rely upon the
payments on the SUBI assets for payments on your notes,
and to the extent available, amounts on deposit in the
reserve fund.
The indenture authorizes the indenture trustee, in
certain circumstances, to sell the SUBI following the
acceleration of the maturity dates of the notes upon the
occurrence of an event of default under the indenture or
upon the insolvency of either Honda Titling C L.P. or
Honda Titling D L.P. However, none of the trust,
indenture trustee or noteholders will have a direct
interest in the lease contracts and related leased
vehicles or any other assets represented by the SUBI,
and there is no assurance there would be any market for
the SUBI. The amount received by the indenture trustee
upon any such sale may be less than the aggregate
principal amount of the notes, and as a result,
noteholders may not be paid in full.
</TABLE>
16
<PAGE>
OVERVIEW OF TRANSACTION
YOU CAN FIND A LISTING OF THE PAGES WHERE CAPITALIZED TERMS ARE DEFINED IN
THIS PROSPECTUS UNDER THE CAPTION "INDEX OF TERMS" BEGINNING ON PAGE 121 OF THIS
PROSPECTUS.
All of the motor vehicle dealers ("Dealers") in the American Honda Finance
Corporation ("AHFC") network of dealers have entered into agreements with AHFC
("Dealer Agreements") pursuant to which they have assigned and will assign
retail closed-end motor vehicle lease contracts to the Honda Lease Trust, a
Delaware business trust (the "Origination Trust"). The Origination Trust was
created in July 1997 to avoid the administrative difficulty and expense
associated with retitling leased vehicles for the securitization of motor
vehicle lease contracts. The Origination Trust 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, 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
(1) allocate a separate portfolio of lease contracts and leased vehicles within
the Origination Trust and (2) create a special unit of beneficial interest (the
"SUBI") which will represent the entire beneficial interest in this separate
portfolio. Upon its creation, this separate portfolio will no longer be a part
of the assets of the Origination Trust represented by the UTI. The Origination
Trust will issue a 99% beneficial interest in the SUBI to HTA LP and a 1%
beneficial interest in the SUBI to HTB LP. On the closing date, HTA LP and HTB
LP will sell their beneficial interests in the SUBI to Honda Titling C L.P.
("HTC LP") and Honda Titling D L.P. ("HTD LP" and, together with HTC LP, the
"Transferors"). HTC LP and HTD LP will in turn contribute and transfer two
certificates, (the "SUBI Certificates") representing 99.8% of their collective
beneficial interest in the SUBI (the "SUBI Interest") to the Honda Auto Lease
Trust 1999-A. HTC LP and HTD LP will retain the remaining 0.2% beneficial
interest in the SUBI. In return for the SUBI Interest transferred to the trust
by HTC LP and HTD LP, the trust will issue the notes offered hereby and
certificates, which are not being offered hereby. The UTI Beneficiaries from
time to time in the future may create additional special units of beneficial
interest similar to the SUBI ("Other SUBIs") out of the UTI to sell to HTC LP
and HTD LP or other entities.
The trust will issue the following aggregate principal amounts of notes
pursuant to an indenture, dated as of July 1, 1999, between the trust and The
Bank of New York, as indenture trustee (the "Indenture Trustee"):
- Class A-1 notes (the "Class A-1 Notes") in the aggregate principal amount
of $380,000,000 (the "Initial Class A-1 Note Balance"),
- Class A-2 notes (the "Class A-2 Notes") in the aggregate principal amount
of $360,000,000 (the "Initial Class A-2 Note Balance"),
- Class A-3 notes (the "Class A-3 Notes") in the aggregate principal amount
of $400,000,000 (the "Initial Class A-3 Note Balance"),
- Class A-4 notes (the "Class A-4 Notes") in the aggregate principal amount
of $1,000,000,000 (the "Initial Class A-4 Note Balance"),
- Class A-5 notes (the "Class A-5 Notes") in the aggregate principal amount
of $807,000,000 (the "Initial Class A-5 Note Balance" and, together with
the Initial Class A-1 Note Balance, the Initial Class A-2 Note Balance,
the Initial Class A-3 Note Balance and the Initial Class A-4 Note Balance,
the "Initial Class A Note Balance"),
- Class B notes (the "Class B Notes") in the aggregate principal amount of
$66,000,000 (the "Initial Class B Note Balance"), and
17
<PAGE>
- Class C notes (the "Class C Notes") in the aggregate principal amount of
$66,000,000 (the "Initial Class C Note Balance"). The Initial Class A Note
Balance, the Initial Class B Note Balance and the Initial Class C Note
Balance are collectively referred to herein as the "Initial Note Balance".
The Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes, the Class A-4
Notes and the Class A-5 Notes are collectively referred to herein as the "Class
A Notes". The Class A Notes, the Class B Notes and the Class C Notes are
collectively referred to as the "notes". Each class of notes is referred to as a
"class".
The trust will also issue $214,558,289 (the "Initial Certificate Balance")
of certificates (the "certificates") which HTC LP and HTD LP will retain. HTC LP
will retain 99% of the certificates and HTD LP will retain 1% of the
certificates.
AHFC is the servicer for the assets of the Origination Trust (in such
capacity, the "Servicer") pursuant to a servicing agreement dated as of April 1,
1998, among the Origination Trust, the UTI Beneficiaries and AHFC (the "Basic
Servicing Agreement"), as supplemented by a servicing supplement dated as of
July 1, 1999, among the Origination Trust, the UTI Beneficiaries, U.S. Bank
National Association ("U.S. Bank"), as trust agent (in such capacity, the "Trust
Agent"), and AHFC (the "Servicing Supplement" and, together with the Basic
Servicing Agreement, the "Servicing Agreement").
THE TRUST AND THE SUBI
GENERAL
The trust and the holders of Class A Notes, Class B Notes and Class C Notes
(collectively, the "noteholders") will not have any interest in: (1) the UTI,
(2) any Other SUBI, (3) any assets of the Origination Trust evidenced by the UTI
or any Other SUBI, or (4) payments made on assets of the Origination Trust not
represented by the SUBI. For further information regarding the Origination
Trust, see "The Origination Trust".
THE TRUST
The trust was formed as a Delaware business trust pursuant to a certificate
of trust filed on March 4, 1999. On the date the notes are issued (the "Closing
Date"), the trust will be established pursuant to a securitization trust
agreement dated as of July 1, 1999 (the "Agreement"), among HTC LP, HTD LP, U.S.
Bank, as owner trustee (in such capacity, the "Owner Trustee"), Wilmington Trust
Company, as Delaware owner trustee, and the Indenture Trustee.
The property of the trust will include:
- the SUBI Certificates, the rights in and benefits of the SUBI Interest
evidenced by the SUBI Certificates and all monies due and paid in respect
thereof,
- the right to realize upon any property that may be deemed to secure the
foregoing,
- all rights accruing to the holder of the SUBI Certificates as a
third-party beneficiary under the SUBI Trust Agreement and the Servicing
Agreement,
- all rights of HTC LP and HTD LP, as transferees, with respect to the SUBI
Certificates,
- all rights of the trust as a third-party beneficiary of the administration
agreement to which it is a party,
- accounts relating to the SUBI Certificates, and
- all payments on or under and all proceeds of every kind and nature in
respect of any or all of the foregoing, including all proceeds of the
conversion thereof, voluntary or involuntary, into
18
<PAGE>
cash or other liquid property, all cash proceeds, accounts, accounts
receivable, notes, drafts, acceptances, chattel paper, checks, deposit
accounts, insurance proceeds (excluding proceeds from residual value
insurance policies received with respect to the leased vehicles and the
contracts allocated to the SUBI), condemnation awards, rights to payment
of any and every kind and other forms of obligations and receivables,
instruments and other property that at any time constitute all or part of
or are included in the proceeds of any of the foregoing.
Through its ownership of the SUBI Certificates, the trust also will have a
beneficial interest in specified amounts as may be held from time to time in the
SUBI Collection Account.
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 Certificates and the assets of the
SUBI transferred to it by HTC LP and HTD LP and will not have a direct ownership
interest in any of the leased vehicles allocated to the SUBI.
Credit enhancement for the noteholders will be provided by:
- excess Interest Collections,
- available monies on deposit in a reserve fund established to support
payments to noteholders,
- the subordination of payments otherwise payable to certificateholders,
- in the case of the Class A Notes, the subordination of payments otherwise
payable to Class B Noteholders and Class C Noteholders, and
- in the case of the Class B Notes, the subordination of payments otherwise
payable to Class C Noteholders.
If the foregoing credit enhancement is insufficient, the noteholders will
ultimately have to look to payments made on the contracts and the leased
vehicles allocated to the SUBI (including under related insurance policies, but
excluding any residual value insurance policies) and the proceeds of Dealer
repurchase obligations, if any, for distributions on the notes. In such event,
certain factors, such as the trust's lack of (1) a direct ownership interest in
the contracts or the leased vehicles allocated to the SUBI or (2) a perfected
security interest in the leased vehicles allocated to the SUBI (which will be
titled in the name of the Origination Trust or the Origination Trustee) may
result in the trust realizing an amount which is less than that due from the
related lessees. Payments to noteholders may be reduced, delayed or eliminated
as a result of defaults or delinquencies by lessees and because of depreciation
in the value of the related leased vehicles allocated to the SUBI. See "The
Origination Trust--Allocation of Origination Trust Liabilities", "Security for
the Notes--The Reserve Fund", "Additional Document Provisions--The Servicing
Agreement--Monitoring Lessees' 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
July 1, 1999, among the UTI Beneficiaries, the Servicer, HVT, Inc., as trustee
of the Origination Trust (the "Origination Trustee"), Delaware Trust Capital
Management, Inc., as Delaware trustee, and the Owner Trustee (the "SUBI
Supplement" and, together with the Origination Trust Agreement, the "SUBI Trust
Agreement"), the Origination Trust will issue (1) upon the order of HTA LP, a
99% beneficial interest in the SUBI to HTA LP, evidenced by a 98.01% certificate
and a 0.99% certificate and (2) upon the order of HTB LP, a 1% beneficial
interest in the SUBI to HTB LP, evidenced by a 0.99% certificate and a 0.01%
certificate. The Indenture Trustee and the Owner Trustee will be third-party
beneficiaries of the SUBI Trust Agreement.
19
<PAGE>
On the Closing Date, the following transactions will occur:
- HTA LP will transfer its 98.01% certificate to HTC LP and its 0.99%
certificate to HTD LP,
- HTB LP will transfer its 0.99% certificate to HTC LP and its 0.01%
certificate to HTD LP,
- HTC LP and HTD LP will each exchange their 99% and 1%, respectively,
beneficial interests in the SUBI for four SUBI certificates collectively
representing a 100% beneficial interest in the SUBI,
- HTC LP will receive a SUBI certificate representing 98.802% of the SUBI
and HTD LP will receive a SUBI certificate representing 0.998% of the SUBI
(such certificates, the "SUBI Certificates"); in addition, HTC LP will
receive and retain a 0.198% interest in the SUBI and HTD LP will receive
and retain a 0.002% interest in the SUBI (together, the "Retained SUBI
Interest") and the Retained SUBI Interest will be evidenced by two SUBI
certificates (together, the "Retained SUBI Certificates"),
- HTC LP and HTD LP will transfer and assign the SUBI Certificates to the
Owner Trustee pursuant to the Agreement as property of the trust and the
trust will pledge the SUBI Certificates to the Indenture Trustee pursuant
to the indenture,
- In exchange for the SUBI Certificates transferred by HTC LP and HTD LP,
the trust will issue to HTC LP and HTD LP the notes offered pursuant to
this prospectus and the certificates,
- HTC LP and HTD LP will sell the notes to the underwriters and HTC LP and
HTD LP will receive the proceeds of the sale of the notes; the
underwriters will subsequently sell the notes to public investors,
- The Retained SUBI Certificates will not be transferred to the trust and
will be required to be permanently retained by HTC LP and HTD LP, and
- HTC LP and HTD LP 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 specified assets of the Origination Trust consisting of:
(1) specified lease contracts (the "contracts"), automobiles, minivans and
sport utility vehicles allocated to the SUBI and relating to the
contracts and all proceeds or payments received or due after the close of
business on June 30, 1999 (the "Cutoff Date"), and
(2) all other assets of the Origination Trust allocated to the SUBI,
including:
(a) the SUBI Collection Account (to the extent of funds therein relating
to the contracts and leased vehicles allocated to the SUBI),
(b) rights to receive payments made to AHFC, the Origination Trust or the
Origination Trustee under insurance policies relating to the
contracts (excluding any residual value insurance policies), the
related lessees or the leased vehicles allocated to the SUBI, and
(c) all proceeds of the foregoing (collectively, the "SUBI Assets").
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 assets of the Origination Trust other than the SUBI Assets.
Payments made on or in respect of assets of the Origination Trust other than the
SUBI Assets will not be available to make payments on the notes.
20
<PAGE>
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, the Origination Trustee, Delaware Trust Capital Management, Inc., as
Delaware trustee, and U.S. Bank, as Trust Agent. The primary business purpose of
the Origination Trust is to take assignments of, and 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
assets of the Origination Trust, including the contracts allocated to the SUBI.
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
SUBI Trust Agreement", the Origination Trust Agreement prohibits the Origination
Trust from:
(1) issuing interests or securities other than the SUBI Interest, the
Retained SUBI Interest, the SUBI Certificates, the Retained SUBI
Certificates, Other SUBIs representing divided interests in other
portfolios of assets of the Origination Trust (the "Other SUBI Assets")
and certificates representing Other SUBIs or portions thereof (the "Other
SUBI Certificates"), the UTI representing an undivided 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");
(2) borrowing money (except from the UTI Beneficiaries or their affiliates
in connection with funds used to acquire lease contracts and the related
leased vehicles);
(3) making loans;
(4) investing in or underwriting securities, other than Eligible Investments
or as otherwise permitted by the Origination Trust Agreement or the SUBI
Trust Agreement;
(5) offering securities in exchange for property (other than the SUBI
Certificates, the Retained SUBI Certificates, the Other SUBI Certificates
or the UTI Certificates);
(6) repurchasing or otherwise reacquiring 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;
and
(7) granting any security interest in, or lien upon, any assets of the
Origination Trust.
ALLOCATION OF ORIGINATION TRUST LIABILITIES
The UTI Beneficiaries from time to time may (1) allocate assets of the
Origination Trust to Other SUBIs or (2) sell or pledge Other SUBI Certificates
in connection with other financings. Similarly, the UTI Beneficiaries may at
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 selected
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 will be allocated to and
charged against the allocated portfolio of Origination Trust to which it
belongs. Origination Trust liabilities that are incurred with respect to the
assets of the Origination Trust generally will be borne pro rata among all
portfolios of assets of the Origination Trust in proportion to
21
<PAGE>
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".
HONDA TITLING A L.P. AND HONDA TITLING B L.P.
HTA LP and HTB LP are the UTI Beneficiaries under the Origination Trust
Agreement. The sole general partner of HTA LP is Honda Titling A LLC ("HTA LLC")
and the sole general partner of HTB LP is Honda Titling B LLC ("HTB LLC"). Each
of HTA LLC and HTB LLC is a Delaware limited liability company formed in July
1997 for the purpose of serving as general partners of HTA LP and HTB LP,
respectively. AHFC is the sole limited partner of each of HTA LP and HTB LP.
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. HTA LP and HTB LP were formed as limited
partnerships under the laws of Delaware in July 1997 for the purposes of:
(1) being the grantors and the initial beneficiaries of the Origination
Trust;
(2) holding the UTI Certificates;
(3) acquiring, pledging and transferring interests in the SUBI and Other
SUBIs; and
(4) engaging in related transactions.
The limited liability company agreements of each of HTA LLC and HTB LLC and
the limited partnership agreements of each of HTA LP and HTB LP limit their
respective activities to the purposes listed above and to any activities
incidental or necessary to accomplish those purposes. Neither HTA LLC nor HTB
LLC is permitted to transfer its general partnership interest in HTA LP or HTB
LP. The principal offices of HTA LP and HTB LP are located at 700 Van Ness
Avenue, Torrance, California 90501. HTA LP's telephone number is (310) 781-6132;
HTB LP's phone number is (310) 781-6136.
THE ORIGINATION TRUSTEE
HVT, Inc., 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 trustee of the Honda Lease Trust. The Origination Trustee
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 (which designee may not be either UTI
Beneficiary or any affiliate) will have the option to purchase the stock of the
Origination Trustee for a nominal amount. If that 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 neither the designee of the
UTI Beneficiaries nor the new trust agent exercises its option in a timely
manner, U.S. Bank may sell the stock of the Origination Trustee to another
party.
22
<PAGE>
PROPERTY OF THE ORIGINATION TRUST
The property of the Origination Trust consists of:
- 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 under these contracts,
- the automobiles, minivans and sport utility vehicles (collectively, the
"motor vehicles") leased pursuant thereto and all proceeds from these
motor vehicles,
- all of AHFC's rights (but not its obligations) with respect to the lease
contracts and motor vehicles, including the right to receive proceeds of
Dealer repurchase obligations, if any,
- the rights to selected 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 lease contract or motor vehicle or the ability
of a lessee to make required payments with respect to the related contract
or the related motor vehicle (each, an "Insurance Policy"), including the
Contingent and Excess Liability Insurance Policies,
- all security deposits on the lease contracts to the extent due to the
lessors under the contracts, and
- all proceeds of the assets listed above (collectively, the "Origination
Trust Assets").
From time to time after the date of this prospectus, AHFC will cause Dealers
to originate additional retail closed-end lease contracts, assign those lease
contracts to the Origination Trust and title the related leased vehicles in
either the name of the Origination Trust or the Origination Trustee, as
described below.
CONTRACT ORIGINATION; TITLING OF LEASED VEHICLES; DEALER REPURCHASE OBLIGATIONS
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 originating 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 these certificates of title, nor will new certificates of title be
issued, to reflect the interest of the Owner Trustee, as holder of the SUBI
Certificates, or the Indenture Trustee, as pledgee of the SUBI Certificates, in
the leased vehicles allocated to the SUBI. The certificates of title to the
leased vehicles registered in several states will, however, reflect a first lien
held by 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 which records an
Administrative Lien will enter into an agreement by 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 the leased vehicles
by virtue of such liens.
Each Dealer Agreement obligates the related Dealer to make representations
and warranties concerning the lease contracts and related leased vehicles
originated by that Dealer. The material representations and warranties made by
the Dealers are:
- the lease contract is legally valid and enforceable,
- the Dealer has good title to the related leased vehicle prior to any
assignment of the related lease contract,
23
<PAGE>
- the Dealer has made all necessary disclosures to the related lessee,
- the related lessee has legal capacity to enter into the lease contract and
the signatures on the lease are genuine,
- the leased vehicle has been delivered to and accepted by the related
lessee,
- the lease contract and related leased vehicle are free of all liens and
encumbrances,
- the Dealer has paid or will pay all necessary insurance premiums or
charges, and the Dealer has received upon the signing of the lease
contract all payments from the related lessee in cash or in immediately
collectible funds, and
- the Dealer will not alter the lease contract or consent to any alteration
of the lease contract.
In the event that the Dealer breaches any of these representations and
warranties with respect to a lease contract, the Dealer Agreement obligates the
Dealer to repurchase that lease contract.
The Dealer Agreements do not generally provide for recourse against the
Dealer for unpaid amounts on a defaulted lease contract, other than when the
Dealer breaches these representations and warranties. The rights of the
Origination Trust to receive proceeds of those 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 allocated
to the SUBI), although the related Dealer Agreements will not constitute
Origination Trust Assets.
USE OF PROCEEDS
HTC LP and HTD LP will apply the net proceeds from the sale of the notes
(i.e., the proceeds of the public offering of the notes minus expenses relating
thereto and amounts used by the trust to establish the Reserve Fund) to purchase
the SUBI from HTA LP and HTB LP.
HONDA TITLING C L.P.
HTC LP is a limited partnership formed under the laws of the state of
Delaware on February 1, 1999. The sole general partner of HTC LP is Honda
Titling C LLC, a Delaware limited liability company ("HTC LLC"). AHFC is the
sole limited partner of HTC LP. Honda Funding Inc., a Delaware special purpose
corporation ("HFI") and a wholly owned subsidiary of AHFC, is the independent
member of HTC LLC. HFI's certificate of incorporation requires it to have at all
times 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 HTC LP. The principal office of HTC LP is located at 700 Van Ness
Avenue, Torrance, California 90501 and its telephone number is (310) 781-6146.
HTC LLC was organized to serve as HTC LP's general partner. HTC LP's
purposes are:
- to act as the grantor of entities such as the trust,
- to acquire, pledge or transfer interests in the SUBI and Other SUBIs,
- to cause securities similar to the notes to be issued, and
- to engage in related transactions.
The limited partnership agreement of HTC LP and the limited liability
company agreement of HTC LLC limit their respective activities to these purposes
and to any activities incidental or necessary to achieve these purposes.
24
<PAGE>
HONDA TITLING D L.P.
HTD LP is a limited partnership formed under the laws of the state of
Delaware on June 8, 1999. The sole general partner of HTD LP is Honda Titling D
LLC, a Delaware limited liability company ("HTD LLC"). AHFC is the sole limited
partner of HTD LP. HFI is the independent member of HTD LLC. AHFC is the other
member of HTD LLC. HTD LLC may not transfer its general partnership interest in
HTD LP. The principal office of HTD LP is located at 700 Van Ness Avenue,
Torrance, California 90501 and its telephone number is (310) 781-6148.
HTD LLC was organized to serve as HTD LP's general partner. HTD LP's
purposes are:
- to act as the grantor of entities such as the trust,
- to acquire, pledge or transfer interests in the SUBI and Other SUBIs,
- to cause securities similar to the notes to be issued, and
- to engage in related transactions.
The limited partnership agreement of HTD LP and the limited liability
company agreement of HTD LLC limit their respective activities to these purposes
and to any activities incidental or necessary to achieve these purposes.
AMERICAN HONDA FINANCE CORPORATION
GENERAL
AHFC was incorporated in the state of California in February 1980. AHFC's
principal executive offices are located at 700 Van Ness Avenue, Torrance,
California 90501. Its telephone number is (310) 781-4100. AHFC and its wholly
owned subsidiary, Honda Canada Finance Inc. ("HCFI"), provide wholesale and
retail financing to authorized dealers in the United States and Canada for the
following:
(1) Honda and Acura automobiles, minivans and sport utility vehicles;
(2) Honda motorcycles (including scooters and all terrain vehicles); and
(3) Honda power equipment, such as lawn and utility tractors, lawnmowers,
snow throwers, water pumps, portable outboard motors, outboard marine
engines and generators.
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, administer the sale of vehicle
service contracts throughout the United States for American Honda Motor Co.,
Inc. ("AHMC"), a California corporation.
AHFC has the following wholly owned special purpose finance subsidiaries:
- American Honda Receivables Corp.,
- American Honda Receivables Corp. II,
- HTI, and
- HFI.
AHFC is a wholly owned subsidiary of AHMC. 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. AHMC is the
sole authorized distributor in the United States of the following:
(1) Honda and Acura motor vehicles;
(2) Honda power equipment; and
(3) Honda and Acura parts and accessories.
25
<PAGE>
As of March 31, 1999, March 31, 1998 and March 31, 1997, AHFC and its
affiliates (excluding HCFI) had approximately 444,233, 459,553 and 396,573
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
$8,224,793,498, $8,500,408,933 and $7,351,966,324, respectively. Of these
amounts, the related leased vehicles had an estimated aggregate residual value
as of the end of their lease terms of approximately $6,361,997,115,
$6,770,297,697 and $5,736,890,436, respectively.
LEASE CONTRACT UNDERWRITING PROCEDURES
AHFC originates retail lease contracts secured by new and used Honda and
Acura motor vehicles from approximately 1,255 Dealers located throughout the
United States. In keeping with AHFC's practice, Dealers originated the contracts
allocated to the SUBI in accordance with AHFC's underwriting standards and other
requirements, as described below, under existing agreements with the Dealers.
AHFC's underwriting standards emphasize the prospective purchaser's ability to
pay and creditworthiness, as well as the asset value of the motor vehicle to be
financed.
Applications submitted to AHFC for the lease of a new or used Honda or Acura
motor vehicle must list sufficient information to process the application,
including the applicant's:
- income,
- residential information,
- monthly mortgage or rent payment,
- employment(s), and
- other personal information.
Upon receipt of a credit application, AHFC obtains a credit report from an
independent credit bureau. AHFC reviews this credit report to determine the
applicant's current credit status and past credit performance. AHFC generally
considers the following factors to be negative in a credit report: (1) past due
credit; (2) repossessions; (3) loans charged off by other lenders; (4) previous
bankruptcy proceedings; (5) foreclosures; and (6) tax liens. AHFC also considers
positive factors such as amount of credit available to the applicant and
favorable payment history.
In addition to other considerations, AHFC uses a credit scoring system to
make a credit decision. AHFC's credit scoring system includes:
- an assessment of residence and employment stability,
- credit bureau information,
- income requirements, and
- the ratio of income to total debt and income to requested lease payment.
AHFC assesses the relative degree of credit risk indicated by these criteria
and the underwriting staff at the applicable AHFC branch office decides whether
to grant or deny credit. The system will recommend approval for scores above a
predetermined threshold and will recommend rejection for scores below that
level. However, the underwriting staff for the particular branch has the
ultimate approval or rejection authority and may, in certain circumstances,
override the recommendation provided by the system.
MAXIMUM ADVANCE
When lease contracts and related leased vehicles are purchased by the
Origination Trust, the maximum purchase price--or the maximum allowable
advance--is limited by guidelines established by
26
<PAGE>
AHFC. AHFC's maximum allowable advance for new Honda and Acura automobiles
(excluding all maintenance) is as follows:
- 100% of the vehicle manufacturer's suggested retail price, including
destination and handling and emissions, plus
- AHFC-approved new vehicle add-ons up to maximum published amounts, plus
- AHFC-approved enhancement products (soft adds) up to $1,000, plus
- AHFC-approved optional service contracts up to maximum published amounts,
if capitalized, plus
- acquisition fee for the Honda Lease Trust, if capitalized, plus
- dealer-paid or paid up front sales tax due at lease signing, if
capitalized, plus
- dealer-paid federal luxury tax due at lease signing, if capitalized.
After an AHFC branch office approves an application and the prospective
lessee agrees to the terms of the 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 lessee's credit 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 lessee.
AHFC determines whether the lease contract package complies with AHFC's
underwriting requirements. AHFC compares the specifics of the lease contract to
the credit application approved by the branch office and verifies the rate,
truth-in-leasing disclosures and purchase price from the Dealer.
DETERMINATION OF RESIDUAL VALUES
Each lease contract contains a residual value, which is the projected value
of the leased vehicle at the termination of the lease contract. AHFC's residual
value committee is responsible for setting appropriate residual values on all
leased Honda and Acura motor vehicles. The residual value committee determines
residual values for each model, leasing term, and contractual mileage. Where
warranted, this committee establishes separate residual values for different
body styles, trim levels or engine size within a given model.
The residual value committee consists of the Vice President of the Consumer
Financial Services Division, the 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 of existing residual
values or the establishment of new residual values. After the committee
determines residual values, the insurance carrier, Premier Lease and Loan
Services, and AHFC's President give the final approval for those residual
values.
Prior to each residual value committee meeting, the Sales and Marketing
Division reviews the following items before preparing its residual value
recommendations for the committee:
- the residual values determined by AHFC's insurance carrier, Premier Lease
and Loan Services,
- the residual values established by Honda's and Acura's major competitors,
and
27
<PAGE>
- industry trends on the valuation of vehicles.
The factors that the committee considers prior to making a final
determination of residual values are:
- insured residual values,
- competitive positioning, and
- AHFC's historical performance of residual values.
The residual value insurance policies will not be an asset of either the
SUBI or the trust. The residual value insurance policies with respect to
contracts and leased vehicles allocated to the SUBI will be transferred to a
sub-trust of the trust. The proceeds of those residual value insurance policies
will not be available to noteholders.
REMARKETING PROGRAM
AHFC's Lease Maturity Center handles all remarketing of leased vehicles. The
Lease Maturity Center is a centralized operation located in Irving, Texas. As of
March 1999, the Lease Maturity Center employed (1) a senior manager, (2) three
operations supervisors, (3) three customer service supervisors, (4) one
collections supervisor and (5) over 90 permanent employees and 73 temporary
employees in the areas of customer service, collections, accounting and titling.
The Lease Maturity Center begins to contact the lessee and service the lease
contract six months prior to lease maturity by mailing each lessee information
outlining the lessee's end of lease options. At 45 days prior to maturity, the
Lease Maturity Center mails each lessee additional information regarding their
lease obligations, including the motor vehicle inspection and turn-in process
and the required documentation. At three months prior to the maturity of lease
contracts, the Lease Maturity Center mails the original Acura or Honda
dealership a list of those lease contracts. Included on this list is a
designation of lessees with AHFC pre-approval for new lease contracts. Based on
the lessee's credit history with AHFC and other creditors, AHFC pre-approves a
substantial majority of its lease end-of-term lessees for a new lease through
AHFC on behalf of the Origination Trust.
AHFC encourages each lessee to visit the lessee's Acura or Honda dealership.
Whether or not the lessee has decided to return the leased motor vehicle, AHFC
encourages the lessee to have the motor vehicle inspected through independent
inspection companies. AHFC continues to contact each lessee until either (1) it
receives a full residual value payoff or (2) the lessee returns the motor
vehicle to an Acura or Honda dealership. In some cases a customer can obtain an
adjustment on the full residual payoff amount, depending on the auction market
for their vehicle.
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 combined limit per accident for bodily injury to third
parties, and $50,000 for damage to the property of third parties. These limits
exceed the minimum required by statute in many states. The insurance policy must
name the Origination Trust as an additional insured and loss payee. The motor
vehicle physical damage coverage must provide comprehensive and collision
coverage for the actual cash value of the vehicle, with maximum deductibles of
$1,000 for each such coverage. Since lessees may choose their own insurers to
provide the required coverage, the specific terms and conditions of policies
vary. AHFC requires lessees 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,
credit health or other similar insurance coverage, which provides for payments
to be made on the lease contracts on behalf of lessees
28
<PAGE>
in the event of disability or death. To the extent that the lessee obtains this
type of insurance coverage, payments received on 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, along with a statement, to AHFC's
lockbox. A small percentage of 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 due date. Any portion of a scheduled
payment not paid on the due date automatically becomes due with the next
scheduled payment. When a lease contract is past due and delinquent, AHFC
employs the following collection and repossession procedures:
(1) AHFC mails a computer generated delinquency notice to the lessee on the
eleventh day of delinquency and makes a follow up telephone call on the
fifteenth day of delinquency;
(2) If the delinquent contract cannot be brought current or completely
collected within approximately 60 days, AHFC generally attempts to
repossess the related leased vehicle;
(3) AHFC holds repossessed vehicles in inventory to comply with statutory
requirements and then sells them (generally within 60 days after
repossession);
(4) AHFC pursues any deficiencies remaining after repossession and sale of
the vehicle or after the full charge-off of the related contract to the
extent practicable and legally permitted; and
(5) AHFC contacts lessees and, when warranted by individual circumstances,
establishes repayment schedules which it monitors until the deficiencies
are either paid in full or become impractical to pursue.
DEFERRAL AND 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 lease contract. AHFC generally allows lessees
affected by a natural disaster to defer a lease payment without charge or
penalty. Deferral of a lease payment will not extend the maturity date of the
lease contract. All disaster relief deferrals require both supervisor and
manager approval at the applicable AHFC branch office. AHFC requires these
lessees to sign a lease deferral agreement.
NON-DISASTER RELIEF PAYMENT 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 payment deferral. AHFC uses non-disaster lease payment deferrals in
extreme circumstances and not in its normal business practices. The deferral of
a lease payment does not extend the maturity date of the lease contract. All
non-disaster relief deferrals require both supervisor and assistant manager or
manager approval at the applicable AHFC branch office. AHFC requires these
lessees to sign a lease deferral agreement.
The Servicing Agreement will prohibit the Servicer from granting more than
six deferrals on any contract. In the event that the Servicer grants more than
six deferrals on any contract, the Servicing Agreement will require that the
Servicer 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 deferral was granted (or on the Deposit Date
relating to the Collection Period in which the Servicer discovers or is notified
that an improper deferral was granted), at which time such contract and the
related leased vehicle will no longer constitute SUBI Assets as they will be
reallocated as UTI Assets or, in some cases, will be transferred to the
Servicer.
29
<PAGE>
TERM EXTENSIONS. AHFC only grants lease term extensions during the end of
lease process, normally during the last 45 days of a lease contract. Lessees at
the end of a lease contract who 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 or other timing circumstances,
may qualify for a lease term extension of up to a maximum of six months. In
addition, certain lease contracts may be extended by 12 or 24 months, up to a
maximum lease term, including extensions, of 84 months (except for lease
contracts with originally scheduled termination dates between April 1, 1999 and
December 31, 1999, for which the maximum lease term is 73 months). A lessee must
have exhibited a good past payment history with AHFC on the lessee's current
lease contract to qualify for a lease term extension and must sign a lease
extension agreement.
The Servicing Agreement will prohibit extension of contracts by more than
six months in the aggregate, but in any case not later than a date on or after
the first day of the month preceding the month in which the Final Scheduled
Payment Date for the Class C Notes occurs. In the event that the Servicer
extends any contract in contravention of the foregoing, the Servicing Agreement
will require that the Servicer 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 (or on the Deposit Date relating to the Collection Period in which the
Servicer discovers or is notified that an improper extension was granted), at
which time such contract and the related leased vehicle will no longer
constitute SUBI Assets as they will be reallocated as UTI Assets or, in some
cases, will be transferred to the Servicer.
METHODS OF VEHICLE DISPOSAL
AHFC's 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 March 1999,
the Remarketing Department consisted of (1) a remarketing manager, (2) a
remarketing supervisor, (3) six field representative administrators and (4) 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. On selected
leased vehicles, based on auction sale results as determined by AHFC, the lessee
may be offered a discount on the residual value to purchase the related leased
vehicle. This program is referred to as the Customer Discount Program. If the
lessee does not purchase the motor vehicle and returns it to the dealership, the
receiving dealer also has the option of purchasing the motor vehicle at the
residual value stated in the lease contract. On selected motor vehicles, as
determined by AHFC, the receiving dealer has the option of purchasing the
returned motor vehicle at a price lower than the residual value. This program is
referred to as the Market Based Purchased Option Program (the "MBPO Program").
AHFC sets the value of the motor vehicle sold in the MBPO Program at a market
price as determined by current AHFC auction information.
If neither the lessee nor the dealership purchases the motor vehicle at the
full residual value or through the Customer Discount Program or MBPO Program, as
applicable, 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 assignment of each motor vehicle to a
carrier within 24 hours of consignment receipt and delivery of the consigned
vehicle to auction sites within 72 hours of carrier assignment.
Each motor vehicle undergoes an auction condition report, including a motor
vehicle condition grade. Each auction condition report is subsequently faxed to
AHFC. Each auction site is given latitude to repair minor damage, but an AHFC
field representative administrator reviews all major damage prior to any repair.
Each auction site should sell the motor vehicle within 60 days of taking the
motor vehicle into inventory.
30
<PAGE>
AHFC has regular sales at over 20 major auction locations across the United
States. AHFC's highest volume of sales is in 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 March 1999, AHFC had 50 scheduled sales of motor vehicles.
AHFC also sells motor vehicles through the Internet through ADT and
Manheim's auction Internet websites, which are accessible by registered Acura or
Honda dealers. Approximately 800 vehicles were sold over the Internet during
March 1999. Field remarketing administrators determine prices of motor vehicles
sold on the Internet based upon various vehicle and market conditions.
YEAR 2000
AHFC initiated and has completed a 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 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. 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.
The total estimated costs associated with the required modifications to
AHFC's computerized information systems have not had, and are not expected to
have, a material impact on AHFC's condition, financial and otherwise. Costs
associated with the year 2000 systems and software modifications have been and
will be expensed as incurred.
The inability of AHFC, 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 year 2000 problems described herein could have a material adverse effect on
the ability of noteholders to receive payments on the notes.
AHFC has begun to develop a contingency plan. The plan will cover three
areas: (1) early warning, (2) preventative actions, and (3) alternative
processes. Quick response teams will be formed to identify and correct problems
as they occur. AHFC is considering the following plans of action in anticipation
of any potential year 2000 problems: (1) additional data back-ups, (2) computer
shut downs and restarts, (3) finishing 1999 transactions early, (4) freezing new
system installations, and (5) alternative means of communication. Alternative
suppliers are being considered and AHFC will continue to develop and analyze
contingency plans throughout 1999.
DELINQUENCY, REPOSSESSION AND LOSS DATA
Set forth below is 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 also lease contracts that have been sold but are still being serviced by
AHFC. The data set forth below represents, as of specified dates, all lease
contracts owned and/or serviced by AHFC as of such dates. The dollar amounts of
the lease contracts outstanding include the residual value of the related leased
vehicle. Credit losses are an expected cost in the business of
31
<PAGE>
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, AHFC
charges the account balance related to a lease contract against the allowance
for credit losses when the contract has been delinquent for 120 days, unless
AHFC has repossessed the related leased vehicle. In these cases, AHFC does not
charge the account balances 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. AHFC credits any recoveries from
charge-offs related to a lease contract to the allowance.
Delinquency, repossession and loss experience may be influenced by a variety
of economic, social and 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 related leased vehicles, will be similar to that set forth
below.
32
<PAGE>
ENTIRE AHFC PORTFOLIO
RETAIL VEHICLE LEASE CONTRACT DELINQUENCY EXPERIENCE
(INCLUDES LEASE CONTRACTS THAT HAVE BEEN SOLD BUT ARE STILL BEING SERVICED BY
AHFC)
($ IN THOUSANDS)
<TABLE>
<CAPTION>
AT MARCH 31,
--------------------------------------------------------------------------------------
1999 1998 1997 1996
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ending Dollar Amount of Lease Contracts
Outstanding (1).......................... $8,224,793 $8,500,409 $7,351,966 $5,198,380
Ending Number of Lease Contracts
Outstanding.............................. 444,233 459,553 396,573 288,133
UNITS % UNITS % UNITS % UNITS %
Lease Contracts Delinquent(2):
31-60 Days............................... 2,478 0.558% 2,825 0.615% 2,630 0.663% 2,002 0.695%
61-90 Days............................... 385 0.087% 463 0.101% 499 0.126% 391 0.136%
91-120 Days.............................. 114 0.026% 131 0.029% 130 0.033% 112 0.039%
121 Days or More......................... 19 0.004% 24 0.005% 32 0.008% 32 0.011%
Total.................................. 2,996 0.674% 3,443 0.749% 3,291 0.830% 2,537 0.881%
</TABLE>
- ------------------------------
(1) This amount is based upon the sum of all principal amounts outstanding under
the lease contracts and includes the residual values of the related leased
vehicles.
(2) Excludes lease contracts the related lessees of which are bankrupt or have
commenced bankruptcy proceedings. As of March 31, 1999, lease contracts
involving bankrupt lessees constituted less than 0.35% of AHFC's portfolio
based upon the number of lease contracts outstanding. These lease contracts
may or may not be delinquent lease contracts.
The delinquency period is based on the number of days payments of at least
10% of a monthly payment are contractually past due. The calculation of
delinquent lease contracts is expressed as a percentage of the total number of
lease contracts at period end.
ENTIRE AHFC PORTFOLIO
RETAIL VEHICLE LEASE CONTRACT REPOSSESSION AND LOSS EXPERIENCE
(INCLUDES LEASE CONTRACTS THAT HAVE BEEN SOLD BUT ARE STILL BEING SERVICED BY
AHFC)
($ IN THOUSANDS)
<TABLE>
<CAPTION>
AT AND FOR THE FISCAL YEAR ENDED MARCH 31,
------------------------------------------
1999 1998 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Number of Lease Contracts
Outstanding..................................................... 444,233 459,553 396,573 288,133
Average Lease Contracts
Outstanding..................................................... 459,870 444,719 345,151 250,147
Repossessions:
Number of Repossessions......................................... 5,760 6,869 4,672 3,180
Number of Repossessions as a Percentage of:
Number of Lease Contracts Outstanding........................... 1.297% 1.495% 1.178% 1.104%
Average Number of Lease Contracts Outstanding................... 1.253% 1.545% 1.354% 1.271%
Losses:
Lease Contracts Outstanding(1).................................. $8,224,793 $8,500,409 $7,351,966 $5,198,380
Average Lease Contracts Outstanding............................. $8,513,660 $8,250,926 $6,368,684 $4,549,488
Net Repossession Losses......................................... $ 32,251 $ 39,986 $ 24,084 $ 16,326
Average Net Repossession Loss per Liquidated Lease
Contract(2)................................................... $5,599.15 $5,821.28 $5,154.88 $5,133.92
Net Repossession Losses as a Percentage of Average
Lease Contracts Outstanding................................... 0.379% 0.485% 0.378% 0.359%
</TABLE>
- ------------------------------
(1) This amount is based upon the sum of all principal amounts outstanding under
the lease contracts and includes the residual values of the related leased
vehicles.
(2) Dollars not in thousands.
33
<PAGE>
ENTIRE AHFC PORTFOLIO
(INCLUDES LEASE CONTRACTS THAT HAVE BEEN SOLD BUT ARE STILL BEING SERVICED BY
AHFC)
RESIDUAL VALUE LOSS EXPERIENCE
($ IN THOUSANDS)
<TABLE>
<CAPTION>
AT AND FOR THE FISCAL YEAR ENDED MARCH 31,
------------------------------------------
1999 1998 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Total Number of Leased Vehicles Scheduled to Terminate................ 175,172 150,375 86,793 45,627
Number of Returned Vehicles Sold by AHFC.............................. 100,305 43,507 9,492 3,491
Full Termination Ratio(1)............................................. 57% 29% 11% 8%
Total Losses on Returned Vehicles Sold by AHFC(2)..................... $ 212,641 $ 81,718 $ 11,509 $ 1,211
Average Loss Per Returned Vehicle Sold by AHFC(3)..................... $2,119.94 $1,878.28 $1,212.50 $ 347.01
Losses as a Percentage of Residual Values of Returned Vehicles Sold by
AHFC(4)............................................................. 13.83% 12.40% 7.42% 2.33%
Losses as a Percentage of Residual Values of Scheduled
Terminations(5)..................................................... 8.37% 4.14% 1.09% 0.22%
</TABLE>
- ------------------------------
(1) The ratio of returned vehicles sold during the stated period over
vehicles scheduled, on their date of origination, to terminate during the
stated period expressed as a percentage.
(2) Losses include expenses incurred to dispose of vehicles but exclude
certain amounts received after the sale and disposition of the vehicle.
(3) Dollars not in thousands.
(4) 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.
(5) 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.
This table includes lease contracts that have been sold but are still being
serviced by AHFC. To the extent that the average maturity of lease contracts
vary over time, the residual value loss experience for the periods in the table
may not be fully comparable.
The increase in lease contract originations over the period presented by the
tables above primarily reflects the increase in consumer demand for Honda and
Acura motor vehicles and in consumer acceptance of leases. AHFC believes that
the downward trend in delinquency and repossession and loss experience during
this period is a result of stricter adherence to AHFC's underwriting guidelines
by Dealers and AHFC branch offices. AHFC residual value loss experience has
increased in each of the years during this period. Residual value losses result
when leased vehicles at the termination of the related lease contract are
disposed of by or on behalf of AHFC through means that result in net sale
proceeds which are less than the contractually established residual value.
Whether a leased vehicle is returned rather than purchased is affected by a
variety of factors including new and used car markets (which may influence the
related leased vehicles' market values at the related termination date relative
to their residual values) and the duration of the lease contract (leased
vehicles that have shorter term leases generally have a greater likelihood of
being returned rather than purchased). AHFC believes that the increase in
residual value losses is due in part to the relatively large number of two year
leases of Honda and Acura motor vehicles maturing during the last three fiscal
years (which tend to be returned at relatively higher rates and to experience
relatively higher losses per unit). In addition, AHFC believes the large supply
of the late model used vehicles in the used car market may have affected return
rates by depressing market prices.
34
<PAGE>
THE CONTRACTS
GENERAL
The contracts allocated to the SUBI will consist of a pool of 172,598 motor
vehicle retail closed-end lease contracts, for Honda and Acura motor vehicles,
having an aggregate principal balance of $3,475,076,453.49 after the close of
business on June 30, 1999 (the "Cutoff Date") and an aggregate discounted
principal balance of $3,300,158,606.28 as of the Cutoff Date. Each of the
contracts in the portfolio have the following characteristics:
(1) each contract was originated by Dealers located throughout the United
States;
(2) each contract has an original term to maturity not exceeding 60 months;
and
(3) each contract was selected from the Origination Trust's portfolio of
retail closed-end Honda and Acura motor vehicle lease contracts and was
not evidenced by or reserved for allocation to an Other SUBI.
Dealers originated the contracts and assigned them to the Origination Trust,
in accordance with the underwriting procedures previously described under
"American Honda Finance Corporation--Lease Contract Underwriting Procedures".
AHFC selected the contracts based upon the criteria specified in the SUBI Trust
Agreement and described under "The Contracts--Characteristics of the Contracts--
General" and "The Contracts--Representations, Warranties and Covenants". AHFC
will represent and warrant that (1) no adverse selection procedures were
employed or will be employed in selecting the contracts for inclusion in the
SUBI Assets and (2) it is not aware of any bias in the selection of the
contracts that would cause the delinquencies or losses on these contracts to be
greater than those experienced on other retail closed-end lease contracts held
in the Origination Trust's portfolio. However, it is nonetheless possible that
the delinquencies or losses on the contracts could exceed experience on other
lease contracts.
Each contract will be a finance lease for accounting purposes. In addition,
each contract 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") so that by the end of the related contract term, the
capitalized cost will have been amortized to an amount equal to the related
leased vehicle's residual value established at the time of origination of the
contract (the "Residual Value"). The amount of a contract's capitalized cost
which has been amortized at any point in time is referred to in this prospectus
as its "Outstanding Principal Balance".
The "Aggregate Net Investment Value" as of any day will equal the sum of:
(1) the Discounted Principal Balance of all contracts other than (a)
Charged-off Contracts, (b) Liquidated Contracts, (c) Matured Contracts and (d)
Additional Loss Contracts; and
(2) the aggregate Residual Value of all leased vehicles allocated to the
SUBI to the extent that (a) the related contracts have reached their scheduled
maturities and (b) as to which all payments relating to the contracts have been
made within the three immediately preceding Collection Periods but which the
related 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
two full Collection Periods or less (the "Matured Leased Vehicle Inventory").
The "Discounted Principal Balance" of (1) a contract (or the related leased
vehicle) with a Lease Rate less than 9.00% (each, a "Discounted Contract") will
equal (a) the present value of all remaining Monthly Payments on the contract
plus (b) the Residual Value of the related leased vehicle, calculated using a
discount rate of 9.00% and (2) any contract other than a Discounted Contract
will equal the contract's Outstanding Principal Balance. As of the Cutoff Date,
the aggregate Discounted Principal Balance of the contracts and the Aggregate
Net Investment Value was $3,300,158,606.28. A "Collection
35
<PAGE>
Period" is the calendar month immediately preceding the calendar month in which
a Distribution Date occurs, except in the case of the first Collection Period,
the "Collection Period" is from the Cutoff Date to August 31, 1999.
All of the contracts will be closed-end leases. At the end of the term of a
closed-end lease, the lessee may elect to purchase the related leased vehicle by
exercising the purchase option contained in the lease contract. The purchase
price for the leased vehicle 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 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. If the lessee declines the
purchase option, the lessee is required to return the leased vehicle to, or upon
the order of, the lessor and will then owe only incidental charges for excess
mileage, excessive wear and use and other items that may be due under such
lease. As a consequence of the frequency of prepayments by lessees prior to the
termination date of the contract, most of the contracts are not expected to run
to their full terms. See "Risk Factors--The Return on the Notes May Be Affected
by Payments by Lessees, Interest Rates and Possible Termination of the Trust"
and "Maturity, Prepayment and Yield Considerations".
Each contract allows the lessor to terminate the contract and repossess the
related leased vehicle if the lessee defaults under the contract. Events of
default under a contract will include, but will not be limited to:
(1) the failure by a lessee to make a payment when due;
(2) the bankruptcy or other insolvency of the lessee;
(3) the lessee's failure to maintain the insurance required by the contract;
(4) the lessee's failure to maintain or repair the leased vehicle as
required by the contract; or
(5) the lessee's failure to comply with any other term or condition of the
contract having a material adverse effect on either (a) the lessee's
ability to make payments or (b) the lessor's ability to recover the
related leased vehicle's full Residual Value.
Under the contracts, upon a contract's early termination where the lessee is
not in default and does not exercise its option to purchase the related leased
vehicle, the amount owed by the lessee (the "Early Termination Charge") will be
determined by adding:
(1) any due but unpaid Monthly Payments and any incidental charges owing
under the contract except excess mileage charges; and
(2) the Outstanding Principal Balance less (a) the Realized Value (as
described below) from the sale or other disposition of the related leased
vehicle and (b) the security deposit which shall be applied to reduce any
deficiency.
If the contract terminates early because the lessee is in default, the
lessee owes an amount determined by adding the following:
- the Early Termination Charge,
- payments accrued under the contract through the date of termination,
- collection, repossession, transportation and storage expenses,
- official fees and taxes, and
- reasonable attorneys' fees and court costs, to the extent permitted by
law.
The "Realized Value" of a leased vehicle is either (1) the actual sale price
less any fees and taxes incurred on the sale or (2) the sale price determined by
AHFC and the lessee in a written agreement. Each contract provides the lessee
with the right to obtain (at the lessee's expense), from an
36
<PAGE>
independent third party acceptable to the lessor, a professional appraisal of
the amount that could be realized from the sale of the leased vehicle. 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 Realized Value, management of AHFC is unaware of any
successful challenge by a 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 on that 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 the contract.
This shortfall may result from, among other things, a wholesale appraisal of a
leased vehicle as described above. If a contract reaches the date on which the
last 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 these shortfalls are not covered from the Investor
Percentage of certain excess Interest Collections, amounts on deposit in the
Reserve Fund and, in the case of the Class A Notes, the subordination of
principal payments otherwise payable to the Class B Noteholders and the Class C
Noteholders and, in the case of the Class B Notes, the subordination of
principal payments otherwise payable to the Class C Noteholders, investors in
the notes could suffer a loss on their investments.
CHARACTERISTICS OF THE CONTRACTS
GENERAL
The contracts allocated to the SUBI were selected from a pool of eligible
lease contracts which all met several criteria. Less than 5% of the contracts
allocated to the SUBI will have characteristics that differ from all of the
characteristics set forth below. The criteria for the contracts include, as of
the Cutoff Date, that each contract:
- is written with respect to a leased vehicle allocated to the SUBI that was
at the time of the origination of the related lease contract a new motor
vehicle, a dealer demonstration motor vehicle driven fewer than 6,000
miles or a manufacturer's program motor vehicle,
- was originated in the United States after August 11, 1997,
- has a Maturity Date no earlier than November 18, 1999 and no later than
July 1, 2004,
- 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),
- was not more than 30 days past due as of the Cutoff Date, and
- has not been extended for more than six months in the aggregate.
The selected contracts, in the aggregate, possess the following
characteristics:
- the Lease Rates of the contracts ranged from 0.00% to 14.17%, with a
weighted average Lease Rate of 6.29%,
- the aggregate Outstanding Principal Balance of the contracts was
$3,475,076,453.49,
- the aggregate Residual Value of the leased vehicles allocated to the SUBI
was $2,307,201,304.45,
- the contracts had a weighted average original term of 38.28 months and a
weighted average remaining term to scheduled maturity of 30.48 months, and
- the aggregate original principal balances of the contracts, as of their
respective dates of origination, was $3,753,842,206.03.
37
<PAGE>
Appearing below is some additional information regarding the characteristics
of the contracts:
<TABLE>
<CAPTION>
AVERAGE MINIMUM MAXIMUM
------------ ---------- -------------
<S> <C> <C> <C>
Original Principal Balance.............................................. $ 21,749.05 $ 8,213.00 $ 106,725.62
Outstanding Principal Balance(1)........................................ $ 20,133.93 $ 7,324.91 $ 94,454.41
Residual Value.......................................................... $ 13,367.49 $ 2,243.30 $ 65,042.85
Lease Rate(1)........................................................... 6.29 (2) 0.00% 14.17%
Seasoning (months)(1)................................................... 7.80(2) 0 23
Remaining Term (months)(1).............................................. 30.48(2) 4 59
</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 following vehicle makes composed the pool of
leased vehicles:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
CONTRACTS NUMBER OF CONTRACTS(1)
----------- ----------------------
<S> <C> <C>
Honda......................................................................... 128,686 74.56%
Acura......................................................................... 43,912 25.44
----------- --------
Total................................................................. 172,598 100.00%
----------- --------
----------- --------
</TABLE>
- ------------------------
(1) Percentages may not add to 100.00% due to rounding.
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
AGGREGATE
CUTOFF
DATE
PERCENTAGE OF CUTOFF DATE OUTSTANDING
NUMBER OF TOTAL NUMBER OF OUTSTANDING PRINCIPAL
LEASE RATE RANGE CONTRACTS CONTRACTS(1) PRINCIPAL BALANCE BALANCE(1)
- --------------------------------------------- ----------- --------------- ------------------- ---------------
<S> <C> <C> <C> <C>
0.00% to 3.99%............................... 15,818 9.16% $ 397,558,027.61 11.44%
4.00% to 4.99%............................... 18,433 10.68 394,153,037.14 11.34
5.00% to 5.99%............................... 18,610 10.78 375,346,665.70 10.80
6.00% to 6.99%............................... 59,909 34.71 1,176,600,446.96 33.86
7.00% to 7.99%............................... 44,733 25.92 844,994,548.27 24.32
8.00% to 8.99%............................... 7,901 4.58 149,147,304.55 4.29
9.00% to 9.99%............................... 3,385 1.96 64,012,689.57 1.84
10.00% to 10.99%............................. 2,751 1.59 53,274,182.79 1.53
11.00% to 11.99%............................. 1,016 0.59 19,078,364.49 0.55
12.00% to 12.99%............................. 6 0.00 122,637.23 0.00
13.00% to 13.99%............................. 35 0.02 773,314.43 0.02
14.00% to 14.99%............................. 1 0.00 15,234.75 0.00
----------- --------------- ------------------- ------
Total................................ 172,598 100.00% $ 3,475,076,453.49 100.00%
----------- --------------- ------------------- ------
----------- --------------- ------------------- ------
</TABLE>
- ------------------------
(1) Percentages may not add to 100.00% due to rounding.
38
<PAGE>
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
AGGREGATE
CUTOFF
DATE
PERCENTAGE OF CUTOFF DATE OUTSTANDING
NUMBER OF TOTAL NUMBER OF OUTSTANDING PRINCIPAL
YEAR OF MATURITY CONTRACTS CONTRACTS(1) PRINCIPAL BALANCE BALANCE(1)
- --------------------------------------------- ----------- --------------- ------------------- ---------------
<S> <C> <C> <C> <C>
1999......................................... 16 0.01% $ 259,926.81 0.01%
2000......................................... 3,532 2.05 70,175,268.61 2.02
2001......................................... 70,639 40.93 1,382,750,431.65 39.79
2002......................................... 88,181 51.09 1,807,779,309.61 52.02
2003......................................... 10,190 5.90 213,276,554.15 6.14
2004......................................... 40 0.02 834,962.66 0.02
----------- ------ ------------------- ------
Total................................ 172,598 100.00% $ 3,475,076,453.49 100.00%
----------- ------ ------------------- ------
----------- ------ ------------------- ------
</TABLE>
- ------------------------
(1) Percentages may not add to 100.00% due to rounding.
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
AGGREGATE CUTOFF
PERCENTAGE OF CUTOFF DATE DATE OUTSTANDING
NUMBER OF TOTAL NUMBER OF OUTSTANDING PRINCIPAL
STATE CONTRACTS CONTRACTS(1) PRINCIPAL BALANCE BALANCE(1)
- -------------------------------------------- ----------- --------------- ------------------- ----------------
<S> <C> <C> <C> <C>
California.................................. 26,856 15.56% $ 523,455,053.73 15.06%
New York.................................... 13,481 7.81 283,707,029.41 8.16
New Jersey.................................. 12,842 7.44 271,789,731.77 7.82
Ohio........................................ 11,917 6.90 225,647,075.27 6.49
Florida..................................... 10,774 6.24 234,302,773.77 6.74
Pennsylvania................................ 8,917 5.17 175,116,230.07 5.04
All other states............................ 87,811 50.92 1,761,058,559.47 50.65
----------- --------------- ------------------- -------
Total............................... 172,598 100.00% $ 3,475,076,453.49 100.00%
----------- --------------- ------------------- -------
----------- --------------- ------------------- -------
</TABLE>
- ------------------------
(1) Percentages may not add to 100.00% due to rounding.
Concentration of the contracts in any geographic area can expose the return
on the contracts and thus the return on the notes, to risks particular to that
geographic area, such as region-specific or state-specific economic trends or
changes in laws. See "Risk Factors--The Geographic Concentration of the Lessees
and Performance of the Lease Contracts May Increase the Risk of Loss on Your
Investment" and "Certain Legal Aspects of the Contracts and the Leased Vehicles"
in this prospectus.
REPRESENTATIONS, WARRANTIES AND COVENANTS
The contracts and leased vehicles allocated to the SUBI will be described in
a schedule appearing as an exhibit to the SUBI Supplement (the "Schedule of
Contracts and Leased Vehicles"). For each contract, the Schedule of Contracts
and Leased Vehicles will identify its:
- date of origination,
39
<PAGE>
- Maturity Date,
- Monthly Payment,
- adjusted capitalized cost,
- adjusted lease balance as of the last day of the immediately preceding
month, and
- Residual Value.
In the Servicing Agreement, AHFC will make representations and warranties
with respect to each contract and related leased vehicle as described in the
first paragraph under "The Contracts-- Characteristics of the
Contracts--General". AHFC will make certain other representations and
warranties, including, among other things, that each contract and, to the extent
applicable, the related leased vehicle or lessee:
(1) 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;
(2) 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);
(3) was originated in compliance with, and complies with, all material
applicable legal requirements;
(4) have obtained 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 the contract and the Origination Trustee related to:
(a) the origination of the contract,
(b) the execution, delivery and performance by such originator of the
contract, and
(c) the Origination Trust's acquisition of the contract and related
leased vehicle, was duly obtained, effected or given and is in full
force and effect as of such date of creation or acquisition;
(5) is the legal, valid and binding obligation of the lessee;
(6) 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 amounts due under such contract and no such right of rescission,
offset, defense or counterclaim has been asserted or threatened;
(7) the related Dealer, the Servicer and the Origination Trustee has each
satisfied all obligations it is required to fulfill;
(8) is payable solely in United States dollars in the United States;
(9) the lessee under the contract is located in the United States and is
not:
(a) AHFC, HTC LP, HTD LP or any of their respective affiliates or
(b) the United States, any state or local government, or any agency,
department or instrumentality of the United States or any state or
local government thereof;
(10) 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;
(11) the related certificate of title is registered in the name of the
Origination Trust or the Origination Trustee, or, alternatively, a
properly completed application for such title has been submitted to the
appropriate titling authority;
(12) is a closed-end lease that requires:
40
<PAGE>
(a) equal monthly payments to be made within 60 months of the date of the
contract's origination; and
(b) payments to be made by the lessee within 30 days after the billing
date for such payment;
(13) 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;
(14) has a Residual Value that does not exceed an amount reasonably
established by the Servicer consistent with its policies and practices;
(15) has not 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;
(16) is not an Other SUBI Asset;
(17) to the knowledge of AHFC, the lessee under the contract is not bankrupt
or currently the subject of a bankruptcy proceeding;
(18) is not more than 60 days past due;
(19) is a finance lease for accounting purposes; and
(20) is a "true lease" for applicable state law purposes relating to the
perfection of security interests.
The Servicing Agreement will provide that if the Origination Trustee, AHFC,
the Owner Trustee, the Indenture Trustee, HTC LP or HTD LP discovers 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 the breach or is given notice of the breach, the contract and
related leased vehicle (and any other related SUBI Assets) will be reallocated
to the UTI or, in certain circumstances, to AHFC. In connection with this
reallocation, AHFC will be required to deposit (or cause to be deposited) into
the SUBI Collection Account an amount (the "Reallocation Payment") equal to:
(1) the Discounted Principal Balance of the contract as of the Deposit Date
related to the Collection Period during which the related cure period
ended; plus
(2) an amount equal to any: (i) imputed interest, (ii) lease charges and
(iii) Monthly Payments on such contract at the related Lease Rate that
were 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.
41
<PAGE>
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
The rate of payment of principal of the notes will depend on the rate of
payments on the contracts and the related leased vehicles (including scheduled
payments on and prepayments and liquidations of the contracts) and losses on the
contracts and related leased vehicles, which cannot be predicted with certainty.
In addition, because the trust will distribute payments made on the contracts
and the related leased vehicles that are allocable to the SUBI Interest 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
directly relate to the rate at which payments on the contracts and the related
leased vehicles are made. The rate of principal payment of the notes may also be
affected by (1) Reallocation Payments by AHFC for contracts as to which an
uncured breach of certain representations and warranties or certain servicing
covenants has occurred and (2) 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 related leased vehicles (including prepayments and liquidations of
the contracts) or a substantial increase in the Loss Amounts may shorten the
final maturity of and may significantly affect the yield on each class of notes.
See "Description of the Notes--Termination of the Trust; Redemption of the
Notes", "The Contracts--Representations, Warranties and Covenants" and
"Additional Document Provisions--The Servicing Agreement--Collections".
In general, the trust will make no principal payments (including allocations
of Covered Loss Amounts) on:
(1) the Class A-2 Notes until the Class A-1 Notes have been paid in full;
(2) the Class A-3 Notes until the Class A-2 Notes have been paid in full;
(3) the Class A-4 Notes until the Class A-3 Notes have been paid in full; or
(4) the Class A-5 Notes, the Class B Notes or the Class C Notes until the
Class A-4 Notes have been paid in full.
Principal payments in respect of the Class A-5 Notes, the Class B Notes and
the Class C Notes will be based on the fixed Class A Percentage, Class B
Percentage and Class C Percentage. AHFC will calculate the fixed Class A
Percentage, Class B Percentage and Class C Percentage when the trust has paid
the Class A-1 Notes, Class A-2 Notes, Class A-3 Notes and Class A-4 Notes in
full, and then will use these percentages to determine the distribution of
principal payments on the Class A-5 Notes, the Class B Notes and the Class C
Notes, which may affect the maturity and yield on the Class A-5 Notes, the Class
B Notes and the Class C Notes. AHFC will allocate the Investor Percentage of
Uncovered Loss Amounts as follows:
(1) first to the certificates until the Certificate Balance has been reduced
to zero;
(2) then to the Class C Notes, until the Class C Note Balance has been
reduced to zero;
(3) then to the Class B Notes, until the Class B Note Balance has been
reduced to zero; and
(4) 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 and the Class C 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.
42
<PAGE>
A lessee may prepay a contract, in whole or in part, at any time without
penalty. The prepayment experience for the contracts will affect the life of the
notes. In general, economic, social and geographic factors, in addition to other
factors beyond AHFC's control, may influence prepayments on the contracts. 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--Remarketing
Program", 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 incentives to encourage lease contract terminations, which may
result in residual value losses. AHFC is unaware of any publicly available
industry statistics that describe termination rates for retail closed-end lease
contracts similar to the contracts.
Historical levels of (1) lease contract defaults, (2) leased vehicle
repossessions and losses and (3) residual value losses are discussed under
"American Honda Finance Corporation--Delinquency, Repossession and Loss Data".
AHFC can give no assurances 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 (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, (1) the amount of scheduled and unscheduled payments
on or in respect of the contracts and related leased vehicles; and (2) 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 be unable 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 related leased vehicles may also
significantly affect 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 related 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 the investor
anticipates at the time it purchases the notes.
In sum, the following factors will affect an investor's expected yield:
(1) the price the investor paid for the notes;
(2) the rate of prepayments, including losses, in respect of the contracts
and the related leased vehicles allocated to the SUBI; and
(3) the investor's assumed reinvestment rate.
These factors do not operate independently, but are interrelated. For
example, if the rate of prepayments on the contracts and the related leased
vehicles is slower than anticipated, the investor's yield will be lower if
interest rates exceed the investor's expectations and higher if interest rates
fall below the investor's expectations. Conversely, if the rate of prepayments
on or in respect of the contracts and the related leased vehicles is faster than
anticipated, the investor's yield will be higher if
43
<PAGE>
interest rates surpass the investor's expectations and lower if interest rates
fall below the investor's expectations.
In addition, the Investor Percentage of the net proceeds of any sale or
other disposition of the SUBI Interest, the SUBI Certificates and other property
of the trust, which may occur under circumstances involving an event of default
under the indenture, to the extent the net proceeds constitute Principal
Collections, will be distributed first, on a pro rata basis, to the Class A
Noteholders based on their respective Note Balances until the Class A Notes have
been paid in full, and then to the Class B Noteholders and the Class C
Noteholders on a pro rata basis.
Prepayments on motor vehicle lease contracts may be measured by a prepayment
standard or model. The prepayment model used for 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 in this prospectus, a 100% Prepayment Assumption assumes that,
based on the assumptions below, the original Outstanding Principal Balance of a
contract will prepay as follows:
(1) 0.10% ABS for the first six months of the life of the contract;
(2) 0.30% ABS for the seventh through twelfth month of the life of the
contract;
(3) 0.50% ABS for the thirteenth through eighteenth month of the life of the
contract;
(4) 0.80% ABS for the nineteenth through twenty-fourth month of the life of
the contract;
(5) 1.0% ABS for the twenty-fifth through thirtieth month of the life of the
contract; and
(6) 1.50% ABS following the thirty-first 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 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:
(1) all Collections including Monthly Payments and net sale proceeds from
the leased vehicles relating to Matured Contracts are timely received,
and that no contracts are ever delinquent;
(2) no Reallocation Payment is made on any contract;
(3) there are no Loss Amounts;
(4) the Servicer exercises its optional purchase of the trust's property as
described in this prospectus;
(5) the trust makes all principal and interest distributions on the notes on
the dates specified herein;
(6) the Servicing Fee is 1% per annum of 99.8% of the Aggregate Net
Investment Value;
(7) all prepayments are full Prepayments;
(8) the contracts have assumed Lease Rates of 9.0% and were originated 8
months prior to the Cutoff Date; and
(9) the schedule of the declining Aggregate Net Investment Value of the
contracts assumes that there will be no prepayments or losses, as set
forth in Annex II.
44
<PAGE>
AHFC makes no representation as to what the actual levels of losses and
delinquencies on the contracts will be. Because the contracts allocated to the
SUBI 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 (1) the Class A-1 Note Balance,
(2) the Class A-2 Note Balance, (3) the Class A-3 Note Balance, (4) the Class
A-4 Note Balance, (5) the Class A-5 Note Balance, (6) the Class B Note Balance
and (7) the Class C Note Balance. The weighted average life of each class of
notes under the assumptions stated above 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.
45
<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%
- ----------------------------------------------------------------------------- --------- --------- ----- -----
<S> <C> <C> <C> <C>
Initial...................................................................... 100 100 100 100
9/15/99...................................................................... 85 82 79 77
10/15/99..................................................................... 77 73 69 65
11/15/99..................................................................... 69 64 59 53
12/15/99..................................................................... 61 54 46 39
1/15/00...................................................................... 53 44 34 24
2/15/00...................................................................... 45 34 22 10
3/15/00...................................................................... 37 23 10 0
4/15/00...................................................................... 28 13 0 0
5/15/00...................................................................... 19 3 0 0
6/15/00...................................................................... 10 0 0 0
7/15/00...................................................................... 0 0 0 0
8/15/00...................................................................... 0 0 0 0
9/15/00...................................................................... 0 0 0 0
10/15/00..................................................................... 0 0 0 0
11/15/00..................................................................... 0 0 0 0
12/15/00..................................................................... 0 0 0 0
1/15/01...................................................................... 0 0 0 0
2/15/01...................................................................... 0 0 0 0
3/15/01...................................................................... 0 0 0 0
4/15/01...................................................................... 0 0 0 0
5/15/01...................................................................... 0 0 0 0
6/15/01...................................................................... 0 0 0 0
7/15/01...................................................................... 0 0 0 0
8/15/01...................................................................... 0 0 0 0
9/15/01...................................................................... 0 0 0 0
10/15/01..................................................................... 0 0 0 0
11/15/01..................................................................... 0 0 0 0
12/15/01..................................................................... 0 0 0 0
1/15/02...................................................................... 0 0 0 0
2/15/02...................................................................... 0 0 0 0
3/15/02...................................................................... 0 0 0 0
4/15/02...................................................................... 0 0 0 0
5/15/02...................................................................... 0 0 0 0
6/15/02...................................................................... 0 0 0 0
7/15/02...................................................................... 0 0 0 0
8/15/02...................................................................... 0 0 0 0
9/15/02...................................................................... 0 0 0 0
Wtd. Avg Life (Years)........................................................ 0.53 0.45 0.39 0.35
--- --- --- ---
--- --- --- ---
<CAPTION>
DISTRIBUTION DATE 200%
- ----------------------------------------------------------------------------- -----
<S> <C>
Initial...................................................................... 100
9/15/99...................................................................... 74
10/15/99..................................................................... 61
11/15/99..................................................................... 48
12/15/99..................................................................... 31
1/15/00...................................................................... 14
2/15/00...................................................................... 0
3/15/00...................................................................... 0
4/15/00...................................................................... 0
5/15/00...................................................................... 0
6/15/00...................................................................... 0
7/15/00...................................................................... 0
8/15/00...................................................................... 0
9/15/00...................................................................... 0
10/15/00..................................................................... 0
11/15/00..................................................................... 0
12/15/00..................................................................... 0
1/15/01...................................................................... 0
2/15/01...................................................................... 0
3/15/01...................................................................... 0
4/15/01...................................................................... 0
5/15/01...................................................................... 0
6/15/01...................................................................... 0
7/15/01...................................................................... 0
8/15/01...................................................................... 0
9/15/01...................................................................... 0
10/15/01..................................................................... 0
11/15/01..................................................................... 0
12/15/01..................................................................... 0
1/15/02...................................................................... 0
2/15/02...................................................................... 0
3/15/02...................................................................... 0
4/15/02...................................................................... 0
5/15/02...................................................................... 0
6/15/02...................................................................... 0
7/15/02...................................................................... 0
8/15/02...................................................................... 0
9/15/02...................................................................... 0
Wtd. Avg Life (Years)........................................................ 0.32
---
---
</TABLE>
The weighted average life of the Class A-1 Notes is determined by (a)
multiplying the amount of each principal payment by the number of years from the
Closing Date to the related Distribution Date, (b) adding the results, and (c)
dividing the sum by the Initial Class A-1 Note Balance.
46
<PAGE>
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%
- ----------------------------------------------------------------------------- --------- --------- ----- -----
<S> <C> <C> <C> <C>
Initial...................................................................... 100 100 100 100
9/15/99...................................................................... 100 100 100 100
10/15/99..................................................................... 100 100 100 100
11/15/99..................................................................... 100 100 100 100
12/15/99..................................................................... 100 100 100 100
1/15/00...................................................................... 100 100 100 100
2/15/00...................................................................... 100 100 100 100
3/15/00...................................................................... 100 100 100 95
4/15/00...................................................................... 100 100 97 80
5/15/00...................................................................... 100 100 84 65
6/15/00...................................................................... 100 89 67 44
7/15/00...................................................................... 99 75 50 22
8/15/00...................................................................... 89 62 33 1
9/15/00...................................................................... 79 49 16 0
10/15/00..................................................................... 68 35 0 0
11/15/00..................................................................... 58 22 0 0
12/15/00..................................................................... 46 7 0 0
1/15/01...................................................................... 35 0 0 0
2/15/01...................................................................... 22 0 0 0
3/15/01...................................................................... 8 0 0 0
4/15/01...................................................................... 0 0 0 0
5/15/01...................................................................... 0 0 0 0
6/15/01...................................................................... 0 0 0 0
7/15/01...................................................................... 0 0 0 0
8/15/01...................................................................... 0 0 0 0
9/15/01...................................................................... 0 0 0 0
10/15/01..................................................................... 0 0 0 0
11/15/01..................................................................... 0 0 0 0
12/15/01..................................................................... 0 0 0 0
1/15/02...................................................................... 0 0 0 0
2/15/02...................................................................... 0 0 0 0
3/15/02...................................................................... 0 0 0 0
4/15/02...................................................................... 0 0 0 0
5/15/02...................................................................... 0 0 0 0
6/15/02...................................................................... 0 0 0 0
7/15/02...................................................................... 0 0 0 0
8/15/02...................................................................... 0 0 0 0
9/15/02...................................................................... 0 0 0 0
Wtd. Avg Life (Years)........................................................ 1.38 1.16 1.00 0.88
--- --- --- ---
--- --- --- ---
<CAPTION>
DISTRIBUTION DATE 200%
- ----------------------------------------------------------------------------- -----
<S> <C>
Initial...................................................................... 100
9/15/99...................................................................... 100
10/15/99..................................................................... 100
11/15/99..................................................................... 100
12/15/99..................................................................... 100
1/15/00...................................................................... 100
2/15/00...................................................................... 97
3/15/00...................................................................... 80
4/15/00...................................................................... 62
5/15/00...................................................................... 44
6/15/00...................................................................... 18
7/15/00...................................................................... 0
8/15/00...................................................................... 0
9/15/00...................................................................... 0
10/15/00..................................................................... 0
11/15/00..................................................................... 0
12/15/00..................................................................... 0
1/15/01...................................................................... 0
2/15/01...................................................................... 0
3/15/01...................................................................... 0
4/15/01...................................................................... 0
5/15/01...................................................................... 0
6/15/01...................................................................... 0
7/15/01...................................................................... 0
8/15/01...................................................................... 0
9/15/01...................................................................... 0
10/15/01..................................................................... 0
11/15/01..................................................................... 0
12/15/01..................................................................... 0
1/15/02...................................................................... 0
2/15/02...................................................................... 0
3/15/02...................................................................... 0
4/15/02...................................................................... 0
5/15/02...................................................................... 0
6/15/02...................................................................... 0
7/15/02...................................................................... 0
8/15/02...................................................................... 0
9/15/02...................................................................... 0
Wtd. Avg Life (Years)........................................................ 0.80
---
---
</TABLE>
The weighted average life of the Class A-2 Notes is determined by (a)
multiplying the amount of each principal payment by the number of years from the
Closing Date to the related Distribution Date, (b) adding the results, and (c)
dividing the sum by the Initial Class A-2 Note Balance.
47
<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%
- ----------------------------------------------------------------------------- --------- --------- ----- -----
<S> <C> <C> <C> <C>
Initial...................................................................... 100 100 100 100
9/15/99...................................................................... 100 100 100 100
10/15/99..................................................................... 100 100 100 100
11/15/99..................................................................... 100 100 100 100
12/15/99..................................................................... 100 100 100 100
1/15/00...................................................................... 100 100 100 100
2/15/00...................................................................... 100 100 100 100
3/15/00...................................................................... 100 100 100 100
4/15/00...................................................................... 100 100 100 100
5/15/00...................................................................... 100 100 100 100
6/15/00...................................................................... 100 100 100 100
7/15/00...................................................................... 100 100 100 100
8/15/00...................................................................... 100 100 100 100
9/15/00...................................................................... 100 100 100 83
10/15/00..................................................................... 100 100 100 65
11/15/00..................................................................... 100 100 85 46
12/15/00..................................................................... 100 100 67 24
1/15/01...................................................................... 100 93 50 2
2/15/01...................................................................... 100 79 33 0
3/15/01...................................................................... 100 63 13 0
4/15/01...................................................................... 91 45 0 0
5/15/01...................................................................... 68 20 0 0
6/15/01...................................................................... 33 0 0 0
7/15/01...................................................................... 0 0 0 0
8/15/01...................................................................... 0 0 0 0
9/15/01...................................................................... 0 0 0 0
10/15/01..................................................................... 0 0 0 0
11/15/01..................................................................... 0 0 0 0
12/15/01..................................................................... 0 0 0 0
1/15/02...................................................................... 0 0 0 0
2/15/02...................................................................... 0 0 0 0
3/15/02...................................................................... 0 0 0 0
4/15/02...................................................................... 0 0 0 0
5/15/02...................................................................... 0 0 0 0
6/15/02...................................................................... 0 0 0 0
7/15/02...................................................................... 0 0 0 0
8/15/02...................................................................... 0 0 0 0
9/15/02...................................................................... 0 0 0 0
Wtd. Avg Life (Years)........................................................ 1.87 1.71 1.50 1.31
--- --- --- ---
--- --- --- ---
<CAPTION>
DISTRIBUTION DATE 200%
- ----------------------------------------------------------------------------- -----
<S> <C>
Initial...................................................................... 100
9/15/99...................................................................... 100
10/15/99..................................................................... 100
11/15/99..................................................................... 100
12/15/99..................................................................... 100
1/15/00...................................................................... 100
2/15/00...................................................................... 100
3/15/00...................................................................... 100
4/15/00...................................................................... 100
5/15/00...................................................................... 100
6/15/00...................................................................... 100
7/15/00...................................................................... 93
8/15/00...................................................................... 70
9/15/00...................................................................... 48
10/15/00..................................................................... 26
11/15/00..................................................................... 4
12/15/00..................................................................... 0
1/15/01...................................................................... 0
2/15/01...................................................................... 0
3/15/01...................................................................... 0
4/15/01...................................................................... 0
5/15/01...................................................................... 0
6/15/01...................................................................... 0
7/15/01...................................................................... 0
8/15/01...................................................................... 0
9/15/01...................................................................... 0
10/15/01..................................................................... 0
11/15/01..................................................................... 0
12/15/01..................................................................... 0
1/15/02...................................................................... 0
2/15/02...................................................................... 0
3/15/02...................................................................... 0
4/15/02...................................................................... 0
5/15/02...................................................................... 0
6/15/02...................................................................... 0
7/15/02...................................................................... 0
8/15/02...................................................................... 0
9/15/02...................................................................... 0
Wtd. Avg Life (Years)........................................................ 1.16
---
---
</TABLE>
The weighted average life of the Class A-3 Notes is determined by (a)
multiplying the amount of each principal payment by the number of years from the
Closing Date to the related Distribution Date, (b) adding the results, and (c)
dividing the sum by the Initial Class A-3 Note Balance.
48
<PAGE>
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%
- ----------------------------------------------------------------------------- --------- --------- ----- -----
<S> <C> <C> <C> <C>
Initial...................................................................... 100 100 100 100
9/15/99...................................................................... 100 100 100 100
10/15/99..................................................................... 100 100 100 100
11/15/99..................................................................... 100 100 100 100
12/15/99..................................................................... 100 100 100 100
1/15/00...................................................................... 100 100 100 100
2/15/00...................................................................... 100 100 100 100
3/15/00...................................................................... 100 100 100 100
4/15/00...................................................................... 100 100 100 100
5/15/00...................................................................... 100 100 100 100
6/15/00...................................................................... 100 100 100 100
7/15/00...................................................................... 100 100 100 100
8/15/00...................................................................... 100 100 100 100
9/15/00...................................................................... 100 100 100 100
10/15/00..................................................................... 100 100 100 100
11/15/00..................................................................... 100 100 100 100
12/15/00..................................................................... 100 100 100 100
1/15/01...................................................................... 100 100 100 100
2/15/01...................................................................... 100 100 100 92
3/15/01...................................................................... 100 100 100 83
4/15/01...................................................................... 100 100 97 73
5/15/01...................................................................... 100 100 86 61
6/15/01...................................................................... 100 93 70 40
7/15/01...................................................................... 99 78 53 19
8/15/01...................................................................... 89 67 41 3
9/15/01...................................................................... 79 56 28 0
10/15/01..................................................................... 67 45 16 0
11/15/01..................................................................... 52 30 1 0
12/15/01..................................................................... 36 14 0 0
1/15/02...................................................................... 21 1 0 0
2/15/02...................................................................... 5 0 0 0
3/15/02...................................................................... 0 0 0 0
4/15/02...................................................................... 0 0 0 0
5/15/02...................................................................... 0 0 0 0
6/15/02...................................................................... 0 0 0 0
7/15/02...................................................................... 0 0 0 0
8/15/02...................................................................... 0 0 0 0
9/15/02...................................................................... 0 0 0 0
Wtd. Avg Life (Years)........................................................ 2.33 2.20 2.04 1.85
--- --- --- ---
--- --- --- ---
<CAPTION>
DISTRIBUTION DATE 200%
- ----------------------------------------------------------------------------- -----
<S> <C>
Initial...................................................................... 100
9/15/99...................................................................... 100
10/15/99..................................................................... 100
11/15/99..................................................................... 100
12/15/99..................................................................... 100
1/15/00...................................................................... 100
2/15/00...................................................................... 100
3/15/00...................................................................... 100
4/15/00...................................................................... 100
5/15/00...................................................................... 100
6/15/00...................................................................... 100
7/15/00...................................................................... 100
8/15/00...................................................................... 100
9/15/00...................................................................... 100
10/15/00..................................................................... 100
11/15/00..................................................................... 100
12/15/00..................................................................... 90
1/15/01...................................................................... 79
2/15/01...................................................................... 68
3/15/01...................................................................... 56
4/15/01...................................................................... 44
5/15/01...................................................................... 31
6/15/01...................................................................... 0
7/15/01...................................................................... 0
8/15/01...................................................................... 0
9/15/01...................................................................... 0
10/15/01..................................................................... 0
11/15/01..................................................................... 0
12/15/01..................................................................... 0
1/15/02...................................................................... 0
2/15/02...................................................................... 0
3/15/02...................................................................... 0
4/15/02...................................................................... 0
5/15/02...................................................................... 0
6/15/02...................................................................... 0
7/15/02...................................................................... 0
8/15/02...................................................................... 0
9/15/02...................................................................... 0
Wtd. Avg Life (Years)........................................................ 1.69
---
---
</TABLE>
The weighted average life of the Class A-4 Notes is determined by (a)
multiplying the amount of each principal payment by the number of years from the
Closing Date to the related Distribution Date, (b) adding the results, and (c)
dividing the sum by the Initial Class A-4 Note Balance.
49
<PAGE>
PERCENTAGE OF INITIAL CLASS A-5 PRINCIPAL BALANCE REMAINING AND
WEIGHTED AVERAGE LIFE OF CLASS A-5 NOTES
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION
----------------------------------------------
DISTRIBUTION DATE 0% 50% 100% 150%
- ----------------------------------------------------------------------------- --------- --------- ----- -----
<S> <C> <C> <C> <C>
Initial...................................................................... 100 100 100 100
9/15/99...................................................................... 100 100 100 100
10/15/99..................................................................... 100 100 100 100
11/15/99..................................................................... 100 100 100 100
12/15/99..................................................................... 100 100 100 100
1/15/00...................................................................... 100 100 100 100
2/15/00...................................................................... 100 100 100 100
3/15/00...................................................................... 100 100 100 100
4/15/00...................................................................... 100 100 100 100
5/15/00...................................................................... 100 100 100 100
6/15/00...................................................................... 100 100 100 100
7/15/00...................................................................... 100 100 100 100
8/15/00...................................................................... 100 100 100 100
9/15/00...................................................................... 100 100 100 100
10/15/00..................................................................... 100 100 100 100
11/15/00..................................................................... 100 100 100 100
12/15/00..................................................................... 100 100 100 100
1/15/01...................................................................... 100 100 100 100
2/15/01...................................................................... 100 100 100 100
3/15/01...................................................................... 100 100 100 100
4/15/01...................................................................... 100 100 100 100
5/15/01...................................................................... 100 100 100 100
6/15/01...................................................................... 100 100 100 100
7/15/01...................................................................... 100 100 100 100
8/15/01...................................................................... 100 100 100 100
9/15/01...................................................................... 100 100 100 86
10/15/01..................................................................... 100 100 100 70
11/15/01..................................................................... 100 100 100 53
12/15/01..................................................................... 100 100 85 37
1/15/02...................................................................... 100 100 72 24
2/15/02...................................................................... 100 84 57 0
3/15/02...................................................................... 81 64 40 0
4/15/02...................................................................... 65 49 28 0
5/15/02...................................................................... 47 34 16 0
6/15/02...................................................................... 30 20 0 0
7/15/02...................................................................... 17 0 0 0
8/15/02...................................................................... 0 0 0 0
9/15/02...................................................................... 0 0 0 0
Wtd. Avg Life (Years)........................................................ 2.83 2.75 2.63 2.35
--- --- --- ---
--- --- --- ---
<CAPTION>
DISTRIBUTION DATE 200%
- ----------------------------------------------------------------------------- -----
<S> <C>
Initial...................................................................... 100
9/15/99...................................................................... 100
10/15/99..................................................................... 100
11/15/99..................................................................... 100
12/15/99..................................................................... 100
1/15/00...................................................................... 100
2/15/00...................................................................... 100
3/15/00...................................................................... 100
4/15/00...................................................................... 100
5/15/00...................................................................... 100
6/15/00...................................................................... 100
7/15/00...................................................................... 100
8/15/00...................................................................... 100
9/15/00...................................................................... 100
10/15/00..................................................................... 100
11/15/00..................................................................... 100
12/15/00..................................................................... 100
1/15/01...................................................................... 100
2/15/01...................................................................... 100
3/15/01...................................................................... 100
4/15/01...................................................................... 100
5/15/01...................................................................... 100
6/15/01...................................................................... 80
7/15/01...................................................................... 32
8/15/01...................................................................... 0
9/15/01...................................................................... 0
10/15/01..................................................................... 0
11/15/01..................................................................... 0
12/15/01..................................................................... 0
1/15/02...................................................................... 0
2/15/02...................................................................... 0
3/15/02...................................................................... 0
4/15/02...................................................................... 0
5/15/02...................................................................... 0
6/15/02...................................................................... 0
7/15/02...................................................................... 0
8/15/02...................................................................... 0
9/15/02...................................................................... 0
Wtd. Avg Life (Years)........................................................ 1.97
---
---
</TABLE>
The weighted average life of the Class A-5 Notes is determined by (a)
multiplying the amount of each principal payment by the number of years from the
Closing Date to the related Distribution Date, (b) adding the results, and (c)
dividing the sum by the Initial Class A-5 Note Balance.
50
<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%
- ----------------------------------------------------------------------------- --------- --------- ----- -----
<S> <C> <C> <C> <C>
Initial...................................................................... 100 100 100 100
9/15/99...................................................................... 100 100 100 100
10/15/99..................................................................... 100 100 100 100
11/15/99..................................................................... 100 100 100 100
12/15/99..................................................................... 100 100 100 100
1/15/00...................................................................... 100 100 100 100
2/15/00...................................................................... 100 100 100 100
3/15/00...................................................................... 100 100 100 100
4/15/00...................................................................... 100 100 100 100
5/15/00...................................................................... 100 100 100 100
6/15/00...................................................................... 100 100 100 100
7/15/00...................................................................... 100 100 100 100
8/15/00...................................................................... 100 100 100 100
9/15/00...................................................................... 100 100 100 100
10/15/00..................................................................... 100 100 100 100
11/15/00..................................................................... 100 100 100 100
12/15/00..................................................................... 100 100 100 100
1/15/01...................................................................... 100 100 100 100
2/15/01...................................................................... 100 100 100 100
3/15/01...................................................................... 100 100 100 100
4/15/01...................................................................... 100 100 100 100
5/15/01...................................................................... 100 100 100 100
6/15/01...................................................................... 100 100 100 100
7/15/01...................................................................... 100 100 100 100
8/15/01...................................................................... 100 100 100 100
9/15/01...................................................................... 100 100 100 86
10/15/01..................................................................... 100 100 100 70
11/15/01..................................................................... 100 100 100 53
12/15/01..................................................................... 100 100 85 37
1/15/02...................................................................... 100 100 72 24
2/15/02...................................................................... 100 84 57 0
3/15/02...................................................................... 81 64 40 0
4/15/02...................................................................... 65 49 28 0
5/15/02...................................................................... 47 34 16 0
6/15/02...................................................................... 30 20 0 0
7/15/02...................................................................... 17 0 0 0
8/15/02...................................................................... 0 0 0 0
9/15/02...................................................................... 0 0 0 0
Wtd. Avg Life (Years)........................................................ 2.83 2.75 2.63 2.35
--- --- --- ---
--- --- --- ---
<CAPTION>
DISTRIBUTION DATE 200%
- ----------------------------------------------------------------------------- -----
<S> <C>
Initial...................................................................... 100
9/15/99...................................................................... 100
10/15/99..................................................................... 100
11/15/99..................................................................... 100
12/15/99..................................................................... 100
1/15/00...................................................................... 100
2/15/00...................................................................... 100
3/15/00...................................................................... 100
4/15/00...................................................................... 100
5/15/00...................................................................... 100
6/15/00...................................................................... 100
7/15/00...................................................................... 100
8/15/00...................................................................... 100
9/15/00...................................................................... 100
10/15/00..................................................................... 100
11/15/00..................................................................... 100
12/15/00..................................................................... 100
1/15/01...................................................................... 100
2/15/01...................................................................... 100
3/15/01...................................................................... 100
4/15/01...................................................................... 100
5/15/01...................................................................... 100
6/15/01...................................................................... 80
7/15/01...................................................................... 32
8/15/01...................................................................... 0
9/15/01...................................................................... 0
10/15/01..................................................................... 0
11/15/01..................................................................... 0
12/15/01..................................................................... 0
1/15/02...................................................................... 0
2/15/02...................................................................... 0
3/15/02...................................................................... 0
4/15/02...................................................................... 0
5/15/02...................................................................... 0
6/15/02...................................................................... 0
7/15/02...................................................................... 0
8/15/02...................................................................... 0
9/15/02...................................................................... 0
Wtd. Avg Life (Years)........................................................ 1.97
---
---
</TABLE>
The weighted average life of the Class B Notes is determined by (a)
multiplying the amount of each principal payment by the number of years from the
Closing Date to the related Distribution Date, (b) adding the results, and (c)
dividing the sum by the Initial Class B Note Balance.
51
<PAGE>
PERCENTAGE OF INITIAL CLASS C PRINCIPAL BALANCE REMAINING AND
WEIGHTED AVERAGE LIFE OF CLASS C NOTES
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION
----------------------------------------------
DISTRIBUTION DATE 0% 50% 100% 150%
- ----------------------------------------------------------------------------- --------- --------- ----- -----
<S> <C> <C> <C> <C>
Initial...................................................................... 100 100 100 100
9/15/99...................................................................... 100 100 100 100
10/15/99..................................................................... 100 100 100 100
11/15/99..................................................................... 100 100 100 100
12/15/99..................................................................... 100 100 100 100
1/15/00...................................................................... 100 100 100 100
2/15/00...................................................................... 100 100 100 100
3/15/00...................................................................... 100 100 100 100
4/15/00...................................................................... 100 100 100 100
5/15/00...................................................................... 100 100 100 100
6/15/00...................................................................... 100 100 100 100
7/15/00...................................................................... 100 100 100 100
8/15/00...................................................................... 100 100 100 100
9/15/00...................................................................... 100 100 100 100
10/15/00..................................................................... 100 100 100 100
11/15/00..................................................................... 100 100 100 100
12/15/00..................................................................... 100 100 100 100
1/15/01...................................................................... 100 100 100 100
2/15/01...................................................................... 100 100 100 100
3/15/01...................................................................... 100 100 100 100
4/15/01...................................................................... 100 100 100 100
5/15/01...................................................................... 100 100 100 100
6/15/01...................................................................... 100 100 100 100
7/15/01...................................................................... 100 100 100 100
8/15/01...................................................................... 100 100 100 100
9/15/01...................................................................... 100 100 100 86
10/15/01..................................................................... 100 100 100 70
11/15/01..................................................................... 100 100 100 53
12/15/01..................................................................... 100 100 85 37
1/15/02...................................................................... 100 100 72 24
2/15/02...................................................................... 100 84 57 0
3/15/02...................................................................... 81 64 40 0
4/15/02...................................................................... 65 49 28 0
5/15/02...................................................................... 47 34 16 0
6/15/02...................................................................... 30 20 0 0
7/15/02...................................................................... 17 0 0 0
8/15/02...................................................................... 0 0 0 0
9/15/02...................................................................... 0 0 0 0
Wtd. Avg Life (Years)........................................................ 2.83 2.75 2.63 2.35
--- --- --- ---
--- --- --- ---
<CAPTION>
DISTRIBUTION DATE 200%
- ----------------------------------------------------------------------------- -----
<S> <C>
Initial...................................................................... 100
9/15/99...................................................................... 100
10/15/99..................................................................... 100
11/15/99..................................................................... 100
12/15/99..................................................................... 100
1/15/00...................................................................... 100
2/15/00...................................................................... 100
3/15/00...................................................................... 100
4/15/00...................................................................... 100
5/15/00...................................................................... 100
6/15/00...................................................................... 100
7/15/00...................................................................... 100
8/15/00...................................................................... 100
9/15/00...................................................................... 100
10/15/00..................................................................... 100
11/15/00..................................................................... 100
12/15/00..................................................................... 100
1/15/01...................................................................... 100
2/15/01...................................................................... 100
3/15/01...................................................................... 100
4/15/01...................................................................... 100
5/15/01...................................................................... 100
6/15/01...................................................................... 80
7/15/01...................................................................... 32
8/15/01...................................................................... 0
9/15/01...................................................................... 0
10/15/01..................................................................... 0
11/15/01..................................................................... 0
12/15/01..................................................................... 0
1/15/02...................................................................... 0
2/15/02...................................................................... 0
3/15/02...................................................................... 0
4/15/02...................................................................... 0
5/15/02...................................................................... 0
6/15/02...................................................................... 0
7/15/02...................................................................... 0
8/15/02...................................................................... 0
9/15/02...................................................................... 0
Wtd. Avg Life (Years)........................................................ 1.97
---
---
</TABLE>
The weighted average life of the Class C Notes is determined by (a)
multiplying the amount of each principal payment by the number of years from the
Closing Date to the related Distribution Date, (b) adding the results, and (c)
dividing the sum by the Initial Class C Note Balance.
52
<PAGE>
NOTE FACTORS AND TRADING INFORMATION
REPORTS TO NOTEHOLDERS
The "Note Factor" for 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 the month
as a fraction of the Initial Note Balance of that 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, if any. A
noteholder of a class of notes can determine the portion of the Note Balance for
a given month allocable to that noteholder by multiplying the original
denomination of the noteholder'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:
(1) payments received on or in respect of the contracts and the related
leased vehicles,
(2) the Aggregate Net Investment Value,
(3) the Investor Percentage,
(4) the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class B and
Class C Note Factors, and
(5) various other items of information.
A person acquiring an interest in the notes, as a note owner ("Note Owner"),
may obtain copies of these reports upon a written request 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
"--Book-Entry Registration".
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 under "Overview of Transaction", "The Trust and the SUBI",
"Maturity, Prepayment and Yield Considerations", "Note Factors and Trading
Information Reports to Noteholders", "Additional Document Provisions", "Certain
Legal Aspects of the Origination Trust and the SUBI", "Certain Legal Aspects of
the Contracts and the Leased Vehicles--Back-up Security Interests" and "Ratings
of the Notes" do not purport to be complete and are subject to, and qualified in
their entirety by reference to, the actual provisions of those 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 interest payments at
the related Note Rate and, to the extent described in this prospectus, monthly
principal payments. These payments will be funded from the Investor Percentage
of distributions to the trust of Interest Collections and Principal
53
<PAGE>
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, the Class
C Notes and the certificates will be subordinated to the Class A Notes so that:
(1) monthly interest payments will not be made on the Class B Notes, the
Class C Notes or the certificates until interest on the Class A Notes has
been paid;
(2) no principal payments will be made on the Class A-5 Notes, the Class B
Notes, the Class C Notes or the certificates until the Class A-1 Notes,
Class A-2 Notes, Class A-3 Notes and Class A-4 Notes have been paid in
full; and
(3) if other sources available to make payments of principal and interest on
the Class A-5 Notes are insufficient, amounts that otherwise would be
paid on the Class B Notes and the Class C Notes generally will be
available for that purpose, as more fully described under "Description of
the Notes--Distributions on the Notes".
In addition, the Class C Notes will be subordinated to the Class B Notes so
that if other sources available to make payments of principal and interest on
the Class B Notes are insufficient, amounts that otherwise would be paid on the
Class C Notes generally will be available for that purpose, as more fully
described under "Description of the Notes--Distributions on the Notes". Also,
the certificates will be subordinated to the Class C Notes and the Class B
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 Note 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 in this prospectus 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 that day is not a Business Day, on
the next succeeding Business Day, beginning on September 15, 1999 (each, a
"Distribution Date"), distributions of interest will be made to the holders of
record of the Class A-1 Notes, Class A-2 Notes, Class A-3 Notes, Class A-4 Notes
and Class A-5 Notes (respectively, the "Class A-1 Noteholders", the "Class A-2
Noteholders", the "Class A-3 Noteholders", the "Class A-4 Noteholders," and the
"Class A-5 Noteholders", and collectively, the "Class A Noteholders"), the
holders of record of the Class B Notes (the "Class B Noteholders"), the holders
of record of the Class C Notes (the "Class C Noteholders") and the holders of
record of the certificates (the "certificateholders"). With respect to the Class
A Noteholders, the Class B Noteholders and the Class C Noteholders, the record
date for distributions will be 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").
INTEREST
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 annual
percentage rate equal to, in the case of:
(1) the Class A-1 Notes, 5.445% (the "Class A-1 Note Rate");
(2) the Class A-2 Notes, 5.875% (the "Class A-2 Note Rate");
(3) the Class A-3 Notes, 6.100% (the "Class A-3 Note Rate");
54
<PAGE>
(4) the Class A-4 Notes, 6.450% (the "Class A-4 Note Rate");
(5) the Class A-5 Notes, 6.650% (the "Class A-5 Note Rate");
(6) the Class B Notes, 6.650% (the "Class B Note Rate"); and
(7) the Class C Notes, 6.900% (the "Class C Note Rate" and, together with
the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5 and Class B
Note Rates, the "Note Rates").
The "Class Note Balance" of any class of notes as of any date will be equal
to the Initial Class Note Balance of such class of notes, less the sum of:
(1) all payments made on or prior to the Distribution Date allocable to
principal (including any payments of Covered Loss Amounts or Note
Principal Loss Amounts allocable to such class);
(2) the amount of Note Principal Loss Amounts allocable to the class of
notes, if any, which have not been reimbursed as described herein;
(3) in the case of the Class B Notes, any unreimbursed Class B Note
Principal Carryover Shortfall; and
(4) in the case of the Class C Notes, any unreimbursed Class C Note
Principal Carryover Shortfall.
The "Class A Note Balance" will mean the sum of the Class A-1, Class A-2,
Class A-3, Class A-4 and Class A-5 Note Balances. The "Note Balance" will mean
the sum of the Class A Note Balance, the Class B Note Balance and the Class C
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 (1) 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 (2) the amount of
Certificate Principal Loss Amounts, if any, which have not been reimbursed as
described herein.
During the period when the notes are outstanding, the Note Balance will
decline as the Investor Percentage of Principal Collections, Covered Loss
Amounts and Uncovered 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 (1) principal payments are made on the
contracts and the related leased vehicles allocated to the SUBI, (2) AHFC makes
Reallocation Payments in respect of contracts as to which an uncured breach of
certain representations and warranties or servicing covenants has occurred, (3)
liquidation losses and other losses in respect of contracts and related leased
vehicles are incurred and (4) leased vehicles in the Matured Leased Vehicle
Inventory are sold or otherwise disposed of.
The amount of principal and interest the trust is required to pay to
noteholders of any class of the notes prior to the Final Scheduled Payment 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 event of default under the indenture until the Final
Scheduled Payment Date for that class of notes.
Interest will be payable to certificateholders on the Certificate Balance at
an annual percentage rate not expected to exceed 6.900% (the "Certificate
Rate"). Information regarding distributions to the certificateholders is set
forth herein to provide a better understanding to noteholders of distributions
on the notes. All interest payments on the Class A-1 Notes and the Class A-2
Notes will be calculated on the basis of the actual number of days elapsed and a
360-day year. All payments on the Class A-3 Notes, Class A-4 Notes, Class A-5
Notes, Class B Notes, Class C Notes and 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,
55
<PAGE>
Chicago, Illinois, Wilmington, Delaware or Los Angeles, California are
authorized or obligated by law, executive order or government decree to be
closed.
PRINCIPAL
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 payment date for each class of notes set forth on the cover page of
this prospectus (each, a "Final Scheduled Payment Date").
TRANSFER OF THE SUBI CERTIFICATES
Pursuant to the SUBI Supplement, on the Closing Date, the following
transactions will occur:
- The Origination Trust will issue to HTA LP two certificates collectively
representing a 99% beneficial interest in the SUBI,
- The Origination Trust will issue to HTB LP two certificates collectively
representing a 1% beneficial interest in the SUBI,
- HTA LP will then transfer a 98.01% beneficial interest in the SUBI to HTC
LP and a 0.99% beneficial interest in the SUBI to HTD LP,
- HTB LP will then transfer a 0.99% beneficial interest in the SUBI to HTC
LP and a 0.01% beneficial interest in the SUBI to HTD LP, and
- HTC LP and HTD LP will then exchange the 99% and the 1% beneficial
interests in the SUBI for the SUBI Certificates and the Retained SUBI
Certificates.
Simultaneously, HTC LP and HTD LP, pursuant to the Agreement, will deliver
the SUBI Certificates to the Owner Trustee and transfer and assign to the Owner
Trustee as property of the trust, without recourse, all of their right, title
and interest in and to the SUBI Interest represented by the SUBI Certificates.
Pursuant to the indenture, the trust will pledge and deliver the SUBI
Certificates to the Indenture Trustee. The Owner Trustee will, concurrently with
such delivery, transfer and assignment, deliver the notes and the certificates
to or upon the order of HTC LP and HTD LP.
Pursuant to the Agreement, each of HTC LP and HTD LP will represent and
warrant that immediately prior to the transfer and assignment of the SUBI
Certificates to the Owner Trustee as property of the trust each of HTC LP and
HTD LP had good title to, and was the sole legal and beneficial owner of, the
SUBI Certificates, 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 for contracts allocated to the SUBI (and the related
leased vehicles) discovered not to comply with AHFC's representations or
warranties or contracts as to which certain servicing procedures have not been
followed, in either case which violation materially and adversely affects the
contract. A Reallocation Payment will cause the Aggregate Net Investment Value
to decline by an amount equal to the Discounted Principal Balance of the related
contract, and that 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.
56
<PAGE>
CALCULATION OF INVESTOR PERCENTAGE
The Servicer will allocate to the trust the Investor Percentage of all
Interest Collections and Principal Collections collected during the related
Collection Period. In addition, the Servicer will allocate to the trust the
Investor Percentage of:
(1) an amount equal to the Discounted Principal Balance during the related
Collection Period, of any contract that became a Charged-off Contract
during that Collection Period (the sum of all the amounts in any
Collection Period, the "Charged-off Amount");
(2) the Residual Value Loss Amount for that Collection Period; and
(3) any Additional Loss Amounts incurred during that Collection Period.
"Additional Loss Amounts" will be incurred in the event of any uninsured
liability to third parties (E.G., litigation risk) on the part of the
Origination Trust and ultimately borne by the SUBI Assets, whether such
liability is incurred:
(1) with respect to the SUBI Assets and is allocated to the SUBI Assets
pursuant to the SUBI Trust Agreement;
(2) with respect to the Origination Trust Assets generally and a pro rata
portion of such liability is allocated to the SUBI Assets pursuant to the
SUBI Trust Agreement; or
(3) with respect to UTI Assets or Other SUBI Assets if those UTI Assets or
Other SUBI Assets are insufficient to pay the 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 on the foregoing uninsured liabilities and monies reserved
within the SUBI Collection Account against future losses on such liabilities by
the Servicer on behalf of the Origination Trustee.
A "Charged-off Contract" is a contract (1) with respect to which the related
leased vehicle has been repossessed and sold or otherwise disposed of or (2)
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" means 99.8%.
The "Residual Value Loss Amount" for any Collection Period generally will
represent the aggregate net losses on dispositions of leased vehicles in the
Matured Leased Vehicle Inventory, and will be equal to the sum of:
(1) the aggregate of the Residual Values of all those leased vehicles
allocated to the SUBI 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 that Collection Period;
(2) the excess, if any, of:
(a) the aggregate of the Residual Values of all leased vehicles allocated
to the SUBI which had been previously included in the Matured Leased
Vehicle Inventory but that were sold or otherwise disposed of during
such Collection Period, over
(b) the Net Matured Leased Vehicle Proceeds for such Collection Period;
and
(3) 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
57
<PAGE>
Servicer and the lessee (or Dealer) in connection with the payment of
less than the respective Outstanding Principal Balances of such
contracts.
DISTRIBUTIONS ON THE NOTES
GENERAL
On the tenth calendar day of each month or, if that day is not a Business
Day, the following Business Day (each, a "Determination Date"), the Servicer
will inform the Origination Trustee, the Owner Trustee and the Indenture Trustee
of, among other things:
(1) the amount of Interest Collections;
(2) the amount of Principal Collections;
(3) the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class B and
Class C Note Factors;
(4) the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class B and
Class C Allocation Percentages;
(5) the amount of Advances to be made by the Servicer;
(6) the Required Amount, if any, to be withdrawn from the Reserve Fund; and
(7) 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 the Determination Date occurs.
On or prior to each Determination Date, the Servicer shall also determine
the Specified Reserve Fund Balance and the amounts to be distributed to the
noteholders and to HTC LP and HTD LP in respect of the certificates. The
"Allocation Percentage" with respect to any class of notes and Distribution
Date, will equal the Note Balance of the 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 Servicer, pursuant to the instructions of the
Owner Trustee, will make the following payments in the amounts and order of
priority described below. Pursuant to such instructions, the Servicer 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, (x) to the extent necessary to
make the distributions described below other than in clauses (9) and (10), the
amount withdrawn from the Reserve Fund in respect of the Required Amount, if
any, (y) to the extent needed to make distributions described in clauses (11)
through (13), to the Class A-5 Noteholders, amounts that would otherwise be
distributable to the Class B Noteholders and Class C Noteholders in respect of
the Class B Percentage and Class C Percentage of the Investor Percentage of
Principal Collections and (z) to the extent needed to make distributions
described in clauses (14), (16) and (18), to the Class B Noteholders, amounts
that would otherwise be distributable to the Class C Noteholders in respect of
the Class C Percentage for that Collection Period:
(1) 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 Notes, Class B Notes
and Class C 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
58
<PAGE>
of Capped Indenture Trustee Administrative Expenses, and to the Owner Trustee,
the Investor Percentage of Capped Owner Trustee Administrative Expenses;
(2) 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, Class A-4 or Class A-5 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,
Initial Class A-2, Initial Class A-3, Initial Class A-4 or Initial Class A-5
Note Balance, as applicable, together with any unpaid Class A-1, Class A-2,
Class A-3, Class A-4 or Class A-5 Interest Carryover Shortfall, as applicable;
(3) 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;
(4) to the Note Distribution Account for payment to the Class C Noteholders,
interest at the Class C Note Rate on the Class C Note Balance as of the
immediately preceding Distribution Date (after giving effect to any reduction in
the Class C Note Balance on such immediately preceding Distribution Date) or, in
the case of the first Distribution Date, on the Initial Class C Note Balance,
together with any unpaid Class C Interest Carryover Shortfall;
(5) to the Servicer, reimbursement of the Investor Percentage of Capped
Contingent and Excess Liability Premiums;
(6) to the Origination Trustee, the Investor Percentage of Capped
Origination Trust Administrative Expenses;
(7) in circumstances other than as set forth in clause (1) 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;
(8) 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;
(9) to the Reserve Fund, until the amount on deposit therein equals the
Specified Reserve Fund Balance;
(10) 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 Certificate Interest Carryover Shortfall;
(11) to the Note Distribution Account for payment to the Class A
Noteholders, (a) so long as the Class B Note Balance 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 Class B Note
Balance has been reduced to zero, pro rata, based on the Class A-1, Class A-2,
Class A-3, Class A-4 or Class A-5 Allocation Percentage, as applicable, an
amount equal to the sum of the Covered Loss Amount and Uncovered Loss Amount for
the related Distribution Date;
(12) 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 (11) above that
59
<PAGE>
were not previously distributed pursuant to clause (11) 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", "Class A-4 Note Principal
Loss Amount" or "Class A-5 Note Principal Loss Amount", respectively);
(13) 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, Class A-4 or Class A-5 Note
Principal Loss Amount, as applicable;
(14) to the Note Distribution Account for payment to the Class B
Noteholders, (a) if the Class C Note 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,
(15) to the Note Distribution Account for payment to the Class C
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 B Notes to zero, the
Covered Loss Amount for the related Distribution Date, until the Note Balance of
the Class C Notes is reduced to zero;
(16) to the Note Distribution Account for payment to the Class B
Noteholders, the aggregate of the amounts allocable pursuant to clause (14)
above that were not previously distributed pursuant to clause (14) or this
clause (each such amount, a "Class B Note Principal Loss Amount"), together with
any Class B Note Principal Carryover Shortfall;
(17) to the Note Distribution Account for payment to the Class C
Noteholders, the aggregate of the amounts allocable pursuant to clause (15)
above that were not previously distributed pursuant to clause (15) or this
clause (each such amount, a "Class C Note Principal Loss Amount"), together with
any Class C Note Principal Carryover Shortfall;
(18) 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;
(19) to the Note Distribution Account for payment to the Class C
Noteholders, accrued and unpaid interest at the Class C Note Rate on any
unreimbursed Class C Note Principal Loss Amount and any unreimbursed Class C
Note Principal Carryover Shortfall;
(20) 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 C Notes to zero, the Covered Loss Amount for the related
Distribution Date, until the Certificate Balance is reduced to zero;
(21) to the Certificate Distribution Account for payment to the
certificateholders, the aggregate of the amounts allocable pursuant to clause
(20) above that were not previously distributed pursuant to clause (20) or this
clause (each such amount, a "Certificate Principal Loss Amount");
(22) 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
(23) 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 and
certificates for the related Collection Period, after giving effect to the
distributions in clauses (1) through (23) above and net of
60
<PAGE>
any amount required to maintain the Note Distribution Account or the Certificate
Distribution Account in good standing, will constitute "Excess Interest
Collections".
The entire amount of Excess Interest Collections will be paid to HTC LP and
HTD LP based upon their percentage ownership of the Retained SUBI Interest;
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, Class A-4 Noteholders and Class A-5 Noteholders under clauses (2),
(11), (12) or (13) 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, the Class A-4
Allocation Percentage and the Class A-5 Allocation Percentage, respectively.
If and to the extent that the collections available to make distributions on
a Distribution Date are insufficient to make distributions pursuant to clauses
(1) through (4) and (11) through (19) above, then the Required Amount will be
withdrawn from the Reserve Fund and applied to that shortfall.
"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 $550,000 in any calendar year.
The "Class A-1 Interest Carryover Shortfall" for any Distribution Date will
equal the excess, if any, of (1) the amount of interest distributable on the
Class A-1 Notes for such Distribution 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 the outstanding Class A-1 Interest
Carryover Shortfall from such immediately preceding Distribution Date to but not
including the current Distribution Date, over (2) the amount of interest
distributed to the Class A-1 Noteholders on that 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 A-5 Interest Carryover
Shortfall," the "Class B Interest Carryover Shortfall", the "Class C 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 A-5 Notes, the Class B Notes, the Class C Notes
and the certificates, respectively.
The "Class B Note Principal Carryover Shortfall", for any Distribution Date
from and after the Distribution Date on which the Class A-4 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 that
Distribution Date that is instead applied to the distribution of principal to
the Class A-5 Noteholders, pursuant to clauses (11) through (13) above. The
"Class C Note Principal Carryover Shortfall", for any Distribution Date from and
after the Distribution Date on which the Class A-4 Notes are paid in full, will
equal the amount, if any, of the Class C Percentage of the Investor
61
<PAGE>
Percentage of Principal Collections allocable to the SUBI Interest for that
Distribution Date that is instead applied to (a) the distribution of principal
to the Class A-5 Noteholders, pursuant to clauses (11) through (13) above, or
(b) the distribution of principal to the Class B Noteholders, pursuant to
clauses (14), (16) and (18) above. The Class B Percentage and the Class C
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" for 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
(a) the Investor Percentage of Loss Amounts for that Distribution Date and (b)
amounts available for distribution described above remaining after application
of (i) clauses (1) through (9) above prior to the reduction of the Class A Note
Balance to zero or (ii) clauses (1) through (13) above following the reduction
of the Class A Note Balance to zero.
"Uncovered Loss Amounts" for any Distribution Date will equal the excess of
(1) the Investor Percentage of Loss Amounts for that Distribution Date over (2)
Covered Loss Amounts for that Distribution Date.
"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, Class A-5,
Class B and Class C Note Principal Loss Amounts and will represent a loss of
principal in respect of Loss Amounts allocable to the notes and will arise when
(1) the Investor Percentage of Interest Collections, (2) the Required Amount,
(3) with respect to any Class A-5 Note Principal Loss Amount, amounts otherwise
payable in respect of principal to the Class B Noteholders and the Class C
Noteholders, and (4) with respect to any Class B Note Principal Loss Amount,
amounts otherwise payable in respect of principal to the Class C Noteholders, in
each case are insufficient to cover such loss. As described under "Description
of the Notes--Interest", 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 that would be Capped Contingent and Excess
Liability Premiums, Capped Origination Trust Administrative Expenses, Capped
Indenture Trustee Administrative Expenses or Capped Owner Trustee Administrative
Expenses, except that they exceed $550,000, $100,000, $50,000 (or $100,000, as
applicable) or $5,000 in any calendar year, respectively.
ALLOCATION OF PRINCIPAL
The amount of Principal Collections allocable to the notes for a Collection
Period (the "Principal Allocation") generally will mean the Principal
Collections for that Collection Period allocable to the SUBI multiplied by the
Investor Percentage.
"Principal Collections" will mean, with respect to any Collection Period,
all Collections allocated to the principal component of any contract allocated
to the SUBI (including any payment in respect of the Residual Value of the
related leased vehicle, but other than any payment as to which a Loss Amount has
already been 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 a Discounted Contract will be
discounted to present value at a rate of 9.00%, 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 the contracts and related
leased vehicles during such Collection Period, such as Monthly Payments
(including amounts that were previously Payments Ahead but which represent
Monthly Payments due
62
<PAGE>
during such Collection Period), Prepayments, Advances, Net Matured Leased
Vehicle Proceeds, Net Repossession Proceeds, all other Net Liquidation Proceeds,
any Net Insurance Proceeds (not including any proceeds in respect of any
residual value insurance policy) not included in Net Liquidation Proceeds and
any other payment by a lessee under a contract in respect of the immediately
preceding Collection Period, but shall not include proceeds of claims made under
any residual value insurance policies and shall be net of:
(1) Payments Ahead with respect to one or more future Collection Periods;
(2) to the extent not covered by the inclusive list above, amounts paid to
the Servicer in respect of outstanding Advances, Matured Leased Vehicle
Expenses, Repossession Expenses, all other Liquidation Expenses and
Insurance Expenses;
(3) Administrative Charges, including Extension Fees; and
(4) Additional Loss Amounts in respect of that Collection Period.
"Interest Collections" with respect to any Collection Period generally will
equal the amount by which Collections received during a Collection Period exceed
Principal Collections received during a Collection Period. "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 (not including any proceeds in
respect of any residual value insurance policy) received during a Collection
Period net of Insurance Expenses incurred during a Collection Period.
APPLICATION AND DISTRIBUTIONS OF PRINCIPAL
On each Distribution Date, beginning with the September 15, 1999,
Distribution Date and ending on the Distribution Date before the Distribution
Date on which the Class A-4 Notes have been paid in full, the Indenture Trustee
will distribute to noteholders an amount equal to the Investor Percentage of all
Principal Collections collected or received for the related Collection Period.
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
- fourth, to the Class A-4 Noteholders until the Class A-4 Notes have been
paid in full.
Thereafter, the Class A Percentage, the Class B Percentage and the Class C
Percentage of any remaining Principal Collections will be distributed pro rata
as principal to the Class A-5 Noteholders, the Class B Noteholders and the Class
C Noteholders, respectively.
The "Class A Percentage" will mean the Class A Note Balance immediately
after the Class A-4 Notes have been paid in full as a percentage of the Note
Balance at that time, the "Class B Percentage" will mean the Class B Note
Balance immediately after the Class A-4 Notes have been paid in full as a
percentage of the Note Balance at that time, and the "Class C Percentage" will
mean the Class C Note Balance immediately after the Class A-4 Notes have been
paid in full as a percentage of the Note Balance at that time. The Class A
Percentage, the Class B Percentage and the Class C Percentage will not change
after they are set.
In general, no principal payments (including amounts with respect to Covered
Loss Amounts) will be made:
63
<PAGE>
(1) on the Class A-2 Notes until the Class A-1 Notes have been paid in full,
(2) on the Class A-3 Notes until the Class A-1 and Class A-2 Notes have been
paid in full,
(3) on the Class A-4 Notes until the Class A-1, Class A-2 and Class A-3
Notes have been paid in full, or
(4) on the Class A-5 Notes, the Class B Notes or the Class C Notes until the
Class A-1 Notes, Class A-2 Notes, Class A-3 Notes and Class A-4 Notes
have been paid in full.
Following the reduction of the Class B Note Balance and the Class C Note
Balance to zero, the trust will distribute principal payments on a pro rata
basis on the Class A Notes.
Uncovered Loss Amounts will be allocated:
(1) first, to the certificates, until the Certicate Balance has been reduced
to zero;
(2) second, to the Class C Notes, until the Class C Note Balance has been
reduced to zero;
(3) third, to the Class B Notes, until the Class B Note Balance has been
reduced to zero; and
(4) fourth, to the Class A Notes, pro rata, based on the Class A-1, Class
A-2, Class A-3, Class A-4 and Class A-5 Allocation Percentages.
Amounts with respect to Uncovered Loss Amounts will not be allocated or
reimbursed to any noteholder once the Note 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 Certificates or other property
of the trust, which may occur under certain circumstances involving an event of
default under the indenture (as described under "Additional Document
Provisions--The Indenture--Events of Default"), to the extent these 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, Class A-4 and Class A-5
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 and the
Class C Noteholders, pro rata.
In addition, on any Distribution Date from and after the Distribution Date
on which the trust pays the Class A-4 Notes 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 and the Class C Noteholders for the
Class B Percentage and the Class C Percentage of the Investor Percentage of
Principal Collections collected or received for the related Collection Period
will instead be distributed as principal payments to the Class A-5 Noteholders
up to an amount equal to the sum of:
(1) the Class A-5 Allocation Percentage of the Investor Percentage of Loss
Amounts incurred during the related Collection Period;
(2) any Class A-5 Note Principal Loss Amounts; and
(3) accrued and unpaid interest on any Class A-5 Note Principal Loss
Amounts, as set forth under "Description of the Notes--Distributions on
the Notes-- Distributions of Interest".
In addition, on any Distribution Date from and after the Distribution Date
on which the trust pays the Class A-4 Notes in full, but only to the extent that
other amounts available therefor are insufficient, after payment of all amounts
due to the Class A-5 Noteholders pursuant to the previous paragraph, amounts
that would otherwise be distributable to the Class C Noteholders for the Class C
Percentage of the Investor Percentage of Principal Collections collected or
received for the related Collection Period will instead be distributed as
principal payments to the Class B Noteholders in the following manner:
(1) the Class B Noteholders will receive the Class B Allocation Percentage
of the Investor Percentage of Loss Amounts incurred during the related
Collection Period and allocable to
64
<PAGE>
the SUBI Interest before the Class C Noteholders receive the Class C
Allocation Percentage of those Loss Amounts;
(2) once the Class C Noteholders have received the amounts described in
clause (1) above, the Class B Noteholders will then receive any Class B
Note Principal Loss Amounts before the Class C Noteholders receive any
Class C Note Principal Loss Amounts; and
(3) once the Class C Noteholders have received the amounts described in
clause (2) above, the Class B Noteholders will receive any accrued and
unpaid interest on any Class B Note Principal Loss Amounts before the
Class C Noteholders receive the accrued and unpaid interest on any Class
C Note Principal Loss Amounts.
THE ACCOUNTS
THE SUBI COLLECTION ACCOUNT
On or prior to the Closing Date, the Servicer, on behalf of the Origination
Trustee, will establish a trust account in the Origination Trustee's name for
the benefit of the beneficiaries of the SUBI Certificates and the Retained SUBI
Certificates, into which it will generally deposit collections on the contracts
allocated to the SUBI and related leased vehicles (the "SUBI Collection Account"
and, together with the Note Distribution Account and any Payahead Account, the
"Accounts"). As the holder of the SUBI Certificates, the Owner Trustee will have
certain beneficial rights to amounts on deposit from time to time in the SUBI
Collection Account 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 (described below),
within two Business Days after receipt, the Servicer generally will deposit
payments made on the contracts allocated to the SUBI and the related leased
vehicles 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:
(1) Monthly Payments;
(2) early payments of the Outstanding Principal Balance of a contract,
including any payment of a lease charge or interest, or payment by the
Servicer of a Reallocation Payment (each, a "Prepayment");
(3) proceeds from the sale or other disposition of the leased vehicles in
the Matured Leased Vehicle Inventory (excluding proceeds paid under any
residual value insurance policy) ("Matured Leased Vehicle Proceeds");
(4) 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 the Prepayment of the related contract
("Repossession Proceeds");
(5) all proceeds received by the Servicer, the Origination Trust or the
Origination Trustee on behalf of the Origination Trust from any Insurance
Policy (excluding any residual value insurance policy) ("Insurance
Proceeds"); and
(6) 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").
65
<PAGE>
On the business day before the Distribution Date (the "Deposit Date"), the
Servicer will deposit the following amounts into the SUBI Collection Account:
(1) Advances by the Servicer;
(2) Reallocation Payments made by the Servicer on contracts as to which an
uncured breach of certain representations and warranties or certain
servicing covenants has occurred;
(3) with respect to any contract allocated to the SUBI 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
(4) 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:
(1) the realization of Matured Leased Vehicle Proceeds ("Matured Leased
Vehicle Expenses");
(2) Repossession Proceeds ("Repossession Expenses");
(3) Insurance Proceeds (excluding any proceeds paid under any residual value
insurance policy)("Insurance Expenses"); and
(4) other Liquidation Proceeds (such expenses, together with Matured Leased
Vehicle Expenses, Repossession Expenses and Insurance Expenses, the
"Liquidation Expenses"), either:
(a) from amounts on deposit in the SUBI Collection Account; or
(b) as a deduction from:
(i) Matured Leased Vehicle Proceeds,
(ii) Repossession Proceeds,
(iii) Insurance Proceeds (excluding any proceeds paid under any
residual value insurance policy), or
(iv) 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
Provisions--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 the
contracts and the related leased vehicles 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:
(1) no Servicer Termination Event exists and is continuing; and
(2) the short-term unsecured debt of the Servicer is rated at least "A-1" or
its equivalent by the Rating Agencies.
66
<PAGE>
Pending deposit into the SUBI Collection Account, the Servicer may use
Collections received on the SUBI Assets at its own risk and for its own benefit
and will not segregate these collections from its own funds. Additionally,
unless any of the Monthly Remittance Conditions are not met, Payments Ahead need
not be deposited in the Payahead Account. The Servicer may retain Payments Ahead
until the Deposit Date related to the Collection Period in which such 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 either of the Monthly Remittance Conditions are not
met, the Servicer will have to deposit immediately all Payments Ahead then held
by the Servicer into the Payahead Account and remit all future Payments Ahead to
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 Reimbursable Servicer Expenses for the related Collection Period.
Additionally, so long as AHFC is the Servicer and each Monthly Remittance
Condition is satisfied, the Servicer will be permitted to deposit in the SUBI
Collection Account only the net amount distributable with respect to the SUBI
Certificates and the Retained SUBI Certificates. The Servicer, however, will
account to the Origination Trustee, the Indenture Trustee, the noteholders, HTC
LP and HTD LP 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 Servicer, pursuant to the instructions of the Owner Trustee, or the Owner
Trustee, as applicable, will transfer all Collections related to the SUBI
Interest on deposit in the SUBI Collection Account for 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 Distributions of Principal". The Owner Trustee will
distribute the remaining 0.2% of Collections from the SUBI Collection Account on
the Distribution Date to HTC LP and HTD LP in respect of the Retained SUBI
Interest, which amounts will not be available to make payments on the notes. The
trust will generally pay to HTC LP and HTD LP any funds in excess of the amounts
to be distributed to the Note Distribution Account for payment to the
noteholders, the Servicer for the Servicing Fee, the Reserve Fund in order to
meet the Specified Reserve Fund Balance and the trustees for any fees and
expenses in respect of the related Collection Period.
In the event that on any date the Servicer provides 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:
(1) unreimbursed Matured Leased Vehicle Expenses, Repossession Expenses,
Insurance Expenses and other Liquidation Expenses;
(2) Monthly Payments with respect to which the Servicer has made an
unreimbursed Advance; and
(3) an amount equal to any unreimbursed Advances that the Servicer has
concluded are Nonrecoverable Advances.
THE NOTE DISTRIBUTION ACCOUNT
On or prior to the Closing Date, a trust account will be established with
and in the name of the Indenture Trustee for the benefit of the noteholders (the
"Note Distribution Account") from which all payments with respect to the notes
will be made. On each Distribution Date, the Owner Trustee (acting
67
<PAGE>
on its own behalf or through the Servicer) shall transfer or cause to be
transferred to the Note Distribution Account from the SUBI Collection Account
and the Indenture Trustee (acting on its own behalf or through the Servicer),
shall transfer to the Note Distribution Account from the Reserve Fund, if
necessary, all amounts allocable to the noteholders for the related Distribution
Date. 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 CERTIFICATE DISTRIBUTION ACCOUNT
On or prior to the Closing Date, a trust account will be established with
and in the name of the Owner Trustee 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, the Owner
Trustee (acting on its own behalf or through the Servicer) shall transfer or
cause to be transferred to the Certificate Distribution Account from the SUBI
Collection Account, all amounts allocable to the certificateholders. On each
Distribution Date, the Owner Trustee will distribute to the certificateholders
the allocated amounts for the related Collection Period.
THE PAYAHEAD ACCOUNT
In the event that any of the Monthly Remittance Conditions are not met, the
Origination Trustee will establish and the Trust Agent will 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 (1) continue to deposit all Payments
Ahead into the Payahead Account and (2) on each Deposit Date, transfer the
amount of any Payments Ahead which became Payahead Credits into the SUBI
Collection Account. As long as the Monthly Remittance Conditions are met, the
Servicer will not be required 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, the Owner
Trustee or the Trust Agent so long as, with respect to such entity, either (1)
the short-term unsecured debt obligations of the entity have the highest
available rating of the applicable rating agency for those obligations or (2)
the long-term unsecured debt rating of the entity is acceptable to each Rating
Agency 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 any of the Indenture Trustee, the Owner 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, the Owner 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, the
Owner Trustee or the Trust Agent, as applicable, shall invest funds on deposit
in the Accounts in one or more Eligible Investments maturing (1) 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, any lease account created pursuant to the SUBI Supplement or
any Payahead Account or (2) 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, the Certificate
Distribution Account or the Reserve Fund. Notwithstanding the foregoing,
68
<PAGE>
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 that income or gain in respect of funds in
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 any one or more of the following instruments,
obligations or securities, in each case subject to any further criteria
specified in the SUBI Supplement:
(a) obligations of, and obligations fully guaranteed as to timely
payment of principal and interest by, the United States or any agency
thereof, provided such obligations are backed by the full faith and credit
of the United States;
(b) general obligations of or obligations guaranteed by (i) the Federal
National Mortgage Association or (ii) any state of the United States, the
District of Columbia or the Commonwealth of Puerto Rico, then rated the
highest available credit rating of the applicable rating agency for such
obligations;
(c) certificates of deposit issued by any depository institution or
trust company (including any trustee) incorporated under the laws of the
United States or of any state thereof, the District of Columbia or the
Commonwealth of Puerto Rico and subject to supervision and examination by
banking authorities of one or more of such jurisdictions, provided that the
short-term unsecured debt obligations of such depository institution or
trust company are then rated the highest available credit rating of the
applicable rating agency for such obligations;
(d) certificates of deposit, demand or time deposits of, bankers'
acceptances issued by, or federal funds sold by any depository institution
or trust company (including any trustee) incorporated under the laws of the
United States or any state and subject to supervision and examination by
federal and/or state banking authorities and the deposits of which are fully
insured by the Federal Deposit Insurance Corporation, so long as at the time
of such investment or contractual commitment providing for such investment
either such depository institution or trust company has the Required Deposit
Ratings (or if such investment will mature after more than one month, the
long-term, unsecured debt of the issuer has the highest available credit
rating from the applicable rating agency) or such trustee shall have
received a letter from the applicable rating agency to the effect that
credit such investment would not result in the qualification, downgrading or
withdrawal of the credit ratings then assigned to any rated securities
issued by the trust;
(e) certificates of deposit issued by any bank, trust company, savings
bank or other savings institution and fully insured by the Federal Deposit
Insurance Corporation having the Required Deposit Ratings (or, if such
investment will mature after more than one month, the long-term, unsecured
debt of the issuer has the highest available credit rating from the
applicable rating agency);
(f) repurchase obligations held by the Owner Trustee that are acceptable
to the Owner Trustee with respect to any security described in clauses (a),
(b) or (g) hereof or any other security issued or guaranteed by any other
agency or instrumentality of the United States, in either case entered into
with a federal agency or a depository institution or trust company (acting
as principal) described in clause (d) above (including the Owner Trustee);
PROVIDED, HOWEVER, that repurchase obligations entered into with any
particular depository institution or trust company (including the Owner
Trustee) will not be Eligible Investments to the extent that the aggregate
principal amount of such repurchase obligations with such depository
institution or trust company held by the Owner Trustee on behalf of the
trust or of all of the trust assets shall exceed 10% of either the related
69
<PAGE>
Aggregate Net Investment Value or the aggregate unpaid principal balance or
face amount, as the case may be, of all Eligible Investments so held
thereby;
(g) interests in any open-end or closed-end management type investment
company or investment trust (i) registered under the Investment Company Act
of 1940, as amended (the "Investment Company Act"), the portfolio of which
is limited to the obligations of, or guaranteed by, the United States and to
agreements to repurchase such obligations, which agreements, with respect to
principal and interest, are at least 100% collateralized by such obligations
marked to market on a daily basis and the investment company or investment
trust shall take delivery of such obligations either directly or through an
independent custodian designated in accordance with the Investment Company
Act and (ii) acceptable to the applicable rating agency (as approved in
writing by such rating agency) as collateral for securities having ratings
equivalent to the ratings of the Rated Securities on the Closing Date;
(h) securities bearing interest or sold at a discount issued by any
corporation incorporated under the laws of the United States or any state
thereof so long as at the time of such investment or contractual commitment
providing for such investment (i) the long-term, unsecured debt of such
corporation has the highest available credit rating from the applicable
rating agency, or (ii) the Owner Trustee shall have received a letter from
such rating agency to the effect that such investment would not result in
the qualification, downgrading or withdrawal of the ratings then assigned to
any Rated Securities issued by the trust or commercial paper, or other
short-term debt earning the Required Deposit Ratings;
(i) money market funds so long as such funds are rated Aaa by Moody's
Investors Service, Inc. ("Moody's") (so long as Moody's is a rating agency),
AAAm by Standard & Poor's Rating Services, a division of The McGraw-Hill
Companies, Inc. ("Standard & Poor's") (so long as Standard & Poor's is a
rating agency) and F1+ by Fitch IBCA, Inc. ("Fitch") (so long as Fitch is a
rating agency), including any such fund for which the Owner Trustee or an
affiliate thereof serves as an investment advisor, administrator,
shareholder servicing agent and/or custodian or subcustodian, and
notwithstanding that (i) such person charges and collects fees and expenses
from such funds for services rendered, (ii) such person charges and collects
fees and expenses for services rendered pursuant to the Agreement and (iii)
services performed for such funds and pursuant to the Agreement may converge
at any time. Each of HTC LP, HTD LP and the Servicer has authorized the
Owner Trustee or Origination Trustee or an affiliate thereof to charge and
collect all fees and expenses from such funds for services rendered to such
funds, in addition to any fees and expenses such person may charge and
collect for services rendered pursuant to the Agreement; and
(j) such other investments acceptable to the applicable rating agency
(as approved in writing by such rating agency) as will not result in the
qualification, downgrading or withdrawal of the ratings then assigned by
such rating agency to any Rated Securities issued by the trust; PROVIDED
that each of the foregoing investments shall mature no later than the day
specified in the SUBI Supplement, and shall be required to be held to such
maturity.
None of the foregoing will be considered an Eligible Investment if:
(i) it constitutes a certificated security, bankers' acceptance, commercial
paper, negotiable certificate of deposit or other obligation that
constitutes "financial assets" within the meaning of Section
8-102(a)(9)(c) of the UCC unless a security entitlement with respect to
such Eligible Investment has been created, in favor of the Origination
Trustee or the Owner Trustee, as appropriate, in accordance with Section
8-501(b) of the UCC and the related securities intermediary has agreed
not to comply with entitlement orders of any secured party other than the
Owner Trustee or the Origination Trustee, as the case may be; or
70
<PAGE>
(ii) it constitutes a book-entry security held through the Federal Reserve
System pursuant to federal book-entry regulations, unless, in accordance
with applicable law, (A) a book-entry registration thereof is made to an
appropriate book-entry account maintained with a Federal Reserve Bank by
the Origination Trustee or the Owner Trustee, as appropriate, or by a
custodian therefor, (B) a deposit advice or other written confirmation of
such book-entry registration is issued to such trustee or custodian, (C)
any such custodian makes entries in its books and records identifying
that such book-entry security is held through the Federal Reserve System
pursuant to federal book-entry regulations and belongs to such trustee
and indicating that such custodian holds such Eligible Investment solely
as agent for the Owner Trustee or the Origination Trustee, as
appropriate, (D) the Owner Trustee or Origination Trustee, as
appropriate, makes entries in its books and records establishing that it
holds such security solely in such capacity and (E) any additional or
alternative procedures as may hereafter become necessary to effect
complete transfer of ownership thereof to such trustee are satisfied,
consistent with changes in applicable law or regulations or the
interpretation thereof.
"Rated Securities" means each class of notes that has been rated by a Rating
Agency.
"Rating Agency" means each of Moody's, Standard & Poor's and Fitch and any
other nationally recognized statistical rating organization, but only if it has
rated any class of notes as of the Closing Date and continues to do so.
Notwithstanding anything to the contrary contained in this definition, no
Eligible Investment may be purchased at a premium and no Eligible Investment
shall be an interest-only instrument.
None of the foregoing will be an Eligible Investment with respect to amounts
on deposit in the Note Distribution Account or the Certificate Distribution
Account unless by its own terms it matures on or before the Deposit Date
preceding the next relevant Distribution Date and it includes a demand, put or
similar feature such that the Owner Trustee is able to cause such investment to
mature before such Deposit Date to the extent set forth in the Agreement.
For purposes of this definition, any reference to the highest available
credit rating of an obligation shall mean the highest available credit rating
for such obligation (excluding any "+" signs associated with such rating), or
such lower credit rating (as approved in writing by each Rating Agency) as will
not result in the qualification, downgrading or withdrawal of the rating then
assigned by such Rating Agency to any Rated Securities issued by the trust.
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:
(1) the (a) Interest Collections and Loss Amounts and (b) Principal
Collections, allocable to the SUBI Interest for such Collection Period;
(2) the amount being distributed to noteholders generally (the "Note
Distribution Amount") and being distributed to each class of notes, and
the portion of the Note Distribution Amount allocable to interest and to
principal on each class of notes;
(3) 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, any Class A-5 Interest Carryover Shortfall, any
Class B Interest Carryover Shortfall and any Class C Interest Carryover
Shortfall;
71
<PAGE>
(4) 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, unpaid Class A-5 Interest Carryover Shortfall, unpaid Class B
Interest Carryover Shortfall and unpaid Class C Interest Carryover
Shortfall, after giving effect to distribution of the Note Distribution
Amount;
(5) the Note Balance, the Class Note Balance for each class of notes and the
Note Factor for each class of notes, in each case after giving effect to
distribution of the Note Distribution Amount;
(6) the Class Allocation Percentage for each class of notes and the 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;
(7) 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;
(8) the amount, if any, of the aggregate unreimbursed Note Principal Loss
Amounts of each class of notes and the amount, if any, of any accrued and
unpaid interest on such amounts, in each case after giving effect to
distribution of the Note Distribution Amount;
(9) the amount of any accrued and unpaid Class B Note Principal Carryover
Shortfall and accrued and unpaid Class C Note Principal Carryover
Shortfall;
(10) the Investor Percentage of the Servicing Fee;
(11) 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 and the Specified Reserve Fund
Balance;
(12) the Aggregate Net Investment Value as of the end of the related
Collection Period;
(13) 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;
(14) the amounts of Advances made in respect of the related Collection
Period and the amount of unreimbursed Advances on such Distribution Date
and the change in such amount from the immediately preceding Distribution
Date; and
(15) the weighted average Lease Rate of the contracts in the SUBI for the
immediately preceding Collection Period, and the charge-off rate,
delinquency rate and residual value experience for each of the three
immediately preceding Collection Periods.
Noteholders or Note Owners may obtain copies of these statements by written
request 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 indenture, the Indenture Trustee will mail to each person
who at any time during such calendar year shall have been a Class A Noteholder,
Class B Noteholder or Class C Noteholder or a Note Owner, a statement containing
the sum of the amounts described in clauses (2) through (5) and (7) through (10)
above for the purpose of preparing such person's federal income tax return.
72
<PAGE>
TERMINATION OF THE TRUST; REDEMPTION OF THE NOTES
The respective obligations and responsibilities of HTC LP, HTD LP, the
Indenture Trustee and the Owner Trustee created by the Agreement will terminate
upon the earliest to occur of:
(1) 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 related leased vehicle evidenced by
the SUBI, and the distribution of all proceeds thereof (other than
proceeds of any residual value insurance policy), together with all
amounts on deposit in the Accounts and the Reserve Fund, in the manner to
be prescribed in the Agreement;
(2) 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, Class B Note Principal Carryover Shortfall or Class C Note
Principal Carryover Shortfall (together with accrued interest thereon);
and
(3) 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 combined Note
Balance and Certificate Balance is less than or equal to 10% of the combined
Initial Note Balance and Initial Certificate Balance. The purchase price will be
equal to the greater of:
(1) the sum of the Class A Note Balance, the Class B Note Balance, the Class
C Note Balance, the Certificate Balance plus any unreimbursed Note
Principal Loss Amount, Class B Note Principal Carryover Shortfall and
Class C Note Principal Carryover Shortfall, in each case plus accrued and
unpaid interest thereon at the related Note Rates or Certificate Rate, as
applicable, plus certain other accrued and unpaid amounts, if any, due to
the noteholders, the certificateholders or the Servicer, and
(2) 99.8% of the Aggregate Net Investment Value as of the last day of the
related Collection Period.
If the Servicer purchases the assets of the trust, the Indenture 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. "Redemption Date"
means, with respect to any note to be redeemed pursuant to the indenture, any
date fixed for such redemption pursuant to the indenture, which date shall be a
Distribution 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 HTC LP and HTD LP.
BOOK-ENTRY REGISTRATION
A Note Owner may hold through DTC (in the United States), or Cedelbank
("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
73
<PAGE>
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 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 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 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 UCC in effect in the state of New York and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). DTC holds securities 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 (1) securities brokers and dealers (including the
underwriters), (2) banks, (3) trust companies, (4) clearing corporations and (5)
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
74
<PAGE>
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.
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 for the notes similarly are required to make book-entry transfers and
receive and transmit such payments on behalf of their respective Note Owners.
The trust will make principal and interest payments on the notes 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, HTC LP or HTD LP,
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. 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.
75
<PAGE>
DTC has advised HTC LP and HTD LP 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
HTC LP and HTD LP 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 HTC LP, HTD LP, the Servicer, the Origination Trustee, the Owner
Trustee nor the Indenture Trustee will have any liability (a) 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 (b) for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
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 (1) underwriters, (2) securities brokers and
dealers, (3) banks, (4) trust companies, (5) clearing corporations and (6)
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 (1) banks (including central
banks), (2) securities brokers and dealers and (3) 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 (1) the Board of
76
<PAGE>
Governors of the Federal Reserve System and (2) the New York State Banking
Department, as well as (3) 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. Euroclear holds all securities on a fungible basis without
attributing 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 on 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 reporting
and withholding in accordance with relevant United States tax laws and
regulations. For further information in this regard, see "The Material Federal
Income Tax Consequences--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.
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 data ("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 (1) securityholders, (2) book-entry deliveries and (3)
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 properly perform its services also depends 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 (1) impress
upon them the importance of such services being year 2000 compliant; and (2)
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 on 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.
77
<PAGE>
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:
(1) could experience delays in payments due; or
(2) 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:
(1) DTC is no longer willing or able to discharge its responsibilities with
respect to the notes, and the Indenture Trustee, HTC LP and HTD LP are
unable to locate a qualified successor;
(2) HTC LP and HTD LP, at their option, advise the Indenture Trustee in
writing that they elect to terminate the book-entry system through DTC;
or
(3) 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 Note Owners' best
interest.
Upon the occurrence of any of the events described above, DTC will be
required to notify the Indenture Trustee and all Note Owners, through
Participants, of the occurrence of any such event and the availability of
Definitive Notes through DTC. Upon DTC's surrender of the certificates
representing the related notes and the receipt of instructions for
re-registration, the trust will issue and the Indenture Trustee will
authenticate and deliver Definitive Notes to Note Owners, who upon receipt 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 those notes in accordance with the procedures set
forth in this prospectus 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 addresses of such holders as they
appear on the note register (the "Note Register") or, under the circumstances to
be provided by the indenture and the Agreement, by wire transfer to a bank or
depository institution located in the United States and having appropriate
facilities. 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 the 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 101 Barclay
Street, Floor 12E, New York, New York 10286. 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 by so notifying the trust upon
30 days' notice, 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
78
<PAGE>
single class, may remove the Indenture Trustee by delivering notice of removal
to the Indenture Trustee and the trust. The trust may also remove the Indenture
Trustee if the Indenture Trustee ceases to be eligible to continue 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:
(1) be a corporation organized under the laws of a state of the United
States, the District of Columbia or the Commonwealth of Puerto Rico;
(2) be authorized to exercise corporate trust powers under those laws;
(3) be subject to supervision or examination by federal or state laws; and
(4) have a combined capital and surplus of at least $50 million and a time
deposit rating no lower than Prime-1 by Moody's, F1 by Fitch and A-1 by
Standard & Poor'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 indenture, and the exercise of any trust or power conferred on
the Indenture Trustee by the indenture (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:
(1) it concludes that the action is unlawful; or
(2) it in good faith determines that the proceedings directed:
(a) would be illegal;
(b) would subject it to personal liability; or
(c) would be unduly prejudicial to the rights of other Noteholders.
A noteholder may institute proceedings under the indenture, but only if (1)
the holder previously has given to the Indenture Trustee written notice of
default, (2) 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 Indenture Trustee for 60 days has neglected or
refused to institute any such proceeding, and (3) the Indenture Trustee has not
received direction inconsistent with this written request during the 60-day
period by noteholders representing in the aggregate not less than a majority of
the voting interests of the notes, voting together as a single class. The
Indenture Trustee will be under no obligation:
(1) to exercise any of the rights or powers vested in it by the indenture or
to make any investigation of matters arising thereunder; or
(2) to institute, conduct or defend any litigation under the indenture or
relating thereto at the request, order or direction of any of the
noteholders, unless they 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.
79
<PAGE>
LIST OF NOTEHOLDERS
If Definitive Notes are issued, upon a written request of the Indenture
Trustee, the trust will provide to the Indenture Trustee within 30 days after
receipt of such request a list of the names and addresses of all noteholders;
provided, however, that so long as the Indenture Trustee is the note registrar,
no such list shall be required to be furnished. In addition, three or more
noteholders, upon compliance by those noteholders with certain provisions of the
indenture, 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.
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 Trust", will primarily consist of
the SUBI Interest evidenced by the SUBI Certificates, including the beneficial
interest in the contracts and related leased vehicles and amounts on deposit
from time to time in the SUBI Collection Account and 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
allocated to the SUBI.
THE RESERVE FUND
GENERAL
On or prior to the Closing Date a trust account will be established with and
in the name of the Indenture Trustee for the benefit of the noteholders, HTC LP
and HTD LP (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, are insufficient to pay, among other things, the sum of:
(1) accrued interest and any overdue interest (with interest thereon) at the
applicable Note Rate on the notes on such Distribution Date;
(2) the Investor Percentage of any Loss Amount for the related Collection
Period; and
(3) any unreimbursed Note Principal Loss Amounts, together with interest
thereon at the applicable Note Rates;
After the outstanding principal balance of each class of notes has been paid
in full, monies on deposit in the Reserve Fund will be available to make
payments to the certificateholders should Collections ultimately be insufficient
to pay interest and any overdue interest and principal on the Certificate
Balance.
The Reserve Fund will be created with an initial deposit of $115,274,540.12
(the "Initial Deposit"), which amount will equal 3.5% 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 certain Interest Collections.
THE RESERVE FUND REQUIREMENT. The Reserve Fund will be created on or prior
to the Closing Date with the Initial Deposit. Thereafter, on each Distribution
Date, the Reserve Fund will be supplemented by certain Collections in excess of
those amounts required to be paid pursuant to clauses (1) through
80
<PAGE>
(8) above under "Description of the Notes--Distributions on the
Notes--DISTRIBUTIONS OF INTEREST" and from certain monies that otherwise would
be distributed as Excess Interest Collections, until the amount on deposit
therein equals the applicable Specified Reserve Fund Balance. Except as
described below, the "Specified Reserve Fund Balance" with respect to any
Distribution Date will equal $181,145,705.90 (5.50% of 99.8% of the Aggregate
Net Investment Value as of the Cutoff Date), except that, if on any
Determination Date (i) the average of the Charge-off Rates for the three
preceding Collection Periods exceeds 1.50%, (ii) the average of the Delinquency
Percentages for the three preceding Collection Periods exceeds 1.50%, or (iii)
the Residual Value Test is not satisfied as of the related Determination Date,
then the Specified Reserve Fund Balance will equal $214,081,288.79 (6.50% of
99.8% of the Aggregate Net Investment Value as of the Cutoff Date); PROVIDED,
HOWEVER, that the Specified Reserve Fund Balance shall in no event be more than
the Note Balance.
The "Charge-off Rate" with respect to a Collection Period will equal the
Aggregate Net Losses with respect to the contracts that became Charged-off
Contracts during such Collection Period expressed, on an annualized basis, as a
percentage of the average of (i) the Aggregate Net Investment Value on the last
day of the immediately preceding Collection Period and (ii) the Aggregate Net
Investment Value on the last day of such Collection Period. The "Aggregate Net
Losses" with respect to a Collection Period will equal the Discounted Principal
Balance of all contracts newly designated during such Collection Period as
Charged-off Contracts minus the sum of (x) Net Liquidation Proceeds collected
during such Collection Period with respect to all Charged-off Contracts and (y)
the portion of amounts subsequently received in respect of contracts charged-off
in prior Collection Periods specified in the SUBI Supplement.
The "Delinquency Percentage" with respect to a Collection Period will equal
(a) the number of all outstanding contracts 60 days or more delinquent (after
taking into account permitted deferrals) as of the last day of such Collection
Period (excluding contracts as to which the related leased vehicle has been sold
or otherwise disposed of during such Collection Period) determined in accordance
with the Servicer's normal practices, plus (b) the number of Repossessed Leased
Vehicles that have not been sold or otherwise disposed of (to the extent the
related contract is not otherwise reflected in clause (a) above), expressed as a
percentage of the aggregate number of Current Contracts on the last day of such
Collection Period. "Repossessed Leased Vehicle" means any leased vehicle
actually repossessed by the Servicer or its agent or returned by the related
lessee 31 or more days prior to the termination date specified in the related
contract, as such termination date may have been deferred as described herein,
but as to which one or more scheduled Monthly Payments has not been made by or
on behalf of the lessee.
The "Residual Value Test" will not be satisfied as of any Determination Date
if (i) with respect to the related Collection Period the number of leased
vehicles allocated to the SUBI returned to the Servicer relating to Matured
Contracts and sold during such period is greater than 45% of all contracts
allocated to the SUBI that, as of their respective origination dates, had been
scheduled to become Matured Contracts during such period (provided that at least
500 such contracts had been scheduled to become Matured Contracts during such
Collection Period), and (ii) the average Net Matured Leased Vehicle Proceeds
during the three immediately preceding calendar months is less than 75% of the
average Residual Values of leased vehicles allocated to the SUBI disposed of or
liquidated during such period.
"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.
"Matured Contract" means any contract allocated to the SUBI that (i) has
been terminated not more than 30 days prior to the termination date specified
therein, as such termination date may have
81
<PAGE>
been extended or deferred as described herein or (ii) has been terminated 31 or
more days prior to the termination date specified therein, as such termination
date may have been extended or deferred as described herein, and as to which all
scheduled Monthly Payments have been made by or on behalf of the lessee.
HTC LP and HTD LP 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
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, as described under "Additional Document Provisions--Amendment of Basic
Documents", and HTC LP's and HTD LP's counsel delivers an opinion if and to the
extent required, 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", as of any Deposit Date,
will equal the lesser of (1) the amount on deposit in the Reserve Fund on the
related Deposit Date after all deposits thereto and (2) the amount, if any, by
which the full amount distributable on the related Distribution Date pursuant to
clauses (1) through (4) and (11) through (19) in the first paragraph under
"Description of the Notes--Distributions on the Notes--Distributions of
Interest" exceeds the Investor Percentage of Interest Collections for the
related Collection Period.
Monies on deposit in the Reserve Fund on a Distribution Date in excess of
the Reserve Fund Requirement will be released to HTC LP and HTD LP. On each
Distribution Date, HTC LP and HTD LP may receive income on investment amounts
held in the Reserve Fund. Any income on investments received by HTC LP and HTD
LP shall be free of any claim of the trust, the Indenture Trustee and 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 HTC LP nor HTD LP be required to refund any amount
properly received by them.
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 of more than $10 million per occurrence.
If and to the extent that such insurance coverage were to be exhausted or
lapsed and damages were to be assessed against the Origination Trust, claims
could be imposed against the Origination Trust Assets, including the SUBI Assets
and 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
82
<PAGE>
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 of the Trust due to a
Lessee's Operation of a Leased Vehicle", "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, (1)
replacement insurance policies are obtained providing a primary limit of $1
million per accident with no annual or aggregate limit on the number of
accidents covered, and additional excess limits providing a total of at least
$10 million of coverage per accident, and (2) each Rating Agency has delivered a
letter to the Owner Trustee (as the holder of the SUBI Certificates) 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:
(1) 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;
(2) 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:
(a) materially and adversely affects the rights of the noteholders; and
(b) continues uncured for a period of 30 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 a majority of
the voting interests of the Class A Notes; PROVIDED, HOWEVER, that
once the Class A Note Balance has been reduced to zero, such notice
of an event of default may be given by the holders of at least a
majority of the voting interests of the Class B Notes and the Class C
Notes, voting together as a single class, or
(3) certain events relating to the insolvency or bankruptcy of the trust.
If an Indenture Event of Default relating to non-payment of the type
described in item (1) above occurs and is continuing, then the Indenture Trustee
or noteholders representing at least a majority 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. If an Indenture Event of Default
relating to covenants, agreements, representations or warranties of the type
described in item (2) above occurs and is continuing, then the Indenture Trustee
or noteholders representing at least a majority of the voting interests of the
Class A Notes (and, after the Class A Note Balance has been reduced to zero,
noteholders representing at least a majority of the voting interests of the
Class B Notes and the Class C 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
83
<PAGE>
and payable. Upon an Indenture Event of Default relating to insolvency with
respect to the trust, the notes will become immediately due and payable
automatically without the giving of any notice.
The amount of principal and interest the trust is required to pay to
noteholders of any class of the notes prior to the Final Scheduled Payment 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 event of default under the indenture until the Final
Scheduled Payment Date for that class of notes.
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, (1) if the notes have been declared
immediately due and payable in connection with an Indenture Event of Default
relating to non-payment of the type described in item (1) above, noteholders
representing 100% of the voting interests of the notes, voting together as a
single class, or (2) if the notes have been declared immediately due and payable
in connection with an Indenture Event of Default relating to covenants,
agreements, representations or warranties of the type described in item (2)
above, Noteholders representing at least a majority of the voting interests of
the Class A Notes (and, after the Class A Note Balance has been reduced to zero,
noteholders representing at least a majority of the voting interests of the
Class B Notes and the Class C Notes, voting together as a single class), in
either case by written notice to the trust and the Indenture Trustee, may
rescind and annul this declaration and its consequences under certain
circumstances; PROVIDED that a declaration that the notes are immediately due
and payable in connection with a default related to a covenant or provision of
the indenture, which covenant or provision cannot be modified without the waiver
or consent of all the holders of the outstanding notes, may only be rescinded
and annulled by noteholders representing 100% of the voting interests of the
notes, voting together as a single class.
After acceleration of the notes, the Indenture Trustee may (1) institute a
proceeding to collect amounts due or foreclose on trust property, (2) exercise
remedies as a secured party, (3) sell the SUBI Interest (in accordance with the
procedures described below) or (4) 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 the noteholders shall not have offered to the Indenture
Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by the Indenture Trustee in complying with
such request or direction. Subject to the provisions for indemnification and
limitations contained in the 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:
(1) the holder previously gave written notice of a continuing Indenture
Event of Default to the Indenture Trustee;
(2) noteholders representing in the aggregate not less than 25% of the
voting interests of the notes, voting together as a single class, made
written request to the Indenture Trustee to institute such proceeding in
its own name as Indenture Trustee;
84
<PAGE>
(3) the holder or holders offered the Indenture Trustee reasonable indemnity
against the costs, expenses and liabilities to be incurred in complying
with this request;
(4) the Indenture Trustee has, for 60 days, failed to institute such
proceeding; and
(5) no direction inconsistent with such written request has been given to
the Indenture Trustee during the 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 Certificates 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
Certificates and such other property in a commercially reasonable manner and on
commercially reasonable terms; PROVIDED that such sale may only be made with the
consent of all the noteholders if proceeds realized as a result of such sale
would be insufficient 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 Certificates 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,
Class A-4 and Class A-5 Noteholders based on their respective Class Note
Balances until the Class A-1, Class A-2, Class A-3, Class A-4 and Class A-5
Notes have been paid in full, and then to the Class B Noteholders and the Class
C Noteholders, on a pro rata basis. If such proceeds, together with all amounts
on deposit in the Accounts, the Reserve Fund, and, in the case of the Class A-5
Notes, certain amounts otherwise distributable in respect of the Class B Notes
and the Class C 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 (1) Class A Notes will be allocated among the
Class A-1, Class A-2, Class A-3, Class A-4 and Class A-5 Noteholders or Note
Owners, as the case may be, in accordance with their respective Class A Note
Balances, as the context may require, (2) Class B Notes will be allocated among
the Class B Noteholders in accordance with the Class B Note Balance represented
thereby, and (3) Class C Notes will be allocated among the Class C Noteholders
in accordance with the Class C Note Balance represented thereby. Notwithstanding
the foregoing, in certain circumstances, any Class A Notes, Class B Notes, or
Class C Notes as the case may be, held or beneficially owned by HTC LP, HTD LP,
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 and
each Rating Agency 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 indebtedness owing by the trust to the
85
<PAGE>
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, HFI, HTI, HTA LP, HTB LP,
HTC LP, HTD LP, HTA LLC, HTB LLC, HTC LLC and HTD LLC (collectively, the
"Transferor Affiliates"), the Origination Trust or the Origination Trustee until
one year and one day after the later of (a) payment of the notes in full and (b)
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).
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 is a summary of additional provisions of the Agreement.
NO PETITION
Each of HTC LP, HTD LP, the Indenture Trustee and the Owner Trustee will
agree not to institute, or join in, any bankruptcy or similar proceeding against
the Transferor Affiliates, the Origination Trust or the Origination Trustee
until one year and one day after the later of (a) payment of the notes in full
and (b) 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 One Illinois Center, 111 East Wacker
Drive, Suite 3000, Chicago, Illinois 60601. U.S. Bank is not affiliated with
AHFC or any of its affiliates.
The Owner Trustee may resign at any time, in which event HTC LP and HTD LP
will be obligated to appoint a successor Owner Trustee. HTC LP and HTD LP may
also remove the Owner Trustee if the Owner Trustee:
(1) ceases to be eligible to continue as such under the Agreement;
(2) becomes legally unable to act; or
(3) becomes insolvent.
If the Owner Trustee resigns, or if HTC LP or HTD LP elects to remove the
Owner Trustee under the circumstances described above, HTC LP and HTD LP will be
obligated to appoint a successor
86
<PAGE>
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% beneficial
interest and 1% beneficial interest in the UTI, respectively, initial
beneficiaries of the Origination Trust. In their capacities 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.
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 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
the SUBI or the SUBI Certificates 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
87
<PAGE>
Origination Trust, the UTI Beneficiaries will be indemnified, defended and held
harmless out of the Origination Trust Assets 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, (1) 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 (2) 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 allocated to the SUBI. 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 (1) if the
Origination Trustee ceases to be qualified in accordance with the terms of the
SUBI Trust Agreement, (2) if certain representations and warranties made by the
Origination Trustee in the SUBI Trust Agreement prove to have been materially
incorrect when made, (3) in events of bankruptcy or insolvency or (4) 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 be ineffective until a successor trustee has
accepted its appointment. The Indenture Trustee, as pledgee of the SUBI
Certificates, 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 if HTA LP, HTB LP or any noteholder has given written
notice to the Origination Trustee and the Trust Agent of such breach and the
Trust Agent has not cured the breach in all material respects within 30 Business
Days thereafter.
The Origination Trustee will:
(1) make no representations as to the validity or sufficiency of:
(a) the SUBI, the SUBI Interest, the SUBI Certificates, the Retained SUBI
Interest or the Retained SUBI Certificates, or
(b) any contract, leased vehicle or related document;
(2) not be responsible for performing any of the duties of the UTI
Beneficiaries or the Servicer; and
(3) not be accountable for:
(a) 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
(b) the investment of any of such monies before such monies are deposited
into the accounts relating to:
(i) the SUBI,
(ii) the Other SUBIs, or
(iii) the UTI.
The Origination Trustee will not independently verify the contracts or the
related leased vehicles. The duties of the Origination Trustee will generally be
limited to:
(1) the acceptance of assignments of lease contracts;
88
<PAGE>
(2) the titling of the related leased vehicles in the name of the
Origination Trust or the Origination Trustee on behalf of the trust;
(3) the creation of the SUBI, the Other SUBIs and the UTI;
(4) the maintenance of the SUBI Collection Account and accounts relating to
the Other SUBIs and the UTI; and
(5) 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 is not obligated to:
(1) 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
(2) 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 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:
(1) any of the Origination Trust Assets (including without limitation any
Indemnified Amount relating to lease contracts or leased vehicles of the
Origination Trust, consumer fraud, 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 from any such leased vehicle or any claim with
respect to any tax arising with respect to any Origination Trust Asset);
or
(2) the Origination Trustee's or the Trust Agent's acceptance or performance
of the obligations and duties contained in the SUBI Trust Agreement or
any agency agreement.
89
<PAGE>
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:
(1) for which the Servicer shall be liable pursuant to the Servicing
Agreement (unless such Indemnified Amount is an expense for which the
Servicer would be entitled to reimbursement from the Origination Trust
Assets pursuant to the Servicing Agreement or the Servicer shall not have
paid such Indemnified Amount upon the final determination of its
liability therefor);
(2) incurred by reason of the Origination Trustee's or such Trust Agent's
willful misfeasance, bad faith or negligence; or
(3) 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 later
to occur of:
(1) 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
(2) 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 SUBI Trust Agreement will agree not to institute,
or join in, any bankruptcy or similar proceeding against the trust, the
Transferor Affiliates, the Origination Trust or the Origination Trustee until
one year and one day after the later of (a) payment of the notes in full and (b)
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). 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.
90
<PAGE>
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:
(1) collecting and processing payments;
(2) responding to inquiries of the lessees;
(3) investigating delinquencies;
(4) sending payment statements and reporting tax information to the lessees;
(5) collecting and remitting certain sales and use and other taxes to state
and local governments and agencies;
(6) 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;
(7) commencing legal proceedings to enforce the contracts on behalf of the
Origination Trust;
(8) administering the contracts, including accounting for collections; and
(9) 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
perform its 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 (1) contracts, (2) certificates of title relating to the
leased vehicles and (3) insurance policies and other documents relating to the
contracts, the related lessees and the leased vehicles. These 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 rights in the contracts will
be filed, as more fully described under "Certain Legal Aspects of the Contracts
and the Leased Vehicles--Back-up Security Interests". The Servicer will be
responsible for filing:
(1) all periodic sales and use tax or property (real or personal) tax
reports;
(2) periodic renewals of licenses and permits;
(3) periodic renewals of any qualification to act as a business trust; and
(4) other periodic governmental filings, registration or approvals arising
with respect to or required of the Origination Trustee or the Origination
Trust.
91
<PAGE>
COLLECTIONS
The Servicer will service, administer and collect all amounts due on or in
respect of the contracts. The Servicer will make commercially reasonable efforts
to collect these amounts and, in a manner consistent with its obligations under
the Servicing Agreement, will service the contracts generally in accordance with
the customary and usual procedures used by servicers for motor vehicle lease
contracts.
Consistent with its usual procedures, the Servicer may, in its discretion,
defer payment of a Monthly Payment due under any contract or extend the original
Maturity Date of any contract; PROVIDED that the Servicer may not (i) grant more
than six deferrals under any individual contract, (ii) extend the original
Maturity Date of any contract by more than six months after its original
Maturity Date or (iii) extend the Maturity Date of any contract such that its
new Maturity Date is later than the first day of the month preceding the month
of the Final Scheduled Payment Date for the Class C Notes. The Servicing
Agreement will provide that in the event that the Servicer defers or 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 deferral or extension was granted (or on the Deposit Date relating to the
Collection Period in which the Servicer discovers or is notified that an
improper deferral or extension was granted), at which time such contract and the
related leased vehicle will no longer constitute 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 on each contract which has been deferred to the extent that the
deferral would reduce the amount of payments received on the contract relative
to the originally scheduled Monthly Payments. The amount of any Extension Fee
the Servicer receives in connection with the extension of a contract will not be
deposited into the SUBI Collection Account.
NOTIFICATION OF LIENS AND CLAIMS
The Servicer will be required to notify HTC LP and HTD LP (in the event that
AHFC is not acting as the Servicer), the Indenture Trustee, HTA LP, HTB LP,
holders of the related notes and the Origination Trustee immediately of all
liens or claims of whatever kind made by a third party that would materially
adversely affect the interests of, among others, HTC LP, HTD LP, the Origination
Trust or any SUBI Asset (with respect to, among other things, any contract or
leased vehicle). Following the Servicer's discovery of any such lien or claim
against any leased vehicle (other than any Administrative Lien), it will take
whatever actions it deems reasonably necessary to remove the lien or claim. See
"Certain Legal Aspects of the Origination Trust and the SUBI--Back-up Security
Interest in Certain SUBI Assets".
ADVANCES
On each Deposit Date, the Servicer will be obligated to 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 on contracts
that are 31 days or more past due as of the end of the related Collection Period
or contracts on which a deferral has been made (collectively, an "Advance"), as
described under "Additional Document Provisions--The Servicing
Agreement--Collections".
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
92
<PAGE>
previously been made is subsequently received. In addition, the Servicer will be
reimbursed for all Nonrecoverable Advances from collections on all the contracts
and leased vehicles prior to any distributions on the notes.
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 the contracts are originated (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
these 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 (except for Security
Deposits paid in connection with contracts originating in the state of New York,
which Security Deposits must be segregated). Any income earned from any
investment on the Security Deposits by the Servicer shall be for the account of
the Servicer as additional servicing compensation (except for income earned on
Security Deposits paid in connection with contracts originating in the state of
New York, which income, if any, must be reserved for the party which initially
paid the Security Deposit).
MONITORING LESSEES' INSURANCE ON LEASED VEHICLES
In the Servicing Agreement, the Servicer will agree to take steps to ensure
that each lessee shall have, and shall maintain in full force and effect during
the term of the related contract, automotive liability insurance in amounts at
least equal to the amount prescribed by applicable state law. AHFC uses a third
party service provider (PDP Group, Inc. of Hunt Valley, Maryland) to verify that
each lessee's insurance coverage complies with applicable legal 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 confirm that the lessees renew insurance policies upon the
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 the Servicer 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 the Servicer is unable to arrange for
satisfactory collection of delinquent payments (a "Defaulted Vehicle"). This
liquidation may occur through repossession of the 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 (1) enforce all rights
under any such contract, (2) sell the Defaulted Vehicle in accordance with the
contract and (3) 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 as it shall deem necessary
93
<PAGE>
and advisable, and in any event shall act in compliance with all applicable
laws. The Servicer will be required to repair the leased vehicle only if it
reasonably determines that such expenditure is likely to enhance Net Liquidation
Proceeds. The Servicer will be responsible for all costs and expenses it incurs
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 it will be entitled to reimbursement to the
extent that these 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
that Collection Period.
"Insurance Expenses" are any Insurance Proceeds (excluding any amounts paid
from any residual value insurance policy) (1) applied to the repair of the
related leased vehicle, (2) released to the related lessee in accordance with
applicable law or the customary servicing procedures of the Servicer or (3)
representing other related expenses incurred by the Servicer not otherwise
included in Liquidation Expenses and recoverable by the Servicer under the
Servicing Agreement.
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 that 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 the 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, HOWEVER, that the related Matured Leased Vehicle
Expenses may be netted against Matured Lease Vehicle Proceeds prior to deposit
in the SUBI Collection Account if an officer's certificate is provided by the
Servicer. The Servicer will also be entitled to reimbursement of certain
payments made and expenses and charges it incurred in the ordinary course of
servicing the contracts (including payments the Servicer 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 from separate payment thereof by the related lessees or
from amounts realized upon the final disposition of the related leased vehicle.
To the extent these amounts are not reimbursed prior to or at the final
disposition of such leased vehicle but remain unpaid by the related lessee,
these 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
94
<PAGE>
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 selected monitoring and reporting functions on
behalf of HTC LP, HTD LP, the Indenture Trustee, the Owner Trustee, the
Origination Trustee and the noteholders, including:
(1) 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
(2) 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 within 120 days after March 31 of each
year, beginning 120 days after March 31, 2000, a statement as to compliance by
the Servicer during the preceding twelve months ended March 31 (or since the
Closing Date in the case of the first statement) with specified standards
relating to:
(1) the servicing of the contracts;
(2) the Servicer's accounting records and computer files with respect
thereto; and
(3) certain other matters.
The Servicing Agreement will also provide for delivery to the Indenture
Trustee, within 120 days of March 31 of each year, beginning 120 days after
March 31, 2000, 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.
Note Owners or noteholders may obtain copies of such statements and
certificates by written request addressed to the Indenture Trustee at its
Corporate Trust Office.
COMPLIANCE WITH ERISA
AHFC shall provide the Indenture Trustee and each Rating Agency, on a
quarterly basis, with an officer's certificate stating that none of AHFC and its
affiliates for purposes of ERISA:
(1) maintains an ERISA plan which, as of its last valuation date, had any
unfunded current liability;
(2) anticipates that the value of the assets of any ERISA plan it maintains
would not be sufficient to cover any current liability; and
(3) contemplates 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 allocations 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
95
<PAGE>
which such failure is cured, monies on deposit in the Reserve Fund in excess of
the Required Amount shall be distributed to HTC LP and HTD LP.
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") for 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%. The Servicing Fee will be calculated and paid based upon a
360-day year consisting of twelve 30-day months.
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 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") 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 it incurs 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
these expenses except to the extent any of these 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, the Origination Trustee, on
behalf of the trust, or a UTI Beneficiary in any Origination Trust Asset,
including the contracts or the related 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
and state income tax information.
SERVICER PURCHASE OPTION
In order to avoid excessive administrative expenses, the Servicer will have
an option in certain circumstances to purchase all of the assets of the trust as
described under "Description of the Notes-- Termination of the Trust; Redemption
of the Notes".
96
<PAGE>
SERVICER RESIGNATION AND TERMINATION; SUCCESSOR SERVICERS
The Servicer may not resign from its obligations and duties under the
Servicing Agreement unless it determines that its duties thereunder, by reason
of a change in applicable law or regulations, would cause it to be in violation
of such law or regulations in a manner that would result in a material adverse
effect on the Servicer or its financial condition. No such resignation will
become effective until the date on which the Servicer becomes unable to act as
Servicer, unless 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 contracts are not so unique such that it would be extremely
difficult to appoint a successor servicer to service the contracts. However, the
resignation or removal of the Servicer and the appointment of a successor
servicer could cause a temporary disruption in the servicing of the contracts
and thus a temporary disruption in distributions under the notes.
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".
INDEMNIFICATION BY THE SERVICER
Subject to certain exceptions, the Servicer will indemnify the Origination
Trustee (and any co-trustees), any Trust Agent 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:
(1) 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 the failure by an
officer of the Servicer or receipt by the Servicer of written notice of
the failure from the Indenture Trustee, the Origination Trustee or a
noteholder who does not receive such required payment;
(2) 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 the failure is given as
described in clause (1) above;
(3) 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;
(4) any representation, warranty or statement of the Servicer made in the
Servicing Agreement (except for certain representations regarding the
characteristics of the contracts and regarding the Servicer's
satisfaction of certain provisions related to certificates of title of
the leased vehicles) 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
97
<PAGE>
shall be made which has a material adverse effect on a noteholder and
this material adverse effect continues unremedied for 30 days after
written notice of this failure is given as described in clause (1) above;
(5) failure by the Servicer to maintain or pay when due the premium for any
Contingent and Excess Liability Insurance Policies and such failure
continues unremedied for 10 days after discovery by the Servicer or
written notice of the failure is given described in clause (1) above; or
(6) a conservator, receiver or bankruptcy trustee is appointed for the
Servicer relating to the occurrence of 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 (1) for a period of ten Business Days, under clause (2) for a
period of 180 days, under clause (3) for a period of 60 Business Days or under
clause (4) for a period of 90 days, shall not constitute a Servicer Termination
Event if the failure or delay was caused by act of God or other similar
occurrence beyond the Servicer's reasonable control. 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 Owner Trustee 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 noteholders
representing in the aggregate more than 50% of the voting interests of the
notes, voting together as a single class, will be empowered to appoint a
successor servicer pursuant to a servicing agreement containing substantially
the same provisions as the Servicing Agreement on 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 on 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 for
the purchase of additional contracts or leased vehicles by the Origination Trust
or for making Advances. Any compensation payable to a successor servicer may not
exceed that permitted the predecessor servicer unless the holders of the UTI,
the SUBI and any Other SUBIs, as the case may be, bear these 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, the 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
98
<PAGE>
for any losses incurred in performing certain such obligations, and will be
entitled to payment of selected amounts payable to it for services rendered
prior to this termination.
The Indenture Trustee, acting on the direction of noteholders representing
in the aggregate more than 50% of the voting interests of the notes, voting
together as a single class, may direct the Origination Trustee to waive any
default by the Servicer in the performance of the Servicer's 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, HTC LP, HTD LP 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:
(1) the dissolution of the Origination Trust;
(2) the discharge of the Servicer in accordance with its terms; or
(3) the mutual written determination of the parties thereto.
INDENTURE TRUSTEE, OWNER TRUSTEE AND ORIGINATION TRUSTEE AS THIRD-PARTY
BENEFICIARIES
The Owner Trustee (as the holder of the SUBI Interest), the Indenture
Trustee (as the pledgee of the SUBI Interest) and the Origination Trustee (on
behalf of the Origination Trust) 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 Trust Agreement, 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 which may be inconsistent with
any other provision in the Basic Documents, to add, change or eliminate any
other provisions which are inconsistent, or to add or amend any provision in
connection with permitting transfers of the notes provided that:
(1) any such action will not, in the good faith judgment of the parties,
materially and adversely affect the interests of any noteholder, any
certificateholder, the Indenture Trustee, the Owner Trustee or the
Origination Trustee; or
99
<PAGE>
(2) the Owner Trustee and Indenture Trustee shall have been furnished with
an opinion of counsel to the effect that the 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 parties
thereto (including with respect to changing the formula for determining the
Specified Reserve Fund Balance, changing the manner by which the Reserve Fund is
funded, changing the remittance schedule for collection deposits in the Note
Distribution Account, or changing the definition of "Eligible Investments") if:
(1) 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
(2) the Indenture Trustee has received the consent of the holders of notes
affected thereby 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:
(a) any amendment eliminating the Reserve Fund or reducing the Specified
Reserve Fund Balance to less than certain specified levels shall also
require an opinion of counsel to the effect that, after such
amendment, for federal income tax purposes the notes will properly be
characterized as indebtedness that is secured by the assets of the
trust; and the amendment shall not, except as otherwise set forth
elsewhere in this section, 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 Certificates 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 states where, in the Servicer's judgment, 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-- The Bankruptcy or Other Insolvency
of American Honda Finance Corporation, Honda Titling A L.P., Honda Titling B
L.P., Honda Titling C L.P. or Honda Titling D L.P. Could Delay or Prevent
Payments on the Notes". 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 in those assets 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 the Leased Vehicles--Vicarious
Tort Liability".
100
<PAGE>
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, but could include penalties against HVT, Inc. and
its directors and officers ranging from fines to the inability of HVT, Inc. to
maintain an 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's view will prevail. However, no state in which (1) this
issue is uncertain, HVT, Inc. has not taken the actions necessary to qualify as
a fiduciary and (2) the consequences of this failure would be material
represents a significant percentage of the value of the SUBI Assets. Therefore,
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 directly own the
SUBI Assets. Instead, the Origination Trust will own the Origination Trust
Assets, including the SUBI Assets, and the Origination Trustee will take actions
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
primary asset of the trust will be the SUBI Certificates 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,
HTC LP and HTD LP. Beneficial interests in the contracts and leased vehicles
represented by the SUBI Certificates, rather than direct legal ownership 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
Servicer and/or the Origination Trustee will segregate the SUBI Assets from the
other Origination Trust Assets on the books and records each maintains for these
assets. 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 any Origination Trust
Assets other than the SUBI Assets will be unavailable to make payments on the
notes or to cover expenses of the Origination Trust allocable to the SUBI
Assets.
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 to the extent
incurred specifically with respect thereto, the SUBI Assets, the Other SUBI
Assets or the UTI Assets, respectively, or 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, the trust as a holder of the SUBI Interest will bear any liability to
third parties arising from a contract or the related leased vehicle. If any such
liability arises from a contract or leased vehicle that is an Other SUBI Asset
or a UTI Asset, the SUBI Assets will not be subject to this 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 the
liability, and the liability is owed to entities other than the Origination
Trustee or other beneficiaries of the Origination Trust, the SUBI
101
<PAGE>
Assets may be used to satisfy the liabilities. Under these 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 Certificates by HTC LP and HTD LP to the trust is
intended to constitute a sale of the SUBI Certificates and of the beneficial
interest in the SUBI Assets evidenced thereby, subject in each case to the
rights of HTC LP and HTD LP as the holders of the SUBI 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 Certificates or
the SUBI Assets rather than as a sale. In such an event, absent 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
Certificates were recharacterized as a transfer to secure a loan, the Indenture
Trustee would be deemed to have a perfected security interest in the SUBI
Certificates (and the related SUBI Assets) 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 Certificates 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 Assets evidenced thereby) through its possession of the SUBI
Certificates. 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 including the documents
evidencing the contracts, and the proceeds thereof, 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 (excluding any amounts paid from
any residual value insurance policy) (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 third party imposes a valid lien against a leased vehicle allocated to
the SUBI, this lienholder's interest will be superior to the unperfected
beneficial interest of the Indenture Trustee in the related leased vehicle.
Although the Servicing Agreement will require the Servicer to contest all the
liens and cause the removal of any liens that may be imposed, investors in the
notes could incur a loss on their investment if any of these liens are imposed
against the leased vehicles allocated to the SUBI. 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
HTC LP or HTD LP prior to any perfection of the transfer of the assets
transferred by HTC LP or HTD LP to the trust pursuant to the Agreement. See
"Risk Factors--The Bankruptcy or Other Insolvency of American Honda Finance
Corporation, Honda Titling A L.P., Honda Titling B L.P., Honda Titling C L.P. or
Honda Titling D L.P. Could Delay or Prevent Payments on the Notes".
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
102
<PAGE>
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 be unavailable to make payments on the notes or to cover
expenses of the Origination Trust allocable to the SUBI Assets. The holders of
interests in the SUBI (including the trust) will bear any liability to third
parties arising from a contract or the related leased vehicle. 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 this liability unless the 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 this 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 these
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 be
unable 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 allocated to the SUBI, and since their respective interests generally
will be an indirect beneficial ownership interest and a security interest in the
indirect beneficial ownership interest, perfected liens of third-party creditors
of the Origination Trust in one or more of SUBI Assets will take priority over
the interests of the Owner Trustee and the Indenture Trustee in those SUBI
Assets. Therefore, a general creditor of the Origination Trust may obtain a lien
on one or more such SUBI Assets regardless of whether the creditor's claim would
be allocated to such SUBI Assets under the terms of the Origination Trust
Agreement. Potentially material examples of such liens could include:
(1) tax liens arising against HTC LP, HTD LP or the trust;
(2) liens arising under various federal and state criminal statutes;
(3) certain liens in favor of the Pension Benefit Guaranty Corporation (the
"PBGC");
(4) judgment liens arising from successful claims under federal and state
consumer protection laws and Lemon Laws against leases and leased
vehicles included in the Origination Trust Assets; and
(5) 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--If ERISA Liens Are Placed on the Assets of the Honda
Lease Trust, You Could Suffer a Loss on Your Investment" and "--Possible
Liability of the Trust due to a Lessee's Operation of a Leased Vehicle" 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
103
<PAGE>
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 to expressly 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.
The Owner Trustee will generally be deemed to own the SUBI Certificates on
behalf of the trust and, through such ownership, to have an indirect beneficial
ownership interest in the contracts and the related leased vehicles. If a court
of competent jurisdiction were to recharacterize the sale to the Owner Trustee
of the SUBI Certificates and the SUBI Interest evidenced thereby, 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
Certificates, but in no event would the trust or the Indenture Trustee be deemed
to have a perfected security interest in the leased vehicles allocated to the
SUBI.
INSOLVENCY RELATED MATTERS
Although no assurance can be given, HTC LP and HTD LP believe 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, UTI Certificates other SUBIs
and Other SUBI Certificates should be enforceable. In addition, steps have been
taken to structure 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, HTC LP, HTD LP or the
trust with those of AHFC. For HTA LP, HTB LP, HTC LP and HTD LP, these steps
include their creation as separate, special purpose limited partnerships of
which HTA LLC, HTB LLC, HTC LLC and HTD 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 certificates 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 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).
However, delays in payments on the notes and possible reductions in the
amount of such payments could occur if:
- a court were to conclude that the assets and liabilities of the
Origination Trust, HTA LP, HTB LP, HTC LP, HTD LP or the trust should be
consolidated with those of AHFC in the event of the application of
applicable Insolvency Laws to AHFC, or
- a filing were to be made under any Insolvency Law by or against the
Origination Trust, HTA LP, HTB LP, HTC LP, HTD LP or the trust, or
- an attempt were to be made to litigate any of the foregoing issues.
If a court were to conclude that the transfer of the SUBI Certificates from
HTA LP and HTB LP to HTC LP and HTD LP, or the transfer of the SUBI Certificates
from HTC LP and HTD LP to the trust was not a true sale, or that HTA LP, HTB LP,
HTC LP, HTD LP and the trust should be treated
104
<PAGE>
as the same entity as AHFC for bankruptcy purposes, any of the following could
delay or prevent payments on the notes:
- the automatic stay, which prevents secured creditors from exercising
remedies against a debtor in bankruptcy without permission from the court
and provisions of the United States Bankruptcy Code that permit
substitution of collateral in certain circumstances,
- certain tax or government liens on AHFC'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 the notes,
or
- the trust not having a perfected security interest in the leased vehicles
securing the contracts or any cash collections held by AHFC at the time
that AHFC becomes the subject of a bankruptcy proceeding.
In an insolvency proceeding of AHFC, (1) Reallocation Payments made by AHFC
on certain contracts as to which an uncured breach of certain representations
and warranties or servicing covenants has occurred, (2) payments made by AHFC on
certain insurance policies required to be obtained and maintained by lessees
pursuant to the contracts, (3) unreimbursed Advances made by AHFC, as Servicer,
pursuant to the Servicing Agreement, and (4) payments made by AHFC to HTC LP and
HTD LP 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 those
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 in turn 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, HTC LP and HTD LP, 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 particular 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 the trust, HTA LP, HTB LP, HTC LP, HTD LP 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: (1) the transfer of the 99%
interest and the 1% interest in the SUBI Assets from HTA LP and HTB LP,
respectively, to HTC LP and HTD LP, respectively, constitutes a sale of such 99%
interest and the 1% interest and the related SUBI Assets; and (2) the transfer
of the SUBI Certificates by HTC LP and HTD LP to the trust constitutes a sale of
the SUBI Certificates and the SUBI Assets evidenced thereby, subject in each
case to the rights of HTC LP and HTD LP as the holders of the SUBI Certificates
and the rights of the Indenture Trustee as pledgee of the SUBI Certificates, or
if such transfer does not constitute a sale, then the Agreement creates a valid
perfected security interest of the Owner Trustee in each of HTC LP's and HTD
LP's right, title and interest in the SUBI Certificates.
LEGAL PROCEEDINGS
None of HTA LP, HTB LP, HTC LP or HTD LP 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 AHFC and the Origination Trust, as
applicable believe constitute ordinary routine litigation incidental to the
business and activities conducted by AHFC and the Origination Trust. Some 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
105
<PAGE>
otherwise, or on the Origination Trust, the Origination Trust Assets or the
SUBI. However, there can be no assurances in this regard.
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, HTC LP and HTD LP may be perfected by
filing UCC-1 financing statement with the appropriate state authorities in the
jurisdiction in which the principal places of business of HTC LP and HTD LP are
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 of the contract 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 related leased vehicles) that, by operation of law, would take
priority over the Indenture Trustee's interest therein. Such liens could
include:
(1) tax liens arising against HTC LP, HTD LP or the trust;
(2) mechanics', 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 allocated to the SUBI;
(3) liens arising under various state and federal criminal statutes; and
(4) certain liens of the PBGC in respect of certain unfunded pension
liabilities of HTC LP, HTD LP and their 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 HTC LP or HTD LP prior to any perfection of the transfer of the assets
transferred by HTC LP or HTD LP to the trust pursuant to the Agreement.
VICARIOUS TORT LIABILITY
Although the Origination Trust will own the leased vehicles allocated to the
SUBI and the trust will have a beneficial interest therein evidenced by the
SUBI, the related lessees and their respective invitees will operate leased
vehicles. 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 (i) do not permit these types of suits, or (ii) 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
106
<PAGE>
$15,000 per person and $30,000 in total per accident and the owner's liability
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.
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 does not appear to be a 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 AHFC, 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 and AHFC is a
named insured under the Origination Trust's applicable insurance policies.
However, in the event that all applicable insurance coverage were to be
exhausted (including the coverage provided by the Contingent and Excess
Liability Insurance Policies) and damages in respect of vicarious liability were
to be assessed against the Origination Trust, claims could be imposed against
the Origination Trust Assets, including the leased vehicles allocated to the
SUBI and in certain circumstances with respect to a leased vehicle that is an
Other SUBI Asset or a UTI Asset. However, these 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 in the SUBI Assets
(such as with respect to the contracts). If any of these claims were imposed
against the Origination Trust Assets, 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, the Servicer must obtain
an order from the appropriate state court, and must then repossess the vehicle
in accordance with that order. Other jurisdictions permit repossession without
notice (although in some 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 is unavoidable, the lessor must seek a writ of possession in
a state court action or pursue other judicial action to repossess the leased
vehicle.
After the Servicer has repossessed a leased vehicle, the Servicer 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.
107
<PAGE>
DEFICIENCY JUDGMENTS
The Servicer will generally apply the proceeds of sale of a leased vehicle
first to the expenses of resale and repossession and then to the satisfaction of
the amounts due under the related lease contract. While 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
directly prohibit 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 of a judgment.
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:
(1) the amount and type of all payments due at the time of origination of
the lease;
(2) a description of the lessee's liability at the end of the lease term;
(3) the amount of any periodic payments and manner of their calculation;
(4) the circumstances under which the lessee may terminate the lease prior
to the end of the lease term;
(5) the capitalized cost of the vehicle; and
(6) 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 specified 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 Certificates. The failure to
comply with these 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 any 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
108
<PAGE>
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 with respect to that
contract. 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, the 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 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.
The Servicer will make representations and warranties 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 the 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.
109
<PAGE>
THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES
FEDERAL TAXATION
GENERAL
Certain portions of the discussion set forth in this section (those that
specifically refer to Federal Tax Counsel) are statements of the opinion of
O'Melveny & Myers LLP, special federal income tax counsel ("Federal Tax
Counsel") to HTC LP and HTD LP, as to material federal income tax consequences
to Note Owners 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 Note Owners in light of their particular circumstances, nor to
certain types of 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 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 (1) 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 (2)
directly relevant to the determination of an entry on a tax return. Accordingly,
it is suggested that taxpayers 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. It is suggested
that prospective investors consult their own tax advisors with regard to the
federal income tax consequences of the 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
HTC LP, HTD LP, 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. HTC LP, HTD LP 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 will be governed
by the substance of the transaction and, accordingly, (1) the trust will not be
treated as an association taxable as a corporation and (2) the notes will
properly be characterized as indebtedness that is secured by the trust assets.
However, the opinion of Federal Tax Counsel is not
110
<PAGE>
binding on the IRS and no assurance can be given that such characterization will
prevail. Contrary characterizations that could be asserted by the IRS described
are 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. Note Owners." A "U.S. Note
Owner" is a Note Owner who is:
(1) a citizen or resident of the United States;
(2) 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);
(3) an estate whose income is subject to United States federal income tax,
regardless of its source; or
(4) 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. Note Owners.
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. Note Owner utilizing the cash method
of accounting and when accrued by U.S. Note Owner 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.
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,
Class A-5 Notes, Class B Notes, or Class C 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, Class A-5 Notes, Class B
Notes or Class C 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 U.S. Note Owners
will be entitled to penalty payments of interest on interest deficiencies, and
U.S. Note Owners 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.
Note Owner must include OID in gross income (as ordinary interest income) over
the term of the related note under a constant yield method. In general, the U.S.
Note Owner must include OID in income in advance of the receipt of cash
representing that income, regardless of that U.S. Note Owner's method
111
<PAGE>
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. Note Owner 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. Note Owners
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 U.S. Note Owners may elect to accrue all DE
MINIMIS OID as well as market discount under a constant interest method.
A U.S. Note Owner 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 a U.S. Note
Owner may include in income 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. Note Owner 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. Note Owner 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, HTC LP and HTD LP currently
intend to report all stated interest on the notes as qualified stated interest
and not as OID.
MARKET DISCOUNT. U.S. Note Owners should be aware that the Code's market
discount rules may affect the resale of a note. 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. Note Owner 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. Note Owner 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. Note Owner 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. Note Owner may elect to amortize such
premium on a constant yield method. Amortizable premium reduces interest income
on the related note. If the U.S. Note Owner 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. It is suggested that
U.S. Note Owners consult their own tax advisors regarding the impact of the
original issue discount, market discount, and premium amortization rules.
SALES OF NOTES
In general, a U.S. Note Owner will recognize gain or loss upon the sale,
exchange, redemption or other taxable disposition of a note measured by the
difference between (1) the amount of cash and the fair market value of any
property received (other than amounts attributable to, and taxable as, accrued
112
<PAGE>
stated interest) and (2) the U.S. Note Owner'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. Note Owners ("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 connected 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 is 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 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 U.S.
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 U.S. Note Owner
stating that the U.S. Note Owner is a Foreign Investor and providing such U.S.
Note Owner's name and address. The withholding agent must receive the statement
in the calendar year in which the interest payment is made, or in either of the
two preceding calendar years.
A U.S. 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 (1) such gain is not
effectively connected with a trade or business carried on by the U.S. Note Owner
in the United States, (2) in the case of a U.S. Note Owner that is an
individual, such U.S. 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 (3) 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 U.S. Note Owner, upon issuance:
(1) fails to supply the trustee or his broker with such U.S. Note Owner's
taxpayer identification number;
(2) fails to report interest, dividends or other "reportable payments" (as
defined in the Code) properly; or
(3) fails to provide the trustee or his broker with a certified statement,
signed under penalty of perjury, that such U.S. Note Owner is not subject to
backup withholding.
113
<PAGE>
Information returns will be sent annually to the IRS and to each U.S. 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,
2000, subject to certain transition rules. Prospective investors should 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 U.S. Note Owners
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 addition, income to certain tax-exempt
entities (including pension funds) generally would be "unrelated business
taxable income", and income to foreign U.S. Note Owners generally would be
subject to United States withholding tax and reporting requirements. While AHFC
strongly 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, pension, profit-sharing or other
employee benefit plans, as well as individual retirement accounts and Keogh
plans (each a "Benefit Plan") may acquire the notes. Section 406 of ERISA and/or
Section 4975 of the Code prohibit(s) 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 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, HTC LP and HTD LP
believe 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
114
<PAGE>
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,
HTC LP, HTD LP 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 (1) it
is not acquiring the notes with the assets of a Benefit Plan; or (2) 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.
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.
115
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated July 23, 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 HTC LP and HTD LP the principal amount
of the notes set forth opposite its name below:
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 CLASS A-5 CLASS B CLASS C
UNDERWRITER NOTES NOTES NOTES NOTES NOTES NOTES NOTES
- --------------------------------- ----------- ----------- ----------- ------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Credit Suisse First Boston
Corporation..................... $159,600,000 $151,200,000 $168,000,000 $ 420,000,000 $338,940,000 $49,500,000 $49,500,000
J.P. Morgan Securities Inc....... 57,000,000 54,000,000 60,000,000 150,000,000 121,050,000 16,500,000 16,500,000
Banc of America Securities LLC... 38,000,000 36,000,000 40,000,000 100,000,000 80,700,000 0 0
Chase Securities Inc............. 38,000,000 36,000,000 40,000,000 100,000,000 80,700,000 0 0
ABN AMRO Incorporated............ 19,000,000 18,000,000 20,000,000 50,000,000 40,350,000 0 0
Banc One Capital Markets, Inc.... 19,000,000 18,000,000 20,000,000 50,000,000 40,350,000 0 0
Barclays Capital................. 19,000,000 18,000,000 20,000,000 50,000,000 40,350,000 0 0
Salomon Smith Barney Inc......... 19,000,000 18,000,000 20,000,000 50,000,000 40,350,000 0 0
SG Cowen Securities
Corporation..................... 11,400,000 10,800,000 12,000,000 30,000,000 24,210,000 0 0
----------- ----------- ----------- ------------- ----------- ---------- ----------
Total........................ $380,000,000 $360,000,000 $400,000,000 $1,000,000,000 $807,000,000 $66,000,000 $66,000,000
----------- ----------- ----------- ------------- ----------- ---------- ----------
----------- ----------- ----------- ------------- ----------- ---------- ----------
</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.
HTC LP and HTD LP have been advised by the Underwriters that the
Underwriters propose to offer the notes to the public initially at the offering
prices set forth on the cover page of this prospectus, and to certain dealers at
these prices less the concessions and reallowance discounts set forth below:
<TABLE>
<CAPTION>
SELLING
CLASS CONCESSION REALLOWANCE DISCOUNT
- ------------------------------------------------------------------------- ----------------- --------------------
<S> <C> <C>
Class A-1 Notes.......................................................... 0.060% 0.050%
Class A-2 Notes.......................................................... 0.105% 0.075%
Class A-3 Notes.......................................................... 0.110% 0.075%
Class A-4 Notes.......................................................... 0.120% 0.075%
Class A-5 Notes.......................................................... 0.150% 0.125%
Class B Notes............................................................ 0.180% 0.125%
Class C Notes............................................................ 0.210% 0.125%
</TABLE>
After the initial public offering, the Underwriters may change the public
offering price and selling concessions and reallowance discounts to dealers.
As part of the offering, it is expected that a selling group will be formed
which is expected to include Williams Capital.
There currently is no secondary market for any class of notes and there is
no assurance that one will develop. The Underwriters expect, but will not be
obligated, to make a market in each class of notes. There is no assurance that
any such market will develop, or if one does develop, that it will continue or
that it will provide sufficient liquidity.
AHFC, HTC LP and HTD LP have agreed to indemnify, jointly and severally, the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act of 1933, as amended (the
116
<PAGE>
"Securities Act"), or contribute to payments which the Underwriters may be
required to make in respect thereby.
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 may consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the notes.
None of HTC LP, HTD LP or 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, none of HTC
LP, HTD LP or 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.
It is expected that delivery of the notes will be made against payment
therefor on or about the Closing Date, which is the fourth business day
following the date hereof. Rule 15c6-1 of the Commission under the Exchange Act
generally requires trades in the secondary market 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 four
business days after the date hereof, to specify an alternate settlement cycle at
the time of any such trade to prevent a failed settlement. It is suggested that
purchasers of notes who wish to trade notes on the date hereof consult their own
advisors.
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.
Credit Suisse First Boston Corporation will receive a fee equal to 0.065% of
the Initial Note Balance for certain advisory, analytical and structuring
services related to the transacton, payable from the net proceeds from the
offering of the notes.
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,
HTC LP, HTD LP or the Underwriters will promptly deliver, or cause to be
delivered, without charge, a paper copy of the prospectus.
Each Underwriter will represent that (i) it has not offered or sold and will
not offer or sell, prior to the date six months after their date of issuance,
any notes to persons in the United Kingdom, except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted in and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995; (ii) it has complied and will comply with
all applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the notes in, from or otherwise involving the
United Kingdom; and (iii) it has only issued or passed on and will only issue or
pass on in the United Kingdom any document received by it in connection with the
issuance of the notes to a person who is of a kind described in Article 11(3) of
the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1997 or is a person to whom the document can otherwise lawfully be issued or
passed on.
117
<PAGE>
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the notes in Canada is being made only on a private
placement basis exempt from the requirement that HTC LP and HTD LP, on behalf of
the trust, prepare and file a prospectus with the securities regulatory
authorities in each province where trades of notes are effected. Accordingly,
any resale of the notes in Canada must be made in accordance with applicable
securities laws which will vary depending on the relevant jurisdiction, and
which may require resales to be made in accordance with available statutory
exemptions or pursuant to a discretionary exemption granted by the applicable
Canadian securities regulatory authority. Purchasers are advised to seek legal
advice prior to any resale of the notes.
REPRESENTATIONS OF PURCHASERS
Each purchaser of notes in Canada who receives a purchase confirmation will
be deemed to represent to HTC LP and HTD LP, the Servicer, the related trustee,
the trust and the dealer from whom such purchase confirmation is received that
(i) such purchaser is entitled under applicable provincial securities laws to
purchase such notes without the benefit of a prospectus qualified under such
securities laws, (ii) where required by law, that such purchaser is purchasing
as principal and not as agent, and (iii) such purchaser has reviewed the text
above under "--Resale Restrictions".
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Section 32 of the Regulation under the SECURITIES ACT (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of notes to whom the SECURITIES ACT (British Columbia) applies
is advised that such purchaser is required to file with the British Columbia
Securities Commission a report within ten days of the sale of any notes acquired
by such purchaser pursuant to this offering. Such report must be in the form
attached to British Columbia Securities Commission Blanket Order BOR #95/17, a
copy of which may be obtained from HTC LP and HTD LP. Only one such report must
be filed in respect of notes acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of notes should consult their own legal and tax advisors
with respect to the tax consequences of an investment in the notes in their
particular circumstances and with respect to the eligibility of the notes for
investment by the purchaser under relevant Canadian legislation.
118
<PAGE>
RATINGS OF THE NOTES
It is a condition of issuance that at least two nationally recognized rating
agencies (the "Rating Agencies") rate (1) the Class A-1 Notes in the highest
short-term rating category, (2) the Class A-2 Notes, the Class A-3 Notes, the
Class A-4 Notes and the Class A-5 Notes in the highest long-term rating
category, (3) the Class B Notes in the double A category, and (4) the Class C
Notes in the single A category. The ratings of the notes will be based primarily
upon (1) the value of the contracts, (2) the Reserve Fund, and (3) the terms of
the notes and the certificates. 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 on any class of notes is
qualified, reduced or withdrawn, no person or entity will be obligated to
provide any additional credit enhancement for 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.
There can be no assurance as to whether any rating agency other than the
Rating Agencies will rate the notes, or, if one does, what rating will be
assigned by any such other rating agency. A rating on any or all of the notes by
other rating agencies, if assigned at all, may be lower than the rating 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 HTC LP and HTD LP by O'Melveny & Myers LLP, Los
Angeles, California. Stroock & Stroock & Lavan LLP, New York, New York will act
as counsel for the Underwriters.
EXPERTS
The financial statements of Honda Lease Trust as of March 31, 1999 and 1998
and the related statements of income, changes in undivided trust interests and
cash flows for the year ended March 31, 1999 and five months ended March 31,
1998 have been included herein and in the registration statement in reliance
upon the report of KPMG LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
The balance sheet of Honda Auto Lease Trust 1999-A as of July 8, 1999 has
been included herein and in the registration statement in reliance upon the
report of KPMG LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
AVAILABLE INFORMATION
HTC LP and HTD LP, as originators 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 and the Certificates, have filed
with 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,
119
<PAGE>
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 this 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", which represent AHFC's
expectations or beliefs concerning future events, including the following: (1)
the assessment of networks, personal computers and computerized systems and
validation phases on all computerized systems in connection with year 2000
issues by fiscal year end 1999; (2) expectations that the total costs associated
with required year 2000 issues will not have a material impact on AHFC's
condition, financial and otherwise, and (3) the completion of a contingency plan
by AHFC relating to year 2000 issues.
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: (1) the failure of
AHFC's plan to resolve timely year 2000 issues due to non-performance by outside
contractors, (2) the failure of third parties to remediate their year 2000
issues or other factors and (3) 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.
120
<PAGE>
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>
ABS....................................... 44
Accounts.................................. 65
Additional Loss Amounts................... 57
Additional Loss Contract.................. 81
Administrative Charge..................... 96
Administrative Lien....................... 23
Advance................................... 92
Aggregate Net Investment Value............ 35
Aggregate Net Losses...................... 81
Agreement................................. 18
AHFC...................................... 17
AHMC...................................... 25
Allocation Percentage..................... 58
banking organization...................... 74
Basic Documents........................... 99
Basic Servicing Agreement................. 18
Benefit Plan.............................. 114
Business Day.............................. 55
Capped Contingent and Excess Liability
Premiums................................ 61
Capped Indenture Trustee Administrative
Expenses................................ 61
Capped Origination Trust Administrative
Expenses................................ 61
Capped Owner Trustee Administrative
Expenses................................ 61
Cede...................................... 53
Cedelbank................................. 73
Cedelbank Participants.................... 74
Certificate Balance....................... 55
Certificate Distribution Account.......... 68
Certificate Interest Carryover
Shortfall............................... 61
Certificate Principal Loss Amount......... 60
Certificate Rate.......................... 55
certificateholders........................ 54
certificates.............................. 18
Charged-off Amount........................ 57
Charged-off Contract...................... 57
Charge-off Rate........................... 81
chattel paper............................. 106
class..................................... 18
Class A Note Balance...................... 55
Class A Noteholders....................... 54
Class A Notes............................. 18
<CAPTION>
TERM PAGE
- ------------------------------------------ -----------
<S> <C>
Class A Percentage........................ 63
Class A-1 Interest Carryover Shortfall.... 61
Class A-1 Note Principal Loss Amount...... 60
Class A-1 Note Rate....................... 54
Class A-1 Noteholders..................... 54
Class A-1 Notes........................... 17
Class A-2 Interest Carryover Shortfall.... 61
Class A-2 Note Principal Loss Amount...... 60
Class A-2 Note Rate....................... 54
Class A-2 Noteholders..................... 54
Class A-2 Notes........................... 17
Class A-3 Interest Carryover Shortfall.... 61
Class A-3 Note Principal Loss Amount...... 60
Class A-3 Note Rate....................... 54
Class A-3 Noteholders..................... 54
Class A-3 Notes........................... 17
Class A-4 Interest Carryover Shortfall.... 61
Class A-4 Noteholders..................... 54
Class A-4 Note Principal Loss Amount...... 60
Class A-4 Note Rate....................... 55
Class A-4 Notes........................... 17
Class A-5 Interest Carryover Shartfall.... 61
Class A-5 Note Principal Loss Amount...... 60
Class A-5 Note Rate....................... 55
Class A-5 Noteholders..................... 54
Class A-5 Notes........................... 17
Class B Interest Carryover Shortfall...... 61
Class B Note Principal Carryover
Shortfall............................... 61
Class B Note Principal Loss Amount........ 60
Class B Note Rate......................... 55
Class B Noteholders....................... 54
Class B Notes............................. 17
Class B Percentage........................ 63
Class C Interest Carryover Shortfall...... 61
Class C Note Principal Carryover
Shortfall............................... 61
Class C Note Principal Loss Amount........ 60
Class C Note Rate......................... 55
Class C Noteholders....................... 54
</TABLE>
121
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ------------------------------------------ -----------
<S> <C>
Class C Notes............................. 18
Class C Percentage........................ 63
Class Note Balance........................ 55
clearing agency........................... 74
clearing corporation...................... 74
Closing Date.............................. 18
Code...................................... 110
Collection Period......................... 35
Collections............................... 62
Commission................................ 75
Contingent and Excess Liability Insurance
Policies................................ 82
Contract Rights........................... 102
contracts................................. 20
Cooperative............................... 76
Covered Loss Amounts...................... 62
Current Contracts......................... 81
Cutoff Date............................... 20, 35
Dealer Agreements......................... 17
Dealers................................... 17
Defaulted Vehicle......................... 93
Definitive Notes.......................... 54
Delinquency Percentage.................... 81
Deposit Date.............................. 66
Depositaries.............................. 74
Determination Date........................ 58
Discounted Contract....................... 35
Discounted Principal Balance.............. 35
Distribution Date......................... 54
DTC....................................... 53
DTC Participants.......................... 74
DTC Services.............................. 77
DTC Systems............................... 77
Early Termination Charge.................. 36
Eligible Investments...................... 69
ERISA..................................... 114
ERISA Compliance Test..................... 95
Euroclear................................. 73
Euroclear Operator........................ 76
Euroclear Participants.................... 74
Excess Interest Collections............... 61
Exchange Act.............................. 74
Extension Fees............................ 96
Federal Tax Counsel....................... 110
Final Scheduled Payment Date.............. 56
Fitch..................................... 70
Foreign Investors......................... 113
HCFI...................................... 25
HFI....................................... 24
HTA LLC................................... 22
<CAPTION>
TERM PAGE
- ------------------------------------------ -----------
<S> <C>
HTA LP.................................... 17
HTB LLC................................... 22
HTB LP.................................... 17
HTC LLC................................... 24
HTC LP.................................... 17
HTD LLC................................... 25
HTD LP.................................... 17
HTI....................................... 22
Indemnified Amounts....................... 89
Indenture Event of Default................ 83
Indenture Trustee......................... 17
Indirect DTC Participants................. 75
Industry.................................. 77
Initial Certificate Balance............... 18
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 A-5 Note Balance............ 17
Initial Class B Note Balance.............. 17
Initial Class C Note Balance.............. 18
Initial Note Balance...................... 18
Initial Deposit........................... 80
Insolvency Laws........................... 100
Insurance Expenses........................ 66, 94
Insurance Policy.......................... 23
Insurance Proceeds........................ 65
Interest Collections...................... 63
Investment Company Act.................... 70
Investor Percentage....................... 57
Lease Rate................................ 35
Lemon Law................................. 108
Liquidated Contract....................... 81
Liquidation Expenses...................... 66
Liquidation Proceeds...................... 65
Loss Amounts.............................. 62
Matured Contract.......................... 81
Matured Leased Vehicle Expenses........... 66
Matured Leased Vehicle Inventory.......... 35
Matured Leased Vehicle Proceeds........... 65
Maturity Date............................. 37
MBPO Program.............................. 30
Monthly Payments.......................... 35
Monthly Remittance Conditions............. 66
Moody's................................... 70
motor vehicles............................ 23
Net Insurance Proceeds.................... 63
Net Liquidation Proceeds.................. 63
</TABLE>
122
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ------------------------------------------ -----------
<S> <C>
Net Matured Leased Vehicle Proceeds....... 63
Net Repossession Proceeds................. 63
New Regulations........................... 114
Nonrecoverable Advance.................... 92
Note Balance.............................. 55
Note Distribution Account................. 67
Note Distribution Amount.................. 71
Note Factor............................... 53
Note Owner................................ 53
Note Principal Loss Amount................ 62
Note Rates................................ 55
Note Register............................. 78
noteholders............................... 18
notes..................................... 18
OID....................................... 111
Omnibus Proxy............................. 76
Origination Trust......................... 17
Origination Trust Agreement............... 21
Origination Trust Assets.................. 23
Origination Trustee....................... 19
Other SUBI Assets......................... 21
Other SUBI Certificates................... 21
Other SUBI Supplement..................... 87
Other SUBIs............................... 17
Outstanding Principal Balance............. 35
Owner Trustee............................. 18
Participants.............................. 73
Payahead Account.......................... 68
Payahead Credit........................... 66
PBGC...................................... 103
Prepayment................................ 65
Prepayment Assumption..................... 44
Principal Allocation...................... 62
Principal Collections..................... 62
PTCE...................................... 115
Rated Securities.......................... 71
Rating Agencies........................... 119
Rating Agency............................. 71
Realized Value............................ 36
Reallocation Payment...................... 41
Record Date............................... 54
Redemption Date........................... 73
Registration Statement.................... 53
Regulation................................ 114
Reimbursable Servicer Expenses............ 96
<CAPTION>
TERM PAGE
- ------------------------------------------ -----------
<S> <C>
Repossed Leased Vehicle................... 81
Repossession Expenses..................... 66
Repossession Proceeds..................... 65
Representative............................ 116
Required Amount........................... 82
Required Deposit Ratings.................. 68
Reserve Fund.............................. 80
Residual Value............................ 35
Residual Value Loss Amount................ 57
Residual Value Test....................... 81
Retained SUBI Certificates................ 20
Retained SUBI Interest.................... 20
Schedule of Contracts and Leased
Vehicles................................ 39
Securities Act............................ 116
Security Deposits......................... 93
Servicer.................................. 18
Servicer Insolvency Event................. 98
Servicer Termination Events............... 97
Servicing Agreement....................... 18
Servicing Fee............................. 96
Servicing Supplement...................... 18
Specified Reserve Fund Balance............ 81
Standard & Poor's......................... 70
SUBI...................................... 17
SUBI Assets............................... 20
SUBI Certificates......................... 17, 20
SUBI Collection Account................... 65
SUBI Interest............................. 17
SUBI Supplement........................... 19
SUBI Trust Agreement...................... 19
Terms and Conditions...................... 77
Transferor Affiliates..................... 86
Transferors............................... 17
Trust Agent............................... 18, 89
U.S. Bank................................. 18
U.S. Note Owner........................... 111
Uncapped Administrative Expenses.......... 62
Uncovered Loss Amounts.................... 62
Underwriters.............................. 116
Underwriting Agreement.................... 116
UTI....................................... 17
UTI Assets................................ 21
UTI Beneficiaries......................... 17
UTI Certificates.......................... 21
voting interests.......................... 85
</TABLE>
123
<PAGE>
HONDA AUTO LEASE TRUST 1999-A AND HONDA LEASE TRUST
INDEX TO AUDITED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report for Honda Auto Lease Trust 1999-A............................................. F-2
Honda Auto Lease Trust 1999-A Balance Sheet................................................................ F-3
Honda Auto Lease Trust 1999-A Notes to Balance Sheet....................................................... F-4
Independent Auditors' Report for Honda Lease Trust......................................................... F-5
Honda Lease Trust Balance Sheets........................................................................... F-6
Honda Lease Trust Statements of Income..................................................................... F-7
Honda Lease Trust Statements of Changes in Undivided Trust Interests....................................... F-8
Honda Lease Trust Statements of Cash Flows................................................................. F-9
Honda Lease Trust Notes to Financial Statements............................................................ F-10
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
U.S. Bank National Association, as Owner
Trustee for Honda Auto Lease Trust 1999-A:
We have audited the accompanying balance sheet of Honda Auto Lease Trust
1999-A as of July 8, 1999. This financial statement is the responsibility of the
management of Honda Auto Lease Trust 1999-A. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit of a balance sheet includes examining, on a test basis,
evidence supporting the amounts and disclosures in that balance sheet. An audit
of a balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit of the balance sheet
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Honda Auto Lease Trust 1999-A as of
July 8, 1999 in conformity with generally accepted accounting principles.
KPMG LLP
Los Angeles, California
July 15, 1999
F-2
<PAGE>
HONDA AUTO LEASE TRUST 1999-A
BALANCE SHEET
JULY 8, 1999
<TABLE>
<S> <C>
ASSETS
Cash................................................................................ $ 1,000
---------
Total assets...................................................................... $ 1,000
---------
---------
LIABILITIES & UNDIVIDED TRUST INTERESTS
Undivided trust interests........................................................... $ 1,000
---------
Total liabilities and undivided trust interests................................... $ 1,000
---------
---------
</TABLE>
See accompanying notes to balance sheet.
F-3
<PAGE>
HONDA AUTO LEASE TRUST 1999-A
NOTES TO BALANCE SHEET
JULY 8, 1999
(1) ORGANIZATION
Honda Auto Lease Trust 1999-A (the Trust), a Delaware business trust, was
formed on March 4, 1999. The purpose and responsibilities of the Trust are
described in the Securitization and Trust Agreement, among Honda Titling C L.P.
and Honda Titling D L.P., each of which is a Delaware limited partnership, as
the beneficiaries (the UTI Beneficiaries), U.S. Bank National Association, as
owner trustee (the Trustee), Wilmington Trust Company, as Delaware owner
trustee, and The Bank of New York, as indenture trustee (the Indenture Trustee).
The Trust is organized under sections 671 to 679 of the Internal Revenue
Code. The purpose of the Trust is to conserve Trust assets and collect and
disburse the periodic income from such assets. In order to achieve this purpose
the Trust will a) acquire certain special undivided beneficial interest
certificates representing the right to cash flows from specified leases, b)
issue Trust Certificates, c) issue notes, d) distribute cash to the noteholders
and certificateholders, and e) engage in other transactions necessary to
accomplish the foregoing or are incidental thereto.
On July 8, 1999, Honda Titling C L.P. and Honda Titling D L.P. contributed
$990 and $10 cash, respectively, for the initial undivided trust interests (UTI)
of 99% and 1%, respectively. The undivided trust interests is represented by two
trust certificates.
(2) UNDIVIDED TRUST INTERESTS
Undivided Trust Interests represent capital contributions of the UTI
Beneficiaries to the Trust.
(3) INCOME TAXES
Neither the Trust nor any sub-trust constitutes a separate entity for
Federal income tax purposes or for state income or franchise purposes as they
are mere nominee holders of legal titles of the Trust assets. Each UTI
Beneficiary shall be treated for tax purposes as if it owned the related trust
assets directly, rather than through the Trust.
F-4
<PAGE>
INDEPENDENT AUDITORS' REPORT
HVT, Inc. as Trustee of
Honda Lease Trust:
We have audited the accompanying balance sheets of Honda Lease Trust as of
March 31, 1999 and 1998 and the related statements of income, changes in
undivided trust interests and cash flows for the year ended March 31, 1999 and
five months ended March 31, 1998. These financial statements are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Honda Lease Trust as of
March 31, 1999 and 1998 and the results of its operations and its cash flows for
the year ended March 31, 1999 and five months ended March 31, 1998 in conformity
with generally accepted accounting principles.
KPMG LLP
Los Angeles, California
May 6, 1999
F-5
<PAGE>
HONDA LEASE TRUST
BALANCE SHEETS
MARCH 31, 1999 AND 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
---------------- --------------
<S> <C> <C>
Cash........................................................................... $ 59,177,156 $ 45,535,995
Restricted cash (note 2)....................................................... 2,075,274 --
Direct financing leases, net (note 3).......................................... 2,964,982,960 93,189,996
Due from affiliate, net (note 5)............................................... 35,276,301 --
Prepaid residual value insurance............................................... 33,981,419 1,255,902
Deferred dealer participation.................................................. 10,155,138 384,401
Other assets................................................................... 1,224,130 43,800
---------------- --------------
Total assets................................................................. $ 3,106,872,378 $ 140,410,094
---------------- --------------
---------------- --------------
LIABILITIES AND UNDIVIDED TRUST INTERESTS
Loan payable to affiliate (note 4)............................................. $ 2,952,523,038 $ 92,411,409
Due to affiliate, net (note 5)................................................. -- 670,169
Deferred income (note 6)....................................................... 61,542,321 1,977,244
Security deposits payable...................................................... 33,840,816 1,228,905
Other liabilities.............................................................. 1,100,447 30,834
---------------- --------------
Total liabilities............................................................ 3,049,006,622 96,318,561
---------------- --------------
Undivided trust interests (note 7)............................................. 48,607,712 43,695,337
Retained earnings.............................................................. 9,258,044 396,196
---------------- --------------
Total undivided trust interests.............................................. 57,865,756 44,091,533
---------------- --------------
Total liabilities and undivided trust interests.............................. $ 3,106,872,378 $ 140,410,094
---------------- --------------
---------------- --------------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
HONDA LEASE TRUST
STATEMENTS OF INCOME
YEAR ENDED MARCH 31, 1999
AND FIVE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Revenue:
Leasing income................................................................. $ 93,678,133 $ 857,487
Lease subvention income from American Honda Motor (note 6)..................... 21,455,662 149,792
Other income................................................................... 15,625,895 132,150
-------------- --------------
Total revenue................................................................ 130,759,690 1,139,429
-------------- --------------
-------------- --------------
Expenses:
Interest expense (note 4)...................................................... 74,543,693 --
Servicing expense (note 5)..................................................... 11,961,201 8,937
Provision for credit losses (note 3)........................................... 16,789,734 482,255
Provision for loss on lease residual values and gap insurance (note 3)......... 9,248,368 98,563
Residual insurance expense..................................................... 8,840,551 84,382
General and administrative..................................................... 514,295 69,096
-------------- --------------
Total expenses............................................................... 121,897,842 743,233
-------------- --------------
Net income................................................................... $ 8,861,848 $ 396,196
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
HONDA LEASE TRUST
STATEMENTS OF CHANGES IN UNDIVIDED TRUST INTERESTS
YEAR ENDED MARCH 31, 1999
AND FIVE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
TOTAL
UNDIVIDED UNDIVIDED
TRUST RETAINED TRUST
INTERESTS EARNINGS INTERESTS
------------- ------------ -------------
<S> <C> <C> <C>
Balance at November 1, 1997.......................................... $ 100,000 $ -- $ 100,000
Capital contributions................................................ 43,595,337 -- 43,595,337
Net income........................................................... -- 396,196 396,196
------------- ------------ -------------
Balance at March 31, 1998............................................ 43,695,337 396,196 44,091,533
Capital contributions................................................ 4,912,375 -- 4,912,375
Net income........................................................... -- 8,861,848 8,861,848
------------- ------------ -------------
Balance at March 31, 1999............................................ $ 48,607,712 $ 9,258,044 $ 57,865,756
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE>
HONDA LEASE TRUST
STATEMENTS OF CASH FLOWS
YEAR ENDED MARCH 31, 1999
AND FIVE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
1999 1998
----------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................................. $ 8,861,848 $ 396,196
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization of prepaid residual value insurance.......................... 8,840,551 84,382
Provision for credit losses............................................... 16,789,734 482,255
Provision for loss on lease residual value and gap insurance.............. 9,248,368 98,563
Increase in due from affiliate............................................ (60,603,503) (1,625,168)
Increase in prepaid residual value insurance.............................. (41,566,068) (1,340,284)
Increase in deferred dealer participation................................. (12,144,545) (418,390)
Increase in other assets.................................................. (1,180,330) (43,800)
Increase in due to affiliate.............................................. 24,657,033 2,295,337
Increase in deferred income............................................... 59,565,077 1,977,244
Increase in security deposits payable..................................... 32,611,911 1,228,905
Increase in other liabilities............................................. 1,069,613 30,834
----------------- --------------
Net cash provided by operating activities............................... 46,149,689 3,166,074
----------------- --------------
Cash flows from investing activities:
Direct financing receivables originated..................................... (3,170,139,818) (95,184,156)
Principal collected on direct financing receivables, net.................... 274,682,560 1,447,331
Increase in restricted cash................................................. (2,075,274) --
----------------- --------------
Net cash used in investing activities................................... (2,897,532,532) (93,736,825)
----------------- --------------
Cash flows from financing activities:
Capital contribution........................................................ 4,912,375 43,595,337
Increase in loan payable to affiliate....................................... 2,860,111,629 92,411,409
----------------- --------------
Net cash provided by financing activities............................... 2,865,024,004 136,006,746
----------------- --------------
Net increase in cash.................................................... 13,641,161 45,435,995
Cash at beginning of period................................................... 45,535,995 100,000
----------------- --------------
Cash at end of period......................................................... $ 59,177,156 $ 45,535,995
----------------- --------------
----------------- --------------
Supplemental disclosures of cash flow information--cash payments for
interest.................................................................... $ 62,864,045 $ --
----------------- --------------
----------------- --------------
</TABLE>
See accompanying notes to financial statements.
F-9
<PAGE>
HONDA LEASE TRUST
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Honda Lease Trust (the Trust), a Delaware business trust, was formed on July
17, 1997. The purpose and responsibilities of the Trust are described in the
Second Amended and Restated Trust and Servicing Agreement (Servicing Agreement),
dated April 1, 1998, among Honda Titling A L.P. and Honda Titling B L.P., each
of which is a Delaware limited partnership, as the beneficiaries (the UTI
Beneficiaries), American Honda Finance Corporation (AHFC), a California
corporation, as servicer (Servicer), HVT, Inc., a Delaware corporation, as
trustee (the Trustee), Delaware Trust Capital Management, Inc., a Delaware
corporation, as Delaware Trustee (the Delaware Trustee), and U.S. Bank National
Association, as Trust Agent (the Agent).
The primary business purpose of the Trust is to take assignments of, and
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 assets of the Trust. The Trust was created to avoid
the administrative difficulty and expense associated with retitling leased
vehicles for the securitization of motor vehicle lease contracts. The trust
assets consist generally of the following: (1) cash capital; (2) leases of
leased vehicles assigned to the Trust or the Trustee on behalf of the Trust; (3)
the leased vehicles; (4) all of the rights (but not the obligations) of AHFC or
the initial lessor with respect to the leases and leased vehicles; (5) any
security deposit with respect to a lease to the extent not otherwise payable to
the lessee pursuant to such lease; (6) all insurance proceeds and liquidation
proceeds; and (7) all proceeds of any of the foregoing.
The Trust commenced its operations on November 1, 1997. Currently, the Trust
is operating in all of the 50 states in which it is licensed to conduct
business.
(A) RISKS AND UNCERTAINTIES
BUSINESS RISKS
The automobile leasing business is highly competitive. The Trust's
competitors or potential competitors include national finance companies and
other types of financial services companies, such as commercial banks
providing direct financing leases for new Honda and Acura vehicles. The
Trust's future profitability will be largely related to the cost of
providing quality service to its customers and to the availability and cost
of its capital in relation to the availability and cost of capital to its
competitors.
LIQUIDITY RISKS
The liquidity position of the Trust is significantly dependent upon AHFC.
AHFC advances on behalf of the Trust funds to dealers for the purchase of
vehicle lease contracts, as well as monthly servicing expenses incurred by
the Trust. In the event AHFC would cease to provide funding for the Trust,
the financial position and operating results of the Trust could be
materially affected.
(B) DIRECT FINANCING LEASES
Direct financing leases are due in installments from consumers over a period
of two to five years and are collateralized by liens on the related
vehicles.
F-10
<PAGE>
HONDA LEASE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 1998
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Unearned interest income on direct financing leases is accreted to leasing
income over the term of the leases using the interest method.
Lease accounts are considered delinquent if more than 10% of a scheduled
payment is contractually past due on a cumulative basis.
Lease origination fees and certain direct origination costs are deferred,
and the net fee or cost is recognized as leasing income using the interest
method over the contractual life of the leases.
(C) ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is maintained at an amount management deems
adequate to cover estimated losses on direct financing leases. Management
evaluates economic trends, industry experience, the borrower's ability to
pay and the inherent risks of the portfolio. In making these evaluations,
management considers the actual credit loss experience of AHFC, as the lease
portfolio has been originated under standards used by AHFC and is similar to
AHFC's lease portfolio.
(D) ALLOWANCE FOR LOSSES ON LEASE RESIDUAL VALUES
The Trust purchases insurance to cover a substantial amount of the estimated
residual value of vehicles leased to consumers. The level of allowance
required to cover losses on the uninsured lease residual values is based
upon projected vehicle return rates, projected residual value losses by
vehicle model and the underlying lease term. Such information is derived
from market information on used vehicle sales, AHFC's historical return
rates and related loss severity, the impact of new vehicle pricing for Honda
and Acura cars, and current economic trends.
(E) ALLOWANCE FOR GAP INSURANCE LOSSES
The allowance for gap insurance losses is maintained at an amount management
deems adequate to cover estimated shortfalls between the proceeds from the
lessee's insurance company and the book value of the vehicle which was
stolen or destroyed in an accident. The estimated losses are based on AHFC's
historical experience of loss per incident and the number of incidents
associated with various lease terms.
(F) USE OF ESTIMATES
The preparation of the balance sheet in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to a significant change
in the near term relate to the determination of the allowances for credit
losses and losses on lease residual value.
(2) RESTRICTED CASH
Restricted cash consists of security deposits on leases originated in the
state of New York held in a trust account by a bank located in the state of New
York. The funds are released upon lease termination.
F-11
<PAGE>
HONDA LEASE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 1998
(3) DIRECT FINANCING LEASES
Direct financing leases consisted of the following at March 31:
<TABLE>
<CAPTION>
1999 1998
---------------- --------------
<S> <C> <C>
Direct financing leases.................................... $ 3,476,857,008 $ 112,592,911
Less:
Unearned interest income and fees...................... (487,439,331) (18,822,097)
Allowance for credit losses............................ (15,255,918) (482,255)
Allowances for losses on lease residual values and gap
insurance losses..................................... (9,178,799) (98,563)
---------------- --------------
Direct financing leases, net......................... $ 2,964,982,960 $ 93,189,996
---------------- --------------
---------------- --------------
</TABLE>
Contractual maturities of direct financing leases at March 31, 1999 were:
<TABLE>
<S> <C>
Due in the fiscal years ending March 31:
2000......................................................... $ 557,266,663
2001......................................................... 732,155,568
2002......................................................... 1,794,185,312
2003......................................................... 392,449,794
2004......................................................... 799,671
-------------
$3,476,857,008
-------------
-------------
</TABLE>
At March 31, 1999 and 1998, the aggregate balances of lease receivables
which are 60 or more days past due totaled $1,497,770 and $21,712, respectively.
The following is a summary of the activity in the allowance for credit losses
for the year ended March 31, 1999 and the five months ended March 31, 1998:
<TABLE>
<CAPTION>
1999 1998
------------- ----------
<S> <C> <C>
Balance, beginning of year......................................... $ 482,255 $ --
Provision for credit losses........................................ 16,789,734 482,255
Charge-offs, net................................................... (2,016,071) --
------------- ----------
Balance, end of year............................................... $ 15,255,918 $ 482,255
------------- ----------
------------- ----------
</TABLE>
The uninsured portion of the Trust's lease residual values was $94,357,818
and $3,614,255 at March 31, 1999 and 1998, respectively. The following is a
summary of the activity in the allowances for
F-12
<PAGE>
HONDA LEASE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 1998
(3) DIRECT FINANCING LEASES (CONTINUED)
loss on lease residual values and gap insurance losses for the year ended March
31, 1999 and five months ended March 31, 1998:
<TABLE>
<CAPTION>
1999 1998
------------ ---------
<S> <C> <C>
Balance, beginning of year........................................... $ 98,563 $ --
Provisions for loss on lease residual values and gap insurance
losses............................................................. 9,248,368 98,563
Charge-offs, net..................................................... (168,132) --
------------ ---------
Balance, end of year................................................. $ 9,178,799 $ 98,563
------------ ---------
------------ ---------
</TABLE>
(4) LOAN PAYABLE TO AFFILIATE
Loan payable to affiliate includes amounts due AHFC for payments to dealers
on behalf of the Trust for purchases of vehicles to be leased to consumers. This
loan bears interest at commercial paper rates ranging from 5.02% to 5.72% per
annum. The amount of the Trust's monthly loan payments depends on the amount of
excess collections over expenses for the month. The loan has an undefined term.
For the year ended March 31, 1999, amounts paid to AHFC for interest on loans
payable to affiliates amounted to $74,543,693. Loans payable to affiliate did
not bear interest during 1998.
(5) DUE TO/FROM AFFILIATE
AHFC, as the Servicer, collects lease payments on behalf of the Trust and
advances funds to cover all Trust operations. Advances and collections are
settled monthly between AHFC and the Trust.
Due to/from affiliate at March 31, 1999 and 1998 included the following:
<TABLE>
<CAPTION>
1999 1998
------------- ------------
<S> <C> <C>
Due from affiliate:
Lease payments from consumers.................................. $ 56,302,229 $ 106,616
Subsidies receivable from affiliate............................ 5,893,869 1,517,827
Other.......................................................... 32,573 725
------------- ------------
$ 62,228,671 $ 1,625,168
------------- ------------
------------- ------------
Due to affiliate:
Interest payable on loan payable to affiliate.................. $ 11,679,648 $ --
Residual value insurance premiums.............................. 4,766,037 1,340,283
Taxes paid on behalf of consumers.............................. 4,631,893 485,366
Servicing fees................................................. 2,272,627 55,677
Security deposits held in trust................................ 2,075,274 --
Dealer participations.......................................... 1,419,671 411,851
Other.......................................................... 107,220 2,160
------------- ------------
$ 26,952,370 $ 2,295,337
------------- ------------
------------- ------------
</TABLE>
F-13
<PAGE>
HONDA LEASE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 1998
(5) DUE TO/FROM AFFILIATE (CONTINUED)
For the year ended March 31, 1999 and the five months ended March 31, 1998,
servicing fees paid to AHFC amounted to $11,961,201 and $8,937, respectively.
(6) DEFERRED INCOME
American Honda Motor ("AHM") sponsors various lease programs whereby the
Trust will lease vehicles on favorable terms (below market) to consumers as an
incentive to the consumer to purchase the motor vehicle. Under this sponsorship
arrangement AHM agrees to make certain subsidy (subvention) payments to the
Trust at lease inception. The amount of the subsidy payment made by AHM is
calculated as the amount required to generate a market yield on the lease over
its contractual life. The Trust has deferred this subvention payment and
recognizes the subvention payment as income by amortizing the payment using the
interest method over the life of the lease contract.
For the year ended March 31, 1999 and five months ended March 31, 1998, the
amount of lease subvention income recognized by the Trust amounted to
$21,455,662 and $149,792, respectively.
(7) UNDIVIDED TRUST INTERESTS
Undivided Trust Interests represent capital contributions of the UTI
Beneficiaries to the Trust.
(8) INCOME TAXES
Neither the Trust nor any subtrust constitutes a separate entity for Federal
income tax purposes or for state income or franchise purposes as they are mere
nominee holders of legal titles of the trust assets. Each UTI Beneficiary shall
be treated for tax purposes as if it owned the related trust assets directly,
rather than through the Trust.
(9) FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Trust's entire holdings of a particular financial
instrument. Because no active market exists for a portion of the Trust's
financial instruments, fair value estimates of such financial instruments are
based on judgments regarding future expected loss experience, current economic
conditions, risk characteristics and other factors. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Fair value information presented herein is based on information available at
March 31, 1999 and 1998. Although the Trust is not aware of any factors that
would significantly affect the estimated fair value amounts, such amounts have
not been updated since that date, and therefore, the current estimates of fair
value at dates subsequent to March 31, 1999 and 1998 may differ significantly
from the amounts presented herein.
The following presents a description of the methodologies and assumptions
used to estimate the fair value of the Trust's financial instruments.
(A) CASH
F-14
<PAGE>
HONDA LEASE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 AND 1998
(9) FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying values reported on the balance sheet approximate fair values
due to the short-term nature of the assets.
(B) LOAN PAYABLE TO AFFILIATE
The carrying amount of the variable rate loan is a reasonable estimate of
its fair value because the interest rate is tied to commercial paper rates
that adjust on a monthly basis.
(C) DUE TO AFFILIATE
Given the short maturities of the amounts due to affiliate, the Trust
believes the carrying value of such debt approximates its fair value.
F-15
<PAGE>
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.
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.
I-1
<PAGE>
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.
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
I-2
<PAGE>
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 (1) 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
(2) 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 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.
I-3
<PAGE>
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 (1) a citizen or resident of the United States,
(2) 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), (3) an estate whose income is subject to United States
federal income tax, regardless of its source or (4) 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>
ANNEX II
SCHEDULE OF DECLINING AGGREGATE NET INVESTMENT
VALUE OF THE CONTRACTS
<TABLE>
<CAPTION>
COLLECTION PERIOD BEGINNING ANIV BALANCE
- ------------------------------------------------------------------------------------------ ----------------------
<S> <C>
07/01/99.................................................................................. 3,300,158,606.28
08/01/99.................................................................................. 3,270,913,969.57
09/01/99.................................................................................. 3,241,448,793.68
10/01/99.................................................................................. 3,211,761,413.92
11/01/99.................................................................................. 3,181,850,153.04
12/01/99.................................................................................. 3,151,663,319.15
01/01/00.................................................................................. 3,121,109,078.37
02/01/00.................................................................................. 3,090,356,558.56
03/01/00.................................................................................. 3,058,771,735.77
04/01/00.................................................................................. 3,026,646,776.36
05/01/00.................................................................................. 2,993,480,017.17
06/01/00.................................................................................. 2,956,576,082.17
07/01/00.................................................................................. 2,917,569,390.56
08/01/00.................................................................................. 2,880,143,914.45
09/01/00.................................................................................. 2,842,745,978.69
10/01/00.................................................................................. 2,805,241,018.01
11/01/00.................................................................................. 2,766,405,222.82
12/01/00.................................................................................. 2,726,299,278.55
01/01/01.................................................................................. 2,684,734,980.20
02/01/01.................................................................................. 2,639,478,194.46
03/01/01.................................................................................. 2,585,855,899.54
04/01/01.................................................................................. 2,522,741,866.86
05/01/01.................................................................................. 2,429,629,878.62
06/01/01.................................................................................. 2,291,727,030.05
07/01/01.................................................................................. 2,144,754,231.88
08/01/01.................................................................................. 2,048,784,465.76
09/01/01.................................................................................. 1,944,103,828.00
10/01/01.................................................................................. 1,828,968,967.18
11/01/01.................................................................................. 1,681,854,724.56
12/01/01.................................................................................. 1,512,884,620.89
01/01/02.................................................................................. 1,370,220,699.60
02/01/02.................................................................................. 1,201,162,038.62
03/01/02.................................................................................. 978,204,085.37
04/01/02.................................................................................. 824,323,495.95
05/01/02.................................................................................. 655,414,628.20
06/01/02.................................................................................. 495,666,328.52
07/01/02.................................................................................. 376,208,204.47
08/01/02.................................................................................. 318,684,195.96
09/01/02.................................................................................. 260,384,888.74
10/01/02.................................................................................. 208,518,749.98
11/01/02.................................................................................. 177,234,345.19
12/01/02.................................................................................. 145,405,764.03
01/01/03.................................................................................. 121,612,406.32
02/01/03.................................................................................. 94,782,896.97
03/01/03.................................................................................. 66,303,337.09
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
COLLECTION PERIOD BEGINNING ANIV BALANCE
- ------------------------------------------------------------------------------------------ ----------------------
<S> <C>
04/01/03.................................................................................. 48,070,174.44
05/01/03.................................................................................. 26,828,598.62
06/01/03.................................................................................. 10,512,868.40
07/01/03.................................................................................. 809,341.46
08/01/03.................................................................................. 736,208.91
09/01/03.................................................................................. 648,002.83
10/01/03.................................................................................. 568,585.00
11/01/03.................................................................................. 493,142.41
12/01/03.................................................................................. 425,746.14
01/01/04.................................................................................. 371,725.23
02/01/04.................................................................................. 314,380.56
03/01/04.................................................................................. 224,974.61
04/01/04.................................................................................. 191,180.88
05/01/04.................................................................................. 117,523.98
06/01/04.................................................................................. 42,546.90
07/01/04.................................................................................. 0.00
</TABLE>
II-2
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
PROSPECTUS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary of Terms.......................................................... 3
Risk Factors.............................................................. 9
Overview of Transaction................................................... 17
The Trust and the SUBI.................................................... 18
The Origination Trust..................................................... 21
Use of Proceeds........................................................... 24
Honda Titling C L.P....................................................... 24
Honda Titling D L.P....................................................... 25
American Honda Finance Corporation........................................ 25
The Contracts............................................................. 35
Maturity, Prepayment and Yield
Considerations.......................................................... 42
Note Factors and Trading Information Reports to Noteholders............... 53
Description of the Notes.................................................. 53
Security for the Notes.................................................... 80
Additional Document Provisions............................................ 83
Certain Legal Aspects of the Origination Trust and the SUBI............... 100
Certain Legal Aspects of the Contracts and Leased Vehicles................ 106
The Material Federal Income Tax Consequences.............................. 110
ERISA Considerations...................................................... 114
Underwriting.............................................................. 116
Notice to Canadian Residents.............................................. 118
Ratings of the Notes...................................................... 119
Legal Matters............................................................. 119
Experts................................................................... 119
Available Information..................................................... 119
Forward Looking Statements................................................ 120
Index of Terms............................................................ 121
Index to Audited Financial Statements..................................... F-1
Global Clearance, Settlement and Tax Documentation Procedures............. I-1
Schedule of Declining Aggregate Net Investment Value of the Contracts..... II-1
</TABLE>
$3,079,000,000
Auto Lease
Asset Backed Notes
Honda Auto Lease Trust 1999-A
(Issuer)
Honda Titling C L.P. and
Honda Titling D L.P.
(Transferors)
American Honda Finance
Corporation
(Servicer)
$380,000,000 5.445% Class A-1 Notes
$360,000,000 5.875% Class A-2 Notes
$400,000,000 6.100% Class A-3 Notes
$1,000,000,000 6.450% Class A-4 Notes
$807,000,000 6.650% Class A-5 Notes
$66,000,000 6.650% Class B Notes
$66,000,000 6.900% Class C Notes
-------------------
PROSPECTUS
-------------------
Global Coordinator and Bookrunner
Credit Suisse First Boston
Joint Lead Manager
J.P. Morgan & Co.
Senior Co-Managers
Banc of America Securities LLC
Chase Securities Inc.
Co-Managers
ABN AMRO Incorporated
Banc One Capital Markets, Inc.
Barclays Capital
Salomon Smith Barney
SG Cowen
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
