<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 8, 2000
REGISTRATION NO. 333-32802
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 2 TO FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DEALER AUTO RECEIVABLES TRUSTS
(Issuer with respect to the securities)
DEALER AUTO RECEIVABLES CORP.
(Depositor of the trusts described herein)
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 36-4347972
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
DEALER AUTO RECEIVABLES CORP.
230 WEST MONROE STREET
CHICAGO, ILLINOIS 60606
(312) 456-1250
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
CHARLES BRADFORD WOLFE
DEALER AUTO RECEIVABLES CORP., C/O PREMIER AUTO FINANCE, INC.
230 WEST MONROE STREET
CHICAGO, ILLINOIS 60606
(312) 456-1250
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
<TABLE>
<S> <C>
COPIES TO: COPIES TO:
M. DAVID GALAINENA, ESQ. LAURA PALMA, ESQ.
DANIEL C. BIRD, JR., ESQ. SIMPSON THACHER & BARTLETT
WINSTON & STRAWN 425 LEXINGTON AVENUE
35 WEST WACKER DRIVE NEW YORK, NEW YORK 10017
CHICAGO, ILLINOIS 60601 (212) 455-2000
(312) 558-5600
</TABLE>
------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
PROPOSED TITLE OF SECURITIES TO BE REGISTERED REGISTERED(1) UNIT(2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Asset Backed Securities..................... $2,000,000,000 100% $2,000,000,000 $528,000(3)
</TABLE>
(1) The amount of securities being registered represents the maximum aggregate
principal amount of securities currently expected to be offered for sale.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(a).
(3) $2,640 of which was previously paid.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
INTRODUCTORY NOTE
This registration statement contains (i) a prospectus relating to the
offering of one or more series of asset-backed notes and/or asset-backed
certificates by various trusts created from time to time by Dealer Auto
Receivables Corp. and (ii) two forms of prospectus supplements relating to the
offering by each separate trust of a particular series of asset-backed
certificates or of asset-backed notes and asset-backed certificates described in
the prospectus supplements. Each form of prospectus supplement relates only to
the securities described therein and is a form which may be used by Dealer Auto
Receivables Corp. to offer asset-backed notes and/or asset-backed certificates
under this registration statement.
<PAGE>
THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY
BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 8, 2000
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED [ ]
DEALER AUTO RECEIVABLES OWNER TRUST 2000-1
ISSUER
$ ASSET-BACKED NOTES
$ ASSET-BACKED CERTIFICATES
DEALER AUTO RECEIVABLES CORP.
DEPOSITOR
PREMIER AUTO FINANCE, INC.
SERVICER
THE TRUST WILL ISSUE THE FOLLOWING CLASSES OF SECURITIES--
CONSIDER CAREFULLY
THE RISK FACTORS
BEGINNING ON
PAGE S-11 IN THIS
PROSPECTUS SUPPLEMENT
AND ON PAGE 7 IN THE
ACCOMPANYING
PROSPECTUS.
The notes represent
obligations of and
the certificates
represent interests
in the owner trust
only.
This prospectus
supplement must be
accompanied by the
prospectus.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST FINAL UNDERWRITING
RATE/PASS- FIRST SCHEDULED DISCOUNT
PRINCIPAL THROUGH PAYMENT PAYMENT PRICE TO PER PROCEEDS TO
CLASS AMOUNT RATE DATE DATE PUBLIC SECURITY DEPOSITOR
A-1 Notes............. $ %
A-2 Notes............. $ %
A-3 Notes............. $ %
B Notes............... $ %
C Certificates........ $ %
</TABLE>
The total price to the public is $
The total underwriting discount is $
The total proceeds to the depositor are $
Credit Enhancement:
- Reserve fund with an initial deposit of $
- Subordination of the Class B Notes and the certificates provides credit
enhancement to the Class A Notes as described in this prospectus
supplement.
- Subordination of the certificates provides credit enhancement to the
Class B Notes as described in this prospectus supplement.
The securities are asset-backed securities issued by the trust. The assets
underlying the securities are retail installment contracts for the purchase of
new or used automobiles and light-duty trucks.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
CHASE SECURITIES INC.
Prospectus Supplement dated [ ]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Important Notice About Information Presented in this
Prospectus Supplement and the Accompanying Prospectus..... i
Prospectus Supplement Summary............................... S-1
Risk Factors................................................ S-11
Some classes of securities will be entitled to interest or
principal payments before other classes................. S-11
Adverse events in four high concentration states may cause
increased defaults and delinquencies.................... S-11
If there is a servicer default, the servicer may be
removed only by the indenture trustee and certain
noteholders............................................. S-12
Subordinated noteholders may not be able to direct the
indenture trustee upon an event of default under the
indenture and may have limited rights upon nonpayment of
interest................................................ S-12
The securities may not be suitable investments for all
investors............................................... S-12
Prepayments, potential losses and change in order of
priority of payments following acceleration of the
notes................................................... S-12
Because the securities are in book-entry form, your rights
can only be exercised indirectly........................ S-13
The absence of an existing market for the securities may
limit your ability to resell the securities............. S-13
The Trust................................................... S-14
General................................................... S-14
Capitalization of the Trust............................... S-15
The Indenture and the Administration Agreement............ S-15
The Trustee and the Indenture Trustee..................... S-15
The Seller and the Servicer................................. S-15
The Performance Guarantor................................... S-15
The Contracts............................................... S-16
Description of the Contracts.............................. S-16
Statistics Relating to the Contracts...................... S-16
Maturity and Prepayment Considerations.................... S-20
Statistics Relating to Delinquencies and Losses........... S-20
Losses and Recoveries..................................... S-22
Weighted Average Lives of the Securities.................... S-25
Note Factors and Certificate Factors........................ S-28
Use of Proceeds............................................. S-28
Description of the Notes.................................... S-28
General................................................... S-28
Interest.................................................. S-29
Principal................................................. S-29
Mandatory Prepayment...................................... S-29
Voting Rights............................................. S-30
Notices................................................... S-30
Description of the Certificates............................. S-30
General................................................... S-30
Interest.................................................. S-31
Principal................................................. S-31
Mandatory Prepayment...................................... S-31
Notices................................................... S-32
Payments and Distributions.................................. S-32
Available Amounts......................................... S-32
Servicing Compensation and Reimbursement of Servicer
Advances................................................ S-33
Distributions............................................. S-33
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Reserve Fund.............................................. S-35
Ratings of the Securities................................... S-36
Material Federal Income Tax Consequences.................... S-36
Treatment of Trust........................................ S-36
Treatment of Investors in Notes........................... S-36
Treatment of Investors in Certificates.................... S-37
ERISA Considerations........................................ S-37
The Notes................................................. S-37
The Certificates.......................................... S-37
Legal Proceedings........................................... S-37
Underwriting................................................ S-38
Legal Matters............................................... S-39
Experts..................................................... S-39
Glossary.................................................... S-39
Dealer Auto Receivables Owner Trust 2000-1 Balance Sheet.... S-41
Notes to the Balance Sheet.................................. S-41
</TABLE>
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
We provide information to you about the securities in two separate documents
that offer varying levels of detail:
- the accompanying prospectus--which provides general information, some of
which may not apply to a particular series of securities including your
series, and
- this prospectus supplement--which provides a summary of the specific terms
of your series of securities.
Certain terms used in this prospectus supplement are defined under the
caption "GLOSSARY" beginning on page in this prospectus supplement.
You should rely on the information contained in this document, including the
information described under the heading "WHERE YOU CAN FIND MORE INFORMATION" in
the accompanying prospectus. We have not authorized anyone to provide you with
any different information or make any representation not contained in this
prospectus supplement. If anyone makes such a representation to you, you should
not rely on it.
If you have received a copy of this prospectus supplement and the
accompanying prospectus in an electronic format, and if the legal prospectus
delivery period has not expired, you may obtain a paper copy of this prospectus
supplement and the accompanying prospectus from Dealer Auto Receivables Corp. at
230 West Monroe Street, Chicago, Illinois 60606, telephone number
(312) 456-1250, or an underwriter by asking any of them for it.
i
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following is only a summary of selected information from the prospectus
supplement and provides a general overview of relevant terms of the securities.
It does not contain all the information that may be important to you. You should
read carefully this entire prospectus supplement and the prospectus to
understand all of the terms of the offering. In addition, you may wish to read
the documents governing the transfers and servicing of the contracts, the
formation of the trusts and the issuance of the securities. Those documents have
been filed as exhibits to the registration statement.
There are material risks associated with an investment in the securities.
See "RISK FACTORS" in this prospectus supplement and in the accompanying
prospectus for a discussion of factors you should consider before investing in
the securities.
<TABLE>
<S> <C>
Trust........................................ Dealer Auto Receivables Owner Trust 2000-1. The
depositor established the trust pursuant to a trust
agreement.
Owner Trustee................................ Chase Manhattan Bank USA, N.A. The owner trustee's
address and phone number is 1201 Market Street,
Wilmington, Delaware 19801, (telephone number
(302) 428-3375).
Indenture Trustee............................ The Bank of New York will serve as indenture trustee.
See "THE TRUST--THE TRUSTEE AND THE INDENTURE
TRUSTEE," in this prospectus supplement.
Cut-off Date................................. [ ].
Closing Date................................. On or about [ ].
SECURITIES OFFERED
TERMS OF THE NOTES:
A. Payment Dates............................. The trust will pay interest and principal on the
notes on the [ ] day of each month or if that day
is not a business day, the next business day. The
first payment date is [ ].
B. Record Dates.............................. The last business day of the preceding calendar
month.
C. Interest.................................. PER ANNUM INTEREST RATES:
The notes will have fixed rates of interest as
follows:
</TABLE>
<TABLE>
<CAPTION>
CLASS INTEREST RATE
----- -------------
<S> <C> <C>
A-1....................................... %
A-2....................................... %
A-3....................................... %
B......................................... %
</TABLE>
<TABLE>
<S> <C>
INTEREST PERIODS:
Interest on the notes will accrue in the following
manner:
</TABLE>
<TABLE>
<CAPTION>
INTEREST PERIODS
DAY COUNT
CLASS FROM (INCLUDING) TO (EXCLUDING) CONVENTION
----- ------------------ ------------------ ----------
<S> <C> <C> <C> <C>
A-1......... Prior Distribution Current
Date Distribution Date actual/360
A-2......... 15th of prior 15th of current
month month 30/360
A-3......... 15th of prior 15th of current
month month 30/360
B........... 15th of prior 15th of current
month month 30/360
</TABLE>
S-1
<PAGE>
<TABLE>
<S> <C>
PAYMENT OF INTEREST:
On each payment date after payment of the base
servicing fee and the fees payable to the owner
trustee and the indenture trustee and reimbursement
of servicer advances, the trust will make interest
payments on the notes from the funds available to it
on each payment date.
Interest payments to each class of the Class A Notes
will have the same priority.
The trust will make interest payments on the Class B
Notes after paying interest on the Class A Notes,
provided, that after the acceleration of the notes
following an event of default resulting from a
payment default, the trust will not make interest
payments on the Class B Notes until the Class A Notes
have been paid in full.
See "PAYMENTS AND DISTRIBUTIONS" in this prospectus
supplement.
D. Principal................................. On each payment date, the trust will pay principal on
the notes.
The amount of principal payable will be based on the
amount by which:
- the sum of the aggregate principal balances of the
notes and the certificate balance of the certificates
as of the close of business on the prior payment
date, exceeds
- the aggregate principal balance of the contracts as
of the end of the prior calendar month, excluding
certain non-collectible or defaulted contracts and
contracts to be repurchased by the depositor or
purchased by the servicer due to certain breaches.
On each payment date prior to the acceleration of the
notes following an event of default resulting from a
payment default, the trust will make principal
payments on the notes from the funds available to it
on that payment date after payment of the base
servicing fee and the fees payable to the owner
trustee and the indenture trustee, reimbursement of
servicer advances and payment of interest on the
securities.
The trust will pay principal on the notes in the
following order:
PRIOR TO ACCELERATION OF THE NOTES:
The trust will pay principal of each class of notes
sequentially starting with the earliest maturing
class of notes then outstanding until such class is
paid in full.
</TABLE>
S-2
<PAGE>
<TABLE>
<S> <C>
AFTER ACCELERATION OF THE NOTES:
After acceleration of the notes following an event of
default, the trust will pay the principal of the
Class A-1 Notes, Class A-2 Notes, Class A-3 Notes pro
rata until paid in full and then the Class B Notes
until paid in full.
See "PAYMENTS AND DISTRIBUTIONS" in this prospectus
supplement.
E. Final Scheduled Payment Dates............. The principal of the notes of each class is due and
payable on the dates shown on the cover of this
prospectus supplement.
F. Mandatory Prepayment...................... The seller, at its option, may repurchase the
contracts on any payment date on which the aggregate
outstanding principal balance of the securities is
less than 10% of the initial aggregate principal
balance of the contracts. If the seller purchases the
contracts, the trust will prepay the notes in full on
that payment date.
See "DESCRIPTION OF THE NOTES AND
INDENTURE--MANDATORY PREPAYMENT" in this prospectus
supplement.
TERMS OF THE CERTIFICATES:
A. Payment Dates............................. The trust will make distributions of interest and
principal on the [ ] day of each month or if
that is not a business day, the next business day.
The first payment date is [ ].
B. Record Dates.............................. The last business day of the preceding calendar
month.
C. Interest.................................. PASS-THROUGH RATE:
The trust will distribute interest in respect of the
certificates at the pass-through rate shown on the
cover of this prospectus supplement.
INTEREST PERIODS:
Interest on the certificates will accrue in the
following manner:
</TABLE>
<TABLE>
<CAPTION>
INTEREST PERIOD
-------------------------------------------- DAY COUNT
FROM (INCLUDING) TO (EXCLUDING) CONVENTION
---------------- -------------- ----------
<S> <C> <C> <C>
15th of prior month 15th of current month 30/360
</TABLE>
<TABLE>
<S> <C>
PAYMENT OF INTEREST:
On each payment date after payment of the base
servicing fee and the fees payable to the owner
trustee and the indenture trustee and reimbursement
of servicer advances and payment of interest on the
notes, the trust will make distributions of interest
in respect of on the certificates from the funds
available to it on each payment date.
</TABLE>
S-3
<PAGE>
<TABLE>
<S> <C>
After the acceleration of the notes following an
event of default resulting from a payment default,
the trust will not make interest distributions in
respect of the certificates until the notes have been
paid in full.
See "PAYMENTS AND DISTRIBUTIONS" in this prospectus
supplement.
D. Principal................................. On each payment date, after the trust has paid the
notes in full, the trust will distribute principal in
respect of the certificates.
The amount of principal payable will be based on the
amount by which:
- the certificate balance of the certificates as of
the close of business on the prior payment date,
exceeds
- the aggregate principal balance of the contracts as
of the end of the prior calendar month, excluding
certain non-collectible or defaulted contracts and
contracts to be repurchased by the depositor or
purchased by the servicer due to certain breaches.
The trust will make distributions of principal in
respect of the certificates from the funds available
to it on each payment date after payment of the base
servicing fee and the fees payable to the owner
trustee and the indenture trustee, reimbursement of
servicer advances and distributions of interest on
the certificates.
See "DESCRIPTION OF THE CERTIFICATES--PRINCIPAL" and
"PAYMENTS AND DISTRIBUTIONS" in this prospectus
supplement.
E. Final Scheduled Payment................... The trust will reduce the outstanding certificate
balance of the certificates to zero no later than the
date shown on the cover of this prospectus
supplement.
F. Mandatory Prepayment...................... The seller, at its option, may repurchase the
contracts on any payment date on which the aggregate
outstanding principal balance of the securities is
less than 10% of the initial aggregate principal
balance of the contracts. If the seller purchases the
contracts the trust will prepay the certificates in
full on that payment date. See "DESCRIPTION OF THE
CERTIFICATES--MANDATORY PREPAYMENT" in this
prospectus supplement.
THE TRUST'S ASSETS
A. The Contracts............................. Our main source of funds for making payments on the
securities will be collections on the contracts.
As of the cut-off date, the contracts had the
following characteristics:
</TABLE>
<TABLE>
<S> <C> <C>
Aggregate principal balance.......... $789,214,882.32
Number of contracts.................. 61,534
</TABLE>
S-4
<PAGE>
<TABLE>
<S> <C> <C>
Average principal balance............ $12,825.67
Weighted average annual percentage
rate............................... 11.746%
Weighted average remaining term to
maturity........................... 49 months
Approximate weighted average original
term to maturity................... 62 months
</TABLE>
<TABLE>
Geographic concentration:
PRINCIPAL
BALANCE
STATE CONCENTRATION
-------------------------- -----
<S> <C> <C>
Texas..................... 15.7%
California................ 11.4%
Florida................... 7.3%
Georgia................... 5.8%
</TABLE>
<TABLE>
<S> <C>
No other state represented more than 5% of the
aggregate principal balance of the contracts as of
the cut-off date.
[0.00% of the aggregate principal balance of the
contracts as of the cut-off date are precomputed
contracts. A precomputed contract provides for
amortization of the loan over a series of fixed level
monthly installments. Each scheduled payment consists
of an amount of interest calculated on the basis of
the "Rule of 78s" or equal to 1/12 of the stated
annual percentage rate of the contract multiplied by
the scheduled principal balance of the contract and
an amount of principal equal to the remaining
amount.]
All of the contracts are simple interest contracts. A
simple interest contract provides for amortization of
the loan over a series of equal monthly installments
where payments received are applied first to pay
accrued interest to the date preceding the date the
payment is received and second to pay principal.
[The portion of the scheduled monthly payments and
prepayments that will be allocable to principal is
different for each of the two types of contracts. See
"THE CONTRACTS" in the accompanying prospectus.]
You should refer to "THE CONTRACTS" in this
prospectus supplement and the accompanying prospectus
for more information on the contracts.
</TABLE>
S-5
<PAGE>
<TABLE>
<S> <C>
B. Reserve Fund.............................. On the closing date, the indenture trustee will
establish a trust account in the name of the
indenture trustee which we refer to as the "RESERVE
FUND." The reserve fund provides you with limited
protection in the event collections from obligors on
the contracts are insufficient to make payment on the
securities. We cannot assure you, however, that this
protection will be adequate to prevent shortfalls in
amounts available to make payments on the notes and
the certificates.
The initial balance of the reserve fund will be
$ . The amount required to be on deposit in the
reserve fund on each payment date is .
If the amount on deposit in the reserve fund on any
payment date is less than the required amount, the
trust will use the funds available to it after
payment of the base servicing fee and the fees
payable to the owner trustee and the indenture
trustee, reimbursement of servicer advances and
payment of interest and principal on the securities
to make a deposit into the reserve fund. Amounts on
deposit in the reserve fund on any payment date in
excess of the required amount will be paid to the
depositor.
If on any payment date the funds available to the
trust to pay principal and interest on the securities
are insufficient, the trust will use funds in the
reserve fund to cover any shortfalls.
If on the final scheduled payment date of any class
of securities, the principal or certificate balance
of that class has not been paid in full, the trust
will use funds in the reserve fund to pay those
securities in full.
Servicing; Servicing Fee..................... Premier Auto Finance, Inc., as the servicer, will be
responsible for servicing, managing and administering
the contracts and related interests, and enforcing
and making collections on the contracts.
ADVANCES:
The servicer will make advances [for delinquent
scheduled payments on precomputed contracts] and for
delinquent interest payments on simple interest
contracts, in each case, to the extent it determines
that advances will be recoverable in future periods.
Servicer advances will be reimbursed from the
delinquent payments when made by the obligors and
from collections on other contracts when the servicer
determines that a contract as to which it has made
advances is a defaulted contract.
</TABLE>
S-6
<PAGE>
<TABLE>
<S> <C>
SERVICING FEE:
The servicer's base monthly fee payable on each
payment date will equal the product of:
- one twelfth (1/12th) of one percent (1%) and
- the aggregate principal balance of the contracts as
of the last day of the second calendar month
preceding the month in which that payment date
falls.
The trust will pay the base servicing fee to the
servicer with the funds available to it on each
payment date after the reimbursement of servicer
advances.
The servicer will also be entitled to retain any late
payment fees, prepayment charges, if any, and other
similar fees and charges.
See "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENT--SERVICING" in the accompanying prospectus.
Priority of Payments......................... PRIOR TO ACCELERATION OF THE NOTES:
On each payment date prior to the acceleration of the
notes, the trust will apply collections on the
contracts received during the prior calendar month,
servicer advances and funds transferred from the
reserve fund to make the following payments in the
following order of priority:
- reimbursement of servicer advances;
- base servicing fee to the servicer;
- fees payable to the owner trustee and the indenture
trustee;
- interest on the Class A Notes;
- interest on the Class B Notes;
- interest on the certificates;
- principal on the securities:
- principal on the Class A-1 Notes until paid in
full;
- principal on the Class A-2 Notes until paid in
full;
- principal on the Class A-3 Notes until paid in
full;
- principal on the Class B Notes until paid in full;
and
- principal on the certificates until paid in full;
and
- to the reserve fund, the amount, if any, needed to
fund the reserve fund to the required amount.
</TABLE>
S-7
<PAGE>
<TABLE>
<S> <C>
AFTER ACCELERATION OF THE NOTES:
On each payment date following the acceleration of
the notes following an event of default resulting
from a payment default, the trust will apply the
funds available to it in the same order except that
the trust will not pay interest on the Class B Notes
until the Class A Notes are paid in full and will not
distribute interest in respect of the certificates
until the notes have been paid in full.
On each payment date following the acceleration of
the notes, the trust will pay principal on the Class
A Notes pro rata.
Credit Enhancement........................... Losses and other shortfalls of cash flow will be
covered by payments on other contracts, withdrawals
from the reserve fund and allocations of available
funds to the more senior classes of the securities.
</TABLE>
<TABLE>
<S> <C> <C>
The credit enhancement for the securities is as
follows:
Class A Notes - subordination of the Class B Notes
and the certificates
- reserve fund
Class B Notes - subordination of the certificates
- reserve fund
Certificates - reserve fund
Ratings...................................... On the closing date, each class of securities will
have the following ratings by Standard & Poor's
Ratings Services and Moody's Investors Service, Inc.:
</TABLE>
<TABLE>
<CAPTION>
CLASS S&P MOODY'S
----- ----------- -----------
<S> <C> <C> <C>
A-1 Notes
A-2 Notes
A-3 Notes
B Notes
Certificates
See "RATINGS OF THE SECURITIES" in this
prospectus supplement and the
accompanying prospectus.
Winston & Strawn, as federal tax counsel
to the trust, has delivered its opinion
that the notes will be characterized as
debt for federal income tax purposes,
and the trust will not be characterized
Material Federal Income Tax as an association (or publicly traded
Consequences.................................
partnership) taxable as a corporation.
The purpose of obtaining the opinion of
tax counsel is to provide investors with
greater assurance regarding the
treatment of the notes for federal
income tax purposes and that the issuer
of the
</TABLE>
S-8
<PAGE>
<TABLE>
<S> <C> <C> <C>
notes and certificates will not be
subject to federal income tax at the
entity level. However, an opinion of tax
counsel is not binding on the Internal
Revenue Service and there is no
assurance that the Internal Revenue
Service will not disagree with the
opinion of tax counsel.
By purchasing a note, you will agree to
treat your note as debt for federal,
state and local income tax purposes. As
a result, payments received by you will
generally be treated as either interest
or principal and you will not be
considered an owner of an equity
interest in the trust.
By purchasing a certificate, you will
agree to treat the trust as a
partnership in which you are a partner
for federal, state and local income tax
purposes. As an investor in a
certificate you will be treated as a
partner in that partnership and will be
subject to tax on your allocable share
of partnership income, gains, losses and
expenses. By purchasing a certificate,
you will agree not to take inconsistent
action with treatment of the trust as a
partnership.
This summary of material federal income
tax matters is very general. These
general statements are subject to the
qualifications, clarifications,
assumptions and expanded discussion set
forth in the accompanying prospectus and
this prospectus supplement under the
heading "MATERIAL FEDERAL INCOME TAX
CONSEQUENCES".
ERISA Considerations......................... The notes are generally eligible for
purchase by employee benefit plans and
individual retirement accounts, subject
to those considerations and exceptions
discussed under "ERISA CONSIDERATIONS"
in the accompanying prospectus and this
prospectus supplement.
The certificates may not be acquired or
held by an employee benefit plan or
individual retirement account that is
subject to ERISA or Section 4975 of the
Code.
You should refer to "ERISA
CONSIDERATIONS" in the accompanying
prospectus and this prospectus
supplement. If you are a benefit plan
fiduciary considering purchase of the
securities you should, among other
things, consult with your counsel in
determining whether all required
conditions have been satisfied.
Legal Investment............................. The Class A-1 Notes will be eligible
securities for purchase by money market
funds under Rule 2a-7 under the
Investment Company Act of 1940.
</TABLE>
S-9
<PAGE>
<TABLE>
<S> <C> <C> <C>
The mailing address of the seller is 230
West Monroe Street, Chicago, Illinois
Mailing Address and Telephone Number of 60606, telephone (312) 456-1300. The
Principal Executive Offices.................. mailing address of the depositor is 230
West Monroe Street, Chicago, Illinois
60606, telephone (312) 456-1250. The
principal office of the trust is in care
of Chase Manhattan Bank USA, N.A., as
owner trustee, at 1201 Market Street,
Wilmington, Delaware 19801, telephone
(302) 428-3375.
</TABLE>
S-10
<PAGE>
RISK FACTORS
The following risk factors and the risk factors in the accompanying
prospectus describe the principal risk factors relating to an investment in the
securities. You should carefully consider the following risk factors before you
invest in the securities. You should also carefully consider the risk factors
beginning on page of the accompanying prospectus.
SOME CLASSES OF SECURITIES WILL BE ENTITLED TO INTEREST OR PRINCIPAL PAYMENTS
BEFORE OTHER CLASSES
The trust will pay interest, principal or both on some classes of securities
prior to paying interest, principal or both on other classes of securities. The
subordination of some classes to others means that the subordinated classes are
more likely to suffer the consequences of delinquent payments and defaults on
the contracts than the classes having prior payment rights. See "PAYMENTS AND
DISTRIBUTIONS" in this prospectus supplement.
Moreover, the more senior classes of securities could lose the credit
enhancement provided by the more subordinate classes and the reserve fund if
delinquencies and defaults on contracts increase and the collections on
contracts and amounts in the reserve fund are insufficient to pay even the more
senior classes of securities.
ADVERSE EVENTS IN FOUR HIGH CONCENTRATION STATES MAY CAUSE INCREASED DEFAULTS
AND DELINQUENCIES
If adverse events or economic conditions were particularly severe in a
geographic region where there is a substantial concentration of obligors, the
amount of delinquent payments and defaults on the contracts may increase. As a
result, the overall timing and amount of collections on the contracts may differ
from what you expect, and you may experience delays or reductions in payments.
The following are the approximate percentages of the initial contract pool
principal balance whose obligors are located in the following states:
- 15.7% in Texas,
- 11.4% in California,
- 7.3% in Florida, and
- 5.8% in Georgia.
The remaining states accounted for 59.8% of the initial aggregate principal
balance of the contracts, and none of these remaining states accounted for more
than 5% of the aggregate principal balance of the contracts. For a discussion of
the breakdown of the contracts by state, see "THE CONTRACTS" in this prospectus
supplement.
Although we do not know of any matters likely to increase the rate of
delinquencies or defaults in these states, an example of an adverse event
specific to a geographic region is the possibility of a catastrophic earthquake
in California. An earthquake in California could have negative regional economic
repercussions and potentially cause obligors in that region to delay or reduce
their payments on the contracts. Additionally, a substantial downturn in the
financial services industry, which is highly concentrated in the states of New
York and New Jersey, or in the oil and gas industry, which is concentrated in
the state of Texas could reduce the income of obligors in those states and
ultimately reduce the associated obligor's ability to make timely payments on
their related contracts. In addition, the following economic conditions may
affect payments:
- unemployment,
- interest rates,
- inflation rates, and
- consumer perceptions of the economy.
S-11
<PAGE>
IF THERE IS A SERVICER DEFAULT, THE SERVICER MAY BE REMOVED ONLY BY THE
INDENTURE TRUSTEE AND CERTAIN NOTEHOLDERS
The indenture trustee acting at the direction of the holders of a majority
of the most senior class of notes outstanding has the right under limited
circumstances to terminate the servicer. The holders of the Class B Notes will
have no ability to remove the servicer while the Class A Notes are outstanding
and the holders of the certificates will have no ability to remove the servicer
while the notes are outstanding. In addition, the holders of a majority of the
most senior class of notes outstanding may waive certain servicer defaults
without consideration of the effect of that waiver on the holders of the other
securities. See "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--SERVICING--RIGHTS UPON SERVICER DEFAULT" and "--SERVICING--WAIVER OF
PAST DEFAULTS" in the accompanying prospectus.
SUBORDINATED NOTEHOLDERS MAY NOT BE ABLE TO DIRECT THE INDENTURE TRUSTEE UPON AN
EVENT OF DEFAULT UNDER THE INDENTURE AND MAY HAVE LIMITED RIGHTS UPON
NONPAYMENT OF INTEREST
If an event of default occurs under the indenture, only the holders of the
most senior class of notes outstanding, for example, the Class A Notes may waive
the event of default, accelerate the maturity dates of the notes or direct or
consent to any action under the indenture. The holders of the outstanding
subordinated class of notes will not have any rights to direct or to consent to
any action until the more senior class of notes has been paid in full.
Furthermore, upon failure to pay interest when due on the outstanding
subordinated class of notes, the holders of the subordinated notes will not have
any right to declare an event of default, cause the maturity dates of the notes
to be accelerated or to direct or consent to any action under the indenture.
THE SECURITIES MAY NOT BE SUITABLE INVESTMENTS FOR ALL INVESTORS
The securities may not be a suitable investment for any investor that
requires a regular or predictable schedule of principal payments. 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 an investment and the interaction of these
factors consider purchasing the securities.
PREPAYMENTS, POTENTIAL LOSSES AND CHANGE IN ORDER OF PRIORITY OF PAYMENTS
FOLLOWING ACCELERATION OF THE NOTES
Following the occurrence of an event of default, the holders of a majority
of the most senior class of notes outstanding may accelerate the maturity dates
of the notes. If the Class A Notes are outstanding when the maturity dates of
the notes are accelerated, the trust will pay the principal of the Class A Notes
PRO RATA until paid in full.
If the maturity dates of the notes are accelerated following an event of
default resulting from a payment default or the insolvency of the trust, the
trust will make no further distributions of interest in respect of the
certificates until the notes are paid in full and will make no further payments
of interest on the Class B Notes until the Class A Notes are paid in full.
If the maturity dates of the notes are accelerated following an event of
default, the indenture trustee with the consent of the holders of all
outstanding notes may sell the trust assets. In such event, the trust may not
have sufficient funds to pay all of the securities in full.
If the maturity dates of the notes are accelerated following an event of
default, the indenture trustee without the consent of the noteholders or the
certificateholders may sell the trust assets for an amount at least equal to the
aggregate outstanding principal amount of the notes. In such event, the trust
may not have sufficient funds to pay the certificates in full.
S-12
<PAGE>
In addition, if the maturity dates of the notes are accelerated following an
event of default resulting from a payments default and the indenture trustee
determines that the trust assets will not be sufficient on an ongoing basis to
make all payments on the notes as the payments would have become due if the
maturity dates of the notes had not been accelerated, the indenture trustee with
the consent of the holders of at least 66 2/3% of the most senior class of notes
outstanding may sell the trust assets for an amount less than the aggregate
outstanding principal amount of the notes. In such event, the trust may not have
sufficient funds to pay all of the securities in full.
The certificateholders will not have any right to direct the indenture
trustee or to consent to any action until the notes are paid in full. See
"DESCRIPTION OF THE NOTES AND INDENTURE--EVENTS OF DEFAULT; RIGHTS UPON EVENT OF
DEFAULT" in the accompanying prospectus.
If you receive your principal earlier than expected, you may not be able to
reinvest the prepaid amount at a rate of return that is equal to or greater than
the rate of return on your securities. If the trust is required to sell its
assets in the circumstances described above, the amount received from the sale
may not be sufficient to pay all amounts owed to you.
BECAUSE THE SECURITIES ARE IN BOOK-ENTRY FORM, YOUR RIGHTS CAN ONLY BE EXERCISED
INDIRECTLY
Because the securities will be issued in book-entry form, you will be
required to hold your interest in the securities through The Depository Trust
Company in the United States, or Clearstream (formerly Cedelbank) or the
Euroclear System in Europe. Transfers of interests in the securities within DTC,
Clearstream or Euroclear must be made in accordance with the usual rules and
operating procedures of those systems. So long as the securities are in
book-entry form, you will not be entitled to receive a physical note or
certificate representing your interest. The securities will remain in book-entry
form except in the limited circumstances described under the caption
"INFORMATION REGARDING THE SECURITIES--BOOK-ENTRY REGISTRATION" in the
accompanying prospectus. Unless and until the securities in this prospectus
supplement cease to be held in book-entry form, the indenture trustee will not
recognize you as a "noteholder," as such term is used in the indenture and the
trustee will not recognize you as a "certificateholder", as such term is used in
the trust agreement. As a result, you will only be able to exercise the rights
of securityholders indirectly through DTC, if in the United States, and its
participating organizations, or Clearstream and Euroclear, in Europe, and their
participating organizations. Holding the securities in book-entry form could
also limit your ability to pledge your securities to persons or entities that do
not participate in DTC, Clearstream or Euroclear and to take other actions that
require a physical note or certificate representing the securities.
Interest and principal on the securities will be paid by the trust to DTC as
the record holder of the securities while they are held in book-entry form. DTC
will credit payments received from the trust to the accounts of its participants
which, in turn, will credit those amounts to securityholders either directly or
indirectly through indirect participants. This process may delay your receipt of
principal and interest payments from the trust.
THE ABSENCE OF AN EXISTING MARKET FOR THE SECURITIES MAY LIMIT YOUR ABILITY TO
RESELL THE SECURITIES
There is currently no public market for the securities and we cannot assure
you that one will develop. Thus, you may not be able to resell your securities
at all, or may be able to do so only at a substantial discount. The underwriters
may assist in resales of the securities but they are not obligated to do so.
[Other than the Luxembourg Exchange], we do not intend to apply for listing of
the securities on any securities exchange or for the inclusion of the securities
on any automated quotation system. We cannot predict whether there will be a
secondary market for these types of securities or if one develops, how liquid it
would be.
S-13
<PAGE>
THE TRUST
GENERAL
The depositor created the trust on [ ] under a trust agreement,
which the parties will amend and restate on the closing date, between the
depositor and the owner trustee. The trust's principal offices are in
Wilmington, Delaware, in care of Chase Manhattan Bank USA, N.A., as owner
trustee, at the address set forth below under "--THE TRUSTEE AND INDENTURE
TRUSTEE".
Under a purchase agreement, dated as of , between Premier Auto
Finance, L.P., as seller, and Dealer Auto Receivables Corp., the seller will
sell all of the contracts and the related property to the depositor.
Under a sale and servicing agreement, dated as of [ ], among the
trust, Dealer Auto Receivables Corp., as depositor of the contracts to the
trust, Premier Auto Finance, Inc., as servicer, and the indenture trustee, the
depositor will transfer all of the contracts and related property to the trust.
The property of the trust will consist of:
- the contracts and the right to receive all scheduled payments and
prepayments received on the contracts on or after the cut-off date, but
excluding any scheduled payments due on or after, but received prior to,
the cut-off date;
- security interests in the financed vehicles securing the contracts and any
related property;
- rights with respect to any repossessed financed vehicles;
- the rights to proceeds from claims on theft, physical damage, credit life
and disability insurance policies covering the financed vehicles or the
obligors;
- the seller's rights against the originating dealers under the dealer
agreements and against other third parties under the agreements pursuant
to which the seller purchased the contracts;
- certain rebates of premiums and other amounts relating to insurance
policies, extended service contracts or other repair agreements and other
items financed under the contracts;
- the depositor's rights against the seller under the purchase agreement
pursuant to which the seller sold the pool of contracts to the depositor
and against the performance guarantor under the performance guarantee
pursuant to which the performance guarantor guaranteed the seller's
obligations under the purchase agreement;
- the right to receive payments from the depositor obligated to repurchase
contracts which do not meet specified representations made by depositor in
the sale and servicing agreement;
- the trust's rights against the servicer under the sale and servicing
agreement;
- amounts held in the collection account, the note distribution account and
the reserve fund to be established and maintained under the sale and
servicing agreement;
- amounts held in the certificate distribution account to be established and
maintained under the trust agreement; and
- all proceeds of the foregoing.
S-14
<PAGE>
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the trust as if the
issuance of the securities had occurred on the cut-off date:
<TABLE>
<S> <C>
Class A-1 Notes............................................. $
Class A-2 Notes.............................................
Class A-3 Notes.............................................
Class B Notes...............................................
Certificates................................................
-------
Total................................................... $
</TABLE>
THE INDENTURE AND THE ADMINISTRATION AGREEMENT
Under an indenture dated as of [ ] between the trust and The Bank
of New York, as indenture trustee, the indenture trustee will pledge the trust
assets to secure the payment of the notes and authenticate and deliver the
notes.
Under an administration agreement dated as of among the trust,
the indenture trustee and Premier Auto Finance, Inc., as administrator, the
administrator will agree to perform certain of the trust's administrative
functions under the indenture.
THE TRUSTEE AND THE INDENTURE TRUSTEE
Chase Manhattan Bank USA, N.A. will be the trustee under the trust
agreement. The trustee is a [ ] banking association and its principal
offices are located at 1201 Market Street, Wilmington, Delaware 19801.
The Bank of New York will be the indenture trustee under the indenture
agreement. The indenture trustee is a New York banking association and its
principal offices are located at 101 Barclay Street 12-E, New York, New York.
The fees of the trustee and the indenture trustee in connection with their
duties under the trust agreement and the indenture will be paid out of Available
Amounts. See "PAYMENTS AND DISTRIBUTIONS--DISTRIBUTIONS". The trustee's fee will
equal $[ ] per month and the indenture trustee's fees will equal
[ ]. Each of the trustee and the indenture trustee will also be
entitled to indemnification by the servicer for, and will be held harmless
against, any loss, liability, fee, disbursement or expense incurred by it not
resulting from its own willful misfeasance, bad faith or negligence and will be
reimbursed by the servicer for all costs and expenses (including the reasonable
expenses of its counsel) in connection with the administration of the trust. The
servicer will also indemnify the trustee and the indenture trustee for specified
taxes that may be asserted in connection with the transaction.
THE SELLER AND THE SERVICER
Information regarding the seller and the servicer is set forth under the
captions "THE SELLER AND THE ORIGINATING DEALERS" and "THE SERVICER" in the
accompanying prospectus.
THE PERFORMANCE GUARANTOR
Virginia Surety Company, Inc. was incorporated in Illinois in January 1982.
Virginia Surety Company, Inc. is an Illinois licensed insurance company that
underwrites and administers comprehensive extended warranty and consumer service
programs. It is a wholly owned subsidiary of Aon Corporation. Its principal
executive offices are located at 123 North Wacker Drive, Chicago, Illinois 60606
(telephone number (312) 701-4670). As of December 31, 1999, Virginia Surety
Company Inc. had total assets of $1,442,316,483 and stockholders' equity of
$318,749,189. As of December 31, 1998, Virginia Surety Company Inc. had total
assets of $1,386,694,811 and stockholders' equity of $330,048,524. The claims
paying ability of Virginia Surety Company is rated A+ by A.M. Best.
S-15
<PAGE>
THE CONTRACTS
DESCRIPTION OF THE CONTRACTS
All of the contracts are retail installment contracts originated by the
originating dealers on or after May 8, 1995. The contracts were selected on a
random basis from the seller's portfolio of contracts based on several criteria,
including that each contract:
- has a contractual annual percentage rate that equals or exceeds 1.900%;
- has a remaining term to maturity as of the cut-off date of not less than 7
months and not more than 72 months;
- is not past due as of the cut-off date;
- was originated prior to March 31, 2000;
- has been entered into by an obligor that was not in bankruptcy proceedings
or is bankrupt or insolvent;
- is secured by a financed vehicle that has not been repossessed; and
- has an original term to maturity of not less than 12 months and not more
than 72 months.
See "THE CONTRACTS" in the accompanying prospectus for a further description
of the contracts.
STATISTICS RELATING TO THE CONTRACTS
The aggregate principal balance of the contracts as of the cut-off date was
$789,214,882.32. [By aggregate principal balance approximately 0.00% of the
contracts constituted precomputed contracts and approximately 100.00% of the
contracts constituted simple interest contracts. See "THE CONTRACTS" in the
accompanying prospectus for a further description of the characteristics of
precomputed contracts and simple interest contracts.]
The following tables set forth the characteristics of the contracts as of
the cut-off date. The percentages shown in these tables may not total due to
rounding.
COMPOSITION OF THE CONTRACTS
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED AVERAGE
INITIAL AVERAGE AVERAGE WEIGHTED AVERAGE INITIAL
AGGREGATE ORIGINAL ANNUAL AVERAGE REMAINING PRINCIPAL
NUMBER OF PRINCIPAL PRINCIPAL PERCENTAGE ORIGINAL TERM TERM BALANCE
CONTRACTS BALANCE BALANCE (RANGE) (RANGE) (RANGE) (RANGE)
--------------------- --------------- ---------- --------------- --------------- --------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
61,534 $789,214,882.32 $16,207.45 1.90% to 29.95% 12 to 72 months 7 to 72 months $529.29 to $63,417.44
</TABLE>
S-16
<PAGE>
DISTRIBUTION OF THE CONTRACTS BY ANNUAL PERCENTAGE RATE
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL
NUMBER OF INITIAL PRINCIPAL AGGREGATE PRINCIPAL
RANGE OF APRS(%) CONTRACTS BALANCE BALANCE
---------------- --------- ----------------- ---------------------
<S> <C> <C> <C>
1.500 - 1.999.................................... 2 $ 31,956.43 0.00%
2.500 - 2.999.................................... 19 140,953.94 0.02
3.500 - 3.999.................................... 6 55,675.39 0.01
4.500 - 4.999.................................... 5 26,278.18 0.00
5.500 - 5.999.................................... 7 85,634.05 0.01
6.000 - 6.499.................................... 10 158,638.86 0.02
6.500 - 6.999.................................... 1,320 18,710,576.06 2.37
7.000 - 7.499.................................... 2,489 35,263,595.25 4.47
7.500 - 7.999.................................... 4,315 56,310,972.88 7.14
8.000 - 8.499.................................... 3,032 37,658,408.90 4.77
8.500 - 8.999.................................... 5,186 64,507,390.40 8.17
9.000 - 9.499.................................... 2,481 32,498,526.47 4.12
9.500 - 9.999.................................... 5,547 74,228,366.41 9.41
10.000 - 10.499.................................. 2,533 36,097,559.77 4.57
10.500 - 10.999.................................. 3,800 50,025,913.45 6.34
11.000 - 11.499.................................. 2,013 28,023,726.08 3.55
11.500 - 11.999.................................. 3,110 41,910,715.42 5.31
12.000 - 12.499.................................. 1,970 26,606,215.45 3.37
12.500 - 12.999.................................. 2,725 35,431,834.89 4.49
13.000 - 13.499.................................. 1,496 19,111,960.46 2.42
13.500 - 13.999.................................. 2,321 29,461,154.81 3.73
14.000 - 14.499.................................. 1,294 16,676,798.49 2.11
14.500 - 14.999.................................. 2,070 24,951,766.36 3.16
15.000 - 15.499.................................. 1,246 15,673,260.07 1.99
15.500 - 15.999.................................. 1,886 22,739,069.61 2.88
16.000 - 16.499.................................. 1,195 14,876,376.33 1.88
16.500 - 16.999.................................. 1,838 22,234,954.85 2.82
17.000 - 17.499.................................. 1,039 12,236,736.95 1.55
17.500 - 17.999.................................. 1,659 19,357,220.73 2.45
18.000 - 18.499.................................. 1,670 18,821,775.79 2.38
18.500 - 18.999.................................. 834 9,448,107.00 1.20
19.000 - 19.499.................................. 474 5,354,270.57 0.68
19.500 - 19.999.................................. 641 7,032,446.50 0.89
20.000 - 20.499.................................. 406 4,311,111.59 0.55
20.500 - 20.999.................................. 261 2,897,223.71 0.37
21.000 and greater............................... 634 6,257,710.22 0.79
TOTAL:........................................... 61,534 $789,214,882.32 100.00%
</TABLE>
S-17
<PAGE>
GEOGRAPHICAL DISTRIBUTION OF THE CONTRACTS
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL
NUMBER OF INITIAL PRINCIPAL AGGREGATE PRINCIPAL
STATE CONTRACTS BALANCE BALANCE
----- --------- ----------------- ---------------------
<S> <C> <C> <C>
Alabama.......................................... 37 $ 450,254.72 0.06%
Alaska........................................... 19 191,635.35 0.02
Arizona.......................................... 1,904 26,726,354.98 3.39
Arkansas......................................... 1,348 23,698,346.03 3.00
California....................................... 6,891 90,164,387.32 11.42
Colorado......................................... 1,637 19,260,369.22 2.44
Connecticut...................................... 367 4,454,517.00 0.56
Delaware......................................... 8 96,133.13 0.01
District of Columbia............................. 150 1,836,589.62 0.23
Florida.......................................... 4,822 57,368,484.45 7.27
Georgia.......................................... 3,213 45,774,902.12 5.80
Hawaii........................................... 322 4,190,810.37 0.53
Idaho............................................ 23 316,496.32 0.04
Illinois......................................... 2,724 34,236,058.14 4.34
Indiana.......................................... 2,548 33,301,291.15 4.22
Iowa............................................. 702 8,329,160.08 1.06
Kansas........................................... 553 6,814,830.87 0.86
Kentucky......................................... 119 1,313,259.74 0.17
Louisiana........................................ 1,391 18,690,596.19 2.37
Maine............................................ 126 1,489,041.55 0.19
Maryland......................................... 1,173 15,209,860.79 1.93
Massachusetts.................................... 1,091 12,720,842.34 1.61
Michigan......................................... 1,493 16,520,582.56 2.09
Minnesota........................................ 480 5,752,288.24 0.73
Mississippi...................................... 159 2,614,127.02 0.33
Missouri......................................... 1,463 16,484,292.07 2.09
Montana.......................................... 9 90,909.85 0.01
Nebraska......................................... 983 13,110,838.93 1.66
Nevada........................................... 1,277 17,408,846.07 2.21
New Hampshire.................................... 6 68,411.63 0.01
New Jersey....................................... 1,288 13,879,175.45 1.76
New Mexico....................................... 628 8,713,758.57 1.10
New York......................................... 1,186 16,223,684.84 2.06
North Carolina................................... 1,276 14,947,294.69 1.89
North Dakota..................................... 70 851,051.43 0.11
Ohio............................................. 419 4,896,737.21 0.62
Oklahoma......................................... 1,248 17,102,693.55 2.17
Oregon........................................... 744 9,207,639.30 1.17
Pennsylvania..................................... 375 4,585,674.92 0.58
Puerto Rico...................................... 5 62,561.12 0.01
Rhode Island..................................... 6 73,517.81 0.01
South Carolina................................... 1,345 15,687,840.26 1.99
South Dakota..................................... 8 75,883.82 0.01
Tennessee........................................ 1,106 16,498,299.50 2.09
Texas............................................ 9,188 124,113,511.78 15.73
Utah............................................. 78 798,782.87 0.10
</TABLE>
S-18
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL
NUMBER OF INITIAL PRINCIPAL AGGREGATE PRINCIPAL
STATE CONTRACTS BALANCE BALANCE
----- --------- ----------------- ---------------------
<S> <C> <C> <C>
Vermont.......................................... 10 119,878.91 0.02
Virginia......................................... 1,922 24,730,245.83 3.13
Washington....................................... 419 5,571,050.33 0.71
West Virginia.................................... 21 246,193.84 0.03
Wisconsin........................................ 3,137 31,936,331.90 4.05
Wyoming.......................................... 17 208,556.54 0.03
TOTAL:........................................... 61,534 $789,214,882.32 100.00%
</TABLE>
REMAINING TERMS OF CONTRACTS
<TABLE>
<CAPTION>
REMAINING TERMS PERCENTAGE OF INITIAL
OF CONTRACTS AGGREGATE NUMBER PRINCIPAL AGGREGATE PRINCIPAL
(MONTHS) OF CONTRACTS BALANCE BALANCE
--------------------- ---------------- --------------- ---------------------
<S> <C> <C> <C>
1 - 12 1,129 $ 3,626,499.87 0.46%
13 - 18 2,066 9,899,999.47 1.25
19 - 24 3,255 21,532,712.81 2.73
25 - 30 5,298 44,506,338.32 5.64
31 - 36 6,248 62,569,168.04 7.93
37 - 42 8,324 96,076,626.68 12.17
43 - 48 8,935 115,525,593.66 14.64
49 - 54 9,787 142,326,083.99 18.03
55 - 60 9,000 140,649,840.13 17.82
61 - 66 3,681 72,028,648.84 9.13
67 - 72 3,811 80,473,370.51 10.20
TOTAL: 61,534 $789,214,882.32 100.00%
</TABLE>
S-19
<PAGE>
MATURITY AND PREPAYMENT CONSIDERATIONS
Information regarding maturity and prepayment considerations with respect to
the securities is set forth under "WEIGHTED AVERAGE LIFE OF THE SECURITIES" in
the accompanying prospectus.
Because the rate of payment of principal of each class of notes and the
certificates depends primarily on the rate of payment of the principal balances
of the contracts, final payment of any class of securities could occur
significantly earlier or later than their respective final scheduled payment
dates. You will bear the risk of being able to reinvest principal payments on
your securities at yields at least equal to the yield on your securities. We
cannot predict the rate of prepayments.
Although the contracts have different annual percentage rates,
disproportionate rates of prepayments between contracts with higher annual
percentage rates will generally not affect the yield to you. However, higher
rates of prepayments of contracts with higher annual percentage rates will
decrease the amount available to cover delinquencies and defaults on the
contracts and may decrease the amounts available to be deposited in the reserve
fund.
STATISTICS RELATING TO DELINQUENCIES AND LOSSES
The following table shows delinquency statistics for the seller's portfolio
of retail installment contracts serviced by the servicer. The contracts were
originated in accordance with the underwriting standards described in the
accompanying prospectus under "THE SERVICER--UNDERWRITING AND ORIGINATION". For
these purposes a "DELINQUENCY" means that the obligor on the contract has failed
to make a required scheduled payment in an amount equal to at least 95% of the
scheduled payment for the indicated number of days past the due date. These
statistics are not necessarily indicative of the future performance of the
contracts.
S-20
<PAGE>
<TABLE>
<CAPTION>
AS OF MARCH 31
--------------
2000 1999
--------------------------- ---------------------------
NUMBER NUMBER
DOLLARS OF DOLLARS OF
(000'S) CONTRACTS (000'S) CONTRACTS
-------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Outstanding Principal Amount............... $2,249,288,328 179,545 $1,736,451,285 139,717
============== ========== ============== ==========
Delinquencies($)(1)
31-60 Days............................... 44,954,706 3,934 32,231,589 2,747
61-90 Days............................... 8,217,598 772 6,896,529 590
91 Days or More.......................... 10,316,547 1,117 9,954,709 824
-------------- ---------- -------------- ----------
Total Delinquencies........................ 63,488,852 5,823 49,082,827 4,161
Repossession Inventory................... 13,196,706 856 9,344,398 796
============== ========== ============== ==========
Total Delinquencies &
Repossession Inventory................... $ 76,685,557 6,679 $ 58,427,224 4,957
============== ========== ============== ==========
Delinquencies (%)(1)(2)
31-60 Days............................... 2.00% 3,934 1.86% 2,747
61-90 Days............................... 0.37 772 0.40 590
91 Days or More............................ 0.46 1,117 0.57 824
-------------- ---------- -------------- ----------
Total Delinquencies(2)..................... 2.82 5,823 2.83 4,161
Repossession Inventory(2).................. 0.59 856 0.54 796
-------------- ---------- -------------- ----------
Total Delinquencies & Repossession
Inventory(2)............................. 3.41% 6,679 3.36% 4,957
============== ========== ============== ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31
-----------------
1999 1998 1997
--------------------------- --------------------------- ---------------------------
NUMBER NUMBER NUMBER
DOLLARS OF DOLLARS OF DOLLARS OF
(000'S) CONTRACTS (000'S) CONTRACTS (000'S) CONTRACTS
-------------- ---------- -------------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding Principal
Amount..................... $2,174,454,724 172,881 $1,660,986,259 132,092 $1,115,810,208 87,843
============== ======= ============== ======= ============== ======
Delinquencies ($)(1).........
31-60 Days................. 53,939,404 4,675 38,530,564 3,332 28,670,186 2,338
61-90 Days................. 9,605,259 899 8,837,632 782 7,400,505 597
91 Days or More............ 9,814,027 1,452 10,297,079 881 7,101,867 554
-------------- ------- -------------- ------- -------------- ------
Total Delinquencies.......... 73,358,690 7,026 57,665,274 4,995 43,172,558 3,489
Repossession Inventory....... 13,196,706 1,080 9,344,398 786 9,096,214 756
-------------- ------- -------------- ------- -------------- ------
Total Delinquencies &
Repossession Inventory..... $ 86,555,395 8,106 $ 67,009,672 5,781 $ 52,268,772 4,245
============== ======= ============== ======= ============== ======
Delinquencies (%)(1)(2)......
31-60 Days................. 2.48% 4,675 2.32% 3,332 2.57% 2,338
61-90 Days................. 0.44 899 0.53 782 0.66 597
91 Days or More............ 0.45 1,452 0.62 881 0.64 554
-------------- ------- -------------- ------- -------------- ------
Total Delinquencies(2)....... 3.37 7,026 3.47 4,995 3.87 3,489
Repossession Inventory(2).... 0.61 1,080 0.56 786 0.82 756
-------------- ------- -------------- ------- -------------- ------
Total Delinquencies &
Repossession
Inventory(2)............... 3.98% 8,106 4.03% 5,781 4.68% 4,245
============== ======= ============== ======= ============== ======
<CAPTION>
AS OF DECEMBER 31
1996 1995
--------------------------- -------------------------
NUMBER NUMBER
DOLLARS OF DOLLARS OF
(000'S) CONTRACTS (000'S) CONTRACTS
-------------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Outstanding Principal
Amount..................... $ 573,744,851 46,136 $300,856,389 25,644
============== ====== ============ ======
Delinquencies ($)(1).........
31-60 Days................. 12,602,244 1,064 8,394,635 712
61-90 Days................. 3,209,551 260 1,000,155 99
91 Days or More............ 3,100,150 257 1,270,105 147
-------------- ------ ------------ ------
Total Delinquencies.......... 18,911,945 1,581 10,664,896 958
Repossession Inventory....... 3,891,643 334 2,722,790 206
-------------- ------ ------------ ------
Total Delinquencies &
Repossession Inventory..... $ 22,803,588 1,915 $ 13,387,686 1,164
============== ====== ============ ======
Delinquencies (%)(1)(2)......
31-60 Days................. 2.20% 1,064 2.79% 712
61-90 Days................. 0.56 260 0.33 99
91 Days or More............ 0.54 257 0.42 147
-------------- ------ ------------ ------
Total Delinquencies(2)....... 3.30 1,581 3.54 958
Repossession Inventory(2).... 0.68 334 0.91 206
-------------- ------ ------------ ------
Total Delinquencies &
Repossession
Inventory(2)............... 3.97% 1,915 4.45% 1,164
============== ====== ============ ======
</TABLE>
----------------------------------------
(1) Delinquencies include principal amounts only.
(2) As a percent of outstanding principal in dollars.
S-21
<PAGE>
LOSSES AND RECOVERIES
The following table shows loss statistics for the seller's portfolio of
retail installment contracts serviced by the servicer. The servicer generally
charges-off a contract (i) when the servicer deems the contract uncollectible;
(ii) during the month when 5% or more of an installment due under the contract
becomes more than 120 days past due; (iii) if the financed vehicle is
repossessed, when all sale proceeds, insurance claims or refunds of financed
insurance policies and extended warranties have been received with respect to
the related repossessed financed vehicle; or (iv) when an obligor files for
bankruptcy and the servicer determines that its loss is known. Recoveries
generally include amounts received with respect to contracts previously
charged-off, except for proceeds realized in connection with the sale of the
repossessed vehicles. Gross charge-offs are the remaining principal balances
less proceeds from the sale of repossessed vehicles. Net charge-offs mean gross
charge-offs minus recoveries of contracts previously charged off. These
statistics are not necessarily indicative of the future performance of the
contracts.
<TABLE>
<CAPTION>
3 MONTHS ENDED
-------------------------------
MARCH 31, MARCH 31,
2000 1999
-------------- --------------
<S> <C> <C>
Number of Contracts(1)...................................... 179,545 139,717
Period End Outstanding Principal Amount..................... $2,249,288,328 $1,736,451,285
Average Outstanding Principal Amount (2).................... $2,221,843,103 $1,707,989,933
Number of Repossessions in Inventory........................ 856 796
Number of Gross Charge-Offs................................. 1,747 1,392
Gross Charge-Offs........................................... $ 10,480,728 $ 8,165,669
Gross Charge-Offs as a % of Period End Outstanding Principal
Amount.................................................... 0.47% 0.47%
Gross Charge-Offs as a % of Average Outstanding Principal
Amount.................................................... 0.47% 0.48%
Recoveries.................................................. $ 1,358,434 $ 785,865
Net Charge-Offs............................................. $ 9,122,293 $ 7,379,804
Net Charge-Offs as a % of Period End Outstanding Principal
Amount.................................................... 0.41% 0.42%
Net Charge-Offs as a % of Average Outstanding Principal
Amount.................................................... 0.41% 0.43%
</TABLE>
S-22
<PAGE>
<TABLE>
<CAPTION>
12 MONTHS ENDED
------------------------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Number of Contracts(1)... 172,881 132,092 87,843 46,136 25,644
Period End Outstanding
Principal Amount....... $2,174,454,724 $1,660,986,259 $1,115,810,208 $573,744,851 $300,856,389
Average Outstanding
Principal Amount(2).... $1,926,991,652 $1,401,031,163 $ 862,519,336 $441,887,127 $247,064,409
Number of Repossessions
in Inventory........... 1,080 786 756 334 206
Number of Gross Charge-
Offs................... 5,875 5,053 2,651 1,344 804
Gross Charge-Offs........ $ 35,350,278 $ 29,299,864 $ 14,734,500 $ 6,519,864 $ 3,391,234
Gross Charge-Offs as a %
of Period End
Outstanding Principal
Amount................. 1.63% 1.76% 1.32% 1.14% 1.13%
Gross Charge-Offs as a %
of Average Outstanding
Principal Amount....... 1.83% 2.09% 1.71% 1.48% 1.37%
Recoveries............... $ 3,578,853 $ 2,072,135 $ 808,011 $ 504,770 $ 299,758
Net Charge-Offs.......... $ 31,771,425 $ 27,227,730 $ 13,926,489 $ 6,015,094 $ 3,091,476
Net Charge-Offs as a % of
Period End Outstanding
Principal Amount(5).... 1.46% 1.64% 1.25% 1.05% 1.03%
Net Charge-Offs as a % of
Average Outstanding
Principal Amount(5).... 1.65% 1.94% 1.61% 1.36% 1.25%
</TABLE>
--------------------------
(1) Number of contracts as of period end.
(2) The average for each period presented was computed by taking a simple
average of monthly average outstanding principal amounts for such period.
THREE MONTHS ENDED MARCH 31, 2000 VERSUS THREE MONTHS ENDED MARCH 31, 1999.
The amounts classified as delinquent as a percentage of the seller's
portfolio of retail installment contracts serviced by the servicer decreased
insignificantly from 2.83% to 2.82%. Repossessed inventory as a percentage of
the period end outstanding principal amount of the contracts increased slightly
from 0.54% to 0.59%. Gross charge-offs as a percentage of the period end
outstanding principal amount of the contracts remained static at 0.47%. The
servicer believes that these relatively static period-to-period results are
attributable to the consistent application of its underwriting standards and a
maturation of its servicing practices. The number of contracts increased from
139,717 to 179,545 due to an increase in the number of originating dealers from
which the seller purchased contracts and from a continued favorable domestic
economy resulting in a high demand for the financing of new and used motor
vehicles. The servicer knows of no trends that are likely to increase the rate
of delinquencies or losses on the contracts.
TWELVE MONTHS ENDED DECEMBER 31, 1999 VERSUS TWELVE MONTHS ENDED DECEMBER 31,
1998.
The amounts classified as delinquent as a percentage of the seller's
portfolio of retail installment contracts serviced by the servicer decreased
from 3.47% to 3.37%. Gross charge-offs as a percentage of the period end
outstanding principal amount of the contracts decreased from 1.76% to 1.63%. The
servicer believes that these results are attributable to a larger proportion of
loans in the portfolio having lower credit risk characteristics as well as
continued improvements in collections procedures.
S-23
<PAGE>
The changes in the portfolio mix are the result of modifications to the
servicer's credit and underwriting practices adopted in January 1998. In January
1998, the servicer undertook a concerted effort to increase the number of
contracts in its portfolio with more creditworthy obligors. In addition, the
servicer adopted a higher threshold for acceptance of each applicant's credit
bureau score. Repossessed inventory increased slightly from 0.56% to 0.61%; the
increase is primarily attributable to the increase in the number of contracts in
the portfolio which increased from 132,092 to 172,881. The increase in the
number of contracts is attributable to efforts by the seller to grow its
operations by expanding the number of originating dealers from which contracts
may be originated as well as a continued favorable economic environment. The
servicer knows of no trends that are likely to increase the rate of
delinquencies or losses on the contracts.
TWELVE MONTHS ENDED DECEMBER 31, 1998 VERSUS TWELVE MONTHS ENDED DECEMBER 31,
1997.
The amounts classified as delinquent as a percentage of the seller's
portfolio of retail installment contracts serviced by the servicer decreased
from 3.87% to 3.47%. The servicer believes the decrease is attributable to the
previously described more stringent credit and underwriting standards adopted in
January 1998. Gross charge-offs as a percentage of the period end outstanding
principal amount of the contracts increased from 1.32 % to 1.76%. The increase
is attributable to a lag effect created as a result of the more lenient
underwriting standards that were utilized in 1996 and 1997. Repossessed
inventory decreased from 0.82% to 0.56% due primarily to the more rigorous
credit and underwriting standards that were adopted by the servicer in January
1998. The results are also attributable to the maturation of the servicer's
business and the achievement of economies of scale in the size of the portfolio
that allowed for greater specialization and expertise in the servicing of the
contracts. The number of contracts increased from 87,843 to 132,092 due to a
strong domestic economy and continued consumer demand for financing for new and
used automobiles.
TWELVE MONTHS ENDED DECEMBER 31, 1997 VERSUS TWELVE MONTHS ENDED DECEMBER 31,
1996.
The amounts classified as delinquent as a percentage of the seller's
portfolio of retail installment contracts serviced by the servicer increased
from 3.30% to 3.87%. Gross charge-offs as a percentage of the period end
outstanding principal amount of the contracts increased from 1.14 % to 1.32%.
Repossessed inventory increased substantially from 0.68% to 0.82%. These results
are primarily attributable to the more lenient credit and underwriting standards
utilized by the servicer until January 1998. In addition, the results are
attributable to the rapid growth of our business in 1995 and 1996 which resulted
in a high turnover of personnel and the hiring of less seasoned collections
personnel. The number of contracts increased from 46,136 to 87,843 due to
overall growth in the portfolio occurring as a result of efforts by the seller
to expand its operations and continued demand for new and used motor vehicle
financing.
TWELVE MONTHS ENDED DECEMBER 31, 1996 VERSUS TWELVE MONTHS ENDED DECEMBER 31,
1995.
The amounts classified as delinquent as a percentage of the seller's
portfolio of retail installment contracts serviced by the servicer decreased
from 3.54% to 3.30%. Gross charge-offs as a percentage of the period end
outstanding principal amount of the contracts increased insignificantly from
1.13 % to 1.14%. Repossessed inventory decreased from 0.91% to 0.68%. The number
of contracts increased from 25,644 to 46,136 due to efforts by the seller to
increase the number of contracts in the portfolio and a strong domestic economy
which created a large demand for new and used motor vehicle financing.
S-24
<PAGE>
WEIGHTED AVERAGE LIVES OF THE SECURITIES
The rate of payments on contracts will directly affect
- the rate at which you receive principal payments on your securities;
and
- if you purchase your securities at a premium or discount, your yield to
maturity.
The payments on the contracts may be in the form of payments scheduled to be
made under the terms of the contracts, prepayments or liquidations due to
default, casualty and other events which we cannot predict. The depositor will
be obligated to repurchase contracts from the trust as a result of a breach of a
representation or warranty with respect to that contract that materially and
adversely affects the trust's or the securityholders' interest in the contract
or the collectibility of the contract. In such event the seller, or the
performance guarantor, will be obligated to repurchase the contract from the
depositor. In addition, the servicer will be obligated to repurchase contracts
from the trust as a result of a breach of certain covenants with respect to the
contract. Any payments for these reasons, other than scheduled payments may
result in distributions to you of amounts which would otherwise have been
distributed over the remaining term of the contracts. Each prepayment,
liquidation or repurchase of a contract will shorten the weighted average
remaining term of the contracts and the weighted average lives of the
securities. See "RISK FACTORS--YOU MAY EXPERIENCE REDUCED RETURNS ON YOUR
INVESTMENT RESULTING FROM PREPAYMENTS ON THE CONTRACTS, REPURCHASES OF THE
CONTRACTS, LIQUIDATION OF DEFAULTED CONTRACTS AND EARLY TERMINATION OF THE
TRUST" in the accompanying prospectus.
Prepayments on automotive receivables can be measured relative to a payment
standard or model. In this prospectus supplement we use the Absolute Prepayment
Model ("ABS"), which represents an assumed rate of prepayment each month
relative to the original number of contracts in a pool of contracts. ABS further
assumes that all the contracts in question are the same size and amortize at the
same rate and that each contract in each month of its life will either be paid
as scheduled or be paid in full. For example, in a pool of contracts originally
containing 10,000 contracts, a 1% ABS rate means that 100 contracts prepay each
month. ABS does not purport to be an historical description of prepayment
experience or a prediction of the anticipated rate of prepayment of any pool of
receivables, including the contracts.
The information in the ABS Table was prepared on the assumption that:
- the contracts prepay in full at the specified constant percentage of ABS
monthly, with no defaults, losses or repurchases,
- each scheduled monthly payment on each contract is scheduled to be made
and is made on the last day of each month and each month has 30 days,
- payments are made on the securities on each payment date,
- the balance in the reserve fund on each payment date is the required
amount described under "PAYMENTS AND DISTRIBUTIONS--RESERVE FUND" in this
prospectus supplement and
- the seller does not purchase the contracts.
The ABS Table also assumes that the contracts have been aggregated into
hypothetical pools with all of the contracts within each pool having the
following characteristics and that the level scheduled
S-25
<PAGE>
monthly payment for each of the pools will be such that each pool will be fully
amortized by the end of its remaining term to maturity.
<TABLE>
<CAPTION>
AGGREGATE REMAINING TERM ORIGINAL TERM
PRINCIPAL TO MATURITY TO MATURITY
POOL BALANCE APR (IN MONTHS) (IN MONTHS)
---- --------------- -------- -------------- -------------
<S> <C> <C> <C> <C>
1........................................ $ 3,626,499.87 11.971% 10 47
2........................................ 31,432,712.28 12.124 20 51
3........................................ 107,075,506.36 11.985 31 56
4........................................ 211,602,220.34 11.371 43 59
5........................................ 282,975,924.12 12.006 55 62
6........................................ 152,502,019.35 11.533 67 72
TOTAL:................................... $789,214,882.32 11.746% 49 62
</TABLE>
The hypothetical pools each have an assumed cut-off date of [ ]. The
ABS Table indicates the projected weighted average life of each class of
securities and sets forth the percent of the initial principal amount of each
class of securities that is projected to be outstanding after each of the
payment dates shown at various constant ABS percentages.
The actual characteristics and performance of the contracts will differ from
the assumptions used to prepare the ABS Table. The assumptions used are
hypothetical and have been provided to give a general sense of how the principal
cash flows might behave under varying prepayment rates. Any difference between
the assumptions and the actual characteristics and performance of the contracts
or actual prepayment experience will affect the percentages of initial amounts
outstanding over time and the weighted average lives of each class of
securities.
<TABLE>
<CAPTION>
CLASS A-1 NOTES
-----------------------------------------
ASSUMED ABS PERCENTAGE(2)
-----------------------------------------
PAYMENT DATES 0.50% 1.00% 1.50% 2.00%
------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted Average Life (years)(1)............................
Weighted Average Life to Call (years)(1)(3).................
Optional Call Date..........................................
</TABLE>
------------------------
(1) The weighted average life of a note is determined by (i) multiplying the
amount of each principal payment on a note by the number of years from the
date of the issuance of the note to the payment date on which it is made,
(ii) adding the results and (iii) dividing the sum by the initial principal
amount of the note.
(2) An asterisk "*" means a percent of initial principal balance of more than
zero and less than 0.5%.
(3) This calculation assumes the seller repurchases the contracts at the first
opportunity.
<TABLE>
<CAPTION>
CLASS A-2 NOTES
-----------------------------------------
ASSUMED ABS PERCENTAGE(2)
-----------------------------------------
PAYMENT DATES 0.50% 1.00% 1.50% 2.00%
------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted Average Life (years)(1)............................
Weighted Average Life to Call (years)(1)(3).................
Optional Call Date..........................................
</TABLE>
------------------------
(1) The weighted average life of a note is determined by (i) multiplying the
amount of each principal payment on a note by the number of years from the
date of the issuance of the note to the payment date on which it is made,
(ii) adding the results and (iii) dividing the sum by the initial principal
amount of the note.
S-26
<PAGE>
(2) An asterisk "*" means a percent of initial principal balance of more than
zero and less than 0.5%.
(3) This calculation assumes the seller repurchases the contracts at the first
opportunity.
<TABLE>
<CAPTION>
CLASS A-3 NOTES
-----------------------------------------
ASSUMED ABS PERCENTAGE(2)
-----------------------------------------
PAYMENT DATES 0.50% 1.00% 1.50% 2.00%
------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted Average Life (years)(1)............................
Weighted Average Life to Call (years)(1)(3).................
Optional Call Date..........................................
</TABLE>
------------------------
(1) The weighted average life of a note is determined by (i) multiplying the
amount of each principal payment on a note by the number of years from the
date of the issuance of the note to the payment date on which it is made,
(ii) adding the results and (iii) dividing the sum by the initial principal
amount of the note.
(2) An asterisk "*" means a percent of initial principal balance of more than
zero and less than 0.5%.
(3) This calculation assumes the seller repurchases the contracts at the first
opportunity.
<TABLE>
<CAPTION>
CLASS B NOTES
-----------------------------------------
ASSUMED ABS PERCENTAGE(2)
-----------------------------------------
PAYMENT DATES 0.50% 1.00% 1.50% 2.00%
------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted Average Life (years)(1)............................
Weighted Average Life to Call (years)(1)(3).................
Optional Call Date..........................................
</TABLE>
------------------------
(1) The weighted average life of a note is determined by (i) multiplying the
amount of each principal payment on a note by the number of years from the
date of the issuance of the note to the payment date on which it is made,
(ii) adding the results and (iii) dividing the sum by the initial principal
amount of the note.
(2) An asterisk "*" means a percent of initial principal balance of more than
zero and less than 0.5%.
(3) This calculation assumes the seller repurchases the contracts at the first
opportunity.
<TABLE>
<CAPTION>
CERTIFICATES
-----------------------------------------
ASSUMED ABS PERCENTAGE(2)
-----------------------------------------
PAYMENT DATES 0.50% 1.00% 1.50% 2.00%
------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted Average Life (years)(1)............................
Weighted Average Life to Call (years)(1)(3).................
Optional Call Date..........................................
</TABLE>
------------------------
(1) The weighted average life of a certificate is determined by (i) multiplying
the amount of each principal payment on a certificate by the number of years
from the date of the issuance of the certificate to the payment date on
which it is made, (ii) adding the results and (iii) dividing the sum by the
initial certificate balance of the certificate.
(2) An asterisk "*" means a percent of initial principal certificate balance of
more than zero and less than 0.5%.
(3) This calculation assumes the seller repurchases the contracts at the first
opportunity.
THE ABS TABLES HAVE BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED ABOVE
(INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND PERFORMANCE OF THE
CONTRACTS WHICH WILL DIFFER FROM THE ACTUAL CHARACTERISTICS AND PERFORMANCE
THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
S-27
<PAGE>
NOTE FACTORS AND CERTIFICATE FACTORS
The "NOTE FACTOR" or "CERTIFICATE FACTOR" for any class of notes or
certificates, respectively, will be a seven-digit decimal indicating the
principal amount of that class of securities on the payment date as a fraction
of the respective principal amount thereof as of the closing date. The servicer
will compute the note factor and certificate factor each month. Initially, each
factor will be 1.0000000 and thereafter will decline to reflect reductions in
the principal amount of each class of notes and reductions in the certificate
balance. The portion of the principal amount of any class of notes and of the
certificate balance for the certificates for a given month allocable to a
securityholder can be determined by multiplying the original denomination of the
holder's security by the related note factor or certificate factor, as the case
may be, for that month.
You will receive monthly reports concerning the payments received on the
contracts, the aggregate principal balance of the contracts, the related note
factors, certificate factors and various other items of information pertaining
to the trust. Furthermore, the trustee or indenture trustee will furnish you
with information for tax reporting purposes not later than the latest date
permitted by law. See "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--SERVICING--STATEMENTS TO SECURITYHOLDERS" in the accompanying
prospectus.
USE OF PROCEEDS
The depositor will use all of the proceeds from the sales of securities,
after depositing funds into the reserve fund and paying expenses, to pay the
purchase price for the contracts to the seller. The purchase price for the
contracts is $ . The seller will use the proceeds it receives to pay down a
warehouse receivables securitization facility.
DESCRIPTION OF THE NOTES
This section supplements the information in the accompanying prospectus
under the caption "DESCRIPTION OF THE NOTES AND INDENTURE". However, as these
statements are only summaries, you should read the sale and servicing agreement
and indenture, forms of which have been filed as exhibits to the registration
statement of which the accompanying prospectus forms a part. The information in
this section and in the accompanying prospectus under the caption "DESCRIPTION
OF THE NOTES AND INDENTURE" describes the material terms of the notes, the
indenture and the applicable transfer and servicing agreements, including the
sale and servicing agreement. A copy of the indenture and the sale and servicing
agreement are available to you upon request to the depositor and will be filed
with the Securities and Exchange Commission following the issuance of the
securities.
GENERAL
The notes will be issued pursuant to the terms of the indenture between the
trust and the indenture trustee.
The trust will issue four classes of notes, consisting of three classes of
senior notes, designated as the
- Class A-1 Notes,
- Class A-2 Notes, and
- Class A-3 Notes.
We refer to these notes as the "CLASS A NOTES." The trust will also issue
one class of subordinate notes, designated as the Class B Notes.
S-28
<PAGE>
The notes will be delivered in book-entry form only and be issued in minimum
denominations of $1,000.
INTEREST
Each class of notes will bear interest at the fixed rate per annum for that
class shown on the cover page of this prospectus supplement.
The trust will pay interest on the notes on each payment date with Available
Amounts and amounts withdrawn from the reserve fund as set forth under "PAYMENTS
AND DISTRIBUTIONS--DISTRIBUTIONS" below.
Interest will be payable to you monthly on the [ ] of each month or, if
that date is not a business day, on the next succeeding business day and will be
calculated
- on the Class A-1 Notes on the basis of the actual number of days during
the interest period from and including the prior payment date (or from and
including the closing date, in the case of the initial payment date) to
but excluding that payment date divided by 360, and
- on all other classes of notes on the basis of a 360-day year consisting of
twelve 30-day months for the interest period from and including the th
day of the prior month (or from and including the closing date, in the
case of the initial payment date) to but excluding the th day of the
next month.
After the acceleration of the notes following an event of default resulting
from a payment default, the trust will not make interest payments on the
Class B Notes until the Class A Notes have been paid in full.
Interest payments on the Class A Notes will have the same priority. If on
any payment date the trust has insufficient funds to make a full payment of
interest on the Class A Notes, the holders of the Class A Notes will receive
their pro rata share of the amount available for interest on the Class A Notes.
If on any payment date, the trust does not have sufficient funds, to make a
full payment of interest on any class of notes, the amount of the shortfall will
be carried forward, and together with interest on the shortfall amount at the
applicable interest rate for that class, added to the amount of interest the
affected class of noteholders will be entitled to receive on the next payment
date.
PRINCIPAL
On each payment date, principal on the notes will be payable in an amount
equal to the amount by which (1) the sum of the aggregate principal balances of
the notes and the certificate balance of the certificates as of the close of
business on the prior payment date exceeds (2) the aggregate principal balance
of the contracts as of the end of the prior calendar month, excluding certain
non-collectible or defaulted contracts and contracts to be repurchased by the
depositor or purchased by the servicer due to certain breaches. The trust will
pay principal on the notes on each payment date with Available Amounts and
amounts withdrawn from the reserve fund as set forth under "PAYMENTS AND
DISTRIBUTIONS--DISTRIBUTIONS" below.
The principal of each class of notes is due and payable on the scheduled
final payment date for that class shown on the cover page of this prospectus
supplement.
MANDATORY PREPAYMENT
The seller, at its option, may repurchase all of the contracts owned by a
trust on any payment date following the date on which the aggregate outstanding
principal balance of the securities is less than
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<PAGE>
10% of the aggregate principal balance of the contracts as of the cut-off date.
The purchase price required to be paid in connection with the purchase will be
at least equal to the sum of:
- the unpaid principal balance of the notes as of that payment date,
together with accrued interest but unpaid interest on the notes to that
payment date;
- the certificate balance of the certificates as of that payment date,
together with all interest distributable in respect of the certificates
as of that payment date;
- unreimbursed servicer advances;
- accrued but unpaid servicer fees;
- accrued but unpaid fees to the owner trustee and the indenture trustee;
- any other amounts payable at the time from Available Amounts; minus
- amounts on deposit in the reserve fund.
If the seller does purchase the contracts, the notes will be prepaid in full on
the payment date on which the purchase occurs.
VOTING RIGHTS
The accompanying prospectus specifies certain circumstances under which the
consent, approval, direction or request of the holders of a specified percentage
of the outstanding principal amount of the notes must be obtained, given or
made, or under which such holders are permitted to take an action or give a
notice. The holders of that specified percentage of the Class A Notes will have
those rights, not the holders of all of the notes or the Class B Notes, while
the Class A Notes are outstanding.
NOTICES
You will be notified in writing by the indenture trustee of any event of
default, servicer default or termination of, or appointment of a successor to,
the servicer promptly upon a responsible officer obtaining actual knowledge of
these events. If notes are issued other than in book-entry form, those notices
will be mailed to the addresses of noteholders as they appear in the register
maintained by the indenture trustee prior to mailing. Those notices will be
deemed to have been given on the date of that publication or mailing.
DESCRIPTION OF THE CERTIFICATES
This section supplements the information in the accompanying prospectus
under the caption "DESCRIPTION OF THE CERTIFICATES". However, as these
statements are only summaries, you should read the trust agreement and the sale
and servicing agreement, forms of which have been filed as exhibits to the
registration statement of which the accompanying prospectus forms a part. The
information in this section and in the accompanying prospectus under the caption
"DESCRIPTION OF THE CERTIFICATES" describes the material terms of the
certificates, the trust agreement and the applicable transfer and servicing
agreements, including the sale and servicing agreement.
A copy of the trust agreement and the sale and servicing agreement are
available to you upon request to the depositor and will be filed with the
Securities Exchange Commission following the issuance of the certificates.
GENERAL
The certificates will be issued pursuant to the terms of the trust agreement
between the trust and the trustee.
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<PAGE>
The trust will issue the certificates which evidence undivided ownership
interests in the trust.
The certificates will be delivered in book-entry form only and be issued in
minimum denominations of $1,000.
INTEREST
Interest will be distributable in respect of the certificates at the fixed
pass-through rate per annum set forth on the cover page of this prospectus
supplement.
The trust will distribute interest in respect of the certificates on each
payment date with Available Amounts and amounts withdrawn from the reserve fund
as set forth under "PAYMENTS AND DISTRIBUTIONS--DISTRIBUTIONS" below.
Interest will be payable to you monthly on the [ ] of each month or, if
that date is not a business day, on the next succeeding business day and will be
calculated for the interest period from and including the th day of the prior
month (or from and including the closing date, in the case of the initial
payment date) to but excluding the th day of the next month on the basis of a
360-day year consisting of twelve 30-day months.
If on any payment date, the trust does not have sufficient funds to make a
full distribution of interest in respect of the certificates, the amount of the
shortfall will be carried forward, and together with interest on the shortfall
amount at the applicable pass-through rate, added to the amount of interest
distributable in respect of the certificates on the next payment date.
After acceleration of the notes following an event of default resulting from
a payment default, the trust will not make interest distributions in respect of
the certificates until the notes have been paid in full.
PRINCIPAL
On each payment date after the notes have been paid in full, principal in
respect of the certificates will be distributable in an amount equal to the
amount by which (1) the certificate balance of the certificates as of the close
of business on the prior payment date exceeds (2) the aggregate principal
balance of the contracts as of the end of the prior calendar month, excluding
certain non-collectible or defaulted contracts and contracts to be repurchased
by the depositor or purchased by the servicer due to certain breaches. The trust
will distribute principal in respect of the certificates on each payment date
with Available Amounts and amounts withdrawn from the reserve fund as set forth
under "PAYMENTS AND DISTRIBUTIONS--DISTRIBUTIONS" below.
MANDATORY PREPAYMENT
The seller, at its option, may repurchase all of the contracts owned by a
trust on any payment date following the date on which the aggregate outstanding
principal balance of the securities is less than 10% of the aggregate principal
balance of the contracts as of the cut-off date. The purchase price to be paid
in connection with the purchase will be at least equal to the sum of:
- the unpaid principal balance of the notes as of that payment date,
together with accrued interest but unpaid interest on the notes to that
payment date;
- the certificate balance of the certificates as of that payment date,
together with all interest distributable in respect of the certificates
as of that payment date;
- unreimbursed servicer advances;
- accrued but unpaid servicer fees;
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<PAGE>
- accrued but unpaid owner trustee and indenture trustee fees;
- any other amounts payable at the time from Available Amounts; minus
- amounts on deposit in the reserve fund.
If the seller does purchase the contracts, the certificates will be paid in
full on the payment date on which the purchase occurs.
NOTICES
Certificateholders will be notified in writing by the trustee of any
servicer default or termination of, or appointment of a successor to, the
servicer promptly upon a responsible officer obtaining actual knowledge of these
events. Except for the monthly and annual reports to certificateholders
described this prospectus supplement, the trustee is not obligated under the
trust agreement to forward any other notices to the certificateholders. There
are no provisions in the trust agreement for the regular or special meetings of
certificateholders.
PAYMENTS AND DISTRIBUTIONS
AVAILABLE AMOUNTS
The trust will pay principal and interest in respect of the securities on
each payment date from Available Amounts for the payment date, as well as
amounts permitted to be withdrawn from the reserve fund. See "--RESERVE FUND"
below. "AVAILABLE AMOUNTS" for any payment date are the sum of:
- the following amounts on deposit in the collection account which the trust
received during the prior calendar month;
(1) all amounts allocable to scheduled principal or interest payments on
the contracts;
(2) prepayments of contracts; and
(3) proceeds of repossessed financed vehicles and other proceeds of
Defaulted Contracts;
- the purchase price paid by the depositor in repurchasing contracts from
the trust on that payment date as a result of a breach of the
representations and warranties with respect to those contracts in the sale
and servicing agreement;
- the purchase price paid by the servicer in purchasing contracts from the
trust on that payment date as a result of a breach of certain covenants
with respect to those contracts in the sale and servicing agreement;
- servicer advances made by the servicer on that payment date in respect of
delinquent scheduled payments or delinquent interest payments for the
prior calendar month; and
- the amount paid by the seller to purchase the contracts when the aggregate
principal balance of the securities is reduced to less than 10% of the
aggregate principal balance of the contracts as of the cut-off date.
The precise calculation of the funds available to the trust on each payment
date to make payments on the securities is set forth in the definition of
"AVAILABLE AMOUNTS" and the definitions of the defined terms contained in that
definition set forth in the Glossary. We refer you to those definitions.
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<PAGE>
SERVICING COMPENSATION AND REIMBURSEMENT OF SERVICER ADVANCES
On each payment date, the servicer will be entitled to receive:
- the base servicing fee in an amount equal to the product of one twelfth of
one percent (1%) and the aggregate principal balance of the contracts as
of the last day of the second calendar month preceding the month in which
that payment date falls; and
- any investment income earned on amounts on deposit in the collection
account during the prior calendar month.
The servicer will also be entitled to retain any late payment fees,
prepayment charges, if any, and other similar fees and charges received during
the prior calendar month.
The servicer will reimburse itself for servicer advances out of:
- amounts received by the servicer from the obligors on account of the
related delinquent contract payments;
- the proceeds, net of expenses incurred by the servicer, of the sale of the
repossessed financed vehicles securing the related delinquent contracts;
and
- payments on other contracts when the servicer has determined that a
contract as to which it has made advances is a Defaulted Contract.
DISTRIBUTIONS
On each payment date prior to the acceleration of the notes, the servicer
will direct the indenture trustee to apply the Available Amounts, together with
amounts withdrawn from the reserve fund, to the following payments and
distributions in the following order of priority:
(1) reimbursement of servicer advances;
(2) payment of the fees due and owing to the trustee and indenture trustee;
(3) payment of the base servicing fee;
(4) all accrued and unpaid interest on the Class A Notes, including any
accrued and unpaid interest on the Class A Notes payable on prior payment
dates plus interest on that accrued and unpaid interest;
(5) all accrued and unpaid interest on the Class B Notes, including any
accrued and unpaid interest on the Class B Notes payable on prior payment
dates plus interest on that accrued and unpaid interest;
(6) all accrued and unpaid interest distributable in respect of the
certificates, including any accrued and unpaid interest distributable in
respect of the certificates on prior payment dates plus interest on that
accrued and unpaid interest;
(7) principal on the notes and the certificates in the amounts and priority
described below under "PRINCIPAL";
(8) to the reserve fund, any amount necessary to increase the amount on
deposit in the reserve fund to the required amount; and
(9) any remaining amounts to the depositor.
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<PAGE>
On each payment date after the acceleration of the notes following an event
of default resulting from a payment default, the trust will apply Available
Amounts, together with amounts withdrawn from the reserve fund, in the same
order as described above except that the trust will not pay interest on the
Class B Notes until the Class A Notes are paid in full and will not distribute
interest in respect of the certificates until the notes have been paid in full.
The trust is to make payments first from the Available Amounts, and second,
but only as to amounts described in clauses (4), (5), (6) and (7) above, from
amounts permitted to be withdrawn from the reserve fund as described under
"RESERVE FUND" below.
PRINCIPAL
PRINCIPAL DISTRIBUTIONS BEFORE ACCELERATION OF NOTES
This chart summarizes how the trust will pay principal on the notes and
certificates before the acceleration of the maturity dates of the notes. The
precise calculation of the amount of principal payable on the securities on each
payment date is set forth in the definition of "TOTAL PRINCIPAL PAYMENT AMOUNT"
and the definitions of the defined terms used in that definition set forth in
the Glossary.
<TABLE>
CLASS PRINCIPAL PAYMENTS
<S> <C>
Class A-1 Notes - Begins receiving principal on first payment date
- Receives 100% of Total Principal Payment Amount until paid
in full
Class A-2 Notes - Begins receiving principal on payment date on which Class
A-1 Notes are paid in full
- Receives 100% of Total Principal Payment Amount until paid
in full
Class A-3 Notes - Begins receiving principal on the payment date on which
Class A-2 Notes are paid in full
- Receives 100% of Total Principal Payment Amount until paid
in full
Class B Notes - Begins receiving principal on the payment date on which
Class A-3 Notes are paid in full
- Receives 100% of Total Principal Payment Amount until paid
in full
Certificates - Begins receiving principal on the payment date on which
Class B Notes are paid in full
- Receives 100% of Total Principal Payment Amount until paid
in full
</TABLE>
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<PAGE>
PRINCIPAL DISTRIBUTIONS AFTER ACCELERATION OF NOTES
After acceleration of the maturity dates of the notes, the trust will pay
principal on the notes and certificates as follows:
<TABLE>
CLASS PRINCIPAL PAYMENTS
<S> <C>
Class A-1 Notes, - Begins receiving principal on first payment date
Class A-2 Notes, - Receives 100% of the Total Principal Payment Amount
Class A-3 Notes applied on a pro rata basis to each class until paid in full
Class B Notes - Begins receiving principal on the payment date on which
Class A Notes are paid in full
- Receives 100% of the Total Principal Payment Amount until
paid in full
Certificates - Begins receiving principal on the payment date on which
the notes are paid in full
- Receives 100% of the Total Principal Payment Amount until
paid in full
</TABLE>
RESERVE FUND
The indenture trustee will establish pursuant to the sale and servicing
agreement the reserve fund which will be a segregated account in the name of the
indenture trustee. The reserve fund will be created with an initial deposit by
the trust on the closing date of an amount equal to $ , which is less than
the amount that is required to be on deposit in the reserve fund. The reserve
fund will thereafter be funded as described above under "--DISTRIBUTIONS".
Amounts held from time to time in the reserve fund will be held for the
benefit of securityholders and may be invested in investments acceptable to the
rating agencies rating the securities as being consistent with the ratings of
the securities at the direction of the servicer. Investment income on those
investments will be paid to the depositor, upon the direction of the servicer,
to the extent that funds on deposit in the reserve fund on any payment date
exceed the amount that is required to be on deposit in the reserve fund. If the
amount on deposit in the reserve fund on any payment date exceeds the amount
that is required to be on deposit in the reserve fund on that payment date, the
indenture trustee will withdraw that excess and pay it to the depositor. Upon
any distribution to the depositor of those excess amounts, the securityholders
will not have any rights in, or claims to, those amounts.
The amount that is required to be on deposit in the reserve fund on each
payment date will initially be $[ ].
The servicer may, from time to time after the date of this prospectus
supplement, request each rating agency rating the securities to approve a
formula for determining the amount that is required to be on deposit in the
reserve fund on each payment date that is different from that described above.
If each rating agency delivers a letter to the indenture trustee and the trustee
to the effect that the use of any new formula will not result in a
qualification, reduction or withdrawal of its then-current rating of any class
of the notes or the certificates, then the amount that is required to be on
deposit in the reserve fund will be determined in accordance with the new
formula. The sale and servicing agreement will accordingly be amended, without
the consent of any noteholder or certificateholder, to reflect the new
calculation.
If Available Amounts for any payment date, after paying the base servicing
fee and the fees payable to the owner trustee and the indenture trustee and
reimbursing the servicer for servicer advances, are insufficient to pay
principal and interest on the securities, the indenture trustee will withdraw
funds from the reserve fund for distribution to the securityholders to cover any
shortfalls. If on the final scheduled payment date of any class of securities,
the principal amount or certificate
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<PAGE>
balance of that class has not been paid in full, the indenture trustee will
withdraw funds from the reserve fund to pay those securities in full.
None of the securityholders, the indenture trustee, the owner trustee or the
seller will be required to refund any amounts properly distributed or paid to
them, whether or not there are sufficient funds on any subsequent payment date
to make full distributions to the securityholders.
RATINGS OF THE SECURITIES
It is a condition of issuance that each of Standard & Poor's Ratings
Services and Moody's Investors Service, Inc.
- rate the Class A-1 Notes in its highest short-term rating category,
- rate the Class A-2 and Class A-3 in its highest long-term rating category,
- rate the Class B Notes at least [ ], respectively,
- rate the certificates at least BBB-/Baa3, respectively.
The ratings address the likelihood of the timely receipt of interest and
payment of principal on each class of securities on or before the scheduled
final payment date for the class. The ratings will be based primarily upon the
contracts and the related property, the reserve fund and the subordination
provided by
- the certificates and the Class B Notes, in the case of the Class A Notes,
and
- the certificates, in the case of the Class B Notes.
We cannot assure you that any rating will not be lowered or withdrawn by the
assigning rating agency. In the event that ratings with respect to the
securities are qualified, reduced or withdrawn, no person or entity will be
obligated to provide any additional credit enhancement with respect to the
securities.
The ratings should be evaluated independently from similar ratings on other
types of securities. A rating is not a recommendation to buy, sell or hold
securities, inasmuch as these ratings do not comment as to market price or
suitability for a particular investor. The ratings do not address the likelihood
of payment of principal on any class of securities prior to the scheduled final
payment date or the possibility of the imposition of United States withholding
tax with respect to non-United States Persons.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
TREATMENT OF TRUST
Winston & Strawn, as federal tax counsel to the trust, has delivered its
opinion that the trust will not be an association (or a publicly traded
partnership) taxable as a corporation for federal income tax purposes. This
opinion is based on the assumptions and qualifications described in the
accompanying prospectus under the caption "MATERIAL FEDERAL INCOME TAX
CONSEQUENCES--OWNER TRUST". Because the trust will issue certificates to
multiple owners, the trust will be characterized as a partnership for federal
income tax purposes.
TREATMENT OF INVESTORS IN NOTES
Each purchaser of the notes agrees to treat the notes as debt for federal
income tax purposes. An investor will be taxed on the amount of payments of
interest on a note as ordinary interest income at the time it accrues or is
received in accordance with the investor's regular method of accounting. An
investor who disposes of a note will recognize taxable gain or loss equal to the
difference between the
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amount realized and the investor's adjusted tax basis in the note. Any gain or
loss will be a capital gain or loss assuming the notes constitute capital assets
in the hands of the owner. Special rules apply to investors who purchase notes
at a discount or a premium. The foregoing general description of the treatment
of investors in notes is subject to the further explanation, assumptions and
qualifications set forth in the accompanying prospectus.
TREATMENT OF INVESTORS IN CERTIFICATES
As mentioned above, in any case where the trust issues certificates to
multiple owners, the trust will be treated as a partnership for federal income
tax purposes. Each certificateholder will agree by its purchase of certificates
to treat the trust as a partnership for purposes of federal and state income
tax, franchise tax, and any other tax measured in whole or in part by income and
to treat itself as a partner in that partnership. As a partnership, the trust
will not be subject to federal income tax. Rather, each certificateholder will
be required to separately take into account the holder's allocated share of
income, gains, losses, deductions and credits of the trust. The trust's income
will consist primarily of interest and finance charges earned on the contracts
owned by the trust (including appropriate adjustments for any market discount,
original issue discount and bond premium), any yield supplement deposits, and
any gain upon collection or disposition of the contracts. The trust deductions
will consist primarily of interest accruing with respect to the notes, servicing
and other fees, and losses or deductions upon collection or disposition of the
contracts. The requirement that each certificateholder include its share of each
item of trust income and gain in income and the ability of a certificateholder
to deduct losses or deductions attributable to the trust are subject to the
fuller explanation, assumptions and qualifications set forth in the accompanying
prospectus.
ERISA CONSIDERATIONS
THE NOTES
The notes may be purchased by an employee benefit plan or an individual
retirement account (a "Plan") subject to ERISA or Section 4975 of the Internal
Revenue Code of 1986, as amended (the "Code"). A fiduciary of a Plan must
determine that the purchase of a note is consistent with its fiduciary duties
under ERISA and does not result in a nonexempt prohibited transaction as defined
in Section 406 of ERISA or Section 4975 of the Code. For additional information
regarding treatment of the notes under ERISA, see "ERISA CONSIDERATIONS" in the
accompanying prospectus.
The notes may not be purchased with the assets of a Plan if the depositor,
the servicer, the indenture trustee, the trustee or any of their affiliates:
1. is a "fiduciary" as defined in Section 3(21) of ERISA or Section 4975(e)(3)
of the Code with respect to those Plan assets: or
2. is an employer maintaining or contributing to the Plan; or if a
certificateholder is a fiduciary with respect to those Plan assets and
participates in the decision to acquire the notes.
THE CERTIFICATES
The certificates may not be acquired by a Plan or any entity whose
underlying assets include Plan assets by reason of a Plan's investment in the
entity or which uses Plan assets to acquire certificates (a "Plan Investor"). By
its acceptance of a certificate, each certificateholder will be deemed to have
represented and warranted that is not subject to the foregoing limitation. In
addition, a purchaser of certificates other than a Plan Investor should be aware
that a prohibited transaction could occur if a certificateholder (or any of its
affiliates) is or becomes a party in interest or a disqualified person with
respect to a Plan Investor that purchases and holds any notes unless covered by
one or more applicable exemptions.
LEGAL PROCEEDINGS
None of the depositor, the servicer, the seller, or the trust are parties to
any legal proceeding which could have a material adverse impact on your interest
in the securities or in the trust's assets.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
dated [ ], the depositor has agreed to sell to each of the
underwriters named below and each of those underwriters has severally agreed to
purchase the following respective initial principal amounts of securities at the
respective public offering prices less the respective underwriting discounts
shown on the cover page of this prospectus supplement:
<TABLE>
<CAPTION>
INITIAL INITIAL INITIAL INITIAL
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL INITIAL CERTIFICATE
AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF BALANCE OF
UNDERWRITER CLASS A-1 NOTES CLASS A-2 NOTES CLASS A-3 NOTES CLASS B NOTES CERTIFICATES
----------- --------------- --------------- --------------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
</TABLE>
In the underwriting agreement, the underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the securities being
offered, if any of the securities are purchased. The underwriters have advised
the depositor that they propose initially to offer the securities to the public
at the respective public offering prices shown on the cover page of this
prospectus supplement, and to certain dealers at that price, less a concession
not in excess of the amount noted in the table below. The underwriters may allow
and the dealers may reallow to other dealers a discount not in excess of the
amount noted in the table below.
<TABLE>
<CAPTION>
SELLING CONCESSION REALLOWANCE
CLASS NOT TO EXCEED NOT TO EXCEED
----- ------------------ -------------
<S> <C> <C>
A-1.........................................................
A-2.........................................................
A-3.........................................................
B...........................................................
C...........................................................
</TABLE>
After the initial public offering of the securities, the offering prices and
other selling terms may be varied by the underwriters.
The following table shows the underwriting fees to be paid to the
underwriters by the depositor in connection with this offering. This
underwriting fee is the difference between the price to public and the amount
the underwriters pay to the depositor to purchase the securities from the
depositor.
<TABLE>
<CAPTION>
PER SECURITY TOTAL
------------ --------
<S> <C> <C>
A-1 Notes................................................... % $
A-2 Notes................................................... % $
A-3 Notes................................................... % $
A-4 Notes................................................... % $
C Certificates.............................................. % $
</TABLE>
The expenses of this offering, exclusive of underwriting commissions, are
estimated at $ and are payable by the depositor.
In connection with the offering of the securities, [ ], on behalf
of the underwriters, may engage in overallotment, stabilizing transactions or
syndicate covering transactions in accordance with Regulation M under the
Securities Exchange Act of 1934. Overallotment transactions involve syndicate
sales in excess of the offering size creating a short position. Stabilizing
transactions permit bids to purchase the securities so long as the stabilizing
bids do not exceed a specified maximum. Syndicate covering transactions involve
purchases of securities in the open market after the distribution
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<PAGE>
has been completed in order to cover short positions. Such over-allotment
transactions, stabilizing and syndicate covering transactions may cause the
price of the securities to be higher than they would otherwise be in the absence
of those transactions. The underwriters do not represent that the underwriters
will engage in those transactions nor that such transactions, once commenced,
will not be discontinued without notice.
The depositor and some of its affiliates have agreed to indemnify the
underwriters against some liabilities in connection with the sale of securities,
including liabilities under the Securities Act of 1933, as amended.
The securities have no established trading market. The underwriters have
advised us that the underwriters intend to make a market in the securities but
are not obligated to do so and may discontinue market making at any time without
notice. No assurance can be given as to the liquidity of the trading market for
the securities.
LEGAL MATTERS
Winston & Strawn, Chicago, Illinois, has provided a legal opinion relating
to the securities in its capacity as special counsel to the trust, the
depositor, the servicer and the administrator. Certain legal matters for the
underwriters will be passed upon by Simpson Thacher & Bartlett. The indenture,
the sale and servicing agreement and the notes will be governed by the laws of
the State of New York. The trust agreement and the certificates will be governed
by the laws of the State of Delaware.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the balance sheet of
Dealer Auto Receivables [ ] Trust at [ ] as set forth in
their report. The depositor included this balance sheet in this prospectus
supplement in reliance on Ernst & Young LLP's report, given on their authority
as experts in accounting and auditing.
GLOSSARY
AVAILABLE AMOUNTS means, with respect to any payment date, the sum of the
Available Interest and the Available Principal for such payment date.
AVAILABLE INTEREST means, with respect to any payment date, the total,
without duplication, of the following amounts received by the servicer on or in
respect of the contracts during the prior calendar month:
- all amounts allocable to scheduled interest payments on the contracts;
- the interest component of all prepayments of contracts;
- the interest component of all proceeds of repossessed financed vehicles
and other proceeds of Defaulted Contracts;
- the interest component of the purchase price paid by the depositor in
repurchasing contracts from the trust on that payment date as a result of
a breach of the representations and warranties with respect to those
contracts in the sale and servicing agreement;
- the interest component of the purchase price paid by the servicer in
purchasing contracts from the trust on that payment date as a result of a
breach of certain covenants with respect to those contracts in the sale
and servicing agreement;
- servicer advances made by the servicer on that payment date in respect of
delinquent interest payments for the prior calendar month;
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<PAGE>
- the interest component of the amount paid by the seller to purchase the
contracts when the aggregate principal balance of the securities is
reduced to less than 10% of the aggregate principal balance of the
contracts as of the cut-off date; and
- all amounts received in respect of interest, dividends, gains, income and
earnings on investment of funds in the trust accounts.
AVAILABLE PRINCIPAL means, with respect to any payment date, the total,
without duplication, of the following amounts received by the servicer on or in
respect of the contracts during the prior calendar month:
- all amounts allocable to scheduled principal payments on the contracts;
- the principal component of all prepayments of contracts;
- the principal component of all proceeds of repossessed vehicles and other
proceeds of Defaulted Contracts;
- the principal component of the purchase price paid by the depositor in
repurchasing contracts from the trust on that payment date as a result of
a breach of the representations and warranties with respect to those
contracts in the sale and servicing agreement;
- the principal component of the purchase price paid by the servicer in
purchasing contracts from the trust on that payment date as a result of a
breach of certain covenants with respect to those contracts in the sale
and servicing agreement;
- servicer advances made by the servicer on that payment date in respect of
delinquent scheduled principal payments for the prior calendar month; and
- the principal component of the amount paid by the seller to purchase the
contracts when the aggregate principal balance of the securities is
reduced to less than 10% of the aggregate principal balance of the
contracts as of the cut-off date.
A DEFAULTED CONTRACT will be a contract as to which (a) all or part of a
scheduled payment is 120 days or more than 120 days past due and the servicer
has not repossessed the related financed vehicle or (b) the servicer has, in
accordance with its customary servicing procedures, determined that eventual
payment in full is unlikely and has either repossessed and liquidated the
related financed vehicle or repossessed and held the related financed vehicle in
its repossessed inventory for 90 days, which ever occurs first, or (c) as to
which the obligor has suffered an insolvency event.
PRINCIPAL BALANCE means, (a) with respect to any simple interest contract as
of any date, an amount equal to the unpaid principal balance of such contract as
of the opening of business on the cut-off date, reduced by all payments and
other amounts received by the servicer as of such date allocable to principal;
(b) with respect to any precomputed contract as of any date, an amount equal to
the unpaid principal balance of such contract as of the opening of business on
the cut-off date, reduced by the sum of (1) that portion of all scheduled
payments due on or after the cut-off date and on or prior to the last day of the
prior calendar month on that contract allocated to principal and (2) all
prepayments and other amounts applied by the servicer as of such date to the
payment of principal on that contract; provided, however, that (i) if (x) a
contract is repurchased by the depositor, the seller or the performance
guarantor because of a breach of a representation or warranty, or if (y) the
seller gives notice of its intent to purchase the contracts in connection with
an optional termination of the trust, in each case the Principal Balance of such
contract or contracts shall be deemed to be zero for the prior calendar month in
which such event occurs and for each calendar month thereafter and (ii) from and
after the prior calendar month in which a contract becomes a Defaulted Contract,
the Principal Balance of such contract shall be deemed to be zero; and
(c) where the context requires, the aggregate Principal Balances described in
clauses (a) and (b) for all such contracts.
S-40
<PAGE>
The TOTAL PRINCIPAL PAYMENT AMOUNT for any payment date is the excess of
(x) the sum of the aggregate principal balance of the notes and the certificate
balance of the certificates as of the close of business on the prior payment
date over (y) the Principal Balance of the contracts as of the last day of the
calendar month immediately preceding the payment date.
UNITED STATES PERSONS means:
- A citizen or resident of the United States;
- A corporation or partnership organized in or under the laws of the United
States or any political subdivision thereof;
- An estate the income of which is includible in gross income for United
States federal income tax purposes, regardless of its source; or
- A trust, (a) with respect to which a court within the United States is
able to exercise primary supervision over its administration, and one or
more United States fiduciaries have the authority to control all of its
substantial decisions, or (b) otherwise, the income of which is subject to
U.S. federal income tax regardless of its source.
DEALER AUTO RECEIVABLES OWNER TRUST 2000-1
BALANCE SHEET AS OF [ ], 2000
<TABLE>
<S> <C>
Assets--Cash................................................ $ 0
===
Beneficial Equity........................................... $ 0
===
Liabilities................................................. $ 0
===
</TABLE>
NOTES TO THE BALANCE SHEET
Dealer Auto Receivables Owner Trust 2000-1 (the "Trust") is a limited
purpose business trust established under the laws of the State of Delaware. It
was formed on [ ] by Dealer Auto Receivables Corp. (the "Depositor")
and [ ] (the "Trustee") under a trust agreement dated as of
[ ] between the Depositor and the Trustee. The activities of the
Trust are limited by the terms of the trust agreement to acquiring, owning and
managing loan contracts and related assets, issuing and making payments on notes
and subordinate certificates and other related activities. Prior to and
including [ ], the Trust did not conduct any activities.
The Depositor will pay all fees and expenses related to the organization and
operations of the Trust, other than withholding taxes, imposed by the United
States or any other domestic taxing authority. The Depositor has also agreed to
indemnify the indenture trustee and Trustee and certain other persons involved
in the sale of notes.
S-41
<PAGE>
THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY
BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 8, 2000
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED[ ]
DEALER AUTO RECEIVABLES GRANTOR TRUST
ISSUER
$ ASSET-BACKED CERTIFICATES
DEALER AUTO RECEIVABLES CORP.
DEPOSITOR
PREMIER AUTO FINANCE, INC.
SERVICER
THE GRANTOR TRUST WILL ISSUE THE FOLLOWING CLASSES OF CERTIFICATES--
CONSIDER CAREFULLY
THE RISK FACTORS
BEGINNING ON
PAGE S-8 IN THIS
PROSPECTUS SUPPLEMENT
AND ON PAGE 7 IN THE
ACCOMPANYING
PROSPECTUS.
The certificates
represent interests
in the trust only.
This prospectus
supplement must be
accompanied by the
prospectus.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
UNDERWRITING
PASS- FIRST FINAL DISCOUNT PROCEEDS
PRINCIPAL THROUGH DISTRIBUTION SCHEDULED PRICE TO PER TO
CLASS AMOUNT RATE DATE DISTRIBUTION PUBLIC CERTIFICATE DEPOSITOR
A $ %
B $ %
</TABLE>
The total price to the public is $
The total underwriting discount is $
The total proceeds to the depositor are $
Credit Enhancement:
- Reserve fund with an initial deposit of $ .
- Subordination of the Class B Certificates to the Class A Certificates as
described in this prospectus supplement.
The certificates are asset-backed securities issued by the trust. The assets
underlying the certificates are retail installment contracts for the purchase
of new or used automobiles and light-duty trucks.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
CHASE SECURITIES INC.
Prospectus Supplement dated [ ]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Important Notice About Information Presented in this
Prospectus Supplement and the Accompanying Prospectus..... i
Prospectus Supplement Summary............................... S-1
Risk Factors................................................ S-8
The Class A Certificates will be entitled to interest or
principal distributions before the Class B
Certificates............................................ S-8
Adverse events in [five] high concentration states may
cause increased defaults and delinquencies.............. S-8
The certificates may not be suitable investments for all
investors............................................... S-9
Because the certificates are in book-entry form, your
rights can only be exercised indirectly................. S-9
Holders of Class B Certificates may have to pay taxes on
amounts not actually received........................... S-9
The absence of an existing market for the certificates may
limit your ability to resell the certificates........... S-9
The Trust................................................... S-10
General................................................... S-10
The Trustee............................................... S-11
The Seller and the Servicer................................. S-11
The Performance Guarantor................................... S-11
The Contracts............................................... S-11
Description of the Contracts.............................. S-11
Statistics Relating to the Contracts...................... S-12
Maturity and Prepayment Considerations.................... S-13
Statistics Relating to Delinquencies and Losses........... S-14
Losses and Recoveries..................................... S-15
Weighted Average Lives of the Securities.................... S-17
Certificate Factors and Pool Factors........................ S-19
Use of Proceeds............................................. S-20
Description of the Certificates............................. S-20
General................................................... S-20
Interest.................................................. S-20
Principal................................................. S-21
Mandatory Prepayment...................................... S-21
Voting Rights............................................. S-21
Notices................................................... S-21
Distributions on the Certificates........................... S-21
General................................................... S-21
Servicing Compensation and Reimbursement of Servicer
Advances................................................ S-22
Distributions............................................. S-22
Reserve Fund.............................................. S-23
Yield Supplement Account.................................. S-24
Ratings of the Certificates................................. S-24
Material Federal Income Tax Consequences.................... S-24
Treatment of Trust as Grantor Trust....................... S-24
Tax Treatment of Investors................................ S-25
ERISA Considerations........................................ S-25
Class A Certificates...................................... S-25
Class B Certificates...................................... S-27
All Certificates.......................................... S-27
Legal Proceedings........................................... S-27
Underwriting................................................ S-27
Legal Matters............................................... S-29
Glossary.................................................... S-29
</TABLE>
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
We provide information to you about the certificates in two separate
documents that offer varying levels of detail:
- the accompanying prospectus--which provides general information, some of
which may not apply to a particular class of certificates including your
class, and
- this prospectus supplement--which provides a summary of the specific terms
of your class of certificates.
Certain terms used in this prospectus supplement are defined under the
caption "GLOSSARY" beginning on page in this prospectus supplement.
You should rely on the information contained in this document, including the
information described under the heading "WHERE YOU CAN FIND MORE INFORMATION" in
the accompanying prospectus. We have not authorized anyone to provide you with
any different information or make any representation not contained in this
prospectus supplement. If anyone makes such a representation to you, you should
not rely on it.
If you have received a copy of this prospectus supplement and the
accompanying prospectus in an electronic format, and if the legal prospectus
delivery period has not expired, you may obtain a paper copy of this prospectus
supplement and the accompanying prospectus from Dealer Auto Receivables Corp. at
230 West Monroe Street, Chicago, Illinois 60606, telephone number (312)
456-1250, or an underwriter by asking any of them for it.
i
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following is only a summary of selected information from this prospectus
supplement and provides a general overview of relevant terms of the
certificates. It does not contain all the information that may be important to
you. You should read carefully this entire prospectus supplement and the
accompanying prospectus to understand all of the terms of the offering. In
addition, you may wish to read the documents governing the transfers and
servicing of the contracts, the formation of the trust and the issuance of the
certificates. Those documents have been filed as exhibits to the registration
statement.
There are material risks associated with an investment in the securities.
See "RISK FACTORS" in this prospectus supplement and in the accompanying
prospectus for a discussion of factors you should consider before investing in
the certificates.
<TABLE>
<S> <C>
Trust........................................... Dealer Auto Receivables Grantor Trust [--]. The
depositor will establish the trust pursuant to a
pooling and servicing agreement.
Trustee......................................... The trustee will be [ ], acting not in its
individual capacity but solely as trustee under the
pooling and servicing agreement. The trustee's
address and phone number is [ ]. See "THE
TRUST" in this prospectus supplement.
Cut-off Date.................................... [ ].
Closing Date.................................... On or about [ ].
TERMS OF THE CERTIFICATES:
A. Distribution Dates........................... The trust will distribute interest and principal in
respect of the certificates on the [ ] day of
each month or if that day is not a business day,
the next business day. The first distribution date
is [ ].
B. Record Dates................................. The last business day of the preceding calendar
month.
C. Interest..................................... PASS-THROUGH RATE:
The trust will distribute interest in respect of
the certificates at the pass-through rates shown on
the cover of this prospectus supplement.
INTEREST PERIODS:
Interest on the certificates will accrue in the
following manner:
</TABLE>
<TABLE>
<CAPTION>
INTEREST PERIOD
---------------------------------------- DAY COUNT
FROM (INCLUDING) TO (EXCLUDING) CONVENTION
---------------- ------------------- ----------
<S> <C> <C>
15th of prior 15th of current 30/360
month.............. month
</TABLE>
S-1
<PAGE>
<TABLE>
<S> <C>
DISTRIBUTION OF INTEREST:
On each distribution date after payment of the base
servicing fee and the trustee's fee and
reimbursement of servicer advances, the trust will
distribute interest in respect of the certificates
from the funds available to it to pay interest and
expenses on each distribution date.
The funds available to the trustee to distribute
interest in respect of the certificates on each
distribution date will generally consist of
interest collections on the contracts received by
the servicer during the prior calendar month, less
the base servicing fee payable to the servicer, the
trustee fee payable to the trustee and amounts
applied to reimburse servicer advances relating to
delinquent interest payments, and amounts withdrawn
from the reserve fund.
If the funds available to the trustee to distribute
interest in respect of the Class A Certificates are
insufficient on any distribution date, funds
available to the trustee on that distribution date
to distribute principal in respect of the Class B
Certificates will be applied to distribute interest
in respect of the Class A Certificates.
No distributions of interest in respect of the
Class B Certificates will be made on any
distribution date until interest in respect of the
Class A Certificates has been distributed.
See "DISTRIBUTIONS ON THE CERTIFICATES" in this
prospectus supplement.
D. Principal.................................... On each distribution date, the trust will
distribute principal in respect of the
certificates.
The funds available to the trustee to distribute
principal in respect of the certificates on each
distribution date will generally consist of
collections on the contracts received by the
servicer during the prior calendar month, less the
base servicing fee payable to the servicer, the
trustee fee payable to the trustee, amounts applied
to reimburse servicer advances and amounts
distributed in respect of interest on the
certificates, and amounts withdrawn from the
reserve fund.
The amount of principal distributable will be based
on the amount by which:
</TABLE>
<TABLE>
<S> <C>
- the aggregate principal balance of the contracts
as of the first day of the calendar month prior to
the month in which that distribution date occurs,
exceeds
</TABLE>
S-2
<PAGE>
<TABLE>
<S> <C>
- the aggregate principal balance of the
contracts as of the end of the prior calendar month,
excluding certain non-collectible or defaulted
contracts and contracts to be repurchased by
depositor or purchased by the servicer due to
certain breaches.
</TABLE>
<TABLE>
<S> <C>
See the definitions of "MONTHLY PRINCIPAL" and
"PRINCIPAL BALANCE" in the Glossary for a precise
calculation of the amount of principal
distributable on the certificates on each
distribution date.
The holders of the Class A Certificates and the
Class B Certificates will be entitled to receive a
pro rata share of the amounts to be distributed in
respect of principal. However, no distributions of
principal in respect of the Class B Certificates
will be made on any distribution date until
interest and principal in respect of the Class A
Certificates has been distributed.
See "DESCRIPTION OF THE CERTIFICATES--PRINCIPAL"
and "DISTRIBUTIONS ON THE
CERTIFICATES--DISTRIBUTIONS" in this prospectus
supplement.
E. Final Scheduled Distribution Date............ The trust will reduce the outstanding principal
balance of the certificates to zero no later than
the date shown on the cover of this prospectus
supplement.
F. Mandatory Prepayment......................... The seller, at its option, may repurchase the
contracts on any distribution date on which the
aggregate outstanding principal balance of the
certificates is less than 10% of the initial
aggregate principal balance of the contracts. If
the seller purchases the contracts the trust will
prepay the certificates in full on the distribution
date.
See "DESCRIPTION OF THE CERTIFICATES--MANDATORY
PREPAYMENT" in this prospectus supplement.
THE TRUST'S ASSETS
A. The Contracts................................ Our main source of funds for making distributions
on the certificates will be collections on the
contracts.
As of the cut-off date, the contracts had the
following characteristics:
</TABLE>
<TABLE>
<S> <C>
Aggregate principal balance......... $
Number of contracts................. [ ]
Average principal balance........... $
Weighted average annual percentage
rate.............................. %
Weighted average remaining term to
maturity.......................... months
Approximate weighted average
original term to maturity......... months
</TABLE>
S-3
<PAGE>
<TABLE>
<S> <C>
Geographic concentration:
PRINCIPAL
BALANCE
STATE CONCENTRATION
------------------------------------ --------
<S> <C>
[ ].......................... %
[ ].......................... %
[ ].......................... %
[ ].......................... %
[ ].......................... %
</TABLE>
<TABLE>
<S> <C>
No other state represented more than 5% of the
aggregate principal balance of the contracts as of
the cut-off date.
All of the contracts as of the cut-off date are
simple interest contracts. A simple interest
contract provides for amortization of the loan over
a series of equal monthly installments where
payments received are applied first to pay accrued
interest to the date preceding the date the payment
is received and second to pay principal.
The portion of the scheduled monthly payments and
prepayments that will be allocable to principal is
different for each of the two types of contracts.
See "THE CONTRACTS" in the accompanying prospectus.
You should refer to "THE CONTRACTS" in this
prospectus supplement and the accompanying
prospectus for more information on the contracts.
B. Reserve Fund................................. On the closing date, the depositor will establish a
reserve fund in the name of , as collateral
agent. The reserve fund provides you with limited
protection in the event collections from obligors
on the contracts are insufficient to make payment
on the certificates. We cannot assure you, however,
that this protection will be adequate to prevent
shortfalls in amounts available to make
distributions on the certificates.
The initial balance of the reserve fund will be
$ . The amount required to be on deposit in
the reserve fund on each distribution date is
$ .
If the amount on deposit in the reserve fund on any
distribution date is less than the required amount,
the trustee will use the funds available on that
distribution date after payment of the base
servicing fee and the trustee's fee, reimbursement
of servicer advances and distributions of interest
and principal in respect of the certificates to
make a deposit into the reserve fund. Amounts on
deposit in the reserve fund on any distribution
date in excess of the required amount will be paid
to the depositor.
</TABLE>
S-4
<PAGE>
<TABLE>
<S> <C>
If on any distribution date the funds available to
the trustee to distribute principal and interest in
respect of the certificates are insufficient, the
trust will use funds in the reserve fund to make
distributions to the certificateholders to cover
any shortfalls.
If on the final scheduled distribution date of the
certificates, the certificate balances of the
certificates has not been reduced to zero, the
trustee will use funds in the reserve fund to
reduce the certificates balances to zero.
C. Yield Supplement Account..................... On the closing date, the depositor will establish a
yield supplement account in the name of , as
collateral agent. The initial deposit into the
yield supplement account will be $ . No
additional deposits to the yield supplement account
will be made after the closing date.
On each distribution date, the trustee will
withdraw from the yield supplement account and
deposit in the collection account the aggregate
amount by which:
</TABLE>
<TABLE>
<S> <C>
- one month's interest on the principal balance of
each contract at a rate equal to the weighted
average pass- through rate on the certificates
plus 1.00% exceeds
- one month's interest on that principal balance at
the annual percentage rate of that contract.
</TABLE>
<TABLE>
<S> <C>
For detailed information about the yield supplement
account, please see "DISTRIBUTIONS ON THE
CERTIFICATES-- YIELD SUPPLEMENT ACCOUNT" in this
prospectus supplement and "INFORMATION REGARDING
THE SECURITIES--YIELD SUPPLEMENT ACCOUNT AND YIELD
SUPPLEMENT AGREEMENT" in the accompanying
prospectus.
Servicing; Servicing Fee........................ Premier Auto Finance, Inc., as the servicer, will
be responsible for servicing, managing and
administering the contracts and related interests,
and enforcing and making collections on the
contracts.
ADVANCES:
The servicer will make advances for delinquent
interest payments, to the extent it determines that
advances will be recoverable in future periods.
Servicer advances will be reimbursed from the
delinquent payments when made by the obligors and
from collections on other contracts when the
servicer determines that a contract as to which it
has made advances is a defaulted contract.
</TABLE>
S-5
<PAGE>
<TABLE>
<S> <C>
SERVICING FEE:
The servicer's base monthly fee payable on each
distribution date will equal the product of:
</TABLE>
<TABLE>
<S> <C>
- one twelfth ( 1/12th) of one percent (1%) and
- the aggregate principal balance of the contracts
as of the last day of the second calendar month
preceding the month in which that distribution
date falls.
</TABLE>
<TABLE>
<S> <C>
The trust will pay the base servicing fee to the
servicer with the funds available to it to pay
interest and expenses on each distribution date
after the reimbursement of servicer advances.
The servicer will also be entitled to retain any
late payment fees, prepayment charges, if any, and
other similar fees and charges.
See "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENT--SERVICING" in the accompanying
prospectus.
Credit Enhancement.............................. Losses and other shortfalls of cash flow will be
covered by payments on other contracts, withdrawals
from the reserve fund and allocations of available
funds to the Class A Certificates.
The credit enhancement for the certificates is as
follows:
</TABLE>
<TABLE>
<S> <C>
A Certificates - subordination of
the Class B
Certificates
- reserve fund
B Certificates - reserve fund
</TABLE>
<TABLE>
<S> <C>
Ratings......................................... On the closing date, each class of certificates
will have the following ratings by Standard &
Poor's Ratings Services and Moody's Investors
Service, Inc.:
</TABLE>
<TABLE>
<CAPTION>
CLASS S&P MOODY'S
----- ---------------- ----------------
<S> <C> <C>
A
B
</TABLE>
<TABLE>
<S> <C>
See "RATINGS OF THE CERTIFICATES" in this
prospectus supplement and "RATINGS OF THE
SECURITIES" in the accompanying prospectus.
</TABLE>
S-6
<PAGE>
<TABLE>
<S> <C>
Material Federal Income Tax
Consequences.................................. Winston & Strawn, as federal tax counsel to the
trust, has delivered its opinion that:
- the trust will be treated as a grantor trust
for federal income tax purposes and not as an
association (or publicly traded partnership)
taxable as a corporation; and
- each certificateholder will be treated as the
owner of a pro rata undivided interest in the
income and assets of the trust.
ERISA Considerations............................ Subject to the considerations and conditions
discussed under "ERISA CONSIDERATIONS" in this
prospectus supplement, the Class A Certificates may
be purchased by an employee benefit plan that is
subject to ERISA or Section 4975 of the Code.
Employee benefit plans and other retirement
arrangements that are subject to ERISA or Section
4975 of the Code are not permitted to acquire or
hold Class B Certificates except through an
"insurance company general account" in the manner
discussed under "ERISA CONSIDERATIONS" in this
prospectus supplement and the accompanying
prospectus.
You should refer to "ERISA CONSIDERATIONS" in the
accompanying prospectus for more detailed
information regarding the ERISA eligibility of any
class of certificates.
Mailing Address and Telephone Number of
Principal Executive Offices................... The mailing address of the seller is 230 West
Monroe Street, Chicago, Illinois 60606, telephone
(312) 456-1300. The mailing address of the
depositor is 230 West Monroe Street, Chicago,
Illinois 60606, telephone (312) 456-1250.
</TABLE>
S-7
<PAGE>
RISK FACTORS
The following risk factors and the risk factors in the accompanying
prospectus describe the principal risk factors relating to an investment in the
certificates. You should carefully consider the following risk factors before
you invest in the certificates. You should also carefully consider the risk
factors beginning on page 7 of the accompanying prospectus.
THE CLASS A CERTIFICATES WILL BE ENTITLED TO INTEREST OR PRINCIPAL DISTRIBUTIONS
BEFORE THE CLASS B CERTIFICATES
The holders of the Class B Certificates will not receive any distribution of
interest until the full amount of interest is distributed to the holders of the
Class A Certificates on each distribution date. The holders of the Class B
Certificates will not receive any distribution of principal until the full
amount of principal and interest is distributed to the holders of the Class A
Certificates on each distribution date. The subordination of the Class B
Certificates to the Class A Certificates means that the Class B Certificates are
more likely to suffer the consequences of delinquent payments and defaults on
the contracts than the Class A Certificates having prior distribution rights.
See "DISTRIBUTIONS ON THE CERTIFICATES--DISTRIBUTIONS" in this prospectus
supplement.
Moreover, the Class A Certificates could lose the credit enhancement
provided by the Class B Certificates and the reserve fund if delinquencies and
defaults on contracts increase and the collections on contracts and amounts in
the reserve fund are insufficient to make distributions in respect of even the
Class A Certificates.
ADVERSE EVENTS IN [FIVE] HIGH CONCENTRATION STATES MAY CAUSE INCREASED DEFAULTS
AND DELINQUENCIES
If adverse events or economic conditions were particularly severe in a
geographic region where there is a substantial concentration of obligors, the
amount of delinquent payments and defaults on the contracts may increase. As a
result, the overall timing and amount of collections on the contracts may differ
from what you expect, and you may experience delays or reductions in
distributions.
The following are the approximate percentages of the initial contract pool
principal balance whose obligors are located in the following states:
- [ %] in [ ],
- [ %] in [ ],
- [ %] in [ ],
- [ %] in [ ], and
- [ %] in [ ].
The remaining states accounted for [ ]% of the aggregate principal
balance of the contracts, and none of these remaining states accounted for more
than 5% of the initial aggregate principal balance of the contracts. For a
discussion of the breakdown of the contracts by state, see "THE CONTRACTS" in
this prospectus supplement.
Although we do not know of any matters likely to increase the rate of
delinquencies or defaults in these states, an example of an adverse event
specific to a geographic region is the possibility of a catastrophic earthquake
in California. An earthquake in California could have negative regional economic
repercussions and potentially cause obligors in that region to delay or reduce
their payments on the contracts. Additionally, a substantial downturn in the
financial services industry, which is highly concentrated in the states of New
York and New Jersey, or in the oil and gas industry, which is concentrated in
the state of Texas could reduce the income of obligors in those states and
ultimately
S-8
<PAGE>
reduce the associated obligor's ability to make timely payments on their related
contracts. In addition, the following economic conditions may affect payments:
- unemployment,
- interest rates,
- inflation rates, and
- consumer perceptions of the economy.
THE CERTIFICATES MAY NOT BE SUITABLE INVESTMENTS FOR ALL INVESTORS
The certificates may not be a suitable investment for any investor that
requires a regular or predictable schedule of principal payments. 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 an investment and the interaction of these
factors consider purchasing the certificates.
BECAUSE THE CERTIFICATES ARE IN BOOK-ENTRY FORM, YOUR RIGHTS CAN ONLY BE
EXERCISED INDIRECTLY
Because the certificates will be issued in book-entry form, you will be
required to hold your interest in the certificates through The Depository Trust
Company in the United States, or Clearstream (formerly Cedelbank) or the
Euroclear System in Europe. Transfers of interests in the certificates within
DTC, Clearstream or Euroclear must be made in accordance with the usual rules
and operating procedures of those systems. So long as the certificates are in
book-entry form, you will not be entitled to receive a physical certificate
representing your interest. The certificates will remain in book-entry form
except in the limited circumstances described under the caption "INFORMATION
REGARDING THE SECURITIES--BOOK-ENTRY REGISTRATION" in the accompanying
prospectus. Unless and until the certificates in this prospectus supplement
cease to be held in book-entry form, the trustee will not recognize you as a
"certificateholder", as such term is used in the pooling and servicing
agreement. As a result, you will only be able to exercise the rights of
certificateholders indirectly through DTC, if in the United States, and its
participating organizations, or Clearstream and Euroclear, in Europe, and their
participating organizations. Holding the certificates in book-entry form could
also limit your ability to pledge your certificates to persons or entities that
do not participate in DTC, Clearstream or Euroclear and to take other actions
that require a physical certificate representing the certificates.
Interest and principal on the certificates will be distributed by the trust
to DTC as the record holder of the certificates while they are held in
book-entry form. DTC will credit distributions received from the trustee to the
accounts of its participants which, in turn, will credit those amounts to
certificateholders either directly or indirectly through indirect participants.
This process may delay your receipt of principal and interest distributions from
the trust.
HOLDERS OF CLASS B CERTIFICATES MAY HAVE TO PAY TAXES ON AMOUNTS NOT ACTUALLY
RECEIVED
For federal income tax purposes, amounts otherwise payable to the holders of
the Class A Certificates will be deemed to have been received by the holders of
the Class B Certificates and then paid by them to the holders of the Class A
Certificates pursuant to a guaranty. Accordingly, the holders of the Class A
Certificates could be liable for taxes on amounts not actually received. See
"MATERIAL FEDERAL INCOME TAX CONSEQUENCES" in the accompanying prospectus.
THE ABSENCE OF AN EXISTING MARKET FOR THE CERTIFICATES MAY LIMIT YOUR ABILITY TO
RESELL THE CERTIFICATES
There is currently no public market for the certificates and we cannot
assure you that one will develop. Thus, you may not be able to resell your
certificates at all, or may be able to do so only at a substantial discount. The
underwriters may assist in resales of the certificates but they are not
obligated
S-9
<PAGE>
to do so. [Other than the Luxembourg Exchange], we do not intend to apply for
listing of the certificates on any securities exchange or for the inclusion of
the certificates on any automated quotation system. We cannot predict whether
there will be a secondary market for these types of certificates or if one
develops, how liquid it will be.
THE TRUST
GENERAL
The depositor will create the trust pursuant to a pooling and servicing
agreement dated as of [ ], among Dealer Auto Receivables Corp., as
depositor of the contracts to the trust, Premier Auto Finance, Inc., as servicer
of the contracts and the trustee.
Under a purchase agreement, dated as of , between Premier Auto
Finance, L.P., as seller, and Dealer Auto Receivables Corp., the seller will
sell all of the contracts and the related property to the depositor.
Pursuant to the pooling and servicing agreement, the depositor will transfer
all of the contracts and related property to the trust in exchange for the
certificates.
The property of the trust will consist of:
- the contracts and the right to receive all payments received on the
contracts on or after the cut-off date;
- security interests in the financed vehicles securing the contracts and any
related property;
- rights with respect to any repossessed financed vehicles;
- the rights to proceeds from claims on theft, physical damage, credit life
and disability insurance policies covering the financed vehicles or the
obligors;
- the seller's rights against the originating dealers under the dealer
agreements and against other third parties under the agreements pursuant
to which the seller purchased the contracts;
- certain rebates of premiums and other amounts relating to insurance
policies, extended service contracts or other repair agreements and other
items financed under the contracts;
- the depositor's rights against the seller under the purchase agreement
pursuant to which the seller sold the pool of contracts to the depositor
and against the performance guarantor under the performance guarantee
pursuant to which the performance guarantor guaranteed the seller's
obligations under the purchase agreement;
- the right to receive payments from the depositor obligated to repurchase
contracts which do not meet specified representations made by depositor in
the pooling and servicing agreement;
- the trust's rights against the servicer under the pooling and servicing
agreement;
- amounts held in the collection account and the paid-ahead account to be
established and maintained under the pooling and servicing agreement; and
- all proceeds of the foregoing.
The reserve fund and the yield supplement account will be maintained in the
name of , as collateral agent for the benefit of the
certificateholders, but will not be part of the trust.
The certificates represent fractional undivided interests in the trusts. See
"DESCRIPTION OF THE CERTIFICATES" in this prospectus supplement.
S-10
<PAGE>
THE TRUSTEE
[ ] will be the trustee under the pooling and servicing agreement. The
trustee is a [ ] banking association and its principal offices are
located at [ ].
The fees of the trustee in connection with its duties under the pooling and
servicing agreement will be paid out of Available Amounts. See "DISTRIBUTIONS ON
THE CERTIFICATES--DISTRIBUTIONS". The trustee's fees will equal $ per month.
The trustee will also be entitled to indemnification by the servicer for, and
will be held harmless against, any loss, liability, fee, disbursement or expense
incurred by the trustee not resulting from its own willful misfeasance, bad
faith or negligence. The servicer will also indemnify the trustee for specified
taxes that may be asserted in connection with the transaction.
THE SELLER AND THE SERVICER
Information regarding the seller and the servicer is set forth under the
captions "THE SELLER AND THE ORIGINATING DEALERS" and "THE SERVICER" in the
accompanying prospectus.
THE PERFORMANCE GUARANTOR
Virginia Surety Company, Inc. was incorporated in Illinois in January 1982.
Virginia Surety Company, Inc. is an Illinois licensed insurance company that
underwrites and administers comprehensive extended warranty and consumer service
programs. It is a wholly owned subsidiary of Aon Corporation. Its principal
executive offices are located at 123 North Wacker Drive, Chicago, Illinois 60606
(telephone number (312) 701-4670). As of December 31, 1999, Virginia Surety
Company, Inc. had total assets of $1,442,316,483 and stockholder' equity of
$318,749,189. As of December 31, 1998, Virginia Surety Company, Inc. had total
assets of $1,386,694,811 and stockholders' equity of $330,048,524. The claims
paying ability of Virginia Surety Company is rated A+ by A.M. Best.
THE CONTRACTS
DESCRIPTION OF THE CONTRACTS
All of the contracts are retail installment contracts originated by
originating dealers on or after [ ]. The contacts were selected on a
random basis from the seller's portfolio of contracts based on several criteria,
including that each contract:
- has a contractual annual percentage rate that equals or exceeds [ ]%;
- has a remaining term to maturity as of the cut-off date of not less than
[ ] months and not more than [ ] months;
- is not past due as of the cut-off date;
- was originated prior to [ ];
- has been entered into by an obligor that was not in bankruptcy proceedings
or is bankrupt or insolvent;
- is secured by a financed vehicle that has not been repossessed; and
- has an original term to maturity of not less than and not more than
.
See "THE CONTRACTS" in the accompanying prospectus for a further description
of the contracts.
S-11
<PAGE>
STATISTICS RELATING TO THE CONTRACTS
The aggregate principal balance of the contracts as of the cut-off date was
$[ ]. All of the contracts constituted simple interest contracts. See
"THE CONTRACTS" in the accompanying prospectus for a further description of the
characteristics of simple interest contracts.
The following tables set forth the characteristics of the contracts as of
the cut-off date. The percentages shown in these tables may not total due to
rounding.
COMPOSITION OF THE CONTRACTS
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED AVERAGE
INITIAL AVERAGE AVERAGE WEIGHTED AVERAGE INITIAL
AGGREGATE ORIGINAL ANNUAL AVERAGE REMAINING PRINCIPAL
NUMBER OF PRINCIPAL PRINCIPAL PERCENTAGE ORIGINAL TERM TERM BALANCE
CONTRACTS BALANCE BALANCE RATE (RANGE) (RANGE) (RANGE) (RANGE)
--------------------- --------- --------- ------------ ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
[ ] $ [ ] $ [ ] [ ]% [ ] [ ] $ [ ]
</TABLE>
DISTRIBUTION OF THE CONTRACTS BY ANNUAL PERCENTAGE RATE
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL
NUMBER OF INITIAL PRINCIPAL AGGREGATE PRINCIPAL
RANGE OF APRS (%) CONTRACTS BALANCE BALANCE
----------------- --------- ----------------- ---------------------
<S> <C> <C> <C>
Totals.............................................
</TABLE>
GEOGRAPHICAL DISTRIBUTION OF THE CONTRACTS
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL
NUMBER OF INITIAL PRINCIPAL AGGREGATE PRINCIPAL
STATE CONTRACTS BALANCE BALANCE
----- --------- ----------------- ---------------------
<S> <C> <C> <C>
Alaska.............................................
Arizona............................................
Arkansas...........................................
California.........................................
Colorado...........................................
Connecticut........................................
Delaware...........................................
Florida............................................
Georgia............................................
Hawaii.............................................
Idaho..............................................
Illinois...........................................
Indiana............................................
Iowa...............................................
Kansas.............................................
Kentucky...........................................
Louisiana..........................................
Maine..............................................
Maryland...........................................
</TABLE>
S-12
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL
NUMBER OF INITIAL PRINCIPAL AGGREGATE PRINCIPAL
STATE CONTRACTS BALANCE BALANCE
----- --------- ----------------- ---------------------
<S> <C> <C> <C>
Massachusetts......................................
Michigan...........................................
Minnesota..........................................
Mississippi........................................
Missouri...........................................
Montana............................................
Nebraska...........................................
Nevada.............................................
New Hampshire......................................
New Jersey.........................................
New Mexico.........................................
New York...........................................
North Carolina.....................................
North Dakota.......................................
Ohio...............................................
Oklahoma...........................................
Oregon.............................................
Pennsylvania.......................................
Rhode Island.......................................
South Carolina.....................................
South Dakota.......................................
Tennessee..........................................
Texas..............................................
Utah...............................................
Vermont............................................
Virginia...........................................
Washington.........................................
West Virginia......................................
Wisconsin..........................................
Wyoming............................................
-------- ------------ -----------
Total..............................................
======== ============ ===========
</TABLE>
REMAINING TERMS OF CONTRACTS
<TABLE>
<CAPTION>
REMAINING TERMS AGGREGATE INITIAL PERCENTAGE OF
OF CONTRACTS AGGREGATE NUMBER PRINCIPAL AGGREGATE INITIAL
(MONTHS) OF CONTRACTS BALANCE PRINCIPAL BALANCE
--------------- ---------------- ----------------- -----------------
<S> <C> <C> <C>
</TABLE>
MATURITY AND PREPAYMENT CONSIDERATIONS
Information regarding maturity and prepayment considerations with respect to
the certificates is set forth under "WEIGHTED AVERAGE LIVES OF THE SECURITIES"
in the accompanying prospectus.
S-13
<PAGE>
Because the rate of distribution of principal of the certificates depends
primarily on the rate of payment of the principal balances of the contracts,
final distribution on the certificates could occur significantly earlier or
later than the final scheduled distribution date. You will bear the risk of
being able to reinvest principal distributions on the certificates at yields at
least equal to the yield on your certificates. We cannot predict the rate of
prepayments.
Although the contracts have different annual percentage rates,
disproportionate rates of prepayments of contracts with higher annual percentage
rates will generally not affect the yield to you. However, higher rates of
prepayments of contracts with higher annual percentage rates will decrease the
amount available to cover delinquencies and defaults on the contracts and may
decrease the amounts available to be deposited in the reserve fund.
STATISTICS RELATING TO DELINQUENCIES AND LOSSES
The following table shows delinquency statistics for the seller's portfolio
of retail installment contracts serviced by the servicer. The contracts were
originated in accordance with the underwriting standards described in the
accompanying prospectus under "THE SERVICER--UNDERWRITING AND ORIGINATION". For
these purposes a "DELINQUENCY" means that the obligor on the contract has failed
to make a required scheduled payment in an amount equal to at least 95% of the
scheduled payment for the indicated number of days past the due date. These
statistics are not necessarily indicative of the future performance of the
contracts.
<TABLE>
<CAPTION>
AS OF MARCH 31
-------------------------------------------
2000 1999
-------------------- --------------------
NUMBER NUMBER
DOLLARS OF DOLLARS OF
(000'S) CONTRACTS (000'S) CONTRACTS
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Outstanding Principal Amount..................
======== ======== ======== ========
Delinquencies ($)(1)
31-60 Days..................................
61-90 Days..................................
91 Days or More.............................
-------- -------- -------- --------
Total Delinquencies...........................
Repossession Inventory........................
-------- -------- -------- --------
Total Delinquencies & Repossession
Inventory...................................
======== ======== ======== ========
Delinquencies (%)(1)(2)
31-60 Days..................................
61-90 Days..................................
91 Days or More.............................
-------- --------
Total Delinquencies(2)........................
Repossession Inventory(2).....................
-------- --------
Total Delinquencies & Repossession
Inventory(2)................................
======== ========
</TABLE>
S-14
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31
-----------------------------------------------------------------------------------------
1999 1998 1997 1996
-------------------- -------------------- -------------------- --------------------
NUMBER NUMBER NUMBER NUMBER
DOLLARS OF DOLLARS OF DOLLARS OF DOLLARS OF
(000'S) CONTRACTS (000'S) CONTRACTS (000'S) CONTRACTS (000'S) CONTRACTS
-------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding Principal
Amount.....................
======== ======== ======== ======== ======== ======== ======== ========
Delinquencies($)(1)
31-60 Days.................
61-90 Days.................
91 Days or More............
-------- -------- -------- -------- -------- -------- -------- --------
Total Delinquencies..........
Repossession Inventory.......
-------- -------- -------- -------- -------- -------- -------- --------
Total Delinquencies &
Repossession Inventory.....
======== ======== ======== ======== ======== ======== ======== ========
Delinquencies (%)(1)(2)
31-60 Days.................
61-90 Days.................
91 Days or More............
-------- -------- --------
Total Delinquencies(2).......
Repossession Inventory(2)....
-------- -------- --------
Total Delinquencies &
Repossession
Inventory(2)...............
======== ======== ========
<CAPTION>
AS OF DECEMBER 31
--------------------
1995
--------------------
NUMBER
DOLLARS OF
(000'S) CONTRACTS
-------- ---------
<S> <C> <C>
Outstanding Principal
Amount.....................
======== ========
Delinquencies($)(1)
31-60 Days.................
61-90 Days.................
91 Days or More............
-------- --------
Total Delinquencies..........
Repossession Inventory.......
-------- --------
Total Delinquencies &
Repossession Inventory.....
======== ========
Delinquencies (%)(1)(2)
31-60 Days.................
61-90 Days.................
91 Days or More............
Total Delinquencies(2).......
Repossession Inventory(2)....
Total Delinquencies &
Repossession
Inventory(2)...............
</TABLE>
------------------------------
(1) Delinquencies include principal amounts only.
(2) As a percent of outstanding principal in dollars.
LOSSES AND RECOVERIES
The following table shows loss statistics for the seller's portfolio of
retail installment contracts serviced by the servicer. The servicer generally
charges-off a contract (i) when the servicer deems the contract uncollectible;
(ii) during the month when 5% or more of an installment due under the contract
becomes more than 120 days past due; (iii) if the financed vehicle is
repossessed, when all sale proceeds, insurance claims or refunds of financed
insurance policies and extended warranties have been received with respect to
the related repossessed financial vehicle; or (iv) when an obligor files for
bankruptcy and the servicer determines that its loss is known. Recoveries
generally include amounts received with respect to contracts previously
charged-off, except for proceeds realized in connection with the sale of the
repossessed vehicles. Gross charge-offs are the remaining principal balances
less proceeds from the sale of repossessed vehicles. Net charge-offs mean gross
charge-offs minus recoveries of contracts previously charged off. These
statistics are not necessarily indicative of the future performance of the
contracts.
S-15
<PAGE>
<TABLE>
<CAPTION>
3 MONTHS ENDED
---------------------
MARCH 31, MARCH 31,
2000 1999
--------- ---------
<S> <C> <C>
Number of Contracts(1)......................................
Period End Outstanding Principal Amount..................... $ $
Average Outstanding Principal Amount (2).................... $ $
Number of Repossessions in Inventory........................
Number of Gross Charge-Offs.................................
Gross Charge-Offs........................................... $ $
Gross Charge-Offs as a % of Period End Outstanding Principal
Amount....................................................
Gross Charge-Offs as a % of Average Outstanding Principal
Amount....................................................
Recoveries.................................................. $ $
Net Charge-Offs............................................. $ $
Net Charge-Offs as a % of Period End Outstanding Principal
Amount....................................................
Net Charge-Offs as a % of Average Outstanding Principal
Amount....................................................
</TABLE>
------------------------------
(1) Number of contracts as of period end.
(2) The average for each period presented was computed by taking a simple
average of monthly average outstanding principal amounts for such period.
<TABLE>
<CAPTION>
12 MONTHS ENDED
------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Number of Contracts(1)..................
Period End Outstanding Principal
Amount................................ $ $ $
Average Outstanding Principal Amount
(2)................................... $ $ $
Number of Repossessions in Inventory....
Number of Gross Charge-Offs.............
Gross Charge-Offs....................... $ $ $
Gross Charge-Offs as a % of Period End
Outstanding Principal Amount..........
Gross Charge-Offs as a % of Average
Outstanding Principal Amount..........
Recoveries.............................. $ $ $
Net Charge-Offs......................... $ $ $
Net Charge-Offs as a % of Period End
Outstanding Principal Amount..........
Net Charge-Offs as a % of Average
Outstanding Principal Amount..........
</TABLE>
THREE MONTHS ENDED MARCH 31, 2000 VERSUS THREE MONTHS ENDED MARCH 31, 1999.
The amounts classified as delinquent as a percentage of the seller's
portfolio of retail installment contracts serviced by the servicer
[increased/decreased] from [ ]% to [ ]%. The [increase/ decrease] is
attributable to . Repossession inventory [increased/decreased] from
[ ] to [ ]. The [increase/decrease] is attributable to .
Gross charge-offs as a percentage of the period end outstanding principal amount
of the contracts [increased/decreased] from [ ]% to [ ]%. The
[increase/decrease] is attributable to . The number of contracts
[increased/decreased] from [ ] to [ ] due to .
We know of no trends that are likely to increase the rate of delinquencies or
losses on the contracts.
TWELVE MONTHS ENDED DECEMBER 31, 1999 VERSUS TWELVE MONTHS ENDED DECEMBER 31,
1998.
The amounts classified as delinquent as a percentage of the seller's
portfolio of retail installment contracts serviced by the servicer
[increased/decreased] from [ ]% to [ ]%. The [increase/ decrease] is
attributable to . Repossession inventory [increased/decreased] from
[ ] to [ ]. The [increase/decrease] is attributable to .
Gross charge-offs as a percentage
S-16
<PAGE>
of the period end outstanding principal amount of the contracts
[increased/decreased] from [ ]% to [ ]%. The [increase/decrease] is
attributable to . The number of contracts [increased/decreased] from
[ ] to [ ] due to . We know of no trends that
are likely to increase the rate of delinquencies or losses on the contracts.
TWELVE MONTHS ENDED DECEMBER 31, 1998 VERSUS TWELVE MONTHS ENDED DECEMBER 31,
1997.
The amounts classified as delinquent as a percentage of the seller's
portfolio of retail installment contracts serviced by the servicer
[increased/decreased] from [ ]% to [ ]%. The [increase/ decrease] is
attributable to . Repossession inventory [increased/decreased] from
[ ] to [ ]. The [increase/decrease] is attributable to .
Gross charge-offs as a percentage of the period end outstanding principal amount
of the contracts [increased/decreased] from [ ]% to [ ]%. The
[increase/decrease] is attributable to . The number of contracts
[increased/decreased] from [ ] to [ ] due to .
TWELVE MONTHS ENDED DECEMBER 31, 1997 VERSUS TWELVE MONTHS ENDED DECEMBER 31,
1996.
The amounts classified as delinquent as a percentage of the seller's
portfolio of retail installment contracts serviced by the servicer
[increased/decreased] from [ ]% to [ ]%. The [increase/ decrease] is
attributable to . Repossession inventory [increased/decreased] from
[ ] to [ ]. The [increase/decrease] is attributable to .
Gross charge-offs as a percentage of the period end outstanding principal amount
of the contracts [increased/decreased] from [ ]% to [ ]%. The
[increase/decrease] is attributable to . The number of contracts
[increased/decreased] from [ ] to [ ] due to .
TWELVE MONTHS ENDED DECEMBER 31, 1996 VERSUS TWELVE MONTHS ENDED DECEMBER 31,
1995.
The amounts classified as delinquent as a percentage of the seller's
portfolio of retail installment contracts serviced by the servicer
[increased/decreased] from [ ]% to [ ]%. The [increase/ decrease] is
attributable to . Repossession inventory [increased/decreased] from
[ ] to [ ]. The [increase/decrease] is attributable to .
Gross charge-offs as a percentage of the period end outstanding principal amount
of the contracts [increased/decreased] from [ ]% to [ ]%. The
[increase/decrease] is attributable to . The number of contracts
[increased/decreased] from [ ] to [ ] due to .
WEIGHTED AVERAGE LIVES OF THE SECURITIES
The rate of payments on contracts will directly affect
- the rate at which you receive distributions of principal in respect of
your certificates; and
- if you purchase your certificates at a discount or a premium, your yield
to maturity.
The payments on the contracts may be in the form of payments scheduled to be
made under the terms of the contracts, prepayments or liquidations due to
default, casualty and other events which we cannot predict. The depositor will
be obligated to repurchase contracts from the trust as a result of a breach of a
representation or warranty with respect to that contract that materially and
adversely affects the trust's or the securityholders' interest in the contract
or the collectibility of the contract. In such event, the seller, or the
performance guarantor, will be obligated to repurchase the contract from the
depositor. In addition, the servicer will be obligated to purchase contracts
from the trust as a result of a breach of certain covenants with respect to the
contract. Any payments for these reasons, other than scheduled payments may
result in distributions to you of amounts which would otherwise have been
distributed over the remaining term of the contracts. Each prepayment,
liquidation or repurchase of a contract will shorten the weighted average
remaining term of the contracts and the weighted
S-17
<PAGE>
average lives of the certificates. See "RISK FACTORS--YOU MAY EXPERIENCE REDUCED
RETURNS ON YOUR INVESTMENT RESULTING FROM PREPAYMENTS ON THE CONTRACTS,
REPURCHASES OF THE CONTRACTS, LIQUIDATIONS OF DEFAULTED CONTRACTS AND EARLY
TERMINATION OF THE TRUST" in the accompanying prospectus.
Prepayments on automotive receivables can be measured relative to a payment
standard or model. In this prospectus supplement we use the Absolute Prepayment
Model ("ABS"), which represents an assumed rate of prepayment each month
relative to the original number of contracts in a pool of contracts. ABS further
assumes that all the contracts in question are the same size and amortize at the
same rate and that each contract in each month of its life will either be paid
as scheduled or be paid in full. For example, in a pool of contracts originally
containing 10,000 contracts, a 1% ABS rate means that 100 contracts prepay each
month. ABS does not purport to be an historical description of prepayment
experience or a prediction of the anticipated rate of prepayment of any pool of
receivables, including the contracts.
The information in the ABS Table was prepared on the assumption that:
- the contracts prepay in full at the specified constant percentage of ABS
monthly, with no defaults, losses or repurchases,
- each scheduled monthly payment on each contract is scheduled to be made
and is made on the last day of each month and each month has 30 days,
- distributions are made on the certificates on each distribution date,
- the balance in the reserve fund on each distribution date is the required
amount described under "DISTRIBUTIONS ON THE CERTIFICATES--RESERVE FUND"
in this prospectus supplement and
- the seller does not purchase the contracts.
The ABS Table also assumes that the contracts have been aggregated into
hypothetical pools with all of the contracts within each pool having the
following characteristics and that the level scheduled monthly payment for each
of the pools will be such that each pool will be fully amortized by the end of
its remaining term to maturity.
<TABLE>
<CAPTION>
REMAINING
AGGREGATE TERM TO ORIGINAL TERM
NUMBER OF PRINCIPAL MATURITY TO MATURITY
POOL CONTRACTS BALANCE APR (IN MONTHS) (IN MONTHS)
---- --------- --------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C>
</TABLE>
The hypothetical pools each have an assumed cut-off date of [ ]. The
ABS Table indicates the projected weighted average life of each class of
securities and sets forth the percent of the initial principal amount of each
class of securities that is projected to be outstanding after each of the
distribution dates shown at various constant ABS percentages.
The actual characteristics and performance of the contracts will differ from
the assumptions used to prepare the ABS Table. The assumptions used are
hypothetical and have been provided to give a general sense of how the principal
cash flows might behave under varying prepayment rates. Any difference between
the assumptions and the actual characteristics and performance of the contracts
or
S-18
<PAGE>
actual prepayment experience will affect the percentages of initial Class A and
Class B certificate balances outstanding over time and the weighted average
lives of the certificates.
<TABLE>
<CAPTION>
CLASS A CERTIFICATES
-----------------------------------------
ASSUMED ABS PERCENTAGE(2)
-----------------------------------------
PAYMENT DATES 0.50% 1.00% 1.50% 2.00%
------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted Average Life (years)(1)............................
Weighted Average Life to Call (years)(1)(3).................
Optional Call Date..........................................
</TABLE>
------------------------
(1) The weighted average life of a certificate is determined by (i) multiplying
the amount of each principal payment on a certificate by the number of years
from the date of the issuance of the certificate to the distribution date on
which it is made, (ii) adding the results and (iii) dividing the sum by the
initial principal certificate balance of the certificate.
(2) An asterisk "*" means a percent of initial principal balance of more than
zero and less than 0.5%.
(3) This calculation assumes the seller repurchases the contracts at the first
opportunity.
<TABLE>
<CAPTION>
CLASS B CERTIFICATES
-----------------------------------------
ASSUMED ABS PERCENTAGE(2)
-----------------------------------------
PAYMENT DATES 0.50% 1.00% 1.50% 2.00%
------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted Average Life (years)(1)............................
Weighted Average Life to Call (years)(1)(3).................
Optional Call Date..........................................
</TABLE>
------------------------
(1) The weighted average life of a certificate is determined by (i) multiplying
the amount of each principal payment on a certificate by the number of years
from the date of the issuance of the certificate to the distribution date on
which it is made, (ii) adding the results and (iii) dividing the sum by the
initial certificate balance of the certificate.
(2) An asterisk "*" means a percent of initial principal balance of more than
zero and less than 0.5%.
(3) This calculation assumes the seller repurchases the contracts at the first
opportunity.
THE ABS TABLES HAVE BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED ABOVE
(INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND PERFORMANCE OF THE
CONTRACTS WHICH WILL DIFFER FROM THE ACTUAL CHARACTERISTICS AND PERFORMANCE
THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
CERTIFICATE FACTORS AND POOL FACTORS
The "CLASS A CERTIFICATE FACTOR" will be a seven-digit decimal indicating
the certificate balance of the Class A Certificates on the distribution date as
a fraction of the certificate balance of the Class A Certificates as of the
closing date. The "CLASS B CERTIFICATE FACTOR" will be a seven-digit decimal
indicating the certificate balance of the Class B Certificates on the
distribution date as a fraction of the certificate balance of the Class B
Certificates as of the closing date. The servicer will compute the certificate
factors each month. Initially, each factor will be 1.0000000 and thereafter will
decline to reflect reductions in the certificate balances. The portion of the
certificate balance for any class of certificates for a given month allocable to
a certificateholder can be determined by multiplying the original denomination
of the holder's certificate by the related certificate factor for that month.
The "CLASS A POOL FACTOR" will be a seven-digit decimal indicating the
certificate balance of the Class A Certificates on the distribution date as a
fraction of the aggregate principal balance of the contracts as of the cut-off
date. The "CLASS B POOL FACTOR" will be a seven-digit decimal indicating the
certificate balance of the Class B Certificates on the distribution date as a
fraction of the aggregate
S-19
<PAGE>
principal balance of the contracts as of the cut-off date. The servicer will
compute the pool factors each month.
You will receive monthly reports concerning the distributions received on
the contracts, the aggregate principal balance for the contracts, the related
certificate factors and pool factors and various other items of information
pertaining to the trust. Furthermore, the trustee will furnish you with
information for tax reporting purposes not later than the latest date permitted
by law. See "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--SERVICING--STATEMENTS TO SECURITYHOLDERS" in the accompanying
prospectus.
USE OF PROCEEDS
The depositor will use all of the proceeds from the sale of the
certificates, after depositing funds into the reserve fund and the yield
supplement account and paying expenses, to pay the purchase price for the
contracts to the seller. The purchase price for the contracts is $ . The
seller will use the proceeds it receives to pay down a warehouse receivables
securitization facility.
DESCRIPTION OF THE CERTIFICATES
This section supplements the information in the accompanying prospectus
under the caption "DESCRIPTION OF THE CERTIFICATES". However, as these
statements are only summaries, you should read the pooling and servicing
agreement, a form of which has been filed as an exhibit to the registration
statement of which the accompanying prospectus forms a part. The information in
this section and in the accompanying prospectus under the caption "DESCRIPTION
OF THE CERTIFICATES" describes the material terms of the certificates and the
pooling and servicing agreement. A copy of the pooling and servicing agreement
is available to you upon request to the depositor and will be filed with the
Securities Exchange Commission following the issuance of the certificates.
GENERAL
The certificates will be issued pursuant to the terms of the pooling and
servicing agreement among the trustee, the depositor and the servicer.
Two classes of certificates evidencing undivided ownership interests in the
trust, designated as the:
- Class A Certificates, and
- Class B Certificates
will be issued.
The Class A Certificates will evidence in the aggregate an undivided
ownership interest of approximately % of the trust and the Class B
Certificates will evidence in the aggregate an undivided ownership interest of
approximately % of the trust.
The certificates will be delivered in book-entry form only and be issued in
minimum denominations of $1,000.
INTEREST
Interest will be distributable in respect of the certificates at the fixed
pass-through rates for each class of certificates shown on the cover page of
this prospectus supplement.
The trust will distribute interest in respect of the certificates on each
distribution date from Available Interest and amounts withdrawn from the reserve
fund as set forth under "DISTRIBUTIONS ON THE CERTIFICATES--DISTRIBUTIONS"
below.
Interest will be distributable to you monthly on the [ ] of each month
or, if that date is not a business day, on the next succeeding business day and
will be calculated for the interest period from and including the th day
of the prior month(or from and including the closing date, in the case of the
initial distribution date) to but excluding the th day of the next month
on the basis of a 360-day year consisting of twelve 30-day months.
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<PAGE>
If on any distribution date, the trust does not have sufficient funds to
make a full distribution of interest on any class the certificates, the amount
of the shortfall will be carried forward, and together with interest on the
shortfall amount at the applicable pass-through rate for that class, added to
the amount of interest distributable in respect of that class of certificates on
the next distribution date.
PRINCIPAL
On each distribution date, principal in respect of the certificates will be
distributable in an amount equal to the Monthly Principal for that distribution
date. The holders of the Class A Certificates and the Class B Certificates will
be entitled to receive a PRO RATA share of the amounts to be distributed in
respect of principal. However, no distributions of principal in respect of the
Class B Certificates will be made on any distribution date until interest and
principal in respect of the Class A Certificates has been distributed. Principal
in respect of the certificates will be distributed as set forth under
"DISTRIBUTIONS ON THE CERTIFICATES--DISTRIBUTIONS" below.
MANDATORY PREPAYMENT
The seller, at its option, may repurchase all of the contracts owned by the
trust on any distribution date following the date on which the aggregate
principal balance of the certificates is less than 10% of the aggregate
principal balance of the contracts as of the cut-off date. The purchase price to
be paid in connection with the purchase will be at least equal to the sum of:
- the unpaid certificate balance of the certificates as of that distribution
date, together with all interest distributable in respect of the
certificates as of that distribution date;
- unreimbursed servicer advances;
- accrued but unpaid servicer fees;
- accrued but unpaid fees to the trustee;
- any other amounts payable at the time from Available Amounts; minus
- amounts on deposit in the reserve fund.
If the seller does purchase the contracts, the certificates will be paid in full
on the distribution date on which the purchase occurs.
VOTING RIGHTS
If a servicer default occurs, the trustee or holders of certificates
evidencing more than 50% of the aggregate principal balance of the contracts may
remove the servicer without the consent of any other holder of certificates. If
a servicer default occurs, holders of certificates evidencing more than 50% of
the aggregate principal balance of the contracts may waive any servicer default
other than a default in making any required deposits into the collection
account.
NOTICES
Certificateholders will be notified in writing by the trustee of any
servicer default or termination of, or appointment of a successor to, the
servicer promptly upon a responsible officer obtaining actual knowledge of these
events. Except for the monthly and annual reports to certificateholders
described this prospectus supplement, the trustee is not obligated under the
pooling and servicing agreement to forward any other notices to the
certificateholders. There are no provisions in the pooling and servicing
agreement for the regular or special meetings of certificateholders.
DISTRIBUTIONS ON THE CERTIFICATES
GENERAL
The trust will distribute principal and interest in respect of the
certificates on each distribution date from Available Interest and Available
Principal for the distribution date, as well as amounts permitted to be
withdrawn from the reserve fund. See "--RESERVE FUND" below. The precise
calculation
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<PAGE>
of the funds available to the trust on each distribution date to make
distributions in respect of the certificates is set forth in the definition of
"AVAILABLE AMOUNTS", "AVAILABLE INTEREST" and "AVAILABLE PRINCIPAL" and the
definitions of the defined terms contained in those definitions set forth in the
Glossary. We refer you to those definitions.
SERVICING COMPENSATION AND REIMBURSEMENT OF SERVICER ADVANCES
On each distribution date, the servicer will be entitled to receive:
- the base servicing fee in an amount equal to the product of one twelfth of
one percent (1%) and the aggregate principal balance of the contracts as
of the last day of the second calendar month preceding the month in which
that distribution date falls; and
- any investment income earned on amounts on deposit in the collection
account during the prior calendar month.
The servicer will also be entitled to retain any late payment fees, prepayment
charges, if any, and other similar fees and charges received during the prior
calendar month.
The servicer will reimburse itself for servicer advances out of:
- amounts received by the servicer from the obligors on account of the
related delinquent contract payments;
- the proceeds, net of expenses incurred by the servicer, of the sale of the
repossessed financed vehicles securing the related delinquent contracts;
and
- payments on other contracts when the servicer has determined that a
contract as to which it has made advances is a Defaulted Contract.
DISTRIBUTIONS
On each distribution date, the trustee will distribute the following amounts
in the following order and priority from the following funds:
(1) from the Available Amounts, to the servicer, reimbursement of servicer
advances;
(2) from Available Amounts, to the trustee, payment of the fees due and
owing to the trustee;
(3) from Available Interest, to the servicer, payment of the base servicing
fee;
(4) from Available Interest, to the Class A Certificateholders, an amount
equal to the accrued and unpaid interest on the Class A Certificates,
including any accrued and unpaid interest on the Class A Certificates
payable on prior distribution dates plus interest on that accrued and
unpaid interest, and if the remaining Available Interest is insufficient,
the Class A Certificateholders will be entitled to receive interest first
from funds withdrawn from the reserve fund and second, if those amounts
are insufficient, from the Class B Percentage of Available Principal;
(5) from Available Interest, to the Class B Certificateholders, an amount
equal to the accrued and unpaid interest on the Class B Certificates,
including any accrued and unpaid interest on the Class B Certificates
payable on prior distribution dates plus interest on that accrued and
unpaid interest and if the remaining Available Interest is insufficient,
the Class B Certificateholders will be entitled to receive interest from
funds withdrawn from the reserve fund;
(6) from Available Amounts, to the Class A Certificateholders, an amount
equal to the Class A Principal Distributable Amount for such distribution
date and if the remaining Available Amounts are insufficient, the
Class A Certificateholders will be entitled to receive principal from
funds withdrawn from the reserve fund;
S-22
<PAGE>
(7) from Available Amounts, to the Class B Certificateholders, an amount
equal to the Class B Principal Distributable Amount for such distribution
date and if the remaining Available Amounts are insufficient, the
Class B Certificateholders will be entitled to receive principal from
funds withdrawn from the reserve fund; and
(8) any remaining Available Amounts, to the reserve fund, an amount
necessary to increase the amount on deposit in the reserve fund to the
required amount.
RESERVE FUND
The reserve fund will be a segregated account in the name of [ ],
as collateral agent. The reserve fund will be created with an initial deposit by
the depositor on the closing date of an amount equal to $ which is less
than the amount that is required to be on deposit in the reserve fund. The
reserve fund will thereafter be funded as described above under
"--DISTRIBUTIONS".
Amounts held from time to time in the reserve fund will be held for the
benefit of certificateholders and may be invested in investments acceptable to
the rating agencies rating certificates as being consistent with the ratings of
the certificates at the direction of the servicer. Investment income on those
investments will be paid to the depositor, upon the direction of the servicer,
to the extent that funds on deposit in the reserve fund on any distribution date
exceed the amount that is required to be on deposit in the reserve fund. If the
amount on deposit in the reserve fund on any distribution date exceeds the
amount that is required to be on deposit in the reserve fund on that
distribution date, the collateral agent will withdraw that excess and pay it to
the depositor. Upon any distribution to the depositor of those excess amounts,
neither the holders of the Class A Certificates nor the holders of the Class B
Certificates will have any rights in, or claims to, those amounts.
The amount that is required to be on deposit in the reserve fund on each
distribution date will initially be $[ ]. However, on any distribution
date, the amount that is required to be on deposit in the reserve fund will be
an amount equal to $[ ].
The servicer may, from time to time after the date of this prospectus
supplement, request each rating agency rating the certificates to approve a
formula for determining the amount that is required to be on deposit in the
reserve fund on each distribution date that is different from that described
above. If each rating agency delivers a letter to the trustee to the effect that
the use of any new formula will not result in a qualification, reduction or
withdrawal of its then-current rating of any class of certificates, then the
amount that is required to be on deposit in the reserve fund on each
distribution date will be determined in accordance with the new formula. The
pooling and servicing agreement will accordingly be amended, without the consent
of any certificateholder, to reflect the new calculation.
If the amounts of Available Interest and/or Available Principal available to
the trust for any distribution date are insufficient to make distributions of
principal and interest on the certificates, the collateral agent will withdraw
funds from the reserve fund for distribution to the certificateholders to cover
any shortfalls. If on the final scheduled distribution date, the certificate
balance of each class has not been reduced to zero, the collateral agent will
withdraw funds from the reserve fund to pay those certificates in full.
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<PAGE>
YIELD SUPPLEMENT ACCOUNT
On the closing date, the depositor will establish a yield supplement account
in the name of , as collateral agent. The initial deposit into the
yield supplement account will be $ .
No additional deposits to the yield supplement account will be made after
the closing date. On each distribution date, the collateral agent will withdraw
from the yield supplement account and deposit in the collection account the
aggregate amount by which:
- one month's interest on the principal balance of each contract at a rate
equal to the weighted average pass-through rate on the certificates plus
1.00% exceeds
- one month's interest on that principal balance at the annual percentage
rate of that contract.
RATINGS OF THE CERTIFICATES
It is a condition of issuance that each of Standard & Poor's Ratings
Services and Moody's Investors Service, Inc.
- rate the Class A Certificates in its [ ] rating category,
- rate the Class B Certificates at least [ ] respectively.
The ratings address the likelihood of the timely receipt of interest and
distribution of principal in respect of each class of certificates on or before
the scheduled final distribution date. The ratings will be based primarily upon
the contracts and the related property, the reserve fund, the yield supplement
account and the subordination provided by the Class B Certificates, in the case
of the Class A Certificates.
We cannot assure you that any rating will not be lowered or withdrawn by the
assigning rating agency. In the event that ratings with respect to the
certificates are qualified, reduced or withdrawn, no person or entity will be
obligated to provide any additional credit enhancement with respect to the
certificates.
The ratings should be evaluated independently from similar ratings on other
types of certificates. A rating is not a recommendation to buy, sell or hold the
certificates, inasmuch as these ratings do not comment as to market price or
suitability for a particular investor. The ratings do not address the likelihood
of distributions of principal in respect of any class of certificates prior to
the scheduled final distribution date or the possibility of the imposition of
United States withholding tax with respect to non-United States Persons.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
TREATMENT OF TRUST AS GRANTOR TRUST
Winston & Strawn, as federal tax counsel to the trust, has delivered its
opinion that the trust will be treated for federal income tax purposes as a
grantor trust and not as an association (or a publicly traded partnership)
taxable as a corporation. They have further opined that each certificateholder
will be treated for federal income tax purposes as the owner of a pro rata
undivided interest in the income and assets of the trust. These opinions are
subject to the further explanation, assumptions and qualifications described in
the accompanying prospectus under the heading "MATERIAL FEDERAL INCOME TAX
CONSEQUENCES--GRANTOR TRUST". For federal income tax purposes, the trust will be
deemed to have acquired the following assets: the principal and interest due
with respect to each contract (excluding the portion retained by the seller),
any rights to receive payments under a yield supplement agreement, and certain
other rights in favor of the trust with respect to payments due on the
contracts.
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<PAGE>
TAX TREATMENT OF INVESTORS
Each certificateholder will be required to report on its federal income tax
return its pro rata share of the entire income from the contracts in the trust,
including interest, original issue discount, prepayment fees, assumption fees,
any gains on disposition of contracts, and late payment charges. A
certificateholder will also be required to report any payments received under a
yield supplement agreement to the extent that these payments are treated as
income. Each certificateholder will be entitled to deduct its pro rata share of
servicing fees, prepayment fees, assumption fees, and any losses recognized upon
disposition of contracts. A certificateholder's recognition of income required
to be reported on its return and its ability to deduct expenses of the trust are
subject to the further explanation, assumptions and qualifications described in
detail in the accompanying prospectus.
ERISA CONSIDERATIONS
CLASS A CERTIFICATES
Subject to the considerations set forth below and under "ERISA
CONSIDERATIONS" in the accompanying prospectus, the Class A Certificates may be
purchased by an employee benefit plan or an individual retirement account (a
"Benefit Plan") subject to ERISA or Section 4975 of the United States Internal
Revenue Code of 1986, as amended (the "Code"). A fiduciary of a Benefit Plan
must determine that the purchase of a Class A Certificate is consistent with its
fiduciary duties under ERISA and does not result in a nonexempt prohibited
transaction as defined in Section 406 of ERISA or Section 4975 of the Code.
The United States Department of Labor (the "DOL") has granted to [ ]
and [ ] administrative exemptions (Prohibited Transaction Exemptions
[ ] and [ ], as amended by Prohibited Transaction Exemption 97-34
(the "Exemptions")) from some of the prohibited transaction rules of ERISA with
respect to the initial purchase, the holding and the subsequent resale by
Benefit Plans of certificates representing interests in asset backed pass
through trusts that consist of receivables, loans and other obligations that
meet the conditions and requirements of the Exemptions. The receivables covered
by the Exemptions include motor vehicle installment obligations such as the
contracts. The Exemptions also apply to transactions in connection with the
servicing, management and operation of the trust which might otherwise
constitute prohibited transactions.
Among the conditions that must be satisfied for either of the Exemptions to
apply to the acquisition by a Benefit Plan of the Class A Certificates are the
following:
1. The acquisition of the Class A Certificates by a Benefit Plan is on
terms (including the price for that Class A Certificates) that are at
least as favorable to the Benefit Plan as they would be in an
arm's-length transaction with an unrelated party.
2. The rights and interests evidenced by the Class A Certificates acquired
by the Benefit Plan are not subordinated to the rights and interests
evidenced by other certificates of the trust.
3. The Class A Certificates acquired by the Benefit Plan have received a
rating at the time of the acquisition that is in one of the three highest
generic rating categories from Standard & Poor's Rating Services ("S&P")
or Moody's Investors Service, Inc. ("Moody's" and together with S&P, the
"Rating Services").
4. The trustee is not an affiliate of any member of the Restricted Group
(as defined below).
5. The sum of all payments made to and retained by the underwriters in
connection with the purchase of the Class A Certificates represents not
more than reasonable compensation for underwriting the Class A
Certificates. The sum of all payments made to and retained by the
depositor pursuant to the transfer of the contracts to the trust
represents not more than the fair market value of those contracts. The
sum of all payments made to and retained by the
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servicer represents not more than reasonable compensation for the
servicer's services and reimbursement of the servicer's reasonable
expenses in connection therewith.
6. The Benefit Plan investing in the Class A Certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Commission
under the Securities Act of 1933, as amended.
The trust must also meet the following requirements:
1. The corpus of the trust must consist solely of assets of the type that
have been included in other investment pools.
2. Certificates in other investment pools must have been rated in one of
the three highest generic rating categories of any of the Rating Services
for at least one year prior to the Benefit Plan's acquisition of
certificates.
3. Certificates evidencing interests in other investment pools must have
been purchased by investors other than Benefit Plans for at least one
year prior to any Benefit Plan's acquisition of Class A Certificates.
The Exemptions do not apply in all respects to Benefit Plans sponsored by
the seller, the underwriters, the trustee, the servicer, any obligor with
respect to the contracts included in the trust constituting more than 5% of the
aggregate unamortized principal balance of the assets in the trust or any
affiliate of those parties (the "Restricted Group"). As of the date hereof, no
obligor with respect to the contracts included in the trust constitutes more
than 5% of the aggregate unamortized principal balance of the trust (i.e., the
initial principal amount of the certificates). Moreover, each Exemption provides
relief from specified self-dealing/conflict of interest prohibited transactions
only if, among other requirements,
1. in the case of the acquisition of Class A Certificates in connection
with the initial issuance, at least 50% of each class of certificates in
which Benefit Plans have invested is acquired by persons independent of
the Restricted Group and at least 50% of the aggregate interest in the
trust is acquired by persons independent of the Restricted Group;
2. a Benefit Plan's investment in the Class A Certificates does not exceed
25% of all of the Class A Certificates outstanding at the time of the
acquisition; and
3. immediately after the acquisition, no more than 25% of the assets of a
Benefit Plan with respect to which a person has discretionary authority
or renders investment advice are invested in certificates representing
interests in trusts containing assets sold or serviced by the same
entity.
The seller believes that the Exemptions will apply to the acquisition,
holding and resale of the Class A Certificates by a Benefit Plan and that all
conditions of the Exemptions other than those within the control of investors
will be met. However, there can be no assurance that the DOL or the IRS will not
take a contrary position, nor that that position will be sustained. One or more
alternative exemptions may be available with respect to specified prohibited
transactions to which the Exemptions are not applicable, depending in part upon
the type of a Benefit Plan's fiduciary making the decision to acquire the
Class A Certificates and the circumstances under which that decision is made.
See "ERISA CONSIDERATIONS" in the accompanying Prospectus. Any Benefit Plan
which acquires a beneficial ownership interest in a Class A Certificates will be
deemed, by virtue of the acceptance and acquisition of that ownership interest,
to have represented to the depositor and the trustee that that Benefit Plan is
an "accredited investor" for purposes of Rule 501(a)(1) of Regulation D under
the Securities Act.
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<PAGE>
CLASS B CERTIFICATES
Class B Certificates may not be acquired by an employee benefit plan (as
defined in Section 3(3) of ERISA) that is subject to the provisions of Title I
of ERISA or Section 4975(e)(1) of the Code or any person acting on behalf of
such a plan or using the assets of such a plan to acquire the Class B
Certificates or any entity whose underlying assets include plan assets by reason
of a plan's investment in the entity, except as provided below with respect to
insurance company general accounts. By its acceptance of a Class B Certificate,
each holder thereof will be deemed to have represented and warranted that it is
not subject to the foregoing limitation.
In 1995, the DOL issued PTCE 95-60. Section III of PTCE 95-60 which exempts
from the application of the prohibited transaction provisions of Sections
406(a), 406(b) and 407(a) of ERISA and Section 4975 of the Code transactions in
connection with the servicing, management and operation of a trust (such as the
trust) in which an insurance company general account has an interest as a result
of its acquisition of certificates issued by the trust, provided that certain
conditions are satisfied. If these conditions are met, insurance company general
accounts would be allowed to purchase classes of certificates (such as the
Class B Certificates) which do not meet the requirements of the Exemptions
solely because they (i) are subordinated to other classes of certificates in the
trust and/or (ii) have not received a rating at the time of the acquisition in
one of the three generic highest rating categories from any of the Rating
Services. All other conditions of the Exemptions would have to be satisfied in
order for PTCE 95-60 to be available. Before purchasing Class B Certificates, an
insurance company general account seeking to rely on Section III of PTCE 95-60
should itself confirm that all applicable conditions and other requirements have
been satisfied.
ALL CERTIFICATES
A purchaser of the certificates should be aware, however, that even if the
conditions specified in one or more exemptions are met, the scope of the relief
provided by the applicable exemption or exemptions might not cover all acts that
might be construed as prohibited transactions.
Prospective Benefit Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of the Exemptions
or any other exemptions, and the potential consequences of any purchase in their
specific circumstances, prior to making an investment in a certificate.
A governmental plan as defined in Section 3(32) of ERISA is not subject to
ERISA or Code Section 4975. However, that governmental plan may be subject to
federal, state or local law which is to a material extent similar to the
provisions of ERISA or Code Section 4975 ("Similar Law"). A fiduciary of a
governmental plan should make its own determination as to the need for and
availability of any exemptive relief under such Similar Law.
LEGAL PROCEEDINGS
None of the depositor, the servicer, the seller or the trust are parties to
any legal proceeding which could have a material adverse impact on your interest
in the certificates or in the trust's assets.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
dated [ ], the depositor has agreed to sell to each of the
underwriters named below and each of those underwriters has severally agreed to
purchase the following respective initial certificate balances of the
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certificates at the respective public offering prices less the respective
underwriting discounts shown on the cover page of this prospectus supplement:
<TABLE>
<CAPTION>
INITIAL CERTIFICATE BALANCE OF INITIAL CERTIFICATE BALANCE OF
UNDERWRITER CLASS A CERTIFICATES CLASS B CERTIFICATES
----------- ------------------------------ ------------------------------
<S> <C> <C>
</TABLE>
In the underwriting agreement, the underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the certificates
being offered, if any of the certificates are purchased. The underwriters have
advised the depositor that they propose initially to offer the certificates to
the public at the respective public offering prices shown on the cover page of
this prospectus supplement, and to certain dealers at that price, less a
concession not in excess of the amount noted in the table below. The
underwriters may allow and the dealers may reallow to other dealers a discount
not in excess of the amount noted in the table below.
<TABLE>
<CAPTION>
SELLING CONCESSION REALLOWANCE
CLASS NOT TO EXCEED NOT TO EXCEED
----- ------------------ -------------
<S> <C> <C>
A
B
</TABLE>
After the initial public offering of the certificates, the offering prices
and other selling terms may be varied by the underwriters.
The following table shows the underwriting fees to be paid to the
underwriters by the depositor in connection with this offering. This
underwriting fee is the difference between the price to public and the amount
the underwriters pay to the depositor to purchase the certificates from the
depositor.
<TABLE>
<CAPTION>
PER CERTIFICATE TOTAL
--------------- --------
<S> <C> <C>
Class A..................................................... % $
Class B..................................................... % $
</TABLE>
The expenses of this offering, exclusive of underwriting commissions, are
estimated at $ and are payable by the depositor.
In connection with the offering of the certificates, [ ], on
behalf of the underwriters, may engage in overallotment, stabilizing
transactions or syndicate covering transactions in accordance with Regulation M
under the Securities Exchange Act of 1934. Overallotment transactions involve
syndicate sales in excess of the offering size creating a syndicate short
position. Stabilizing transactions permit bids to purchase the certificates so
long as the stabilizing bids do not exceed a specified minimum. Syndicate
covering transactions involve purchases of certificates in the open market after
the distribution has been completed in order to cover syndicate short positions.
Such over-allotment transactions, stabilizing and syndicate covering
transactions may cause the price of the certificates to be higher than they
would otherwise be in the absence of those transactions. The underwriters do not
represent that the underwriters will engage in those transactions nor that such
transactions, once commenced, will not be discontinued without notice.
The depositor and some of its affiliates have agreed to indemnify the
underwriters against some liabilities in connection with the sale of
certificates, including liabilities under the Securities Act of 1933, as
amended.
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<PAGE>
The certificates have no established trading market. The underwriters have
advised us that the underwriters intend to make a market in the certificates but
are not obligated to do so and may discontinue market making at any time without
notice. No assurance can be given as to the liquidity of the trading market for
the certificates.
LEGAL MATTERS
Winston & Strawn, Chicago, Illinois, has provided a legal opinion relating
to the certificates in its capacity as special counsel to the depositor and the
servicer. Certain legal matters for the underwriters will be passed upon by
Simpson Thacher & Bartlett. The pooling and servicing agreement and the
certificates will be governed by the laws of the State of New York.
GLOSSARY
AVAILABLE AMOUNTS means, with respect to any distribution date, the sum of
the Available Interest and the Available Principal for such distribution date.
AVAILABLE INTEREST means, with respect to any distribution date, the total,
without duplication, of the following amounts received by the servicer on or in
respect of the contracts during the prior calendar month:
- all amounts allocable to interest payments on the contracts;
- the interest component of all proceeds of repossessed financed vehicles
and other proceeds of Defaulted Contracts;
- the interest component of the purchase price paid by the depositor in
repurchasing contracts from the trust on that distribution date as a
result of a breach of the representations and warranties with respect to
those contracts in the pooling and servicing agreement;
- the interest component of the purchase price paid by the servicer in
purchasing contracts from the trust on that distribution date as a result
of a breach of certain covenants with respect to those contracts in the
pooling and servicing agreement;
- servicer advances made by the servicer on that distribution date in
respect of delinquent interest payments for the prior calendar month;
- the interest component of the amount paid by the seller to purchase the
contracts when the aggregate principal balance of the certificates is
reduced to less than 10% of the aggregate principal balance of the
contracts as of the cut-off date; and
- all amounts received in respect of interest, dividends, gains, income and
earnings on investment of funds in the trust accounts.
AVAILABLE PRINCIPAL means, with respect to any distribution date, the total,
without duplication, of the following amounts received by the servicer on or in
respect of the contracts during the prior calendar month:
- all amounts allocable to principal payments on the contracts;
- the principal component of all proceeds of repossessed financed vehicles
and other proceeds of Defaulted Contracts;
- the principal component of the purchase price paid by the depositor in
repurchasing contracts from the trust on that distribution date as a
result of a breach of the representations and warranties with respect to
those contracts in the pooling and servicing agreement;
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- the principal component of the purchase price paid by the servicer in
purchasing contracts from the trust on that distribution date as a result
of a breach of certain covenants with respect to those contracts in the
pooling and servicing agreement; and
- the principal component of the amount paid by the depositor to purchase
the contracts when the aggregate principal balance of the certificates is
reduced to less than 10% of the aggregate principal balance of the
contracts as of the cut-off date.
CERTIFICATE BALANCE for a particular class initially equals the amount set
forth on the cover page of this prospectus supplement for the related class and,
on any distribution date, will equal that original balance reduced by all
amounts allocable to principal paid on or prior to that distribution date on
that class.
CLASS A PERCENTAGE means the aggregate undivided ownership interest of [ ]%
evidenced by the Class A Certificates.
CLASS A PRINCIPAL CARRYOVER SHORTFALL means, with respect to any
distribution date, the excess, if any, of:
- the Class A Principal Distributable Amount for the preceding distribution
date, over
- the amount of principal that was actually distributed to holders of
Class A Certificates on such preceding distribution date.
CLASS A PRINCIPAL DISTRIBUTABLE AMOUNT with respect to any distribution
date, equals the sum of:
- the product of the Class A Percentage and the Monthly Principal for such
distribution date, plus
- the Class A Principal Carryover Shortfall for such distribution date.
CLASS B PERCENTAGE means the aggregate undivided ownership interest of [ ]%
evidenced by the Class B Certificates.
CLASS B PRINCIPAL CARRYOVER SHORTFALL means, with respect to any
distribution date, the excess, if any, of:
- the Class B Principal Distributable Amount for the preceding distribution
date, over
- the amount of principal that was actually distributed to holders of
Class B Certificates on such preceding distribution date.
CLASS B PRINCIPAL DISTRIBUTABLE AMOUNT with respect to any distribution
date, equals the sum of:
- the product of the Class B Percentage and the Monthly Principal for such
distribution date, plus
- the Class B Principal Carryover Shortfall for such distribution date.
A DEFAULTED CONTRACT will be a contract as to which (a) all or part of a
scheduled payment is 120 days or more than 120 days past due and the servicer
has not repossessed the related financed vehicle or (b) the servicer has, in
accordance with its customary servicing procedures, determined that eventual
payment in full is unlikely and has either repossessed and liquidated the
related financed vehicle or repossessed and held the related financed vehicle in
its repossessed inventory for 90 days, which ever occurs first, or (c) as to
which the obligor has suffered an insolvency event.
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MONTHLY PRINCIPAL means, as to any distribution date, the following amount:
the amount by which:
- the Principal Balance of the contracts as of the first day of the calendar
month prior to the calendar month in which such distribution date occurs
(or, in the case of the first distribution date, the Principal Balance of
the contracts as of the initial cut-off date), exceeds:
- the Principal Balance of the contracts as of the first day of the calendar
month in which the distribution date occurs,
provided, that on the final scheduled distribution date, Monthly Principal will
equal to the aggregate sum of the Class A Certificate Balance and the Class B
Certificate Balance on such date.
PRINCIPAL BALANCE means the aggregate unpaid principal balance of each
contract as of the cut-off date, reduced by all payments received by the
servicer allocable to principal and, if that contract was prepaid in full during
the prior calendar month, all prepayments and other amounts applied by the
servicer as of such date to the payment of principal on that contract.
Any contract that became a Defaulted Contract during that calendar month or
which was a contract which the seller, performance guarantor, servicer or the
depositor was obligated to purchase as of the end of that calendar month will,
for purposes of computing the Principal Balance be deemed to be zero on and
after the last day of that calendar month.
UNITED STATES PERSONS means:
- A citizen or resident of the United States,
- A corporation or partnership organized in or under the laws of the United
States or any political subdivision thereof,
- An estate the income of which is includible in gross income for United
States federal income tax purposes, regardless of its source, or
- A trust, (a) with respect to which a court within the United States is
able to exercise primary supervision over its administration, and one or
more United States fiduciaries have the authority to control all of its
substantial decisions, or (B) otherwise, the income of which is subject to
U.S. federal income tax regardless of its source.
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SUBJECT TO COMPLETION, DATED JULY 8, 2000
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS
DEALER AUTO RECEIVABLES TRUSTS
ASSET-BACKED NOTES
ASSET-BACKED CERTIFICATES
(ISSUABLE IN SERIES)
DEALER AUTO RECEIVABLES CORP.
AS DEPOSITOR
PREMIER AUTO FINANCE, INC.,
AS SERVICER
THE TRUSTS:
The depositor will form a new trust to issue each series of securities. The
trust will offer the securities under this prospectus and a prospectus
supplement which will be prepared separately for each series. Each trust will
own a pool of retail installment contracts for the purchase of new or used
automobiles or light-duty trucks.
THE SECURITIES:
- will consist of asset-backed securities sold periodically in one or more
series which may include one or more classes of notes and/or one or more
classes of certificates;
- will be paid only from the assets of the related trust;
- will be rated in one of the four highest rating categories by at least one
nationally recognized statistical rating organization;
- may have one or more forms of credit enhancement; and
- will be issued as part of a designated series that may include one or more
classes with payment rights that are senior or subordinate to the rights
of one or more of the other classes of securities.
------------------------
YOU SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH UNDER "RISK FACTORS" ON
PAGE 7 OF THIS PROSPECTUS AND THE OTHER RISK FACTORS INCLUDED IN THE
ACCOMPANYING PROSPECTUS SUPPLEMENT.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED THAT
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The amounts, prices and terms of each offering of securities will be
determined at the time of sale and will be described in a prospectus supplement
that will be attached to this prospectus.
This prospectus may not be used to offer and sell any series of securities
unless accompanied by the prospectus supplement for that series.
PROSPECTUS DATED , 2000.
<PAGE>
TABLE OF CONTENTS
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Important Notice About Information Presented in this
Prospectus and the Accompanying Prospectus Supplement..... iv
Prospectus Summary.......................................... 1
Risk Factors................................................ 7
You must rely only upon payments from the trust's assets
for repayment which may not be sufficient to make full
payments on your securities............................. 7
You may experience reduced returns on your investment
resulting from prepayments on the contracts, repurchases
of the contracts, liquidations of defaulted contracts
and early termination of the trust...................... 7
Occurrence of events of default under the indenture may
result in insufficient funds to make payments on your
securities.............................................. 8
Paid-ahead simple interest contracts may affect the
weighted average life of the securities................. 8
The price at which you can resell your securities may
decrease if the ratings of your securities decline...... 9
Subordination may cause some classes of securities to bear
additional credit risk and does not ensure payment of
the more senior classes of securities................... 9
Future delinquency and loss experience of the contracts
may vary substantially from the servicer's historical
experience.............................................. 9
Interests of other persons in the contracts or the
financed vehicles could reduce the funds available to
make payments on your securities........................ 9
Limitations on enforceability of security interests in the
financed vehicles may hinder the trust's ability to
realize the value of the financed vehicles.............. 10
Contracts that fail to comply with consumer protection
laws may be unenforceable, which may result in losses on
your investment......................................... 10
Repurchase obligation of the depositor and the seller
provides you only limited protection against prior liens
on the contracts........................................ 11
Bankruptcy of the obligors may reduce or delay collections
on the contracts, and disposition of the financed
vehicles relating to these or other defaulting obligors
may be delayed or may not result in complete recovery of
amounts due............................................. 11
If bankruptcy court determines that the transfer of
contracts from the originating dealers to the seller or
from the seller to the depositor was not a true sale
then payments on the contracts could be delayed
resulting in losses or delays in payments on your
securities.............................................. 11
If a bankruptcy court decides to consolidate the assets
and liabilities of the depositor and the seller then
payments on the contracts could be delayed resulting in
losses or delays in payments on the securities.......... 12
Proceeds of the sale of contracts may not be sufficient to
pay your securities in full; failure to pay principal on
your securities will not constitute an event of default
until maturity.......................................... 12
Commingling of collections could result in reduced
payments to you......................................... 12
You may not be able to resell your securities............. 12
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If the trust enters into a currency or an interest rate
swap, payments on the securities will be dependent on
payments made under the swap agreement.................. 13
The rating of a swap counterparty may affect the ratings
of the securities....................................... 13
The Depositor............................................... 14
The Trusts.................................................. 14
Use of Proceeds............................................. 16
The Trustee................................................. 16
The Seller and Originating Dealers.......................... 17
Seller.................................................... 17
Originating Dealers....................................... 17
The Servicer................................................ 17
General................................................... 17
Underwriting and Origination.............................. 18
Insurance................................................. 20
Collection Procedures..................................... 20
Repossession.............................................. 20
Extensions................................................ 21
Year 2000................................................. 22
The Performance Guarantor................................... 22
The Contracts............................................... 22
Weighted Average Lives of the Securities.................... 24
Factors and Trading Information............................. 25
Description of the Notes and Indenture...................... 25
General................................................... 25
Payments.................................................. 26
Pro-Rata Pay/Subordinate Notes............................ 26
Variable Funding Note..................................... 26
Optional Purchase of Contracts and Prepayment of Notes.... 26
The Indenture............................................. 27
Description of the Certificates............................. 32
General................................................... 32
Distributions............................................. 32
Pro-Rata Pay/Subordinate Certificates..................... 32
Optional Purchase of Contracts and Prepayment of
Certificates............................................ 33
The Pooling and Servicing Agreement....................... 33
Trust Accounts............................................ 34
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Information Regarding the Securities........................ 34
Interest Rates............................................ 34
Credit and Cash Flow Enhancement.......................... 35
Yield Supplement Account; Yield Supplement Agreement...... 37
Book-Entry Registration................................... 38
Description of the Transfer and Servicing Agreements........ 42
Sale and Assignment of Contracts by Seller................ 42
Transfer of Contracts by Depositor........................ 43
Representations and Warranties Made by the Seller and the
Depositor............................................... 43
Performance Guarantee..................................... 45
Collection Account........................................ 45
Servicing................................................. 46
List of Securityholders................................... 52
Insolvency of Trust....................................... 52
Payment of Notes.......................................... 52
Administration Agreement.................................. 52
Amendment................................................. 52
Legal Aspects of the Contracts.............................. 53
General................................................... 53
Security Interests........................................ 53
Repossession.............................................. 55
Notice of Sale; Redemption Rights......................... 55
Deficiency Judgments and Excess Proceeds.................. 56
Bankruptcy Considerations................................. 56
Consumer Protection Laws.................................. 57
Other Limitations......................................... 58
Material Federal Income Tax Consequences.................... 59
General................................................... 59
Owner Trusts.............................................. 61
Grantor Trusts............................................ 71
FASITs.................................................... 77
ERISA Considerations........................................ 80
Ratings of the Securities................................... 81
Plan of Distribution........................................ 81
Legal Matters............................................... 81
Where You Can Find More Information......................... 82
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IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
We provide information to you about the securities in two separate documents
that offer varying levels of detail:
- this prospectus--which provides general information, some of which may not
apply to a particular series of securities including your series, and
- the accompanying prospectus supplement--which provides a summary of the
specific terms of your series of securities.
We have included cross-references in this prospectus and the accompanying
prospectus supplement to captions in these materials where you can find further
discussions. The table of contents included in this prospectus and the
accompanying prospectus supplement provide the pages on which these captions are
located.
Whenever we use words like "intends," "anticipates" or "expects" or similar
words in this prospectus, we are making a forward-looking statement, or a
projection of what we think will happen in the future. Forward-looking
statements are inherently subject to a variety of circumstances, many of which
are beyond our control and could cause actual results to differ materially from
what we anticipate. Any forward-looking statements in this prospectus speak only
as of the date of this prospectus. We do not assume any responsibility to update
or review any forward-looking statement contained in this prospectus to reflect
any change in our expectation about the subject of that forward-looking
statement or to reflect any change in events, conditions or circumstances on
which we have based any forward-looking statement.
You should rely only on the information contained in this document,
including the information described under the heading "WHERE YOU CAN FIND MORE
INFORMATION" in the prospectus. We have not authorized anyone to provide you
with any different information or make any representation not contained in this
prospectus. If anyone makes such a representation to you, you should not rely on
it.
iv
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PROSPECTUS SUMMARY
The following is only a summary of selected information from the prospectus
and provides a general overview of relevant terms of the securities. It does not
contain all the information that may be important to you. You should read
carefully this entire prospectus and the accompanying prospectus supplement to
understand all of the terms of the offering. In addition, you may wish to read
the documents governing the transfers and servicing of the contracts, the
formation of the trusts and the issuance of the securities. Those documents have
been filed as exhibits to the registration statement of which this prospectus is
a part.
There are material risks associated with an investment in the securities.
See "RISK FACTORS" in this prospectus and in the accompanying prospectus
supplement for a discussion of factors you should consider before investing in
the securities.
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Trust.................................. For each series of securities, the depositor will form
either a grantor trust or an owner trust.
An owner trust will issue notes and/or certificates and
will be formed by a trust agreement between the depositor
and the trustee of the owner trust.
A grantor trust will issue only certificates and will be
formed by a pooling and servicing agreement among the
depositor, the servicer and the trustee of the grantor
trust.
Depositor.............................. Dealer Auto Receivables Corp., a wholly-owned subsidiary
of Premier Auto Finance, Inc., will deposit the contracts
into the trust.
Seller................................. Premier Auto Finance, L.P. will sell the contracts to the
depositor for deposit into the trust.
Originating Dealers.................... Automobile dealers who are, directly or indirectly,
limited partners in the seller. The originating dealers
originate the contracts in accordance with the
underwriting standards set by Premier Auto Finance, Inc.
under dealer agreements governing the assignment of the
contracts to the seller. The seller acquires the contracts
from the originating dealers in the ordinary course of its
business pursuant to the dealer agreements.
Servicer............................... Premier Auto Finance, Inc. will service the contracts
unless otherwise specified in your prospectus supplement.
Performance Guarantor.................. Virginia Surety Company, Inc. will guarantee the
performance of the seller's obligations under the purchase
agreement relating to breaches of representations and
warranties regarding the contracts. See "THE PERFORMANCE
GUARANTOR" in this prospectus.
Trustee................................ The trustee of the trust for your series of securities
will be identified in your prospectus supplement.
Indenture Trustee...................... If the trust issues notes, the trustee for the indenture
pursuant to which the notes will be issued will be
identified in your prospectus supplement.
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Administrator.......................... Premier Auto Finance, Inc. will provide notices and
perform other administrative functions of each trust
issuing notes under an indenture.
The Securities......................... A series of securities may include:
- one or more of classes of notes which will be issued
pursuant to an indenture; and/or
- one or more classes of certificates, whether or not
a class of notes is issued as part of the series.
Terms of the Securities................ Your prospectus supplement provides the particular terms
of your class of notes and/or certificates, including:
- the stated principal amount of each class of notes
and the stated certificate balance of each class of
certificates; and
- the interest rate, which may be fixed, variable,
adjustable or some combination of these rates, or
method of determining the interest rate.
The terms of a class of notes may differ from those of
other classes of notes of the same series and the terms of
a class of certificates may differ from those of other
classes of certificates of the same series in one or more
aspects, including:
- timing and priority of payments;
- seniority;
- allocations of losses;
- interest rate or formula for calculating the
interest rate;
- amount of interest or principal payments;
- whether interest or principal will be payable to
holders of the class if specified events occur;
- the right to receive collections from designated
portions of the contracts owned by the trust;
- scheduled final payment date; and
- the ability of holders of a class to direct the
trustee to take specified remedies.
Trust Assets........................... The property of each trust will primarily be a pool of
contracts secured by new and used automobiles and
light-duty trucks and amounts due or collected under the
contracts on or after a cut-off date specified in your
prospectus supplement and will include related assets
including:
- security interests in the financed vehicles;
- proceeds from claims on insurance policies covering
the financed vehicles or the obligors;
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- certain rebates of premiums and other amounts
relating to insurance policies and other items
financed under the contracts;
- the rights of the depositor in the agreements
identified in your prospectus supplement;
- amounts deposited in bank accounts specified in your
prospectus supplement; and
- proceeds from liquidated assets, including
repossessed vehicles.
The Contracts.......................... All of the contracts will be retail installment contracts
originated directly by the seller or purchased by the
seller from the originating dealers or other entities that
finance the retail purchase of new and used automobiles
and light-duty trucks.
Your prospectus supplement provides information about:
- the initial aggregate principal balance of the
contracts transferred to the trust;
- the number of contracts;
- the average contract principal balance;
- the geographical distribution of the contracts;
- the distribution of the contracts by annual
percentage rate;
- the remaining term of the contracts;
- the weighted average remaining term of the
contracts; and
- the weighted average annual percentage rate on the
contracts.
Mandatory Purchase or Replacement of a
Contract............................. The depositor will make representations and warranties
regarding the contracts when it transfers the contracts to
the trust, and the seller will make representations and
warranties regarding the contracts when it sells the
contracts to the depositor. In the event of an uncured
breach of any of these representations that materially and
adversely affects the trust's or securityholders' interest
in the contract or the collectibility of the contract, the
depositor will be obligated to repurchase the contract
from the trust and the seller will be obligated to
repurchase the contract from the depositor. See
"DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--REPRESENTATIONS AND WARRANTIES MADE BY THE
SELLER AND THE DEPOSITOR" in this prospectus and "WEIGHTED
AVERAGE LIVES OF THE SECURITIES" in your prospectus
supplement.
Credit And Cash Flow Enhancement....... The depositor may arrange for protection from losses to
one or more classes of the securities. Credit enhancement
may include:
- a cash collateral account;
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- a financial guaranty insurance policy;
- subordination of one or more other classes of
securities;
- one or more reserve funds;
- over-collateralization;
- letters of credit or other credit or liquidity
facilities;
- surety bonds;
- guaranteed investment contracts;
- repurchase obligations;
- cash deposits;
- third party payments or other support; or
- other arrangements which may become suitable in
light of credit enhancement practices or
developments in the future.
In addition, the depositor may develop and include in the
trusts features designed to ensure the timely payment of
amounts owed to you. These cash flow enhancement features
may include any one or more of the following:
- yield supplement agreements;
- liquidity facilities;
- cash deposits;
- third party payments or other support; or
- other arrangements which may become suitable in
light of cash flow enhancement practices or
developments in the future.
Your prospectus supplement will describe the specific
terms of any credit or cash flow enhancement applicable to
your securities.
Servicing; Servicing Fee............... The servicer will be responsible for servicing, managing
and administering the contracts and financed vehicles, and
maintaining custody of, enforcing and making collections
on the contracts.
The trust will pay the servicer a monthly fee equal to a
percentage of the aggregate principal balance of the
contracts as of the last day of the second calendar month
preceding the month in which that payment date falls. The
fee will be payable out of amounts received on the
contracts.
The servicer will also receive additional servicing
compensation in the form of investment earnings on certain
bank accounts of the trust and late fees, prepayment fees
and other administrative fees and expenses or similar
charges received in respect of the contracts by the
servicer during that month. See "DESCRIPTION OF
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THE TRANSFER AND SERVICING
AGREEMENTS--SERVICING--SERVICING COMPENSATION AND PAYMENT
OF EXPENSES" in this prospectus.
Advances............................... The servicer may be obligated to advance interest that is
due but unpaid by the obligor. In addition, the servicer
may be obligated to advance principal of any contracts
that are classified as "PRECOMPUTED CONTRACTS" rather than
as "SIMPLE INTEREST CONTRACTS". You should refer to "THE
CONTRACTS" for a description of precomputed contracts and
simple interest contracts. The servicer will not be
obligated to make any advance if it determines that it
will not be able to recover an advance from an obligor.
The trust will reimburse the servicer for the advances it
has made from late collections on the contracts for which
it has made advances or from collections generally if the
servicer determines that a contract as to which it has
made an advance is a defaulted contract.
Your prospectus supplement will describe the nature of the
servicer's obligation to make advances to the trust and
the reimbursement of those advances.
You should refer to "DESCRIPTION OF THE TRANSFER AND
SERVICING AGREEMENTS--SERVICING--ADVANCES" in this
prospectus for more detailed information on advances and
reimbursement of advances.
Optional Purchase of Contracts......... Once the aggregate principal balance of the securities is
equal to or less than 10% of the initial aggregate
principal balance of the contracts, the seller, at its
option, may repurchase all of the contracts held by the
trust. Upon such a purchase, the securities of that trust
will be prepaid in full. See "DESCRIPTION OF THE NOTES AND
INDENTURE--OPTIONAL PURCHASE OF CONTRACTS AND PREPAYMENT
OF NOTES" and "DESCRIPTION OF THE CERTIFICATES--OPTIONAL
PURCHASE OF CONTRACTS AND PREPAYMENT OF CERTIFICATES" in
this prospectus.
TAX STATUS:
Grantor Trusts......................... If your prospectus supplement specifies that the related
trust will be treated as a "grantor trust," Winston &
Strawn, as counsel to the trust, will deliver an opinion
that:
- the trust will be treated as a grantor trust for
federal income tax purposes and not as an
"ASSOCIATION" or "PUBLICLY-TRADED PARTNERSHIP"
taxable as a corporation; and
- each certificateholder will be treated as the owner
of a pro rata undivided interest in the income and
assets of the trust.
Owner Trusts........................... If your prospectus supplement specifies that the related
trust will be treated as an "owner trust":
1. Winston & Strawn will deliver an opinion that:
- the notes will be characterized as debt for federal
income tax purposes; and
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- the owner trust will not be characterized as an
"ASSOCIATION" or "PUBLICLY-TRADED PARTNERSHIP"
taxable as a corporation;
2. by purchasing a note, you will agree to treat your note
as debt for federal, state and local income tax
purposes; and
3. by purchasing a certificate, you will agree to treat
the owner trust as a partnership in which you are a
partner for federal, state and local income tax
purposes.
You should refer to "MATERIAL FEDERAL INCOME TAX
CONSEQUENCES" in this prospectus and your prospectus
supplement for more detailed information on the
application of federal income tax laws and consult your
tax advisor about the federal income tax consequences of
purchasing, owning and disposing of notes and/ or
certificates, and the tax consequences in any state or
other taxing jurisdiction.
FASITs................................. If your prospectus supplement specifies that an election
will be made for the trust to be treated as a "financial
asset securitization investment trust," or FASIT, Winston
& Strawn will deliver an opinion that, assuming timely
filing of a FASIT election and compliance with the terms
of the governing documents, the trust, or one or more
segregated pools of trust assets, will qualify as one or
more FASITs.
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RISK FACTORS
The following risk factors and the risk factors in your prospectus
supplement describe the principal risk factors relating to an investment in the
securities. You should carefully consider the following risk factors and the
additional risk factors described in the section captioned "RISK FACTORS" in
your prospectus supplement before you invest in any class of securities.
YOU MUST RELY ONLY UPON PAYMENTS FROM THE TRUST'S ASSETS FOR REPAYMENT WHICH MAY
NOT BE SUFFICIENT TO MAKE FULL PAYMENTS ON YOUR SECURITIES
The securities represent interests solely in the trust or indebtedness of
the trust and will not be insured or guaranteed by the originating dealers, the
seller, the performance guarantor, the servicer, the depositor, or any of their
respective affiliates, or the related trustee or any other person or entity. The
only source of payment on your securities are payments received on the contracts
held by the trust and credit enhancement, if any, for your securities. If a
contract held by the trust becomes a defaulted contract, the only sources of
payment for amounts owed on that contract will be the proceeds from the sale of
the related financed vehicle and a deficiency judgment, if any, against the
obligor under the defaulted contract. Since the market value of the financed
vehicle may decline faster than the amounts due on the contract, the trust may
not recover the entire amount due on the contract. Your prospectus supplement
may describe some forms of credit enhancement which are intended to make up for
deficiencies in the proceeds and recoveries on the contracts. However, this
protection is limited and if the credit enhancement is exhausted, you will be
paid solely from current distributions on the contracts.
YOU MAY EXPERIENCE REDUCED RETURNS ON YOUR INVESTMENT RESULTING FROM PREPAYMENTS
ON THE CONTRACTS, REPURCHASES OF THE CONTRACTS, LIQUIDATIONS OF DEFAULTED
CONTRACTS AND EARLY TERMINATION OF THE TRUST
A higher than anticipated level of prepayments of the contracts or
liquidations of defaulted contracts may cause a trust to pay principal on your
securities sooner than you expected. Also, a trust may pay principal on your
securities sooner than you expected if the depositor or servicer repurchase
contracts from the trust. You may not be able to reinvest the principal paid to
you at yields that are equivalent to the yields on your securities; therefore,
the ultimate return you receive on your investment in the securities may be less
than the return you expected on the securities.
The contracts included in the trust may be prepaid, in full or in part,
voluntarily or as a result of defaults, theft of or damage to the related
vehicles or for other reasons. The depositor will be required to repurchase a
contract from the trust if a breach of its representations and warranties
relating to that contract materially and adversely affects the trust's or the
securityholders' interest in the contract or the collectibility of the contract.
In that event, the seller, or the performance guarantor in the event of the
seller's nonperformance, will be obligated to repurchase the contract from the
depositor. In addition, the servicer will be required to purchase contracts from
the trust if it breaches certain covenants with respect to those contracts. The
seller may purchase all remaining contracts from the trust when the outstanding
aggregate principal balance of the securities is 10% or less of the initial
aggregate principal balance of the contracts as of the related cut-off date.
The depositor cannot fully predict the extent to which prepayments on the
contracts by the related obligors will shorten the life of the securities. The
rate of prepayments on the contracts may be influenced by a variety of economic,
social and other factors including:
- changes in customer requirements;
- the level of interest rates;
- the level of casualty losses; and
- the overall economic environment.
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The depositor cannot assure you that prepayments on the contracts held by
the trust will conform to any historical experience. The depositor cannot
predict the actual rates of prepayments which will be experienced on the
contracts. However, your prospectus supplement may present information as to the
principal balances of the securities remaining on each payment date under
several hypothetical prepayment rates. You will bear all reinvestment risk
resulting from prepayments on the contracts and the corresponding acceleration
of payments on the securities. See "WEIGHTED AVERAGE LIVES OF THE SECURITIES" in
your prospectus supplement.
We expect that the final payment of each class of securities will occur
prior to its scheduled final payment date because of the prepayment and purchase
considerations described above. If sufficient funds are not available to pay any
class of notes in full on its scheduled final payment date, an event of default
will occur under the related indenture and final payment of that class of notes
will occur later than that date.
OCCURRENCE OF EVENTS OF DEFAULT UNDER THE INDENTURE MAY RESULT IN INSUFFICIENT
FUNDS TO MAKE PAYMENTS ON YOUR SECURITIES
If a trust fails to pay principal of any class of notes on its final
scheduled payment date, or fails to pay interest on any notes within five days
of the due date, the indenture trustee or the holders of more than 50% of the
aggregate amount of notes or the class or the classes of notes described in your
prospectus supplement may declare the entire amount of the notes to be due
immediately. If this happens, the holders of more than 50% of the aggregate
amount of notes or the class or classes of notes described in your prospectus
supplement may direct the indenture trustee to sell the contracts and prepay the
notes. In such event, there may not be sufficient funds to pay all of the
classes of securities in full.
PAID-AHEAD SIMPLE INTEREST CONTRACTS MAY AFFECT THE WEIGHTED AVERAGE LIFE OF THE
SECURITIES
If an obligor on a simple interest contract makes a payment on the contract
ahead of schedule, the weighted average life of the securities could be
affected. This is because the additional scheduled payments will be treated as a
principal prepayment and applied to reduce the principal balance of the related
contract. Obligors are generally not required to make any scheduled payments
during the period for which it was paid-ahead. During this period, interest will
continue to accrue on the contract principal balance, but the contract would not
be considered delinquent. Although the servicer may be required to make interest
advances during this paid-ahead period, the servicer will not be required to
make principal advances. Furthermore, when the obligor resumes the required
payments, they may be insufficient to cover the interest that has accrued since
the last payment by that obligor. This situation will continue until the
regularly scheduled payments are once again sufficient to cover all accrued
interest and to reduce the principal balance of the contract.
Generally paid-ahead payments shorten the weighted average lives of the
securities when the paid-ahead amount is applied to the payment of principal on
the securities; however, in certain circumstances the weighted average lives of
the securities may be extended. In addition, liquidation proceeds will be
applied first to reimburse any advances made by the servicer, therefore, to the
extent the servicer makes advances on a paid-ahead simple interest contract
which subsequently goes into default, the loss on this contract may be larger
than would have been the case had advances not been made.
The seller's portfolio of contracts has historically included simple
interest contracts which have been paid-ahead by one or more scheduled monthly
payments. We cannot predict the number of contracts which may become paid-ahead
simple interest contracts or the amount of scheduled payments which may be paid
ahead.
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THE PRICE AT WHICH YOU CAN RESELL YOUR SECURITIES MAY DECREASE IF THE RATINGS OF
YOUR SECURITIES DECLINE
At the initial issuance of the securities of a trust, at least one
nationally recognized statistical rating organization will rate the securities
of the trust in one of the four highest rating categories A security rating is
not a recommendation to buy, sell or hold the securities. A rating will reflect
the rating agency's assessment of the likelihood that the holders of the
securities will receive the payments of interest on the securities on each
payment date and the payment of principal on the final scheduled payment date.
Similar ratings on different types of securities do not necessarily mean the
same thing. You should analyze the significance of each rating independently
from any other rating. At any time, these rating agencies may lower their
respective ratings of the securities or withdraw their ratings entirely. If a
rating assigned to any security is lowered or withdrawn for any reason, you may
not be able to resell your securities or you may be able to resell them only at
a substantial discount. For more detailed information regarding the ratings
assigned to the securities, see "RATINGS OF THE SECURITIES" in this prospectus
and "RATINGS OF THE SECURITIES" or "RATINGS OF THE CERTIFICATES" in your
prospectus supplement.
SUBORDINATION MAY CAUSE SOME CLASSES OF SECURITIES TO BEAR ADDITIONAL CREDIT
RISK AND DOES NOT ENSURE PAYMENT OF THE MORE SENIOR CLASSES OF SECURITIES
A trust may pay interest and principal on some classes of securities prior
to paying interest and principal on other classes of securities. The
subordination of some classes of securities to others means that the
subordinated classes of securities are more likely to suffer the consequences of
delinquent payments and defaults on the contracts than the more senior classes
of securities.
The more senior classes of securities could lose the credit enhancement
provided by the more subordinate classes if delinquencies and defaults on the
contracts increase and if the collections on the contracts and any credit
enhancement described in your prospectus supplement are insufficient to pay even
the more senior classes of securities.
Your prospectus supplement will describe any subordination provisions
applicable to your securities.
FUTURE DELINQUENCY AND LOSS EXPERIENCE OF THE CONTRACTS MAY VARY SUBSTANTIALLY
FROM THE SERVICER'S HISTORICAL EXPERIENCE
We will present the historical delinquency and loss experience of the
portfolio of contracts originated directly or purchased by the seller and
serviced by the servicer in your prospectus supplement. However, the actual
results for the contracts transferred to your trust could be substantially
worse. If so, you may not receive interest and principal payments on your
securities in the amounts and at the times you expect.
INTERESTS OF OTHER PERSONS IN THE CONTRACTS OR THE FINANCED VEHICLES COULD
REDUCE THE FUNDS AVAILABLE TO MAKE PAYMENTS ON YOUR SECURITIES
Another person could acquire an interest in a contract that is superior to
that of the trust because the servicer will retain possession of the contracts
and the contracts will not be segregated or marked as belonging to the trust. If
a person purchases contracts, or takes a security interest therein, for value in
the ordinary course of its business and obtains possession of the contracts
without actual knowledge of the trust's interest, that person will acquire an
interest in the contracts superior to the interest of the trust and some or all
of the collections on the contracts may be not available to make payments on the
securities.
Another person could acquire an interest in a financed vehicle that is
superior to that of the trust because of the failure to identify the trust as
the secured party on the related certificate of title. The
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seller will assign its security interests in the financed vehicles to the
depositor, and the depositor will assign its security interests in the financed
vehicles to the trust. The seller's assignment to the depositor, and the
depositor's subsequent assignment to the trust, are subject to state vehicle
registration laws. These registration laws require that the secured party's name
appear on the certificate or similar registration of title in order for the
secured party's security interest to be perfected. To facilitate servicing and
reduce administrative costs, the servicer will continue to hold the certificates
of title or ownership for the vehicles and will not endorse or otherwise amend
the certificates of title or ownership to identify the trust as the new secured
party. As a result, the trust may not have a perfected security interest in the
financed vehicles in certain states because the certificates or similar
registrations of title will not be amended to reflect the assignment of the
security interests in the financed vehicles to the trust. In addition, because
the trust will not be identified as the secured party on any certificate of
title or similar registration of title, the security interest of the trust in
the vehicles may be defeated through fraud, forgery, negligence or error.
The holders of some types of liens, such as tax liens or mechanics liens,
may have priority over the trust's security interest in the financed vehicles.
The trust may lose its security interest in a financed vehicle confiscated by
the government.
In the event that the trust must rely upon repossession and sale of the
financed vehicle securing a defaulted contract to recover amounts due on the
defaulted contract, the trust's ability to realize upon the financed vehicle
would be limited by the failure to have a perfected security interest in the
related financed vehicle or the existence of a senior security interest in the
related financed vehicle. In this event, you may be subject to delays in payment
and may incur losses on your investment in the securities as a result of
defaults or delinquencies by obligors. See "LEGAL ASPECTS OF THE CONTRACTS--
SECURITY INTERESTS" in this prospectus.
LIMITATIONS ON ENFORCEABILITY OF SECURITY INTERESTS IN THE FINANCED VEHICLES MAY
HINDER THE TRUST'S ABILITY TO REALIZE THE VALUE OF THE FINANCED VEHICLES
State law limitations on the enforceability of security interests and the
manner in which a secured party may dispose of collateral may limit the trust's
ability to obtain or dispose of collateral in a timely fashion. This could
reduce or delay the availability of funds to make payments on your securities.
Under these state law limitations:
- some jurisdictions require that the obligor be notified of the default and
be given a period of time within which it may cure the default prior to or
after repossession; and
- the obligor may have the right to redeem collateral for its obligations
prior to or after the actual sale by paying the secured party the unpaid
balance of the obligation plus the secured party's expenses for
repossessing, holding and preparing the collateral for disposition.
CONTRACTS THAT FAIL TO COMPLY WITH CONSUMER PROTECTION LAWS MAY BE
UNENFORCEABLE, WHICH MAY RESULT IN LOSSES ON YOUR INVESTMENT
The contracts are consumer contracts subject to many federal and state
consumer protection laws. If any of the contracts do not comply with one or more
of these laws, the servicer may be prevented from or delayed in collecting
amounts due on the contracts. If that happens, payments on the securities could
be delayed or reduced. See "LEGAL ASPECTS OF THE CONTRACTS--CONSUMER PROTECTION
LAWS" in this prospectus.
Each of the depositor and seller will make representations and warranties
relating to the contracts' compliance with these laws and the enforceability of
the contracts. If those representations and warranties are not true as to any
contract and the breach materially and adversely affects the trust's or the
securityholders' interest in the contract or the collectibility of the contract,
the depositor will be
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obligated to repurchase the contract from the trust and the seller, or the
performance guarantor in the event of the seller's nonperformance, will be
required to repurchase the contract from the depositor. There can be no
assurance that the depositor, the seller or the performance guarantor will be
able to repurchase a contract at the time when it is asked to do so.
REPURCHASE OBLIGATION OF THE DEPOSITOR AND THE SELLER PROVIDES YOU ONLY LIMITED
PROTECTION AGAINST PRIOR LIENS ON THE CONTRACTS
Federal or state law may grant liens on contracts that have priority over
the trust's interest. If the creditor associated with any prior lien on a
contract exercises its remedies, the cash proceeds from the contract and related
financed vehicle available to the trust will be reduced. In that event, there
may be a delay or reduction in distributions to you. An example of a lien
arising under federal or state law is a tax lien on property of the seller or
depositor arising prior to the time a contract is conveyed to the trust. Such a
tax lien would have priority over the interest of the trust in the contracts.
The seller will warrant to the depositor, and the depositor will warrant to
the trust, that there are no prior liens on the contracts. In addition, the
seller will warrant to the depositor, and the depositor will warrant to the
trust, that it will not grant any lien on the contracts. If those warranties are
not true as to any contract and the breach materially and adversely affects the
trust's or the securityholders' interest in the contract or the collectibility
of the contract, the depositor will be obligated to repurchase the contract from
the trust and the seller, or the performance guarantor in the event of the
seller's nonperformance, will be required to repurchase the contract from the
depositor. There can be no assurance that the depositor, the seller or the
performance guarantor will be able to repurchase a contract at the time when it
is asked to do so.
BANKRUPTCY OF THE OBLIGORS MAY REDUCE OR DELAY COLLECTIONS ON THE CONTRACTS AND
DISPOSITION OF THE FINANCED VEHICLES RELATING TO THESE OR OTHER DEFAULTING
OBLIGORS MAY BE DELAYED OR MAY NOT RESULT IN COMPLETE RECOVERY OF AMOUNTS DUE
Bankruptcy and insolvency laws affect the risk of loss on the contracts of
obligors who become subject to bankruptcy proceedings. Those laws could result
in the write-off of contracts of bankrupt obligors or result in delay in
payments due on the contracts. For example, if the obligor becomes bankrupt or
insolvent, the trust may need the permission of a bankruptcy court to obtain and
sell its collateral. As a result, you may be subject to delays in receiving
payments, and you may also suffer losses if available credit enhancement for the
securities is insufficient.
IF A BANKRUPTCY COURT DETERMINES THAT THE TRANSFER OF CONTRACTS FROM THE
ORIGINATING DEALERS TO THE SELLER OR FROM THE SELLER TO THE DEPOSITOR WAS NOT
A TRUE SALE THEN PAYMENTS ON THE CONTRACTS COULD BE DELAYED RESULTING IN
LOSSES OR DELAYS IN PAYMENTS ON YOUR SECURITIES
If an originating dealer or the seller became a debtor in a bankruptcy case,
creditors of that party, or that party acting as debtor-in-possession, may
assert that the transfer of the contracts was ineffective to remove the
contracts from that party's estate. In that case, the distribution of payments
on the contracts to the trust might be subject to the automatic stay provisions
of the United States bankruptcy code. This would delay the distribution of those
payments to you for an uncertain period of time. Furthermore, reductions in
payments under the contracts to the trust may result if the bankruptcy court
rules in favor of the creditors or the debtor-in-possession. In either case, you
may experience delays or reductions in distributions or payments to you. In
addition, a bankruptcy trustee would have the power to sell the contracts if the
proceeds of the sale could satisfy the amount of the debt deemed owed by the
originating dealer or the seller, as the case may be. The bankruptcy trustee
could also substitute other collateral in lieu of the contracts to secure the
debt. Additionally, the bankruptcy court could adjust the debt if the
originating dealer or the seller were to file for reorganization under Chapter
11 of the bankruptcy code. Any of these actions could result in losses or delays
in payments on your
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securities. Each of these parties will represent and warrant that the conveyance
of the contracts by it is in each case a valid sale and transfer of the
contracts. See "LEGAL ASPECTS OF THE CONTRACTS--BANKRUPTCY CONSIDERATIONS."
IF A BANKRUPTCY COURT DECIDES TO CONSOLIDATE THE ASSETS AND LIABILITIES OF THE
DEPOSITOR AND THE SERVICER OR THE SELLER THEN PAYMENTS ON THE CONTRACTS COULD
BE DELAYED RESULTING IN LOSSES OR DELAYS IN PAYMENTS ON THE SECURITIES
If the servicer or the seller became a debtor in a bankruptcy case, the
servicer or the seller, as the case may be, or a creditor or party acting as
debtor-in-possession of the servicer or the seller could request a bankruptcy
court to order that the assets and liabilities of the servicer or the seller, as
the case may be, be substantially consolidated with the depositor's assets and
liabilities. If the bankruptcy court did consolidate the assets and liabilities
of the servicer or the seller and depositor, delays and possible reductions in
the amounts of distributions on the securities could occur. See "LEGAL ASPECTS
OF THE CONTRACTS--BANKRUPTCY CONSIDERATIONS."
PROCEEDS OF THE SALE OF CONTRACTS MAY NOT BE SUFFICIENT TO PAY YOUR SECURITIES
IN FULL; FAILURE TO PAY PRINCIPAL ON YOUR SECURITIES WILL NOT CONSTITUTE AN
EVENT OF DEFAULT UNTIL MATURITY
If so directed by the holders of the requisite percentage of outstanding
notes of a series issued by a trust following an acceleration of the notes upon
an event of default, the indenture trustee will sell the contracts owned by the
trust in certain circumstances. However, there is no assurance that the market
value of those contracts will at any time be equal to or greater than the
aggregate principal amount of the notes or the sum of the aggregate principal
amount of the notes and the aggregate principal balance of the certificates.
Therefore, upon a sale of the contracts, there can be no assurance that
sufficient funds will be available to repay your securities in full. In
addition, the amount of principal required to be paid to you on each payment
date will generally be limited to amounts available in the collection account
and the reserve fund, if any. The failure to pay principal of your securities
generally will not result in the occurrence of an event of default until the
final scheduled payment date for your securities. See "DESCRIPTION OF THE NOTES
AND INDENTURE--THE INDENTURE--EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT"
in this prospectus.
COMMINGLING OF COLLECTIONS COULD RESULT IN REDUCED PAYMENTS TO YOU
If permitted by the rating agencies rating the securities, the servicer may
hold collections it receives from the obligors on the contracts with its own
funds until the day prior to the next date on which distributions will be made
on the securities. If the servicer does not pay these amounts to the trust when
required to do so, the trust may be unable to make the payments owed on your
securities. In the event the servicer becomes a debtor in a bankruptcy case, the
trust may not have a perfected security interest in these collections. In that
case, you may suffer losses on your investment.
YOU MAY NOT BE ABLE TO RESELL YOUR SECURITIES
There is currently no public market for the securities and we cannot assure
you that one will develop. Thus, you may not be able to resell your securities
at all, or may be able to do so only at a substantial discount. The underwriters
may assist in resales of the securities but they are not obligated to do so. We
cannot predict whether there will be a secondary market for these types of
securities or if one develops, how liquid it would be.
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IF THE TRUST ENTERS INTO A CURRENCY OR AN INTEREST RATE SWAP, PAYMENTS ON THE
SECURITIES WILL BE DEPENDENT ON PAYMENTS MADE UNDER THE SWAP AGREEMENT
If the trust enters into a swap agreement, its ability to protect itself
from shortfalls in cash flow caused by currency or interest rate changes will
depend to a large extent on the terms of the swap agreement, whether the swap
agreement is legally enforceable and whether the swap counterparty performs its
obligations under the swap. If the trust does not receive the payments it
expects from the swap, the trust may not have adequate funds to make all
payments owed on your securities when due, if ever.
THE RATING OF A SWAP COUNTERPARTY MAY AFFECT THE RATINGS OF THE SECURITIES
If a trust enters into a swap, the rating agencies that rate the trust's
securities will consider the provisions of the swap agreement and the rating of
the swap counterparty. If a rating agency downgrades the debt rating of the swap
counterparty, it may downgrade the rating of the securities. In such an event,
you may not be able to resell your securities or you may be able to resell them
only at a substantial discount.
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THE DEPOSITOR
The depositor is Dealer Auto Receivables Corp., a corporation organized
under the laws of the State of Delaware in February 2000. Premier Auto
Finance, Inc. owns all of the depositor's issued and outstanding stock. The
principal executive offices of the depositor are located at 230 West Monroe
Street, Chicago, Illinois 60606 (telephone number (312) 456-1250).
Premier Auto Finance, Inc. formed the depositor, solely for the transactions
described in this prospectus and other similar transactions. Under the
depositor's certificate of incorporation, the depositor is permitted to engage
only in the following activities:
- acquiring contracts, interests in pools of contracts and the interests of
the seller in financed vehicles and other related property;
- transferring and conveying the contracts and security interests in the
related financed vehicles to the trusts;
- issuing and selling notes, certificates or other securities secured by or
representing interests in pools of contracts and related property;
- executing and performing obligations under the relevant agreements
regarding the formation of the trusts and the transfer and servicing of
the pools of contracts and related property;
- holding or transferring securities issued by the trusts;
- investing proceeds from the sale of securities; and
- engaging in other transactions, including entering into agreements that
are necessary, suitable or convenient to accomplish the foregoing or are
incidental or connected to the foregoing.
The depositor is prohibited from incurring any debt, issuing any obligations
or incurring any liabilities, except in connection with the formation of any
trust and the issuance of the related series of securities issued by the trust.
The depositor is not responsible for payment of any principal, interest or any
other amount in respect of any series of securities.
THE TRUSTS
The depositor will establish each trust pursuant to a trust agreement or a
pooling and servicing agreement for the transactions described in this
prospectus. Each trust will be a common law trust or a statutory business trust.
Each trust may issue one or more classes of securities, representing debt of or
beneficial ownership interests in the trust.
On or before the date of the initial issuance of any securities by a trust,
the seller will sell the pool of contracts and the related property to the
depositor pursuant to a purchase agreement and the depositor will transfer the
pool of contracts and the related property to the trust in exchange for the
securities issued by the trust pursuant to a sale and servicing agreement or a
pooling and servicing agreement.
To the extent provided in the prospectus supplement, the depositor may
convey additional contracts to the trust after the closing date as frequently as
daily during a funding period, not to exceed 90 days, specified in the
prospectus supplement. A trust will purchase any contracts subsequently added to
the trust with amounts deposited in a pre-funding account on the closing date.
Any subsequent contracts will be required to conform to the requirements
described in the applicable prospectus supplement. Any subsequent contracts will
also be assets of trust. Any funds remaining on deposit in a pre-funding account
at the end of the funding period will be used to make a payment or distribution
of principal on the securities issued by the trust.
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To the extent provided in the prospectus supplement, all or a portion of the
principal collected on the contracts may be applied by the trustee to the
acquisition of subsequent contracts during a period specified in the prospectus
supplement rather than used to make or distribute payments of principal to
securityholders during that period. These securities would then possess an
interest only period, also commonly referred to as a "REVOLVING PERIOD", which
will be followed by an "AMORTIZATION PERIOD", during which principal will be
paid. Any interest only or revolving period may terminate prior to the end of
the specified period and result in the earlier than expected principal repayment
of the securities.
The property of each trust, as further specified in your prospectus
supplement, will consist of:
- the contracts and the right to receive all scheduled payments and
prepayments received on the contracts on or after the cut-off date, but
excluding any scheduled payments due on or after, but received prior to,
the cut-off date;
- amounts that may be held in separate trust accounts maintained by the
trustee or the indenture trustee for the trust, including any reserve fund
or yield supplement account;
- security interests in the financed vehicles securing the contracts and any
related property;
- rights with respect to any repossessed financed vehicles;
- the rights to proceeds from claims on theft, physical damage, credit life
and disability insurance policies covering the financed vehicles or the
obligors;
- the seller's rights against the originating dealers under the dealer
agreements and against other third parties under the agreements pursuant
to which the seller purchased the contracts;
- certain rebates of premiums and other amounts relating to insurance
policies, extended service contracts or other repair agreements and other
items financed under the contracts;
- the depositor's rights against the seller under the purchase agreement
pursuant to which the seller sold the pool of contracts to the depositor
and against the performance guarantor under the performance guarantee
pursuant to which the performance guarantor guaranteed the seller's
obligations under the purchase agreement;
- the right to receive payments from the depositor obligated to repurchase
contracts which do not meet specified representations made by depositor in
the sale and servicing agreement or the pooling and servicing agreement;
- the trust's rights against the servicer under the transfer and servicing
agreements;
- credit or cash flow enhancement for the securities specified in the
applicable prospectus supplement; and
- all proceeds of the foregoing.
The property of a trust may also include a derivative arrangement for any
series or any class of securities. A derivative arrangement may include a
guaranteed rate agreement, a maturity liquidity facility, a tax protection
agreement, an interest rate cap or floor agreement, an interest rate or currency
swap agreement or any other similar arrangement. If the property of the trust
issuing your securities includes any of these types of assets, additional
information concerning them will be provided to you in your prospectus
supplement.
If the trust issues notes, the trust will pledge its assets to the indenture
trustee for the benefit of the noteholders to secure its obligations under the
notes.
No trust will engage in any business activity other than:
- issuing notes and/or ownership interests in the trust;
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- purchasing contracts, security interests in the related financed vehicles
and related property;
- holding and dealing with assets of the trust;
- making payments on the securities it issued;
- entering into and performing the duties, responsibilities and functions
required under any of the related pooling and servicing agreement, sale
and servicing agreement, indenture, contracts and related documents, as
the case may be; and
- matters incidental to the foregoing.
The assets of a trust will be separate from the assets of all other trusts
created by the depositor. Accordingly, the assets of one trust will not be
available to make payments on the securities issued by any other trust.
USE OF PROCEEDS
The proceeds from the sale of the securities of each trust, after funding a
portion of the cash collateral account or other form of credit enhancement and
paying the expenses of the depositor, will be used by the depositor to pay the
purchase price due to Premier Auto Finance, L.P., as seller pursuant to the
purchase agreement.
THE TRUSTEE
The depositor will specify the trustee for each trust and, if the trust is
issuing notes, the indenture trustee under the indenture in the applicable
prospectus supplement. The trustee's or the indenture trustee's liability in
connection with the issuance and sale of the related securities is limited
solely to the express obligations set forth in the related trust agreement,
pooling and servicing agreement, sale or servicing agreement or indenture, as
applicable. A trustee may resign at any time, in which event, the depositor will
be obligated to appoint a successor. An indenture trustee may resign at any
time, in which event, the trust or the administrator, on the trust's behalf,
will be obligated to appoint a successor. A trustee that becomes insolvent or
otherwise ceases to be eligible to continue in that capacity under the related
pooling and servicing agreement or trust agreement may be removed by the
depositor. An indenture trustee that becomes insolvent or otherwise ceases to be
eligible to continue in its capacity under the indenture may be removed by the
trust or the administrator, on the trust's behalf. In those circumstances, the
servicer or the administrator, as the case may be, will be obligated to appoint
a successor. Any resignation or removal of a trustee will not become effective
until acceptance of the appointment of a successor trustee.
In addition, the holders of more than 50% of the aggregate principal amount
of the notes or the class or classes of the notes described in your prospectus
supplement may remove the indenture trustee without cause and may appoint a
successor indenture trustee. If a trust issues a class of notes that is
subordinated to one or more other classes of notes and an event of default
occurs under the related indenture, the indenture trustee may be deemed to have
a conflict of interest under the Trust Indenture Act of 1939 and may be required
to resign as trustee for one or more of the classes of notes. In any such case,
the indenture will provide for a successor indenture trustee to be appointed for
those classes of notes.
Each of the trustee and the indenture trustee and any of its respective
affiliates may hold securities in its own name or as a pledgee. For the purpose
of meeting the legal requirements of some jurisdictions, the servicer and the
related trustee will have the power to appoint co-trustees or separate trustees
of all or any part of the trust.
You will find the addresses of the principal offices of the trust and the
trustee in your prospectus supplement.
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THE SELLER AND ORIGINATING DEALERS
SELLER
Premier Auto Finance, L.P. is an limited partnership formed in the State of
Illinois in November 1992. The seller's principal executive offices are located
at 230 West Monroe Street, Chicago, Illinois 60606 (telephone number
(312) 456-1300). The Auto Conduit Corporation ("TACC"), a wholly-owned
subsidiary of Premier Auto Finance, Inc., is the sole general partner of the
seller. Each limited partner of the seller is a dealer group consisting of a
single automobile dealership or related group of automobile dealerships and/or
persons or entities associated with or controlling such dealership or group.
Each limited partner is required to make an equity contribution to the
seller in exchange for its limited partnership interest. The seller utilizes the
capital contributions, together with other funds, to purchase retail installment
contracts relating to the sale of new and used automobiles and light-duty trucks
that have been originated by dealerships affiliated with the limited partners or
by other third parties that finance the purchase of new or used automobiles and
light-duty trucks. In addition, the seller may originate contracts directly. All
of the contracts are originated in accordance with Premier Auto Finance, Inc.'s
underwriting standards and procedures discussed below under "THE SERVICER--
UNDERWRITING AND ORIGINATION."
ORIGINATING DEALERS
The originating dealers consist of automobile dealerships located throughout
the United States. The originating dealers finance the retail purchase of new
and used automobiles and light-duty trucks through installment contracts and
retain a security interest on the financed vehicles. All of the contracts are
originated in accordance with Premier Auto Finance, Inc.'s underwriting
standards and procedures discussed below under "THE SERVICER--UNDERWRITING AND
ORIGINATION." Each originating dealer will transfer the contracts and related
interests to the seller pursuant to a dealer agreement with the seller that
governs the transfer of the contracts. As of , approximately
originating dealers had transferred contracts to the seller.
In each dealer agreement, the applicable originating dealer makes the
following representations and warranties, among others, regarding each contract
and financed vehicle transferred to the seller:
- the contract is a legal, valid and binding payment obligation of the
obligor enforceable against the obligor in accordance to its terms;
- the contract is secured by a first priority perfected security interest in
the financed vehicle; and
- the originating dealer has no knowledge that any information provided by
the obligor to the seller is false or misleading.
In the event of a breach of any representation or warranty with respect to a
contract, the originating dealer is obligated to repurchase the contract from
the seller.
THE SERVICER
GENERAL
Premier Auto Finance, Inc. will manage and service the contracts held by
each trust.
Premier Auto Finance, Inc. was incorporated in Delaware in October 1990. The
servicer is a wholly-owned indirect subsidiary of Virginia Surety Company, Inc.
The servicer's principal executive offices are located at 230 West Monroe
Street, Chicago, Illinois 60606 (telephone number
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(312) 456-1300). Its nationwide servicing center is located at 5050 North
Broadway, Chicago, Illinois 60640 (telephone number 800-364-9737).
UNDERWRITING AND ORIGINATION
The servicer, subject to TACC's oversight, provides all administrative,
credit underwriting, collection and accounting services for the contracts
originated by the dealers and acquired by the seller. Premier Auto
Finance, Inc. underwrites motor vehicles contracts on behalf of the seller. For
contracts originated by dealers, the applicable dealer submits an application by
facsimile to the servicer at one of its two regional offices located in Chicago,
Illinois and Fairport, New York. Upon receiving an application from a dealer, a
contract processor enters the information from the application into the
servicer's computer system.
The application of each potential obligor is evaluated individually based
upon uniform underwriting standards developed by Premier Auto Finance, Inc.
These underwriting standards are intended to assess a potential obligor's
ability to repay all amounts due under the contract and the adequacy of the
related financed vehicle as collateral, based upon a review of the information
contained in the contract application. The material credit information required
for the contract application includes the applicant's real time credit history
obtained from a third party credit bureau reporting agency, income, deposit
accounts, liabilities, employment history and a description of the financed
vehicle intended to secure the contract. The material criteria considered in
evaluating the individual applications are:
- Auto-enhanced credit bureau score;
- The obligor's payment history based on information known directly by the
servicer or provided by various credit reporting agencies with respect to
present and past debt;
- A debt service to gross monthly income ratio test;
- Collateral protection based on the loan to value ratio, taking into
account the age, type and market value of the financed vehicle and the
term of the contract; and
- Stability of the obligor with specific regard to the obligor's length of
residence, occupation, length of employment and whether the obligor rents
or owns.
The servicer uses consumer reporting agency scores or credit bureau scores
to assist in the underwriting process. The credit bureau score is a factor in
evaluating credit risk and provides the primary basis for a decision. The
servicer's standard guidelines permit retail installment contracts with credit
bureau scores of 570 and above to be underwritten. A credit analyst reviews each
application, taking into account the applicable credit score and the other
criteria set forth above, except for approximately 25% of applications which are
automatically approved upon satisfaction of higher thresholds in respect of the
above referenced approval criteria or which are automatically denied upon
failure to satisfy the servicer's minimum thresholds in respect of the
above-referenced approval criteria. A large majority of the automatic decisions
are denials. The underwriting and consumer reporting agency scores are intended
to provide a basis for lending decisions, but are not meant to supersede the
judgment of the credit analyst in weighing and considering all the
above-referenced approval criteria.
On occasion, the servicer approves contract applications at variance with
its standard credit guidelines. However, to gain approval, a contract
application that does not comply with all of the guidelines must have strong
compensating factors that demonstrate the ability of the potential obligor to
pay all amounts due under the contract. If an application for a contract is
approved after failing to comply with the servicer's guidelines, the approval
generally occurs because the credit analyst has conditioned the purchase of the
contract on additional requirements, such as a larger down payment, a reduction
in the term of the financing or the addition of a co-applicant to the contract.
However, the servicer does not revise or recalculate the obligor's credit score
to reflect the strength of a co-applicant.
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After review of an application, a credit analyst or manager notifies the
applicable dealer as to whether the application has been approved (subject to
the receipt of the required documentation), denied or is the subject of a
counter-offer. If the response to the dealer includes a counter-offer from
Premier Auto Finance, Inc. (which can include an additional down payment, a
reduction in the term of the financing, or the addition of a co-applicant to the
contract), those stipulations become a condition of the approval. Subsequent to
approval, if the seller is the chosen source of financing, the servicer will
obtain the necessary documentation for processing the contract, consisting of
the following:
- A credit application;
- The only original of the executed contract;
- An agreement by the obligor to provide insurance naming the seller as loss
payee;
- Title application or guarantee of title;
- An application for registration;
- A co-signer notification (if applicable);
- Documentary support for any supplemental warranty purchased with respect
to the financed vehicle;
- Acceptable vehicle valuation documentation consisting of the dealer
invoice or sticker for new cars and reference to the most recently
published National Automobile Dealers Association Used Car Price Guide or
other comparable price guide such as Black Book or Kelly Blue Book, based
on year, make and model of the related financed vehicle for used cars; and
- Any other required documentation.
Once the appropriate documentation is obtained for funding, the file
relating to the contract is forwarded to a contract processor for a pre-funding
audit. The contract processor then audits the documents for completeness and
consistency with the application, providing final approval for purchase of the
contract once these requirements have been satisfied.
The amount advanced pursuant to the underwriting guidelines for a contract
is determined by the applicant's bureau score and credit analyst's review. For
purposes of determining the advance rate, the servicer segregates applicants
into four tiers based on their credit scores. Each tier has a limit on advance
ratios and has certain down payment requirements. Higher tiers require lower
advance rates or higher down payments or both. The amount advanced is a
percentage of the dealer's invoice for a new vehicle or the "Trade In" value
stated in a commonly utilized used car price guide for a used vehicle in each
case plus taxes and title and license fees on the finance vehicle averaging an
additional 7%.
However, the amount advanced under a contract may be less, or in limited
circumstances more, than the maximum permissible amount due to a number of
factors, including down payment requirements, trade-in equity and credit score.
In addition, in connection with the financing of a new or used vehicle, the
seller will also finance accessories, extended service contracts and other
insurance products under a contract. Although the advance rate for each contract
in its serviced portfolio is not specifically tracked, the servicer estimates
that the average advance rate of the contracts is less than 100%. In those
limited circumstances in which the amount advanced exceeds the maximum
permissible amount, such amount generally does not exceed 130% of the maximum
permissible amount.
The servicer performs detailed analyses of its portfolio of contracts to
evaluate the effectiveness of its credit guidelines and scoring process. If
external economic factors, credit delinquency levels or credit loss levels
change, credit guidelines are adjusted to maintain a level of asset quality
deemed acceptable by management. Each day, the credit manager and credit
supervisors review a group of contracts to ensure that credit analysts are
following established policies and procedures. In addition, the servicer
randomly reviews, on a monthly basis, the quality of the contracts to ensure
compliance with established policies and procedures. In accordance with its
reasonable business judgment, the servicer's credit underwriting standards may
change at any time.
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INSURANCE
The contracts require obligors to maintain insurance coverage, including
comprehensive fire, theft and collision coverage, insuring the financed vehicle
in an amount at least equal to the financed vehicle's fair market value. The
originating dealers are responsible for ensuring that each obligor obtains
proper insurance coverage and that the seller is named as loss payee. The
servicer does not systematically track whether insurance coverage remains in
effect after the seller has acquired a contract from an originating dealer. The
servicer does not "force place" insurance when it discovers that a financed
vehicle is not insured.
In the event that an obligor fails to maintain any required insurance and
this failure results in a loss under a contract which is not covered by the
credit enhancement available for your securities, you could suffer a loss on
your investment.
COLLECTION PROCEDURES
The servicer has established a comprehensive set of collection policies and
procedures. These policies and procedures utilize a computerized collection
system to assist in collection efforts and the prompt investigation and
evaluation of the causes of any delinquency. The computerized collection system
provides relevant obligor information, including the obligor's current address,
phone number, contract information and other records of contacts. The collection
system allows the servicer's collection personnel to record notes regarding the
account and facilitates review of collection personnel activity. The information
provided by the collection system allows the servicer to modify its priorities
regarding which obligors to contact and provides extensive reports concerning
contract delinquencies.
The servicer categorizes contracts into one of four tiers based on the
credit score of the obligor. Tier 1 obligors have higher credit scores and are
lower risks. Conversely, Tier 4 obligors have lower credit scores and are
generally higher risks. The servicer sends payment booklets to all Tier 1, Tier
2 and Tier 3 obligors and sends a monthly "advice of payment" or invoice to all
Tier 4 obligors.
The servicer performs collection activities with respect to delinquent
contracts, including the prompt investigation and evaluation of the causes of
the delinquency. The servicer considers a contract to be delinquent when the
obligor makes any payment that is less than 95% of a scheduled monthly payment.
The servicer collects overdue payments using several different methods,
including telephone calls and mailings. Different collection strategies are
utilized depending on the particular risk level of an obligor. Generally, the
number of days before the servicer commences its collection strategies is
greater for low risk obligors than in the case of high risk obligors. The
servicer uses an automated outbound phone system to call past due obligors at
varying times depending on the obligor's credit tier. Usually, a collections
representative will initiate telephone contact when a contract becomes 16 days
past due and will continue to contact the obligor until the delinquency is
resolved. To maximize contact time with customers, the servicer utilizes a
predictive dialer to contact obligors.
In addition to its telephone based collection operations, the servicer uses
two type of letters in its collection strategies:
- a notice of past due payment letter which is mailed to an obligor's
mailing address at 12 or 16 days past due depending on state law, and
- if required by state law, a notice of default and right to cure letter
which is mailed to an obligor's mailing address at 35, 40 or 45 days past
due depending on state law.
REPOSSESSION
If the servicer determines that an obligor will not or cannot pay past due
amounts, it will commence repossession procedures. Although the servicer may
repossess the financed vehicles at any time after a contractual default, it
typically commences repossession activities only after a contract is 60 days
past due.
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Repossession may occur without regard to the length or existence of a
payment delinquency if:
- the contract is deemed uncollectible;
- collection personnel determine that the financed vehicle is in danger of
being damaged, destroyed or otherwise unavailable for repossession; or
- the obligor voluntarily surrenders the financed vehicle.
Repossessions are conducted by third parties who are engaged in the business
of repossessing vehicles for secured parties. After repossession, the obligor,
in accordance with applicable state law, may have an additional 10 to 30 days to
redeem the financed vehicle by paying past due amounts, repossession costs and
other amounts required by state law before the financed vehicle is sold at
auction. The servicer assigns approximately 60-70% of the repossessed vehicles
to a third party vehicle merchandiser which tracks the servicer's repossessed
vehicles and arranges for their sale nationwide. Approximately 30-40% of the
repossessed vehicles are sold by the servicer at auction. Upon the sale of the
repossessed vehicle, the servicer will pursue any remaining deficiency to the
extent deemed practical and to the extent permitted by law. The servicer first
attempts to collect deficiency balances using its own employees for
approximately 120 days after charge off. After that, the servicer refers the
charged-off contracts to third party collection agencies.
Losses may occur in connection with delinquent contracts and can arise in
several ways, including the inability to locate the financed vehicle or the
obligor, uninsured losses or as a result of a discharge of the obligor in a
bankruptcy proceeding. The servicer generally charges-off a contract:
- when the servicer deems the contract uncollectible;
- if the financed vehicle is not repossessed, during the month when 5% or
more of an installment due under the contract becomes more than 120 days
past due;
- if the financed vehicle is repossessed, when all sale proceeds, insurance
claims and refunds of financed insurance policies and extended warranties
have been received; or
- when an obligor files for bankruptcy and the servicer determines that its
loss is known.
EXTENSIONS
The servicer's collection policies and procedures may, on a case-by-case
basis, allow for extensions of the due dates of payments on contracts. It is the
servicer's policy that extensions are offered only in the following instances:
- if the servicer believes that the obligor's financial difficulty has been
resolved or will no longer impair the obligor's ability to make future
payments and that the obligor has a satisfactory income source for making
the next payment;
- the extension will result in the obligor's account being brought current;
- the total credit-related extensions granted on the contract will not
exceed six months in the aggregate;
- there has been no more than two credit-related extensions granted on the
contract in the immediately preceding twelve months;
- the obligor has made the first four scheduled payments on the contract, or
in the case of balloon contracts, the first six scheduled payments on the
contract;
- the obligor agrees to make the next payment by an acceptable date; and
- the financed vehicle's condition is favorable.
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Any deviation from the servicer's collection policies and procedures
regarding the grant of an extension requires the concurrence of a collection
supervisor.
YEAR 2000
The seller and servicer initiated and completed a program designed to
resolve the potential impact of the year 2000 on the ability of its computerized
information systems to accurately process information that may be date
sensitive. The seller and servicer identified the critical data storage and
operating systems and developed plans to ensure the readiness of systems to
process dates beyond the year 2000. Furthermore, the seller and servicer
communicated with the originating dealers, financial institutions and suppliers
to determine the risk created by those parties' failure to remediate their own
year 2000 issues.
To date, neither the seller nor the servicer has experienced any problems
relating to the year 2000 issue. In addition, neither the seller nor the
depositor expects to incur material costs in the future as a result of the year
2000 issue. There is no assurance that either the seller or servicer will not
experience problems in the future as a result of the year 2000 issue.
THE PERFORMANCE GUARANTOR
Virginia Surety Company, Inc. was incorporated in Illinois in January 1982.
Virginia Surety Company, Inc. is an Illinois licensed insurance company that
underwrites and administers comprehensive extended warranty and other consumer
service programs. It is a wholly owned subsidiary of Aon Corporation. Its
principal executive offices are located at 123 North Wacker Drive, Chicago,
Illinois 60606 (telephone number (312) 701-4670). We will provide its total
assets and stockholders' equity as of a recent date in your prospectus
supplement.
If the seller fails to perform any of its obligations under the purchase
agreements relating to breaches of its representations and warranties regarding
the contracts, the performance guarantor will be obligated to perform the
seller's obligations pursuant to the performance guarantee. See "DESCRIPTION OF
THE TRANSFER AND SERVICING AGREEMENTS--PERFORMANCE GUARANTEE" in this
prospectus.
THE CONTRACTS
The contracts have been originated or purchased in accordance with the
underwriting standards determined by Premier Auto Finance, Inc. The seller
either originated the contracts directly or acquired the contracts in the
ordinary course of its business from the originating dealers or other parties
that finance the retail purchase of new or used automobiles and light-duty
trucks. The contracts to be held by each trust will be randomly selected from
the contracts in the seller's portfolio that meet the criteria specified in your
prospectus supplement. The seller will not use selection procedures adverse to
the holders of the securities issued by the trust when selecting the contracts
from qualifying contracts. These criteria provide that each contract:
- was originated in the United States and the obligor is not a federal,
state or local governmental entity;
- provides for either
- level monthly payments which provide interest at the annual percentage
rate and fully amortize the amount financed over an original term to
maturity no greater than the number of months specified in your
prospectus supplement, or
- interest at the annual percentage rate and requires a lump sum payment
at maturity substantially in excess of monthly payments and which has a
maturity no greater than the number of months specified in your
prospectus supplement;
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- is attributable to the purchase of a new or used automobile or light-duty
truck and is secured by that vehicle; and
- satisfies the other criteria, if any, set forth in your prospectus
supplement.
Each contract will provide for the allocation of payments made by the
obligors according to
- the simple interest method;
- the actuarial method; or
- the sum of periodic balances or sum of monthly payments method which we
refer to as Rule of 78s contracts and, together with the actuarial
contracts, as the "PRECOMPUTED CONTRACTS".
SIMPLE INTEREST CONTRACTS. Payments on simple interest contracts will be
applied first to interest accrued through the date immediately preceding the
date of payment and then to unpaid principal. Accordingly, if an obligor pays an
installment before its due date, the portion of the payment allocable to
interest for the payment period will be less than if the payment had been made
on the due date. As a result, the principal balance will be amortized more
rapidly than scheduled. Conversely, if an obligor pays an installment after its
due date, the portion of the payment allocable to interest for the payment
period will be greater than if the payment had been made on the due date. In
that event, the principal balance will be amortized more slowly than scheduled
and a larger portion of the principal balance may be due on the final scheduled
payment date. No adjustment to the scheduled monthly payments is made in the
event of early or late payments, although in the case of late payments the
obligor may be subject to a late charge.
ACTUARIAL CONTRACTS. An actuarial contract provides for amortization of the
loan over a series of fixed level monthly installments. Each scheduled payment
consists of an amount of interest equal to 1/12 of the stated annual percentage
rate of the contract multiplied by the scheduled principal balance of the
contract and an amount of principal equal to the remainder of the scheduled
payment. No adjustment to the scheduled monthly payments is made in the event of
early or late payments, although in the case of late payments the obligor may be
subject to a late charge.
RULE OF 78S CONTRACTS. A Rule of 78s contract provides for the payment of a
specified total amount of payments, in monthly installments, which total
represents the principal amount financed and finance charges in an amount
calculated on the basis of the related annual percentage rate for the term of
that contract. The rate at which the amount of finance charges is earned and,
correspondingly, the amount of each scheduled payment allocated to reduction of
the outstanding principal balance are calculated in accordance with the "Rule of
78s." Under the "Rule of 78s," the portion of each payment allocable to interest
is higher during the early months of the term and lower during later months than
under a constant yield method for allocating payments between interest and
principal. All payments received on a Rule of 78s contract will be allocated
pursuant to the related sale and servicing agreement or pooling and servicing
agreement on an actuarial basis. No adjustment is made in the event of early or
late payments, although in the case of late payments the obligor may be subject
to a late charge.
In the event of a prepayment in full, whether voluntarily or by
acceleration, of a precomputed contract, a rebate of the portion of the total
amount of payments under the contract allocable to "unearned" interest charges
will be made to the obligor. In the event of the prepayment in full, whether
voluntarily or by acceleration, of a simple interest contract, a rebate will not
be made to the obligor, but the obligor will be required to pay interest only to
the date immediately preceding the date of prepayment. The amount of a rebate
under a precomputed contract will always be less than or equal to the remaining
scheduled payments of interest that would have been due under a simple interest
contract for which all remaining payments were made on schedule. Rebates under
the Rule of 78s contracts will not affect payments to you because the payments
will be determined using the actuarial method.
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Each trust will account for the Rule of 78s contracts as if those contracts
were actuarial contracts. Amounts received upon prepayment in full of a Rule of
78s contract in excess of the then outstanding principal balance of the contract
and accrued interest thereon, calculated pursuant to the actuarial method, will
not be paid or passed through to you but will be deemed to be an excess amount
and released to the seller or otherwise applied as set forth in your prospectus
supplement.
We will provide information about the contracts to be held by your trust in
your prospectus supplement, including, to the extent appropriate:
- the distribution by the states of origination;
- the aggregate principal balances of contracts consisting of precomputed
contracts and simple interest contracts;
- the aggregate principal balances of contracts secured by new vehicles and
by used vehicles;
- the average principal balance of the contracts and the range of principal
balances;
- the average original amount financed of the contracts and the range of
original amount financed;
- the weighted average annual percentage rate and the range of annual
percentage rates;
- the weighted average original term of the contracts and the range of
original terms of the contracts; and
- the weighted average remaining term of the contracts and the range of
remaining terms of the contracts.
WEIGHTED AVERAGE LIVES OF THE SECURITIES
The weighted average lives of the securities of any trust will be a function
of the weighted average lives of the contracts held by the trust. The weighted
average lives of the contracts will be influenced by the rate at which the
principal balances of the related contracts are paid. The term "WEIGHTED AVERAGE
LIFE" means the average amount of time during which each dollar of principal of
a contract is outstanding.
All of the contracts will be prepayable at any time without penalty to the
obligor. However, partial prepayments on the precomputed contracts will not be
paid on the payment date following the month in which they were received but
will be retained and applied towards payments due in later months. If
prepayments in full are received on the precomputed contracts or if full or
partial prepayments are received on the simple interest contracts, the actual
weighted average lives of the contracts will be shorter than the scheduled
weighted average lives of the contracts set forth in your prospectus supplement.
Prepayments include optional prepayments by obligors, liquidations due to
default, partial prepayments from rebates of extended warranties and insurance
premiums, as well as receipts of proceeds from physical damage, credit life and
disability insurance policies. Prepayment rates are influenced by a variety of
economic, social and other factors, including the fact that an obligor generally
may not sell or transfer the financed vehicle securing a contract without the
consent of the servicer.
We cannot predict the rate of prepayment on the contracts in either stable
or changing interest rate environments. The servicer maintains limited records
of the historical prepayment experience of the contracts included in its
portfolio but is not aware of any publicly available industry statistics for the
entire industry that set forth prepayment experience for receivables similar to
the contracts. The servicer believes that its prepayment experience is
consistent with that generally found in the industry. However, neither the
servicer nor the depositor can assure you that prepayments will conform to
historical experience. The weighted average lives of the securities will also be
impacted to the extent
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that the depositor, the seller or the performance guarantor is obligated to
repurchase contracts from a given trust as a result of breaches of particular
representations and warranties relating to the contracts. See "DESCRIPTION OF
THE TRANSFER AND SERVICING AGREEMENTS--SALE AND ASSIGNMENT OF CONTRACTS BY
SELLER" and "--TRANSFER OF CONTRACTS BY DEPOSITOR" in this prospectus. The
weighted average lives of the securities will also be impacted to the extent the
servicer is obligated to purchase contracts from a given trust as a result of
breaches of certain covenants relating to the contracts. See "DESCRIPTION OF THE
TRANSFER AND SERVICING AGREEMENTS--SERVICING" in this prospectus. In addition,
early retirement of the securities may be effected by the exercise of the option
of the seller to purchase all of the contracts remaining in the trust when the
aggregate principal balance of the contracts is 10% or less of the aggregate
principal balance as of the cut-off date. You will bear all of the reinvestment
risk resulting from the rate of prepayments of the contracts.
Your prospectus supplement may set forth additional information regarding
the maturity and prepayment considerations applicable to your pool of contracts
and your securities.
FACTORS AND TRADING INFORMATION
The "NOTE FACTOR" or "CERTIFICATE FACTOR" for any class of notes or
certificates issued by an owner trust, respectively, will be a seven-digit
decimal indicating the principal amount of that class of securities on the
payment date as a fraction of the respective principal amount thereof as of the
closing date. The servicer will compute the note factor and certificate factor
each month. Initially, each factor will be 1.0000000 and thereafter will decline
to reflect reductions in the principal amount of each class of notes and
reductions in the certificate balance. The servicer will compute the principal
amount by allocating payments in respect of the contracts to principal and
interest using the simple interest method. The portion of the principal amount
of any class of notes and of the certificate balance for any class of
certificates for a given month allocable to a securityholder can be determined
by multiplying the original denomination of the holder's security by the related
note factor or certificate factor, as the case may be, for that month.
The "POOL FACTOR" for any class of certificates issued by a grantor trust
will be a seven-digit decimal indicating the certificate balance of that class
of certificates on the distribution date as a fraction of the aggregate
principal balance of the contracts as of the cut-off date. The servicer will
compute the pool factor each month and will be calculated by dividing the
certificate balance for that class of certificates as of the close of business
on the last day of the preceding month by the aggregate principal balance of the
contracts as of the cut-off date.
You will receive monthly reports concerning the payments received on the
contracts, the aggregate principal balance of the contracts, the related note
factors, certificate factors, pool factors and various other items of
information pertaining to the related trust. Furthermore, the trustee or the
indenture trustee will furnish you with information for tax reporting purposes
not later than on the latest date permitted by law. See "DESCRIPTION OF THE
TRANSFER AND SERVICING AGREEMENTS--SERVICING--STATEMENTS TO SECURITYHOLDERS" in
this prospectus.
DESCRIPTION OF THE NOTES AND INDENTURE
GENERAL
The issuance of each series of notes will be under an indenture, a form of
which was filed with the Securities and Exchange Commission as an exhibit to the
registration statement of which this prospectus is a part. In addition, a copy
of the indenture for a series of notes will be filed with the Securities and
Exchange Commission following the issuance of each series. This summary
describes the material terms of each indenture and the notes.
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The notes of each series will be issued in fully registered form only and
will represent the obligations of a separate trust. Notes will be available for
purchase by you in the denominations specified in your prospectus supplement.
Your prospectus supplement will provide additional information specific to
your notes.
PAYMENTS
Your prospectus supplement will describe as to your class of notes:
- the timing and priority of payments of principal and interest;
- the amount and method of determining payments of principal and interest;
- the priority of the application of the trust's available funds to its
expenses and payments on its securities; and
- the interest rates or the formula for determining the interest rates.
Your rights to receive payments may be senior or subordinate to the rights
of holders of other classes of notes. Furthermore, each class of notes may have
a different interest rate, which may be a fixed, variable or adjustable interest
rate or any combination of the foregoing. See "INFORMATION REGARDING THE
SECURITIES--INTEREST RATES" in this prospectus.
Payments of principal and interest on any class of notes will be made on a
pro rata basis among all noteholders of that class. If the amount of funds
available to make a payment on a class of notes is less than the required
payment, the noteholders will receive their pro rata share of the amount
available for that class.
PRO-RATA PAY/SUBORDINATE NOTES
One or more classes of notes may be payable on an interest only or principal
only basis. In addition, the notes may include two or more classes that differ
as to timing, sequential order, priority of payment, interest rate or amount of
payments of principal or interest or both. Payments of principal or interest or
both on any class may be made upon the occurrence of specified events, in
accordance with a schedule or formula, or on the basis of collections from
designated assets of the trust. A series may include one or more classes of
notes, as to which accrued interest will not be distributed but rather will be
added to the principal or notional balance of the notes on each payment date.
VARIABLE FUNDING NOTE
A trust may issue one or more classes of notes having particular maturity
dates and at the same time the trust may issue variable funding notes which
relate to those particular maturity dates. These notes may have a balance that
may decrease based on the amortization of contracts or increase based on
principal collections used to purchase additional contracts.
OPTIONAL PURCHASE OF CONTRACTS AND PREPAYMENT OF NOTES
At its option, the seller may purchase all of the contracts owned by a trust
on any payment date following the date on which the unpaid aggregate principal
balance of the securities is less than 10% of the unpaid aggregate principal
balance of the contracts as of the cut-off date. The purchase shall be at least
equal to the sum of:
- the unpaid principal balance of the securities as of that payment date;
- accrued but unpaid interest on the securities to that payment date;
- unreimbursed servicer advances;
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- accrued but unpaid fees to the trustee and the indenture trustee; and
- accrued but unpaid servicer fees.
If the seller purchases the contracts, the related notes will be repaid in full
on the payment date on which the purchase occurs. In no event will you or the
related trust be subject to any liability to the seller as a result of or
arising out of the seller's optional purchase of the contracts.
THE INDENTURE
MODIFICATION OF INDENTURE WITHOUT NOTEHOLDER CONSENT
The trust and the indenture trustee may, without your consent, may enter
into one or more supplemental indentures for any of the following purposes:
- to correct or amplify the description of any property at any time subject
to the lien of the indenture;
- to evidence the succession of another person to the trust and the
assumption by any such successor of the covenants of the trust;
- to add to the covenants of the trust or to surrender any right or power
conferred upon the trust in the indenture;
- to convey, transfer, assign, mortgage or pledge any property to or with
the indenture trustee;
- to cure any ambiguity, to correct or supplement any provision in the
indenture which may be inconsistent with any other provision in the
indenture;
- to evidence and provide for the acceptance of the appointment by a
successor indenture trustee with respect to the notes and to add to or
change any of the provisions of the indenture as shall be necessary to
facilitate the administration of the trusts by more than one indenture
trustee;
- to modify, eliminate or add to the provisions in the indenture to the
extent necessary to qualify the indenture under the Trust Indenture Act;
or
- to elect into the FASIT provisions of the Code, provided the indenture
trustee receives an opinion of counsel that such election will not
adversely affect the noteholders.
In addition, if the indenture trustee receives an opinion of counsel that a
modification will not have a material adverse effect on the noteholders, the
trust and the indenture trustee may, without your consent, enter into one or
more supplemental indentures to, among other things, add, modify or eliminate
any provisions of the indenture or modify your rights as a noteholder.
MODIFICATION OF INDENTURE WITH NOTEHOLDER CONSENT
With the consent of the holders of more than 50% of the outstanding
principal amount of the notes or the class or classes of notes described in your
prospectus supplement, the trust and the indenture trustee may modify the
indenture and your rights under it.
Without the consent of the holder of each outstanding note affected,
however, no modification may:
- reduce the principal amount or interest rate or change the due date of any
payment;
- modify the manner of application of collections in respect of the
contracts to payments on the notes;
- impair your right to sue to enforce payment provisions of the indenture;
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- reduce the percentage of the aggregate principal amount of the notes
needed for consents of noteholders;
- permit the creation of any lien on collateral under the indenture ranking
prior to or on a parity with the lien of the indenture;
- adversely affect the manner of determining notes outstanding for voting
purposes;
- reduce the percentage of the aggregate principal amount of the notes
needed to sell or liquidate the assets of a trust if the proceeds of sale
will be insufficient to pay the notes in full; or
- modify the provisions of the indenture relating to these types of
indenture modification without the consent of all noteholders.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
Events of default under each indenture will consist of:
- a default for five days or more in the payment of interest due on any
note;
- failure to pay the unpaid principal amount of any class of notes on the
final scheduled payment date for that class of notes;
- a default in the observance or performance of any provisions set forth in
the indenture other than those dealt with specifically elsewhere, which
default has a material adverse effect on the noteholders and continues for
60 days after written notice thereof is given to the trust by the
indenture trustee or by holders of at least 25% of the aggregate principal
amount of the notes or the class or classes of notes described in your
prospectus supplement;
- any representation or warranty made by the trust in the indenture or in
any certificate delivered pursuant thereto was incorrect as of the time
made, and continues to be incorrect for a period of 60 days after notice
thereof is given to the trust by the indenture trustee or by holders of at
least 25% of the aggregate principal amount of the notes or the class or
classes of notes described in your prospectus supplement; or
- events of bankruptcy, insolvency, receivership or liquidation of the
trust.
If an event of default should occur and be continuing with respect to the
notes of a series, other than an event of default caused by an event of
bankruptcy, insolvency, receivership or liquidation of the trust, the indenture
trustee or the holders of more than 50% of the aggregate principal amount of the
notes or the class or classes of notes described in your prospectus supplement
may declare the principal amount of the notes to be immediately due and payable.
If an event of default caused by an event of bankruptcy, insolvency,
receivership or liquidation of the trust should occur and be continuing with
respect to the notes of a series, the principal amount of the notes will be
immediately due and payable. This declaration may be rescinded by the holders of
more than 50% of the aggregate principal amount of the notes or the class or
classes of notes described in your prospectus supplement if:
- the trust has made all payments of principal and interest then due on the
notes (assuming the notes had not been accelerated); and
- the trust has paid all amounts then owing to the indenture trustee.
If the notes of a series have been declared to be due and payable following
an event of default, the indenture trustee may:
- institute proceedings to collect amounts due or foreclose on the trust
assets;
- exercise remedies as a secured party; or
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- sell the trust assets, or elect to have the trust maintain possession of
the trust assets.
The indenture trustee, however, may not sell the trust assets following an
event of default, unless:
- the holders of all the outstanding notes consent to the sale;
- the proceeds of the sale are sufficient to pay in full the principal and
accrued interest on all the outstanding notes at the date of the sale; or
- there has been an event of default arising from the failure to pay
principal or interest on the notes and the indenture trustee determines
that the trust assets would not be sufficient on an ongoing basis to make
all payments on the notes as the payments would have become due if the
obligations had not been declared due and payable and the indenture
trustee obtains the consent of the holders of more than 66 2/3% of the
aggregate principal amount of the notes or the class or classes of notes
described in your prospectus supplement.
Following a declaration upon an event of default that the notes are immediately
due and payable, the application of any proceeds of any sale of the trust assets
will be in the order of priority described in the prospectus supplement for your
class of notes.
If an event of default occurs and is continuing, 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
indenture trustee reasonably believes it will not be adequately indemnified
against the costs, expenses and liabilities which it may incur in complying with
that request. Holders of more than 50% of the aggregate principal amount of the
notes or the class or classes of notes described in your prospectus supplement
will have the right to direct the time, method and place of conducting any
proceeding or any remedy available to the indenture trustee subject to the
preceding sentence.
No holder of a note will have the right to institute any proceeding with
respect to the indenture, unless:
- the holder previously has given to the indenture trustee written notice of
a continuing event of default;
- the holders of not less than 25% in principal amount of the outstanding
notes or the class or classes of notes described in your prospectus
supplement make written request of the indenture trustee to institute the
proceeding in its own name as indenture trustee;
- the holder or holders offer the indenture trustee reasonable indemnity;
- the indenture trustee has for 60 days failed to institute the proceeding;
and
- no direction inconsistent with that written request has been given to the
indenture trustee during the 60-day period by the holders of a majority in
principal amount of the outstanding notes or the class or classes of notes
described in your prospectus supplement.
Notwithstanding the foregoing, noteholders will have the absolute and
unconditional right to receive payment of the principal of and interest on a
note and to institute suit for the enforcement of such payment, which right may
not be impaired without the individual noteholder's consent.
In addition, the indenture trustee and noteholders, by accepting the notes,
will covenant that they will not at any time institute against the depositor or
the trust any bankruptcy, reorganization or other proceeding under any federal
or state bankruptcy or similar law.
None of the trustee of the trust in its individual capacity, the holder of
any certificate representing an ownership interest in the trust, the seller, the
performance guarantor, the depositor, or any of their respective owners,
beneficiaries, agents, officers, directors, employees, affiliates, successors or
assigns
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will be personally liable for the payment of the notes or for any agreement or
covenant of the trust contained in the indenture.
COVENANTS
Each indenture will provide that the trust may not consolidate with or merge
into any other entity, unless:
- the entity formed by or surviving the consolidation or merger is organized
under the laws of the United States or any state;
- the entity expressly assumes the trust's obligation to make due and
punctual payments upon the notes and the performance or observance of
every agreement and covenant of the trust under the indenture;
- no event of default shall have occurred and be continuing immediately
after the merger or consolidation;
- the rating agencies rating the notes advise the indenture trustee that the
rating of the notes then in effect would not be reduced or withdrawn as a
result of the merger or consolidation;
- the indenture trustee has received an opinion of counsel to the effect
that the consolidation or merger would have no material adverse tax
consequence to the trust or to any noteholder or certificateholder; and
- the trust or the person, if other than the trust, formed by or surviving
the consolidation or merger has a net worth, immediately after the
consolidation or merger, that is (a) greater than zero and (b) not less
than the net worth of the trust immediately prior to giving effect to the
consolidation or merger.
Each indenture will provide that the trust will not, among other things:
- except as expressly permitted by the related indenture or trust agreement,
transfer any of the assets of the trust;
- claim any credit on or make any deduction from, the principal and interest
payable in respect of the related notes, other than amounts withheld under
the bankruptcy code or applicable state law, or assert any claim against
any present or former holder of notes because of the payment of taxes
levied or assessed upon the trust;
- dissolve or liquidate in whole or in part;
- permit the validity or effectiveness of the indenture to be impaired or
permit the release of any person from any covenants or obligations
relating to the notes under the indenture except as expressly permitted in
the indenture; or
- except as expressly permitted in the indenture, permit any lien or claim
to burden any assets of the trust.
Each indenture will provide that each trust may engage in only those
activities specified above under "THE TRUSTS." Each trust will be prohibited
from incurring, assuming or guaranteeing any indebtedness other than
indebtedness incurred under the notes and the indenture or otherwise in
accordance with the related indenture, trust agreement and sale and servicing
agreement.
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ANNUAL COMPLIANCE STATEMENT
Each trust will be required to file annually with the applicable indenture
trustee a written statement as to the fulfillment of its obligations under the
indenture.
INDENTURE TRUSTEE'S ANNUAL REPORT
Each indenture trustee will be required to mail each year to all noteholders
of the related series a brief report relating to:
- its eligibility and qualification to continue as indenture trustee under
the related indenture;
- amounts, if any, advanced by it under the indenture;
- the amount, interest rate and maturity date of certain indebtedness owing
by the trust to the indenture trustee in its individual capacity;
- the property and funds physically held by the indenture trustee; and
- any action taken by it that materially affects the notes and that has not
been previously reported.
SATISFACTION AND DISCHARGE OF INDENTURE
The discharge of an indenture will occur with respect to the assets securing
the notes of a series upon the delivery to the related indenture trustee for
cancellation of all the notes or, with certain limitations, upon deposit with
the indenture trustee of funds sufficient for the payment in full of all of the
notes.
TRUST ACCOUNTS
Under each indenture, if the applicable indenture trustee has a rating of
A-1+/P-1 by Standard & Poor's Ratings Services and Moody's Investors
Service, Inc., the indenture trustee will establish and maintain segregated bank
accounts for the trust. If the applicable indenture trustee has a rating lower
than A-1+/P-1, the indenture trustee will establish and maintain segregated
trust accounts or accounts in a qualified institution. These accounts will
include, among others, a "COLLECTION ACCOUNT" and a "DISTRIBUTION ACCOUNT." The
trust accounts may, as described in the prospectus supplement for your notes,
also include a cash collateral or reserve fund account as credit enhancement.
"QUALIFIED INSTITUTION" means the corporate trust department of the
indenture trustee or any other depositary institution:
- organized under the laws of the United States or any state or any domestic
branch of a foreign bank;
- the deposits of which are insured by the Federal Deposit Insurance
Corporation; and
- which has, or whose parent corporation has, short-term or long-term debt
ratings acceptable to Moody's Investors Service, Inc. and Standard &
Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc.
The indenture trustee will invest funds in the trust accounts at the
direction of the servicer. All investments will be generally limited to
investments acceptable to the rating agencies rating the notes as being
consistent with the ratings of those notes that will mature not later than the
business day preceding the applicable payment date or any later date approved by
the rating agencies. If the rating agencies permit the investment of funds on
deposit in a cash collateral or reserve fund account in investments that mature
beyond a payment date, the amount of cash available in the cash collateral or
reserve fund account may be less than the amount required to be withdrawn from
that trust account to cover shortfalls in collections on the contracts and a
temporary shortfall in the amounts paid to the
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noteholders may result. Investment earnings on funds deposited in the trust
accounts will be paid to the person described in your prospectus supplement.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The issuance of each series of certificates will be under the terms of a
trust agreement or a pooling and servicing agreement, a form of each of which
has been filed with the Securities and Exchange Commission as an exhibit to the
registration statement of which this prospectus is a part. In addition, a copy
of the trust agreement or the pooling and servicing agreement for a series of
certificates will be filed with the Securities and Exchange Commission following
the issuance of the certificates. This summary describes the material terms of
the certificates issued by each trust.
The certificates of each series will be issued in fully registered form only
and will represent an ownership interest in the trust. Certificates will be
available for purchase by you in the denominations specified in your prospectus
supplement.
Your prospectus supplement will provide additional information specific to
your certificates.
DISTRIBUTIONS
Your prospectus supplement will describe as to your class of certificates:
- the timing and priority of distributions on account of principal and
interest;
- the amount and method of determining distributions on account of principal
and interest;
- the priority of the application of the trust's available funds to its
expenses and distributions on its securities;
- allocation of losses on the contracts among the classes of certificates;
and
- the interest rates or the formula for determining the interest rates.
Your rights to receive distributions may be senior or subordinate to holders
of other classes of certificates. Furthermore, each class of certificates may
have a different interest rate, which may be a fixed, variable or adjustable
interest rate or any combination of the foregoing. See "INFORMATION REGARDING
THE SECURITIES--INTEREST RATES" in this prospectus.
Distributions of principal and interest with respect to any class of
certificates will be made on a pro rata basis among all certificateholders of
that class. If the amount of funds available to make a distribution with respect
to a class of certificates is less than the required payment, the
certificateholders will receive their pro rata share of the amount available for
that class.
PRO-RATA PAY/SUBORDINATE CERTIFICATES
One or more classes of certificates may be payable on an interest only or
principal only basis. In addition, the certificates may include two or more
classes that differ as to timing, sequential order, priority of payment,
interest rate or amount of distributions of principal or interest or both.
Distributions of principal or interest or both on any class may be made upon the
occurrence of specified events, in accordance with a schedule or formula, or on
the basis of collections from designated assets of the trust. A series may
include one or more classes of certificates, as to which accrued interest will
not be distributed but rather will be added to the principal or notional balance
of the certificates on each payment date.
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OPTIONAL PURCHASE OF CONTRACTS AND PREPAYMENT OF CERTIFICATES
At its option, the seller may purchase all of the contracts owned by a trust
on any payment date following the date on which the aggregate unpaid principal
balance of the securities is less than 10% of the aggregate unpaid principal
balance of the contracts as of the cut-off date. The purchase price to be paid
in connection with the purchase shall be at least equal to the sum of:
- the unpaid principal balance of the securities as of that payment date;
- accrued but unpaid interest on the certificates to the payment date;
- unreimbursed servicer advances;
- accrued but unpaid fees to the trustee; and
- accrued but unpaid servicer fees.
If the seller purchases the contracts, the related certificates will be paid in
full on the payment date on which the purchase occurs. In no event will you or
the related trust be subject to any liability to the seller as a result of or
arising out of the seller's optional purchase of the contracts.
THE POOLING AND SERVICING AGREEMENT
MODIFICATION OF THE POOLING AND SERVICING AGREEMENT WITHOUT
CERTIFICATEHOLDER CONSENT
In the case of a grantor trust, the depositor and the trustee may, without
your consent, correct or supplement any provision in the pooling and servicing
agreement that is ambiguous or inconsistent with any other provision of the
pooling and servicing agreement. In addition, if the trustee receives an opinion
of counsel that a modification will not have a material adverse effect on the
certificateholders, the depositor and the trustee may, without your consent,
enter into one or more supplements to the pooling and servicing agreement to,
among other things, add, modify or eliminate any provisions of the pooling and
servicing agreement or modify your rights as a certificateholder.
MODIFICATION OF POOLING AND SERVICING AGREEMENT WITH CERTIFICATEHOLDER
CONSENT
With the consent of the holders of more than 50% of the outstanding
principal amount of the certificates or the class or classes of certificates
described in your prospectus supplement, the depositor and the trustee may
modify the pooling and servicing agreement and your rights under it.
Without the consent of the holder of each outstanding certificate affected,
however, no modification may:
- reduce the principal amount or pass-through rate or change the due date of
any distribution;
- modify the manner of application of collections in respect of the
contracts to distributions in respect of the certificates;
- impair your right to sue to enforce payment provisions of the pooling and
servicing agreement;
- reduce the percentage of the aggregate certificate balance of the
certificates needed for consents of certificateholders;
- permit the creation of any lien on collateral under the pooling and
servicing agreement ranking prior to or on a parity with the lien of the
pooling and servicing agreement;
- adversely affect the manner of determining certificates outstanding for
voting purposes; or
- modify the provisions of the pooling and servicing agreement relating to
these types of pooling and servicing agreement modification without the
consent of all certificateholders.
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TRUST ACCOUNTS
Under the pooling and servicing agreement or trust agreement, if the
applicable trustee has a rating of A-1+/P-1 by Standard & Poor's Ratings
Services and Moody's Investors Service, Inc., the trustee will establish and
maintain segregated bank accounts for the trust. If the applicable trustee has a
rating lower than A-1+/P-1, the trustee will establish and maintain segregated
trust accounts or accounts in a qualified institution. These accounts will
include, among others, in the case of a grantor trust, a "COLLECTION ACCOUNT"
and, in the case of an owner trust, a "DISTRIBUTION ACCOUNT."
"QUALIFIED INSTITUTION" means the corporate trust department of the trustee
or any other depositary institution:
- organized under the laws of the United States or any state or any domestic
branch of a foreign bank;
- the deposits of which are insured by the Federal Deposit Insurance
Corporation; and
- which has, or whose parent corporation has, short-term or long-term debt
ratings acceptable to Moody's Investors Service, Inc. and Standard &
Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc.
The trustee will invest funds in the trust accounts at the direction of the
servicer. All investments will be generally limited to investments acceptable to
the rating agencies rating the certificates as being consistent with the ratings
of those certificates that will mature not later than the business day preceding
the applicable payment date or any later date approved by the rating agencies.
See "DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS" in this
prospectus for summaries of the material terms of the trust agreements and the
pooling and servicing agreements pursuant to which certificates will be issued.
INFORMATION REGARDING THE SECURITIES
INTEREST RATES
A class of securities may bear interest at a fixed, variable or adjustable
rate per annum, as more fully described below and in your prospectus supplement.
FIXED RATE SECURITIES. Each class of fixed rate securities will bear
interest at the applicable per annum interest rate or pass through rate,
specified in the applicable prospectus supplement. Interest on each class of
fixed rate securities will be computed on the basis of a 360-day year consisting
of twelve 30-day months or on such other day count basis as is specified in your
prospectus supplement.
FLOATING RATE SECURITIES. Each class of floating rate securities will bear
interest during each applicable interest period at a rate per annum determined
by reference to a base rate, plus or minus a specified spread, if any, or
multiplied by the spread multiplier, if any, as specified in the applicable
prospectus supplement. The "SPREAD" is a number of basis points to be added to
or subtracted from the related base rate. The "SPREAD MULTIPLIER" is a
percentage of the related base rate by which that base rate will be multiplied
to determine the applicable interest rate. Your prospectus supplement will
designate one of the following base rates as applicable to a floating rate
security:
- London interbank offered rate;
- commercial paper rates;
- Treasury rate;
- federal funds rate;
- negotiable certificates of deposit rate; or
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- any other base rate that is set forth in your prospectus supplement.
Your prospectus supplement will specify whether the interest rate will be
reset daily, weekly, monthly, quarterly, semiannually, annually or some other
specified period and the dates on which that interest rate will be reset. If the
reset date does not fall on a business day, then the reset date will be
postponed to the next succeeding business day; except that with respect to
securities having a base rate based on the London interbank offered rate, if the
reset date falls in the next succeeding calendar month, then the reset date will
be the immediately preceding business day.
Interest on each class of floating rate security will accrue on an
Actual/360 basis, an Actual/Actual basis, or a 30/360 basis. For floating rate
securities calculated on an Actual/360 basis and Actual/Actual basis, accrued
interest for each interest period will be calculated by multiplying:
1. the face amount of that floating rate security;
2. the applicable interest rate; and
3. the actual number of days in the related interest period, and dividing
the resulting product by 360 or 365, as applicable.
For floating rate securities calculated on a 30/360 basis, accrued interest
for an interest period will be computed on the basis of a 360-day year
consisting of twelve 30-day months, irrespective of how many days are actually
in that interest period.
Floating rate securities may also have either or both of the following:
- a maximum limitation, or ceiling, on the rate at which interest may accrue
during any interest period; and
- a minimum limitation, or floor, on the rate at which interest may accrue
during any interest period.
The applicable interest rate will not exceed the maximum rate permitted by
applicable law.
Each trust issuing floating rate securities will appoint a calculation agent
to calculate interest rates on each class of floating rate securities. Your
prospectus supplement will set forth the identity of the calculation agent,
which may be the related trustee or indenture trustee with respect to that
series. All determinations of interest by the calculation agent shall, in the
absence of manifest error, be conclusive for all purposes and binding on the
holders of floating rate securities of a given class. All percentages resulting
from any calculation on floating rate securities will be rounded to the nearest
one hundred-thousandth of a percentage point, with five one millionths of a
percentage point rounded upwards, and all dollar amounts used in or resulting
from that calculation on floating rate securities will be rounded to the nearest
cent.
A class of floating rate securities may also have either or both of the
following, in each case expressed as an annual rate: (1) a maximum limitation,
or ceiling, on the rate at which interest may accrue during any interest period,
which may be an available funds cap rate and (2) a minimum limitation, or floor,
on the rate at which interest may accrue during any interest period. The
interest rate on either type of security will not be higher than the maximum
rate permitted by applicable law.
CREDIT AND CASH FLOW ENHANCEMENT
The amounts and types of credit and cash flow enhancement arrangements and
the applicable provider, if any, will be set forth in the applicable prospectus
supplement. This credit or cash flow enhancement may be in one or more of the
following forms:
- subordination of one or more classes of securities;
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- reserve fund;
- over-collateralization;
- letter of credit;
- credit or liquidity facility;
- financial guaranty insurance policy;
- surety bond;
- guaranteed investment contract or other interest rate protection
agreement;
- repurchase obligation;
- yield supplement agreement;
- other agreements with respect to third party payments or other support; or
- cash deposit or other arrangement that may be described in your prospectus
supplement.
Credit and cash flow enhancement is intended to enhance the likelihood that
you will receive the full amount of principal and interest due on your
securities and to decrease the likelihood that you will experience losses. The
enhancement for a class or series of securities will not provide protection
against all risks of loss and will not guarantee repayment of the entire
principal of and interest on those securities. If losses occur which exceed the
amount covered by any credit or cash flow enhancement or which are not covered
by any credit or cash flow enhancement, you will bear your allocable share of
deficiencies, as described in your prospectus supplement. In addition, if a form
of enhancement covers more than one class or series of securities, you will be
subject to the risk that the enhancement will be exhausted by the claims of
securityholders of other classes or series.
If so provided in the prospectus supplement, the depositor or the trust may
replace the credit or cash flow enhancement for any class of securities with
another form of credit or cash flow enhancement without the consent of the
securityholders, provided that the rating agencies rating that class of
securities at the request of the depositor confirm that that substitution will
not result in the reduction or withdrawal of the rating of that class of
securities.
RESERVE FUND
The trust, the depositor or a third party may establish for a series or
class of securities an account or reserve fund, which will be maintained with a
collateral agent or the related trustee or indenture trustee. The reserve fund
will be funded by an initial deposit by the trust, the depositor or a third
party on the closing date in the amount set forth in your prospectus supplement
and, if the related trust has a pre-funding account, will also be funded on each
date that the trust acquires subsequent contracts from the depositor to the
extent described in the applicable prospectus supplement. The amount on deposit
in the reserve fund will be increased on each payment date thereafter up to the
specified reserve fund balance by the deposit in the reserve fund of the amount
of collections on the related contracts available therefor as described in the
prospectus supplement.
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Your prospectus supplement will describe the circumstances and manner under
which payments may be made out of the reserve fund, either to make payments or
distributions to you or to the servicer or a third party. Monies on deposit in
the reserve fund may be invested in investments acceptable to the rating
agencies rating the securities as being consistent with the ratings of those
securities under the circumstances and in the manner described in the related
sale and servicing agreement, the pooling and servicing agreement or indenture.
Earnings on investment of funds in the reserve fund in eligible investments will
be paid to the person described in your prospectus supplement under the
circumstances described in your prospectus supplement on each payment date. Any
monies remaining on deposit in the reserve fund upon termination of the trust
also will be released to the depositor or its assignee.
FINANCIAL GUARANTY INSURANCE POLICY
The trust may enter into agreements with an insurer such that the insurer
guarantees payments of principal and/or interest on the securities. If, on the
date so specified in the prospectus supplement, the amount available to the
trust to make a payment or distribution, of principal or interest due on the
securities is less than the amount of such payment or distribution, the trustee
or indenture trustee by delivering a notice to the insurer shall demand payment
under the insurance policy in an amount equal to the deficiency. Your prospectus
supplement will describe the circumstances and manner under which payments may
be made under the insurance policy, either to you, or the trustee or the
indenture trustee, as the case may be.
CASH COLLATERAL ACCOUNT
The prospectus supplement may provide that upon the occurrence of any
servicer default, the servicer may be obligated to establish a segregated cash
collateral account as security for the servicer's obligations under the sale and
servicing agreement or pooling and servicing agreement.
YIELD SUPPLEMENT ACCOUNT; YIELD SUPPLEMENT AGREEMENT
YIELD SUPPLEMENT ACCOUNT. A yield supplement account may be established
with respect to any class or series of securities. The terms relating to any
yield supplement account will be set forth in your prospectus supplement. Each
yield supplement account will hold funds to be applied by the related trustee or
indenture trustee to provide payments to you in respect of contracts that have
annual percentage rates less than the required rate specified in your prospectus
supplement.
On each payment date, the related trustee or indenture trustee will transfer
to the collection account from monies on deposit in the yield supplement account
an amount specified in the applicable prospectus supplement in respect of the
contracts having annual percentage rates less than the required rate for that
payment date. Amounts on deposit on any payment date in the yield supplement
account in excess of the required yield supplement amount specified in the
applicable prospectus supplement, after giving effect to all payments to be made
on that payment date, will be released to the depositor. The depositor will not
have any obligation after the related closing date to deposit any amounts into
the yield supplement account even if the amount on deposit in that account is
less than the required yield supplement amount for any payment date. Monies on
deposit in the yield supplement account may be invested in investments
acceptable to the rating agencies rating the securities as being consistent with
the ratings of those securities under the circumstances and in the manner
described in the related sale and servicing agreement, pooling and servicing
agreement or yield supplement agreement. Earnings on investment of funds in the
yield supplement account in eligible investments will be paid to the person
described in your prospectus supplement on each payment date. Any monies
remaining on deposit in the yield supplement account upon the termination of the
trust also will be released to the person described in your prospectus
supplement.
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YIELD SUPPLEMENT AGREEMENT. If a yield supplement account is to be
established with respect to a series of securities, on or prior to the related
closing date, the depositor, any third party responsible for making deposits
into the yield supplement account and the related trustee or indenture trustee,
as the case may be, will enter into a yield supplement agreement with the
servicer and the entity with which the account is maintained. The depositor will
assign its rights under the yield supplement agreement to the applicable trustee
for the benefit of the applicable securityholders.
BOOK-ENTRY REGISTRATION
Each class of securities offered by this prospectus will be represented by
one or more certificates registered in the name of Cede & Co., as nominee of the
Depository Trust Company. Unless your prospectus supplement states otherwise,
you may hold your securities through DTC in the United States, or Clearstream
(formerly Cedelbank) or the Euroclear System in Europe, if you are a participant
of those systems, or indirectly through organizations that are participants in
those systems.
DTC is a limited purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered under to Section 17A of the Securities Exchange Act of 1934.
DTC was created to hold securities for its direct participants and to facilitate
the clearance and settlement of securities transactions between its direct
participants through electronic book-entries, thereby eliminating the need for
physical movement of certificates. DTC's direct participants include:
- the underwriters offering the securities to you;
- securities brokers and dealers;
- banks;
- trust companies; and
- clearing corporations, and may include other organizations.
Indirect access to the DTC system is also available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a direct participant, either directly or indirectly.
To facilitate subsequent transfers, DTC will register all deposited
securities in the name of DTC's nominee, Cede & Co. DTC has no knowledge of the
actual holders of the securities; DTC's records reflect only the identify of its
direct participants to whose accounts the securities are credited, which may or
may not be the securityholders. DTC's direct and indirect participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
You have no entitlement to receive a certificate representing your interest
in a class of securities. As long as the securities are registered in the name
of Cede & Co., any action to be taken by your or any other holders will be taken
by DTC upon instructions from DTC's participants. All distributions, notices,
reports and statements to you will be delivered to Cede & Co., as the registered
holder of the securities, for distribution to you in compliance with DTC
procedures.
You will receive all payments of principal and interest on the securities
through direct participants or indirect participants. DTC will forward the
payments to its direct participants which will forward them to the indirect
participants or securityholders. Under a book-entry format, you may experience
some delay in their receipt of payments, since payments will be forwarded to
Cede & Co. as nominee of DTC. The trustee or indenture trustee will not
recognize you as a holder of securities under the trust agreement or pooling and
servicing agreement or indenture. You may exercise the rights as a holders of
securities only indirectly through DTC and its direct participants and indirect
participants.
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Because DTC can act only on behalf of direct participants, who in turn act on
behalf of indirect participants, and on behalf of banks, trust companies and
other persons approved by it, there may be limits on your ability to pledge the
securities to persons or entities that do not participate in the DTC system, or
to otherwise act with respect to securities, due to the absence of physical
securities for the securities.
Arrangements among the various parties govern conveyance of notices and
other communications by:
- DTC to direct participants;
- by direct participants to indirect participants; and
- by direct participants and indirect participant to holders, subject to any
statutory or regulatory requirements as may be in effect from time to
time.
Standing instructions and customary practices govern payments by DTC
participants to you, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name" and will be the
responsibility of the DTC participant and not of DTC, the indenture trustee, the
trustee, the depositor or the seller, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment or distribution of
principal and interest to DTC is the responsibility of the indenture trustee or
trustee, disbursement of the payments or distributions to direct participants
shall be the responsibility of DTC and disbursement of payments to you shall be
the responsibility of the direct participants and the indirect participants.
Purchases of securities under the DTC system must be made by or through
direct participants, which will receive a credit for the securities on DTC's
records. The ownership interest of each actual holder is in turn to be recorded
on the direct participants' and indirect participants' records. You will not
receive written confirmation from DTC of your purchase, but you are expected to
receive written confirmations providing details of the transaction, as well as
periodic statements of your holdings, from the direct participant or indirect
participant through which you entered into the transaction. Entries made on the
books of DTC's participants acting on behalf of you evidence transfers of
ownership interests in the securities.
DTC has advised the depositor that it will take any action permitted to be
taken by a holder of securities only at the direction of one or more direct
participants to whose accounts with DTC the securities are credited.
Additionally, DTC has advised the depositor that to the extent that the pooling
and servicing agreement, the trust agreement or the indenture, as applicable,
requires that any action may be taken only by holders representing a specified
percentage of the aggregate outstanding principal amount of the securities, DTC
will take the action only at the direction of and on behalf of direct
participants, whose holdings include undivided interests that satisfy the
specified percentage.
DTC may discontinue providing its services as securities depositary with
respect to any class of securities at any time by giving reasonable notice to
the trustee or the indenture trustee, as applicable. Under these circumstances,
in the event that a successor securities depositary is not obtained, fully
registered, certificated securities are required to be printed and delivered. A
trust may decide to discontinue use of the system of book-entry transfers
through DTC or a successor securities depositary. In that event, fully
registered, certificated securities will be delivered to you. See "--ISSUANCE OF
DEFINITIVE SECURITIES AT A LATER DATE."
The information in this section concerning DTC and DTC's book-entry system
are from sources that the depositor believes to be reliable, but the depositor
does not take any responsibility for the accuracy of this information.
Clearstream (formerly Cedelbank) and Euroclear will hold omnibus positions
on behalf of the participants in the Clearstream and Euroclear systems,
respectively, through customers' securities
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accounts in Clearstream's and Euroclear's names on the books of their respective
depositaries which in turn will hold these positions in customers' securities
accounts in the depositaries' names on the books of DTC.
Clearstream is incorporated under the laws of Luxembourg as a professional
depositary. Clearstream holds securities for its participants and facilitates
the clearance and settlement of securities transactions between its participants
through electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates.
Indirect access to Clearstream is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Clearstream participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear and to clear and settle transactions between Euroclear's 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. The Brussels, Belgium
office of Morgan Guaranty Trust Company of New York operates Euroclear, under
contract with Euroclear Clearance Systems S.C., a Belgian cooperative
corporation. Euroclear's operator conducts all operations and all Euroclear
securities clearance accounts and Euroclear cash accounts are accounts with
Euroclear's operator. Euroclear Clearance Systems S.C. establishes policy for
Euroclear on behalf of Euroclear's participants, including banks, securities
brokers and dealers, and other professional financial intermediaries.
Indirect access to Euroclear is also available to other firms that clear
through or maintain a custodial relationship with a Euroclear participant,
either directly or indirectly.
Morgan Guaranty Trust Company of New York is the Belgian branch of a New
York banking corporation which is a member bank of the Federal Reserve System.
As such, the Board of Governors of the Federal Reserve System and the New York
Banking Department, as well as the Belgian Banking Commission, regulates and
examines it.
Euroclear holds all securities on a fungible basis without attribution of
specific certificates to specific securities clearance accounts. The Euroclear
operator acts under the Euroclear Terms and Conditions only on behalf of
Euroclear's participants, and has no record of or relationship with persons
holding through Euroclear's participants.
Transfers between direct participants will comply with DTC rules. Transfers
between Clearstream's participants and Euroclear's participants will comply with
their rules and operating procedures.
DTC will effect, under DTC rules, cross-market transfers between persons
holding directly or indirectly through DTC in the United States, on the one
hand, and directly or indirectly through Clearstream or Euroclear, on the other,
through the relevant European international clearing system through its
depository; however, these cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in this system as required by its rules and procedures and within
its established deadlines, European time. The relevant European international
clearing system will, if the transaction meets its settlement requirement,
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 using its normal procedures for same-day funds settlement
applicable to DTC. Clearstream participants and Euroclear participants may not
deliver instructions directly to the depositories.
Because of time-zone differences, credits of securities in Clearstream or
Euroclear as a result of a transaction with a DTC participant will be made
during the subsequent securities settlement processing day, dated the business
day following the DTC settlement date, and the credits or any transactions in
the securities settled during the processing day will be reported to the
relevant Clearstream participant
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or Euroclear participant on that business day. Cash received in Clearstream or
Euroclear as a result of sales of securities by or through a Clearstream
participant or a Euroclear participant to a DTC participant will be received
with value on the DTC settlement date but will be available in the relevant
Clearstream or Euroclear cash account only as of the business day following
settlement in DTC.
Although DTC, Clearstream and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of securities among participants of
DTC, Clearstream and Euroclear, they are under no obligation to perform or
continue to perform these procedures and these procedures may be discontinued at
any time.
Except as required by law, none of the seller, the performance guarantor,
the servicer, the depositor, the trustee or the indenture trustee will have any
liability for any aspect of the records relating to, actions taken or
implemented by, or payments made on account of, beneficial ownership interests
in the securities held through DTC, or for maintaining, supervising or reviewing
any records or actions relating to beneficial ownership interests.
ISSUANCE OF DEFINITIVE SECURITIES AT A LATER DATE
The trust will issue the notes, if any, and certificates, if any, in fully
registered, definitive form to beneficial owners or their nominees rather than
to DTC or its nominee, only if:
(1) DTC is no longer willing or able to discharge properly its
responsibilities as depository with respect to the securities, and the
trustee or the indenture trustee is unable to locate a qualified successor;
(2) The administrator of the trust or the trustee, as applicable, at its
option, elects to terminate the book-entry system through DTC; or
(3) After the occurrence of an event of default or a servicer default
with respect to those securities, holders representing at least a majority
of the outstanding principal amount of the notes or the outstanding
certificate balance of the certificates, as the case may be, of that series,
acting together as a single class, advise the applicable indenture trustee
or trustee through DTC in writing that the continuation of a book-entry
system through DTC with respect to those notes or certificates is no longer
in the best interests of the holders of those securities.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the applicable indenture trustee or trustee must notify all
beneficial owners for each class of securities held through DTC of the
availability of securities in fully registered, definitive form. Upon surrender
by DTC of the global note representing the securities and instructions for
reregistration, the indenture trustee or trustee will issue these fully
registered, definitive securities, and the indenture trustee or trustee will
recognize the holders of fully registered, definitive securities.
Additionally, upon the occurrence of any event described above, the
indenture trustee or trustee will distribute principal of and interest on the
securities directly to you as required by the indenture or trust agreement or
pooling and servicing agreement, as applicable. Distributions will be made by
check, mailed to your address as it appears on the register maintained by the
applicable trustee or indenture trustee. Upon at least five days' notice to
holders of a class of securities, however, the indenture trustee or trustee will
make the final payment on any security only upon presentation and surrender of
the security at the office or agency specified in the notice of final
distribution to the securityholders. The indenture trustee or trustee will make
the final payment in this manner whether the securities are in book-entry form
or definitive form.
You may transfer any fully registered, definitive security of any class at
the offices of the indenture trustee or trustee or its agent in New York, New
York, which the indenture trustee or trustee shall designate on or prior to the
issuance of any fully registered, definitive securities with respect to that
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class. There is no service charge for any registration of transfer or exchange,
but the indenture trustee or trustee may require payment of a sum sufficient to
cover any tax or other governmental charge imposed in connection with the
transfer or exchange.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summarizes the material terms of the following agreements:
- the purchase agreement pursuant to which the seller will sell and assign
all right, title and interest in the pool of contracts and the related
property to the depositor;
- the performance guarantee pursuant to which the performance guarantor will
guarantee the performance of the seller's obligations under the purchase
agreement relating to breaches of representations and warranties regarding
the contracts;
- the sale and servicing agreement or pooling and servicing agreement
pursuant to which the depositor will deposit the pool of contracts and the
related property to the trust and the servicer will agree to service those
contracts;
- the trust agreement, or in the case of a grantor trust, the pooling and
servicing agreement, pursuant to which a trust will be created and
certificates will be issued; and
- the administration agreement pursuant to which Premier Auto Finance, Inc.
will undertake specified administrative duties with respect to a trust
that issues notes.
Forms of these documents, which we collectively refer to as the "TRANSFER
AND SERVICING AGREEMENTS", have been filed as exhibits to the registration
statement of which this prospectus is a part. In addition, a copy of the
relevant transfer and servicing agreements relating to a series of securities
will be filed with the Securities and Exchange Commission following the sale of
those securities. This summary describes the material terms of each transfer and
servicing agreement. You should read the forms of the transfer and servicing
agreements filed as noted above.
SALE AND ASSIGNMENT OF CONTRACTS BY SELLER
Premier Auto Finance, L.P. will be the seller of the contracts and the
related property to the depositor for deposit into the trust. The seller will
acquire the contracts originated by the originating dealers throughout the
United States pursuant to the dealer agreements and by other third parties. In
addition, the seller may directly originate contracts.
On or before the applicable closing date, the seller will sell to the
depositor under a purchase agreement all of its interest in the following:
- the contracts and the right to receive all scheduled payments and
prepayments received on the contracts on or after the cut-off date, but
excluding any scheduled payments due on or after, but received prior to,
the cut-off date;
- security interests in the financed vehicles securing the contracts and any
related property;
- the rights to proceeds from claims on theft, physical damage, credit life
and disability insurance policies covering the financed vehicles or the
obligors;
- the seller's rights against the originating dealers under the dealer
agreements and against other third parties under the agreements pursuant
to which the seller purchased the contracts;
- certain rebates of premiums and other amounts relating to insurance
policies, extended service contracts or other repair agreements and other
items financed under the contracts; and
- all proceeds of the foregoing.
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TRANSFER OF CONTRACTS BY DEPOSITOR
Pursuant to a sale and servicing agreement or pooling and servicing
agreement, as applicable, on the applicable closing date, the depositor will
transfer to the trust all of its interest in the following:
- all property acquired by the depositor from the seller under the purchase
agreement;
- amounts that may be held in separate trust accounts maintained by the
trustee or indenture trustee for the trust, including any reserve fund or
yield supplement account;
- the depositor's rights against the seller under the purchase agreement
pursuant to which the seller sold the pool of contracts to the depositor
and against the performance guarantor under the performance guarantee
pursuant to which the performance guarantor guaranteed the seller's
obligations; and
- all proceeds of the foregoing.
The depositor will designate the servicer as custodian to maintain physical
possession, as the trust's agent, of the contracts and any other documents
relating to the contracts. To facilitate servicing and save administrative
costs, the documents will not be physically segregated from other similar
documents that are in the servicer's possession, or marked to reflect the
transfer to the trust. However, UCC financing statements will be filed in the
applicable jurisdictions reflecting:
- the sale and assignment of the contracts and the security interests in the
financed vehicles and the related property by the seller to the depositor;
- the transfer of the contracts, the security interests in the financed
vehicles, the related property and the depositor's rights against the
seller under the purchase agreement and the depositor's rights against the
performance guarantor under the performance guarantee by the depositor to
the trust; and
- if applicable, the pledge by the trust of the trust assets to the
indenture trustee.
The seller and servicer's accounting records and computer systems will also
reflect these assignments and, if applicable, the pledge. Because the contracts
will remain in the servicer's possession and will not be stamped or otherwise
marked to reflect the assignment to the trust, if a subsequent purchaser were
able to take physical possession of the contracts without knowledge of the
assignment, the trust's interest in the contracts could be defeated. In
addition, in some cases, the trust's security interest in collections that have
been received by the servicer but not yet remitted to the related collection
account could be defeated. See "LEGAL ASPECTS OF THE CONTRACTS--SECURITY
INTERESTS" in this prospectus.
The depositor will cause the applicable trustee and the indenture trustee,
if any, concurrently with the depositor's transfer and assignment of the
contracts and related property to the trust, to execute and deliver the related
notes and/or certificates to the depositor. The depositor will apply the net
proceeds received from the sale of the certificates and the notes of a given
series to the purchase of the related contracts from the seller and, to the
extent specified in the applicable prospectus supplement, to make any required
initial deposit into the reserve fund and the yield supplement account, if any.
REPRESENTATIONS AND WARRANTIES MADE BY THE SELLER AND THE DEPOSITOR
The seller and the depositor will make the following representations and
warranties, among others, regarding the contracts and the related financed
vehicles included in each pool of contracts transferred by the seller to the
depositor and by the depositor to the trust as of the related cut-off date or,
in the
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case of any contract acquired by the depositor or the trust after the closing
date, as of the date described in the prospectus supplement:
- the information with respect to the contracts provided in the schedule to
the purchase agreement, sale and servicing agreement or pooling and
servicing agreement, as applicable, is true and correct in all material
respects;
- immediately prior to the transfer of a contract, the contract was owned by
the transferring party free and clear of any lien or other adverse claim;
- the contract was originated by an originating dealer or other third party
for the retail financing of a motor vehicle and acquired by the seller in
the ordinary course of its business or originated directly by the seller
in the ordinary course of its business;
- the contract is secured by a first priority perfected security interest in
favor of the seller in the related financed vehicle;
- the contract contains customary and enforceable provisions such that the
rights and remedies of the holder thereof shall be adequate for the
realization against the financed vehicle;
- no liens or claims have been filed, including liens for work, labor,
materials or unpaid taxes relating to a financed vehicles, that would be
prior to, or equal or coordinate with the lien granted by the contract;
- no provisions of the contract have been waived, altered or modified in any
material respect, except by instruments or documents contained in the
files relating to the contract;
- the contract is a valid and binding payment obligation of the obligor and
its terms are enforceable, except as enforcement may be limited by
insolvency, bankruptcy, moratorium, reorganization, or other similar laws
affecting enforceability of creditors' rights and the availability of
equitable remedies;
- the contract is neither subject to rights of rescission, setoff,
counterclaim or defense nor is any such claim being asserted or
threatened;
- the contract, at the time it was made, complied and, as of the closing
date, complies in all material respects with the laws of the United States
or any state, including consumer credit, truth-in-lending, equal credit
opportunity and disclosure laws;
- the obligor is not subject to bankruptcy or other insolvency proceedings;
- the contract is a U.S. dollar-denominated obligation and the obligor's
billing address is located in one of the states of the United States, the
District of Columbia or Puerto Rico;
- the obligor under the contract is required to maintain casualty insurance
with respect to the related financed vehicle in an amount that is
consistent with the servicer's normal servicing requirements; and
- the contract and the financed vehicle satisfy the selection criteria for
the related pool of contracts described in the applicable prospectus
supplement.
In the event of a breach of any representation or warranty with respect to a
contract that materially and adversely affects the trust's or any noteholder's
or certificateholder's interest in the contract or the collectibility of the
contract, the depositor will be obligated to repurchase the contract from the
trust and the seller will be obligated to repurchase the contract from the
depositor. However, the depositor and the seller need not repurchase the
contract if the depositor or the seller cures the breach by the last day of the
calendar month following the calendar month in which the servicer, the trustee
or the indenture trustee becomes aware and gives notice to the depositor or the
seller of the breach or the depositor or the seller becomes aware of the breach.
Any purchase shall be made as of the last day of that calendar month at a price
equal to the remaining principal balance of the contract
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plus accrued and unpaid interest at the annual rate of interest specified in the
contract through the end of that calender month. The related trustee or the
indenture trustee may enforce this purchase obligation on your behalf, and will
constitute your sole remedy available against the depositor or the seller for
any uncured breach of its representations and warranties in the sale and
servicing agreement or pooling and servicing agreement, as applicable, and the
purchase agreement, except that the seller will indemnify:
- the related trustees,
- the related trust, and
- you
against losses, damages, liabilities and claims which may be asserted
against any of them as a result of third-party claims arising out of the facts
giving rise to that breach.
Upon the purchase by the seller of a contract, the indenture trustee, if
any, the trust and the depositor will release the contract and its interest in
the related financed vehicles to the seller.
PERFORMANCE GUARANTEE
In the event the seller fails to repurchase a contract that it is obligated
to repurchase pursuant to a purchase agreement, then the performance guarantor
will be obligated to repurchase the contract.
COLLECTION ACCOUNT
In the case of a trust issuing notes, the indenture trustee will establish
and maintain the collection account in the name of the indenture trustee for the
benefit of the noteholders under the indenture. In the case of a trust issuing
only certificates, the trustee will maintain the collection account in the name
of the trustee for the benefit of the certificateholders under the pooling and
servicing agreement. The servicer will deposit the following amounts into the
collection account no later than the second business day after processing by the
servicer:
- all payments made by the obligors under the contracts;
- all proceeds of the contracts and the financed vehicles; and
- all payments made by the depositor under the sale and servicing agreement
or pooling and servicing agreement to repurchase any contract as a result
of a breach of a representation or warranty, as described under
"REPRESENTATIONS AND WARRANTIES MADE BY THE SELLER AND THE DEPOSITOR"
above.
However, if the conditions to making monthly deposits into the collection
account set forth in the applicable sale and servicing agreement or pooling and
servicing agreement (including the satisfaction of the minimum ratings of the
servicer and the absence of a servicer default) are satisfied and if permitted
by the rating agencies rating the securities, the servicer may retain
collections received on the contracts during each month until the business day
immediately prior to the related payment date. Pending deposit into the
collection account, the servicer will not be obligated to segregate collections
from its own funds and may use collections for its own benefit. To the extent
set forth in the applicable prospectus supplement, the servicer may, in order to
satisfy the requirements set forth in the sale and servicing agreement or
pooling and servicing agreement obtain a letter of credit or other security for
the benefit of the related trust to secure timely remittances of collections on
the contracts.
The servicer may withdraw from the collection account any amounts deposited
in error or required to be repaid to an obligor, based on the servicer's
good-faith determination that the amount was deposited in error or must be
returned to the obligor.
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Collections on a contract made during a month will be applied in the
following order:
- first, to reimburse any outstanding advances made by the servicer with
respect to the contract;
- second, to the related scheduled payment, in the case of a precomputed
contract, or to interest accrued to date and then to principal until the
principal balance is brought current, in the case of a simple interest
contract; and
- third, to pay any late fees or extension fees owing.
Any collections on a contract remaining after those applications will be
considered an "EXCESS PAYMENT". Excess payments constituting a prepayment in
full of precomputed contracts and any excess payments relating to simple
interest contracts will be applied as a prepayment of principal. All other
excess payments in respect of precomputed contracts will be held by the
servicer, or if the servicer has not satisfied the requirements to deposit
collections on the contracts monthly as described above, deposited in an account
to be established with the indenture trustee or the trustee for the benefit of
the securityholders to be held until the payment date following the month during
which such prepaid amount would have been due under the related contract.
SERVICING
The servicer will be obligated under the sale and servicing agreement or
pooling and servicing agreement, as applicable, to service the contracts with
reasonable care, using that degree of skill and attention that the servicer
generally exercises with respect to all comparable motor vehicle retail
installment contracts it services for itself and others in accordance with its
credit and collections policies and applicable law. In performing these duties,
the servicer shall comply in all material respects with its credit and
collection policies and procedures described above under "THE
SERVICER--UNDERWRITING AND ORIGINATION", as modified from time to time. The
servicer may delegate servicing responsibilities to third parties or affiliates,
provided that the servicer will remain obligated to the related trust for the
proper performance of its servicing responsibilities.
The servicer is responsible for:
- reviewing the contract files;
- monitoring and tracking any property and sales taxes to be paid by
obligors;
- billing, collecting and recording payments from obligors;
- communicating with and providing billing records to obligors;
- depositing funds into the collection account;
- receiving payments as the trust's agent on the insurance policies
maintained by the obligors and communicating with insurers;
- issuing reports to the trustee and indenture trustee, if any, specified in
the relevant transfer and servicing agreements;
- repossessing and remarketing financed vehicle following obligor defaults;
and
- paying the fees and ordinary expenses of the trusts and the trustees.
The servicer is obligated to act in a commercially reasonable manner with
respect to the repossession and disposition of financed vehicles following a
contract default with a view to realizing proceeds at least equal to the
financed vehicle's fair market value.
If the servicer determines that eventual payment in full of a contract is
unlikely, the servicer will follow its normal practices and procedures to
recover all amounts due upon that contract, including repossessing and disposing
of the related financed vehicle at a public or private sale, or taking any other
action permitted by applicable law. See "LEGAL ASPECTS OF THE CONTRACTS" in this
prospectus. The servicer will be entitled to recover all reasonable
out-of-pocket expenses incurred by it in liquidating a contract and disposing of
the related financed vehicle.
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The servicer will be permitted to grant payment extensions on a contract in
accordance with its credit and collection policies and procedures if the
servicer believes in good faith that an extension is necessary to avoid
liquidation of the contract and will maximize the amount to be received by the
trust under the contract provided that the final scheduled payment date on the
contract, as extended, would not be later than the month preceding the latest
final scheduled payment date set forth in the applicable prospectus supplement
and the rescheduling or extension would not modify the terms of the contract in
a manner which constitutes a cancellation of the contract and the creation of a
new contract for federal income tax purposes.
Subject to the limitations described below, the servicer will be permitted
to agree to modifications or amendments to a contract in accordance with its
credit and collection polices and guidelines.
The servicer will covenant that it will not:
- release any financed vehicle from the security interest granted in the
related contract;
- do anything to impair the trust's rights in the contracts;
- alter the annual percentage rate of any contract;
- modify the number of payments under a contract; or
- increase the amount financed under a contract.
In the event of any breach by the servicer of these covenants with respect
to a contract that materially and adversely affects the trust's or the
noteholders' or certificateholders' interest in the contract or the
collectibility of the contract, the servicer will be obligated to purchase the
contract. However, the servicer need not do so if the servicer cures the breach
by the last day of the calendar month following the calendar month in which the
servicer becomes aware of the breach or the trustee or the indenture trustee
gives notice to the servicer of the breach. Any purchase shall be made as of the
last day of that calendar month at a price equal to the remaining principal
balance of the contract plus accrued and unpaid interest at the annual rate of
interest specified in the contract through the end of that calendar month. The
related trustee or indenture trustee may enforce this purchase obligation on
your behalf and this will constitute your sole remedy available against the
servicer for any uncured breach of those covenants, except that the servicer
will indemnify:
- the related trustee(s);
- the related trust; and
- you
against losses, damages, liabilities and claims which may be asserted against
any of them as a result of third-party claims out of facts giving rise to that
breach.
EVIDENCE AS TO COMPLIANCE
Annually, the servicer will be obligated to deliver to the trustee and the
indenture trustee if any, a report from a nationally recognized accounting firm
stating that the accounting firm has audited the financial statements of the
servicer's direct or indirect parent and issued an opinion on those financial
statements and that the accounting firm has examined and provided a report as to
the servicer's controls over the servicing of the contracts.
Annually the servicer will be obligated to deliver to the trustee and the
indenture trustee, if any, a certificate signed by an officer stating that the
servicer has fulfilled its obligations under the sale and servicing agreement or
the pooling and servicing agreement, as applicable, during the preceding twelve-
month period in all material respects or, if there has been a default in the
fulfillment of any obligation, describing such default.
You may obtain copies of these reports and certificates by delivering a
request in writing to the trustee or the indenture trustee, as the case may be,
at the address set forth in your prospectus supplement.
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SERVICER DEFAULT
A servicer default under a sale and servicing agreement or a pooling and
servicing agreement will occur if:
- the servicer fails to make any required payment or deposit or fails to
direct the trustee or the indenture trustee to make any required
distributions and the failure continues for five business days after
written notice from the trustee or indenture trustee or discovery by the
servicer;
- the servicer fails to observe in any material respect any agreements of
the servicer set forth in the sale and servicing agreement or the pooling
and servicing agreement and the failure (1) materially and adversely
affects the rights of the noteholders or the certificateholders, and
(2) continues unremedied for 30 days after written notice to the servicer
by the trustee or the indenture trustee or by holders of more than 25% of
the aggregate principal amount of the notes or the class or classes of
notes described in your prospectus supplement issued by the trust or, if
the trust has no notes outstanding, by holders of more than 25% of the
aggregate certificate balance of the certificates or the class or classes
of certificates described in your prospectus supplement;
- events of bankruptcy or insolvency occur with respect to the servicer; or
- any representation, warranty or statement of the servicer made under the
sale and servicing agreement or the pooling and servicing agreement is
incorrect in any material respect, and (1) has a material adverse effect
on the noteholders or the certificateholders, and (2) continues uncured
for 30 days after written notice to the servicer by the trustee or the
indenture trustee or by holders of more than 25% of the aggregate
principal amount of the notes or the class or classes of notes described
in your prospectus supplement issued by the trust or, if the trust has no
notes outstanding, by holders of more than 25% of the aggregate
certificate balance of the certificates or the class or classes of
certificates described in your prospectus supplement.
RIGHTS UPON SERVICER DEFAULT
If a servicer default remains unremedied, the indenture trustee or the
holders of more than 50% of the aggregate principal amount of the notes or the
class or classes of notes described in your prospectus supplement issued by the
trust or, if the trust has no notes outstanding, the trustee or the holders of
more than 50% of the aggregate certificate balance of the certificates or the
class or classes of certificates described in your prospectus supplement may
terminate all of the rights and obligations of the servicer under the sale and
servicing agreement or pooling and servicing agreement. When this happens, the
indenture trustee, the trustee or a successor servicer selected by the indenture
trustee or the trustee will succeed to all the responsibilities, duties and
liabilities of the servicer under the sale and servicing agreement or pooling
and servicing agreement.
If the indenture trustee or the trustee is unwilling or unable to act as the
successor servicer, it may appoint, or petition a court to appoint, a successor
servicer. The indenture trustee or the trustee may arrange for compensation to
the successor servicer but that compensation may not exceed the base servicing
fee payable to the servicer. Any successor servicer will not be liable for any
acts or omissions of the prior servicer occurring prior to a transfer of the
servicer's servicing and related functions or for any breach by the prior
servicer of any of its obligations.
If a trust has notes outstanding, the holders of more than 50% of the
aggregate principal amount of the notes or the class or classes of notes
described in your prospectus supplement may waive any servicer default, other
than a default in making any required deposits into the collection account. If a
trust has no notes outstanding, the holders of more than 50% of the aggregate
certificate balance of the certificates or the class or classes of certificates
described in your prospectus supplement issued by the trust may waive any
servicer default, other than a default in making any required deposits into the
collection account.
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MATTERS REGARDING THE SERVICER
The servicer may not resign from its obligations under the sale and
servicing agreement or pooling and servicing agreement except if its duties are
no longer permissible under applicable law. No resignation will become effective
until a successor servicer has assumed the servicer's obligations and duties
under the sale and servicing agreement or pooling and servicing agreement.
Removal of the servicer is permissible only upon the occurrence of a servicer
default as discussed above.
The servicer will be obligated to maintain an insurance policy or financial
guarantee bond in customary form covering errors and omissions by the servicer.
Each sale and servicing agreement and pooling and servicing agreement will
provide that neither the servicer nor any of its directors, officers, employees
or agents will be under any liability to the trust or you for taking any action
or for refraining from taking any action pursuant to that agreement or for
errors in judgment; except that neither the servicer nor any person will be
protected against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance of the
servicer's duties under that agreement or by reason of reckless disregard of its
obligations and duties under that agreement.
In addition, the servicer will not be obligated to appear in, prosecute or
defend any legal action that is not incidental to the servicer's servicing
responsibilities under the related sale and servicing agreement or pooling and
servicing agreement and that, in its opinion, may cause it to incur any expense
or liability. The servicer may, however, undertake any reasonable action that it
may deem necessary or desirable in respect of that agreement, the rights and
duties of the parties thereto and the interests of the securityholders under
that agreement. In that event, the legal expenses and costs of that action and
any liability resulting therefrom will be expenses, costs and liabilities of the
servicer, and the servicer will not be entitled to be reimbursed therefor.
The servicer may at any time without notice or consent (a) delegate
substantially all of its duties under a sale and servicing agreement or pooling
and servicing agreement, as the case may be, to any corporation more than 50% of
the voting stock of which is owned directly or indirectly by Aon Corporation or
(b) perform specific duties under a sale and servicing agreement or pooling and
servicing agreement, as the case may be, through subcontractors. In no event
will such delegation or subcontracting relieve the servicer of its duties under
that sale and servicing agreement or pooling and servicing agreement, for which
the servicer shall remain primarily responsible.
Under the circumstances specified in each sale and servicing agreement or
pooling and servicing agreement, any entity into which the servicer may be
merged or consolidated, or any entity resulting from any merger or consolidation
to which the servicer is a party, or any entity succeeding to all or
substantially all of the business of the servicer will be the successor of the
servicer under that agreement.
The servicer will indemnify:
- the related trustee(s);
- the related trust; and
- you
against losses, damages, liabilities and expenses incurred by reason of the
servicer's bad faith or gross negligence in the performance of its obligations
under the sale and servicing agreement or pooling and servicing agreement, as
the case may be or resulting from the use, ownership or operation by the
servicer of a financed vehicle.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Compensation to the servicer will include a base monthly fee equal:
- to the product of the percentage per annum specified in your prospectus
supplement multiplied by the beginning monthly principal balance of the
contracts,
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plus any
- late fees;
- prepayment charges, if any;
- documentation fees;
- extension fees and other administrative charges; and
- if specified in the prospectus supplement, investment earnings on funds
deposited in the trust accounts.
The servicer will pay all expenses incurred by it in connection with its
activities under the transfer and servicing agreements. The servicer will be
authorized to waive any administrative fees or extension fees that may be
collected in the ordinary course of servicing any contract.
STATEMENTS TO TRUSTEES AND TRUST
On or prior to each payment date the servicer will provide to the applicable
indenture trustee, if any, and the applicable trustee a statement setting forth
with respect to a series of securities substantially the same information that
is required to be provided in the periodic reports to be provided to
securityholders of that series described under "--STATEMENTS TO SECURITYHOLDERS"
below.
STATEMENTS TO SECURITYHOLDERS
With respect to each series of securities that includes notes, on or prior
to each payment date, the servicer will prepare and provide to the related
indenture trustee a statement to be delivered to you on that payment date. With
respect to each series of securities that includes certificates, on or prior to
each payment date, the servicer will prepare and provide to the related trustee
a statement to be delivered to you on the payment date. Each statement will
include the following information:
- the amount of the payment allocable to the principal amount of each class
of those notes and to the certificate balance of each class of those
certificates;
- the amount of the payment allocable to interest on each class of
securities of that series;
- the amount of the distribution allocable to the yield supplement deposit,
if any;
- the aggregate principal balance of the contracts as of the close of
business on the last day of the preceding month;
- the amount of base servicing fees paid to the servicer;
- the interest rate or pass-through rate for the interest period relating to
the succeeding payment date for any class of notes or certificates of that
series with variable or adjustable rates;
- the amount, if any, otherwise distributable to one or more subordinated
classes of notes or certificates that has instead been distributed to more
senior classes of notes or certificates on that payment date;
- the outstanding principal amount and the note factor for each class of
those notes, and the certificate balance and the certificate factor for
each class of those certificates, each after giving effect to all payments
allocable to the principal of each class of notes and to the certificate
balance of the certificates on that date;
- the amount of advances made by the servicer in respect of the related
contracts and the preceding month and the amount of unreimbursed advances
in respect of contracts determined by the servicer to be defaulted
contracts during that month;
- the balance of any related reserve fund, yield supplement account or other
credit or liquidity enhancement on that date, after giving effect to
changes thereto on that date and the amount of those changes;
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- during the funding period, the remaining amount on deposit in the
pre-funding account on the last day of the preceding month;
- for the first such date that is on or immediately following the end of the
funding period, the amount remaining in the pre-funding account to be used
to make a payment or distribution of principal on the securities issued by
the trust; and
- the total amount of monthly prepayments determined by the servicer to be
due in one or more future months on deposit in the related trust account
or held by the servicer, if permitted by the rating agencies rating the
securities, with respect to the related contracts and the change in that
amount from the immediately preceding payment date.
You may obtain copies of the statements by delivering a request in writing
addressed to the applicable trustee or indenture trustee at its address set
forth in your prospectus supplement.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of each trust, the applicable trustee
will mail to each person who at any time during that calendar year has been a
securityholder with respect to that trust and received any payment a statement
containing information for the purposes of that securityholder's preparation of
federal income tax returns. See "MATERIAL FEDERAL INCOME TAX CONSEQUENCES" in
this prospectus.
ADVANCES
If the scheduled payment due on a precomputed contract is not received in
full by the end of the month in which it is due, the servicer will make an
advance to the trust in an amount equal to the shortfall. If the scheduled
payment on a simple interest contract is not received in full by the end of the
month in which it is due, the servicer will make an advance to the trust in an
amount equal to the product of the principal balance of the simple interest
contract as of the first day of that month and one-twelfth of its annual
percentage rate minus the amount of interest actually received on the simple
interest contract during that month. No advances of principal will be made with
respect to simple interest contracts. The servicer will not be obligated to make
an advance to the extent that it determines, in its sole discretion, that the
advance will not be recovered from subsequent collections on or in respect of
the related contract.
All advances shall be reimbursable to the servicer, without interest, if and
when a payment relating to a contract with respect to which an advance has
previously been made is subsequently received. In addition, upon the
determination by the servicer that a contract is a defaulted contract, it will
be entitled to recover unreimbursed advances in respect of that contract from
collections on or in respect of other contracts. A defaulted contract is any
contract (a) all or part of a scheduled payment is 120 days or more than
120 days past due and the servicer has not repossessed the related financed
vehicle, (b) the servicer has, in accordance with its customary servicing
procedures, determined that eventual payment in full is unlikely and has either
repossessed and liquidated the related financed vehicle or repossessed and held
the related financed vehicle in its repossessed inventory for 90 days, which
ever occurs first, or (c) as to which the obligor has suffered an insolvency
event.
NET DEPOSITS
As an administrative convenience and as long as specified conditions are
satisfied, the servicer will be permitted to make the deposit of collections,
aggregate advances and payments for purchases of contracts from the trust for or
with respect to a month net of payments to be made to the servicer with respect
to that month. The servicer may cause to be made a single, net transfer to the
collection account. The servicer, however, will account to the related trustee,
and you with respect to each trust as if all deposits, payments and transfers
were made individually. With respect to any trust that issues both certificates
and notes, if the related payment dates are not the same for all classes of
securities, all distributions, deposits or other remittances made on a payment
date will be treated as having been distributed, deposited or remitted on the
same payment date for the applicable month for purposes of determining other
amounts required to be distributed, deposited or otherwise remitted on a payment
date.
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LIST OF SECURITYHOLDERS
Three or more holders of the notes of any class in a series or one or more
holders of those notes of that class evidencing not less than 25% of the
aggregate principal amount of those notes then outstanding may, by written
request to the related indenture trustee, obtain access to the list of all
noteholders maintained by that indenture trustee for the purpose of
communicating with other noteholders with respect to their rights under the
related indenture or under those notes. An indenture trustee may elect not to
afford the requesting noteholders access to the list of noteholders if it agrees
to mail the desired communication or proxy, on behalf of and at the expense of
the requesting noteholders, to all noteholders of that series.
Three or more holders of the certificates of any class in a series or one or
more holders of those certificates of that class evidencing not less than 25% of
the certificate balance of those certificates may, by written request to the
related trustee, obtain access to the list of all certificateholders maintained
by that trustee for the purpose of communicating with other certificateholders
with respect to their rights under the related trust agreement or pooling and
servicing agreement or under those certificates.
The related trustee will provide to the servicer within 15 days after
receipt of a written request from the servicer, a list of the names of all
noteholders or certificateholders of record as of the most recent applicable
record date.
No transfer and servicing agreement will provide for the holding of annual
or other meetings of securityholders.
INSOLVENCY OF TRUST
Each trust agreement will provide that the related trustee does not have the
power to commence a voluntary proceeding in bankruptcy with respect to the
related trust without the unanimous prior approval of all certificateholders of
that trust and the delivery to that trustee by each certificateholder of a
certificate certifying that that certificateholder reasonably believes that that
trust is insolvent.
PAYMENT OF NOTES
Upon the payment in full of all outstanding notes issued by a trust and the
satisfaction and discharge of the related indenture, the trustee will succeed to
all the rights of the indenture trustee, and the certificateholders of that
series will succeed to all the rights of the noteholders of that series, under
the related sale and servicing agreement, except as otherwise provided in the
sale and servicing agreement.
ADMINISTRATION AGREEMENT
Premier Auto Finance, Inc., in its capacity as administrator, will enter
into an administration agreement with each trust that issues notes and the
related indenture trustee pursuant to which the administrator will agree to
provide notices and perform other administrative obligations of the trust under
the related indenture. For its services under the administration agreement the
administrator may be entitled to receive a monthly administration fee, which
administration fee will be paid by the servicer. The amount of the
administration fee, if any, will be set forth in your prospectus supplement.
AMENDMENT
The parties may, without your consent, correct or supplement any provision
in the transfer and servicing agreements that is ambiguous or inconsistent with
any other provision in the transfer and servicing agreements. In addition, the
parties may amend any transfer and servicing agreement without the consent of
any securityholder to add any provisions to or change in any manner or eliminate
any of the provisions of a transfer and servicing agreement if the indenture
trustee or trustee receives an opinion of counsel that the modification will not
have a material adverse effect on the securityholders.
Any transfer and servicing agreement may also be amended in any respect by
the parties with the consent of the holders of more than 50% of the aggregate
principal amount of the notes or the class or
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classes of the notes described in your prospectus supplement issued by the trust
or, if the trust has no notes outstanding, the holders of more than 50% of the
aggregate certificate balance of the certificates or the class or classes of the
certificates described in your prospectus supplement, except that no amendment:
- that reduces the amount or changes the timing of any collections on any
contracts or payments required to be distributed on any security;
- that changes the interest rate on any security, that adversely affects the
priority of payment of principal or interest to the securityholders; or
- that reduces the percentage of securityholders required to consent to
these amendments or any waiver under the transfer and servicing agreement,
may be effective without the consent of the holder of each security. Also, an
amendment under the foregoing sentence will not be effective unless each rating
agency rating the securities at the request of the depositor confirms that the
amendment will not result in a reduction, qualification or withdrawal of the
ratings on the securities.
LEGAL ASPECTS OF THE CONTRACTS
GENERAL
The transfer of the contracts to the applicable trust, the perfection of the
security interests in the contracts and the enforcement of rights to realize on
the financed vehicles as collateral for the contracts are subject to a number of
federal and state laws. Uniform Commercial Code financing statements will be
filed in the applicable jurisdictions reflecting the transfer of the contracts,
the security interests in the financed vehicles and the related property by the
seller to the depositor and by the depositor to the trust. Another person could
acquire an interest in a contract that is superior to that of the trust because
the servicer will retain possession of the contracts and the contracts will not
be segregated or marked as belonging to the trust. If a person purchases
contracts, or takes a security interest therein, for value in the ordinary
course of its business and obtains possession of the contracts without actual
knowledge of the trust's interest, that person will acquire an interest in the
contracts superior to the interest of the trust.
SECURITY INTERESTS
GENERAL
In states in which the contracts evidence the credit sale of motor vehicles
by originating dealers to obligors, the contracts also constitute personal
property security agreements and include grants of security interests in the
vehicles under the applicable Uniform Commercial Code. Perfection of security
interests in financed motor vehicles is generally governed by the motor vehicle
registration laws of the state in which the vehicle is located. In most states,
a security interest in a motor vehicle is perfected by obtaining possession of
the certificate of title to the motor vehicle or notation of the secured party's
lien on the motor vehicle's certificate of title.
All contracts acquired by the seller from the originating dealers will name
the seller as obligee or assignee and as the secured party. The seller will also
take all actions necessary under the laws of the state in which the related
financed vehicle is located to perfect its security interest in that financed
vehicle, including, where applicable, having a notation of its lien recorded on
the related certificate of title and/or obtaining possession of that certificate
of title. Because Premier Auto Finance, Inc. will continue to service the
contracts as servicer under the sale and servicing agreement or the pooling and
servicing agreement, as applicable, the obligors on the contracts will not be
notified of the sale from the seller to the depositor or the sale from the
depositor to the related trust.
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PERFECTION
The seller will sell and assign its security interest in the financed
vehicles to the depositor and the depositor will assign its security interest in
the financed vehicles to the trust. However, because of the administrative
burden and expense, none of the seller, the depositor or the related trust will
amend any certificate of title to identify that trust as the new secured party
on that certificate of title relating to a financed vehicle. However, UCC
financing statements with respect to the transfer to the depositor of the
seller's security interest in the financed vehicles and the transfer to the
trust of the depositor's security interest in the financed vehicles will be
filed. In addition, the servicer will continue to hold any certificates of title
relating to the financed vehicles in its possession as custodian for that trust.
See "DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS" in this prospectus.
In most states, an assignment is an effective conveyance of a security
interest without amendment of any lien noted on a motor vehicle's certificate of
title. Although re-registration of the motor vehicle is not necessary to convey
a perfected security interest in the financed vehicles to the trust, because the
trust will not be listed as lienholder on the certificates of title, the
security interest of that trust in the vehicle could be defeated through fraud,
forgery, negligence or error. In the absence of fraud or forgery by the motor
vehicle owner or the servicer or administrative error by state or local
agencies, the notation of the seller's lien on the certificates of title will be
sufficient to protect the trust against the rights of subsequent purchasers of a
financed vehicle or subsequent lenders who take a security interest in a
financed vehicle. The seller and depositor will each represent and warrant that
the seller had a perfected security interest in each financed vehicle. If there
are any financed vehicles as to which the seller failed to obtain a perfected
security interest, the security interest of the trust would be subordinate to,
among others, subsequent purchasers of the financed vehicles and holders of
perfected security interests in the financed vehicles. To the extent that
failure has a material and adverse effect on the trust's or any securityholder's
interest in the related contract or the collectibility of the contract, however,
it would constitute a breach of the warranties of the seller and the depositor.
Accordingly, the depositor would be required to repurchase the related contract
from the trust and the seller, or performance guarantor in the event of the
seller's nonperformance, would be required to purchase that contract from the
depositor, unless the breach was cured. The depositor will assign to the related
trust its rights to cause the seller to repurchase that contract under the
related purchase agreement. See "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS" and "RISK FACTORS--INTERESTS OF OTHER PERSONS IN THE CONTRACTS OR
THE FINANCED VEHICLES COULD REDUCE FUNDS AVAILABLE TO MAKE PAYMENTS ON YOUR
SECURITIES" in this prospectus.
CONTINUITY OF PERFECTION
Under the laws of most states, the perfected security interest in a vehicle
would continue for four months after the motor vehicle is moved to a state that
is different from the one in which it is initially registered and thereafter
until the owner re-registers the motor vehicle in the new state. A majority of
states generally require surrender of a certificate of title to re-register a
motor vehicle. In those states, such as California, that require a secured party
to hold possession of the certificate of title to maintain perfection, the
secured party would learn of the re-registration through the request from the
obligor under the related contract to surrender possession of the certificate of
title. In the case of motor vehicles registered in states providing for the
notation of a lien on the certificate of title but not possession by the secured
party, such as Texas, the secured party would receive notice of surrender from
the state of re-registration if the security interest is noted on the
certificate of title. Thus, the secured party would have the opportunity to
re-perfect its security interest in the vehicle in the state of relocation.
However, these procedural safeguards will not protect the secured party if
through fraud, forgery or administrative error, the obligor somehow procures a
new certificate of title that does not list the secured party's lien.
Additionally, in states that do not require a certificate of title for
registration of a motor vehicle, re-registration could defeat perfection. In the
ordinary course of servicing the contracts, the servicer will take steps to
effect re-perfection upon receipt of notice of re-registration or information
from the obligor as to relocation. Similarly, when an obligor sells a
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financed vehicle, the servicer must surrender possession of the certificate of
title or will receive notice as a result of its lien noted on the certificate of
title and accordingly will have an opportunity to require satisfaction of the
related contract before release of the lien. The servicer will be obligated to
take appropriate steps, at the servicer's expense, to maintain perfection of
security interests in the financed vehicles and will be obligated to purchase
the related contract if it fails to do so and that failure has a material and
adverse effect on the trust's or any securityholder's interest in the contract
or the collectibility of the contract.
PRIORITY OF LIENS ARISING BY OPERATION OF LAW
Under the laws of most states, liens for repairs performed on a motor
vehicle and liens for unpaid taxes take priority over even a perfected security
interest in a financed vehicle. The Internal Revenue Code also grants priority
to specified federal tax liens over the lien of a secured party. The laws of
some states and federal law permit the confiscation of motor vehicles by
governmental authorities under some circumstances if used in unlawful
activities, which may result in the loss of a secured party's perfected security
interest in the confiscated vehicle. The seller will represent and warrant to
the depositor and the depositor will represent and warrant to the trust that, to
its knowledge, as of the related closing date, each security interest in a
financed vehicle is prior to all other present liens upon and security interests
in that financed vehicle. However, liens for repairs or taxes could arise, or
the confiscation of a financed vehicle could occur, at any time during the term
of a contract. No notice will be given to related trustee or you in respect of a
given trust if a lien arises or confiscation occurs that would not give rise to
the depositor's or seller's (or performance guarantor's) repurchase obligation.
REPOSSESSION
In the event of default by an obligor, the holder of the related contract
has all the remedies of a secured party under the UCC, except where specifically
limited by other state laws. Among the UCC remedies, the secured party has the
right to perform repossession by self-help means, unless it would constitute a
breach of the peace or is otherwise limited by applicable state law. Unless a
motor vehicle financed by the seller is voluntarily surrendered, self-help
repossession is the method employed by the servicer in most states and is
accomplished simply by retaking possession of the financed vehicle. In cases
where an obligor objects or raises a defense to repossession, or if otherwise
required by applicable state law, a court order must be obtained from the
appropriate state court, and that vehicle must then be recovered in accordance
with that order. In some jurisdictions, the secured party is required to notify
that obligor of the default and the intent to repossess the collateral and to
give that obligor a time period within which to cure the default prior to
repossession. In some states, an obligor has the right to reinstate its contract
and recover the collateral by paying the delinquent installments or other
amounts due.
NOTICE OF SALE; REDEMPTION RIGHTS
The UCC and other state laws require the secured party to provide an obligor
with reasonable notice of the date, time and place of any public sale and/or the
date after which any private sale of the collateral may be held. In most states,
an obligor has the right to redeem the collateral prior to actual sale by paying
the secured party the unpaid principal balance of the obligation, accrued
interest on the obligation plus reasonable expenses for repossessing, holding
and preparing the collateral for disposition and arranging for its sale, plus,
in some jurisdictions, reasonable attorneys' fees. In some states, an obligor
has the right to redeem the collateral prior to actual sale by payment of
delinquent installments or the unpaid balance.
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DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of the motor vehicle generally will be applied first
to the expenses of resale and repossession and then to the satisfaction of the
indebtedness. While some states impose prohibitions or limitations on deficiency
judgments if the net proceeds from resale do not cover the full amount of the
indebtedness, a deficiency judgment can be sought in those states that do not
prohibit or limit those judgments. In addition to the notice requirement
described above, the UCC requires that every aspect of the sale or other
disposition, including the method, manner, time, place and terms, be
"commercially reasonable." Generally, courts have held that when a sale is not
"commercially reasonable," the secured party loses its right to a deficiency
judgment. However, the deficiency judgment would be a personal judgment against
the obligor for the shortfall, and a defaulting obligor can be expected to have
very little capital or sources of income available following repossession.
Therefore, in many cases, it may not be useful to seek a deficiency judgment or,
if one is obtained, it may be settled at a significant discount or be
uncollectible. In addition, the UCC permits the obligor or other interested
party to recover for any loss caused by noncompliance with the provisions of the
UCC. Also, prior to a sale, the UCC permits the obligor or other interested
person to prohibit the secured party from disposing of the collateral if it is
established that the secured party is not proceeding in accordance with the
"default" provisions under the UCC.
Occasionally, after resale of a repossessed vehicle and payment of all
expenses and indebtedness, there is a surplus of funds. In that case, the UCC
requires the creditor to remit the surplus to any holder of a subordinate lien
with respect to that vehicle or if no lienholder exists, the UCC requires the
creditor to remit the surplus to the obligor.
BANKRUPTCY CONSIDERATIONS
The depositor has taken steps that are intended to make it unlikely that the
voluntary or involuntary application for relief by the seller under the United
States Bankruptcy Code or similar applicable state laws will result in
consolidation of the assets and liabilities of the depositor with those of the
seller. These steps include the creation of the depositor as a wholly-owned,
limited purpose subsidiary pursuant to articles of incorporation and bylaws
containing restrictions on the nature of the depositor's business and on its
ability to commence a voluntary case or proceeding under any insolvency law
without the unanimous affirmative vote of all of its directors. In addition, to
the extent that the seller granted a security interest in the contracts to the
depositor, and that interest was validly perfected before the bankruptcy or
insolvency of the seller and was not taken or granted in contemplation of
insolvency or with the intent to hinder, delay or defraud the seller or its
creditors, that security interest should not be subject to avoidance, and
payments to the trust with respect to the contracts should not be subject to
recovery by a creditor or trustee in bankruptcy of the seller.
However, delays in payments on the securities and possible reductions in the
amount of those payments could occur if:
1. a court were to conclude that the assets and liabilities of the
depositor should be consolidated with those of the seller in the event of
the application of applicable insolvency laws to the seller, as the case
may be;
2. a filing were made under any insolvency law by or against the depositor;
or
3. an attempt were to be made to litigate any of the foregoing issues.
On each closing date, Winston & Strawn will give an opinion to the effect
that, based on a reasoned analysis of analogous case law, although there is no
precedent based on directly similar facts, and, subject to facts, assumptions
and qualifications specified in the opinion and applying the principles set
forth in the opinion, in the event of a voluntary or involuntary bankruptcy case
in respect of the seller under Title 11 of the United States Bankruptcy Code at
a time when the seller was insolvent, the
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property of the seller would not properly be substantively consolidated with the
assets of the depositor. Among other things, that opinion will assume that each
of the depositor and the seller will follow specified procedures in the conduct
of its affairs, including maintaining records and books of account separate from
those of the other, refraining from commingling its assets with those of the
other, and refraining from holding itself out as having agreed to pay, or being
liable for, the debts of the other. The depositor and the seller intend to
follow these and other procedures related to maintaining their separate
identities. However, there can be no assurance that a court would not conclude
that the assets and liabilities of the depositor should be consolidated with
those of the seller.
The seller will warrant that the sale of the related contracts to the
depositor is a valid sale. Notwithstanding the foregoing, if the seller were to
become a debtor in a bankruptcy case, a court could take the position that the
sale of contracts to the depositor should instead be treated as a pledge of
those contracts to secure a borrowing of the seller. If a court were to reach
such conclusions, or a filing were made under any insolvency law by or against
the depositor, or if an attempt were made to litigate any of the foregoing
issues, delays and possible reduction in payments on the securities could occur.
In addition, if the transfer of contracts to the depositor is treated as a
pledge instead of a sale, a tax or government lien on the property of the seller
arising before the transfer of a contract to the depositor may have priority
over the depositor's interest in that contract.
The seller and the depositor will treat the transactions described in this
prospectus as a sale of the contracts to the depositor, so that the automatic
stay provisions of the United States Bankruptcy Code should not apply to the
contracts if the seller were to become a debtor in a bankruptcy case.
Furthermore, if an originating dealer or the seller became a debtor in a
bankruptcy case, creditors of that party, or that party acting as
debtor-in-possession, may assert that the transfer of the contracts was
ineffective to remove the contracts from that party's estate. In that case, the
distribution of payments on the contracts to the trust might be subject to the
automatic stay provisions of the United States bankruptcy code. This would delay
the distribution of those payments to you for an uncertain period of time.
Furthermore, reductions in payments under the contracts to the trust may result
if the bankruptcy court rules in favor of the creditors or the
debtor-in-possession. In either case, you may experience delays or reductions in
distributions or payments to you. In addition, a bankruptcy trustee would have
the power to sell the contracts if the proceeds of the sale could satisfy the
amount of the debt deemed owed by the originating dealer or the seller, as the
case may be. The bankruptcy trustee could also substitute other collateral in
lieu of the contracts to secure the debt. Additionally, the bankruptcy court
could adjust the debt if the originating dealer or the seller were to file for
reorganization under Chapter 11 of the bankruptcy code. Any of these actions
could result in losses or delays in payments on your securities. Each of these
parties will represent and warrant that the conveyance of the contracts by it is
in each case a valid sale and transfer of the contracts.
Also, cash collections on the contracts may be commingled with general funds
of the servicer and, in the event of a bankruptcy of the servicer, a court may
conclude that the trust does not have a perfected security interest in those
collections.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon lenders and servicers involved in consumer
finance. These laws include the Truth-in-Lending Act, the Equal Credit
Opportunity Act, the Federal Trade Commission Act, the Fair Credit Billing Act,
the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the
Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B and Z, the
Soldiers' and Sailors' Civil Relief Act of 1940, the Texas Consumer Credit Code,
state adoptions of the National Consumer Act and of the Uniform Consumer Credit
Code and state motor vehicle retail installment sales acts and other similar
laws. Also, state laws impose finance charge ceilings and other restrictions
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on consumer transactions and require contract disclosures in addition to those
required under federal law. These requirements impose specific statutory
liabilities upon creditors who fail to comply with their provisions. In some
cases, this liability could affect an assignee's ability to enforce consumer
finance contracts such as the contracts.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade Commission
(the "FTC Rule"), the provisions of which are generally duplicated by the
Uniform Consumer Credit Code, other statutes or the common law in some states,
has the effect of subjecting a seller (and specified creditors and their
assignees) in a consumer credit transaction to all claims and defenses that the
obligor in the transaction could assert against the seller of the goods.
Liability under the FTC Rule is limited to the amounts paid by the obligor under
the contract, and the holder of the contract may also be unable to collect any
balance remaining due under that contract from the obligor.
Most of the contracts will be subject to the requirements of the FTC Rule.
Accordingly, each trust, as holder of the related contracts, will be subject to
any claims or defenses that the purchaser of the applicable financed vehicle may
assert against the seller of the related financed vehicle. As to each obligor,
these claims are limited to a maximum liability equal to the amounts paid by the
obligor on the related contract. Under most state motor vehicle dealer licensing
laws, sellers of motor vehicles are required to be licensed to sell motor
vehicles at retail sale. Furthermore, federal odometer regulations promulgated
under the Motor Vehicle Information and Cost Savings Act require that all
sellers of new and used vehicles furnish a written statement signed by the
seller certifying the accuracy of the odometer reading. If the originating
dealer is not properly licensed or if a written odometer disclosure statement
was not provided to the purchaser of the related financed vehicle, an obligor
may be able to assert a defense against the originating dealer. If an obligor
were successful in asserting any of those claims or defenses, that claim or
defense would constitute a breach of the depositor's representations and
warranties under the related sale and servicing agreement or pooling and
servicing agreement and a breach of the seller's warranties under the related
purchase agreement and would, if the breach materially and adversely affects the
collectibility of the contract or the interests of the trust or the
securityholders in the contract, create an obligation of the depositor and the
seller, respectively, to repurchase the contract unless the breach is cured. See
"DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS" in this prospectus.
Courts have applied general equitable principles to secured parties pursuing
repossession and litigation involving deficiency balances. These equitable
principles may have the effect of relieving an obligor from some or all of the
legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. Courts have generally upheld the notice provisions of the UCC and
related laws as reasonable or have found that the repossession and resale by the
creditor do not involve sufficient state action to afford constitutional
protection to borrowers.
The seller and the depositor will represent and warrant that each contract
complies with all requirements of law in all material respects. Accordingly, if
an obligor has a claim against a trust for violation of any law and that claim
materially and adversely affects that trust's or the securityholder's interest
in a contract or the collectibility of the contract, that violation would
constitute a breach of the representations and warranties of the seller and the
depositor would create an obligation of the seller and the depositor to
repurchase the contract unless the breach is cured. See "DESCRIPTION OF THE
TRANSFER AND SERVICING AGREEMENTS" in this prospectus.
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the
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ability of a secured party to realize upon collateral or to enforce a deficiency
judgment. For example, in a Chapter 13 proceeding under the federal bankruptcy
law, a court may prevent a creditor from repossessing a vehicle and, as part of
the rehabilitation plan, reduce the amount of the secured indebtedness to the
market value of the vehicle at the time of bankruptcy, as determined by the
court, leaving the creditor as a general unsecured creditor for the remainder of
the indebtedness. A bankruptcy court may also reduce the monthly payments due
under a contract or change the rate of interest and time of repayment of the
indebtedness.
Under the terms of the Soldiers' and Sailors' Relief Act of 1940 (the
"Relief Act"), an obligor who enters the military service after the origination
of that obligor's contract (including an obligor who is a member of the National
Guard or is in reserve status at the time of the origination of the obligor's
contract and is later called to active duty) may not be charged interest above
an annual rate of 6% during the period of that obligor's active duty status,
unless a court orders otherwise upon application of the lender. In addition,
some states, including California, allow members of its national guard to extend
payments on any contract obligation if called into active service by the
Governor for a period exceeding 7 days. It is possible that the foregoing could
have an effect on the ability of the servicer to collect the full amount of
interest owing on some of the contracts. In addition, both the Relief Act and
the laws of some states, including California, New York and New Jersey, impose
limitations that would impair the ability of the servicer to repossess the
released financed vehicle during the obligor's period of active duty status.
Thus, if that contract goes into default, there may be delays and losses
occasioned by the inability to exercise the trust's rights with respect to the
contract and the related financed vehicle in a timely fashion.
Any shortfall pursuant to either of the two preceding paragraphs, to the
extent not covered by amounts payable to the securityholders from amounts on
deposit in the related reserve fund or from coverage provided under any other
credit enhancement mechanism, could result in losses to the securityholders.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a discussion of the material United States federal income
tax consequences of the purchase, ownership and disposition of notes or
certificates issued by a trust as described in this prospectus. Winston & Strawn
has delivered its opinion letter adopting and confirming all of the information
in this prospectus under the heading "MATERIAL FEDERAL INCOME TAX CONSEQUENCES"
and stating that this discussion constitutes the opinion of Winston & Strawn,
federal tax counsel, being rendered for the benefit of investors in the notes or
certificates. In addition to this opinion, at the time the notes or certificates
are issued pursuant to this prospectus and a related prospectus supplement
Winston & Strawn will separately provide to the depositor, each trust and
certain other parties to each of the transactions contemplated by this
prospectus more limited opinions confirming as of that date the classification
of the trust and the characterization of the notes and the certificates for
federal income tax purposes. Those separate opinions are fully described below.
This discussion is based upon current provisions of the Internal Revenue
Code of 1986, as amended (the "CODE"), existing and proposed Treasury
Regulations, current administrative rulings, judicial decisions and other
applicable authorities in effect as of the date of this prospectus, all of which
are subject to change, possibly with retroactive effect. There are no cases,
regulations, or Internal Revenue Service rulings on comparable transactions or
instruments to those described in this prospectus. As a result, there can be no
assurance that the Internal Revenue Service will not challenge the conclusions
of federal tax counsel reached in this description of Material Federal Income
Tax Consequences, and no ruling from the Internal Revenue Service has been or
will be sought on any of
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the issues discussed below. Furthermore, legislative, judicial or administrative
changes may occur, perhaps with retroactive effect, which could affect the
accuracy of the statements set forth below.
This discussion does not attempt to deal with all aspects of federal income
taxation that may be relevant to all holders of notes and certificates in light
of their personal investment or tax circumstances. Also, this discussion does
not describe tax consequences to certain types of holders who may be subject to
special treatment under the federal income tax laws including, without
limitation, financial institutions, dealers in securities or currencies,
insurance companies, and persons who hold the notes or certificates as part of a
straddle, hedging or conversion transaction.
Investors and preparers of tax returns (including returns filed by any trust
described in this prospectus) 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 (1) is given with respect to events
that have occurred at the time the advice is rendered and is not given with
respect to the consequences of contemplated actions, and (2) is directly
relevant to the determination of an entry on a tax return. Accordingly,
taxpayers should consult their own 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 in this prospectus. The depositor
suggests that you consult with your own tax advisors as to the federal, state,
local, foreign and any other tax consequences to you of the purchase, ownership
and disposition of the notes and the certificates.
As mentioned above, the discussion of "MATERIAL FEDERAL INCOME TAX
CONSEQUENCES" constitutes the opinion of Winston & Strawn, as federal tax
counsel, which is being rendered in connection with the filing of this
prospectus. In addition, the depositor and each trust (as well as certain other
parties to each transaction) will be provided with an opinion of Winston &
Strawn, as federal tax counsel, as described in the related prospectus
supplement, confirming certain specific federal income tax matters as discussed
below regarding the character of each trust and the notes and certificates (if
any) it issues. With respect to a trust established as an owner trust,
Winston & Strawn will deliver its opinion, dated the date of issuance of notes
from the owner trust, to the effect that (1) the notes will be characterized as
indebtedness and (2) the owner trust will not be characterized as an
"ASSOCIATION" or "PUBLICLY-TRADED PARTNERSHIP" taxable as a corporation. With
respect to a trust established as a grantor trust, Winston & Strawn will deliver
its opinion, dated the date of issuance of certificates by the grantor trust, to
the effect that (1) the trust will be treated as a grantor trust and not as an
"ASSOCIATION" or "PUBLICLY-TRADED PARTNERSHIP" taxable as a corporation and
(2) each certificateholder will be treated as the owner of a pro rata undivided
interest in the income and assets of the trust. With respect to a trust, or one
or more segregated pools of trust assets, which makes a FASIT election, Winston
& Strawn will deliver its opinion, dated the date of issuance of regular
interests by the FASIT, to the effect that (1) the trust, or one or more
segregated pools of trust assets, will be treated as a FASIT and (2) each trust,
or one or more segregated pools of trust assets, for which a FASIT election is
made, is organized, operated and will continue to operate in a manner so as to
qualify for FASIT status.
The form of each of those opinions will be filed, together with the final
documentation for the respective trust transaction, with the Securities Exchange
Commission under Form 8-K. For purposes of the following summary, references to
the trust, the notes, the certificates and related terms, parties and documents
refer to each trust and the notes, certificates and related terms, parties and
documents applicable to such trust.
The federal income tax consequences to certificateholders will vary
depending on whether the trust is an owner trust or a grantor trust. As an
alternative to those two types of trusts, a trust could elect to be treated as a
financial asset securitization investment trust, generally referred to as a
FASIT. The prospectus supplement for each series of notes or certificates will
specify the treatment of the trust for federal income tax purposes. To the
extent any given series of notes or certificates differs from the assumptions or
conditions set forth in the following discussion or changes occur in the
relevant tax
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laws, or in their application, any additional tax considerations will be
disclosed in the applicable prospectus supplement. The discussion of those
additional tax considerations, to the extent they are conclusions of law, will
also constitute the opinion of federal tax counsel being rendered for the
benefit of investors as of the date of the prospectus supplement. Because it
will be later in time than the prospectus, that opinion of federal tax counsel
may modify, clarify, change or otherwise supplement the opinion represented by
the legal conclusions contained in this discussion of Material Federal Income
Tax Consequences.
OWNER TRUSTS
A trust structured as an owner trust will typically issue one or more
classes of notes, intended to be treated as debt for federal income tax
purposes, and certificates, representing equity interests in the trust. The
characterization of the trust for federal income tax purposes depends in part
upon whether the certificates are owned by a single holder, such as the
depositor, or by multiple holders. This summary of material federal income tax
consequences with respect to the issuance of notes or certificates by an owner
trust is divided into three parts. The first part describes characterization of
the trust as a pass-through entity rather than as a corporation or other entity
subject to tax at the entity level. The second part describes the taxation of an
investor in the notes. The third part describes taxation of an investor in the
certificates.
TAX CHARACTERIZATION OF OWNER TRUSTS
Winston & Strawn, as federal tax counsel to the depositor, is of the opinion
that a trust established as an owner trust will not be an association (or a
publicly traded partnership) taxable as a corporation for federal income tax
purposes. This opinion is based on the assumptions that the terms of the trust
agreement and related documents will be complied with and that the owner or
owners of certificates issued by the trust will take all action necessary, if
any, or refrain from taking any inconsistent action so as to ensure the trust
is, for federal income tax purposes, either disregarded as a separate entity
from the depositor (or other sole certificateholder) or treated as a
partnership. Winston & Strawn's opinion is also based on its conclusions that
(1) the trust will constitute a business entity, (2) the nature of the income of
the trust will exempt it from the rule that certain publicly traded partnerships
are taxable as corporations, and (3) the trust, if a corporation, would not
constitute a regulated investment company under the federal income tax laws.
If certificates issued by the trust are at all times required to be owned by
a single person, such as the depositor, then, for federal income tax purposes,
the trust may be disregarded as a separate entity from the owner of its
certificates. In this situation, although it is the opinion of Winston & Strawn
that the notes issued by the trust will be characterized as indebtedness for
federal income tax purposes (as discussed below), no assurance can be given that
this characterization of the notes will prevail. If the Internal Revenue Service
successfully asserted that one or more of the notes did not represent debt for
federal income tax purposes, the notes might be treated as equity interests in
the trust. As a result, the trust would be considered to have multiple equity
owners (rather than just the single owner of the trust certificates). In that
case, the trust would be characterized as a partnership for federal income tax
purposes and the tax consequences to holders of notes which were recharacterized
as equity would be similar to those discussed below under "--TAX TREATMENT OF
INVESTORS IN CERTIFICATES".
Rather than having a single owner of certificates issued by the trust, it is
possible that the trust may issue certificates to multiple owners. In that
situation, the certificate owners would be treated as equity owners of the trust
and the trust would be characterized as a partnership for federal income tax
purposes.
In any case where the trust is treated as a partnership for federal income
tax purposes, it is the opinion of Winston & Strawn that it will not constitute
a publicly traded partnership. That opinion is
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based upon Winston & Strawn's assumption that (1) the nature of the income of
the trust will exempt it from publicly traded partnership characterization
and/or (2) the trust will at all times have fewer than 100 owners of its equity
interests. If, contrary to the opinion of Winston & Strawn, the trust were
treated as a publicly traded partnership or were otherwise taxable as a
corporation for federal income tax purposes, it would be subject to corporate
income tax on its taxable income. The trust's taxable income would include all
its income on the receivables and other assets owned by the trust, which may be
reduced by the interest expense on the notes issued by the trust to the extent
the notes are properly characterized as debt. Any such corporate income tax
could materially reduce cash available to make payments on the notes and
distributions on the certificates. If the trust were classified as a
partnership, other than a publicly traded partnership taxable as a corporation,
the trust itself would not be subject to United States federal income tax.
Instead, holders of equity interests in the partnership would be required to
take into account their allocable share of the trust's income and deductions as
discussed below under "--TAX TREATMENT OF INVESTORS IN CERTIFICATES."
TAX TREATMENT OF INVESTORS IN NOTES
TREATMENT OF THE NOTES AS INDEBTEDNESS. The depositor and the owners of the
notes, by their purchase of notes, will agree to treat the notes as debt for
federal income tax purposes. Except as may otherwise be provided in the related
prospectus supplement, Winston & Strawn, as federal tax counsel, is of the
opinion that the notes will be classified as debt for federal income tax
purposes. The discussion below assumes this characterization of the notes is
correct.
INTEREST ON THE NOTES. An investor will be taxed on the amount of payments
of interest on a note as ordinary interest income at the time it accrues or is
received in accordance with the investor's regular method of accounting for
United States federal income tax purposes. This treatment assumes that all
payments on the notes are denominated in U.S. dollars. It also assumes that the
payment of interest on the notes constitutes "QUALIFIED STATED INTEREST" under
Treasury Regulations relating to original issue discount and that an investor
does not acquire its notes as "STRIPPED NOTES"or at an original issue discount
as discussed below. If these assumptions are incorrect with respect to any notes
issued by a trust, additional tax considerations with respect to those notes
will be disclosed in the related prospectus supplement.
A holder of a note that has a fixed maturity date of not more than one year
from the issue date of that note (which will be referred to in this paragraph as
a "SHORT-TERM NOTE") may be subject to special rules. An accrual basis holder of
a short-term note (and some cash method holders, including regulated investment
companies, as set forth in Section 1281 of the Code) generally would be required
to report interest income as interest accrues on a straight-line basis or under
a constant yield method over the term of each interest period. Other cash basis
holders of a short-term note would, in general, be required to report interest
income as interest is paid (or, if earlier, upon the taxable disposition of the
short-term note). However, a cash basis holder of a short-term note reporting
interest income as it is paid may be required to defer a portion of any interest
expense otherwise deductible on indebtedness incurred to purchase or carry the
short-term note until the taxable disposition of the short-term note. A cash
basis taxpayer may elect under Section 1281 to accrue interest income on all
nongovernment debt obligations with a term of one year or less, in which case
the taxpayer would not be subject to the interest expense deferral rule referred
to in the preceding sentence. Special rules apply if a short-term note is
purchased for more or less than its principal amount.
SALE OR OTHER DISPOSITION OF A NOTE. An investor who disposes of a note,
whether by sale, exchange for other property, or payment by the trust, will
recognize taxable gain or loss equal to the difference between the amount
realized on the sale or other disposition, not including any amount attributable
to accrued but unpaid interest which will be taxable as such, and the investor's
adjusted tax basis in the note. In general, an investor's adjusted tax basis in
a note will be equal to the investor's initial purchase price increased by any
accrued original issue discount or market discount previously included in income
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by the investor and decreased by the amount of any bond premium previously
amortized and the amount of any payments, other than payments of stated
interest, previously received by the investor with respect to the note. Any gain
or loss recognized upon the sale or other disposition of a note will be capital
gain or loss so long as the note is a "CAPITAL ASSET" in the hands of the
investor. For non-corporate investors, capital gain recognized on the sale or
other disposition of a note held by the investor for more than one year will be
taxed at a maximum rate of 20%. Capital gain for a note held for one year or
less is taxed at the rates applicable to ordinary income, i.e., up to 39.6%.
Taxpayers must aggregate capital gains and losses for each taxable year. In the
event a taxpayer realizes a net capital loss for any year there are limitations
on the amount of these capital losses which can be deducted.
PURCHASE AT A DISCOUNT. An investor who purchases a note as part of the
initial offering by the trust for an issue price that is less than its "STATED
REDEMPTION PRICE AT MATURITY" will generally be considered to have purchased the
note at an original issue discount for United States federal income tax
purposes. In general, the stated redemption price at maturity for a note is
equal to the principal amount. If a note is acquired with original issue
discount greater than a de minimis amount (one-fourth of one percent, or 0.25%,
of the bond's principal amount or other stated redemption price at maturity
multiplied by the full number of years included in determining the weighted
average maturity of the bonds) the investor will be required to include in
income each year, taxable as ordinary income, a portion of the original issue
discount. For cash basis investors, such as individuals, the requirement that
original issue discount be accrued as income each year means the investor
recognizes taxable income in advance of the receipt of some or all of the cash
corresponding to that income. The amount of original issue discount accrued as
income each year is based upon a formula which looks at the constant yield on
the notes and the term to maturity so as to annually allocate a proportionate
share of original issue discount. Under these rules, investors generally will be
required to include in income increasingly greater amounts of original issue
discount in successive accrual periods.
Generally, an investor that acquires a note that has more than a de minimis
amount of original issue discount must include in gross income the sum of the
"daily portions" of the original issue discount for each day on which it owns a
note, including the date of purchase but excluding the date of disposition. In
the case of an original holder of a note, the daily portions of original issue
discount with respect to the note generally would be determined as follows. A
calculation will be made of the portion of original issue discount that accrues
on the note during each successive monthly accrual period (or shorter period in
respect of the date of original issue or the final payment date). This will be
done, in the case of each full monthly accrual period, by adding (1) the present
value of all remaining payments to be received on the note under the prepayment
assumption used in respect of the contracts and (2) any payments received during
that accrual period, and subtracting from that total the "adjusted issue price"
of the note at the beginning of that accrual period. The adjusted issue price of
a note at the beginning of the first accrual period is the amount of the
purchase price paid by the holder for the note that is allocable to those
contracts. The adjusted issue price of a note at the beginning of a subsequent
accrual period is the adjusted issue price at the beginning of the immediately
preceding accrual period plus the amount of original issue discount allocable to
that accrual period and reduced by the amount of any payment on the note (other
than qualified stated interest) made at the end of or during that accrual
period. The original issue discount accruing during that accrual period will
then be divided by the number of days in the period to determine the daily
portion of original issue discount for each day in the period. With respect to
an initial accrual period shorter than a full monthly accrual period, the daily
portions of original issue discount must be determined according to a reasonable
method, provided that the method is consistent with the method used to determine
the yield to maturity of the note.
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For purposes of calculating the daily portion of original issue discount to
be accrued as income, the method of determining yield to maturity is not clear,
and in particular it is not clear whether prepayments on the underlying
contracts should be taken into account in determining such yield. In determining
the weighted average maturity of the notes for purposes of calculating original
issue discount, the depositor expects to use a reasonable assumption regarding
prepayment of the contracts owned by the trust. No representation is made as to
the actual prepayments to be made on the contracts. This method of calculating
the accrual of original issue discount will cause the accrual of original issue
discount to either increase or decrease (but never below zero) in any given
accrual period to reflect the fact that prepayments are occurring at a faster or
slower rate than the prepayment assumption used in respect of the contracts.
In determining whether a note has original issue discount, the issue price
of the note may not necessarily equal the investor's purchase price, although
they generally should be the same. The issue price of a note will equal the
initial offering price to the public, not including bond houses, brokers or
similar persons or organizations acting in the capacity of underwriters or
wholesalers, at which price a substantial amount of the notes is sold.
If an investor acquires a note in a secondary market transaction for a
purchase price which is less than the principal amount or other amount payable
at maturity of the note, the difference is referred to for tax purposes as
market discount. Similarly to original issue discount, an investor must accrue a
portion of the market discount each year. Unlike original issue discount,
however, an investor does not include accrued market discount in ordinary income
each year. Rather, the aggregate amount of accrued market discount is included
in income when an investor sells or otherwise disposes of the note. At that
time, the portion of the amount realized by the investor on the sale or other
disposition of the note equal to accrued market discount is taxed as ordinary
income, which has a maximum tax rate of 39.6%, rather than the long term capital
gain maximum tax rate of 20%. The amount of market discount which accrues
annually will be calculated on a straight-line basis over the remaining term to
maturity of the note unless the investor elects to accrue market discount using
a constant yield method.
An investor may elect to include market discount in income currently as it
accrues rather than being taxed on the aggregate amount of all accrued market
discount when the note is sold or otherwise disposed of. This election would
apply to all of the investor's debt investments acquired with market discount in
or after the taxable year in which the notes are acquired and not just to the
notes issued by the trust.
Limitations imposed by the federal tax laws which are intended to match
deductions with the taxation of income may defer deductions for interest paid by
an investor on indebtedness incurred or continued, or short sale expenses
incurred, to purchase or carry a note with market discount. A noteholder who
elects to include market discount in gross income as it accrues is exempt from
this rule.
Whenever an investor accrues and includes in income an amount of original
issue discount or market discount, the investor's adjusted basis in the
corresponding note is increased by that same amount. As a result, the investor
would recognize a lower capital gain or greater capital loss on the sale or
other disposition of the note.
In general, if the amount of original issue discount or market discount
would be less than one-fourth of one percent (0.25%) of the note's principal or
other stated redemption price at maturity multiplied by the number of full years
included in determining the weighted average maturity of the notes, the investor
can disregard the original issue discount or market discount rules.
PURCHASE AT A PREMIUM. If an investor purchases a note for a price that
exceeds the principal amount or other amount payable at maturity, the investor
will be considered to have an amortizable bond premium. An investor can elect to
accrue a portion of the premium each year as a deduction to offset interest
income on the corresponding note. The amount of premium which can be amortized
and
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deducted each year is calculated using a constant yield method over the
remaining term to maturity of the note. The deduction is available only to
offset interest income on the corresponding note; it cannot be used as a
deduction to the extent it exceeds taxable note interest. The adjusted tax basis
which an investor has in a note must be reduced by the amount of premium for
which a deduction is claimed. Because the basis is reduced, the investor would
recognize a larger taxable capital gain, or a smaller capital loss, on the sale
or other disposition of the note. If an investor elects to amortize and deduct
premium, the election will apply to all of the investor's debt investments and
not just to the notes.
If an investor purchases in a secondary market transaction a note which was
originally issued with original issue discount for an amount which is less than
the sum of all amounts payable on the note after the purchase date other than
payments of qualified stated interest but in excess of its adjusted issue price,
I.E., the original issue price plus any accrued original issue discount as those
terms are described above, the excess is referred to for tax purposes as
"ACQUISITION PREMIUM." The investor would be permitted to reduce the daily
portions of original issue discount the investor would otherwise include in
income by an amount corresponding to the ratio of (1) the excess of the
investor's purchase price for the note over the adjusted issue price of the note
as of the purchase date to (2) the excess of all amounts payable on the note
after the purchase date, other than payments of qualified stated interest, over
the note's adjusted issue price.
ELECTION TO TREAT ALL INTEREST AS ORIGINAL ISSUE DISCOUNT. An investor may
elect to include in gross income all interest that accrues on a note using the
constant-yield method described above under the heading "PURCHASE AT A DISCOUNT"
with modifications described below. For purposes of this election, interest
includes qualified stated interest, original issue discount, de minimis original
issue discount, market discount, DE MINIMIS market discount, and unstated
interest, as adjusted by any amortizable bond premium or acquisition premium.
In applying the constant-yield method to a note with respect to which this
election has been made, the issue price of the note will equal the electing
investor's adjusted basis in the note immediately after its acquisition. The
issue date of the note will be the date of its acquisition by the electing
investor, and no payments on the note will be treated as payments of qualified
stated interest. This election, if made, may not be revoked without the consent
of the Internal Revenue Service. Investors should consult with their own tax
advisors as to the effect in their circumstances of making this election.
INFORMATION REPORTING AND BACKUP WITHHOLDING. The trust or an agent acting
on its behalf will be required to report annually to the Internal Revenue
Service, and to each non-corporate noteholder, the amount of interest paid on
the notes for each calendar year. Each non-corporate noteholder, other than
noteholders who are not subject to the reporting requirements, will be required
to provide, under penalties of perjury, a certificate, Form W-9, containing the
noteholder's:
(1) name,
(2) address,
(3) correct federal taxpayer identification number, and
(4) a statement that the noteholder is not subject to backup withholding.
Should a non-exempt noteholder fail to provide the required certification, the
trust will be required to withhold or cause to be withheld 31% of the interest
otherwise payable to the noteholder and remit the withheld amounts to the
Internal Revenue Service as a credit against the noteholder's federal income tax
liability.
FOREIGN NOTEHOLDERS. Special tax rules apply to the purchase of notes by
foreign persons. For U.S. tax purposes, foreign investors include any person who
is not
(1) a citizen or resident of the United States,
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(2) a corporation, partnership or other entity organized in or under the
laws of the United States or any political subdivision thereof,
(3) an estate the income of which is includible in gross income for U.S.
federal income tax purposes, regardless of its source,
(4) a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of
the trust, or
(5) a trust that has a valid election in effect under applicable United
States Treasury Regulations to be treated as a United States person.
Interest paid or accrued to a foreign investor that is not effectively
connected with the conduct of a trade or business within the United States by
the investor will generally be considered "portfolio interest" and not be
subject to United States federal income tax or withholding tax as long as the
foreign investor is not actually or constructively a 10 percent shareholder of
the trust or a controlled foreign corporation related to the trust through stock
ownership. Additionally, the foreign investor must provide or have a financial
institution provide on its behalf to the trust or paying agent an appropriate
statement or Form W-8 (or successor form), that is signed under penalties of
perjury, certifying that the beneficial owner of the note is a foreign person
and providing that foreign person's name and address. If the information
provided in this statement changes, the foreign investor must provide a new
Form W-8 (or successor form) within 30 days. If the foreign investor fails to
satisfy these requirements so that interest on the investor's notes was not
portfolio interest, interest payments would be subject to United States federal
income and withholding tax at a rate of 30% unless reduced or eliminated under
an applicable income tax treaty. To qualify for any reduction as the result of
an income tax treaty, the foreign investor must provide the paying agent with
Form 1001 (or successor form).
The realization of any capital gain on the sale or other taxable disposition
of a note by a foreign investor will be exempt from United States federal income
and withholding tax, provided that (1) the gain is not effectively connected
with the conduct of a trade or business in the United States by the investor,
and (2) in the case of an individual foreign investor, the investor is not
present in the United States for 183 days or more during the taxable year. If an
individual foreign investor is present in the U.S. for 183 days or more during
the taxable year, the gain on the sale or other disposition of the notes could
be subject to a 30% withholding tax unless reduced by treaty.
If the interest, gain or income on a note held by a foreign investor is
effectively connected with the conduct of a trade or business in the United
States by the investor, the noteholder will be subject to United States federal
income tax on the interest, gain or income at regular federal income tax rates.
At the same time, the noteholder may be exempt from withholding tax if a
Form 4224 (or successor form) is furnished to the paying agent. In addition, if
the foreign investor is a foreign corporation, it may be subject to a branch
profits tax equal to 30% of its "EFFECTIVELY CONNECTED EARNINGS AND PROFITS" for
the taxable year, as adjusted for certain items, unless it qualifies for a lower
rate under an applicable tax treaty.
Regardless of when a foreign investor acquired a note, recently adopted
Treasury Regulations will become effective for note payments made after
December 31, 2000. The new regulations make certain changes to the withholding,
backup withholding and information reporting rules just described and attempt to
unify certification requirements and modify reliance standards. It is suggested
that prospective investors consult their own tax advisors regarding the new
regulations.
If a foreign investor fails to provide necessary documentation to the trust
or its paying agent regarding the investor's taxpayer identification number or
certification of exempt status, a 31% backup withholding tax may be applied to
note payments to that investor. Any amounts withheld under the backup
withholding rules will be allowed as a refund or a credit against the foreign
investor's U.S.
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federal income tax liability provided the required information is furnished to
the Internal Revenue Service.
POSSIBLE ALTERNATIVE TREATMENTS OF THE NOTES. If, contrary to the opinion
of Winston & Strawn, the Internal Revenue Service successfully asserted that one
or more of the notes did not represent debt for federal income tax purposes, the
notes might be treated as equity interests in the trust. If so treated, the
trust might be a publicly traded partnership taxable as a corporation with the
adverse consequences described above (and the resulting taxable corporation
would not be able to reduce its taxable income by deductions for interest
expense on notes recharacterized as equity). See "--OWNER TRUSTS--TAX
CHARACTERIZATION OF OWNER TRUSTS" in this prospectus. Alternatively, it is
possible that the trust might be treated as a partnership that would not be
taxable as a corporation. However, treatment of the notes as equity interests in
a partnership could have adverse tax consequences to certain holders. For
example, income to certain tax-exempt entities (including pension funds) could
constitute "UNRELATED BUSINESS TAXABLE INCOME;" income to foreign holders
generally would be subject to U.S. tax and U.S. tax return filing and
withholding requirements; individual holders might be subject to certain
limitations on their ability to deduct their share of trust expenses; and income
from the trust's assets would be taxable to noteholders without regard to
whether cash distributions are actually made from the trust or any particular
noteholder's method of accounting.
TAX TREATMENT OF INVESTORS IN CERTIFICATES
TREATMENT OF TRUST AS A PARTNERSHIP. As mentioned above, in any case where
the trust issues certificates to multiple owners, the trust will be treated by
the depositor as a partnership for federal income tax purposes. The depositor
and the servicer will agree, and each certificateholder will agree by its
purchase of certificates, to treat the trust as a partnership for purposes of
federal and state income tax, franchise tax and any other tax measured in whole
or in part by income, with the assets of the partnership being the assets held
by the trust, the partners of the partnership being the certificateholders, and
the notes being debt of the partnership. The trust, the depositor, and the
certificateholders will take all necessary actions, if any, and refrain from
taking any inconsistent actions, so as to ensure that the trust will be treated
as a partnership under the final Treasury Regulations which allow an entity to
elect status as a partnership.
A variety of alternative characterizations are possible. For example,
because the certificates have certain features characteristic of debt, the
certificates might be considered debt of the depositor or the trust. Any such
characterization should not result in materially adverse tax consequences to
certificateholders as compared to the consequences from treatment of the
certificates as equity in a partnership, described below. The following
discussion assumes that the certificates represent equity interests in a
partnership and that all payments on the certificates are denominated in U.S.
dollars.
PARTNERSHIP TAXATION. As a partnership, the trust will not be subject to
federal income tax. Rather, each certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the trust. The trust's income will consist
primarily of interest and finance charges earned on the contracts owned by the
trust (including appropriate adjustments for any market discount, original issue
discount and bond premium), any yield supplement deposits and any gain upon
collection or disposition of the contracts. The trust's deductions will consist
primarily of interest accruing with respect to the notes, servicing and other
fees, and losses or deductions upon collection or disposition of the contracts.
The tax items of a partnership are allocable to the partners in accordance
with the applicable federal income tax laws and the partnership agreement (I.E.,
the trust agreement and related documents). The trust agreement will provide, in
general, that the certificateholders will be allocated taxable income of the
trust for each month equal to the sum of (1) the interest that accrues on the
certificates in accordance with their terms for such month, including interest
accruing at the
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pass-through rate for such month and interest on amounts previously due on the
certificates but not yet distributed; (2) any trust income attributable to
discount on the contracts that corresponds to any excess of the principal amount
of the certificates over their initial issue price; (3) monthly prepayment
premium payable to the certificateholders; and (4) any other amounts of income
payable to the certificateholders for the month including, for example, any
yield supplement deposits. That allocation of income will be reduced by any
amortization by the trust of premium on contracts that corresponds to any excess
of the issue price of certificates over their principal amount. All remaining
taxable income of the trust will be allocated to the trust depositor. Based on
the economic arrangement of the parties, this approach for allocating trust
income should be permissible under the applicable Treasury Regulations, although
no assurance can be given that the Internal Revenue Service would not require a
greater amount of income to be allocated to certificateholders.
Certificateholders may be allocated income equal to the entire pass-through
rate plus the other items described above, even though the trust might not have
sufficient cash to make current cash distributions equal to that amount. In that
situation, cash basis holders will in effect be required to report income from
the certificates on the accrual basis and certificateholders may become liable
for taxes on trust income even if they have not received cash from the trust to
pay such taxes. In addition, because tax allocations and tax reporting will be
done on a uniform basis for all certificateholders, but certificateholders may
be purchasing certificates at different times and at different prices,
certificateholders may be required to report on their tax returns taxable income
that is greater or less than the amount reported to them by the trust. See the
discussion below under "--ALLOCATIONS BETWEEN TRANSFERORS AND TRANSFEREES."
Most or all of the taxable income allocated to a certificateholder that is a
tax-exempt entity (including an individual retirement account) will constitute
"UNRELATED BUSINESS TAXABLE INCOME" generally taxable to such a holder for
federal income tax purposes.
With respect to any certificateholder who is an individual, an individual
taxpayer's share of certain expenses of the trust (including fees to the
servicer, but not interest expense) would be miscellaneous itemized deductions.
Such deductions might be disallowed to the individual in whole or in part and
might result in such holder being taxed on an amount of income that exceeds the
amount of cash actually distributed to such holder over the life of the trust.
The trust will make all tax calculations relating to income and allocations
to certificateholders on an aggregate basis with respect to the entire pool of
contracts owned by the trust. If the Internal Revenue Service were to require
that such calculations be made separately for each contract, the trust might be
required to incur additional expense but it is believed that there would not be
a material adverse effect on certificateholders.
DISCOUNT AND PREMIUM. It is believed that the contracts will not be issued
with original issue discount, and, therefore, the trust should not have income
due to the accrual of original issue discount. However, the purchase price paid
by the trust for contracts may be greater or less than the remaining principal
balance of the contracts at the time of purchase. If so, the contracts will have
been acquired at a premium or market discount as the case may be. As indicated
above, the trust will make this calculation on an aggregate basis with respect
to the entire pool of contracts owned by the trust, but might be required to
recompute it on a contract-by contract basis.
If the trust acquires the contracts at a market discount or premium, it will
elect to include any such discount in income currently as it accrues over the
life of such contracts or to offset any such premium against interest income on
such contracts. See "--TAX TREATMENT OF INVESTORS IN NOTES--PURCHASE AT A
DISCOUNT" and "--PURCHASE AT A PREMIUM" in this prospectus. As indicated above,
a portion of such market discount income or premium deduction may be allocated
to certificateholders.
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DISTRIBUTIONS TO CERTIFICATEHOLDERS. Certificateholders generally will not
recognize gain or loss with respect to distributions from the trust. A
certificateholder will recognize gain, however, to the extent that any money
distributed exceeds the certificateholder's adjusted basis in the certificates
(as described below under "--DISPOSITION OF CERTIFICATES") immediately before
the distribution. If a certificateholder is required to recognize an aggregate
amount of income (not including income attributable to disallowed itemized
deductions described above) over the life of the certificates that exceeds the
aggregate cash distributions with respect thereto, the amount of that excess
will generally give rise to a capital loss upon the retirement of the
certificates. Any gain or loss will generally be long-term gain or loss if the
holding period of the certificate is more than one year.
SECTION 708 TERMINATION. Under Section 708 of the Code, if 50% or more of
the outstanding equity interests in the trust are sold or exchanged within any
12-month period, the trust will be deemed to terminate and then be reconstituted
for federal income tax purposes. If such a termination occurs, the assets of the
terminated trust (the "OLD TRUST") are deemed to be constructively contributed
to a reconstituted trust (the "NEW TRUST") in exchange for interests in the new
trust. Such interests would be deemed distributed to the partners, or
certificateholders, of the old trust in liquidation thereof, which would not
constitute a sale or exchange. Accordingly, if the sale of the trust's interests
terminated the partnership under Section 708 of the Code, the
certificateholder's basis in its ownership interest would not change. The
trust's taxable year would also terminate as a result of a constructive
termination and, if the certificateholder was on a different taxable year than
the trust, the termination could result in the bunching of more than twelve
months of the trust's income or loss in the certificateholder's income tax
return for the year in which the trust was deemed to terminate.
DISPOSITION OF CERTIFICATES. Generally, capital gain or loss will be
recognized on the sale of certificates, so long as the certificate is a "CAPITAL
ASSET" in the hands of the investor, in an amount equal to the difference
between the amount realized and the holder's tax basis in the certificates sold.
A certificateholder's tax basis in a certificate will generally equal the
holder's cost increased by the holder's share of trust income (that was
includible in the certificateholder's income) and decreased by any distributions
received with respect to such certificate. In addition, both the tax basis in
the certificates and the amount realized on a sale of a certificate would
include the holder's share of the notes and other liabilities of the trust. A
holder acquiring certificates at different prices may be required to maintain a
single aggregate adjusted tax basis in all of the certificates, and, upon sale
or other disposition of some of the certificates, allocate a portion of that
aggregate tax basis to the certificates sold (rather than maintaining a separate
tax basis in each certificate for purposes of computing gain or loss on a sale
of that certificate).
Any gain on the sale of a certificate attributable to the holder's share of
unrecognized accrued market discount on the contracts owned by the trust would
generally be treated as ordinary income to the holder and would give rise to
special tax reporting requirements. The trust does not expect to have any other
assets that would give rise to such special reporting requirements. Thus, to
avoid those special reporting requirements, the trust will elect to include
market discount in income as it accrues as previously stated.
ALLOCATIONS BETWEEN TRANSFERORS AND TRANSFEREES. In general, the trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the certificateholders in
proportion to the principal amount of certificates owned by them as of the close
of the last day of the month. As a result, a holder purchasing certificates may
be allocated tax items (which will affect its tax liability and tax basis)
attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the trust might be reallocated among the certificateholders. The depositor
will be
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authorized to revise the trust's method of allocation between transferors and
transferees to conform to a method permitted by future regulations.
SECTION 754 ELECTION. In the event that a certificateholder sells its
certificates at a profit or loss, the purchasing certificateholder will have a
higher or lower basis in the certificates than the selling certificateholder
had. The tax basis of the trust's assets will not be adjusted to reflect that
higher or lower basis unless the trust were to file an election under
Section 754 of the Code. In order to avoid the administrative complexities that
would be involved in keeping accurate accounting records, as well as potentially
onerous information reporting requirements, the trust will not make such
election. As a result, certificateholders might be allocated a greater or lesser
amount of trust income than would be appropriate based on their own purchase
price for certificates.
ADMINISTRATIVE MATTERS. The trustee is required to keep or have kept
complete and accurate books of the trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the trust will be the calendar year. The trustee will file a partnership
information return (Form 1065) with the Internal Revenue Service for each
taxable year of the trust and will report each certificateholder's allocable
share of items of trust income and expense to holders and the Internal Revenue
Service on Schedule K-l. The trustee will provide the Schedule K-1 information
to nominees that fail to provide the trust with the information statement
described below and such nominees will be required to forward such information
to the beneficial owners of the certificates. Generally, holders must file tax
returns that are consistent with the information return filed by the trust or be
subject to penalties unless the holder notifies the Internal Revenue Service of
all such inconsistencies.
Under Section 6031 of the Code, any person that holds certificates as a
nominee at any time during a calendar year is required to furnish the trust with
a statement containing certain information on the nominee, the beneficial owners
and the certificates so held. Such information includes (1) the name, address
and taxpayer identification number of the nominee and (2) as to each beneficial
owner (a) the name, address and identification number of such person,
(b) whether such person is a United States person, a tax-exempt entity, a
foreign government or an international organization, or any wholly owned agency
or instrumentality of either of the foregoing, and (c) certain information on
certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold certificates
through a nominee are required to furnish directly to the trust information as
to themselves and their ownership of certificates (a registered clearing agency
is not required to furnish any such information statements to the trust). The
information referred to above for any calendar year must be furnished to the
trust on or before the following January 31. Nominees, brokers and financial
institutions that fail to provide the trust with the information described above
may be subject to penalties.
The trust depositor will be designated as the tax matters partner for the
trust in the trust agreement and, as such, will be responsible for representing
the certificateholders in any dispute with the Internal Revenue Service. The
federal income tax laws provide for administrative examination of a partnership
as if the partnership were a separate and distinct taxpayer. Generally, the
statute of limitations for partnership items does not expire before three years
after the date on which the partnership information return is filed. Any adverse
determination following an audit of the return of the trust by the appropriate
taxing authorities could result in an adjustment of the returns of the
certificateholders, and, under certain circumstances, a certificateholder may be
precluded from separately litigating a proposed adjustment to the items of the
trust. An adjustment could also result in an audit of a certificateholder's
returns and adjustments of items not related to the income and losses of the
trust.
BACK-UP WITHHOLDING. Distributions made on the certificates and proceeds
from the sale of the certificates will be subject to a back-up withholding tax
of 31% if, in general, the certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
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applicable tax law provisions. See "--TAX TREATMENT OF INVESTORS IN
NOTES--INFORMATION REPORTING AND BACKUP WITHHOLDING" in this prospectus.
FOREIGN CERTIFICATEHOLDERS. It is not clear whether the trust would be
considered to be engaged in a trade or business in the United States for
purposes of federal withholding taxes with respect to non-U.S. persons because
there is no clear authority dealing with that issue under facts substantially
similar to those described herein. Nevertheless, the trust will withhold as if
it were so engaged in order to protect the trust from possible adverse
consequences of a failure to withhold. The trust expects to withhold on the
portion of its taxable income that is allocable to foreign certificateholders,
as if such income were effectively connect to a U.S. trade or business, at a
rate of 35% for foreign holders that are taxable as corporations and 39.6% for
all other foreign holders. Subsequent adoption of Treasury Regulations or the
issuance of other administrative pronouncements may require the trust to change
its withholding procedures. In determining a holder's withholding status, the
trust may generally rely on Form W-8, Form W-9 (or successor forms) or the
holder's certification of nonforeign status signed under penalties of perjury.
Each foreign holder might be required to file a U.S. individual or corporate
income tax return (including, in the case of a corporation, the branch profits
tax) on its share of the trust's income. Each foreign holder must obtain a
taxpayer identification number from the Internal Revenue Service and submit that
number to the trust on Form W-8 (or successor form) in order to assure
appropriate crediting of the taxes withheld. A foreign holder generally would be
entitled to file with the Internal Revenue Service a claim for refund with
respect to taxes withheld by the trust, taking the position that no taxes were
due because the trust was not engaged in a U.S. trade or business (although no
assurance can be given as to the prospects for success of the refund claim).
However, even if such a position is successful, interest payments made (or
accrued) to a certificateholder who is a foreign person may be considered to be
guaranteed payments, but only to the extent such payments are determined without
regard to the income of the trust. It is unclear whether the Internal Revenue
Service would agree with that characterization. If these interest payments are
properly characterized as guaranteed payments, then the interest will not
constitute "PORTFOLIO INTEREST." As a result, certificateholders will be subject
to 30% U.S. withholding tax, unless reduced or eliminated pursuant to an
applicable treaty. In such case, a foreign holder would only be entitled to
claim a refund for that portion of the taxes in excess of the taxes that should
be withheld with respect to the guaranteed payments.
GRANTOR TRUSTS
This summary of material federal income tax consequences with respect to the
issuance of certificates by a grantor trust is divided into two parts. The first
part describes characterization of the trust as a grantor trust. The second part
describes taxation of an investor in certificates issued by a grantor trust.
TAX CHARACTERIZATION OF GRANTOR TRUSTS
Winston & Strawn, as federal tax counsel, is of the opinion that a trust
structured as a grantor trust will be classified for federal income tax purposes
as a grantor trust and not as an association (or a publicly traded partnership)
taxable as a corporation and that, subject to the discussion below under
"--STRIPPED BONDS AND STRIPPED COUPONS", each certificateholder will be treated
for federal income tax purposes as the owner of a pro rata undivided interest in
the income and assets of the trust. The opinion of Winston & Strawn does not
foreclose the possibility of a contrary determination by the Internal Revenue
Service or by a court or of a contrary position by the Internal Revenue Service
or the Treasury Department in regulations or rulings issued in the future.
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For federal income tax purposes, the trust will be deemed to have acquired
the following assets: (1) the principal of each contract, plus a portion of the
interest due on each contract (the "TRUST STRIPPED BONDS"); (2) the portion of
the interest due on each contract not allocable to the Trust Stripped Bonds or
retained by the depositor (the "TRUST STRIPPED COUPONS"); (3) the right to
receive any yield supplement deposits; (4) the proceeds of certain insurance
policies on the financed assets; (5) rights under the trust agreement and
(6) rights under the security agreement in favor of the trust securing the
depositor's obligation to purchase subsequent contracts and deliver them to the
trust. Although a grantor trust may have certain rights with respect to a
reserve fund, pre-funding account or interest reserve account, such accounts
would not be assets of the trust.
It is possible, for federal income tax purposes, that the grantor trust may
be viewed as owning a single debt obligation having a principal amount equal to
the total stated principal amount of the entire pool of contracts and an
interest rate equal to the pass-through rate. Accordingly, the owners of
certificates would be viewed as owning an undivided interest in that single debt
obligation. In that case, the tax consequences to the certificate owners would
be the same as owners of notes owned by a trust structured as an owner trust
described above under the heading "--OWNER TRUSTS--TAX TREATMENT OF INVESTORS IN
NOTES."
The remainder of the discussion in this prospectus assumes that a grantor
trust certificateholder will be treated as owning an interest in each contract,
a portion of the interest payable on each contract, any right to receive yield
supplement deposits, and any other assets of the trust. However, for
administrative convenience, the servicer will report information to investors
and to the Internal Revenue Service on an aggregate basis (as though all of the
contracts and the rights to payments under the yield supplement agreement were a
single obligation). The amount and, in some instances, character, of the income
reported to a grantor trust certificateholder may differ under this method for a
particular period from that which would be reported if income were reported on a
precise asset-by-asset basis.
TAX TREATMENT OF INVESTORS
CHARACTERIZATION OF INVESTMENT. As mentioned above, each grantor trust
certificateholder will be treated as the owner of a pro rata undivided interest
in each of the contracts in the trust, any right to receive yield supplement
deposits, and any other trust property. Any amounts received by a grantor trust
certificateholder in lieu of amounts due with respect to any contract because of
a default or delinquency in payment will be treated for federal income tax
purposes as having the same character as the payments they replace.
In each case where the interest rate on a contract exceeds the sum of the
certificate pass-through rate plus the servicing fee rate, for federal income
tax purposes, the depositor will be treated as having retained a fixed portion
of the interest due on the contract equal to the difference between (1) the
interest rate on each contract and (2) the sum of the pass-through rate and the
servicing fee rate. The depositor's retained yield with respect to the contracts
will be treated as "STRIPPED COUPONS" within the meaning of Section 1286 of the
Code and the contracts will be treated as "STRIPPED BONDS." See "--STRIPPED
BONDS AND STRIPPED COUPONS" below.
Each grantor trust certificateholder will be required to report on its
federal income tax return in accordance with that certificateholder's method of
accounting its pro rata share of the entire income from the contracts in the
trust represented by certificates, including interest, original issue discount,
prepayment fees, assumption fees, any gain recognized upon an assumption, late
payment charges received by the servicer and any gain recognized upon collection
or disposition of the contracts (but not including any portion of the
depositor's retained yield). A grantor trust certificateholder will also be
required to report under its usual method of accounting any payments received
under any yield supplement agreement to the extent that these payments are
treated as income. Each grantor trust certificateholder will be entitled to
deduct its pro rata share of servicing fees, prepayment fees,
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assumption fees, any loss recognized upon an assumption, and late payment
charges retained by the servicer, provided that those amounts are reasonable
compensation for services rendered to the trust. Certificateholders that are
individuals, estates or trusts will be entitled to deduct their share of
expenses only to the extent those expenses exceed two percent of its adjusted
gross income. Grantor trust certificateholders who are individuals may be
subject to additional deduction limitations based on adjusted gross income.
A grantor trust certificateholder using the cash method of accounting must
take into account its pro rata share of income and deductions as and when
collected by or paid to the servicer. A grantor trust certificateholder using an
accrual method of accounting must take into account its pro rata share of income
and deductions as they become due or are paid, whichever is earlier. Because
(1) interest accrues on the contracts over differing monthly periods and is paid
in arrears and (2) interest collected on a contract generally is paid to
certificateholders in the following month, the amount of interest accruing to a
grantor trust certificateholder during any calendar month will not equal the
interest distributed in that month.
PURCHASE PRICE ALLOCATION. A certificateholder must allocate the cost of
its certificates among its allocable share of each of the separate assets of the
trust, in accordance with the proportion of the relative fair market values of
the assets as of the date the holder acquired its certificate, in order to
determine its initial tax basis for its pro rata portion of each asset held by
the trust. For this purpose, a certificateholder may treat the trust's rights in
the security interests, the individual insurance contracts, and other rights the
trust may have which provide credit enhancement as part of the contracts such
that no separate allocation of the certificate cost and determination of basis
must be made to these rights.
In addition to the contracts however, the purchase price for certificates
should be allocated to the grantor trust certificateholder's undivided interest
in accrued but unpaid interest, amounts collected at the time of purchase but
not distributed, and, perhaps, rights to receive yield supplement deposits. As a
result, the portion of the purchase price allocable to the grantor trust
certificateholder's undivided interest in the contracts may be decreased. The
allocation of purchase price among the assets is important for purposes of
determining the amount of gain or loss recognized by a certificateholder when
the trust disposes of a contract and for calculating discount or premium with
respect to the contracts, all as discussed below.
STRIPPED BONDS AND STRIPPED COUPONS. Although the tax treatment of stripped
bonds is not entirely clear, based on recent guidance from the Internal Revenue
Service, each purchaser of a grantor trust certificate will be treated as the
purchaser of a stripped bond and coupon, to the extent that the contracts
consist of contracts having an interest rate in excess of the sum of the
pass-through rate plus the servicing fee rate. The stripped bond generally
should be treated as a single debt instrument issued on the day it is purchased
for purposes of calculating any original issue discount. Generally, under
applicable Treasury Regulations, if the discount on a stripped bond is larger
than a DE MINIMIS amount (one-fourth of one percent, or 0.25%, of the bond's
principal amount or other stated redemption price at maturity multiplied by the
full number of years included in determining the weighted average maturity of
the bonds) that stripped bond will be considered to have been issued with
original issue discount. See "--OWNER TRUSTS--TAX TREATMENT OF INVESTORS IN
NOTES--ORIGINAL ISSUE DISCOUNT." Although the matter is not entirely clear, each
certificateholder's share of the interest income on the contracts at the sum of
the pass-through rate and the fee servicing rate will be treated as "QUALIFIED
STATED INTEREST." The trustee will treat each holder's share of the interest
income in this manner for tax information reporting purposes. As a result, the
amount of original issue discount for each certificateholder will equal the
amount, if any, by which the portion of the certificate purchase price allocable
to the contracts is less than the remaining principal balance of those
contracts.
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Generally, a certificateholder that acquires an undivided interest in
contracts constituting stripped bonds that have original issue discount
(referred to in this discussion as "stripped contracts") must include in gross
income the sum of the "DAILY PORTIONS" of the original issue discount for each
day on which it owns a certificate, including the date of purchase but excluding
the date of disposition. In the case of an original grantor trust
certificateholder, the daily portions of original issue discount with respect to
the stripped contracts generally would be determined as follows. A calculation
will be made of the portion of original issue discount that accrues on those
contracts during each successive monthly accrual period (or shorter period in
respect of the date of original issue or the final payment date). This will be
done, in the case of each full monthly accrual period, by adding (1) the present
value of all remaining payments to be received on the stripped contracts under
the prepayment assumption used in respect of the contracts and (2) any payments
received during that accrual period, and subtracting from that total the
"ADJUSTED ISSUE PRICE" of the stripped contracts at the beginning of that
accrual period. The adjusted issue price of the stripped contracts at the
beginning of the first accrual period is the amount of the purchase price paid
by the certificateholder for the certificate that is allocable to those
contracts. The adjusted issue price of the stripped contracts at the beginning
of a subsequent accrual period is the adjusted issue price at the beginning of
the immediately preceding accrual period plus the amount of original issue
discount allocable to that accrual period and reduced by the amount of any
payment on the stripped contracts (other than qualified stated interest) made at
the end of or during that accrual period. The original issue discount accruing
during that accrual period will then be divided by the number of days in the
period to determine the daily portion of original issue discount for each day in
the period. With respect to an initial accrual period shorter than a full
monthly accrual period, the daily portions of original issue discount must be
determined according to a reasonable method, provided that the method is
consistent with the method used to determine the yield to maturity of the
stripped contracts.
For purposes of calculating the daily portion of original issue discount to
be accrued as income, the method of determining yield to maturity is not clear,
and in particular it is not clear whether prepayments on the underlying
contracts should be taken into account in determining such yield. The method of
calculating the accrual of original issue discount as described above will cause
the accrual of original issue discount to either increase or decrease (but never
below zero) in any given accrual period to reflect the fact that prepayments are
occurring at a faster or slower rate than the prepayment assumption used in
respect of the stripped contracts. Subsequent purchasers that purchase interests
in stripped contracts at more than a de minimis discount should consult their
tax advisors with respect to the proper method to accrue that original issue
discount.
PREMIUM. A certificateholder that acquires an interest in contracts at a
premium over the stated redemption price at maturity of the contracts may elect
to amortize that premium under a constant interest method. A premium would occur
if the purchase price for a certificate exceeded the holder's proportionate
share of the remaining payments due on the contracts Amortizable premium will be
treated as an offset to interest income recognized by the holder on its grantor
trust certificate. However, the holder's tax basis for the grantor trust
certificate will be reduced to the extent that amortizable premium is claimed as
a deduction to offset interest payments. A certificateholder that makes this
election for a grantor trust certificate that is acquired at a premium will be
deemed to have made an election to amortize bond premium with respect to all
debt instruments having amortizable bond premium that the certificateholder
holds during the year of the election or thereafter.
It is not clear whether a reasonable prepayment assumption should be used in
computing amortization of premium allowable as a deduction. If a premium is not
subject to amortization using a reasonable prepayment assumption, the holder of
a certificate acquired at a premium should recognize a loss if a contract is
prepaid in full, equal to the difference between the portion of the prepaid
principal amount of that contract that is allocable to the grantor trust
certificate and the portion of the adjusted basis of the certificate that is
allocable to that contract. On the other hand, if a reasonable
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prepayment assumption is used in calculating the amount of amortizable premium,
it appears that a loss would be available, if at all, only if prepayments occur
at a rate faster than the reasonable assumed prepayment rate. It is not clear
whether any other adjustments would be required to reflect differences between
an assumed prepayment rate and the actual rate of prepayments.
YIELD SUPPLEMENT DEPOSITS. A grantor trust may, under certain
circumstances, receive yield supplement deposits to augment the cash flows from
interest income on the contracts. It is possible that the right to receive
payments under a yield supplement agreement will be treated as a separate asset
purchased by each grantor trust certificateholder. Accordingly, as previously
discussed (see "--ALLOCATION OF PURCHASE PRICE") a portion of each grantor trust
certificateholder's purchase price or other tax basis in the certificate may
have to be allocated to the right to receive payments of yield supplement
deposits based on the fair market value of that right.
However, the sum of the income and deductions properly reportable by a
certificateholder in any taxable year in which the trust receives yield
supplement deposits may not equal the amounts that would be reportable if a
grantor trust certificateholder, instead of holding its undivided interest in
the contracts and the yield supplement deposits, held either (1) a debt
instrument bearing interest at the applicable pass-through rate or (2) an
interest in a trust holding contracts each of which paid interest at a rate at
least equal to the sum of the pass-through rate plus the servicing fee rate.
The right to receive yield supplement deposits may be treated as a loan made
by a certificateholder to the depositor in an amount equal to the present value,
discounted at a rate equal to the sum of the applicable pass-through rate and
the servicing fee rate, of the projected yield supplement deposits. In that
event, a portion of the yield supplement deposits generally representing a yield
on such discounted value should be treated as interest includible in income as
accrued or received, and the remainder should be treated as a return of the
principal amount of the deemed loan. Alternatively, it is possible that the
entire amount of each yield supplement deposit should be included in income as
accrued or received, in which event a certificateholder should also be entitled
to amortize the portion of its certificate purchase price allocable to its right
to receive yield supplement deposits. The method of calculating that
amortization is unclear, and could result in the inclusion of greater amounts of
income than a certificateholder's actual yield on a contract. In addition, to
the extent that the amounts payable pursuant to a yield supplement agreement
decline during any period by reason of prepayments on the contracts, it is
possible that the Internal Revenue Service might contend that none of the above
methods is appropriate, and that income with respect to the yield supplement
deposits should be reported by a certificateholder in some other manner. It is
suggested that grantor trust certificateholders consult their tax advisors
regarding the appropriate method of accounting for income attributable to yield
supplement deposits.
MARKET DISCOUNT. Generally, all discount on an interest in stripped
contracts will be treated as original issue discount under the stripped bond
rules of the Code, and the rules relating to market discount on bonds will not
apply. However, if the difference between the interest rate on the contracts and
the pass-through rate on the certificates were determined to constitute
reasonable compensation for services rendered to the trust, then the stripped
bond rules described above should not apply. In that event, a certificateholder
will be subject to the market discount rules to the extent that its undivided
interest in a contract is considered to have been purchased at a "MARKET
DISCOUNT." Generally, the amount of market discount is equal to the excess of
the portion of the principal amount of a contract allocable to a holder over
that holder's tax basis (i.e., the portion of the certificate purchase price
allocable to that contract). At the present time there is no express authority
for determining whether market discount exists by reference to the entire pool
of contracts rather than on a contract-by-contract basis. Market discount with
respect to a contract will be considered to be zero if the amount allocable to
the contract is less than one-fourth of one percent (0.25%) of the stated
redemption price at maturity of the contracts multiplied by the weighted average
maturity remaining after the date of purchase.
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Any principal payment (whether a scheduled payment or a prepayment) or any
gain on disposition of a market discount instrument is required to be treated as
ordinary income up to the amount of the accrued market discount at that time.
The amount of accrued market discount for purposes of determining the tax
treatment of subsequent principal payments or dispositions of the market
discount debt instrument is reduced by the amount so treated as ordinary income.
Market discount will generally be considered to accrue ratably, unless a
certificateholder elects to accrue on a constant interest method. In addition,
special rules may apply to the determination of the accrual of market discount
where the principal of an instrument is payable in more than one installment.
A holder who acquired a grantor trust certificate at a market discount may
be required to defer a portion of its interest deductions for the taxable year
attributable to any indebtedness incurred or continued to purchase or carry that
certificate. For these purposes, the de minimis rule referred to above applies.
Any deferred interest expense would not exceed the market discount that accrues
during that taxable year and is, in general, allowed as a deduction not later
than the year in which the market discount is includible in income. A holder may
elect to include market discount in income currently as it accrues, on either a
ratable or constant interest method, in which case the rule described above
regarding deferral of interest deductions will not apply. A holder's election to
include market discount in income currently, once made, applies to all market
discount obligations acquired by the holder on or after the first taxable year
to which the election applies and may not be revoked without the consent of the
Internal Revenue Service.
Because Treasury Regulations implementing the market discount rules have not
yet been issued, it is suggested that investors consult their own tax advisors
regarding the application of these rules and the advisability of making the
election to accrue market discount.
ELECTION TO TREAT ALL INTEREST AS ORIGINAL ISSUE DISCOUNT. The original
issue discount regulations permit a certificateholder to elect to accrue all
interest and discount (including de minimis discount), offset by any premium, in
income as interest based on a constant yield method. If that election were to be
made with respect to a grantor trust certificate with market discount, the
grantor trust certificateholder would be deemed to have made an election to
include in income currently market discount with respect to all other debt
instruments having market discount that the certificateholder acquires during
the year of the election or thereafter. Similarly, a certificateholder that
makes this election for a certificate that is acquired at a premium will be
deemed to have made an election to amortize bond premium with respect to all
debt instruments having amortizable bond premium that the certificateholder owns
or acquires. The election to accrue interest, discount and premium on a constant
yield method with respect to a grantor trust certificate is irrevocable except
with the approval of the Internal Revenue Service.
SALE OR EXCHANGE OF A CERTIFICATE. Sale or exchange of a grantor trust
certificate prior to its maturity will result in the recognition by the owner of
gain or loss equal to the difference, if any, between the amount received and
the owner's adjusted basis in the certificate. The adjusted basis generally will
equal the seller's purchase price for the certificate, increased by any accrued
market discount or original issue discount previously included in the seller's
gross income with respect to the certificate and reduced by the amount of any
previously amortized premium and by the amount of any payments on the
certificate, other than payments of qualified stated interest, previously
received by the seller. That gain or loss will be capital gain or loss to an
owner for which a grantor trust certificate is a "CAPITAL ASSET" and will be
long-term or short-term depending on whether the certificate has been owned for
the long-term capital gain holding period (currently more than one year).
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FOREIGN CERTIFICATEHOLDERS. Interest or discount income attributable to
contracts which is received by a foreign certificateholder will generally not be
subject to the normal 30% withholding tax imposed with respect to such payments,
provided that (1) the foreign certificateholder does not own, directly or
indirectly, 10% or more of, and is not a controlled foreign corporation related
to, the depositor and (2) the foreign holder fulfills certain certification
requirements. Under those requirements, the holder must certify, under penalty
of perjury, that it is not a "UNITED STATES PERSON" and provide its name and
address on Form W-8 (or successor form). For this purpose, United States person
generally means (a) a citizen or resident of the United States, (b) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, (c) an estate
the income of which is subject to United States federal income taxation
regardless of its source, (d) a trust if a court within the United States is
able to exercise primary jurisdiction over the administration of the trust and
one or more United States persons have the authority to control all substantial
decisions of the trust, or (e) a trust that has a valid election in effect under
applicable United States Treasury Regulations to be treated as a United States
person. Gain realized upon the sale of a certificate by a foreign
certificateholder generally will not be subject to United States withholding
tax. If, however, such interest or gain is effectively connected to the conduct
of a trade or business within the United States by such foreign
certificateholder (or in the case of gain if the certificateholder is an
individual who is present in the United States for a total of 183 days or more
during the taxable year in which such gain is realized), such holder will be
subject to United States federal income tax thereon at the regular rates and, in
addition, an investor that is a foreign corporation may be subject to a branch
profits tax equal to 30% (or lower applicable treaty rate) of its "effectively
connected earnings and profits" within the meaning of the Code for the taxable
year, as adjusted for certain items.
It is not entirely clear whether amounts received by a foreign
certificateholder that are attributable to payments of yield supplement deposits
received pursuant to any yield supplement agreement would not be subject to
withholding tax. Potential investors who are not United States persons should
consult their own tax advisors regarding the specific tax consequences to them
of owning a certificate issued by a grantor trust.
INFORMATION REPORTING AND BACKUP WITHHOLDING. The servicer will furnish or
make available, within a reasonable time after the end of each calendar year, to
each person who was a grantor trust certificateholder at any time during the
year, the information that is deemed necessary or desirable to assist
certificateholders in preparing their federal income tax returns, or to enable
holders to make that information available to beneficial owners or financial
intermediaries that hold grantor trust certificates as nominees on behalf of
beneficial owners. If a non-exempt holder, beneficial owner, financial
intermediary or other recipient of a payment on behalf of a non-exempt
beneficial owner fails to supply a certified taxpayer identification number or
if the Secretary of the Treasury determines that that person has not reported
all interest and dividend income required to be shown on its federal income tax
return, 31% backup withholding may be required with respect to any payments. Any
amounts deducted and withheld from a payment to a recipient would be allowed as
a credit against the recipient's federal income tax liability.
FASITS
GENERAL DESCRIPTION OF FASIT
Pursuant to legislation enacted by Congress in 1996, a new type of entity
was created called a "financial asset securitization investment trust," or
FASIT. On February 7, 2000, the Internal Revenue Service released proposed
regulations regarding FASITs. As stated previously in this section of the
prospectus under the caption "GENERAL", the discussion with respect to FASITs is
based upon existing law, including the proposed FASIT regulations, all of which
are subject to change, possibly with retroactive effect.
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Treatment of a trust as a FASIT is elective. The FASIT election will be made
by attaching a statement to the income tax return for the owner of the
"OWNERSHIP INTEREST" in the FASIT (as that interest is described below) for the
taxable year that includes the startup day of the FASIT. The owner of the
ownership interest may be the depositor or it may be an independent third party.
There is no prescribed form for the statement electing FASIT status. If, as is
likely to be the case, an entity is formed to be the FASIT, the election
statement must be signed by the person who would be responsible for signing the
entity's tax return in the absence of FASIT treatment. On the other hand, if
instead of a separate entity the FASIT election is only to apply to a segregated
pool of assets, the election statement must be signed by each person who is the
owner, for federal income tax purposes, of assets in the pool immediately before
the startup day of the FASIT.
If a FASIT election is made for a trust, the accompanying prospectus
supplement will so indicate. For each trust as to which one or more FASIT
election is made, Winston & Strawn, as federal tax counsel, is of the opinion
that the trust, or one or more segregated pools of trust assets, will be treated
as a FASIT assuming that there is (1) compliance with the terms of the pooling
agreement (or similar governing documents pertaining to the acquisition of
assets by the trust) and (2) compliance with any changes in the federal income
tax laws pertaining to FASITs, including applicable provisions of the Code, the
proposed FASIT regulations or other treasury regulations, or any judicial or
administrative interpretations of the Code or regulations. The pooling agreement
(or similar governing documents) will require that substantially all of the
trust assets consist only of "PERMITTED ASSETS", as described below and also
contains certain other restrictions necessary for the trust to be and continue
to qualify as a FASIT. Based upon those same assumptions, tax counsel is of the
opinion that each trust, or one or more segregated pools of trust assets, for
which a FASIT election is made is organized, operated and will continue to
operate in a manner so as to qualify for FASIT status.
Although the Internal Revenue Service recently published regulations in
proposed form with respect to FASITs, the regulations are only in proposed form
and do not attempt to deal with all aspects of FASIT taxation. Accordingly,
definitive statements cannot be made with respect to many aspects of the tax
treatment of FASITs and the holders of certificates issued by FASITs. Investors
should also note that the following FASIT discussion constitutes only a summary
of the United States federal income tax consequences to FASIT
certificateholders. With respect to each series of FASIT certificates, the
related prospectus supplement will provide a detailed discussion regarding the
federal income tax consequences associated with the particular transaction.
FASIT REQUIREMENTS
A trust fund can qualify to elect FASIT status if it is not a "REGULATED
INVESTMENT COMPANY" as described in Section 851(a) of the Code, it issues only
"REGULAR INTERESTS" and one "OWNERSHIP INTEREST" (as described below), and
substantially all of its assets are "permitted assets." For this purpose,
permitted assets include (1) cash and cash equivalents, (2) any debt instrument
that provides for interest payments which (A) are payable based on a fixed rate
or certain variable rates, or (B) consist of a specified portion of the interest
payments on the trust assets, which portion does not vary during the period such
interest is outstanding, (3) foreclosure property, (4) certain hedging
instruments (i.e., swap contracts, futures contracts, and guarantee
arrangements) intended to hedge against the risks associated with being the
obligor on FASIT regular interests, (5) contract rights to acquire debt
instruments described in (2) above or hedges described in (4) above, and
(6) any regular interest in a real estate mortgage investment conduit, or REMIC,
or in another FASIT. The term "permitted asset" does not, however, include any
debt instrument issued by the holder of the ownership interest or any person
related to such holder.
In order for substantially all of a FASIT's assets to consist of permitted
assets, the aggregate adjusted basis of assets held by the FASIT which are not
permitted assets must be less than 1% of the aggregate adjusted basis of all of
the FASIT's assets. The pooling agreement (or similar governing
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documents) for each FASIT will require that substantially all of the FASIT's
assets consist of permitted assets at all times. However, there is the
possibility that changes in the assets owned by the FASIT could adversely affect
the ability of the FASIT to comply with the permitted asset requirement. Failure
of the FASIT to comply with this requirement could cause it to lose FASIT
status, however, certain mitigation provisions exist which may be available.
The Code does not provide comprehensive rules describing the consequences of
a cessation of FASIT status. Under the recently proposed regulations the owner
of the FASIT ownership interest would be deemed to dispose of all of the FASIT's
assets in a "PROHIBITED TRANSACTION" and any gain would be subject to the
prohibited transactions tax. The regular interests will be deemed satisfied for
an amount which could generate cancellation of indebtedness income for the owner
of the FASIT ownership interest. The FASIT which ceased to so qualify would,
under the proposed rules, no longer be treated as a FASIT and would be
prohibited from making a new FASIT election. The trust would then be classified
under general tax principles. In that event, the trust could be treated as an
association or other entity subject to an entity level tax. Under the proposed
rules, the regular interests owned by investors would be deemed to be exchanged
for interests in the reclassified entity, which exchange could result in the
recognition of gain or loss by those investors. Any of the foregoing could
adversely affect investors.
On February 7, 2000, the Clinton Administration submitted to Congress its
budget proposals for fiscal year 2001. The budget proposals include a provision
which would impose on a FASIT secondary liability for the payment of federal
income tax due from the owner of the FASIT's single ownership interest. As a
result, if the proposal were to be enacted, the failure of the owner of the
ownership interest to pay taxes due could cause the holders of regular interests
to be adversely affected by reduced available funds for distribution by the
FASIT. It is unclear at this time whether the Clinton budget proposal will be
enacted.
TAX TREATMENT OF INVESTORS
FASIT interests will be classified as either FASIT regular interests, which
generally will be treated as debt for federal income tax purposes, or a FASIT
ownership interest, which is not treated as debt for such purposes, but rather
represents the residual equity interest in a FASIT. The tax treatment of each
type of interest is discussed briefly below.
REGULAR INTERESTS. The terms of a FASIT regular interest generally must
satisfy the following requirements: (1) a stated maturity of no greater than
30 years, (2) a specified principal amount, (3) the issue price of the interest
does not exceed 125% of its stated principal amount, (4) the yield to maturity
of the interest is less than the applicable federal rate published by the
Internal Revenue Service for the month of issue plus five percentage points, and
(5) if it pays interest, such interest is payable at either (a) a fixed rate
with respect to the principal amount of the regular interest or (b) certain
permissible variable rates with respect to such principal amount. Regular
interests which do not meet certain of those requirements, referred to as "HIGH
YIELD INTERESTS," may be issued by a FASIT but are permitted to be held by only
certain types of investors such as domestic "C" corporations and other FASITs.
Certain other limitations also apply to high yield interests, such as limits on
the amount of FASIT interest income able to be offset by non-FASIT losses and
deductions otherwise available to the owner of the interest.
FASIT regular interests generally will be subject to the same federal income
tax treatment as applies to debt instruments generally. See "--OWNER TRUSTS--TAX
TREATMENT OF INVESTORS IN NOTES" in this prospectus. One significant difference,
however, is that the holder of a FASIT regular interest must report income from
its interest under the accrual method of accounting, even if it otherwise uses
the cash receipts and disbursement method. The sale or other disposition of a
FASIT regular interest generally will be subject to the same rules as apply to
debt instruments generally.
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OWNERSHIP INTEREST. One interest issued by a trust electing to be treated
as a FASIT will be designated as the sole ownership interest in the FASIT. The
ownership interest need not have any particular economic characteristics.
However, the ownership interest must be held directly at all times by an
"ELIGIBLE CORPORATION" which includes a domestic "C" corporation that is subject
to tax and is not a pass-thru entity for tax purposes such as a regulated
investment company, real estate investment trust, real estate mortgage
investment conduit, or cooperative.
Because the ownership interest represents the residual equity interest in a
FASIT, the holder of a FASIT ownership interest determines its taxable income by
taking into account all assets, liabilities, and items of income, gain,
deduction, loss and credit of the related FASIT. In general the character of the
income to the holder of a FASIT ownership interest will be the same as the
character of such income to the FASIT, except that any tax-exempt interest
income taken into account by the holder of a FASIT ownership interest is treated
as ordinary income. In determining that taxable income, the holder of a FASIT
ownership interest must use a constant yield methodology and an accrual method
of accounting and generally will be subject to the same rules of taxation for
original issue discount, market discount, and amortizable premium as apply to
debt instruments generally. See "--OWNER TRUSTS--TAX TREATMENT OF INVESTORS IN
NOTES--PURCHASE AT A DISCOUNT" and "--PURCHASE AT A PREMIUM" in this prospectus.
In addition, a holder of a FASIT ownership interest is subject to the same
limitations on its ability to use non-FASIT losses and deductions to offset
income from the FASIT ownership interest as are holders of FASIT high-yield
regular interests.
Losses on dispositions of a FASIT ownership interest generally will be
disallowed as a deduction if within six months before or after the disposition,
the seller of the interest acquires any other FASIT ownership interest.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan, as well as individual retirement
accounts and some types of Keogh Plans (each a "BENEFIT PLAN"), from engaging in
transactions involving "PLAN ASSETS" with persons that are "PARTIES IN INTEREST"
under ERISA or "DISQUALIFIED PERSONS" under the Code with respect to that
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
those persons. Certain exemptions from the prohibited transaction rules could be
applicable to the purchase and holding of securities by a Benefit Plan depending
on the type and circumstances of the plan fiduciary making the decision to
acquire the securities. Potentially available exemption would include, without
limitation, Prohibited Transaction Class Exemption ("PTCE") 90-1, which exempts
certain transactions involving insurance company pooled separate accounts; PTCE
95-60, which exempts certain transactions involving insurance company general
accounts; PTCE 91-38, which exempts certain transactions involving bank
collective investment funds; PTCE 84-14, which exempts certain transactions
effected on behalf of a plan by a "QUALIFIED PROFESSIONAL ASSET MANAGER"; and
PTCE 96-23, which exempts certain transactions effected on behalf of a plan by
an "IN-HOUSE ASSET MANAGER." Insurance company general accounts should also
discuss with their legal counsel the availability of exemptive relief under
Section 401(c) of ERISA. A purchaser of securities should be aware, however,
that even if the conditions specified in one or more exemptions are met, the
scope of the relief provided by the applicable exemption or exemptions might not
cover all acts that might be construed as prohibited transactions.
Some transactions involving a trust might be deemed to constitute prohibited
transactions under ERISA and the Code with respect to a Benefit Plan that
purchased notes or certificates if assets of the trust were deemed to be assets
of the Benefit Plan. Under a regulation issued by the United States Department
of Labor (the "PLAN ASSETS REGULATION"), the assets of a trust would be treated
as plan assets of a Benefit Plan for the purposes of ERISA and the Code only if
the Benefit Plan acquired an
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"EQUITY INTEREST" in the trust and none of the exceptions contained in the Plan
Assets Regulation was applicable. An equity interest is defined under the Plan
Assets Regulation as an interest other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features.
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and some church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements nor to Section 4975 of the Code.
However, governmental plans may be subject to state or local laws that impose
similar requirements. In addition, governmental plans and church plans that are
"qualified" under Section 401(a) of the Code are subject to restrictions with
respect to prohibited transactions under Section 503(a)(1)(B) of the Code, the
sanction for violation being loss of "QUALIFIED" status.
Due to the complexities of the "PROHIBITED TRANSACTION" rules and the
penalties imposed upon persons involved in prohibited transactions, it is
important that the fiduciary of any Benefit Plan considering the purchase of
securities consult with its tax and/or legal advisors regarding whether the
assets of the related trust would be considered plan assets, the possibility of
exemptive relief from the prohibited transaction rules and other issues and
their potential consequences.
RATINGS OF THE SECURITIES
No trust will sell securities under this prospectus unless one or more
nationally recognized statistical rating organizations rate the securities in a
rating category that signifies investment grade. Any rating that is made may be
lowered or withdrawn by the assigning rating agency at any time if, in its
judgment, circumstances so warrant. If a rating or ratings of securities is
qualified, reduced or withdrawn, no person or entity will be obligated to
provide any additional credit enhancement with respect to the securities so
qualified, reduced or withdrawn.
The ratings of the securities should be evaluated independently from similar
ratings on other types of securities. A rating is not a recommendation to buy,
sell or hold securities, inasmuch as a rating does not comment as to market
price or suitability for a particular investor. The ratings of the securities do
not address the likelihood of payment of principal on any class of securities
prior to the stated maturity date of the securities, or the possibility of the
imposition of United States withholding tax with respect to non-United States
persons.
PLAN OF DISTRIBUTION
Each trust may sell securities to or through underwriters by a negotiated
firm commitment underwriting and public reoffering by the underwriters, and also
may sell securities directly to other purchasers or through agents. The
depositor intends to offer the notes through these various methods from time to
time and that offerings may be made concurrently through more than one of these
methods or that an offering of a particular series of notes may be made through
a combination of these methods.
The seller, the depositor and certain of its affiliates may agree to
indemnify the underwriters and agents who participate in the distribution of the
securities against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or contribute to payments the underwritten
may be required to make.
Funds in cash collateral accounts and the trust accounts may, from time to
time, be invested in certain investments acquired from the underwriters.
LEGAL MATTERS
Winston & Strawn, Chicago, Illinois, will provide a legal opinion relating
to the securities in its capacity as special counsel to the trust, the
depositor, the seller and the servicer. In addition, certain United States
federal income tax matters will be passed upon for the related trust by
Winston & Strawn. Other legal matters for underwriters will be passed upon by
counsel to underwriters.
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WHERE YOU CAN FIND MORE INFORMATION
Federal securities law requires the filing of certain information with the
Securities and Exchange Commission, including annual, quarterly and special
reports, proxy statements and other information. You can read and copy these
documents at the public reference facility maintained by the Securities and
Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. You can also read and copy the reports, proxy statements
and other information at the following regional offices of the Securities and
Exchange Commission:
<TABLE>
<S> <C>
New York Regional Office Chicago Regional Office
Seven World Trade Center Citicorp Center
Suite 1300 500 West Madison Street, Suite 1400
New York, NY 10048 Chicago, IL 60661
</TABLE>
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
more information about the public reference rooms or visit Securities and
Exchange Commission's web site at http://www.sec.gov to access available
filings.
The Securities and Exchange Commission allows offerors of securities to
incorporate by reference some of the information they file with it. This means
that offerors can disclose important information to you by referring you to
those documents. Documents incorporated by reference will be filed under the
depositor's name. The information that the depositor incorporates by reference
is considered to be part of this prospectus, and later information that the
depositor files with the Securities and Exchange Commission will automatically
update and supersede this information.
All documents filed by the servicer, on behalf of a respective trust, under
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, after
the date of this prospectus and prior to the termination of the offering of the
securities will be incorporated by reference into this prospectus.
If you are a beneficial owner of the securities to whom a prospectus has
been delivered, the depositor will, on request, send you a copy of the
information that has been incorporated by reference in this prospectus. The
depositor will provide this information at no cost to you. Please address
requests to: Dealer Auto Receivables Corp., 230 West Monroe Street, Chicago,
Illinois 60606.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized list of the estimated expenses to be incurred
in connection with the offering of the securities being offered hereunder other
than underwriting discounts and commissions.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 2,640
Printing and Engraving Expenses............................. $ 80,000
Trustee's Fees and Expenses................................. $ 25,000
Legal Fees and Expenses..................................... $200,000
Blue Sky Fees and Expenses.................................. $ 10,000
Accountants' Fees and Expenses.............................. $ 45,000
Rating Agency Fees.......................................... $ 80,000
Miscellaneous Fees.......................................... $100,000
--------
Total..................................................... $542,640
========
</TABLE>
------------------------
* All amounts except the SEC Registration Fee are estimates of expenses
incurred or to be incurred in connection with the issuance and distribution
of the securities in an aggregate principal amount assumed for these
purposes to be equal to $1,000,000 of securities registered hereby.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The General Corporation Law of Delaware (Section 145) gives Delaware
corporations broad powers to indemnify their present and former directors and
officers and those affiliated corporations against expenses incurred in the
defense of any lawsuit to which they are made parties by reason of being or
having been such directors or officers, subject to specified conditions and
exclusions; gives a director or officer who successfully defends an action the
right to be so indemnified; and authorizes said corporation to buy director's
and officers' liability insurance. Such indemnification is not exclusive of any
other right to which those indemnified may be entitled under any bylaw,
agreement, vote of stockholders or otherwise.
Premier Auto Finance, Inc. has also purchased liability policies which
indemnify the Registrant's officers and directors against loss arising from
claims by reason of their legal liability for acts as officers and directors,
subject to limitations and conditions as set forth in the policies.
Pursuant to agreements which the Registrant may enter into with underwriters
or agents (forms of which will be included as exhibits to this registration
statement), officers and directors of the Registrant, and affiliates thereof,
may be entitled to indemnification by such underwriters or agents against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended, arising from information which has been or will be furnished to the
Registrant by such underwriters or agents that appears in the registration
statement or any prospectus.
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<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
1.1 Form of Underwriting Agreement (previously filed)
3.1 Certificate of Incorporation of the depositor (previously
filed)
3.2 Bylaws of the depositor (previously filed)
4.1 Form of Trust Agreement (including form of certificate)
(previously filed)
4.2 Form of Indenture (including form of notes) (previously
filed)
5.1 Opinion of Winston & Strawn with respect to legality
8.1 Opinion of Winston & Strawn with respect to tax matters
10.1 Form of Transfer and Sale Agreement (previously filed)
10.2 Form of Sale and Servicing Agreement (previously filed)
10.3 Form of Pooling and Servicing Agreement (previously filed)
10.4 Form of Administration Agreement (previously filed)
10.5 Form of Performance Guarantee (previously filed)
10.6 Form of Dealer Agreement (previously filed)
23.1 Consent of Winston & Strawn (included in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP*
24.1 Power of Attorney (included on signature page)
25.1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of indenture trustee
</TABLE>
------------------------
* To be filed by amendment
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; or
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or
any material change to such information in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act if 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the
II-2
<PAGE>
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offer therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(c) That insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described under Item 14
above, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the act and
will be governed by the final adjudication of such issue.
(d) That, for purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(e) That, for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has reasonable grounds to believe
that the security rating requirement set forth in the section captioned "RATINGS
OF SECURITIES" will be met by the time of sale of the securities and has duly
caused this Pre-Effective Amendment No. 2 to the registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Chicago, State of Illinois, on July 8, 2000.
<TABLE>
<S> <C> <C>
DEALER AUTO RECEIVABLES CORP.
By: /s/ CHARLES BRADFORD WOLFE
--------------------------------------
Name: Charles Bradford Wolfe
Title: EXECUTIVE VICE PRESIDENT, ASSISTANT
TREASURER AND CHIEF FINANCIAL OFFICER
</TABLE>
Pursuant to the requirements of the Act, this Pre-Effective Amendment No. 2
to the registration statement has been signed by the following persons in the
capacities indicated on July 8, 2000:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
***
-------------------------------------------- President, Chief Executive Officer and
Name: Gilbert N. Zitin Chairman (Principal Executive Officer)
Executive Vice President, Assistant Treasurer
/s/ CHARLES BRADFORD WOLFE and Chief Financial Officer (Principal
-------------------------------------------- Financial Officer and Principal Accounting
Name: Charles Bradford Wolfe Officer)
***
-------------------------------------------- Director
Name: Harvey N. Medvin
***
-------------------------------------------- Director
Name: Frank B. Bilotta
</TABLE>
***/s/ WILLIAM J. SPARER
--------------------------------------------
Name: William J. Sparer
Attorney-in-Fact
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement (previously filed)
3.1 Certificate of Incorporation of the depositor (previously
filed)
3.2 Bylaws of the depositor (previously filed)
4.1 Form of Trust Agreement (including form of certificate)
(previously filed)
4.2 Form of Indenture (including form of notes) (previously
filed)
5.1 Opinion of Winston & Strawn with respect to legality
8.1 Opinion of Winston & Strawn with respect to tax matters
10.1 Form of Transfer and Sale Agreement (previously filed)
10.2 Form of Sale and Servicing Agreement (previously filed)
10.3 Form of Pooling and Servicing Agreement (previously filed)
10.4 Form of Administration Agreement (previously filed)
10.5 Form of Performance Guarantee (previously filed)
10.6 Form of Dealer Agreement (previously filed)
23.1 Consent of Winston & Strawn (included in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP*
24.1 Power of Attorney (included on signature page)
25.1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of indenture trustee
</TABLE>
------------------------
* To be filed by amendment
