SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest Event
Reported) April 15, 1996
LEHMAN ABS CORPORATION, (as depositor under the Pooling
and Servicing Agreement, dated as of April 1, 1996,
which forms Lehman FHA Title I Loan Trust 1996-2 which
will issue the Lehman Home Loan Trust 1996-2, FHA
Title I Loan Asset-Backed Certificates, Series 1996-2).
LEHMAN ABS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 333-01451 13-3447441
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
Three World Financial Center
200 Vesey Street
New York, New York 10285
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code (212) 526-7000
Item 5. Other Events.
Filing of Derived Materials and Revised Derived Materials.*
Pursuant to Rule 424(b) under the Securities Act of 1933,
concurrently with, or subsequent to, the filing of this Current
Report on Form 8-K ("the Form 8-K"), Lehman ABS Corporation, (the
"Company") is filing a prospectus and prospectus supplement with
the Securities and Exchange Commission relation to its FHA
Title I Loan Asset-Backed Certificates, Series 1996-2.
In connection with the offering of the Lehman FHA Title I
Loan Asset-Backed Certificates, Series 1996-2, Lehman Brothers
Inc., as underwriter of the Certificates (the "Underwriter"), has
prepared certain materials (the "Derived Materials" and the
"Revised Derived Materials") for distribution to its potential
investors. Although the Company provided the Underwriter with
certain information regarding the characteristics of the Loans in
the related portfolio, it did not participate in the preparation
of either the Derived Materials or the Revised Derived Materials.
For purposes of this Form 8-K, Derived Materials and Revised
Derived Materials shall mean computer generated tables and/or
charts displaying, with respect to the Certificates, any of the
following: yield; average life, duration; expected maturity;
interest rate sensitivity; loss sensitivity; cash flow
characteristics; background information regarding the Loans; the
proposed structure; decrement tables; or similar information
(tabular or otherwise) of a statistical, mathematical, tabular or
computational nature. The Derived Materials are attached hereto
as Exhibit 1 and the Revised Derived Materials are attached
hereto as Exhibit 2.
Filing of Capital Markets Assurance Corporation Policy, Capital
Markets Assurance Corporation Financials and Consent of Experts
The consolidated financial statements of Capital Markets
Assurance Corporation ("CapMAC") that are included in the
Prospectus Supplement (the "CapMAC Financials") have been audited
by KPMG Peat Marwick L.L.P. ("Peat Marwick"). The consent of
Peat Marwick is attached hereto as Exhibit 3. The CapMAC
Financials are attached hereto as Exhibit 4.
The Registrant is filing a form of the certificate guaranty
insurance policy to be issued by CapMAC (the "CapMAC Policy") in
- --------
* Capitalized terms used and not otherwise defined herein
shall have the meanings assigned to them in the Prospectus dated
March 22, 1996, and the Prospectus Supplement dated April 12,
1996, of Lehman ABS Corporation, relating to its Lehman FHA
Title I Loan Trust 1996-2, FHA Title I Loan Asset-Backed
Certificates, Series 1996-2).
2
connection with Lehman FHA Title I Loan Trust 1996-2, FHA Title I
Loan Asset-Backed Certificates, Series 1996-2. The form of
CapMAC Policy is attached hereto as Exhibit 5.
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits.
(a) Not applicable.
(b) Not applicable.
(c) Exhibits:
99.1. Derived Materials.
99.2. Revised Derived Materials
99.3. Consent of KPMG Peat Marwick LLP.
99.4. CapMAC Financials.
99.5. Form of CapMAC Policy.
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
LEHMAN ABS CORPORATION
By: /s/ Martin Harding
Martin Harding
Senior Vice President
Dated: April 15, 1996
4
Exhibit Index
Exhibit Page
99.1. The Derived Materials.
99.2. The Revised Derived Materials
99.3. Consent of KPMG Peat Marwick.
99.4. CapMAC Financials.
99.5. Form of CapMAC Policy.
5
LEHMAN BROTHERS
DERIVED INFORMATION
$279,336,000 (Approximate)
Lehman FHA Title I Loan Trust 1996-2
Lehman ABS Corporation (Depositor)
The First National Bank Of Keystone (Seller)
Norwest Bank N.A. (Master Servicer)
- --------------------------------------------------------------------------------
This information does not constitute either an offer to sell or a solicitation
of an offer to buy any of the securities referred to herein. Offers to sell
and solicitations of offers to buy the securities are made only by , and this
information must be read in conjunction with, the final Prospectus Supplement
and the related Prospectus or, if not registered under the securities laws,
the final Offering Memorandum (the "Offering Document"). Information contained
herein does not purport to complete and is subject to the same qualifications
and assumptions, and should be considered by investors only in the light of
the same warnings, lack of assurances and representations and other
precautionary matters, as disclosed in the Offering Document. Information
regarding the underlying assets has been provided by the issuer of the
securities or an affiliate thereof and has not been independently verified by
Lehman Brothers or any affiliate. The analyses contained herein have been
prepared on the basis of certain assumptions (including, in certain cases,
assumptions specified by the recipient hereof) regarding payment, draw and
interest rates and other matters, including, but not limited to, the
assumptions described in the Offering Document. Lehman Brothers and any of its
affiliates, make no representation or warranty as to the actual rate or timing
of payments, draw and losses on any of the underlying assets or the payments
or yield on the securities. This information supersedes any prior versions
hereof and will be deemed to be superseded by any subsequent versions
(including, with respect to any description of the securities or underlying
assets, the information contained in the Offering Document).
1
ASSET BACKED SECURITIES MARKETING SUMMARY
$279,336,000 (Approximate) AS OF 4/12/96
Lehman FHA Title I Loan Trust 1996-2
Lehman ABS Corporation (Depositor)
The First National Bank Of Keystone (Seller)
Norwest Bank N.A. (Master Servicer)
<TABLE>
<CAPTION>
Securities Offered:
Wtd. Avg. Principal
Initial Life/Modified Payment Expected
Size Loan Credit Duration(1) Window Ratings
Class ($MM) Group Priority @ 14% CPR (1)(3) (Moody's/S&P)
To Maturity
<S> <C> <C> <C> <C> <C> <C>
A-1 $47.196 Group I Senior 0.53/0.50 1-12 Aaa/AAA
A-2 $97.036 Group I Senior 2.45/2.17 12-48 Aaa/AAA
A-3 $43.333 Group I Senior 5.00/4.06 48-72 Aaa/AAA
A-4 $32.907 Group I Senior 7.00/5.24 72-97 Aaa/AAA
A-5 $51.036 Group I Senior 10.46/6.86 97-163 Aaa/AAA
A-6 $7.828 Group II Senior 2.94/2.45 1-84 Aaa/AAA
To Call
A-5 $51.036 Group I Senior 10.12/6.74 97-136 Aaa/AAA
A-6 $7.828 Group II Senior 2.94/2.45 1-84 Aaa/AAA
</TABLE>
Notes
(1) The Weighted Average life, Modified Duration and Principal
Payment Window shown in the table above assume settlement on
April 17, 1996.
(2) Modified duration was based on an example yield and
corresponding expected coupons.
(3) The Principal Payment Window is expressed as the number of
payment periods from April 17, 1996.
- --------------------------------------------------------------------------------
This information does not constitute either an offer to sell or a solicitation
of an offer to buy any of the securities referred to herein. Offers to sell
and solicitations of offers to buy the securities are made only by , and this
information must be read in conjunction with, the final Prospectus Supplement
and the related Prospectus or, if not registered under the securities laws,
the final Offering Memorandum (the "Offering Document"). Information contained
herein does not purport to complete and is subject to the same qualifications
and assumptions, and should be considered by investors only in the light of
the same warnings, lack of assurances and representations and other
precautionary matters, as disclosed in the Offering Document. Information
regarding the underlying assets has been provided by the issuer of the
securities or an affiliate thereof and has not been independently verified by
Lehman Brothers or any affiliate. The analyses contained herein have been
prepared on the basis of certain assumptions (including, in certain cases,
assumptions specified by the recipient hereof) regarding payment, draw and
interest rates and other matters, including, but not limited to, the
assumptions described in the Offering Document. Lehman Brothers and any of its
affiliates, make no representation or warranty as to the actual rate or timing
of payments, draw and losses on any of the underlying assets or the payments
or yield on the securities. This information supersedes any prior versions
hereof and will be deemed to be superseded by any subsequent versions
(including, with respect to any description of the securities or underlying
assets, the information contained in the Offering Document).
2
Transaction Specifics:
<TABLE>
<S> <C>
Delay Days: 24 day delay on bonds
Interest Accrual Period: Calendar Month Preceding month of Distribution - 30/360 day basis
Managers: Lehman Brothers (Lead Manager)
Collateral: The collateral consists of 18,991 loans amounting to $287,733,632. The loans are
categorized as Group I and Group II Loans.
The Group I Loans are secured by real estate and amount to $279,905,900. The Group I
Loan pool consists of 92.96% FHA Title I Home Improvement Loans, 1.18% FHA Title I
Manufactured Housing Loans and 5.86% "A" Quality Loans.
The Group II Loans are unsecured and amount to $7,827,731 and are all FHA Title I Home
Improvement loans.
Legal Final: Class A-1(Group I Certificates): April 25, 2002
Class A-2 (Group I Certificates): March 25, 2008
Class A-3 (Group I Certificates): October 25, 2009
Class A-4 (Group I Certificates): November 25, 2010
Class A-5: (Group I Certificates): April 25, 2013
Class A-6: (Group II Certificates): May 25, 2004
ERISA: The Group I Certificates are expected to be ERISA eligible.
The Group II Certificates are NOT expected to be ERISA eligible.
SMMEA: The Certificates are NOT SMMEA qualifying.
Distribution Date: The 25th of each month, beginning May 25, 1996.
Expected Pricing: April 12, 1996
Dated Date: April 1, 1996
Settlement April 17, 1996, with accrued interest from April 1, 1996
Trustee: First Bank, N.A.
Optional Redemption: Cleanup call when the aggregate Pool Balance of both Group I and Group II Loans as a
percentage of the initial aggregate Pool Balance is less than 10%.
Tax Status: An election will be made to treat Group I Loans as a REMIC. The Group I Certificates
will constitute "regular interest". Group II Certificates will be considered a
beneficial interest in a grantor trust.
Pre-Funding Account: Unlike previous transactions, no prefunding account will be established.
</TABLE>
- --------------------------------------------------------------------------------
This information does not constitute either an offer to sell or a solicitation
of an offer to buy any of the securities referred to herein. Offers to sell
and solicitations of offers to buy the securities are made only by , and this
information must be read in conjunction with, the final Prospectus Supplement
and the related Prospectus or, if not registered under the securities laws,
the final Offering Memorandum (the "Offering Document"). Information contained
herein does not purport to complete and is subject to the same qualifications
and assumptions, and should be considered by investors only in the light of
the same warnings, lack of assurances and representations and other
precautionary matters, as disclosed in the Offering Document. Information
regarding the underlying assets has been provided by the issuer of the
securities or an affiliate thereof and has not been independently verified by
Lehman Brothers or any affiliate. The analyses contained herein have been
prepared on the basis of certain assumptions (including, in certain cases,
assumptions specified by the recipient hereof) regarding payment, draw and
interest rates and other matters, including, but not limited to, the
assumptions described in the Offering Document. Lehman Brothers and any of its
affiliates, make no representation or warranty as to the actual rate or timing
of payments, draw and losses on any of the underlying assets or the payments
or yield on the securities. This information supersedes any prior versions
hereof and will be deemed to be superseded by any subsequent versions
(including, with respect to any description of the securities or underlying
assets, the information contained in the Offering Document).
3
Credit Enhancement:
<TABLE>
<S> <C>
Group I Certificates
(i) Monthly Subordination of Excess Spread;
(ii) FHA Title I Insurance on the pool (which covers approximately 90% of the
defaulted principal balance of the loans and certain of the accrued interest) up to
9.58% of the initial pool of FHA Title I loans;
(iii) overcollateralization - initially in the amount of 3.00% of the Group I Loan
balance ($8,397,900);
(iv) a 100% Surety Bond from Capital Markets Assurance Corporation (CapMAC) which
covers timely interest and ultimate principal.
Group II Certificates
(i) Monthly subordination of Excess Spread;
((ii) FHA Title I Insurance on the pool (which covers approximately 90% of the
defaulted principal balance of the loans and certain of the accrued interest) up to
9.58% of the initial pool of FHA Title I loans;
(iii) a 100% Surety Bond from Capital Markets Assurance Corporation (CapMAC) which
covers timely interest and ultimate principal.
</TABLE>
- --------------------------------------------------------------------------------
This information does not constitute either an offer to sell or a solicitation
of an offer to buy any of the securities referred to herein. Offers to sell
and solicitations of offers to buy the securities are made only by , and this
information must be read in conjunction with, the final Prospectus Supplement
and the related Prospectus or, if not registered under the securities laws,
the final Offering Memorandum (the "Offering Document"). Information contained
herein does not purport to complete and is subject to the same qualifications
and assumptions, and should be considered by investors only in the light of
the same warnings, lack of assurances and representations and other
precautionary matters, as disclosed in the Offering Document. Information
regarding the underlying assets has been provided by the issuer of the
securities or an affiliate thereof and has not been independently verified by
Lehman Brothers or any affiliate. The analyses contained herein have been
prepared on the basis of certain assumptions (including, in certain cases,
assumptions specified by the recipient hereof) regarding payment, draw and
interest rates and other matters, including, but not limited to, the
assumptions described in the Offering Document. Lehman Brothers and any of its
affiliates, make no representation or warranty as to the actual rate or timing
of payments, draw and losses on any of the underlying assets or the payments
or yield on the securities. This information supersedes any prior versions
hereof and will be deemed to be superseded by any subsequent versions
(including, with respect to any description of the securities or underlying
assets, the information contained in the Offering Document).
4
Prepayment Sensitivity Information
<TABLE>
<CAPTION>
Projected Performance Under Varying CPR Assumptions (1)
Prepayments Speeds (CPR) 0% 4% 8% 12% 14% 16% 18%
To Maturity
<S> <C> <C> <C> <C> <C> <C> <C>
Class A-1
Avg. Life/Duration (years) (2) (3) 3.19/2.71 1.33/1.22 0.82/0.77 0.60/0.57 0.53/0.50 0.47/0.45 0.43/0.41
Payment Window (month) (2) (4) 1-72 1-33 1-20 1-14 1-12 1-11 1-10
Class A-2
Avg. Life/Duration (years) (2) (3) 9.37/6.66 5.85/4.61 3.87/3.26 2.80/2.45 2.45/2.17 2.17/1.94 1.94/1.75
Payment Window (month) (2) (4) 72-143 33-106 20-75 14-55 12-48 11-43 10-38
Class A-3
Avg. Life/Duration (years) (2) (3) 12.78/8.09 10.13/6.96 7.52/5.62 5.67/4.51 5.00/4.06 4.45/3.68 3.99/3.36
Payment Window (month) (2) (4) 143-162 106-136 75-106 55-81 48-72 43-64 38-58
Class A-4
Avg. Life/Duration (years) (2) (3) 14.09/8.35 12.27/7.70 9.95/6.73 7.85/5.70 7.00/5.24 6.28/4.82 5.66/4.44
Payment Window (month) (2) (4) 162-175 136-158 106-133 81-108 72-97 64-87 58-79
Class A-5
Avg. Life/Duration (years) (2) (3) 15.29/8.62 14.44/8.36 13.07/7.89 11.34/7.23 10.46/6.86 9.61/6.49 8.83/6.12
Payment Window (month) (2) (4) 175-191 158-188 133-182 108-171 97-163 87-155 79-146
Class A-6
Avg. Life/Duration (years) (2) (3) 4.14/3.34 3.75/3.06 3.40/2.80 3.09/2.56 2.94/2.45 2.81/2.35 2.68/2.25
Payment Window (month) (2) (4) 1-84 1-84 1-84 1-84 1-84 1-84 1-84
To Call
Class A-5
Avg. Life/Duration (years) (2) (3) 15.24/8.60 14.33/8.32 12.87/7.83 11.03/7.12 10.12/6.74 9.25/6.34 8.46/5.96
Payment Window (month) (2) (4) 175-187 158-179 133-166 108-146 97-136 87-125 79-115
Class A-6
Avg. Life/Duration (years) (2) (3) 4.14/3.34 3.75/3.06 3.40/2.80 3.09/2.56 2.94/2.45 2.81/2.35 2.68/2.25
Payment Window (month) (2) (4) 1-84 1-84 1-84 1-84 1-84 1-84 1-84
</TABLE>
<TABLE>
<S> <C>
(1) These assumptions may change and are subject to pricing.
(2) The Weighted Average life, Modified Duration and Principal Payment Window shown in the table above assume
settlement on April 17, 1996.
(3) Modified duration was based on an example yield and corresponding expected coupons.
(4) The Principal Payment Window is expressed as the number of payment periods from April 17, 1996.
</TABLE>
- --------------------------------------------------------------------------------
This information does not constitute either an offer to sell or a solicitation
of an offer to buy any of the securities referred to herein. Offers to sell
and solicitations of offers to buy the securities are made only by , and this
information must be read in conjunction with, the final Prospectus Supplement
and the related Prospectus or, if not registered under the securities laws,
the final Offering Memorandum (the "Offering Document"). Information contained
herein does not purport to complete and is subject to the same qualifications
and assumptions, and should be considered by investors only in the light of
the same warnings, lack of assurances and representations and other
precautionary matters, as disclosed in the Offering Document. Information
regarding the underlying assets has been provided by the issuer of the
securities or an affiliate thereof and has not been independently verified by
Lehman Brothers or any affiliate. The analyses contained herein have been
prepared on the basis of certain assumptions (including, in certain cases,
assumptions specified by the recipient hereof) regarding payment, draw and
interest rates and other matters, including, but not limited to, the
assumptions described in the Offering Document. Lehman Brothers and any of its
affiliates, make no representation or warranty as to the actual rate or timing
of payments, draw and losses on any of the underlying assets or the payments
or yield on the securities. This information supersedes any prior versions
hereof and will be deemed to be superseded by any subsequent versions
(including, with respect to any description of the securities or underlying
assets, the information contained in the Offering Document).
5
Summary Description of the Receivables Pool:
As of the Cut-Off Date (3/31/96) the collateral pool had the following
characteristics:
o fully amortizing
o fixed contractual rate of interest
o level payments over the term of each loan
o interest computed using the actuarial method.
As of the March 31, 1996 cut-off date the initial pool had the following
characteristics:
<TABLE>
<CAPTION>
Group I Loans Group II Loans
<S> <C> <C>
Total Outstanding Mortgage Loan Balance: $279,905,900 $7,827,731
Total Number of Loans: 17,251 1,740
Average Original Loan Principal Balance: $16,503 $4,774
Range: $950 - $60,000 $995 - $7,500
Weighted Average Loan Rate: 13.689% 14.457%
Range: 8.50% - 18.00% 10% - 18.00%
Weighted Average Maturity: 194 months 84 months
Range: 3 mos - 240 mos 8 mos - 240 mos
Loan Purpose:
Title I Home Improvement $260,201,848 $7,827,731
Title I Manufactured Housing $3,308,996 none
Non-FHA Loans or "A" Quality Loans $16,395,056 none
</TABLE>
- --------------------------------------------------------------------------------
This information does not constitute either an offer to sell or a solicitation
of an offer to buy any of the securities referred to herein. Offers to sell
and solicitations of offers to buy the securities are made only by , and this
information must be read in conjunction with, the final Prospectus Supplement
and the related Prospectus or, if not registered under the securities laws,
the final Offering Memorandum (the "Offering Document"). Information contained
herein does not purport to complete and is subject to the same qualifications
and assumptions, and should be considered by investors only in the light of
the same warnings, lack of assurances and representations and other
precautionary matters, as disclosed in the Offering Document. Information
regarding the underlying assets has been provided by the issuer of the
securities or an affiliate thereof and has not been independently verified by
Lehman Brothers or any affiliate. The analyses contained herein have been
prepared on the basis of certain assumptions (including, in certain cases,
assumptions specified by the recipient hereof) regarding payment, draw and
interest rates and other matters, including, but not limited to, the
assumptions described in the Offering Document. Lehman Brothers and any of its
affiliates, make no representation or warranty as to the actual rate or timing
of payments, draw and losses on any of the underlying assets or the payments
or yield on the securities. This information supersedes any prior versions
hereof and will be deemed to be superseded by any subsequent versions
(including, with respect to any description of the securities or underlying
assets, the information contained in the Offering Document).
6
Summary Collateral Statistics
Original Principal Balances of Group I Loans
<TABLE>
<CAPTION>
Range of Principal Balance Count Balance %
<S> <C> <C> <C>
0.01- 5,000.00 1,246 4,429,289.16 1.58
5,000.01-10,000.00 3,711 28,159,649.04 10.06
10,000.01-15,000.00 3,819 49,956,881.17 17.85
15,000.01-20,000.00 2,056 36,651,646.98 13.09
20,000.01-25,000.00 5,988 147,364,527.49 52.65
25,000.01-30,000.00 335 9,262,036.42 3.31
30,000.01-35,000.00 32 1,043,574.08 0.37
35,000.01-40,000.00 21 764,588.40 0.27
40,000.01-45,000.00 6 244,933.92 0.09
45,000.01-50,000.00 14 672,324.19 0.24
50,000.01-55,000.00 1 50,956.52 0.02
55,000.01-60,000.00 22 1,305,492.73 0.47
Totals: 17,251 279,905,900.10 100.00
</TABLE>
Original Principal Balances of Group II Loans
<TABLE>
<CAPTION>
Range of Principal Balance Count Balance %
<S> <C> <C> <C>
0.01- 5,000.00 1,081 3,757,900.48 48.01
5,000.01-10,000.00 659 4,069,830.96 51.99
Totals: 1,740 7,827,731.44 100.00
</TABLE>
- --------------------------------------------------------------------------------
This information does not constitute either an offer to sell or a solicitation
of an offer to buy any of the securities referred to herein. Offers to sell
and solicitations of offers to buy the securities are made only by , and this
information must be read in conjunction with, the final Prospectus Supplement
and the related Prospectus or, if not registered under the securities laws,
the final Offering Memorandum (the "Offering Document"). Information contained
herein does not purport to complete and is subject to the same qualifications
and assumptions, and should be considered by investors only in the light of
the same warnings, lack of assurances and representations and other
precautionary matters, as disclosed in the Offering Document. Information
regarding the underlying assets has been provided by the issuer of the
securities or an affiliate thereof and has not been independently verified by
Lehman Brothers or any affiliate. The analyses contained herein have been
prepared on the basis of certain assumptions (including, in certain cases,
assumptions specified by the recipient hereof) regarding payment, draw and
interest rates and other matters, including, but not limited to, the
assumptions described in the Offering Document. Lehman Brothers and any of its
affiliates, make no representation or warranty as to the actual rate or timing
of payments, draw and losses on any of the underlying assets or the payments
or yield on the securities. This information supersedes any prior versions
hereof and will be deemed to be superseded by any subsequent versions
(including, with respect to any description of the securities or underlying
assets, the information contained in the Offering Document).
7
Summary Collateral Statistics
Loan Rates as of Cut-Off Date of Group I Loans
<TABLE>
<CAPTION>
Coupon Count Balance %
<S> <C> <C> <C>
8.001- 8.500 1 9,943.86 0.00
9.501-10.000 27 538,840.81 0.19
10.001-10.500 6 82,655.44 0.03
10.501-11.000 276 5,995,547.82 2.14
11.001-11.500 55 720,817.44 0.26
11.501-12.000 1,827 34,425,095.06 12.30
12.001-12.500 312 4,407,717.79 1.57
12.501-13.000 3,423 63,710,047.46 22.76
13.001-13.500 570 7,469,145.64 2.67
13.501-14.000 5,604 93,498,529.11 33.40
14.001-14.500 704 7,899,248.28 2.82
14.501-15.000 2,715 41,807,498.72 14.94
15.001-15.500 413 4,124,366.83 1.47
15.501-16.000 1,140 13,183,640.94 4.71
16.001-16.500 42 538,211.44 0.19
16.501-17.000 78 1,178,483.16 0.42
17.001-17.500 2 19,134.96 0.01
17.501-18.000 56 296,975.34 0.11
Totals: 17,251 279,905,900.10 100.00
</TABLE>
Loan Rates as of Cut-Off Date of Group II Loans
<TABLE>
<CAPTION>
Coupon Count Balance %
<S> <C> <C> <C>
9.501-10.000 1 4,656.61 0.06
11.001-11.500 3 18,741.81 0.24
11.501-12.000 65 332,313.07 4.25
12.001-12.500 62 271,934.52 3.47
12.501-13.000 104 507,774.57 6.49
13.001-13.500 60 290,110.06 3.71
13.501-14.000 442 1,952,243.54 24.94
14.001-14.500 308 1,468,504.16 18.76
14.501-15.000 319 1,362,765.95 17.41
15.001-15.500 102 476,125.77 6.08
15.501-16.000 198 870,251.97 11.12
16.001-16.500 2 12,133.36 0.16
16.501-17.000 8 35,598.64 0.45
17.001-17.500 1 2,768.56 0.04
17.501-18.000 65 221,808.85 2.83
Totals: 1,740 7,827,731.44 100.00
</TABLE>
- --------------------------------------------------------------------------------
This information does not constitute either an offer to sell or a solicitation
of an offer to buy any of the securities referred to herein. Offers to sell
and solicitations of offers to buy the securities are made only by , and this
information must be read in conjunction with, the final Prospectus Supplement
and the related Prospectus or, if not registered under the securities laws,
the final Offering Memorandum (the "Offering Document"). Information contained
herein does not purport to complete and is subject to the same qualifications
and assumptions, and should be considered by investors only in the light of
the same warnings, lack of assurances and representations and other
precautionary matters, as disclosed in the Offering Document. Information
regarding the underlying assets has been provided by the issuer of the
securities or an affiliate thereof and has not been independently verified by
Lehman Brothers or any affiliate. The analyses contained herein have been
prepared on the basis of certain assumptions (including, in certain cases,
assumptions specified by the recipient hereof) regarding payment, draw and
interest rates and other matters, including, but not limited to, the
assumptions described in the Offering Document. Lehman Brothers and any of its
affiliates, make no representation or warranty as to the actual rate or timing
of payments, draw and losses on any of the underlying assets or the payments
or yield on the securities. This information supersedes any prior versions
hereof and will be deemed to be superseded by any subsequent versions
(including, with respect to any description of the securities or underlying
assets, the information contained in the Offering Document).
8
Summary Collateral Statistics
Number of Months Since Origination of Group I Loans
<TABLE>
<CAPTION>
Range of Months Since
Origination Count Balance %
<S> <C> <C> <C>
Less than or equal to 0 2,481 45,323,038.96 16.19
1- 6 9,110 167,084,798.69 59.69
7-12 1,685 21,003,142.27 7.50
13-18 2,497 29,402,717.86 10.50
19-24 676 7,592,817.04 2.71
25-30 146 1,978,928.24 0.71
31-36 319 3,081,884.88 1.10
37-42 59 733,451.16 0.26
43-48 81 1,043,594.52 0.37
49-54 56 773,525.95 0.28
55-60 37 523,014.56 0.19
61-66 49 673,551.88 0.24
67-72 41 523,218.28 0.19
73-78 2 29,200.27 0.01
79-84 4 50,976.53 0.02
85-90 4 44,190.43 0.02
91-96 3 32,092.71 0.01
97-102 1 11,755.87 0.00
Totals: 17,251 279,905,900.10 100.00
</TABLE>
Number of Months Since Origination of Group II Loans
<TABLE>
<CAPTION>
Range of Months Since
Origination Count Balance %
<S> <C> <C> <C>
Less than or equal to 0 254 1,193,238.10 15.24
1- 6 839 3,811,740.58 48.70
7-12 613 2,700,298.04 34.50
13-18 3 11,641.40 0.15
19-24 10 33,769.84 0.43
31-36 1 2,795.71 0.04
37-42 20 74,247.77 0.95
Totals: 1,740 7,827,731.44 100.00
</TABLE>
- --------------------------------------------------------------------------------
This information does not constitute either an offer to sell or a solicitation
of an offer to buy any of the securities referred to herein. Offers to sell
and solicitations of offers to buy the securities are made only by , and this
information must be read in conjunction with, the final Prospectus Supplement
and the related Prospectus or, if not registered under the securities laws,
the final Offering Memorandum (the "Offering Document"). Information contained
herein does not purport to complete and is subject to the same qualifications
and assumptions, and should be considered by investors only in the light of
the same warnings, lack of assurances and representations and other
precautionary matters, as disclosed in the Offering Document. Information
regarding the underlying assets has been provided by the issuer of the
securities or an affiliate thereof and has not been independently verified by
Lehman Brothers or any affiliate. The analyses contained herein have been
prepared on the basis of certain assumptions (including, in certain cases,
assumptions specified by the recipient hereof) regarding payment, draw and
interest rates and other matters, including, but not limited to, the
assumptions described in the Offering Document. Lehman Brothers and any of its
affiliates, make no representation or warranty as to the actual rate or timing
of payments, draw and losses on any of the underlying assets or the payments
or yield on the securities. This information supersedes any prior versions
hereof and will be deemed to be superseded by any subsequent versions
(including, with respect to any description of the securities or underlying
assets, the information contained in the Offering Document).
9
Summary Collateral Statistics
Months Remaining To Scheduled Maturity of Group I Loans
<TABLE>
<CAPTION>
Remaining Term Count Balance %
<S> <C> <C> <C>
1- 12 15 20,098.78 0.01
13- 24 74 183,417.91 0.07
25- 36 164 591,464.92 0.21
37- 48 377 1,629,900.51 0.58
49- 60 545 2,995,786.99 1.07
61- 72 353 1,985,651.33 0.71
73- 84 448 3,050,985.17 1.09
85- 96 274 2,208,307.85 0.79
97-108 854 7,339,419.65 2.62
109-120 1,469 14,885,464.37 5.32
121-132 236 2,708,461.89 0.97
133-144 262 3,004,676.07 1.07
145-156 289 3,945,150.72 1.41
157-168 1,481 20,678,077.55 7.39
169-180 4,648 80,248,256.87 28.67
193-204 8 162,619.47 0.06
205-216 16 337,464.34 0.12
217-228 525 11,232,878.68 4.01
229-240 5,213 122,697,817.03 43.84
Totals: 17,251 279,905,900.10 100.00
</TABLE>
Months Remaining To Scheduled Maturity of Group II Loans
<TABLE>
<CAPTION>
Remaining Term Count Balance %
<S> <C> <C> <C>
1- 12 5 9,156.02 0.12
13- 24 68 139,046.90 1.78
25- 36 151 451,981.84 5.77
37- 48 140 462,397.34 5.91
49- 60 449 1,822,711.30 23.29
61- 72 98 447,282.00 5.71
73- 84 268 1,287,614.53 16.45
85- 96 72 367,214.65 4.69
97-108 26 121,563.50 1.55
109-120 343 1,992,207.33 25.45
121-132 3 11,365.14 0.15
133-144 65 380,647.60 4.86
169-180 47 299,148.68 3.82
229-240 5 35,394.61 0.45
Totals: 1,740 7,827,731.44 100.00
</TABLE>
- --------------------------------------------------------------------------------
This information does not constitute either an offer to sell or a solicitation
of an offer to buy any of the securities referred to herein. Offers to sell
and solicitations of offers to buy the securities are made only by , and this
information must be read in conjunction with, the final Prospectus Supplement
and the related Prospectus or, if not registered under the securities laws,
the final Offering Memorandum (the "Offering Document"). Information contained
herein does not purport to complete and is subject to the same qualifications
and assumptions, and should be considered by investors only in the light of
the same warnings, lack of assurances and representations and other
precautionary matters, as disclosed in the Offering Document. Information
regarding the underlying assets has been provided by the issuer of the
securities or an affiliate thereof and has not been independently verified by
Lehman Brothers or any affiliate. The analyses contained herein have been
prepared on the basis of certain assumptions (including, in certain cases,
assumptions specified by the recipient hereof) regarding payment, draw and
interest rates and other matters, including, but not limited to, the
assumptions described in the Offering Document. Lehman Brothers and any of its
affiliates, make no representation or warranty as to the actual rate or timing
of payments, draw and losses on any of the underlying assets or the payments
or yield on the securities. This information supersedes any prior versions
hereof and will be deemed to be superseded by any subsequent versions
(including, with respect to any description of the securities or underlying
assets, the information contained in the Offering Document).
10
Summary Collateral Statistics
Mortgaged Property Geographical Distribution by State of Group I Loans (1)
<TABLE>
<CAPTION>
States Count Balance %
<S> <C> <C> <C>
AL 6 42,234.57 0.02
AR 757 6,640,438.54 2.37
AZ 450 8,505,728.10 3.04
CA 7,636 161,770,758.86 57.79
CO 642 8,611,149.61 3.08
CT 3 35,015.76 0.01
FL 376 5,307,529.54 1.90
GA 326 3,850,274.20 1.38
HI 5 103,734.09 0.04
IA 14 199,017.30 0.07
ID 33 562,893.87 0.20
IL 243 3,237,812.97 1.16
IN 104 1,197,869.10 0.43
KS 51 491,914.97 0.18
KY 49 608,441.13 0.22
LA 216 2,589,283.21 0.93
MA 6 114,270.45 0.04
MD 9 140,711.67 0.05
MI 116 724,237.81 0.26
MO 140 1,543,595.95 0.55
MS 339 3,714,591.46 1.33
NC 561 5,921,747.67 2.12
NE 22 219,700.65 0.08
NJ 169 2,208,998.58 0.79
NM 31 466,486.37 0.17
NV 281 5,579,818.71 1.99
NY 190 3,675,858.30 1.31
OH 267 2,832,136.04 1.01
OK 239 2,081,163.35 0.74
OR 261 4,263,444.67 1.52
PA 465 5,607,691.03 2.00
RI 4 56,907.95 0.02
SC 145 1,505,830.62 0.54
TN 209 2,215,178.54 0.79
TX 2,090 22,605,579.72 8.08
UT 63 1,151,564.49 0.41
VA 78 899,235.58 0.32
WA 605 8,100,609.62 2.89
WV 27 324,315.95 0.12
WY 23 198,129.10 0.07
Totals: 17,251 279,905,900.10 100.00
</TABLE>
(1) Determined by property address designated as such in the related
Mortgaged Property.
- --------------------------------------------------------------------------------
This information does not constitute either an offer to sell or a solicitation
of an offer to buy any of the securities referred to herein. Offers to sell
and solicitations of offers to buy the securities are made only by , and this
information must be read in conjunction with, the final Prospectus Supplement
and the related Prospectus or, if not registered under the securities laws,
the final Offering Memorandum (the "Offering Document"). Information contained
herein does not purport to complete and is subject to the same qualifications
and assumptions, and should be considered by investors only in the light of
the same warnings, lack of assurances and representations and other
precautionary matters, as disclosed in the Offering Document. Information
regarding the underlying assets has been provided by the issuer of the
securities or an affiliate thereof and has not been independently verified by
Lehman Brothers or any affiliate. The analyses contained herein have been
prepared on the basis of certain assumptions (including, in certain cases,
assumptions specified by the recipient hereof) regarding payment, draw and
interest rates and other matters, including, but not limited to, the
assumptions described in the Offering Document. Lehman Brothers and any of its
affiliates, make no representation or warranty as to the actual rate or timing
of payments, draw and losses on any of the underlying assets or the payments
or yield on the securities. This information supersedes any prior versions
hereof and will be deemed to be superseded by any subsequent versions
(including, with respect to any description of the securities or underlying
assets, the information contained in the Offering Document).
11
Summary Collateral Statistics
Mortgaged Property Geographical Distribution by State of Group II Loans (1)
<TABLE>
<CAPTION>
States Count Balance %
<S> <C> <C> <C>
AR 272 1,338,757.37 17.10
AZ 4 17,827.83 0.23
CA 26 113,046.33 1.44
CO 44 163,134.55 2.08
CT 1 7,442.79 0.10
FL 35 166,096.38 2.12
GA 48 240,615.68 3.07
HI 1 5,473.08 0.07
IA 25 122,862.53 1.57
ID 1 2,955.62 0.04
IL 13 48,129.90 0.61
IN 23 96,503.05 1.23
KS 10 56,001.60 0.72
KY 16 67,734.74 0.87
LA 42 185,593.44 2.37
MI 106 373,102.26 4.77
MO 22 122,481.65 1.56
MS 49 221,278.63 2.83
NC 139 667,022.50 8.52
NE 1 4,096.59 0.05
NJ 4 23,032.20 0.29
NM 1 2,959.29 0.04
NY 4 17,407.56 0.22
OH 40 167,274.83 2.14
OK 106 489,584.31 6.25
OR 25 120,093.54 1.53
PA 22 112,028.97 1.43
SC 37 156,689.15 2.00
TN 26 117,276.48 1.50
TX 488 2,148,156.05 27.44
VA 11 56,049.82 0.72
WA 94 377,727.75 4.83
WY 4 19,294.97 0.25
Totals: 1,740 7,827,731.44 100.00
</TABLE>
(1) Determined by property address designated as such in the related
Mortgaged Property.
- --------------------------------------------------------------------------------
This information does not constitute either an offer to sell or a solicitation
of an offer to buy any of the securities referred to herein. Offers to sell
and solicitations of offers to buy the securities are made only by , and this
information must be read in conjunction with, the final Prospectus Supplement
and the related Prospectus or, if not registered under the securities laws,
the final Offering Memorandum (the "Offering Document"). Information contained
herein does not purport to complete and is subject to the same qualifications
and assumptions, and should be considered by investors only in the light of
the same warnings, lack of assurances and representations and other
precautionary matters, as disclosed in the Offering Document. Information
regarding the underlying assets has been provided by the issuer of the
securities or an affiliate thereof and has not been independently verified by
Lehman Brothers or any affiliate. The analyses contained herein have been
prepared on the basis of certain assumptions (including, in certain cases,
assumptions specified by the recipient hereof) regarding payment, draw and
interest rates and other matters, including, but not limited to, the
assumptions described in the Offering Document. Lehman Brothers and any of its
affiliates, make no representation or warranty as to the actual rate or timing
of payments, draw and losses on any of the underlying assets or the payments
or yield on the securities. This information supersedes any prior versions
hereof and will be deemed to be superseded by any subsequent versions
(including, with respect to any description of the securities or underlying
assets, the information contained in the Offering Document).
12
REVISED AS OF APRIL 12, 1996 1.00 PM
LEHMAN BROTHERS
DERIVED INFORMATION
REVISED AS OF APRIL 12, 1996 1.00 PM
$279,336,000 (Approximate)
Lehman FHA Title I Loan Trust 1996-2
Lehman ABS Corporation (Depositor)
The First National Bank Of Keystone (Seller)
Norwest Bank N.A. (Master Servicer)
- --------------------------------------------------------------------------------
This information does not constitute either an offer to sell or a solicitation
of an offer to buy any of the securities referred to herein. Offers to sell and
solicitations of offers to buy the securities are made only by , and this
information must be read in conjunction with, the final Prospectus Supplement
and the related Prospectus or, if not registered under the securities laws, the
final Offering Memorandum (the "Offering Document"). Information contained
herein does not purport to complete and is subject to the same qualifications
and assumptions, and should be considered by investors only in the light of the
same warnings, lack of assurances and representations and other precautionary
matters, as disclosed in the Offering Document. Information regarding the
underlying assets has been provided by the issuer of the securities or an
affiliate thereof and has not been independently verified by Lehman Brothers or
any affiliate. The analyses contained herein have been prepared on the basis of
certain assumptions (including, in certain cases, assumptions specified by the
recipient hereof) regarding payment, draw and interest rates and other matters,
including, but not limited to, the assumptions described in the Offering
Document. Lehman Brothers and any of its affiliates, make no representation or
warranty as to the actual rate or timing of payments, draw and losses on any of
the underlying assets or the payments or yield on the securities. This
information supersedes any prior versions hereof and will be deemed to be
superseded by any subsequent versions (including, with respect to any
description of the securities or underlying assets, the information contained in
the Offering Document).
1
REVISED AS OF APRIL 12, 1996 1.00 PM
ASSET BACKED SECURITIES MARKETING SUMMARY
$279,336,000 (Approximate) AS OF 4/12/96
Lehman FHA Title I Loan Trust 1996-2
Lehman ABS Corporation (Depositor)
The First National Bank Of Keystone (Seller)
Norwest Bank N.A. (Master Servicer)
Securities Offered:
<TABLE>
<CAPTION>
Wtd. Avg. Principal
Initial Life/Modified Payment Expected
Size Loan Credit Duration(1) Window Ratings
Class ($MM) Group Priority @ 14% CPR (1)(3) (Moody's/S&P)
<S> <C> <C> <C> <C> <C> <C>
To Maturity
A-1 $47.196 Group I Senior 0.52/0.50 1-12 Aaa/AAA
A-2 $97.036 Group I Senior 2.44/2.16 12-48 Aaa/AAA
A-3 $43.333 Group I Senior 4.99/4.05 48-72 Aaa/AAA
A-4 $32.907 Group I Senior 6.99/5.22 72-96 Aaa/AAA
A-5 $51.036 Group I Senior 10.44/6.84 96-163 Aaa/AAA
A-6 $7.828 Group II Senior 2.94/2.45 1-84 Aaa/AAA
To Call
A-5 $51.036 Group I Senior 10.11/6.71 96-136 Aaa/AAA
A-6 $7.828 Group II Senior 2.94/2.45 1-84 Aaa/AAA
</TABLE>
Notes
(1) The Weighted Average life, Modified Duration and Principal
Payment Window shown in the table above assume settlement
on April 18, 1996.
(2) Modified duration was based on an example yield and
corresponding expected coupons.
(3) The Principal Payment Window is expressed as the number of
payment periods from April 18, 1996.
- --------------------------------------------------------------------------------
This information does not constitute either an offer to sell or a solicitation
of an offer to buy any of the securities referred to herein. Offers to sell and
solicitations of offers to buy the securities are made only by , and this
information must be read in conjunction with, the final Prospectus Supplement
and the related Prospectus or, if not registered under the securities laws, the
final Offering Memorandum (the "Offering Document"). Information contained
herein does not purport to complete and is subject to the same qualifications
and assumptions, and should be considered by investors only in the light of the
same warnings, lack of assurances and representations and other precautionary
matters, as disclosed in the Offering Document. Information regarding the
underlying assets has been provided by the issuer of the securities or an
affiliate thereof and has not been independently verified by Lehman Brothers or
any affiliate. The analyses contained herein have been prepared on the basis of
certain assumptions (including, in certain cases, assumptions specified by the
recipient hereof) regarding payment, draw and interest rates and other matters,
including, but not limited to, the assumptions described in the Offering
Document. Lehman Brothers and any of its affiliates, make no representation or
warranty as to the actual rate or timing of payments, draw and losses on any of
the underlying assets or the payments or yield on the securities. This
information supersedes any prior versions hereof and will be deemed to be
superseded by any subsequent versions (including, with respect to any
description of the securities or underlying assets, the information contained in
the Offering Document).
2
REVISED AS OF APRIL 12, 1996 1.00 PM
<TABLE>
<CAPTION>
Transaction Specifics:
<S> <C>
Delay Days: 24 day delay on bonds
Interest Accrual Period: Calendar Month Preceding month of Distribution - 30/360 day basis
Managers: Lehman Brothers (Lead Manager)
Collateral: The collateral consists of 18,991 loans amounting to $287,733,632. The loans are
categorized as Group I and Group II Loans.
The Group I Loans are secured by real estate and amount to $279,905,900. The Group I
Loan pool consists of 92.96% FHA Title I Home Improvement Loans, 1.18% FHA Title I
Manufactured Housing Loans and 5.86% "A" Quality Loans.
The Group II Loans are unsecured and amount to $7,827,731 and are all FHA Title I Home
Improvement loans.
Legal Final: Class A-1(Group I Certificates): April 25, 2002
Class A-2 (Group I Certificates): March 25, 2008
Class A-3 (Group I Certificates): October 25, 2009
Class A-4 (Group I Certificates): November 25, 2010
Class A-5: (Group I Certificates): April 25, 2013
Class A-6: (Group II Certificates):May 25, 2004
ERISA: The Group I Certificates are expected to be ERISA eligible.
The Group II Certificates are NOT expected to be ERISA eligible.
SMMEA: The Certificates are NOT SMMEA qualifying.
Distribution Date: The 25th of each month, beginning May 25, 1996.
Expected Pricing: April 12, 1996
Dated Date: April 1, 1996
Settlement April 18, 1996, with accrued interest from April 1, 1996
Trustee: First Bank, N.A.
Optional Redemption: Cleanup call when the aggregate Pool Balance of both Group I and Group II Loans as a
percentage of the initial aggregate Pool Balance is less than 10%.
Tax Status: An election will be made to treat Group I Loans as a REMIC. The Group I Certificates
will constitute "regular interest". Group II Certificates will be considered a
beneficial interest in a grantor trust.
Pre-Funding Account: Unlike previous transactions, no prefunding account will be established.
</TABLE>
- --------------------------------------------------------------------------------
This information does not constitute either an offer to sell or a solicitation
of an offer to buy any of the securities referred to herein. Offers to sell and
solicitations of offers to buy the securities are made only by , and this
information must be read in conjunction with, the final Prospectus Supplement
and the related Prospectus or, if not registered under the securities laws, the
final Offering Memorandum (the "Offering Document"). Information contained
herein does not purport to complete and is subject to the same qualifications
and assumptions, and should be considered by investors only in the light of the
same warnings, lack of assurances and representations and other precautionary
matters, as disclosed in the Offering Document. Information regarding the
underlying assets has been provided by the issuer of the securities or an
affiliate thereof and has not been independently verified by Lehman Brothers or
any affiliate. The analyses contained herein have been prepared on the basis of
certain assumptions (including, in certain cases, assumptions specified by the
recipient hereof) regarding payment, draw and interest rates and other matters,
including, but not limited to, the assumptions described in the Offering
Document. Lehman Brothers and any of its affiliates, make no representation or
warranty as to the actual rate or timing of payments, draw and losses on any of
the underlying assets or the payments or yield on the securities. This
information supersedes any prior versions hereof and will be deemed to be
superseded by any subsequent versions (including, with respect to any
description of the securities or underlying assets, the information contained in
the Offering Document).
3
REVISED AS OF APRIL 12, 1996 1.00 PM
<TABLE>
<CAPTION>
Credit Enhancement:
<S> <C>
Group I Certificates
(i) Monthly Subordination of Excess Spread;
(ii) FHA Title I Insurance on the pool (which covers approximately 90% of the
defaulted principal balance of the loans and certain of the accrued interest) up to
9.58% of the initial pool of FHA Title I loans;
(iii) overcollateralization - initially in the amount of 3.00% of the Group I Loan
balance ($8,397,900);
(iv) a 100% Surety Bond from Capital Markets Assurance Corporation (CapMAC) which
covers timely interest and ultimate principal.
Group II Certificates
(i) Monthly subordination of Excess Spread;
((ii) FHA Title I Insurance on the pool (which covers approximately 90% of the
defaulted principal balance of the loans and certain of the accrued interest) up to
9.58% of the initial pool of FHA Title I loans;
(iii) a 100% Surety Bond from Capital Markets Assurance Corporation (CapMAC) which
covers timely interest and ultimate principal.
</TABLE>
- --------------------------------------------------------------------------------
This information does not constitute either an offer to sell or a solicitation
of an offer to buy any of the securities referred to herein. Offers to sell and
solicitations of offers to buy the securities are made only by , and this
information must be read in conjunction with, the final Prospectus Supplement
and the related Prospectus or, if not registered under the securities laws, the
final Offering Memorandum (the "Offering Document"). Information contained
herein does not purport to complete and is subject to the same qualifications
and assumptions, and should be considered by investors only in the light of the
same warnings, lack of assurances and representations and other precautionary
matters, as disclosed in the Offering Document. Information regarding the
underlying assets has been provided by the issuer of the securities or an
affiliate thereof and has not been independently verified by Lehman Brothers or
any affiliate. The analyses contained herein have been prepared on the basis of
certain assumptions (including, in certain cases, assumptions specified by the
recipient hereof) regarding payment, draw and interest rates and other matters,
including, but not limited to, the assumptions described in the Offering
Document. Lehman Brothers and any of its affiliates, make no representation or
warranty as to the actual rate or timing of payments, draw and losses on any of
the underlying assets or the payments or yield on the securities. This
information supersedes any prior versions hereof and will be deemed to be
superseded by any subsequent versions (including, with respect to any
description of the securities or underlying assets, the information contained in
the Offering Document).
4
REVISED AS OF APRIL 12, 1996 1.00 PM
Prepayment Sensitivity Information
<TABLE>
<CAPTION>
Projected Performance Under Varying CPR Assumptions (1)
Prepayments Speeds (CPR) 0% 4% 8% 12% 14% 16% 18%
To Maturity
Class A-1
<S> <C> <C> <C> <C> <C> <C> <C>
Avg. Life/Duration (years) (2) (3) 3.17/2.69 1.32/1.21 0.81/0.76 0.59/0.56 0.52/0.50 0.47/0.45 0.42/0.41
Payment Window (month) (2) (4) 1-72 1-33 1-20 1-14 1-12 1-11 1-10
Class A-2
Avg. Life/Duration (years) (2) (3) 9.36/6.64 5.84/4.59 3.86/3.25 2.80/2.44 2.44/2.16 2.16/1.93 1.93/1.75
Payment Window (month) (2) (4) 72-143 33-106 20-75 14-55 12-48 11-43 10-38
Class A-3
Avg. Life/Duration (years) (2) (3) 12.77/8.06 10.12/6.93 7.51/5.60 5.66/4.49 4.99/4.05 4.44/3.67 3.98/3.35
Payment Window (month) (2) (4) 143-162 106-136 75-106 55-81 48-72 43-64 38-58
Class A-4
Avg. Life/Duration (years) (2) (3) 14.08/8.32 12.26/7.68 9.93/6.71 7.84/5.69 6.99/5.22 6.26/4.80 5.65/4.43
Payment Window (month) (2) (4) 162-175 136-158 106-133 81-107 72-96 64-87 58-79
Class A-5
Avg. Life/Duration (years) (2) (3) 15.28/8.58 14.43/8.33 13.06/7.86 11.32/7.20 10.44/6.84 9.59/6.46 8.81/6.09
Payment Window (month) (2) (4) 175-191 158-188 133-182 107-171 96-163 87-155 79-145
Class A-6
Avg. Life/Duration (years) (2) (3) 4.14/3.34 3.75/3.05 3.40/2.79 3.09/2.56 2.94/2.45 2.80/2.34 2.67/2.24
Payment Window (month) (2) (4) 1-84 1-84 1-84 1-84 1-84 1-84 1-84
To Call
Class A-5
Avg. Life/Duration (years) (2) (3) 15.24/8.57 14.32/8.29 12.86/7.80 11.01/7.10 10.11/6.71 9.24/6.32 8.45/5.94
Payment Window (month) (2) (4) 175-187 158-179 133-166 107-146 96-136 87-125 79-115
Class A-6
Avg. Life/Duration (years) (2) (3) 4.14/3.34 3.75/3.05 3.40/2.79 3.09/2.56 2.94/2.45 2.80/2.34 2.67/2.24
Payment Window (month) (2) (4) 1-84 1-84 1-84 1-84 1-84 1-84 1-84
</TABLE>
<TABLE>
<S> <C>
(1) These assumptions may change and are subject to pricing.
(2) The Weighted Average life, Modified Duration and Principal Payment Window shown in the table above assume
settlement on April 18, 1996.
(3) Modified duration was based on an example yield and corresponding expected coupons.
(4) The Principal Payment Window is expressed as the number of payment periods from April 18, 1996.
</TABLE>
- --------------------------------------------------------------------------------
This information does not constitute either an offer to sell or a solicitation
of an offer to buy any of the securities referred to herein. Offers to sell and
solicitations of offers to buy the securities are made only by , and this
information must be read in conjunction with, the final Prospectus Supplement
and the related Prospectus or, if not registered under the securities laws, the
final Offering Memorandum (the "Offering Document"). Information contained
herein does not purport to complete and is subject to the same qualifications
and assumptions, and should be considered by investors only in the light of the
same warnings, lack of assurances and representations and other precautionary
matters, as disclosed in the Offering Document. Information regarding the
underlying assets has been provided by the issuer of the securities or an
affiliate thereof and has not been independently verified by Lehman Brothers or
any affiliate. The analyses contained herein have been prepared on the basis of
certain assumptions (including, in certain cases, assumptions specified by the
recipient hereof) regarding payment, draw and interest rates and other matters,
including, but not limited to, the assumptions described in the Offering
Document. Lehman Brothers and any of its affiliates, make no representation or
warranty as to the actual rate or timing of payments, draw and losses on any of
the underlying assets or the payments or yield on the securities. This
information supersedes any prior versions hereof and will be deemed to be
superseded by any subsequent versions (including, with respect to any
description of the securities or underlying assets, the information contained in
the Offering Document).
5
REVISED AS OF APRIL 12, 1996 1.00 PM
Summary Description of the Receivables Pool:
As of the Cut-Off Date (3/31/96) the collateral pool had the following
characteristics:
o fully amortizing
o fixed contractual rate of interest
o level payments over the term of each loan
o interest computed using the actuarial method.
As of the March 31, 1996 cut-off date the initial pool had the following
characteristics:
<TABLE>
<CAPTION>
Group I Loans Group II Loans
<S> <C> <C>
Total Outstanding Mortgage Loan Balance: $279,905,900 $7,827,731
Total Number of Loans: 17,251 1,740
Average Original Loan Principal Balance: $16,503 $4,774
Range: $950 - $60,000 $995 - $7,500
Weighted Average Loan Rate: 13.689% 14.457%
Range: 8.50% - 18.00% 10% - 18.00%
Weighted Average Maturity: 194 months 84 months
Range: 3 mos - 240 mos 8 mos - 240 mos
Loan Purpose:
Title I Home Improvement $260,201,848 $7,827,731
Title I Manufactured Housing $3,308,996 none
Non-FHA Loans or "A" Quality Loans $16,395,056 none
</TABLE>
- --------------------------------------------------------------------------------
This information does not constitute either an offer to sell or a solicitation
of an offer to buy any of the securities referred to herein. Offers to sell and
solicitations of offers to buy the securities are made only by , and this
information must be read in conjunction with, the final Prospectus Supplement
and the related Prospectus or, if not registered under the securities laws, the
final Offering Memorandum (the "Offering Document"). Information contained
herein does not purport to complete and is subject to the same qualifications
and assumptions, and should be considered by investors only in the light of the
same warnings, lack of assurances and representations and other precautionary
matters, as disclosed in the Offering Document. Information regarding the
underlying assets has been provided by the issuer of the securities or an
affiliate thereof and has not been independently verified by Lehman Brothers or
any affiliate. The analyses contained herein have been prepared on the basis of
certain assumptions (including, in certain cases, assumptions specified by the
recipient hereof) regarding payment, draw and interest rates and other matters,
including, but not limited to, the assumptions described in the Offering
Document. Lehman Brothers and any of its affiliates, make no representation or
warranty as to the actual rate or timing of payments, draw and losses on any of
the underlying assets or the payments or yield on the securities. This
information supersedes any prior versions hereof and will be deemed to be
superseded by any subsequent versions (including, with respect to any
description of the securities or underlying assets, the information contained in
the Offering Document).
6
REVISED AS OF APRIL 12, 1996 1.00 PM
Summary Collateral Statistics
Original Principal Balances of Group I Loans
<TABLE>
Range of Principal Balance Count Balance %
<S> <C> <C> <C>
0.01- 5,000.00 1,246 4,429,289.16 1.58
5,000.01-10,000.00 3,711 28,159,649.04 10.06
10,000.01-15,000.00 3,819 49,956,881.17 17.85
15,000.01-20,000.00 2,056 36,651,646.98 13.09
20,000.01-25,000.00 5,988 147,364,527.49 52.65
25,000.01-30,000.00 335 9,262,036.42 3.31
30,000.01-35,000.00 32 1,043,574.08 0.37
35,000.01-40,000.00 21 764,588.40 0.27
40,000.01-45,000.00 6 244,933.92 0.09
45,000.01-50,000.00 14 672,324.19 0.24
50,000.01-55,000.00 1 50,956.52 0.02
55,000.01-60,000.00 22 1,305,492.73 0.47
Totals: 17,251 279,905,900.10 100.00
</TABLE>
Original Principal Balances of Group II Loans
<TABLE>
<CAPTION>
Range of Principal Balance Count Balance %
<S> <C> <C> <C>
0.01- 5,000.00 1,081 3,757,900.48 48.01
5,000.01-10,000.00 659 4,069,830.96 51.99
Totals: 1,740 7,827,731.44 100.00
</TABLE>
- --------------------------------------------------------------------------------
This information does not constitute either an offer to sell or a solicitation
of an offer to buy any of the securities referred to herein. Offers to sell and
solicitations of offers to buy the securities are made only by , and this
information must be read in conjunction with, the final Prospectus Supplement
and the related Prospectus or, if not registered under the securities laws, the
final Offering Memorandum (the "Offering Document"). Information contained
herein does not purport to complete and is subject to the same qualifications
and assumptions, and should be considered by investors only in the light of the
same warnings, lack of assurances and representations and other precautionary
matters, as disclosed in the Offering Document. Information regarding the
underlying assets has been provided by the issuer of the securities or an
affiliate thereof and has not been independently verified by Lehman Brothers or
any affiliate. The analyses contained herein have been prepared on the basis of
certain assumptions (including, in certain cases, assumptions specified by the
recipient hereof) regarding payment, draw and interest rates and other matters,
including, but not limited to, the assumptions described in the Offering
Document. Lehman Brothers and any of its affiliates, make no representation or
warranty as to the actual rate or timing of payments, draw and losses on any of
the underlying assets or the payments or yield on the securities. This
information supersedes any prior versions hereof and will be deemed to be
superseded by any subsequent versions (including, with respect to any
description of the securities or underlying assets, the information contained in
the Offering Document).
7
REVISED AS OF APRIL 12, 1996 1.00 PM
Summary Collateral Statistics
Loan Rates as of Cut-Off Date of Group I Loans
<TABLE>
<CAPTION>
Coupon Count Balance %
<S> <C> <C> <C>
8.001- 8.500 1 9,943.86 0.00
9.501-10.000 27 538,840.81 0.19
10.001-10.500 6 82,655.44 0.03
10.501-11.000 276 5,995,547.82 2.14
11.001-11.500 55 720,817.44 0.26
11.501-12.000 1,827 34,425,095.06 12.30
12.001-12.500 312 4,407,717.79 1.57
12.501-13.000 3,423 63,710,047.46 22.76
13.001-13.500 570 7,469,145.64 2.67
13.501-14.000 5,604 93,498,529.11 33.40
14.001-14.500 704 7,899,248.28 2.82
14.501-15.000 2,715 41,807,498.72 14.94
15.001-15.500 413 4,124,366.83 1.47
15.501-16.000 1,140 13,183,640.94 4.71
16.001-16.500 42 538,211.44 0.19
16.501-17.000 78 1,178,483.16 0.42
17.001-17.500 2 19,134.96 0.01
17.501-18.000 56 296,975.34 0.11
Totals: 17,251 279,905,900.10 100.00
</TABLE>
Loan Rates as of Cut-Off Date of Group II Loans
<TABLE>
<CAPTION>
Coupon Count Balance %
<S> <C> <C> <C>
9.501-10.000 1 4,656.61 0.06
11.001-11.500 3 18,741.81 0.24
11.501-12.000 65 332,313.07 4.25
12.001-12.500 62 271,934.52 3.47
12.501-13.000 104 507,774.57 6.49
13.001-13.500 60 290,110.06 3.71
13.501-14.000 442 1,952,243.54 24.94
14.001-14.500 308 1,468,504.16 18.76
14.501-15.000 319 1,362,765.95 17.41
15.001-15.500 102 476,125.77 6.08
15.501-16.000 198 870,251.97 11.12
16.001-16.500 2 12,133.36 0.16
16.501-17.000 8 35,598.64 0.45
17.001-17.500 1 2,768.56 0.04
17.501-18.000 65 221,808.85 2.83
Totals: 1,740 7,827,731.44 100.00
</TABLE>
- --------------------------------------------------------------------------------
This information does not constitute either an offer to sell or a solicitation
of an offer to buy any of the securities referred to herein. Offers to sell and
solicitations of offers to buy the securities are made only by , and this
information must be read in conjunction with, the final Prospectus Supplement
and the related Prospectus or, if not registered under the securities laws, the
final Offering Memorandum (the "Offering Document"). Information contained
herein does not purport to complete and is subject to the same qualifications
and assumptions, and should be considered by investors only in the light of the
same warnings, lack of assurances and representations and other precautionary
matters, as disclosed in the Offering Document. Information regarding the
underlying assets has been provided by the issuer of the securities or an
affiliate thereof and has not been independently verified by Lehman Brothers or
any affiliate. The analyses contained herein have been prepared on the basis of
certain assumptions (including, in certain cases, assumptions specified by the
recipient hereof) regarding payment, draw and interest rates and other matters,
including, but not limited to, the assumptions described in the Offering
Document. Lehman Brothers and any of its affiliates, make no representation or
warranty as to the actual rate or timing of payments, draw and losses on any of
the underlying assets or the payments or yield on the securities. This
information supersedes any prior versions hereof and will be deemed to be
superseded by any subsequent versions (including, with respect to any
description of the securities or underlying assets, the information contained in
the Offering Document).
8
REVISED AS OF APRIL 12, 1996 1.00 PM
Summary Collateral Statistics
Number of Months Since Origination of Group I Loans
<TABLE>
<CAPTION>
Range of Months Since
Origination Count Balance %
<S> <C> <C> <C>
Less than or equal to 0 2,481 45,323,038.96 16.19
1- 6 9,110 167,084,798.69 59.69
7-12 1,685 21,003,142.27 7.50
13-18 2,497 29,402,717.86 10.50
19-24 676 7,592,817.04 2.71
25-30 146 1,978,928.24 0.71
31-36 319 3,081,884.88 1.10
37-42 59 733,451.16 0.26
43-48 81 1,043,594.52 0.37
49-54 56 773,525.95 0.28
55-60 37 523,014.56 0.19
61-66 49 673,551.88 0.24
67-72 41 523,218.28 0.19
73-78 2 29,200.27 0.01
79-84 4 50,976.53 0.02
85-90 4 44,190.43 0.02
91-96 3 32,092.71 0.01
97-102 1 11,755.87 0.00
Totals: 17,251 279,905,900.10 100.00
</TABLE>
Number of Months Since Origination of Group II Loans
<TABLE>
<CAPTION>
Range of Months Since
Origination Count Balance %
<S> <C> <C> <C>
Less than or equal to 0 254 1,193,238.10 15.24
1- 6 839 3,811,740.58 48.70
7-12 613 2,700,298.04 34.50
13-18 3 11,641.40 0.15
19-24 10 33,769.84 0.43
31-36 1 2,795.71 0.04
37-42 20 74,247.77 0.95
Totals: 1,740 7,827,731.44 100.00
</TABLE>
- --------------------------------------------------------------------------------
This information does not constitute either an offer to sell or a solicitation
of an offer to buy any of the securities referred to herein. Offers to sell and
solicitations of offers to buy the securities are made only by , and this
information must be read in conjunction with, the final Prospectus Supplement
and the related Prospectus or, if not registered under the securities laws, the
final Offering Memorandum (the "Offering Document"). Information contained
herein does not purport to complete and is subject to the same qualifications
and assumptions, and should be considered by investors only in the light of the
same warnings, lack of assurances and representations and other precautionary
matters, as disclosed in the Offering Document. Information regarding the
underlying assets has been provided by the issuer of the securities or an
affiliate thereof and has not been independently verified by Lehman Brothers or
any affiliate. The analyses contained herein have been prepared on the basis of
certain assumptions (including, in certain cases, assumptions specified by the
recipient hereof) regarding payment, draw and interest rates and other matters,
including, but not limited to, the assumptions described in the Offering
Document. Lehman Brothers and any of its affiliates, make no representation or
warranty as to the actual rate or timing of payments, draw and losses on any of
the underlying assets or the payments or yield on the securities. This
information supersedes any prior versions hereof and will be deemed to be
superseded by any subsequent versions (including, with respect to any
description of the securities or underlying assets, the information contained in
the Offering Document).
9
REVISED AS OF APRIL 12, 1996 1.00 PM
Summary Collateral Statistics
Months Remaining To Scheduled Maturity of Group I Loans
<TABLE>
<CAPTION>
Remaining Term Count Balance %
<S> <C> <C> <C>
1- 12 15 20,098.78 0.01
13- 24 74 183,417.91 0.07
25- 36 164 591,464.92 0.21
37- 48 377 1,629,900.51 0.58
49- 60 545 2,995,786.99 1.07
61- 72 353 1,985,651.33 0.71
73- 84 448 3,050,985.17 1.09
85- 96 274 2,208,307.85 0.79
97-108 854 7,339,419.65 2.62
109-120 1,469 14,885,464.37 5.32
121-132 236 2,708,461.89 0.97
133-144 262 3,004,676.07 1.07
145-156 289 3,945,150.72 1.41
157-168 1,481 20,678,077.55 7.39
169-180 4,648 80,248,256.87 28.67
193-204 8 162,619.47 0.06
205-216 16 337,464.34 0.12
217-228 525 11,232,878.68 4.01
229-240 5,213 122,697,817.03 43.84
Totals: 17,251 279,905,900.10 100.00
</TABLE>
Months Remaining To Scheduled Maturity of Group II Loans
<TABLE>
<CAPTION>
Remaining Term Count Balance %
<S> <C> <C> <C>
1- 12 5 9,156.02 0.12
13- 24 68 139,046.90 1.78
25- 36 151 451,981.84 5.77
37- 48 140 462,397.34 5.91
49- 60 449 1,822,711.30 23.29
61- 72 98 447,282.00 5.71
73- 84 268 1,287,614.53 16.45
85- 96 72 367,214.65 4.69
97-108 26 121,563.50 1.55
109-120 343 1,992,207.33 25.45
121-132 3 11,365.14 0.15
133-144 65 380,647.60 4.86
169-180 47 299,148.68 3.82
229-240 5 35,394.61 0.45
Totals: 1,740 7,827,731.44 100.00
</TABLE>
- --------------------------------------------------------------------------------
This information does not constitute either an offer to sell or a solicitation
of an offer to buy any of the securities referred to herein. Offers to sell and
solicitations of offers to buy the securities are made only by , and this
information must be read in conjunction with, the final Prospectus Supplement
and the related Prospectus or, if not registered under the securities laws, the
final Offering Memorandum (the "Offering Document"). Information contained
herein does not purport to complete and is subject to the same qualifications
and assumptions, and should be considered by investors only in the light of the
same warnings, lack of assurances and representations and other precautionary
matters, as disclosed in the Offering Document. Information regarding the
underlying assets has been provided by the issuer of the securities or an
affiliate thereof and has not been independently verified by Lehman Brothers or
any affiliate. The analyses contained herein have been prepared on the basis of
certain assumptions (including, in certain cases, assumptions specified by the
recipient hereof) regarding payment, draw and interest rates and other matters,
including, but not limited to, the assumptions described in the Offering
Document. Lehman Brothers and any of its affiliates, make no representation or
warranty as to the actual rate or timing of payments, draw and losses on any of
the underlying assets or the payments or yield on the securities. This
information supersedes any prior versions hereof and will be deemed to be
superseded by any subsequent versions (including, with respect to any
description of the securities or underlying assets, the information contained in
the Offering Document).
10
REVISED AS OF APRIL 12, 1996 1.00 PM
Summary Collateral Statistics
Mortgaged Property Geographical Distribution by State of Group I Loans (1)
<TABLE>
<CAPTION>
States Count Balance %
<S> <C> <C> <C>
AL 6 42,234.57 0.02
AR 757 6,640,438.54 2.37
AZ 450 8,505,728.10 3.04
CA 7,636 161,770,758.86 57.79
CO 642 8,611,149.61 3.08
CT 3 35,015.76 0.01
FL 376 5,307,529.54 1.90
GA 326 3,850,274.20 1.38
HI 5 103,734.09 0.04
IA 14 199,017.30 0.07
ID 33 562,893.87 0.20
IL 243 3,237,812.97 1.16
IN 104 1,197,869.10 0.43
KS 51 491,914.97 0.18
KY 49 608,441.13 0.22
LA 216 2,589,283.21 0.93
MA 6 114,270.45 0.04
MD 9 140,711.67 0.05
MI 116 724,237.81 0.26
MO 140 1,543,595.95 0.55
MS 339 3,714,591.46 1.33
NC 561 5,921,747.67 2.12
NE 22 219,700.65 0.08
NJ 169 2,208,998.58 0.79
NM 31 466,486.37 0.17
NV 281 5,579,818.71 1.99
NY 190 3,675,858.30 1.31
OH 267 2,832,136.04 1.01
OK 239 2,081,163.35 0.74
OR 261 4,263,444.67 1.52
PA 465 5,607,691.03 2.00
RI 4 56,907.95 0.02
SC 145 1,505,830.62 0.54
TN 209 2,215,178.54 0.79
TX 2,090 22,605,579.72 8.08
UT 63 1,151,564.49 0.41
VA 78 899,235.58 0.32
WA 605 8,100,609.62 2.89
WV 27 324,315.95 0.12
WY 23 198,129.10 0.07
Totals: 17,251 279,905,900.10 100.00
</TABLE>
(1) Determined by property address designated as such in the related
Mortgaged Property.
- --------------------------------------------------------------------------------
This information does not constitute either an offer to sell or a solicitation
of an offer to buy any of the securities referred to herein. Offers to sell and
solicitations of offers to buy the securities are made only by , and this
information must be read in conjunction with, the final Prospectus Supplement
and the related Prospectus or, if not registered under the securities laws, the
final Offering Memorandum (the "Offering Document"). Information contained
herein does not purport to complete and is subject to the same qualifications
and assumptions, and should be considered by investors only in the light of the
same warnings, lack of assurances and representations and other precautionary
matters, as disclosed in the Offering Document. Information regarding the
underlying assets has been provided by the issuer of the securities or an
affiliate thereof and has not been independently verified by Lehman Brothers or
any affiliate. The analyses contained herein have been prepared on the basis of
certain assumptions (including, in certain cases, assumptions specified by the
recipient hereof) regarding payment, draw and interest rates and other matters,
including, but not limited to, the assumptions described in the Offering
Document. Lehman Brothers and any of its affiliates, make no representation or
warranty as to the actual rate or timing of payments, draw and losses on any of
the underlying assets or the payments or yield on the securities. This
information supersedes any prior versions hereof and will be deemed to be
superseded by any subsequent versions (including, with respect to any
description of the securities or underlying assets, the information contained in
the Offering Document).
11
REVISED AS OF APRIL 12, 1996 1.00 PM
Summary Collateral Statistics
Mortgaged Property Geographical Distribution by State of Group II Loans (1)
<TABLE>
<CAPTION>
States Count Balance %
<S> <C> <C> <C>
AR 272 1,338,757.37 17.10
AZ 4 17,827.83 0.23
CA 26 113,046.33 1.44
CO 44 163,134.55 2.08
CT 1 7,442.79 0.10
FL 35 166,096.38 2.12
GA 48 240,615.68 3.07
HI 1 5,473.08 0.07
IA 25 122,862.53 1.57
ID 1 2,955.62 0.04
IL 13 48,129.90 0.61
IN 23 96,503.05 1.23
KS 10 56,001.60 0.72
KY 16 67,734.74 0.87
LA 42 185,593.44 2.37
MI 106 373,102.26 4.77
MO 22 122,481.65 1.56
MS 49 221,278.63 2.83
NC 139 667,022.50 8.52
NE 1 4,096.59 0.05
NJ 4 23,032.20 0.29
NM 1 2,959.29 0.04
NY 4 17,407.56 0.22
OH 40 167,274.83 2.14
OK 106 489,584.31 6.25
OR 25 120,093.54 1.53
PA 22 112,028.97 1.43
SC 37 156,689.15 2.00
TN 26 117,276.48 1.50
TX 488 2,148,156.05 27.44
VA 11 56,049.82 0.72
WA 94 377,727.75 4.83
WY 4 19,294.97 0.25
Totals: 1,740 7,827,731.44 100.00
</TABLE>
(1) Determined by property address designated as such in the related Mortgaged
Property.
- --------------------------------------------------------------------------------
This information does not constitute either an offer to sell or a solicitation
of an offer to buy any of the securities referred to herein. Offers to sell and
solicitations of offers to buy the securities are made only by , and this
information must be read in conjunction with, the final Prospectus Supplement
and the related Prospectus or, if not registered under the securities laws, the
final Offering Memorandum (the "Offering Document"). Information contained
herein does not purport to complete and is subject to the same qualifications
and assumptions, and should be considered by investors only in the light of the
same warnings, lack of assurances and representations and other precautionary
matters, as disclosed in the Offering Document. Information regarding the
underlying assets has been provided by the issuer of the securities or an
affiliate thereof and has not been independently verified by Lehman Brothers or
any affiliate. The analyses contained herein have been prepared on the basis of
certain assumptions (including, in certain cases, assumptions specified by the
recipient hereof) regarding payment, draw and interest rates and other matters,
including, but not limited to, the assumptions described in the Offering
Document. Lehman Brothers and any of its affiliates, make no representation or
warranty as to the actual rate or timing of payments, draw and losses on any of
the underlying assets or the payments or yield on the securities. This
information supersedes any prior versions hereof and will be deemed to be
superseded by any subsequent versions (including, with respect to any
description of the securities or underlying assets, the information contained in
the Offering Document).
12
Consent of Independent Certified Public Accountants
The Board of Directors
Capital Markets Assurance Corporation:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Prospectus Supplement for Lehman FHA
Title I Loan Trust 1996-2.
Our report dated January 25, 1996, refers to the Company's adoption at December
31, 1993 of Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities."
/s/ KPMG Peat Marwick LLP
New York, New York
April 9, 1996
<PAGE>
CAPITAL MARKETS ASSURANCE CORPORATION
FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 and 1993
(With Independent Auditors' Report Thereon)
A-II-1
<PAGE>
[LETTERHEAD OF KMPG PEAT MARWICK LLP]
Independent Auditors' Report
----------------------------
The Board of Directors
Capital Markets Assurance Corporation:
We have audited the accompanying balance sheets of Capital Markets Assurance
Corporation as of December 31, 1995 and 1994 and the related statements of
income, stockholder's equity and cash flows for each of the years in the
three-year period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Capital Markets Assurance
Corporation as of December 31, 1995 and 1994 and the results of its operations
and its cash flows for each of the years in the three-year period ended December
31, 1995 in conformity with generally accepted accounting principles.
As discussed in note 2, the Company changed its method of accounting for
investments to adopt the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 115, 'Accounting for
Certain Investments in Debt and Equity Securities,' at December 31, 1993.
/s/ KPMG Peat Marwick LLP
January 25, 1996
A-II-2
<PAGE>
Capital Markets Assurance Corporation
Balance Sheets
(Dollars in thousands)
ASSETS
------
December 31 December 31
1995 1994
------- -------
Investments:
Bonds at fair value (amortized cost $210,651 at
December 31, 1995 and $178,882 at December 31, 1994) $215,706 172,016
Short-term investments (at amortized cost which
approximates fair value) 68,646 2,083
Mutual funds at fair value (cost $16,434 at
December 31, 1994) - 14,969
-------- -------
Total investments 284,352 189,068
-------- -------
Cash 344 85
Accrued investment income 3,136 2,746
Deferred acquisition costs 35,162 24,860
Premiums receivable 3,540 3,379
Prepaid reinsurance 13,171 5,551
Other assets 3,428 3,754
-------- -------
Total assets $343,133 229,443
======== =======
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Liabilities:
Unearned premiums $ 45,767 25,905
Reserve for losses and loss adjustment expenses 6,548 5,191
Ceded reinsurance 2,469 1,497
Accounts payable and other accrued expenses 10,844 10,372
Current income taxes 136 -
Deferred income taxes 11,303 3,599
-------- -------
Total liabilities 77,067 46,564
-------- -------
Stockholder's Equity:
Common stock 15,000 15,000
Additional paid-in capital 205,808 146,808
Unrealized appreciation (depreciation) on investments,
net of tax 3,286 (5,499)
Retained earnings 41,972 26,570
-------- -------
Total stockholder's equity 266,066 182,879
-------- -------
Total liabilities and stockholder's equity $343,133 229,443
======== =======
See accompanying notes to financial statements.
A-II-3
<PAGE>
Capital Markets Assurance Corporation
Statements of Income
(Dollars in thousands)
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1995 1994 1993
------------ ------------ ------------
Revenues:
Direct premiums written $ 56,541 43,598 24,491
Assumed premiums written 935 1,064 403
Ceded premiums written (15,992) (11,069) (3,586)
-------- ------- ------
Net premiums written 41,484 33,593 21,308
Increase in unearned premiums (12,242) (10,490) (3,825)
-------- ------- ------
Net premiums earned 29,242 23,103 17,483
Net investment income 11,953 10,072 10,010
Net realized capital gains 1,301 92 1,544
Other income 2,273 120 354
-------- ------- ------
Total revenues 44,769 33,387 29,391
-------- ------- ------
Expenses:
Losses and loss adjustment expenses 3,141 1,429 902
Underwriting and operating expenses 13,808 11,833 11,470
Policy acquisition costs 7,203 4,529 2,663
-------- ------- ------
Total expenses 24,152 17,791 15,035
-------- ------- ------
Income before income taxes 20,617 15,596 14,356
-------- ------- ------
Income Taxes:
Current income tax 2,113 865 1,002
Deferred income tax 3,102 2,843 2,724
-------- ------- ------
Total income taxes 5,215 3,708 3,726
-------- ------- ------
NET INCOME $ 15,402 11,888 10,630
======== ======= ======
See accompanying notes to financial statements.
A-II-4
<PAGE>
Capital Markets Assurance Corporation
Statements of Stockholder's Equity
(Dollars in thousands)
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1995 1994 1993
------------ ------------ ------------
Common stock:
Balance at beginning of period $ 15,000 15,000 15,000
-------- ------- -------
Balance at end of period 15,000 15,000 15,000
-------- ------- -------
Additional paid-in capital:
Balance at beginning of period 146,808 146,808 146,808
Paid-in capital 59,000 - -
-------- ------- -------
Balance at end of period 205,808 146,808 146,808
-------- ------- -------
Unrealized (depreciation) appreciation
on investments, net of tax:
Balance at beginning of period (5,499) 3,600 -
Unrealized appreciation (depreciation)
on investments 8,785 (9,099) 3,600
-------- ------- -------
Balance at end of period 3,286 (5,499) 3,600
-------- ------- -------
Retained earnings:
Balance at beginning of period 26,570 14,682 4,052
Net income 15,402 11,888 10,630
-------- ------- -------
Balance at end of period 41,972 26,570 14,682
-------- ------- -------
Total stockholder's equity $266,066 182,879 180,090
======== ======= =======
See accompanying notes to financial statements.
A-II-5
<PAGE>
Capital Markets Assurance Corporation
Statements of Cash Flows
(Dollar in thousands)
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1995 1994 1993
------------ ------------ ------------
Cash flows from operating activities:
Net income $ 15,402 11,888 10,630
--------- ------- --------
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Reserve for losses and loss
adjustment expenses 1,357 1,429 902
Unearned premiums 19,862 15,843 4,024
Deferred acquisition costs (10,302) (9,611) (9,815)
Premiums receivable (161) (2,103) (432)
Accrued investment income (390) (848) (110)
Income taxes payable 3,621 2,611 2,872
Net realized capital gains (1,301) (92) (1,544)
Accounts payable and other accrued
expenses 472 3,726 1,079
Prepaid reinsurance (7,620) (5,352) (199)
Other, net 992 689 1,201
--------- ------- --------
Total adjustments 6,530 6,292 (2,022)
--------- ------- --------
Net cash provided by operating
activities 21,932 18,180 8,608
--------- ------- --------
Cash flows from investing activities:
Purchases of investments (158,830) (77,980) (139,061)
Proceeds from sales of investments 49,354 39,967 24,395
Proceeds from maturities of investments 28,803 19,665 106,042
--------- ------- --------
Net cash used in investing activities (80,673) (18,348) (8,624)
--------- ------- --------
Cash flows from financing activities:
Capital contribution 59,000 - -
--------- ------- --------
Net cash provided by financing
activities 59,000 - -
--------- ------- --------
Net increase (decrease) in cash 259 (168) (16)
Cash balance at beginning of period 85 253 269
--------- ------- --------
Cash balance at end of period $ 344 85 253
========= ======= ========
Supplemental disclosure of cash flow
information:
Income taxes paid $ 1,450 1,063 833
========= ======= ========
See accompanying notes to financial statements.
A-II-6
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
December 31, 1995 and 1994
1) Background
Capital Markets Assurance Corporation ("CapMAC" or "the Company") is a New
York-domiciled monoline stock insurance company which engages only in the
business of financial guarantee and surety insurance. CapMAC is a wholly
owned subsidiary of CapMAC Holdings Inc. ("Holdings"). CapMAC is licensed
in all 50 states in addition to the District of Columbia, the Commonwealth
of Puerto Rico and the territory of Guam. CapMAC insures structured
asset-backed, corporate, municipal and other financial obligations in the
U.S. and international capital markets. CapMAC also provides financial
guarantee reinsurance for structured asset-backed, corporate, municipal and
other financial obligations written by other major insurance companies.
CapMAC's claims-paying ability is rated "Aaa" by Moody's Investors Service,
Inc. ("Moody's"), "AAA" by Standard & Poor's Ratings Group ("S&P"), "AAA"
by Duff & Phelps Credit Rating Co. ("Duff & Phelps"), and "AAA" by Nippon
Investors Service, Inc., a Japanese rating agency. Such ratings reflect
only the views of the respective rating agencies, are not recommendations
to buy, sell or hold securities and are subject to revision or withdrawal
at any time by such rating agencies.
2) Significant Accounting Policies
Significant accounting policies used in the preparation of the accompanying
financial statements are as follows:
a) Basis of Presentation
The accompanying financial statements are prepared on the basis of
generally accepted accounting principles ("GAAP"). Such accounting
principles differ from statutory reporting practices used by insurance
companies in reporting to state regulatory authorities.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Management
believes the most significant estimates relate to deferred acquisition
costs, reserve for losses and loss adjustment expenses and disclosures
of financial guarantees outstanding. Actual results could differ from
those estimates.
b) Investments
At December 31, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Under SFAS No.
115, the Company can classify its debt and marketable equity
securities in one of three categories: trading, available-for-sale,
or held-to-maturity. Trading securities are bought and held
principally for the purpose of selling them in the near term.
Held-to-maturity securities are those securities in which the Company
has the ability and intent to hold the securities until maturity. All
other securities not included in trading or held-to-maturity are
classified as available-for-sale. As of December 31, 1995 and 1994,
all of the Company's securities have been classified as
available-for-sale.
A-II-7
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
Available-for-sale securities are recorded at fair value. Fair value
is based upon quoted market prices. Unrealized holding gains and
losses, net of the related tax effect, on available-for-sale
securities are excluded from earnings and are reported as a separate
component of stockholder's equity until realized. Transfers of
securities between categories are recorded at fair value at the date
of transfer.
A decline in the fair value of any available-for-sale security below
cost that is deemed other than temporary is charged to earnings
resulting in the establishment of a new cost basis for the security.
Short-term investments are those investments having a maturity of less
than one year at purchase date. Short-term investments are carried at
amortized cost which approximates fair value.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to yield using the effective
interest method. Dividend and interest income are recognized when
earned. Realized gains and losses are included in earnings and are
derived using the FIFO (first-in, first-out) method for determining
the cost of securities sold.
c) Revenue Recognition
Premiums which are payable monthly to CapMAC are reflected in income
when due, net of amounts payable to reinsurers. Premiums which are
payable quarterly, semi-annually or annually are reflected in income,
net of amounts payable to reinsurers, on an equal monthly basis over
the corresponding policy term. Premiums that are collected as a
single premium at the inception of the policy and have a term longer
than one year are earned, net of amounts payable to reinsurers, by
allocating premium to each bond maturity based on the principal amount
and earning it straight-line over the term of each bond maturity. For
the year ended December 31, 1995, 91% of net premiums earned were
attributable to premiums payable in installments and 9% were
attributable to premiums collected on an up-front basis.
d) Deferred Acquisition Costs
Certain costs incurred by CapMAC, which vary with and are primarily
related to the production of new business, are deferred. These costs
include direct and indirect expenses related to underwriting,
marketing and policy issuance, rating agency fees and premium taxes.
The deferred acquisition costs are amortized over the period in
proportion to the related premium earnings. The actual amount of
premium earnings may differ from projections due to various factors
such as renewal or early termination of insurance contracts or
different run-off patterns of exposure resulting in a corresponding
change in the amortization pattern of the deferred acquisition costs.
e) Reserve for Losses and Loss Adjustment Expenses
The reserve for losses and loss adjustment expenses consists of a
Supplemental Loss Reserve ("SLR") and a case basis loss reserve. The
SLR is established based on expected levels of defaults resulting from
credit failures on currently insured issues. This SLR is based on
estimates of the portion of earned premiums required to cover those
claims.
A-II-8
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
A case basis loss reserve is established for insured obligations when,
in the judgement of management, a default in the timely payment of
debt service is imminent. For defaults considered temporary, a case
basis loss reserve is established in an amount equal to the present
value of the anticipated defaulted debt service payments over the
expected period of default. If the default is judged not to be
temporary, the present value of all remaining defaulted debt service
payments is recorded as a case basis loss reserve. Anticipated
salvage recoveries are considered in establishing case basis loss
reserves when such amounts are reasonably estimable.
Management believes that the current level of reserves is adequate to
cover the estimated liability for claims and the related adjustment
expenses with respect to financial guaranties issued by CapMAC. The
establishment of the appropriate level of loss reserves is an
inherently uncertain process involving numerous estimates and
subjective judgments by management, and therefore there can be no
assurance that losses in CapMAC's insured portfolio will not exceed
the loss reserves.
f) Depreciation
Leasehold improvements, furniture and fixtures are being depreciated
over the lease term or useful life, whichever is shorter, using the
straight-line method.
g) Income Taxes
Deferred income taxes are provided with respect to temporary
differences between the financial statement and tax basis of assets
and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse.
h) Reclassifications
Certain prior year balances have been reclassified to conform to the
current year presentation.
A-II-9
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
3) Insured Portfolio
At December 31, 1995 and 1994, the principal amount of financial
obligations insured by CapMAC was $16.9 billion and $11.6 billion,
respectively, and net of reinsurance (net principal outstanding), was $12.6
billion and $9.4 billion, respectively, with a weighted average life of 6.0
years and 5.0 years, respectively. CapMAC's insured portfolio was broadly
diversified by geographic distribution and type of insured obligations,
with no single insured obligation in excess of statutory single risk
limits, after giving effect to any reinsurance and collateral, which are a
function of CapMAC's statutory qualified capital (the sum of statutory
capital and surplus and mandatory contingency reserve). At December 31,
1995 and 1994, the statutory qualified capital was approximately $240
million and $170 million, respectively.
Net Principal Outstanding
December 31, 1995 December 31, 1994
----------------- -----------------
Type of Obligations Insured ($ in millions) Amount % Amount %
- ------------------------------------------- ------- ----- ------ -----
Consumer receivables $ 6,959 55.1 $4,740 50.4
Trade and other corporate obligations 4,912 38.9 4,039 43.0
Municipal/government obligations 757 6.0 618 6.6
------- ----- ------ -----
Total $12,628 100.0 $9,397 100.0
======= ===== ====== =====
At December 31, 1995, approximately 85% of CapMAC's insured portfolio was
comprised of structured asset-backed transactions. Under these structures,
a pool of assets covering at least 100% of the principal amount guaranteed
under its insurance contract is sold or pledged to a special purpose
bankruptcy remote entity. CapMAC's primary risk from such insurance
contracts is the impairment of cash flows due to delinquency or loss on the
underlying assets. CapMAC, therefore, evaluates all the factors affecting
past and future asset performance by studying historical data on losses,
delinquencies and recoveries of the underlying assets. Each transaction is
reviewed to ensure that an appropriate legal structure is used to protect
against the bankruptcy risk of the originator of the assets. Along with
the legal structure, an additional level of first loss protection is also
created to protect against losses due to credit or dilution. This first
level of loss protection is usually available from reserve funds, excess
cash flows, overcollateralization, or recourse to a third party. The level
of first loss protection depends upon the historical losses and dilution of
the underlying assets, but is typically several times the normal historical
loss experience for the underlying type of assets.
During 1995, the Company sold without recourse its interest in potential
cash flows from transactions included in its insured portfolio and
recognized $2,200,000 of income which has been included in other income in
the accompanying financial statements.
The following entities each accounted for, through referrals and otherwise,
10% or more of total revenues for each of the periods presented:
Year Ended Year Ended Year Ended
December 31, 1995 December 31, 1994 December 31, 1993
----------------- ----------------- -----------------------------
% of % of % of
Name Revenues Name Revenues Name Revenues
----------------- ----------------- -----------------------------
Citicorp 15.2 Citicorp 16.3 Citicorp 13.7
Merrill Lynch & Co. 14.1
A-II-10
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
4) Investments
At December 31, 1995 and 1994, all of the Company's investments were
classified as available-for-sale securities. The amortized cost, gross
unrealized gains, gross unrealized losses and estimated fair value for
available-for-sale securities by major security type at December 31, 1995
and 1994 were as follows ($ in thousands):
December 31, 1995
- -------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Securities Available-for-Sale Cost Gains Losses Value
- ----------------------------- --------- ---------- ---------- ---------
U.S. Treasury obligations $ 4,153 55 - 4,208
Mortgage-backed securities of
U.S. government instrumentalities
and agencies 100,628 313 79 100,862
Obligations of states,
municipalities and political
subdivisions 166,010 4,809 82 170,737
Corporate and asset-backed
securities 8,506 45 6 8,545
-------- ----- --- -------
Total $279,297 5,222 167 284,352
======== ===== === =======
December 31, 1994
- -------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Securities Available-for-Sale Cost Gains Losses Value
- ----------------------------- --------- ---------- ---------- ---------
U.S. Treasury obligations $ 4,295 - 153 4,142
Mortgage-backed securities of U.S.
government instrumentalities and
agencies 40,973 - 2,986 37,987
Obligations of states,
municipalities and political
subdivisions 128,856 364 3,994 125,226
Corporate and asset-backed
securities 6,841 15 112 6,744
Mutual funds 16,434 - 1,465 14,969
-------- --- ----- -------
Total $197,399 379 8,710 189,068
======== === ===== =======
The Company's investment in mutual funds in 1994 represents an investment
in an open-end management investment company which invests primarily in
investment-grade fixed-income securities denominated in foreign and United
States currencies.
A-II-11
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
The amortized cost and estimated fair value of investments in debt
securities at December 31, 1995 by contractual maturity are shown below
($ in thousands):
December 31, 1995
-----------------------------------------------------------------------
Amortized Estimated
Securities Available-for-Sale Cost Fair Value
----------------------------- --------- ----------
Less than one year to maturity $ 5,569 5,572
One to five years to maturity 37,630 38,553
Five to ten years to maturity 99,567 102,264
Greater than ten years to maturity 35,903 37,101
-------- -------
Sub-total 178,669 183,490
Mortgage-backed securities 100,628 100,862
-------- -------
Total $279,297 284,352
======== =======
Actual maturities may differ from contractual maturities because borrowers
may call or prepay obligations with or without call or prepayment
penalties.
Proceeds from sales of investment securities were approximately $49
million, $40 million and $24 million in 1995, 1994 and 1993, respectively.
Gross realized capital gains of $1,320,000, $714,000 and $1,621,000, and
gross realized capital losses of $19,000, $622,000 and $77,000 were
realized on those sales for the years ended December 31, 1995, 1994 and
1993, respectively.
Investments include bonds having a fair value of approximately $3,985,000
and $3,873,000 (amortized cost of $3,970,000 and $4,011,000) which are on
deposit at December 31, 1995 and 1994, respectively, with state regulators
as required by law.
Investment income is comprised of interest and dividends, net of related
expenses, and is applicable to the following sources:
Year Ended Year Ended Year Ended
$ in thousands December 31, 1995 December 31, 1994 December 31, 1993
- -------------- ----------------- ----------------- -----------------
Bonds $11,105 9,193 7,803
Short-term investments 1,245 484 572
Mutual funds (162) 579 1,801
Investment expenses (235) (184) (166)
------- ------ ------
Total $11,953 10,072 10,010
======= ====== ======
A-II-12
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
The change in unrealized appreciation (depreciation) on available-for-sale
securities is included in a separate component of stockholder's equity as
shown below:
Year Ended Year Ended
$ in thousands December 31, 1995 December 31, 1994
-------------- ----------------- -----------------
Balance at beginning of period $(5,499) 3,600
Change in unrealized
appreciation (depreciation) 13,386 (13,786)
Income tax effect (4,601) 4,687
------- -------
Net change 8,785 (9,099)
------- -------
Balance at end of period $ 3,286 (5,499)
======= =======
No single issuer, except for investments in U.S. Treasury and U.S.
government agency securities, exceeds 10% of stockholder's equity as of
December 31, 1995.
5) Deferred Acquisition Costs
The following table reflects acquisition costs deferred by CapMAC and
amortized in proportion to the related premium earnings:
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
$ in thousands 1995 1994 1993
-------------- ----------- ------------ ------------
Balance at beginning of period $24,860 15,249 5,434
Additions 17,505 14,140 12,478
Amortization (policy
acquisition costs) (7,203) (4,529) (2,663)
------- ------ ------
Balance at end of period $35,162 24,860 15,249
======= ====== ======
6) Employee Benefits
On June 25, 1992, CapMAC entered into a Service Agreement with CapMAC
Financial Services, Inc. ("CFS"), which was then a newly formed wholly
owned subsidiary of Holdings. Under the Service Agreement, CFS has agreed
to provide various services, including underwriting, reinsurance, data
processing and other services to CapMAC in connection with the operation of
CapMAC's insurance business. CapMAC pays CFS an arm's length fee for
providing such services, but not in excess of CFS's cost for such services.
CFS incurred, on behalf of CapMAC, total compensation expenses, excluding
bonuses, of $13,484,000, $11,081,000 and $9,789,000 in 1995, 1994 and 1993,
respectively.
CFS maintains an incentive compensation plan for its employees. The plan
is an annual discretionary bonus award based upon Holdings' and an
individual's performance. CFS also has a health and welfare plan and a
401(k) plan to cover substantially all of its employees. CapMAC reimburses
CFS for all out-of-pocket expenses incurred by CFS in providing services to
CapMAC, including awards given under the incentive compensation plan and
benefits provided under the health and welfare plan. For the years ended
December 31, 1995, 1994 and 1993, the Company had provided approximately
$7,804,000, $5,253,000 and $3,528,000, respectively, for the annual
discretionary bonus plan.
A-II-13
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
On June 25, 1992, certain officers of CapMAC were granted 182,633
restricted stock units ("RSU") at $13.33 a share in respect of certain
deferred compensation. On December 7, 1995, the RSU's were converted to
cash in the amount of approximately $3.7 million, and such officers agreed
to defer receipt of such cash amount in exchange for receiving the same
number of new shares of restricted stock of Holdings as the number of RSU's
such officers previously held. The cash amount will be held by Holdings
and invested in accordance with certain guidelines. Such amount, including
the investment earnings thereon, will be paid to each officer upon the
occurrence of certain events but no later than December, 2000.
7) Employee Stock Ownership Plan
On June 25, 1992, Holdings adopted an Employee Stock Ownership Plan
("ESOP") to provide its employees the opportunity to obtain beneficial
interests in the stock of Holdings through a trust (the "ESOP Trust"). The
ESOP Trust purchased 750,000 shares at $13.33 per share of Holdings' stock.
The ESOP Trust financed its purchase of common stock with a loan from
Holdings in the amount of $10 million. The ESOP loan is evidenced by a
promissory note delivered to Holdings. An amount representing unearned
employee compensation, equivalent in value to the unpaid balance of the
ESOP loan, is recorded as a deduction from stockholder's equity
(unallocated ESOP shares).
CFS is required to make contributions to the ESOP Trust, which enables the
ESOP Trust to service its loan to Holdings. The ESOP expense is calculated
using the shares allocated method. Shares are released for allocation to
the participants and held in trust for the employees based upon the ratio
of the current year's principal and interest payment to the sum of
principal and interest payments estimated over the life of the loan. As of
December 31, 1995 approximately 262,800 shares were allocated to the
participants. Compensation expense related to the ESOP was approximately
$2,087,000, $2,086,000 and $1,652,000 for the years ended December 31,
1995, 1994 and 1993, respectively.
8) Reserve for Losses and Loss Adjustment Expenses
The reserve for losses and loss adjustment expenses consists of a case
basis loss reserve and the SLR.
In 1995 CapMAC incurred its first claim on a financial guarantee policy.
Based on its current estimate, the Company expects the aggregate amount of
claims and related expenses not to exceed $2.7 million, although no
assurance can be given that such claims and related expenses will not
exceed that amount. Such loss amount was covered through a recovery under
a quota share reinsurance agreement of $0.2 million and a reduction in the
SLR of $2.5 million. The portion of such claims and expenses not covered
under the quota share agreement is being funded through payments to CapMAC
from the Lureco Trust Account (see note 12).
A-II-14
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
The following is a summary of the activity in the case basis loss reserve
account and the components of the liability for losses and loss adjustment
expenses ($ in thousands):
Case Basis Loss Reserve:
Net balance at January 1, 1995 $ -
----------------------------------------------------------------------
Incurred related to:
Current year 2,473
Prior years -
------
Total incurred 2,473
------
Paid incurred to:
Current year 1,853
Prior years -
------
Total paid 1,853
------
Balance at December 31, 1995 620
------
Reinsurance recoverable 69
------
Supplemental loss reserve 5,859
------
Total $6,548
======
9) Income Taxes
Pursuant to a tax sharing agreement with Holdings, the Company is included
in Holdings' consolidated U.S. Federal income tax return. The Company's
annual Federal income tax liability is determined by computing its pro rata
share of the consolidated group Federal income tax liability.
Total income tax expense differed from the amount computed by applying the
U.S. Federal income tax rate of 35% in 1995 and 34% in 1994 and 1993:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1995 December 31, 1994 December 31, 1993
$ in thousands Amount % Amount % Amount %
-------------- ------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Expected tax expense computed at
the statutory rate $ 7,216 35.0 $ 5,303 34.0 $ 4,881 34.0
Increase (decrease) in tax
resulting from:
Tax-exempt interest (2,335) (11.3) (1,646) (10.6) (1,140) (7.9)
Other, net 334 1.6 51 0.4 (15) (0.1)
-------- ----- ------- ----- ------- ----
Total income tax expense $ 5,215 25.3 $ 3,708 23.8 $ 3,726 26.0
======== ===== ======= ===== ======= ====
</TABLE>
A-II-15
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
The tax effects of temporary differences that give rise to significant
portions of the deferred Federal income tax liability are as follows:
<TABLE>
<CAPTION>
$ in thousands December 31, 1995 December 31, 1994
-------------- ----------------- -----------------
<S> <C> <C>
Deferred tax assets:
Unrealized capital losses on investments $ - (2,833)
Deferred compensation (1,901) (1,233)
Losses and loss adjustment expenses (1,002) (936)
Unearned premiums (852) (762)
Other, net (98) (228)
----------- ------
Total gross deferred tax assets (3,853) (5,992)
----------- ------
Deferred tax liabilities:
Deferred acquisition costs 12,307 8,453
Unrealized capital gains on investments 1,769 -
Deferred capital gains on investments 654 726
Other, net 426 412
----------- ------
Total gross deferred tax liabilities 15,156 9,591
----------- ------
Net deferred tax liability $ 11,303 3,599
=========== ======
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax assets will not be realized. Management
believes that the deferred tax assets will be fully realized in the future.
10) Insurance Regulatory Restrictions
CapMAC is subject to insurance regulatory requirements of the State of New
York and other states in which it is licensed to conduct business.
Generally, New York insurance laws require that dividends be paid from
earned surplus and restrict the amount of dividends in any year that may be
paid without obtaining approval for such dividends from the Superintendent
of Insurance to the lower of (i) net investment income as defined or (ii)
10% of statutory surplus as of December 31 of the preceding year. No
dividends were paid by CapMAC to Holdings during the years ended December
31, 1995, 1994 and 1993. No dividends could be paid during these periods
because CapMAC had negative earned surplus. Statutory surplus at December
31, 1995 and 1994 was approximately $195,018,000 and $139,739,000,
respectively. Statutory surplus differs from stockholder's equity
determined under GAAP principally due to the mandatory contingency reserve
required for statutory accounting purposes and differences in accounting
for investments, deferred acquisition costs, SLR and deferred taxes
provided under GAAP. Statutory net income was $9,000,000, $4,543,000 and
$4,528,000 for the years ended December 31, 1995, 1994 and 1993,
respectively. Statutory net income differs from net income determined
under GAAP principally due to deferred acquisition costs, SLR and deferred
income taxes.
A-II-16
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
11) Commitments and Contingencies
On January 1, 1988, the Company assumed from Citibank, N.A. the obligations
of a sublease agreement for space occupied in New York. On November 21,
1993, the sublease was terminated and a new lease was negotiated which
expires on November 20, 2008. CapMAC has a lease agreement for its London
office beginning October 1, 1992 and expiring October 1, 2002. As of
December 31, 1995, future minimum payments under the lease agreements are
as follows:
$ in thousands Payment
------------------------------------------------------------------------
1996 $ 2,255
1997 2,948
1998 3,027
1999 3,476
2000 and thereafter 36,172
-------
Total $47,878
=======
Rent expense, commercial rent taxes and electricity for the years ended
December 31, 1995, 1994 and 1993 amounted to $1,939,000, $2,243,000 and
$2,065,000, respectively.
CapMAC has available a $100,000,000 standby corporate liquidity facility
(the "Liquidity Facility") provided by a consortium of banks, headed by
Bank of Montreal, as agent, which is rated "A-1+" and "P-1" by S&P and
Moody's, respectively. Under the Liquidity Facility, CapMAC will be able,
subject to satisfying certain conditions, to borrow funds from time to time
in order to enable it to fund any claim payments or payments made in
settlement or mitigation of claim payments under its insurance contracts.
For the years ended December 31, 1995, 1994 and 1993, no draws had been
made under the Liquidity Facility.
12) Reinsurance
In the ordinary course of business, CapMAC cedes exposure under various
treaty, pro rata and excess of loss reinsurance contracts primarily
designed to minimize losses from large risks and protect the capital and
surplus of CapMAC.
The effect of reinsurance on premiums written and earned was as follows:
<TABLE>
<CAPTION>
Years Ended December 31
-------------------------------------------------------------------
1995 1994 1993
------------------- ------------------- ------------------
$ in thousands Written Earned Written Earned Written Earned
-------------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Direct $56,541 36,853 43,598 28,561 24,491 20,510
Assumed 935 761 1,064 258 403 364
Ceded (15,992) (8,372) (11,069) (5,716) (3,586) (3,391)
------- ------ ------- ------ ------ ------
Net Premiums $41,484 29,242 33,593 23,103 21,308 17,483
======= ====== ======= ====== ====== ======
</TABLE>
A-II-17
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
Although the reinsurance of risk does not relieve the ceding insurer of its
original liability to its policyholders, it is the industry practice of
insurers for financial statement purposes to treat reinsured risks as
though they were risks for which the ceding insurer was only contingently
liable. A contingent liability exists with respect to the aforementioned
reinsurance arrangements which may become a liability of CapMAC in the
event the reinsurers are unable to meet obligations assumed by them under
the reinsurance contracts. At December 31, 1995 and 1994, CapMAC had ceded
loss reserves of $69,000 and $0, respectively and had ceded unearned
premiums of $13,171,000 and $5,551,000, respectively.
In 1994, CapMAC entered into a reinsurance agreement (the "Lureco Treaty")
with Luxembourg European Reinsurance LURECO S.A. ("Lureco"), a
European-based reinsurer. The agreement is renewable annually at the
Company's option, subject to satisfying certain conditions. The agreement
reinsured and indemnified the Company for any loss incurred by CapMAC
during the agreement period up to the limits of the agreement. The Lureco
Treaty provides that the annual reinsurance premium payable by CapMAC to
Lureco, after deduction of the reinsurer's fee payable to Lureco, be
deposited in a trust account (the "Lureco Trust Account") to be applied by
CapMAC, at its option, to offset losses and loss expenses incurred by
CapMAC in connection with incurred claims. Amounts on deposit in the
Lureco Trust Account which have not been applied against claims are
contractually due to CapMAC at the termination of the treaty.
The premium deposit amounts in the Lureco Trust Account have been reflected
as assets by CapMAC during the term of the agreement. Premiums in excess
of the deposit amounts have been recorded as ceded premiums in the
statements of income. In the 1994 policy year, the agreement provided $5
million of loss coverage in excess of the premium deposit amounts of $2
million retained in the Lureco Trust Account. No losses were applied
against the Lureco Trust Account or ceded to the Lureco Treaty in 1994.
The agreement was renewed for the 1995 policy year and provides $5 million
of loss coverage in excess of the premium deposit amount of $4.5 million
retained in the Lureco Trust Account. Additional coverage is provided for
losses incurred in excess of 200% of the net premiums earned up to $4
million for any one agreement year. In September 1995, a claim of
approximately $2.5 million on an insurance policy was applied against the
Lureco Trust Account.
In addition to its capital (including statutory contingency reserves) and
other reinsurance available to pay claims under its insurance contracts, on
June 25, 1992, CapMAC entered into a Stop Loss Reinsurance Agreement (the
"Stop-loss Agreement") with Winterthur Swiss Insurance Company
("Winterthur") which is rated "AAA" by S&P and "Aaa" by Moody's. At the
same time, CapMAC and Winterthur also entered into a Quota Share
Reinsurance Agreement (the "Winterthur Quota Share Agreement") pursuant to
which Winterthur had the right to reinsure on a quota share basis 10% of
each policy written by CapMAC.
The Winterthur Stop-loss Agreement had an original term of seven years and
was renewable for successive one-year periods. In April 1995, Winterthur
notified CapMAC that it was canceling the Winterthur Stop-loss Agreement
and the Winterthur Quota Share Agreement effective June 30, 1996.
CapMAC elected to terminate the Winterthur Stop-loss Agreement effective
November 30, 1995 and, on the same date, entered into a Stop-loss
Reinsurance Agreement with Mitsui Marine (the "Mitsui Stop-loss
Agreement"). Under the Mitsui Stop-loss Agreement, Mitsui
A-II-18
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
Marine would be required to pay any losses in excess of $100 million in the
aggregate incurred by CapMAC during the term of the Mitsui Stop-loss
Agreement on the insurance policies in effect on December 1, 1995 and
written during the one-year period thereafter, up to an aggregate limit
payable under the Mitsui Stop-loss Agreement of $50 million. The Mitsui
Stop-loss Agreement has a term of seven years and is subject to early
termination by CapMAC in certain circumstances.
The Winterthur Quota Share Agreement was canceled November 30, 1995. On
January 1, 1996, CapMAC reassumed the liability, principally unearned
premium, for all policies reinsured by Winterthur. As a result, CapMAC
reassumed approximately $1.4 billion of principal insured by Winterthur as
of December 31, 1995. In connection with the commutation, Winterthur will
return the unearned premiums as of December 31, 1995, net of ceding
commission and federal excise tax. Such amount is expected to total
approximately $2.0 million.
13) Disclosures About Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1995 and 1994. SFAS
No. 107, "Disclosures About Fair Value of Financial Instruments," defines
the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing
parties.
December 31, 1995 December 31, 1994
-------------------- -------------------
Carrying Estimated Carrying Estimated
$ in thousands Amount Fair Value Amount Fair Value
-------------- -------- ---------- -------- ----------
Financial Assets:
Investments $284,352 284,352 189,068 189,068
Off-Balance-Sheet Instruments:
Financial Guarantees Outstanding $ - 147,840 - 93,494
Ceding Commission $ - 44,352 - 28,048
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments summarized above:
Investments
The fair values of fixed maturities and mutual funds are based upon quoted
market prices. The fair value of short-term investments approximates
amortized cost.
A-II-19
<PAGE>
Capital Markets Assurance Corporation
Notes to Financial Statements
Financial Guarantees Outstanding
The fair value of financial guarantees outstanding consists of (1) the
current unearned premium reserve, net of prepaid reinsurance and (2) the
fair value of installment revenue which is derived by calculating the
present value of the estimated future cash inflow to CapMAC of policies in
force having installment premiums, net of amounts payable to reinsurers, at
a discount rate of 7% at December 31, 1995 and 1994. The amount calculated
is equivalent to the consideration that would be paid under market
conditions prevailing at the reporting dates to transfer CapMAC's financial
guarantee business to a third party under reinsurance and other agreements.
Ceding commission represents the expected amount that would be paid to
CapMAC to compensate CapMAC for originating and servicing the insurance
contracts. In constructing estimated future cash inflows, management makes
assumptions regarding prepayments for amortizing asset-backed securities
which are consistent with relevant historical experience. For revolving
programs, assumptions are made regarding program utilization based on
discussions with program users. The amount of installment premium actually
realized by the Company could be reduced in the future due to factors such
as early termination of insurance contracts, accelerated prepayments of
underlying obligations or lower than anticipated utilization of insured
structured programs, such as commercial paper conduits. Although increases
in future installment revenue due to renewals of existing insurance
contracts historically have been greater than reductions in future
installment revenue due to factors such as those described above, there can
be no assurance that future circumstances might not cause a net reduction
in installment revenue, resulting in lower revenues.
14) Capitalization
The Company's certificate of incorporation authorizes the issuance of
15,000,000 shares of common stock, par value $1.00 per share. Authorized,
issued and outstanding shares at December 31, 1995 and 1994 were 15,000,000
at $1.00 per share.
In 1995, $59.0 million of the proceeds received by Holdings from the sale
of shares in connection with an Initial Public Offering and private
placements were contributed to CapMAC.
A-II-20
FORM OF SURETY BOND
[DATE]
Surety Bond No. SB____
Re: [RELATED TRUST] (the "Trust") [Related Trust Senior
Certificates] (the "Senior Certificates")
Insured Obligation: Obligation of the Trust to pay principal on the Class A
Certificates and interest on the Senior Certificates
Beneficiary: [Trustee] or any successor Trustee of the Trust, for the
benefit of the Holders of the Senior Certificates
CAPITAL MARKETS ASSURANCE CORPORATION ("CapMAC"), in
consideration of the payment of the premium and subject to the terms of this
surety bond (the "Surety Bond"), hereby unconditionally and irrevocably
guarantees to the Beneficiary payment of the Insured Obligation. CapMAC agrees
to pay to the Beneficiary,
(a) on any Distribution Date, an amount equal to the amount, if any,
by which the sum of the Aggregate Senior Interest Distribution and
the Class Interest Distribution for the Group II Certificates exceeds
the sum of the amounts on deposit in the related Distribution Accounts
available to be distributed therefor on such Distribution Date,
(b) on any Distribution Date, other than the Final Scheduled
Distribution Date, an amount equal to the amount, if any, by which
the Class A Certificate Balance for the Group I Certificates and the
Group II Certificates as of such Distribution Date (taking into
account distributions on such Distribution Date pursuant to clause
(viii) of Section 4.05(a) and clause (vii) of Section 4.05(b) of the
Pooling and Servicing Agreement (as defined herein)) exceeds the Pool
Balance as of the end of the related Due Period, and
(c) on the Final Scheduled Distribution Date, an amount equal to the
Aggregate Class A Certificate Balance for the Group I Certificates
and the Group II Certificates on such Distribution Date (taking into
account distributions on such Distribution Date pursuant to clause
(viii) of Section 4.05(a) and clause (vii) of Section 4.05(b) of the
Pooling and Servicing Agreement (as defined herein)),
provided, however, that in no event shall the aggregate amount
of payments made hereunder in respect of principal on the Class A Certificates
exceed [$Dollar Amount] (the "Insured Principal Amount").
Notwithstanding the foregoing, in no event shall CapMAC be
obligated to make any payments (a) in respect of principal on the Class A
Certificates pursuant to any Notice for Payment (as defined below) presented
hereunder pursuant to clauses (b) or (c) above in an amount in excess of the
lesser of (i) the Insured Principal Amount less the sum of all amounts
theretofore paid in respect of principal on the Class A Certificates pursuant
to all Notices for Payment hereunder (the "Net Insured Principal Amount") and
(ii) the Aggregate Class A Certificate Balance for the Group I Certificates and
the Group II Certificates on the Distribution Date to which such Notice for
Payment relates or (b) in respect of principal on an Avoided Payment (as
defined below) in excess of the Net Insured Principal Amount.
Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to them in the [related Pooling and Servicing
Agreement] dated as of [ ] (the "Pooling and Servicing Agreement") by and
among First National Bank of Keystone, as Seller, Lehman ABS Corporation, as
Depositor, Norwest Bank Minnesota, N.A., as Master Servicer and Claims
Administrator, the Trustee and Coast Partners Acceptance Corporation, as
Contract of Insurance Holder.
As used herein, the term "Insolvency Proceeding" means the
commencement, after the date hereof, of any bankruptcy, insolvency,
readjustment of debt, reorganization, marshalling of assets and liabilities or
similar proceedings by or against the Seller, the commencement, after the date
hereof, of any proceedings by or against the Seller for the winding up or
liquidation of its affairs or the consent, after the date hereof, to the
appointment of a trustee, conservator, receiver, or liquidator in any
bankruptcy, insolvency, readjustment of debt, reorganization, marshalling of
assets and liabilities or similar proceedings of or relating to the Seller.
Subject to the foregoing, if the payment of any amount which is
guaranteed pursuant to clauses (a), (b) or (c) in the first paragraph of this
Surety Bond is voided (a "Preference Event") under any applicable bankruptcy,
insolvency, receivership or similar law in an Insolvency Proceeding, and, as a
result of such a Preference Event, the Beneficiary is required to return such
voided payment, or any portion of such voided payment made in respect of the
Senior Certificates (an "Avoided Payment"), CapMAC will pay on the guarantee
described in the first paragraph hereof, an amount equal to each such Avoided
Payment, irrevocably, absolutely and unconditionally and without the assertion
of any defenses to payment, including fraud in inducement or fact or any other
circumstances that would have the effect of discharging a surety in law or in
equity, upon receipt by CapMAC from the Beneficiary of (x) a certified copy of
a final order of a court exercising jurisdiction in such Insolvency Proceeding
to the effect that the Beneficiary is required to return any such payment or
portion thereof prior to the Termination Date (as defined below) of this Surety
Bond because such payment was voided under applicable law, with respect to
which order the appeal period has expired without an appeal having been filed
(the "Final Order"), (y) an assignment, in form reasonably satisfactory to
CapMAC, irrevocably assigning to CapMAC all rights and claims of such
Beneficiary relating to or arising under such Avoided Payment and (z) a
Notice for Payment in the form of Exhibit A hereto appropriately completed and
executed by the Beneficiary. Such payment shall be disbursed to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy named in the Final
Order and not to the Beneficiary directly.
Notwithstanding the foregoing, in no event shall CapMAC be
obligated to make any payment in respect of any Avoided Payment, which payment
represents a payment of the principal amount of the Class A Certificates, prior
to the time CapMAC would have been required to make a payment in respect of
such principal pursuant to clause (b) or clause (c) of the first paragraph of
this Surety Bond.
CapMAC will pay or cause to be paid to the Trustee, irrevocably
and unconditionally and without the prior assertion of any defenses to payment,
including fraud in inducement or fact, the amount demanded in a Notice for
Payment (a) pursuant to clauses (a), (b) or (c) of the first paragraph of this
Surety Bond on in immediately available funds on the later of (x) 11:00 a.m.
New York City time on the Business Day immediately preceding a Distribution
Date and, (y) 11:00 a.m. New York City time on the Business Day next succeeding
presentation to CapMAC (as hereinafter provided) of a notice for payment in the
form of Exhibit A hereto ("Notice for Payment"), appropriately completed and
executed by the Trustee; and (b) in respect of Avoided Payments prior to 11:00
a.m. New York City time on the second Business Day following CapMAC's receipt
of the documents required under clauses (x) through (z) of the second preceding
paragraph. Any such documents received by CapMAC after 12:00 p.m. New York City
time on any Business Day or on any day that is not a Business Day shall be
deemed to have been received by CapMAC prior to 12:00 p.m. on the next
succeeding Business Day. All payments made by CapMAC hereunder in respect of
Avoided Payments will be made with CapMAC's own funds.
A Notice for Payment under this Surety Bond must be received by
CapMAC by 12:00 p.m. New York City time on any Business Day by (i) delivery of
the original Notice for Payment to CapMAC at its address set forth below, or
(ii) facsimile transmission of the original Notice for Payment to CapMAC at its
facsimile number set forth below. If presentation is made by facsimile
transmission, the Trustee shall (i) simultaneously confirm transmission by
telephone to CapMAC at its telephone number set forth below, and (ii) as soon
as reasonably practicable, deliver the original Notice for Payment to CapMAC at
its address set forth below. Any Notice for Payment received by CapMAC after
12:00 p.m. New York City time, on a Business Day, or on any day that is not a
Business Day, will be deemed to be received by CapMAC at 9:00 a.m., New York
City time, on the next succeeding Business Day.
CapMAC hereby waives and agrees not to assert any and all rights
to require the Trustee to make demand on or to proceed against any person,
party or security prior to demanding payment under this Surety Bond.
No defenses, set-offs and counterclaims of any kind available to
CapMAC so as to deny payment of any amount due in respect of this Surety Bond
will be valid and CapMAC hereby waives and agrees not to assert any and all
such defenses, set-offs and counterclaims, including, without limitation, any
such rights acquired by subrogation, assignment or otherwise.
Any rights of subrogation acquired by CapMAC as a result of any
payment made under this Surety Bond shall, in all respects, be subordinate and
junior in right of payment to the prior indefeasible payment in full of all
amounts due the Trustee on account of payments due under the Senior
Certificates.
This Surety Bond is neither transferable nor assignable except,
in whole but not in part, to a successor Trustee duly appointed and qualified
under the Pooling and Servicing Agreement. Such transfer and assignment shall
be effective upon receipt by CapMAC of a copy of the instrument effecting such
transfer and assignment signed by the transferor and by the transferee, and a
certificate, properly completed and signed by the transferor and the
transferee, in the form of Exhibit B hereto (which shall be conclusive evidence
of such transfer and assignment), and, in such case, the transferee instead of
the transferor shall, without the necessity of further action, be entitled to
all the benefits of and rights under this Surety Bond in the transferor's
place, provided that, in such case, the Notice for Payment presented hereunder
shall be a certificate of the transferee and shall be signed by one who states
therein that he is a duly authorized officer of the transferee.
All notices, presentations, transmissions, deliveries and
communications made by the Trustee to CapMAC with respect to this Surety Bond
shall specifically refer to the number of this Surety Bond and shall be made to
CapMAC at:
Capital Markets Assurance Corporation
885 Third Avenue, 14th Floor
New York, N.Y. 10022
Attention: Managing Director,
Consumer Structured Finance
Telephone: (212) 891-4271
Facsimile: (212) 755-5462
or such other address, officer, telephone number or facsimile number as CapMAC
may designate to the Trustee in writing from time to time. Each such notice,
presentation, delivery and communication shall be effective only upon actual
receipt by CapMAC.
The obligations of CapMAC under this Surety Bond are
irrevocable, primary, absolute and unconditional (except as expressly provided
herein) and neither the failure of the Trustee, the Seller, the Depositor, the
Master Servicer or any other person, to perform any covenant or obligation in
favor of CapMAC (or otherwise), nor the commencement of any bankruptcy, debtor
or other insolvency proceeding by or against the Trustee, the Seller, the
Depositor, the Master Servicer or any other person shall in any way affect or
limit CapMAC's obligations under this Surety Bond. If an action or proceeding
to enforce this Surety Bond is brought, the Beneficiary shall be entitled to
recover from CapMAC costs and expenses reasonably incurred, including without
limitation reasonable fees and expenses of counsel.
There shall be no acceleration payment due under this Surety
Bond unless such acceleration is at the sole option of CapMAC.
This Surety Bond and the obligations of CapMAC hereunder shall
terminate upon the earliest to occur of (a) the date which is one year and one
day from the date on which the Aggregate Class A Certificate Balance for the
Group I Certificates and the Group II Certificates has been reduced to zero;
(b) the receipt by CapMAC, on any Business Day following receipt of written
notice from the Trustee terminating this Surety Bond as a result of (i) a
downgrade of its claims paying ability rating by any Rating Agency which
results in a downgrading of the then current rating of the Senior Certificates
or (ii) the occurrence of a Certificate Insurer Default, provided, however,
that no termination under this clause (b) shall be effective until all amounts
due or that become due to CapMAC under the Insurance Agreement are irrevocably
paid in full in cash and the original Surety Bond shall have been surrendered
to CapMAC for cancellation; and (c) the date which is one year and one day
following the Distribution Date occurring in [Final Scheduled Distribution
Date].
The foregoing notwithstanding, if an Insolvency Proceeding is
existing by or against the Seller during the one year and one day period set
forth in clauses (a) or (c) above, then this Surety Bond and CapMAC's
obligations hereunder shall terminate on the later of (i) the date of the
conclusion or dismissal of such Insolvency Proceeding without continuing
jurisdiction by the court in such Insolvency Proceeding, and (ii) the date on
which CapMAC has made all payments required to be made under the terms of this
Surety Bond in respect of Avoided Payments.
Upon the termination of this Surety Bond, the Trustee shall
promptly deliver this original Surety Bond to CapMAC at the address set forth
herein.
This Surety Bond is not covered by the property/casualty
insurance fund specified in Article Seventy-six of the New York State
insurance law.
This Surety Bond sets forth in full the undertaking of CapMAC,
and shall not be modified, altered or affected by any other agreement or
instrument, including any modification or amendment to any other agreement or
instrument, or by the merger, consolidation or dissolution of the Trust or any
other Person and may not be canceled or revoked prior to the time it is
terminated in accordance with the express terms hereof.
THIS SURETY BOND SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
NEW YORK.
IN WITNESS WHEREOF, CapMAC has caused this Surety Bond to be
executed on the date first written above.
CAPITAL MARKETS ASSURANCE CORPORATION
By:_________________________