As filed with the Securities and Exchange Commission on November 17, 2000
Registration No. 333-45336
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
AMENDMENT NO.1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ML Asset Backed Corporation
(Originator of the trusts described herein)
(Exact Name of Registrant as specified in its charter)
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<TABLE>
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<S> <C>
Delaware 13-3891329
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
</TABLE>
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ML Asset Backed Corporation
250 Vesey Street
World Financial Center
North Tower - 10th Floor
New York, New York 10281-1310
(212) 449-0336
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<S><C>
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices)
</TABLE>
Michael M. McGovern
ML Asset Backed Corporation
250 Vesey Street
World Financial Center
North Tower - 10th Floor
New York, New York 10281-1310
(212) 449-0336
<TABLE>
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<S><C>
(Name, Address, Including Zip Code and Telephone Number, Including Area Code, of Agent for Service)
</TABLE>
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Copies to:
Siegfried Knopf
Brown & Wood LLP
One World Trade Center
New York, New York 10048
(212) 839-5334
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Approximate date of commencement of proposed sale to public: From time to
time after the effective date of this registration statement as determined by
market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. / /
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. /x/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
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CALCULATION OF REGISTRATION FEE
====================================================================================================================
Proposed Proposed
Maximum Maximum Amount of
Title of Each Class of Amount to be Offering Price Aggregate Registration
Securities to be Registered Registered(1) Per Unit(2) Offering Price(2) Fee
-------------------------------------------- ------------------ ----------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Asset Backed Notes and Certificates........ $1,200,000,000 100% $1,200,000,000 $316,800 (3)
============================================ ================== ================= ================== ===============
</TABLE>
(1) The Registration Statement relates to the initial offering from time to
time of the Asset Backed Notes and Asset Backed Certificates and to any
resales thereof in market making transactions by an underwriter to the
extent required.
(2) Estimated pursuant to Rule 457 solely for purposes of calculating the
Registration Fee.
(3) $264 of this amount was previously paid.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, or until this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
==============================================================================
<PAGE>
INTRODUCTORY NOTE
This registration statement contains a form of prospectus relating to the
offering of series of Asset Backed Notes and/or Asset Backed Certificates by
various trusts created from time to time by ML Asset Backed Corporation. It
also contains two forms of prospectus supplement relating to the offering by a
trust of a particular series of Asset Backed Notes and/or Asset Backed
Certificates. Prospectus supplement "version A" is a form of prospectus
supplement for an owner trust issuing Asset Backed Notes and Asset Backed
Certificates. Prospectus supplement "version B" is a form of prospectus
supplement for a grantor trust issuing Asset Backed Certificates. Each form of
prospectus supplement relates only to the securities described therein and is
a form that may be used by the registrant to offer Asset Backed Notes and/or
Asset Backed Certificates under this registration statement. A prospectus
supplement may contain any of the features referred to in the prospectus.
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This
prospectus supplement and the 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
Preliminary Prospectus Supplement, Dated November 17, 2000
Prospectus Supplement
(To Prospectus, dated _____________, 200__)
$-------------------
______________________ Trust 200_-___
ML Asset Backed Corporation
Depositor
------------------------------------
Seller and Servicer
Before you purchase any of these securities, be sure you read this prospectus
supplement and the attached prospectus, especially the risk factors beginning
on page S-9 of this prospectus supplement and on page 10 of the prospectus.
These securities are issued by the trust. The securities are not obligations
of ML Asset Backed Corporation or any of its 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 following securities:
Class A-1 ____% Asset Backed Notes;
Class A-2 ____% Asset Backed Notes;
Class A-3 ____% Asset Backed Notes; and
Class B ____% Asset Backed Certificates
o The trust will pay interest and principal on the securities on the ___th
day of each month. The first payment date will be ________________.
o The trust will pay principal sequentially to the earliest maturing class
of securities then outstanding until paid in full.
o The Class B Certificates are subordinated to the notes.
The underwriters are offering the following securities by this prospectus
supplement:
<TABLE>
<CAPTION>
Class A-1 Class A-2 Class A-3 Class B
Notes Notes Notes Certificates
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
Principal Amount.................... $ $ $ $
Interest Rate....................... % % % %
Final Scheduled Payment Date........
Initial Public Offering Price(1).... % % % %
Underwriting Discount............... % % % %
Proceeds to Depositor(1)(2)......... % % % %
---------------
(1) The price of the securities will also include accrued interest, if any, from __________.
(2) Before deducting expenses payable by the depositor estimated to be $_____________.
[This prospectus supplement and the attached prospectus may be used by [_____], which is an
affiliate of [______] and therefore may also be viewed as an affiliate of the trust, in
connection with offers and sales related to market making transactions in the notes. These
transactions will be at prevailing market prices at the time of sale. [______] may act
as principal or agent in these transactions.]
</TABLE>
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.
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Merrill Lynch & Co.
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The date of this prospectus supplement is _____________.
<PAGE>
TABLE OF CONTENTS
Page
----
READING THESE DOCUMENTS...............................3
SUMMARY OF TERMS OF THE SECURITIES....................4
RISK FACTORS..........................................9
THE TRUST............................................10
Limited Purpose and Limited Assets.................10
Capitalization of the Trust........................11
The Owner Trustee..................................11
THE RECEIVABLES POOL.................................11
Criteria Applicable to Selection of Receivables....12
Weighted Average Life of the Securities............15
Delinquency, Credit Loss and Recovery Information..19
THE SELLER...........................................20
THE DEPOSITOR........................................20
THE SERVICER.........................................21
General............................................21
Collection and Repossession Procedures.............21
Insurance..........................................21
Extensions.........................................21
Methods of Vehicle Disposal........................21
HOW YOU CAN COMPUTE YOUR PORTION OF THE AMOUNT
OUTSTANDING ON THE NOTES OR CERTIFICATES...........21
MATURITY AND PREPAYMENT CONSIDERATIONS...............21
DESCRIPTION OF THE NOTES.............................22
Payments of Interest...............................22
Payments of Principal..............................23
Optional Prepayment................................23
DESCRIPTION OF THE CERTIFICATES......................24
Distributions......................................24
Subordination of Class B Certificates..............25
Optional Prepayment................................25
APPLICATION OF AVAILABLE FUNDS.......................25
Sources of Funds of Distributions..................25
Priority of Distributions..........................26
DESCRIPTION OF THE RECEIVABLES TRANSFER AND
SERVICING AGREEMENTS...............................26
Accounts...........................................27
Servicing Compensation and Expenses................27
Rights Upon Event of Servicing Termination.........27
Waiver of Past Events of Servicing Termination.....27
Deposits to the Collection Account.................27
Reserve Fund.......................................28
MATERIAL FEDERAL INCOME TAX CONSEQUENCES.............29
MATERIAL STATE TAX CONSEQUENCES......................29
ERISA CONSIDERATIONS.................................30
The Notes..........................................30
The Class B Certificates...........................30
UNDERWRITING.........................................31
LEGAL OPINIONS.......................................33
GLOSSARY OF TERMS....................................34
<PAGE>
READING THESE DOCUMENTS
We provide information on the securities in two documents that offer
varying levels of detail:
1. Prospectus - provides general information, some of which may not apply
to the securities.
2. Prospectus Supplement - provides a summary of the specific terms of
the securities.
We suggest you read this prospectus supplement and the prospectus in
their entirety. The prospectus supplement pages begin with "S". If the terms
of the offered securities described in this prospectus supplement vary with
the accompanying prospectus, you should rely on the information in this
prospectus supplement.
We include cross-references to sections in these documents where you can
find further related discussions. Refer to the table of contents on page S-2
in this document and on page 2 in the prospectus to locate the referenced
sections.
The Glossary of Terms on page S-34 of this prospectus supplement and the
Glossary of Terms on page 80 in the prospectus list certain definitions of
certain terms used in this prospectus supplement or the prospectus.
You should rely only on information on the securities provided in this
prospectus supplement and the prospectus. We have not authorized anyone to
provide you with different information.
SUMMARY OF TERMS OF THE SECURITIES
The following summary is a short description of the main terms of the
offering of the securities. For that reason, this summary does not contain all
of the information that may be important to you. To fully understand the terms
of the offering of the securities, you will need to read both this prospectus
supplement and the attached prospectus in their entirety.
Issuer
______________ Trust 200_-__ will be formed pursuant a trust agreement dated
as of _______ 1, 200__, between the depositor and the owner trustee. The trust
will use the proceeds from the issuance and sale of the securities to purchase
from the depositor a pool of motor vehicle installment loans which constitute
the receivables. The trust will rely upon collections on the receivables and
the funds on deposit in certain accounts to make payments on the securities.
The trust will be solely liable for the payment of the securities.
Offered Securities
The following securities are being offered by this prospectus supplement:
o $____________ Class A-1 ____% Asset Backed Notes;
o $____________ Class A-2 ____% Asset Backed Notes;
o $____________ Class A-3 ____% Asset Backed Notes; and
o $____________ Class B ____% Asset Backed Certificates
Closing Date
The trust expects to issue the securities on _______, 200__.
Depositor
ML Asset Backed Corporation.
Seller and Servicer
------------------
Owner Trustee
------------------
Indenture Trustee
------------------
Payment dates
The ___th day of each month (or if the ___th day is not a business day, the
next succeeding business day).
First Payment Date
The first payment date will be _______, 200__.
Record Dates
On each payment date, the trust will pay interest and principal to the holders
of the securities as of the related record date. The record dates for the
securities will be as follows:
Notes The day immediately preceding the payment date.
Certificates The last day of the month immediately preceding the payment
date.
Interest Rates
The trust will pay interest on each class of securities at the rates specified
on the cover of this prospectus supplement.
Interest Accrual
Class A-1 Notes
"Actual/360", accrued from the prior payment date (or the closing date, in the
case of the first payment date) to the current payment date.
Class A-2 Notes; Class A-3 Notes and Class B Certificates
"30/360", accrued from the 15th day of the previous month (or the closing
date, in the case of the first payment date) to the 15th day of the current
month.
This means that, if there are no outstanding shortfalls in the payment of
interest, the interest due on each payment date will be the product of:
1. the outstanding principal balance;
2. the interest rate; and
3. o in the case of the Class A-1 Notes:
the actual number of days in the accrual period divided by 360 and
o in the case of the other classes of notes and the Class B Certificates:
30 (or in the case of the first payment date, _____) divided by 360.
For a more detailed description of the payment of interest, see "Description
of the Notes -- Payments of Interest" and "Description of the Certificates --
Distributions".
Priority of Distributions
From collections on the receivables received during the prior calendar month
and amounts withdrawn from the reserve fund, the trust will pay the following
amounts on each payment date in the following order of priority, after
reimbursement of advances made in prior months by the servicer for interest
payments due from obligors but not received:
(1) Servicing Fee-- the servicing fee payable to the servicer;
(2) Note Interest-- interest due on all the notes ratably to the holders of
each class of notes;
(3) Class B Certificate Interest -- interest distributable to the holders of
the Class B Certificates; however, if the notes have been accelerated
after an event of default, this distribution will instead be made after
clause 4(iii);
(4) Regular Principal Payment --an amount equal to the sum of (i) the
principal collections on the receivables received during the prior
calendar month and (ii) the aggregate principal balance (net of
liquidation proceeds applied to principal) of all receivables designated
as "defaulted receivables" in that month, will be applied to pay
principal on the securities in the following order of priority:
(i) on the Class A-1 Notes until they are paid in full;
(ii) on the Class A-2 Notes until they are paid in full;
(iii) on the Class A-3 Notes until they are paid in full; and
(iv) on the Class B Certificates until they are paid in full;
If payment of the notes is accelerated after an event of default,
principal will be paid pro rata on all classes of the notes until they
are paid in full and then on the Class B Certificates until they are
paid in full;
(5) Final Scheduled Payment Date -- if the payment date is a final scheduled
payment date for a class of securities, the amount, if any, necessary to
pay that class in full after giving effect to the payment pursuant to
clause (4) will be paid on that class;
(6) Reserve Fund Deposit-- to the reserve fund, the amount, if any,
necessary to reinstate the balance of the reserve fund up to its
required amount; and
(7) any amounts remaining after the above distributions will be paid to the
seller.
For a more detailed description of the priority of distributions and the
allocation of funds on each payment date, see "Application of Available
Funds".
Credit Enhancement
The credit enhancement for the securities will be as follows:
Subordination of Principal and Interest
Payments of interest on the Class B Certificates will be subordinated to
payments of interest on the notes, and no payments of principal will be made
on the Class B Certificates until the notes have been paid in full. If an
event of default occurs and the notes are accelerated, no payments will be
made on the Class B Certificates until the notes are paid in full.
Reserve Fund
On the closing date, the trust will deposit $______________ to its reserve
fund.
On each payment date, if collections on the receivables are insufficient to
pay the first five items listed in "Priority of Distributions" above, the
indenture trustee will withdraw funds from the reserve fund, to the extent
available, to pay such amounts.
The balance required to be on deposit in the reserve fund will be the lesser
of (a) __% of the outstanding principal balance of the receivables and (b) __%
of the principal balance of the receivables as of ______.
On each payment date, the trust will deposit into the reserve fund, to the
extent necessary to reinstate the required balance of the reserve fund, any
collections on the receivables remaining after the first five items listed in
"Priority of Distributions" above are satisfied.
On each payment date, the trust will distribute funds on deposit in the
reserve fund in excess of the required balance to the seller.
For a more detailed description of the deposits to and withdrawals from the
reserve fund, see "Description of the Receivables Transfer and Servicing
Agreements -- Reserve Fund".
Optional Prepayment
The servicer has the option to purchase the receivables on any payment date on
which the aggregate principal balance of the receivables is __% or less of the
aggregate principal balance of the receivables at the time they were sold to
the trust. The purchase price will equal the outstanding principal balance of
the receivables plus accrued and unpaid interest thereon. The trust will apply
such payment to the payment of the securities in full.
It is expected that at the time this purchase option becomes available to the
servicer only the Class A-3 Notes and the Class B Certificates will be
outstanding.
Final Scheduled Payment Dates
The trust is required to pay the entire principal amount of each class of
securities, to the extent not previously paid, on the respective final
scheduled payment dates specified on the cover page of this prospectus
supplement.
Property of the Trust
The property of the trust will include the following:
o the receivables and the collections on the receivables after _______, 2000;
o security interests in the vehicles financed by the receivables;
o bank accounts (other than the reserve fund);
o rights to proceeds under insurance policies that cover the obligors under
the receivables or the vehicles financed by the receivables; and
o other rights under documents relating to the receivables.
Composition of the Receivables
The composition of the receivables as of ________________ is as follows:
o Aggregate Principal
Balance.................... $______
o Number of
Receivables................ ______
o Average Principal
Balance.................... $______
(Range)................ $______ to $______
o Average Original
Amount Financed............ $______
(Range)................ $______ to $______
o Weighted Average of Interest
Rate....................... ______%
(Range)................ _____% to _____%
o Weighted Average
Original Term.............. ___ months
(Range)................ ___ months to ___
months
o Weighted Average
Remaining Term............. ___ months
(Range)................ ___ months to ___
months
Servicer of the Receivables
The trust will pay the servicer a servicing fee on each payment date for the
previous month equal to 1/12 of __% of the principal balance of the
receivables at the beginning of the previous month. In addition to the
servicing fee, the trust will also pay the servicer a supplemental servicing
fee equal to any late, prepayment, and other administrative fees and expenses
collected during each month and any reinvestment earnings on any payments
received on the receivables and deposited into a trust account.
Ratings
It is a condition to the issuance of the securities that the:
Class A-1 Notes be rated in the highest short-term rating category by
at least two nationally recognized rating agencies;
Class A-2 Notes and Class A-3 Notes be rated in the highest long-term
rating category by at least two nationally recognized rating
agencies; and
Class B Certificates be rated "____" or its equivalent by at least
two nationally recognized rating agencies.
A rating is not a recommendation to purchase, hold or sell the offered notes
and certificates, inasmuch as such rating does not comment as to market price
or suitability for a particular investor. The ratings of the securities
address the likelihood of the payment of principal and interest on the
securities according to their terms. A rating agency rating the securities may
lower or withdraw its rating in the future, in its discretion, as to any class
of the securities.
Minimum Denominations
Notes $1,000 and integral multiples thereof
Class B
Certificates $1,000 and integral multiples thereof
Required Representations from Purchasers of the Class B Certificates
To purchase Class B Certificates, you (and anyone to whom you assign or sell
the Class B Certificates) must:
(1) represent and certify under penalties of perjury that you are a United
States person and
(2) represent and certify that you
(a) are not a plan that is subject to the fiduciary responsibility
provisions of the Employee Retirement Income Security Act of 1974,
as amended, or Section 4975 of the Internal Revenue Code of 1986,
as amended and are not purchasing Class B Certificates on behalf of
such a plan or arrangement or
(b) are an insurance company using its general account and less than
25% of the assets of such general account represent assets of one
or more plans or arrangements described above.
You can find a form of the representation letter an investor in the Class B
Certificates will have to sign in Annex I to this prospectus supplement.
Tax Status
Opinions of Counsel
Brown & Wood LLP will deliver its opinion that for federal income tax purposes
the notes will be characterized as debt and the trust will not be
characterized as an association (or a publicly traded partnership) taxable as
a corporation.
Investor Representations
Notes If you purchase the notes, you agree by your purchase
that you will treat the notes as indebtedness for
federal income tax purposes.
Class B
Certificates If you purchase the Class B Certificates, you agree by
your purchase that you will treat the trust as a
partnership in which the certificateholders are partners
for federal income tax purposes.
Investment Restrictions
Class B
Certificates The Class B Certificates may not be purchased by persons
who are not U.S. Persons for federal income tax
purposes.
If you are considering purchasing the Class B Certificates, see "Material
Federal Income Tax Consequences" in this prospectus supplement and in the
prospectus and "Material State Tax Consequences" in this prospectus supplement
for more details.
ERISA CONSIDERATIONS
Notes The notes are generally eligible for purchase by
employee benefit plans, subject to the considerations
discussed under "ERISA Considerations" in this
prospectus supplement and the prospectus.
Class B
Certificates The Class B Certificates may not be acquired by an
employee benefit plan or by an individual retirement
account. However, an insurance company using its general
account may acquire the Class B Certificates subject to
the considerations discussed under "ERISA
Considerations" in this prospectus supplement and in the
prospectus.
Investor Information -- Mailing Address and Telephone Number
The mailing address of the principal executive offices of ML Asset Backed
Corporation is 250 Vesey Street, World Financial Center, North Tower - 10th
Floor, New York, New York 10281-1310. Its telephone number is (212) 449-0336.
<PAGE>
RISK FACTORS
You should consider the following risk factors, and the factors under
"Risk Factors" in the prospectus, in deciding whether to purchase any of these
securities.
Subordination of the Distributions of interest and principal on
Certificates to the the Class B Certificates will be
Notes Increases the Risk subordinated in priority of payment to
of the Certificates Not interest and principal due on the notes.
Receiving Full Distribution Consequently, the certificateholders will
of Interest and Principal not receive any distributions with respect
to a collection period until the full
amount of interest on and principal of the
notes due on such payment date has been
paid. The certificateholders will not
receive any distributions of principal
until the notes have been paid in full.
Prepayments and Losses on An event of default under the indenture may
Your Securities May Result result in payments on the securities being
From an Event of Default accelerated. As a result --
under the Indenture
o if the receivables are sold, you may
suffer losses on your notes or Class B
Certificates if the sales proceeds and
any other assets of the trust are
insufficient to pay the amounts owed on
the notes and the Class B Certificates
and
o your notes or Class B Certificates may
be repaid earlier than scheduled, which
may require you to reinvest your
principal at a lower rate of return.
See "Description of the Notes -- Payment of
Principal --Events of Default" in this
prospectus supplement and "The Indenture
--Events of Default" in the prospectus.
You May Suffer Losses Because the trust has pledged its property
Because You Have Limited to the indenture trustee to secure payment
Control Over Actions of on the notes, the indenture trustee may,
the Trust and Conflicts and at the direction of the holders of the
Between the Noteholders and specified percentage of the notes will,
the Class B Certificateholders take one or more of the other actions
May Occur specified in the indenture relating to the
property of the trust, including a sale of
the receivables. Furthermore, the holders
of a majority of the notes, or the
indenture trustee acting on behalf of the
holders of the notes, under certain
circumstances, has the right to waive
events of servicing termination or to
terminate the servicer as the servicer of
the receivables without consideration of
the effect such waiver or termination would
have on the holders of the Class B
Certificates. The holders of Class B
Certificates will not have the ability to
waive events of servicing termination or to
remove the servicer until the notes have
been paid in full.
See "Description of the Receivables
Transfer and Servicing Agreements -- Events
of Servicing Termination" in the prospectus
and "-- Rights Upon Event of Servicing
Termination" and "-- Waiver of Past Events
of Servicing Termination" in this
prospectus supplement and in the
prospectus.
Geographic Concentration May As of _________, 2000 the servicer's
Result in More Risk to You records indicate that the locations of the
obligors of the receivables were in the
following states:
<TABLE>
<CAPTION>
Percentage of
Aggregate Principal
Balance
-------------------
<S> <C>
-----------.............................. %
-----------.............................. %
-----------.............................. %
-----------.............................. %
</TABLE>
No other state, by billing addresses at the
time of origination, constituted more than
5% of the balance of the receivables as of
_____________. Economic conditions or other
factors affecting these states in
particular could adversely affect the
delinquency, credit loss or repossession
experience of the trust.
The Failure to Make Principal The amount of principal required to be paid
Payments on the Notes Will to noteholders prior to the final scheduled
Generally Not Result in an payment date for a class of notes generally
Event of Default will be limited to amounts available for
those purposes. Therefore, the failure to
repay principal of a class of notes
generally will not result in the occurrence
of an event of default under the indenture
until the final scheduled payment date for
the class of notes.
THE TRUST
Limited Purpose and Limited Assets
ML Asset Backed Corporation, as depositor, will establish the
_________________Trust 200_-__, a Delaware business trust, pursuant to a trust
agreement dated as of __________ between the depositor and __________, as the
owner trustee. The trust will not engage in any activity other than:
o acquiring, holding and managing the assets of the trust, including the
receivables, and the proceeds of those assets;
o issuing the securities;
o making payments on the securities; and
o 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.
The trust will initially be capitalized with equity in an amount equal to
the certificate balance of $________, excluding amounts deposited in the
reserve fund. The equity of the trust, together with the net proceeds from the
sale of the notes, will be used by the trust to (1) purchase the receivables
from the depositor pursuant to the sale and servicing agreement, to be dated
as of ______________ among the trust, the depositor, the seller and the
servicer, and (2) to fund the initial deposit to the reserve fund.
If the protection provided to the noteholders by the subordination of the
certificates and to the noteholders and the certificateholders by the reserve
fund is insufficient, the trust would have to look solely to the obligors on
the receivables and the proceeds from the repossession and sale of the
financed vehicles which secure defaulted receivables. In that event, various
factors, such as the trust not having perfected security interests in the
financed vehicles securing the receivables in all states, may affect the
servicer's ability to repossess and sell the collateral securing the
receivables, and thus may reduce the proceeds which the trust can distribute
to the noteholders and the Class B Certificateholders. See "Description of the
Receivables Transfer and Servicing Agreements -- Distributions" and "--
Reserve Fund" in this prospectus supplement and "Some Important Legal Issues
Relating to the Receivables" in the prospectus.
The trust's principal offices are in ___________ , Delaware ______ , in
care of _____________, as owner trustee, at the address listed below under "
--The Owner Trustee".
Capitalization of the Trust
The following table illustrates the capitalization of the trust as of the
closing date, as if the issuance and sale of the notes and the certificates
had taken place on such date:
Class A-1 Notes.................................................$
-------------
Class A-2 Notes.................................................
Class A-3 Notes.................................................
Class B Certificates............................................
Total...........................................................$
=============
The Owner Trustee
___________ is the owner trustee under the trust agreement.
_______________is a banking corporation and its principal offices are located
at ___________________ ______________. The depositor and its affiliates may
maintain normal commercial banking relations with the owner trustee, its
parent and their affiliates.
THE RECEIVABLES POOL
The trust will own a pool of receivables consisting of motor vehicle
installment loans secured by security interests in the motor vehicles financed
by those contracts. The pool will consist of receivables which [will be] [have
been] purchased by the depositor from the seller, which purchased the
receivables, directly or indirectly, from dealers in the ordinary course of
business or in acquisitions, and which the depositor will transfer to the
trust on the closing date. The receivables will include payments on the
receivables which are made on or after the cutoff date which is _____________.
Criteria Applicable to Selection of Receivables.
The receivables were selected from the seller's portfolio for inclusion
in the pool by several criteria, some of which are set forth in the prospectus
under "The Receivables Pools." These criteria include the requirement that
each receivable:
o has a remaining maturity, as of the cutoff date, of at least ____ months
and not more than ___ months;
o with respect to loans secured by new financed vehicles, had an original
maturity of at least ____ months and not more than ____ months; with
respect to loans secured by used financed vehicles, had an original
maturity of at least _____ months and not more than ____ months;
o is a fully-amortizing, fixed rate simple interest loan which provides for
level scheduled monthly payments (except for the last payment, which may
be minimally different from the level payments) over its remaining term
and has a simple interest contract rate that equals or exceeds ____% per
annum, is not secured by any interest in real estate, and has not been
identified on the computer files of the seller as relating to an obligor
who had requested a reduction in the periodic finance charges, as of the
cutoff date, by application of the Soldiers' and Sailors' Civil Relief Act
of 1940;
o is secured by a financed vehicle that, as of the cutoff date, had not been
repossessed without reinstatement;
o has not been identified on the computer files of the seller as relating to
an obligor who was in bankruptcy proceedings as of the cutoff date;
o has no payment more than ____ days past due as of the cutoff date; and
o has a remaining principal balance, as of the cutoff date, of at least
$___________.
No selection procedures believed by the seller to be adverse to the
securityholders were utilized in selecting the receivables. No receivable has
a scheduled maturity later than _____________.
The composition of the receivables as of the cutoff date is as follows:
<TABLE>
<CAPTION>
<S> <C>
o Aggregate Principal Balance..................... $________________
o Number of Receivables........................... ________________
o Average Principal Balance....................... $________________
(Range)....................................... $______ to $______
o Average Original Amount Financed................ $________________
(Range)....................................... $______ to $______
o Weighted Average Interest Rate.................. ____%
(Range)....................................... ____% to ____%
o Weighted Average Original Term.................. ____ months
(Range)....................................... ____ months to ____ months
o Weighted Average Remaining Term................. ____ months
(Range)....................................... ____ months to ____ months
o Percentage of Aggregate Principal Balance of
Receivables for New/Used Vehicles................ ___% / ___%
</TABLE>
The geographical distribution and distribution by contract rate of the
receivables pool as of the cutoff date are set forth in the following tables.
<PAGE>
Geographic Distribution of the Receivables Pool as of the Cutoff Date
<TABLE>
<CAPTION>
Percentage Percentage
of of
Cutoff Cutoff Date
Number of Principal Date Pool Number of Principal Pool
State (1) Receivables Balance Balance (2) State (1) Receivables Balance Balance (2)
----------------------- ----------- --------- ----------- ------------------ ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Alabama.............. Montana...........
Alaska............... Nebraska..........
Arizona.............. Nevada............
Arkansas............. New Hampshire.....
California........... New Jersey........
Colorado............. New Mexico........
Connecticut.......... New York..........
Delaware............. North Carolina....
District of Columbia. North Dakota......
Florida.............. Ohio..............
Georgia.............. Oklahoma..........
Hawaii............... Oregon............
Idaho................ Pennsylvania......
Illinois............. Rhode Island......
Indiana.............. South Carolina....
Iowa................. South Dakota......
Kansas............... Tennessee.........
Kentucky............. Texas.............
Louisiana............ Utah..............
Maine................ Vermont...........
Maryland............. Virginia..........
Massachusetts........ Washington........
Michigan............. West Virginia.....
Minnesota............ Wisconsin.........
Mississippi.......... Wyoming...........
Missouri.............
</TABLE>
----------------
(1) Based on the location of the obligors on the receivables at the time each
receivable was originated.
(2) May not add to 100% due to rounding.
<PAGE>
<TABLE>
<CAPTION>
Distribution by Contract Rate of the Receivables
as of the Cutoff Date
Percentage of
Number of Cutoff Date Pool
Contract Rate Receivables Principal Balance Balance (1)
----------------------------------------------- ----------------- --------------------- ----------------------
<S> <C> <C> <C>
1.90% to 1.99%.................................
2.00% to 2.49%.................................
2.50% to 2.99%.................................
3.00% to 3.49%.................................
3.50% to 3.99%.................................
4.00% to 4.49%.................................
4.50% to 4.99%.................................
5.00% to 5.49%.................................
5.50% to 5.99%.................................
6.00% to 6.49%.................................
6.50% to 6.99%.................................
7.00% to 7.49%.................................
7.50% to 7.99%.................................
8.00% to 8.49%.................................
8.50% to 8.99%.................................
9.00% to 9.49%.................................
9.50% to 9.99%.................................
10.00% to 10.49%...............................
10.50% to 10.99%...............................
11.00% to 11.49%...............................
11.50% to 11.99%...............................
12.00% to 12.49%...............................
12.50% to 12.99%...............................
13.00% to 13.49%...............................
13.50% to 13.99%...............................
14.00% to 14.49%...............................
14.50% to 14.99%...............................
15.00% to 15.49%...............................
15.50% to 15.99%...............................
16.00% to 16.49%...............................
16.50% to 16.99%...............................
17.00% to 17.49%...............................
17.50% to 17.99%...............................
18.00% to 18.49%...............................
18.50% to 18.99%...............................
19.00% to 19.49%...............................
19.50% to 19.99%...............................
20.00%.........................................
Totals.........................................
</TABLE>
------------------------------------
(1) May not add to 100.00% due to rounding.
<PAGE>
Weighted Average Life of the Securities
The following information is given solely to illustrate the effect of
prepayments of the receivables on the weighted average life of the securities
under the stated assumptions and is not a prediction of the prepayment rate
that might actually be experienced by the receivables.
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, or 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 assets, including the
receivables.
The rate of payment of principal of each class of notes and the Class B
Certificates will depend on the rate of payment (including prepayments) of the
principal balance of the receivables. For this reason, final payment of any
class of notes and the final distribution in respect of the Class B
Certificates could occur significantly earlier than the respective final
scheduled payment dates. The noteholders and the Class B Certificateholders
will exclusively bear any reinvestment risk associated with early payment of
their notes and certificates.
The ABS Tables below captioned "Percent of Initial Note Principal Amount
at Various ABS Percentages" and "Percent of Initial Certificate Balance at
Various ABS Percentages" have been prepared on the basis of following assumed
characteristics of the receivables --
o the receivables prepay in full at the specified constant percentage of ABS
monthly, with no defaults, losses or repurchases;
o each scheduled monthly payment on the receivables is made on the last day
of each month and each month has 30 days;
o payments on the notes and the Class B Certificates are made on each
payment date and each payment date is assumed to be the fifteenth day of
the applicable month;
o the balance in the reserve fund on the payment date is equal to the
Specified Reserve Fund Balance; and
o the servicer exercises its option to purchase the receivables on the
earliest payment date on which it is permitted to do so, as described in
this prospectus supplement.
The ABS Tables indicates the projected weighted average life of each
class of notes and the Class B Certificates and set forth the percent of the
initial principal amount of each class of notes and the percent of the initial
certificate balance of the Class B Certificates that is projected to be
outstanding after each of the payment dates shown at various constant ABS
percentages.
The ABS Tables also assume 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 (which is based on its aggregate principal balance, contract
rate of interest, original term to maturity and remaining term to maturity as
of the cutoff date) will be such that each pool will be fully amortized by the
end of its remaining term to maturity. The pools have an assumed cutoff date
of _______________.
<TABLE>
<CAPTION>
Contract Original Term
Aggregate Rate of to Maturity Remaining Term to
Pool Principal Balance Interest (In Months) Maturity (In Months)
------------------------------ ------------------- --------- -------------- --------------------
<S> <C> <C> <C> <C>
1.............................
2.............................
3.............................
4.............................
5.............................
6.............................
7.............................
8.............................
9.............................
10............................
11............................
12............................
13............................
14............................
15............................
16............................
17............................
18............................
</TABLE>
The actual characteristics and performance of the receivables will differ
from the assumptions used in constructing the ABS Tables. The assumptions used
are hypothetical and have been provided only to give a general sense of how
the principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the receivables will prepay at a constant
level of ABS until maturity or that all of the receivables will prepay at the
same level of ABS. Moreover, the diverse terms of receivables within each of
the hypothetical pools could produce slower or faster principal distributions
than indicated in the ABS Tables 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 amounts
outstanding over time and the weighted average lives of each class of notes
and the Class B Certificates.
<PAGE>
<TABLE>
<CAPTION>
Percent of Initial Note Principal Amount at Various ABS Percentages
Class A-1 Notes Class A-2 Notes Class A-3 Notes
----------------------------- ------------------------------ --------------------------------
Payment date % % % % % % % % % % % %
--------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
</TABLE>
----------------
(1) The weighted average life of a note is determined by (a) multiplying the
amount of each principal payment on a note by the number of years from
the date of the issuance of the note to the related payment date, (b)
adding the results and (c) dividing the sum by the related initial
principal amount of the note.
The 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 their actual characteristics and
performance thereof - and should be read in conjunction with them.
Percent Of Initial
Certificate Balance at Various ABS Percentages
Class B Certificates
-------------------------------------------
Payment date % % % %
............................ -------- -------- -------- ------------
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
(1) The weighted average life of a Class B Certificate is determined by (a)
multiplying the amount of each principal payment on a Class B Certificate
by the number of years from the date of the issuance of the Class B
Certificate to the related payment date, (b) adding the results and (c)
dividing the sum by the related initial certificate balance of the Class
B Certificate.
<PAGE>
Delinquency, Credit Loss and Recovery Information
Set forth below is certain information concerning the experience of the
seller pertaining to new and used automobile, minivan, sport utility vehicle,
light-duty truck, motorcycle or recreational vehicle receivables, including
those previously sold which the seller continues to service. There can be no
assurance that the delinquency, repossession and net loss experience on the
receivables transferred to the trust will be comparable to that set forth
below.
<TABLE>
<CAPTION>
Delinquency Experience
At At December 31,
_________, 200 _________, 200 __________, 199 ____________, 199
Number of Number of Number of Number of
Contracts Amount Contracts Amount Contracts Amount Contracts Amount
--------- ------ --------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio............... $ $ $ $
Period of Delinquency
31-60 Days............
61 Days or More.......
----------- ------- --------- ------- ---------- ------- ----------
Total Delinquencies..... $ $ $ $
Total Delinquencies
as a Percent of the
Portfolio............. % % % % % % % %
</TABLE>
<TABLE>
<CAPTION>
At December 31,
, 199 , 199 , 199
---------- ---- ---------- ---- -------------- ----
Number of Number of Number of
Contracts Amount Contracts Amount Contracts Amount
--------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Portfolio............... $ $ $
Period of Delinquency
31-60 Days............
61 Days or More....... $ $ $
------------ ---------- ------------- ----------- -------------- ----------
Total Delinquencies.....
Total Delinquencies
as a Percent of the
Portfolio............. % % % % % %
</TABLE>
(1) The information in the table includes previously sold contracts that the
seller continues to service.
(2) All amounts and percentages are based on the gross amount scheduled to be
paid on each contract, including unearned finance and other charges.
<PAGE>
<TABLE>
<CAPTION>
Credit Loss/Repossession Experience(1)
_________ Ended
Year Ended December 31,
--------------------- ---------------------------------------------------------
199 199 199 199 199 199 199
---- ---- ---- ---- ---- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Average Amount Outstanding
During the Period........................ $ $ $ $ $ $ $
Average Number of Contracts
Outstanding During the Period............
Percent of Contracts Acquired During the
Period with Recourse to the Dealer....... % % % % % % %
Repossessions as a Percent of Average
Number of Contracts Outstanding.......... % % % % % % %
Net Losses as a Percent of
Liquidations(3)(4)....................... % % % % % % %
Net Losses as a Percent of Average
Amount Outstanding(2)(3)................. % % % % % % %
</TABLE>
-------------------------
(1) Except as indicated, all amounts and percentages are based on the gross
amount scheduled to be paid on each contract, including unearned finance
and other charges. The information in the table includes previously sold
contracts that the seller continues to service.
(2) Percentages have been annualized for the _____ months ended ____________,
199 and 199 and are not necessarily indicative of the experience for the
year.
(3) [Net losses are equal to the aggregate of the balances of all contracts
which are determined to be uncollectible in the period, less any
recoveries on contracts charged off in the period or any prior periods,
including any losses resulting from disposition expenses and any losses
resulting from the failure to recover commissions to dealers with respect
to contracts that are prepaid or charged off.]
(4) Liquidations represent a reduction in the outstanding balances of the
contracts as a result of monthly cash payments and charge-offs.
The data presented in the foregoing tables are for illustrative purposes
only. Delinquency and credit loss experience may be influenced by a variety of
economic, social and other factors. We cannot assure you that the delinquency
and loan loss information of the seller, or that of the trust with respect to
its receivables, in the future will be similar to that set forth above.
THE SELLER
[DESCRIPTION OF SELLER AND ITS UNDERWRITING AND SERVICING STANDARDS]
General
Underwriting Procedures
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
selling 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 SERVICER
[DESCRIPTION OF THE SERVICER AND ITS SERVICING STANDARDS]
General
Collection and Repossession Procedures
Insurance
Extensions
Methods of Vehicle Disposal
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.
MATURITY AND PREPAYMENT CONSIDERATIONS
Information regarding certain maturity and prepayment considerations with
respect to the securities is set forth under "Maturity and Prepayment
Considerations" in the prospectus. In addition, no principal payments will be
made
o on the Class A-2 Notes until the Class A-1 Notes have been paid in
full;
o on the Class A-3 Notes until the Class A-2 Notes have been paid in
full; or
o on the Class B Certificates until the Class A-3 Notes have been paid in
full.
However, if the notes are accelerated after an event of default, principal
payments will be applied pro rata all classes of the notes. See "Application
of Available Funds" in this prospectus supplement.
Since the rate of payment of principal of each class of notes and the
Class B Certificates depends on the rate of payment (including prepayments) of
the principal balance of the receivables, final payment of any class of notes
and the final distribution in respect of the Class B Certificates could occur
significantly earlier than the respective final scheduled payment dates.
We Cannot Assure You That Your Securities Will Be Repaid on the Final
Scheduled Payment dates. It is expected that final payment of each class of
notes and the final distribution in respect of the Class B Certificates will
occur on or prior to the respective final scheduled payment dates. Failure to
make final payment of any class of notes by the respective final scheduled
payment dates would constitute an event of default under the indenture. See
"Description of the Notes -- Payments of Interest" in this prospectus
supplement and "Description of the Notes -- The Indenture -- Events of
Default" in the prospectus. In addition, the remaining certificate balance of
the Class B Certificates is required to be paid in full on or prior to its
final scheduled payment date. However, we cannot assure you that sufficient
funds will be available to pay each class of notes and the Class B
Certificates in full on or prior to the respective final scheduled payment
dates. If sufficient funds are not available, final payment of any class of
notes and the final distribution in respect of the Class B Certificates could
occur later than such dates.
The Level of Prepayments of the Receivables and Required Repurchases by
the Seller and the Servicer are Unpredictable and May Affect Payments on the
Securities. The rate of prepayments of the receivables may be influenced by a
variety of economic, social and other factors. In addition, under
circumstances relating to breaches of representations, warranties or
covenants, the seller and/or the servicer may be obligated to purchase
receivables from the trust. See "The Receivables Pool" in this prospectus
supplement and "Description of the Receivables Transfer and Servicing
Agreements -- Sale and Assignment of Receivables" in the prospectus. A higher
than anticipated rate of prepayments will reduce the aggregate principal
balance of the receivables more quickly than expected and thereby reduce the
outstanding amounts of the securities and the anticipated aggregate interest
payments on the securities. The noteholders and the Class B Certificateholders
alone will bear any reinvestment risks resulting from a faster or slower
incidence of prepayment of receivables as set forth in the priority of
distributions in this prospectus supplement. Such reinvestment risks include
the risk that interest rates may be lower at the time such holders received
payments from the trust than interest rates would otherwise have been had such
prepayments not been made or had such prepayments been made at a different
time.
Risks of slower or faster repayments. Noteholders and Class B
Certificateholders should consider--
o in the case of notes or Class B Certificates purchased at a discount,
the risk that a slower than anticipated rate of principal payments on
the receivables could result in an actual yield that is less than the
anticipated yield and
o in the case of notes or Class B Certificates purchased at a premium,
the risk that a faster than anticipated rate of principal payments on
the receivables could result in an actual yield that is less than the
anticipated yield.
DESCRIPTION OF THE NOTES
The trust will issue the notes under an indenture to be dated as of _____,
200__ between the trust and ____________, as indenture trustee. We will file a
copy of the indenture with the SEC after the trust issues the notes. We
summarize below some of the most important terms of the notes. This summary is
not a complete description of all the provisions of the notes and the
indenture. We refer you to those provisions. The following summary supplements
the description of the general terms and provisions of the notes of any trust
and the related indenture set forth under the headings "Certain Information
Regarding the Securities" and "The Indenture" in the prospectus. We refer you
to those sections.
Payments of Interest
Interest on the principal amounts of the notes will accrue at the
respective per annum interest rates for the various classes of notes and will
be payable to the noteholders on each payment date. The trust will make
payments to the noteholders as of each record date.
Calculation of interest. Interest will accrue and will be calculated on
the various classes of notes as follows:
o Actual/360. Interest on the Class A-1 Notes will accrue from the
prior payment date (or the closing date, in the case of the first
payment date) to the current payment date and be calculated on the
basis of actual days elapsed and a 360-day year.
o 30/360. Interest on the Class A-2 Notes and Class A-3 Notes will
accrue form the __th day of the previous month (or the closing date,
in the case of the first payment date) to the __th of the current
month and be calculated on the basis of a 360-day year of twelve
30-day months.
o Unpaid Interest Accrues. Interest accrued as of any payment date but
not paid on such payment date will be due on the next payment date,
together with interest on such amount at the applicable interest rate
to the extent lawful.
Priority of Interest Payments. The trust will pay interest on the notes
without priority among the classes of notes on each payment date with
available funds in accordance with the priority set forth under "Application
of Available Funds" in this prospectus supplement.
The Trust Will Pay Interest Pro Rata to Noteholders if it Does Not Have
Enough Funds Available to Pay All Interest Due on the Notes. The amount
available for interest payments on the notes could be less than the amount of
interest payable on the notes on any payment date. In that event, the holders
of each class of notes will receive their ratable share of the aggregate
amount available to be distributed in respect of interest on the notes. Each
such class' ratable share of the amount available to pay interest will be
based on the amount of interest due on such class relative to the total amount
of interest due to the noteholders.
Payments of Principal
Priority and Amount of Principal Payments. The trust will generally make
principal payments to the noteholders on each payment date in the amount and
in the priority set forth under "Application of Available Funds" in this
prospectus supplement.
Event of Default. An event of default will occur under the indenture if
the outstanding principal amount of any note has not been paid in full on its
final scheduled payment date. The failure to pay principal of a note is not an
event of default until its final scheduled payment date. Payments on the notes
may be accelerated upon an event of default. Upon an acceleration of the
notes, the priority in which the trust makes distributions to the noteholders
and certificateholders will change such that payments of principal will be
made pro rata to the holders of each class of notes and interest payments on
the Class B Certificates will not be made until the notes are paid in full.
Notes Might Not Be Repaid on Their Final Scheduled Payment Dates. The
principal balance of any class of notes to the extent not previously paid will
be due on the final scheduled payment date relating to that class listed on
the cover of this prospectus supplement. The actual date on which the
aggregate outstanding principal amount of any class of notes is paid may be
earlier or later than the final scheduled payment date for that class of notes
based on a variety of factors, including those described under "Maturity and
Prepayment Considerations" in this prospectus supplement and in the
prospectus.
Optional Prepayment
All outstanding notes will be prepaid in whole, but not in part, on any
payment date on which the servicer exercises its option to purchase the
receivables. The servicer may purchase the receivables when the aggregate
principal balance of the receivables has declined to 10% or less of the
aggregate principal balance of the receivables as of the cutoff date, as
described in the prospectus under "Description of Receivables Transfer and
Servicing Agreements -- Servicing Termination." The redemption price for the
notes outstanding will be equal to --
o the unpaid principal amount of such notes plus accrued and unpaid
interest on those notes, plus
o interest on any past due interest at the rate of interest on those
notes to the extent lawful.
DESCRIPTION OF THE CERTIFICATES
The trust will issue the Class B Certificates in definitive form under
the trust agreement. We will file a copy of the trust agreement with the SEC
after the trust issues the notes and the Class B Certificates. We summarize
below some of the most important terms of the Class B Certificates. This
summary is not a complete description of all the provisions of the trust
agreement and the Class B Certificates. We refer you to those documents. The
following summary is a supplement to the description of the general terms and
provisions of the certificates of any given trust and the related trust
agreement provided under the headings "Certain Information Regarding the
Securities" in the prospectus and "Description of the Receivables Transfer and
Servicing Agreements" in the prospectus and in this prospectus supplement. We
refer you to those sections.
Distributions
Interest. On each payment date, commencing _____________, the Class B
Certificateholders will be entitled to receive the amount of interest that
accrues on the certificate balance at the applicable rate of interest set
forth on the cover page of this prospectus supplement.
Interest will accrue--
o in the case of the first payment date, from and including the closing
date to but excluding the ____th day of the following calendar
month or
o otherwise, from and including the ___th day of the calendar month
preceding the payment date to but excluding the ___th day of the
calendar month of that payment date.
Interest is Calculated 30/360. Interest on the certificates will be
calculated on the basis of a 360-day year of twelve 30-day months.
Unpaid Interest Accrues. Interest distributions due for any payment date
but not distributed on such payment date will be due on the next payment date
increased by an amount equal to interest on such amount at the rate of
interest on the Class B Certificates to the extent lawful.
Distributions on Class B Certificates. The trust will make distributions
on the Class B Certificates in the amounts and in the priority set forth under
"Application of Available Funds" in this prospectus supplement. Class B
Certificateholders will not receive any distributions of principal until the
notes are paid in full. Following the occurrence of an event of default which
has resulted in an acceleration of the notes, the noteholders will be entitled
to be paid interest and all principal in full before any distributions may be
made on the Class B Certificates.
The outstanding certificate balance of the Class B Certificates will be
payable in full on the final scheduled payment date for the Class B
Certificates. The actual date on which the trust pays the certificate balance
of the Class B Certificates may be earlier or later than that final scheduled
payment date, based on a variety of factors, including those described under
"Maturity and Prepayment Considerations" in this prospectus supplement and in
the prospectus.
Subordination of Class B Certificates
The rights of the Class B Certificateholders to receive distributions of
interest are subordinated to the rights of noteholders to receive payments of
interest and, if the notes have been accelerated, principal. In addition, the
Class B Certificateholders will have no right to receive distributions of
principal until the aggregate principal amount of all the notes has been paid
in full. This subordination is effected by the priority of distributions set
forth under "Application of Available Funds" in this prospectus supplement.
Optional Prepayment
If the servicer exercises its option to purchase the receivables when the
aggregate principal balance of the receivables declines to 10% or less of the
aggregate principal balance of the receivables as of the cutoff date, you will
receive an amount in respect of your Class B Certificates equal to the sum of:
o the outstanding certificate balance of your Class B Certificates
together with accrued and unpaid interest at the rate of interest for
the Class B Certificates and
o interest on any past due interest at the rate of interest for the
Class B Certificates, to the extent lawful.
That distribution will cause the early retirement of your certificates.
See "Description of the Receivables Transfer and Servicing Agreements --
Termination" in the prospectus.
APPLICATION OF AVAILABLE FUNDS
Sources of Funds of Distributions
The funds available to the trust to make payments on the securities on
each payment date will come from the following sources:
o collections received on the receivables during the prior calendar
month,
o net recoveries received during the prior calendar month on
receivables that were charged off as losses in prior months,
o the aggregate amount of advances remitted by the servicer,
o proceeds of repurchases of receivables by the seller or purchases of
receivables by the servicer because of certain breaches of
representations or covenants and
o funds, if any, withdrawn from the reserve fund for that payment date.
The precise calculation of the funds available to make payments on the
securities is set forth in the definition of Available Funds in the section
"Glossary of Terms". We refer you to that definition. Among other things,
Available Funds are net of (i) reimbursements of outstanding advances to the
servicer and (ii) payments to the servicer of various fees paid by the
obligors that constitute the Supplemental Servicing Fee. See "Description of
the Receivables Transfer and Servicing Agreements -- Advances" and " --
Servicing Compensation and Expenses" in the prospectus.
Priority of Distributions
On each payment date the trust will apply the Available Funds for that
payment date in the following amounts and order of priority:
(1) Servicing Fee-- the Servicing Fee payable to the servicer;
(2) Note Interest-- interest due on all the notes ratably to the holders
of each class of notes;
(3) Class B Certificate Interest -- interest distributable to the
holders of the Class B Certificates; however, if an event of default
has occurred and the notes have been accelerated, amounts in this
clause (3) will instead be paid after clause (4) (iii) below;
(4) Principal Payment -- an amount equal to the sum of (i) the principal
collections on the receivables received during the prior calendar
month and (ii) the aggregate of principal balance (net of
liquidation proceeds applied to principal) of all receivables
designated as "defaulted receivables" in that month will be applied
to pay principal on the securities in the following order of
priority:
(i) on the Class A-1 Notes until they are paid in full;
(ii) on the Class A-2 Notes until they are paid in full;
(iii) on the Class A-3 Notes until they are paid in full and
(iv) on the Class B Certificates until they are paid in full;
however, if the notes are accelerated after an event of default,
principal payments will be applied pro rata on all classes of the
notes;
(5) Final Scheduled Payment Date -- if the payment date is a final
scheduled payment date for a class of securities, the amount, if
any, necessary to pay that class in full after giving effect to the
payment pursuant to clause (5) will be paid on that class;
(6) Reserve Fund Deposit -- to the reserve fund, the amount, if any,
necessary to reinstate the balance of the reserve fund up to the
Specified Reserve Fund Balance; and
(7) any amounts remaining after the above distributions shall be paid to
the seller.
A defaulted receivable referred to in clause (4) above is a receivable
(i) that the servicer determines is unlikely to be paid in full or (ii) with
respect to which at least ____% of a scheduled payment is ____ or more days
delinquent.
DESCRIPTION OF THE RECEIVABLES TRANSFER
AND SERVICING AGREEMENTS
We have summarized below some of the important terms of the sale and
servicing agreement. We will file a copy of the sale and servicing agreement
with the SEC after we issue the notes and the certificates. This summary is
not a complete description of all of the provisions of the sale and servicing
agreement. We refer you to the sale and servicing agreement. You can find more
information about the transfer of the receivables from the seller to the trust
on the closing date in the prospectus under "Description of the Receivables
Transfer and Servicing Agreements".
Accounts
In general, the servicer will be permitted to retain collections on the
receivables until the business day preceding any payment date. However, the
servicer will be required to remit collections received with respect to the
receivables not later than the second Business Day after receipt to the
collection account (1) if there is an event of servicing termination , (2) if
__________ is no longer the servicer or (3) if one of the other conditions set
forth in the sale and servicing agreement is not met. In addition to the
accounts referred to under "Description of Receivables Transfer and Servicing
Agreements -- Accounts" in the prospectus --
o the indenture trustee will establish a payment account for the
benefit of the noteholders;
o the owner trustee will establish a payment account for the benefit of
the Class B Certificateholders; and
o the servicer will establish and will maintain with the indenture
trustee the reserve fund, in the name of the indenture trustee on
behalf of the noteholders and the certificateholders.
Servicing Compensation and Expenses
The servicer is entitled to receive the Servicing Fee on each payment
date. The Servicing Fee, together with any portion of the Servicing Fee that
remains unpaid from prior payment dates, will be payable on each payment date.
The Servicing Fee will be paid only to the extent of the funds deposited in
the collection account with respect to the collection period preceding such
payment date, plus funds, if any, deposited into the collection account from
the reserve fund. The servicer also is entitled to receive the Supplemental
Servicing Fee. See "Description of the Receivables Transfer and Servicing
Agreements -- Servicing Compensation and Expenses" in the prospectus.
Rights Upon Event of Servicing Termination
If an event of servicing termination occurs, the indenture trustee or
holders of not less than a majority of the principal amount of the notes (or,
if no notes are outstanding, a majority of the certificate balance of the
Class B Certificates) may remove the servicer without the consent of any of
the other securityholders.
Waiver of Past Events of Servicing Termination
If an event of servicing termination occurs, a majority of the principal
amount of the notes (or, if no notes are outstanding, a majority of the
certificate balance of the Class B Certificates), subject to the exceptions
provided in the sale and servicing agreement, may waive any event of servicing
termination except for a failure to make any required deposits to or payments
from any account, without the consent of any of the other securityholders. The
certificateholders will not have the right to determine whether any event of
servicing termination should be waived until the notes have been paid in full.
Deposits to the Collection Account.
On or before the payment date, the servicer will cause all collections on
receivables, advances by the servicer and other amounts constituting the
Available Funds to be deposited into the collection account. See "Description
of Receivables Transfer and Servicing Agreements -- Collections" and "--
Advances" in the prospectus.
On or before each payment date, the servicer will notify the indenture
trustee to withdraw the following amounts from the reserve fund in the
following order and deposit them into the collection account. In each case,
the amount will be withdrawn only to the extent of funds in the reserve fund
after giving effect to all prior withdrawals. The amounts to be withdrawn from
the reserve fund are:
o the Reserve Fund Excess Amount and
o the amount, if any, by which (a) the Total Required Payment exceeds
(b) the Available Funds for that payment date.
However, following the acceleration of the notes after the occurrence of
an event of default, the Total Required Payment will be the sum of --
o the Servicing Fee and all unpaid Servicing Fees from prior collection
periods;
o all interest payable on the notes, including any accrued interest
thereon and
o the amount necessary to reduce the outstanding principal amount of
all the notes to zero.
Servicer will Provide Information to Indenture Trustee. On the Business
Day prior to each payment date, the servicer will provide the indenture
trustee with the information specified in the sale and servicing agreement
with respect to the collection period preceding such payment date, including:
o the amount of aggregate collections on the receivables;
o the aggregate amount of defaulted receivables;
o the aggregate advances to be made by the servicer and
o the aggregate Purchase Amount of receivables to be repurchased by the
seller or to be purchased by the servicer;
o the aggregate amount to be distributed as principal and interest on
the securities; and
o the Servicing Fee.
Reserve Fund
The servicer will establish the reserve fund. It will be held in the name
of the indenture trustee for the benefit of the noteholders and
certificateholders. To the extent that amounts on deposit in the reserve fund
are depleted, the noteholders and the Class B Certificateholders will have no
recourse to the assets of the depositor, the seller or the servicer as a
source of payment.
Deposits to the Reserve Fund. The reserve fund will be funded by a
deposit by the seller on the closing date in the amount of $________. The
amount on deposit in the reserve fund may increase from time to time up to the
Specified Reserve Fund Balance by deposits of funds withdrawn from the
collection account after payment of the Total Required Payment. The Specified
Reserve Fund Balance will equal the lesser of (a) ____% of the outstanding
principal balance of the receivables and (b) ____% of the principal balance of
the receivables as of the cutoff date.
Withdrawals From the Reserve Fund. The amount on deposit in the reserve
fund may be deposited into the collection account to the extent described
under " -- Deposits to the Collection Account" above.
In addition, the indenture trustee will withdraw amounts from the reserve
fund on any payment date to the extent that such amounts together with the
Available Funds for such payment date would be sufficient to pay the sum of
the Servicing Fee and all outstanding notes and Class B Certificates in full.
Investment. Amounts on deposit in the reserve fund will be invested by
the indenture trustee at the direction of the seller in permitted investments
and investment earnings (net of losses and investment expenses) therefrom will
be deposited into the reserve fund. Permitted investments are generally
limited to obligations or securities that mature on or before the next payment
date. However, to the extent each rating agency rating the notes or the Class
B Certificates confirms that such actions will not adversely affect its
ratings of the securities, funds in the reserve fund may be invested in
obligations that will not mature prior to the next payment date and will not
be sold to meet any shortfalls.
Funds in the Reserve Fund Will be Limited. Amounts on deposit in the
reserve fund from time to time are available to--
o enhance the likelihood that you will receive the amounts due on your
notes or Class B Certificates and
o decrease the likelihood that you will experience losses on your notes
or Class B Certificates.
However, the amounts on deposit in the reserve fund are limited to the
Specified Reserve Fund Balance. If the amount required to be withdrawn from
the reserve fund to cover shortfalls in funds on deposit in the collection
account exceeds the amount available to be withdrawn from the reserve fund, a
shortfall in the amounts distributed to the noteholders and Class B
Certificateholders could result. Depletion of the reserve fund ultimately
could result in losses on your notes or Class B Certificates.
After making distributions which are ranked senior in priority, the trust
will deposit amounts to the reserve fund in order to maintain the Specified
Reserve Fund Balance.
After the payment in full, or the provision for such payment of all
accrued and unpaid interest on the notes and Class B Certificates and the
outstanding principal amount of the notes and the certificate balance of the
Class B Certificates, any funds remaining on deposit in the reserve fund,
subject to certain limitations, will be paid to the seller.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Brown & Wood LLP, counsel for the depositor and Federal
Tax Counsel for the trust, for federal income tax purposes, the notes will be
characterized as debt, and the trust will not be characterized as an
association or a publicly traded partnership taxable as a corporation. See
"Material Federal Income Tax Consequences" in the Prospectus.
MATERIAL STATE TAX CONSEQUENCES
[DESCRIPTION OF MATERIAL STATE TAX CONSEQUENCES]
ERISA CONSIDERATIONS
The Notes
The notes may, in general, be purchased by or on behalf of Benefit Plan
Investors. Although we cannot assure you in this regard, the notes should be
treated as "debt" and not as "equity interests" for purposes of the Plan
Assets Regulation because the notes --
o 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
o should not be deemed to have any "substantial equity features."
See "ERISA Considerations" in the prospectus.
However, the acquisition and holding of notes of any class by or on
behalf of a Benefit Plan Investor could be considered to give rise to a
prohibited transaction under ERISA and Section 4975 of the Code if 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 Benefit Plan Investor. In such case, certain exemptions from
the prohibited transaction rules could be applicable to such acquisition and
holding by a Benefit Plan Investor depending on the type and circumstances of
the Benefit Plan Investor fiduciary making the decision to acquire a note. For
additional information regarding treatment of the notes under ERISA, see
"ERISA Considerations" in the prospectus.
The Class B Certificates
Benefit Plan Investors may not acquire the Class B Certificates. An
insurance company using the assets of its general account may purchase Class B
Certificates on the condition that --
o such insurance company is able to represent that, as of the date it
acquires an interest in a Class B Certificate, less than 25% of the
assets of such general account constitute "plan assets" for purposes
of Title I of ERISA and Section 4975 of the Code and
o such insurance company agrees that if at any time during any calendar
quarter while it is holding an interest in such Class B Certificate,
25% or more of the assets of such general account constitute "plan
assets" for purposes of Title I of ERISA and Section 4975 of the
Code, and, at that time, if no exemption or exception applies to the
continued holding of the Class B Certificate under ERISA, by the end
of the next quarter such insurance company will dispose of all Class
B Certificates then held in its general account by the end of the
next quarter.
In addition, investors other than Benefit Plan Investors should be aware
that a prohibited transaction under ERISA and the Code could be deemed to
occur if any holder of the Class B Certificates or any of its affiliates is or
becomes a party in interest or a disqualified person with respect to any
Benefit Plan Investor that acquires and holds the notes without such Benefit
Plan Investor being covered by one or more exemptions from the prohibited
transaction rules. Each purchaser of the Class B Certificates will be required
to represent and certify that it either --
o is not a Benefit Plan Investor nor acquiring such Class B
Certificates on behalf of any such Benefit Plan Investor or
o is an insurance company using the assets of its general account under
the limitations described above.
For additional information regarding treatment of the Class B
Certificates under ERISA, see "ERISA Considerations" in the prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement, the depositor has agreed to cause the trust to sell to each of the
underwriters named below, and each of those underwriters has severally agreed
to purchase, the initial principal amount of Class A-1 Notes, Class A-2 Notes
and Class A-3 Notes set forth opposite its name below:
<TABLE>
<CAPTION>
Principal Principal Amount Principal Amount
Amount of of of
Class A-1 Class A-2 Class A-3
Note Underwriter Notes Notes Notes
-------------------------------------------------- ------------------- ----------------- ----------------
<S> <C> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith Incorporated
..................................................
..................................................
..................................................
Total........................................
</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 and the Class A-3
Notes, the public offering prices may change.
Subject to the terms and conditions set forth in the underwriting
agreement, the depositor has agreed to cause the trust to sell to each of the
underwriters named below, and each of those underwriters has severally agreed
to purchase, the initial principal amount of the Class B Certificates set
forth below opposite its name.
<TABLE>
<CAPTION>
Principal
Amount of
Class B
Class B Certificates Underwriters Certificates
---------------------------------------------------------------- ------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith Incorporated..............
................................................................
Total.........................................................
</TABLE>
The depositor has been advised by the underwriters of the Class B
Certificates that they propose initially to offer the Class B Certificates to
the public at the prices set forth on the cover page of this prospectus
supplement. After the initial public offering of the Class B Certificates, the
public offering price may change.
The underwriting discounts and commissions, the selling concessions that
the underwriters of the notes and the certificates 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:
Selling
Concessions Reallowance
not to exceed not to exceed
------------- -------------
Class A-1 Notes.................
Class A-2 Notes.................
Class A-3 Notes.................
Class B Certificates............
Total for the
Notes and Class B
Certificates..............
--------------
Until the distribution of the notes and the Class B Certificates is
completed, rules of the SEC may limit the ability of the underwriters and
certain selling group members to bid for and purchase the notes and the Class
B Certificates. As an exception to these rules, the underwriters are permitted
to engage in certain transactions that stabilize the price of the notes and
the Class B Certificates. Such transactions consist of bids or purchases for
the purpose of pegging, fixing or maintaining the price of the notes and the
Class B Certificates.
The underwriters may make short sales in the notes or the Class B
Certificates in connection with this offering (i.e., they sell more notes or
Class B Certificates 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 or Class B Certificates, as the case may be, 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 or Class B Certificates 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 the Class B Certificates or preventing or retarding a decline in
the market price of the notes or the Class B Certificates.
The underwriters may also impose a penalty bid on certain underwriters
and selling group members. This means that if the underwriters purchase notes
or Class B Certificates in the open market to reduce the underwriters' short
position or to stabilize the price of such notes or Class B Certificates, they
may reclaim the amount of the selling concession from any underwriter or
selling group member who sold those notes or Class B Certificates, as the case
may be, 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 or
the Class B Certificates. 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.
The notes and the Class B Certificates are new issues of securities and
there currently is no secondary market for the notes or the certificates. The
underwriters for the notes and the Class B Certificates 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 or the Class B Certificates will
develop. If a secondary market for the notes or the Class B Certificates does
develop, it might end at any time or it might not be sufficiently liquid to
enable you to resell any of your notes or Class B Certificates.
The indenture trustee may, from time to time, invest the funds in the
collection account and the reserve fund in investments acquired from or issued
by the underwriters.
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 and its affiliates.
The depositor has 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 and the Class B
Certificates are conditioned on the closing of the sale of each other class of
notes and those certificates.
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.
[The prospectus supplement and the attached prospectus may be used by
[_______] in connection with offers and sales related to market making
transactions in the notes. [_________] 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. [________] is an affiliate of [________],
and therefore may also be viewed as an affiliate of the trust.]
LEGAL OPINIONS
Certain legal matters relating to the securities, including certain
federal income tax matters, will be passed upon for the depositor by Brown &
Wood LLP. Certain legal matters relating to the securities will be passed upon
for the underwriters by _______________.
<PAGE>
GLOSSARY OF TERMS
Additional defined terms used in this prospectus supplement are defined
under "Glossary of Terms" in the prospectus.
"ABS" means the Absolute Prepayment Model which we use to measure
prepayments on receivables and we describe under "The Receivables
Pool--Weighted Average Life of the Securities".
"ABS Table" means the table captioned "Percent of Initial Note Principal
Amount or Initial Certificate Balance at Various ABS Percentages" beginning on
page S1-__ of this prospectus supplement.
"advance" means, with respect to a receivable and a payment date, the
excess, if any, of (a) the product of the principal balance of that receivable
as of the first day of the related collection period and one-twelfth of its
contract rate of interest over (b) the interest actually received by the
servicer from the obligor or from payment of the Purchase Amount during or
with respect to that collection period.
"Available Collections" for a payment date will be the sum of the
following amounts with respect to the collection period preceding that payment
date (subject to the exclusions set forth below such amounts):
o all payments collected on the receivables;
o all Liquidation Proceeds and all recoveries in respect of receivables
which were designated as defaulted receivables in prior collection
periods;
o all advances made by the servicer of interest due on the receivables;
o the Purchase Amount of each receivable that was repurchased by the
seller or purchased by the servicer under an obligation which arose
during the related collection period and
o partial prepayments of any refunded item included in the principal
balance of a receivable, such as extended warranty protection plan
costs, or physical damage, credit life, disability insurance
premiums, or any partial prepayment which causes a reduction in the
obligor's periodic payment to an amount below the scheduled payment
as of the cutoff date.
The Available Collections on any payment date will exclude the following:
o amounts received on any receivable to the extent that the servicer
has previously made an unreimbursed advance with respect to such
receivable;
o amounts received on any of the receivables to the extent that the
servicer has previously made an unreimbursed advance on a receivable
which is not recoverable from collections on the particular
receivable;
o all payments and proceeds (including Liquidation Proceeds) of any
receivables the Purchase Amount of which has been included in the
Available Funds in a prior collection period;
o Liquidation Proceeds with respect to accrued and unpaid interest (but
not including interest on the receivable for the then current
collection period) but only to the extent of any unreimbursed
advances and
o amounts constituting the Supplemental Servicing Fee.
"Available Funds" for a payment date shall be the sum of the Available
Collections and the Reserve Fund Excess Amount.
"Business Day" is a day other than a Saturday, a Sunday or a day on which
banking institutions or trust companies in the State of New York are
authorized by law, regulation or executive order to be closed.
"Clearstream" means Clearstream Banking, a societe anonyme and a
professional depository under the laws of Luxembourg.
"certificate balance" means, with respect to the Class B Certificates,
initially, $ and, thereafter, means the initial certificate balance of the
Class B Certificates, reduced by all amounts allocable to principal previously
distributed to the Class B Certificateholders.
"closing date" means _______________.
"Code" means the Internal Revenue Code of 1986, as amended.
"collection account" means an account, held in the name of the indenture
trustee, into which the servicer is required to deposit collections on the
receivables and other amounts.
"collection period" means, with respect to the first payment date, the
calendar month ending on _____________, and with respect to each subsequent
payment date, the calendar month preceding the calendar month in which such
payment date occurs.
"Contract Rate" means the per annum interest borne by a receivable.
"cutoff date" means the date as of which the seller will transfer the
receivables to the trust, which is __________________.
"defaulted receivable" means a receivable (i) that the servicer
determines is unlikely to be paid in full or (ii) with respect to which at
least ___% of a scheduled payment is ___ or more days delinquent as of the end
of a calendar month.
"depositor" means _______________________.
"payment date" means the date on which the trust will pay interest and
principal on the notes and certificates, which will be the _____ day of each
month or, if any such day is not a Business Day, on the next Business Day,
commencing ____________.
"DTC" means The Depository Trust Company and any successor depository
selected by the trustee.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Euroclear" means a professional depository 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.
"final scheduled payment date" for each class of notes and Class B
Certificates means the respective dates set forth on the cover page of this
prospectus supplement or, if such date is not a Business Day, the next
succeeding Business Day.
"indenture trustee" means _________________, a bank and trust company, as
indenture trustee under the indenture.
"Liquidation Proceeds" means with respect to any receivable (a) insurance
proceeds received by the servicer and (b) the monies collected by the servicer
from whatever source, including but not limited to proceeds of a financed
vehicle sold after repossession, on a defaulted receivable net of any payments
required by law to be remitted to the Obligor.
"owner trustee" means ______________________, a
____________________________, as owner trustee under the trust agreement under
which the trust is formed.
"payment date" means the date on which the trust will pay interest and
principal on the notes and certificates, which will be the ____ day of each
month or, if any such day is not a Business Day, on the next Business Day,
commencing ___________________.
"Purchase Amount" means a price at which the seller or the servicer must
purchase a receivable, the unpaid principal balance of the receivable plus
interest accrued thereon to the date of repurchase at the interest rate
specified in the receivable.
"record date" with respect to any payment date means--
o with respect to the notes, the day immediately preceding the payment
date or, if the notes are issued as Definitive Notes, the last day of
the preceding month and
o with respect to the certificates, the last day of the month preceding
the payment date.
"reserve fund" means the account which the servicer will establish in the
name of the indenture trustee into which the trust will deposit the Reserve
Initial Deposit and into which the indenture trustee will make the other
deposits and withdrawals specified in this prospectus supplement.
"Reserve Fund Excess Amount", with respect to any payment date, is the
amount equal to the excess, if any, of --
o the amount of cash or other immediately available funds in the
reserve fund on that payment date, prior to giving effect to any
withdrawals from the reserve fund relating to that payment date, over
o the Specified Reserve Fund Balance with respect to that payment date.
"Reserve Initial Deposit" means the $______________ initially deposited
into the reserve fund.
"seller" means __________________.
"Servicing Fee" means a fee payable to the servicer on each payment date
for servicing the receivables which is equal to the product of 1/12 of [1.00]%
and the outstanding principal balance of the receivables as of the first day
of the related collection period.
"Specified Reserve Fund Balance" means the lesser of--
o __% of the outstanding principal balance of the receivables; and
o __% of the principal balance of the receivables as of the cutoff date.
"Supplemental Servicing Fee" means, for each collection period, the
amount of any late, prepayment, and other administrative fees and expenses
collected during that collection period, plus any interest earned during the
collection period on amounts on deposit in the collection account during the
collection period.
"Total Required Payment" on any payment date, is the sum of--
(1) the Servicing Fee and all unpaid Servicing Fees from prior
collection periods;
(2) all interest payable on the notes, including any accrued
interest and interest on accrued interest (to the extent
lawful);
(3) all interest payable on the Class B Certificates, including any
accrued interest and interest on accrued interest (to the
extent lawful);
(4) the sum of (a) all principal collected on the receivables
during the related collection period and (b) the aggregate of
receivables that were designated as defaulted receivables
during the collection period; and
(5) if that payment date is a final scheduled payment date for a
class of securities, the amount, if any, required to reduce the
principal balance of that class of securities to zero after
giving effect to the amount in clause (4).
<PAGE>
ANNEX I
FORM OF INVESTMENT LETTER -- CLASS B CERTIFICATES
[Date]
__________________ Trust 200_-___,
as Issuer
____________________________,
as Owner Trustee and
as Certificate Registrar
________________
_________, _______ _______
Ladies and Gentlemen:
In connection with our proposed purchase of the Class B__% Asset Backed
Certificates (the "Certificates") of ______________________ Trust 200_-__ (the
"Issuer"), a trust formed by ML Asset Backed Corporation (the "Depositor"), we
confirm that:
1. We are either:
(a) not, and each account (if any) for which we are purchasing the
Certificates is not, (i) an employee benefit plan (as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
that is subject to Title I of ERISA, (ii) a plan described in Section
4975(e)(1) of the Internal Revenue Code of 1986, as amended (the "Code") that
is subject to Section 4975 of the Code, (iii) a governmental plan, as defined
in Section 3(32) of ERISA, subject to any federal, state or local law which
is, to a material extent, similar to the provisions of Section 406 of ERISA or
Section 4975 of the Code, (iv) an entity whose underlying assets include plan
assets by reason of a plan's investment in the entity (within the meaning of
Department of Labor Regulation 29 C.F.R. Section 2510.3-101 or otherwise under
ERISA) or (v) a person investing "plan assets" of any such plan (including
without limitation, for purposes of this clause (v), an insurance company
general account, but excluding an entity registered under the Investment
Company Act of 1940, as amended), or
(b) an insurance company acting on behalf of a general account and (i) on
the date hereof less than 25% of the assets of such general account (as
reasonably determined by us) constitute "plan assets" for purposes of Title I
of ERISA and Section 4975 of the Code, (ii) the purchase and holding of such
Certificates are eligible for exemptive relief under Sections (I) and (III) of
Prohibited Transaction Class Exemption 95-60, and (iii) the undersigned agrees
that if, after the undersigned's initial acquisition of the Certificates, at
any time during any calendar quarter 25% or more of the assets of such general
account (as reasonably determined by us no less frequently than each calendar
quarter) constitute "plan assets" for purposes of Title I of ERISA or Section
4975 of the Code and no exemption or exception from the prohibited transaction
rules applies to the continued holding of the Certificates under Section
401(c) of ERISA and the final regulations thereunder or under an exemption or
regulation issued by the United States Department of Labor under ERISA, we
will dispose of all Certificates then held in our general account by the end
of the next following calendar quarter.
2. We are, and each account (if any) for which we are purchasing the
Certificates is, a person who is (A) a citizen or resident of the United
States, (B) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof, (C) an estate the income
of which is includable in gross income for United States tax purposes,
regardless of its source, (D) a trust if a U.S. court is able to exercise
primary supervision over the administration of such trust and one or more
Persons meeting the conditions of clause (A), (B), (C) or (E) of this
paragraph 2 has the authority to control all substantial decisions of the
trust or (E) a Person not described in clauses (A) through (D) above whose
ownership of the Certificates is effectively connected with such Person's
conduct of a trade or business within the United States (within the meaning of
the Code) and who provides the Issuer and the Depositor with an IRS Form 4224
(and such other certifications, representations, or opinions of counsel as may
be requested by the Issuer or the Depositor).
3. We understand that any purported resale, transfer, assignment,
participation, pledge, or other disposal of (any such act, a "Transfer") of
any Certificate (or any interest therein) to any person who does not meet the
conditions of paragraphs 1 and 2 above shall be null and void (each, a "Void
Transfer"), and the purported transferee in a Void Transfer shall not be
recognized by the Issuer or any other person as a Certificateholder for any
purpose.
4. We agree that if we determine to Transfer any of the Certificates we
will cause our proposed transferee to provide to the Issuer and the
Certificate Registrar a letter substantially in the form of this letter.
You are entitled to rely upon this letter and are irrevocably authorized
to produce this letter or a copy hereof to any interested party in any
administrative or legal proceedings or official inquiry with respect to the
matters covered hereby.
Very truly yours,
By:
---------------------------
Name:
Title:
Securities To Be Purchased:
$____________ principal balance of Class B Certificates
Annex A attached hereto lists the name of the account and principal balance of
Certificates purchased for each account (if any) for which we are purchasing
Certificates.
<PAGE>
You should rely on the information contained or incorporated by reference
in this prospectus supplement and the accompanying prospectus. We have not
authorized anyone to provide you with any other information or to make any
representations not contained in this prospectus supplement and the
prospectus. This prospectus supplement and the prospectus does not constitute
an offer to sell, or a solicitation of an offer to buy, the securities offered
hereby by anyone in any jurisdiction in which the person making such offer or
solicitation is not qualified to do so or to anyone to whom it is unlawful to
make any such offer or solicitation. We represent the accuracy of this
information in this prospectus supplement and the accompany prospectus only as
of the dates on their respective covers.
______________________ Trust 200_-___
ML Asset Backed Corporation
Depositor
---------------------------
Seller and Servicer
Class A-1 ____% Asset Backed Notes
Class A-2 ____% Asset Backed Notes
Class A-3 ____% Asset Backed Notes
Class B ____% Asset Backed Certificates
---------------------------
PROSPECTUS SUPPLEMENT
---------------------------
Merrill Lynch & Co.
__________ ____, 200__
Dealers will be required to deliver a prospectus supplement and
prospectus when acting as underwriters of the notes offered hereby and with
respect to their unsold allotments or subscriptions. In addition, all dealers
selling the notes, whether or not participating in this offering, may be
required to deliver a prospectus supplement and prospectus until ninety days
after the date of this prospectus supplement.
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This
prospectus supplement and the 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
Preliminary Prospectus Supplement, Dated November 17, 2000
Prospectus Supplement
(To Prospectus, dated _____________, 200__)
$______________
__________________ Trust 200_-__
ML Asset Backed Corporation
Depositor
-------------------------------------
Seller and Servicer
Before you purchase any of these certificates, be sure you read this
prospectus supplement and the attached prospectus, especially the risk factors
beginning on page S-8 of this prospectus supplement and on page 10 of the
prospectus.
These certificates are issued by the trust. The certificates are not
obligations of ML Asset Backed Corporation or any of its affiliates.
No one may use this prospectus supplement to offer and sell these certificates
unless it is accompanied by the prospectus.
The underwriters are offering the following certificates:
Class A Class B
Certificates Certificates
------------ ------------
Certificate Balance....................... $ $
Per Annum Interest Rate................... % %
Final Scheduled Payment date..............
Initial Public Offering Price(1).......... % %
Underwriting Discount..................... % %
Proceeds to Seller(1)(2).................. $ $
------------
(1) The price of the certificates will include accrued interest, if any, from
______________.
(2) Before deducting expenses payable by the depositor estimated to be
$___________.
o The trust will distribute interest and principal on the certificates on
the ___th day of each month. The first payment date will be
________________.
o The Class B Certificates are subordinated to the Class A Certificates.
[This prospectus supplement and the attached prospectus may be used by
[______], which is an affiliate of [__________] and therefore may also be
viewed as an affiliate of the trust, in connection with offers and sales
related to market making transactions in the certificates. These transactions
will be at prevailing market prices at the time of sale. [ ] may act as
principal or agent in these transactions.]
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.
--------------------
Merrill Lynch & Co.
----------------
The date of this prospectus supplement is ___________, 200_
<PAGE>
TABLE OF CONTENTS
Page
----
READING THESE DOCUMENTS.............................3
SUMMARY OF TERMS OF THE CERTIFICATES................4
RISK FACTORS........................................8
THE TRUST...........................................9
THE RECEIVABLES POOL...............................10
Criteria Applicable to Selection of Receivables..10
Weighted Average Life of the Certificates........13
Delinquency, Credit Loss and Recovery
Information....................................16
THE SELLER.........................................17
THE DEPOSITOR......................................17
THE SERVICER.......................................18
General..........................................18
Collection and Repossession Procedures...........18
Insurance........................................18
Extensions.......................................18
Methods of Vehicle Disposal......................18
HOW YOU CAN COMPUTE YOUR PORTION OF THE AMOUNT
OUTSTANDING ON THE CERTIFICATES....................18
MATURITY AND PREPAYMENT CONSIDERATIONS.............18
DESCRIPTION OF THE CERTIFICATES....................19
Book-Entry Securities; Record Date;
Denomination...................................19
Distributions on Certificates....................19
Statements to Certificateholders.................21
Subordination of Class B Certificates............22
Optional Redemption..............................22
Servicing Compensation and Expenses..............22
Rights Upon Event of Servicing Termination.......22
Waiver of Past Events of Servicing Termination...22
Reserve Fund.....................................23
MATERIAL FEDERAL INCOME TAX CONSEQUENCES...........23
ERISA CONSIDERATIONS...............................24
Class A Certificates.............................24
Class B Certificates.............................24
UNDERWRITING.......................................25
LEGAL OPINIONS.....................................27
GLOSSARY OF TERMS..................................28
<PAGE>
READING THESE DOCUMENTS
We provide information on your securities in two separate documents that
offer varying levels of detail:
1. Prospectus - provides general information, some of which may not apply
to the certificates.
2. Prospectus Supplement - provides a summary of the specific terms of
the certificates.
We suggest you read this prospectus supplement and the prospectus in
their entirety. The prospectus supplement pages begin with "S". If the terms
of the offered certificates described in this prospectus supplement vary with
the accompanying prospectus, you should rely on the information in this
prospectus supplement.
We include cross-references to sections in these documents where you can
find further related discussions. Refer to the table of contents on page S-2
in this document and on page 2 in the prospectus to locate the referenced
sections.
The Glossary of Terms on page S-28 of this prospectus supplement and the
Glossary of Terms on page 80 in the prospectus list definitions of certain
terms used in this prospectus supplement or the prospectus.
You should rely only on information on the certificates provided in this
prospectus supplement and the attached prospectus. We have not authorized
anyone to provide you with different information.
SUMMARY OF TERMS OF THE CERTIFICATES
The following summary is a short description of the main terms of the
offering of the certificates. For that reason, this summary does not contain
all of the information that may be important to you. To fully understand the
terms of the offering of the certificates, you will need to read both this
prospectus supplement and the attached prospectus in their entirety.
Issuer
____________ Trust 200_-__ will be formed pursuant to a pooling and servicing
agreement to be dated as of _________ 1, 200_, among the depositor, the
seller, the servicer and the trustee. The trust will use the proceeds from the
issuance and sale of the certificates to purchase from the depositor a pool of
motor vehicle installment loans which constitute the receivables. The trust
will rely upon collections on the receivables and the funds on deposit in
certain accounts to make payments on the certificates. The trust will be
solely liable for the payment of the certificates.
Offered Certificates
The following certificates are being offered by this prospectus supplement:
o $____________ Class A ____% Asset Backed Certificates and
o $____________ Class B ____% Asset Backed Certificates
Closing Date
The trust expects to issue the certificates on _______, 200_.
Depositor
ML Asset Backed Corporation.
Seller and Servicer
------------------
Trustee
------------------
Payment Dates
The ___th day of each month (or if the ___th day is not a business day, the
next business day).
First Payment Date
The first payment date will be ______, 200_.
Interest Rates
The trust will distribute interest on each class of certificates at the per
annum rates specified on the cover of this prospectus supplement.
Interest Accrual
"30/360," accrued from the __th day of the previous month (or the closing date
in the case of the first payment date) to the __th day of the current month.
This means that, if there are no outstanding shortfalls in the payment of
interest, the interest due on a class of certificates on each payment date
will be the product of:
1. the outstanding certificate balance of that class;
2. the interest rate for that class; and
3. 30 (or in the case of the first payment date, _____) divided by 360.
For a more detailed description of the payment of interest, see "Description
of the Certificates -- Distributions on Certificates".
Priority of Distributions
From collections on the receivables received during the prior calendar month
and amounts withdrawn from the reserve fund, the trust will distribute the
following amounts on each payment date in the following order of priority,
after reimbursement of advances made in prior months by the servicer for
interest payments due from obligors but not received:
(1) Servicing Fee-- the servicing fee payable to the servicer;
(2) Class A Certificate Interest-- accrued and unpaid interest on the Class A
Certificates distributable to the holders of those certificates;
(3) Class B Certificate Interest-- accrued and unpaid interest on the Class B
Certificates distributable to the holders of those certificates;
(4) Class A Principal - principal in the amount described in this prospectus
supplement to the Class A Certificateholders;
(5) Class B Principal - principal in the amount described in this prospectus
supplement to the Class B Certificateholders;
(6) any remaining amount will be deposited in the reserve fund until the
amount on deposit in the reserve fund equals the required amount; and
(7) any amounts remaining after the above distributions will be paid to the
depositor.
For a more detailed description of the priority of distributions and the
allocation of funds on each payment date, see "Description of the Certificates
-- Distributions on Certificates".
Credit Enhancement
The credit enhancement for the certificates will be as follows:
Subordination of Principal and Interest
Payments of interest on the Class B Certificates will be subordinated to
payments of interest on the Class A Certificates. Payments of principal on the
Class B Certificates will be subordinated to payments of interest and
principal on the Class A Certificates.
Reserve Fund
On the closing date, the depositor will deposit $______________ to the reserve
fund for the trust.
On each payment date, if collections on the receivables are insufficient to
distribute the first five items listed in "Priority of Distributions" above,
the trustee will withdraw funds from the reserve fund, to the extent
available, to distribute such amounts.
The balance required to be on deposit in the reserve fund will be the lesser
of (a) _______ % of the outstanding principal balance of the receivables and
(b) __% of the principal balance of the receivables as of _________.
On each payment date, the trust will distribute funds on deposit in the
reserve fund in excess of the required balance to the depositor.
For a more detailed description of the deposits to and withdrawals from the
reserve fund, see "Description of the Certificates -- Reserve Fund".
Optional Prepayment
The servicer has the option to purchase the receivables on any payment date on
which the aggregate principal balance of the receivables is __% or less of the
aggregate principal balance of the receivables as of _________. The purchase
price will equal the outstanding principal balance of the receivables plus
accrued and unpaid interest thereon. The trust will apply such payment to the
payment of the certificates in full.
Final Scheduled Payment Dates
The trust is required to distribute the entire principal amount of each class
of certificates, to the extent not previously paid, on the respective final
scheduled payment dates specified on the cover page of this prospectus
supplement.
Property of the Trust
The property of the trust will include the following:
o the receivables and the collections on the receivables on or after
_______, 200_;
o security interests in the vehicles financed by the receivables;
o bank accounts (other than the reserve fund);
o rights to proceeds under insurance policies that cover the obligors under
the receivables or the vehicles financed by the receivables; and
o other rights under documents relating to the receivables.
Composition of the Receivables
The composition of the receivables as of ________________ is as follows:
o Aggregate Principal
Balance.................. $______
o Number of
Receivables.............. ______
o Average Principal
Balance.................. $______
(Range).............. $____ to $____
o Average Original
Amount Financed.......... $______
(Range).............. $____ to $____
o Weighted Average
of Contract
Interest Rates........... ___%
(Range).............. ___% to ___%
o Weighted Average
Original Term............ ___ months
(Range).............. ___ months to ___ months
o Weighted Average
Remaining Term........... ___ months
(Range).............. ___ months to
___ months
Servicer of the Receivables
The trust will pay the servicer a servicing fee on each payment date equal to
1/12 of ___% of the principal balance of the receivables at the beginning of
the previous month. In addition to the servicing fee, the trust will also pay
the servicer a supplemental servicing fee equal to any late fees and other
administrative fees and expenses collected during each month and any
reinvestment earnings on any payments received on the receivables and
deposited into the collection account.
Ratings
It is a condition to the issuance of the certificates that:
o the Class A Certificates be rated in the highest long-term rating
category by at least two nationally recognized rating agencies and
o the Class B Certificates be rated "____" or its equivalent by at least
two nationally recognized rating agencies.
A rating is not a recommendation to purchase, hold or sell the certificates,
inasmuch as such rating does not comment as to market price or suitability for
a particular investor. The ratings of the certificates address the likelihood
of the payment of principal and interest on the certificates according to
their terms. A rating agency rating the certificates may lower or withdraw its
rating in the future, in its discretion, as to any class of the certificates.
Minimum Denominations
$1,000 and integral multiples thereof
Required Representations from Purchasers of the Class B Certificates
To purchase Class B Certificates, you (and anyone to whom you assign or sell
the Class B Certificates) must:
(1) represent and certify under penalties of perjury that you are a
United States person and
(2) represent and certify that you
(a) are not a plan that is subject to the fiduciary responsibility
provisions of the Employee Retirement Income Security Act of
1974, as amended, or Section 4975 of the Internal Revenue Code
of 1986, as amended and are not purchasing Class B Certificates
on behalf of such a plan or arrangement or
(b) are an insurance company using its general account and less
than 25% of the assets of such general account represent assets
of one or more plans or arrangements described above.
You can find a form of the representation letter an investor in the Class B
Certificates will have to sign in Annex I to this prospectus supplement.
Tax Status
Brown & Wood LLP will deliver its opinion that for federal income tax purposes
the trust will be characterized as a grantor trust and not as an association
(or a publicly traded partnership) taxable as a corporation.
ERISA CONSIDERATIONS
Class A
Certificates The Class A Certificates are generally eligible for purchase
by employee benefit plans, subject to the considerations
discussed under "ERISA Considerations" in this prospectus
supplement and the prospectus.
Class B
Certificates The Class B Certificates may not be acquired by an employee
benefit plan or by an individual retirement account.
However, an insurance company using its general account may
acquire the Class B Certificates subject to the
considerations discussed under "ERISA Considerations" in
this prospectus supplement and in the prospectus.
Investor Information -- Mailing Address and Telephone Number
The mailing address of the principal executive offices of ML Asset Backed
Corporation is 250 Vesey Street, World Financial Center, North Tower - 10th
Floor, New York, New York 10281-1310. Its telephone number is (212) 449-0336.
<PAGE>
RISK FACTORS
You should consider the following risk factors, and the factors under
"Risk Factors" in the prospectus, in deciding whether to purchase any of these
certificates.
Subordination of the Class B Distributions of interest and principal on
Certificates to the Class A the Class B Certificates will be
Certificates Increases the subordinated in priority of payment to
Risk of the Class B interest and principal due on the Class A
Certificates Not Receiving Certificates. Consequently, the Class B
Full Distribution of Interest certificateholders will not receive any
and Principal distributions with respect to a collection
period until the full amount of interest
on and principal of the Class A
Certificates due on such payment date has
been paid. The Class B certificateholders
will not receive any distributions of
principal until the Class A Certificates
have been paid in full.
Geographic Concentration As of ________, 200_, the servicer's
May Result in More Risk to records indicate that the locations of the
You obligors of the receivables were in the
following states:
Percentage of
Aggregate Principal
Balance
-----------------
________............ %
________............ %
________............ %
________............ %
No other state, by billing addresses at
the time of origination, constituted more
than 5% of the balance of the receivables
as of _____________. Economic conditions
or other factors affecting these states in
particular could adversely affect the
delinquency, credit loss or repossession
experience of the trust.
[Value of Interest Only [The yield to investors in the Class
Certificates Will Generally ______ Certificates will be interest only
Decrease if the Rate of certificates and will be sensitive to the
Prepayments Increase] rate of principal payments, including
prepayments, of the receivables,
particularly those with high interest
rates. The receivables generally can be
prepaid by the related obligors at any
time. In general, receivables with higher
interest rates tend to prepay at higher
rates than receivables with relatively
lower interest rates in response to a
given change in market interest rates. As
a result, the receivables with higher
interest rates may prepay at higher rates,
thereby reducing the yield to maturity on
the Class ______ Certificates.]
[Value of Principal Only [The Class ______ Certificates will be
Certificates Will Generally "principal only" certificates and will not
Decrease if the Rate of bear interest. Lower than anticipated rate
Prepayments Decrease] of principal payments (including
prepayments) on the receivables will have
a negative effect on the yield to
investors in the Class ______
Certificates.]
<PAGE>
THE TRUST
ML Asset Backed Corporation, in its capacity as depositor, will establish
the ____________ Trust 200_-__ (the "trust") by assigning the receivables to
the trust in exchange for the Class A__% Asset Backed Certificates and the
Class B___% Asset Backed Certificates.
The servicer will service the receivables pursuant to the pooling and
servicing agreement and will be compensated for acting as the servicer. To
facilitate servicing and to minimize administrative burden and expense, the
servicer will be appointed custodian for the receivables by the trustee, but
will not stamp the receivables to reflect the sale and assignment of the
receivables to the trust. In addition, due to administrative burden and
expense, the certificates of title to the vehicles securing the receivables
will not be amended to reflect such assignment. In the absence of such
procedures, the trust may not have a perfected security interest in vehicles
in some states and will not have a perfected security interest in the vehicles
documented under federal law. See "Some Important Legal Issues Relating to the
Receivables" in the prospectus.
If the protection provided to the certificateholders by the reserve fund
and, in the case of the Class A Certificateholders, the subordination of the
Class B Certificates is insufficient, the trust will look only to the obligors
on the receivables and the proceeds from the repossession and sale of financed
vehicles which secure defaulted receivables. In such event, certain factors,
such as the trust's not having first priority perfected security interests in
some of the financed vehicles, may affect the trust's ability to realize on
the financed vehicles securing the receivables, and thus may reduce the
proceeds to be distributed to certificateholders with respect to the
certificates.
Each certificate will represent a fractional undivided interest in the
trust. The trust property will include a pool of fixed rate simple interest
motor vehicle installment loans for the purchase of new and used new or used
automobiles, minivans, sport utility vehicles, light-duty trucks, motorcycles
or recreational vehicles. The trust property will also include:
o all monies received on the receivables on or after ______, which is the
cutoff date;
o such amounts as from time to time may be held in the collection account, a
distribution account for the Class A Certificateholders and a distribution
account for the Class B Certificateholders;
o security interests in the vehicles securing the receivables;
o the benefit of the right to payments from the reserve fund;
o an assignment of the rights of the seller to receive proceeds from claims
on theft, physical damage, credit life and credit disability insurance
policies covering the financed vehicles or the obligors, as the case may
be, to the extent that such insurance policies relate to the receivables;
and
o the rights of the trust against the seller and the servicer under the
pooling and servicing agreement.
The trust will be formed for this transaction pursuant to the pooling and
servicing agreement and prior to formation will have had no assets or
obligations. After formation, the trust will not engage in any activity other
than acquiring and holding the receivables, issuing the certificates,
distributing payments thereon and as otherwise described herein and as
provided in the pooling and servicing agreement. The trust will not acquire
any contracts or assets other than the trust property described above.
THE RECEIVABLES POOL
The trust will own a pool of receivables consisting of motor vehicle
installment loans secured by security interests in the motor vehicles financed
by those contracts. The pool will consist of receivables which [will be] [have
been] purchased by the depositor from the seller, which purchased the
receivables, directly or indirectly, from dealers in the ordinary course of
business or in acquisitions, and which the depositor will transfer to the
trust on the closing date. The receivables will include payments on the
receivables which are made on or after the cutoff date.
Criteria Applicable to Selection of Receivables.
The receivables were selected for inclusion in the trust by several
criteria, some of which are set forth in the prospectus under "The Receivables
Pools." These criteria include the requirement that each receivable:
o has a remaining maturity, as of the cutoff date, of at least ____ months
and not more than ___ months;
o with respect to loans secured by new financed vehicles, had an original
maturity of at least ____ months and not more than ____ months; with
respect to loans secured by used financed vehicles, had an original
maturity of at least _____ months and not more than ____ months;
o is a fully-amortizing, fixed rate [simple interest] loan which provides
for level scheduled monthly payments (except for the last payment, which
may be minimally different from the level payments) over its remaining
term and has a [simple interest] contract rate that equals or exceeds
____% per annum, is not secured by any interest in real estate, and has
not been identified on the computer files of the seller as relating to an
obligor who had requested a reduction in the periodic finance charges, as
of the cutoff date, by application of the Soldiers' and Sailors' Civil
Relief Act of 1940;
o is secured by a financed vehicle that, as of the cutoff date, had not been
repossessed without reinstatement;
o has not been identified on the computer files of the seller as relating to
an obligor who was in bankruptcy proceedings as of the cutoff date;
o has no payment more than ____ days past due as of the cutoff date; and
o has a remaining principal balance, as of the cutoff date, of at least
$___________.
No selection procedures believed by the seller to be adverse to the
certificateholders were utilized in selecting the receivables. No receivable
has a scheduled maturity later than _____________.
The composition of the receivables as of the cutoff date is as follows:
<TABLE>
<CAPTION>
<S> <C>
o Aggregate Principal Balance..................... $________________
o Number of Receivables........................... ________________
o Average Principal Balance....................... $________________
(Range)....................................... $______ to $______
o Average Original Amount Financed................ $________________
(Range)....................................... $______ to $______
o Weighted Average Interest Rate.................. ____%
(Range)....................................... ____% to ____%
o Weighted Average Original Term.................. ____ months
(Range)....................................... ____ months to ____ months
o Weighted Average Remaining Term................. ____ months
(Range)....................................... ____ months to ____ months
o Percentage of Aggregate Principal Balance of
Receivables for New/Used Vehicles............... ___%/ ___%
The geographical distribution and distribution by contract rate of the
receivables pool as of the cutoff date are set forth in the following tables.
</TABLE>
<TABLE>
<CAPTION>
Geographic Distribution of the Receivables Pool as of the Cutoff Date
Percentage Percentage
of of
Cutoff Date Cutoff Date
Number of Principal Pool Number of Principal Pool
State (1) Receivables Balance Balance (2) State (1) Receivables Balance Balance (2)
-------------------- ------------ ---------- -------------- --------------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Alabama........... Montana...........
Alaska............ Nebraska..........
Arizona........... Nevada............
Arkansas.......... New Hampshire.....
California........ New Jersey........
Colorado.......... New Mexico........
Connecticut....... New York..........
Delaware.......... North Carolina....
District of Columbia North Dakota......
Florida........... Ohio..............
Georgia........... Oklahoma..........
Hawaii............ Oregon............
Idaho............. Pennsylvania......
Illinois.......... Rhode Island......
Indiana........... South Carolina....
Iowa.............. South Dakota......
Kansas............ Tennessee.........
Kentucky.......... Texas.............
Louisiana......... Utah..............
Maine............. Vermont...........
Maryland.......... Virginia..........
Massachusetts..... Washington........
Michigan.......... West Virginia.....
Minnesota......... Wisconsin.........
Mississippi....... Wyoming...........
Missouri..........
</TABLE>
----------------
(1) Based on the location of the obligors on the receivables at the time each
receivable was originated.
(2) May not add to 100% due to rounding.
<PAGE>
<TABLE>
<CAPTION>
Distribution by Contract Rate of the Receivables
as of the Cutoff Date
Percentage of
Cutoff Date
Number of Pool
Contract Rate Receivables Principal Balance Balance (1)
----------------------------------------------- ----------------- ---------------------- ------------------
<S> <C> <C> <C>
1.90% to 1.99%.................................
2.00% to 2.49%.................................
2.50% to 2.99%.................................
3.00% to 3.49%.................................
3.50% to 3.99%.................................
4.00% to 4.49%.................................
4.50% to 4.99%.................................
5.00% to 5.49%.................................
5.50% to 5.99%.................................
6.00% to 6.49%.................................
6.50% to 6.99%.................................
7.00% to 7.49%.................................
7.50% to 7.99%.................................
8.00% to 8.49%.................................
8.50% to 8.99%.................................
9.00% to 9.49%.................................
9.50% to 9.99%.................................
10.00% to 10.49%...............................
10.50% to 10.99%...............................
11.00% to 11.49%...............................
11.50% to 11.99%...............................
12.00% to 12.49%...............................
12.50% to 12.99%...............................
13.00% to 13.49%...............................
13.50% to 13.99%...............................
14.00% to 14.49%...............................
14.50% to 14.99%...............................
15.00% to 15.49%...............................
15.50% to 15.99%...............................
16.00% to 16.49%...............................
16.50% to 16.99%...............................
17.00% to 17.49%...............................
17.50% to 17.99%...............................
18.00% to 18.49%...............................
18.50% to 18.99%...............................
19.00% to 19.49%...............................
19.50% to 19.99%...............................
20.00%.........................................
Totals.........................................
</TABLE>
------------------------------------
(1) May not add to 100.00% due to rounding.
Weighted Average Life of the Certificates
The following information is given solely to illustrate the effect of
prepayments of the receivables on the weighted average life of the
certificates under the stated assumptions and is not a prediction of the
prepayment rate that might actually be experienced by the receivables.
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, or 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 assets, including the
receivables.
The rate of payment of principal of each class of certificates will
depend on the rate of payment, including prepayments, of the principal balance
of the receivables. For this reason, final payment of any class of
certificates could occur significantly earlier than the respective final
scheduled payment dates. The certificateholders will exclusively bear any
reinvestment risk associated with early payment of their notes and
certificates.
The ABS Table captioned "Percent of Initial Certificate Balance at
Various ABS Percentages" has been prepared on the basis of the following
assumed characteristics of the receivables --
o the receivables prepay in full at the specified constant percentage
of ABS monthly, with no defaults, losses or repurchases;
o each scheduled monthly payment on the receivables is made on the last
day of each month and each month has 30 days;
o payments on the certificates are made on each payment date, and each
payment date is assumed to be the fifteenth day of the applicable
month;
o the balance in the reserve fund on the payment date is equal to the
Specified Reserve Fund Balance; and
o the servicer exercises its option to purchase the receivables on the
earliest payment date on which it is permitted to do so, as described
in this prospectus supplement.
The ABS Table indicates the projected weighted average life of each class
of certificates and sets forth the percent of the initial certificate balance
of each class of certificates that is projected to be outstanding after each
of the payment dates shown at various constant ABS percentages.
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 (which is based on its aggregate principal balance, contract
rate of interest, original term to maturity and remaining term to maturity as
of the cutoff date) will be such that each pool will be fully amortized by the
end of its remaining term to maturity. The pools have an assumed cutoff date
of ________________.
<TABLE>
<CAPTION>
Contract Original Term Remaining Term
Aggregate Rate of to Maturity to Maturity
Pool Principal Balance Interest (In Months) (In Months)
------------------------------ ------------------------ ------------- ----------------- --------------------
<S> <C> <C> <C> <C>
1.............................
2.............................
3.............................
4.............................
5.............................
6.............................
7.............................
8.............................
9.............................
10............................
11............................
12............................
13............................
14............................
15............................
16............................
17............................
18............................
</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 receivables 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 amounts
outstanding over time and the weighted average lives of each class of
certificates.
Percent of Initial Certificate Balance at Various ABS Percentages
Class A Certificates Class B Certificates
--------------------------- -----------------------------
Payment date % % % % % % % %
---------------- ---- ------ ------ ----- ----- ----- ----- --------
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
----------------
(1) The weighted average life of a note is determined by (a) multiplying the
amount of each principal payment on a note by the number of years from
the date of the issuance of the note to the related payment date, (b)
adding the results and (c) dividing the sum by the related initial
principal amount of the note.
The 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 with them.
Delinquency, Credit Loss and Recovery Information
Set forth below is certain information concerning the experience of the
seller pertaining to new and used automobile, minivan, sport utility vehicle,
light-duty truck, motorcycle or recreational vehicle receivables, including
those previously sold which the seller continues to service. There can be no
assurance that the delinquency, repossession and net loss experience on the
receivables transferred to the trust will be comparable to that set forth
below.
<TABLE>
<CAPTION>
Delinquency Experience
At At December 31,
, 200 , 200 , 199 , 199
----------- ---- -------- ---- --------- ---- ---------- ---
Number of Number of Number of Number of
Contracts Amount Contracts Amount Contracts Amount Contracts Amount
--------- ------ --------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio............... $ $ $ $
Period of Delinquency
31-60 Days............
61 Days or More.......
---------- --------- --------- --------- ----------- --------- ----------- --------
Total Delinquencies..... $ $ $ $
Total Delinquencies
as a Percent of the
Portfolio............. % % % % % % % %
</TABLE>
<TABLE>
<CAPTION>
At December 31,
, 199 , 199 , 199
------------------ ---- ----------------- ---- ------------------ ---
Number of Number of Number of
Contracts Amount Contracts Amount Contracts Amount
<S> <C> <C> <C> <C> <C> <C>
Portfolio............... $ $ $
Period of Delinquency
31-60 Days............
61 Days or More....... $ $ $
------------ --------------------------- ---------------------------- -------------
Total Delinquencies.....
Total Delinquencies
as a Percent of the
Portfolio............. % % % % % %
</TABLE>
(1) The information in the table includes previously sold contracts that the
seller continues to service.
(2) All amounts and percentages are based on the gross amount scheduled to be
paid on each contract, including unearned finance and other charges.
<TABLE>
<CAPTION>
Credit Loss/Repossession Experience(1)
_________ Ended
Year Ended December 31,
--------------,----- ------------------------------------------------------
199 199 199 199 199 199 199
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Average Amount Outstanding
During the Period.................... $ $ $ $ $ $ $
Average Number of Contracts
Outstanding During the Period........
Percent of Contracts Acquired During the
Period with Recourse to the Dealer... % % % % % % %
Repossessions as a Percent of Average
Number of Contracts Outstanding...... % % % % % % %
Net Losses as a Percent of
Liquidations(3)(4)................... % % % % % % %
Net Losses as a Percent of Average
Amount Outstanding(2)(3)............. % % % % % % %
</TABLE>
(1) [Except as indicated, all amounts and percentages are based on the gross
amount scheduled to be paid on each contract, including unearned finance
and other charges. The information in the table includes previously sold
contracts that the seller continues to service.]
(2) Percentages have been annualized for the _____ months ended ____________,
199 and 199 and are not necessarily indicative of the experience for the
year.
(3) [Net losses are equal to the aggregate of the balances of all contracts
which are determined to be uncollectible in the period, less any
recoveries on contracts charged off in the period or any prior periods,
including any losses resulting from disposition expenses and any losses
resulting from the failure to recover commissions to dealers with respect
to contracts that are prepaid or charged off.]
(4) Liquidations represent a reduction in the outstanding balances of the
contracts as a result of monthly cash payments and charge-offs.
The data presented in the foregoing tables are for illustrative purposes
only. Delinquency and credit loss experience may be influenced by a variety of
economic, social and other factors. We cannot assure you that the delinquency
and loan loss information of the seller, or that of the trust with respect to
its receivables, in the future will be similar to that set forth above.
THE SELLER
[DESCRIPTION OF SELLER AND ITS UNDERWRITING AND SERVICING STANDARDS]
General
Underwriting Procedures
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
depositor maintains its principal office at 250 Vesey Street, World Financial
Center, New York, New York 10281. 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
selling 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 SERVICER
[DESCRIPTION OF THE SERVICER AND ITS SERVICING STANDARDS]
General
Collection and Repossession Procedures
Insurance
Extensions
Methods of Vehicle Disposal
COMPUTING YOUR PORTION OF THE AMOUNT
OUTSTANDING ON THE 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 certificate balance
outstanding on your certificates. See "Pool Factors and Trading Information"
in the prospectus.
MATURITY AND PREPAYMENT CONSIDERATIONS
Information regarding certain maturity and prepayment considerations with
respect to the certificates is set forth under "Maturity and Prepayment
Considerations" in the prospectus. In addition, on each payment date, no
principal payments will be made on the Class B Certificates until the amount
of interest and principal due on the Class A Certificates has been paid.
Since the rate of payment of principal of each class of certificates
depends on the rate of payment (including prepayments) of the principal
balance of the receivables, final payment of either class of certificates
could occur significantly earlier than the final scheduled payment date.
We Cannot Assure You That Your Certificates Will Be Repaid on the Final
Scheduled Payment Date. We expect that final payment of each class of
certificates will occur on or prior to the final scheduled payment date.
However, we cannot assure you that sufficient funds will be available to pay
each class of certificates in full on or prior to the final scheduled payment
date. If sufficient funds are not available, the final distribution in respect
of each class of certificates could occur later than such date.
The Level of Prepayments of the Receivables and Required Purchases by the
Depositor and the Servicer are Unpredictable and May Affect Payments on the
Certificates. The rate of prepayments of the receivables may be influenced by
a variety of economic, social and other factors. In addition, under
circumstances relating to breaches of representations, warranties or
covenants, the depositor and/or the servicer may be obligated to purchase
receivables from the trust. See "The Receivables Pool" in this prospectus
supplement and "Description of the Receivables Transfer and Servicing
Agreements -- Sale and Assignment of Receivables" in the prospectus. A higher
than anticipated rate of prepayments will reduce the aggregate principal
balance of the receivables and thus the outstanding principal amounts of the
certificates more quickly than expected and thereby reduce anticipated
aggregate interest payments on the certificates. The certificateholders alone
will bear any reinvestment risks resulting from a faster or slower incidence
of prepayment of receivables. Such reinvestment risks include the risk that
interest rates may be lower at the time such holders received payments from
the trust than interest rates would otherwise have been had such prepayments
not been made or had such prepayments been made at a different time.
Risks of slower or faster repayments. You should consider--
o in the case of certificates purchased at a discount, the risk that a
slower than anticipated rate of principal payments on the
receivables could result in an actual yield that is less than the
anticipated yield and
o in the case of certificates purchased at a premium, the risk that a
faster than anticipated rate of principal payments on the
receivables could result in an actual yield that is less than the
anticipated yield.
DESCRIPTION OF THE CERTIFICATES
We have filed a form of the pooling and servicing agreement as an exhibit
to the registration statement of which this prospectus supplement is a part. A
copy of the pooling and servicing agreement will be filed with the SEC after
the trust issues the certificates. We summarize below some of the most
important terms of the certificates. This summary is not a complete
description of all the provisions of the pooling and servicing agreement and
the certificates. We refer you to those documents. The following summary is a
supplement to the description of the general terms and provisions of the
certificates of any series and the related pooling and servicing agreement
provided under the headings "Certain Information Regarding the Securities" and
"Description of the Receivables Transfer and Servicing Agreements" in the
prospectus. We refer you to those sections.
Book-Entry Securities; Record Date; Denomination
The certificates will be book-entry securities. Definitive certificates
for the certificates will be issued only in the limited circumstances
specified under "Certain Information Regarding the Securities--Definitive
Securities" in the prospectus. Distributions on the certificates on a payment
date will be made to persons who were the holders of record on the day prior
to the payment date. You may purchase certificates in denominations of $1,000
and integral multiples thereof.
Distributions on Certificates
Deposits to Collection Account. The servicer will establish the
collection account as described under "Description of the Receivables Transfer
and Servicing Agreements -- Accounts " in the prospectus. In general, the
servicer will be permitted to retain collections on the receivables until the
business day preceding any payment date. However, the servicer will be
required to remit collections received with respect to the receivables not
later than the second Business Day after receipt to the collection account (1)
if there is an event of servicing termination , (2) if __________ is no longer
the servicer or (3) if one of the other conditions set forth in the pooling
and servicing agreement is not met.
On or before the __th day of each month or, if such __th day is not a
business day, the preceding Business Day, the servicer will inform the trustee
of the following amounts with respect to the preceding collection period:
(1) the amount of aggregate collections on the receivables;
(2) the aggregate amount of advances to be remitted by the servicer;
(3) the aggregate Purchase Amount for the receivables to be repurchased
by the seller or purchased by the servicer;
(4) the aggregate amount to be withdrawn from the reserve fund;
(5) the aggregate amount to be distributed as principal and interest on
the certificates; and
(6) the Servicing Fee.
On or before the business day preceding each payment date:
(a) the servicer will cause all collections on the receivables,
liquidation proceeds and recoveries to be deposited into the
collection account and will deposit into the collection account all
Purchase Amounts for the receivables to be purchased by the servicer
on that date;
(b) the seller will deposit into the collection account all Purchase
Amounts of receivables to be repurchased by the seller on that date;
and
(c) the servicer will deposit all advances for the payment date into the
collection account.
On each payment date the servicer will allocate collections and advances
for the preceding collection period to Available Interest and Available
Principal. The amounts represented by those terms are more precisely described
in the section "Glossary of Terms" in this prospectus supplement. In general,
Available Interest for a collection period includes interest collections on
the receivables (including the interest portion of Purchase Amounts and
liquidation proceeds on receivables designated as defaulted receivables in
that collection period) and recoveries on receivables that were designated as
defaulted receivables prior to that collection period, minus reimbursements to
the servicer of its outstanding advances. Available Principal includes
principal collections on the receivables (including the principal portion of
Purchased Amounts and liquidation proceeds on receivables designated as
defaulted receivables in that collection period). A receivable will be
designated as a "defaulted" receivable when the servicer determines that it is
unlikely to be paid in full or when at least ___% of a scheduled payment is
___ or more days delinquent at the end of a collection period.
The servicer will be entitled to receive reimbursements of its
outstanding advances as described under the section entitled "Description of
the Receivables Transfer and Servicing Agreements--Advances" in the
prospectus. We refer you to that section.
Distributions. On each payment date the trustee will make the following
deposits and distributions, to the extent of Available Interest and any
available funds in the reserve fund (net of investment earnings) remaining
after such reimbursements (and, to the extent indicated in clause (2) below,
the Class B Percentage of Available Principal), in the following order of
priority:
(1) to the servicer, first from Available Interest and then, if
necessary, from any such funds in the reserve fund, any unpaid
Servicing Fee for the related collection period and all unpaid
Servicing Fees from prior collection periods;
(2) to the distribution account for the Class A Certificateholders,
first from Available Interest, then, if necessary, from any such
funds in the reserve fund, and finally, if necessary, from the Class
B Percentage of Available Principal, interest distributable on the
Class A Certificates for such payment date; and
(3) to the distribution account for the Class B Certificateholders,
first from Available Interest and then, if necessary, from any such
funds in the reserve fund, the interest distributable on the Class B
Certificates for such payment date.
The Class A Percentage is ___% and the Class B Percentage is _____%.
The interest distributable on a class of certificates on a payment date
will accrue on its certificate balance at the applicable per annum rate set
forth on the cover of this prospectus supplement from and including the prior
payment date (or the closing date in the case of the first payment date) to
but excluding the current payment date. Interest will be calculated on the
basis of a 360-day year consisting of twelve 30-day months. Interest accrued
as of any payment date but not paid on such payment date will be due on the
next payment date, together with interest on such amount at the applicable
interest rate (to the extent lawful).
On each payment date, the trustee will make the following deposits and
distributions, to the extent of the portion of Available Principal, Available
Interest and any such funds in the reserve fund (to be applied in that order
of priority) remaining after the application of clauses (1), (2) and (3)
above, in the following order of priority:
(1) to the distribution account for the Class A Certificateholders, the
Class A Principal Distribution for such payment date;
(2) to the distribution account for the Class B Certificateholders, the
Class B Principal Distribution for such payment date;
(3) to the reserve fund, any amounts remaining, until the amount on
deposit in the reserve fund equals the Specified Reserve Fund
Balance; and
(4) to the seller, any amounts remaining.
On each payment date, the trustee will distribute (i) to the Class A
Certificateholders, all amounts on deposit in the distribution account for the
Class A Certificateholders and (ii) to the Class B Certificateholders, all
amounts on deposit in the distribution account for the Class B
Certificateholders.
As an administrative convenience, the servicer will be permitted under
certain circumstances to make deposits of advances and Purchase Amounts for,
or with respect to, a collection period net of payments to be made to the
servicer with respect to such collection period. The servicer, however, will
account to the trustee and to the certificateholders as if all such deposits
and payments were made on an aggregate basis for each type of payment or
deposit.
Statements to Certificateholders
On each payment date, the trustee will include with each distribution to
each certificateholder a statement setting forth the applicable information
under the heading "Certain Information Regarding the Securities--Reports to
Securityholders" in the prospectus.
The statements for each collection period will be delivered to DTC for
further distribution to beneficial owners of the certificates in accordance
with DTC procedures. Copies of such statements may be obtained by beneficial
owners of certificates by a request in writing addressed to the trustee at its
corporate trust office at ______________.
Subordination of Class B Certificates
The rights of the Class B Certificateholders to receive distributions of
interest are subordinated to the rights of Class A Certificateholders to
receive payments of interest and principal. In addition, on each payment date
the Class B Certificateholders will not receive a distribution of principal
until the Class A Certificateholders have received their distribution of
principal. This subordination is effected by the allocation of funds set forth
under "--Distributions on Certificates" above.
Optional Redemption
If the servicer exercises its option to purchase the receivables when the
aggregate principal balance of the receivables declines to 10% or less of the
aggregate principal balance of the receivables as of the cutoff date, you will
receive an amount in respect of your certificates equal to the sum of:
o the outstanding certificate balance of your certificates together
with accrued and unpaid interest at the rate of interest for your
certificates and
o interest on any past due interest at the rate of interest for your
certificates, to the extent lawful.
See "Description of the Receivables Transfer and Servicing Agreements --
Termination" in the prospectus.
Servicing Compensation and Expenses
On each payment date the servicer is entitled to receive the Servicing
Fee, together with any portion of the Servicing Fee that remains unpaid from
prior payment dates. The Servicing Fee will be paid only to the extent of the
funds deposited in the collection account with respect to the collection
period preceding such payment date, plus funds, if any, deposited into the
collection account from the reserve fund. The servicer also is entitled to
receive the Supplemental Servicing Fee. See "Description of the Receivables
Transfer and Servicing Agreements -- Servicing Compensation and Expenses" in
the prospectus.
Rights Upon Event of Servicing Termination
If an event of servicing termination occurs, the trustee or holders of
certificates evidencing not less than 25% of the aggregate principal balance
of the receivables may remove the servicer without the consent of any of the
other certificateholders.
Waiver of Past Events of Servicing Termination
If an event of servicing termination occurs, holders of certificates
evidencing at least 51% of the aggregate principal balance of the receivables,
subject to the exceptions provided in the pooling and servicing agreement, may
waive any event of servicing termination except for a failure to make any
required deposits to or payments from any account, without the consent of any
of the other certificateholders.
Reserve Fund
Deposits to the Reserve Fund. The reserve fund will be funded by a
deposit by the seller on the closing date in the amount of $ . The amount on
deposit in the reserve fund may increase from time to time up to the Specified
Reserve Fund Balance by deposits of funds withdrawn from the collection
account to the extent available as described under "--Distribution on the
Certificates -- Distributions" above. The Specified Reserve Fund Balance will
equal the lesser of (a) ____% of the outstanding principal balance of the
receivables and (b) ____% of the principal balance of the receivables as of
the cutoff date.
Withdrawals From the Reserve Fund. On each payment date, the amount
available in the reserve fund will equal the lesser of (a) the amount on
deposit in the reserve fund (exclusive of investment earnings) and (b) the
Specified Reserve Fund Balance. The funds on deposit in the reserve fund
(exclusive of investment earnings) may be deposited into the collection
account to the extent described under "--Distributions on the Certificates--
Distributions" above. Funds on deposit in the reserve fund in excess of the
Specified Reserve Fund Balance will be paid to the seller.
Investment. Amounts on deposit in the reserve fund will be invested by
the servicer at the direction of the seller in permitted investments and
investment earnings (net of losses and investment expenses) therefrom will be
deposited into the reserve fund. Permitted investments are generally limited
to obligations or securities that mature on or before the next payment date.
However, to the extent each rating agency rating the certificates confirms
that such actions will not adversely affect its ratings of the certificates,
funds in the reserve fund may be invested in obligations that will not mature
prior to the next payment date and will not be sold to meet any shortfalls.
Funds in the Reserve Fund Will be Limited. Amounts on deposit in the
reserve fund from time to time are available to--
o enhance the likelihood that you will receive the amounts due on your
certificates and
o decrease the likelihood that you will experience losses on your
certificates.
However, the amounts on deposit in the reserve fund are limited to the
Specified Reserve Fund Balance. If the amount required to cover shortfalls in
funds on deposit in the collection account exceeds the amount available to be
withdrawn from the reserve fund, a shortfall in the amounts distributed to the
certificateholders could result. Depletion of the reserve fund ultimately
could result in losses on your certificates.
After the payment in full, or the provision for such payment of all
accrued and unpaid interest on the certificates and the outstanding
certificate balance of the certificates, any funds remaining on deposit in the
reserve fund, subject to certain limitations, will be paid to the seller.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Brown & Wood LLP, counsel for the depositor and federal
tax counsel for the trust, for federal income tax purposes, the trust will be
a grantor trust and will not be treated as an association (or a publicly
traded partnership) taxable as a corporation. See "Material Federal Income Tax
Consequences" in the prospectus.
ERISA CONSIDERATIONS
For a general discussion of ERISA considerations in respect of the
certificates, we refer you to the section entitled "ERISA Considerations" in
the prospectus.
Class A Certificates
The U.S. Department of Labor has granted an individual administrative
exemption to Merrill Lynch, Pierce, Fenner & Smith Incorporated (Prohibited
Transaction Exemption 90-29, as amended, 55 Fed. Reg. 21459 (May 24, 1990))
(the "Exemption") from some of the prohibited transaction rules of ERISA and
the related excise tax provisions of Section 4975 of the Code with respect to
the initial purchase, the holding and the subsequent resale by Plans of
certificates in pass-through trusts that consist of specified receivables,
loans and other obligations that meet the conditions and requirements of the
Exemption. The Exemption applies to motor vehicle installment loans such as
the receivables owned by the trust. A "Plan" is an employee benefit or other
plan or arrangement (such as an individual retirement plan or Keogh plan) that
is subject to ERISA, Section 4975 of the Code or a Similar Law.
For a general description of the Exemption and the conditions that must
be satisfied for the Exemption to apply, see "ERISA Considerations -- Senior
Certificates Issued by Trusts" in the prospectus.
Before purchasing a Class A Certificate, a fiduciary of a Plan must
satisfy itself that (i) the Class A Certificates are "certificates" for
purposes of the Exemption and (ii) the general and specific conditions and
requirements in the Exemption would be met in the case of the Class A
Certificates.
Prospective Plan investors are encouraged to consult with their legal
advisors concerning the impact of ERISA and the Code and the applicability of
the Exemption, and the potential consequences in their specific circumstances,
before making an investment in any of the offered certificates. Moreover, each
Plan fiduciary is encouraged to determine whether, under the general fiduciary
standards of investment prudence and diversification, an investment in the
Class A Certificates is appropriate for the Plan, taking into account the
overall investment policy of the Plan and the composition of the Plan's
investment portfolio.
Class B Certificates
Because the characteristics of the Class B Certificates will not meet the
requirements of the Exemption and may not meet any other exemption issued
under ERISA, a Plan may be engaging in a prohibited transaction or may incur
excise taxes or civil penalties if it purchases and holds Class B
Certificates. Consequently, transfers of the Class B Certificates will not be
registered by the trustee unless the trustee receives a deemed representation
from the transferee of the Class B Certificate that:
o the transferee is not a Plan or a person acting on behalf of a Plan
or using a Plan's assets to effect the transfer, or
o if the purchaser is an insurance company, the purchaser is an
insurance company which is purchasing the certificates with funds
contained in an "insurance company general account" (as defined in
Section V(e) of Prohibited Transaction Class Exemption 95-60 ("PTE
95-60")) and that the purchase and holding of the certificates are
covered under Sections I and III of PTE 95-60.
This representation will be deemed to have been made to the trustee by
the transferee's acceptance of a Class B Certificate. If the representation is
not true, the attempted transfer or acquisition shall be void ab initio.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement, the depositor has agreed to sell to each of the underwriters named
below, and each of those underwriters has severally agreed to purchase, the
initial certificate balances of Class A Certificates and Class B Certificates
set forth opposite its name below:
<TABLE>
<CAPTION>
Certificate Balance of Certificate Balance of
Underwriter Class A Certificates Class B Certificates
----------------------------------------------------- ------------------------- -------------------------
<S> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith Incorporated..
....................................................
....................................................
....................................................
Total......................................
</TABLE>
The depositor has been advised by the underwriters that they propose to
offer the certificates to the public initially at the applicable prices set
forth on the cover page of this prospectus supplement. After the initial
public offering of the Class A Certificates and Class B Certificates, the
public offering prices may change.
The underwriting discounts and commissions, the selling concessions that
the underwriters may allow to certain dealers, and the discounts that such
dealers may reallow to certain other dealers, expressed as a percentage of the
certificate balance of each class of certificates and as an aggregate dollar
amount, shall be as follows:
<TABLE>
<CAPTION>
Selling
Concessions not to Reallowance not
exceed to exceed
------------------- ----------------
<S> <C> <C>
Class A Certificates..........................
Class B Certificates..........................
Total................................
</TABLE>
Until the distribution of the certificates is completed, rules of the SEC
may limit the ability of the underwriters and certain selling group members to
bid for and purchase the certificates. As an exception to these rules, the
underwriters are permitted to engage in certain transactions that stabilize
the price of the certificates. Such transactions consist of bids or purchases
for the purpose of pegging, fixing or maintaining the price of the
certificates.
The underwriters may make short sales in the certificates in connection
with this offering (i.e., they sell more certificates than they are required
to purchase in the offering). This type of short sale is commonly referred to
as a "naked" short sale due to the fact that 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
certificates 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 certificates in the open market after the pricing that
could adversely affect investors who purchase in the offering. Similar to
other purchase transactions, the underwriters' purchase to cover the syndicate
short sales may have the effect of raising or maintaining the market price of
the certificates or preventing or retarding a decline in the market price of
the certificates.
The underwriters may also impose a penalty bid on certain underwriters
and selling group members. This means that if the underwriters purchase
certificates in the open market to reduce the underwriters' short position or
to stabilize the price of such certificates, they may reclaim the amount of
the selling concession from any underwriter or selling group member who sold
those certificates, as the case may be, 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
certificates. 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.
The certificates are new issues of securities and there currently is no
secondary market for the certificates. The underwriters for the certificates
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 Class A Certificates or
the Class B Certificates will develop. If a secondary market for the Class A
Certificates or the Class B Certificates does develop, it might end at any
time or it might not be sufficiently liquid to enable you to resell any of
your certificates.
The trustee and the Servicer may, from time to time, invest the funds in
the collection account and the reserve fund, as applicable, in investments
acquired from or issued by the underwriters.
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 and its affiliates.
The depositor has 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 closing of the sale of each class of the certificates is conditioned
on the closing of the sale of the other class of certificates.
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.
[The prospectus supplement and the attached prospectus may be used by
[_______] in connection with offers and sales related to market making
transactions in the certificates. [_________] 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. [________] is an affiliate of [________],
and therefore may also be viewed as an affiliate of the trust.]
LEGAL OPINIONS
Certain legal matters relating to the certificates, including certain
federal income tax matters, will be passed upon for the depositor by Brown &
Wood LLP. Certain legal matters relating to the certificates will be passed
upon for the underwriters by ___________________.
<PAGE>
GLOSSARY OF TERMS
Additional defined terms used in this prospectus supplement are defined
under "Glossary of Terms for the Prospectus" in the prospectus.
"ABS" means the Absolute Prepayment Model which we use to measure
prepayments on receivables and we describe under "The Receivables
Pool--Weighted Average Life of the Certificates".
"ABS Table" means the table captioned "Percent of Initial Note Principal
Amount or Initial Certificate Balance at Various ABS Percentages" beginning on
page S-__ of this prospectus supplement.
"advance" means, with respect to a receivable and a payment date, the
excess, if any, of (a) the product of the principal balance of that receivable
as of the first day of the related collection period and one-twelfth of its
contract rate of interest over (b) the interest actually received by the
servicer from the obligor or from payment of the Purchase Amount during or
with respect to that collection period.
"Available Interest" means, with respect to any payment date, the excess
of (a) the sum of:
o Interest Collections for such payment date;
o all advances made by the servicer for such payment date; and
o beginning with the collection period for which the servicer shall not
have made an advance with respect to a receivable other than because
such receivable was a defaulted receivable, net investment earnings
on amounts on deposit in the collection account as of the last day of
the related collection period,
over (b) the amount of outstanding advances to be reimbursed on or with
respect to such payment date.
"Available Principal" means, with respect to any payment date, the sum of
the following amounts with respect to the preceding collection period:
o that portion of all collections on the receivables allocable to
principal in accordance with the terms of the receivables and the
servicer's customary servicing procedures;
o to the extent attributable to principal, the Purchase Amount received
with respect to each receivable repurchased by the seller or
purchased by the servicer under an obligation which arose during that
collection period; and
o all liquidation proceeds, to the extent allocable to principal,
received during such collection period.
Available Principal on any payment date will exclude all payments and proceeds
of any receivables the Purchase Amount of which has been distributed on a
prior payment date.
"certificate balance" means, with respect to a class of certificates, the
original certificate balance for that class as reduced by all prior
distributions of principal to the holders of record of that class of
certificates. The original certificate balance of each class of certificates
is set forth on the cover of this prospectus supplement.
"Class A Percentage" means _____%.
"Class A Principal Distribution" means, with respect to any payment date,
the sum of (i) the Class A Percentage of the Available Principal plus the
Class A Percentage of Realized Losses, (ii) the Class A Percentage of the
Available Principal for any prior payment date and the Class A Percentage of
Realized Losses for any prior payment date, in each case only to the extent,
if any, that they have not already been distributed to the Class A
Certificateholders and (iii) if that payment date is the Final Scheduled
Payment date, the additional amount, if any, needed to reduce the certificate
balance of the Class A Certificates to zero.
"Class B Percentage" means _____%.
"Class B Principal Distribution" means, with respect to any payment date,
the sum of (i) the Class B Percentage of the Available Principal plus the
Class B Percentage of Realized Losses, (ii) the Class B Percentage of the
Available Principal for any prior payment date and the Class B Percentage of
Realized Losses for any prior payment date, in each case only to the extent,
if any, that they have not already been distributed to the Class B
Certificateholders and (iii) if that payment date is the Final Scheduled
Payment date, the additional amount, if any, needed to reduce the certificate
balance of the Class B Certificates to zero.
"closing date" means __________.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral Agent" means ___________________ and its successors and
assigns as the collateral agent to which the funds and investments in the
reserve fund have been pledged for the benefit of the certificateholders.
"collection account" means an account, held in the name of the indenture
trustee, into which the servicer is required to deposit collections on the
receivables and other amounts.
"collection period" means, with respect to a payment date, the calendar
month preceding that payment date, or in the case of the initial payment date,
the period from the cutoff date to __________.
"cutoff date" means the date as of which the seller will transfer the
receivables to the trust, which is __________.
"defaulted receivable" means 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 120 or more days delinquent as of the end
of a calendar month.
"payment date" means the date on which the trust will distribute interest
and principal on the certificates, which will be the __________ day of each
month or, if any such day is not a Business Day, on the next Business Day,
commencing __________.
"DTC" means The Depository Trust Company and any successor depository
selected by the trustee.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"final scheduled payment date" means __________.
"Interest Collections" mean, with respect to any payment date, the sum of
the following amounts with respect to the preceding collection period:
(1) that portion of all collections on the receivables allocable to
interest in accordance with the terms of the receivables and the
servicer's customary servicing procedures;
(2) all liquidation proceeds, to the extent allocable to interest,
received during such collection period;
(3) all recoveries received during such collection period; and
(4) to the extent attributable to interest, the Purchase Amount with
respect to each receivable repurchased by the seller or purchased by
the servicer under an obligation which arose during such collection
period.
Interest Collections for any payment date shall exclude all payments and
proceeds of any receivables the Purchase Amount of which has been distributed
on a prior payment date.
"liquidation proceeds" means with respect to any receivable (a) insurance
proceeds received by the servicer and (b) the monies collected by the servicer
from whatever source, including but not limited to proceeds of a financed
vehicle sold after repossession, on a defaulted receivable net of any payments
required by law to be remitted to the obligor.
"Plan" means an employee benefit or other plan or arrangement (such as an
individual plan or Keogh plan) that is subject to ERISA, Section 4975 of the
Code or a Similar Law.
"Purchase Amount" means a price at which the seller or the servicer must
purchase a receivable, equal to the amount required to be paid by the related
obligor to prepay such receivable (including one month's interest thereon, in
the month of payment, at the Contract Rate), after giving effect to the
receipt of any monies collected (from whatever source) on such receivable.
"Realized Losses" means, for any collection period, the excess of the
aggregate principal balance of those receivables that were designated as
Defaulted Receivables during that collection period over liquidation proceeds
received with respect to those receivables during that collection period, to
the extent allocable to principal.
"Recoveries" means, with respect to any collection period after a
collection period in which a receivable becomes a Defaulted Receivable, all
monies received by the servicer with respect to such Defaulted Receivable
during that collection period, net of any fees, costs and expenses incurred by
the servicer in connection with the collection of such Defaulted Receivable
and any payments required by law to be remitted to the obligor.
"reserve fund" means the account which the seller will establish in the
name of the Collateral Agent into which the seller will deposit the Reserve
Initial Deposit. The trustee will make the other deposits into and withdrawals
from the reserve fund as specified in this prospectus supplement.
"Reserve Initial Deposit" means the $__________ initially deposited into
the reserve fund.
"Servicing Fee" means a fee payable to the servicer on each payment date
for servicing the receivables which is equal to the product of 1/12 of __% and
the aggregate principal balance of the receivables as of the first day of the
related collection period.
"Specified Reserve Fund Balance" means the lesser of--
o __% of the outstanding principal balance of the receivables; and
o __% of the principal balance of the receivables as of the cutoff date.
"Supplemental Servicing Fee" means, for each collection period, the
amount of any late fees and other administrative fees and expenses collected
during that collection period, plus any interest earned during the collection
period on amounts on deposit in the collection account during the collection
period.
<PAGE>
ANNEX I
FORM OF INVESTMENT LETTER -- CLASS B CERTIFICATES
[Date]
_____________ Trust 200_-__, as Issuer
____________________,
as Trustee and
as Certificate Registrar
___________________
__________, __________ _____
Ladies and Gentlemen:
In connection with our proposed purchase of the Class B % Asset Backed
Certificates (the "Certificates") of ______________Trust 200_-__ (the
"Issuer"), a trust formed by ML Asset Backed Corporation (the "Depositor"), we
confirm that:
1. We are either:
(a) not, and each account (if any) for which we are purchasing the
Certificates is not, (i) an employee benefit plan (as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
that is subject to Title I of ERISA, (ii) a plan described in Section
4975(e)(1) of the Internal Revenue Code of 1986, as amended (the "Code") that
is subject to Section 4975 of the Code, (iii) a governmental plan, as defined
in Section 3(32) of ERISA, subject to any federal, state or local law which
is, to a material extent, similar to the provisions of Section 406 of ERISA or
Section 4975 of the Code, (iv) an entity whose underlying assets include plan
assets by reason of a plan's investment in the entity (within the meaning of
Department of Labor Regulation 29 C.F.R. Section 2510.3-101 or otherwise under
ERISA) or (v) a person investing "plan assets" of any such plan (including
without limitation, for purposes of this clause (v), an insurance company
general account, but excluding an entity registered under the Investment
Company Act of 1940, as amended), or
(b) an insurance company acting on behalf of a general account and (i) on
the date hereof less than 25% of the assets of such general account (as
reasonably determined by us) constitute "plan assets" for purposes of Title I
of ERISA and Section 4975 of the Code, (ii) the purchase and holding of such
Certificates are eligible for exemptive relief under Sections (I) and (III) of
Prohibited Transaction Class Exemption 95-60, and (iii) the undersigned agrees
that if, after the undersigned's initial acquisition of the Certificates, at
any time during any calendar quarter 25% or more of the assets of such general
account (as reasonably determined by us no less frequently than each calendar
quarter) constitute "plan assets" for purposes of Title I of ERISA or Section
4975 of the Code and no exemption or exception from the prohibited transaction
rules applies to the continued holding of the Certificates under Section
401(c) of ERISA and the final regulations thereunder or under an exemption or
regulation issued by the United States Department of Labor under ERISA, we
will dispose of all Certificates then held in our general account by the end
of the next following calendar quarter.
2. We are, and each account (if any) for which we are purchasing the
Certificates is, a person who is (A) a citizen or resident of the United
States, (B) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof, (C) an estate the income
of which is includable in gross income for United States tax purposes,
regardless of its source, (D) a trust if a U.S. court is able to exercise
primary supervision over the administration of such trust and one or more
Persons meeting the conditions of clause (A), (B), (C) or (E) of this
paragraph 2 has the authority to control all substantial decisions of the
trust or (E) a Person not described in clauses (A) through (D) above whose
ownership of the Certificates is effectively connected with such Person's
conduct of a trade or business within the United States (within the meaning of
the Code) and who provides the Issuer and the Depositor with an IRS Form 4224
(and such other certifications, representations, or opinions of counsel as may
be requested by the Issuer or the Depositor).
3. We understand that any purported resale, transfer, assignment,
participation, pledge, or other disposal of (any such act, a "Transfer") of
any Certificate (or any interest therein) to any person who does not meet the
conditions of paragraphs 1 and 2 above shall be null and void (each, a "Void
Transfer"), and the purported transferee in a Void Transfer shall not be
recognized by the Issuer or any other person as a Certificateholder for any
purpose.
4. We agree that if we determine to Transfer any of the Certificates we
will cause our proposed transferee to provide to the Issuer and the
Certificate Registrar a letter substantially in the form of this letter.
You are entitled to rely upon this letter and are irrevocably authorized
to produce this letter or a copy hereof to any interested party in any
administrative or legal proceedings or official inquiry with respect to the
matters covered hereby.
Very truly yours,
By:
--------------------------------
Name:
Title:
Securities To Be Purchased:
$ principal balance of Class B Certificates
---------------------
Annex A attached hereto lists the name of the account and principal balance of
Certificates purchased for each account (if any) for which we are purchasing
Certificates.
<PAGE>
You should rely on the information contained or incorporated by reference
in this prospectus supplement and the accompanying prospectus. We have not
authorized anyone to provide you with any other information or to make any
representations not contained in this prospectus supplement and the
prospectus. This prospectus supplement and the prospectus does not constitute
an offer to sell, or a solicitation of an offer to buy, the securities offered
hereby by anyone in any jurisdiction in which the person making such offer or
solicitation is not qualified to do so or to anyone to whom it is unlawful to
make any such offer or solicitation. We represent the accuracy of this
information in this prospectus supplement and the accompany prospectus only as
of the dates on their respective covers.
______________________ Trust 200_-___
ML Asset Backed Corporation
Depositor
---------------------------
Seller and Servicer
Class A ____% Asset Backed Certificates
Class B ____% Asset Backed Certificates
---------------------------
PROSPECTUS SUPPLEMENT
---------------------------
Merrill Lynch & Co.
__________ ____, 200__
Dealers will be required to deliver a prospectus supplement and
prospectus when acting as underwriters of the notes offered hereby and with
respect to their unsold allotments or subscriptions. In addition, all dealers
selling the notes, whether or not participating in this offering, may be
required to deliver a prospectus supplement and prospectus until ninety days
after the date of this prospectus supplement.
The information contained in this prospectus is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities, and it is not soliciting
an offer to buy these securities in any state where the offer or sale is not
permitted.
Subject to Completion
Preliminary Prospectus, dated November 17, 2000
Prospectus
Vehicle Receivables Trusts
Asset Backed Notes
Asset Backed Certificates
(Each Issuable In Series)
-------------------------------------
ML Asset Backed Corporation
-------------------------------------
<TABLE>
<CAPTION>
<S> <C>
-------------------------------------
Each trust --
Before you purchase any of these
securities, be sure to o will issue a series of asset-backed notes and/or certificates in
read the risk factors one or more classes;
beginning on page 10 of this
prospectus and the risk o will own--
factors set forth in the
related prospectus o a portfolio of motor vehicle loans;
supplement.
o collections on those loans;
The notes and the certificates
will represent interests in or o security interests in the vehicles financed by those loans;
obligations of the trust only and
and will not represent
interests in or obligations of o funds in the accounts of the trust; and
ML Asset Backed
Corporation or any of its o may have the benefit of one or more other forms of credit
affiliates. enhancement.
This prospectus may be used The main sources of funds for making payments on a trust's
to offer and sell any of the securities will be collections on its motor vehicle installment
notes or certificates only if loans and any credit enhancement that the trust may have. Each
accompanied by the class of securities will be rated in one of the four highest rating
prospectus supplement for the categories by at least one nationally recognized statistical rating
related trust. 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.
</TABLE>
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.
-------------------------
Merrill Lynch & Co.
-------------------------
The date of this prospectus is ___________, 200_.
<PAGE>
TABLE OF CONTENTS
Page
----
IMPORTANT NOTICE ABOUT
INFORMATION PRESENTED IN
THIS PROSPECTUS AND THE
ACCOMPANYING PROSPECTUS
SUPPLEMENT.....................................3
WHERE YOU CAN FIND ADDITIONAL INFORMATION........3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..3
Copies of the Documents........................4
SUMMARY..........................................5
RISK FACTORS....................................10
THE TRUSTS......................................14
The Receivables...............................14
The Seller and the Servicer...................15
The Trustees..................................16
THE RECEIVABLES POOLS...........................16
MATURITY AND PREPAYMENT CONSIDERATIONS..........19
POOL FACTORS AND TRADING INFORMATION............20
Notes.........................................20
Certificates..................................21
The Factors Described Above Will Decline
as the Trust Makes Payments on the
Securities....................................21
Additional Information........................21
USE OF PROCEEDS.................................21
THE COMPANY AND THE DEPOSITOR...................22
PRINCIPAL DOCUMENTS.............................22
CERTAIN INFORMATION REGARDING THE SECURITIES....24
General.......................................24
Fixed Rate Securities.........................25
Floating Rate Securities......................25
Book-Entry Registration.......................26
Definitive Securities.........................30
Reports to Securityholders....................31
THE INDENTURE...................................33
The Indenture Trustee.........................38
DESCRIPTION OF THE RECEIVABLES
TRANSFER AND SERVICING AGREEMENTS.............39
Sale and Assignment of Receivables............39
Accounts......................................41
Servicing Procedures..........................42
Collections...................................42
Advances......................................43
Servicing Compensation and Expenses...........44
Distributions.................................44
Credit and Cash Flow Enhancement..............44
Net Deposits..................................46
Statements to Trustees and Trusts.............46
Evidence as to Compliance.....................46
Certain Matters Regarding the Servicer........46
Events of Servicing Termination...............47
Rights Upon Event of Servicing Termination....48
Waiver of Past Events of Servicing
Termination...................................48
Amendment.....................................49
Payment of Notes..............................49
Termination...................................49
List of Certificateholders....................50
Administration Agreement......................50
SOME IMPORTANT LEGAL ISSUES
RELATING TO THE RECEIVABLES...................50
General.......................................50
Security Interests in the Financed Vehicles...50
Enforcement of Security Interests in Vehicles.52
Certain Bankruptcy Considerations.............53
Consumer Protection Laws......................53
Other Matters.................................54
MATERIAL FEDERAL INCOME TAX CONSEQUENCES........55
Trusts for Which a Partnership Election is
Made.........................................56
Trusts in Which all Certificates are Retained
by the Seller or an Affiliate of the Seller...63
Trusts Treated as Grantor Trusts..............63
FASIT Provisions..............................68
CERTAIN STATE TAX CONSEQUENCES..................72
ERISA CONSIDERATIONS............................72
Senior Certificates Issued by Trusts..........74
Special Considerations Applicable to
Insurance Company General Accounts...........77
PLAN OF DISTRIBUTION............................78
LEGAL OPINIONS..................................79
GLOSSARY OF TERMS...............................80
<PAGE>
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:
o this prospectus provides general information, some of which may
not apply to a particular series of securities, including your
securities, and
o 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 80.
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:
o the public reference facilities maintained by the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549 (telephone
1-800-732-0330),
o the SEC's regional office at Citicorp Center, 500 West Madison
Street, 14th Floor, Chicago, Illinois 60661, and
o 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.
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:
o you received this prospectus and the prospectus supplement and
o 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.
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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 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:
o its principal amount;
o its interest rate, which may be fixed or variable or a combination;
o the timing, amount and priority or subordination of payments of
principal and interest;
o the method for calculating the amount of principal and interest
payments;
o the payment dates, which may occur at monthly, quarterly or other
specified intervals, for that class;
o its final scheduled payment date;
o whether and when it may be redeemed prior to its final payment date;
and
o how losses on the receivables are allocated among the classes of
securities.
Some classes of securities may be entitled to:
o principal payments with disproportionate, nominal or no interest
payments or
o 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, recreational vehicles or commercial vehicles
including:
o the rights to receive payments made on the loans after the cutoff date
specified in the related prospectus supplement;
o security interests in the vehicles financed by the loans; and
o 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 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, which may include:
o an account into which collections are deposited;
o an account to fund post-closing purchases of additional receivables;
and
o a reserve fund or other account providing credit enhancement.
Purchase of Receivables After the Closing Date
If a trust has not purchased all of its receivables at the time you purchase
your securities, it will purchase 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 purchase 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:
o subordination of one or more classes of securities;
o a reserve fund;
o overcollateralization, meaning the amount by which the principal
amount of the receivables exceeds the principal amount of all of the
trust's securities;
o 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;
o letter of credit or other credit facility;
o surety bond or insurance policy;
o liquidity arrangements;
o swaps (including currency swaps) and other derivative instruments and
interest rate protection agreements;
o repurchase or put obligations;
o yield supplement agreements;
o guaranteed investment contracts;
o guaranteed rate agreements; or
o 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 sell 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".
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 sold by it to the depositor. The seller will be
obligated to repurchase any receivable from the trust if (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. Other terms for the
redemption of one or more classes of the securities of a series may be
established and will be described in the related prospectus supplement.
Tax Status
Brown & Wood LLP, special counsel to the depositor, is of the opinion that,
for federal income tax purposes:
o securities issued as notes will be treated as indebtedness;
o 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 regular securities"
or "FASIT ownership securities";
o 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 plans.
Unsubordinated Grantor Trust Certificates
Certificates issued by a grantor trust that are not subordinated to any other
class will generally be eligible for purchase by employee benefit plans.
Other Certificates
Subordinated classes of certificates issued by a grantor trust and
certificates issued by an owner trust generally will not be eligible for
purchase by an employee benefit plan.
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.
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You may have difficulty There may be no secondary market for the securities. Underwriters
selling your securities or may participate in making a secondary market in the securities, but are
obtaining your desired price 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 Financing statements under the Uniform Commercial Code will be
the receivables could reduce filed reflecting the sale of the receivables by the seller to the depositor
the funds available to make and by the depositor to the trust. In addition, the seller will mark its
payments on your securities computer systems, and each of the seller and the depositor will mark
its accounting records, to reflect its sale 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:
o the seller or the depositor might fail to perfect its security interest
in a financed vehicle;
o 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;
o 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;
o holders of some types of liens, such as tax liens or mechanics'
liens, may have priority over the trust's security interest; and
o 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 sold to the
trust.
Consumer protection laws Federal and state consumer protection laws impose requirements upon
may reduce payments on your creditors in connection with extensions of credit and collections on
securities 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 The securities represent interests solely in a trust or indebtedness of a
are available to pay your trust and will not be insured or guaranteed by the depositor, the seller
securities 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 The amount required to be on deposit in any reserve fund will be
reserve fund will be limited limited. If the amounts in the reserve fund are depleted as amounts are
and subject to depletion. 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 Where a series of securities includes notes,
liquidation of the receivables the receivables of the trust may be sold after the occurrence
if the proceeds of the of an event of default under the indenture. The related securityholders will suffer losses if
liquidation are less than the the trust sells the receivables for less than the total amount due on its
amounts due on the securities. We cannot assure you that sufficient funds would be
outstanding securities. available to repay those securityholders in full.
For more information on the remedies available when an event of default under an
indenture has occurred see "The Indenture--Rights upon Event of Default" in this
prospectus.
Subordination of certain To the extent specified in the related prospectus supplement, the rights
securities may reduce payments of the holders of any class of securities to receive payments of
to those securities interest and principal may be subordinated to one or more
other classes of securities. Subordination may take the following
forms:
o interest payments on any date on which interest is due may
first be allocated to the more senior classes;
o principal payments on the subordinated classes might not begin
until principal of the more senior classes is repaid in full;
o principal payments on the more senior classes may be made on a
payment date before interest payments on the subordinated classes
are made; and
o 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 You may not be able to reinvest the principal repaid to you at a rate of
receivables may adversely return that is equal to or greater than the rate of return on your
affect the average life of securities. Faster than expected prepayments on the receivables may
and rate of return on your cause the trust to make payments on its securities earlier than expected.
securities 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:
o prepayments in whole or in part by the obligor;
o liquidations due to default;
o partial payments with proceeds from physical damage, credit life
and disability insurance policies;
o required purchases of receivables by the servicer or repurchases of
receivables by the seller for specified breaches of their
representations or covenants; and
o 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.
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 If the servicer satisfies the requirements specified in the related
securities because the prospectus supplement, it will be permitted to hold with its own funds
servicer may commingle (1) collections it receives from obligors on the receivables and (2) the
collections on the receivables purchase price of receivables required to be repurchased from the trust
with its own funds 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 Generally, the holders of a majority of a trust's senior class of
controls removal of the securities (or the applicable trustee acting on their behalf) can
servicer upon a default on its remove the related servicer if the servicer --
servicing obligations
o does not deliver to the applicable trustee the available funds for
application to a required payment after a grace period after notice or
discovery;
o defaults on a servicing obligation which materially and adversely
affects the trust after a grace period after notice; or
o initiates or becomes the subject of insolvency proceedings.
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 Adverse economic conditions or other factors particularly affecting
trust's receivables may any state or region where there is a high concentration of a trust's
adversely affect your receivables could adversely affect the securities of that trust. We are
securities 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.
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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, recreational vehicles or commercial 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 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 to the depositor and the depositor, in turn, will sell
the receivables 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 purchase
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
purchase additional receivables from the seller.
The property of each trust will also include:
o security interests in the financed vehicles;
o 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;
o the seller's and depositor's rights to documents and
instruments relating to the receivables;
o amounts that from time to time may be held in one or more
accounts maintained for the trust;
o any credit or cash flow enhancement specified in the prospectus
supplement;
o 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;
o 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;
o any rebates of insurance premiums or other amounts to the
extent financed under the receivables; and
o 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.
The Seller and the Servicer
Information concerning the related seller's experience with respect
to its total portfolio of motor vehicle receivables, including previously sold
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:
o the trustee ceases to be eligible to continue as trustee under
the applicable trust agreement, pooling and servicing agreement
or indenture, or
o 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.
The receivables to be held by each trust will be purchased by the
depositor from the seller specified in the related prospectus supplement in
accordance with several criteria, including that each receivable
o is secured by a financed vehicle that, as of the cutoff date,
has not been repossessed without reinstatement,
o was originated in the United States,
o has a fixed or variable interest rate,
o is a simple interest receivable or a precomputed receivable,
o 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,
o 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
o 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
o first, to interest accrued to from the date of last payment to
the date of the current payment,
o second, to reduce the unpaid principal balance, and
o 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
o 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
o 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--
o 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
o 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
o 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
o 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.
Upon maturity of a balloon payment receivable, the related obligor
may satisfy the amount it owes by:
o 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,
o refinancing the amount then due, subject to satisfying the
conditions associated with the new loan, or
o 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:
o the portion of the receivables pool consisting of precomputed
receivables and of simple interest receivables;
o the portion of the receivables pool secured by new financed
vehicles and by used financed vehicles;
o the aggregate principal balance of all of the related
receivables;
o the average principal balance of the related receivables and
the range of principal balances;
o the number of receivables in the receivables pool;
o the geographic distribution of receivables in the receivables
pool;
o the average original amount financed and the range of original
amounts financed;
o the weighted average contract rate of interest and the range of
rates;
o the weighted average original term and the range of original
terms;
o the weighted average remaining term and the range of remaining
terms;
o the scheduled weighted average life;
o the distribution by stated contract rate of interest;
o the seller's underwriting procedures and guidelines applicable
to the receivables; and
o 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:
o Prepayments by obligors, who may repay at any time without
penalty.
o The seller may be required to repurchase a receivable sold 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.
o 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.
o Partial prepayments, including those related to rebates of
extended warranty contract costs and insurance premiums.
o Liquidations of the receivables due to default.
o 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 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--
o the original denomination of your note and
o 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--
o the original denomination of your certificate and
o the factor relating to your class of certificates computed by
the servicer in the manner described above.
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 --
o the outstanding principal amount of the applicable class of
notes or
o 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:
o to the purchase of the receivables from the depositor;
o if the trust has a pre-funding account, to make the deposit
into that account;
o if the trust has a yield supplement account, to make the
deposit into that account;
o if the trust has a reserve fund, to make the initial deposit
into that account; and
o 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 purchase receivables from the related
seller and to pay for expenses incurred in connection with the purchase 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.
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
indenture trustee notes, the terms of the notes and
payments to noteholders
Establishes rights and duties of
indenture trustee
Establishes rights of noteholders
Receivables Purchase The seller and the depositor as Effects sale of receivables from
Agreement purchaser the 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 sale of receivables from
servicer, and the trust as the depositor to the trust
purchaser
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 Agreement The seller and the depositor as Effects sale of
purchaser receivables from the 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
Pooling and Servicing Agreement Trustee, the depositor and the Creates the trust
servicer
Effects sale of
receivables from the depositor
to the trust
Contains servicing
obligations of servicer
Provides for
compensation to 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
o the timing, amount and priority of payments of principal and
interest on each class of the securities,
o their interest rates or the formula for determining their
interest rates,
o the method of determining the amount of their principal
payments,
o the priority of the application of the trust's available funds
to its expenses and payments on its securities and
o 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
o principal payments with disproportionate, nominal or no
interest payments or
o interest payments with disproportionate, nominal or no
principal payments or
o 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):
o 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
o 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.
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.
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:
o 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;
o 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
o 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
Section 17A of the Securities Exchange Act of 1934. 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.
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 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 and any other
information so 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;
(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 under the related indenture will consist of:
o 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;
o 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;
o 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 trust and
the indenture trustee by the holders of at least 25% in
principal amount of the controlling class of notes;
o 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;
o events of bankruptcy, insolvency, receivership or liquidation
of the applicable trust or its property as specified in the
indenture; or
o any other events set forth in the related indenture or
prospectus supplement.
The controlling class of notes of a trust 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:
o the trust has paid or deposited with the indenture trustee
enough money to pay:
o 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
o 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
o 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:
o all of the holders of the notes issued by the trust consent to
the sale;
o 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
o 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 2/3% 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:
o the holder previously has given to the indenture trustee
written notice of a continuing event of default;
o 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;
o the holder or holders have offered the indenture trustee
reasonable indemnity;
o the indenture trustee has for 60 days after the notice, request
and offer of indemnity failed to institute the proceeding; and
o 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.
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.
o Restrictions on merger and consolidation. The related trust may
not consolidate with or merge into any other entity, unless:
o 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;
o 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;
o 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;
o 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;
o 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;
o any action that is necessary to maintain the lien and
security interest created by the related indenture shall
have been taken; and
o 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.
o Other negative covenants. Each trust will not, among other
things--
o except as expressly permitted by the applicable
agreements, sell, transfer, exchange or otherwise dispose
of any of the assets of the trust,
o 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 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,
o dissolve or liquidate in whole or in part,
o permit the lien of the related indenture to be
subordinated or otherwise impaired,
o 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
o 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.
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:
o the action will not, as evidenced by an opinion of counsel,
materially adversely affect the interest of any noteholder;
o 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
o 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:
o 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;
o impair the right to institute suit for the enforcement of
provisions of the related indenture regarding payment;
o 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;
o 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;
o 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;
o 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 aggregate principal amount of the notes necessary
to amend the indenture or any of the other related agreements;
o affect the calculation of the amount of interest or principal
payable on any note on any payment date;
o 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
o 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 from a seller, a trust will
purchase the receivables 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 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.
Sale and Assignment of Receivables
When the trust issues securities, the seller will 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, pursuant to a receivables purchase agreement. 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 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 the related seller will represent and warrant to the depositor that,
at the date as of which the receivable is transferred to the trust--
o each receivable (a) has been originated for the retail
financing of a motor vehicle by an obligor located in one of
the states or territories 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;
o 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;
o 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;
o 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;
o 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;
o 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;
o 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;
o each receivable requires that the obligor thereunder obtain
comprehensive and collision insurance covering the financed
vehicle; and
o 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, 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 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 uses for motor vehicle retail
installment sale contracts, installment loans, purchase money notes or other
notes that it services for itself or others and that are comparable to 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, 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.
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.
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:
o subordination of one or more classes of securities;
o a reserve account;
o "excess spread," or interest earned on the receivables in
excess of the amount required to be paid on the securities;
o collateralization greater than the principal amount of
securities issued;
o letters of credit;
o liquidity facilities;
o surety bonds;
o guaranteed investment contracts;
o guaranteed rate agreements;
o swaps or other interest rate protection agreements:
o repurchase obligations;
o yield supplement arrangements;
o cash deposits; or
o 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 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.
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 any securityholder 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.
Events of Servicing Termination
"Events of servicing termination" under each sale and servicing
agreement or pooling and servicing agreement will consist of:
o 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;
o 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);
o the occurrence of insolvency events specified in the sale and
servicing agreement or pooling and servicing agreement with
respect to the servicer; and
o 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, 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. The indenture
trustee or trustee may make arrangements for compensation to be paid to the
successor servicer.
Waiver of Past Events of Servicing Termination
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 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 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 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 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.
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 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.
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.
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
The depositor and the seller will take steps in structuring the
transactions contemplated hereby so that the transfer of the receivables from
the seller to the depositor and from the depositor to the trust constitutes a
sale, rather than a pledge of the receivables to secure indebtedness of the
seller or the depositor, as the case may be. However, if the seller or the
depositor were to become a debtor under the federal bankruptcy code, it is
possible that a creditor or trustee in bankruptcy of the seller or the
depositor, as the case may be, as debtor-in-possession, may argue that the
sale of the receivables by the seller or the depositor, 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
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 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:
o securities issued as notes will be treated as indebtedness;
o 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.
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 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.
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.
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 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).
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
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.
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.
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.
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 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 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 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 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
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 principales. 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 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.
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 "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:
o Prohibited Transaction Class Exemption 96-23, which exempts
certain transactions effected on behalf of a Plan by an
"in-house asset manager";
o PTE 95-60, which exempts certain transactions between insurance
company general accounts and parties in interest;
o PTE 91-38, which exempts certain transactions between bank
collective investment funds and parties in interest;
o PTE 90-1, which exempts certain transactions between insurance
company pooled separate accounts and parties in interest; or
o PTE 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 of these exemptions will apply with respect
to any Plan's investment in the securities, or that such an exemption, if it
did apply, would apply to all prohibited transactions that may occur in
connection with such investment. Furthermore, these exemptions would 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. 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 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, 2% 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 unsubordinated 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:
o a representation substantially to the effect that the proposed
transferee is not 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
o 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 any similar
federal, state or local 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 subordinated certificates which would be eligible for
coverage under the Exemption if they were not subordinated 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 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, the notes may not be
purchased with the assets of a Plan if the depositor, the seller, an
underwriter, the indenture trustee, the trustee or any of their affiliates
o has investment or administrative discretion with respect to
that Plan assets;
o has authority or responsibility to give, or regularly gives,
investment advice with respect to that Plan assets 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 that Plan assets and
- will be based on the particular investment needs for that
Plan; or
o is an employer maintaining or contributing to that Plan.
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33)
of ERISA) are not subject to ERISA requirements. However, any such
governmental or church 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.
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.
Senior Certificates Issued by Trusts
Unless otherwise specified in the related prospectus supplement, the
following discussion applies only to nonsubordinated certificates -- the
Senior Certificates -- issued by a trust.
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 certificates
representing interests in asset-backed pass-through trusts that consist of
certain receivables, loans and other obligations that meet the conditions and
requirements of the Exemption. The receivables covered by the Exemption
include motor vehicle installment loans such as the receivables. The Exemption
will apply to the acquisition, holding and resale of the Senior Certificates
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 Senior Certificates are the following:
(1) The acquisition of the Senior Certificates by a Plan is
on terms (including the price for the Senior Certificates) 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 Senior
Certificates acquired by the Plan are not subordinated to the rights
and interests evidenced by other certificates of the trust;
(3) The Senior Certificates 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 from either Standard &
Poor's Standard & Poor's Ratings Services, Moody's Investors Service,
Inc., Duff & Phelps Inc. or Fitch IBCA, 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 Senior Certificates
represents not more than reasonable compensation for underwriting the
Senior Certificates; the sum of all payments made to and retained by
the seller pursuant to the sale of the receivables to the trust
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; and
(6) The Plan investing in the Senior Certificates is an
"accredited investor" as defined in Rule 501(a)(1) of Regulation D of
the SEC under the Securities Act of 1933.
On July 21, 1997, the DOL published in the Federal Register an
amendment to the Exemption, which extends exemptive relief to certain
mortgage-backed and asset-backed securities transactions using pre-funding
accounts for trusts issuing pass-through certificates. The amendment generally
allows mortgage loans or other secured receivables supporting payments to
certificateholders, and having a value equal to no more than 25% of the total
principal amount of the certificates being offered by the trust, to be
transferred to the trust within a 90-day or three-month period following the
closing date, instead of requiring that all those obligations 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 certificates 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 trust, which terms and conditions have
been approved by a rating agency;
(3) The transfer of those additional obligations to the
trust during the pre-funding period must not result in the
certificates to be covered by the Exemption receiving a lower credit
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 certificates by the trust;
(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 trust 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 trust 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 trust:
(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
certificates, 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 trust 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 trust; and
(iv) that the amounts remaining in the pre-funding
account at the end of the pre-funding period will be remitted
to certificateholders 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.
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 certificates in a trust
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 Senior Certificates in
connection with the initial issuance, at least 50% of the
Senior Certificates 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 trust,
(iii) the Plan's investment in Senior Certificates does not exceed
25% of all of the Senior Certificates 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 certificates representing an interest in one or
more trusts 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 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 a trust that has a revolving period. If such a trust
intends for the Exemption to apply to its sales of Senior Certificates 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. Under Section
401(c), the Department of Labor is required to issue 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 are to 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 Code. Section 401(c) also provides
that, except in the case of avoidance of the general account regulations and
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 the date that is 18 months after the general account regulations
become 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 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 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.
As of the date hereof, the DOL has issued proposed regulations under
Section 401(c). It should be noted that if the general account regulations are
adopted substantially in the form in which proposed, the general account
regulations may not exempt the assets of insurance company general accounts
from treatment as "plan assets" after December 31, 1998. The general account
regulations should not, however, adversely affect the applicability of PTCE
95-60.
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--
o 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
o 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.
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, or other counsel named in the related prospectus
supplement.
<PAGE>
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.
"Benefit Plan Investor" means any:
o "employee benefit plans" (as defined in Section 3(3) of ERISA),
including without limitation governmental plans, foreign
pension plans and church plans;
o "plans" described in Section 4975(e) (1) of the Code, including
individual retirement accounts and Keogh plans; or
o entities 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.
"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.
"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--
o a segregated account with an Eligible Institution; or
o 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--
o the corporate trust department of the indenture trustee or the
related trustee, as applicable; or
o 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.
"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:
o direct obligations of, and obligations fully guaranteed as to
timely payment by, the United States of America or its
agencies;
o 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;
o commercial paper having, at the time of such investment, a
rating in the highest rating category from each rating agency;
o investments in money market funds having the highest rating
from each rating agency;
o 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
o 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 Assets Regulation" means a regulation, 29 C.F.R. Section
2510.3-101, issued by the DOL.
"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 purchase 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 purchase receivables from the depositor and the servicer
will agree to service such receivables, each trust agreement (in the case of a
grantor trust, the pooling and servicing agreement) pursuant to which a trust
will be created and certificates will be issued and each administration
agreement pursuant to which the servicer (or such other person named in the
related prospectus supplement) will undertake certain administrative duties
with respect to a trust that issues notes.
"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, Benefit
Plans sponsored by the seller, any underwriter, the trustee, the servicer, any
obligor with respect to receivables included in the trust constituting more
than five percent of the aggregate unamortized principal balance of the assets
in the trust, or any affiliate of such parties.
"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 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.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.*
Expenses in connection with the offering of the securities being
registered herein are estimated as follows:
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee.................................................................... $ 316,800
Legal fees and expenses................................................................. 100,000
Accounting fees and expenses............................................................ 35,000
Blue sky fees and expenses.............................................................. 5,000
Rating agency fees...................................................................... 150,000
Trustee's fees and expenses............................................................. 20,000
Indenture Trustee's fees and expenses................................................... 50,000
Printing................................................................................ 25,000
Miscellaneous........................................................................... $ 25,000
--------
Total............................................................................ $726,800
========
</TABLE>
-------------------
* All amounts, other than the SEC registration fee, are
estimates of expenses incurred or to be incurred in
connection with the issuance and distribution of a series of
securities in an aggregate principal amount assumed for
these purposes to be equal to $100,000,000 of securities
registered hereby.
Item 15. Indemnification of Directors and Officers.
ML Asset Backed Corporation has undertaken in its articles of
incorporation and by-laws to indemnify, to the maximum extent permitted by the
Delaware General Corporation Law as from time to time amended, any currently
acting or former director, officer, employee and agent of ML Asset Backed
Corporation against any and all liabilities incurred in connection with their
services in such capacities.
Item 16. Exhibits.
1.1 Form of Underwriting Agreement
3.1 Articles of Incorporation of the Registrant
3.2 By-laws of the Registrant
4.1 Form of Trust Agreement (including form of Certificates)
4.2 Form of Pooling and Servicing Agreement (including form of
Certificates)
4.3 Form of Indenture (including form of Notes)
5.1 Opinion of Brown & Wood LLP with respect to legality
5.2 Opinion of Richards, Layton & Finger with respect to legality under
Delaware law
8.1 Opinion of Brown & Wood LLP with respect to certain tax matters
10.1 Form of Sale and Servicing Agreement
10.2 Form of Administration Agreement
23.1 Consent of Brown & Wood LLP (included in Exhibit 5.1)
23.2 Consent of Richards, Layton & Finger (included in Exhibit 5.2)
23.3 Consent of Brown & Wood LLP (included in Exhibit 8.1)
24.1 Power of Attorney (included on Page II-5)
-------------------
<PAGE>
Item 17. Undertakings.
(a) As to Rule 415:
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)
(3) of the Securities Act of 1933, as amended (the
"Securities Act");
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20
percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(b) As to documents subsequently filed that are incorporated by
reference:
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to Section 15(d) of the Exchange Act) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) As to indemnification:
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the
time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(e) As to qualification of trust indentures:
The undersigned registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the trustee to act under
Section 310(a) of the Trust Indenture Act of 1939, in accordance with the
rules and regulations prescribed by the Commission under Section 305(b)(2) of
the Securities Act.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and that the
security rating requirement for Form S-3 will be met at the time of each sale
of securities, and has duly caused this amendment No.1 to Form S-3
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, the State of New York, on
November 15, 2000.
ML Asset Backed Corporation
By: /s/ Michael M. McGovern
-----------------------------------
Name: Michael M. McGovern
Title: Secretary
Pursuant to the requirements of the Securities Act of 1933, as
amended, this amendment No.1 to Form S-3 registration statement has been
signed below by the following persons in the capacities and on the dates
indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* President, Chairman of the Board of Directors November 15, 2000
--------------------------------- (Principal Executive Officer)
Robert J. Little
* Treasurer (Principal Financial Officer and November 15, 2000
--------------------------------- Principal Accounting Officer) and Director
Thomas Layton
---------------------------------- Vice President and Director November , 2000
Donald J. Puglisi
*By: /s/ Michael M. McGovern
----------------------
Michael M. McGovern
Attorney-In-Fact
</TABLE>
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Robert J. Little, Thomas
Layton, and Michael M. McGovern or any of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitutes, may lawfully do or cause
to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert J. Little President, Chairman of the Board of Directors September 5, 2000
--------------------------------- (Principal Executive Officer)
Robert J. Little
/s/ Thomas Layton Treasurer (Principal Financial Officer and September 1, 2000
--------------------------------- Principal Accounting Officer) and Director
Thomas Layton
--------------------------------- Vice President and Director
Donald J. Puglisi
</TABLE>
