<PAGE> 1
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL WE DELIVER A FINAL
PROSPECTUS. THIS PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS ARE
NOT AN OFFER TO SELL THESE SECURITIES AND THEY ARE NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION
PROSPECTUS SUPPLEMENT, DATED DECEMBER 5, 2000
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS, DATED DECEMBER 5, 2000)
$525,000,000
PEOPLEFIRST.COM VEHICLE RECEIVABLES OWNER TRUST 2000-2
[PEOPLEFIRST.COM LOGO]
PEOPLEFIRST FINANCE, LLC
ORIGINATOR AND SERVICER
ML ASSET BACKED CORPORATION
DEPOSITOR
----------------------
Before you purchase any of these notes, be sure you read this prospectus
supplement and the attached prospectus, especially the risk factors beginning on
page S-12 of this prospectus supplement and on page 11 of the prospectus.
------------------------
THESE SECURITIES ARE ISSUED BY THE TRUST. THE SECURITIES ARE NOT OBLIGATIONS OF
ML ASSET BACKED CORPORATION, PEOPLEFIRST FINANCE, LLC OR ANY OF THEIR RESPECTIVE
AFFILIATES. NO ONE MAY USE THIS PROSPECTUS SUPPLEMENT TO OFFER AND SELL THESE
SECURITIES UNLESS IT IS ACCOMPANIED BY THE PROSPECTUS.
- The trust will issue the notes described in the table below.
- The trust will pay interest and principal on the notes on the 15th day of each
month. The first payment date will be January 16, 2001.
- The trust will pay principal sequentially to the earliest maturing class of
notes outstanding until paid in full.
Full and timely payment of the noteholders' distributable amount on each
payment date is unconditionally and irrevocably guaranteed pursuant to a
financial guaranty insurance policy to be issued by:
FSA LOGO
The underwriters are offering the following notes by this prospectus
supplement:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
NOTES NOTES NOTES NOTES
<S> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------
Principal Amount............. $73,899,000 $200,000,000 $107,000,000 $144,101,000
Interest Rate................ % % % %
Final Scheduled Payment
Date....................... December 15, 2001 October 15, 2003 September 15, 2004 September 15, 2007
Initial Public Offering
Price (1).................. % % % %
Underwriting Discount........ % % % %
Proceeds to
Depositor (1)(2)........... % % % %
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The price of the notes will also include accrued interest, if any, from
.
(2) Before deducting expenses payable by the depositor estimated to be
$ .
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ATTACHED PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Delivery of the notes, in book-entry form only, will be made through The
Depository Trust Company, or through Clearstream or the Euroclear System, on or
about December 15, 2000, against payment in immediately available funds.
------------------------
MERRILL LYNCH & CO.
BARCLAYS CAPITAL
CREDIT SUISSE FIRST BOSTON
------------------------
The date of this prospectus supplement is December , 2000.
<PAGE> 2
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
We tell you about the notes in two separate documents that
progressively provide more detail: (a) the accompanying prospectus, which
provides general information, some of which may not apply to your notes; and (b)
this prospectus supplement, which describes the specific terms of your notes.
IF THE DESCRIPTION OF THE TERMS OF YOUR NOTES VARY BETWEEN THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN
THIS PROSPECTUS SUPPLEMENT.
You should rely only on the information provided in this prospectus
supplement and the accompanying prospectus, including the information
incorporated by reference. We have not authorized anyone to provide you with
different information.
We include cross-references in this prospectus supplement and in the
accompanying prospectus to captions in these materials where you can find
further related discussions. The Table of Contents below and the Table of
Contents included in the accompanying prospectus provide the page numbers on
which these captions are located.
We are not offering the notes in any state where the offer of the notes
is not permitted.
We do not claim the accuracy of the information in this prospectus
supplement as of any date other than the date stated on the cover of this
prospectus supplement.
Dealers will deliver a prospectus and prospectus supplement when acting
as underwriters of the notes and with respect to their unsold allotments or
subscriptions. In addition, all dealers that effect transactions in the notes,
whether or not participating in the offering of the notes, will be required to
deliver a prospectus and prospectus supplement until March __, 2001.
YOU CAN FIND A LIST OF THE PAGES WHERE CAPITALIZED TERMS USED IN THIS
PROSPECTUS SUPPLEMENT ARE DEFINED UNDER THE CAPTION "INDEX OF DEFINED TERMS" IN
THIS PROSPECTUS SUPPLEMENT. YOU CAN FIND THE DEFINITION RELATING TO CERTAIN
TERMS USED IN THE PROSPECTUS UNDER THE CAPTION "GLOSSARY OF TERMS" IN THE
ACCOMPANYING PROSPECTUS.
We have made forward-looking statements in this prospectus supplement
and the accompanying prospectus. Forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements. Forward-looking statements are statements,
other than statements of historical facts, that address activities, events or
developments that we expect or anticipate will or may occur in the future.
Forward-looking statements also include any other statements that contain words
such as "anticipate," "believe," "plan," "estimate," "expect," "intend" and
other similar expressions.
S-1
<PAGE> 3
Forward-looking statements are based on certain assumptions and
analyses we have made in light of our experience and our perception of
historical trends, current conditions, expected future developments and other
factors we believe are appropriate. Whether actual results and developments will
conform with our expectations and predictions is subject to a number of risks
and uncertainties.
All of the forward-looking statements made in this prospectus
supplement and the accompanying prospectus are qualified by these cautionary
statements, and there can be no assurance that the actual results or
developments we have anticipated will be realized. Even if the results and
developments in our forward-looking statements are substantially realized, there
is no assurance that they will have the expected consequences to or effects on
us, the trust, PeopleFirst Finance, LLC, PF Funding II, LLC or any other person
or on our respective businesses or operations. The foregoing review of important
factors, including those discussed in detail in this prospectus supplement and
the accompanying prospectus should not be construed as exhaustive. We undertake
no obligation to release the results of any future revisions we may make to
forward-looking statements to reflect events or circumstances after the date of
this prospectus supplement and the accompanying prospectus or to reflect the
occurrences of anticipated events.
----------
S-2
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Summary of Terms.....................................................................................................S-5
Risk Factors........................................................................................................S-12
The Trust...........................................................................................................S-17
Limited Purposes and Limited Assets........................................................................S-17
General ..................................................................................................S-17
Capitalization of the Issuer...............................................................................S-17
The Owner Trustee..........................................................................................S-18
The Indenture Trustee......................................................................................S-18
The Trust Fund......................................................................................................S-19
The Receivables Pool................................................................................................S-20
Eligibility Criteria.......................................................................................S-20
Subsequent Receivables.....................................................................................S-20
Pool Composition...........................................................................................S-21
The Transferor......................................................................................................S-26
The Depositor.......................................................................................................S-26
The Originator, Servicer and Custodian..............................................................................S-26
General ..................................................................................................S-26
Origination Process and Credit Evaluation Procedures.......................................................S-27
Loss Exposure Management...................................................................................S-29
Contract Processing, Purchase, Servicing and Administration................................................S-29
Delinquency Control and Collection Strategy................................................................S-29
Delinquency and Loss Experience............................................................................S-30
Weighted Average Life of the Securities.............................................................................S-31
Description of the Notes............................................................................................S-38
Payments of Interest.......................................................................................S-38
Payments of Principal......................................................................................S-39
Optional Redemption........................................................................................S-41
Mandatory Redemption.......................................................................................S-42
The Indenture..............................................................................................S-42
Description of the Certificates.....................................................................................S-49
The Insurer.........................................................................................................S-49
General ..................................................................................................S-49
Reinsurance................................................................................................S-50
Ratings ..................................................................................................S-50
Capitalization.............................................................................................S-51
Insurance Regulation.......................................................................................S-51
The Policy..........................................................................................................S-52
Other Provisions of the Policy.............................................................................S-54
Description of the Receivables Transfer and Servicing Agreements....................................................S-55
Transfer of Receivables....................................................................................S-55
Obligation to Repurchase Receivables.......................................................................S-56
</TABLE>
S-3
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C>
Accounts ..................................................................................................S-57
Payments ..................................................................................................S-60
Statements to Noteholders..................................................................................S-63
Servicer Default; Rights Upon Servicer Default.............................................................S-64
Servicing Compensation.....................................................................................S-65
Appointment of Subservicer.................................................................................S-66
Amendment..................................................................................................S-66
Certain Legal Aspects of the Receivables............................................................................S-67
Material Federal Income Tax Consequences............................................................................S-67
State Tax Consequences..............................................................................................S-67
ERISA Considerations................................................................................................S-68
Underwriting........................................................................................................S-69
Experts.............................................................................................................S-71
Legal Opinions......................................................................................................S-72
Ratings of the Notes................................................................................................S-72
Incorporation of Certain Documents by Reference.....................................................................S-72
Index of Defined Terms..............................................................................................S-74
</TABLE>
S-4
<PAGE> 6
SUMMARY OF TERMS
This summary highlights selected information from this prospectus supplement and
does not contain all of the information that you need to consider in making your
investment decision. To understand all of the terms of an offering of the notes,
carefully read this entire prospectus supplement and the accompanying
prospectus.
THE ISSUER
PeopleFirst.com Vehicle Receivables Owner Trust 2000-2, a Delaware
business trust, will issue the notes.
ORIGINATOR
PeopleFirst Finance, LLC originates the motor vehicle loans and will
sell and contribute the motor vehicle loans to the transferor. PeopleFirst
Finance, LLC is a California limited liability company, whose executive offices
are located at 401 West A Street, Suite 1000, San Diego, California 92101.
TRANSFEROR
PF Funding II, LLC will transfer the motor vehicle loans to the
depositor. PF Funding II, LLC is a Delaware limited liability company and is a
wholly-owned subsidiary of the originator. The transferor's principal executive
offices are located at 401 West A Street, Suite 1000, San Diego, California
92101.
DEPOSITOR
ML Asset Backed Corporation will transfer the motor vehicle loans to
the issuer. ML Asset Backed Corporation is a Delaware corporation. The
depositor's principal executive offices are located at 250 Vesey Street, World
Financial Center, North Tower - 10th Floor, New York, New York 10281. Its
telephone number is (212) 449-0336.
SERVICER
PeopleFirst Finance, LLC will service the motor vehicle loans assigned
to the issuer.
INDENTURE TRUSTEE, BACKUP SERVICER AND INDENTURE COLLATERAL AGENT
Wells Fargo Bank Minnesota, National Association will serve as the
indenture trustee under the indenture, as backup servicer under the sale and
servicing agreement, and as indenture collateral agent for the reserve account.
CUSTODIAN
PeopleFirst Finance, LLC will serve as custodian under the custodial
agreement.
OWNER TRUSTEE
Wilmington Trust Company will serve as the trustee of the issuer.
S-5
<PAGE> 7
INITIAL CUT-OFF DATE
Beginning of business on December 1, 2000. The issuer will receive
payments due on, or received with respect to, the initial motor vehicle loans on
or after this date.
CLOSING DATE
The issuer will issue the notes on or about December __, 2000.
PAYMENT DATES
The first payment date will be January 16, 2001. After that, the
payment dates will be the 15th day of each month if the 15th day is a business
day. If the 15th day is not a business day, then the payment date will be the
following business day.
RECORD DATE
On each payment date, the issuer will pay interest and principal to the
holders of the notes as of the related record date. The record dates for the
notes will be the business day immediately preceding the payment date or if
definitive notes have been issued, the last business day of the month preceding
such payment date.
THE NOTES
Each class of notes will have an original principal amount, interest
rate and final scheduled payment date as set forth in the following table.
<TABLE>
<CAPTION>
Principal Interest Final Scheduled
Class Amount Rate Payment Date
----- ------ ---- ------------
<S> <C> <C> <C>
A-1 $73,899,000 ___% December 15, 2001
A-2 $200,000,000 ___% October 15, 2003
A-3 $107,000,000 ___% September 15, 2004
A-4 $144,101,000 ___% September 15, 2007
</TABLE>
If any class of notes is not repaid in full on or prior to its final
scheduled payment date, an event of default will occur.
BOOK-ENTRY REGISTRATION
The notes will be initially available only in book-entry form through
the facilities of The Depository Trust Company, Clearstream or the Euroclear
System, except under limited circumstances. See "Certain Information Regarding
the Securities -- Book-Entry Registration" in the prospectus.
THE MOTOR VEHICLE LOANS AND THE OTHER TRUST FUND PROPERTIES
The primary assets of the issuer will be the motor vehicle loans
secured by new or used automobiles, light duty trucks, vans and motorcycles. The
motor vehicle loans will be sold and contributed by the originator to the
transferor, and transferred by the transferor to the depositor, by the depositor
to the issuer, and then by the issuer to the indenture trustee, for the benefit
of the noteholders, on the day of closing and from time to time on subsequent
transfer dates on or before February 15, 2001.
S-6
<PAGE> 8
The Receivables Pool
As of the beginning of business on December 1, 2000, the initial motor
vehicle loans in the pool have:
- an aggregate principal balance of $418,501,926.53;
- a weighted average annual percentage rate of approximately 8.437%;
- a weighted average remaining amortization term of approximately
53 months; and
- a remaining amortization term of not more than 72 months and not less
than 4 months.
Other Trust Fund Properties
In addition to the motor vehicle loans, the trust fund will also
include:
- all moneys received with respect to the initial motor vehicle loans on
or after the initial cut-off date and with respect to the subsequent
motor vehicle loans on or after the applicable subsequent cut-off date;
- the security interests in the motor vehicles financed by the
receivables;
- any proceeds from claims under insurance policies covering the financed
vehicles or the related obligors;
- all instruments and documents relating to the motor vehicle loans;
- all rights under any service contracts relating to the motor vehicle
loans for the repair of a financed vehicle including any extended
warranties;
- a security interest in amounts on deposit in certain bank accounts; and
- all rights of the issuer under the sale and servicing agreement and
each subsequent transfer agreement.
PRE-FUNDING FEATURE
Pre-funding Account
On the day of closing, the transferor will deposit approximately
$115,849,218.47 of the proceeds of the notes into a pre-funding account held by
the indenture trustee. The issuer will use funds on deposit in this account to
acquire additional motor vehicle loans from the depositor from time to time on
or before February 15, 2001.
The motor vehicle loans acquired by the issuer during the period
between the day of the closing and February 15, 2001 will also have been
originated by PeopleFirst Finance, LLC.
The characteristics of the subsequently-acquired motor vehicle loans
will not differ materially from the initial motor vehicle loans.
S-7
<PAGE> 9
Capitalized Interest Account
On the day of closing, the transferor will also deposit $ into a
capitalized interest account held by the indenture trustee. The amount, if any,
deposited into the capitalized interest account will be applied on the payment
dates occurring on or prior to February 15, 2001 to fund the obligations of the
issuer relating to the portion of the issuer's assets not invested in motor
vehicle loans. Any amounts remaining in the capitalized interest account on
February 15, 2001, and not used for such purposes will be paid to the transferor
on such date. See "Description of the Receivables Transfer and Servicing
Agreements -- Accounts -- Capitalized Interest Account."
INTEREST PAYMENTS
Each class of notes will bear interest each year at the rate listed in
the table under "-- The Notes" above. Interest on the class A-1 notes will
accrue on an "actual/360 basis." This means that interest payable on each
payment date for the class A-1 notes will be the product of:
1. the outstanding principal balance of the class A-1 notes;
2. the applicable interest rate; and
3. the actual number of days during the applicable period divided by 360.
Interest on the class A-2 notes, class A-3 notes, and class A-4 notes
will accrue on a "30/360" basis. This means that the interest payable on each
payment date on such class of notes will be the product of:
1. the outstanding principal balance of such class of notes;
2. the applicable interest rate; and
3. 1/12.
PRINCIPAL PAYMENTS
Calculation
The aggregate amount of principal payable on the notes on each payment
date will be equal to an amount called the "noteholders' principal distributable
amount," which will generally be equal to the noteholders' percentage of the
principal distributable amount.
The "principal distributable amount", with respect to any payment date,
equals:
1. the amount of principal collected on the motor vehicle loans during the
prior calendar month,
2. the outstanding principal balance of any motor vehicle loans that
become liquidated motor vehicle loans during the prior calendar month,
3. the principal balance of each motor vehicle loan that was purchased by
PeopleFirst Finance LLC or the transferor during the prior calendar
month, and at the option of the insurer, the principal balance of each
S-8
<PAGE> 10
motor vehicle loan that was required to be, but was not, so purchased,
and
4. the aggregate amount of any reduction of the principal balance of a
motor vehicle loan as a result of a court order in an insolvency
proceeding.
If the principal distributable amount for a payment date is not paid in
full on such payment date, the shortfall will be due to noteholders and
certificateholders on the next payment date.
Sequential Pay Feature
Absent an event of default which has resulted in an acceleration of the
notes, the noteholders' principal distributable amount will be payable to the
class A-1 notes, the class A-2 notes, the class A-3 notes and the class A-4
notes in that order (meaning that no principal will be paid to the class A-2
notes until the class A-1 notes have been paid in full, and so forth). The
noteholders' principal distributable amount is more fully described in this
prospectus supplement under "Description of the Receivables Transfer and
Servicing Agreements -- Payments."
THE CERTIFICATES
The issuer will also issue $9,351,145 aggregate principal amount of
non-interest bearing certificates pursuant to a trust agreement to be dated as
of December 1, 2000 between the depositor and the owner trustee. The
certificates are not being offered pursuant to this prospectus supplement and
will initially be held by the transferor.
The certificates will not receive any distributions on a payment date
until the noteholders have received all amounts required to be distributed to
them on such payment date and until the reserve account has been fully funded
and certain amounts owed to the insurer have been paid.
CREDIT ENHANCEMENT
The credit enhancement for the notes will be as follows:
INSURER AND THE POLICY
Financial Security Assurance Inc. is a New York financial guaranty
insurance company. Financial Security Assurance Inc. will issue a policy, which
will guarantee the payment of timely interest and principal due on the notes,
but only as set forth under the heading "The Policy" in this prospectus
supplement.
Subordination of the Certificates
Distributions on the certificates will be subordinated in priority of
payment to interest and principal on the notes, the amounts owed to the insurer
and amounts required to be deposited into the reserve account.
The Reserve Account
The transferor will establish a reserve account for the benefit of the
insurer. On the day of closing, the transferor will make an
S-9
<PAGE> 11
initial deposit of cash into the reserve account. Each time the trust acquires
additional motor vehicle loans, an additional deposit of cash will be made into
the reserve account. On each payment date, if the amount on deposit in the
reserve account is less than the required amount, additional amounts will be
deposited into the reserve account from collections on the motor vehicle loans
that are available for this purpose. Funds will be withdrawn from the reserve
account on each payment date if the amount of available funds on any payment
date is not sufficient to pay:
- the monthly servicing fee,
- accrued and unpaid fees owing to the indenture trustee, the owner
trustee, the indenture collateral agent, the custodian and the backup
servicer,
- required payments of interest and principal to the noteholders, and
- amounts owed to the insurer.
THE AMOUNT REQUIRED TO BE ON DEPOSIT IN THE RESERVE ACCOUNT IS FOR THE
BENEFIT OF THE INSURER AND MAY INCREASE OR DECREASE WITHOUT THE CONSENT OF THE
NOTEHOLDERS; THEREFORE, YOU SHOULD NOT RELY ON AMOUNTS ON DEPOSIT IN OR REQUIRED
TO BE DEPOSITED TO THE RESERVE ACCOUNT AS A SOURCE OF FUNDS FOR PAYMENTS ON THE
NOTES.
OPTIONAL REDEMPTION
If the aggregate principal balance of the motor vehicle loans on any
payment date is 15% or less of the sum of the aggregate principal balance of the
initial motor vehicle loans as of December 1, 2000 and the aggregate principal
balance of all subsequently-acquired motor vehicle loans as of their subsequent
cut-off dates, the transferor may reacquire the motor vehicle loans. If the
transferor elects to reacquire the motor vehicle loans, the outstanding
principal balance of the notes will be paid in full together with accrued
interest.
FINAL SCHEDULED PAYMENT DATES
The trust is required to pay the entire principal amount of each class
of notes, to the extent not previously paid, on the respective final scheduled
payment dates specified on the cover page of this prospectus supplement.
SERVICING COMPENSATION
The trust will pay the servicer a base servicing fee on each payment
date for the previous month equal to the product of 1/12th of .50% and the pool
balance of the receivables at the beginning of the previous month. The servicer
is also entitled to the investment earnings, net of losses, on the collection
account.
TAX STATUS
In the opinion of Brown & Wood LLP, for federal income tax purposes,
the notes will be characterized as debt, and the issuer
S-10
<PAGE> 12
will not be classified as a separate entity that is an association (or a
publicly traded partnership) taxable as a corporation.
In the opinion of Saxon, Barry, Gardner & Kincannon, for California
corporation franchise tax purposes, the notes will be characterized as debt, and
the issuer will not be classified as a separate entity that is an association
(or a publicly traded partnership) taxable as a corporation.
If you purchase a note, you agree to treat it as debt for tax purposes.
See "Material Federal Income Tax Consequences" and "State Tax Consequences" in
this prospectus supplement for additional information concerning the application
of federal and state tax laws to the issuer and the notes.
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, as
amended.
ERISA CONSIDERATIONS
The notes are generally eligible for purchase by employee benefit and
other plans and arrangements that are subject to ERISA or to Section 4975 of the
Internal Revenue Code. However, any person purchasing on behalf or with plan
assets of such a plan or arrangement should review the matters discussed under
"ERISA Considerations" in the prospectus and in this prospectus supplement
before purchasing notes.
RATING OF THE NOTES
The notes must receive at least the following ratings from Moody's
Investors Service, Inc. and Standard & Poor's, a division of the McGraw-Hill
Companies, Inc. in order to be issued:
<TABLE>
<CAPTION>
Rating
------
Class Moody's S&P
----- ------- ---
<S> <C> <C>
A-1 P-1 A-1+
A-2 Aaa AAA
A-3 Aaa AAA
A-4 Aaa AAA
</TABLE>
S-11
<PAGE> 13
RISK FACTORS
You should consider the following risk factors (as well as the section
"Risk Factors" in the prospectus) in deciding whether to purchase the notes.
YOU MAY NOT BE ABLE TO RESELL THE NOTES
There is currently no secondary market for the notes. The underwriters
currently intend to make a market to enable resale of the notes, but are under
no obligation to do so. As such, we cannot assure you that a secondary market
will develop for your notes or, if one does develop, that such market will
provide you with liquidity of investment or that it will continue for the life
of your notes.
PREPAYMENTS ON THE MOTOR VEHICLE LOANS WILL CAUSE PREPAYMENTS ON THE
NOTES RESULTING IN REINVESTMENT RISK TO YOU
The motor vehicle loans may be prepaid, in full or in part, voluntarily
or as a result of defaults, casualties to the related motor vehicles or other
reasons. Since the rate of payment of principal of the notes depends in part on
the rate of payment (including prepayments) of the principal balance of the
motor vehicle loans, final payment of the notes could occur significantly
earlier than the final scheduled payment date for each class of notes. You will
bear the risk that you may have to reinvest the principal on your notes earlier
than you expected at a rate of interest that is less than the rate of interest
on your notes.
PREPAYMENTS ON THE MOTOR VEHICLE LOANS MAY AFFECT YOUR YIELD ON
YOUR NOTES
If you purchase your notes at a premium, prepayments on the motor
vehicle loans may reduce your yield. The ratings on the notes do not address the
possibility that prepayment rates may affect your yield on your notes.
POTENTIAL PREPAYMENT ON NOTES DUE TO FAILURE TO TRANSFER A SUFFICIENT NUMBER OF
SUBSEQUENTLY-ACQUIRED MOTOR VEHICLE LOANS TO THE TRUST
If the principal amount of receivables originated by the originator
during the pre-funding period is less than the amount deposited in the
pre-funding account, the depositor will not have sufficient receivables to
transfer to the trust during the pre-funding period. Any remaining amount on
deposit in the pre-funding account will be used to make principal payments on
the notes pro rata.
If the amount on deposit in the pre-funding account, after the
pre-funding period is over, is less than or equal to $100,000, the excess will
be applied
S-12
<PAGE> 14
sequentially to partially prepay the notes first to the class A-1 notes and then
in sequential order the class A-2 notes, the class A-3 notes and the class A-4
notes. See "Description of the Notes--Mandatory Redemption." Any such prepayment
will shorten the weighted average life of the notes to an extent that we cannot
predict with assurance, since we cannot predict the amount of any such
prepayment with assurance.
YOU MAY EXPERIENCE A LOSS ON YOUR NOTES BECAUSE THE ISSUER HAS LIMITED ASSETS
The issuer's primary assets or source of funds for payments on the
notes are the motor vehicle loans, the pre-funding account, the reserve account,
the capitalized interest account and the policy issued by Financial Security
Assurance Inc. For repayment, you must rely upon payments on the motor vehicle
loans, amounts on deposit in the pre-funding account, the capitalized interest
account and the reserve account, if any, and proceeds from the policy. The
pre-funding account and the capitalized interest account will be maintained only
until the first payment date after the pre-funding period. The money in the
pre-funding account will be used only to purchase subsequently-acquired motor
vehicle loans and is not available to cover losses on the motor vehicle loans.
The capitalized interest account covers the obligations of the issuer relating
to the portion of the issuer's assets not invested in motor vehicle loans and is
not designed to provide protection against losses on the motor vehicle loans.
Although the policy will be available to cover shortfalls in distributions each
month, if Financial Security Assurance Inc. defaults in its obligations under
the policy, the noteholders must rely solely on (i) amounts received with
respect to the motor vehicle loans without the benefit of the policy and (ii)
amounts, if any, on deposit in the reserve account. In such event, certain
factors may affect the indenture trustee's ability to realize on the collateral
securing the motor vehicle loans and thus may ultimately reduce the proceeds to
be distributed to noteholders on a current basis.
PEOPLEFIRST HAS A LIMITED OPERATING HISTORY
All of the motor vehicle loans were originated by PeopleFirst Finance,
LLC in accordance with its credit underwriting criteria. The originator was
formed in 1995 and commenced its operations as an originator of motor
S-13
<PAGE> 15
vehicle loans only in September 1997. Since that time it has experienced rapid
growth in its portfolio of motor vehicle loans. The originator therefore has
limited historical performance data with respect to the majority of the motor
vehicle loans it currently services. Delinquencies and loan losses may increase
from existing levels in the portfolio with the passage of time. The originator
is at an early stage of operations, is subject to the risks inherent in the
establishment of a new business and must, among other things, continue to
attract and retain qualified credit and collection personnel and support its
motor vehicle lending business. See "PeopleFirst and the Servicer" in this
prospectus supplement.
PEOPLEFIRST'S INTERNET-BASED LOAN ORIGINATION PROGRAM MAY GIVE RISE TO RISKS
THAT ARE NOT FOUND IN CUSTOMARY LOAN ORIGINATION PROGRAMS
The originator generally uses the internet, the telephone and the mail
to communicate with obligors during the process of underwriting and originating
motor vehicle loans. For a discussion of the underwriting and origination
process, see "PeopleFirst and The Servicer" in this prospectus supplement. The
underwriting and origination processes and loan documentation used by the
originator are novel and were developed to capitalize on the potential benefits
of conducting its business over the internet and through the mail. As such,
these processes and the related loan documentation may entail risks that would
not exist in a customary motor vehicle loan origination program and may give
rise to challenges based on consumer protection or other laws based on issues
that are currently untested in the courts. No assurance can be given that these
risks could not adversely affect the collectability or enforceability of the
contracts or the security interests in the motor vehicles.
YOU MAY EXPERIENCE A LOSS IN CONNECTION WITH AN EVENT OF DEFAULT UNDER THE
INDENTURE
Unless an insurer default has occurred and is continuing, neither the
indenture trustee nor the noteholders may declare an event of default under the
indenture. So long as an insurer event of default has not occurred and is
continuing, an event of default will occur only upon delivery by the insurer to
the indenture trustee of notice of the occurrence of certain events of default
under the insurance agreement. If a default occurs under the indenture (so long
as an insurer default has not
S-14
<PAGE> 16
occurred and is continuing), the insurer will have the right, but not the
obligation, to cause the sale, in whole or in part, of the motor vehicle loans
and the other assets of the trust, which will result in a prepayment, in whole
or in part, of the notes in advance of their maturity dates. Following the
occurrence of an event of default, the indenture trustee will continue to submit
claims under the insurance policy as necessary to enable the issuer to continue
to make payments on the notes in accordance with the terms of the indenture on
each payment date. Following the occurrence of an event of default, however, the
insurer may elect, in its sole discretion, to pay all or any portion of the
outstanding amount of the notes, plus accrued interest on the notes. You may not
be able to reinvest the principal repaid to you earlier than expected at a rate
of return that is at least equal to the rate of return on your notes.
POTENTIAL LOSSES ON YOUR NOTES DUE TO GEOGRAPHIC CONCENTRATION OF MOTOR VEHICLE
LOANS
Economic conditions in the states where the obligors under the motor
vehicle loans reside may affect the delinquency, loan loss and repossession
experience of the issuer with respect to the motor vehicle loans. Based on the
principal balance of the initial pool of motor vehicle loans as of December 1,
2000, 17.94% of the motor vehicle loans were originated in California, 11.44% in
Texas, 5.37% in Florida and 5.02% in New York. No other states have
concentrations in excess of 5%. Accordingly, adverse economic conditions or
other factors affecting California, Texas, Florida or New York could have an
especially significant impact on the delinquency, loan loss or repossession
experience of the issuer and may adversely affect the timing and amount of
payment of principal and interest on your notes.
RISK OF RECHARACTERIZATION OF TRUE SALE AS A PLEDGE
The originator warrants to the transferor in the sale and servicing
agreement that the sale and contribution of the motor vehicle loans by it to the
transferor is a valid sale and contribution of the motor vehicle loans to the
transferor. In addition, pursuant to the sale and servicing agreement, the
originator and the transferor have agreed to treat the transactions described
herein as a sale and contribution of such motor vehicle loans to the transferor,
and the originator will take all actions that are required
S-15
<PAGE> 17
under applicable law to perfect the transferor's ownership interest in the motor
vehicle loans. Notwithstanding the foregoing, if the originator were to become a
debtor in a bankruptcy case and a creditor or trustee-in-bankruptcy of the
originator or the originator itself as debtor-in-possession were to take the
position that the sale and contribution of motor vehicle loans from the
originator to the transferor should be recharacterized as a pledge of such motor
vehicle loans to secure a borrowing from the originator, then delays in payments
of collections of motor vehicle loans could occur or (should the court rule in
favor of any such trustee, debtor-in-possession or creditor) reductions in the
amount of such payments could result.
It is possible that the risk of recharacterization of the transfer
between the originator and the transferor may be increased by the fact that, for
accounting purposes, the transferor will treat the notes as debt and the
transfer of the motor vehicle loans from the transferor to the depositor as a
pledge rather than a sale and contribution.
If the transfer of motor vehicle loans to the transferor were respected
as a sale and contribution, the motor vehicle loans would not be part of the
originator's bankruptcy estate and would not be available to the originator's
unsecured creditors.
In addition, if the originator were to become a debtor in a bankruptcy
case and a creditor or trustee-in-bankruptcy of such debtor or the originator
itself were to request a court to order that the originator should be
substantively consolidated with the transferor, delays in payments on the notes
could result. Should the bankruptcy court rule in favor of any such creditor,
trustee-in-bankruptcy or the originator, reductions in such payments could
result.
S-16
<PAGE> 18
THE TRUST
LIMITED PURPOSES AND LIMITED ASSETS
ML Asset Backed Corporation, as Depositor, will establish the
PeopleFirst.com Vehicle Receivables Owner Trust 2000-2 (the "TRUST" or the
"ISSUER"), a Delaware business trust, pursuant to a trust agreement dated as of
December 1, 2000 (the "OWNER TRUST AGREEMENT") between the Depositor and
Wilmington Trust Company, as the owner trustee. The Trust will not engage in any
activity other than:
- acquiring, holding and managing the assets of the Trust Fund;
- issuing the Notes and the Certificates to finance its
acquisition of its interest in the Trust Fund;
- making payments on the Notes and the Certificates; and
- engaging in other activities that are necessary, suitable or
convenient to accomplish any of the other purposes listed above
or are in any way connected with those activities.
GENERAL
The Trust's principal offices are in Delaware, in care of Wilmington
Trust Company, as Owner Trustee, at the address listed below under "-- The Owner
Trustee."
CAPITALIZATION OF THE ISSUER
The Notes and Certificates issued by the Trust on December __, 2000
(the "CLOSING DATE") will consist of:
S-17
<PAGE> 19
<TABLE>
<CAPTION>
Class Principal Amount
----- ----------------
<S> <C>
CLASS A-1 NOTES $ 73,899,000
CLASS A-2 NOTES $ 200,000,000
CLASS A-3 NOTES $ 107,000,000
CLASS A-4 NOTES $ 144,101,000
CERTIFICATES $ 9,351,145
--------------
TOTAL $ 534,351,145
==============
</TABLE>
The Class A-1 Notes, Class A-2 Notes, Class A-3 Notes and Class A-4
Notes are collectively referred to herein as the "NOTES."
THE OWNER TRUSTEE
Wilmington Trust Company is the Owner Trustee (in such capacity, the
"OWNER TRUSTEE") under the Owner Trust Agreement. Wilmington Trust Company is a
Delaware banking corporation and its principal offices where information can be
obtained relating to the Issuer and the Certificates are located at Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890. The
Originator, the Transferor, the Depositor and their respective affiliates may
maintain general commercial banking relations with the Owner Trustee and its
affiliates.
THE INDENTURE TRUSTEE
Wells Fargo Bank Minnesota, National Association is the Indenture
Trustee (in such capacity, the "INDENTURE TRUSTEE") under the Indenture. Wells
Fargo Bank Minnesota, National Association is a national banking association and
its principal offices are located at Wells Fargo Center, Sixth Street and
Marquette Avenue, MAC N9311-161, Minneapolis, Minnesota 55479. The Originator,
the Transferor, the Depositor, the Custodian and their respective affiliates may
maintain general commercial banking relations with the Indenture Trustee and its
affiliates.
S-18
<PAGE> 20
THE TRUST FUND
The property of the Issuer (the "TRUST FUND") will include, among other
things, the following:
(1) motor vehicle loans transferred to the Issuer on the
Closing Date (the "INITIAL RECEIVABLES") or transferred to the Issuer
from time to time after the Closing Date and on or prior to February
15, 2001 (the "SUBSEQUENT RECEIVABLES"; and together with the Initial
Receivables, the "RECEIVABLES"), in each case secured by new and used
automobiles, light duty trucks, vans and motorcycles financed thereby
(each, a "FINANCED VEHICLE");
(2) all payments due on or received under the Initial
Receivables after the beginning of business on December 1, 2000 (the
"INITIAL CUT-OFF DATE") and under the Subsequent Receivables after the
respective dates designated by the Transferor from time to time as
subsequent cut-off dates (each, a "SUBSEQUENT CUT-OFF DATE");
(3) such amounts as from time to time may be held in the
Collection Account, the Note Distribution Account, the Pre-Funding
Account and the Capitalized Interest Account;
(4) an assignment of the security interests of PeopleFirst
Finance, LLC ("PEOPLEFIRST") in the Financed Vehicles;
(5) an assignment of the right to receive proceeds from claims
on certain physical damage, credit life and disability insurance
policies covering the Financed Vehicles or the Obligors;
(6) the receivable file related to each Receivable;
(7) all rights under any service contracts relating to the
motor vehicle loans for the repair of a Financed Vehicle including any
extended warranties; and
(8) certain other rights under the Receivables Transfer and
Servicing Agreements (all of the foregoing being the "TRUST FUND").
The Trust Fund will also include an assignment of the Transferor's
rights against the Originator and the Depositor's rights against the Transferor
and the Originator under the Sale and Servicing Agreement upon the occurrence of
certain breaches of representations and warranties.
The Receivables were originated by PeopleFirst in the ordinary course
of business pursuant to its underwriting criteria. All of the Receivables will
be acquired by the
S-19
<PAGE> 21
Transferor from PeopleFirst, and will be transferred from the Transferor to the
Depositor and from the Depositor to the Issuer in accordance with the Sale and
Servicing Agreement. The Subsequent Receivables will be acquired by the
Transferor from PeopleFirst and will be transferred from the Transferor to the
Depositor and from the Depositor to the Issuer in accordance with the Sale and
Servicing Agreement and one or more subsequent transfer agreements (each, a
"SUBSEQUENT TRANSFER AGREEMENT").
Pursuant to the Indenture, the Issuer will grant a security interest in
the Trust Fund in favor of the Indenture Trustee on behalf of the Noteholders.
THE RECEIVABLES POOL
ELIGIBILITY CRITERIA
The Receivables were originated by the Originator in the ordinary
course of its business. The pool of Receivables (the "RECEIVABLES POOL") will
consist of the Initial Receivables acquired by the Issuer as of the Initial
Cut-off Date and the Subsequent Receivables acquired by the Issuer as of the
related Subsequent Cut-off Dates. The Initial Receivables have been selected,
and the Subsequent Receivables will be selected, from the motor vehicle loan
portfolio of the Originator for inclusion in the Receivables Pool and will
fulfill certain criteria, including the following:
(a) each Receivable has an annual percentage rate ("APR") of
at least 7.00%;
(b) each Receivable as of the related Cut-off Date, was not
more than 30 days past due;
(c) each Receivable has a scheduled maturity not later than
March 31, 2007;
(d) no Receivable was subject to a force-placed physical
damage insurance policy on the related Financed Vehicle; and
(e) each Receivable had an original term to stated maturity of
not more than 72 months. No selection criteria or procedures believed
by the Originator or the Transferor to be adverse to the Insurer, the
Noteholders or the Certificateholders were used in selecting the
Receivables.
SUBSEQUENT RECEIVABLES
During the Pre-Funding Period, the Transferor is obligated to acquire
from the Originator and to transfer to the Depositor the Subsequent Receivables,
which will then be transferred to the Issuer, on each Subsequent Transfer Date.
The aggregate Principal Balance of the Subsequent Receivables is anticipated by
the Originator to equal approximately
S-20
<PAGE> 22
$115,849,218.47. In connection with each transfer of Subsequent Receivables, the
Issuer will be required to pay to the Depositor a cash acquisition price equal
to 100% of the outstanding Principal Balance of the Subsequent Receivables as of
their Subsequent Cut-off Dates less required deposits to the Reserve Account,
which price the Depositor will pay to the Transferor and the Transferor in turn
will pay to the Originator. At this agreed upon acquisition price, the Initial
Pre-Funded Amount will be sufficient to acquire the entire $115,849,218.47
aggregate Principal Balance of Subsequent Receivables that the Originator
anticipates will be transferred to the Transferor. The acquisition price will be
withdrawn from the Pre-Funding Account and paid to the Depositor for further
payment to the Transferor and the Originator as described above.
Any transfer of Subsequent Receivables is subject to the following
conditions, among others: (i) each such Subsequent Receivable and the related
Financed Vehicle will satisfy the eligibility criteria specified in clauses (a)
through (e) under "Eligibility Criteria" above as of the related Subsequent
Cut-off Date; (ii) the Insurer (so long as no Insurer Default has occurred and
is continuing) will have approved in its absolute and sole discretion the
transfer of such Subsequent Receivables to the Issuer; (iii) neither the
Originator nor the Transferor will have selected such Subsequent Receivables in
a manner that it believes is adverse to the interests of the Insurer, the
Certificateholders or the Noteholders; (iv) the Originator will have delivered
certain opinions of counsel with respect to the validity of the conveyance of
such Subsequent Receivables; (v) Standard & Poor's Ratings Service, a division
of the McGraw-Hill Companies Inc. ("S&P") and Moody's Investors Service, Inc.
("MOODY'S," and together with S&P, the "RATING AGENCIES"), confirm that the
ratings on the Notes have not been withdrawn or reduced as a result of the
transfer of such Subsequent Receivables to the Issuer; (vi) no Event of Default
under the Indenture will have occurred and be continuing; and (vii) not more
than 10% of the Pool Balance will have Obligors whose mailing addresses are in
any one state other than California or Texas unless an Opinion of Counsel
acceptable to the Rating Agencies and the Insurer with respect to the security
interest in the related Financed Vehicles is furnished by the Transferor on or
prior to such Subsequent Transfer Date.
Except for the criteria described in the preceding paragraphs, there
are no additional required characteristics for the Subsequent Receivables.
Therefore, following the transfer of Subsequent Receivables to the Trust, the
aggregate characteristics of the entire pool of Receivables included in the
Trust, including the composition of the Receivables, the distribution by APR,
the geographic distribution and the distribution by remaining term described in
the following tables, may vary from those of the Initial Receivables.
POOL COMPOSITION
Set forth in the following tables is information concerning the
composition of the Receivables Pool, distribution by remaining Principal
Balance, distribution by geographic location, distribution by APR, distribution
by original term to stated maturity, distribution by
S-21
<PAGE> 23
remaining amortization term and distribution by loan purpose of the Initial
Receivables to be assigned to the Issuer as of the Initial Cut-off Date.
COMPOSITION OF THE INITIAL RECEIVABLES
AS OF THE INITIAL CUT-OFF DATE
<TABLE>
<S> <C>
Aggregate Principal Balance.............................................................$418,501,926.53
Number of Receivables............................................................................24,054
Average Principal Balance....................................................................$17,398.43
(Range).....................................................................$1,153.58 to $149,000.00
Average Original Amount Financed.............................................................$18,160.89
(Range).....................................................................$4,500.00 to $149,000.00
Weighted Average APR.............................................................................8.437%
(Range)............................................................................7.040% to 11.990%
Weighted Average Original Term to Stated Maturity..........................................55.06 months
(Range)..............................................................................12 to 72 months
Weighted Average Remaining Amortization Term...............................................52.64 months
(Range).............................................................................. 4 to 72 months
</TABLE>
DISTRIBUTION BY REMAINING PRINCIPAL BALANCE OF THE
INITIAL RECEIVABLES AS OF THE INITIAL CUT-OFF DATE
<TABLE>
<CAPTION>
Percentage of
Number of Aggregate Aggregate
Range of Remaining Principal Balances Receivables Principal Balance Principal Balance (1)
------------------------------------- ----------- ------------------- ---------------------
<S> <C> <C> <C>
$0.00 to $ 5,000.00.......................... 45 $ 156,931.96 0.04%
$5,000.01 to $10,000.00 ..................... 4,593 38,502,477.63 9.20
$10,000.01 to $15,000.00..................... 6,506 82,613,129.66 19.74
$15,000.01 to $20,000.00..................... 5,765 101,471,737.74 24.25
$20,000.01 to $25,000.00..................... 3,624 81,553,425.15 19.49
$25,000.01 to $30,000.00..................... 1,869 51,384,710.57 12.28
$30,000.01 to $35,000.00..................... 848 27,603,842.56 6.60
$35,000.01 to $40,000.00..................... 394 14,747,180.33 3.52
$40,000.01 to $45,000.00..................... 165 6,985,946.75 1.67
$45,000.01 to $50,000.00..................... 115 5,481,077.64 1.31
$50,000.01 to $55,000.00..................... 47 2,475,804.15 0.59
$55,000.01 to $60,000.00..................... 26 1,502,767.67 0.36
$60,000.01 to $65,000.00..................... 16 1,002,591.00 0.24
$65,000.01 to $70,000.00..................... 14 945,237.08 0.23
$70,000.01 to $75,000.00..................... 24 1,764,837.75 0.42
Greater than $75,000.00..................... 3 310,228.89 0.07
------ ----------------- ------
Total................................ 24,054 $ 418,501,926.53 100.00%
====== ================= ======
</TABLE>
----------------
(1) Percentages may not add to 100.00% due to rounding.
S-22
<PAGE> 24
GEOGRAPHIC DISTRIBUTION OF THE INITIAL RECEIVABLES
AS OF THE INITIAL CUT-OFF DATE
<TABLE>
<CAPTION>
Percentage of
Number of Aggregate Aggregate
State (1) Receivables Principal Balance Principal Balance (2)
--------- ----------- ----------------- ---------------------
<S> <C> <C> <C>
Alabama................................... 272 $ 4,573,870.69 1.09%
Alaska.................................... 33 608,896.13 0.15
Arizona................................... 480 9,319,852.67 2.23
Arkansas.................................. 204 3,209,585.91 0.77
California................................ 3,978 75,067,624.90 17.94
Colorado.................................. 563 9,785,472.94 2.34
Connecticut............................... 436 7,045,084.73 1.68
Delaware.................................. 118 2,043,080.27 0.49
District of Columbia...................... 56 1,060,079.83 0.25
Florida................................... 1,309 22,467,860.62 5.37
Georgia................................... 1,030 18,325,885.44 4.38
Hawaii.................................... 60 1,073,833.31 0.26
Idaho..................................... 88 1,297,503.48 0.31
Illinois.................................. 1,005 17,602,698.50 4.21
Indiana................................... 375 5,635,200.18 1.35
Iowa...................................... 135 2,165,308.29 0.52
Kansas.................................... 240 3,857,245.69 0.92
Kentucky.................................. 188 2,945,553.79 0.70
Louisiana................................. 193 3,479,604.46 0.83
Maine..................................... 54 800,401.09 0.19
Maryland.................................. 643 11,699,171.05 2.80
Massachusetts............................. 676 10,909,249.36 2.61
Michigan.................................. 555 8,852,506.76 2.12
Minnesota................................. 399 6,666,131.62 1.59
Mississippi............................... 100 1,751,419.28 0.42
Missouri.................................. 362 5,499,508.74 1.31
Montana................................... 67 1,048,288.20 0.25
Nebraska.................................. 109 1,744,906.06 0.42
Nevada.................................... 163 2,962,400.86 0.71
New Jersey................................ 721 15,083,248.64 3.60
New Mexico................................ 149 2,467,985.74 0.59
New York.................................. 1,244 21,015,481.86 5.02
North Carolina............................ 680 10,989,295.14 2.63
Ohio...................................... 821 12,977,364.61 3.10
Oklahoma.................................. 184 2,742,599.08 0.66
Oregon.................................... 294 4,939,006.22 1.18
Pennsylvania.............................. 1,048 16,632,803.19 3.97
Rhode Island.............................. 62 861,861.46 0.21
South Carolina............................ 181 2,866,713.46 0.68
South Dakota.............................. 16 223,109.04 0.05
Tennessee................................. 293 4,932,734.64 1.18
Texas..................................... 2,578 47,867,214.26 11.44
Utah...................................... 92 1,558,210.71 0.37
Vermont................................... 62 873,249.98 0.21
Virginia.................................. 806 13,315,333.15 3.18
Washington................................ 504 9,042,672.34 2.16
West Virginia............................. 71 1,123,589.66 0.27
Wisconsin................................. 333 5,073,593.45 1.21
Wyoming................................... 24 417,635.05 0.10
------ ---------------- ------
Total............................. 24,054 $ 418,501,926.53 100.00%
====== ================ ======
</TABLE>
-------------------------
(1) Based on mailing addresses of the Obligors as of the date of origination.
(2) Percentages may not add to 100.00% due to rounding.
S-23
<PAGE> 25
DISTRIBUTION BY ANNUAL PERCENTAGE RATE OF THE
INITIAL RECEIVABLES AS OF THE INITIAL CUT-OFF DATE
<TABLE>
<CAPTION>
Percentage of
Number of Aggregate Aggregate
Range of Annual Percentage Rates Receivables Principal Balance Principal Balance (1)
-------------------------------- ----------- ----------------- ---------------------
<S> <C> <C> <C>
7.001% to 7.250%....................... 31 $ 587,917.39 0.14%
7.251% to 7.500%....................... 1,752 33,466,833.25 8.00
7.501% to 7.750%....................... 444 9,750,029.86 2.33
7.751% to 8.000%....................... 6,258 133,268,252.17 31.84
8.001% to 8.250%....................... 1,501 30,352,437.82 7.25
8.251% to 8.500%....................... 1,868 26,358,152.02 6.30
8.501% to 8.750%....................... 5,857 92,166,592.49 22.02
8.751% to 9.000%....................... 1,457 18,488,332.72 4.42
9.001% to 9.250%....................... 2,389 37,755,832.86 9.02
9.251% to 9.500%....................... 886 11,604,412.63 2.77
9.501% to 9.750%....................... 347 4,986,920.89 1.19
9.751% to 10.000%...................... 794 13,221,316.18 3.16
10.001% to 10.250%..................... 21 279,630.93 0.07
10.251% to 10.500%..................... 193 3,254,634.67 0.78
10.501% to 10.750%..................... 7 93,544.13 0.02
10.751% to 11.000%..................... 102 1,307,107.51 0.31
11.001% to 11.250%..................... 3 38,514.59 0.01
11.251% to 11.500%..................... 103 1,102,802.03 0.26
11.501% to 11.750%..................... 4 44,357.86 0.01
11.751% to 12.000%..................... 37 374,304.53 0.09
------ ----------------- ------
Total.......................... 24,054 $ 418,501,926.53 100.00%
====== ================= ======
</TABLE>
----------------
(1) Percentages may not add to 100.00% due to rounding.
DISTRIBUTION BY ORIGINAL TERM TO STATED MATURITY OF THE
INITIAL RECEIVABLES AS OF THE INITIAL CUT-OFF DATE
<TABLE>
<CAPTION>
Percentage of
Number of Aggregate Aggregate
Range of Original Terms Receivables Principal Balance Principal Balance (1)
----------------------- ----------- ----------------- ---------------------
<S> <C> <C> <C>
6 to 12 Months..................... 45 $ 585,027.15 0.14%
13 to 18 Months.................... 23 262,276.93 0.06
19 to 24 Months.................... 355 4,264,861.35 1.02
25 to 30 Months.................... 74 803,702.47 0.19
31 to 36 Months.................... 4,013 58,241,816.78 13.92
37 to 42 Months.................... 153 1,885,629.39 0.45
43 to 48 Months.................... 4,613 68,597,268.13 16.39
49 to 54 Months.................... 144 2,146,030.63 0.51
55 to 60 Months.................... 12,810 242,898,742.77 58.04
61 to 66 Months.................... 346 7,088,890.13 1.69
67 to 72 Months.................... 1,478 31,727,680.80 7.58
------ ----------------- ------
Total ................. 24,054 $ 418,501,926.53 100.00%
====== ================= ======
</TABLE>
----------------
(1) Percentages may not add to 100.00% due to rounding.
S-24
<PAGE> 26
DISTRIBUTION BY REMAINING AMORTIZATION TERM OF THE
INITIAL RECEIVABLES AS OF THE INITIAL CUT-OFF DATE
<TABLE>
<CAPTION>
Percentage of
Number of Aggregate Aggregate
Range of Remaining Terms Receivables Principal Balance Principal Balance (1)
------------------------ ----------- ----------------- ---------------------
<S> <C> <C> <C>
4 to 12 Months.............................. 76 $ 740,489.12 0.18%
13 to 18 Months............................. 66 614,872.62 0.15
19 to 24 Months............................. 375 4,478,303.46 1.07
25 to 30 Months............................. 218 2,522,641.70 0.60
31 to 36 Months............................. 3,881 56,815,067.02 13.58
37 to 42 Months............................. 296 3,846,458.12 0.92
43 to 48 Months............................. 4,487 67,176,142.61 16.05
49 to 54 Months............................. 535 9,124,317.54 2.18
55 to 60 Months............................. 12,318 234,722,417.31 56.09
61 to 66 Months............................. 370 7,546,511.64 1.80
67 to 72 Months............................. 1,432 30,914,705.39 7.39
------ ---------------- ------
Total............................... 24,054 $ 418,501,926.53 100.00%
====== ================ ======
</TABLE>
----------------
(1) Percentages may not add to 100.00% due to rounding.
DISTRIBUTION OF THE INITIAL RECEIVABLES BY LOAN PURPOSE
AS OF THE INITIAL CUT-OFF DATE
<TABLE>
<CAPTION>
Percentage of
Number of Aggregate Aggregate
Loan Purpose Receivables Principal Balance Principal Balance (1)
------------ ----------- ----------------- ---------------------
<S> <C> <C> <C>
New Motor Vehicle Purchase 10,255 $ 218,034,316.48 52.10%
Used Motor Vehicle Purchase ................ 9,540 138,072,641.11 32.99
Refinance of Existing Motor Vehicle Loan.... 2,038 33,084,556.21 7.91
Lease Buyout (2)............................ 1,147 17,211,817.86 4.11
New Motorcycle Purchase..................... 749 8,527,522.64 2.04
Used Motorcycle Purchase ................... 272 2,928,332.79 0.70
Refinance of Existing Motorcycle Loan ...... 53 642,739.44 0.15
------ ----------------- ------
Total............................... 24,054 $ 418,501,926.53 100.00%
====== ================= ======
</TABLE>
----------------
(1) Percentages may not add to 100.00% due to rounding.
(2) Excludes motorcycles.
S-25
<PAGE> 27
THE TRANSFEROR
PF Funding II, LLC (the "TRANSFEROR"), is organized as a Delaware
limited liability company and is wholly-owned by PeopleFirst. The Transferor was
organized for limited purposes, which include transferring receivables sold or
contributed to it by PeopleFirst to the Depositor and any activities incidental
to and necessary or convenient for the accomplishment of such purpose. The
principal executive offices of the Transferor are located at 401 West A Street,
Suite 1000, San Diego, California, 92101, and its telephone number is (619)
232-5660.
THE DEPOSITOR
The Depositor was incorporated in the State of Delaware on September 22,
1987. The depositor is a wholly-owned subsidiary of Merrill Lynch & Co., Inc.
and an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated. The
principal executive offices of the Depositor are located at 250 Vesey Street,
World Financial Center, North Tower - 10th Floor, New York, New York 10281-1310.
Its telephone number is (212) 449-0336.
The Depositor was organized, among other things, for the purposes of
establishing trusts, selling beneficial interests therein and acquiring and
transferring assets to such trusts. Neither the depositor, its parent nor any of
the Depositor's affiliates will ensure or guarantee distributions on the
securities.
THE ORIGINATOR, SERVICER AND CUSTODIAN
PeopleFirst Finance, LLC, a California limited liability company
("PEOPLEFIRST" or in its capacity as originator of the Receivables, the
"ORIGINATOR" or, in its capacity as servicer of the Receivables, the "SERVICER"
or, in its capacity as custodian, the "CUSTODIAN"), was formed in January 1995.
Its executive offices are located at 401 West A Street, Suite 1000, San Diego,
California 92101, and its telephone number is (619) 232-5660.
GENERAL
PeopleFirst is a wholly-owned subsidiary of PeopleFirst.com, Inc. On
September 15, 2000, PeopleFirst.com, Inc. acquired all of the issued and
outstanding capital stock of giggo.com, an online motor vehicle lender, from an
affiliate of DaimlerChrysler AG in exchange for the transfer to such affiliate
of an equity interest in PeopleFirst.com, Inc. of approximately 23%, plus
warrants to purchase additional shares of authorized but unissued common stock
in PeopleFirst.com, Inc.
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<PAGE> 28
PeopleFirst is a motor vehicle lender engaged in the direct financing of
motor vehicle purchases (new and used motor vehicles, refinancing and lease
buyouts from other financial institutions) by individuals with credit histories
that satisfy its underwriting criteria. This market segment is comprised of
individuals who PeopleFirst believes present acceptable credit risks due to
various factors, including the manner in which they have handled previous
credit, the extent of their prior credit history and/or the extent of their
financial resources. PeopleFirst loans are designed for use (x) at any
franchised new motor vehicle dealership, and independent used motor vehicle
dealers approved by PeopleFirst (collectively, "DEALERS") for purchases of new
and used motor vehicles, (y) for the refinance of existing motor vehicle loans
or motor vehicle lease buy-outs and (z) with individuals under the Person to
Person Program (described below) for purchases of used motor vehicles, in
certain states within the United States.
Earlier this year, PeopleFirst launched a new lending program (the
"PERSON TO PERSON PROGRAM"). Under the Person to Person Program, PeopleFirst
provides financing to approved borrowers for the purchase of used vehicles from
individuals, rather than from motor vehicle dealers. Under an agreement between
PeopleFirst and Mailboxes, Etc., closings are conducted at an office of
MailBoxes, Etc. and employees of MailBoxes, Etc. are required to collect
identification documents for the borrower and the seller and vehicle title
documents. The collected documents are faxed to PeopleFirst for final approval
of the loan. If there is an existing lien on the vehicle, release of the lien is
a required condition of the closing.
PeopleFirst serves as a direct source of financing for consumers by
offering them a convenient, highly automated, internet-based product at
competitive interest rates. PeopleFirst lends to borrowers residing in 48 states
and the District of Columbia; however, PeopleFirst may from time to time
determine to commence business in additional states or cease doing business in
any state in which it currently does business.
All PeopleFirst vehicle loans are fully amortizing simple interest loans
that provide for equal payments generally over the term of the loan (12 to 72
months) except the final payment which may be different. The portions of such
payments allocable to principal and interest are, for payoff and deficiency
purposes, determined by a "simple interest" method. See "THE RECEIVABLES POOLS"
in the prospectus.
ORIGINATION PROCESS AND CREDIT EVALUATION PROCEDURES
PeopleFirst has developed procedures and controls to investigate and
analyze each credit applicant in an effort to eliminate those applicants whose
credit characteristics indicate an unacceptably high probability of loss and to
extend loans to applicants with good credit histories. These procedures include
an investigation, verification, and evaluation of credit bureau reports as well
as the general credit information provided by the applicant. Applications
received over the internet are completed by the applicant. For other
applications, a customer service representative inputs application data. Upon
submission by a customer of an application, PeopleFirst completes a series of
procedures designed (i) to substantiate the accuracy of information critical to
PeopleFirst's credit decision and (ii) to confirm that any documentation
required complies with PeopleFirst's underwriting criteria.
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<PAGE> 29
The credit evaluation procedures include an evaluation of an
individual's application, credit bureau report and a Fair, Isaac National
Automotive Industry Market Score ("FICO SCORE"); although FICO Scores are used
in the evaluation process, a high FICO Score by itself is not necessarily
predictive of good credit performance. Any applicant with an unacceptably high
probability of default, or whose credit experience is too limited for
PeopleFirst to assess the probability of performance, is declined. PeopleFirst
may also require verification of certain applicant information prior to making
its final credit decision, including further documentation regarding:
employment, income, collateral and other assets. This verification process in
many instances requires submission of supporting documentation by the applicant
and is performed by PeopleFirst personnel.
The credit decision may be (i) to approve the application, (ii) approve
the application with certain information verification, (iii) to approve for a
lower amount than requested by the application (counteroffer), or (iv) to
decline the application. The underwriter documents the decision and the
applicant is notified by electronic mail and/or telephonically for a declined
application and telephonically for all approved applications.
Upon approval of an Obligor's application for a motor vehicle loan,
PeopleFirst mails or sends by overnight mail, a note and security agreement to
the Obligor that is attached to a perforated check drawn on the Originator and
payable through the Originator's bank. The Obligor signs the check, which serves
as the signature for the note and the security agreement, but is not required to
sign the note or the security agreement. The Obligor purchases the motor vehicle
from the dealer or an individual under the Person to Person Program using the
check. The check is payable to any franchised new motor vehicle dealer or other
authorized new or used motor vehicle dealer or in the case of refinancing or
lease buy out, to a broker or finance lender, or to an individual under the
Person to Person Program in an amount between $7,500 (in most states) and the
maximum approved loan amount. The check is valid for 45 days, after which it
expires if unused. However, the Obligor may receive a new check (at the then
existing interest rate) for an additional 45 days without having to reapply.
Upon purchase of a motor vehicle by the customer, the terms of the note
and security agreement grant to PeopleFirst a security interest in the Financed
Vehicle and require the Obligor to have the Servicer noted as lien holder on the
certificate of title for the motor vehicle. In California and certain other
states, certificates of title and the notation of the related lien, may be
maintained solely in the electronic records of the applicable Department of
Motor Vehicles or the analogous state office. Restrictive endorsement language
on the check also obligates the dealer or existing lienholder to note the
Servicer as lienholder.
The note and security agreement also requires that the Obligor arrange
standard comprehensive and collision insurance for the motor vehicle and name
the Servicer as loss payee on the policy. However, the Servicer does not require
the Obligor to provide evidence that the appropriate insurance policy is in
place.
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<PAGE> 30
LOSS EXPOSURE MANAGEMENT
Evaluating the degree of exposure to the lender in any transaction is a
function of (i) determining the customer's intent to pay and (ii) determining
the customer's ability to pay. PeopleFirst seeks to control loss exposure by
(i) analysis of the applicant's credit history and (ii) determining whether the
applicant has sufficient disposable income to meet existing obligations,
including the obligation resulting from the proposed transaction.
CONTRACT PROCESSING, PURCHASE, SERVICING AND ADMINISTRATION
Upon the purchase of a motor vehicle by a customer with a PeopleFirst
check, PeopleFirst delivers a welcome package to the customer. The welcome
package includes an initial acknowledgment of the loan, material that completes
the disclosure of the final terms of the loan, and a form and instructions to
the applicant on how to complete the autodebit payment setup procedure (if
selected). This welcome package is mailed the day the customer's check is
funded.
PeopleFirst performs all primary collection functions for the contracts
in its portfolio of serviced receivables (the "SERVICED PORTFOLIO"). In its
servicing activities, PeopleFirst (i) collects payments; (ii) accounts for and
posts all payments received; (iii) responds to borrower inquiries; (iv) takes
all necessary action to maintain the security interest granted in the financed
vehicle; (v) investigates delinquencies and communicates with the borrower to
obtain timely payments, and (vi) if necessary, repossesses and disposes of the
financed vehicle.
For the majority of the customers, collections are accomplished through
an automated debit of the customer's checking or savings account for all monthly
payments. For the small volume of "invoice" customers, PeopleFirst uses a
monthly billing system that includes an invoice, statement and postage paid
envelope.
PeopleFirst contacts borrowers for first payment delinquencies
commencing five days after the borrower's due date and ten days after the due
date for other payments continuing weekly until payment has been received. In
certain circumstances, delinquent loans are turned over to the Servicer's
outside collection agency.
DELINQUENCY CONTROL AND COLLECTION STRATEGY
PeopleFirst's management generally reviews any account that becomes
twelve (12) days delinquent to assess the collection effort to date and to
refine, if necessary, the collection strategy. PeopleFirst customer service
personnel, together with senior management, generally will design a collection
strategy that includes a specific deadline within which the obligation must be
collected. Accounts that have not been collected during such periods are again
reviewed, and, unless there are specific circumstances which warrant further
collection efforts, the Servicer will seek repossession and liquidation of the
Financed Vehicle or assign the account to the Servicer's outside agency for
collection and possible repossession of the Financed Vehicle. Repossessed motor
vehicles are generally resold by PeopleFirst through its outside collection
agency and/or repossession agent. Regardless of the actions taken or
circumstances of a specific delinquent account, generally any account that
reaches 90 days delinquent is charged-off and
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<PAGE> 31
either the Servicer or the Servicer's outside collection agency, subject to
legal limitation, seeks repossession and liquidation of the Financed Vehicle and
recovery from the borrower of any deficiency.
DELINQUENCY AND LOSS EXPERIENCE
PeopleFirst began its operations in September 1997. The table below sets
forth, as of the end of the periods indicated, the delinquency and loss
experience of PeopleFirst pertaining to its managed new and used automobile,
light duty truck, van and motorcycle receivables portfolio, including those
receivables previously financed in motor vehicle loan securitization
transactions which the servicer continues to service. Although the statistical
performance, based on the limited delinquency and net loss experience of the
receivables portfolio of PeopleFirst, may be comparable to the receivables
portfolios of major motor vehicle manufacturers, the actual experience of the
portfolio may be adversely affected by rapid growth of PeopleFirst's business
and the relative lack of seasoning of the receivables. Accordingly, no
assurances can be given that the delinquency and loss experience presented in
the tables below will be indicative of such experience on the Receivables.
DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
At September 30, At December 31,
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2000 1999 1998 1999 1998 1997
----- ----- ------ ---- ---- -----
Number of Loans Outstanding 35,459 8,274 2,039 11,848 3,055 59
Delinquencies as a Percentage of Loans (1)
31-60 Days 0.02% 0.05% 0.00% 0.05% 0.00% 0.00%
61-90 Days 0.01% 0.00% 0.00% 0.00% 0.00% 0.00%
Over 90 Days 0.01% 0.00% 0.00% 0.00% 0.00% 0.00%
</TABLE>
(1) Calculated as the number of delinquencies at the end of the period divided
by the number of loans outstanding at the end of the period.
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<PAGE> 32
NET LOSS AND REPOSSESSION EXPERIENCE
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended Twelve Months Ended
September 30, December 31,
------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
2000 1999 1998 1999 1998 1997
---- ---- ---- ---- ---- ----
Average Number of Loans Outstanding (1) 23,654 5,665 1,049 7,452 1,557 30
Average Principal Amount Outstanding (1) $391,578 $96,484 $18,319 $126,372 $26,813 $578
Number of Repossessions 9 2 0 2 0 0
Number of Repossessions as a Percent of
Average Number of Loans Outstanding (3) 0.05% 0.05% 0.00% 0.03% 0.00% 0.00%
Principal Amount of Repossessions as a Percent
of Average Principal Amount Outstanding (3) 0.08% 0.07% 0.00% 0.04% 0.00% 0.00%
Net Losses for the Period Ended $ 277 $38 $0 $38 $0 $1
Net Losses as a Percent of Average Principal 0.09% 0.05% 0.00% 0.03% 0.00% 0.17%
Amount Outstanding (2)(3)
</TABLE>
-----------------------
(1) Averages are calculated based on beginning and end of period balances.
(2) "Net Losses" are equal to the aggregate balance for all contracts which are
determined to be uncollectible in the period less any recoveries on
contracts in the period or any prior periods excluding expenses associated
with collection, repossession and disposition of the motor vehicle.
(3) Percentages have been annualized for the nine months ended September 30 and
are not necessarily indicative of the experience for the entire year.
COMPUTING YOUR PORTION OF THE AMOUNT
OUTSTANDING ON THE NOTES OR CERTIFICATES
The servicer will provide to you in each report which it delivers to you
a factor which you can use to compute your portion of the principal amount
outstanding on the Notes or Certificates. See "Pool Factors and Trading
Information" in the prospectus.
WEIGHTED AVERAGE LIFE OF THE SECURITIES
Information regarding certain maturity and prepayment considerations
with respect to the Notes and Certificates is set forth under "Risk Factors
--Prepayments on the motor vehicle loans will cause prepayments on the notes
resulting in reinvestment risk to you" and "--Prepayments on the motor vehicle
loans may affect your yield on your notes" in the prospectus supplement and
"Risk Factors--Prepayments on the receivables may adversely affect the average
life of and rate of return on your securities" and "Maturity and Prepayment
Considerations" in the prospectus. No principal payments on any class of Notes
will be made until all Notes with lower class designations have been paid in
full. For example, no payments on the Class A-4 Notes will be made until the
Class A-1 Notes, Class A-2 Notes and Class A-3 Notes have been paid in full. See
"Description of the Notes -- Payments of Principal." As the rate of payment of
principal of each class of Notes depends primarily on the rate of payment
(including prepayments) of the principal balance of the Receivables, final
payment of any class of the Notes could occur significantly earlier than the
applicable Final Scheduled Payment Date for such class. Reinvestment risk
associated with early payment of the Notes will be borne exclusively by the
Noteholders. It is expected that final payment of each class of Notes will occur
on or prior to the
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<PAGE> 33
Final Scheduled Payment Date for such class. However, if sufficient funds are
not available to pay the Notes of any class in full on or prior to the
applicable Final Scheduled Payment Date, the final payment of such class of
Notes would occur later than such date.
Prepayments on motor vehicle receivables can be measured relative to a
prepayment standard or model. The model used in this prospectus supplement, the
Absolute Prepayment Model ("ABS"), represents an assumed rate of prepayment each
month relative to the original number of receivables in a pool of receivables.
ABS further assumes that all the receivables are the same size and amortize at
the same rate and that each receivable in each month of its life will either be
paid as scheduled or be prepaid in full. For example, in a pool of receivables
originally containing 10,000 receivables, a 1% ABS rate means that 100
receivables prepay each month. ABS does not purport to be a historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of receivables, including the Receivables.
The tables captioned "Percent of Initial Note Principal Balance at
Various ABS Percentages" (together, the "ABS TABLE") have been prepared on the
basis of the characteristics of the Receivables. The ABS Table assumes that
(i) the Receivables prepay in full at the specified constant percentage of ABS
monthly, with no defaults, losses or repurchases; (ii) each scheduled monthly
payment on the Receivables is made on the last day of each month and each month
has 30 days; (iii) payments on the Notes are made on each Payment Date (and each
such date is assumed to be the 15th day of each applicable month); (iv) the
Transferor exercises its option to purchase the Receivables at the earliest
date; (v) the amount deposited into the Pre-Funding Account on the Closing Date
is applied in its entirety to the purchase of Receivables transferred to the
Issuer during the Pre-Funding Period and to make related deposits to the Reserve
Account on January 15, 2001; (vi) the closing date is December 15, 2000 and
(vii) the weighted average life of a Note is determined by (a) multiplying the
amount of each principal payment of such Note by the number of years from the
date of the issuance of such Note to the related Payment Date, (b) adding the
results and (c) dividing the sum by the related initial principal amount of such
Note.
The ABS Table also assumes that the Receivables have been aggregated
into hypothetical pools with all of the Receivables within each such 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 amortization term.
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<PAGE> 34
<TABLE>
<CAPTION>
ORIGINAL TERM REMAINING
AGGREGATE TO STATED AMORTIZATION
PRINCIPAL MATURITY TERM CUT-OFF
---------
POOL BALANCE($) APR (%) (IN MONTHS) (IN MONTHS) DATE
---- ---------- ------- ----------- ----------- ----
<S> <C> <C> <C> <C> <C>
1 ........ 5,833,665.20 8.040 25 20 December 1, 2000
2 ........ 59,337,708.72 7.996 36 34 December 1, 2000
3......... 71,022,600.73 8.480 48 45 December 1, 2000
4......... 243,846,734.85 8.388 60 58 December 1, 2000
5......... 38,461,217.03 9.402 71 69 December 1, 2000
6......... 1,614,868.44 8.040 25 25 January 1, 2001
7......... 16,425,795.79 7.996 36 36 January 1, 2001
8......... 19,660,394.05 8.480 48 48 January 1, 2001
9......... 67,501,370.65 8.388 60 60 January 1, 2001
10........ 10,646,789.54 9.402 71 71 January 1, 2001
</TABLE>
The actual characteristics and performance of the Receivables will
differ from the assumptions used in constructing the ABS Table. The assumptions
used are hypothetical and have been provided only to give a general sense of how
the principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the Receivables will prepay at a constant
level of ABS until maturity or that all of the Receivable will prepay at the
same level of ABS. Moreover, the diverse terms of Receivables within each of the
hypothetical pools could produce slower or faster principal distributions than
indicated in the ABS Table at the various constant percentages of ABS specified,
even if the original and remaining terms to maturity of the Receivables are as
assumed. Any difference between such assumptions and the actual characteristics
and performance of the Receivables, or actual prepayment experience, will affect
the percentages of initial balances outstanding over time and the weighted
average lives of each class of Notes.
The following ABS Table has been prepared based on the assumptions
described above (including the assumptions regarding the characteristics and
performance of the Receivables which will differ from the actual characteristics
and performance thereof) and should be read in conjunction therewith.
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<PAGE> 35
PERCENT OF INITIAL CLASS A-1 NOTE PRINCIPAL BALANCE AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
PAYMENT DATE 0.50% 1.00% 1.50% 1.70% 2.00%
------------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Closing Date........................... 100.00 100.00 100.00 100.00 100.00
January 15, 2001....................... 87.89 85.06 82.17 80.99 79.21
February 15, 2001...................... 72.62 66.30 59.86 57.24 53.28
March 15, 2001......................... 57.39 47.70 37.83 33.83 27.77
April 15, 2001......................... 42.19 29.27 16.09 10.76 2.67
May 15, 2001........................... 27.03 10.99 0.00 0.00 0.00
June 15, 2001.......................... 11.92 0.00 0.00 0.00 0.00
July 15, 2001.......................... 0.00 0.00 0.00 0.00 0.00
---- ---- ---- ---- ----
Weighted Average Life (years)(1) 0.33 0.28 0.25 0.24 0.22
Weighted Average Life (years)(2) 0.33 0.28 0.25 0.24 0.22
</TABLE>
------------------
(1) This calculation assumes that the Transferor exercises its option to
purchase the Receivables.
(2) This calculation assumes that the Transferor does not exercise its option to
purchase the Receivables.
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<PAGE> 36
PERCENT OF INITIAL CLASS A-2 NOTE PRINCIPAL BALANCE AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
PAYMENT DATE 0.50% 1.00% 1.50% 1.70% 2.00%
------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Closing Date........................... 100.00 100.00 100.00 100.00 100.00
January 15, 2001....................... 100.00 100.00 100.00 100.00 100.00
February 15, 2001...................... 100.00 100.00 100.00 100.00 100.00
March 15, 2001......................... 100.00 100.00 100.00 100.00 100.00
April 15, 2001......................... 100.00 100.00 100.00 100.00 100.00
May 15, 2001........................... 100.00 100.00 98.02 95.58 91.87
June 15, 2001.......................... 100.00 97.37 90.21 87.31 82.91
July 15, 2001.......................... 98.83 90.75 82.51 79.17 74.11
August 15, 2001........................ 93.28 84.18 74.92 71.16 65.48
September 15, 2001..................... 87.74 77.68 67.44 63.29 57.00
October 15, 2001....................... 82.22 71.25 60.08 55.55 48.70
November 15, 2001...................... 76.71 64.88 52.83 47.95 40.56
December 15, 2001...................... 71.22 58.57 45.70 40.48 32.59
January 15, 2002....................... 65.75 52.34 38.69 33.16 24.79
February 15, 2002...................... 60.29 46.17 31.79 25.97 17.16
March 15, 2002......................... 54.85 40.07 25.02 18.93 9.70
April 15, 2002......................... 49.43 34.04 18.38 12.03 2.43
May 15, 2002........................... 44.03 28.08 11.85 5.28 0.00
June 15, 2002.......................... 38.64 22.19 5.45 0.00 0.00
July 15, 2002.......................... 33.27 16.38 0.00 0.00 0.00
August 15, 2002....................... 27.92 10.63 0.00 0.00 0.00
September 15, 2002..................... 22.73 5.08 0.00 0.00 0.00
October 15, 2002....................... 17.56 0.00 0.00 0.00 0.00
November 15, 2002...................... 12.40 0.00 0.00 0.00 0.00
December 15, 2002...................... 7.27 0.00 0.00 0.00 0.00
January 15, 2003....................... 2.15 0.00 0.00 0.00 0.00
February 15, 2003...................... 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------
Weighted Average Life (years)(1) 1.37 1.17 1.00 0.95 0.87
Weighted Average Life (years)(2) 1.37 1.17 1.00 0.95 0.87
</TABLE>
------------------
(1) This calculation assumes that the Transferor exercises its option to
purchase the Receivables.
(2) This calculation assumes that the Transferor does not exercise its option
to purchase the Receivables.
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<PAGE> 37
PERCENT OF INITIAL CLASS A-3 NOTE PRINCIPAL BALANCE AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
PAYMENT DATE 0.50% 1.00% 1.50% 1.70% 2.00%
------------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Closing Date........................... 100.00 100.00 100.00 100.00 100.00
January 15, 2001....................... 100.00 100.00 100.00 100.00 100.00
February 15, 2001...................... 100.00 100.00 100.00 100.00 100.00
March 15, 2001......................... 100.00 100.00 100.00 100.00 100.00
April 15, 2001......................... 100.00 100.00 100.00 100.00 100.00
May 15, 2001........................... 100.00 100.00 100.00 100.00 100.00
June 15, 2001.......................... 100.00 100.00 100.00 100.00 100.00
July 15, 2001.......................... 100.00 100.00 100.00 100.00 100.00
August 15, 2001........................ 100.00 100.00 100.00 100.00 100.00
September 15, 2001..................... 100.00 100.00 100.00 100.00 100.00
October 15, 2001....................... 100.00 100.00 100.00 100.00 100.00
November 15, 2001...................... 100.00 100.00 100.00 100.00 100.00
December 15, 2001...................... 100.00 100.00 100.00 100.00 100.00
January 15, 2002....................... 100.00 100.00 100.00 100.00 100.00
February 15, 2002...................... 100.00 100.00 100.00 100.00 100.00
March 15, 2002......................... 100.00 100.00 100.00 100.00 100.00
April 15, 2002......................... 100.00 100.00 100.00 100.00 100.00
May 15, 2002........................... 100.00 100.00 100.00 100.00 91.27
June 15, 2002.......................... 100.00 100.00 100.00 97.52 78.34
July 15, 2002.......................... 100.00 100.00 98.47 85.45 65.75
August 15, 2002........................ 100.00 100.00 86.99 73.67 53.51
September 15, 2002.................... 100.00 100.00 75.93 62.34 41.76
October 15, 2002....................... 100.00 99.26 65.12 51.29 30.36
November 15, 2002...................... 100.00 89.16 54.54 40.52 19.30
December 15, 2002...................... 100.00 79.20 44.21 30.04 8.59
January 15, 2003....................... 100.00 69.37 34.12 19.84 0.00
February 15, 2003...................... 94.50 59.69 24.27 9.93 0.00
March 15, 2003......................... 85.07 50.20 14.72 0.36 0.00
April 15, 2003......................... 75.68 40.85 5.42 0.00 0.00
May 15, 2003........................... 66.33 31.65 0.00 0.00 0.00
June 15, 2003.......................... 57.01 22.59 0.00 0.00 0.00
July 15, 2003.......................... 47.74 13.69 0.00 0.00 0.00
August 15, 2003........................ 38.51 4.93 0.00 0.00 0.00
September 15, 2003..................... 29.32 0.00 0.00 0.00 0.00
October 15, 2003....................... 20.17 0.00 0.00 0.00 0.00
November 15, 2003...................... 12.54 0.00 0.00 0.00 0.00
December 15, 2003...................... 4.95 0.00 0.00 0.00 0.00
January 15, 2004....................... 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------
Weighted Average Life (years)(1) 2.61 2.30 2.00 1.89 1.74
Weighted Average Life (years)(2) 2.61 2.30 2.00 1.89 1.74
</TABLE>
-----------------
(1) This calculation assumes that the Transferor exercises its option to
purchase the Receivables.
(2) This calculation assumes that the Transferor does not exercise its option
to purchase the Receivables.
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<PAGE> 38
PERCENT OF INITIAL CLASS A-4 NOTE PRINCIPAL BALANCE AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
PAYMENT DATE 0.50% 1.00% 1.50% 1.70% 2.00%
------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Closing Date........................... 100.00 100.00 100.00 100.00 100.00
January 15, 2001....................... 100.00 100.00 100.00 100.00 100.00
February 15,2001....................... 100.00 100.00 100.00 100.00 100.00
March 15, 2001......................... 100.00 100.00 100.00 100.00 100.00
April 15, 2001......................... 100.00 100.00 100.00 100.00 100.00
May 15, 2001........................... 100.00 100.00 100.00 100.00 100.00
June 15, 2001.......................... 100.00 100.00 100.00 100.00 100.00
July 15, 2001.......................... 100.00 100.00 100.00 100.00 100.00
August 15, 2001........................ 100.00 100.00 100.00 100.00 100.00
September 15, 2001..................... 100.00 100.00 100.00 100.00 100.00
October 15, 2001....................... 100.00 100.00 100.00 100.00 100.00
November 15, 2001...................... 100.00 100.00 100.00 100.00 100.00
December 15, 2001...................... 100.00 100.00 100.00 100.00 100.00
January 15, 2002....................... 100.00 100.00 100.00 100.00 100.00
February 15, 2002...................... 100.00 100.00 100.00 100.00 100.00
March 15, 2002......................... 100.00 100.00 100.00 100.00 100.00
April 15, 2002......................... 100.00 100.00 100.00 100.00 100.00
May 15, 2002........................... 100.00 100.00 100.00 100.00 100.00
June 15, 2002.......................... 100.00 100.00 100.00 100.00 100.00
July 15, 2002.......................... 100.00 100.00 100.00 100.00 100.00
August 15, 2002........................ 100.00 100.00 100.00 100.00 100.00
September 15, 2002..................... 100.00 100.00 100.00 100.00 100.00
October 15, 2002....................... 100.00 100.00 100.00 100.00 100.00
November 15, 2002...................... 100.00 100.00 100.00 100.00 100.00
December 15, 2002...................... 100.00 100.00 100.00 100.00 100.00
January 15, 2003....................... 100.00 100.00 100.00 100.00 98.69
February 15, 2003...................... 100.00 100.00 100.00 100.00 91.26
March 15, 2003......................... 100.00 100.00 100.00 100.00 84.12
April 15, 2003......................... 100.00 100.00 100.00 93.37 77.25
May 15, 2003........................... 100.00 100.00 97.31 86.70 70.65
June 15, 2003.......................... 100.00 100.00 90.78 80.25 64.33
July 15, 2003.......................... 100.00 100.00 84.44 74.03 58.28
August 15, 2003........................ 100.00 100.00 78.30 68.04 0.00
September 15, 2003..................... 100.00 97.27 72.36 62.28 0.00
October 15, 2003....................... 100.00 91.00 66.62 56.75 0.00
November 15, 2003...................... 100.00 85.70 61.69 0.00 0.00
December 15, 2003...................... 100.00 80.49 56.92 0.00 0.00
January 15, 2004....................... 98.06 75.39 0.00 0.00 0.00
February 15, 2004...................... 92.76 70.60 0.00 0.00 0.00
March 15, 2004......................... 87.49 65.90 0.00 0.00 0.00
April 15, 2004......................... 82.24 61.30 0.00 0.00 0.00
May 15, 2004........................... 77.02 56.79 0.00 0.00 0.00
June 15, 2004.......................... 71.82 0.00 0.00 0.00 0.00
July 15, 2004.......................... 66.65 0.00 0.00 0.00 0.00
August 15, 2004........................ 61.51 0.00 0.00 0.00 0.00
September 15, 2004..................... 56.40 0.00 0.00 0.00 0.00
October 15, 2004....................... 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------
Weighted Average Life (years)(1) 3.66 3.32 2.92 2.77 2.54
Weighted Average Life (years)(2) 4.00 3.69 3.30 3.12 2.84
</TABLE>
-----------------
(1) This calculation assumes that the Transferor exercises its option to
purchase the Receivables.
(2) This calculation assumes that the Transferor does not exercise its option
to purchase the Receivables.
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DESCRIPTION OF THE NOTES
The Notes will be issued pursuant to an Indenture (the "INDENTURE") to
be dated as of December 1, 2000 between the Issuer and the Indenture Trustee, a
form of which has been filed as an exhibit to the Registration Statement. A copy
of the Indenture will be filed with the Securities and Exchange Commission (the
"COMMISSION") following the issuance of the Notes. The following summary,
together with the description in the prospectus under the heading "The
Indenture" describes the material terms of the Notes and the Indenture, but it
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Notes and the Indenture.
Where particular provisions or terms used in the Indenture are referred to, the
actual provisions (including definitions of terms) are incorporated by reference
as part of such summary. The following summary supplements the description of
the general terms and provisions of the Notes of any given series and the
related Indenture set forth in the prospectus, to which description reference is
hereby made.
PAYMENTS OF INTEREST
The Class A-1 Notes will bear interest at the rate of _____% per annum
(the "CLASS A-1 INTEREST RATE"); the Class A-2 Notes will bear interest at the
rate of _____% per annum (the "CLASS A-2 INTEREST RATE"), the Class A-3 Notes
will bear interest at a rate of _____% per annum (the "CLASS A-3 INTEREST RATE")
and the Class A-4 Notes will bear interest at a rate of _____% per annum (the
"CLASS A-4 INTEREST RATE"). The Class A-1 Interest Rate, the Class A-2 Interest
Rate, the Class A-3 Interest Rate and the Class A-4 Interest Rate are referred
to herein collectively as "INTEREST RATES."
Each class of the Notes will constitute fixed rate securities, as such
term is described under "Certain Information Regarding the Securities--Fixed
Rate Securities" in the prospectus. Interest on the principal balances of each
class of the Notes will accrue at the respective Interest Rate for such class
and will be payable to the persons in whose names such Notes are registered on
the related Record Date monthly on each Payment Date commencing January 16,
2001. The "RECORD DATE" with respect to any Payment Date means the close of
business on the Business Day preceding such Payment Date, or if Definitive Notes
have been issued, the last Business Day of the month preceding such Payment
Date.
With respect to any Payment Date, interest on the Class A-1 Notes will
be an amount equal to the product of (1) the outstanding principal balance of
the Class A-1 Notes as of the close of business on the preceding Payment Date
(or the Closing Date, for the initial Payment Date); (2) the applicable Interest
Rate; and (3) the actual number of days during the applicable period divided by
360. With respect to any Payment Date, interest on the outstanding amount of the
Class A-2 Notes, Class A-3 Notes, and Class A-4 Notes will be an amount equal to
the product of (1) the principal amount of such class of Notes as of the close
of business on the preceding Payment Date (or the Closing Date, for the initial
Payment Date); (2) the applicable Interest Rate
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<PAGE> 40
and (3) one twelfth. Interest distributions payable for any Payment Date but not
distributed on such Payment Date will be payable on the next Payment Date
increased by an amount equal to the interest on such amount at the applicable
Interest Rate (to the extent lawful). See "Description of the Receivables
Transfer and Servicing Agreements -- Payments."
Interest payments to the holders of the Notes of any class will have the
same priority. If an Insurer Default occurs, the amount available for interest
payments could be less than the amount of interest payable on the Notes on any
Payment Date, in which case each class of holders of Notes will receive their
ratable share (based upon the aggregate amount of interest payable to each class
of Notes) of the aggregate amount available to be distributed in respect of
interest on the Notes.
PAYMENTS OF PRINCIPAL
Principal payments will be made to the Noteholders on each Payment Date
in an amount generally equal to the Noteholders' Principal Distributable Amount.
See "Description of the Receivables Transfer and Servicing Agreements --
Payments" and " -- Accounts." "NOTEHOLDERS' PRINCIPAL DISTRIBUTABLE AMOUNT"
means with respect to any Payment Date (other than the Final Scheduled Payment
Date for any Class of Notes), (A) the Noteholders' Percentage of the Principal
Distributable Amount plus (B) the Noteholders' Principal Carryover Shortfall for
such Payment Date plus (C) if such Payment Date is the Mandatory Redemption
Date, the Remaining Pre-Funding Amount to be distributed as set forth under
"Description of the Notes -- Mandatory Redemption." The Noteholders' Principal
Distributable Amount on the Final Scheduled Payment Date for any Class of Notes
will be equal to the greater of (x) the Noteholders' Percentage of the Principal
Distributable Amount plus the Noteholders' Principal Carryover Shortfall and (y)
the outstanding principal amount of such Class of Notes on such Payment Date;
provided however, that in no case will the Noteholders' Principal Distributable
Amount be greater than the outstanding principal amount of the Notes. The
"PRINCIPAL DISTRIBUTABLE AMOUNT" with respect to any Payment Date will be an
amount equal to the sum of the following amounts: (i) the principal portion
(allocable on the basis of the simple interest method) of all Collected Funds
received during the immediately preceding calendar month (other than Liquidated
Receivables and Purchased Receivables) including the principal portion of all
prepayments, (ii) the Principal Balance of all Receivables that became
Liquidated Receivables during the related calendar month (other than Purchased
Receivables), (iii) the principal portion of the Purchase Amounts received with
respect to all Receivables that became Purchased Receivables during the related
calendar month, (iv) at the option of the Insurer, the Principal Balance of the
Receivables that were required to be purchased by the Transferor and the
Servicer during the related calendar month but were not purchased and (v) the
aggregate amount of Cram Down Losses that have occurred during the related
calendar month.
The "NOTEHOLDERS' PRINCIPAL CARRYOVER SHORTFALL" means, with respect to
any Payment Date, the excess of the Noteholders' Principal Distributable Amount
for the preceding Payment
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<PAGE> 41
Date, over the amount in respect of principal that was actually deposited in the
Note Distribution Account on such preceding Payment Date.
The following terms are used in this section:
"AMOUNT FINANCED" means, with respect to a Receivable, the amount
advanced under such Receivable toward the purchase price or refinancing of the
Financed Vehicle and any related costs, including amounts in respect of
accessories, insurance premiums, service, car club and warranty contracts, and
other items customarily financed as part of motor vehicle loans.
"CRAM DOWN LOSS" means, with respect to a Receivable if a court of
appropriate jurisdiction in an insolvency proceeding has issued an order
reducing the amount owed on such Receivable or otherwise modifying or
restructuring the scheduled payments to be made on such Receivable, an amount
equal to (i) the excess of the principal balance of such Receivable immediately
prior to such order over the principal balance of such Receivable as so reduced
or (ii) if such court shall have issued an order reducing the effective rate of
interest on such Receivable, the excess of the net present value of the
remaining scheduled payments with respect to the Receivable before such court
order (using as the discount rate the APR on such remaining scheduled payments
with respect to the Receivable) over the net present value of the remaining
scheduled payments with respect to the Receivable after such court order (using
as the discount rate the higher of the APR on such Receivable and the rate of
interest, if any, specified by the court in such order). A "Cram Down Loss"
shall be deemed to have occurred on the date of issuance of such order.
"LIQUIDATED RECEIVABLE" means, with respect to any Determination Date,
as of the last day of the related Collection Period, a Receivable as to which
any of the following first occurs: (i) 60 days have elapsed since the Servicer
repossessed the Financed Vehicle, (ii) the Servicer has determined in good faith
that all amounts it expects to recover have been received, (iii) the Financed
Vehicle has been sold and the proceeds received or (iv) all or any portion of
any scheduled payment by the Obligor is 120 days or more delinquent.
"NOTEHOLDERS' PERCENTAGE" means approximately 98.25%, for each Payment
Date until the Class A-4 Notes have been paid in full, and thereafter will be
equal to zero.
"POOL BALANCE" means, at any time, the sum of the Principal Balances of
the Receivables (excluding Liquidated Receivables and Purchased Receivables;
provided however, that the Principal Balance of the Receivables that were
required to be purchased by the Servicer or the seller but were not purchased
shall only be excluded at the option of the Insurer).
"PRINCIPAL BALANCE" for any Receivable, at any time, means the Amount
Financed minus (i) that portion of all amounts received on or prior to such date
and allocable to principal in accordance with the terms of the Receivable, and
(ii) any Cram Down Loss in respect of such Receivable.
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<PAGE> 42
"PURCHASED RECEIVABLE" means a Receivable purchased as of the close of
business on the last day of a Collection Period by the Servicer or repurchased
by the Servicer or the seller pursuant to the Sale and Servicing Agreement.
Absent an Event of Default, on each Payment Date, to the extent of
available funds, the Indenture Trustee will distribute an amount up to the
Noteholders' Principal Distributable Amount in respect of principal on the
Notes, first to the Class A-1 Notes, until the Class A-1 Notes are paid in full;
then to the Class A-2 Notes, until the Class A-2 Notes are paid full; then to
the Class A-3 Notes, until Class A-3 Notes are paid in full; and then to the
Class A-4 Notes.
The principal balance of the Class A-1 Notes, to the extent not
previously paid, will be due on December 15, 2001 (the "CLASS A-1 FINAL
SCHEDULED PAYMENT DATE"); the principal balance of the Class A-2 Notes, to the
extent not previously paid, will be due on October 15, 2003 (the "CLASS A-2
FINAL SCHEDULED PAYMENT DATE"); the principal balance of the Class A-3 Notes, to
the extent not previously paid, will be due on September 15, 2004 (the "CLASS
A-3 FINAL SCHEDULED PAYMENT DATE") and the principal balance of the Class A-4
Notes to the extent not previously paid, will be due on September 15, 2007 (the
"CLASS A-4 FINAL SCHEDULED PAYMENT DATE"). The Class A-1 Final Scheduled Payment
Date, the Class A-2 Final Scheduled Payment Date, the Class A-3 Final Scheduled
Payment Date and the Class A-4 Final Scheduled Payment Date are referred to
herein collectively as "FINAL SCHEDULED PAYMENT DATES."
The actual date on which the aggregate outstanding principal balance of
any class of Notes is paid in full may be earlier than the applicable Final
Scheduled Payment Date based on a variety of factors, including those described
under "Weighted Average Life of the Securities" herein and under the heading
"Maturity and Prepayment Considerations" in the prospectus.
OPTIONAL REDEMPTION
The Transferor may reacquire the Receivables when the Pool Balance as of
the end of the related Collection Period (as defined below) has declined to 15%
or less of the sum of the Pool Balance as of the Initial Cut-off Date, plus the
aggregate Principal Balance of the Subsequent Receivables as of their respective
Subsequent Cut-off Dates (the "ORIGINAL POOL BALANCE"), as described in the
prospectus under "Description of the Receivables Transfer and Servicing
Agreements--Termination." Such redemption will cause an early retirement of the
Notes. The redemption price will be equal to the unpaid principal amount of the
Notes plus accrued and unpaid interest thereon.
"COLLECTION PERIOD" is any calendar month (or, in the case of the
initial Collection Period, the period from the Initial Cut-off Date to and
including December 31, 2000).
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<PAGE> 43
MANDATORY REDEMPTION
On the Payment Date on or immediately following the last day of the
Pre-Funding Period (the "MANDATORY REDEMPTION DATE"), any funds remaining in the
Pre-Funding Account (after giving effect to the purchase of all Subsequent
Receivables, including any such purchase on the last day of the Pre-Funding
Period) exclusive of any net earnings from the investment of funds on deposit in
the Pre-Funding Account (the "REMAINING PRE-FUNDING AMOUNT") will be applied to
redeem each class of Notes then outstanding. The aggregate principal amount of
each class of Notes to be redeemed will be an amount equal to such class's pro
rata share (based on respective current principal amount of each class of Notes)
of the Remaining Pre-Funding Amount; provided, that if the Remaining Pre-Funding
Amount is $100,000 or less, such amount will be applied exclusively to reduce
the outstanding principal balance of the class of Notes then entitled to receive
distributions of the Noteholders' Principal Distributable Amount. It is unlikely
that the aggregate principal amount of Subsequent Receivables will exactly equal
the Pre-Funded Amount, and therefore it is likely that at least a nominal amount
of principal will be prepaid to the Noteholders at the end of the Pre-Funding
Period. See "Risk Factors--Potential prepayments on notes due to failure to
transfer a sufficient number of subsequently-acquired motor vehicle loans to the
trust."
THE INDENTURE
Events of Default, Rights Upon Event of Default
Upon the occurrence of an Event of Default, unless Financial Security is
in continuing default on its obligations under the Policy or certain bankruptcy
events have occurred with respect to Financial Security (an "INSURER DEFAULT"),
the Insurer will have the right, but not the obligation, to cause the Indenture
Trustee to liquidate the assets of the Trust Fund in whole or in part, on any
date or dates following the acceleration of the Notes due to such Event of
Default as the Insurer, in its sole discretion, may elect, and to distribute the
proceeds of such liquidation in accordance with the terms of the Indenture. The
Insurer may not, however, cause the Indenture Trustee to liquidate the Trust
Fund in whole or in part if the proceeds of such liquidation would not be
sufficient to pay all outstanding principal of and accrued interest on the
Notes, unless such Event of Default arose from a claim being made on the Policy
or from certain events of bankruptcy, insolvency, receivership or liquidation of
the assets of the Trust. Following the occurrence of any Event of Default, the
Indenture Trustee will continue to submit claims under the Policy for any
shortfalls in the Scheduled Payments on the Notes. Following any Event of
Default under the Indenture, the Insurer may elect to pay all or any portion of
the outstanding amount of the Notes, plus accrued interest thereon. See "The
Policy" herein.
An "EVENT OF DEFAULT" means any one of the following events (whatever
the reason for such Event of Default and whether it is voluntary or involuntary
or is effected by operation of law or pursuant to any judgment, decree or order
of any court or any order, rule or regulation of any administrative or
governmental body): (i) default in the payment of any interest on the Notes
S-42
<PAGE> 44
when it becomes due and payable, and such default shall continue for a period of
five days after receipt of notice thereof from Indenture Trustee; provided such
notice is given within two Business Days; (ii) default in the payment of the
principal of or any installment of the principal of the Notes when it becomes
due and payable; (iii) so long as an Insurer Default shall not have occurred and
be continuing the occurrence of an Insurance Agreement Indenture Cross Default,
provided however, the Insurance Agreement Indenture Cross Default constitutes an
Event of Default under the Indenture only if the Insurer has delivered to the
Indenture Trustee, and not rescinded, a written notice specifying that any such
Insurance Agreement Indenture Cross Default constitutes an Event of Default
under the Indenture; (iv) so long as an Insurer Default shall have occurred and
be continuing, default in the observance or performance of any covenant or
agreement of the Issuer made in the Indenture, or any representation or warranty
of the Issuer made in the Indenture or in any certificate or other writing
delivered pursuant thereto or in connection therewith proving to have been
incorrect in any material respect as of the time when the same shall have been
made, and such default shall continue or not be cured, or the circumstance or
condition in respect of which such misrepresentation or warranty was incorrect
shall not have been eliminated or otherwise cured, for a period of 30 days (or
for such longer period, not in excess of 90 days, as may be reasonably necessary
to remedy such default; provided that such default is capable of remedy within
90 days or less and the Servicer on behalf of the Indenture Trustee delivers an
officer's certificate to the Indenture Trustee to the effect that the Issuer has
commenced, or will promptly commence and diligently pursue, all reasonable
efforts to remedy such default) after there shall have been given, by registered
or certified mail, to the Issuer by the Indenture Trustee or to the Issuer and
the Indenture Trustee by the holders of at least 25% of the outstanding
principal balance of the Notes, a written notice specifying such default or
incorrect representation or warranty and requiring it to be remedied and stating
that such notice is a "NOTICE OF DEFAULT" thereunder; and (v) certain events of
bankruptcy, insolvency, receivership or liquidation with respect to the
Originator, the Transferor or the Issuer.
"INSURANCE AGREEMENT INDENTURE CROSS DEFAULTS" include, among others:
(i) any failure of the Issuer to make any payment when due on the Notes; (ii) a
demand for payment being made under the Policy; (iii) certain events of
bankruptcy, insolvency, receivership or liquidation of the Issuer, the
Transferor, the Servicer or PeopleFirst; (iv) the Issuer is treated as an
association (or publicly traded partnership) taxable as a corporation for
federal or state income tax purposes; (v) the sum of the Available Funds with
respect to any Payment Date plus the amount (if any) available to be withdrawn
from the Reserve Account is less than the sum of the amounts described in
clauses 1 through 5 under "Description of the Receivables Transfer and Servicing
Agreements--Payments" herein; (vi) the Notes not being treated as indebtedness
for federal or applicable state income tax purposes and such characterization
having a material adverse effect on the Trust, the Noteholders or the Insurer;
(vii) any failure to observe or perform in any material respect any other
covenants or agreements in the Indenture, or any representation or warranty of
the Issuer made in the Indenture or in any certificate or other writing
delivered pursuant thereto or in connection therewith proving to have been
incorrect in any material respect when made, and such failure continuing or not
being cured, or the circumstance or condition in
S-43
<PAGE> 45
respect of which such misrepresentation or warranty was incorrect not having
been eliminated or otherwise cured, within the applicable cure period, if any,
after the giving of written notice of such failure or incorrect representation
or warranty to the Issuer and the Indenture Trustee by the Insurer, (viii) a
servicer default shall occur under the Sale and Servicing Agreement; and (ix)
the violation of certain portfolio performance tests specified in the Insurance
Agreement.
If an Event of Default should occur and be continuing (and an Insurer
Default has occurred and is continuing), the Indenture Trustee or holders of 50%
or more of the aggregate principal balance of the Notes (a "NOTE MAJORITY") may
declare the principal of the Notes to be immediately due and payable. Such
declaration may be rescinded by the Note Majority if (i) the Issuer has paid to
the Indenture Trustee a sum sufficient to pay all amounts then due and (ii) all
Events of Default (other than nonpayment of the principal of the Notes due
solely as a result of such acceleration) have been cured or waived.
If the Notes have been declared due and payable following an Event of
Default, the Indenture Trustee may with the consent of the Controlling Party and
must, at the direction of the Controlling Party, institute proceedings to
collect amounts due or foreclose on the Trust Fund, exercise remedies as a
secured party, sell the Trust Fund or elect to have the Issuer maintain
possession of such Trust Fund and continue to apply collections on such Trust
Fund as if there had been no declaration of acceleration. The Controlling Party
will be prohibited from directing the Indenture Trustee from selling the Trust
Fund following an Insurance Agreement Indenture Cross Default unless (i) the
proceeds thereof are sufficient to pay all outstanding principal of and accrued
interest on the Notes or (ii) no Insurer Default has occurred and is continuing
and the related Insurance Agreement Indenture Cross Default arose from a claim
being made on the Policy or from certain events of bankruptcy, insolvency,
receivership or liquidation with respect to the Issuer. If the Indenture Trustee
is the Controlling Party, the Indenture Trustee will be prohibited from selling
the Trust Fund following and Event of Default unless (a) the Holders of all the
outstanding Notes consent to such sale; (b) the proceeds of such sale or
liquidation distributable to the Noteholders are sufficient to discharge in full
all amounts then due and unpaid upon such Notes for principal and interest; or
(c) the Indenture Trustee determines that the Trust Fund would not be sufficient
on an ongoing basis to make all payments on the Notes as such payments would
have become due if such obligations had not been declared due and payable and
the Indenture Trustee provides written notice to the Standard & Poor's Ratings
Service, a division of the McGraw-Hill Companies Inc. ("S&P") and Moody's
Investors Service, Inc. ("MOODY'S"; and together with S&P, the "RATING
AGENCIES") and obtains the consent of the holders of Notes representing 66-2/3%
of the aggregate principal balance of the outstanding Notes. "CONTROLLING PARTY"
means, the Insurer, so long as no Insurer Default exists, and the Indenture
Trustee for the benefit of the Noteholders at the direction of the Note
Majority, for so long as an Insurer Default exists; provided, however, that the
Owner Trustee for the benefit of the Certificateholders, will be the Controlling
Party after all unpaid principal and interest on the Notes and all amounts owing
to the Insurer under the Insurance Agreement have been paid in full.
S-44
<PAGE> 46
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee, if an Event of Default occurs and is continuing with respect
to the Notes, 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 Controlling Party or holders of such Notes, if the Indenture Trustee
reasonably believes it will not be adequately indemnified against the costs,
expenses and liabilities which might be incurred by it in complying with such
request. Subject to the provisions for indemnification and certain limitations
contained in the Indenture, the Controlling Party will have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Indenture Trustee with respect to the Notes or exercising any trust or
power conferred on the Indenture Trustee and the Controlling Party may, in
certain cases, waive any default with respect thereto, except a default in the
payment of principal or interest or a default in respect of a covenant or
provision of the Indenture that cannot be modified without the waiver or consent
of all of the holders of such outstanding Notes.
Neither the Insurer, nor any holder of a Note will have the right to
institute any proceeding with respect to the Indenture unless (i) the Insurer or
such holder previously has given to the Indenture Trustee written notice of a
continuing Event of Default, (ii) the Insurer or the holders of not less than
25% in principal amount of the outstanding Notes have made written request of
the Indenture Trustee to institute such proceeding in its own name as Indenture
Trustee, (iii) the Insurer or such holder or holders have offered the Indenture
Trustee reasonable indemnity, (iv) the Indenture Trustee has for 60 days failed
to institute such proceeding, (v) no direction inconsistent with such written
request has been given to the Indenture Trustee during such 60-day period by a
Note Majority and (vi) with respect to such Holder, an Insurer Default shall
have occurred and be continuing.
If an Event of Default occurs and is continuing and if it is known to
the Indenture Trustee, the Indenture Trustee will mail to each Noteholder and
the Insurer (unless an Insurer Default has occurred and is continuing) notice of
the Event of Default within 90 days after it occurs. Except in the case of an
Event of Default arising from a failure to pay principal of or interest on any
Note, the Indenture Trustee may withhold the notice of an Event of Default and
so long as it determines in good faith that withholding the notice is in the
interest of the Noteholders.
In addition, the Indenture Trustee and the Noteholders, by accepting the
Notes, will covenant that they will not at any time institute against the
Depositor, the Transferor, the Servicer or the Issuer any bankruptcy,
reorganization or other proceeding under any federal or state bankruptcy or
similar law.
No recourse may be taken, directly or indirectly, with respect to the
obligations of the Issuer or the Indenture Trustee on the Notes or under the
Indenture or any certificate or other writing delivered in connection therewith,
against (i) PeopleFirst, the Transferor, the Depositor, the Issuer or the
Indenture Trustee in its individual capacity or (ii) any partner, owner,
beneficiary, agent, officer, director, employee or agent of PeopleFirst, the
Transferor, the Depositor, the Issuer or the Indenture Trustee or of any
successor or assignee of the Depositor,
S-45
<PAGE> 47
the Issuer or the Indenture Trustee in its individual capacity, except as any
such person may have expressly agreed (it being understood that the Indenture
Trustee will have no such obligations in its individual capacity) and except
that any such partner, owner or beneficiary shall be fully liable, to the extent
provided by applicable law, for any unpaid consideration for stock, unpaid
capital contribution or failure to pay any installment or call owing to such
entity.
Amendment
The Indenture may be amended by the Issuer, with the consent of the
Indenture Trustee and, if the Insurer is the Controlling Party, the Insurer, but
without the consent of the Noteholders to cure any ambiguity, or to correct or
supplement any provision therein which may be inconsistent with any other
provision therein. The Issuer and the Indenture Trustee may also amend the
Indenture (i) with the consent of the Insurer, if the Insurer is the Controlling
Party, or (ii) if the Insurer is no longer the Controlling Party, with the
consent of a Note Majority to add, change or eliminate any other provisions with
respect to matters or questions arising under such Indenture or affecting the
rights of the Noteholders; provided that such action will not (i) increase or
reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments on the Notes or distributions that are required to be
made for the benefit of the Noteholders, or (ii) impair the right to institute a
suit for the enforcement of the Indenture, or (iii) reduce the percentage of the
Noteholders required to consent to any such amendment, without, in either case,
the consent of the holders of all Notes outstanding, or (iv) modify the
definition of "Outstanding", (v) reduce any percentage relating to Noteholder
voting rights required to sell or liquidate the Trust Fund, (vi) reduce any
percentage relating to Noteholder voting rights in the Indenture, (vii) modify
the Indenture as to affect the calculation of principal or interest due on any
Note or affect the rights of any Holder to the benefit of any mandatory
redemption, or (viii) permit the creation of any lien ranking above or equal to
the lien of the Indenture. The Indenture requires the Issuer to deliver to the
Indenture Trustee and the Insurer upon the execution and delivery of the
Indenture and any amendment thereto an opinion of counsel, satisfactory to the
Insurer and the Indenture Trustee that all financing statements and continuation
statements have been filed that are necessary to fully protect and preserve the
Indenture Trustee's interest in the Trust Fund.
Certain Covenants
The Indenture will provide that the Issuer may not consolidate with or
merge into any other entity, unless (i) the entity formed by or surviving such
consolidation or merger is organized under the laws of the United States or any
state; (ii) such entity expressly assumes the Issuer's obligation to make due
and punctual payments upon the Notes and the performance or observance of every
agreement and covenant of the Issuer under the Indenture; (iii) no Event of
Default will have occurred and be continuing immediately after such transaction;
(iv) the Issuer has been advised that the rating of the Notes then in effect
would not be reduced or withdrawn by the Rating Agencies as a result of such
transaction; (v) the Issuer has received an opinion of counsel to the effect
that such transaction would have no material adverse tax consequence to the
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Issuer, the Insurer, any Noteholder or any Certificateholder; (vi) any action
necessary to maintain the lien and security interest under the Indenture has
been taken; (vii) the Issuer has delivered an officer's certificate and an
opinion of counsel each stating that such transaction and such supplemental
indenture comply with the provisions of the Indenture of the Issuer and that all
conditions precedent in the Indenture to such transaction have been complied
with; and (viii) so long as no Insurer Default has occurred and is continuing,
the Issuer has given the Insurer written notice of such transaction at least 20
Business Days prior to the consolidation or merger and the Issuer or the person
(if other than the Issuer) formed by or surviving such consolidation or merger
has a net worth, immediately prior to giving effect to such consolidation or
merger, that is (a) greater than zero and (b) not less than the net worth of the
Issuer immediately prior to giving effect to such consolidation or merger.
The Indenture will also provide that the Issuer may not convey or
transfer all or substantially all of its properties or assets to any other
entity, unless (i) the entity that acquires the assets of the Issuer (A) agrees
that all right, title and interest conveyed or transferred shall be subject and
subordinate to the rights of Noteholders, (B) unless otherwise agreed, expressly
agrees to indemnify, defend and hold harmless the Issuer against and from any
loss, liability or expense arising under or related to the Indenture and the
Notes, (C) expressly agrees to make all filings with the Commission (and any
other appropriate entity) required by the Exchange Act in connection with the
Notes and (D) is organized under the laws of the United States or any state; and
(ii) the criteria specified in clauses (ii) through (vii) of the preceding
paragraph have been complied with.
The Issuer will not, among other things, (i) except as expressly
permitted by the Receivables Transfer and Servicing Agreements or certain
related documents with respect to the Issuer (collectively, the "BASIC
DOCUMENTS"), sell, transfer, exchange or otherwise dispose of any of the assets
of the Issuer; (ii) claim any credit on or make any deduction from the principal
and interest payable in respect of the Notes (other than amounts withheld under
the Code) or assert any claim against any present or former holder of the Notes
because of the payment of taxes levied or assessed upon any part of the Trust
Fund; (iii) permit the validity or effectiveness of the Indenture to be impaired
or permit the lien in favor of the Indenture Trustee created by the Indenture to
be amended, hypothecated, subordinated, terminated or discharged or permit any
person to be released from any covenants or obligations with respect to the
Notes except as may be expressly permitted by the Indenture; (iv) permit any
lien, charge, excise, claim, security interest, mortgage or other encumbrance
(other than certain liens that arise by operation of law) to be created on or
extend to or otherwise arise upon or burden the Trust Fund or any part thereof,
or any interest therein or the proceeds thereof; (v) permit the lien of the
related Indenture not to constitute a valid first priority (other than certain
liens that arise by operation of law) security interest in the assets of Trust
Fund, (vi) amend, modify or fail to comply with the provisions of the Basic
Documents without the prior written consent of the Controlling Party or (vii)
take any action or fail to take any action that would cause the Issuer to be
treated as an association (or publicly traded partnership) taxable as a
corporation for U.S. Federal income tax purposes.
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The Issuer will not incur, assume, guarantee or otherwise become liable,
directly or indirectly, for any indebtedness other than indebtedness incurred
pursuant to the Notes obligations owing from time to time to the Insurer under
the Insurance Agreement and the Indenture or otherwise in accordance with the
Basic Documents.
Annual Compliance Statement
The Issuer will be required to file annually with the Indenture Trustee
and the Insurer a written statement as to the fulfillment of its obligations
under the Indenture.
Indenture Trustee's Annual Report
The Indenture Trustee will be required to mail each year to all
Noteholders a brief report relating to, among other things, its eligibility and
qualification to continue as Indenture Trustee under the Indenture, any amounts
advanced by it under the Indenture, the amount, interest rate and maturity date
of certain indebtedness owing by the Trust to the Indenture Trustee in its
individual capacity, the property and funds physically held by the Indenture
Trustee as such and any action taken by it that materially affects the Notes and
that has not been previously reported.
Satisfaction and Discharge of Indenture
The Indenture Trustee will be discharged with respect to the collateral
securing the Notes upon the delivery to the Indenture Trustee for cancellation
of all Notes or, with certain limitations, upon deposit with the Indenture
Trustee of funds sufficient for the payment in full of all of such Notes.
Trust Indenture Act
The Indenture will comply with applicable provisions of the Trust
Indenture Act of 1939, as amended.
The Indenture Trustee
The Indenture Trustee may resign at any time, in which event the Issuer
will be obligated to appoint a successor trustee eligible under the Indenture
which, if there is no Insurer Default, shall be acceptable to the Insurer. The
Issuer will remove the Indenture Trustee, if the Indenture Trustee ceases to be
eligible to continue as such under the Indenture or if the Indenture Trustee
becomes insolvent. In such circumstances, the Issuer will be obligated to
appoint a successor trustee eligible under the Indenture that, if no Insurer
Default exists, is acceptable to the Insurer. Any resignation or removal of the
Indenture Trustee and appointment of a successor trustee will be subject to any
conditions or approvals, including the approval of the Insurer and will not
become effective until acceptance of the appointment by a successor trustee and
payment of all fees and expenses owed to the outgoing trustee.
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DESCRIPTION OF THE CERTIFICATES
The Certificates are not being offered hereby. The Certificates will be
issued pursuant to the Owner Trust Agreement, a form of which has been filed as
an exhibit to the Registration Statement. A copy of the Owner Trust Agreement
will be filed with the Commission following the issuance of the Notes.
The Certificates will initially be sold to the Transferor on the Closing
Date for cash in the amount of $9,351,145.
On each Payment Date, all distributions on the Certificates will be
subordinated in priority of payment in full of the Noteholders' Principal
Distributable Amount and Noteholders' Interest Distributable Amount for such
Payment Date. The Certificateholders' will not receive any distribution on any
Payment Date unless the Noteholders' Distributable Amount has been deposited in
the Note Distribution Account and unless the amount on deposit in the Reserve
Account is at least equal the Required Reserve Account Amount. See "Description
of the Receivables Transfer and Servicing Agreements -- Payments" and "--
Accounts."
THE INSURER
The following information has been obtained from Financial Security
Assurance Inc. (the "INSURER" or "FINANCIAL SECURITY") and has not been verified
by the Issuer, the Depositor, the Transferor, PeopleFirst or the Underwriters.
No representation or warranty is made by the Issuer, the Depositor, the
Transferor, PeopleFirst or the Underwriters.
GENERAL
Financial Security is a monoline insurance company incorporated in 1984
under the laws of the State of New York. Financial Security is licensed to
engage in financial guaranty insurance business in all 50 states, the District
of Columbia, Puerto Rico and the U.S. Virgin Islands.
Financial Security and its subsidiaries are engaged in the business of
writing financial guaranty insurance, principally in respect of securities
offered in domestic and foreign markets. Financial guaranty insurance provides a
guaranty of scheduled payments on an issuer's securities -- thereby enhancing
the credit rating of those securities -- in consideration for the payment of a
premium to the insurer. Financial Security and its subsidiaries principally
insure asset-backed, collateralized and municipal securities. Asset-backed
securities are typically supported by residential mortgage loans, consumer or
trade receivables, securities or other assets having an ascertainable cash flow
or market value. Collateralized securities include public utility first mortgage
bonds and sale/leaseback obligation bonds. Municipal securities include general
obligation bonds, special revenue bonds and other special obligations of state
and local governments. Financial Security insures both newly issued securities
sold in the primary market
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and outstanding securities sold in the secondary market that satisfy Financial
Security's underwriting criteria.
Financial Security is a wholly owned subsidiary of Financial Security
Assurance Holdings Ltd. ("HOLDINGS"). Holdings is an indirect subsidiary of
Dexia S.A., a publicly held Belgian corporation. Dexia S.A., through its bank
subsidiaries, is primarily engaged in the business of public finance in France,
Belgium and other European countries. No shareholder of Holdings or Financial
Security is obligated to pay any debt of Financial Security or any claim under
any insurance policy issued by Financial Security or to make any additional
contribution to the capital of Financial Security.
The principal executive offices of Financial Security are located at 350
Park Avenue, New York, New York 10022, and its telephone number at that location
is (212) 826-0100.
REINSURANCE
Under an intercompany agreement, liabilities on financial guaranty
insurance written or reinsured from third parties by Financial Security or any
of its domestic or Bermuda operating insurance company subsidiaries are
generally reinsured among such companies on an agreed-upon percentage
substantially proportional to their respective capital, surplus and reserves,
subject to applicable statutory risk limitations. In addition, Financial
Security reinsures a portion of its liabilities under certain of its financial
guaranty insurance policies with other reinsurers under various treaties and on
a transaction-by-transaction basis. This reinsurance is used by Financial
Security as a risk management device and to comply with certain statutory and
rating agency requirements; it does not alter or limit Financial Security's
obligations under any financial guaranty insurance policy.
RATINGS
Financial Security's insurance financial strength is rated "Aaa" by
Moody's. Financial Security's insurer financial strength is rated "AAA" by S&P
and Standard & Poor's (Australia) Pty. Ltd. Financial Security's insurance
financial strength is rated "AAA" by Fitch, Inc. Financial Security's claims -
paying ability is rated "AAA" by Japan Rating and Investment Information, Inc.
These ratings reflect only the views of the respective rating agencies, are not
recommendations to buy, sell or hold securities and are subject to revision or
withdrawal at any time by those rating agencies.
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CAPITALIZATION
The following table sets forth the capitalization of Financial Security
and its subsidiaries as of September 30, 2000 on the basis of accounting
principles generally accepted in the United States:
<TABLE>
<CAPTION>
September 30, 2000
------------------
(In thousands)
<S> <C>
Deferred Premium Revenue (net of prepaid
reinsurance premiums).................................. $ 571,460
-----------
Surplus Notes............................................ 120,000
-----------
Minority Interest........................................ 35,692
-----------
Shareholder's Equity:
Common Stock..................................... 15,000
Additional Paid-in Capital....................... 786,040
Accumulated Other Comprehensive
Income (net of deferred income taxes)............ 17,569
Accumulated Earnings............................. 564,449
-----------
Total Shareholder's Equity....................... 1,383,058
-----------
Total Deferred Premium Revenue, Surplus Notes,
Minority Interest and Shareholder's Equity.............. $ 2,110,210
===========
</TABLE>
For further information concerning Financial Security, see the
Consolidated Financial Statements of Financial Security and Subsidiaries, and
the notes thereto, incorporated by reference herein. Financial Security's
financial statements are included as Exhibits to the Annual Report on Form 10-K
and Quarterly Reports on Form 10-Q filed with the Commission by Holdings and may
be reviewed at the EDGAR Website maintained by the Commission and at Holdings'
website, http://www.FSA.com. Copies of the statutory quarterly and annual
statements filed with the State of New York Insurance Department by Financial
Security are available upon request to the State of New York Insurance
Department.
INSURANCE REGULATION
Financial Security is licensed and subject to regulation as a financial
guaranty insurance corporation under the laws of the State of New York, its
state of domicile. In addition, Financial Security and its insurance
subsidiaries are subject to regulation by insurance laws of the various other
jurisdictions in which they are licensed to do business. As a financial guaranty
insurance
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corporation licensed to do business in the State of New York, Financial Security
is subject to Article 69 of the New York Insurance Law which, among other
things, limits the business of a financial guaranty insurer to writing financial
guaranty insurance and related business lines, requires that each financial
guaranty insurer to maintain a minimum surplus to policyholders, establishes
contingency, loss and unearned premium reserve requirements for each financial
guaranty insurer, and limits the size of individual transactions and the volume
of transactions that may be underwritten by each financial guaranty insurer.
Other provisions of the New York Insurance Law, applicable to non-life insurance
companies such as Financial Security, regulate, among other things, permitted
investments, payment of dividends, transactions with affiliates, mergers,
consolidations, acquisitions or sales of assets and incurrence of liability for
borrowings.
THE POLICY
The following summary of the terms of the Policy does not purport to be
complete and is qualified in its entirety by reference to the Policy.
Simultaneously with the issuance of the Notes, the Insurer will deliver
the Policy to the Indenture Trustee for the benefit of each Noteholder. Under
the Policy, the Insurer will unconditionally and irrevocably guarantee to the
Indenture Trustee for the benefit of each Noteholder the full and complete
payment of (i) Scheduled Payments (as defined below) on the Notes and (ii) the
amount of any Scheduled Payment which subsequently is avoided in whole or in
part as a preference payment under applicable law. In the event the Indenture
Trustee fails to make a claim under the Policy, Noteholders do not have the
right to make a claim directly under the Policy, but may sue to compel the
Indenture Trustee to do so.
"SCHEDULED PAYMENTS" means payments which are scheduled to be made on
the Notes during the term of the Policy in accordance with the original terms of
the Notes when issued and without regard to any subsequent amendment or
modification of the Notes or the Indenture that has not been consented to by the
Insurer, which payments for each Payment Date are (i) the Noteholders' Interest
Distributable Amount for such Payment Date and (ii) the Noteholders' Principal
Distributable Amount. Scheduled Payments do not include payments which become
due on an accelerated basis as a result of (a) a default by the Issuer, (b) an
election by the Issuer to pay principal on an accelerated basis, (c) the
occurrence of an Event of Default under the Indenture or (d) any other cause,
unless the Insurer elects, in its sole discretion, to pay in whole or in part
such principal due upon acceleration, together with any accrued interest to the
date of acceleration. In the event the Insurer does not so elect, the Policy
will continue to guarantee Scheduled Payments due on the Notes in accordance
with their original terms. Scheduled Payments shall not include (x) any portion
of the Noteholders' Interest Distributable Amount due to Noteholders because the
appropriate notice and certificate for payment in proper form was not timely
Received (as defined below) by the Insurer, (y) any portion of the Noteholders'
Interest Distributable Amount due to Noteholders representing interest on any
Noteholders' Interest Carryover Shortfall accrued from and including the date of
payment of the amount of such
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Noteholders' Carryover Interest Shortfall pursuant to the Policy or (z) the
Remaining Pre-Funded Amount, if any, unless, in each case, the Insurer elects,
in its sole discretion, to pay such amount in whole or in part. Scheduled
Payments shall not include any amounts due in respect of the Notes attributable
to any increase in interest rate, penalty or other sum payable by the Issuer by
reason of any default or event of default in respect of the Notes or by reason
of any deterioration of the creditworthiness of the Issuer nor shall coverage be
provided under the Policy in respect of any taxes, withholding or other charge
imposed with respect to any Noteholder by any governmental authority due in
connection with the payment of any Scheduled Payment to a Noteholder.
Payment of claims on the Policy made in respect of Scheduled Payments
will be made by the Insurer following Receipt (as defined below) by the Insurer
of the appropriate notice for payment on the later to occur of (i) 12:00 noon,
New York City time, on the third Business Day following Receipt of such notice
for payment, and (ii) 12:00 noon, New York City time, on the Business Day
preceding the applicable Payment Date.
If payment of any amount avoided as a preference under applicable
bankruptcy, insolvency, receivership or similar law is required to be made under
the Policy, the Insurer shall cause such payment to be made on the later of (a)
the date when due to be paid pursuant to the Order referred to below and (b) the
first to occur of (i) the fourth Business Day following Receipt by the Insurer
from the Indenture Trustee of (A) a certified copy of the order (the "ORDER") of
the court or other governmental body that exercised jurisdiction to the effect
that Noteholders are required to return Scheduled Payments made with respect to
the Notes during the term of the Policy because such payments were avoidable as
preference payments under applicable bankruptcy law, (B) a certificate of the
Indenture Trustee that the Order has been entered and is not subject to any stay
and (C) an assignment duly executed and delivered by the Noteholder, in such
form as is reasonably required by the Insurer and provided to the Noteholder by
the Insurer, irrevocably assigning to the Insurer all rights and claims of the
Noteholder relating to or arising under the Notes against the Issuer or
otherwise with respect to such preference payment, and (ii) the date of Receipt
(as defined below) by the Insurer from the Indenture Trustee of the items
referred to in clauses (A), (B) and (C) above if, at least four Business Days
prior to such date of Receipt, the Insurer shall have Received (as defined
below) written notice from the Indenture Trustee that such items were to be
delivered on such date and such date was specified in such notice. Such payment
shall be disbursed to the receiver, conservator, debtor-in-possession or trustee
in bankruptcy named in the Order and not to the Indenture Trustee or any
Noteholder directly (unless a Noteholder has previously paid such amount to the
receiver, conservator, debtor-in-possession or trustee in bankruptcy named in
the Order, in which case such payment shall be disbursed to the Indenture
Trustee for distribution to such Noteholder upon proof of such payment
reasonably satisfactory to the Insurer). In connection with the foregoing, the
Insurer shall have the rights provided pursuant to the Indenture including,
without limitation, the right (in the absence of an Insurer Default) to direct
all matters relating to any preference claim and subrogation to the rights of
the Indenture Trustee and each Noteholder in the conduct of any proceeding with
respect to a preference claim.
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OTHER PROVISIONS OF THE POLICY
The terms "RECEIPT" and "RECEIVED" with respect to the Policy shall mean
actual delivery to the Insurer and to its fiscal agent, if any, prior to 12:00
noon, New York City time, on a Business Day; delivery either on a day that is
not a Business Day or after 12:00 noon, New York City time, shall be deemed to
be Received on the next succeeding Business Day. If any notice or certificate
given under a Policy by the Indenture Trustee is not in proper form or is not
properly completed, executed or delivered, it shall be deemed not to have been
Received, and the Insurer or its fiscal agent shall promptly so advise the
Indenture Trustee and the Indenture Trustee may submit an amended notice.
Under the Policy, "BUSINESS DAY" means any day other than a Saturday,
Sunday, legal holiday or other day on which commercial banking institutions in
San Diego, California, Wilmington, Delaware, New York, New York or Minneapolis,
Minnesota are authorized or obligated by law, executive order or governmental
decree to be closed.
The Insurer's obligations under the Policy in respect of Scheduled
Payments shall be discharged to the extent funds are transferred to the
Indenture Trustee as provided in the Policy whether or not such funds are
properly applied by the Indenture Trustee.
The Insurer shall be subrogated to the rights of each Noteholder to
receive payments of principal and interest to the extent of any payment by the
Insurer under the Policy.
Claims under the Policy constitute direct, unsecured and unsubordinated
obligations of the Insurer ranking not less than pari passu with other unsecured
and unsubordinated indebtedness of the Insurer for borrowed money. Claims
against the Insurer under the Policy and each other financial guaranty insurance
policy issued thereby constitute pari passu claims against the general assets of
the Insurer. The terms of the Policy cannot be modified or altered by any other
agreement or instrument, or by the merger, consolidation or dissolution of the
Issuer. The Policy may not be canceled or revoked prior to distribution in full
of all Scheduled Payments. THE POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY
INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
The Policy is governed by the laws of New York.
It is a condition for issuance that the Notes be rated AAA or A-1+ by
S&P and Aaa or P-1 by Moody's. The ratings by the Rating Agencies of the Notes
will be based primarily on the issuance of the Policy. A rating is not a
recommendation to purchase, hold or sell Notes. In the event that the rating
initially assigned to any of the Notes is subsequently lowered or withdrawn for
any reason, including by reason of a downgrading of the claims-paying ability of
the Insurer, no person or entity will be obligated to provide any additional
credit enhancement with respect to the Notes. Any reduction or withdrawal of the
rating may have an adverse effect on the liquidity and market price of the
Notes.
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DESCRIPTION OF THE RECEIVABLES TRANSFER AND SERVICING AGREEMENTS
The following summary, together with the description in the prospectus
under the heading "Description of the Receivables Transfer and Servicing
Agreements," describes certain terms of the Sale and Servicing Agreement, any
Subsequent Transfer Agreement and the Owner Trust Agreement (collectively, the
"RECEIVABLES TRANSFER AND SERVICING AGREEMENTS"). Copies of the Receivables
Transfer and Servicing Agreements will be filed with the Commission following
the issuance of the Notes. The summary describes the material terms of the
Receivables Transfer and Servicing Agreements, but it does not purport to be
complete and is subject to, and qualified in its entirety by reference to, all
the provisions of the Receivables Transfer and Servicing Agreements. The
following summary supplements the description of the general terms and
provisions of the Receivables Transfer and Servicing Agreements set forth in the
prospectus, to which description reference is hereby made.
TRANSFER OF RECEIVABLES
Pursuant to a Sale and Servicing Agreement, dated as of December 1, 2000
(the "SALE AND SERVICING AGREEMENT"), between the Originator, as seller and
servicer, the Transferor, the Depositor, the Issuer, and Wells Fargo Bank
Minnesota, National Association, as Indenture Trustee and Backup Servicer, the
Originator will sell and contribute to the Transferor, on or prior to the
Closing Date, or, with respect to Subsequent Receivables, the related Subsequent
Transfer Date without recourse, all of its right, title and interest in and to
the related Receivables including, without limitation, (i) the related
Receivables, and all moneys due or received thereon after the related Cut-off
Date; (ii) the security interests in the Financed Vehicles granted by Obligors
pursuant such Receivables and any other interest of the Originator in such
Financed Vehicles; (iii) any proceeds with respect to such Receivables from
claims on any theft, physical damage, credit life or disability insurance
policies covering Financed Vehicles or Obligors and any proceeds from the
liquidation of such Receivables; (iv) all rights under any agreements providing
for the repair of the related Financed Vehicles (including any extended
warranty); (v) the related files with respect to such Receivables; and (vi) the
proceeds of any and all of the foregoing. Also pursuant to the Sale and
Servicing Agreement, the Transferor will transfer such Receivables and other
assets to the Depositor, which will in turn transfer such Receivables and other
assets to the Issuer. Finally, pursuant to the Indenture, the Issuer will assign
such assets to the Indenture Trustee to secure the obligations of the Issuer
under the Notes. The transfers of Receivables under the Sale and Servicing
Agreement may be treated as pledges under the bankruptcy code and under other
applicable insolvency law. See "Risk Factors--Risk of recharacterization of true
sale as a pledge" in this prospectus supplement.
In the Sale and Servicing Agreement, the Originator will represent and
warrant to the Transferor and the Transferor will represent and warrant to the
Depositor and the Issuer, among other things, that: (i) the information provided
in the related schedule of Receivables and the related computer tape with
respect to the Receivables is correct in all material respects; (ii) the Obligor
on each related Receivable is required to maintain physical damage insurance
covering
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the Financed Vehicle; (iii) neither the Transferor nor the Originator has
received notice of any liens or claims, including liens for work, labor,
materials or unpaid state or federal taxes, relating to the Financed Vehicle
securing the Receivable, that are or may be prior to or equal to the lien
granted by the Receivable; (iv) as of the Closing Date or the applicable
Subsequent Transfer Date, if any, each of such Receivables is owned by
Transferor free and clear of any lien and is secured by a first perfected
security interest in favor of the Transferor in the Financed Vehicle; (v) each
related Receivable, at the time it was originated, complied and, as of the
Closing Date or the applicable Subsequent Transfer Date, if any, complies in all
material respects with applicable federal and state laws, including, without
limitation, consumer credit, truth in lending, equal credit opportunity and
disclosure laws; and (vi) each of such Receivables as of the related Cut-off
Date satisfied the eligibility criteria for inclusion in the Receivables Pool
that are described under "The Receivables -- Eligibility Criteria" above.
OBLIGATION TO REPURCHASE RECEIVABLES
Pursuant to the Sale and Servicing Agreement, the Originator will be
obligated to repurchase a Receivable from the Issuer, if the interests of the
Insurer, the Certificateholders, or the Noteholders are materially and adversely
affected by any breach of any representation or warranty made by the Originator
with respect to the Receivable, if such breach has not been cured on or before
the last day of the second month following discovery by or notice to the
Originator of the breach. Each Receivable will be purchased from the Trust by
the Originator at a price equal to the Purchase Amount (as defined below). The
purchase obligations will constitute the sole remedy available to the
Noteholders or the Indenture Trustee for any such uncured breaches.
Pursuant to the Sale and Servicing Agreement, the Servicer will be
obligated to purchase a Receivable from the Issuer if the interests of the
Noteholders, the Insurer or the Issuer in such Receivable are materially
adversely affected by a breach of certain of its servicing obligations under the
Sale and Servicing Agreement (including its obligation to maintain perfection of
the first priority security interest created by each Receivable in the related
Financed Vehicle or certain other covenants with respect to the Servicer), if
the breach has not been cured on or before the last day of the month following
the discovery or notice to the Servicer of the breach.
The "PURCHASE AMOUNT" means, with respect to a Receivable, the Principal
Balance and accrued and unpaid interest on the Receivable (including one month's
interest thereon, in the month of payment, at the APR less, so long as
PeopleFirst is the Servicer, the Servicing Fee), after giving effect to the
receipt of any moneys collected (from whatever source) on such Receivable, if
any.
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ACCOUNTS
Collection Account
The Issuer will establish and maintain with the Indenture Trustee one
or more accounts (the "COLLECTION ACCOUNT"), in the name of the Indenture
Trustee on behalf of the Noteholders, the Certificateholders and the Insurer,
into which payments or other amounts received with respect to the Receivables
will be deposited. The Collection Account will be maintained with the Indenture
Trustee so long as the Indenture Trustee's deposits have a rating acceptable to
the Insurer and the Rating Agencies. If the deposits of the Indenture Trustee or
its corporate parent no longer have such acceptable rating, the Servicer will,
with the Indenture Trustee's assistance as necessary, cause such accounts to be
moved within 30 days to a bank whose deposits have such rating.
Distribution Accounts
The Servicer will also establish and maintain an account, in the name of
the Indenture Trustee, on behalf of the Noteholders and the Insurer, in which
amounts released from the Collection Account for distribution to noteholders
will be deposited and from which all distributions to Noteholders will be made
(the "NOTE DISTRIBUTION ACCOUNT"). A separate account, the "CERTIFICATE
DISTRIBUTION ACCOUNT," will be maintained for the purpose of making
distributions to Certificateholders.
Reserve Account
Pursuant to a Master Reserve Account Agreement, dated as of the Closing
Date (the "RESERVE ACCOUNT AGREEMENT"), among the Transferor, the Insurer, the
Indenture Trustee and Wells Fargo Bank Minnesota, National Association, as
indenture collateral agent (the "INDENTURE COLLATERAL AGENT"), the Transferor
will cause the Indenture Collateral Agent to establish the Reserve Account in
the name of the Indenture Collateral Agent for the benefit of the Insurer. On
the Closing Date, the Transferor will make an initial deposit of cash into the
Reserve Account and on each Subsequent Transfer Date during the Pre-Funding
Period, the Transferor will make an additional required deposit into the Reserve
Account. On each Payment Date, additional amounts will be deposited into the
Reserve Account from collections on the Receivables to the extent funds are
available therefor as described under "Description of the Receivables Transfer
and Servicing Agreements -- Payments." Funds will be withdrawn from the Reserve
Account on or before each Payment Date to pay any Deficiency Claim Amount for
such Payment Date, including amounts needed to pay the Noteholders' Interest
Distributable Amount and the Noteholders' Principal Distributable Amount for
such Payment Date.
The amount required under the Reserve Account Agreement to be on deposit
in the Reserve Account at any time (the "RESERVE ACCOUNT REQUIRED AMOUNT") may
increase or decrease without Noteholder consent and there can be no assurance
that the amounts on deposit
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in the Reserve Account will reach the Reserve Account Required Amount since the
existence of the Reserve Account and any other term or provision in the Reserve
Account Agreement regarding the Reserve Account may be amended by the Insurer
without Noteholder consent. Consequently, the Noteholders should not rely on
amounts on deposit in or to be deposited to the Reserve Account in evaluating
the likelihood of receiving repayment of the Notes.
Amounts, if any, on deposit in the Reserve Account on any Payment Date
in excess of the Reserve Account Required Amount for each Payment Date will be
paid to the Certificateholders.
In addition, the Issuer, the Depositor, the Insurer and the Indenture
Collateral Agent may amend the Reserve Account Agreement (and any provisions in
the Insurance Agreement relating to the Reserve Account) in any respect
(including, without limitation, reducing or eliminating the Reserve Account
Required Amount and/or reducing or eliminating the funding requirements of the
Reserve Account or permitting such funds to be used for the benefit of persons
other than Noteholders) without the consent of, or notice to, the Indenture
Trustee, the Owner Trustee or the Noteholders. The Indenture Collateral Agent
shall not withhold or delay its consent with respect to any amendment that does
not adversely affect the Indenture Collateral Agent in its individual capacity.
Notwithstanding any reduction in or elimination of the funding requirements of
the Reserve Account or the depletion thereof, the Insurer will be obligated on
each Payment Date to fund for the benefit of the Noteholders the full amount of
each Scheduled Payment otherwise required to be made on such Payment Date in
accordance with the terms of the Policy.
Pre-Funding Account
On the Closing Date, a cash amount equal to approximately
$115,849,218.47 (the "INITIAL PRE-FUNDED AMOUNT") will be deposited in an
account (the "PRE-FUNDING ACCOUNT") which will be established with the Indenture
Trustee. The Pre-Funding Account will be an asset of the Trust and will be
pledged to the Indenture Trustee for the benefit the Noteholders. The "PRE-
FUNDING PERIOD" is the period from the Closing Date until the earliest of (i)
the date on which the amount on deposit in the Pre-Funding Account is less than
$100,000, (ii) the occurrence of a Servicer Default, or (iii) February 15, 2001.
The Initial Pre-Funded Amount as reduced from time to time during the
Pre-Funding Period by the amount thereof used to purchase Subsequent Receivables
in accordance with the Sale and Servicing Agreement is referred to herein as the
"PRE-FUNDED AMOUNT." The Transferor expects that the Pre-Funded Amount will be
reduced to less than $100,000 on or before the Mandatory Redemption Date. Any
Remaining Pre-Funding Amount will be payable to the Noteholders as described
herein under "Description of the Notes--Mandatory Redemption."
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Capitalized Interest Account
On the Closing Date, cash in the amount of $________ amount will be
deposited in an account (the "CAPITALIZED INTEREST ACCOUNT") which will be
established with the Indenture Trustee. The Capitalized Interest Account will be
an asset of the Trust, and will be pledged to the Indenture Trustee for the
benefit of the Noteholders. The amount, if any, deposited in the Capitalized
Interest Account will be applied on the Payment Dates occurring on or prior to
February 15, 2001 to fund an amount (the "MONTHLY CAPITALIZED INTEREST AMOUNT")
equal to the amount of interest accrued for each such Payment Date at the
weighted average Interest Rates on the principal balance of the Notes in excess
of the principal balances of the Receivables (which portion will equal the
Pre-Funded Amount). Any amounts remaining in the Capitalized Interest Account on
the Mandatory Redemption Date and not used for such purposes are required to be
paid directly to the Transferor on such date.
Investment Earnings
The Seller is entitled to all investment earnings (net of losses) on
amounts on deposit in the Pre-Funding Account and Capitalized Interest Account.
The Servicer, as a supplemental servicing fee, is entitled to all investment
earnings (net of losses) on amounts on deposit in the Collection Account.
Investment earnings (net of losses) on the Reserve Account shall be deposited
into the Collection Account.
Certain Allocations
On or before the fifth Business Day prior to each Payment Date (each
such day, a "DETERMINATION DATE"), the Servicer will be required to deliver a
certificate (the "SERVICER'S CERTIFICATE") to the Indenture Trustee and the
Insurer, specifying, among other things, the amount of aggregate collections on
the Receivables and the aggregate Purchase Amount of Receivables to be purchased
by the Transferor or the Servicer, all with respect to the preceding Collection
Period.
Not later than the fourth Business Day prior to each Payment Date (each
such day, a "DEFICIENCY CLAIM DATE"), the Indenture Trustee will, based solely
on the information contained in the Servicer's Certificate delivered on the
related Determination Date, deliver to the Indenture Collateral Agent, the
Insurer and the Servicer a written notice (a "DEFICIENCY NOTICE") specifying the
Deficiency Claim Amount (as defined below) for such Payment Date. Such
Deficiency Notice will direct the Indenture Collateral Agent to transfer such
Deficiency Claim Amount from amounts on deposit in the Reserve Account for
deposit in the Collection Account. The "DEFICIENCY CLAIM AMOUNT" on any
Determination Date will equal the excess, if any, of (i) the sum of the amounts
payable on the related Payment Date pursuant to clauses (1) through (5) under
"--Payments" below over (ii) the amount of Available Funds with respect to such
Determination Date.
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On each Payment Date, the Servicer is required to instruct the Indenture
Trustee to distribute funds in the amounts and priority set forth under
"--Payments" below.
PAYMENTS
On each Payment Date, the Indenture Trustee will make the following
payments from the Collection Account in the following order of priority:
1. first, from the Distribution Amount, to the Servicer, any accrued and
unpaid Servicing Fee for the related calendar month to the extent not
retained by the Servicer;
2. second, from the Distribution Amount, pro rata, all accrued and
unpaid fees and expenses due and owing to the Indenture Trustee, the
Backup Servicer, and the Indenture Collateral Agent;
3. third, from the Distribution Amount, to the Note Distribution
Account, the Noteholders' Interest Distributable Amount;
4. fourth, from the Distribution Amount, to the Note Distribution
Account, the Noteholders' Principal Distributable Amount, to be
distributed as described under "Description of the Notes-- Payments
of Principal";
5. fifth, from the Distribution Amount, to the Insurer, any amounts due
and owing under the Insurance Agreement;
6. sixth, from Available Funds, to the Reserve Account, all Available
Funds remaining after the distributions pursuant to clauses 1 through
5 above;
7. seventh, from amounts, if any, released from the Reserve Account on
such Payment Date due to an excess of the amount on deposit in the
Reserve Account over the Required Reserve Account Amount, to the
Certificate Distribution Account for distribution to the
Certificateholders, the Certificateholders' Principal Distributable
Amount; and
8. eighth, all remaining amounts released from the Reserve Account on
such Payment Date (after giving effect to the payment under clause 7)
to the Certificate Distribution Account for distribution to the
Certificateholders.
In the event that the Servicer's Certificate indicates that the
Distribution Amount will be insufficient on any Payment Date to make the
payments required under clauses (1) through (4) above on such Payment Date, the
Indenture Trustee will furnish to the Insurer no later than 12:00 noon, New York
City time on the related Draw Date a notice of claim in the amount of the Policy
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Claim Amount. Amounts paid by the Insurer pursuant to any such notice of claim
shall be deposited by the Insurer into the Note Distribution Account for payment
to the Noteholders on the related Payment Date.
The following defined terms are used in this "--Payments" section:
"AVAILABLE FUNDS" means, with respect to any Determination
Date, the sum of (i) the Collected Funds for the related Collection
Period, (ii) all Purchase Amounts deposited in the Collection Account
during the related Collection Period (iii) the Monthly Capitalized
Interest Amount for the related Payment Date, (iv) investment earnings
(net of losses) on the Reserve Account and (v) following the
acceleration of the Notes pursuant to the Indenture, the amount of
money or property collected by the Indenture Trustee with respect to
the assets of the Issuer (from the sale of the assets or otherwise)
since the preceding Determination Date.
"CERTIFICATEHOLDERS' PERCENTAGE" means (1) for each Payment
Date prior to the Payment Date on which the Class A-4 Notes are paid in
full, 1.75%, (ii) on the Payment Date on which the Class A-4 Notes are
paid in full, the percentage equivalent of a fraction, the numerator of
which is the excess, if any, of (x) the Principal Distributable Amount
for such Payment Date over (y) the outstanding principal amount of the
Class A- 4 Notes immediately prior to such Payment Date, and the
denominator of which is the Principal Distributable Amount for such
Payment Date, and (iii) for each Payment Date thereafter to and
including the Payment Date on which the Certificate Balance is reduced
to zero, 100%.
"CERTIFICATEHOLDERS' PRINCIPAL CARRYOVER SHORTFALL" means,
with respect to any Payment Date, the excess of the Certificateholders'
Principal Distributable Amount for the preceding Payment Date, over the
amount of principal that was actually deposited in the Certificate
Distribution Account.
"CERTIFICATEHOLDERS' PRINCIPAL DISTRIBUTABLE AMOUNT" means,
with respect to any Payment Date, (A) the Certificateholders'
Percentage of the Principal Distributable Amount plus (B) the
Certificateholders' Principal Carryover Shortfall, but in no case
exceeds the outstanding Principal Balance of the Certificates.
"COLLECTED FUNDS" means, with respect to any Determination
Date, the amount of funds in the Collection Account representing
collections on the Receivables during the related Collection Period,
including all Net Liquidation Proceeds collected during the related
Collection Period.
"CUT-OFF DATE" means, with respect to an Initial Receivables,
the Initial Cut-off Date, and with respect to a Subsequent Receivable,
the related Subsequent Cut-off Date.
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"DISTRIBUTION AMOUNT" with respect to any Payment Date, the
sum of (i) the Available Funds for the immediately preceding
Determination Date, plus (ii) any amounts received with respect to the
Deficiency Claim Amount (from the Reserve Account, an Insurer Optional
Deposit or otherwise other than from draws under the Policy) by the
Indenture Trustee, with respect to such Payment Date.
"DRAW DATE" means, with respect to any Payment Date, the third
Business Day (as defined in the Policy) immediately preceding such
Payment Date.
"INSURER OPTIONAL DEPOSIT" means, with respect to any Payment
Date, an amount delivered by the Insurer for deposit into the
Collection Account for any of the following purposes: (i) to provide
funds in respect of the payment of fees or expenses of any provider of
services to the Issuer with respect to such Payment Date, or (ii) to
include such amount to the extent that without such amount a draw would
be required to be made on the Policy.
"NET LIQUIDATION PROCEEDS" means, with respect to any
Liquidated Receivable, all amounts, including insurance proceeds,
realized with respect to such Receivable (other than amounts withdrawn
from the Reserve Account and drawings under the Policy) net of (i)
reasonable expenses incurred by the Servicer in connection with the
collection of such Receivable and the repossession and disposition of
the Financed Vehicle and (ii) amounts that are required to be refunded
to the Obligor on such Receivable; provided that Net Liquidation
Proceeds with respect to any Receivable may not be less than zero.
"NOTEHOLDERS' DISTRIBUTABLE AMOUNT" means, with respect to any
Payment Date, the sum of the Noteholder's Principal Distributable
Amount and the Noteholders' Interest Distributable Amount.
"NOTEHOLDERS' INTEREST CARRYOVER SHORTFALL" means, with
respect to any Payment Date, the excess of the Noteholders' Interest
Distributable Amount for the preceding Payment Date, over the amount in
respect of interest that was actually deposited in the Note
Distribution Account on such preceding Payment Date, plus interest on
the amount of interest due but not paid to Noteholders on the preceding
Payment Date, to the extent permitted by law, at the Interest Rate
borne by such Notes from such preceding Payment Date to excluding the
current Payment Date.
"NOTEHOLDERS' INTEREST DISTRIBUTABLE AMOUNT" means, with
respect to any Payment Date, the sum of the Noteholders' Monthly
Interest Distributable Amount for such Payment Date and the
Noteholders' Interest Carryover Shortfall for such Payment Date.
"NOTEHOLDERS' MONTHLY INTEREST DISTRIBUTABLE AMOUNT" means,
with respect to any Payment Date for the Class A-1 Notes, the product
(i) of the applicable Interest Rate
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for the Class A-1 Notes (ii) the actual number of days during the
applicable period divided by 360 and (iii) the outstanding principal
amount of the Class A-1 Notes immediately preceding such Payment Date,
and for each of the Class A-2 Notes, Class A-3 Notes and Class A-4
Notes, the sum of the products for the Class A-2 Notes, Class A-3 Notes
and Class A-4 Notes of (i) the applicable Interest Rate for such class
and (ii) 1/12 and (iii) the outstanding principal amount of such class
of Notes immediately preceding such Payment Date.
"POLICY CLAIM AMOUNT" means, the amount by which (a) the
portion of the Distribution Amount available to make Scheduled Payments
on the Notes for any Payment Date is less than (b) the amount necessary
to make the Scheduled Payments on the Notes for such Payment Date.
STATEMENTS TO NOTEHOLDERS
On or prior to each Payment Date, the Indenture Trustee will be
required to forward a statement to the Noteholders, the Rating Agencies and the
Insurer. Such statements will be based on the information contained in the
Servicer's Certificate delivered by the Servicer on or before the related
Determination Date. Each such statement will include the following information
as to the Notes, with respect to such Payment Date or the period since the
previous Payment Date, as applicable:
(i) the amount of the distribution allocable to interest on
or with respect to the Notes:
(ii) the amount of the distribution allocable to principal
with respect to the Notes;
(iii) the Noteholders' Interest Carryover Shortfall,
Noteholder's Principal Carryover Shortfall,
Certificateholder's Principal Carryover Shortfall, if
any, and the change in such amount from the preceding
statement;
(iv) the amount of the distribution, if any, payable
pursuant to a claim on the Policy;
(v) the amount of the Servicing Fee paid to the Servicer
with respect to the related Collection period;
(vi) the aggregate Purchase Amounts for Receivables, if any,
that were repurchased in such period; and
(vii) the amounts on deposit in the Pre-Funding Account and
Capitalized Interest Account.
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Each amount set forth pursuant to subclauses (i), (ii) and (iii) with
respect to Notes will be expressed as a dollar amount per $1,000 of the initial
principal amount of the Notes.
Unless and until Definitive Notes are issued, such reports will be sent
on behalf of the Issuer to Cede & Co., as registered holder of the Notes and the
nominee of DTC.
Within the required period of time after the end of each calendar year,
the Indenture Trustee will furnish to each person who at any time during such
calendar year was a Noteholder, a statement as to the aggregate amounts of
interest and principal paid to such Noteholder and such other information as the
Issuer deems necessary to enable such Noteholder to prepare its tax returns.
SERVICER DEFAULT; RIGHTS UPON SERVICER DEFAULT
A "SERVICER DEFAULT" under the Sale and Servicing Agreement will
include:
(a) any failure by the Servicer to deliver to the Owner Trustee or
the Indenture Trustee any deposit or payment required to be so
made, which failure continues unremedied for one Business Day
after written notice from the Insurer, the Owner Trustee or
the Indenture Trustee is received by the Servicer or after
discovery of such failure by the Servicer,
(b) breach of any representation or warranty or covenant or any
failure by the Servicer duly to observe or perform in any
material respect any other covenant or agreement in the Sale
and Servicing Agreement which failure materially and adversely
affects the rights of the Noteholders, the Certificateholders
or the Insurer and which continues unremedied for a period of
30 days (or for such longer period, not in excess of 60 days,
as may be reasonably necessary to remedy such default;
provided that such default is capable of remedy within 60 days
and the Servicer delivers an Officer's Certificate to the
Insurer, the Owner Trustee and the Indenture Trustee to such
effect and to the effect that the Servicer has commenced or
will promptly commence, and will diligently pursue, all
reasonable efforts to remedy such default),
(c) certain events of insolvency, readjustment of debt, marshaling
of assets and liabilities or similar proceedings with respect
to the Servicer or the Transferor and certain actions by the
Servicer or the Transferor indicating its insolvency,
reorganization pursuant to bankruptcy proceedings, or
inability to pay its obligations,
(d) failure to deliver a Servicer's Certificate within three days
of the related Determination Date,
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(e) failure to deliver the annual statement of compliance required
to be delivered pursuant to the Sale and Servicing Agreement
within 30 days of the date on which such statement is required
to be delivered, or
(f) unless an Insurer Default has occurred and is continuing,
certain defaults under the Insurance Agreement.
If a Servicer Default occurs, then the Controlling Party or holders of
Notes representing not less than 25% of the voting rights thereof (or, if the
Notes have been paid in full and the Indenture has been discharged in accordance
with its terms, by holders of Certificates evidencing not less than 25% of the
voting interest thereof) may terminate the rights and obligations of the
Servicer under the Sale and Servicing Agreement. If PeopleFirst is terminated as
Servicer, Wells Fargo Bank Minnesota, National Association (in such capacity,
the "BACKUP SERVICER") has agreed, subject to the qualifications contained in
the Sale and Servicing Agreement, to serve as successor Servicer under the Sale
and Servicing Agreement or any other entity serving at the time as Backup
Servicer becomes the successor Servicer, it will receive compensation at the
Servicing Fee Rate and will no longer be entitled to receive a fee as Backup
Servicer.
The Insurer (or, if an Insurer Default shall have occurred and be
continuing, the Controlling Party) may, on behalf of all Noteholders and
Certificateholders, waive any default by the Servicer in the performance of its
obligations under the Sale and Servicing Agreement, except a default in making
any required deposits to or payments from the Collection Account, the Note
Distribution Account, the Capitalized Interest Account and the Pre-Funding
Account in accordance with this Agreement.
Consistent with its customary procedures, the Servicer may, in its
discretion, arrange with the Obligor on a Receivable to extend or modify the
payment schedule, but no such arrangement will reduce the principal balance or
APR of any Receivable or modify any Receivable if such amendment or modification
would extend the final payment date of any Receivable beyond the Final Scheduled
Maturity Date. Some of such arrangements may result in the Servicer purchasing
the Receivable for the Purchase Amount. The Servicer may sell the Financed
Vehicle securing the respective Receivable at public or private sale, or take
any other action permitted by applicable law.
The Servicer may refinance any Receivable by accepting a new promissory
note from the related Obligor and applying the proceeds of such refinancing to
pay all obligations in full of such Obligor under such Receivable. The
receivable created by the refinancing shall not be property of the Issuer.
SERVICING COMPENSATION
The Servicer is entitled under the Sale and Servicing Agreement on each
Payment Date to a servicing fee (the "SERVICING FEE") for the related Monthly
Period equal to the sum of
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(i) 0.50% (the "SERVICING FEE RATE") multiplied by one-twelfth multiplied by the
Pool Balance as of the first day of such Monthly Period (the "BASE SERVICING
FEE") and (ii) the investment earnings (net of losses) on the Collection
Account. In addition to the Servicing Fee, the Issuer will also pay the Servicer
a supplemental servicing fee equal to any late fees, prepayment fees, rebates
and other administrative fees and expenses collected during each month (the
"SUPPLEMENTAL SERVICING FEE"). The Servicer may retain the Servicing Fee from
collections on the Receivables. See "Description of the Receivables Transfer and
Servicing Agreements -- Servicing Compensation and Expenses" in the prospectus.
APPOINTMENT OF SUBSERVICER
The Servicer may at any time appoint a subservicer to perform all or
any portion of its obligations as Servicer upon the prior written consent of the
Controlling Party; provided; however, that the Servicer may refer delinquent
accounts to an outside collection agency for further collection and possible
repossession of the related Financed Vehicles without the consent of the
Controlling Party; and provided, further, that the Servicer remain obligated and
liable to the Indenture Trustee, the Insurer and the Noteholders for the
servicing and administering of the Receivables in accordance with the provisions
thereof without diminution of such obligation and liability by virtue of the
appointment of such subservicer and to the same extent and under the same terms
and conditions as if the Servicer alone were servicing and administering the
Receivables. The fees and expenses of the subservicer will be as agreed between
the Servicer and its subservicer from time to time and none of the Indenture
Trustee, the Insurer, the Noteholders shall have any responsibility therefor.
AMENDMENT
The Sale and Servicing Agreement may be amended from time to time by
the Originator, the Transferor, the Depositor, the Indenture Trustee, the
Servicer, the Backup Servicer, and the Issuer, with the consent of the Insurer
(so long as no Insurer Default has occurred and is continuing) but without the
consent of any of the Noteholders or Certificateholders to cure any ambiguity,
to correct or supplement any provisions therein, to comply with any changes in
the Code, or to make any other provisions with respect to matters or questions
arising thereunder which would not be inconsistent with the provisions of the
Sale and Servicing Agreement or the Insurance Agreement; provided that, such
action would not, as evidenced by an opinion of counsel delivered to the
Depositor, the Owner Trustee, the Insurer, the Rating Agencies, the Indenture
Trustee and the Backup Servicer, adversely affect in any material respect the
interests of any Noteholders and the Certificateholders.
The Sale and Servicing Agreement may also be amended from time to time
by the Originator, the Transferor, the Depositor, the Servicer, the Backup
Servicer, the Indenture Trustee and the Issuer with (i) the consent of the
Insurer, if the Insurer is the Controlling Party, but without the consent of any
Noteholders or Certificateholders, or (ii) if the Insurer is no longer the
Controlling Party, with the consent of a Note Majority and the consent of the
holders of
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Certificates evidencing not less than a majority of the aggregate outstanding
principal amount of the Certificates, for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of the Sale
and Servicing Agreement or of modifying in any manner the rights of the
Noteholders or the Certificateholders; provided that no such amendment shall (a)
increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments on Receivables or distributions that shall be
required to be made for the benefit of the Noteholders or the Certificateholders
or (b) reduce the aforesaid percentage of the outstanding principal amount of
the Notes and the Certificates, the holders of which are required to consent to
any such amendment, without the consent of the holders of all the outstanding
Notes and the holders of all the outstanding Certificates, of such class
affected thereby; provided further, that if an Insurer Default has occurred and
is continuing, such action shall not materially adversely affect the interest of
the Insurer.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
Information regarding certain legal aspects of the Receivables is set
forth under "Some Important Legal Issues Relating to the Receivables" in the
prospectus.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Brown & Wood LLP, special counsel for the Depositor,
the notes will be characterized as debt, and the trust will not be characterized
as an association or a publicly traded partnership taxable as a corporation. See
"Material Federal Income Tax Consequences" in the prospectus.
STATE TAX CONSEQUENCES
In the opinion of Saxon, Barry, Gardner & Kincannon, California tax
counsel to the Issuer, although there is no directly governing authority that
discusses the classification of securities issued in transactions with facts
similar to the Issuer's, the Notes will be characterized as debt for California
corporation franchise tax purposes. In addition, since California follows the
entity classification rules of federal income tax law, the Issuer will not be
treated as a separate entity taxable as a corporation for California corporation
franchise tax purposes. However, if the Notes were treated as equity interests
in the Issuer by California, the Issuer may be subject to one or both of an
income tax or a withholding tax that California imposes on pass-through entities
(including partnerships). Moreover, if California changes its position on the
federal entity classification rules and thus decided not to follow them, the
Issuer may be treated as a separate entity taxable as a corporation for
California corporation franchise tax purposes. Any income, withholding, or
franchise tax liability of the Issuer incurred by the Issuer is expected not to
be material, and the Servicer will indemnify the Issuer for any such tax
liability.
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Prospective investors are urged to consult with their own tax advisors
regarding the state tax consequences to them of purchasing, holding and
disposing of Notes.
ERISA CONSIDERATIONS
The Notes may, in general, be purchased by or on behalf of or with plan
assets of a Plan. Although we cannot assure you in this regard, the Issuer
intends to take the position that the Notes should be treated as "debt" and not
as "equity interests" for purposes of the Plan Assets Regulation because the
notes--
- are expected to be treated as indebtedness under local law and
will, in the opinion of Federal Tax Counsel for the trust, be
treated as debt, rather than equity, for federal income tax
purposes (see "Material Federal Income Tax Consequences" in
the prospectus) and
- should not be deemed to have any "substantial equity
features."
See "ERISA Considerations" in the prospectus. In addition, in analyzing these
issues with their own counsel, prospective purchasers of the Notes should
consider, among other things, that although Federal Tax Counsel has concluded
that the Notes are debt for federal income tax purposes (as noted above), it is
not clear whether the Notes would be treated as issued by the Issuer, the
Transferor or another person related to the Transferor.
However, the acquisition and holding of Notes of any class by or on
behalf of or with "plan assets" of a Plan could be considered to give rise to a
prohibited transaction under ERISA and Section 4975 of the Code if, for example,
the trust, the owner trustee, the indenture trustee, any certificateholder or
any of their respective affiliates, is or becomes a "party in interest" or a
"disqualified person" (as defined in ERISA and the Code, respectively) with
respect to such Plan. In such case, certain exemptions from the prohibited
transaction rules could be applicable to such acquisition and holding by a Plan,
depending on the type and circumstances of the Plan fiduciary making the
decision to acquire a Note.
Because the Originator, the Transferor, the Servicer, the Indenture
Trustee, the Owner Trustee and the Insurer may enjoy financial benefits from the
sale of the Notes, there may be a conflict of interest if Notes are sold to a
Plan if any of these parties, or an affiliate of any of these parties (i) has
investment or administrative discretion with respect to the Plan's assets; (ii)
has authority or responsibility to give, or regularly gives, investment advice
regarding the Plan's assets, for a fee and under an agreement or understanding
that the advice will serve as a primary basis for investment decisions regarding
the Plan's assets and will be based on the particular investment needs for the
Plan; or (iii) is an employer maintaining or contributing to the Plan. Before
acquiring a Note or an interest in a Note a person investing on behalf of or
with plan assets of any such Plan should consult with counsel concerning the
consequences under ERISA
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of such an investment, and will be deemed to represent that such purchase and
holding will not result in a non-exempt prohibited transaction under ERISA or
Section 4975 of the Code.
Each person considering investing in a Note on behalf of or with plan
assets of a Plan must determine that the acquisition and holding of the Note do
not give rise to a nonexempt prohibited transaction.
For a further discussion of exemptions and additional information
regarding treatment of the Notes under ERISA, see "ERISA Considerations" in the
prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting
agreement, the Depositor has agreed to cause the Issuer to sell to each of the
underwriters listed below (each, an "UNDERWRITER"), and each of the Underwriters
has agreed to purchase, the principal amount of each class of the Notes set
forth opposite its name below. Under the terms and conditions of the
Underwriting Agreement, each of the Underwriters is obligated to take and pay
for all of the Notes if any are taken.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
----------------------------------------------------------------------
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
UNDERWRITERS NOTES NOTES NOTES NOTES
------------ ----- ----- ----- -----
<S> <C> <C> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Barclays Capital Inc.
Credit Suisse First Boston Corporation
------------- ------------- ------------- -------------
Total..................................... $ 73,899,000 $ 200,000,000 $ 107,000,000 $ 144,101,000
============= ============= ============= =============
</TABLE>
The Depositor has been advised by the Underwriters of the Notes that
they propose initially to offer the Notes to the public at the applicable prices
set forth on the cover page of this prospectus supplement. After the initial
public offering of the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes
and the Class A-4 Notes, the public offering prices may change.
The underwriting discounts and commissions, the selling concessions
that the Underwriters of the Notes may allow to certain dealers, and the
discounts that such dealers may reallow to certain other dealers, expressed as a
percentage of the principal amount of each class of notes and as an aggregate
dollar amount, shall be as follows:
S-69
<PAGE> 71
<TABLE>
<CAPTION>
Selling
Concessions Reallowance
not to exceed not to exceed
------------------------------------- --------------------------------------
<S> <C> <C>
Class A-1 Notes........................
Class A-2 Notes........................
Class A-3 Notes........................
Class A-4 Notes........................
</TABLE>
Until the distribution of the Notes is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase the Notes. As an exception to these rules, the
Underwriters are permitted to engage in certain transactions that stabilize the
price of the Notes. Such transactions consist of bids or purchases for the
purpose of pegging, fixing or maintaining the price of the Notes.
The Underwriters may make short sales in the Notes in connection with
this offering (i.e., they sell more Notes than they are required to purchase in
the offering). This type of short sale is commonly referred to as a "naked"
short sale because the underwriters do not have an option to purchase these
additional securities in the offering. The Underwriters must close out any naked
short position by purchasing Notes, in the open market. A naked short position
is more likely to be created if the Underwriters are concerned that there may be
downward pressure on the price of the Notes in the open market after pricing
that could adversely affect investors who purchase in the offering. Similar to
other purchase transactions, the Underwriter's purchases to cover the syndicate
short sales may have the effect of raising or maintaining the market price of
the Notes or preventing or retarding a decline in the market price of the Notes.
The Underwriters may also impose a penalty bid. This means that if the
Underwriters purchase Notes in the open market to reduce the Underwriters' short
position or to stabilize the price of such Notes, they may reclaim the amount of
the selling concession from any underwriter or selling group member who sold
those Notes as part of the offering.
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of the security.
Neither the Depositor nor any of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Notes. In
addition, neither the Depositor nor any of the Underwriters makes any
representation that the Underwriters will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
S-70
<PAGE> 72
The Notes are a new issue of securities and there currently is no
secondary market for the Notes. The Underwriters of the Notes expect to make a
market in such securities but will not be obligated to do so. We cannot assure
you that a secondary market for the Notes will develop. If a secondary market
for the Notes does develop, it might end at any time or it might not be
sufficiently liquid to enable you to resell any of your Notes.
The Indenture Trustee may, from time to time, invest the funds in the
Collection Account, Note Distribution Account, Pre-Funding Account, Capitalized
Interest Account and Reserve Account in investments acquired from or issued by
the Underwriters.
Immediately prior to their sale to the trust, certain of the motor
vehicle loans were subject to financing provided by an affiliate of Merrill
Lynch, Pierce, Fenner & Smith Incorporated. We will apply a portion of the
proceeds we receive from the sale of the loans to the trust to repay that
financing. Merrill Lynch, Pierce, Fenner & Smith Incorporated and its affiliates
have provided and continue to provide investment banking and secured lending
services to PeopleFirst and its affiliates.
In the ordinary course of business, the Underwriters and their
affiliates have engaged and may engage in investment banking and commercial
banking transactions with the Depositor, the Transferor, the Servicer and their
respective affiliates.
The Depositor, the Transferor and the Servicer have agreed to indemnify
the Underwriters against certain liabilities, including civil liabilities under
the Securities Act of 1933, as amended, or to contribute to payments which the
Underwriters may be required to make in respect thereof.
The closings of the sale of each class of the Notes are conditioned on
the closing of the sale of each other class of Notes.
Upon receipt of a request by an investor who has received an electronic
prospectus from an Underwriter or a request by such investor's representative
within the period during which there is an obligation to deliver a prospectus,
the Depositor or the Underwriter will promptly deliver, without charge, a paper
copy of this prospectus supplement and the prospectus.
EXPERTS
The consolidated balance sheets of Financial Security Assurance Inc.
and subsidiaries as of December 31, 1999 and 1998 and the related consolidated
statements of income, changes in shareholder's equity, and cash flows for each
of the three years in the period ended December 31, 1999, incorporated by
reference in this prospectus supplement, have been incorporated herein in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of that firm as experts in accounting and auditing.
S-71
<PAGE> 73
LEGAL OPINIONS
In addition to the legal opinions described in the prospectus, certain
legal matters relating to the Originator, the Notes and the Certificates,
certain federal income tax matters, and other matters will be passed upon for
the Originator by Brown & Wood LLP, New York, New York. Certain legal matters
and corporation franchise tax matters will be passed upon for the Issuer by
Saxon, Barry, Gardner & Kincannon, San Diego, California. Certain legal matters
will be passed upon for the Depositor by Mayer, Brown & Platt, Chicago,
Illinois. Brown & Wood LLP and Mayer, Brown & Platt may from time to time render
legal services to the Originator, Transferor, the Depositor, the Servicer and
its affiliates. Certain legal matters will be passed upon for the Underwriters
by Clifford, Chance Rogers & Wells LLP. Certain partners of Clifford, Chance,
Rogers & Wells LLP and Saxon, Barry, Gardner & Kincannon hold equity interests
in PeopleFirst.com Inc., the parent company of PeopleFirst Finance, LLC. Certain
legal matters will be passed upon for the Insurer by Brian Mellstrom, Associate
General Counsel to the Insurer.
RATINGS OF THE NOTES
Although the Issuer will not issue the Notes unless S&P and Moody's
rate the Class A-1 Notes in the highest short-term rating category and the Class
A-2 Notes, Class A-3 Notes and Class A-4 Notes in the highest long-term rating
category, there is no guarantee that such ratings will not be lowered or
withdrawn by a Rating Agency in the future. The ratings of the Notes by the
Rating Agencies will be based on the Policy. A rating is not a recommendation to
purchase, hold or sell the Notes.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
In addition to the documents described in the prospectus under
"Incorporation of Certain Documents by Reference," the consolidated financial
statements of Financial Security Assurance Inc. and its subsidiaries included
in, or as exhibits to, the following documents which have been filed with the
Commission by Financial Security Assurance Holdings Ltd., are hereby
incorporated by reference in this prospectus supplement:
(a) Annual Report on Form 10-K for the year ended December 31,
1999, and
(b) Quarterly Reports on Form 10-Q for the quarters ended
March 31, 2000, June 30, 2000 and September 30, 2000.
All financial statements of Financial Security Assurance Inc. and
subsidiaries included in documents filed by Financial Security Assurance
Holdings Ltd. pursuant to Section 13(a), 13(c), 14, or 15(d) of the Securities
and Exchange Act of 1934, as amended, subsequent to the date of
S-72
<PAGE> 74
this prospectus supplement and prior to the termination of the offering of the
Notes, shall be deemed to be incorporated by reference into this prospectus
supplement and to be a part hereof from the respective dates of filing of such
documents.
S-73
<PAGE> 75
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
ABS ........................................................S-32, S-61
ABS Table ........................................................S-32
Amount Financed ..................................................S-40
APR ..............................................................S-20
Available Funds ..................................................S-61
Backup Servicer ..................................................S-65
Base Servicing Fee ...............................................S-66
Basic Documents ..................................................S-47
Business Day .....................................................S-54
Capitalized Interest Account .....................................S-59
Certificate Distribution Account .................................S-57
Certificateholders' Percentage ...................................S-61
Certificateholders' Principal Carryover Shortfall ................S-61
Certificateholders' Principal Distributable Amount ...............S-61
Class A-1 Final Scheduled Payment Date ...........................S-41
Class A-1 Interest Rate ..........................................S-38
Class A-2 Final Scheduled Distribution Date ......................S-41
Class A-2 Interest Rate ..........................................S-38
Class A-3 Final Scheduled Payment Date ...........................S-41
Class A-3 Interest Rate ..........................................S-38
Class A-4 Final Scheduled Payment Date ...........................S-41
Class A-4 Interest Rate ..........................................S-38
Closing Date .....................................................S-17
Collected Funds ..................................................S-61
Collection Account ...............................................S-57
Collection Period ................................................S-41
Commission .......................................................S-38
Controlling Party ................................................S-44
Cram Down Loss ...................................................S-40
Credit Score .....................................................S-28
Cut-off Date .....................................................S-61
Dealers ..........................................................S-27
Deficiency Claim Amount ..........................................S-59
Deficiency Claim Date ............................................S-59
Deficiency Notice ................................................S-59
Determination Date ...............................................S-59
Distribution Amount ..............................................S-62
Draw Date ........................................................S-62
Event of Default .................................................S-42
Final Scheduled Payment Dates ....................................S-41
Financed Vehicle .................................................S-19
</TABLE>
S-74
<PAGE> 76
<TABLE>
<S> <C>
Financial Security ...............................................S-49
Holdings .........................................................S-50
Indenture ........................................................S-38
Indenture Collateral Agent .......................................S-57
Indenture Trustee ................................................S-18
Initial Cut-off Date .............................................S-19
Initial Pre-Funded Amount ........................................S-58
Initial Receivables ..............................................S-19
Insurance Agreement Indenture Cross Defaults .....................S-43
Insurer ..........................................................S-49
Insurer Default ..................................................S-42
Insurer Optional Deposit .........................................S-62
Interest Rates ...................................................S-38
Issuer ...........................................................S-17
Liquidated Receivable ............................................S-40
Mandatory Redemption Date ........................................S-42
Monthly Capitalized Interest Amount ..............................S-59
Moody's ....................................................S-21, S-44
Net Liquidation Proceeds .........................................S-62
Note Distribution Account ........................................S-57
Note Majority ....................................................S-44
Noteholders' Distributable Amount ................................S-62
Noteholders' Interest Carryover Shortfall ........................S-62
Noteholders' Interest Distributable Amount .......................S-62
Noteholders' Monthly Interest Distributable Amount ...............S-62
Noteholders' Percentage ..........................................S-40
Noteholders' Principal Carryover Shortfall ......................S-39
Noteholders' Principal Distributable Amount ......................S-39
Notes ............................................................S-18
Notice of Default ................................................S-43
Order ............................................................S-53
Original Pool Balance ............................................S-41
Originator .......................................................S-26
Owner Trust Agreement ............................................S-17
Owner Trustee ....................................................S-18
PeopleFirst ................................................S-19, S-26
Person to Person Program .........................................S-27
Policy Claim Amount ..............................................S-63
Pool Balance .....................................................S-40
Pre-Funded Amount ................................................S-58
Pre-Funding Account ..............................................S-58
Pre-Funding Period ...............................................S-58
Principal Balance ................................................S-40
</TABLE>
S-75
<PAGE> 77
<TABLE>
<S> <C>
Principal Distributable Amount ...................................S-39
Purchase Amount ..................................................S-56
Purchased Receivable .............................................S-41
Rating Agencies ............................................S-21, S-44
Receipt ..........................................................S-54
Receivables ......................................................S-19
Receivables Pool .................................................S-20
Receivables Transfer and Servicing Agreements ....................S-55
Received .........................................................S-54
Record Date ......................................................S-38
Remaining Pre-Funding Amount .....................................S-42
Reserve Account Agreement ........................................S-57
Reserve Account Required Amount ..................................S-57
S&P ........................................................S-21, S-44
Sale and Servicing Agreement .....................................S-55
Scheduled Payments ...............................................S-52
Servicer .........................................................S-26
Servicer Default .................................................S-64
Servicer's Certificate ...........................................S-59
Servicing Fee ....................................................S-65
Servicing Fee Rate ...............................................S-66
Servicing Portfolio ..............................................S-29
Subsequent Cut-off Date ..........................................S-19
Subsequent Receivables ...........................................S-19
Subsequent Transfer Agreement ....................................S-20
Transferor .......................................................S-26
Trust ............................................................S-17
Trust Fund .......................................................S-19
Underwriter ......................................................S-69
</TABLE>
S-76
<PAGE> 78
Prospectus, dated December 5, 2000
Prospectus
VEHICLE RECEIVABLES TRUST
ASSET BACKED NOTES
ASSET BACKED CERTIFICATES
(EACH ISSUABLE IN SERIES)
-----------------------------------------------------------------------
ML ASSET BACKED CORPORATION
-----------------------------------------------------------------------
BEFORE YOU PURCHASE ANY OF THESE SECURITIES, BE SURE TO READ THE RISK FACTORS
BEGINNING ON PAGE 11 OF THIS PROSPECTUS AND THIS RISK FACTORS SET FORTH IN THE
RELATED PROSPECTUS SUPPLEMENT.
The notes and the certificates will represent interests in or obligations of the
trust only and will not represent interests in or obligations of ML Asset Backed
Corporation or any of its affiliates.
This prospectus may be used to offer and sell any of the notes or certificates
only if accompanied by the prospectus supplement for the related trust.
Each trust--
- will issue a series of asset-backed notes and/or certificates in one
or more classes;
- will own or, acquire a security interest in--
- a portfolio of motor vehicle installment loans;
- collections on those loans;
- security interests in the vehicles financed by those loans; and
- funds in the accounts of the trust; and
- may have the benefit of one or more other forms of credit
enhancement.
The main sources of funds for making payments on a trust's securities will be
collections on its motor vehicle installment loans and any credit enhancement
that the trust may have. Each class of securities will be rated in one of the
four highest rating categories by at least one nationally recognized statistical
rating organization.
The amounts, prices and terms of each offering of securities will be determined
at the time of sale and will be described in an accompanying prospectus
supplement.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS OR ANY RELATED PROSPECTUS SUPPLEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------------------------
--------------------------------------------
The date of this prospectus is December 5, 2000.
<PAGE> 79
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT........4
WHERE YOU CAN FIND ADDITIONAL INFORMATION.........................................................................4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...................................................................5
Copies of the Documents......................................................................................5
SUMMARY...........................................................................................................6
RISK FACTORS.....................................................................................................11
THE TRUSTS.......................................................................................................16
The Receivables.............................................................................................16
The Seller and the Servicer.................................................................................18
The Trustees................................................................................................18
THE RECEIVABLES POOLS............................................................................................18
MATURITY AND PREPAYMENT CONSIDERATIONS...........................................................................22
POOL FACTORS AND TRADING INFORMATION.............................................................................23
Notes.......................................................................................................23
Certificates................................................................................................23
The Factors Described Above Will
Decline as the Trust Makes Payments
on the Securities...........................................................................................24
Additional Information......................................................................................24
USE OF PROCEEDS..................................................................................................24
THE COMPANY AND THE DEPOSITOR....................................................................................24
PRINCIPAL DOCUMENTS..............................................................................................25
CERTAIN INFORMATION REGARDING THE
SECURITIES..................................................................................................27
General.....................................................................................................27
Fixed Rate Securities.......................................................................................28
Floating Rate Securities....................................................................................28
Book-Entry Registration.....................................................................................29
Definitive Securities.......................................................................................34
Reports to Securityholders..................................................................................35
THE INDENTURE....................................................................................................36
The Indenture Trustee.......................................................................................42
DESCRIPTION OF THE RECEIVABLES
TRANSFER AND SERVICING AGREEMENTS...........................................................................42
Sale and Assignment of
Receivables.................................................................................................43
Accounts....................................................................................................45
Servicing Procedures........................................................................................45
Collections.................................................................................................46
Advances....................................................................................................47
Servicing Compensation and
Expenses....................................................................................................48
Distributions...............................................................................................48
Credit and Cash Flow
Enhancement.................................................................................................48
Net Deposits................................................................................................50
Statements to Trustees and Trusts...........................................................................50
Evidence as to Compliance...................................................................................50
Certain Matters Regarding the
Servicer....................................................................................................51
Events of Servicing Termination.............................................................................52
Rights Upon Event of Servicing
Termination.................................................................................................52
Waiver of Past Events of Servicing
Termination.................................................................................................53
Amendment...................................................................................................53
Payment of Notes............................................................................................53
Termination.................................................................................................53
List of Certificateholders..................................................................................54
Administration Agreement....................................................................................54
SOME IMPORTANT LEGAL ISSUES
RELATING TO THE RECEIVABLES.................................................................................55
General.....................................................................................................55
Security Interests in the Financed
Vehicles....................................................................................................55
Enforcement of Security Interests in
Vehicles....................................................................................................57
Certain Bankruptcy Considerations...........................................................................58
Consumer Protection Laws....................................................................................58
Other Matters...............................................................................................59
MATERIAL FEDERAL INCOME TAX
CONSEQUENCES................................................................................................59
Trusts for Which a Partnership
Election is Made............................................................................................61
</TABLE>
2
<PAGE> 80
<TABLE>
<S> <C>
Trusts in Which all Certificates are Retained by the Seller or an Affiliate of the Seller...................68
Trusts Treated as Grantor Trusts............................................................................69
FASIT Provisions............................................................................................74
CERTAIN STATE TAX CONSEQUENCES...................................................................................77
ERISA CONSIDERATIONS.............................................................................................77
Underwriter Exemption.......................................................................................80
Special Considerations Applicable to
Insurance Company General
Accounts....................................................................................................83
PLAN OF DISTRIBUTION.............................................................................................84
LEGAL OPINIONS...................................................................................................85
GLOSSARY OF TERMS................................................................................................86
</TABLE>
3
<PAGE> 81
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN
THIS PROSPECTUS AND THE ACCOMPANYING
PROSPECTUS SUPPLEMENT
We provide information on your securities in two separate documents
that offer varying levels of detail:
- this prospectus provides general information, some of which may
not apply to a particular series of securities, including your
securities, and
- the accompanying prospectus supplement will provide a summary of
the specific terms of your securities.
If the terms of the securities described in this prospectus vary with
the accompanying prospectus supplement, you should rely on the information in
the prospectus supplement.
We include cross-references to sections in these documents where you
can find further related discussions. Refer to the table of contents in the
front of each document to locate the referenced sections.
You will find a glossary of defined terms used in this prospectus on
page 86.
You should rely only on the information contained in this prospectus
and the accompanying prospectus supplement, including any information
incorporated by reference. We have not authorized anyone to provide you with
different information. The information in this prospectus or the accompanying
prospectus supplement is only accurate as of the dates on their respective
covers.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
ML Asset Backed Corporation has filed a registration statement with the
Securities and Exchange Commission under the Securities Act of 1933. This
prospectus is part of the registration statement but the registration statement
includes additional information.
You may inspect and copy the registration statement at:
- the public reference facilities maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549 (telephone 1-800-732-0330),
- the SEC's regional office at Citicorp Center, 500 West Madison
Street, 14th Floor, Chicago, Illinois 60661, and
- the SEC's regional office at Seven World Trade Center, New York,
New York 10048.
Also, the SEC maintains a web site at http://www.sec.gov containing reports,
proxy and information statements and other information regarding registrants,
such as ML Asset Backed Corporation, that file electronically with the SEC.
4
<PAGE> 82
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus. Information that we file later with
the SEC will automatically update the information in this prospectus. In all
cases, you should rely on the later information over different information
included in this prospectus or the related prospectus supplement. We incorporate
by reference any future annual, monthly or special SEC reports and proxy
materials filed by or on behalf of a trust until we terminate our offering of
the securities by that trust.
Copies of the Documents
You may receive a free copy of any or all of the documents incorporated
by reference in this prospectus or incorporated by reference into the
accompanying prospectus supplement if:
- you received this prospectus and the prospectus supplement and
- you request copies from us at:
ML Asset Backed Corporation
250 Vesey Street
World Financial Center
North Tower - 10th Floor
New York, New York 10281-1310
(212) 449-0336
This offer only includes the exhibits to the documents if the exhibits are
specifically incorporated by reference in the documents. You may also read and
copy these materials at the public reference facilities of the SEC in
Washington, D.C. referred to above.
5
<PAGE> 83
SUMMARY
The following summary is a short description of the main structural
features that a trust's securities may have. For that reason, this summary does
not contain all of the information that may be important to you or that
describes all of the terms of a security. To fully understand the terms of a
trust's securities, you will need to read both this prospectus and the related
prospectus supplement in their entirety.
THE TRUSTS
A separate trust will be formed to issue each series of securities. Each trust
will be formed by an agreement between the depositor and the trustee of the
trust.
THE COMPANY
ML Asset Backed Corporation.
DEPOSITOR
The prospectus supplement will name the depositor for the trust. The depositor
will be either the company or a limited purpose finance subsidiary of the
company. The depositor for each trust will sell to, or otherwise deposit into,
the trust the receivables that back the related series of securities.
SELLER
The prospectus supplement will name the seller for the trust. The seller for
each trust will sell or, if so specified in the prospectus supplement, grant a
security interest in the related receivables to the depositor for that trust.
SERVICER
The prospectus supplement will name the servicer of the receivables for the
trust.
TRUSTEE
The prospectus supplement will name the trustee for the trust.
INDENTURE TRUSTEE
If a trust issues notes, the prospectus supplement will name the indenture
trustee.
SECURITIES
A trust's securities may include one or more classes of notes and/or
certificates. You will find the following information about each class of
securities in the prospectus supplement:
- its principal amount;
- its interest rate, which may be fixed or variable or a combination;
- the timing, amount and priority or subordination of payments of principal
and interest;
- the method for calculating the amount of principal and interest payments;
- the payment dates, which may occur at monthly, quarterly or other specified
intervals, for that class;
- its final scheduled payment date;
- whether and when it may be redeemed prior to its final payment date; and
6
<PAGE> 84
- how losses on the receivables are allocated among the classes of
securities.
Some classes of securities may be entitled to:
- principal payments with disproportionate, nominal or no interest payments
or
- interest payments with disproportionate, nominal or no principal payments.
The prospectus supplement will identify any class of securities that is not
being offered to the public.
THE RECEIVABLES
The receivables of each trust will consist of a pool of motor vehicle loans
secured by new or used automobiles, minivans, sport utility vehicles, light-duty
trucks, motorcycles or recreational vehicles including:
- the rights to receive payments made on the loans after the cutoff date
specified in the related prospectus supplement;
- security interests in the vehicles financed by the loans; and
- any proceeds from claims on various related insurance policies.
The receivables will be originated either by the seller with respect to the
trust or by motor vehicle dealers or lenders. In the latter case, the
receivables will have been purchased, directly or indirectly, by the seller
pursuant to agreements with the dealers or lenders. The seller will sell or, if
so specified in the prospectus supplement, grant a security interest in the
receivables to the depositor who will in turn convey them to the trust that is
issuing the related series of securities.
You will find a description of the characteristics of each trust's receivables
in the related prospectus supplement.
For a more detailed description of the receivables, including the criteria they
must meet in order to be included in a trust, and the other property supporting
the securities, see "The Receivables Pools".
OTHER PROPERTY OF THE TRUST
In addition to the receivables, each trust will own amounts on deposit in
various trust accounts or, if so specified in the prospectus supplement, acquire
a security interest therein, which may include:
- an account into which collections are deposited;
- an account to fund post-closing purchases of additional receivables; and
- a reserve fund or other account providing credit enhancement.
ACQUISITION OF RECEIVABLES AFTER THE CLOSING DATE
If a trust has not acquired all of its receivables at the time you purchase your
securities, it will acquire the remainder of its receivables from the seller
over a period specified in the prospectus supplement. A trust may, during a
period specified in the prospectus supplement, use principal collections on its
receivables to acquire additional receivables.
CREDIT OR CASH FLOW ENHANCEMENT
The prospectus supplement will specify the credit or cash flow enhancement, if
any, for each series of securities. Credit or cash flow enhancement may consist
of one or more of the following:
7
<PAGE> 85
- subordination of one or more classes of securities;
- a reserve fund;
- overcollateralization, meaning the amount by which the principal amount of
the receivables exceeds the principal amount of all of the trust's
securities;
- excess interest collections, meaning the excess of anticipated interest
collections on the receivables over servicing fees, interest on the trust's
securities and any amounts required to be deposited in any reserve fund;
- letter of credit or other credit facility;
- surety bond or insurance policy;
- liquidity arrangements;
- swaps (including currency swaps) and other derivative instruments and
interest rate protection agreements;
- repurchase or put obligations;
- yield supplement agreements;
- guaranteed investment contracts;
- guaranteed rate agreements;
- corporate guarantees; or
- other agreements with respect to third party payments or other support.
Limitations or exclusions from coverage could apply to any form of credit or
cash flow enhancement. The prospectus supplement will describe the credit or
cash flow enhancement and related limitations and exclusions applicable for
securities issued by a trust. Enhancements cannot guarantee that losses will not
be incurred on the securities.
RESERVE FUND
If there is a reserve fund, the trust or seller will initially deposit in it
cash or securities having a value equal to the amount specified in the
prospectus supplement.
Amounts on deposit in a reserve fund will be available to cover shortfalls in
the payments on the securities as described in the prospectus supplement. The
prospectus supplement will also specify (1) any minimum balance to be maintained
in the reserve fund and what funds are available for deposit to reinstate that
balance and (2) when and to whom any amount will be distributed if the balance
exceeds this minimum amount.
For more information about credit enhancement, see "Description of the
Receivables Transfer and Servicing Agreements -- Credit and Cash Flow
Enhancement".
TRANSFER AND SERVICING OF THE RECEIVABLES
With respect to each trust, a seller will transfer the related receivables to
the depositor under a receivables purchase agreement, which, in turn, will
transfer the receivables to the trust under a sale and servicing agreement or a
pooling and servicing agreement. The servicer will agree with the trust to be
responsible for servicing, managing, maintaining custody of and making
collections on the receivables.
For more information about the sale and servicing of the receivables, see
"Description of the Receivables Transfer and Servicing Agreements -- Sale and
Assignment of Receivables".
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SERVICING FEES
Each trust will pay the related servicer a servicing fee based on the
outstanding balance of the receivables. The amount of the servicing fee will be
specified in the prospectus supplement. The servicer may also be entitled to
retain as supplemental servicing compensation the fees and charges paid by
obligors and net investment income from reinvestment of collections on the
receivables.
SERVICER ADVANCES OF LATE INTEREST PAYMENTS
If so specified in the related prospectus supplement, when interest collections
received on the receivables are less than the scheduled interest collections in
a monthly collection period, the servicer will advance to the trust that portion
of the shortfalls that the servicer, in its sole discretion, expects to be paid
in the future by the related obligors.
The servicer will be entitled to reimbursement from other collections of the
trust for advances that are not repaid out of collections of the related late
payments.
REPURCHASE MAY BE REQUIRED FOR BREACHES OF REPRESENTATIONS
Each seller will make representations and warranties as of the cutoff date
relating to the receivables transferred by it to the depositor. The prospectus
supplement will set forth the conditions under which the seller will be
obligated to repurchase any receivable from the trust which may include the
following: (1) one of the seller's representations or warranties is breached
with respect to that receivable, (2) the receivable is materially and adversely
affected by the breach and (3) the breach has not been cured following the
discovery by or notice to the seller of the breach. If so specified in the
related prospectus supplement, the seller will be permitted, in a circumstance
where it would otherwise be required to repurchase a receivable as described in
the preceding sentence, to instead substitute a comparable receivable for the
receivable otherwise requiring repurchase.
For a description of the representations and warranties given by the seller and
seller's related, see "Description of the Receivables Transfer and Servicing
Agreements -- Sale and Assignment of Receivables".
OPTIONAL REDEMPTION
The servicer for each trust will have the option to purchase the trust's
receivables on any payment date when the aggregate principal balance of the
receivables has declined to or below a specified percentage of their balance as
of the applicable cutoff date. That percentage will be specified in the related
prospectus supplement and is expected to be 10% of the cutoff date balance.
Should the servicer exercise its option, the securities of that trust will be
prepaid in full with the purchase proceeds.
TAX STATUS
Brown & Wood LLP, special counsel to the depositor, is of the opinion that, for
federal income tax purposes:
- securities issued as notes will be treated as indebtedness;
- securities issued as certificates will be treated as one of the following,
as specified in the related prospectus supplement:
- indebtedness;
- ownership interests in the related trust fund or in its assets;
- if the trust elects to be treated as a Financial Asset Securitization
Investment Trust, "FASIT
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regular securities" or "FASIT ownership securities";
- each trust will not be characterized as an association, or publicly traded
partnership or taxable mortgage pool, taxable as a corporation.
For additional information concerning the application of federal and state tax
laws to the securities, see "Material Federal Income Tax Consequences".
ERISA CONSIDERATIONS
Notes
Notes will generally be eligible for purchase by employee benefit and other
plans subject to ERISA or to Section 4975 of the Code, and to persons investing
on behalf of or with plan assets of such plans subject to certain
considerations.
Grantor Trust Certificates
Certificates issued by a grantor trust will generally be eligible for purchase
by employee benefit and other plans subject to ERISA or to Section 4975 of the
Code, and to persons investing on behalf of or with plan assets of such plans,
provided certain conditions are met.
Certificates issued by a an owner trust may be eligible for purchase by employee
benefit and other plans subject to ERISA or to Section 4975 of the Code, and to
persons investing on behalf of or with plan assets of such plans. However,
income in respect of such certificates will constitute unrelated business
taxable income to a tax-exempt investor.
If you are an employee benefit plan, you should review the matters discussed
under "ERISA Considerations" before investing in the securities.
FORM, DENOMINATION AND RECORD DATE
The notes will be issued only in book-entry form. Each investor's interest in
the notes will be represented through an agent, rather than by a physical note
held by the investor. A trust will not issue physical notes to investors unless
specific events occur which make it necessary or desirable to do so.
The certificates may be issued in physical form or in book-entry form, as
described in the prospectus supplement.
The denominations in which securities may be purchased and the record date for
each payment on the securities will be set forth in the prospectus supplement.
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RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase any of the securities.
YOU MAY HAVE DIFFICULTY SELLING YOUR SECURITIES OR OBTAINING YOUR DESIRED PRICE
There may be no secondary market for the securities. Underwriters may
participate in making a secondary market in the securities, but are under no
obligation to do so. We cannot assure you that a secondary market will develop.
In addition, there have been times in the past where there have been very few
buyers of asset backed securities and thus there has been a lack of liquidity.
There may be a similar lack of liquidity in the future. As a result, you may not
be able to sell your securities when you want to do so, or you may not be able
to obtain the price that you wish to receive.
INTERESTS OF OTHER PERSONS IN THE RECEIVABLES COULD REDUCE THE FUNDS AVAILABLE
TO MAKE PAYMENTS ON YOUR SECURITIES
Financing statements under the Uniform Commercial Code will be filed reflecting
the sale of the receivables or, if so specified in the prospectus supplement,
the grant of a security interest therein by the seller to the depositor and by
the depositor to the trust. In addition, the seller will mark its computer
systems, and each of the seller and the depositor will mark its accounting
records, to reflect its transfer of the receivables. However, unless otherwise
provided in the related prospectus supplement, the servicer will maintain
possession of the receivables and will not segregate or mark the receivables as
belonging to the trust. Accordingly, another person could acquire an interest in
a receivable that is superior to the trust's interest by obtaining physical
possession of that receivable without knowledge of the assignment of the
receivable to the trust. If another person acquires an interest in a receivable
that is superior to the trust's interest, some or all of the collections on that
receivable may not be available to make payment on your securities.
Additionally, if another person acquires an interest in a vehicle financed by a
receivable that is superior to the trust's security interest in the vehicle,
some or all of the proceeds from the sale of the vehicle may not be available to
make payments on the securities.
The trust's security interest in the financed vehicles could be impaired for one
or more of the following reasons:
- the seller or the depositor might fail to perfect its security interest in
a financed vehicle;
- another person may acquire an interest in a financed vehicle that is
superior to the trust's security interest through fraud, forgery,
negligence or error because the servicer will not amend the certificate of
title or ownership to identify the trust as the new secured party;
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- the trust may not have a security interest in the financed vehicles in some
states because the certificates of title to the financed vehicles will not
be amended to reflect assignment of the security interest to the trust;
- holders of some types of liens, such as tax liens or mechanics' liens, may
have priority over the trust's security interest; and
- the trust may lose its security interest in vehicles confiscated by the
government.
Neither the seller nor the servicer will be required to repurchase a receivable
if the security interest in a related vehicle or the receivable becomes impaired
after the receivable is transferred to the trust.
CONSUMER PROTECTION LAWS MAY REDUCE PAYMENTS ON YOUR SECURITIES
Federal and state consumer protection laws impose requirements upon creditors in
connection with extensions of credit and collections on retail installment
loans. Some of these laws make an assignee of the loan, such as a trust, liable
to the obligor for any violation by the lender. Any liabilities of the trust
under these laws could reduce the funds that the trust would otherwise have to
make payments on your securities.
ONLY THE ASSETS OF THE TRUST ARE AVAILABLE TO PAY YOUR SECURITIES
The securities represent interests solely in a trust or indebtedness of a trust
and will not be insured or guaranteed by the depositor, the seller or any of
their respective affiliates, or any other person or entity other than the trust.
The only source of payment on your securities are payments received on the
receivables and, if and to the extent available, any credit or cash flow
enhancement for the trust. Therefore, you must rely solely on the assets of the
trust for repayment of your securities. If these assets are insufficient, you
may suffer losses on your securities.
AMOUNTS ON DEPOSIT IN ANY RESERVE FUND WILL BE LIMITED AND SUBJECT TO DEPLETION
The amount required to be on deposit in any reserve fund will be limited. If the
amounts in the reserve fund are depleted as amounts are paid out to cover
shortfalls in distributions of principal and interest on securities, the trust
will depend solely on collections on the receivables and any other credit or
cash flow enhancement to make payments on your securities. In addition, the
minimum required balance in a reserve fund may decrease as the outstanding
balance of the receivables decreases.
YOU MAY SUFFER LOSSES UPON A LIQUIDATION OF THE RECEIVABLES IF THE PROCEEDS OF
THE LIQUIDATION ARE LESS THAN THE AMOUNTS DUE ON THE OUTSTANDING SECURITIES
Under the circumstances described herein and in the related prospectus
supplement, the receivables of a trust may be sold after the occurrence of an
event of default. The related securityholders will suffer losses if the trust
sells the receivables for less than the total amount due on its securities. We
cannot assure you that sufficient funds would be available to repay those
securityholders in full.
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SUBORDINATION OF CERTAIN SECURITIES MAY REDUCE PAYMENTS TO THOSE SECURITIES
To the extent specified in the related prospectus supplement, the rights of the
holders of any class of securities to receive payments of interest and principal
may be subordinated to one or more other classes of securities. Subordination
may take the following forms:
- interest payments on any date on which interest is due may first be
allocated to the more senior classes;
- principal payments on the subordinated classes might not begin until
principal of the more senior classes is repaid in full;
- principal payments on the more senior classes may be made on a payment date
before interest payments on the subordinated classes are made; and
- if the trustee sells the receivables, the net proceeds of that sale may be
allocated first to pay principal and interest on the more senior classes.
The timing and priority of payment, seniority, allocations of losses and method
of determining payments on the respective classes of securities of any trust
will be described in the prospectus supplement.
PREPAYMENTS ON THE RECEIVABLES MAY ADVERSELY AFFECT THE AVERAGE LIFE OF AND RATE
OF RETURN ON YOUR SECURITIES
You may not be able to reinvest the principal repaid to you at a rate of return
that is equal to or greater than the rate of return on your securities. Faster
than expected prepayments on the receivables may cause the trust to make
payments on its securities earlier than expected. We cannot predict the effect
of prepayments on the average life of your securities.
All receivables, by their terms, may be prepaid at any time. Prepayments
include:
- prepayments in whole or in part by the obligor;
- liquidations due to default;
- partial payments with proceeds from physical damage, credit life and
disability insurance policies;
- required purchases of receivables by the servicer or repurchases of
receivables by the seller for specified breaches of their representations
or covenants; and
- an optional repurchase of a trust's receivables by the servicer when their
aggregate principal balance is 10% or less of the initial aggregate
principal balance, or under any other circumstances as may be specified in
the related prospectus supplement.
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A variety of economic, social and other factors will influence the rate of
optional prepayments on the receivables and defaults.
As a result of prepayments, the final payment of each class of securities is
expected to occur prior to the final scheduled payment date specified in the
related prospectus supplement. If sufficient funds are not available to pay any
class of notes in full on its final payment date, an event of default will occur
and final payment of that class of notes may occur later than that date.
For more information regarding the timing of repayments of the securities, see
"Maturity and Prepayment Considerations" in the related prospectus supplement
and in this prospectus.
YOU MAY SUFFER A LOSS ON YOUR SECURITIES BECAUSE THE SERVICER MAY COMMINGLE
COLLECTIONS ON THE RECEIVABLES WITH ITS OWN FUNDS
If the servicer satisfies the requirements specified in the related prospectus
supplement, it will be permitted to hold with its own funds (1) collections it
receives from obligors on the receivables and (2) the purchase price of
receivables required to be repurchased from the trust until the day prior to the
date on which the related distributions are made on the securities. During this
time, the servicer may invest those amounts at its own risk and for its own
benefit and need not segregate them from its own funds. If the servicer is
unable to pay these amounts to the trust on the payment date, you might incur a
loss on your securities.
For more information about the servicer's obligations regarding payments on the
receivables, see "Description of the Receivables Transfer and Servicing
Agreements -- Collections".
THE SENIOR CLASS OF SECURITIES CONTROLS REMOVAL OF THE SERVICER UPON A DEFAULT
ON ITS SERVICING OBLIGATIONS
Generally, the holders of a majority of a trust's senior class of securities (or
the applicable trustee acting on their behalf) can remove the related servicer
if the servicer --
- does not deliver to the applicable trustee the available funds for
application to a required payment after a grace period after notice or
discovery;
- defaults on a servicing obligation which materially and adversely affects
the trust after a grace period after notice; or
- initiates or becomes the subject of insolvency proceedings.
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Those holders may also waive a default by the servicer. The holders of any
subordinate class of securities may not have any rights to participate in these
determinations for so long as any of the more senior classes are outstanding,
and the subordinate classes of securities may be adversely affected by
determinations made by the more senior classes. See "Description of the
Receivables Transfer and Servicing Agreements -- Events of Servicing
Termination".
GEOGRAPHIC CONCENTRATION OF A TRUST'S RECEIVABLES MAY ADVERSELY AFFECT YOUR
SECURITIES
Adverse economic conditions or other factors particularly affecting any state or
region where there is a high concentration of a trust's receivables could
adversely affect the securities of that trust. We are unable to forecast, with
respect to any state or region, whether any of these conditions may occur, or to
what extent the receivables or the repayment of your securities may be affected.
The location of a trust's receivables by state, based upon obligors' addresses
at the time the receivables were originated, will be set out in the related
prospectus supplement.
RATINGS OF THE SECURITIES
At the initial issuance of the securities of a trust, at least one nationally
recognized statistical rating organization will rate the offered securities in
one of the four highest rating categories or in the categories otherwise
specified in the prospectus supplement. A rating is not a recommendation to
purchase, hold or sell securities, and it does not comment as to market price or
suitability for a particular investor. The ratings of the offered securities
address the likelihood of the payment of principal and interest on the
securities according to their terms. We cannot assure you that a rating will
remain for any given period of time or that a rating agency will not lower or
withdraw its rating if, in its judgment, circumstances in the future so warrant.
A reduction or withdrawal of an offered security's rating would adversely affect
its value.
YOU MAY EXPERIENCE A LOSS ON YOUR NOTES BECAUSE A REPOSSESSION OF THE FINANCED
VEHICLE MAY RESULT IN THE FULL AMOUNT OF THE RECEIVABLE NOT BEING REALIZED
In the event that the depositor or the trustee must rely on repossession and
disposition of financed vehicles to recover scheduled payments due on defaulted
receivables, the issuer may not realize the full amount due (or may not realize
the full amount on a timely basis). Other factors that may affect the ability of
the issuer to realize the full amount due on a receivable include whether
amendments to certificates of title relating to the financed vehicles had been
filed, whether financing statements to perfect the security interest in the
financed vehicles had been filed, depreciation, obsolescence, damage or loss of
any financed vehicle, and the application of Federal and state bankruptcy and
insolvency laws. As a result, the holders of the notes may be subject to delays
in receiving payments and may suffer loss of their investment in the notes.
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YOU MAY EXPERIENCE A LOSS ON YOUR NOTES BECAUSE RECOVERY UNDER THE INSURANCE
POLICY MAY BE LESS THAN THE OUTSTANDING AMOUNT ON THE RECEIVABLE
Each receivable generally requires the related obligor to maintain insurance
covering physical damage to the financed vehicle in an amount not less than the
unpaid principal balance of such receivable pursuant to which the originator is
named as a loss payee. Since the obligors select their own insurers to provide
the requisite coverage, the specific terms and conditions of their policies may
vary.
In addition to physical damage insurance which may be required to be maintained
by the obligors pursuant to the receivables, each financed vehicle, if specified
in the related prospectus supplement, may be insured against physical damage
risks by a policy of vendor's single interest physical damage insurance which
provides limited coverage (subject to deductibles) for, among other things, (i)
physical loss or damage from any external cause to such vehicle and (ii)
inability to locate such vehicle or the related obligor. Any recovery under this
policy may be less than the outstanding principal and interest due on the
related receivable. In the event of any such shortfall holders of the notes
could suffer a loss on their investment.
YOU MAY EXPERIENCE A LOSS ON YOUR NOTES BECAUSE DELINQUENCIES MAY INCREASE
There can be no assurance that the historical levels of delinquencies and losses
experienced by the related seller on its portfolio of retail installment sales
contracts or note and security agreements will be indicative of the performance
of the receivables included in any trust or that such levels will continue in
the future. Delinquencies and losses could increase significantly for various
reasons, including changes in the Federal income tax laws, changes in the local,
regional or national economies or due to other events.
THE TRUSTS
We will establish a separate trust as either a Delaware business trust or a
common law trust to issue each series of notes and/or certificates. Each trust
will be established for the transactions described in this prospectus and in the
related prospectus supplement. If a trust is a grantor trust for federal income
tax purposes, the prospectus supplement will so state.
The terms of each series of notes or certificates issued by each trust and
additional information concerning the assets of each trust and any applicable
credit or cash flow enhancement will be set forth in a prospectus supplement.
THE RECEIVABLES
The property of each trust will consist primarily of a pool of receivables
consisting of motor vehicle installment loans secured by the vehicles financed
by those loans. The financed vehicles will consist of new and used automobiles,
minivans, sport utility vehicles, light-duty trucks, motorcycles or recreational
vehicles. Each trust will be entitled to all payments due on the receivables
that are property of the trust on and after the applicable cutoff date in the
case of precomputed receivables, and to all payments received on the loans on
and after the applicable cutoff date in the case of simple interest receivables.
The receivables will be originated either by the seller with respect to the
trust or by dealers
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or lenders and then purchased by the seller. The receivables will be serviced by
the servicer specified in the related prospectus supplement. On or prior to the
closing date for the trust, the seller will sell the receivables or, if so
specified in the prospectus supplement, grant a security interest therein to the
depositor and the depositor, in turn, will sell the receivables or, if so
specified in the prospectus supplement, grant a security interest therein to the
trust.
To the extent provided in the prospectus supplement, the seller will convey
additional receivables to the trust as frequently as daily during the funding
period specified in the prospectus supplement. For a series of securities for
which a funding period is established, the trust will acquire additional
receivables during the funding period using amounts on deposit in a pre-funding
account. In addition, or in the alternative, the prospectus supplement may
specify a revolving period for the related trust. During a revolving period the
trust may use principal collections on its receivables to acquire additional
receivables from the seller.
The property of each trust will also include:
- security interests in the financed vehicles;
- the rights to proceeds, if any, from claims on theft, physical damage,
credit life or credit disability insurance policies, if any, covering
the financed vehicles or the obligors;
- the seller's and depositor's rights to documents and instruments
relating to the receivables;
- amounts that from time to time may be held in one or more accounts
maintained for the trust;
- any credit or cash flow enhancement specified in the prospectus
supplement;
- any property that shall have secured a receivable and that shall have
been acquired by or on behalf of the seller, the servicer, the
depositor or the applicable trust;
- the interest of the depositor in any proceeds from recourse to dealers
on receivables or financed vehicles with respect to which the servicer
has determined that eventual repayment in full is unlikely;
- any rebates of insurance premiums or other amounts to the extent
financed under the receivables; and
- any and all proceeds of the above items.
If the trust issues notes, the trust's rights and benefits with respect to
the property of the trust will be assigned to the indenture trustee for the
benefit of the noteholders. If the trust issues certificates, the certificates
will represent beneficial interests in the trust, and will be subordinated to
the notes to the extent described in the related prospectus supplement.
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THE SELLER AND THE SERVICER
Information concerning the related seller's experience with respect to its
total portfolio of motor vehicle receivables, including previously transferred
receivables which the seller continues to service, will be set forth in each
prospectus supplement. We cannot assure you that the delinquency, repossession
and net loss experience on any pool of receivables transferred to a trust will
be comparable to that information.
A servicer specified in the related prospectus supplement will service the
receivables held by the related trust and will receive fees for its services. To
facilitate the servicing of the receivables, each trustee will authorize the
applicable servicer to retain physical possession of the loan files for the
receivables held by the related trust as custodian for the trust. Due to the
administrative burden and expense, the certificates of title or UCC financing
statements, as applicable, to the financed vehicles will not be amended to
reflect the sale and assignment of the security interest in the financed
vehicles to the trust and the related trustee. See "Risk Factors--Interests of
other persons in the receivables could reduce the payments on your securities"
and "Description of the Receivables Transfer and Servicing Agreements--Sale and
Assignment of Receivables".
THE TRUSTEES
The trustee for each trust and, if notes are issued, the indenture trustee,
will be specified in the related prospectus supplement. The liability of each
trustee in connection with the issuance and sale of the securities will be
limited solely to the express obligations of the trustee set forth in the
applicable trust agreement, pooling and servicing agreement or indenture. A
trustee may resign at any time, in which event the administrator of the trust,
in the case of a trust agreement, or the servicer, in case of a pooling and
servicing agreement or indenture, will be obligated to appoint a successor
trustee. The administrator of each trust may also remove a trustee if:
- the trustee ceases to be eligible to continue as trustee under the
applicable trust agreement, pooling and servicing agreement or indenture,
or
- the trustee becomes insolvent.
In either of these circumstances, the administrator or servicer must
appoint a successor trustee. If a trustee resigns or is removed, the resignation
or removal and appointment of a successor trustee will not become effective
until the successor trustee accepts its appointment.
You will find the addresses of the principal offices of the trust and each
trustee in the prospectus supplement.
THE RECEIVABLES POOLS
Criteria for Selecting the Receivables.
The related prospectus supplement will describe the applicable seller's
underwriting procedures and guidelines, including the type of information
reviewed in respect of each applicant, and the applicable servicer's servicing
procedures, including the steps customarily taken in respect of delinquent
receivables and the maintenance of physical damage insurance.
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The receivables to be held by each trust will be acquired by the depositor
from the seller specified in the related prospectus supplement in accordance
with several criteria, including that each receivable
- is secured by a financed vehicle that, as of the cutoff date, has not been
repossessed without reinstatement,
- was originated in the United States,
- has a fixed or variable interest rate,
- is a simple interest receivables or a precomputed receivable,
- provides for level monthly payments that fully amortize the amount financed
over its original term to maturity or provides for a different type of
amortization described in the prospectus supplement,
- as of the cut-off date:
- had an outstanding principal balance of at least the amount
set forth in the related prospectus supplement;
- was not more than 30 days (or such other number of days
specified in the related prospectus supplement) past due;
- had a remaining number of scheduled payments not more than
the number set forth in the related prospectus supplement;
- had an original number of scheduled payments not more than
the number set forth in the related prospectus supplement;
and
- had an annual percentage rate of not less than the rate per
annum set forth in the related prospectus supplement, and
- satisfies any other criteria set forth in the prospectus supplement.
No selection procedures believed by the related seller to be adverse to the
holders of securities of the related series will be used in selecting the
receivables for the trust. Terms of the receivables included in each trust which
are material to investors will be described in the related prospectus
supplement.
Simple Interest Receivables. The receivables may provide for the
application of payments on the simple interest method that provides for the
amortization of the loan over a series of fixed level payment monthly
installments. Each monthly installment under a simple interest receivable
consists of an amount of interest which is calculated on the basis of the
outstanding principal balance multiplied by the stated contract rate of interest
of the loan and further multiplied by the period elapsed since the last payment
of interest was made. As payments are received under a simple interest
receivable, the amount received is applied
- first, to interest accrued to from the date of last payment to the date of
the current payment,
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- second, to reduce the unpaid principal balance, and
- third, to late fees and other fees and charges, if any.
Accordingly, if an obligor on a simple interest receivable pays a fixed
monthly installment before its scheduled due date
- the portion of the payment allocable to interest for the period since the
preceding payment was made will be less than it would have been had the
payment been made as scheduled and
- the portion of the payment applied to reduce the unpaid principal balance
will be correspondingly greater.
Conversely, if an obligor pays a fixed monthly installment after its
scheduled due date--
- the portion of the payment allocable to interest for the period since the
preceding payment was made will be greater than it would have been had the
payment been made as scheduled and
- the portion of the payment applied to reduce the unpaid principal balance
will be correspondingly less.
In either case, the obligor under a simple interest receivable pays fixed
monthly installments until the final scheduled payment date, at which time the
amount of the final installment is increased or decreased as necessary to repay
the then outstanding principal balance. If a simple interest receivable is
prepaid, the obligor is required to pay interest only to the date of prepayment.
Precomputed Receivables. Alternatively, the receivables may provide for
amortization of the loan over a series of fixed level payment monthly
installments, each consisting of an amount of interest equal to 1/12 of the
stated contract rate of interest of the loan multiplied by the unpaid principal
balance of the loan, and an amount of principal equal to the remainder of the
monthly payment, or for allocation of payments according to the "rule of 78's"
or other method which will be described in the related prospectus supplement.
Balloon Payment Receivables. The receivables to be held by each trust,
whether simple interest receivables or precomputed receivables, may provide for
level monthly payments that fully amortize the amount financed over its original
term to maturity or, alternatively, provide for the amount financed to amortize
over a series of equal monthly installments with a substantially larger final
scheduled payment of principal together with one month's interest. This final
payment, known as a balloon payment, is generally set by the related seller for
each particular model of vehicle at the time the receivable is originated and is
due at the end of the term of the receivable. The net amount actually due from
an obligor at the end of term of a balloon payment receivable may be greater or
less than the balloon payment as a result of
- additional fees and charges that may be owed by the obligor with respect to
the contract or the financed vehicle, including charges for excess wear and
tear and excess mileage on the financed vehicle and
- in the case of a simple interest receivable, early or late payments by the
obligor during the term of the receivable and the application of day
counting conventions.
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Upon maturity of a balloon payment receivable, the related obligor may
satisfy the amount it owes by:
- paying the remaining principal amount of the receivable, all accrued and
unpaid interest, plus any fees, charges, and other amounts then owing,
during the term of the receivable and the application of day counting
conventions,
- refinancing the amount then due, subject to satisfying the conditions
associated with the new loan, or
- selling the related financed vehicle to the servicer or its assignee for an
amount equal to the balloon payment, as reduced by charges for excess wear
and tear and excess mileage and by a disposition fee payable to the
servicer, and paying any excess of the total amount owed under the
receivable over the balloon payment to the servicer.
If the obligor sells the financed vehicle to the servicer, acting on behalf
of the trust, the trust may or may not receive the full amount of the balloon
payment upon the subsequent sale of the financed vehicle. If the full amount
owed by an obligor under a balloon payment receivable is not collected, the
shortfall will reduce the funds available to make payments on the securities.
If the receivables in a pool of receivables included in a trust include
balloon payment receivables, we will provide more specific information about the
origination and servicing of those receivables and the consequences of including
them in a trust in the related prospectus supplement.
WE WILL PROVIDE MORE SPECIFIC INFORMATION ABOUT THE RECEIVABLES IN THE
PROSPECTUS SUPPLEMENT
Information with respect to each pool of receivables included in a trust
will be set forth in the related prospectus supplement, including, to the extent
appropriate:
- the portion of the receivables pool consisting of precomputed receivables
and of simple interest receivables;
- the portion of the receivables pool secured by new financed vehicles and by
used financed vehicles;
- the aggregate principal balance of all of the related receivables;
- the average principal balance of the related receivables and the range of
principal balances;
- the number of receivables in the receivables pool;
- the geographic distribution of receivables in the receivables pool;
- the average original amount financed and the range of original amounts
financed;
- the weighted average contract rate of interest and the range of rates;
- the weighted average original term and the range of original terms;
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- the weighted average remaining term and the range of remaining terms;
- the scheduled weighted average life;
- the distribution by stated contract rate of interest;
- the seller's underwriting procedures and guidelines applicable to the
receivables; and
- the servicer's servicing procedures applicable to the receivables.
MATURITY AND PREPAYMENT CONSIDERATIONS
The weighted average life of the securities of each trust will be
influenced by the rate at which the principal balances of its receivables are
paid. Payments may be in the form of scheduled amortization, prepayments or
other receipt of payments on the receivables in advance of their due date. The
circumstances under which these payments may occur include:
- Prepayments by obligors, who may repay at any time without penalty.
- The seller may be required to repurchase a receivable transferred to the
trust if a breach of the representations and warranties made by the seller
with respect to the receivable has occurred and the receivable is
materially and adversely affected by the breach.
- The servicer may be obligated to purchase a receivable from the trust if
breaches of specified covenants occur or if the servicer extends or
modifies the terms of a receivable beyond the collection period preceding
the final scheduled payment date for the securities.
- Partial prepayments, including those related to rebates of extended
warranty contract costs and insurance premiums.
- Liquidations of the receivables due to default.
- Partial prepayments from proceeds from physical damage, credit life and
disability insurance policies.
In light of the above considerations, we cannot assure you as to the amount
of principal payments to be made on the securities of a trust on each payment
date since that amount will depend, in part, on the amount of principal
collected on the trust's receivables during the applicable collection period.
Any reinvestment risks resulting from a faster or slower incidence of prepayment
of receivables will be borne entirely by the securityholders. The related
prospectus supplement may set forth additional information with respect to the
maturity and prepayment considerations applicable to the receivables and the
securities of the trust.
The rate of payments on the receivables may be influenced by a variety of
economic, social and other factors, including the fact that an obligor may not
sell or transfer the financed vehicle without the seller's consent. These
factors may also include unemployment, servicing decisions, seasoning of loans,
destruction of vehicles by accident, sales of vehicles and market interest
rates. A predominant factor affecting the rate of prepayments of a large group
of loans is the difference between the interest rates on
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the loans and prevailing market interest rates. If the prevailing market
interest rates were to fall significantly below the interest rates borne by the
loans, the rate of prepayment and refinancings would be expected to increase.
Conversely, if prevailing market interest rates were to increase significantly
above those interest rates, the rate of prepayments and refinancings would be
expected to decrease.
The related prospectus supplement may set forth additional information with
respect to the maturity and prepayment considerations applicable to the
receivables and the securities of the trust.
POOL FACTORS AND TRADING INFORMATION
The servicer will provide to you in each report which it delivers to you a
factor which you can use to compute your portion of the principal amount
outstanding on the notes or certificates.
NOTES
How the Servicer Computes the Factor For Your Class of Notes. The servicer
will compute a separate factor for each class of notes. The factor for each
class of notes will be a seven-digit decimal which the servicer will compute
prior to each distribution with respect to that class of notes indicating the
remaining outstanding principal amount of that class of notes as of the
applicable payment date. The servicer will compute the factor after giving
effect to payments to be made on each payment date, as a fraction of the initial
outstanding principal amount of each class of notes.
Your Portion of the Outstanding Amount of the Notes. For each note you own,
your portion of that class of notes is the product of--
- the original denomination of your note and
- the factor relating to your class of notes computed by the servicer in the
manner described above.
CERTIFICATES
How the Servicer Computes the Factor For Your Class of Certificates. The
servicer will compute a separate factor for each class of certificates. The
factor for each class of certificates will be a seven-digit decimal which the
servicer will compute prior to each distribution with respect to that class of
certificates indicating the remaining outstanding balance of that class of
certificates, as of the applicable payment date. The factor will be calculated
after giving effect to distributions to be made on each payment date, as a
fraction of the initial outstanding balance of each class of certificates.
Your Portion of the Outstanding Amount of the Certificates. For each
certificate you own, your portion of that class of certificates is the product
of--
- the original denomination of your certificate and
- the factor relating to your class of certificates computed by the servicer
in the manner described above.
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THE FACTORS DESCRIBED ABOVE WILL DECLINE AS THE TRUST MAKES PAYMENTS ON THE
SECURITIES
The factor for each class of notes and certificates will initially be
1.0000000. The factors will then decline to reflect reductions, as applicable,
in --
- the outstanding principal amount of the applicable class of notes or
- the outstanding balance of the applicable class of certificates.
ADDITIONAL INFORMATION
Unless otherwise provided in the related prospectus supplement with respect
to a trust, the noteholders and the certificateholders, as applicable, will
receive reports on or about each payment date concerning (1) with respect to the
preceding collection period, payments received on the receivables, the
outstanding balance of the receivables, pool factors for each class of notes and
certificates, as applicable, and various other items of information, and (2)
amounts allocated or distributed on the preceding payment date and any
reconciliation of those amounts with information previously provided by the
servicer. In addition, securityholders of record during any calendar year will
be furnished information for tax reporting purposes not later than the latest
date permitted by law. See "Certain Information Regarding the
Securities--Reports to Securityholders".
USE OF PROCEEDS
The net proceeds from the sale of the securities of a trust will be applied
by the trust:
- for the acquisition of the receivables or for obtaining a security interest
in the receivables from the depositor;
- if the trust has a pre-funding account, to make the deposit into that
account;
- if the trust has a yield supplement account, to make the deposit into that
account;
- if the trust has a reserve fund, to make the initial deposit into that
account; and
- for any other purposes specified in the prospectus supplement.
The depositor will use the portion of the net proceeds from the sale of the
securities that is paid to it to acquire either the receivables or a security
interest therein from the related seller and to pay for expenses incurred in
connection with the acquisition of the receivables and sale of the securities.
The trust may also issue one or more classes of securities to the seller in
partial payment for the receivables.
THE COMPANY AND THE DEPOSITOR
ML Asset Backed Corporation, the company, was incorporated in the State of
Delaware on September 22, 1987 and is a wholly-owned subsidiary of Merrill Lynch
& Co., Inc. and an affiliate of Merrill Lynch, Pierce, Fenner & Smith
Incorporated. The company maintains its principal office at 250 Vesey Street,
World Financial Center, New York, New York 10281. Its telephone number is (212)
449-0336.
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As specified in the related prospectus supplement, the depositor with
respect to any series of securities may be the company or a limited purpose
finance subsidiary of the company. The company anticipates that the depositor
will acquire the receivables to be included in each trust from one or more
sellers in the open market or in privately negotiated transactions. The only
obligations of the depositor with respect to the securities issued by any trust
will be to repurchase receivables in the event of a material breach of a
representation or warranty, but even then only to the extent the related seller
simultaneously performs its obligation to repurchase the same receivables from
the depositor. The company and the depositor will have no ongoing servicing
obligations or responsibilities with respect to any receivable.
The company does not have, is not required to have, and is not expected in
the future to have, any significant assets. Any depositor other than the company
will also not be required to have, and is not expected to have, any significant
assets. None of the company, the related seller, the related depositor or any of
their respective affiliates will insure or guarantee the receivables or the
securities of any series.
PRINCIPAL DOCUMENTS
In general, the operations of a trust will be governed by the following
documents:
IF THE TRUST ISSUES NOTES:
<TABLE>
<CAPTION>
DOCUMENT PARTIES PRIMARY PURPOSES
---------------------------------- ------------------------------------------- ---------------------------------------------
<S> <C> <C>
Trust Agreement Owner trustee and the depositor Creates the trust
Provides for issuance of any
certificates and payments to
certificateholders
Establishes rights and duties of
owner trustee
Establishes rights of
certificateholders
Indenture Trust, as issuer of the notes, and Provides for issuance of the notes,
indenture trustee the terms of the notes and payments
to noteholders
Establishes rights and duties of
indenture trustee
Establishes rights of noteholders
</TABLE>
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<PAGE> 103
<TABLE>
<CAPTION>
DOCUMENT PARTIES PRIMARY PURPOSES
---------------------------------- ------------------------------------------- ---------------------------------------------
<S> <C> <C>
Receivables Purchase The seller and the depositor as Effects sale of receivables from the
Agreement purchaser seller to the depositor
Contains representations and warranties of
seller concerning the receivables
Provides that assignees of the depositor,
specifically the indenture trustee, may
enforce the seller's representations and
warranties directly
Sale and Servicing Agreement The depositor, as seller, the Effects transfer of receivables from
servicer, and the trust as purchaser the depositor to the trust
Contains servicing obligations of servicer
Provides for compensation to servicer
Directs how cash flow will be applied to
expenses of the trust and payments on its
securities
</TABLE>
IF THE TRUST IS A GRANTOR TRUST (AS SPECIFIED IN THE PROSPECTUS SUPPLEMENT):
<TABLE>
<CAPTION>
DOCUMENT PARTIES PRIMARY PURPOSES
---------------------------------- ------------------------------------------- ---------------------------------------------
<S> <C> <C>
Receivables Purchase The seller and the depositor as Effects sale of receivables from the
Agreement purchaser seller to the depositor
Contains representations and warranties of
seller concerning the receivables
Provides that assignees of the depositor,
specifically the trustee, may enforce the
seller's representations and warranties
directly
</TABLE>
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<TABLE>
<CAPTION>
DOCUMENT PARTIES PRIMARY PURPOSES
---------------------------------- ------------------------------------------- ---------------------------------------------
<S> <C> <C>
Pooling and Servicing Trustee, the depositor and the Creates the trust
Agreement servicer
Effects sale of receivables from the
depositor to the trust
Contains servicing obligations of servicer
Provides for issuance of certificates and
payments to certificateholders
Directs how cash flow will be applied to
expenses of the trust and payments to
certificateholders
Establishes rights and duties of trustee
Establishes rights of certificateholders
</TABLE>
Various provisions of these documents are described throughout this
prospectus and in the related prospectus supplement. The prospectus supplement
for a series will describe any material provisions of these documents as used in
that series that differ in a material way from the provisions described in this
prospectus.
A form of each of these principal documents has been filed as an exhibit to
the registration statement of which this prospectus forms a part. The summaries
of the principal documents in this prospectus do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, all the
provisions of those principal documents.
CERTAIN INFORMATION REGARDING THE SECURITIES
GENERAL
The prospectus supplement will describe
- the timing, amount and priority of payments of principal and interest on
each class of the securities,
- their interest rates or the formula for determining their interest rates,
- the method of determining the amount of their principal payments, the
priority of the application of the trust's available funds to its expenses
and payments on its securities and
- the allocation of losses on the receivables among the classes of
securities.
The rights of any class of securities to receive payments may be senior or
subordinate to other classes of securities. A security may be entitled to
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<PAGE> 105
- principal payments with disproportionate, nominal or no interest payments
or
- interest payments with disproportionate, nominal or no principal payments
or
- residual cash flow remaining after all other classes have been paid.
Interest rates may be fixed or floating. If a class of securities is redeemable,
the prospectus supplement will describe when they may be redeemed and at what
price. The aggregate initial principal amount of the securities issued by a
trust may be greater than, equal to or less than the aggregate initial principal
amount of the receivables held by that trust.
Payments of principal and interest on any class of securities will be made
on a pro rata basis among all the security holders of the applicable class. If
the amount of funds available to make a payment on a class is less than the
required payment, the holders of the securities of that class will receive their
pro rata share of the amount available for the class. A series may provide for a
liquidity facility or similar arrangement that permits one or more classes of
securities to be paid in planned amounts on scheduled payment dates.
FIXED RATE SECURITIES
Each class of securities entitled to receive principal and interest
payments may bear interest at a fixed rate of interest or a floating rate of
interest. Each class of fixed rate securities will bear interest at the
applicable per annum interest rate or pass-through rate, as the case may be,
specified in the related prospectus supplement. Interest on each class of fixed
rate securities may be computed on the basis of a 360-day year of twelve 30-day
months or on another day count basis specified in the related prospectus
supplement.
FLOATING RATE SECURITIES
Each class of floating rate securities will bear interest for each
applicable interest accrual period described in the prospectus supplement at a
rate determined (1) by reference to a base rate of interest, plus or minus the
number of basis points specified in the prospectus supplement, if any, or
multiplied by the percentage specified in the prospectus supplement, if any, or
(2) as otherwise specified in the related prospectus supplement.
The base rate of interest for any floating rate securities will be based on
a London interbank offered rate, commercial paper rates, federal funds rates,
United States government treasury securities rates, negotiable certificates of
deposit rates or another index set forth in the related prospectus supplement.
A class of floating rate securities may also have either or both of the
following (in each case expressed as a rate per annum):
- a maximum limitation, or ceiling, on the rate at which interest may accrue
during any interest accrual period. In addition to any maximum interest
rate that may be applicable to any class of floating rate securities, the
interest rate applicable to any class of floating rate securities will in
no event be higher than the maximum rate permitted by applicable law, and
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<PAGE> 106
- a minimum limitation, or floor, on the rate at which interest may accrue
during any interest accrual period.
Each trust issuing floating rate securities may appoint a calculation agent
to calculate interest rates on each class of its floating rate securities. The
prospectus supplement will identify the calculation agent, if any, for each
class of floating rate securities, which may be either the trustee or indenture
trustee with respect to the trust. All determinations of interest by a
calculation agent shall, in the absence of manifest error, be conclusive for all
purposes and binding on the holders of the floating rate securities. All
percentages resulting from any calculation of the rate of interest on a floating
rate security will be rounded, if necessary, to the nearest 1/100,000 of 1%
(.0000001), with five one-millionths of a percentage point rounded upward.
BOOK-ENTRY REGISTRATION
The Trusts May Use Book-Entry Registration Instead of Issuing Definitive
Securities. Except for the securities, if any, of a trust retained by the
seller, each class of securities offered through this prospectus and the related
prospectus supplement may initially be represented by one or more certificates
registered in the name of The Depository Trust Company's nominee. The securities
will be available for purchase in the denominations specified in the related
prospectus supplement and may be available for purchase in book-entry form only.
Accordingly, DTC's nominee is expected to be the holder of record of any class
of securities issued in book-entry form. If a class of securities is issued in
book-entry form, unless and until definitive securities are issued under the
limited circumstances described in this prospectus or in the related prospectus
supplement, you, as an owner of securities, will not be entitled to receive a
physical certificate representing your interest in the securities.
If a class of securities is issued in book-entry form, all references in
this prospectus and in the related prospectus supplement to actions by holders
of the securities refer to actions taken by DTC upon instructions from its
participating organizations and all references in this prospectus and in the
related prospectus supplement to distributions, notices, reports and statements
to certificateholders of a class of certificates refer to distributions,
notices, reports and statements to DTC or its nominee, as the case may be, as
the registered holder of the class of certificates, for distribution to
certificateholders in accordance with DTC's procedures with respect thereto.
Any securities of a given trust owned by the seller or its affiliates will
be entitled to equal and proportionate benefits under the applicable indenture,
trust agreement or pooling and servicing agreement, except that, unless the
seller and its affiliates own the entire class, the securities will be deemed
not to be outstanding for the purpose of determining whether the requisite
percentage of securityholders have given any request, demand, authorization,
direction, notice, consent or other action under the related agreements.
The prospectus supplement will specify whether the holders of the notes or
certificates of the trust may hold their respective securities as book-entry
securities.
You may hold your securities through DTC in the United States, Clearstream
or the Euroclear System in Europe or in any manner described in the related
prospectus supplement. The global securities will be tradeable as home market
instruments in both the European and United States domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
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<PAGE> 107
Initial Settlement of the Global Securities. All global securities will be
held in book-entry form by DTC in the name of Cede & Co. as nominee of DTC.
Investors' interests in the global securities will be represented through
financial institutions acting on their behalf as direct and indirect
participants in DTC. As a result, Clearstream and Euroclear will hold positions
on behalf of their customers or participants through their respective
depositaries, which in turn will hold such positions in accounts as DTC
participants.
Investors electing to hold their global securities through DTC will follow
the settlement practices that apply to United States corporate debt obligations.
Investor securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
Investors electing to hold their global securities through Clearstream or
Euroclear accounts will follow the settlement procedures that apply to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
Except as required by law, none of the administrator, if any, the
applicable trustee or the applicable indenture trustee, if any, will have any
liability for any aspect of the records relating to payments made on account of
beneficial ownership interests of the securities of any trust held by DTC's
nominee, or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
Secondary Market Trading of the Global Securities. Since the purchaser
determines the place of delivery, it is important to establish at the time of
the trade where both the purchaser's and seller's accounts are located to ensure
that settlement can be made on the desired value date.
Trading between DTC participants. Secondary market trading between DTC
participants will be settled using the procedures applicable to United States
corporate debt obligations in same-day funds.
Trading between Clearstream customers and/or Euroclear participants.
Secondary market trading between Clearstream customers or Euroclear participants
will be settled using the procedures applicable to conventional eurobonds in
same-day funds.
Trading between DTC seller and Clearstream or Euroclear purchaser. When
global securities are to be transferred from the account of a DTC participant to
the account of a Clearstream customer or a Euroclear participant, the purchaser
will send instructions to Clearstream or Euroclear through a Clearstream
customer or Euroclear participant at least one business day prior to settlement.
Clearstream or Euroclear will instruct the respective depositary, as the case
may be, to receive the global securities against payment. Payment will include
interest accrued on the global securities from and including the last coupon
payment date to and excluding the settlement date. Payment will then be made by
the respective depositary to the DTC participant's account against delivery of
the global securities. After settlement has been completed, the global
securities will be credited to the respective clearing system and by the
clearing system, in accordance with its usual procedures, to the Clearstream
customer's or Euroclear participant's account. The securities credit will appear
the next day (European time) and the cash debit will be back-valued to, and the
interest on the global securities will accrue from, the value date (which would
be the preceding day when settlement occurred in New York). If settlement is not
completed on the intended value date (that is, the trade fails), the Clearstream
or Euroclear cash debit will be valued instead as of the actual settlement date.
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<PAGE> 108
Clearstream customers and Euroclear participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing this is to
pre-position funds for settlement, either from cash on hand or existing lines of
credit, as they would for any settlement occurring within Clearstream or
Euroclear. Under this approach, they may take on credit exposure to Clearstream
or Euroclear until the global securities are credited to their accounts one day
later.
As an alternative, if Clearstream or Euroclear has extended a line of
credit to them, Clearstream customers or Euroclear participants can elect not to
pre-position funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, Clearstream customers or Euroclear
participants purchasing global securities would incur overdraft charges for one
day, assuming they cleared the overdraft when the global securities were
credited to their accounts. However, interest on the global securities would
accrue from the value date. Therefore, in many cases the investment income on
the global securities earned during that one-day period may substantially reduce
or offset the amount of overdraft charges, although this result will depend on
each Clearstream customer's or Euroclear participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending global securities to
the respective depositary for the benefit of Clearstream customers or Euroclear
participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC participant a cross-market transaction will
settle no differently than a trade between two DTC participants.
Trading between Clearstream or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, Clearstream customers and Euroclear
participants may employ their customary procedures for transactions in which
global securities are to be transferred by the respective clearing system,
through the respective depositary, to a DTC participant. The transferor will
send instructions to Clearstream or Euroclear through a Clearstream customer or
Euroclear participant at least one business day prior to settlement. In these
cases, Clearstream or Euroclear will instruct the respective depositary, as
appropriate, to deliver the securities to the DTC participant's account against
payment. Payment will include interest accrued on the global securities from and
including the last coupon payment date to and excluding the settlement date. The
payment will then be reflected in the account of the Clearstream customer or
Euroclear participant the following day, and receipt of the cash proceeds in the
Clearstream customer's or Euroclear participant's account would be back-valued
to the value date (which would be the preceding day, when settlement occurred in
New York). Should the Clearstream customer or Euroclear participant have a line
of credit with its respective clearing system and elect to be in debit in
anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft charges incurred over that one-day period. If
settlement is not completed on the intended value date (that is, the trade
fails), receipt of the cash proceeds in the Clearstream customer's or Euroclear
participant's account would instead be valued as of the actual settlement date.
Finally, day traders that use Clearstream or Euroclear and that purchase
global securities from DTC participants for delivery to Clearstream customers or
Euroclear participants should note that these trades would automatically fail on
the sale side unless affirmative action were taken. At least three techniques
should be readily available to eliminate this potential problem:
- borrowing through Clearstream or Euroclear for one day (until the purchase
side of the day trade is reflected in their Clearstream or Euroclear
accounts) in accordance with the clearing system's customary procedures;
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- borrowing the global securities in the United States from a DTC participant
no later than one day prior to settlement, which would give the global
securities sufficient time to be reflected in their Clearstream or
Euroclear account in order to settle the sale side of the trade; or
- staggering the value dates for the buy and sell sides of the trade so that
the value date for the purchase from the DTC participant is at least one
day prior to the value date for the sale to the Clearstream customer or
Euroclear participant.
The securityholders who are not participants, either directly or
indirectly, but who desire to purchase, sell or otherwise transfer ownership of,
or other interest in, securities may do so only through direct and indirect
participants. In addition, securityholders will receive all distributions of
principal and interest from the indenture trustee or the applicable trustee
through the participants who in turn will receive them from DTC. Under a
book-entry format, securityholders may experience some delay in their receipt of
payments, since payments will be forwarded by the applicable trustee to DTC's
nominee. DTC will forward payments on the securities to its participants which
then will forward them to indirect participants or securityholders. To the
extent the related prospectus supplement provides that book-entry securities
will be issued, the only "noteholder" or "certificateholder," as applicable,
will be DTC's nominee. Securityholders will not be recognized by the applicable
trustee as "noteholders" or "certificateholders" and securityholders will be
permitted to exercise the rights of securityholders only indirectly through DTC
and its participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers of securities among
participants on whose behalf it acts with respect to the securities and is
required to receive and transmit distributions of principal and interest on the
securities. Participants and indirect participants with which securityholders
have accounts with respect to their respective securities similarly are required
to make book-entry transfers and receive and transmit payments on the securities
on behalf of their respective securityholders. Accordingly, although
securityholders will not possess their respective securities, the rules provide
a mechanism by which participants will receive payments and will be able to
transfer their interests.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants and certain banks, the ability of a
securityholder to pledge securities to persons or entities that do not
participate in the DTC system, or otherwise take actions with respect to the
securities, may be limited due to the lack of a physical certificate for the
securities.
DTC will advise the related administrator of each trust that it will take
any action permitted to be taken by a securityholder under the related
indenture, trust agreement or pooling and servicing agreement only at the
direction of one or more participants to whose accounts with DTC the related
securities are credited. DTC may take conflicting actions with respect to other
undivided interests to the extent that its actions are taken on behalf of
participants whose holdings include those undivided interests.
Non-United States holders of global securities will be subject to United
States withholding taxes unless they meet certain requirements and deliver
appropriate United States tax documents to the securities clearing organizations
or their participants.
The Depositories. 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 the provisions of
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Section 17A of the Securities Exchange Act of 1934, as amended. DTC was created
to hold securities for its participants and facilitate the clearance and
settlement of securities transactions between participants through electronic
book-entries, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers (who may
include any of the underwriters of securities of the trust), banks, trust
companies and clearing corporations and may include certain other organizations.
Indirect access to the DTC system also is available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
Clearstream is incorporated under the laws of Luxembourg as a professional
depository. Clearstream holds securities for its customers and facilitates the
clearance and settlement of securities transactions between Clearstream
customers through electronic book-entry changes in accounts of Clearstream
customers, thereby eliminating the need for physical movement of certificates.
Transactions may be settled by Clearstream in any of 36 currencies, including
United States dollars. Clearstream provides to its Clearstream customers, among
other things, services for safekeeping, administration, clearance and settlement
of internationally traded securities and securities lending and borrowing.
Clearstream interfaces with domestic markets in several countries. As a
professional depository, Clearstream is subject in Luxembourg to regulation by
and supervision by the Commission for the Supervision of the Financial Sector.
Clearstream customers include underwriters, securities brokers and dealers,
banks, trust companies, clearing corporations and other financial institutions
and may include any of the underwriters of the securities offered under this
prospectus. 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 customer, either directly or
indirectly.
Euroclear was created in 1968 to hold securities for its participants and
to clear and settle transactions between Euroclear participants through
simultaneous electronic book-entry delivery against payment, thereby eliminating
the need for physical movement of certificates and the risk from transfers of
securities and cash that are not simultaneous.
The Euroclear system has subsequently been extended to clear and settle
transactions between Euroclear participants and counterparties both in
Clearstream and in many domestic securities markets. Transactions may be settled
in any of 34 currencies. In addition to safekeeping, securities clearance and
settlement, the Euroclear system includes securities lending and borrowing and
money transfer services. The Euroclear system is operated by the Brussels,
Belgium office of Morgan Guaranty Trust Company of New York under contract with
Euroclear Clearance System, S.C., a Belgian cooperative corporation that
establishes policy on behalf of Euroclear participants. The Euroclear operator
is the Belgian branch of a New York banking corporation which is a member bank
of the Federal Reserve System. It is regulated and examined by the Board of
Governors of the Federal Reserve System and the New York State Banking
Department, as well as the Belgian Banking Commission.
All operations are conducted by the Euroclear operator and all Euroclear
securities clearance accounts and cash accounts are accounts with the Euroclear
operator. They are governed by the Terms and Conditions Governing Use of
Euroclear and the related Operating Procedures of the Euroclear system and
applicable Belgian law. These govern all transfers of securities and cash, both
within the Euroclear system, and receipts and withdrawals of securities and
cash. All securities in the Euroclear system are held on a fungible basis
without attribution of specific certificates to specific securities clearance
accounts.
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Euroclear participants include banks (including central banks), securities
brokers and dealers and other professional financial intermediaries and may
include any of the underwriters of any trust securities. Indirect access to the
Euroclear system is also available to other firms that clear through or maintain
a custodial relationship with a Euroclear participant, either directly or
indirectly. The Euroclear operator acts under the Terms and Conditions, the
Operating Procedures of the Euroclear system and Belgian law only on behalf of
Euroclear participants and has no record of or relationship with persons holding
through Euroclear participants.
DEFINITIVE SECURITIES
With respect to any class of notes and any class of certificates issued in
book-entry form, the notes or certificates will be issued as definitive notes
and definitive certificates, respectively, to noteholders or certificateholders
or their respective nominees, rather than to DTC or its nominee, only if
(1) the administrator of the trust or trustee of the trust determines
that DTC is no longer willing or able to discharge properly its
responsibilities as depository with respect to the securities and
the administrator or the trustee, as the case may be, is unable to
locate a qualified successor,
(2) the administrator or the trustee, as the case may be, at its
option, elects to terminate the book-entry system through DTC or
(3) after the occurrence of an event of default under the indenture or
an event of servicing termination under the related sale and
servicing agreement or pooling and servicing agreement, as
applicable, holders representing at least a majority of the
outstanding principal amount of the notes or the certificates, as
the case may be, of the applicable class advise the indenture
trustee or the trustee through DTC in writing that the
continuation of a book-entry system through DTC with respect to
that class is no longer in the best interest of the holders.
Upon the occurrence of any event described in the immediately preceding
paragraph, the indenture trustee or the trustee will be required to notify all
applicable securityholders of a given class through participants of the
availability of definitive securities. Upon surrender by DTC of the definitive
certificates representing the corresponding securities and receipt of
instructions for re-registration, the indenture trustee or the trustee will
reissue the securities as definitive securities to the securityholders.
Distributions of principal of, and interest on, definitive securities will
be made by the indenture trustee or the trustee directly to holders of
definitive securities in whose names the definitive securities were registered
at the close of business on the record date specified in the related prospectus
supplement. Unless otherwise specified in the related prospectus supplement,
distributions on definitive securities will be made by check mailed to the
address of the holder as it appears on the register maintained by the indenture
trustee or trustee. The final payment on any definitive security, however, will
be made only upon presentation and surrender of the security at the office or
agency specified in the notice of final distribution to the securityholders.
Definitive securities will be transferable and exchangeable at the offices
of the indenture trustee or the trustee or of a registrar named in a notice
delivered to holders of definitive securities. No service charge will be imposed
for any registration of transfer or exchange, but the indenture trustee or the
trustee
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may require payment of a sum sufficient to cover any tax or other governmental
charge imposed in connection with the transfer or exchange.
REPORTS TO SECURITYHOLDERS
On or prior to each payment date, the servicer or administrator will
prepare and provide to the related trustee a statement to be delivered to the
securityholders on the payment date. With respect to securities of each trust,
each statement to be delivered to securityholders will include, to the extent
applicable to those securityholders, the following information or such
information specified in the prospectus supplement with respect to the current
payment date or the period since the previous payment date, as applicable:
(1) the amount of the distribution allocable to principal of each
class of securities;
(2) the amount of the distribution allocable to interest on or with
respect to each class of securities;
(3) the amount of the distribution allocable to draws from any reserve
fund or payments in respect of any other credit or cash flow
enhancement arrangement;
(4) the outstanding aggregate balance of the receivables in the trust
as of the close of business on the last day of the preceding
collection period exclusive of the aggregate principal balance of
balloon payments, if any, and the aggregate principal balance of
the balloon payments calculated as of the close of business on the
last day of the preceding collection period;
(5) any credit enhancement amount;
(6) the aggregate outstanding principal balance and the appropriate
factor for each class of notes, and the outstanding balance and
the appropriate factor for each class of certificates, each after
giving effect to all payments reported under clause (1) above;
(7) the amount of the servicing fee paid to the servicer and the
amount of any unpaid servicing fee with respect to the related
collection period or collection periods, as the case may be;
(8) the amount of the aggregate losses realized on the receivables
during the related collection period, calculated as described in
the related prospectus supplement;
(9) previously due and unpaid interest payments, if any, plus interest
accrued on the unpaid interest to the extent permitted by law, on
each class of securities, and the change in those amounts from the
preceding statement;
(10) previously due and unpaid principal payments, if any, on each
class of securities, and the change in those amounts from the
preceding statement;
(11) the aggregate amount to be paid in respect of receivables, if any,
repurchased during the related collection period;
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(12) the balance of any reserve fund, if any, after giving effect to
deposits or withdrawals on that payment date;
(13) the amount of advances to be remitted by the servicer on that
payment date;
(14) during any funding period, the amount remaining in the pre-funding
account;
(15) for the first payment date that is on or immediately following the
end of any funding period, the amount remaining in the pre-funding
account that has not been used to fund the purchase of additional
receivables and is being passed through as payments of principal
on the securities; and
(16) the amount of any cumulative shortfall between payments due in
respect of any credit or cash flow enhancement arrangement and
payments received in respect of that credit or cash flow
enhancement arrangement, and the change in any the shortfall from
the preceding statement.
Each amount set forth under clauses (1), (2), (7), (9) and (10) with
respect to the notes or the certificates of any trust will be expressed as a
dollar amount per $1,000 of initial principal amount.
Within the prescribed period of time for federal income 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 the trust and received any
distribution, a statement containing information for the purposes of the
securityholder's preparation of federal income tax returns. See "Material
Federal Income Tax Consequences".
THE INDENTURE
With respect to each trust that issues notes, one or more classes of notes
of the trust will be issued under the terms of an indenture between the trust
and the indenture trustee specified in the prospectus supplement. A form of the
indenture has been filed as an exhibit to the registration statement of which
this prospectus forms a part. This summary describes the material provisions
common to the notes of each trust that issues notes; the attached prospectus
supplement will give you additional information specific to the notes which you
are purchasing. This summary does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, all the provisions of the
notes and the indenture.
Events of Default. With respect to the notes issued by a trust, events of
default, which may be supplemented or modified by the prospectus supplement,
under the related indenture will consist of:
- a default by the trust for five days, or any longer period specified in the
prospectus supplement, in the payment of any interest on any notes issued
by the trust;
- a default in the payment of the principal of or any installment of the
principal of any note issued by the trust when the same becomes due and
payable;
- a default in the observance or performance of any covenant or agreement of
the trust made in the related indenture which default materially and
adversely affects the noteholders and continues for a period of 30 days
after notice is given to the trust by the applicable indenture trustee or
to the
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trust and the indenture trustee by the holders of at least 25% in principal
amount of the controlling class of notes;
- any representation or warranty made by the trust in the indenture or in any
certificate delivered in connection with the indenture having been
incorrect in any material adverse respect as of the time made, and the
breach not having been cured within 30 days after notice is given to the
trust by the applicable indenture trustee or to the trust and the indenture
trustee by the holders of at least 25% in principal amount of the
controlling class of notes;
- events of bankruptcy, insolvency, receivership or liquidation of the
applicable trust or its property as specified in the indenture; or
- any other events set forth in the related indenture or prospectus
supplement.
The controlling class of notes of a trust, to the extent the prospectus
supplement does not provide "controlling class" or "controlling party"
definitions, will be its senior most class of notes as long as they are
outstanding. When they have been paid in full, the next most senior class of the
trust's notes, if any, will become the controlling class so long as they are
outstanding, and so on.
The amount of principal due and payable to noteholders of a trust under the
related indenture on each payment date prior to the final schedules payment date
generally will be limited to amounts available to pay principal under the
priority of payments described in the related prospectus supplement. Therefore,
notwithstanding the second event of default described above, the failure to pay
principal on a class of notes generally will not result in the occurrence of an
event of default under the indenture until the final scheduled payment date for
that class of notes.
Rights upon Event of Default. If an event of default should occur and be
continuing with respect to the notes of any trust, the related indenture trustee
or holders of a majority in principal amount of the controlling class may
declare the principal of those notes to be immediately due and payable. The
declaration may be rescinded by the holders of a majority in principal amount of
the controlling class then outstanding if both of the following occur:
- the trust has paid or deposited with the indenture trustee enough money to
pay:
- all payments of principal of and interest on all notes and all
other amounts that would then be due if the event of default
causing the acceleration of maturity had not occurred and
- all sums paid or advanced by the indenture trustee and the
reasonable compensation, expenses, disbursements and advances of
the indenture trustee and its agents and counsel; and
- all events of default, other than the nonpayment of the principal
of the notes that has become due solely by the acceleration, have
been cured or waived.
If an event of default has occurred with respect to the notes issued by any
trust, the related indenture trustee may institute proceedings to collect
amounts due or foreclose on trust property, exercise remedies as a secured party
or sell the related receivables. Upon the occurrence of an event of default
resulting in acceleration of the notes, the indenture trustee may sell the
related receivables if:
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- all of the holders of the notes issued by the trust consent to the sale;
- the proceeds of the sale are sufficient to pay in full the principal of and
the accrued interest on the notes at the date of the sale; or
- the event of default resulted from the failure to pay principal or interest
and the indenture trustee determines that the proceeds of the receivables
would not be sufficient on an ongoing basis to make all payments on the
notes as they would have become due if they had not been declared due and
payable, and the indenture trustee obtains the consent of the holders of
66% of the aggregate outstanding amount of each class of notes.
Following an event of default and acceleration, the indenture trustee may
also elect, in its discretion, notwithstanding the acceleration, to have the
trust maintain possession of the receivables and apply collections as received
as if there had been no declaration of acceleration, so long as amounts
available for distribution to noteholders are sufficient to make payments due on
the notes without giving effect to the acceleration.
Subject to the provisions of the applicable indenture relating to the
duties of the related indenture trustee, if an event of default under the
indenture occurs and is continuing with respect to the notes of the trust, 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 might
be incurred by it in complying with the request. Subject to the provisions for
indemnification and certain limitations contained in the related indenture, the
holders of a majority in principal amount of the controlling class of a given
trust will have the right to direct the time, method and place of conducting any
proceeding or any remedy available to the applicable indenture trustee, and the
holders of a majority in principal amount of the controlling class may, in
certain cases, waive any default with respect thereto, except a default in the
payment of principal or interest or a default in respect of a covenant or
provision of the indenture that cannot be modified without the waiver or consent
of the holders of all of the outstanding notes of the related trust.
No holder of a note of any trust will have the right to institute any
proceeding with respect to the related 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 controlling
class have made written request to the indenture trustee to institute the
particular proceeding in its own name as indenture trustee;
- the holder or holders have offered the indenture trustee reasonable
indemnity;
- the indenture trustee has for 60 days after the notice, request and offer
of indemnity failed to institute the proceeding; and
- no direction inconsistent with the 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 controlling class.
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Each indenture trustee and the related noteholders, by accepting the
related notes, will covenant that they will not at any time institute against
the applicable trust any bankruptcy, reorganization or other proceeding under
any federal or state bankruptcy or similar law.
With respect to any trust, neither the related indenture trustee nor the
related trustee in its individual capacity, nor any holder of a certificate
representing an ownership interest in the trust nor any of their respective
owners, beneficiaries, agents, officers, directors, employees, affiliates,
successors or assigns will be personally liable for the payment of the principal
of or interest on the related notes or for the agreements of the trust contained
in the applicable indenture.
Each trust will be subject to covenants under the indenture. Each trust
will be subject to the covenants discussed below, as provided in the related
indenture.
- Restrictions on merger and consolidation. The related 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, any state or the
District of Columbia;
- the entity expressly assumes the trust's obligation to make due
and punctual payments upon the notes of the related trust and the
performance or observance of every agreement and covenant of the
trust under the indenture;
- no event that is, or with notice or lapse of time or both would
become, an event of default under the indenture shall have
occurred and be continuing immediately after the merger or
consolidation;
- the trust has been advised that the rating of the notes and the
certificates then in effect would not be reduced or withdrawn by
the rating agencies as a result of the merger or consolidation;
- the trust has received an opinion of counsel to the effect that
the merger or consolidation would have no material adverse tax
consequence to the trust or to any related noteholder or
certificateholder;
- any action that is necessary to maintain the lien and security
interest created by the related indenture shall have been taken;
and
- the trust has received an opinion of counsel and officer's
certificate each stating that the merger or consolidation
satisfies all requirements under the related indenture.
- Other negative covenants. Each trust will not, among other things--
- except as expressly permitted by the applicable agreements, sell,
transfer, exchange or otherwise dispose of 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 notes of the related trust
(other than amounts withheld under the tax code
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or applicable state law) or assert any claim against any present
or former holder of the notes because of the payment of taxes
levied or assessed upon the trust or its property,
- dissolve or liquidate in whole or in part,
- permit the lien of the related indenture to be subordinated or
otherwise impaired,
- permit the validity or effectiveness of the related indenture to
be impaired or permit any person to be released from any covenants
or obligations with respect to the notes under the indenture
except as may be expressly permitted thereby or
- permit any lien, charge, excise, claim, security interest,
mortgage or other encumbrance to be created on or extend to or
otherwise arise upon or burden the assets of the trust or any part
thereof, or any interest therein or the proceeds thereof, except
for tax, mechanics' or certain other liens and except as may be
created by the terms of the related indenture.
No trust may engage in any activity other than as specified under the
section of the related prospectus supplement titled "The Trust". No trust will
incur, assume or guarantee any indebtedness other than indebtedness incurred
under the related notes and indenture, the related certificates and as a result
of any advances made to it by the servicer or otherwise in accordance with the
related sale and servicing agreement, pooling and servicing agreement or other
documents relating to the trust.
List of Noteholders. With respect to the notes of any trust, three or more
holders of the notes of any trust or one or more holders of the notes evidencing
not less than 25% of the aggregate outstanding principal amount of the
controlling class may, by written request to the related indenture trustee
accompanied by a copy of the communication that the applicant proposes to send,
obtain access to the list of all noteholders maintained by the indenture trustee
for the purpose of communicating with other noteholders with respect to their
rights under the related indenture or under the notes. The 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 the trust.
Annual Compliance Statement. Each trust will be required to file annually
with the related indenture trustee a written statement as to the fulfillment of
its obligations under the indenture.
Indenture Trustee's Annual Report. The indenture trustee for each trust
will be required to mail each year to all related noteholders a brief report
relating to its eligibility and qualification to continue as indenture trustee
under the related indenture, any amounts advanced by it under the indenture, the
amount, interest rate and maturity date of any indebtedness owing by the trust
to the indenture trustee in its individual capacity, the property and funds
physically held by the indenture trustee in that capacity and any action taken
by it that materially affects the related notes and that has not been previously
reported.
Satisfaction and Discharge of Indenture. An indenture will be discharged
with respect to the collateral securing the notes outstanding under the
indenture upon the delivery to the related indenture trustee for cancellation of
all outstanding notes or, with certain limitations, upon deposit with the
indenture trustee of funds sufficient for the payment in full of all outstanding
notes.
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Modification of Indenture. Any trust, together with the related indenture
trustee, may, without the consent of the noteholders of the trust, execute a
supplemental indenture for the purpose of adding to the covenants of the trust,
curing any ambiguity, correcting or supplementing any provision which may be
inconsistent with any other provision or making any other provision with respect
to matters arising under the related indenture which will not be inconsistent
with other provisions of the indenture provided that the action will not
materially adversely affect the interests of the noteholders.
The trust and the applicable indenture trustee may also enter into
supplemental indentures, without obtaining the consent of the noteholders of the
related trust, for the purpose of, among other things, adding any provisions to
or changing in any manner or eliminating any of the provisions of the related
indenture or modifying in any manner the rights of noteholders (except with
respect to the matters listed in the next paragraph which require the approval
of the noteholders) provided that:
- the action will not, as evidenced by an opinion of counsel, materially
adversely affect the interest of any noteholder;
- the action will not, as confirmed by the rating agencies rating the notes
of the related trust, cause the then current rating assigned to any class
of notes to be withdrawn or reduced; and
- an opinion of counsel as to certain tax matters is delivered.
Without the consent of the holder of each outstanding note affected
thereby, however, no supplemental indenture will:
- change the due date of any installment of principal of or interest on any
note or reduce its principal amount, its interest rate or its redemption
price, change the application of the proceeds of a sale of the trust
property to payment of principal and interest on the notes or change any
place of payment where, or the coin or currency in which, any note or any
interest on any note is payable;
- impair the right to institute suit for the enforcement of provisions of the
related indenture regarding payment;
- reduce the percentage of the aggregate amount of the controlling class or
of the notes, the consent of the holders of which is required for any
supplemental indenture or the consent of the holders of which is required
for any waiver of compliance with the related indenture or of defaults or
events of default under the indenture and their consequences as provided
for in the indenture;
- modify or alter the provisions of the related indenture regarding the
voting of notes held by the applicable trust, any other obligor on the
notes, the seller or an affiliate of any of them;
- reduce the percentage of the aggregate outstanding amount of the
controlling class, the consent of the holders of which is required to
direct the related indenture trustee to sell or liquidate the receivables
after an event of default if the proceeds of the sale would be insufficient
to pay the principal amount and accrued interest on the outstanding notes
and certificates;
- decrease the percentage of the aggregate principal amount of the
controlling class or of the notes required to amend the sections of the
related indenture which specify the applicable percentage of
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aggregate principal amount of the notes necessary to amend the indenture or
any of the other related agreements;
- affect the calculation of the amount of interest or principal payable on
any note on any payment date;
- affect the rights of the noteholders to the benefit of any provisions for
the mandatory redemption of the notes provided in the related indenture; or
- permit the creation of any lien ranking prior to or on a parity with the
lien of the related indenture with respect to any of the collateral for the
notes or, except as otherwise permitted or contemplated in the indenture,
terminate the lien of the indenture on any collateral or deprive the holder
of any note of the security afforded by the lien of the indenture.
THE INDENTURE TRUSTEE
The indenture trustee for a series of notes will be specified in the
related prospectus supplement. The indenture trustee for any trust may resign at
any time, in which event the administrator of the trust will be obligated to
appoint a successor trustee. The administrator of a trust will be obligated to
remove an indenture trustee if the indenture trustee ceases to be eligible to
continue as trustee under the related indenture or if the indenture trustee
becomes insolvent. In these circumstances, the administrator of the trust will
be obligated to appoint a successor trustee for the notes of the applicable
trust. In addition, a majority of the controlling class 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 that event, the indenture will provide for a successor
indenture trustee to be appointed for those classes of notes. Any resignation or
removal of the indenture trustee and appointment of a successor trustee for the
notes of the trust does not become effective until acceptance of the appointment
by the successor trustee for the trust.
DESCRIPTION OF THE RECEIVABLES TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of the documents under which
the depositor will purchase the receivables or, if so specified in the
prospectus supplement, acquire a security interest therein from a seller, a
trust will purchase the receivables or, if so specified in the prospectus
supplement, acquire a security interest therein from the depositor and a
servicer will service the receivables on behalf of the trust. In the case of a
trust that is not a grantor trust, these documents are the receivables purchase
agreement, if any, and the sale and servicing agreement. For a grantor trust,
they are the receivables purchase agreement and the pooling and servicing
agreement. This section also describes certain provisions of the trust agreement
for a trust that is not a grantor trust. Forms of those documents have been
filed as exhibits to the registration statement of which this prospectus forms a
part. This summary describes the material provisions common to the securities of
each trust; the attached prospectus supplement will give you additional
information specific to the securities which you are purchasing. This summary
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, all the provisions of those documents.
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SALE AND ASSIGNMENT OF RECEIVABLES
When the trust issues securities, the seller will either transfer and
assign, without recourse, to the depositor its entire interests in the related
receivables, together with its security interests in the related financed
vehicles or will transfer and assign only its security interests in the related
financed vehicles, pursuant to a receivables purchase agreement or a sale and
servicing agreement, as applicable. The depositor will then transfer and assign
to the applicable trustee, without recourse, pursuant to a sale and servicing
agreement or a pooling and servicing agreement, as applicable, its entire
interest in those receivables, including its security interests in the related
financed vehicles. Each receivable will be identified in a schedule appearing as
an exhibit to the related pooling and servicing agreement or sale and servicing
agreement, as applicable.
Sale and Assignment of Additional Receivables. The related prospectus
supplement for the trust will specify whether, and the terms, conditions and
manner under which, additional receivables will be sold or, if so specified in
the prospectus supplement, a security interest therein will be granted by the
seller to the depositor and by the depositor to the applicable trust from time
to time during any funding period or revolving period.
Representations and Warranties. In each receivables purchase agreement or a
sale and servicing agreement, as applicable, the related seller will represent
and warrant to the depositor that, at the date as of which the receivable is
transferred to the trust--
- each receivable (a) has been originated for the retail financing of a motor
vehicle by an obligor located in one of the states of the United States or
the District of Columbia and (b) contains customary and enforceable
provisions so that the rights and remedies of the holder thereof shall be
adequate for realization against the collateral of the benefits of the
security;
- each receivable and the sale of the related financed vehicle complies in
all material respects with all requirements of applicable federal, state,
and local laws, and regulations thereunder, including usury laws, the
Federal Truth-in-Lending Act, the Equal Credit Opportunity Act, the Fair
Credit Reporting Act, the Federal Trade Commission Act, the Magnuson-Moss
Warranty Act, Federal Reserve Board Regulations B and Z, state adaptations
of the National Consumer Act and of the Uniform Consumer Credit Code, and
any other applicable consumer credit, equal opportunity and disclosure
laws;
- each receivable constitutes the legal, valid, and binding payment
obligation in writing of the obligor, enforceable by the holder thereof in
all material respects in accordance with its terms, subject, as to
enforcement, to applicable bankruptcy, insolvency, reorganization,
liquidation and other similar laws and equitable principles relating to or
affecting the enforcement of creditors' rights;
- immediately prior to its sale and assignment to the trust, each receivable
was secured by a validly perfected first priority security interest in the
financed vehicle in favor of the seller as secured party or all necessary
action with respect to the receivable has been taken to perfect a first
priority security interest in the related financed vehicle in favor of the
seller as secured party, which security interest is assignable and has been
so assigned by the seller to the depositor and by the depositor to the
trust;
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- there are no rights of rescission, setoff, counterclaim, or defense, and
the seller has no knowledge of the same being asserted or threatened, with
respect to any receivable; the seller has no knowledge of any liens or
claims that have been filed, including liens for work, labor, materials or
unpaid taxes relating to a financed vehicle, that would be liens prior to,
or equal or coordinate with, the lien granted by the receivable;
- except for payment defaults continuing for a period of not more than 30
days (or another number of days specified in the prospectus supplement) as
of the cutoff date, the seller has no knowledge that a default, breach,
violation, or event permitting acceleration under the terms of any
receivable exists; the seller has no knowledge that a continuing condition
that with notice or lapse of time would constitute a default, breach,
violation or event permitting acceleration under the terms of any
receivable exists, and the seller has not waived any of the foregoing;
- each receivable requires that the obligor thereunder obtain comprehensive
and collision insurance covering the financed vehicle; and
- any other representations and warranties that may be set forth in the
related prospectus supplement.
The depositor will assign to the related trust its rights against the
seller under the representations and warranties relating to the receivables and
to the remedies for breaches. If the related series includes notes, the trust
will in turn assign the same rights to the indenture trustee. In the receivables
purchase agreement or the sale and servicing agreement, as applicable, the
seller will agree that assignees of the depositor, including the trust and the
indenture trustee, may enforce those rights against the seller directly.
Seller must repurchase receivables relating to a breach of representation
or warranty. Unless otherwise provided in the related prospectus supplement, as
of the last day of the second collection period following the discovery by or
notice to the seller of a breach of any representation or warranty of the seller
which materially and adversely affects the interests of the related trust in any
receivable, the seller, unless the breach is cured, will be obligated to
repurchase that receivable from the trust at a price generally equal to its
unpaid principal balance plus accrued interest to the date of purchase at the
applicable contract rate of interest. Alternatively, if so specified in the
related prospectus supplement, the related seller will be permitted, in a
circumstance where it would otherwise be required to repurchase a receivable as
described in the preceding sentence, to instead substitute a comparable
receivable for the receivable otherwise requiring repurchase, subject to
conditions and eligibility criteria for the substitute receivable to be
summarized in the related prospectus supplement. The repurchase or substitution
obligation constitutes the sole remedy available to the securityholders or any
trustee for any uncured breach relating to a representation or warranty made as
to the receivables.
Servicing of the Receivables. Under each sale and servicing agreement or
pooling and servicing agreement, to assure uniform quality in servicing the
receivables and to reduce administrative costs, each trust will designate a
servicer to service and administer the receivables held by the trust and, as
custodian on behalf of the trust, to maintain possession of the loan agreements
and any other documents relating to the receivables. To assure uniform quality
in servicing the receivables, as well as to facilitate servicing and save
administrative costs, the loan agreements and other related documents will not
be physically segregated from other similar documents that are in the servicer's
possession or otherwise stamped or marked to reflect the transfer to the trust.
The obligors under the receivables will not be notified of the transfer.
However, Uniform Commercial Code financing statements reflecting the sale and
assignment of those receivables by the seller to the trust will be filed, and
the servicer's accounting records and
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computer systems will be marked to reflect their sale and assignment. Because
those receivables 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 to obtain physical possession of the receivables
without knowledge of the assignment, the trust's interest in the receivables
could be defeated. See "Risk Factors-- Interests of other persons in the
receivables could reduce the funds available to make payments on your
securities" and "Some Important Legal Issues Relating to the
Receivables--Security Interests in the Financed Vehicles".
ACCOUNTS
In the case of a trust that issues notes, the servicer will establish and
maintain with the related indenture trustee one or more collection accounts in
the name of the indenture trustee on behalf of the related noteholders into
which all payments made on or with respect to the related receivables will be
deposited. The servicer may establish and maintain with the indenture trustee a
note payment account (which may be a subaccount of the collection account), in
the name of the indenture trustee on behalf of the noteholders, into which
amounts released from the collection account and any other accounts of the trust
for payment to the noteholders will be deposited and from which all
distributions to the noteholders will be made. In the case of a trust that
issues certificates or is a grantor trust, the servicer may establish and
maintain with the related trustee one or more certificate distribution accounts,
in the name of the trustee on behalf of the certificateholders, into which
amounts released from the collection account and any other accounts of the trust
for distribution to the certificateholders will be deposited and from which all
distributions to the certificateholders will be made.
Any other accounts to be established with respect to securities of the
trust, including any pre-funding account, yield supplement account or reserve
fund, will be described in the related prospectus supplement.
For any securities of the trust, funds in the trust accounts will be
invested as provided in the related sale and servicing agreement or pooling and
servicing agreement in permitted investments. Permitted investments are
generally limited to obligations or securities that mature on or before the next
payment date. However, to the extent permitted by the rating agencies, funds in
any reserve fund may be invested in securities that will not mature prior to the
date of the next distribution on the notes or certificates and which will not be
sold to meet any shortfalls. Thus, the amount of cash available in any reserve
fund at any time may be less than the balance of the reserve fund. If the amount
required to be withdrawn from any reserve fund to cover shortfalls in
collections on the related receivables, as provided in the related prospectus
supplement, exceeds the amount of cash in the reserve fund, a temporary
shortfall in the amounts distributed to the related noteholders or
certificateholders could result, which could, in turn, increase the average life
of the related notes or certificates. Net investment earnings on funds deposited
in the trust accounts shall be deposited in the applicable collection account or
distributed as provided in the related prospectus supplement.
The trust accounts will be maintained as eligible deposit accounts, which
satisfy certain requirements of the rating agencies.
SERVICING PROCEDURES
The servicer will make reasonable efforts to collect all payments due with
respect to the receivables held by the related trust and will, consistent with
the related sale and servicing agreement or pooling and servicing agreement,
follow the collection procedures it uses for motor vehicle retail
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installment sale contracts, installment loans, purchase money notes or other
notes that it services for itself or others and that are comparable to the
receivables. Consistent with its normal procedures, the servicer may, in its
discretion, arrange with the obligor on a receivable to defer or modify the
payment schedule. Some of these arrangements may require the servicer to
purchase the receivable while others may result in the servicer making advances
with respect to the receivable. The servicer may be obligated to purchase or
make advances with respect to any receivable if, among other things, it extends
the date for final payment by the obligor beyond six months past the last day of
the collection period preceding the latest date that a receivable matures, as
set forth in the related prospectus supplement, or changes the contract rate of
interest or the total amount or number of scheduled payments of the receivable.
If the servicer determines that eventual payment in full of a receivable is
unlikely, the servicer will follow its normal practices and procedures to
realize upon the receivable, including the repossession and disposition of the
financed vehicle securing the receivable at a public or private sale, or the
taking of any other action permitted by applicable law.
COLLECTIONS
With respect to each trust, the servicer will deposit all payments on the
related receivables from whatever source and all proceeds of the receivables
collected during each collection period into the related collection account
within two business days after receipt thereof. However, to the extent specified
in the related prospectus supplement, at any time that and for so long as (i)
the original servicer is the servicer, (ii) there exists no Event of Servicing
Termination and (iii) each other condition as may be specified by the rating
agencies or set forth in the related prospectus supplement is satisfied, the
servicer will not be required to deposit amounts into the collection account
until the business day preceding the applicable payment date. Pending deposit
into the collection account, collections may be invested by the servicer at its
own risk and for its own benefit and will not be segregated from its own funds.
If the servicer were unable to remit the funds, securityholders might incur a
loss. To the extent set forth in the related prospectus supplement, the servicer
may, in order to satisfy the requirements described above, obtain a letter of
credit or other security for the benefit of the related trust to secure timely
remittances of collections on the related receivables and payment of the
aggregate purchase amount with respect to receivables purchased by the servicer.
Collections on a precomputed receivable made during a collection period
shall be applied first to repay any outstanding advances made by the servicer
with respect to the receivable, and to the extent that collections on a
precomputed receivable during a collection period exceed the outstanding
precomputed advances, the collections shall then be applied to the scheduled
payment on the receivable. If a prepayment is made on a precomputed receivable
and the amount of the prepayment remaining after the scheduled payment is made
is insufficient to prepay the precomputed receivable in full, then, generally
the remaining amount shall be transferred to and kept in a separate account to
be applied on each subsequent payment date to pay either the scheduled payment
or, if the remaining amount is then sufficient, to prepay the receivable in
full.
Collections on a receivable made during a collection period which are not
late fees, prepayment charges, or other similar fees or charges shall be applied
first to any outstanding advances made by the servicer with respect to the
receivable and then to the scheduled payment.
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ADVANCES
If so provided in the related prospectus supplement, the servicer will make
advances on the receivables under the limitations described in this section, and
based on the type of receivable, the advance will be either a precomputed
advance, a simple interest advance or an advance relating to a balloon payment.
Precomputed Receivables. If so provided in the related prospectus
supplement, to the extent the collections of interest on and principal of a
precomputed receivable with respect to a collection period fall short of the
respective scheduled payment, the servicer will make an advance -- a precomputed
advance-- in the amount of the shortfall. The servicer will be obligated to make
a precomputed advance on a precomputed receivable only to the extent that the
servicer, in its sole discretion, expects to recoup the advance from subsequent
collections or recoveries on the related receivable. The servicer will deposit
the precomputed advance in the applicable collection account on or before the
business day preceding the applicable payment date. The servicer will recoup its
precomputed advance from subsequent payments by or on behalf of the related
obligor or from insurance or liquidation proceeds with respect to the receivable
and will release its right to reimbursement in conjunction with its purchase of
the receivable as servicer, or, upon the determination that reimbursement from
the preceding sources is unlikely, will recoup its precomputed advance from any
collections made on other precomputed receivables in the related receivables
pool or from any other source of funds identified in the related prospectus
supplement.
Simple Interest Receivables. If so provided in the related prospectus
supplement, on or before the business day prior to each applicable payment date,
the servicer shall deposit into the related collection account an amount -- a
simple interest advance -- equal to the amount of interest that would have been
due on the related simple interest receivables at their respective contract
rates of interest for the related collection period, assuming that the simple
interest receivables are paid on their respective due date, minus the amount of
interest actually received on the simple interest receivables during the related
collection period. If this calculation results in a negative number, an amount
equal to that amount shall be paid to the servicer in reimbursement of
outstanding simple interest advances. In addition, in the event that a simple
interest receivable becomes a defaulted receivable, the amount of accrued and
unpaid interest thereon, not including interest for the then current collection
period, shall be withdrawn from the collection account and paid to the servicer
in reimbursement of outstanding simple interest advances. No advances of
principal will be made with respect to simple interest receivables.
Balloon Payment Receivables. If so provided in the related prospectus
supplement, the servicer will make an advance for any portion of a balloon
payment for the calendar month in which the balloon payment becomes due if the
entire scheduled payment has not been received by the servicer. Generally, the
servicer will be reimbursed for an advance relating to a balloon payment on each
payment date following the payment date on which the advance was made out of
payments by or on behalf of the related obligor to the extent those payments are
allocable to the reimbursement of the advance and out of collections on other
receivables to the extent of any losses allocable to the balloon payment, but
only to the extent the balloon payment and the advance have not otherwise been
reimbursed.
The servicer will deposit all advances into the applicable collection
account on the business day immediately preceding the related payment date.
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SERVICING COMPENSATION AND EXPENSES
Unless otherwise specified in the prospectus supplement with respect to any
trust, the servicer will be entitled to receive a servicing fee for each
collection period in an amount equal to a specified percentage per annum of the
outstanding balance of the related pool of receivables as of the first day of
that collection period. The servicer also may be entitled to receive as a
supplemental servicing fee for each collection period any late, prepayment, and
other administrative fees and expenses collected during the collection period.
If specified in the related prospectus supplement, the supplemental servicing
fee will include net investment earnings on funds deposited in the trust
accounts and other accounts with respect to the trust. The servicer will be paid
the servicing fee and the supplemental servicing fee for each collection period
on the applicable payment date.
The servicing fee and the supplemental servicing fee are intended to
compensate the servicer for performing the functions of a third party servicer
of the receivables as an agent for the trust, including collecting and posting
all payments, responding to inquiries of obligors on the receivables,
investigating delinquencies, sending payment coupons to obligors, reporting
federal income tax information to obligors, paying costs of collections, and
policing the collateral. The fees will also compensate the servicer for
administering the particular receivables pool, including making advances,
accounting for collections, furnishing monthly and annual statements to the
related trustee and indenture trustee with respect to distributions, and
generating federal income tax information for the trust. The fees, if any, also
will reimburse the servicer for certain taxes, the fees of the related trustee
and indenture trustee, if any, accounting fees, outside auditor fees, data
processing costs, and other costs incurred in connection with administering the
applicable receivables.
DISTRIBUTIONS
With respect to securities of each trust, beginning on the payment date
specified in the related prospectus supplement, distributions of principal and
interest on each class of securities entitled thereto will be made by the
applicable trustee or indenture trustee to the noteholders and the
certificateholders of the trust. The timing, calculation, allocation, order,
source, priorities of and requirements for all payments to each class of
securityholders of the trust will be set forth in the related prospectus
supplement.
Allocation of Collections on Receivables. Distributions of principal on the
securities of the trust may be based on the amount of principal collected or due
and the amount of realized losses incurred in a collection period. The servicer
will allocate collections to the interest and principal portion of scheduled
payments on the receivables in accordance with its customary servicing
procedures. On the business day before each payment date, or another date that
is described in the related prospectus supplement, the servicer will determine
the amount in the collection account available to make payments or distributions
to securityholders on the related payment date and will direct the indenture
trustee, if any, and/or the trustee to make the distributions as described in
the related prospectus supplement.
CREDIT AND CASH FLOW ENHANCEMENT
Any form of credit enhancement may be limited and may only apply to certain
classes of securities. The amounts and types of credit and cash flow enhancement
arrangements, if any, and the provider of the enhancement, if applicable, with
respect to each class of securities of a given series will be set forth in the
related prospectus supplement. If, and to the extent provided in the related
prospectus supplement, credit and cash flow enhancement may consist of one or
more of the following:
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- subordination of one or more classes of securities;
- a reserve account;
- "excess spread," or interest earned on the receivables in excess of the
amount required to be paid on the securities;
- collateralization greater than the principal amount of securities issued;
- letters of credit;
- liquidity facilities;
- surety bonds;
- guaranteed investment contracts;
- guaranteed rate agreements;
- swaps or other interest rate protection agreements:
- repurchase obligations;
- yield supplement arrangements;
- cash deposits; or
- other agreements with respect to third party payments or other support.
Limitations or exclusions from coverage could apply to any form of credit
enhancement. The prospectus supplement will describe the credit enhancement and
related limitations and exclusions applicable for securities issued by the
trust. If specified in the applicable prospectus supplement, credit or cash flow
enhancement for a class of securities may cover one or more other classes of
securities of the same series, and credit or cash flow enhancement for a series
of securities may cover one or more other series of securities.
The presence of a reserve fund and other forms of credit or cash flow
enhancement for the benefit of any class or securities of the trust is intended
to (1) enhance the likelihood of receipt by the securityholders of the related
class of the full amount of principal and interest due thereon and (2) decrease
the likelihood that securityholders will experience losses. The credit or cash
flow enhancement for a class of securities may not provide protection against
all risks of loss and may not guarantee repayment of the entire principal amount
and interest thereon. If losses occur which exceed the amount covered by any
credit enhancement or which are not covered by any credit enhancement,
securityholders will bear their allocable share of deficiencies, as described in
the related prospectus supplement.
Seller may replace credit or cash flow enhancement with rating
confirmation. If so provided in the related prospectus supplement, the seller
may replace the credit enhancement for any class of securities with another form
of credit enhancement without the consent of securityholders, provided the
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rating agencies confirm in writing that substitution will not result in the
reduction or withdrawal of the rating of any class of securities of the related
trust.
Reserve fund. If so provided in the related prospectus supplement, the
reserve fund will be funded by an initial deposit by the trust or the seller on
the closing date in the amount set forth in the related prospectus supplement.
As further described in the related prospectus supplement, the amount on deposit
in a reserve fund will be increased on each subsequent payment date up to the
specified reserve balance by the deposit into the reserve fund of the amount of
collections on the related receivables available as described in the prospectus
supplement. The related prospectus supplement will describe the circumstances
and manner under which distributions may be made out of a reserve fund.
NET DEPOSITS
As an administrative convenience and for so long as certain conditions are
satisfied (see "Collections" above), the servicer will be permitted to make the
deposit of collections, aggregate advances and payments of purchase amounts for
any trust for or with respect to the related collection period, net of
distributions to the servicer as reimbursement of advances or payment of fees to
the servicer with respect to the related collection period. The servicer,
however, will account to the trustee, any indenture trustee, the noteholders, if
any, and the certificateholders with respect to each trust as if all deposits,
distributions, and transfers were made individually.
STATEMENTS TO TRUSTEES AND TRUSTS
Prior to each payment date with respect to securities of each trust, the
servicer will provide to the applicable indenture trustee, if any, and the
applicable trustee as of the close of business on the last day of the preceding
collection period the report that is required to be provided to securityholders
of the trust described under "Certain Information Regarding the Securities --
Reports to Securityholders".
EVIDENCE AS TO COMPLIANCE
Each sale and servicing agreement and pooling and servicing agreement will
provide that a firm of independent certified public accountants will furnish to
the related trust and indenture trustee or trustee, as applicable, annually a
statement as to compliance by the servicer during the preceding twelve months,
or, in the case of the first statement, from the applicable closing date, with
certain standards relating to the servicing of the applicable receivables.
Each sale and servicing agreement and pooling and servicing agreement will
also provide for delivery to the related trust and indenture trustee or trustee,
as applicable, substantially simultaneously with the delivery of the
accountants' statement referred to above, of a certificate signed by an officer
of the servicer stating that the servicer has fulfilled its obligations under
the that agreement throughout the preceding twelve months ,or, in the case of
the first certificate, during the period from the closing date, or, if there has
been a default in the fulfillment of any obligation, describing the default.
Copies of these statements and certificates may be obtained by
securityholders by a request in writing addressed to the applicable trustee.
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CERTAIN MATTERS REGARDING THE SERVICER
Each sale and servicing agreement and pooling and servicing agreement will
provide that the servicer may not resign from its obligations and duties as
servicer thereunder, except (1) upon a determination that the servicer's
performance of its duties is no longer permissible under applicable law or (2)
in the event of the appointment of a successor servicer, without the consent of
each securityholder and upon notification by each rating agency then rating any
of the related securities that the rating then assigned to the securities will
not be reduced or withdrawn by the rating agency. No resignation will become
effective until the related indenture trustee or trustee, as applicable, or a
successor servicer has assumed the servicing obligations and duties under the
sale and servicing agreement or the pooling and servicing agreement. The
servicer will also have the right to delegate any of its duties under those
agreements to a third party without the consent of any securityholder or the
confirmation of any rating. Notwithstanding any delegation, the servicer will
remain responsible and liable for its duties under those agreements as if it had
made no delegations.
Each sale and servicing agreement and pooling and servicing agreement will
further provide that neither the servicer nor any of its directors, officers,
employees and agents will be under any liability to the related trust or the
related noteholders or certificateholders for taking any action or for
refraining from taking any action under the sale and servicing agreement or for
errors in judgment; except that neither the servicer nor any other indemnified
person will be protected against any liability that would otherwise be imposed
by reason of willful misfeasance, bad faith or negligence in the performance of
the servicer's duties thereunder or by reason of reckless disregard of its
obligations and duties thereunder, except that employees of the servicer or its
affiliates will be protected against liability that would otherwise be imposed
by reason of negligence. Each agreement will further provide that the servicer,
and its directors, officers, employees and agents are entitled to
indemnification by the trust for, and will be held harmless against, any loss,
liability or expense incurred by reason of the servicer's willful misfeasance,
bad faith, or negligence in the performance of duties or by reason of the
servicer's reckless disregard of obligations and duties thereunder; and
provided, however, that such indemnification will be paid on a payment date only
after all payments required to be made to securityholders and the servicer have
been made and all amounts required to be deposited in enhancement accounts have
been deposited. In addition, each sale and servicing agreement and pooling and
servicing agreement will provide that the servicer is under no obligation to
appear in, prosecute or defend any legal action that is not incidental to the
servicer's servicing responsibilities under the sale 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 a particular sale and servicing agreement
or pooling and servicing agreement, as applicable, the rights and duties of the
parties thereto, and the interests of the related securityholders thereunder. In
that event, the related legal expenses and costs and any liability resulting
therefrom will be expenses, costs, and liabilities of the trust, and the
servicer will be entitled to be reimbursed therefor.
Under the circumstances specified in each sale and servicing agreement and
pooling and servicing agreement, any entity into which the servicer may be
merged or consolidated, or any entity resulting from any merger or consolidation
to which the servicer is a party, or any entity succeeding to the business of
the servicer, which corporation or other entity in each of the foregoing cases
assumes the obligations of the servicer, will be the successor of the servicer
under the sale and servicing agreement or pooling and servicing agreement, as
applicable.
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EVENTS OF SERVICING TERMINATION
"Events of servicing termination" under each sale and servicing agreement
or pooling and servicing agreement, which may be supplemented or modified by the
prospectus supplement, will consist of:
- any failure by the servicer (or, so long as the seller is the servicer, the
seller) to deliver to the trustee or indenture trustee for distribution to
the securityholders of the related trust or for deposit in any of the trust
accounts or the certificate distribution account any required payment,
which failure continues unremedied for five business days after written
notice from the trustee or indenture trustee is received by the servicer or
the seller, as the case may be, or after discovery by an officer of the
servicer or the seller, as the case may be;
- any failure by the servicer (or, so long as the seller is the servicer, the
seller) duly to observe or perform in any material respect any other
covenant or agreement in the sale and servicing agreement, which failure
materially and adversely affects the rights of the noteholders or the
certificateholders of the related trust and which continues unremedied for
90 days after the giving of written notice of the failure (A) to the
servicer or the seller, as the case may be, by the trustee or the indenture
trustee or (B) to the servicer, the seller and the trustee or the indenture
trustee by holders of notes or certificates of the related trust, as
applicable, of not less than 25% in principal amount of the controlling
class (or, if no notes are outstanding, 25% by aggregate certificate
balance of the certificates);
- the occurrence of insolvency events specified in the sale and servicing
agreement or pooling and servicing agreement with respect to the servicer;
and
- any other events, set forth in the related prospectus supplement.
RIGHTS UPON EVENT OF SERVICING TERMINATION
As long as an event of servicing termination under a sale and servicing
agreement or pooling and servicing agreement remains unremedied, and the
prospectus supplement does not set forth a different procedure, the related
indenture trustee or holders of not less than a majority of the controlling
class or the class of notes specified in the prospectus supplement, and after
the notes have been paid in full or if the trust has not issued notes, the
trustee or the holders of not less than a majority of the certificate balance,
may terminate all the rights and obligations of the servicer under the sale and
servicing agreement or pooling and servicing agreement, whereupon the indenture
trustee or trustee or a successor servicer appointed by such indenture trustee
or trustee will succeed to all the responsibilities, duties and liabilities of
the servicer under the sale and servicing agreement or pooling and servicing
agreement and will be entitled to similar compensation arrangements.
If, however, a receiver, bankruptcy trustee or similar official has been
appointed for the servicer, and no event of servicing termination other than
that appointment has occurred, the receiver, bankruptcy trustee or official may
have the power to prevent the indenture trustee, the noteholders, the trustee or
the certificateholders from effecting a transfer of servicing.
In the event that the indenture trustee or trustee of the trust is legally
unable to act as servicer, it may appoint, or petition a court of competent
jurisdiction for the appointment of, a successor servicer.
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The indenture trustee or trustee may make arrangements for compensation to be
paid to the successor servicer.
WAIVER OF PAST EVENTS OF SERVICING TERMINATION
If and to the extent specified in the related prospectus supplement, the
holders of not less than a majority of the controlling class or the class of
notes specified in the prospectus supplement, and after the notes have been paid
in full or if the trust has not issued notes, the trustee or the holders of not
less than a majority of the certificate balance may, on behalf of all such
noteholders and certificateholders, waive any event of servicing termination
under the related sale and servicing agreement or pooling and servicing
agreement and its consequences, except an event of servicing termination
consisting of a failure to make any required deposits to or payments from any of
the trust accounts or to the certificate distribution account in accordance with
the sale and servicing agreement or pooling and servicing agreement.
AMENDMENT
The parties to each of the receivables transfer and servicing agreements or
such other persons as specified in the prospectus supplement may amend either of
those agreements, without the consent of the related securityholders, to add any
provisions to or change or eliminate any of the provisions of the receivables
transfer and servicing agreements or modify the rights of noteholders or
certificateholders; provided, unless otherwise specified in the prospectus
supplement, that this action will not materially and adversely affect the
interest of any noteholder or certificateholder as evidenced by either (a) an
opinion of counsel to that effect or (b) notification by each rating agency then
rating any of the related securities that the rating then assigned to the
securities will not be reduced or withdrawn by that rating agency together with
an officer's certificate of the servicer to that effect. The receivables
transfer and servicing agreements may also be amended by the parties thereto or
such other persons as specified in the prospectus supplement with the consent of
the holders of notes of the related trust evidencing not less than a majority in
principal amount of the notes, and the holders of the certificates of the trust
evidencing not less than a majority of the certificate balance of the
certificates then outstanding, to add any provisions to or change or eliminate
any of the provisions of the receivables transfer and servicing agreements or
modify the rights of the noteholders or certificateholders; provided, however,
that no such amendment may (1) increase or reduce in any manner the amount of,
or accelerate or delay the timing of, collections of payments on the related
receivables or distributions that are required to be made for the benefit of the
noteholders or certificateholders or change any interest rate on the securities
or the amount required to be on deposit in the reserve fund, if any, or (2)
reduce the percentage of the notes or certificates of the trust which are
required to consent to any such amendment, without the consent of the holders of
all the outstanding notes and certificates of the trust.
PAYMENT OF NOTES
The indenture trustee will agree in the related indenture that, upon the
payment in full of all outstanding notes of a given trust and the satisfaction
and discharge of the related indenture, to continue to carry out its obligations
under the sale and servicing agreement or pooling and servicing agreement, as
applicable, as agent for the trustee of the trust.
TERMINATION
With respect to each trust, the obligations of the servicer, the seller,
the depositor, the related trustee and the related indenture trustee under the
receivables transfer and servicing agreements will
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terminate upon the earlier of (1) the maturity or other liquidation of the last
related receivable and the disposition of any amounts received upon liquidation
of any remaining receivables and (2) the payment to noteholders and
certificateholders of the related trust of all amounts required to be paid to
them under the receivables transfer and servicing agreements and (3) the
occurrence of either event described below.
In order to avoid excessive administrative expense, the servicer will be
permitted at its option to purchase from each trust as of the end of any
applicable collection period, if the aggregate principal balance of the
receivables held by the trust is equal to or less than a specified percentage of
the aggregate principal balance of the receivables as of the cutoff date, all
remaining related receivables at a price equal to the aggregate of the purchase
amounts thereof as of the end of that collection period, after giving effect to
the receipt of any monies collected on the receivables. That percentage will be
specified in the related prospectus supplement and is expected to be 10% of the
cutoff date balance.
If and to the extent provided in the related prospectus supplement with
respect to the trust, the applicable trustee will, within ten days following a
payment date as of which the aggregate principal balance of the receivables is
equal to or less than the percentage of the initial aggregate principal balance
of the receivables as of the cutoff date specified in the related prospectus
supplement, solicit bids for the purchase of the receivables remaining in the
trust in the manner and subject to the terms and conditions set forth in the
prospectus supplement. If the applicable trustee receives satisfactory bids as
described in the related prospectus supplement, then the receivables remaining
in the trust will be sold to the highest bidder.
As more fully described in the related prospectus supplement, any
outstanding notes of the related trust will be paid in full concurrently with
either of the events specified above and the subsequent distribution to the
related certificateholders of all amounts required to be distributed to them
under the applicable trust agreement will effect early retirement of the
certificates of the trust.
LIST OF CERTIFICATEHOLDERS
With respect to the certificates of any trust, three or more holders of the
certificates or one or more holders of the certificates evidencing not less than
25% of the aggregate certificate balance may, by written request to the related
trustee accompanied by a copy of the communication that the applicant proposes
to send, obtain access to the list of all certificateholders maintained by the
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 the certificates.
ADMINISTRATION AGREEMENT
If so specified in the related prospectus supplement, a person named as
administrator in the related prospectus supplement, 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 the extent
provided in the administration agreement, to provide the notices and to perform
other administrative obligations required by the related indenture. Unless
otherwise specified in the related prospectus supplement, as compensation for
the performance of the administrator's obligations under the applicable
administration agreement and as reimbursement for its related expenses, the
administrator will be entitled to a monthly administration fee in the amount set
forth in the related prospectus supplement.
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SOME IMPORTANT LEGAL ISSUES RELATING TO THE RECEIVABLES
GENERAL
The transfer of the receivables to a trust, the perfection of the security
interests in the receivables and the enforcement of rights to realize on the
financed vehicles as collateral for the receivables are subject to a number of
federal and state laws, including the UCC as in effect in various states. Each
of the depositor, the servicer and the seller will take such action as is
required to perfect the rights of the trustee in the receivables. If, through
inadvertence or otherwise, another party purchases (including the taking of a
security interest in) the receivables for new value in the ordinary course of
its business, without actual knowledge of the trust's interest, and takes
possession of the receivables, such purchaser would acquire an interest in the
receivables superior to the interest of the trust.
SECURITY INTERESTS IN THE FINANCED VEHICLES
Retail installment sale contracts such as the receivables evidence the
credit sale of motor vehicles by dealers to obligors; the contracts also
constitute personal property security agreements and include grants of security
interests in the related vehicles under the UCC. Perfection of security
interests in motor vehicles is generally governed by state certificate of title
statutes or by the motor vehicle registration laws of the state in which each
vehicle is located. In most states, a security interest in a motor vehicle is
perfected by notation of the secured party's lien on the vehicle's certificate
of title.
Unless otherwise specified in the related prospectus supplement, each
seller will be obligated to have taken all actions necessary under the laws of
the state in which the financed vehicle is located to perfect its security
interest in the financed vehicle securing the related receivable purchased by it
from a dealer or lender, including, where applicable, by having a notation of
its lien recorded on such vehicle's certificate of title or, if appropriate, by
perfecting its security interest in the related financed vehicles under the UCC.
Because the servicer will continue to service the receivables, the obligors on
the receivables will not be notified of the sales from a seller to the depositor
or from the depositor to the trust, and no action will be taken to record the
transfer of the security interest from a seller to the depositor or from the
depositor to the trust by amendment of the certificates of title for the
financed vehicles or otherwise.
Pursuant to each receivables purchase agreement, each seller will assign to
the depositor its interests in the financed vehicles securing the receivables
assigned by that seller to the depositor and, with respect to each trust,
pursuant to the related sale and servicing agreement or pooling and servicing
agreement, the depositor will assign its interests in the financed vehicles
securing the related receivables to such trust. However, because of the
administrative burden and expense, none of the seller, the depositor, the
servicer or the related trustee will amend any certificate of title to identify
either the depositor or such trust as the new secured party on such certificate
of title relating to a financed vehicle nor will any such entity execute and
file any transfer instrument. In most states, such assignment is an effective
conveyance of such security interest without amendment of any lien noted on the
related certificates of title and the new secured party succeeds to the seller's
rights as the secured party as against creditors of the obligor. In some states,
in the absence of such endorsement and delivery, neither the indenture trustee
nor the trustee may have a perfected security interest in the financed vehicle.
However, UCC financing statements with respect to the transfer to the
depositor's 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 or the custodian will continue
to hold any certificates of
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title relating to the financed vehicles in its possession as custodian for the
trustee pursuant to the sale and servicing agreement or pooling and servicing
agreement, as applicable.
In most states, assignments such as those under the receivables purchase
agreement and the sale and servicing agreement or pooling and servicing
agreement, as applicable, are an effective conveyance of a security interest
without amendment of any lien noted on a vehicle's certificate of title, and the
assignee succeeds thereby to the assignor's rights as secured party. In such
states, although re-registration of the 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 legal owner on the certificates of title to the
financed vehicles, its security interest could be defeated through fraud or
negligence. Moreover, in certain other states, in the absence of such amendment
and re-registration, a perfected security interest in the financed vehicles may
not have been effectively conveyed to the trust. Except in such event, however,
in the absence of fraud, forgery or administrative error, the notation of
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 creditors who take a security interest in a financed vehicle. In the
receivables purchase agreement, the seller will represent and warrant to the
depositor, who will in turn assign its rights under such warranty to the
applicable trust under the related sale and servicing agreement or pooling and
servicing agreement, that all action necessary for the seller to obtain a
perfected security interest in each financed vehicle has been taken. If there
are any financed vehicles as to which the seller failed to obtain a first
perfected security interest, its security interest would be subordinate to,
among others, subsequent purchasers of such financed vehicles and holders of
perfected security interests therein. Such a failure, however, would constitute
a breach of the seller's representations and warranties under the receivables
purchase agreement and the depositor's representations and warranties under the
sale and servicing agreement or pooling and servicing agreement, as applicable.
Accordingly, unless the breach was cured, the related seller would be required
to repurchase the related receivable from the trust.
Under the laws of most states, a perfected security interest in a vehicle
continues for four months after the vehicle is moved to a new state from the one
in which it is initially registered and thereafter until the owner re-registers
such vehicle in the new state. A majority of states require surrender of the
related certificate of title to re-register a vehicle. In those states that
require a secured party to hold possession of the certificate of title to
maintain perfection of the security interest, the secured party would learn of
the re-registration through the request from the obligor under the related
installment sale contract to surrender possession of the certificate of title.
In the case of vehicles registered in states providing for the notation of a
lien on the certificate of title but not possession by the secured party, the
secured party would receive notice of surrender 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 vehicles 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 vehicle, re-registration
could defeat perfection. In the ordinary course of servicing the receivables,
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 financed vehicle, the servicer must surrender possession
of the certificate of title or will receive notice as a result of its lien noted
thereon and accordingly will have an opportunity to require satisfaction of the
related receivable before release of the lien. Under the sale and servicing
agreement or pooling and servicing agreement, as applicable, the servicer will
be obligated to take appropriate steps, at its own expense, to maintain
perfection of security interests in the financed vehicles.
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Under the laws of most states, liens for repairs performed on a motor
vehicle and liens for unpaid taxes take priority over even a first perfected
security interest in such vehicle. The Internal Revenue Code of 1986, as
amended, also grants priority to certain federal tax liens over the lien of a
secured party. The laws of certain states and federal law permit the
confiscation of motor vehicles by governmental authorities under certain
circumstances if used in unlawful activities, which may result in the loss of a
secured party's perfected security interest in a confiscated vehicle. The seller
will represent and warrant in the receivables purchase agreement to the
depositor, who will in turn assign its rights under such warranty to the
applicable trust under the related sale and servicing agreement or pooling and
servicing agreement, that, as of the closing date, the security interest in each
financed vehicle is prior to all other present liens upon and security interests
in such financed vehicle. However, liens for repairs or taxes could arise at any
time during the term of a receivable. No notice will be given to the trustees or
securityholders in the event such a lien or confiscation arises and any such
lien or confiscation arising after the closing date would not give rise to the
seller's repurchase obligation.
ENFORCEMENT OF SECURITY INTERESTS IN VEHICLES
The servicer on behalf of each trust may take action to enforce its
security interest by repossession and resale of the financed vehicles securing
the trust's receivables. The actual repossession may be contracted out to third
party contractors. Under the UCC and laws applicable in most states, a creditor
can repossess a motor vehicle securing a loan by voluntary surrender,
"self-help" repossession that is "peaceful" or, in the absence of voluntary
surrender and the ability to repossess without breach of the peace, by judicial
process. In the event of default by the obligor, some jurisdictions require that
the obligor be notified of the default and be given a time period within which
to cure the default prior to repossession. Generally, this right of cure may
only be exercised on a limited number of occasions during the term of the
related contract. In addition, the UCC and other state laws require the secured
party to provide the obligor with reasonable notice of the date, time and place
of any public sale and/or the date after which any private sale of the
collateral may be held. The obligor has the right to redeem the collateral prior
to actual sale by paying the secured party the unpaid principal balance of the
obligation, accrued interest thereon plus reasonable expenses for repossessing,
holding and preparing the collateral for disposition and arranging for its sale,
plus, in some jurisdictions, reasonable attorneys' fees or in some states, by
payment of delinquent installments or the unpaid balance.
The proceeds of resale of the repossessed vehicles generally will be
applied first to the expenses of resale and repossession and then to the
satisfaction of the indebtedness. While some states impose prohibitions or
limitations on deficiency judgments if the net proceeds from resale do not cover
the full amount of the indebtedness, a deficiency judgment can be sought in
those states that do not prohibit or limit such judgments. In addition to the
notice requirement, 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. In addition, the UCC permits the debtor 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 debtor 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. 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.
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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 such vehicle or if no such lienholder exists, the UCC requires
the creditor to remit the surplus to the obligor.
CERTAIN BANKRUPTCY CONSIDERATIONS
Steps will be taken in structuring the transactions contemplated hereby so
that the transfer of the receivables from any seller or other transferor that is
not a bankruptcy-remote special purpose entity constitutes a sale, rather than a
pledge of the receivables to secure indebtedness of the seller or the
transferor, as the case may be. However, if any such seller or transferor were
to become a debtor under the federal bankruptcy code, it is possible that a
creditor or trustee in bankruptcy of such seller or transferor, as the case may
be, as debtor-in-possession, may argue that the sale of the receivables by such
seller or transferor, as the case may be, was a pledge of the receivables rather
than a sale. This position, if presented to or accepted by a court, could result
in a delay in or reduction of distribution to the securityholders.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon creditors 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 Military Reservist Relief
Act, state adaptations of the National Consumer Act and of the Uniform Consumer
Credit Code and state motor vehicle retail installment sale acts, retail
installment sales acts and other similar laws. Also, the laws of certain states
impose finance charge ceilings and other restrictions on consumer transactions
and require contract disclosures in addition to those required under federal
law. These requirements impose specific statutory liabilities upon creditors who
fail to comply with their provisions. In some cases, this liability could affect
the ability of an assignee such as the indenture trustee to enforce consumer
finance contracts such as the receivables.
The so-called "Holder-in-Due-Course Rule" of the Federal Trade Commission
has the effect of subjecting a seller (and certain related lenders and their
assignees) in a consumer credit transaction to all claims and defenses which the
obligor in the transaction could assert against the seller of the goods.
Liability under the Holder-in-Due-Course Rule is limited to the amounts paid by
the obligor under the contract, and the holder of the contract may also be
unable to collect any balance remaining due thereunder from the obligor. The
Holder-in-Due-Course Rule is generally duplicated by the Uniform Consumer Credit
Code, other state statutes or the common law in certain states.
Most of the receivables will be subject to the requirements of the
Holder-in-Due-Course Rule. Accordingly, the trust, as holder of the receivables,
will be subject to any claims or defenses that the purchaser of a financed
vehicle may assert against the seller of the financed vehicle. Such claims are
limited to a maximum liability equal to the amounts paid by the obligor on the
receivable.
If an obligor were successful in asserting any such claim or defense as
described in the two immediately preceding paragraphs, such claim or defense
would constitute a breach of a representation and warranty under the receivables
purchase agreement and the sale and servicing agreement or the
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pooling and serving agreement, as applicable, and would create an obligation of
the seller to repurchase such receivable unless the breach were cured.
Courts have applied general equitable principles to secured parties
pursuing repossession or litigation involving deficiency balances. These
equitable principles may have the effect of relieving an obligor from some or
all of the legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protection of the Fourteenth Amendment to the Constitution of the United States.
Courts have generally either upheld the notice provisions of the UCC and related
laws as reasonable or have found that the creditor's repossession and resale do
not involve sufficient state action to afford constitutional protection to
consumers.
Under each receivables purchase agreement, the related seller will warrant
to the depositor who will in turn assign its rights under such warranty to the
applicable trust under the related sale and servicing agreement or pooling and
servicing agreement that each receivable complies with all requirements of law
in all material respects. Accordingly, if an obligor has a claim against such
trust for violation of any law and such claim materially and adversely affects
such trust's interest in a receivable, such violation would constitute a breach
of the warranties of the seller under such receivables purchase agreement and
would create an obligation of the seller to repurchase the receivable unless the
breach is cured.
OTHER MATTERS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a creditor to
realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
creditor from repossessing a motor vehicle, and, as part of the rehabilitation
plan, reduce the amount of the secured indebtedness to the market value of the
motor vehicle at the time of bankruptcy as determined by the court, leaving the
party providing financing as a general unsecured creditor for the remainder of
the indebtedness. A bankruptcy court may also reduce the monthly payments due
under the related contract or change the rate of interest and time of repayment
of the indebtedness.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
of the purchase, ownership, and disposition of the securities and is based on
advice of Brown & Wood LLP, special counsel to ML Asset Backed Corporation. The
summary is based upon the provisions of the Internal Revenue Code of 1986, as
amended, the regulations promulgated thereunder, including, where applicable,
proposed regulations, and the judicial and administrative rulings and decisions
now in effect, all of which are subject to change or possible differing
interpretations. The statutory provisions, regulations, and interpretations on
which this interpretation is based are subject to change, and that type of a
change could apply retroactively. Moreover, there are no cases or IRS rulings on
similar transactions involving both debt and equity interests issued by a trust
with terms similar to those of the notes and the certificates. As a result, the
IRS may disagree with all or a part of the discussion below.
The summary does not purport to deal with all aspects of federal income
taxation that may affect particular investors in light of their individual
circumstances, nor with particular types of investors who
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are the subject of special treatment under the federal income tax laws. This
summary focuses primarily upon investors who will hold securities as "capital
assets", generally, property held for investment, within the meaning of Section
1221 of the Code, but much of the discussion is applicable to other investors as
well. Prospective investors are urged to consult their own tax advisors in
determining the federal, state, local, foreign and any other tax consequences to
them of the purchase, ownership and disposition of the notes and the
certificates.
The federal income tax consequences to holders of securities will vary
depending on whether:
(1) the securities of a series are classified as indebtedness;
(2) an election is made to treat the trust relating to a particular
series of securities as a FASIT under the Code;
(3) the securities represent an ownership interest in some or all of
the assets included in the trust fund for a series; or
(4) the trust relating to a particular series of certificates is
treated as a partnership.
Brown & Wood LLP, special counsel to the depositor, is of the opinion that,
for federal income tax purposes:
- securities issued as notes will be treated as indebtedness;
- securities issued as certificates will be treated as one of the following,
as specified in the related prospectus supplement:
- indebtedness;
- ownership interests in the related trust or in its assets; or
- "FASIT regular securities" or "FASIT ownership securities".
The latter treatment would occur in the event that a FASIT election is made with
respect to the trust, as described below under "-- FASIT Provisions". Each
prospectus supplement will specify which of these treatments applies to the
securities being issued. Brown & Wood LLP is of the opinion that "FASIT regular
securities" will generally be treated as indebtedness issued by the applicable
FASIT.
In all cases, each trust fund will be structured to not be subject to an
entity level tax, and Brown & Wood LLP is of the opinion that each trust fund
will not be characterized as an association, or publicly traded partnership or
taxable mortgage pool, taxable as a corporation.
The prospectus supplement for each series of securities will specify how
the securities will be treated for federal income tax purposes. Prior to
issuance of each series of securities, the company shall file with the SEC a
Current Report on Form 8-K on behalf of the related trust containing an opinion
of counsel to the company with respect to the validity of the information set
forth under "Material Federal Income Tax Consequences" in this prospectus and in
the related prospectus supplement.
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TRUSTS FOR WHICH A PARTNERSHIP ELECTION IS MADE
TAX CHARACTERIZATION OF THE TRUST AS A PARTNERSHIP
Brown & Wood LLP, special counsel to the company, is of the opinion that a
trust for which a partnership election is made will not be an association (or
publicly traded partnership) taxable as a corporation for federal income tax
purposes. This opinion is based on the assumption that the terms of the trust
agreement and related documents will be complied with, and on counsel's
conclusions that the nature of the income of the trust will exempt it from the
rule that certain publicly traded partnerships are taxable as corporations.
If a trust were taxable as a corporation for federal income tax purposes,
the trust would be subject to corporate income tax on its taxable income. The
trust's taxable income would include all its income on the receivables, and may
possibly be reduced by its interest expense on the notes. Any such corporate
income tax could materially reduce cash available to make payments on the notes
and distributions on the certificates, and certificateholders could be liable
for any such tax that is unpaid by the trust.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
Treatment of the Notes as Indebtedness. The depositor will agree, and the
noteholders will agree by their purchase of notes, to treat the notes as debt
for federal income tax purposes. If the notes are structured as indebtedness
secured by the assets of the trust, Brown & Wood LLP, special counsel to the
company, is of the opinion that the notes will be treated as debt for United
States federal income tax purposes. At the time those notes are issued special
counsel will deliver an opinion generally to that effect.
OID, etc. The discussion below assumes that all payments on the notes are
denominated in United States dollars, that principal and interest is payable on
the notes and that the notes are not indexed securities or are entitled to
principal or interest payments with disproportionate, nominal or no payments.
Moreover, the discussion assumes that the interest formula for the notes meets
the requirements for "qualified stated interest" under the OID regulations
relating to original issue discount, and that any OID on the notes (i.e., any
excess of the principal amount of the notes over their issue price) does not
exceed a de minimis amount (i.e., 1/4% of their principal amount multiplied by
the number of full years included in their term), all within the meaning of the
OID regulations. If these conditions are not satisfied with respect to the
notes, additional tax considerations with respect to such notes will be provided
in the applicable prospectus supplement.
Interest Income on the Notes. Based on the foregoing assumptions, except as
discussed in the following paragraph, the notes will not be considered issued
with OID. The stated interest thereon will be taxable to a noteholder as
ordinary interest income when received or accrued in accordance with such
noteholder's method of tax accounting. Under the OID regulations, a holder of a
note issued with a de minimis amount of OID must include such OID in income, on
a pro rata basis, as principal payments are made on the note. A purchaser who
buys a note for more or less than its principal amount will generally be
subject, respectively, to the premium amortization or market discount rules of
the Code.
A holder of a note that has a fixed maturity date of not more than one year
from its issue date may be subject to special rules. An accrual basis holder of
a Short-Term Note, and certain cash method holders, including regulated
investment companies, as set forth in Section 1281 of the Code, generally would
be required to report interest income as interest accrues on a straight-line
basis over the term of
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each interest period. Other cash basis holders of a Short-Term Note would, in
general, be required to report interest income as interest is paid or, if
earlier, upon the taxable disposition of the Short-Term Note. However, a cash
basis holder of a Short-Term Note reporting interest income as it is paid may be
required to defer a portion of any interest expense otherwise deductible on
indebtedness incurred to purchase or carry the Short-Term Note until the taxable
disposition of the Short-Term Note. A cash basis taxpayer may elect under
Section 1281 of the Code to accrue interest income on all nongovernment debt
obligations with a term of one year or less, in which case the taxpayer would
include interest on the Short-Term Note in income as it accrues, but would not
be subject to the interest expense deferral rule referred to in the preceding
sentence. Certain special rules apply if a Short-Term Note is purchased for more
or less than its principal amount.
Sale or Other Disposition. If a noteholder sells a note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the note. The
adjusted tax basis of a note to a particular noteholder will equal the holder's
cost for the note, increased by any market discount, acquisition discount, OID
and gain previously included by such noteholder in income with respect to the
note and decreased by the amount of bond premium (if any) previously amortized
and by the amount of principal payments previously received by such noteholder
with respect to such note. Any such gain or loss will be capital gain or loss if
the note was held as a capital asset, except for gain representing accrued
interest and accrued market discount not previously included in income. Any
capital gain recognized upon a sale, exchange or other disposition of a note
will be long-term capital gain if the seller's holding period is more than one
year and will be short-term capital gain if the seller's holding period is one
year or less. The deductibility of capital losses is subject to certain
limitations. Prospective investors should consult with their own tax advisors
concerning the United States federal tax consequences of the sale, exchange or
other disposition of a note.
Foreign Holders. Interest payments made (or accrued) to a noteholder who is
a nonresident alien, foreign corporation or other non-United States person
generally will be considered "portfolio interest", and generally will not be
subject to United States federal income tax and withholding tax, if the interest
is not effectively connected with the conduct of a trade or business within the
United States by the foreign person and the foreign person (i) is not actually
or constructively a "10 percent shareholder" of the trust or the depositor
(including a holder of 10% of the outstanding certificates) or a "controlled
foreign corporation" with respect to which the trust or the seller is a "related
person" within the meaning of the Code and (ii) provides the indenture trustee
or other person who is otherwise required to withhold United States tax with
respect to the notes with an appropriate statement (on Form W-8 or a similar
form), signed under penalty of perjury, certifying that the beneficial owner of
the note is a foreign person and providing the foreign person's name and
address. If a note is held through a securities clearing organization or certain
other financial institutions, the organization or institution may provide the
relevant signed statement to the withholding agent; in that case, however, the
signed statement must be accompanied by IRS Form W-8 or IRS Form W-8BEN or
substitute form provided by the foreign person that owns the note. If such
interest is not portfolio interest, then it will be subject to withholding tax
at a rate of 30 percent, unless the foreign person provides a properly executed
(i) IRS Form 1001 or IRS Form W-8BEN claiming an exemption from or reduction in
withholding under the benefit of a tax treaty or (ii) IRS Form 4224 or IRS Form
W-8ECI stating that interest paid is not subject to withholding tax because it
is effectively connected with the foreign person's conduct of a trade or
business in the United States. If the interest is effectively connected income,
the foreign person, although exempt from the withholding tax discussed above,
will be subject to United States federal income tax on such interest at
graduated rates. After December 31, 2000, only IRS Form W-8BEN and Form W-8ECI
will be acceptable.
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Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) such gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year and does not otherwise have a "tax home" within the
United States.
Backup Withholding. Each holder of a note (other than an exempt holder such
as a corporation, tax-exempt organization, qualified pension and profit-sharing
trust, individual retirement account or nonresident alien who provides
certification as to status as a nonresident) will be required to provide, under
penalty of perjury, a certificate containing the holder's name, address, correct
federal taxpayer identification number and a statement that the holder is not
subject to backup withholding. Should a nonexempt noteholder fail to provide the
required certification, the trust will be required to withhold 31 percent of the
amount otherwise payable to the holder, and remit the withheld amount to the IRS
as a credit against the holder's federal income tax liability.
New Withholding Regulations. Recently, the Treasury Department issued New
Regulations which make certain modifications to withholding, backup withholding
and information reporting rules. The New Regulations attempt to unify
certification requirements and modify reliance standards. The New Regulations
will generally be effective for payments made after December 31, 2000, subject
to certain transition rules. Prospective investors are urged to consult their
own tax advisors regarding the New Regulations.
Possible Alternative Treatments of the Notes. If, contrary to the opinion
of Federal tax counsel, the IRS successfully asserted that one or more of the
notes did not represent debt for federal income tax purposes, the notes might be
treated as equity interests in the trust. If so treated, the trust might be
treated as a publicly traded partnership taxable as a corporation with
potentially adverse tax consequences (and the publicly traded partnership
taxable as a corporation would not be able to reduce its taxable income by
deductions for interest expense on notes recharacterized as equity).
Alternatively, and most likely in the view of federal tax counsel, the trust
would be treated as a publicly traded partnership that would not be taxable as a
corporation because it would meet certain qualifying income tests. Nonetheless,
treatment of the notes as equity interests in such a partnership could have
adverse tax consequences to certain holders. For example, income to certain
tax-exempt entities (including pension funds) would be "unrelated business
taxable income", income to foreign holders generally would be subject to United
States tax and United States tax return filing and withholding requirements, and
individual holders might be subject to certain limitations on their ability to
deduct their share of trust expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
Treatment of the Trust as a Partnership. The depositor will agree, and the
certificateholders will agree by their purchase of certificates, to treat the
trust as a partnership for purposes of federal and state income tax, franchise
tax and any other tax measured in whole or in part by income, with the assets of
the partnership being the assets held by the trust, the partners of the
partnership being the certificateholders (including the seller in its capacity
as recipient of distributions from any reserve fund), and the notes being debt
of the related partnership. However, the proper characterization of the
arrangement involving the trust, the certificates, the notes, the depositor and
the seller is not clear because there is no authority on transactions closely
comparable to that contemplated herein.
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A variety of alternative characterizations are possible. For example,
because the certificates have certain features characteristic of debt, the
certificates might be considered debt of the depositor or the trust. Any such
characterization would not result in materially adverse tax consequences to
certificateholders as compared to the consequences from treatment of the
certificates as equity in a partnership, described below. The following
discussion assumes that the certificates represent equity interests in a
partnership.
Indexed Securities, etc. The following discussion assumes that all payments
on the certificates are denominated in United States dollars, principal and
interest are distributed on the certificates, that a series of securities
includes a single class of certificates and that the certificates are not
indexed securities or are entitled to principal or interest payments with
disproportionate, nominal or no payments. If these conditions are not satisfied
with respect to any given series of certificates, additional tax considerations
with respect to such certificates will be disclosed in the applicable prospectus
supplement.
Partnership Taxation. As a partnership, the trust will not be subject to
federal income tax. Rather, each certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the trust. The trust's income will consist
primarily of interest and finance charges earned on the receivables (including
appropriate adjustments for market discount, OID and bond premium) and any gain
upon collection or disposition of receivables. The trust's deductions will
consist primarily of interest accruing with respect to the notes, servicing and
other fees, and losses or deductions upon collection or disposition of
receivables.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (in this case,
the trust agreement and related documents). The trust agreement will provide, in
general, that the certificateholders will be allocated taxable income of the
trust for each month equal to the sum of
(i) the interest that accrues on the certificates in accordance with
their terms for such month, including interest accruing at the
applicable pass-through rate for such month and interest on
amounts previously due on the certificates but not yet
distributed;
(ii) any trust income attributable to discount on the receivables that
corresponds to any excess of the principal amount of the
certificates over their initial issue price;
(iii) prepayment premium payable to the certificateholders for such
month; and
(iv) any other amounts of income payable to the certificateholders for
such month.
Such allocation will be reduced by any amortization by the trust of premium
on receivables that corresponds to any excess of the issue price of certificates
over their principal amount. All remaining taxable income of the trust will be
allocated to the depositor. Based on the economic arrangement of the parties,
this approach for allocating trust income should be permissible under applicable
Treasury regulations, although no assurance can be given that the IRS would not
require a greater amount of income to be allocated to certificateholders.
Moreover, even under the foregoing method of allocation, certificateholders may
be allocated income equal to the entire pass-through rate plus the other items
described above even though the trust might not have sufficient cash to make
current cash distributions of such amount. Thus, cash basis holders will in
effect be required to report income from the certificates on the accrual basis
and certificateholders may become liable for taxes on trust income even if they
have not received cash from the trust to pay such taxes. In addition, because
tax allocations and tax reporting will
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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
"Allocations Between Transferors and Transferees" below.
All of the taxable income allocated to a certificateholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) will constitute "unrelated business
taxable income" generally taxable to such a holder under the Code.
An individual taxpayer's share of expenses of the trust (including fees to
the servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or in
part and might result in such holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such holder over the life of
the trust.
The trust intends to make all tax calculations relating to income and
allocations to certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each receivable, the trust
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on certificateholders.
Discount and Premium. Unless otherwise indicated in the applicable
prospectus supplement, the applicable seller will represent that the receivables
were not issued with OID, and, therefore, the trust should not have OID income.
However, the purchase price paid by the trust for the receivables may be greater
or less than the remaining principal balance of the receivables at the time of
purchase. If so, the receivables will have been acquired at a premium or
discount, as the case may be. (As indicated above, the trust will make this
calculation on an aggregate basis, but might be required to recompute it on a
receivable-by-receivable basis.)
If the trust acquires the receivables at a market discount or premium, the
trust will elect to include any such discount in income currently as it accrues
over the life of the receivables or to offset any such premium against interest
income on the receivables. As indicated above, a portion of such market discount
income or premium deduction may be allocated to certificateholders.
Section 708 Termination. Under Section 708 of the Code, the trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the trust are sold or exchanged within a
12-month period. Pursuant to final Treasury regulations issued on May 9, 1997,
if such a termination occurs, the trust will be considered to have contributed
the assets of the trust to a new partnership in exchange for interests in the
partnership. Such interests would be deemed distributed to the partners of the
old partnership in liquidation thereof, which would not constitute a sale or
exchange.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the certificates sold.
A certificateholder's tax basis in a certificate will generally equal the
holder's cost increased by the holder's share of trust income (includible in
income) and decreased by any distributions received with respect to such
certificate. In addition, both the tax basis in the certificates and the amount
realized on a sale of a certificate would include the holder's share of the
notes and other liabilities of the trust. A holder acquiring certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such certificates, and, upon sale or other disposition of some of the
certificates, allocate a portion of such aggregate tax basis to the certificates
sold (rather than maintaining a separate tax basis in each certificate for
purposes of computing gain or loss on a sale of that certificate).
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Any gain on the sale of a certificate attributable to the holder's share of
unrecognized accrued market discount on the receivables would generally be
treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The trust does not expect to have any other assets that
would give rise to such special reporting requirements. Thus, to avoid those
special reporting requirements, the trust will elect to include market discount
in income as it accrues.
If a certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the certificates.
Allocations Between Transferors and Transferees. In general, the trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the certificateholders in
proportion to the principal amount of certificates owned by them as of the close
of the last day of such month. As a result, a holder purchasing certificates may
be allocated tax items (which will affect its tax liability and tax basis)
attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the trust might be reallocated among the certificateholders. The depositor is
authorized to revise the trust's method of allocation between transferors and
transferees to conform to a method permitted by future regulations.
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 an 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 the
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 (IRS Form 1065) with the IRS for each taxable year of the
trust and will report each certificateholder's allocable share of items of trust
income and expense to holders and the IRS on Schedule K-1. The trust will
provide the Schedule K-1 information to nominees that fail to provide the trust
with the information statement described below and such nominees will be
required to forward such information to the beneficial owners of the
certificates. Generally, holders must file tax returns that are consistent with
the information return filed by the trust or be subject to penalties unless the
holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds certificates as a
nominee at any time during a calendar year is required to furnish the trust with
a statement containing certain information on the nominee, the beneficial owners
and the certificates so held. Such information includes (i) the name, address
and taxpayer identification number of the nominee and (ii) as to each beneficial
owner (a) the name, address and identification number of such person, (b)
whether such person is a United States person, a tax-exempt entity or a foreign
government, an international organization, or any wholly owned
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agency or instrumentality of either of the foregoing, and (c) certain
information on certificates that were held, bought or sold on behalf of such
person throughout the year. In addition, brokers and financial institutions that
hold certificates through a nominee are required to furnish directly to the
trust information as to themselves and their ownership of certificates. A
clearing agency registered under Section 17A of the Securities Exchange Act of
1934, as amended, is not required to furnish any such information statement to
the trust. The information referred to above for any calendar year must be
furnished to the trust on or before the following January 31. Nominees, brokers
and financial institutions that fail to provide the trust with the information
described above may be subject to penalties.
The depositor will be designated as the tax matters partner in the related
trust agreement and, as such, will be responsible for representing the
certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the trust by the appropriate taxing authorities could
result in an adjustment of the returns of the certificateholders, and, under
certain circumstances, a certificateholder may be precluded from separately
litigating a proposed adjustment to the items of the trust. An adjustment could
also result in an audit of a certificateholder's returns and adjustments of
items not related to the income and losses of the trust.
Tax Consequences to Foreign Certificateholders. It is not clear whether the
trust would be considered to be engaged in a trade or business in the United
States for purposes of federal withholding taxes with respect to non-United
States persons because there is no clear authority dealing with that issue under
facts substantially similar to those described herein. Although it is not
expected that the trust would be engaged in a trade or business in the United
States for such purposes, the trust will withhold as if it were so engaged in
order to protect the trust from possible adverse consequences of a failure to
withhold. The trust expects to withhold on the portion of its taxable income
that is allocable to foreign certificateholders pursuant to Section 1446 of the
Code, as if such income were effectively connected to a United States trade or
business, at a rate of 35% for foreign holders that are taxable as corporations
and 39.6% for all other foreign holders. Subsequent adoption of Treasury
regulations or the issuance of other administrative pronouncements may require
the trust to change its withholding procedures. In determining a holder's
withholding status, the trust may rely on IRS Form W-8 or IRS Form W-8BEN, IRS
Form W-9 or the holder's certification of nonforeign status signed under
penalties of perjury.
Each foreign holder might be required to file a United States individual or
corporate income tax return (including, in the case of a corporation, the branch
profits tax) on its share of the trust's income. Each foreign holder must obtain
a taxpayer identification number from the IRS and submit that number to the
trust on IRS Form W-8 or IRS Form W-8BEN (or substantially identical form) in
order to assure appropriate crediting of the taxes withheld. A foreign holder
generally would be entitled to file with the IRS a claim for refund with respect
to taxes withheld by the trust, taking the position that no taxes were due
because the trust was not engaged in a United States trade or business. However,
interest payments made (or accrued) to a certificateholder who is a foreign
person generally will be considered guaranteed payments to the extent such
payments are determined without regard to the income of the trust. If these
interest payments are properly characterized as guaranteed payments, then the
interest will not be considered "portfolio interest". As a result,
certificateholders will be subject to United States federal income tax and
withholding tax at a rate of 30%, 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.
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Backup Withholding. Distributions made on the certificates and proceeds
from the sale of the certificates will be subject to a "backup" withholding tax
of 31% if, in general, the certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
New Withholding Regulations. Recently, the Treasury Department issued the
New Regulations which attempt to unify certification requirements and modify
reliance standards. The New Regulations will generally be effective for payments
made after December 31, 2000, subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the New
Regulations.
TRUSTS IN WHICH ALL CERTIFICATES ARE RETAINED BY THE SELLER OR AN AFFILIATE OF
THE SELLER
TAX CHARACTERIZATION OF THE TRUST
Brown & Wood LLP, special counsel to the company, is of the opinion that a
trust which issues one or more classes of notes to investors and all the
certificates of which are retained by the seller or an affiliate thereof will
not be an association (or publicly traded partnership) taxable as a corporation
for federal income tax purposes. This opinion is based on the assumption that
the terms of the trust agreement and related documents will be complied with,
and on counsel's conclusions that the trust will constitute a mere security
arrangement for the issuance of debt by the single certificateholder.
Treatment of the Notes as Indebtedness. The seller will agree, and the
noteholders will agree by their purchase of notes, to treat the notes as debt
for federal income tax purposes. Assuming such characterization of the notes,
the federal income tax consequences to noteholders described above under the
heading "Trusts For Which a Partnership Election is Made -- Tax Consequences to
Holders of the Notes" would apply to the noteholders.
If, contrary to the opinion of federal tax counsel, the IRS successfully
asserted that one or more classes of notes did not represent debt for federal
income tax purposes, such class or classes of notes might be treated as equity
interests in the trust. If so treated, the trust might be treated as a publicly
traded partnership taxable as a corporation with potentially adverse tax
consequences (and the publicly traded partnership taxable as a corporation would
not be able to reduce its taxable income by deductions for interest expense on
notes recharacterized as equity). Alternatively, and more likely in the view of
federal tax counsel, the trust would most likely be treated as a publicly traded
partnership that would not be taxable as a corporation because it would meet
certain qualifying income tests. Nonetheless, treatment of notes as equity
interests in such a partnership could have adverse tax consequences to certain
holders of such notes. For example, income to certain tax-exempt entities
(including pension funds) would be "unrelated business taxable income", income
to foreign holders may be subject to United States withholding tax and United
States tax return filing requirements, and individual holders might be subject
to certain limitations on their ability to deduct their share of trust expenses.
In the event one or more classes of notes were treated as interests in a
partnership, the consequences governing the certificates as equity interests in
a partnership described above under "Trusts For Which a Partnership Election is
Made -- Tax Consequences to Holders of the Certificates" would apply to the
holders of such notes.
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TRUSTS TREATED AS GRANTOR TRUSTS
TAX CHARACTERIZATION OF THE TRUST AS A GRANTOR TRUST
If a partnership election is not made, then the depositor will have
structured the trust to be classified for federal income tax purposes as a
grantor trust under subpart E, part 1, subchapter J, chapter 1 of subtitle A of
the Code, in which case, Brown & Wood LLP, special counsel to the company, is of
the opinion that, assuming compliance with the agreements and with applicable
law, that arrangement will not be treated as an association taxable as a
corporation for United States federal income tax purposes, and the certificates
will be treated as representing ownership interests in the related trust assets
and at the time those certificates are issued, special counsel to the company
will deliver an opinion generally to that effect. The certificates issued by a
trust that is treated as a grantor trust are referred to in this section as
"Grantor Trust Certificates" and the owners of Grantor Trust Certificates are
referred to as "Grantor Trust Certificateholders".
Characterization. Each Grantor Trust Certificateholder will be treated as
the owner of a pro rata undivided interest in the interest and principal
portions of the trust represented by the Grantor Trust Certificates and will be
considered the equitable owner of a pro rata undivided interest in each of the
receivables in the trust. Any amounts received by a Grantor Trust
Certificateholder in lieu of amounts due with respect to any receivable because
of a default or delinquency in payment will be treated for federal income tax
purposes as having the same character as the payments they replace.
Each Grantor Trust Certificateholder will be required to report on its
federal income tax return in accordance with such Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire income
from the receivables in the trust represented by Grantor Trust Certificates,
including interest, OID, if any, prepayment fees, assumption fees, any gain
recognized upon an assumption and late payment charges received by the servicer.
Under Sections 162 or 212 each Grantor Trust Certificateholder will be entitled
to deduct its pro rata share of servicing fees, prepayment fees, assumption
fees, any loss recognized upon an assumption and late payment charges retained
by the servicer, provided that such amounts are reasonable compensation for
services rendered to the trust. Grantor Trust Certificateholders that are
individuals, estates or trusts will be entitled to deduct their share of
expenses only to the extent such expenses plus all other Section 212 expenses
exceed two percent of its adjusted gross income. In addition, Section 68 of the
Code provides that the amount of itemized deductions otherwise allowable for an
individual whose adjusted gross income exceeds a specified amount will be
reduced by the lesser of (i) 3% of the excess of the individual's adjusted gross
income over such amount or (ii) 80% of the amount of itemized deductions
otherwise allowable for the taxable year. Further, Grantor Trust
Certificateholders (other than corporations) subject to the alternative minimum
tax may not deduct miscellaneous itemized deductions in determining such
holder's alternative minimum taxable income. A Grantor Trust Certificateholder
using the cash method of accounting must take into account its pro rata share of
income and deductions as and when collected by or paid to the servicer. A
Grantor Trust Certificateholder using an accrual method of accounting must take
into account its pro rata share of income and deductions as they become due or
are paid to the servicer, whichever is earlier. If the servicing fees paid to
the servicer are deemed to exceed reasonable servicing compensation, the amount
of such excess could be considered as an ownership interest retained by the
servicer (or any person to whom the servicer assigned for value all or a portion
of the servicing fees) in a portion of the interest payments on the receivables.
The receivables would then be subject to the "stripped bond" rules of the Code
discussed below.
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Stripped Bonds. If the servicing fees on the receivables are deemed to
exceed reasonable servicing compensation, based on recent guidance by the IRS,
each purchaser of a Grantor Trust Certificate will be treated as the purchaser
of a stripped bond which generally should be treated as a single debt instrument
issued on the day it is purchased for purposes of calculating any original issue
discount. Generally, under recently issued Treasury regulations -- the Section
1286 Treasury Regulations" -- if the discount on a stripped bond is larger than
a de minimis amount (as calculated for purposes of the OID rules of the Code)
such stripped bond will be considered to have been issued with OID. See
"Original Issue Discount". The original issue discount on a Grantor Trust
Certificate will be the excess of such Certificate's stated redemption price
over its issue price. The issue price of a Grantor Trust Certificate as to any
purchaser will be equal to the price paid by such purchaser of the Grantor Trust
Certificate. The stated redemption price of a Grantor Trust Certificate will be
the sum of all payments to be made on such Certificate other than "qualified
stated interest", if any. Based on the preamble to the Section 1286 Treasury
Regulations, federal tax counsel is of the opinion that, although the matter is
not entirely clear, the interest income on the certificates at the sum of the
pass through rate and the portion of the servicing fee rate that does not
constitute excess servicing will be treated as "qualified stated interest"
within the meaning of the Section 1286 Treasury Regulations and such income will
be so treated in the trustee's tax information reporting. Notice will be given
in the applicable pricing supplement when it is determined that Grantor Trust
Certificates will be issued with greater than de minimis OID.
Original Issue Discount on Stripped Bonds. If the stripped bonds have more
than a de minimis amount of OID, the special rules of the Code relating to
"original issue discount" (currently Sections 1271 through 1273 and 1275) will
be applicable to a Grantor Trust Certificateholder's interest in those
receivables treated as Stripped Bonds. Generally, a Grantor Trust
Certificateholder that acquires an interest in a stripped bond issued or
acquired with OID must include in gross income the sum of the "daily portions,"
as defined below, of the OID on such stripped bond for each day on which it owns
a certificate, including the date of purchase but excluding the date of
disposition. In the case of an original Grantor Trust Certificateholder, the
daily portions of OID with respect to a stripped bond generally would be
determined as follows. A calculation will be made of the portion of OID that
accrues on the stripped bond during each successive monthly accrual period (or
shorter period in respect of the date of original issue or the final payment
date). This will be done, in the case of each full monthly accrual period, by
adding (i) the present value of all remaining payments to be received on the
stripped bond under the prepayment assumption used in respect of the stripped
bonds and (ii) any payments received during such accrual period, and subtracting
from that total the "adjusted issue price" of the stripped bond at the beginning
of such accrual period. No representation is made that the stripped bonds will
prepay at any prepayment assumption. The "adjusted issue price" of a stripped
bond at the beginning of the first accrual period is its issue price (as
determined for purposes of the OID rules of the Code) and the "adjusted issue
price" of a stripped bond at the beginning of a subsequent accrual period is the
"adjusted issue price" at the beginning of the immediately preceding accrual
period plus the amount of OID allocable to that accrual period and reduced by
the amount of any payment (other than "qualified stated interest") made at the
end of or during that accrual period. The OID accruing during such accrual
period will then be divided by the number of days in the period to determine the
daily portion of OID for each day in the period. With respect to an initial
accrual period shorter than a full monthly accrual period, the daily portions of
OID must be determined according to an appropriate allocation under either an
exact or approximate method set forth in the OID Regulations, or some other
reasonable method, provided that such method is consistent with the method used
to determine the yield to maturity of the stripped bonds.
With respect to stripped bonds, the method of calculating OID as described
above will cause the accrual of OID to either increase or decrease (but never
below zero) in any given accrual period to reflect the fact that prepayments are
occurring at a faster or slower rate than the prepayment assumption used in
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respect of the stripped bonds. Subsequent purchasers that purchase stripped
bonds at more than a de minimis discount should consult their tax advisors with
respect to the proper method to accrue such OID.
Market Discount if Stripped Bond Rules Do Not Apply. A Grantor Trust
Certificateholder that acquires an undivided interest in receivables may be
subject to the market discount rules of Sections 1276 through 1278 to the extent
an undivided interest in a receivable is considered to have been purchased at a
"market discount". Generally, the amount of market discount is equal to the
excess of the portion of the principal amount of such receivable allocable to
such holder's undivided interest over such holder's tax basis in such interest.
Market discount with respect to a Grantor Trust Certificate will be considered
to be zero if the amount allocable to the Grantor Trust Certificate is less than
0.25% of the Grantor Trust Certificate's stated redemption price at maturity
multiplied by the weighted average maturity remaining after the date of
purchase. Treasury regulations implementing the market discount rules have not
yet been issued; therefore, investors should consult their own tax advisors
regarding the application of these rules and the advisability of making any of
the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled payment
or a prepayment) or any gain on disposition of a market discount bond shall be
treated as ordinary income to the extent that it does not exceed the accrued
market discount at the time of such payment. The amount of accrued market
discount for purposes of determining the tax treatment of subsequent principal
payments or dispositions of the market discount bond is to be reduced by the
amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue regulations
providing for the computation of accrued market discount on debt instruments,
the principal of which is payable in more than one installment. While the
Treasury Department has not yet issued regulations, rules described in the
relevant legislative history will apply. Under those rules, the holder of a
market discount bond may elect to accrue market discount either on the basis of
a constant interest rate or according to one of the following methods. If a
Grantor Trust Certificate is issued with OID, the amount of market discount that
accrues during any accrual period would be equal to the product of (i) the total
remaining market discount and (ii) a fraction, the numerator of which is the OID
accruing during the period and the denominator of which is the total remaining
OID at the beginning of the accrual period. For Grantor Trust Certificates
issued without OID, the amount of market discount that accrues during a period
is equal to the product of (i) the total remaining market discount and (ii) a
fraction, the numerator of which is the amount of stated interest paid during
the accrual period and the denominator of which is the total amount of stated
interest remaining to be paid at the beginning of the accrual period. For
purposes of calculating market discount under any of the above methods in the
case of instruments (such as the Grantor Trust Certificates) that provide for
payments that may be accelerated by reason of prepayments of other obligations
securing such instruments, the same prepayment assumption applicable to
calculating the accrual of OID will apply. Because the regulations described
above have not been issued, it is impossible to predict what effect those
regulations might have on the tax treatment of a Grantor Trust Certificate
purchased at a discount or premium in the secondary market.
A holder who acquired a Grantor Trust Certificate at a market discount also
may be required to defer a portion of its interest deductions for the taxable
year attributable to any indebtedness incurred or continued to purchase or carry
such Grantor Trust Certificate purchased with market discount. For these
purposes, the de minimis rule referred above applies. Any such deferred interest
expense would not exceed the market discount that accrues during such taxable
year and is, in general, allowed as a deduction not later than the year in which
such market discount is includible in income. If such holder elects to include
market discount in income currently as it accrues on all market discount
instruments
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acquired by such holder in that taxable year or thereafter, the interest
deferral rule described above will not apply.
Premium. The price paid for a Grantor Trust Certificate by a holder will be
allocated to such holder's undivided interest in each receivable based on each
receivable's relative fair market value, so that such holder's undivided
interest in each receivable will have its own tax basis. A Grantor Trust
Certificateholder that acquires an interest in receivables at a premium may
elect to amortize such premium under a constant interest method. Amortizable
bond premium will be treated as an offset to interest income on such Grantor
Trust Certificate. The basis for such Grantor Trust Certificate will be reduced
to the extent that amortizable premium is applied to offset interest payments.
It is not clear whether a reasonable prepayment assumption should be used in
computing amortization of premium allowable under Section 171. A Grantor Trust
Certificateholder that makes this election for a Grantor Trust Certificate that
is acquired at a premium will be deemed to have made an election to amortize
bond premium with respect to all debt instruments having amortizable bond
premium that such Grantor Trust Certificateholder acquires during the year of
the election or thereafter.
If a premium is not subject to amortization using a reasonable prepayment
assumption, the holder of a Grantor Trust Certificate acquired at a premium
should recognize a loss if a receivable prepays in full, equal to the difference
between the portion of the prepaid principal amount of such receivable that is
allocable to the Grantor Trust Certificate and the portion of the adjusted basis
of the Grantor Trust Certificate that is allocable to such receivable. If a
reasonable prepayment assumption is used to amortize such premium, it appears
that such a loss would be available, if at all, only if prepayments have
occurred at a rate faster than the reasonable assumed prepayment rate. It is not
clear whether any other adjustments would be required to reflect differences
between an assumed prepayment rate and the actual rate of prepayments.
On December 30, 1997 the IRS issued final regulations -- the Amortizable
Bond Premium Regulations -- dealing with amortizable bond premium. These
regulations specifically do not apply to prepayable debt instruments subject to
Code Section 1272(a)(6). Absent further guidance from the IRS, the trustee
intends to account for amortizable bond premium in the manner described above.
It is recommended that prospective purchasers of the certificates consult their
tax advisors regarding the possible application of the Amortizable Bond Premium
Regulations.
Election to Treat All Interest as OID. The OID regulations permit a Grantor
Trust Certificateholder to elect to accrue all interest, discount (including de
minimis market or original issue discount) and premium in income as interest,
based on a constant yield method. If such an election were to be made with
respect to a Grantor Trust Certificate with market discount, the 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 such Grantor Trust Certificateholder acquires during the
year of the election or thereafter. Similarly, a Grantor Trust Certificateholder
that makes this election for a Grantor Trust Certificate that is acquired at a
premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
Grantor Trust Certificateholder owns or acquires. See "-- Premium". The election
to accrue interest, discount and premium on a constant yield method with respect
to a Grantor Trust Certificate is irrevocable.
Sale or Exchange of a Grantor Trust Certificate. Sale or exchange of a
Grantor Trust Certificate prior to its maturity will result in gain or loss
equal to the difference, if any, between the amount received and the owner's
adjusted basis in the Grantor Trust Certificate. Such adjusted basis generally
will equal
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the seller's purchase price for the Grantor Trust Certificate, increased by the
OID included in the seller's gross income with respect to the Grantor Trust
Certificate, and reduced by principal payments on the Grantor Trust Certificate
previously received by the seller. Such gain or loss will be capital gain or
loss to an owner for which a Grantor Trust Certificate is a "capital asset"
within the meaning of Section 1221, and will be long-term or short-term
depending on whether the Grantor Trust Certificate has been owned for the
long-term capital gain holding period (currently more than twelve months).
Grantor Trust Certificates will be "evidences of indebtedness" within the
meaning of Section 582(c) (1), so that gain or loss recognized from the sale of
a Grantor Trust Certificate by a bank or a thrift institution to which such
section applies will be treated as ordinary income or loss.
Non-United States Persons. Generally, to the extent that a Grantor Trust
Certificate evidences ownership in underlying receivables that were issued on or
before July 18, 1984, interest or OID paid by the person required to withhold
tax under Section 1441 or 1442 to (i) an owner that is not a United States
Person (as defined below) or (ii) a Grantor Trust Certificateholder holding on
behalf of an owner that is not a United States Person will be subject to federal
income tax, collected by withholding, at a rate of 30% or such lower rate as may
be provided for interest by an applicable tax treaty. Accrued OID recognized by
the owner on the sale or exchange of such a Grantor Trust Certificate also will
be subject to federal income tax at the same rate. Generally, such payments
would not be subject to withholding to the extent that a Grantor Trust
Certificate evidences ownership in receivables issued after July 18, 1984, by
natural persons if such Grantor Trust Certificateholder complies with certain
identification requirements (including delivery of a statement, signed by the
Grantor Trust Certificateholder under penalty of perjury, certifying that such
Grantor Trust Certificateholder is not a United States Person and providing the
name and address of such Grantor Trust Certificateholder). Additional
restrictions apply to receivables of where the obligor is not a natural person
in order to qualify for the exemption from withholding.
As used herein, a "United States Person" means a citizen or resident of the
United States, a corporation or a partnership organized in or under the laws of
the United States, any state thereof or the District of Columbia, an estate, the
income of which from sources outside the United States is includible in gross
income for federal income tax purposes regardless of its connection with the
conduct of a trade or business within the United States, or a trust if a court
within the United States is able to exercise primary supervision of the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the 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 such
year, such information as may be deemed necessary or desirable to assist Grantor
Trust Certificateholders in preparing their federal income tax returns, or to
enable holders to make such information available to beneficial owners or
financial intermediaries that hold Grantor Trust Certificates as nominees on
behalf of beneficial owners. If a holder, beneficial owner, financial
intermediary or other recipient of a payment on behalf of a beneficial owner
fails to supply a certified taxpayer identification number or if the Secretary
of the Treasury determines that such person has not reported all interest and
dividend income required to be shown on its federal income tax return, 31%
backup withholding may be required with respect to any payments. Any amounts
deducted and withheld from a distribution to a recipient would be allowed as a
credit against such recipient's federal income tax liability.
New Withholding Regulations. Recently, the Treasury Department issued the
New Regulations which attempt to unify certification requirements and modify
reliance standards. The New Regulations
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will generally be effective for payments made after December 31, 2000, subject
to certain transition rules. Prospective investors are urged to consult their
own tax advisors regarding the New Regulations.
FASIT PROVISIONS
The Small Business and Job Protection Act of 1996 added Sections 860H
through 860L to the Code -- the FASIT provisions -- which provide for a new type
of entity for United States federal income tax purposes known as a "financial
asset securitization investment trust" or "FASIT". Federal tax counsel will
deliver its opinion that a trust for which a FASIT election is made will be
treated as a FASIT for federal income tax purposes assuming compliance with the
terms of the trust agreement (including the making of a timely FASIT election)
and related documents. The FASIT provisions of the Code became effective on
September 1, 1997. On February 4, 2000, the IRS and Treasury Department issued
proposed Treasury regulations on FASITs. The regulations generally would not be
effective until final regulations are filed with the federal register. However,
it appears that certain anti-abuse rules would apply as of February 4, 2000.
Accordingly, definitive guidance cannot be provided with respect to many aspects
of the tax treatment of the trust or the holders of FASIT regular interests
(such holders, "FASIT Regular Noteholders"). In general, the FASIT legislation
will enable a trust to be treated as a pass through entity not subject to United
States federal entity-level income tax (except with respect to certain
prohibited transactions) and to issue securities that would be treated as debt
for United States federal income tax purposes.
Qualification as a FASIT. A trust will qualify under the Code as a FASIT in
which FASIT Regular Notes will constitute the "regular interests" and the
certificate issued by the trust (the "FASIT Ownership Security") will constitute
the "ownership interest", respectively, if (i) a FASIT election is in effect,
(ii) certain tests concerning (a) the composition of the FASIT's assets and (b)
the nature of the noteholders' interests in the FASIT are met on a continuing
basis and (iii) the trust is not a regulated investment company as defined in
section 851(a) of the Code. Moreover, the qualification as a FASIT of any trust
for which a FASIT election is made (a "FASIT Trust") depends on the trust's
ability to satisfy the requirements of the FASIT provisions on an ongoing basis,
including, without limitation, the requirements of any final Treasury
regulations that may be promulgated in the future under the FASIT provisions or
as a result of any change in applicable law. Thus, no assurances can be made
regarding the qualification as a FASIT of any FASIT Trust for which a FASIT
election is made at any particular time after the issuance of securities by the
FASIT Trust.
Asset Composition. In order for the trust to be eligible for FASIT status,
substantially all of the assets of the trust must consist of "permitted assets"
as of the close of the third month beginning after the closing date and at all
times thereafter (the "FASIT Qualification Test"). Permitted assets include (i)
cash or cash equivalents, (ii) debt instruments with fixed terms that would
qualify as regular interests if issued by a Real Estate Mortgage Investment
Conduit as defined in section 860D of the Code ("REMIC") (generally, instruments
that provide for interest at a fixed rate, a qualifying variable rate or a
qualifying interest-only ("IO") type rate), (iii) foreclosure property, (iv)
certain hedging instruments (generally, interest and currency rate swaps and
credit enhancement contracts) that are reasonably required to guarantee or hedge
against the FASIT's risks associated with being the obligor on FASIT interests,
(v) contract rights to acquire qualifying debt instruments or qualifying hedging
instruments, (vi) FASIT regular interests, and (vii) REMIC regular interests.
Permitted assets do not include any debt instruments issued by the holder of the
FASIT's ownership interest or by any person related to such holder.
Interests in a FASIT. In addition to the foregoing asset qualification
requirements, the interests in a FASIT also must meet certain requirements. All
of the interests in a FASIT must belong to either of the
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following: (i) one or more classes of regular interests or (ii) a single class
of ownership interest that is held by a fully taxable domestic C Corporation.
A FASIT interest generally qualifies as a FASIT regular interest if (i) it
is designated as a regular interest, (ii) it has a stated maturity no greater
than 30 years, (iii) it entitles its holder to a specified principal amount,
(iv) the issue price of the interest does not exceed 125% of its stated
principal amount, (v) the yield to maturity of the interest is less than the
applicable Treasury rate published by the IRS plus 5%, and (vi) 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) a permissible variable rate
with respect to such principal amount.
If an interest in a FASIT fails to meet one or more of the requirements set
out in clauses (iii), (iv), or (v) in the immediately preceding paragraph, but
otherwise meets all requirements to be treated as a FASIT, it may still qualify
as a type of regular interest known as a "High-Yield Interest". In addition, if
an interest in a FASIT fails to meet the requirement of clause (vi), but the
interest payable on the interest consists of a specified portion of the interest
payments on permitted assets and that portion does not vary over the life of the
security, the interest will also qualify as a High-Yield Interest. A High-Yield
Interest may be held only by domestic C corporations that are fully subject to
corporate income tax ("Eligible Corporations"), other FASITs and dealers in
securities who acquire such interests as inventory, rather than for investment.
In addition, holders of High-Yield Interests are subject to limitations on
offset of income derived from such interest. In addition, the FASIT provisions
contain an anti-abuse rule that imposes corporate income tax on income derived
from a FASIT Regular Note that is held by a pass-through entity (other than
another FASIT) that issues debt or equity securities backed by the FASIT Regular
Note and that have the same features as High-Yield Interests.
Anti-Abuse Rule. Under proposed Treasury regulations, the Commissioner of
Internal Revenue (the "Commission") may make appropriate adjustments with regard
to the FASIT and any arrangement or transaction involving the FASIT if a
principal purpose of forming or using the FASIT is to achieve results
inconsistent with the intent of the FASIT provisions and the FASIT regulations.
This determination would be based on all of the facts and circumstances,
including a comparison of the purported business purpose for a transaction and
the claimed tax benefits resulting from the transaction.
Consequences of the Failure of the Trust to Qualify as a FASIT. If a FASIT
Trust fails to comply with one or more of the Code's ongoing requirements for
FASIT status during any taxable year and the Commissioner, proposed Treasury
regulations provide that its FASIT status would be lost for that year and the
FASIT Trust will be unable to elect FASIT status without the Commissioner's
approval. If FASIT status is lost, under proposed Treasury regulations the
entity classification of the former FASIT (the "New Arrangement") is determined
under general federal income tax principals. The holder of the FASIT Ownership
Security is treated as exchanging the New Arrangement's assets for an amount
equal to their value and gain recognized is treated as gain from a prohibited
transaction that is subject to the 100 percent tax, without exception. Loss, if
any, is disallowed. In addition, the holder of the FASIT Ownership Security must
recognize cancellation of indebtedness income, on a regular interest by regular
interest basis, in an amount equal to the adjusted issue price of each FASIT
Regular Note outstanding immediately before the cessation over its fair market
value. If the holder of the FASIT Ownership Security has a continuing economic
interest in the New Arrangement, the characterization of this interest is
determined under general federal income tax principles. Holders of FASIT Regular
Notes are treated as exchanging their Notes for interests in the New
Arrangement, the classification of which is determined under general federal
income tax principles. Gain is recognized to the extent the new interest either
does
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not qualify as debt of differs either in kind or extent. The basis of the
interest in the New Arrangement equals the basis in the FASIT Regular Note
increased by any gain recognized on the exchange.
Tax Treatment of FASIT Regular Notes. Payments received by Holders of FASIT
Regular Notes generally should be accorded the same tax treatment under the Code
as payments received on other taxable corporate debt instruments. Holders of
FASIT Regular Notes must report income from such Notes under an accrual method
of accounting, even if they otherwise would have used the cash receipts and
disbursements method. Except in the case of FASIT Regular Notes issued with
original issue discount or acquired with market discount or premium, interest
paid or accrued on a FASIT Regular Note generally will be treated as ordinary
income to the Holder and a principal payment on such Note will be treated as a
return of capital to the extent that the Holder's basis is allocable to that
payment. FASIT Regular Notes issued with original issue discount or acquired
with market discount or premium generally will treat interest and principal
payments on such securities in the same manner described for notes. See
"Material Federal Income Tax Consequences--Trusts for which a Partnership
Election is Made--Tax Consequences to Holders of the Notes," above.
If a FASIT Regular Note is sold or exchanged, the holder thereof generally
will recognize gain or loss upon the sale in the manner described above for
notes. See "Material Federal Income Tax Consequences--Trusts for which a
Partnership Election is Made--Tax Consequences to Holders of the Notes--Sale or
Other Disposition". In addition, if a FASIT Regular Note becomes wholly or
partially worthless as a result of default and delinquencies of the underlying
assets, the holder of such note should be allowed to deduct the loss sustained
(or alternatively be able to report a lesser amount of income).
Tax Treatment of FASIT Ownership Securities. A FASIT Ownership Security
represents the residual equity interest in a FASIT. As such, the holder of a
FASIT Ownership Security determines its taxable income by taking into account
all assets, liabilities and items of income, gain, deduction, loss and credit of
a FASIT. In general, the character of the income to the holder of a FASIT
Ownership Security will be the same as the character of such income of the
FASIT, except that any tax-exempt interest income taken into account by the
holder of a FASIT Ownership Security is treated as ordinary income. In
determining that taxable income, the holder of a FASIT Ownership Security must
determine the amount of interest, original issue discount, market discount and
premium recognized with respect to the FASIT's assets and the FASIT Regular
Notes issued by the FASIT according to a constant yield methodology and under an
accrual method of accounting. In addition, holders of FASIT Ownership Securities
are subject to the same limitations on their ability to use losses to offset
income from their FASIT Security as are the holders of High-Yield Interests. See
"Material Federal Income Tax Consequences--FASIT Provisions--Interests in a
FASIT".
Losses on dispositions of a FASIT Ownership Security generally will be
disallowed where, within six months before or after the disposition, the seller
of such security acquires any other FASIT Ownership Security. In addition, if
any security that is sold or contributed to a FASIT by the holder of the related
FASIT Ownership Security was required to be marked-to-market under Code Section
475 by such holder, then Section 475 will continue to apply to such securities,
except that the amount realized under the mark-to-market rules will be a greater
of the securities' value under present law or the securities' value after
applying special valuation rules contained in the FASIT provisions. Those
special valuation rules generally require that the value of debt instruments
that are not traded on an established securities market be determined by
calculating the present value of the reasonably expected payments under the
instrument using a discount rate of 120% of the applicable federal rate,
compounded semiannually.
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The Holder of a FASIT Ownership Security will be subject to a tax equal to
100% of the net income derived by the FASIT from any "prohibited transactions".
Prohibited transactions include (i) the receipt of income derived from assets
that are not permitted assets, (ii) certain dispositions of permitted assets,
(iii) the receipt of any income derived from any loan originated by a FASIT and
(iv) in certain cases, the receipt of income representing a servicing fee or
other compensation. Any offering for which a FASIT election is made generally
will be structured to avoid application of the prohibited transaction tax.
Backup Withholding, Reporting and Tax Administration. Holders of FASIT
Notes and Ownership Securities will be subject to backup withholding to the same
extent holders of notes would be subject. See "Material Federal Income Tax
Consequences--Trusts for which a Partnership Election is Made--Foreign Holders"
and "--Backup Withholding". For purposes of reporting and tax administration,
holders of record of FASIT Notes and Ownership Securities generally will be
treated in the same manner as holders of notes.
Under proposed Treasury regulations, if a non-United States Person holds
(either directly or through a vehicle which itself is not subject to U.S.
federal income tax such as a partnership or a trust) a FASIT Regular Note and a
"conduit debtor" pays or accrues interest on a debt instrument held by such
FASIT, any interest received or accrued by the non-United States Person FASIT
Regular Noteholder is treated as received or accrued from the conduit debtor.
The proposed Treasury regulations state that a debtor is a conduit debtor if the
debtor is a United States Person or the United States branch of a non-United
States Person and the non-United States Person regular interest holder is (1) a
"10 percent shareholder" of the debtor, (2) a "controlled foreign corporation"
and the debtor is a related person with respect to the controlled foreign
corporation or (3) related to the debtor. As set forth above, the proposed
Treasury regulations would not be effective until final regulations are filed
with the federal register.
CERTAIN STATE TAX CONSEQUENCES
The activities of servicing and collecting the receivables will be
undertaken by the servicer. Because of the variation in each state's tax laws
based in whole or in part upon income, it is impossible to predict tax
consequences to holders of notes and certificates in all of the state taxing
jurisdictions in which they are already subject to tax. Noteholders and
certificateholders are urged to consult their own tax advisors with respect to
state tax consequences arising out of the purchase, ownership and disposition of
notes and certificates.
* * * * *
THE FEDERAL AND STATE TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A NOTEHOLDER'S
OR CERTIFICATEHOLDER'S PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES AND CERTIFICATES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE
EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Code prohibit a pension,
profit sharing or other employee benefit or other plan (such as an individual
retirement account and certain types of Keogh Plans) that is subject to Title I
of ERISA or to Section 4975 of the Code from engaging in certain transactions
involving "plan assets" with persons that are "parties in interest" under ERISA
or
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"disqualified person" under the Code with respect to the plan. Some governmental
plans, although not subject to ERISA or the Code, are subject to federal, state
or local laws that impose similar requirements. We refer to these plans subject
to ERISA, Section 4975, or any law imposing similar requirements as "Plans". A
violation of these "prohibited transaction" rules may generate excise tax and
other liabilities under ERISA and the Code or under Similar Law for such
persons.
Depending on the relevant facts and circumstances, certain prohibited
transaction exemptions may apply to the purchase or holding of the securities --
for example:
- Prohibited Transaction Class Exemption ("PTCE") 96-23, which exempts
certain transactions effected on behalf of a Plan by an "in-house asset
manager";
- PTCE 95-60, which exempts certain transactions between insurance company
general accounts and parties in interest;
- PTCE 91-38, which exempts certain transactions between bank collective
investment funds and parties in interest;
- PTCE 90-1, which exempts certain transactions between insurance company
pooled separate accounts and parties in interest; or
- PTCE 84-14, which exempts certain transactions effected on behalf of a Plan
by a "qualified professional asset manager".
There can be no assurance that any exemptions will apply with respect to any
Plan's investment in the securities, or that an exemption, if it did apply,
would apply to all prohibited transactions that may occur in connection with
such investment. Furthermore, these exemptions might not apply to transactions
involved in operation of a Trust if, as described below, the assets of the trust
were considered to include Plan assets.
ERISA also imposes certain duties on persons who are fiduciaries of Plans
subject to ERISA, including the requirements of investment prudence and
diversification, and the requirement that such a Plan's investments be made in
accordance with the documents governing the Plan. Under ERISA, any person who
exercises any authority or control respecting the management or disposition of
the assets of a Plan is considered to be a fiduciary of such Plan. Plan
fiduciaries must determine whether the acquisition and holding of securities and
the operations of the trust would result in prohibited transactions if Plans
that purchase the securities were deemed to own an interest in the underlying
assets of the trust under the rules discussed below. If the underlying assets of
the issuer are deemed to be Plan assets, the application of Parts 1 and 4 of
Subtitle B of Title I of ERISA and Section 4975 of the Code to the assets and
operations of the trust may expand the obligations and other responsibilities of
Plan sponsors, Plan fiduciaries, Plan administrators, and create additional
potential prohibited transactions for parties in interest and disqualified
persons. There may also be an improper delegation of the responsibility to
manage Plan assets if Plans that purchase the securities are deemed to own an
interest in the underlying assets of the trust.
Pursuant to Department of Labor Regulation ss.2510.3-101 -- the Plan Assets
Regulation --, in general when a Plan acquires an equity interest in an entity
such as the trust and such interest does not represent a "publicly offered
security" or a security issued by an investment company registered under the
Investment Company Act of 1940, as amended, the Plan's assets include both the
equity interest and an
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undivided interest in each of the underlying assets of the entity, unless it is
established either that the entity is an "operating company" or that equity
participation in the entity by "benefit plan investors" is not "significant". In
general, an "equity interest" is defined under the Plan Assets Regulation as any
interest in an entity other than an instrument which is treated as indebtedness
under applicable local law and which has no substantial equity features. A
"publicly-offered security" is a security that is (i) freely transferable, (ii)
part of a class of securities that is owned by 100 or more investors independent
of the issuer and of each other, and (iii) either (A) part of a class of
securities registered under Section 12(b) or 12(g) of the Exchange Act or (B)
sold to the Plan as part of an offering pursuant to an effective registration
statement under the Securities Act, and the class of securities is registered
under the Exchange Act within 120 days after the end of the issuer's fiscal year
in which the offering occurred. Equity participation by benefit plan investors
in an entity is significant if immediately after the most recent acquisition of
an equity interest in the entity, 25% percent or more of the value of any class
of equity interest in the entity is held by benefit plan investors. In
calculating this percentage, the value of any equity interest held by a person,
other than a benefit plan investor, who has discretionary authority or provides
investment advice for a fee with respect to the assets of the entity, or by an
affiliate of any such person, is disregarded. "Benefit Plan Investors" include
Plans, whether or not they are subject to ERISA, as well as entities whose
underlying assets include plan assets by reason of a Plan's investment in the
entity. The likely treatment in this context of notes and certificates of a
trust will be discussed in the related prospectus supplement. However, it is
anticipated that the certificates will be considered equity interests in the
trust for purposes of the Plan Assets Regulation, and that the assets of the
trust may therefore constitute plan assets if certificates are acquired by
Plans. In such event, the fiduciary and prohibited transaction restrictions of
ERISA and Section 4975 of the Code would apply to transactions involving the
assets of the trust.
As a result, except in the case of certificates with respect to which the
Exemption is available (as described below) and certificates which are
"publicly-offered securities" or in which there will be no significant
investment by Benefit Plan Investors, certificates generally shall not be
transferred and the trustee shall not register any proposed transfer of
certificates unless it receives:
- a representation substantially to the effect that the proposed transferee
is not and will not be a Plan and is not acquiring the certificates on
behalf of or with the assets of a Plan (including assets that may be held
in an insurance company's separate or general accounts where assets in such
accounts may be deemed "plan assets" for purposes of ERISA), or
- an opinion of counsel in form and substance satisfactory to the trustee and
the seller that the purchase or holding of the certificates by or on behalf
of a Plan will not constitute a prohibited transaction and will not result
in the assets of the trust being deemed to be "plan assets" and subject to
the fiduciary responsibility provisions of ERISA or the prohibited
transaction provisions of ERISA and the Code or similar provisions of any
Similar Law or subject any trustee or the seller to any obligation in
addition to those undertaken in the trust agreement or the pooling and
servicing agreement, as applicable.
Transfer of certificates which would be eligible for coverage under the
Exemption (as described below) if they met the rating requirement of the
Exemption may also be registered if the transferee is an "insurance company
general account" that represents that its acquisition and holding of the
certificates are eligible for exemption under Parts I and III of PTCE 95-60.
Unless otherwise specified in the related prospectus supplement, the notes
may be purchased by a Plan. A fiduciary of a Plan must determine that the
purchase of a note is consistent with its fiduciary
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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. However, if the
depositor, the seller, an underwriter, the indenture trustee, the trustee, an
insurer or any of their affiliates
- has investment or administrative discretion with respect to the assets of
the Plan;
- has authority or responsibility to give, or regularly gives, investment
advice with respect to that assets of the Plan for a fee and pursuant to an
agreement or understanding that such advice
- will serve as a primary basis for investment decisions with respect
to the Plan's assets and
- will be based on the particular investment needs for that Plan; or
- is an employer maintaining or contributing to that Plan,
then a purchase of a note by the plan may involve a conflict of interest. A
fiduciary of such a Plan considering an investment in the Notes should consult
with counsel concerning the consequences of an investment in the notes.
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA) and certain church plans (as defined in Section 3(33) of ERISA)
and certain other plans are not subject to ERISA requirements. However, any such
governmental, church or other plan which is qualified under Section 401(a) of
the Code and exempt from taxation under Section 501(a) of the Code is subject to
the prohibited transaction rules in Section 503 of the Code; in addition, such
plans may be subject to prohibitions under Similar Law.
A fiduciary of a Plan considering the purchase of securities of a given
series should consult its tax and/or legal advisors regarding whether the assets
of the related trust would be considered plan assets, the possibility of
exemptive relief from the prohibited transaction rules and other issues and
their potential consequences.
UNDERWRITER EXEMPTION
The United States Department of Labor has granted to the lead underwriter
named in the prospectus supplement an Exemption from certain of the prohibited
transaction rules of ERISA with respect to the initial purchase, the holding and
the subsequent resale by Plans of securities, including debt instruments and
certificates, issued by entities that hold investment pools consisting only of
certain receivables, loans and other obligations ("issuers") and the servicing,
operations and management of such entities, provided the conditions and
requirements of the Exemption are met. The receivables covered by the Exemption
include motor vehicle installment loans such as the receivables. The Exemption
will apply to the acquisition, holding and resale of the securities by a Plan,
provided that certain conditions (certain of which are described below) are met.
Among the conditions which must be satisfied for the Exemption to apply to
the securities are the following:
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(1) The acquisition of the securities by a Plan is on terms (including
the price for the securities) that are at least as favorable to
the Plan as they would be in an arm's length transaction with an
unrelated party;
(2) The rights and interests evidenced by the securities acquired by
the Plan are not subordinated to the rights and interests
evidenced by other securities of the issuer, unless the issuer
holds only certain types of assets (a "Designated Transaction");
(3) The securities acquired by the Plan have received a rating at the
time of such acquisition that is in one of the three highest
generic rating categories (four, in a Designated Transaction) from
either Standard & Poor's Ratings Services, Moody's Investors
Service, Inc., or Fitch, Inc.;
(4) The trustee is not an affiliate of any other member of the
Restricted Group;
(5) The sum of all payments made to the underwriters in connection
with the distribution of the securities represents not more than
reasonable compensation for underwriting the securities; the sum
of all payments made to and retained by the seller pursuant to the
sale of the receivables to the issuer represents not more than the
fair market value of such receivables; and the sum of all payments
made to and retained by the servicer represents not more than
reasonable compensation for the servicer's services under the
applicable agreement and reimbursement of the servicer's
reasonable expenses in connection therewith;
(6) The Plan investing in the securities is an "accredited investor"
as defined in Rule 501(a)(1) of Regulation D of the SEC under the
Securities Act of 1933; and
(7) For certain types of issuers, the documents establishing the
issuer and governing the transaction must contain certain
provisions intended to protect the assets of the issuer from
creditors of the sponsor.
The Exemption provides exemptive relief to certain mortgage-backed and
asset-backed securities transactions using pre-funding accounts that otherwise
meet the requirements of the Exemption. Mortgage loans or other secured
receivables supporting payments to securityholders and having a value equal to
no more than 25% of the total principal amount of the securities being offered
by the issuer may be transferred to the trust within a 90-day or three-month
period following the closing date, instead of being required to be either
identified or transferred on or before the closing date. The relief is available
when the following conditions are met:
(1) The ratio of the amount allocated to the pre-funding account to
the total principal amount of the securities being offered must
not exceed 25%;
(2) All obligations transferred after the closing date must meet the
same terms and conditions for eligibility as the original
obligations used to create the issuer, which terms and conditions
have been approved by a rating agency;
(3) The transfer of those additional obligations to the issuer during
the pre-funding period must not result in the securities to be
covered by the Exemption receiving a lower credit
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rating from a rating agency upon termination of the pre-funding
period than the rating that was obtained at the time of the
initial issuance of the securities by the issuer;
(4) Solely as a result of the use of pre-funding, the weighted average
annual percentage interest rate for all of the obligations in the
investment pool at the end of the pre-funding period must not be
more than 100 basis points lower than the average interest rate
for the obligations transferred to the investment pool on the
closing date;
(5) In order to insure that the characteristics of the additional
obligations are substantially similar to the original obligations
which were transferred to the issuer:
(a) the characteristics of the additional obligations must be
monitored by an insurer or other credit support provider that
is independent of the depositor; or
(b) an independent accountant retained by the depositor must
provide the depositor with a letter, with copies provided to
each rating agency rating the securities, the related
underwriter and the related trustee, stating whether or not
the characteristics of the additional obligations conform to
the characteristics described in the related prospectus or
prospectus supplement and/or pooling and servicing agreement;
in preparing such letter, the independent accountant must use
the same type of procedures as were applicable to the
obligations transferred to the issuer as of the closing date;
(6) The pre-funding period must end no later than three months or 90
days after the closing date or earlier in certain circumstances if
the pre-funding account falls below the minimum level specified in
the pooling and servicing agreement or an event of default occurs;
(7) Amounts transferred to any pre-funding account and/or capitalized
interest account used in connection with the pre-funding may be
invested only in certain permitted investments;
(8) The related prospectus or prospectus supplement must describe:
(i) any pre-funding account and/or capitalized interest
account used in connection with a pre-funding account;
(ii) the duration of the pre-funding period;
(iii) the percentage and/or dollar amount of the pre-funding
limit for the issuer; and
(iv) that the amounts remaining in the pre-funding account at
the end of the pre-funding period will be remitted to
securityholders as repayments of principal; and
(9) The related pooling and servicing agreement must describe the
permitted investments for the pre-funding account and/or
capitalized interest account and, if not disclosed in the related
prospectus supplement, the terms and conditions for eligibility of
additional obligations.
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The Exemption would also provide relief from certain self-dealing/conflict
of interest or prohibited transactions that may occur when the Plan fiduciary
causes a Plan to acquire securities of an issuer containing receivables on which
the fiduciary (or its affiliate) is an obligor only if, among other
requirements,
(i) in the case of the acquisition of securities in connection with
the initial issuance, at least 50% of the securities are acquired
by persons independent of the Restricted Group,
(ii) such fiduciary (or its affiliate) is an obligor with respect to 5%
or less of the fair market value of the obligations contained in
the investment pool,
(iii) the Plan's investment in securities does not exceed 25% of all of
the securities outstanding at the time of the acquisition, and
(iv) immediately after the acquisition, no more than 25% of the assets
of any Plan with respect to which the fiduciary has discretionary
authority or renders investment advice are invested in securities
representing an interest in one or more issuers containing assets
sold or serviced by the same entity.
The Exemption does not apply to Plans sponsored by any member of the
Restricted Group with respect to the related series.
The rating of a security may change. If the rating of a certificate
declines below BBB-, the certificate will no longer be eligible for relief under
the Exemption, and consequently may not be purchased by or sold to a Plan
(although a Plan that had purchased the security when it had an investment-grade
rating would not be required by the Exemption to dispose of it).
The prospectus supplement for each series of securities will indicate the
classes of securities, if any, offered thereby to which it is expected that the
Exemption will apply. It is not clear that the Exemption will apply to
securities issued by an issuer that has a revolving period. If such an issuer
intends for the Exemption to apply to its sales of securities to Plans, it may
prohibit such sales until the expiration of the revolving period.
Any Plan fiduciary which proposes to cause a Plan to purchase securities
should consult with counsel concerning the impact of ERISA and the Code, the
applicability of the Exemption (as amended) and the potential consequences in
their specific circumstances, prior to making such investment. Moreover, each
Plan fiduciary should determine whether, under the general fiduciary standards
of investment prudence and diversification, an investment in the securities is
appropriate for the Plan, taking into account the overall investment policy of
the Plan and the composition of the Plan's investment portfolio.
SPECIAL CONSIDERATIONS APPLICABLE TO INSURANCE COMPANY GENERAL ACCOUNTS
The Small Business Job Protection Act of 1996 added new Section 401(c) of
ERISA relating to the status of the assets of insurance company general accounts
under ERISA and Section 4975 of the Code. On January 5, 2000, the Department of
Labor issued general account regulations with respect to insurance policies
issued on or before December 31, 1998 that are supported by an insurer's general
account. The general account regulations provide guidance on which assets held
by the insurer constitute "plan assets" for purposes of the fiduciary
responsibility provisions of ERISA and Section 4975 of the
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Code. The general account regulations also provide that, except in the case of
actions brought by the Secretary of Labor relating to certain breaches of
fiduciary duties that also constitute breaches of state or federal criminal law,
until July 5, 2001, the date that is 18 months after the general account
regulations became final, no liability under the fiduciary responsibility and
prohibited transaction provisions of ERISA and Section 4975 of the Code may
result on the basis of a claim that the assets of the general account of an
insurance company constitute the assets of any Plan. The general account
regulations do not exempt from treatment as "plan assets" the assets of
insurance company general accounts that are attributable to contracts or
policies issued after December 31, 1998. The general account regulations do not
adversely affect the applicability of PTCE 95-60. Plan investors considering the
purchase of securities on behalf of an insurance company general account should
consult their legal advisors regarding the effect of the general account
regulations on such purchase. The plan asset status of insurance company
separate accounts is unaffected by new Section 401(c) of ERISA, and separate
account assets continue to be treated as the plan assets of any Plan invested in
a separate account.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement with
respect to the securities of each series, the depositor will agree to sell, or
cause the related trust to sell, to the underwriters named in the related
prospectus supplement the notes and certificates of the trust specified in the
underwriting agreement. Each of the underwriters will severally agree to
purchase the principal amount of each class of notes and certificates of the
related trust set forth in the related prospectus supplement and the
underwriting agreement.
Each prospectus supplement will either--
- set forth the price at which each class of notes and certificates, as the
case may be, being offered thereby will be offered to the public and any
concessions that may be offered to certain dealers participating in the
offering of such notes and certificates or
- specify that the related notes and certificates, as the case may be, are to
be resold by the underwriters in negotiated transactions at varying prices
to be determined at the time of such sale.
After the initial public offering of any such notes and certificates, such
public offering prices and such concessions may be changed.
Each underwriting agreement will provide that the company will indemnify
the underwriters against certain civil liabilities, including liabilities under
the Securities Act, or contribute to payments the several underwriters may be
required to make in respect thereof.
Each trust may, from time to time, invest the funds in its trust accounts
in investments acquired from such underwriters or from the depositor.
Under each underwriting agreement with respect to a given trust, the
closing of the sale of any class of securities subject to such underwriting
agreement will be conditioned on the closing of the sale of all other such
classes of securities of that trust (some of which may not be registered or may
not be publicly offered).
The place and time of delivery for the securities in respect of which this
prospectus is delivered will be set forth in the related prospectus supplement.
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The underwriters may make a limited market in the securities, but they are
not obligated to do so. In addition, any such market-making may be discontinued
at any time at their sole discretion.
If an underwriter for a series of securities is or may be viewed as an
affiliate of the trust issuing the securities, that underwriter will be so
identified in the related prospectus supplement. In that event, that underwriter
may use the related prospectus supplement, as attached to this prospectus, in
connection with offers and sales related to market making transactions in the
related securities. That underwriter may act as principal or agent in those
transactions. Those transactions will be at prices related to prevailing market
prices at the time of sale.
LEGAL OPINIONS
Certain legal matters relating to the securities of each series, including
federal income tax consequences, will be passed upon for the company by Brown &
Wood LLP.
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GLOSSARY OF TERMS
Set forth below is a list of the defined terms used in this prospectus,
which, except as otherwise noted in a prospectus supplement, are also used in
the prospectus supplement.
"ACTUARIAL RECEIVABLES" means receivables which provide for amortization of
the loan over a series of fixed level payment monthly installments consisting of
an amount of interest equal to 1/12 of the contract rate of interest of the loan
multiplied by the unpaid principal balance of the loan, and an amount of
principal equal to the remainder of the monthly payment.
"ADDITIONAL OBLIGATIONS" means all obligations transferred to the trust
after the closing date.
"ADDITIONAL RECEIVABLES" means, with respect to a trust with a revolving
period or pre-funding period, receivables acquired by a trust during that
revolving period.
"ADVANCES" means both precomputed advances and simple interest advances.
"ADMINISTRATOR" means the entity specified in the prospectus supplement as
the administrator of the trust under an administration agreement.
"AMORTIZABLE BOND PREMIUM REGULATIONS" means the final regulations issued
on December 30, 1997 by the IRS dealing with amortizable bond premium.
"BALLOON PAYMENT" means, with respect to a balloon payment receivable, the
final payment which is due at the end of the term of the receivable.
"CERTIFICATE BALANCE" means with respect to each class of certificates and
as the context so requires, with respect to (i) all certificates of such class,
an amount equal to, initially, the initial certificate balance of such class of
certificates and, thereafter, an amount equal to the initial certificate balance
of such class of certificates, reduced by all amounts distributed to
certificateholders of such class of certificates and allocable to principal or
(ii) any certificate of such class, an amount equal to, initially, the initial
denomination of such certificate and, thereafter, an amount equal to such
initial denomination, reduced by all amounts distributed in respect of such
certificate and allocable to principal.
"CLOSING DATE" means that date specified in the prospectus supplement on
which the trust issues its securities.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COLLECTION PERIOD" means with respect to securities of each trust, the
period specified in the related prospectus supplement with respect to
calculating payments and proceeds of the related receivables.
"COMPANY" means ML Asset Backed Corporation, a Delaware corporation.
"CONTROLLING CLASS" means, with respect to any trust, the senior most class
of notes described in the prospectus supplement as long as any notes of such
class are outstanding, and thereafter, in order of seniority, each other class
of notes, if any, described in the prospectus supplement as long as they are
outstanding.
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"DAILY PORTION" is computed as specified under "Material Federal Income Tax
Consequences--Trusts Treated as a Grantor Trust--Stripped Bonds and Stripped
Coupons --Original Issue Discount".
"DEFAULTED RECEIVABLE" means, unless otherwise specified in the related
prospectus supplement, a receivable (i) that the servicer determines is unlikely
to be paid in full or (ii) with respect to which at least 10% of a scheduled
payment is 90 or more days delinquent as of the end of a calendar month.
"DEFINITIVE CERTIFICATES" means with respect to any class of certificates
issued in book-entry form, such certificates issued in fully registered,
certificated form to certificateholders or their respective nominees, rather
than to DTC or its nominee.
"DEFINITIVE NOTES" means with respect to any class of notes issued in
book-entry form, such notes issued in fully registered, certificated form to
noteholders or their respective nominees, rather than to DTC or its nominee.
"DEFINITIVE SECURITIES" means collectively, the definitive notes and the
definitive certificates.
"DEPOSITOR" means the company or a limited purpose finance subsidiary of
the company.
"DEPOSITORY" means DTC and any successor depository selected by the trust.
"ELIGIBLE CORPORATION" means, with respect to FASITs, a domestic C
corporation that is fully subject to corporate income tax.
"ELIGIBLE DEPOSIT ACCOUNT" means either--
- a segregated account with an Eligible Institution; or
- a segregated trust account with the corporate trust department of a
depository institution organized under the laws of the United States or any
one of the states thereof or the District of Columbia (or any domestic
branch of a foreign bank), having corporate trust powers and acting as
trustee for funds deposited in such account, so long as any of the
securities of such depository institution have a credit rating from each
rating agency in one of its generic rating categories which signifies
investment grade.
"ELIGIBLE INSTITUTION" means--
- the corporate trust department of the indenture trustee or the related
trustee, as applicable; or
- a depository institution organized under the laws of the United States or
any one of the states thereof or the District of Columbia (or any domestic
branch of a foreign bank), (i) which has either (a) a long-term unsecured
debt rating acceptable to the rating agencies or (b) a short-term unsecured
debt rating or certificate of deposit rating acceptable to the rating
agencies and (ii) whose deposits are insured by the FDIC.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
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"EVENTS OF SERVICING TERMINATION" under each sale and servicing agreement
or pooling and servicing agreement will consist of the events specified under
"Description of the Receivables Transfer and Servicing Agreements -- Events of
Servicing Termination" in this prospectus.
"EXEMPTION" means the exemption granted to the lead underwriter named in
the prospectus supplement by the DOL and described under "ERISA Considerations".
"FASIT" means a financial asset securitization investment trust.
"FASIT PROVISIONS" means sections 860H through 860L of the Code.
"FASIT QUALIFICATION TEST" is the requirement for FASIT status eligibility
that substantially all of the assets of the trust must consist of "permitted
assets" as of the close of the third month beginning after the closing date and
at all times thereafter.
"FASIT REGULAR NOTEHOLDERS" means holders of FASIT regular interests.
"FINANCED VEHICLE" means the motor vehicle financed by a receivable.
"FOREIGN PERSON" means a nonresident alien, foreign corporation or other
non-United States person.
"GRANTOR TRUST CERTIFICATEHOLDERS" means owners of certificates issued by a
trust that is treated as a grantor trust.
"GRANTOR TRUST CERTIFICATES" means certificates issued by a trust that is
treated as a grantor trust.
"IO" means interest-only.
"IRS" means the Internal Revenue Service.
"NEW REGULATIONS" means the regulations recently issued by the Treasury
Department which make certain modifications to withholding, backup withholding
and information reporting rules.
"OBLIGATIONS" means, with respect to the Exemption, loans or other secured
receivables.
"OID" means original issue discount.
"OID REGULATIONS" means those Treasury regulations relating to OID.
"PERMITTED INVESTMENTS" means:
- direct obligations of, and obligations fully guaranteed as to
timely payment by, the United States of America or its
agencies;
- demand deposits, time deposits, certificates of deposit or
bankers' acceptances of certain depository institutions or
trust companies having the highest rating from each rating
agency;
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- commercial paper having, at the time of such investment, a
rating in the highest rating category from each rating agency;
- investments in money market funds having the highest rating
from each rating agency;
- repurchase obligations with respect to any security that is a
direct obligation of, or fully guaranteed by, the United
States of America or its agencies, in either case entered into
with a depository institution or trust company having the
highest rating from each rating agency; and
- any other investment acceptable to each rating agency.
Permitted Investments are generally limited to obligations or securities which
mature on or before the next payment date.
"PLAN" means any:
- "employee benefit plan" (as defined in Section 3(3) of ERISA) that is
subject to Title I of ERISA;
- "plan" described in Section 4975(e) (1) of the Code, including individual
retirement accounts and Keogh plans;
- plan subject to requirements similar to those of ERISA and Section 4975 of
the Code under similar law; and
- entity whose underlying assets include plan assets by reason of a plan's
investment in such entity, including without limitation, as applicable, an
insurance company general account.
"PLAN ASSETS REGULATION" means a regulation, 29 C.F.R. Section 2510.3-101,
issued by the U.S. Department of Labor.
"PRECOMPUTED ADVANCE" means the excess of (i) the scheduled payment on a
precomputed receivable, over (ii) the collections of interest on and principal
of the respective precomputed receivable with respect to the related collection
period.
"PTCE" means a Prohibited Transaction Class Exemption under ERISA.
"PURCHASE AMOUNT" means a price at which the seller or the servicer must
acquire a receivable from a trust, equal to the unpaid principal balance of the
receivable plus interest accrued thereon to the date of purchase at the weighted
average interest rate borne by the trust's securities.
"RATING AGENCY" means a nationally recognized rating agency providing, at
the request of the seller, a rating on the securities issued by the applicable
trust.
"RECEIVABLES TRANSFER AND SERVICING AGREEMENTS" means, collectively, each
sale and servicing agreement or pooling and servicing agreement pursuant to
which a trust will acquire receivables from the depositor and the servicer will
agree to service such receivables, each trust agreement (in the case of a
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grantor trust, the pooling and servicing agreement) pursuant to which a trust
will be created and certificates will be issued and each administration
agreement pursuant to which the servicer (or such other person named in the
related prospectus supplement) will undertake certain administrative duties with
respect to a trust that issues notes.
"RECORD DATE" means the business day immediately preceding the payment date
or, if definitive securities are issued, the last day of the preceding calendar
month.
"REMIC" means a Real Estate Mortgage Investment Conduit as defined in
section 860D of the Code.
"RESTRICTED GROUP" means, with respect to the Exemption, the seller, any
underwriter, any trustee, the servicer, any insurer, any obligor with respect to
receivables included in the investment pool constituting more than five percent
of the aggregate unamortized principal balance of the assets in the investment
pool, or any affiliate of such parties.
"REVOLVING PERIOD" means the period, if one is specified in the prospectus
supplement, during which the trust uses principal collections on the receivables
to purchase additional receivables.
"RULE OF 78'S" means a method for amortization of a receivable which
provides for the payment by the obligor of a specified total amount of payments,
payable in equal monthly installments on each due date, which total represents
the principal amount financed and add-on interest in an amount calculated at the
contract rate of interest for the term of the receivable.
"SECTION 1286 TREASURY REGULATIONS" means recently issued Treasury
regulations under which, if the discount on a stripped bond is larger than a de
minimis amount (as calculated for purposes of the OID rules of the Code), such
stripped bond will be considered to have been issued with OID.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SENIOR CERTIFICATES" means the nonsubordinated certificates issued by a
trust.
"SHORT-TERM NOTE" means a note that has a fixed maturity date of not more
than one year from the issue date of such note.
"SIMILAR LAW" means federal, state or local laws that impose requirements
similar to ERISA or the Code.
"SIMPLE INTEREST ADVANCE" means an amount equal to the amount of interest
that would have been due on a simple interest receivable at its contract rate of
interest for the related collection period (assuming that such simple interest
receivable is paid on its due date) minus the amount of interest actually
received on such simple interest receivable during the related collection
period.
"STRIPPED BOND" means a security that represents a right to receive only a
portion of the interest payments on the underlying loans, a right to receive
only principal payments on the underlying loans, or a right to receive payments
of both interest and principal on the underlying loans.
"UNITED STATES PERSON" means a citizen or resident of the United States, a
corporation or a partnership organized in or under the laws of the United States
or any political subdivision thereof, an
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estate or trust, the income of which from sources outside the United States is
includible in gross income for federal income tax purposes regardless of its
connection with the conduct of a trade or business within the United States, or
a trust if a court within the United States is able to exercise primary
supervision of the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust.
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO GIVE YOU DIFFERENT INFORMATION. WE DO NOT CLAIM THE
ACCURACY OF THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AS
OF ANY DATE OTHER THAN THE DATE STATED ON THE COVER PAGE. WE ARE NOT OFFERING
THE NOTES IN ANY STATES WHERE IT IS NOT PERMITTED.
------------------------
PEOPLEFIRST.COM LOGO
PEOPLEFIRST FINANCE, LLC
ORIGINATOR AND SERVICER
ML ASSET BACKED CORPORATION
DEPOSITOR
------------------------
DEALER PROSPECTUS DELIVERY OBLIGATION. UNTIL MARCH , 2001 ALL DEALERS THAT
EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THE
OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE
DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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PEOPLEFIRST.COM VEHICLE
RECEIVABLES OWNER
TRUST 2000-2
$525,000,000
ASSET-BACKED NOTES,
SERIES 2000-2
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PROSPECTUS SUPPLEMENT
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MERRILL LYNCH & CO.
BARCLAYS CAPITAL
CREDIT SUISSE FIRST BOSTON
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