Information contained herein is subject to completion or amendment. The Class A
Certificates may not be sold nor may offers to buy be accepted prior to the time
the Prospectus Supplement and the Prospectus is delivered in final form. The
Prospectus Supplement shall not constitute an offer to sell or the solicitation
of an offer to buy nor shall there be any sale of the Class A Certificates in
any State in which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such State. This
Prospectus Supplement is provided for informational purposes only and is not to
be copied in whole or in part. The information herein is provided only as of the
date hereof.
SUBJECT TO COMPLETION, DATED MARCH 18, 1996
PRELIMINARY PROSPECTUS SUPPLEMENT
(To Prospectus dated December 2, 1994)
================================================================================
Emergent Auto Receivables Trust 1996-A
$14,496,000
____% Auto Receivables Backed Certificates, Class A
PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION
Depositor
[Logo of Emergent Group Inc.]
[Logo of Loan Pro$, Inc.] [Logo of Premier Financial Services, Inc.]
THE LOAN PRO$, INC.
PREMIER FINANCIAL SERVICES, INC.
Originators
================================================================================
The __% Auto Receivables Backed Certificates, Class A (the "Class A
Certificates") hereby offered by Prudential Securities Secured Financing
Corporation represent the right to receive repayment of the initial Class A
Certificate Balance of $14,496,000 and monthly interest at a rate of ___% per
annum on the unpaid portion of such Class A Certificate Balance. The right to
receive such payments is based solely upon the interests represented by the
Class A Certificates in the Emergent Auto Receivables Trust 1996-A (the "Trust")
formed pursuant to a Pooling and Servicing Agreement (the "Pooling and Servicing
Agreement"), dated as of March 1, 1996, among Prudential Securities Secured
Financing Corporation, as depositor (the "Depositor"), Emergent Group, Inc., as
servicer (the "Servicer") and Bankers Trust Company, as trustee (the "Trustee")
and as backup servicer (the "Backup Servicer"). The Trust will also issue two
classes of subordinate certificates (the "Subordinate Certificates") which are
not being offered hereby. The Class A Certificates will have an initial Class A
Certificate Balance of $14,496,000, evidencing an undivided interest in the
Trust of __% (the "Class A Percentage"), with the Subordinate Certificates
evidencing the remainder.
The assets of the Trust will include a pool of non-prime installment sale
contracts (the "Receivables"), a security interest in the vehicles financed
thereby and certain other property, as more fully described herein. The initial
aggregate principal balance of such pool as of the Cut-Off Date was
$16,107,339.72.
Principal and interest will be distributed to the Class A Certificateholders on
the 20th day of each month (or, if such day is not a Business Day, the next
succeeding Business Day), beginning April 22, 1996. Distributions of principal
and interest on the Subordinate Certificates will be subordinated in priority of
payment to principal and interest due on the Class A Certificates to the extent
described herein. The "Final Scheduled Distribution Date" for the Class A
Certificates is February 20, 2003.
Full and complete payment of the Guaranteed Distributions (as defined herein) on
each Distribution Date of the Class A Certificates is unconditionally and
irrevocably guaranteed pursuant to a financial guaranty insurance policy (the
"Policy") to be issued by Financial Security Assurance Inc. (the "Certificate
Insurer").
[Logo of Financial Security Assurance Inc.]
THE CLASS A CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY AND DO
NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR, THE ORIGINATORS, THE
SERVICER, ANY SUB-SERVICER, ANY SUCCESSOR SERVICER OR ANY OF THEIR RESPECTIVE
AFFILIATES. NEITHER THE CLASS A CERTIFICATES NOR THE UNDERLYING RECEIVABLES ARE
GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THESE CERTIFICATES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK FACTORS"
HEREIN AND "SPECIAL CONSIDERATIONS" IN THE PROSPECTUS.
The Class A Certificates will be purchased by the Underwriter from the Depositor
and will be offered by the Underwriter from time to time in negotiated
transactions or otherwise, at varying prices to be determined at the time of
sale. Proceeds to the Depositor, including accrued interest, are expected to be
approximately ___% of the initial Class A Certificate Balance before deducting
expenses payable by the Depositor estimated to be $__________. See
"Underwriting" herein.
The Class A Certificates are offered subject to prior sale, when, as, and if
accepted by the Underwriter and subject to the approval of certain legal
matters. It is expected that delivery of the Class A Certificates will be made
only in book-entry form through the Same Day Funds Settlement System of The
Depository Trust Company (the "DTC") on or about ___________, 1996.
Prudential Securities Incorporated
================================================================================
March ___, 1996
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A
CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS A CERTIFICATES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS TO WHICH IT RELATES. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS
TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------------------
This Prospectus Supplement does not contain complete information about the
offering of the Class A Certificates. Additional information is contained in the
Prospectus dated December 2, 1994 of which this Prospectus Supplement is a part
and which accompanies this Prospectus Supplement. Prospective investors are
urged to read both this Prospectus Supplement and the Prospectus in full. Sales
of the Class A Certificates may not be consummated unless the purchaser has
received both this Prospectus Supplement and the Prospectus.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Certificates. This Prospectus Supplement and the
related Prospectus, which form a part of the Registration Statement, omit
certain information contained in such Registration Statement pursuant to the
Rules and Regulations of the Commission. The Registration Statement can be
inspected and copied at the Public Reference Room of the Commission at 450 Fifth
Street, N.W., Washington, D.C. and the Commission's regional offices at Seven
World Trade Center, 13th Floor, New York, New York, 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials can be obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The financial statements of the Certificate Insurer included in, or as
exhibits to, the following documents, which have been filed with the Commission
by Financial Security Assurance Holdings Ltd. ("Holdings"), are hereby
incorporated by reference in this Prospectus Supplement:
(a) Annual Report on Form 10-K for the year ended December 31, 1994, which
report includes as an exhibit, the Certificate Insurer's financial statements
for the year ended December 31, 1994; and
(b) Quarterly Report on Form 10-Q for the period ended September 30, 1995,
which report includes as an exhibit, the Certificate Insurer's unaudited
financial statements for the nine-month period ended September 30, 1995.
All financial statements of the Certificate Insurer included in documents
filed by Holdings pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), subsequent to
the date of this Prospectus Supplement and prior to the termination of the
offering of the Class A Certificates shall be deemed to be incorporated by
reference into this Prospectus Supplement and to be a part hereof from the
respective dates of filing such documents.
For further information concerning the Certificate Insurer, see the
Consolidated Financial Statements of the Certificate Insurer and Subsidiaries
and the notes thereto incorporated herein by reference. Copies of the statutory
quarterly and annual statements filed with the State of New York Insurance
Department by the Certificate Insurer are available upon request to the State of
New York Insurance Department.
REPORTS TO CERTIFICATEHOLDERS
Monthly and annual reports concerning the Class A Certificates and the
Trust will be sent by the Trustee to the Class A Certificateholders. So long as
any Class A Certificate is in book-entry form, such reports will be sent to Cede
& Co., as the nominee of DTC and as Holder of such Class A Certificates pursuant
to the Pooling and Servicing Agreement. DTC will supply such reports to Class A
Certificateholders in accordance with its procedures.
S-2
<PAGE>
TABLE OF CONTENTS
Page
----
PROSPECTUS SUPPLEMENT..................................................... S-1
AVAILABLE INFORMATION..................................................... S-2
REPORTS TO CERTIFICATEHOLDERS............................................. S-2
SUMMARY OF TERMS.......................................................... S-4
RISK FACTORS.............................................................. S-9
THE RECEIVABLES........................................................... S-10
General.............................................................. S-10
Payments on the Receivables.......................................... S-11
Repurchase Obligations............................................... S-11
Maturity and Prepayment Assumptions.................................. S-14
YIELD CONSIDERATIONS...................................................... S-15
USE OF PROCEEDS........................................................... S-15
THE SERVICER AND THE ORIGINATORS.......................................... S-15
General.............................................................. S-15
Litigation........................................................... S-16
Recent Developments.................................................. S-16
The Non-Prime Credit Market.......................................... S-16
Underwriting......................................................... S-17
DESCRIPTION OF THE CERTIFICATES........................................... S-19
General ......................................................... S-19
Distributions........................................................ S-19
The Accounts......................................................... S-20
Collections ......................................................... S-20
Flow of Funds........................................................ S-20
Withholding ......................................................... S-21
THE CERTIFICATE INSURER................................................... S-21
General ......................................................... S-21
Reinsurance ......................................................... S-22
Rating of Claims-Paying Ability...................................... S-22
Capitalization....................................................... S-22
Insurance Regulation................................................. S-23
THE POLICY .............................................................. S-23
THE POOLING AND SERVICING AGREEMENT AND THE TRANSFER AGREEMENTS........... S-24
The Trust ......................................................... S-24
Conveyance of Receivables............................................ S-24
Servicing ......................................................... S-25
The Trustee ......................................................... S-27
Certain Reports...................................................... S-27
Termination ......................................................... S-27
Amendment ......................................................... S-28
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................................. S-28
Tax Status of the Trust.............................................. S-28
Taxation of Certificateholders....................................... S-28
Discount and Premium................................................. S-29
Sale of a Class A Certificate........................................ S-30
Foreign Class A Certificateholders................................... S-30
Backup Withholding................................................... S-30
State and Local Taxation............................................. S-30
ERISA CONSIDERATIONS...................................................... S-31
RATINGS................................................................... S-33
UNDERWRITING.............................................................. S-33
LEGAL MATTERS............................................................. S-33
GLOSSARY.................................................................. S-34
INDEX OF DEFINED TERMS.................................................... S-37
S-3
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus. Certain
capitalized terms used herein are defined elsewhere in this Prospectus
Supplement on the pages indicated in the "Index of Terms" or, to the extent not
defined herein, have the meanings assigned to such terms in the Prospectus.
Issuer.................Emergent Auto Receivables Trust 1996-A (the "Trust").
Depositor..............Prudential Securities Secured Financing Corporation, a
Delaware corporation (the "Depositor"). The Depositor
will acquire the Receivables from a special-purpose
finance vehicle, Emergent Auto Holdings Corp. (the
"Seller"), a Delaware corporation and a subsidiary of
the Originators (as defined below), and will
simultaneously transfer the Receivables to the Trust.
The principal executive offices of the Depositor are
located at 130 John Street, New York, New York 10038,
and its telephone number is (212) 214- 7435.
Originators
and Sub-Servicers......The Loan Pro$, Inc., a South Carolina corporation (an
"Originator" or "Loan Pro$" and in its capacity as
sub-servicer of the Receivables it originates, a
"Sub-Servicer") and Premier Financial Services, Inc., a
South Carolina corporation (an "Originator" or
"Premier" and in its capacity as sub-servicer of the
Receivables it originates, a "Sub-Servicer" and
together with Loan Pro$, the "Originators" and the
"Sub-Servicers"). The principal executive offices of
the Originators and the Sub-Servicers are located at 15
South Main Street, Suite 750, Greenville, South
Carolina 29601, and their telephone number is (864)
235-8056.
Servicer...............Emergent Group, Inc., a South Carolina corporation (the
"Servicer"). The principal executive offices of the
Servicer are located at 15 South Main Street, Suite
750, Greenville, South Carolina 29601, and its
telephone number is (864) 235-8056.
Trustee and Backup
Servicer...............Bankers Trust Company, a New York banking corporation (in
its capacity as trustee under the Pooling and Servicing
Agreement, the "Trustee" and in its capacity as backup
servicer under the Pooling and Servicing Agreement, the
"Backup Servicer"). The principal executive offices of
the Trustee and the Backup Servicer are located at Four
Albany Street, New York, New York 10006, and their
telephone number is (212) 250-6540.
Cut-Off Date...........February 29, 1996 (close of business).
Closing Date...........On or about March 27, 1996.
Certificates
Offered................The Auto Receivables Backed Certificates consist of a
senior class offered hereby, the ____% Auto Receivables
Backed Certificates, Class A (the "Class A
Certificates"), and two classes of subordinate
certificates not offered hereby (the "Subordinate
Certificates") (the Class A Certificates and the
Subordinate Certificates being the "Certificates").
Each Certificate will represent a fractional undivided
interest in the Trust. The Class A Certificates will be
issued in fully registered form in minimum
denominations of $1,000,000 and integral multiples of
$1,000 in excess thereof; however, one Class A
Certificate may be issued in another denomination
representing any remaining portion of the initial Class
A Certificate Balance.
The Class A Certificates will evidence in the aggregate
an undivided ownership interest of ___% (the "Class A
Percentage") of the Trust, with the Subordinate
- --------------------------------------------------------------------------------
S-4
<PAGE>
- --------------------------------------------------------------------------------
Certificates representing the remainder. The Class A
Certificates are senior in priority of payment of
principal and interest due on the Subordinate
Certificates, to the extent described herein.
The Trust..............The Trust will be a trust established under the laws of
the State of New York. The activities of the Trust are
limited by the terms of the Pooling and Servicing
Agreement to purchasing, owning and managing the
Receivables, issuing and making payments on the
Certificates and other activities related thereto. The
Trust property includes certain non-prime installment
sale contracts (the "Receivables") secured by used
automobiles, light duty trucks, vans and mini-vans (the
"Financed Vehicles"), certain monies due thereunder on
or after the Cut-Off Date, security interests in the
Financed Vehicles or other property securing the
Receivables, such amounts as from time to time may be
held in one or more accounts established and maintained
by the Servicer pursuant to the Pooling and Servicing
Agreement and the proceeds thereof, the Policy, any
proceeds from claims on certain insurance policies,
certain rights under the Pooling and Servicing
Agreement, under the Transfer Agreements and all
proceeds of the foregoing.
The Receivables........All of the Receivables were purchased by the Depositor
from the Seller, which in turn purchased the
Receivables from the Originators. The Receivables
consist of non-prime automobile installment sales
contracts and constitute substantially all of the
automobile and light duty truck installment sale
contracts as of the Cut-Off Date included in the
Originators' portfolios meeting the selection criteria
described herein. All of the Receivables were
originated or acquired in accordance with the
Originators' respective finance programs as described
herein. As a general matter, the Originators' finance
programs target automobile purchasers with non-prime
credit profiles who are unable to obtain credit from
traditional lending sources.
The Receivables have an aggregate principal balance of
$16,107,339.72 as of the Cut-Off Date (the "Original
Aggregate Principal Balance"). 89.25% of the Original
Aggregate Principal Balance were direct loans (i.e.,
loans originated by the Originators) and 10.75% of the
Original Aggregate Principal Balance were indirect
loans (i.e., loans acquired by the Originators from
automobile dealers). Substantially all of the
Receivables represent financing of used vehicles, and
none of the Receivables are due from employees of the
Originators or any of their respective affiliates.
Approximately 98.01% of the Original Aggregate
Principal Balance relates to Obligors with addresses in
South Carolina.
The Receivables have, as of the Cut-Off Date, a
weighted average annual percentage rate ("APR") of
27.61%, a weighted average original maturity of 39
months and a weighted average remaining maturity of 33
months. The Transfer Agreements do not provide for
recourse to the Originators for losses on the
Receivables; however, the Originators may be liable for
breach of representations and warranties made with
respect to such Receivables. See "The Receivables."
The Seller has represented and warranted in the
Unaffiliated Seller's Agreement that no Receivable is
more than 30 days delinquent as of the Cut-Off Date,
and that, as of the Cut-Off Date, no more than 6.62% of
the Receivables have been extended by the related Sub-
Servicers.
Distribution Dates.....The twentieth day of each month or if such twentieth day
is not a Business Day, the next succeeding Business
Day, commencing April 22, 1996.
Class A Pass-
Through Rate...........___% per annum, calculated on the basis of a 360-day year
consisting of twelve 30-day months (the "Class A
Pass-Through Rate").
- --------------------------------------------------------------------------------
S-5
<PAGE>
- --------------------------------------------------------------------------------
Distributions of
Interest...............On each Distribution Date, the Trustee will be required
to pass through and distribute pro rata with respect to
the Class A Certificates to the holders of record of
the Class A Certificates (the "Class A
Certificateholders") as of the last day of the
immediately preceding calendar month (each such date, a
"Record Date"), interest distributable with respect to
the Class A Certificates. The amount of interest
distributable on the Class A Certificates will be an
amount equal to one-twelfth (or in the case of the
first Distribution Date, a fraction the numerator of
which is __ and the denominator of which is 360) of the
product of the Class A Pass-Through Rate and the Class
A Certificate Balance as of such Record Date to the
extent that sufficient funds are on deposit in the
Collection Account. See "DESCRIPTION OF THE
CERTIFICATES -- Flow of Funds."
Distributions of
Principal..............On each Distribution Date, the Trustee will be required
to pass through and to distribute pro rata to the Class
A Certificateholders and the Subordinate
Certificateholders as of the related Record Date as a
distribution of principal, the Class A
Certificateholders' pro rata share and the Subordinate
Certificateholders' pro rata share, as applicable, of
the amount equal to the sum of the following amounts
with respect to the immediately preceding Collection
Period, computed in accordance with the simple interest
method with respect to Simple Interest Receivables or
in accordance with the actuarial method with respect to
Rule of 78s Receivables:
(i) that portion of all collections on Receivables
(other than Liquidated Receivables and Receivables that
were purchased or repurchased from the Trust pursuant
to the Pooling and Servicing Agreement (each a
"Purchased Receivable")) allocable to principal,
including all full and partial principal prepayments
(including amounts withdrawn from the Payahead Account
but excluding amounts deposited into the Payahead
Account), (ii) the Principal Balance of all Receivables
(other than Purchased Receivables) that became
Liquidated Receivables during the related Collection
Period, (iii) (A) the portion of the Purchase Amount
allocable to principal of all Receivables that became
Purchased Receivables as of the immediately preceding
Record Date, and (B) in the sole discretion of the
Certificate Insurer, the Principal Balance as of the
immediately preceding Record Date of all Receivables
that were required to be purchased as of the
immediately preceding Record Date but were not so
purchased and (iv) the aggregate amount of Cram Down
Losses that occurred during the related Collection
Period.
With respect to each Distribution Date, the Class A
Certificateholders' pro rata share of such principal
distribution (the "Class A Principal Distributable
Amount") is equal to the Class A Percentage of the
amounts in clauses (i) through and including (iv) of
the immediately preceding paragraph, provided, that on
the Final Scheduled Distribution Date, the Class A
Principal Distributable Amount will equal the Class A
Certificate Balance as of the Final Scheduled
Distribution Date.
A "Collection Period" with respect to a Distribution
Date will be the calendar month immediately preceding
the month in which such Distribution Date occurs, or,
in the case of the initial Distribution Date, the
period from the Cut-Off Date through the last day of
the calendar month preceding the month in which the
initial Distribution Date occurs. See "DESCRIPTION OF
THE CERTIFICATES -- Flow of Funds."
Subordination..........Distributions of interest and principal on the
Subordinate Certificates will be subordinated in
priority of payment to interest and principal due on
the Class A Certificates. The Subordinate
Certificateholders will not receive any distributions
of interest or principal with respect to a Collection
Period until the full amount of interest and principal
on the Class A Certificates relating to such Collection
Period has been distributed from the Collection
Account.
- --------------------------------------------------------------------------------
S-6
<PAGE>
- --------------------------------------------------------------------------------
Certificate
Insurer................Financial Security Assurance Inc. (the "Certificate
Insurer") is a financial guaranty insurance company
incorporated under the laws of the State of New York.
See "THE POLICY" and "THE CERTIFICATE INSURER."
The Policy.............On the Closing Date, the Certificate Insurer will issue
the Policy to the Trustee for the benefit of the Class
A Certificateholders pursuant to which the Certificate
Insurer will unconditionally and irrevocably guarantee
to the Class A Certificateholders payment of the
Guaranteed Distributions for each Distribution Date.
See "THE POLICY" and "DESCRIPTION OF THE CERTIFICATES
-- Flow of Funds."
Transfer Agreements....The Purchase Agreement, dated as of March 1, 1996,
pursuant to which the Originators will sell the
Receivables to the Seller, and the Unaffiliated
Seller's Agreement, dated as of March 1, 1996, pursuant
to which the Seller will sell the Receivables to the
Depositor (together, the "Transfer Agreements").
Repurchase and Purchase
Obligations............Emergent (as defined herein) will be obligated to
repurchase a Receivable if the interests of the Trust,
the Certificateholders or the Certificate Insurer in
such Receivable or the value of such Receivable is
materially adversely affected by a breach of any
representation or warranty made with respect to the
Receivable or by a breach of certain of the Servicer's
servicing obligations under the Pooling and Servicing
Agreement (including, but not limited to its obligation
to ensure that the perfected security interest in the
related Financed Vehicle is maintained) or certain
other covenants with respect to the Servicer, if either
such breach has not been cured by the Deposit Date of
the first full calendar month following the discovery
by or notice to Emergent of the breach.
Servicing Fee..........Each month the Servicer will receive a fee for servicing
the Receivables (the "Servicing Fee") equal to (a) the
product of one-twelfth of 3% (the "Servicing Fee Rate")
and the Aggregate Principal Balance outstanding at the
beginning of the Collection Period preceding such
Distribution Date (the "Servicing Fee") plus (b) a
supplemental servicing fee (the "Supplemental Servicing
Fee") equal to (i) any late fees, prepayment fees,
liquidation fees and other administrative fees and
expenses collected during such month, plus (ii) the net
realized earnings on all investments of funds deposited
in the Collection Account during such month. See "THE
POOLING AND SERVICING AGREEMENT -- Servicing."
Optional Purchase......The Servicer may purchase all of the Receivables as of
the last day of any month in which the Aggregate
Principal Balance as a percentage of the Original
Aggregate Principal Balance is 10% or less (such
purchase being the "Optional Purchase"); provided that
the Servicer's right to exercise such option will be
subject to the prior approval of the Certificate
Insurer. The purchase price will be equal to the
aggregate Purchase Amounts and will be distributed to
Certificateholders on the next following Distribution
Date. See "THE POOLING AND SERVICING AGREEMENT -- The
Trust."
Certain Federal Income
Tax Considerations.....In the opinion of Dewey Ballantine, special tax counsel
to the Depositor, the Trust will be classified as a
grantor trust and not as an association taxable as a
corporation for federal income tax purposes. The
Certificateholders must report their respective
allocable shares of all income earned on the Trust
assets (other than any amounts treated as "stripped
coupons") and may deduct their respective allocable
shares of reasonable servicing fees. See "CERTAIN
FEDERAL INCOME TAX CONSIDERATIONS -- Tax Status of the
Trust." Prospective investors should note that no
rulings have been or will be sought from the Internal
Revenue Service (the "IRS") with respect to any of the
federal income tax consequences discussed herein, and
- --------------------------------------------------------------------------------
S-7
<PAGE>
- --------------------------------------------------------------------------------
no assurance can be given that the IRS will not take
contrary positions. For state income tax purposes, the
Trust will not be subject to the New York State
Franchise Tax on Business Corporations or the New York
City Unincorporated Business Tax. Investors should
consult their own tax advisors regarding state and
local tax consequences. See "CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS."
ERISA
Considerations.........As described herein, the Class A Certificates may be
purchased by employee benefit plans that are subject to
the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") or entities using assets of such
plans. Any benefit plan fiduciary considering purchase
of the Class A Certificates should, among other things,
consult with its counsel in determining whether all
required conditions have been satisfied. See "ERISA
CONSIDERATIONS."
Ratings................As a condition to the issuance of the Class A
Certificates, the Class A Certificates will be rated at
least "AAA" by Standard & Poor's Ratings Group ("S&P")
and "Aaa" by Moody's Investors Service, Inc.
("Moody's") on the basis of the issuance of the Policy
by the Certificate Insurer. There is no assurance that
a rating will not be lowered or withdrawn by a rating
agency based on a change in circumstances deemed by
such rating agency to adversely affect the Class A
Certificates. A rating is not a recommendation to
purchase, hold or sell the Class A Certificates, in as
much as such rating does not comment as to market price
or suitability for a particular investor. See
"RATINGS."
Certain Legal Matters..Certain legal matters relating to the validity of the
issuance of the Certificates will be passed upon for
Emergent by Wyche, Burgess, Freeman & Parham, P.A.,
Greenville, South Carolina, counsel to Emergent.
Certain legal matters relating to insolvency issues and
certain federal income tax matters concerning the
Certificates will be passed upon by Dewey Ballantine,
New York, New York. Certain legal matters relating to
the validity of the issuance of the Certificates will
be passed upon for the Underwriter by Dewey Ballantine,
New York, New York. Certain legal matters relating to
the Certificate Insurer and the Policy will be passed
upon for the Certificate Insurer by Dewey Ballantine,
New York, New York.
- --------------------------------------------------------------------------------
S-8
<PAGE>
RISK FACTORS
Prospective Certificateholders should consider, among other things, the
following factors in connection with the purchase of the Class A Certificates:
The Originators' Underwriting Process and Subjective Credit Standards. The
underwriting standards applied by the Originators may not be as stringent as
those of the "captive" finance companies of motor vehicle manufacturers or other
financial institutions since the Originators originate and purchase automobile
installment sale contracts which may not meet the credit standards of such
traditional primary lenders. The Originators' respective finance programs focus
on the non-prime market including obligors with non-prime credit profiles who
may not be able to receive financing from more traditional sources. The
Originators' credit decisions may be subjective. See "THE SERVICER AND THE
ORIGINATORS -- Underwriting."
Limited Assets; Subordination. The Trust does not have, nor is it permitted
or expected to have, any significant assets or sources of funds other than the
Receivables, the proceeds thereof and the Policy. The Class A Certificates
represent interests solely in the Trust and the Class A Certificates will not be
insured or guaranteed by the Depositor, the Seller, the Originators, the
Servicer, the Trustee or any other person or entity except for the Certificate
Insurer pursuant to the Policy, as described herein. The Seller will take such
steps as are necessary for the Certificate Insurer to issue the Policy to the
Trustee for the benefit of the Class A Certificateholders. Under the Policy, the
Certificate Insurer will unconditionally and irrevocably guarantee to the Class
A Certificateholders full and complete payment of the Guaranteed Distributions
on each Distribution Date. In the event of an Insurer Default, the Class A
Certificateholders must rely on any amounts available from the Obligors on the
Receivables, and the proceeds from the repossession and sale of Financed
Vehicles which secure defaulted Receivables. In such event, certain factors,
such as the Trustee not having perfected security interests in the Financed
Vehicles, may affect the Trust's ability to realize on the collateral securing
the Receivables and thus may reduce the proceeds to be distributed to the Class
A Certificateholders on a current basis.
Distributions of interest and principal on the Class A Certificates will be
dependent primarily upon the Available Funds and amounts paid pursuant to the
Policy. The Subordinate Certificateholders will not receive any distributions of
interest or principal with respect to a Collection Period until the full amount
of interest and principal on the Class A Certificates relating to such
Collection Period and any related Class A Interest and Principal Carryover
Shortfall has been deposited in the Collection Account. See "DESCRIPTION OF THE
CERTIFICATES -- Flow of Funds."
Geographic Concentration of Receivables in South Carolina. As of the
Cut-Off Date, Obligors with respect to at least 98% of the Receivables (based on
principal balance and mailing addresses as of the Cut-Off Date) were located in
South Carolina. Accordingly, adverse economic conditions or other factors
particularly affecting South Carolina could adversely affect the delinquency,
loan loss or repossession experience of the Trust with respect to the
Receivables.
Yield and Prepayment Considerations. The weighted average life of the
Certificates will be reduced by full or partial prepayments on the Receivables.
Except for the Rule of 78s Receivables, the Receivables will generally be
prepayable at any time without penalty. Prepayments in full with respect to the
Rule of 78s Receivables (which represent, as of the Cut-Off Date, less than 1%
of the Receivables (based on the Original Aggregate Principal Balance)) will be
allocated based on the principal balance of the relevant Receivable calculated
in accordance with the actuarial method. Any prepayment amounts with respect to
the Rule of 78s Receivables in excess of the amount required to prepay the
Receivable in full will be allocated to interest. Partial prepayments with
respect to the Receivables will be treated as Payaheads until such later
Collection Period with respect to which such Payaheads may be applied either to
a Scheduled Payment (as defined herein) or to prepay the Receivable in full.
Prepayments (or, for this purpose, equivalent payments to the Trust) may result
from payments by Obligors, liquidations due to default, the receipt of such
proceeds from physical damage insurance, repurchases by Emergent as a result of
certain uncured breaches of representations and warranties made with respect to
the Receivables and the servicing thereof, or the exercise of the Optional
Purchase by the Servicer.
The Originators have not maintained records relating to their historical
experience with respect to prepayments and are not aware of publicly available
industry statistics that set forth principal payment experience for installment
sales contracts similar to the Receivables. The Originators make no
representation as to the actual prepayment rates that will be experienced on the
Receivables. However, the Originators believe that the actual rate of
prepayments will result in a shorter weighted average life than the scheduled
weighted average life of the Receivables. The amounts paid to the
Certificateholders will include all prepayments on the Receivables which are not
amounts representing Payaheads. The Certificateholders will bear all
reinvestment risk resulting from the timing of payments on the Certificates.
S-9
<PAGE>
Certain Legal Aspects. In connection with the sale and assignment of the
Receivables to the Trust, security interests in the Financed Vehicles which have
been assigned by the Originators to the Seller will be assigned by the Seller to
the Depositor, then by the Depositor to the Trust. In most states, including
South Carolina, such an assignment is an effective conveyance of a security
interest without amendment of any security interest noted on a vehicle's
certificate of title, and the assignee succeeds thereby to the assignor's rights
as secured party. Because of the administrative burden and expense that would be
entailed in causing the certificates of title for the Financed Vehicles to be
amended to note the security interest of the Trustee as the secured party, the
certificates of title for the Financed Vehicles will not identify the Trustee as
the secured party, and will not be deposited with the South Carolina Department
of Highways and Motor Vehicles or other state highway department or motor
vehicle registrar. However, Emergent will cause to be furnished to the Trustee
and the Certificate Insurer an opinion of counsel to the effect that, under
South Carolina law, the notation of the lien in the name of the Trustee on the
Certificate of Title is not necessary in order to transfer to the Trustee a
perfected security interest in the underlying Financed Vehicle. Emergent will
covenant to repurchase any Receivable if, on the Closing Date, a valid,
subsisting and enforceable first priority security interest in the related
Financed Vehicle has not been perfected (or be in process of perfection) in
favor of the Originators and assigned to the Trust. Emergent will covenant in
the Pooling and Servicing Agreement to repurchase any Receivable if, after the
Closing Date, a valid, subsisting and enforceable first priority perfected
security interest in the name of the Originators for the benefit of the Trust is
not maintained in the related Financed Vehicle. See "CERTAIN LEGAL ASPECTS OF
THE RECEIVABLES" in the Prospectus.
The Originators will take steps in structuring the transactions
contemplated hereby that are intended to make it unlikely that the voluntary or
involuntary application for relief by either Originator under the United States
Bankruptcy Code or similar applicable state laws ("Insolvency Laws") will result
in the consolidation of the assets and liabilities of the Seller with those of
the related Originator. These steps will include the creation of the Seller as a
separate, limited-purpose entity pursuant to the Seller's Certificate of
Incorporation containing certain limitations (including restrictions on the
nature of the Seller's business) and a restriction on its ability to commence a
voluntary case or proceeding under any Insolvency Law without the unanimous
affirmative vote of all of the members of the board of directors of the Seller.
The Certificate of Incorporation of the Seller will include a provision that
requires the Seller to have at least two directors who qualify under the
Certificate of Incorporation as "independent directors."
The Seller has received the advice of counsel, concluding on the basis of a
reasoned analysis of analogous case law (although there is no precedent based on
directly similar facts) to the effect that, subject to certain facts,
assumptions and qualifications specified therein, a court would conclude that
the assets and liabilities of the Seller would not be consolidated with the
assets and liabilities of either Originator in the event of the application of
the federal bankruptcy laws to either Originator. If a court concluded
otherwise, or a filing were made under any Insolvency Law by or against the
Seller, or if an attempt were made to litigate any of the foregoing issues,
delays in the distributions on the Certificates (and possible reductions in the
amount of such distributions) could occur. The Seller is not expected to have
any significant assets or sources of funds.
Ratings. As a condition to the issuance of the Class A Certificates, the
Class A Certificates will be rated at least "AAA" by S&P and "Aaa" by Moody's on
the basis of the issuance of the Policy by the Certificate Insurer. There is no
assurance that a rating will not be lowered or withdrawn by a rating agency
based on a change in circumstances deemed by such rating agency to adversely
affect the Class A Certificates. A rating is not a recommendation to purchase,
hold or sell the Class A Certificates, in as much as such rating does not
comment as to market price or suitability for a particular investor. See
"RATINGS."
THE RECEIVABLES
General
All of the Receivables were originated or acquired by the Originators and
sold by the Originators to the Seller. All of the Receivables were then sold by
the Seller to the Depositor, which, in turn, sold all of the Receivables to the
Trust. All of the Receivables consist of non-prime automobile installment sales
contracts.
The Receivables were originated or acquired by the Originators in the
ordinary course of their business pursuant to the Originators' respective
finance programs and underwriting standards. 89.25% of the Original Aggregate
Principal Balance were direct loans (loans originated by the Originators) and
10.75% of the Original Aggregate Principal Balance were indirect loans (loans
acquired by the Originators from automobile dealers). Substantially all of the
Receivables represent financing of used vehicles, and none of the Receivables
are due from employees of the Originators or any of their respective affiliates.
S-10
<PAGE>
The Receivables have, as of the Cut-Off Date, a weighted average APR of
approximately 27.61%, a weighted average original maturity of 39 months and a
weighted average remaining maturity of 33 months.
The Originators' underwriting standards emphasize (a) obligors with stable
sources of income; (b) a debt-to-income ratio that is less than 50%; (c) primary
transportation vehicles; and (d) contracts wherein the Amount Financed generally
does not exceed 110% of the National Automobile Dealers Association wholesale
value. The Receivables were selected according to several criteria, including
the following: each Receivable (i) was originated in the United States, (ii) has
a contractual APR that exceeds 17%, (iii) provides for level monthly payments
which provide interest at the APR and fully amortize the Amount Financed over an
original term no greater than 72 months, (iv) is not more than 30 days past due
as of the Cut-Off Date, (v) is attributable to the funding or purchase of a used
automobile, light duty truck, van or mini-van and (vi) has a remaining term of
not more than 70 months. No selection procedures believed to be adverse to the
Certificateholders were utilized in selecting the Receivables conveyed to the
Trust.
Payments on the Receivables
Greater than 99% of the Receivables provide for the allocation of payments
according to the simple interest method ("Simple Interest Receivables"). The
remaining Receivables provide for the allocation of payments according to the
"sum of periodic balances" or "sum of monthly payments" method ("Rule of 78s
Receivables"). Except as otherwise described, a scheduled payment (the
"Scheduled Payment") on each Receivable is a fixed level monthly payment that
will amortize the full amount of the Receivable over its term assuming, in the
case of each Simple Interest Receivable, that the Obligor does not pay any
installment after its due date.
Payments on Simple Interest Receivables will be applied first to interest
accrued through the date immediately preceding the date of payment and then to
unpaid principal. Accordingly, if an Obligor pays an installment before its due
date, the portion of the payment allocable to interest for the payment period
will be less than if the payment had been made on the due date, the portion of
the payment applied to reduce the principal balance will be correspondingly
greater, and the principal balance will be amortized more rapidly than
scheduled. Conversely, if an Obligor pays an installment after its due date, the
portion of the payment allocable to interest for the payment period will be
greater than if the payment had been made on the due date, the portion of the
payment applied to reduce the principal balance will be correspondingly less,
and the principal balance will be amortized more slowly than scheduled, in which
case a larger portion of the principal balance may be due on the Final Scheduled
Distribution Date.
A Rule of 78s Receivable provides for the payment by the Obligor of a
specified total amount of payments, payable in monthly installments on the
related due date, which total represents the Amount Financed and finance charges
in an amount calculated on the basis of a stated APR for the term of such
Receivable. The amount of each Scheduled Payment is calculated in accordance
with the Rule of 78s. Notwithstanding the foregoing, the rate at which such
amount of finance charges is earned and, correspondingly, the amount of each
Scheduled Payment allocated to reduction of the outstanding principal balance of
a Rule of 78s Receivable is calculated in accordance with the actuarial method
and all payments (other than partial prepayments) received by the Sub-Servicers
on or in respect of the Rule of 78s Receivables will be allocated pursuant to
the Pooling and Servicing Agreement on an actuarial basis.
Repurchase Obligations
If any of the representations and warranties made by the related Originator
with respect to the related Receivables or to the related Financed Vehicles is
breached in a manner that materially and adversely affects the interests of the
Trust, the Certificateholders or the Certificate Insurer in, or the value of,
such Receivable, Emergent shall, unless such breach shall have been cured in all
material respects, purchase such Receivable from the Trust. Emergent will be
obligated to repurchase such Receivable if such breach is not cured by the
Deposit Date of the first full calendar month following the discovery by or
notice to Emergent of the breach.
In addition, the Pooling and Servicing Agreement provides that if the
Servicer breaches certain of its servicing obligations under the Pooling and
Servicing Agreement (including, but not limited to its obligation to ensure that
the perfected security interest in the related Financed Vehicles is maintained)
or certain other covenants with regard to the Servicer, in each case only in a
manner that materially and adversely affects the interests of the Trust, the
Certificateholders and the Certificate Insurer in, or the value of, any
Receivable, Emergent shall, unless such breach shall have been cured in all
material respects, purchase such Receivable from the Trust by the Deposit Date
of the first full calendar month following the discovery by or notice to
Emergent of the breach.
S-11
<PAGE>
The composition, distribution by APR, geographical distribution and
distribution by remaining term of the Receivables, all as of the Cut-Off Date,
are as set forth in the following tables.
Composition of the Receivables
Total Pool
Receivables
-----------
Aggregate Unpaid Principal Balance ..................... $16,107,339.72
Number of Receivables .................................. 3,154
Average Unpaid Principal Balance ....................... $5,106.96
Range of Unpaid Principal Balances ..................... $5.45 to $18,523.29
Weighted Average APR(1)................................. 27.61%
Range of APRs .......................................... 17.82% to 45.99%
Weighted Average Original Maturity(1) .................. 39 months
Range of Original Maturities ........................... 4 months to 72 months
Weighted Average Stated Remaining Maturity(1) .......... 33 months
Range of Stated Remaining Maturities ................... 2 months to 70 months
- ----------
(1) Weighted by Aggregate Principal Balance as of the Cut-Off Date.
Distribution of the Receivables by APR
Unpaid % of Aggregate
Number of Principal Unpaid Principal
Range of APRs Receivables Balance Balance
- ------------- ----------- ---------------- ----------------
17.01 - 18.00%........... 175 $ 1,127,793.24 7.00%
18.01 - 19.00............ 20 118,377.02 0.73
19.01 - 20.00............ 40 220,572.44 1.37
20.01 - 21.00............ 44 227,739.82 1.41
21.01 - 22.00............ 25 140,544.89 0.87
22.01 - 23.00............ 9 38,304.48 0.24
23.01 - 24.00............ 195 948,251.75 5.89
24.01 - 25.00............ 64 454,280.64 2.82
25.01 - 26.00............ 80 502,795.47 3.12
26.01 - 27.00............ 158 1,117,517.34 6.94
27.01 - 28.00............ 333 1,454,463.87 9.03
28.01 - 29.00............ 807 4,741,331.09 29.44
29.01 - 30.00............ 777 4,001,473.16 24.84
30.01 - 31.00............ 46 203,834.05 1.27
31.01 - 32.00............ 65 226,512.84 1.41
32.01 - 33.00............ 36 104,827.68 0.65
33.01 - 34.00............ 23 71,117.03 0.44
34.01 - 35.00............ 17 34,630.53 0.21
35.01 - 36.00............ 190 306,621.72 1.90
36.01 - 37.00............ 3 3,557.81 0.02
37.01 - 38.00............ 4 3,646.87 0.02
38.01 - 39.00............ 1 2,565.53 0.02
39.01 - 40.00............ 4 7,616.33 0.05
41.01 - 42.00............ 33 43,933.82 0.27
42.01 - 43.00............ 1 2,294.00 0.01
43.01 - 44.00............ 1 420.73 0.00
45.01 - 46.00............ 3 2,315.57 0.01
------- ---------------- ------
Total ........... 3,154 $16,107,339.72 100.00%
S-12
<PAGE>
Distribution of the Receivables by Remaining Principal Balances
Unpaid % of Aggregate
Range of Principal Number of Principal Unpaid Principal
Balances Receivables Balance Balance
- --------------------- ----------- -------------- ----------------
$ 0.01 - 3,000.00 873 $ 1,533,451.65 9.52%
3,000.01 - 6,000.00 1,084 4,876,837.75 30.28
6,000.01 - 9,000.00 907 6,683,625.55 41.49
9,000.01 - 12,000.00 260 2,589,367.01 16.08
12,000.01 - 15,000.00 22 289,247.46 1.80
15,000.01 - 18,000.00 6 98,097.71 0.61
18,000.01 +........... 2 36,712.59 0.23
----- ------------- -------
Total ............ 3,154 $16,107,339.72 100.00%
Distribution of the Receivables by State
Unpaid % of Aggregate
Number of Principal Unpaid Principal
State(1) Receivables Balance Balance
- -------- ----------- -------------- ----------------
Alabama 2 $ 8,263.74 0.05%
California............... 1 5,793.98 0.04
Florida.................. 3 11,167.89 0.07
Georgia.................. 22 83,614.55 0.52
Illinois................. 1 796.82 0.00
Indiana.................. 2 10,133.42 0.06
Louisiana................ 2 12,288.51 0.08
Maryland................. 1 4,272.99 0.03
Mississippi.............. 1 2,346.25 0.01
New Jersey............... 1 2,154.09 0.01
New York................. 2 10,177.60 0.06
North Carolina........... 27 125,689.43 0.78
Pennsylvania............. 2 8,237.18 0.05
South Carolina........... 3,081 15,787,193.72 98.01
Tennessee................ 4 19,711.80 0.12
Virginia................. 2 15,497.75 0.10
------- -------------- --------
Total............... 3,154 $16,107,339.72 100.00%
- ----------
(1) Based on the addresses of the Obligors.
S-13
<PAGE>
Distribution by Remaining Term of the Receivables
<TABLE>
<CAPTION>
Unpaid % of Aggregate
Remaining Term Number of Principal Unpaid Principal
Range (Months) Receivables Balance Balance
- ---------------------------------------------------- ----------- -------------- ----------------
<S> <C> <C> <C>
0 less than Rem Term less than or equal to 5....... 114 $ 101,517.68 0.63%
5 less than Rem Term less than or equal to 11...... 309 500,436.16 3.11
11 less than Rem Term less than or equal to 17...... 447 1,146,338.16 7.12
17 less than Rem Term less than or equal to 23...... 500 1,905,697.83 11.83
23 less than Rem Term less than or equal to 29...... 451 2,287,183.46 14.20
29 less than Rem Term less than or equal to 35...... 481 3,081,361.77 19.13
35 less than Rem Term less than or equal to 41...... 395 3,017,336.70 18.73
41 less than Rem Term less than or equal to 47...... 264 2,190,788.69 13.60
47 less than Rem Term less than or equal to 53...... 145 1,395,768.17 8.67
53 less than Rem Term less than or equal to 59...... 45 446,733.12 2.77
59 less than Rem Term less than or equal to 65...... 2 17,983.03 0.11
65 less than Rem Term less than or equal to 71...... 1 16,194.95 0.10
----- ------------- -------
Total.......................................... 3,154 $16,107,339.72 100.00%
</TABLE>
Distribution by Auto Model Year
Unpaid % of Aggregate
Number of Principal Unpaid Principal
Model Year Receivables Balance Balance
- ---------- ----------- ---------------- ----------------
1963.......... 1 $ 1,611.21 0.01%
1966.......... 2 6,700.07 0.04
1967.......... 2 2,966.85 0.02
1972.......... 4 5,715.63 0.04
1973.......... 3 3,030.69 0.02
1974.......... 1 327.23 0.00
1975.......... 3 9,071.53 0.06
1976.......... 1 1,589.87 0.01
1977.......... 8 12,018.18 0.07
1978.......... 5 17,274.13 0.11
1979.......... 7 18,752.24 0.12
1980.......... 7 22,713.82 0.14
1981.......... 3 10,564.58 0.07
1982.......... 14 35,162.67 0.22
1983.......... 31 78,747.44 0.49
1984.......... 51 125,890.96 0.78
1985.......... 100 230,563.21 1.43
1986.......... 163 411,803.04 2.56
1987.......... 246 731,929.05 4.54
1988.......... 341 1,219,837.40 7.57
1989.......... 464 1,944,716.22 12.07
1990.......... 454 2,375,793.25 14.75
1991.......... 454 2,759,587.16 17.13
1992.......... 373 2,554,343.09 15.86
1993.......... 245 1,954,638.52 12.14
1994.......... 135 1,204,644.50 7.48
1995.......... 36 367,347.18 2.28
------ ------------- -----
Total...... 3,154 $16,107,339.72 100.00%
Maturity and Prepayment Assumptions
All the Receivables are prepayable at any time, provided that a Rule of 78s
Receivable must be prepaid in full. If prepayments are received on the
S-14
<PAGE>
Receivables, the actual weighted average life of the Receivables pool may be
shorter than the scheduled weighted average life (i.e., the weighted average
life assuming that payments will be made as scheduled and that no prepayments
will be made). (For this purpose, the term "prepayments" also includes
liquidations due to default, the purchase of Receivables from the Trust as well
as receipt of proceeds from credit life, credit disability, and casualty
insurance policies.) Weighted average life means the average amount of time
during which each dollar of principal on a Receivable is outstanding.
The rate of prepayments on the Receivables may be influenced by a variety
of factors, including the fact that an Obligor may not transfer a Financed
Vehicle without the consent of the Servicer. Any reinvestment risks resulting
from a faster or slower incidence of prepayment of Receivables will be borne by
the Certificateholders. See also "The Pooling and Servicing Agreement --
Termination" regarding the Servicer's option to purchase all of the Receivables
as of the last day of any month in which the Aggregate Principal Balance at the
close of business on the Record Date as a percentage of the Original Aggregate
Principal Balance is less than 10%.
YIELD CONSIDERATIONS
Interest on the Receivables will be passed through to the Class A
Certificateholders on each Distribution Date in an amount equal to one-twelfth
of the Class A Pass-Through Rate applied to the Class A Certificate Balance on
the last day of the preceding Collection Period. In the event of prepayments on
Receivables, the Class A Certificateholders will nonetheless be entitled to
receive interest for the full month on the Class A Certificates. The Receivables
have different APRs, as set forth above. In all cases, however, the APR exceeds
the sum of the Servicing Fee Rate and the Class A Pass-Through Rate.
USE OF PROCEEDS
The net proceeds to be received by the Depositor from the sale of the Class
A Certificates will be applied to the purchase of the Receivables from the
Seller, and the net proceeds to be received by the Seller from the sale of the
Receivables to the Depositor will be used to purchase the Receivables from the
Originators who will use such proceeds to repay outstanding indebtedness of
Emergent, to finance the purchase of additional automobile loans and for general
corporate purposes.
THE SERVICER AND THE ORIGINATORS
General
The Originators are indirect subsidiaries of the Servicer, a
publicly-traded company headquartered in Greenville, South Carolina. The
Servicer and its various subsidiary corporations, including the Originators
(collectively, the "Emergent Companies") are primarily involved in the financial
services business, principally nonconforming residential mortgage lending, small
business lending and non-prime automobile lending. The Originators are the two
companies in the Emergent Companies which are engaged in the non-prime
automobile lending program, in the case of Loan Pro$ since 1987 and in the case
of Premier since 1993 (the "Emergent Auto Loan Program"). The Servicer, the
Seller and the Originators are collectively referred to herein as "Emergent."
The Emergent Companies operate in a decentralized manner, with each
business line organized into one or more subsidiary corporations with separate
operating managers and separate sources of funding. Each Originator has its own
president, and each has its own separate line of credit. The current lines
provide for $20 million of "warehouse" lending to Loan Pro$ and $6 million to
Premier. Although both Originators are engaged in non-prime automobile lending,
their targeted markets differ in certain respects. As a general matter, Loan
Pro$ will lend to obligors with weaker credit profiles than will Premier, which
is reflected in generally higher APRs with respect to Loan Pro$'s loans.
Although Emergent Group, Inc. will be named as the Servicer for the
Receivables, the Servicer will engage each Originator to act as the Sub-Servicer
with respect to the Receivables contributed by each to the securitized pool. Any
removal of the Servicer will allow the Certificate Insurer to remove either or
both of the Originators as Sub-Servicers, as the Certificate Insurer may elect.
Unlike the programs of many finance companies in the non-prime automobile
lending business, the Emergent Auto Loan Program is principally a "direct,"
rather than an "indirect," lending program. In an "indirect" program the finance
company will typically purchase an automobile installment sales contract which
has previously been funded by an automobile dealer. In such programs, physical
inspections of the collateral (the Financed Vehicles) by the finance company do
not occur and such programs usually involve little, if any, interaction between
the finance company which purchases the contract and the obligor, except perhaps
a phone call for verification purposes with the obligor.
In a "direct" lending program the automobile loan is funded directly by the
finance company in a "face-to-face" loan closing with the obligor rather than by
the dealer, although the dealer may have recommended the finance company to its
customer. In the Emergent Auto Loan Program, all loans are closed in the branch
S-15
<PAGE>
offices of the related Originator. The branch offices are all located in South
Carolina, and currently consist of offices of Loan Pro$ in Columbia, Charleston,
Florence and Spartanburg and offices of Premier in Anderson, Greenville and
Spartanburg.
In addition to allowing the Originators to meet the obligors in person and
to review the credit applications prior to funding, the direct lending approach
also provides the Originators with the opportunity to physically inspect the
collateral prior to funding.
Approximately 89.25% of the Original Aggregate Principal Balance represents
such "direct" originations, with the balance having been acquired by the
Originators from various dealers as "indirect" originations. The Originators
expect that their indirect originations will increase in the future.
The decentralized, direct-lending approach through the Originators' branch
office network is also reflected in the servicing aspects of the Emergent Auto
Loan Program. Roughly half of the scheduled collections are received when
obligors personally visit the branch office which originated the loan to drop
off the payment. The remainder of the obligors mail their payments in, again to
the branch office which originated the loan. To maintain the degree of obligor
contact found in the Emergent Auto Loan Program, the related Originator will be
the Sub-Servicer for the related loans, thus allowing for continuity of obligor
contact through the branch office personnel.
In connection with a routine audit of their records, the Originators
recently discovered certain errors in the amount of interest charged to certain
obligors. The Originators have taken certain remedial actions with respect to
such errors and have been advised by counsel that such remedial actions are
adequate and proper under applicable consumer finance laws.
Litigation
There are no material legal proceedings pending or, to the knowledge of
Emergent, threatened against Emergent.
Recent Developments
On March 1, 1996, the Servicer filed a registration statement with the
Securities and Exchange Commission (the "Commission") with respect to the
offering of up to 2,987,000 shares of Common Stock (including the 15%
"over-allotment" option granted to the underwriters). Of this amount, 2,300,000
shares (including the over-allotment option) are being sold by the Servicer,
with the balance being sold by certain shareholders of the Servicer. The
proceeds of the offering will be used to pay down certain indebtedness of the
Servicer and the balance used for corporate general purposes, including funding
the Servicer's loan demands. The managing underwriters of this offering are J.C.
Bradford & Co., Raymond James & Associates, Inc. and Wheat First Butcher Singer.
The Servicer expects that the offering will commence in the second quarter of
1996. A prospectus relating to the offering, expected to be available in late
April, may be obtained upon written or oral request to Robert S. Davis, the
Servicer's Chief Financial Officer, by calling or writing the Servicer's
principal executive offices at the address and telephone number set forth in the
Summary of Terms. The registration statement filed with the Commission has not
yet become effective. These securities may not be sold nor may offers to buy be
accepted prior to the time the registration statement becomes effective. This
paragraph shall not constitute an offer to sell or the solicitation of an offer
to buy nor shall there be any sale of these securities in any State in which
such offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
The Non-Prime Credit Market
The non-prime credit market includes applicants who often have below
average credit profiles and are considered relatively high credit risks based on
prior credit performance. According to the Federal Reserve Board, total
automobile credit outstanding in 1993 amounted to $278.7 billion, of which
approximately $55.7 billion consisted of finance company portfolios. The
Originators are unaware of any authoritative estimates of the size of the
non-prime portion of this market.
The non-prime credit market is fragmented and historically has been
serviced by a variety of financial entities, including "captive" finance arms of
major automotive manufacturers, banks, savings and loans, independent finance
companies, credit unions, small loan companies, industrial thrifts and leasing
companies. Many of these financial organizations do not consistently solicit
business in this credit market. The Originators believe that captive finance
companies generally focus their marketing efforts on the non-prime market when
inventory control and/or production scheduling requirements of their parent
organizations dictate a need to enhance sales volumes and then exit the market
once these sales volumes are satisfied. Recently the non-prime credit market has
been dominated by independent finance companies, many of which have been formed
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<PAGE>
in the past two to five years, that originate loans through their dealer
networks. Such companies, including NationsCredit, AmeriCredit Corp., Trans
South Financial Corp. and various local automobile dealerships, compete with the
Originators in the non-prime credit market. Because some competitors are willing
to finance automobiles on more aggressive terms, the Originators face the risk
of losing market share.
Underwriting
The Originators' underwriting standards are intended to evaluate a
prospective buyer's credit standing and repayment ability and the adequacy of
the related financed vehicle as collateral. Although Loan Pro$ and Premier each
have separate underwriting programs, they are substantially similar. In
addition, both Loan Pro$ and Premier apply the same underwriting standards to
indirect loans that they apply to direct loans. Generally, a prospective buyer
is required by the Originators to complete a credit application on a form
prepared or approved by the related Originator. As part of the description of
the applicant's financial condition, the applicant is required to provide
current information enumerating, among other things, employment history, debts
and credit references. Upon receipt, the loan officer obtains an independent
credit bureau report and reviews the report for any debt that is past due. The
applicant must provide an explanation for each outstanding debt that is past
due. The loan officer then attempts to verify employment, hire date and income
through check stubs or with the applicant's employer. The loan officer also
verifies the payment history of an applicant's rent or mortgage payments. The
loan officer then reviews the application and the transaction terms and
physically inspects the vehicle to determine if the request for credit meets the
Originators' established guidelines. Each loan officer must indicate in writing
why the loan should be approved. All direct loans must be approved either by the
branch manager or the assistant branch manager of each office issuing the loan.
The branch manager has authority to approve all loans up to $10,000. Amounts
greater than $10,000 must be approved by senior management of the related
Originator. Upon closing of the loan, a coupon book is issued to the obligor.
With respect to indirect loans, once the dealer has completed a funding
package, the dealer sends it to the related Originator with which it has a
dealer agreement. The related Originator funds the loan after verification of
the final sale. All applicants on indirect loans are contacted by phone to
verify receipt of the vehicle purchased and the address and to notify the
applicant that a coupon book will be sent to them which they are to use in
making payments directly to the related Originator.
Perfection of Security Interest. Each installment sales contract contains a
clause granting the Originators or the dealer a security interest in the
financed vehicle. In South Carolina, a security interest is perfected by noting
the secured party's interest on the vehicle's Certificate of Title. Loan Pro$ or
Premier is recorded as lienholder on the financed vehicles' titles. With respect
to indirect loans, the originating dealer is required to complete the title work
and take all the steps required to perfect Premier's or Loan Pro$'s security
interest. The loan is subject to payoff by the dealer if the title is not
received with Premier's or Loan Pro$'s security interest perfected.
Quality Control. In addition to the general quality control implicit within
the pre-funding review of each installment sales contract, as part of the
post-funding quality control process, the quality control managers of Loan Pro$
and Premier each conduct unannounced audits, regularly review accounts of each
branch office and verify follow-up procedures with respect to delinquencies to
ensure that internal controls are being complied with by the branch offices.
Insurance. The Originators require each obligor under an automobile or
light duty truck installment sale contract to obtain comprehensive and collision
insurance with respect to the related financed vehicle and verify the existence
of such insurance with the appropriate loss payee clause before they will fund
such contract. Following such funding, the related Sub-Servicer monitors the
maintenance of such physical damage insurance. With respect to loans funded by
Loan Pro$ beginning October 1995, if an obligor on either a direct or indirect
loan does not maintain such insurance, the related Sub-Servicer will force-place
physical damage insurance until the obligor renews insurance coverage or until
the vehicle is repossessed. With respect to loans funded by Premier, however,
insurance is not force-placed upon a lapse of physical damage insurance.
Instead, at the time notification is received from the insurance company
indicating the coverage will be dropped, the obligor is called and a letter is
sent requesting proof of coverage. If no response is received, the financed
vehicle is repossessed.
Delinquency Follow-Up, Repossession and Liquidation. The Sub-Servicers
consider a loan to be past due when the obligor fails to make a contractual
payment by the due date or when less than 90% of a contractual payment is made.
Generally, all direct loans five (5) to ten (10) days past due and indirect
loans one (1) to five (5) days past due are contacted with a telephone call or a
letter, which telephone call or letter is documented on the computer system or
filed in the obligor's account folder. Upon an account becoming eleven days past
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due, a "Right to Cure" letter is mailed to the obligor and a copy maintained in
the obligor's account folder. A "Right to Cure" letter constitutes notice to the
obligor of an event of default as required by South Carolina law, which notice
triggers a time period within which the obligor may cure the default prior to
repossession. The "Right to Cure" letter is usually followed by frequent
telephone calls to the obligor. All accounts twenty-five (25) days past due will
receive a letter stating the amount due, including any additional charges.
Collection attempts focus on identifying the obligor's underlying financial
problems and on obtaining a promise to pay from the obligor.
The decision to repossess is influenced by many factors such as previous
account history, reasons for delinquency and cooperation. The Sub-Servicers'
collectors make every effort to preserve the loan as a performing loan. Before
the collateral is repossessed, the loan officer must determine that the obligor
cannot or will not repay the loan by the workout of a reasonable schedule of
repayment. However, when further regular payments on the loan appear improbable,
the account is then assigned for repossession. The decision to repossess will
generally be made when the loan becomes 61 days delinquent and the vehicle is
generally sold within 60-90 days after being repossessed. Once a vehicle is
repossessed, the collections department follows specific procedures which
conform to federal and state regulations pertaining to the sale and disposal of
repossessed vehicles. Sales of repossessed vehicles are generally handled by
select dealerships within the branch office area.
Set forth below is certain information concerning delinquency and loss
experience with respect to Emergent's portfolio of installment sale contracts
for used automobiles, light duty trucks, vans and mini-vans. Delinquency is
recognized on a contractual basis only. Installment payments must equal or
exceed 90% of the Scheduled Payment due for a contract to be considered current.
While the Sub- Servicers' collection policies generally result in collection
activity commencing one (1) to five (5) days after an account becomes
delinquent, they do allow for loan deferments in extraordinary circumstances
where the borrower has a positive loan payment history. These cases are reviewed
on an individual basis and must be approved by the branch manager. The
Sub-Servicers will only permit two deferments over a twelve-month period, and
deferments are allowed only for the interest that is due on the account, or
one-half of a payment, whichever is greater. Each deferment will extend the term
of the loan by one month. The Originators rewrite contracts only under
extraordinary circumstances.
<TABLE>
<CAPTION>
TABLE 1
DELINQUENCY EXPERIENCE OF THE EMERGENT AUTO LOAN PROGRAM
====================================================================================================================================
Year Ended December 31,
------------------------------------------------------------------------------------------------------------
1995(1) 1994 1993
============================================================================================================
Percentage Percentage Percentage
Dollar of Total Dollar of Total Dollar of Total
Amount Portfolio Amount Portfolio Amount Portfolio
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Total Originators'
Portfolio
at Year End $17,673,176 100% $8,482,924 100% $6,011,554 100%
Delinquencies:
30-59 Days $ 1,658,811 9.4% $ 194,356 2.3% $168,375 2.8%
60 + Days $ 603,196 3.4% $ 121,202 1.4% $403,493 6.7%
Total Delinquencies $ 2,262,007 12.8% $ 315,558 3.7% $571,868 9.5%
====================================================================================================================================
</TABLE>
(1) Beginning in September 1995, delinquencies were calculated based on
the following month's opening date, rather than the current month's
opening date. While this is a more conservative presentation
compared to industry standard, Emergent believes that this method
more accurately reflects the actual past due status at month end.
The statistics for 1994 and 1993 have not been restated following
this method.
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<TABLE>
<CAPTION>
TABLE 2
LOSS EXPERIENCE OF THE EMERGENT AUTO LOAN PROGRAM
====================================================================================================================================
Year Ended December 31,
------------------------------------------------------------------------------------------------------------
1995 1994 1993
============================================================================================================
Percentage Percentage Percentage
Dollar of Total Dollar of Total Dollar of Total
Amount Portfolio Amount Portfolio Amount Portfolio
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Total Originators'(1) $17,673,176 100% $8,482,924 100% $6,011,554 100%
Portfolio
at Year End
Net Charge-Offs $ 480,773 2.72% $ 183,228 2.16% $ 260,454 4.33%
====================================================================================================================================
</TABLE>
(1) Total Originations = total amount of the vehicles financed by the
Originators plus the total cost to the Originators of Receivables purchased
from dealers.
Charge-Off Policies and Net Losses. Each Sub-Servicer's policy is to
charge-off an account upon the earliest to occur of the date on which the
vehicle is repossessed, when the related Sub-Servicer determines that recoveries
are unlikely or when more than ten percent of the loan becomes 180 days or more
delinquent. If the Sub-Servicers sell a repossessed vehicle, the outstanding
principal balance at the time of repossession, net of liquidation proceeds, is
recorded as the net loss for the contract. If, however, the Sub-Servicers hold
the vehicle in repossessed inventory at the time of loss recognition, the net
loss amount is the outstanding principal balance at the time of repossession,
less the estimated liquidation value of the vehicle. Finally, if the
Sub-Servicers cannot gain possession of the vehicle, the outstanding principal
balance is charged-off. Subsequent recoveries are taken in the period received.
All charge-offs are currently reviewed by senior management.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will consist of the Class A Certificates and the
Subordinate Certificates. The Certificates will be issued by Emergent Auto
Receivables Trust 1996-A, a trust to be organized under the laws of New York.
Only the Class A Certificates are offered hereby.
Persons in whose name a Certificate is registered in the register
maintained by the Trustee are the "Holders" of the Certificates. For so long as
the Class A Certificates are in book-entry form with DTC, the only "Holder" of
the Class A Certificates as the term "Holder" is used in the Pooling and
Servicing Agreement will be Cede & Co. All references herein to the Holders of
Class A Certificates ("Class A Certificateholders") shall mean and include the
rights of Class A Interest Holders, as such rights may be exercised through DTC
and its participating organizations, except as otherwise specified in the
Pooling and Servicing Agreement.
The obligations evidenced by the Certificates are recourse to the assets of
the Trust only and are not recourse to the Depositor, the Seller, the
Originators, the Servicer, the Trustee, or any other Person, except that the
Policy is a recourse obligation of the Certificate Insurer.
The "Percentage Interest" owned by a Class A Certificateholder will be
expressed, for voting and certain other purposes under the Pooling and Servicing
Agreement, as the percentage obtained by dividing the denomination representing
the Percentage Interest of the Class A Certificate by the Class A Principal
Distributable Amount. So long as no Insurer Default has occurred and is
continuing, except as otherwise specifically provided in the Pooling and
Servicing Agreement, whenever the action, consent or approval of a Class A
Certificateholder is required under the Pooling and Servicing Agreement, such
action, consent or approval shall be deemed to have been taken or given on
behalf of, and shall be binding upon, all Class A Certificateholders if the
Certificate Insurer agrees to take such action or give such consent or approval.
Distributions
The first Distribution Date for distributions to the Class A
Certificateholders will be April 22, 1996. In general, the Class A
Certificateholders will be entitled to receive, on each Distribution Date, the
Class A Principal Distributable Amount and the Class A Interest Distributable
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Amount. Distributions of principal and interest on the Class A Certificates will
be made by the Trustee directly to Class A Certificateholders in whose names the
Class A Certificates are registered at the close of business on the Record Date
in accordance with the procedures set forth in the Pooling and Servicing
Agreement. Such distributions will be made by check mailed to the address of
such Certificateholder as it appears on the register maintained by the Trustee
or, upon the request of any Certificateholder meeting the requirements set forth
in the Pooling and Servicing Agreement, by wire transfer of immediately
available funds. The final payment on any Class A Certificate, however, will be
made only upon presentation and surrender of such Class A Certificate at the
office or agency specified in the notice of final distribution to
Certificateholders.
The Accounts
The Servicer will establish the Collection Account in the name of the
Trustee on behalf of the Certificateholders and the Certificate Insurer. Certain
payments made on or with respect to the Receivables will be deposited daily in
the Collection Account by the Sub-Servicers. On a specified date each month and
prior to the Distribution Date, all collections relating to the prior Collection
Period will be withdrawn from the Collection Account and deposited with the
Trustee for distribution on the related Distribution Date. The Servicer will
also establish the "Payahead Account" in the name of the Trustee, into which
early payments with respect to Rule of 78s Receivables by or on behalf of the
Obligors which do not constitute current Scheduled Payments, late fees, or full
repayments will be deposited until such time as the payment falls due or until
such funds are applied to shortfalls in the Scheduled Payments with respect to
such Receivables ("Payaheads"). Until such time as payments are transferred from
the Payahead Account to the Collection Account, they will not constitute
collected interest or collected principal, and will not be available for
distribution to the Certificateholders.
The Servicer will deposit all payments on Receivables received and all
proceeds of Receivables collected during each Collection Period (including
certain amounts from the Payahead Account) into the Collection Account no later
than the second Business Day after receipt. Emergent will remit the aggregate
Purchase Amount of any Receivables required to be repurchased by it from the
Trust to the Trustee on or before the third Business Day immediately preceding
the related Distribution Date.
The Collection Account and the Payahead Account will be initially
established and maintained with the Trustee so long as (i) the Trustee's
short-term unsecured debt obligations have a rating of A-1 by S&P and P-1 by
Moody's (the "Required Deposit Ratings") or (ii) such Account is maintained in
the trust department of the Trustee.
Collections
For purposes of the Pooling and Servicing Agreement, collections on a
Receivable (other than a Purchased Receivable) which are not late fees,
prepayment charges, or other administrative fees and expenses collected during a
Collection Period are required to be applied first to the Scheduled Payment. To
the extent that such collections on a Receivable during a Collection Period
exceed the Scheduled Payment on such Receivable, the collections are required to
be applied to prepay the Receivable in full. If the collections are insufficient
to prepay the Receivable in full, (i) with respect to Rule of 78s Receivables,
they generally are required to be treated as Payaheads until such later
Collection Period as such Payaheads may be applied either to the Scheduled
Payment or to prepay the Receivable in full, and (ii) with respect to Simple
Interest Receivables, any partial prepayment of principal during a Collection
Period shall be immediately applied to reduce the principal balance of the
Receivable during such Collection Period. Notwithstanding the payment terms of
the Receivables, for purposes of the Pooling and Servicing Agreement, Scheduled
Payments for Rule of 78s Receivables are required to be allocated to principal
and interest according to the actuarial method.
Flow of Funds
On each Distribution Date, the Trustee shall (based on the information
contained in the Servicer's Certificate delivered on the related Determination
Date) distribute the following amounts and in the following order of priority:
(i) first, from the Distribution Amount, to the Servicer, the
Servicing Fee for the related Collection Period, any Supplemental Servicing
Fees for the related Collection Period, and certain other amounts relating
to mistaken deposits, postings or checks returned for insufficient funds to
the extent the Servicer has not reimbursed itself in respect of such
amounts;
(ii) second, from the Distribution Amount, to a relevant local bank,
Trustee, custodian, Backup Servicer or a collateral agent (including the
Trustee if acting in any such additional capacity), any accrued and unpaid
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fees (in each case, to the extent such Person has not previously received
such amount from the Servicer);
(iii) third, from the Amount Available to the Class A
Certificateholders, the sum of (x) the Class A Interest Distributable
Amount for such Distribution Date and (y) the Class A Interest Carryover
Shortfall, if any, for such Distribution Date;
(iv) fourth, from the Amount Available to the Class A
Certificateholders, the sum of (x) the Class A Principal Distributable
Amount for such Distribution Date and (y) the Class A Principal Carryover
Shortfall, if any, for such Distribution Date;
(v) fifth, from the Distribution Amount, to the Certificate Insurer,
to the extent of any amounts owing to the Certificate Insurer (whether with
respect to premiums or otherwise) and not paid, whether or not the
Originators are also obligated to pay such amounts;
(vi) sixth, the remaining Available Funds will be first deposited in
certain collateral accounts maintained for the benefit of the Certificate
Insurer and thereafter any further excess amounts will be distributed to
the Subordinate Certificateholders.
Withholding
The Trustee is required to comply with all federal income tax withholding
requirements respecting payments to Class A Certificateholders of interest or
original issue discount with respect to the Class A Certificates that the
Trustee reasonably believes are applicable under the Code. The consent of the
Class A Certificateholders will not be required for such withholding. In the
event that the Trustee does withhold or causes to be withheld any amount from
interest or original issue discount payments or advances thereof to any Class A
Certificateholders pursuant to federal income tax withholding requirements, the
Trustee is required to indicate the amount withheld in its monthly report to
such Class A Certificateholders.
THE CERTIFICATE INSURER
The following information has been obtained from Financial Security
Assurance Inc. (the "Certificate Insurer" or "Financial Security") and has not
been verified by the Depositor, the Seller, the Originators or the Underwriter.
No representation or warranty is made by the Depositor, the Seller, the
Originators or the Underwriter with respect thereto.
General
Financial Security is a monoline insurance company incorporated on March
16, 1984 under the laws of the State of New York. Financial Security is
licensed, directly or through its subsidiaries, to engage in the financial
guaranty insurance business in all 50 states, the District of Columbia, Puerto
Rico and the United Kingdom.
Financial Security and its subsidiaries are engaged in the business of
writing financial guaranty insurance, principally in respect of securities
offered in domestic and foreign markets. In general, financial guaranty
insurance consists of the issuance of a guaranty of scheduled payments of an
issuer's securities -- thereby enhancing the credit rating of those securities
- -- in consideration for the payment of a premium to the insurer. Financial
Security and its subsidiaries principally insure asset-backed, collateralized
and municipal securities. Asset-backed securities generally are supported by
residential mortgage loans, consumer or trade receivables, securities or other
assets having an ascertainable cash flow or market value. Collateralized
securities include public utility first mortgage bonds and sale/leaseback
obligation bonds. Municipal securities consist largely of general obligation
bonds, special revenue bonds and other special obligations of state and local
governments. Financial Security insures both newly issued securities sold in the
primary market and outstanding securities sold in the secondary market that
satisfy Financial Security's underwriting criteria.
Financial Security is a wholly-owned subsidiary of Financial Security
Assurance Holdings Ltd. ("Holdings"), a New York Stock Exchange listed company.
Holdings is owned approximately 50% by U S WEST Capital Corporation ("US WEST"),
8% by Fund American Enterprises Holdings, Inc. ("Fund American"), and 6% by The
Tokio Marine and Fire Insurance Co. Ltd. ("Tokio Marine"). U S WEST is a
subsidiary of U S WEST, Inc., which operates businesses involved in
communications, data solutions, marketing services and capital assets, including
the provision of telephone services in 14 states in the western and midwestern
United States. Fund American is a financial services holding company whose
principal operating subsidiary is one of the nation's largest mortgage
servicers. Tokio Marine is a major Japanese property and casualty insurance
S-21
<PAGE>
company. U S WEST has announced its intention to dispose of its remaining
interest in Holdings as part of its strategic plan to withdraw from businesses
not directly involved in telecommunications. Fund American has certain rights to
acquire and vote additional shares of Holdings from U S WEST and Holdings. No
shareholder of Holdings is obligated to pay any debt of Financial Security or
any claim under any insurance policy issued by Financial Security or to make any
additional contribution to the capital of Financial Security.
On December 20, 1995, Capital Guaranty Corporation ("CGC") merged with a
subsidiary of Holdings, and Capital Guaranty Insurance Company ("CGIC"), CGC's
principal operating subsidiary became a wholly-owned subsidiary of Financial
Security. CGIC was a financial guaranty insurer of municipal bonds in the
domestic market.
The principal executive offices of Financial Security are located at 350
Park Avenue, New York, New York 10022, and its telephone number at that location
is (212) 826-0100. At September 30, 1995, Financial Security and its
subsidiaries had 167 employees.
Reinsurance
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written or reinsured from third parties by Financial Security or any
of its domestic operating insurance company subsidiaries are reinsured among
such companies on an agreed-upon percentage substantially proportional to their
respective capital, surplus and reserves, subject to applicable statutory risk
limitations. In addition, Financial Security reinsures a portion of its
liabilities under certain of its financial guaranty insurance policies with
other reinsurers under various quota share treaties and on a transaction-
by-transaction basis. Such reinsurance is utilized by Financial Security as a
risk management device and to comply with certain statutory and rating agency
requirements; it does not alter or limit Financial Security's obligations under
any financial guaranty insurance policy.
Rating of Claims-Paying Ability
Financial Security's claims-paying ability is rated "Aaa" by Moody's and
"AAA" by S&P, Nippon Investors Service Inc. and Standard & Poor's (Australia)
Pty. Ltd. 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. See "RATINGS."
Capitalization
The following table sets forth the capitalization of Financial Security and
its wholly owned subsidiaries on the basis of generally accepted accounting
principles as of September 30, 1995 (in thousands):
September 30, 1995
(unaudited)
------------------
Unearned Premium Reserve (net of
prepaid reinsurance premiums) ......... $216,931
Shareholder's Equity:
Common Stock. ........................... 15,000
Additional Paid-In Capital. ............. 497,506
Unrealized Gain on Investments (net
of deferred income taxes) ............. 7,790
Accumulated Earnings .................... 70,177
Total Shareholder's Equity ................ $590,473
Total Unearned Premium Reserve and
Shareholder's Equity .................. $807,404
For further information concerning Financial Security, see the Consolidated
Financial Statements of Financial Security and Subsidiaries, and the notes
thereto, incorporated herein by reference. Copies of the statutory quarterly and
annual statements filed with the State of New York Insurance Department by
Financial Security are available upon request to the State of New York Insurance
Department.
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<PAGE>
Insurance Regulation
Financial Security is licensed and subject to regulation as a financial
guaranty insurance corporation under the laws of the State of New York, its
state of domicile. In addition, Financial Security and its insurance
subsidiaries are subject to regulation by insurance laws of the various other
jurisdictions in which they are licensed to do business. As a financial guaranty
insurance corporation licensed to do business in the State of New York,
Financial Security is subject to Article 69 of the New York Insurance Law which,
among other things, limits the business of each such insurer to financial
guaranty insurance and related lines, requires that each such insurer maintain a
minimum surplus to policyholders, establishes contingency, loss and unearned
premium reserve requirements for each such insurer, and limits the size of
individual transactions ("single risks") and the volume of transactions
("aggregate risks") that may be underwritten by each such insurer. Other
provisions of the New York Insurance Law, applicable to non-life insurance
companies such as Financial Security, regulate, among other things, permitted
investments, payment of dividends, transactions with affiliates, mergers,
consolidations, acquisitions or sales of assets and assumption of liability for
borrowings.
THE POLICY
The following summary of the terms of the Policy does not purport to be
complete and is qualified in its entirety by reference to the Policy.
Simultaneously with the issuance of the Certificates, the Certificate
Insurer will deliver the Policy to the Trustee for the benefit of each Class A
Certificateholder. Under the Policy, the Certificate Insurer unconditionally and
irrevocably guarantees to the Trustee for the benefit of each Class A
Certificateholder the full and complete payment of (i) Guaranteed Distributions
with respect to the Class A Certificates and (ii) the amount of any Guaranteed
Distribution which subsequently is avoided in whole or in part as a preference
payment under applicable law.
"Guaranteed Distributions" means, with respect to each Distribution Date,
the distribution to be made to Class A Certificateholders in an aggregate amount
equal to the Class A Interest Distributable Amount and the Class A Principal
Distributable Amount due and payable on such Distribution Date, in each case in
accordance with the original terms of the Class A Certificates when issued and
without regard to any amendment or modification of the Class A Certificates or
the Pooling and Servicing Agreement which has not been consented to by the
Certificate Insurer; provided, however, that Guaranteed Distributions shall not
include (x) any portion of the Class A Interest Distributable Amount due to
Class A Certificateholders because the appropriate notice and certificate for
payment in proper form was not timely Received (as defined below) by the
Certificate Insurer and (y) any portion of the Class A Interest Distributable
Amount due to Class A Certificateholders representing interest on any Class A
Interest Carryover Shortfall, unless, in each case, the Certificate Insurer
elects, in its sole discretion, to pay such amount in whole or in part.
Guaranteed Distributions shall not include, nor shall coverage be provided under
the Policy in respect of, any taxes, withholding or other charge imposed by any
governmental authority due in connection with the payment of any Guaranteed
Distribution to a Class A Certificateholder. The Policy also covers certain
payments avoided as preference payments, as described in the second following
paragraph.
Payment of claims on the Policy made in respect of Guaranteed Distributions
will be made by the Certificate Insurer following Receipt by the Certificate
Insurer of the appropriate notice for payment on the later to occur of (i) 12:00
noon New York City time, on the third Business Day following Receipt of such
notice for payment and (ii) 12:00 noon New York City time, on the date on which
such payment was due on the Class A Certificates.
If payment of any amount avoided as a preference under applicable
bankruptcy, insolvency, receivership or similar law is required to be made under
the Policy, the Certificate Insurer shall cause such payment to be made on the
later of (a) the date when due to be paid pursuant to the Order referred to
below or (b) the first to occur of (i) the fourth Business Day following Receipt
by the Certificate Insurer from the Trustee of (A) a certified copy of the order
(the "Order") of the court or other governmental body which exercised
jurisdiction to the effect that the Class A Certificateholder is required to
return the amount of any Guaranteed Distributions distributed with respect to
the Class A Certificates during the term of the Policy because such
distributions were avoidable as preference payments under applicable bankruptcy
law, (B) a certificate of the Class A Certificateholder that the Order has been
entered and is not subject to any stay and (C) an assignment duly executed and
delivered by the Class A Certificateholder, in such form as is reasonably
required by the Certificate Insurer and provided to the Class A
Certificateholder by the Certificate Insurer, irrevocably assigning to the
Certificate Insurer all rights and claims of the Class A Certificateholder
relating to or arising under the Class A Certificates against the debtor which
made such preference payment or otherwise with respect to such preference
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payment, or (ii) the date of Receipt by the Certificate Insurer from the Trustee
of the items referred to in clauses (A), (B) and (C) above if, at least four
Business Days prior to such date of Receipt, the Certificate Insurer shall have
Received written notice from the Trustee that such items were to be delivered on
such date and such date was specified in such notice. Such payment shall be
disbursed to the receiver, conservator, debtor-in-possession or trustee in
bankruptcy named in the Order and not to the Trustee or any Class A
Certificateholder directly (unless a Class A Certificateholder has previously
paid such amount to the receiver, conservator, debtor-in-possession or trustee
in bankruptcy named in the Order in which case such payment shall be disbursed
to the Trustee for distribution to such Class A Certificateholder upon proof of
such payment reasonably satisfactory to the Certificate Insurer).
The terms "Receipt" and "Received," with respect to the Policy, shall mean
actual delivery to the Certificate Insurer and to the fiscal agent, if any,
prior to 12:00 noon, New York City time, on a Business Day; delivery either on a
day that is not a Business Day or after 12:00 noon, New York City time, shall be
deemed to be Receipt on the next succeeding Business Day. If any notice or
certificate given under the Policy by the Trustee is not in proper form or is
not properly completed, executed or delivered, it shall be deemed not to have
been Received, and the Certificate Insurer or the fiscal agent shall promptly so
advise the Trustee and the Trustee may submit an amended notice.
Under the Policy, "Business Day" means any day other than a Saturday,
Sunday, legal holiday or other day on which banking institutions in New York,
South Carolina or any other location of any successor Servicer, successor
Trustee or a successor collateral agent are authorized or obligated by law,
executive order or governmental decree to be closed.
The Certificate Insurer's obligations under the Policy in respect of
Guaranteed Distributions shall be discharged to the extent funds are transferred
to the Trustee as provided in the Policy whether or not such funds are properly
applied by the Trustee.
The Certificate Insurer shall be subrogated to the rights of each Class A
Certificateholder to receive payments of principal and interest to the extent of
any payment by the Certificate Insurer under the Policy.
Claims under the Policy constitute direct, unsecured and unsubordinated
obligations of the Certificate Insurer ranking not less than pari passu with
other unsecured and unsubordinated indebtedness of the Certificate Insurer for
borrowed money. Claims against the Certificate Insurer under the Policy and
claims against the Certificate Insurer under each other financial guaranty
insurance policy issued thereby constitute pari passu claims against the general
assets of the Certificate Insurer. The terms of the Policy cannot be modified or
altered by any other agreement or instrument, or by the merger, consolidation or
dissolution of the Trust. The Policy may not be canceled or revoked prior to
payment in full of all Guaranteed Distributions with respect to the Class A
Certificates. The Policy is not covered by the Property/Casualty Insurance
Security Fund specified in Article 76 of the New York Insurance Law. The Policy
is governed by the laws of the State of New York.
THE POOLING AND SERVICING AGREEMENT AND THE TRANSFER AGREEMENTS
The following summary describes certain terms of the Pooling and Servicing
Agreement and the Transfer Agreements, does not purport to be complete and is
subject to and qualified in its entirety by reference to such Agreements.
Wherever provisions of such Agreements are referred to, such provisions are
hereby incorporated herein by reference.
The Trust
The Trust will be formed in accordance with the laws of the State of New
York, pursuant to the Pooling and Servicing Agreement, solely for the purpose of
effectuating the transactions described herein. Prior to formation, the Trust
will have had no assets or obligations and no operating history. Upon formation,
the Trust will not engage in any business activity other than acquiring and
holding the Receivables, issuing the Certificates and distributing payments
thereon.
Conveyance of Receivables
The Receivables were sold by the Originators to the Seller and sold by the
Seller to the Depositor. At the time of issuance of the Class A Certificates,
the Depositor will sell and assign to the Trustee, without recourse, the
Depositor's entire interest in the Receivables, including its security interests
in the Financed Vehicles. Each Receivable will be identified in a schedule to
the Pooling and Servicing Agreement. The Trustee will, concurrently with such
sale and assignment, execute, authenticate and issue the Certificates.
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In the Transfer Agreements, Emergent will represent and warrant, among
other things, that (i) the information provided in the Schedule of Receivables
delivered at the time of issuance is correct in all material respects; (ii) at
the date of issuance of the Certificates, the Receivables are free and clear of
all security interests, liens, charges and encumbrances other than the security
interest of the "warehouse" lender to be released concurrently with the issuance
of the Certificates and no set offs, counterclaims or rescission by any obligor
have been asserted or threatened nor do any such rights of set offs,
counterclaims or rescission exist; (iii) at the date of issuance of the
Certificates, each of the Receivables is secured by (or all necessary steps have
been taken to result in) a first perfected security interest in the Financed
Vehicle in favor of the Originators, which has been assigned to the Trust; and
(iv) each Receivable, at the time it was originated, complied, and at the date
of issuance of the Certificates, complies in all material respects with
applicable federal and state laws, including consumer credit, truth in lending,
equal credit opportunity and disclosure laws. In the Pooling and Servicing
Agreement, the Depositor will appoint the Trustee as the Depositor's
attorney-in-fact with all power independently to enforce all of the Depositor's
rights against Emergent for breach of the representations and warranties made
under the Transfer Agreements, including Emergent's obligation to repurchase any
Receivable from the Trust if the breach of a representation or warranty relating
to a Receivable materially and adversely affects the value of such Receivable or
the interests of the Trust, the Certificateholders or the Certificate Insurer in
such Receivable unless the breach shall have been cured by the Deposit Date of
the first full calendar month following the discovery by or notice to Emergent
of the breach.
Emergent will deliver to the Trustee a receivable file with respect to each
Receivable containing the original contract for each Receivable and the original
certificate of title or certificate of lien.
Servicing
The Receivables will be serviced by the Servicer pursuant to the Pooling
and Servicing Agreement; provided, that Loan Pro$ will act as Sub-Servicer with
respect to the Receivables it originates and that Premier will act as
Sub-Servicer with respect to the Receivables it originates.
Each Sub-Servicer will be required to make reasonable efforts to collect
all payments due with respect to the Receivables and will continue such
collection procedures as each generally follows with respect to all comparable
Receivables that it services for itself or others, in a manner consistent with
the Pooling and Servicing Agreement. If a Sub-Servicer determines that eventual
payment in full of a Receivable is unlikely, each will follow its normal
collection practices and procedures, including the repossession and disposition
of the Financed Vehicle securing the Receivable at a public or private sale, or
the taking of any other action permitted by applicable law.
Servicing Compensation and Payment of Expenses; Prepayment Interest
Shortfalls. The Servicer is entitled under the Pooling and Servicing Agreement
to receive on each Distribution Date the Servicing Fee and the Supplemental
Servicing Fee for the related Collection Period. The Servicer will be
responsible for the payment of any sub-servicing fees to Loan Pro$ and Premier.
The Servicing Fee and the Supplemental Servicing Fee (collectively, the
"Servicing Fee") are intended to compensate the Servicer for performing the
functions of a third-party servicer of the Receivables as an agent for the
Certificateholders, including collecting and posting all payments, responding to
inquiries of Obligors on the Receivables, investigating delinquencies, reporting
tax information to Obligors, paying costs of collections and policing the
collateral. The Servicing Fee will also compensate the Servicer for
administering the Receivables, including accounting for collections, furnishing
monthly and annual statements to the Trustee with respect to distributions and
generating federal income tax information for the Trust. The Servicing Fee also
will reimburse the Servicer for certain taxes, the fees and expenses of the
Trustee, independent accountants' fees and other costs incurred in connection
with administering the Receivables.
The Servicer will be required to deposit in the Collection Account monthly,
from its own funds, the amount of any interest shortfall resulting from a
prepayment of a Receivable on a date other than the scheduled due date during
the related Collection Period; in no event will the Servicer be required with
respect to any Collection Period to fund such amount to an amount in excess of
the Servicer's Servicing Fee for such Collection Period.
Evidence as to Compliance. The Pooling and Servicing Agreement will provide
that a firm of independent public accountants will furnish to the Trustee, the
Backup Servicer, the Certificate Insurer, the Depositor, the Certificateholders
and each Rating Agency, for the first two calendar months after the Closing Date
and if exceptions or errors that are required by generally accepted auditing
standards to be reported exist, for each month thereafter until reports for two
such consecutive months indicate no exceptions or errors that are required by
generally accepted auditing standards to be reported, a report (the
"Accountant's Report") of its audit of the Servicer's financial statements
including its examination of the Servicer's and each Sub-Servicer's financial
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statements and policies and procedures as of such date. The Accountant's Report
shall also be submitted on or before March 31 of each year with respect to the
twelve months ended the immediately preceding December 31, beginning March 31,
1997.
The Pooling and Servicing Agreement will also provide for delivery to the
Trustee and the Certificate Insurer, on or before March 31 of each year,
commencing March 31, 1997, of a certificate signed by an officer of the Servicer
stating that the Servicer has fulfilled its obligations under the Pooling and
Servicing Agreement throughout the preceding twelve months (or, for the initial
report, for such shorter period as will have elapsed from the date of issuance
of the Certificates) or, if there has been a default in the fulfillment of any
such obligation, describing each such default.
Copies of such statements and certificates may be obtained by the Class A
Certificateholders by a request in writing addressed to the Trustee.
Monthly Statement. Under the Pooling and Servicing Agreement, the Servicer
will perform certain monitoring and reporting functions for the Trustee and the
Certificate Insurer, including the preparation and delivery on the Determination
Date to the Trustee and the Certificate Insurer of a statement setting forth the
amounts on deposit in the Collection Account, the Payahead Account and the
sources of such amounts and the amounts to be paid to Certificateholders and
certain other information (the "Servicer's Certificate").
Retention and Termination of Servicer. Under the Pooling and Servicing
Agreement, the Servicer will act as such for an initial term commencing on the
Closing Date and ending on June 30, 1996, which term will be extendible by the
Certificate Insurer for successive quarterly terms ending on each successive
March 31, June 30, September 30 and December 31 until the termination of the
Trust.
Removal of the Servicer. The Pooling and Servicing Agreement will provide
that the Servicer may not resign from its obligations and duties as Servicer
thereunder, except upon a determination that the Servicer's performance of such
duties is no longer permissible under applicable law. No such resignation will
become effective until the Backup Servicer or another successor servicer
acceptable to the Certificate Insurer has assumed the Servicer's servicing
obligations and duties under the Servicing Agreement. The Servicer can only be
removed pursuant to a Servicer Termination Event. A "Servicer Termination Event"
under the Pooling and Servicing Agreement will include (i) the Servicer's
failure to deliver to the Trustee in accordance with the Pooling and Servicing
Agreement any proceeds or payments required for distribution to the
Certificateholders which failure continues unremedied for a period of two
Business Days (one Business Day with respect to payment of Purchase Amounts)
after written notice is received by the Servicer from the Trustee, the
Certificate Insurer (unless an Insurer Default shall have occurred and be
continuing) or after discovery of such failure by a responsible officer of the
Servicer; (ii) the Servicer's failure to deliver the Servicer's Certificate to
the Trustee or to the Certificate Insurer on the date on which such certificate
is required (pursuant to the Pooling and Servicing Agreement) to be delivered,
or failure on the part of the Servicer to observe certain of its covenants and
agreements set forth in the Pooling and Servicing Agreement; (iii) failure to
satisfy certain other material covenants or agreements set forth in the Pooling
and Servicing Agreement, which covenants and agreements remain uncured for a
period of 30 days after notice thereof; (iv) certain events of insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings with respect to the Servicer indicating its insolvency,
reorganization pursuant to bankruptcy proceedings, or inability to pay its
obligations which condition remains in effect for a period of 60 consecutive
days or the commencement of an involuntary case under the federal bankruptcy
laws, as now or hereinafter in effect, or another present or future federal or
state bankruptcy, insolvency or similar law and such case is not dismissed
within 60 days; (v) the material breach of certain of the Servicer's
representations or warranties and the Servicer's failure to cure such breach
within 30 days after notice thereof; (vi) the Servicer's term not being extended
as provided in the Pooling and Servicing Agreement; (vii) certain defaults under
the Insurance Agreement and (viii) a claim being made under the Policy. In
addition, a Servicer Termination Event includes any default by either
Sub-Servicer.
Rights Upon a Servicer Termination Event. If a Servicer Termination Event
has occurred and is continuing, the Certificate Insurer (or, if an Insurer
Default exists, either the Trustee or the Certificate Majority) may terminate
all (but not less than all) of the Servicer's rights and obligations under the
Pooling and Servicing Agreement. Upon such termination, all authority, powers,
obligations and responsibilities of the Servicer under the Pooling and Servicing
Agreement automatically then pass to the Backup Servicer, or, at the direction
of the Certificate Insurer, a successor servicer appointed by the Certificate
Insurer (or, if an Insurer Default exists, by the Certificate Majority).
Waiver of Past Defaults. The Certificate Insurer may, on behalf of all
Certificateholders, waive any default by the Servicer in the performance of its
obligations under the Pooling and Servicing Agreement and its consequences. No
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such waiver will impair the Certificateholders' rights with respect to
subsequent defaults.
The Trustee
The Trustee, Bankers Trust Company, a New York banking corporation, is
located at Four Albany Street, New York, New York 10006.
The Trustee may resign, subject to the conditions set forth below, at any
time upon written notice to the Depositor, the Servicer and the Certificate
Insurer, in which event the Servicer, with the consent of the Certificate
Insurer, will be obligated to appoint a successor Trustee. If no successor
Trustee shall have been so appointed and have accepted such appointment within
30 days after the giving of such notice of resignation, the resigning Trustee
may petition a court of competent jurisdiction for the appointment of a
successor Trustee. Any successor Trustee shall meet the financial and other
standards for qualifying as a successor Trustee under the Pooling and Servicing
Agreement. The Certificate Insurer, or, with the consent of the Certificate
Insurer, either the Certificate Majority or the Servicer may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Pooling and Servicing Agreement and fails to resign after written request
therefor, or is legally unable to act, or if the Trustee is adjudicated to be
insolvent.
Certain Reports
Reports to Certificateholders. On each Distribution Date, the Trustee will
be required to forward to each Class A Certificateholder and, to the Certificate
Insurer a statement, setting forth certain information for the Collection Period
related to such Distribution Date based on information provided to the Trustee
by the Servicer with respect to the preceding Collection Period. The information
provided in such statement shall include the amount of such distribution
allocable to principal and the amount of such distribution allocable to
interest; the Class A Certificate Balance (after giving effect to distributions
made on such Distribution Date); the amount of fees paid to the Trust with
respect to such Collection Period; the Class A Certificate Factor, certain loss
and delinquency information and whether certain events of default have occurred.
In addition, within the prescribed period of time for tax reporting
purposes after the end of each calendar year during the term of the Pooling and
Servicing Agreement, the Trustee will be required to mail to each person who at
any time during such calendar year will have been a Class A Certificateholder a
statement containing certain information related to such Certificateholder's
preparation of federal income tax returns.
The "Class A Certificate Factor" will be a seven-digit decimal number which
the Servicer will compute each month indicating the Class A Certificate Balance
as of the close of business on the Distribution Date in that month as a fraction
of the respective original outstanding principal balance of the Class A
Certificates. The Class A Certificate Factor will be 1.0000000 as of the Cut-Off
Date; thereafter, the Class A Certificate Factor will decline to reflect
reductions in the Class A Certificate Balance as a result of Scheduled Payments
collected, partial prepayments, prepayments and liquidations of the Receivables.
The amount of a Class A Certificateholder's pro rata share of the Class A
Certificate Balance can be determined on any date by multiplying the original
denomination of the Holder's Certificate by the Class A Certificate Factor as of
the close of business on the most recent Distribution Date.
Termination
Termination of the Trust. The respective obligations of the Servicer, the
Depositor and the Trustee pursuant to the Pooling and Servicing Agreement and of
the Certificate Insurer will terminate upon the latest of (i) the maturity or
other liquidation of the last Receivable and the disposition of any amounts
received upon liquidation of any remaining Receivables and (ii) the payment to
Certificateholders of all amounts required to be paid to them pursuant to the
Pooling and Servicing Agreement, the expiration of any preference period related
thereto and payment to the Certificate Insurer of all amounts payable or
reimbursable to it pursuant to the Pooling and Servicing Agreement and the
Insurance Agreement.
The respective representations, warranties and indemnities of the
Depositor, the Seller and the Servicer will survive any termination of the Trust
and the Pooling and Servicing Agreement.
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Optional Purchase. The Pooling and Servicing Agreement will provide that
the Servicer is permitted at its option to purchase from the Trust, as of the
last day of any month as of which the Aggregate Principal Balance with respect
to the Receivables is less than 10% of the Original Aggregate Principal Balance,
all remaining Receivables at a price equal to the aggregate of the Purchase
Amounts thereof as of such last day, plus the appraised value of any other
property held by the Trust. Such repurchase requires the consent of the
Certificate Insurer.
Amendment
The Pooling and Servicing Agreement may be amended by the Servicer, the
Depositor and the Trustee, with the prior written consent of the Certificate
Insurer, but without the consent of the Certificateholders, to cure any
ambiguity, or to correct or supplement any provision therein which may be
inconsistent with any other provision therein; provided that such action shall
not adversely affect in any material respect the interests of the
Certificateholders.
The Servicer, the Depositor and the Trustee may also amend the Pooling and
Servicing Agreement with the prior written consent of the Certificate Insurer
and the consent of the Certificate Majority to add, change or eliminate any
other provisions with respect to matters or questions arising under such Pooling
and Servicing Agreement or affecting the rights of the Certificateholders;
provided that such action will not (i) increase or reduce in any manner the
amount of, or accelerate or delay the timing of, collections of payments on
Receivables or distributions that are required to be made on any Certificate or
change the pass-through rate applicable to any Class of Certificates or (ii)
reduce the percentage of Certificateholders required to consent to any such
amendment, without, in either case, the consent of all of the affected
Certificateholders.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain federal income tax
consequences of the purchase, ownership and disposition of Class A Certificates.
This summary is based upon laws, regulations, rulings and decisions currently in
effect, all of which are subject to change. The discussion does not deal with
all federal tax consequences applicable to all categories of investors, some of
which may be subject to special rules. In addition, this summary is generally
limited to investors who will hold the Class A Certificates as "capital assets"
(generally, property held for investment) within the meaning of Section 1221 of
the Internal Revenue Code of 1986, as amended (the "Code"). Investors should
consult their own tax advisors to determine the federal, state, local and other
tax consequences of the purchase, ownership and disposition of the Class A
Certificates. Prospective investors should note that no rulings have been or
will be sought from the IRS with respect to any of the federal income tax
consequences discussed below, and no assurance can be given that the IRS will
not take contrary positions.
Tax Status of the Trust
In the opinion of Dewey Ballantine, special tax counsel to the Depositor
("Tax Counsel"), the Trust will be classified as a grantor trust and not as an
association taxable as a corporation for federal income tax purposes. Each Class
A Certificateholder will be treated as the owner of an interest in the ordinary
income and corpus portions of the Trust.
Each Class A Certificateholder will be treated as owning its pro rata
percentage interest in the principal of, and interest payable on, each
Receivable (minus the portion of the interest (the "Excess Interest") payable on
such Receivable that exceeds the sum of the applicable pass-through rate on the
Certificates and the Servicing Fee Rate) and such ownership interest in each
Receivable will be treated as a "stripped bond" within the meaning of Section
1286 of the Code.
Taxation of Certificateholders
Subject to the discussion below under the heading "Discount and Premium,"
each Class A Certificateholder is required to include for federal income tax
purposes its share of the gross income of the Trust, including interest and
certain other charges accrued on the Receivables and any gain upon collection or
disposition of the Receivables (but not including any portion of the Excess
Interest). Such gross income attributable to interest on the Receivables exceeds
the Class A Pass-Through Rate by an amount equal to the Class A
Certificateholder's share of the expenses of the Trust for the period during
which it owns a Class A Certificate. Each Class A Certificateholder is entitled
to deduct its share of the amount used to pay expenses of the Trust to the
extent described below. Any amounts received by a Class A Certificateholder from
the Subordinate Certificates, accounts established for the benefit of the
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Certificate Insurer or Excess Interest as a result of the subordination
provisions will be treated for federal income tax purposes as having the same
characteristics as the payments they replace.
Each Class A Certificateholder should report its share of the income of the
Trust under its usual method of accounting. Accordingly, interest would be
included in a Class A Certificateholder's gross income when it accrues on the
Receivables, or in the case of Class A Certificateholders who are cash basis
taxpayers, when received by the Servicer on behalf of the Class A
Certificateholders. Because (i) interest accrues on the Receivables over
differing monthly periods and is paid in arrears and (ii) interest collected on
a Receivable generally is paid to Class A Certificateholders in the following
month, the amount of interest accruing to a Class A Certificateholder during any
calendar month will not equal the interest distributed in that month. Discount
on a Receivable would be included in income as described below.
Each Class A Certificateholder will be entitled to deduct, consistent with
its method of accounting, its pro rata share of reasonable servicing fees and
other fees paid or incurred by the Trust as provided in Section 162 or 212 of
the Code. If a Class A Certificateholder is an individual, estate or trust, the
deduction for such Class A Certificateholder's share of such fees will be
allowed only to the extent that all of such Class A Certificateholder's
miscellaneous itemized deductions, including such Class A Certificateholder's
share of such fees, exceed 2% of such Class A Certificateholder's adjusted gross
income. In addition, in the case of Certificateholders who are individuals,
certain otherwise allowable itemized deductions will be reduced by an amount
equal to 3% of such Class A Certificateholder's adjusted gross income in excess
of a statutorily defined threshold, but not by more than 80% of such itemized
deductions.
To the extent that any fee is determined to be in excess of a reasonable
amount (and hence not deductible), such excess should be characterized as an
additional ownership right that has been stripped from the Receivables.
Accordingly, the gross income of the Class A Certificateholders should not
include any amount attributable to such excess fee.
Rule of 78s Receivables. The annual statement regularly furnished to Class
A Certificateholders for federal income tax purposes will include information
based on the actuarial method of accounting for interest and principal on the
Rule of 78s Receivables, and the amount of the fees paid to the Servicer and
others. Class A Certificateholders should generally be permitted to account for
interest on the Rule of 78s Receivables using the actuarial method (the method
used to compute the Class A Certificate Factor and the Class A Pass-Through
Rate). However, certain of the Receivables provide that, upon a prepayment in
full, the amount payable by the Obligor will be determined under the Rule of 78s
method of loan amortization. Prospective investors should consult their own tax
advisors as to whether they may be required or permitted to use the Rule of 78s
method to account for interest on the Receivables. A Class A Certificateholder
will be furnished information for federal income tax purposes enabling him to
report interest on the Receivables under the Rule of 78s method of accounting
only upon written request to the Trustee, and payment of the actual costs of
producing the same.
If a Receivable is prepaid, any amount received by the Trust upon
prepayment in excess of the account balance using the actuarial method either
(i) would constitute income to a Class A Certificateholder who had reported
income with respect to such Receivable on the actuarial method, and an amount
equal to such excess will be paid to the Servicer as an additional fee and be
deductible (subject to the limitations described above) or (ii) would be treated
as an interest stripped from the Receivables and not sold to the Class A
Certificateholders.
Discount and Premium
A Certificateholder that purchases a Class A Certificate at a discount
(i.e., for an amount less than its face amount) must include such discount in
income over the life of the Class A Certificates. Distinctions in the Code
between original issue discount and market discount generally are not relevant
in the case of the Class A Certificates.
The rate at which discount must be included in income depends on whether it
is greater or less than a statutorily defined de minimis amount. Although not
entirely certain, it would appear that the de minimis computation can be done
for each overall Class A Certificate and need not be done on a
Receivable-by-Receivable basis. Generally, discount is treated as de minimis if
it is less than 1/4 of one percent of the principal amount of the Class A
Certificate times the number of full years remaining to the maturity date of the
Class A Certificate. It is not clear whether the maturity date for this purpose
is the final maturity date or the weighted average maturity date (and whether
expected prepayments are taken into account).
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If the discount is de minimis (which should be the case for original
purchasers of Class A Certificates) it would appear that such discount may be
included in income as principal payments are received on the Receivables and in
proportion to such principal payments. Although not entirely clear, the income
attributable to de minimis discount should be treated as capital gain.
If the discount is more than a de minimis amount, such discount must be
included in income as it accrues on the basis of the yield to maturity of the
Class A Certificate, to the particular purchaser. It is not clear whether a
prepayment assumption must be taken into account in computing this yield to
maturity and how actual prepayments will affect accruals of discount. Unless the
Class A Certificates are originally issued with more than a de minimis amount of
discount, the Servicer will not be providing any information relating to the
computation of the accruals of discount by subsequent purchasers of Class A
Certificates.
In the event that a Receivable is treated as purchased at a premium (i.e.,
the Purchase Price exceeds the portion of the remaining principal balance of the
Receivables allocable to the Certificateholders), such premium will be
amortizable by a Class A Certificateholder as an offset to interest income (with
a corresponding reduction in the Certificateholder's basis) under a constant
yield method over the term of the Receivable if an election under Section 171 of
the Code is made (or was previously in effect) with respect to the Class A
Certificates. Any such election will also apply to debt instruments held by the
taxpayer during the year in which the election is made and to all debt
instruments acquired thereafter.
Sale of a Class A Certificate
If a Class A Certificate is sold, gain or loss will be recognized equal to
the difference between the amount realized on the sale and the Class A
Certificateholder's adjusted basis in such Certificate. A Certificateholder's
adjusted basis will equal the Certificateholder's cost for the Class A
Certificate increased by any discount previously included in income, and
decreased by any payments received that are attributable to accrued discount (or
by any offset previously allowed for accrued premium) and by the amount of
principal payments previously received on the Receivables. Any gain or loss will
be capital gain or loss if the Class A Certificate was held as a capital asset.
Foreign Class A Certificateholders
Interest attributable to Receivables which is received by a foreign Class A
Certificateholder, (other than a foreign bank and certain other persons)
generally will not be subject to the normal 30% withholding tax (or lower treaty
rate) imposed with respect to such payments, provided that such Class A
Certificateholder is not engaged in a trade or business in the United States and
that such Certificateholder fulfills certain certification requirements. Under
such requirements, the Holder must certify, under penalties of perjury, that it
is not a "United States person" and provide its name and address. For this
purpose, "United States person" means a citizen or resident of the United
States, a corporation, partnership, or other entity created or organized in or
under the laws of the United States or any political subdivision thereof, or an
estate or trust that is subject to United States federal income tax, regardless
of the source of its income.
Backup Withholding
Backup withholding of federal income tax at a rate of 31 percent may apply
to payments made in respect of the Class A Certificates as well as payments of
proceeds from the sale of Certificates, to Certificateholders that are not
"exempt recipients" and that fail to provide certain identifying information
(such as the taxpayer identification number of the Certificateholder) to the
Trustee or its agent in the manner required. Individuals generally are not
exempt recipients, whereas corporations and certain other entities generally are
exempt recipients. Payments made in respect of the Class A Certificates must be
reported to the IRS, unless the recipient is an exempt recipient or establishes
an exemption. Any amounts withheld under the backup withholding rules from a
payment to a person would be allowed as a refund or a credit against such
person's United States federal income tax, provided that the required
information is furnished to the IRS. Furthermore, certain penalties may be
imposed by the IRS on a Certificateholder who is required to supply information
but who does not do so in the proper manner.
State and Local Taxation
In the opinion of Tax Counsel, the Trust will not be subject to the New
York State Franchise Tax on Business Corporations or the New York City
Unincorporated Business Tax. The above discussion does not otherwise address the
tax consequences of purchase, ownership or disposition of the Class A
Certificates under any state or local tax law. Investors should consult their
own tax advisors regarding state and local tax consequences.
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ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Code prohibit a pension,
profit sharing, or other employee benefit plan from engaging in certain
transactions involving "plan assets" with persons that are "parties in interest"
under ERISA or "disqualified persons" under the Code with respect to the plan.
ERISA also imposes certain duties on persons who are fiduciaries of plans
subject to ERISA and prohibits certain transactions between a plan and parties
in interest with respect to such plans. Under ERISA, any person who exercises
any authority or control respecting the management or disposition of the assets
of a plan is considered to be a fiduciary of such plan (subject to certain
exceptions not here relevant). A violation of these "prohibited transaction"
rules may generate excise tax and other liabilities under ERISA and the Code for
such persons.
In addition to the matters described below, purchasers of Class A
Certificates that are insurance companies should consult with their counsel with
respect to the recent United States Supreme Court case interpreting the
fiduciary responsibility rules of ERISA, John Hancock Mutual Life Insurance Co.
v. Harris Trust and Savings Bank, 114 S.Ct. 517 (1993). In John Hancock, the
Supreme Court ruled that assets held in an insurance company's general account
may be deemed to be "plan assets" for ERISA purposes under certain
circumstances. Prospective purchasers should determine whether the decision
affects their ability to make purchases of the Class A Certificates.
Pursuant to a final regulation (the "Final Regulation") issued by the
Department of Labor ("DOL") concerning the definition of what constitutes the
"plan assets" of an employee benefit plan subject to ERISA or the Code, or an
individual retirement account (an "IRA"), or any entity whose underlying assets
are deemed to be assets of an employee benefit plan or an IRA by reason of such
employee benefit plan's or such IRA's investment in such entity, (collectively
referred to as "Benefit Plans"), the assets and properties of certain entities
in which a Benefit Plan makes an equity investment could be deemed to be assets
of the Benefit Plan unless certain exceptions under the Final Regulation apply
or an exemption is available. If Benefit Plans that purchase the Class A
Certificates are deemed to own an interest in the underlying assets of the
Trust, the operations of the Trust could result in prohibited transactions.
The DOL has granted to Prudential Securities Incorporated an administrative
exemption (Prohibited Transaction Exemption 90-32 (the "Exemption") which
generally exempts from the application of the prohibited transaction provisions
of Section 406(a), Section 406(b)(1), Section 406(b)(2) and Section 407(a) of
ERISA and the excise taxes imposed pursuant to Sections 4975(a) and (b) of the
Code, certain transactions relating to the servicing and operation of asset
pools, including pools of motor vehicle installment obligations such as the
Receivables and the purchase, sale and holding of asset- backed pass-through
certificates, including pass-through certificates evidencing interests in
certain receivables, loans and other obligations, such as the Class A
Certificates, provided that certain conditions set forth in the Exemption are
satisfied.
If the general conditions of Section II of the Exemption are satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(a) and 407(a) of ERISA (as well as the excise taxes imposed by Sections
4975(c)(1)(A) through (D) of the Code) in connection with the direct or indirect
sale, exchange or transfer of Class A Certificates by Benefit Plans in the
initial issue of certificates, the holding of Class A Certificates by Benefit
Plans or the direct or indirect acquisition or disposition in the secondary
market of Class A Certificates by Benefit Plans. However, no exemption is
provided from the restrictions of Section 406(a)(1)(E), 406(a)(2) and 407 of
ERISA for the acquisition or holding of a Class A Certificate on behalf of an
"Excluded Plan" by any person who has discretionary authority or renders
investment advice with respect to the assets of such Excluded Plan. For purposes
of the Class A Certificates, an Excluded Plan is a Benefit Plan sponsored by (1)
Prudential Securities Incorporated, (2) the Originators, (3) the Servicer, (4)
the Trustee, (5) the Seller, (6) the Depositor, (7) any Obligor with respect to
Receivables constituting more than 5 percent of the aggregate unamortized
principal balance of the Receivables as of the date of initial issuance, (8) the
Certificate Insurer and (9) any affiliate or successor of a person described in
(1) to (8) above (the "Restricted Group").
If the specific conditions of paragraph I.B. of Section I of the Exemption
are also satisfied, the Exemption may provide an exemption from the restrictions
imposed by Sections 406(b)(1) and (b)(2) of ERISA and the taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c)(1)(E) of the
Code in connection with (1) the direct or indirect sale, exchange or transfer of
Class A Certificates in the initial issuance of Class A Certificates to a
Benefit Plan when the person who has discretionary authority or renders
investment advice with respect to the investment of plan assets in Class A
Certificates is (a) an Obligor with respect to 5 percent or less of the fair
market value of the Receivables or (b) an affiliate of such a person, (2) the
direct or indirect acquisition or disposition in the secondary market of Class A
Certificates by Benefit Plans and (3) the holding of Class A Certificates by
S-31
<PAGE>
Benefit Plans. Among the specific conditions that must be satisfied is the
condition that immediately after the acquisition of the Class A Certificates no
more than 25% of the assets of the Benefit Plan with respect to which the person
is a fiduciary are invested in certificates representing an interest in a trust
containing assets sold or serviced by the same entity. As of the date hereof,
the Seller believes no Obligor with respect to Receivables included in the Trust
constitutes more than 5 percent of the aggregate unamortized principal balance
of the Trust.
If the specific conditions of paragraph I.C. of Section I of the Exemption
are satisfied, the Exemption may provide an exemption from the restrictions
imposed by Sections 406(a), 406(b) and 407(a) of ERISA, and the taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c) of the Code
for transactions in connection with the servicing, management and operation of
the Trust.
The Exemption may provide an exemption from the restrictions imposed by
Section 406(a) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of the Code
if such restrictions are deemed to otherwise apply merely because a person is
deemed to be a "party in interest" or a "disqualified person" with respect to an
investing Benefit Plan by virtue of providing services to the Benefit Plan (or
by virtue of having certain specified relationships to such a person) solely as
a result of such Benefit Plan's ownership of Class A Certificates.
The Exemption sets forth the following six general conditions which must be
satisfied for a transaction to be eligible for exemptive relief thereunder:
(1) The acquisition of the certificates by a Benefit Plan is on terms
(including the price for the certificates) that are at least as favorable
to the Benefit Plan as they would be in an arm's length transaction with an
unrelated party;
(2) The rights and interests evidenced by the certificates acquired by
the Benefit Plan are not subordinated to the rights and interests evidenced
by other certificates of the trust;
(3) The certificates acquired by the Benefit Plan have received a
rating at the time of such acquisition that is one of the three highest
general rating categories from either S&P, Moody's, Duff & Phelps Rating
Co. ("D&P") or Fitch Investors Service, Inc. ("Fitch");
(4) The Trustee is not an affiliate of any other member of the
Restricted Group;
(5) The sum of all payments made to and retained by Prudential
Securities Incorporated in connection with the distribution of Certificates
represents not more than reasonable compensation for its services. The sum
of all payments made and retained by the Seller pursuant to the assignment
of the Receivables to the Trust represents not more than the fair market
value of such Receivables. The sum of all payments made to and retained by
the Servicer represents not more than reasonable compensation for such
person's services under the Pooling and Servicing Agreement and
reimbursement of such person's reasonable expenses in connection therewith;
and
(6) The Benefit Plan investing in the certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Securities
and Exchange Commission under the 1933 Act.
The Trust Estate must also meet the following requirements:
(i) the Receivables must consist solely of assets of the type that
have been included in other investment pools;
(ii) certificates in such other investment pools must have been rated
in one of the three highest rating categories of S&P, Moody's, Fitch or D&P
for at least one year prior to the Benefit Plan's acquisition of
certificates; and
(iii) certificates evidencing interest in such other investment pools
must have been purchased by investors other than Benefit Plans for at least
one year prior to the Benefit Plan's acquisition of certificates.
It is a condition of issuance of the Class A Certificates that they be
rated AAA or its equivalent by a nationally recognized rating agency. Before
purchasing a Class A Certificate based on the Exemption, a fiduciary of a
Benefit Plan should itself confirm (1) that such Certificate constitutes a
"certificate" for purposes of the Exemption and (2) that the specific conditions
and other requirements set forth in the Exemption would be satisfied.
S-32
<PAGE>
Any Benefit Plan fiduciary considering the purchase of a Class A
Certificate should consult with its counsel with respect to the potential
applicability of ERISA and the Code to such investment. Moreover, each Benefit
Plan fiduciary should determine whether, under the general fiduciary standards
of investment prudence and diversification, an investment in the Class A
Certificates is appropriate for the Benefit Plan, taking into account the
overall investment policy of the Benefit Plan and the composition of the Benefit
Plan's investment portfolio. The Subordinate Certificates may not be acquired by
any Benefit Plan.
RATINGS
As a condition to the issuance of the Class A Certificates, the Class A
Certificates will be rated at least "AAA" by S&P and "Aaa" by Moody's on the
basis of the issuance of the Policy by the Certificate Insurer. There is no
assurance that a rating will not be lowered or withdrawn by a rating agency
based on a change in circumstances deemed by such rating agency to adversely
affect the Class A Certificates. A rating is not a recommendation to purchase,
hold or sell the Class A Certificates, in as much as such rating does not
comment as to market price or suitability for a particular investor.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Depositor has agreed to cause the Trust to
sell to Prudential Securities Incorporated (the "Underwriter"), and the
Underwriter has agreed to purchase the Class A Certificates.
In the Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions therein, to purchase all of the Class A Certificates
offered hereby. Proceeds to the Depositor, including accrued interest, are
expected to be approximately ___% of the initial Class A Certificate Balance,
before deducting expenses payable by the Depositor in connection with the Class
A Certificates, estimated to be $_______. In connection with the purchase and
sale of the Class A Certificates, the Underwriter may be deemed to have received
compensation from the Depositor in the form of underwriting discounts.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriter against certain civil liabilities, including liabilities under the
Securities Act, or contribute to payments the Underwriter may be required to
make in respect thereof. The Transfer Agreements will provide for certain
indemnification of the Depositor by Emergent.
LEGAL MATTERS
In addition to the legal opinions described in the Prospectus, certain
legal matters relating to the issuance of the Certificates will be passed upon
for Emergent by Wyche, Burgess, Freeman & Parham, P.A., Greenville, South
Carolina, counsel to Emergent. Certain legal matters relating to insolvency
issues and certain federal income tax matters concerning the Certificates will
be passed upon by Dewey Ballantine, New York, New York. Certain legal matters
relating to the validity of the issuance of the Certificates will be passed upon
for the Underwriter by Dewey Ballantine, New York, New York. Certain legal
matters relating to the Certificate Insurer and the Policy will be passed upon
for the Certificate Insurer by Dewey Ballantine, New York, New York.
S-33
<PAGE>
GLOSSARY
Aggregate Principal Balance: With respect to any Determination Date, the
sum of the Principal Balances (computed as of the related Record Date) for all
Receivables (other than (i) any Receivable that became a Liquidated Receivable
during the related Collection Period and (ii) any Receivable that became a
Purchased Receivable on the immediately preceding Deposit Date.
Amount Available: With respect to any Distribution Date, the sum of (i) the
Available Funds for the immediately preceding Determination Date, plus (ii) the
Deficiency Claim Amount, if any, received by the Trustee with respect to such
Distribution Date, plus (iii) the Policy Claim Amount, if any, received by the
Trustee with respect to such Distribution Date.
Amount Financed: With respect to a Receivable, the aggregate amount
advanced under such Receivable toward the purchase price of the Financed Vehicle
and related costs, including amounts advanced in respect of accessories,
insurance premiums, service and warranty contracts, other items customarily
financed as part of automobile installment sale contracts or promissory notes,
and related costs.
Available Funds: With respect to any Determination Date, the sum of (i) the
Collected Funds for such Determination Date (including amounts withdrawn from
the Payahead Account but excluding amounts deposited into the Payahead Account)
and (ii) all Purchase Amounts deposited in the Collection Account on the related
Deposit Date.
Business Day: Any day other than a Saturday, Sunday, legal holiday or other
day or which commercial banking institutions or trust companies in New York,
South Carolina or any other location of any successor Servicer, successor
Trustee or a successor collateral agent are authorized or obligated by law,
executive order or governmental decree to be closed.
Certificate Insurer Optional Deposit: With respect to any Distribution
Date, an amount delivered by the Certificate Insurer, at its sole option, to the
Trustee for deposit into the Collection Account for any of the following
purposes: (i) to provide funds in respect of the payment of fees or expenses of
any provider of services to the Trust with respect to such Distribution Date; or
(ii) to include such amount as part of the Amount Available for such
Distribution Date to the extent that without such amount a draw would be
required to be made on the Policy.
Certificate Majority: Class A Certificateholders representing greater than
50% of the sum of the Class A Certificate Balance or, if there are no Class A
Certificates outstanding, such majority of interests represented by the
Subordinate Certificates.
Class A Certificate Balance: Initially, $14,496,000 and thereafter will
equal the Class A Certificate Balance reduced by all principal distributions on
the Class A Certificates.
Class A Interest Carryover Shortfall: As of the close of business on any
Distribution Date, the excess of the Class A Interest Distributable Amount for
such Distribution Date plus (without duplication) any outstanding Class A
Interest Carryover Shortfall from the preceding Distribution Date plus interest
on such outstanding Class A Interest Carryover Shortfall, to the extent
permitted by law, at the Class A Pass-Through Rate from such preceding
Distribution Date through the current Distribution Date, over the amount of
interest that the Class A Certificateholders actually received on such current
Distribution Date.
Class A Interest Distributable Amount: With respect to any Distribution
Date, the sum of (i) for the initial Distribution Date ____________ (__) days of
interest and for any Distribution Date thereafter, thirty (30) days of interest,
in any case calculated on the basis of a 360-day year consisting of twelve
30-day months, at the Class A Pass-Through Rate on the Class A Certificate
Balance as of the close of business on the last day of the preceding Collection
Period and (ii) any outstanding Class A Interest Carryover Shortfall.
Class A Principal Carryover Shortfall: As of the close of business on any
Distribution Date, the excess of the Class A Principal Distributable Amount plus
any outstanding Class A Principal Carryover Shortfall from the preceding
Distribution Date over the amount of principal that the Class A
Certificateholders actually received on such current Distribution Date.
Collected Funds: With respect to any Determination Date, the amount of
funds in the Collection Account representing collections on the Receivables
during the related Collection Period, including all Liquidation Proceeds
collected during the related Collection Period (but excluding any Purchase
Amounts).
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<PAGE>
Collection Period: With respect to a Determination Date or a Distribution
Date, the calendar month preceding the month in which such Determination Date or
Distribution Date occurs (such calendar month being referred to as the "related"
Collection Period with respect to such Determination Date or Distribution Date).
With respect to a Record Date, the calendar month in which such Record Date
occurs is referred to herein as the "related" Collection Period to such Record
Date.
Cram Down Loss: With respect to a Receivable, if a court of appropriate
jurisdiction in an insolvency proceeding shall have issued an order reducing the
amount owed on a Receivable or otherwise modifying or restructuring the
Scheduled Payments to be made on a Receivable, an amount equal to the excess of
the principal balance of such Receivable immediately prior to such order over
the principal balance of such Receivable as so reduced or the net present value
(using as the discount rate the higher of the APR on such Receivable or the rate
of interest, if any, specified by the court in such order) of the Scheduled
Payments as so modified or restructured. A "Cram Down Loss" shall be deemed to
have occurred on the date of issuance of such order.
Deficiency Claim Amount: With respect to any Determination Date, the
excess, if any, of the sum of the amounts payable on the related Distribution
Date pursuant to clauses (i), (ii), (iii), (iv) and (v) under the heading
"DESCRIPTION OF THE CERTIFICATES -- Flow of Funds" over the amount of Available
Funds with respect to such Determination Date.
Deficiency Notice: A written notice delivered by the Trustee to a
collateral agent appointed by the Certificate Insurer, Certificate Insurer, the
fiscal agent, if necessary, and the Servicer specifying the Deficiency Claim
Amount for such Distribution Date.
Deposit Date: With respect to any Collection Period, the Business Day
immediately preceding the related Determination Date.
Determination Date: With respect to any Collection Period, the fifth
Business Day preceding the Distribution Date in the next calendar month.
Distribution Amount: With respect to a Distribution Date, the sum of (i)
the Available Funds for such Distribution Date, plus (ii) the Deficiency Claim
Amount, if any, received by the Trustee with respect to such Distribution Date.
Insurer Default: The occurrence and continuance of any of the following
events:
(a) the Certificate Insurer shall have failed to make a payment
required under the Policy in accordance with its terms;
(b) The Certificate Insurer shall have (i) filed a petition or
commenced any case or proceeding under any provision or chapter of the
United States Bankruptcy Code or any other similar federal or state law
relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization, (ii) made a general assignment for the benefit of its
creditors, or (iii) had an order for relief entered against it under the
United States Bankruptcy Code or any other similar federal or state law
relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization which is final and nonappealable; or
(c) a court of competent jurisdiction, the New York Department of
Insurance or other competent regulatory authority shall have entered a
final and nonappealable order, judgment or decree (i) appointing a
custodian, trustee, agent or receiver for the Certificate Insurer or for
all or any material portion of its property or (ii) authorizing the taking
of possession by a custodian, trustee, agent or receiver of the Certificate
Insurer (or the taking of possession of all or any material portion of the
property of the Certificate Insurer).
Liquidated Receivable: With respect to any Collection Period, a Receivable
as to which (i) 60 days have elapsed since the Servicer repossessed the Financed
Vehicle, (ii) the Servicer has determined in good faith that all amounts it
expects to recover have been received, (iii) more than ten percent of a
Scheduled Payment shall have become 180 or more days delinquent, or (iv) the
Financed Vehicle has been sold and the proceeds received. Any Receivable that
becomes a Purchased Receivable on or before the related Business Day immediately
preceding the related Determination Date shall not be a Liquidated Receivable.
Liquidation Proceeds: With respect to a Liquidated Receivable, all amounts
realized with respect to such Receivable (other than amounts withdrawn from
certain collateral accounts and drawings under the Policy) net of amounts that
are required to be refunded to the Obligor on such Receivable; provided,
S-35
<PAGE>
however, that the Liquidation Proceeds with respect to any Receivable shall in
no event be less than zero.
Person: Any legal person, including any individual, corporation,
partnership, joint venture, estate, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof, or any other entity.
Policy Claim Amount: With respect to any Determination Date on which the
Trustee has delivered a Deficiency Notice the shortfall of (y) the sum of (i)
the amount of Available Funds with respect to such Determination Date (as stated
in the Servicer's Certificate with respect to such Determination Date) plus (ii)
the amount of the Deficiency Claim Amount, if any, to be delivered by a
collateral agent to the Trustee pursuant to a Deficiency Notice delivered with
respect to such Distribution Date (as stated in the certificate delivered on the
immediately preceding Deficiency Claim Date by a collateral agent) (after giving
effect to the distributions required by the Pooling and Servicing Agreement and
described in clauses (i) and (ii) of "DESCRIPTION OF THE CERTIFICATES -- Flow of
Funds") over (z) the amount necessary to pay the Class A Interest Distributable
Amount and the Class A Principal Distributable Amount for the related
Distribution Date.
Principal Balance: With respect to any Receivable, as of any date, the
Amount Financed minus (i) that portion of all amounts received (including
Payaheads applied to Scheduled Payments) on or prior to such date and allocable
to principal in accordance with the terms of the Receivable, and (ii) any Cram
Down Loss in respect of such Receivable.
Purchase Amount: With respect to a Receivable, the Principal Balance and
all accrued and unpaid interest on the Receivable as of the date of purchase.
Servicer's Certificate: With respect to each Determination Date, a
certificate, completed by and executed on behalf of the Servicer, in accordance
with the applicable Pooling and Servicing Agreement provisions.
Supplemental Servicing Fee: With respect to any Collection Period, all
administrative fees, expenses and charges paid by or on behalf of Obligors,
including late fees, collected on the Receivables during such Collection Period.
S-36
<PAGE>
INDEX OF DEFINED TERMS
Page
-----
Accredited Investor .......................................................S-32
Aggregate Risks ...........................................................S-23
Amount Available ..........................................................S-34
Amount Financed ...........................................................S-34
APR ........................................................................S-5
Available Funds ...........................................................S-34
Backup Servicer .......................................................S-1, S-4
Benefit Plans .............................................................S-31
Business Day ..............................................................S-34
Capital Assets ............................................................S-28
Certificate Insurer .............................................S-1, S-7, S-21
Certificate Insurer Optional Deposit.......................................S-34
Certificate Majority ......................................................S-34
Certificates ...............................................................S-4
Class A Certificate Balance................................................S-34
Class A Certificate Factor.................................................S-27
Class A Certificateholders............................................S-6, S-19
Class A Certificates ..................................................S-1, S-4
Class A Interest Carryover Shortfall.......................................S-34
Class A Interest Distributable Amount......................................S-34
Class A Pass-Through Rate...................................................S-5
Class A Percentage ....................................................S-1, S-4
Class A Principal Carryover Shortfall......................................S-34
Class A Principal Distributable Amount......................................S-6
Closing Date ...............................................................S-4
Code ......................................................................S-28
Collected Funds ...........................................................S-34
Collection Period ....................................................S-6, S-35
Commission .................................................................S-2
Cram Down Loss ............................................................S-35
Cut-Off Date ...............................................................S-4
D&P .......................................................................S-32
Deficiency Claim Amount ...................................................S-35
Deficiency Notice .........................................................S-35
Depositor .............................................................S-1, S-4
Determination Date ........................................................S-35
Discount and Premium ......................................................S-28
Disqualified Person .......................................................S-32
Disqualified Persons ......................................................S-31
Distribution Amount .......................................................S-35
Distribution Dates .........................................................S-5
DOL .......................................................................S-31
Emergent ..................................................................S-15
Emergent Auto Loan Program.................................................S-15
Emergent Companies ........................................................S-15
ERISA ......................................................................S-8
Excluded Plan .............................................................S-31
Exempt recipients .........................................................S-30
Exemption .................................................................S-31
Final Regulation ..........................................................S-31
Final Scheduled Distribution Date...........................................S-1
Financed Vehicles ..........................................................S-5
Financial Security ........................................................S-21
Fitch .....................................................................S-32
Fund American .............................................................S-21
Guaranteed Distributions...................................................S-23
Holder ....................................................................S-19
Holders ...................................................................S-19
Holdings .............................................................S-2, S-21
Independent Directors .....................................................S-10
Index of Terms .............................................................S-4
Insolvency Laws ...........................................................S-10
Insurer Default ...........................................................S-35
IRA .......................................................................S-31
IRS ........................................................................S-7
S-37
<PAGE>
Page
----
Issuer .....................................................................S-4
Liquidated Receivable .....................................................S-35
Liquidation Proceeds ......................................................S-35
Loan Pro$ ..................................................................S-4
Monthly Statement .........................................................S-26
Moody's ..............................................................S-8, S-32
MSO .......................................................................S-17
Optional Purchase ..........................................................S-7
Order .....................................................................S-23
Original Aggregate Principal Balance........................................S-5
Originator .................................................................S-4
Originators ................................................................S-4
Parties In Interest .......................................................S-31
Party in Interest .........................................................S-32
Payahead Account ..........................................................S-20
Payaheads .................................................................S-20
Percentage Interest .......................................................S-19
Person ....................................................................S-36
Plan Assets ...............................................................S-31
Policy .....................................................................S-1
Policy Claim Amount .......................................................S-36
Pooling and Servicing Agreement.............................................S-1
Premier ....................................................................S-4
Principal Balance .........................................................S-36
Prohibited Transaction ....................................................S-31
Purchased Receivable .......................................................S-6
Receipt ...................................................................S-24
Receivables ...........................................................S-1, S-5
Received ..................................................................S-24
Record Date ................................................................S-6
Required Deposit Ratings...................................................S-20
Restricted Group ..........................................................S-31
RISK FACTORS ...............................................................S-1
Rule of 78s Receivables ...................................................S-11
S&P ........................................................................S-8
Scheduled Payment .........................................................S-11
Seller .....................................................................S-4
Servicer ..............................................................S-1, S-4
Servicer Termination Event.................................................S-26
Servicer's Certificate ....................................................S-26
Servicing Fee ........................................................S-7, S-25
Servicing Fee Rate .........................................................S-7
Simple Interest Receivables................................................S-11
Single Risks ..............................................................S-23
SPECIAL CONSIDERATIONS .....................................................S-1
Stripped bond .............................................................S-28
Stripped Coupons ...........................................................S-7
Sub-Servicer ...............................................................S-4
Sub-Servicers ..............................................................S-4
Subordinate Certificates....................................................S-4
Supplemental Servicing Fee..................................................S-7
The Receivables ............................................................S-5
Tokio Marine ..............................................................S-21
Trust .................................................................S-1, S-4
Trustee ...............................................................S-1, S-4
U S WEST ..................................................................S-21
Underwriter ...............................................................S-33
Underwriting ...............................................................S-1
Underwriting Agreement ....................................................S-33
United States person ......................................................S-30
S-38
<PAGE>
PROSPECTUS
- --------------------------------------------------------------------------------
Auto Receivables Backed Securities Issuable in Series
PRUDENTIAL SECURITIES SECURED FINANCING
CORPORATION,
Depositor
This Prospectus describes certain Auto Receivables Backed Notes (the
"Notes") and Auto Receivables Backed Certificates (the "Certificates" and,
together with the Notes, the "Securities") that may be sold from time to time in
one or more series, in amounts, at prices and on terms to be determined at the
time of sale and to be set forth in a supplement to this Prospectus (each, a
"Prospectus Supplement"). Each series of Securities may include one or more
classes of Notes and one or more classes of Certificates, which will be issued
either by the Depositor, a Transferor (as hereinafter defined), or by a trust to
be formed by the Depositor for the purpose of issuing one or more series of such
Securities (each, a "Trust"). The Depositor, a Transferor or a Trust, as
appropriate, issuing Securities as described in this Prospectus and the related
Prospectus Supplement shall be referred to herein as the "Issuer."
Each class of Securities of any series will evidence beneficial ownership
in a segregated pool of assets (each, a "Trust Fund") (such Securities,
"Certificates") or will represent indebtedness of the Issuer secured by the
Trust Fund (such Securities, "Notes"), as described herein and in the related
Prospectus Supplement. Each Trust Fund may consist of any combination of retail
installment sales contracts between manufacturers, dealers or certain other
originators and retail purchasers secured by new and used automobiles and light
duty trucks financed thereby, or participation interests therein, together with
all monies received relating thereto (the "Contracts"). Each Trust Fund may also
include the underlying new and used automobiles and light duty trucks and
property relating thereto, together with the proceeds thereof (the "Vehicles"
together with the Contracts, the "Receivables"). If and to the extent specified
in the related Prospectus Supplement, credit enhancement with respect to a Trust
Fund or any class of Securities may include any one or more of the following: a
financial guaranty insurance policy (a "Policy") issued by an insurer specified
in the related Prospectus Supplement, a reserve account, letters of credit,
credit or liquidity facilities, third party payments or other support, cash
deposits or other arrangements. In addition to or in lieu of the foregoing,
credit enhancement may be provided by means of subordination, cross-support
among the Receivables or over-collateralization. See "Description of the Trust
Agreement -- Credit and Cash Flow Enhancement." The Receivables in the Trust
Fund for a series will have been acquired by the Depositor from one or more
affiliates of the Depositor or from one or more entities which are unaffiliated
with the Depositor (any such affiliate or unaffiliated entity, an "Originator").
Each Originator will be an entity, including Vendors, generally in the business
of originating or acquiring Receivables. The Depositor will acquire the
Receivables from the related Originator(s) on or prior to the date of issuance
of the related Securities, as described herein and in the related Prospectus
Supplement. The Receivables included in a Trust Fund will be serviced by a
servicer (the "Servicer") described in the related Prospectus Supplement.
Each series of Securities will include one or more classes (each, a
"Class"). A series may include one or more Classes of Securities entitled to
principal distributions, with disproportionate, nominal or no interest
distributions, or to interest distributions, with disproportionate, nominal or
no principal distributions. The rights of one or more Classes of Securities of
any series may be senior or subordinate to the rights of one or more of the
other Classes of Securities. A series may include two or more Classes of
Securities which differ as to the timing, sequential order, priority of payment,
interest rate or amount of distributions of principal or interest or both.
Information regarding each Class of Securities of a series, together with
certain characteristics of the related Receivables, will be set forth in the
related Prospectus Supplement. The rate of payment in respect of principal of
the Securities of any Class will depend on the priority of payment of such a
Class and the rate and timing of payments (including prepayments, defaults,
liquidations or repurchases of Receivables) on the related Receivables. A rate
of payment lower or higher than that anticipated may affect the weighted average
life of each Class of Securities in the manner described herein and in the
related Prospectus Supplement. See "Description of the Securities."
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "SPECIAL
CONSIDERATIONS" HEREIN AND IN THE RELATED PROSPECTUS SUPPLEMENT.
THE NOTES OF A GIVEN SERIES REPRESENT OBLIGATIONS OF THE ISSUER ONLY AND DO NOT
REPRESENT INTERESTS OF THE DEPOSITOR, ANY SERVICER, ANY ORIGINATOR OR ANY OF
THEIR RESPECTIVE AFFILIATES. THE CERTIFICATES OF A GIVEN SERIES REPRESENT
BENEFICIAL INTERESTS IN THE RELATED TRUST ONLY AND DO NOT REPRESENT INTERESTS IN
OR OBLIGATIONS OF THE DEPOSITOR, ANY TRANSFEROR, ANY SERVICER, ANY ORIGINATOR OR
ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE SECURITIES NOR THE UNDERLYING
RECEIVABLES WILL BE GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY THE DEPOSITOR, ANY SERVICER, ANY ORIGINATOR, ANY TRUSTEE
OR ANY OF THEIR RESPECTIVE AFFILIATES, EXCEPT AS SET FORTH IN THE RELATED
PROSPECTUS SUPPLEMENT. SEE ALSO "SPECIAL CONSIDERATIONS."
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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Offers of the Securities may be made through one or more different methods,
including offerings through underwriters as more fully described under "Method
of Distribution" herein and in the related Prospectus Supplement. Prior to
issuance, there will have been no market for the Securities of any series, and
there can be no assurance that a secondary market for the Securities will
develop, or if it does develop, it will continue.
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of Securities unless accompanied by a Prospectus
Supplement.
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The date of this Prospectus is December 2, 1994.
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a series of Securities to be offered
hereunder, among other things, will set forth with respect to such series of
Securities: (i) a description of the Class or Classes of such Securities, (ii)
the rate of interest, the "Pass-Through Rate" or "Interest Rate" or other
applicable rate (or the manner of determining such rate) and authorized
denominations of such Class of such Securities; (iii) certain information
concerning the Receivables and insurance polices, cash accounts, letters of
credit, financial guaranty insurance policies, third party guarantees or other
forms of credit enhancement, if any, relating to one or more pools of
Receivables or all or part of the related Securities; (iv) the specified
interest, if any, of each Class of Securities in, and manner and priority of,
the distributions from the Trust Fund; (v) information as to the nature and
extent of subordination with respect to such series of Securities, if any; (vi)
the payment date to Securityholders; (vii) information regarding the Servicer(s)
for the related Receivables; (viii) information regarding the Originator(s) for
the related Receivables and the underwriting guidelines employed by such
Originator(s) with respect to such Receivables, (ix) the circumstances, if any,
under which each Trust Fund may be subject to early termination; (x) information
regarding tax considerations; and (xi) additional information with respect to
the method of distribution of such Securities.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (together with all amendments and
exhibits thereto, referred to herein as the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Securities offered pursuant to this Prospectus. For further information,
reference is made to the Registration Statement which may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549; and at the Commission's regional
offices at 500 West Madison, 14th Floor, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of the Registration
Statement may be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Securities offered
hereby and thereby, nor an offer of the Securities to any person in any state or
other jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus at any time does not imply that information herein is correct as of
any time subsequent to its date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by the Depositor with respect to the
Registration Statement, either on its own behalf or on behalf of a Trust,
relating to any series of Securities referred to in the accompanying Prospectus
Supplement, with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), after the
date of this Prospectus and prior to the termination of any offering of the
Securities issued by the Issuer, shall be deemed to be incorporated by reference
in this Prospectus and to be a part of this Prospectus from the date of the
filing of such documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein (or in the accompanying Prospectus Supplement) or in
any other subsequently filed document which also is or is deemed to be
incorporated by reference herein, modifies or replaces such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
REPORTS TO SECURITYHOLDERS
Periodic and annual reports concerning any Security and the related Trust
Fund will be provided to the Securityholders. See "Description of the Securities
- -- Reports to Securityholders." If the Securities of a series are to be issued
in book-entry form, such reports will be provided to the Securityholder of
record and beneficial owners of such Securities will have to rely on the
procedures described herein under "Description of Securities - Book-Entry
Registration."
The Depositor will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the documents referred to above that have been or may be
incorporated by reference in this Prospectus (not including exhibits to the
information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates). Such requests should be directed to: Prudential Securities
Secured Financing Corporation, 130 John Street, New York, New York 10038,
Attention: Timothy Mas.
2
<PAGE>
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SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to the Securities of any series contained in the
related Prospectus Supplement to be prepared and delivered in connection with
the offering of such Securities. Certain capitalized terms used in the summary
are defined elsewhere in the Prospectus on the pages indicated in the "Index of
Terms."
Issuer.................. With respect to each series of Securities, either
the Depositor, a special-purpose finance subsidiary
of the Depositor which may be organized and
established by the Depositor with respect to one or
more Trust Funds (each such special-purpose finance
subsidiary, a "Transferor") or a trust (each, a
"Trust") to be formed by the Depositor. For purposes
of this Prospectus, the term "Depositor" includes
the term "Transferor". The Depositor, a Transferor
or a Trust issuing Securities pursuant to this
Prospectus and the related Prospectus Supplement
shall be referred to herein as the "Issuer" with
respect to the related Securities. See "The Issuer."
Depositor............... Prudential Securities Secured Financing Corporation,
formerly known as P-B Secured Financing Corporation
(the "Depositor"), a Delaware corporation, a
wholly-owned limited purpose finance subsidiary of
Prudential Securities Group Inc. The Depositor's
principal executive offices are located at 130 John
Street, New York, New York 10038, and its telephone
number is (212) 214-7435. See "The Depositor."
Servicer................ The Servicer for each Trust Fund will be specified
in the applicable Prospectus Supplement. The
Servicer will service the Receivables comprising
each Trust Fund and administer each Trust Fund
pursuant to the related Servicing Agreement. The
Servicer may subcontract all or any portion of its
obligations as Servicer under each Servicing
Agreement to qualified subservicers (each, a
"Sub-Servicer") but the Servicer will not be
relieved thereby of its liability with respect
thereto. See "Servicing of the Receivables."
Originator(s)........... The Depositor will acquire the Receivables from one
or more affiliates of the Depositor or from one or
more entities which are unaffiliated with the
Depositor (any such affiliate or unaffiliated
entity, an "Originator"). The Receivables will be
either (i) originated by the related Originator,
(ii) originated by various manufacturers of Vehicles
("Manufacturers") and acquired by the related
Originator, (iii) originated by various dealers,
which may or may not be affiliated with one or more
Manufacturers ("Dealers", and together with
Manufacturers, "Vendors") or (iv) acquired by the
related Originator from other originators or owners
of Receivables. In addition, to the extent that the
Depositor acquires Receivables directly from a
Vendor, such Vendor will be the Originator for
purposes of the related Receivables and this
Prospectus. See "The Originator" and "The Servicer"
in the related Prospectus Supplement.
Trustee................. The Trustee for each series of Securities will be
specified in the related Prospectus Supplement. In
addition, a Trust may separately enter into an
Indenture and may issue Notes pursuant to such
Indenture; in any such case the Trust and the
Indenture will be administered by separate,
independent trustees as required by the rules and
regulations under the Trust Indenture Act of 1939
and the Investment Company Act of 1940.
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3
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The Securities ......... Each Class of Securities of any series will evidence
beneficial ownership in a segregated pool of assets
(each, a "Trust Fund") (such Securities,
"Certificates") or will represent indebtedness of
the Issuer secured by the Trust Fund (such
Securities, "Notes"), as described herein and in the
related Prospectus Supplement. Each Trust Fund may
consist of any combination of installment sales
contracts between manufacturers, dealers or certain
other originators and retail purchasers (each such
retail purchaser being an "Obligor") secured by new
and used automobiles and light duty trucks financed
thereby, or participation interests therein,
together with all monies received relating thereto
(the "Contracts"). Each Trust Fund also may include
the underlying new and used automobiles and light
duty trucks and property relating thereto, together
with the proceeds thereof (the "Vehicles" and
together with the Contracts, the "Receivables").
Each Trust Fund will include Receivables with
respect to which the related Contracts are "chattel
paper" within the meaning of the Uniform Commercial
Code, as in effect in the relevant jurisdiction, and
the related Vehicles are subject to federal or state
registration or titling requirements under the motor
vehicle laws of such jurisdiction. No Trust Fund
will include Receivables with respect to which the
underlying Contracts or Vehicles relate to office
equipment, aircraft, ships or boats, firearms or
other weapons, railroad rolling stock or facilities
such as factories, warehouses or plants subject to
state laws governing the manner in which title or
security interest in real property is determined or
perfected.
If and to the extent specified in the related
Prospectus Supplement, credit enhancement with
respect to a Trust Fund or any class of Securities
may include any one or more of the following: a
financial guaranty insurance policy (a "Policy")
issued by an insurer specified in the related
Prospectus Supplement, a reserve account, letters of
credit, credit or liquidity facilities, third party
payments or other support, cash deposits or other
arrangements. In addition to or in lieu of the
foregoing, credit enhancement may be provided by
means of subordination, cross-support among the
Receivables or over- collateralization. The
Depositor will acquire the Receivables from the
related Originator(s) on or prior to the date of
issuance of the related Securities, as described
herein and in the related Prospectus Supplement.
With respect to Securities issued by a Trust, each
Trust will be established pursuant to an agreement
(each, a "Pooling Agreement") by and between the
Depositor and the Trustee named therein. Each
Pooling Agreement will describe the related pool of
Receivables held by the Trust.
With respect to Securities that represent debt
issued by the Issuer, the Issuer will enter into an
indenture (each, an "Indenture") by and between the
Issuer and the trustee named on such Indenture (the
"Indenture Trustee"). Each Indenture will describe
the related pool of Receivables comprising the Trust
Fund and securing the debt issued by the related
Issuer.
The Receivables comprising each Trust Fund will be
serviced by the Servicer pursuant to a servicing
agreement (each, a "Servicing Agreement") by and
between the Servicer and the related Issuer.
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4
<PAGE>
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In the case of any individual Trust Fund, the
contractual arrangements relating to the
establishment of a Trust, if any, the servicing of
the related Receivables and the issuance of the
related Securities may be contained in a single
agreement, or in several agreements which combine
certain aspects of the Pooling Agreement, the
Servicing Agreement and the Indenture described
above (for example, a pooling and servicing
agreement, or a servicing and collateral management
agreement). For purposes of this Prospectus, the
term "Trust Agreement" as used with respect to a
Trust Fund means, collectively, and except as
otherwise described in the related Prospectus
Supplement, any and all agreements relating to the
establishment of a Trust, if any, the servicing of
the related Receivables and the issuance of the
related Securities. The term "Trustee" means any and
all persons acting as a trustee pursuant to a Trust
Agreement.
Securities Will Be Non-Recourse.
The Securities will not be obligations, either
recourse or non-recourse (except for certain
non-recourse debt described under "Certain Tax
Considerations"), of the Depositor, the related
Servicer, the related Originator(s) or any person
other than the related Issuer. The Notes of a given
series represent obligations of the Issuer, and the
Certificates of a given series represent beneficial
ownership interests in the related Trust only and do
not represent interests in or obligations of the
Depositor, the related Servicer, the related
Originator(s) or any of their respective affiliates
other than the related Trust. In the case of
Securities that represent beneficial ownership
interest in the related Trust, such Securities will
represent the beneficial ownership interests in such
Trust and the sole source of payment will be the
assets of such Trust. In the case of Securities that
represent debt issued by the related Issuer, such
Securities will be secured by assets in the related
Trust Fund. Notwithstanding the foregoing, and as to
be described in the related Prospectus Supplement,
certain types of credit enhancement, such as a
letter of credit, financial guaranty insurance
policy or reserve fund may constitute a full
recourse obligation of the issuer of such credit
enhancement.
General Nature of the Securities as Investments.
All of the Securities offered pursuant to this
Prospectus and the related Prospectus Supplement
will be rated in one of the four highest rating
categories by one or more Rating Agencies (as
defined herein).
Additionally, all of the Securities offered pursuant
to this Prospectus and the related Prospectus
Supplement will be of the fixed-income type ("Fixed
Income Securities"). Fixed Income Securities will
generally be styled as debt instruments, having a
principal balance and a specified interest rate
("Interest Rate"). Fixed Income Securities may
either represent beneficial ownership interests in
the related Receivables held by the related Trust or
debt secured by certain assets of the related
Issuer.
Each series or Class of Fixed Income Securities
offered pursuant to this Prospectus may have a
different Interest Rate, which may be a fixed or
adjustable Interest Rate. The related Prospectus
Supplement will specify the Interest Rate for each
series or Class of Fixed Income Securities described
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5
<PAGE>
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therein, or the initial Interest Rate and the method
for determining subsequent changes to the Interest
Rate.
A series may include one or more Classes of Fixed
Income Securities ("Strip Securities") entitled (i)
to principal distributions, with disproportionate,
nominal or no interest distributions, or (ii) to
interest distributions, with disproportionate,
nominal or no principal distributions. In addition,
a series of Securities may include two or more
Classes of Fixed Income Securities that differ as to
timing, sequential order, priority of payment,
Interest Rate or amount of distribution of principal
or interest or both, or as to which distributions of
principal or interest or both on any Class may be
made upon the occurrence of specified events, in
accordance with a schedule or formula, or on the
basis of collections from designated portions of the
related pool of Receivables. Any such series may
include one or more Classes of Fixed Income
Securities ("Accrual Securities"), as to which
certain accrued interest will not be distributed but
rather will be added to the principal balance (or
nominal balance, in the case of Accrual Securities
which are also Strip Securities) thereof on each
Payment Date, as hereinafter defined, or in the
manner described in the related Prospectus
Supplement.
If so provided in the related Prospectus Supplement,
a series may include one or more other Classes of
Fixed Income Securities (collectively, the "Senior
Securities") that are senior to one or more other
Classes of Fixed Income Securities (collectively,
the "Subordinate Securities") in respect of certain
distributions of principal and interest and
allocations of losses on Receivables.
In addition, certain Classes of Senior (or
Subordinate) Securities may be senior to other
Classes of Senior (or Subordinate) Securities in
respect of such distributions or losses.
General Payment Terms of Securities.
As provided in the related Trust Agreement and as
described in the related Prospectus Supplement, the
holders of the Securities ("Securityholders") will
be entitled to receive payments on their Securities
on specified dates (each, a "Payment Date"). Payment
Dates with respect to Fixed Income Securities will
occur monthly, quarterly or semi-annually, as
described in the related Prospectus Supplement.
The related Prospectus Supplement will describe a
date (the "Record Date") preceding such Payment
Date, as of which the Trustee or its paying agent
will fix the identity of the Securityholders for the
purpose of receiving payments on the next succeeding
Payment Date. As described in the related Prospectus
Supplement, the Payment Date will be a specified day
of each month, commonly the fifteenth or
twenty-fifth day of each month (or, in the case of
quarterly-pay Securities, the fifteenth or
twenty-fifth day of every third month; and in the
case of semi-annual pay Securities, the fifteenth or
twenty-fifth day of every sixth month) and the
Record Date will be the close of business as of the
last day of the calendar month that precedes the
calendar month in which such Payment Date occurs.
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6
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Each Trust Agreement will describe a period (each, a
"Remittance Period") preceding each Payment Date
(for example, in the case of monthly-pay Securities,
the calendar month preceding the month in which a
Payment Date occurs). As more fully described in the
related Prospectus Supplement, collections received
on or with respect to the related Receivables
constituting a Trust Fund during a Remittance Period
will be required to be remitted by the Servicer to
the related Trustee prior to the related Payment
Date and will be used to fund payments to
Securityholders on such Payment Date. As may be
described in the related Prospectus Supplement, the
related Trust Agreement may provide that all or a
portion of the payments collected on or with respect
to the related Receivables may be applied by the
related Trustee to the acquisition of additional
Receivables during a specified period (rather than
be used to fund payments of principal to
Securityholders during such period), with the result
that the related Securities will possess an
interest-only period, also commonly referred to as a
revolving period, which will be followed by an
amortization period. Any such interest only or
revolving period may, upon the occurrence of certain
events to be described in the related Prospectus
Supplement, terminate prior to the end of the
specified period and result in the earlier than
expected amortization of the related Securities.
In addition, and as may be described in the related
Prospectus Supplement, the related Trust Agreement
may provide that all or a portion of such collected
payments may be retained by the Trustee (and held in
certain temporary investments, including
Receivables) for a specified period prior to being
used to fund payments of principal to
Securityholders.
Such retention and temporary investment by the
Trustee of such collected payments may be required
by the related Trust Agreement for the purpose of
(a) slowing the amortization rate of the related
Securities relative to the rent payment schedule of
the related Receivables, or (b) attempting to match
the amortization rate of the related Securities to
an amortization schedule established at the time
such Securities are issued. Any such feature
applicable to any Securities may terminate upon the
occurrence of events to be described in the related
Prospectus Supplement, resulting in distributions to
the specified Securityholders and an acceleration of
the amortization of such Securities.
As more fully specified in the related Prospectus
Supplement, neither the Securities nor the
underlying Receivables will be guaranteed or insured
by any governmental agency or instrumentality or the
Depositor, the related Servicer, the related
Originator, any Trustee, or any of their affiliates.
No Investment Companies. Neither the Depositor nor any Trust will register as
an "investment company" under the Investment Company
Act of 1940, as amended (the "Investment Company
Act").
The Equity Interest..... With respect to each Trust, the "Equity Interest" at
any time represents the rights to the related Trust
Fund in excess of the Securityholders' interest of
all series then outstanding that were issued by such
Trust. The Equity Interest in any Trust Fund will
fluctuate as the aggregate Discounted Contract
Balance and the aggregate Residual Values of
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7
<PAGE>
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such Trust Fund changes from time to time. In
addition, the Depositor may cause one or more of the
Trusts (such a Trust, a "Master Trust") to issue
additional series of Securities from time to time
and any such issuance will have the effect of
decreasing the Equity Interest in the related Master
Trust to the extent of the aggregate principal
amount of the Securities. See "Description of
Securities -- Master Trusts." A portion of the
Equity interest in any Trust may be sold separately
in one or more public or private transactions.
Master Trusts; Issuance
of Additional Series ...... As may be described in the related Prospectus
Supplement, a Trust Agreement may authorize the
Trustee to issue certificates (the "Equity
Certificates") evidencing the Equity Interest in a
Master Trust, and may provide that, pursuant to any
one or more supplements to such Trust Agreement, the
Depositor may cause the related Trustee to issue one
or more new series of Securities and accordingly
cause a reduction in the related Equity Interest in
such Master Trust represented by the related Equity
Certificate. Under each such Trust Agreement (each,
a "Master Trust Agreement"), the Depositor may
determine the terms of any such new series. See
"Description of the Securities -- Master Trusts."
The Depositor may cause the related Trustee to offer
any such new series to the public or other
investors, in transactions either registered under
the Securities Act or exempt from registration
thereunder, directly or through one or more
underwriters or placement agents, in fixed-price
offerings or in negotiated transactions or
otherwise.
A new series to be issued by a Trust which has a
series outstanding may, unless otherwise described
in the related Prospectus Supplement, only be issued
upon satisfaction of the conditions described herein
under "Description of the Securities -- Master
Trusts", including, among others, that such issuance
will not effect the rating given to any existing
series issued by such Master Trust. Securities
secured by Receivables held by a Master Trust shall
be entitled to moneys received relating to such
Receivables on a pari passu basis with other
Securities issued pursuant to the other Trust
Agreements by such Master Trust.
Cross-Collateralization ... As described in the related Trust Agreement and the
related Prospectus Supplement, the source of payment
for Securities of each series will be the assets of
the related Trust Fund only.
However, as may be described in the related
Prospectus Supplement, a series or class of
Securities may include the right to receive moneys
from a common pool of credit enhancement which may
be available for more than one series of Securities,
such as a master reserve account, master insurance
policy or a master collateral pool consisting of
similar Receivables. Notwithstanding the foregoing,
and as described in the related Prospectus
Supplement, no payment received on any Receivable
held by any Trust may be applied to the payment of
Securities issued by any other Trust (except to the
limited extent that certain collections in excess of
the amounts needed to pay the related Securities may
be deposited in a common master reserve account or
an overcollateralization account that provides
credit enhancement for more than one series of
Securities issued pursuant to the related Trust
Agreement).
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8
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Trust Funds............. As specified in the related Prospectus Supplement,
each Trust Fund will consist of the related
Contracts, and may include the related Vehicles. If
and to the extent specified in the related
Prospectus Supplement, credit enhancement with
respect to a Trust Fund or any class of Securities
may include any one or more of the following: a
Policy issued by an insurer specified in the related
Prospectus Supplement, a reserve account, letters of
credit, credit or liquidity facilities, repurchase
obligations, third party payments or other support,
cash deposits or other arrangements. In addition to
or in lieu of the foregoing, credit enhancement may
be provided by means of subordination, cross-support
among the Receivables or over- collateralization.
See "Description of the Trust Agreement -- Credit
and Cash Flow Enhancement." The Contracts are
obligations for the purchase of the Vehicles, or
evidence borrowings used to acquire the Vehicles. As
specified in the related Prospectus Supplement, the
Contracts may consist of any combination of Rule of
78s Contracts, Fixed Value Contracts or Simple
Interest Contracts. Generally, "Rule of 78s
Contracts" provide for fixed level monthly payments
which will amortize the full amount of the Contract
over its term. The Rule of 78s Contracts provide for
allocation of payments according to the "sum of
periodic balances" or "sum of monthly payments"
method (the "Rule of 78s"). Each Rule of 78s
Contract provides for the payment by the Obligor of
a specified total amount of payments, payable in
monthly installments on the related due date, which
total represents the principal amount financed and
finance charges in an amount calculated on the basis
of a stated annual percentage rate ("APR") for the
term of such Contract. The rate at which such amount
of finance charges is earned and, correspondingly,
the amount of each fixed monthly payment allocated
to reduction of the outstanding principal balance of
the related Contract are calculated in accordance
with the Rule of 78s. Under the Rule of 78s, the
portion of each payment allocable to interest is
higher during the early months of the term of a
Contract and lower during later months than that
under a constant yield method for allocating
payments between interest and principal.
Notwithstanding the foregoing, as specified in the
related Prospectus Supplement, all payments received
by the related Servicer on or in respect of the Rule
of 78s Contracts may be allocated on an actuarial
basis.
Generally, the "Fixed Value Contracts" provide for
monthly payments with a final fixed value payment
which is greater than the scheduled monthly
payments. A Fixed Value Contract provides for
amortization of the loan over a series of fixed
level payment monthly installments, but also
requires a final fixed value payment due after
payment of such monthly installments which may be
satisfied by (i) payment in full in cash of such
amount, (ii) transfer of the vehicle to the related
Originator provided certain conditions are satisfied
or (iii) refinancing the fixed value payment in
accordance with certain conditions. With respect to
Fixed Value Contracts, as specified in the related
Prospectus Supplement, only the principal and
interest payments due prior to the final fixed value
payment and not the final fixed value payment may be
included in the related Trust Fund.
Generally, the "Simple Interest Contracts" provide
for the amortization of the amount financed under
the receivable over a series of fixed level monthly
payments. However, unlike the monthly payment under
Rule of 78s Contracts, each monthly payment consists
of an installment of interest which is calculated on
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the basis of the outstanding principal balance of
the receivable multiplied by the stated APR and
further multiplied by the period elapsed (as a
fraction of a calendar year) since the preceding
payment of interest was made. As payments are
received under a Simple Interest Contract, the
amount received is applied first to interest accrued
to the date of payment and the balance is applied to
reduce the unpaid principal balance. Accordingly, if
an Obligor pays a fixed monthly installment before
its scheduled due date, the portion of the payment
allocable to interest for the period since the
preceding payment was made will be less than it
would have been had the payment been made as
scheduled, and the portion of the payment applied to
reduce the unpaid principal balance will be
correspondingly greater. Conversely, if an Obligor
pays a fixed monthly installment after its scheduled
due date, the portion of the payment allocable to
interest for the period since the preceding payment
was made will be greater than it would have been had
the payment been made as scheduled, and the portion
of the payment applied to reduce the unpaid
principal balance will be correspondingly less. In
either case, the Obligor pays a fixed monthly
installment until the final scheduled payment date,
at which time the amount of the final installment is
increased or decreased as necessary to repay the
then outstanding principal balance.
If an Obligor elects to prepay a Rule of 78s
Contract in full, it is entitled to a rebate of the
portion of the outstanding balance then due and
payable attributable to unearned finance charges. If
a Simple Interest Contract is prepaid, rather than
receive a rebate, the Obligor is required to pay
interest only to the date of prepayment. The amount
of a rebate under a Rule of 78s Contract calculated
in accordance with the Rule of 78s will always be
less than had such rebate been calculated on an
actuarial basis and generally will be less than the
remaining scheduled payments of interest that would
be due under a Simple Interest Contract for which
all payments were made on schedule. Distributions to
Securityholders may not be affected by Rule of 78s
rebates under the Rule of 78s Contract because, as
specified in the related Prospectus Supplement, such
distributions may be determined using the actuarial
method.
The related Prospectus Supplement will further
describe the type and characteristics of the
Contracts included in each Trust Fund relating to
the Securities offered pursuant to this Prospectus
and the related Prospectus Supplement.
The Receivables comprising a Trust Fund will be
acquired by the Depositor from the related
Originator; such Receivables will have theretofore
been either (i) originated by such Originator, (ii)
originated by Manufacturers and acquired by such
Originator, (iii) originated by Dealers and acquired
by such Originator or (iv) acquired by such
Originator from other originators or owners of
Receivables.
With respect to the Receivables comprising each
Trust Fund, the Depositor and/or the related
Originator will acquire the related Receivables from
the Originator pursuant to a Receivables Acquisition
Agreement as defined herein. The Depositor will
either transfer such Receivables to a Trust pursuant
to a Pooling Agreement or pledge the Depositor's
right, title and interest in and to such Receivables
to a Trustee on behalf of Securityholders pursuant
to an Indenture. The Contracts transferred to a
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Trust or pledged to a Trustee shall have a
Discounted Contract Balance (as defined below)
specified in the related Prospectus Supplement. The
rights and benefits of the Depositor or Transferor
under such Receivables Acquisition Agreement will be
assigned to the Trustee on behalf of the related
Securityholders. The obligations of the Depositor,
the related Originator(s), the related Servicer(s),
the related Trustee and the related Indenture
Trustee, if any, under the related Trust Agreement
include those specified below and in the related
Prospectus Supplement.
The "Discounted Contract Balance" of a Contract as
of any Cut-Off Date is the present value of all of
the remaining payments scheduled to be made with
respect to such Contract, discounted at a rate
specified in the related Prospectus Supplement and
the Trust Agreement.
In addition, if so specified in the related
Prospectus Supplement, the Trust Fund will include
monies on deposit in a segregated trust account (the
"Pre-Funding Account") to be established with the
related Trustee, which will be used to acquire
Additional Receivables from time to time during the
"Pre-Funding Period" specified in the related
Prospectus Supplement. The Pre-Funding Account, if
any, will be reduced during the related Pre-Funding
Period by the amount thereof used to purchase
Additional Receivables. Any amount remaining in the
Pre-Funding Account at the end of the related
Pre-Funding Period will be distributed to the
related Securityholders, pro rata, on the Payment
Date immediately following the end of the
Pre-Funding Period.
If and to the extent provided in the related
Prospectus Supplement, the Depositor will be
obligated (subject only to the availability thereof)
to acquire from the related Originator(s) and to
either transfer to a Trust or pledge to a Trustee on
behalf of Securityholders, additional Receivables
(the "Additional Receivables") from time to time
during any Pre-Funding Period specified in the
related Prospectus Supplement.
Registration of Securities. Securities may be represented by global securities
registered in the name of Cede & Co. ("Cede"), as
nominee of The Depository Trust Company ("DTC"), or
another nominee. In such case, Securityholders will
not be entitled to receive definitive securities
representing such Securityholders' interests, except
in certain circumstances described in the related
Prospectus Supplement. See "Description of the
Securities -- Book Entry Registration" herein.
Credit and Cash Flow
Enhancement ............ If and to the extent specified in the related
Prospectus Supplement, credit enhancement with
respect to a Trust Fund or any class of Securities
may include any one or more of the following: a
Policy issued by an insurer specified in the related
Prospectus Supplement (a "Security Insurer"), a
reserve account, letters of credit, credit or
liquidity facilities, third party payments or other
support, cash deposits or other arrangements. Any
form of credit enhancement will have certain
limitations and exclusions from coverage thereunder,
which will be described in the related Prospectus
Supplement. See "Description of the Trust Agreement
-- Credit and Cash Flow Enhancement."
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Receivables Acquisition
Agreement............... As more fully described in the related Prospectus
Supplement, the Depositor and/or the related
Originator will be obligated to acquire from the
related Trust Fund any Receivable transferred
pursuant to a Pooling Agreement or pledged pursuant
to an Indenture if the interest of the
Securityholders therein is materially adversely
affected by a breach of any representation or
warranty made by the Depositor or the related
Originator with respect to such Receivable, which
breach has not been cured. To the extent that the
Depositor so acquires any Receivables, the related
Originator will be obligated to acquire such
Receivables from the Depositor pursuant to the
related Receivables Acquisition Agreement
contemporaneously with the Depositor's acquisition
of such Receivables from the applicable Trust Fund.
The obligation of the Depositor to acquire any such
Receivables with respect to which the related
Originator has breached a representation or warranty
is subject to the related Originator's acquisition
of such Receivables from the Depositor. In addition,
if so specified in the related Prospectus
Supplement, the Depositor may from time to time
reacquire certain Receivables or substitute other
Receivables for such Receivable held by a Trust
Fund, subject to specified conditions set forth in
the related Trust Agreement and Receivables
Acquisition Agreement.
Servicer's Compensation.. The Servicer shall be entitled to receive a fee for
servicing the Contracts of each Trust Fund equal to
a specified percentage of the value of the assets
held in the related Trust Fund, as set forth in the
related Prospectus Supplement. See "Description of
the Trust Agreements -- Servicing Compensation"
herein and in the related Prospectus Supplement.
Certain Legal Aspects
of the Receivables...... With respect to the transfer of the Contracts to the
related Trust pursuant to a Pooling Agreement or the
pledge of the related Issuer's right, title and
interest in and to such Contracts on behalf of
Securityholders pursuant to an Indenture, the
Depositor will warrant, in each case, that such
transfer is either a valid transfer and assignment
of the Contracts to the Trust or the grant of a
security interest in the Contracts. Each Prospectus
Supplement will specify what actions will be taken
by which parties as will be required to perfect
either the Issuer's or the Securityholders' security
interest in the Contracts. The Depositor may also
warrant that, if the transfer or pledge by it to the
Trust or to the Securityholders is deemed to be a
grant to the Trust or to the Securityholders of a
security interest in the Contracts, then the related
Issuer or the Securityholders will have a first
priority perfected security interest therein, except
for certain liens which have priority over
previously perfected security interests by operation
of law, and, with certain exceptions, in the
proceeds thereof. Similar security interest and
priority representations and warranties, as
described in the related Prospectus Supplement, may
also be made by the Depositor with respect to the
Vehicles.
In connection with the establishment of each Trust,
the related Servicer and/or Originator will be
required (to the extent not done previously) to
deliver to the appropriate motor vehicle agency
office in the related states duly completed and
executed applications for (a) transfer of the
certificates of title to the related Leased Vehicles
from the related Originator (unless the Originator
itself is a Finance Subsidiary) to either a Finance
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Subsidiary of the Originator or to the related
Trust, (b) release of any prior liens recorded on
such certificates of title and (c) in the event that
the Leased Vehicles are titled in the name of a
Finance Subsidiary and not the Trust, a notation of
lien in favor of the related Trustee on such
certificates of title, except, to the extent
described in the related Prospectus Supplement, that
the laws of any particular state do not require such
a lien notation to be made to perfect the Trustee's
security interest. Various liens and interests could
be imposed upon or all part of the related Trust
Fund that, by operation of law, would take priority
over the Trustee's interest thereon, however
perfected. Such liens include tax liens arising
against the Originator, the Finance Subsidiary or
the Issuer, mechanic's, repairman's, garagemen's and
motor vehicle accident liens and certain liens for
personal property taxes, in each case arising with
respect to a particular Leased Vehicle, and liens
arising under various state and federal criminal
statutes. See "Certain Legal Aspects of the
Receivables."
See "Certain Legal Aspects of the Receivables."
Optional Termination.... The related Servicer, the related Originator, the
Depositor, or, if specified in the related
Prospectus Supplement, certain other entities may,
at their respective options, effect early retirement
of a series of Securities under the circumstances
and in the manner set forth herein under "The Trust
Agreement - Termination; Retirement of Securities"
and in the related Prospectus Supplement.
Mandatory Termination... The Trustee, the related Servicer or certain other
entities specified in the related Prospectus
Supplement may be required to effect early
retirement of all or any portion of a series of
Securities by soliciting competitive bids for the
purchase of the related Trust Fund or otherwise,
under other circumstances and in the manner
specified in "The Trust Agreement - Termination;
Retirement of Securities" and in the related
Prospectus Supplement.
Tax Considerations...... Securities of each series offered hereby will, for
federal income tax purposes, constitute either (i)
interests in a Trust treated as a grantor trust
under applicable provisions of the Code ("Grantor
Trust Securities"), (ii) debt issued by a Trust or
by the Depositor ("Debt Securities") or (iii)
interests in a Trust which is treated as a
partnership ("Partnership Interests").
The Prospectus Supplement for each series of
Securities will summarize, subject to the
limitations stated therein, federal income tax
considerations relevant to the purchase, ownership
and disposition of such Securities.
Investors are advised to consult their tax advisors
and to review "Certain Federal and State Income Tax
Consequences" in the related Prospectus Supplement.
ERISA Considerations.... The Prospectus Supplement for each series of
Securities will summarize, subject to the
limitations discussed therein, considerations under
the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), relevant to the purchase of
such Securities by employee benefit plans and
individual retirement accounts. See "ERISA
Considerations" in the related Prospectus
Supplement.
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Ratings................. Each Class of Securities offered pursuant to this
Prospectus and the related Prospectus Supplement
will be rated in one of the four highest rating
categories by one or more "national statistical
rating organizations", as defined in the Securities
Exchange Act of 1934, as amended (the "Exchange
Act"), and commonly referred to as "Rating
Agencies". Such ratings will address, in the opinion
of such Rating Agencies, the likelihood that the
Issuer will be able to make timely payment of all
amounts due on the related Securities in accordance
with the terms thereof. Such ratings will neither
address any prepayment or yield considerations
applicable to any Securities nor constitute a
recommendation to buy, sell or hold any Securities.
The ratings expected to be received with respect to
any Securities will be set forth in the related
Prospectus Supplement.
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SPECIAL CONSIDERATIONS
Prospective Securityholders should consider, among other things, the
following factors in connection with the purchase of the Securities:
Limited Liquidity. There can be no assurance that a secondary market for
the Securities of any series or Class will develop or, if it does develop, that
it will provide Securityholders with liquidity of investment or that it will
continue for the life of such Securities. The Prospectus Supplement for any
series of Securities may indicate that an underwriter specified therein intends
to establish and maintain a secondary market in such Securities; however, no
underwriter will be obligated to do so. The Securities will not be listed on any
securities exchange.
Ownership of Contracts. In connection with the issuance of any series of
Securities, the related Originator(s) will transfer Contracts to the Depositor.
The related Originator(s) will warrant in a Receivables Acquisition Agreement
that the transfer of the Contracts by it to the Depositor is a valid assignment,
transfer and conveyance of such Contracts. The Depositor will warrant in a Trust
Agreement (a) if the Depositor or the related Originator(s) retain title to the
Contracts, that the Trustee for the benefit of Securityholders has a valid
security interest in such Contracts, or (b) if the Depositor transfers such
Contracts to a Trust, that the transfer of the Contracts to such Trust is either
a valid assignment, transfer and conveyance of the Contracts to the Trust or the
Trustee on behalf of the Securityholders has a valid security interest in such
Contracts. As to be described in the related Prospectus Supplement, the related
Trust Agreement will provide either that the Trustee will be required to
maintain possession of the original copies of all Contracts that constitute
chattel paper or that the Depositor, the related Originator(s) or the related
Servicer will retain possession of such Contracts; provided that in case the
Depositor or an Originator retains possession of the related Contracts, the
Servicer may take possession of such original copies as necessary for the
enforcement of any Contract. If any Contracts remain in the possession of the
Depositor or an Originator, the related Prospectus Supplement may describe
specific trigger events that will require delivery to the Trustee. If the
Depositor, the Servicer, the Trustee, an Originator or other third party, while
in possession of the Contracts, sells or pledges and delivers such Contracts to
another party, in violation of the Receivables Acquisition Agreement or the
Trust Agreement, there is a risk that such other party could acquire an interest
in such Contracts having a priority over the Issuer's interest. Furthermore, if
the Depositor, the Servicer, an Originator or a third party, while in possession
of the Contracts, is rendered insolvent, such event of insolvency may result in
competing claims to ownership or security interests in the Contracts. Such an
attempt, even if unsuccessful, could result in delays in payments on the
Securities. If successful, such attempt could result in losses to the
Securityholders or an acceleration of the repayment of the Securities. The
related Originator(s) and the Depositor will make certain representations and
warranties with respect to the ownership of the Contracts as of the date of the
transfer to the Depositor and the Trust, if any, respectively. The related
Originator will be obligated to acquire any Contract from the related Trust Fund
if there is a breach of such representations and warranties that materially
adversely affects the interests of the Depositor or the Trust in such Contract
and such breach has not been cured.
Perfection of the Trustee's Interests. Contracts. The transfer of the
Contracts by the related Originators to the Depositor pursuant to each
Receivables Acquisition Agreement and then by the Depositor to the Trustee
pursuant to the related Trust Agreement, the perfection of the security
interests in the Contracts and the enforcement of rights to realize on the
Contracts are subject to a number of federal and state laws, including the UCC
as in effect in various states. As specified in each Prospectus Supplement, the
related Servicer will take such action as is required to perfect the rights of
the Trustee in the Contracts. If, through inadvertence or otherwise, a third
party were to purchase (including the taking of a security interest in) a
Contract for new value in the ordinary course of its business, without actual
knowledge of the Trust's interest, and take possession of a Contract, the
purchaser would acquire an interest in such Contract superior to the interest of
the Trust. As further specified in each Prospectus Supplement, no action will be
taken to perfect the rights of the Trustee in proceeds of the VSI Insurance
Policy or of any other insurance policies covering individual Vehicles or
Obligors. Therefore, the rights of a third party with an interest in such
proceeds could prevail against the rights of the Trust prior to the time such
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proceeds are deposited by the related Servicer into a Trust Account. See
"Certain Legal Aspects of the Contracts".
Leased Vehicles. The Leased Vehicles will be titled in the name of either a
Finance Subsidiary (which may be an Originator) or in the name of the related
Trust. In the event that such Leased Vehicles are not titled in the name of the
related Trust, a notation of lien in favor of the related Trustee on the related
certificates of title will be filed. See "Certain Legal Aspects of the
Receivables".
Restrictions on Recoveries. Unless specific limitations are described on
the related Prospectus Supplement with respect to specific Contracts, all
Contracts will provide that the obligations of the Obligors thereunder are
absolute and unconditional, regardless of any defense, set-off or abatement
which the Obligor may have against the related Originator or any other person or
entity whatsoever. The Originators will warrant that no claims or defenses have
been asserted or threatened with respect to the Contracts and that all
requirements of applicable law with respect to the Contracts have been
satisfied.
In the event that the Depositor or the Trustee must rely on repossession
and disposition of Vehicles to recover scheduled payments due on Defaulted
Contracts, the Issuer may not realize the full amount due on a Contract (or may
not realize the full amount on a timely basis). Other factors that may affect
the ability of the Issuer to realize the full amount due on a Contract include
whether amendments to certificates of title relating to the Vehicles had been
filed, whether financing statements to perfect the security interest in the
Vehicles had been filed, depreciation, obsolescence, damage or loss of any
Vehicle, and the application of Federal and state bankruptcy and insolvency
laws. As a result, the Securityholders may be subject to delays in receiving
payments and suffer loss of their investment in the Securities.
Insolvency and Bankruptcy Matters. The Depositor will take steps in
structuring the transactions contemplated hereby that are intended to ensure
that the voluntary or involuntary application for relief by the related
Originator or the Depositor (the Originators and the Depositors, collectively
for these purposes, "Debtors") under the United States Bankruptcy Code or
similar applicable state laws ("Insolvency Laws") will not result in the assets
of the related Trust Fund becoming property of the estate of a Debtor within the
meaning of such Insolvency Laws. Such steps will generally involve the creation
by the related Originator of a separate, limited-purpose subsidiary (each, a
"Finance Subsidiary") pursuant to articles of incorporation containing certain
limitations (including restrictions on the nature of such Finance Subsidiary's
business and a restriction on such Finance Subsidiary's ability to commence a
voluntary case or proceeding under any Insolvency Law without the prior
unanimous affirmative vote of all its directors). However, there can be no
assurance that the activities of any Finance Subsidiary would not result in a
court's concluding that the assets and liabilities of such Finance Subsidiary
should be consolidated with those of the related Originator in a proceeding
under any Insolvency Law.
Except to the extent otherwise described in the related Prospectus
Supplement, each Receivables Acquisition Agreement and each Trust Agreement will
generally require that the related Originator contribute the related Receivables
to a Finance Subsidiary, which will then transfer such Receivables to the
Depositor which in turn will transfer such Receivables to an Issuer. Except as
otherwise described in the related Prospectus Supplement, the Equity Interest in
a Trust Fund will be transferred to the related Finance Subsidiary.
With respect to each Trust Fund, the Trustee and all Securityholders will
covenant that they will not at any time institute against the Depositor or the
related Finance Subsidiary any bankruptcy, reorganization or other proceeding
under any federal or state bankruptcy or similar law.
For purposes of this Prospectus, the term "Originator" includes the term
"Finance Subsidiary." In addition, while an Originator is the Servicer, cash
collections held by such Originator may, subject to certain conditions, be
commingled and used for the benefit of such Originator prior to each Payment
Date and, in the event of the bankruptcy of such Originator, the Depositor, a
Trust or Trustee may not have a perfected interest in such collections.
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The Depositor believes that the transfer of the Receivables by an
Originator or its Finance Subsidiary to the Depositor should be treated as a
valid assignment, transfer and conveyance of such Receivables. However, in the
event of an insolvency of such Originator, a court, among other remedies, could
attempt to recharacterize the transfer of the Receivables by such Originator to
the Depositor as a borrowing by the Originator from the Depositor or the related
Securityholders, secured by a pledge of such Receivables. Such an attempt, even
if unsuccessful, could result in delays in payments on the Securities. If such
an attempt were successful, a court, among other remedies, could elect to
accelerate payment of the Securities and liquidate the Receivables, with the
Securityholders entitled to the then outstanding principal amount thereof and
interest thereon at the applicable Security Interest Rate to the date of
payment. Thus, the Securityholders could lose the right to future payments of
interest and might incur reinvestment losses. As more fully described in the
related Prospectus Supplement, in the event the related Issuer is rendered
insolvent, the Trustee for a Trust, in accordance with the Trust Agreement, will
promptly sell, dispose of or otherwise liquidate the related Receivables in a
commercially reasonable manner on commercially reasonable terms. The proceeds
from any such sale, disposition or liquidation of such Receivables will be
treated as collections on such Receivables. If the proceeds from the liquidation
of the Receivables and any amount available from any credit enhancement, if any,
are not sufficient to pay Securities of the related series in full, the amount
of principal returned to such Securityholders will be reduced and such
Securityholders will incur a loss.
Obligors of the Vehicles may be entitled to assert against the related
Originator, the Depositor, or the Trust, if any, claims and defenses which they
have against such Originator with respect to the Receivables. The Originator(s)
will warrant that no such claims or defenses have been asserted or threatened
with respect to the Receivables and that all requirements of applicable law with
respect to the Receivables have been satisfied.
Insurance on Vehicles. Each Receivable generally requires the related
Obligor to maintain insurance covering physical damage to the Vehicle in an
amount not less than the unpaid principal balance of such Receivable pursuant to
which the Originator is named as a loss payee. Since the Obligors select their
own insurers to provide the requisite coverage, the specific terms and
conditions of their policies may vary.
In addition to physical damage insurance which may be required to be
maintained by the Obligors pursuant to the Receivables, each Vehicle, as
specified in the related Prospectus Supplement, may be insured against physical
damage risks by a policy of vendor's single interest physical damage insurance
(the "VSI Insurance Policy") which provides limited coverage (subject to
deductibles) for, among other things, (i) physical loss or damage from any
external cause to such vehicle and (ii) inability to locate such vehicle or the
related Obligor. The VSI Insurance Policy generally provides coverage in an
amount equal to the lowest of: (i) the actual cash value of such Vehicle at the
time of loss or damage, plus $3,000; (ii) the cost of repair or replacement of
such Vehicle; (iii) the unpaid principal balance, not more than 120 days past
due, computed as of the date of loss, of the related Receivable, less interest,
insurance, finance and other carrying charges; and (iv) $50,000. Accordingly,
recovery under the VSI Insurance Policy may be less than the outstanding
principal and interest due on the related Receivable. In the event of any such
shortfall, to the extent such shortfall is not covered by credit support (as
specified in the related Prospectus Supplement) Securityholders could suffer a
loss on their investment.
Delinquencies. There can be no assurance that the historical levels of
delinquencies and losses experienced by the related Originator on its equipment
lease portfolio will be indicative of the performance of the Contracts included
in any Trust Fund or that such levels will continue in the future. Delinquencies
and losses could increase significantly for various reasons, including changes
in the federal income tax laws, changes in the local, regional or national
economies or due to other events.
Subordination; Limited Assets. To the extent specified in the related
Prospectus Supplement, distributions of interest and principal on one Class of
Securities of a series may be subordinated in priority of payment to interest
and principal due on other Classes of Securities of a related series. Moreover,
each Trust Fund will not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the related Receivables and,
to the extent provided in the related Prospectus Supplement, a Pre-Funding
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Account, the related reserve account and any other credit enhancement. The
Securities represent obligations solely of the related Trust or debt secured by
the related Trust Fund, and will not represent a recourse obligation to other
assets of the related Originator(s) or of the Depositor. No Securities of any
series will be insured or guaranteed by any Originator, the Depositor, the
Servicer, or the applicable Trustee. Consequently, holders of the Securities of
any series must rely for repayment primarily upon payments on the Receivables
and, if and to the extent available, amounts on deposit in the Pre-Funding
Account, if any, the reserve account, if any, and any other credit enhancement,
all as specified in the related Prospectus Supplement.
Master Trusts. As may be described in the related Prospectus Supplement, a
Master Trust may issue from time to time more than one series. While the terms
of any additional series will be specified in a supplement to the related Master
Trust Agreement, the provisions of such supplement and, therefore, the terms of
any additional series, will not be subject to prior review by, or consent of,
holders of the Securities of any series previously issued by such Master Trust.
Such terms may include methods for determining applicable investor percentages
and allocating collections, provisions creating different or additional security
or credit enhancements and any other provisions which are made applicable only
to such series. The obligation of the related Trustee to issue any new series is
subject to the condition, among others, that such issuance will not result in
any Rating Agency reducing or withdrawing its rating of the Securities of any
outstanding series (any such reduction or withdrawal is referred to herein as a
"Ratings Effect"). There can be no assurance, however, that the terms of any
series might not have an impact on the timing or amount of payments received by
a Securityholder of another series issued by the same Master Trust. See
"Description of the Securities -- Master Trusts."
Book-Entry Registration. Issuance of the Securities in book-entry form may
reduce the liquidity of such Securities in the secondary trading market since
investors may be unwilling to purchase Securities for which they cannot obtain
definitive physical securities representing such Securityholders' interests,
except in certain circumstances described in the related Prospectus Supplement.
Since transactions in Securities will, in most cases, be able to be
effected only through DTC, direct or indirect participants in DTC's book-entry
system ("Direct Participants" or "Indirect Participants") or certain banks, the
ability of a Securityholder to pledge a Security to persons or entities that do
not participate in the DTC system, or otherwise to take actions in respect to
such Securities, may be limited due to lack of a physical security representing
the Securities.
Securityholders may experience some delay in their receipt of distributions
of interest on and principal of the Securities since distributions may be
required to be forwarded by the Trustee to DTC and, in such case, DTC will be
required to credit such distributions to the accounts of its Participants which
thereafter will be required to credit them to the accounts of the applicable
class of Securityholders either directly or indirectly through Indirect
Participants. See "Description of the Securities -- Book Entry Registration."
Security Rating. The rating of Securities credit enhanced by a letter of
credit, financial guaranty insurance policy, reserve fund, credit or liquidity
facilities, cash deposits or other forms of credit enhancement (collectively
"Credit Enhancement") will depend primarily on the creditworthiness of the
issuer of such external Credit Enhancement device (a "Credit Enhancer"). Any
reduction in the rating assigned to the claims-paying ability of the related
Credit Enhancer to honor its obligations pursuant to any such Credit Enhancement
below the rating initially given to the Securities would likely result in a
reduction in the rating of the Securities.
Maturity and Prepayment Considerations. Because the rate of payment of
principal on the Securities will depend, among other things, on the rate of
payment on the related Contracts, the rate of payment of principal on the
Securities cannot be predicted. Payments on the Contracts will include scheduled
payments as well as partial and full prepayments (to the extent not replaced
with substitute Contracts), payments upon the liquidation of Defaulted
Contracts, payments upon acquisitions by the related Originator, the related
Servicer or the Depositor of Contracts from the related Trust Fund on account of
a breach of certain representations and warranties in the related Trust
Agreement, payments upon an optional acquisition by the related Originator, the
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related Servicer or the Depositor of Contracts from the related Trust Fund (any
such voluntary or involuntary prepayment or other early payment of a Contract, a
"Prepayment"), and residual payments. The rate of early terminations of
Contracts due to Prepayments and defaults may be influenced by a variety of
economic and other factors, including, among others, obsolescence, then current
economic conditions and tax considerations. The risk of reinvesting
distributions of the principal of the Securities will be borne by the
Securityholders. The yield to maturity on Strip Securities or Securities
purchased at premiums or discounts to par will be extremely sensitive to the
rate of Prepayments on the related Receivables. In addition, the yield to
maturity on certain other types of classes of Securities, including Strip
Securities, Accrual Securities or certain other Classes in a series including
more than one Class of Securities, may be relatively more sensitive to the rate
of prepayment of the related Contracts than other Classes of Securities.
The Depositor does not have available to it any statistics as to prepayment
rates historically experienced in the equipment leasing industry. The rate of
Prepayments of Contracts cannot be predicted and is influenced by a wide variety
of economic, social, and other factors, including prevailing interest rates, the
availability of alternate financing and local and regional economic conditions.
Therefore, no assurance can be given as to the level of Prepayments that a Trust
Fund will experience.
Securityholders should consider, in the case of Securities purchased at a
discount, the risk that a slower than anticipated rate of Prepayments on the
Receivables could result in an actual yield that is less than the anticipated
yield and, in the case of any Securities purchased at a premium, the risk that a
faster than anticipated rate of Prepayments on the Receivables could result in
an actual yield that is less than the anticipated yield.
THE TRUST FUNDS
The property of each Trust Fund will include, as specified in the related
Prospectus Supplement, (i) a pool of Receivables, (ii) all moneys (including
accrued interest) due thereunder on or after the applicable Cut-off Date, (iii)
such amounts as from time to time may be held in one or more accounts
established and maintained by the Servicer pursuant to the related Trust
Agreement, as described below and in the related Prospectus Supplement, (iv) the
security interests, if any, in the Vehicles relating to such pool of
Receivables, (v) the right to proceeds from claims on physical damage policies,
if any, covering such Vehicles or the related Obligors, as the case may be, (vi)
the proceeds of any repossessed Vehicles related to such pool of Receivables,
(vii) the rights of the Depositor under the related Receivables Acquisition
Agreement and (viii) interest earned on certain short-term investments held by
such Trust Fund, unless the related Prospectus Supplement specifies that such
earnings may be paid to the related Servicer or Originator(s). The Trust Fund
will also include, if so specified in the related Prospectus Supplement, monies
on deposit in a Pre-Funding Account, which will be used by the Trustee to
acquire or receive a security interest in Additional Receivables from time to
time during the Pre-Funding Period specified in the related Prospectus
Supplement. In addition, to the extent specified in the related Prospectus
Supplement, some combination of Credit Enhancements may be issued to or held by
the Trustee on behalf of the related Trust Fund for the benefit of the holders
of one ore more classes of Securities.
The Receivables comprising a Trust Fund will, as specifically described in
the related Prospectus Supplement, be either (i) originated by the related
Originator, (ii) originated by various Manufacturers and acquired by the related
Originator, (iii) originated by various Dealers and acquired by the related
Originator or (iv) acquired by the related Originator from originators or owners
of Receivables.
Each Trust Fund will include Receivables with respect to which the related
Contracts are "chattel paper" within the meaning of the Uniform Commercial Code,
as in effect in the relevant jurisdiction, and the related Vehicles are subject
to federal or state registration or titling requirements under the motor vehicle
laws of such jurisdiction. No Trust Fund will include Receivables with respect
to which the underlying Contracts or Vehicles relate to office equipment,
aircraft, ships or boats, firearms or other weapons, railroad rolling stock or
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facilities such as factories, warehouses or plants subject to state laws
governing the manner in which title or security interest in real property is
determined or perfected.
The Receivables will be acquired by the Depositor from the related
Originator pursuant to a Receivables Acquisition Agreement between the
Originator and the Depositor (each, a "Receivables Acquisition Agreement"). The
Receivables included in each Trust Fund will be selected from those Receivables
held by the Originators based on the criteria specified in the applicable Trust
Agreement and described herein or in the related Prospectus Supplement.
With respect to each series of Securities, on or prior to the Closing Date
on which the Securities are delivered to Securityholders, the Depositor will
form a Trust Fund by either (i) transferring the related Receivables into a
Trust pursuant to a Trust Agreement between the Depositor and the Trustee or
(ii) entering into an Indenture with an Indenture Trustee, relating to the
issuance of such Securities, secured by the related Receivables.
The Receivables comprising each Trust Fund will generally have been
originated by the related Originator(s) or acquired by such Originator(s) from
Vendors or from other lessors in accordance with such Originator's(s') specified
underwriting criteria. The underwriting criteria applicable to the Receivables
included in any Trust Fund will be described in all material respects in the
related Prospectus Supplement.
THE ISSUERS
With respect to each series of Securities, the Depositor will either
establish a separate Trust that will issue such Securities, or the Depositor
will issue such Securities, in each case pursuant to the related Trust
Agreement. For purposes of this Prospectus and the related Prospectus
Supplement, the Depositor, if the Depositor issues the related Securities, or
the related Trust, if a Trust issues the related Securities, shall be referred
to as the "Issuer" with respect to such Securities.
Upon the issuance of the Securities of a given series, the proceeds from
such issuance will be used by the Depositor to acquire the related Receivables
from the related Originator. The related Servicer will service the related
Receivables pursuant to the applicable Servicing Agreement, and will be
compensated for acting as the Servicer. To facilitate servicing and to minimize
administrative burden and expense, the Servicers may be appointed custodians for
the related Receivables by each Trustee and the Depositor, as may be set forth
in the related Prospectus Supplement.
If the protection provided to the Securityholders of a given class by the
subordination of another Class of Securities of such series and by the
availability of the funds in the reserve account, if any, or any other Credit
Enhancement for such series is insufficient, the Issuer must rely solely on the
payments from the Obligors on the related Contracts, and the proceeds from the
sale of Vehicles which secure or are leased under the Defaulted Contracts. In
such event, certain factors may affect such Issuer's ability to realize on the
collateral securing such Contracts, and thus may reduce the proceeds to be
distributed to the Securityholders of such series.
THE RECEIVABLES
Receivables Pools
Information with respect to the Receivables in each Trust Fund will be set
forth in the related Prospectus Supplement, including, the identity of the
related Originator(s), the related underwriting criteria and collection
policies, together with, to the extent appropriate, the composition of such
Receivables and the distribution of such Receivables by equipment type, payment
frequency and current principal balance as of the applicable Cut-off Date.
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The Contracts
As specified in the related Prospectus Supplement, the Contracts may
consist of any combination of Rule of 78s Contracts, Fixed Value Contracts or
Simple Interest Contracts. Generally, Rule of 78s Contracts provide for fixed
level monthly payments which will amortize the full amount of the Contract over
its term. The Rule of 78s Contracts provide for allocation of payments according
to the "sum of periodic balances" or "sum of monthly payments" method. Each Rule
of 78s Contract provides for the payment by the Obligor of a specified total
amount of payments, payable in monthly installments on the related due date,
which total represents the principal amount financed and finance charges in an
amount calculated on the basis of a stated APR for the term of such Contract.
The rate at which such amount of finance charges is earned and, correspondingly,
the amount of each fixed monthly payment allocated to reduction of the
outstanding principal balance of the related Contract are calculated in
accordance with the Rule of 78s. Under the Rule of 78s, the portion of each
payment allocable to interest is higher during the early months of the term of a
Contract and lower during later months than that under a constant yield method
for allocating payments between interest and principal. Notwithstanding the
foregoing, as specified in the related Prospectus Supplement, all payments
received by the related Servicer on or in respect of the Rule of 78s Contracts
may be allocated on an actuarial basis.
Generally, the Fixed Value Contracts provide for monthly payments with a
final fixed value payment which is greater than the scheduled monthly payments.
A Fixed Value Contract provides for amortization of the loan over a series of
fixed level payment monthly installments, but also requires a final fixed value
payment due after payment of such monthly installments which may be satisfied by
(i) payment in full in cash of such amount, (ii) transfer of the vehicle to the
related Originator provided certain conditions are satisfied or (iii)
refinancing the fixed value payment in accordance with certain conditions. With
respect to Fixed Value Contracts, as specified in the related Prospectus
Supplement, only the principal and interest payments due prior to the final
fixed value payment and not the final fixed value payment may be included in the
related Trust Fund.
Generally, the Simple Interest Contracts provide for the amortization of
the amount financed under the receivable over a series of fixed level monthly
payments. However, unlike the monthly payment under Rule of 78s Contracts, each
monthly payment consists of an installment of interest which is calculated on
the basis of the outstanding principal balance of the receivable multiplied by
the stated APR and further multiplied by the period elapsed (as a fraction of a
calendar year) since the preceding payment of interest was made. As payments are
received under a Simple Interest Contract, the amount received is applied first
to interest accrued to the date of payment and the balance is applied to reduce
the unpaid principal balance. Accordingly, if an Obligor pays a fixed monthly
installment before its scheduled due date, the portion of the payment allocable
to interest for the period since the preceding payment was made will be less
than it would have been had the payment been made as scheduled, and the portion
of the payment applied to reduce the unpaid principal balance will be
correspondingly greater. Conversely, if an Obligor pays a fixed monthly
installment after its scheduled due date, the portion of the payment allocable
to interest for the period since the preceding payment was made will be greater
than it would have been had the payment been made as scheduled, and the portion
of the payment applied to reduce the unpaid principal balance will be
correspondingly less. In either case, the Obligor pays a fixed monthly
installment until the final scheduled payment date, at which time the amount of
the final installment is increased or decreased as necessary to repay the then
outstanding principal balance.
If an Obligor elects to prepay a Rule of 78s Contract in full, it is
entitled to a rebate of the portion of the outstanding balance then due and
payable attributable to unearned finance charges. If a Simple Interest Contract
is prepaid, rather than receive a rebate, the Obligor is required to pay
interest only to the date of prepayment. The amount of a rebate under a Rule of
78s Contract calculated in accordance with the Rule of 78s will always be less
than had such rebate been calculated on an actuarial basis and generally will be
less than the remaining scheduled payments of interest that would be due under a
Simple Interest Contract for which all payments were made on schedule.
Distributions to Securityholders may not be affected by Rule of 78s rebates
under the Rule of 78s Contract because, as specified in the related Prospectus
Supplement, such distributions may be determined using the actuarial method.
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Delinquencies, Repossessions, and Net Losses
Certain information relating to the related Originator's delinquency,
repossession and net loss experience with respect to Contracts it has originated
or acquired will be set forth in each Prospectus Supplement. This information
may include, among other things, the experience with respect to all Contracts in
such Originator's portfolio during certain specified periods, including
Contracts which may not meet the criteria for selection as a Receivable for any
particular Trust Fund. There can be no assurance that the delinquency,
repossession and net loss experience on any Trust Fund will be comparable to the
related Originator's prior experience.
Maturity and Prepayment Considerations
As more fully described in the related Prospectus Supplement, if a Contract
permits a Prepayment, such payment, together with accelerated payments resulting
from defaults, will shorten the weighted average life of the related pool of
Receivables and the weighted average life of the related Securities. The rate of
Prepayments on the Receivables may be influenced by a variety of economic,
financial and other factors. In addition, under certain circumstances, the
Depositor or the related Originator will be obligated to acquire Receivables
from the related Trust Fund pursuant to the applicable Trust Agreement or
Receivables Acquisition Agreement as a result of breaches of representations and
warranties. Any reinvestment risks resulting from a faster or slower
amortization of the related Securities which results from Prepayments will be
borne entirely by the related Securityholders.
The related Prospectus Supplement will set forth certain additional
information with respect to the maturity and prepayment considerations
applicable to a particular pool of Receivables and the related series of
Securities, together with a description of any applicable prepayment penalties.
Acquisition of Receivables From Originators
The Receivables underlying a Series of Securities will be acquired by the
Depositor, either directly or through affiliates (such as a Transferor), from
the related Originator pursuant to a Receivables Acquisition Agreement between
the Depositor or such affiliate and each such Originator.
The Depositor expects that, unless otherwise specified in the related
Prospectus Supplement, each Receivable so acquired will have been originated by
the Originator thereof in accordance with the underwriting criteria specified in
such Prospectus Supplement. Unless otherwise specified in the applicable
Prospectus Supplement, each Originator will be an institution experienced in
originating and servicing equipment leases in accordance with accepted industry
practices and prudent guidelines. Unless otherwise provided in the applicable
Prospectus Supplement, each Originator pursuant to the related Receivables
Acquisition Agreement will make certain representations and warranties to the
Depositor in respect of the related Receivables; the material terms of such
representations and warranties will be set forth in the related Prospectus
Supplement. Unless otherwise provided in the applicable Prospectus Supplement
with respect to each Series, the Depositor will assign all of its rights (except
certain rights of indemnification) and interest in the related Receivables
Acquisition Agreement to the related Trustee for the benefit of the
Securityholders of such Series, and the Originator shall thereupon be liable to
the Trustee for defective or missing documents or an uncured breach of such
Originator's representations or warranties, to the extent described in the
related Prospectus Supplement.
Forward Commitments; Pre-Funding
A Trust may enter into an agreement (each, a "Forward Purchase Agreement")
with the Depositor whereby the Depositor will agree to transfer Additional
Receivables to such Trust following the date on which such Trust is established
and the related Securities are issued. The Trust may enter into Forward Purchase
Agreements to permit the acquisition of Additional Receivables that could not be
delivered by the Depositor or have not formally completed the origination
process, in each case, prior to the date on which the Securities of any series
are delivered to Securityholders of such series (each such date, a "Closing
Date"). Each Forward Purchase Agreement, if any, will require that any
Receivables so transferred to a Trust conform to the requirements specified in
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such Forward Purchase Agreement. If a Forward Purchase Agreement is to be
utilized, and unless otherwise specified in the related Prospectus Supplement,
the related Trustee will be required to deposit in a Pre-Funding Account all or
a portion the proceeds received by the Trustee in connection with the sale of
one or more classes of Securities of the related series; the Additional
Receivables will be transferred to the related Trust in exchange for money
released to the Depositor from the related Pre-Funding Account. Each Forward
Purchase Agreement will set a specified period during which any such transfers
may occur. The Forward Purchase Agreement or the related Trust Agreement will
require that, if all moneys originally deposited to such Pre-Funding Account are
not so used by the end of such specified period, then any remaining moneys will
be applied as a mandatory prepayment of the related class or classes of
Securities, as specified in the related Prospectus Supplement. Unless otherwise
specified in the related Prospectus Supplement, the specified period for the
acquisition by a Trust of Additional Receivables will not exceed three months
form the date such Trust is established.
POOL FACTORS
The "Pool Factor" for each Class of Securities will be a seven-digit
decimal, which the Servicer will compute prior to each distribution with respect
to such Class of Securities, indicating the remaining outstanding principal
balance of such Class of Securities as of the applicable Payment Date, as a
fraction of the initial outstanding principal balance of such Class of
Securities. Each Pool Factor will be initially 1.0000000, and thereafter will
decline to reflect reductions in the outstanding principal balance of the
applicable Class of Securities. A Securityholder's portion of the aggregate
outstanding principal balance of the related Class of Securities is the product
of (i) the original aggregate purchase price of such Securityholder's Securities
and (ii) the applicable Pool Factor.
As more specifically described in the related Prospectus Supplement with
respect to each series of Securities, the related Securityholders of record will
receive reports on or about each Payment Date concerning the payments received
on the Receivables, the Pool Balance (as such term is defined in the related
Prospectus Supplement, the "Pool Balance"), each Pool Factor and various other
items of information. In addition, Securityholders of record during any calendar
year will be furnished information for tax reporting purposes not later than the
latest date permitted by law.
USE OF PROCEEDS
The proceeds from the sale of the Securities of a given series will be
applied by the Depositor to the acquisition of the related Receivables from the
related Originator. The Depositor expects that it will make additional sales of
securities similar to the Securities from time to time, but the timing and
amount of any such additional offering will be dependent upon a number of
factors, including the volume of Contracts acquired by the Depositor, prevailing
interest rates, availability of funds and general market conditions.
THE DEPOSITOR
Prudential Securities Secured Financing Corporation, formerly known as P-B
Secured Financing Corporation (the "Depositor"), was incorporated in the State
of Delaware on August 26, 1988 as a wholly-owned, limited purpose finance
subsidiary of Prudential Securities Group Inc. (a wholly-owned indirect
subsidiary of The Prudential Insurance Company of America). The Depositor's
principal executive offices are located at 130 John Street, New York, New York
10038. Its telephone number is (212) 214-7435.
As described herein under "The Trust Funds," the only obligations, if any,
of the Depositor with respect to a Series of Securities may be pursuant to
certain limited representations and warranties and limited undertakings to
repurchase or substitute Receivables under certain circumstances. Unless
otherwise specified in the applicable Prospectus Supplement, the Depositor will
have no servicing obligations or responsibilities with respect to any Trust
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Fund. The Depositor does not have, nor is it expected in the future to have, any
significant assets.
As specified in the related Prospectus Supplement the Servicer with respect
to any Series of Securities may be an affiliate of the Depositor. As described
under "The Trust Fund," the Depositor may acquire Receivables through or from an
affiliate.
Neither the Depositor nor Prudential Securities Group Inc. nor any of its
affiliates, including The Prudential Insurance Company of America, will insure
or guarantee the Certificates of any Series.
THE TRUSTEE
The Trustee for each series of Securities will be specified in the related
Prospectus Supplement. The Trustee's liability in connection with the issuance
and sale of the related Securities is limited solely to the express obligations
of such Trustee set forth in the related Trust Agreement.
With respect to each series of Securities, no resignation or removal of the
Trustee and no appointment of a successor Trustee shall become effective until
the acceptance of appointment by the successor Trustee. The Trustee may resign
for cause at any time by giving written notice thereof to the Depositor and by
mailing notice of resignation by first-class mail, postage prepaid, to the
Securityholders of such series at their addresses appearing on the Security
Register. The Trustee may be removed at any time by written notice of the
holders of Securities evidencing more than 50% of the voting rights with respect
to such series, delivered to the Trustee and the Depositor, unless an alternate
method is described in the related Prospectus Supplement. If the Trustee shall
resign, be removed, or become incapable of acting, or if a vacancy shall occur
in the office of Trustee for any cause, the Depositor shall promptly appoint a
successor Trustee. If no successor Trustee shall have been so appointed by the
Depositor or the Securityholders, or if no successor Trustee shall have accepted
appointment within 30 days after any such resignation or removal, existence of
incapability, or occurrence of such vacancy, the Trustee or any Securityholder
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
DESCRIPTION OF THE SECURITIES
General
The Securities will be issued in series. Each series of Securities (or, in
certain instances, two or more series of Securities) will be issued pursuant to
a Trust Agreement. The following summaries (together with additional summaries
under "The Trust Agreement" below) describe all material terms and provisions
relating to the Securities common to each Trust Agreement. The summaries do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all of the provisions of the Trust Agreement for the related
Securities and the related Prospectus Supplement.
All of the Securities offered pursuant to this Prospectus and the related
Prospectus Supplement will be rated in one of the four highest rating categories
by one or more Rating Agencies.
The Securities will generally be styled as debt instruments, having a
principal balance and a specified Interest Rate. The Securities may either
represent beneficial ownership interests in the related Receivables held by the
related Trust or debt secured by certain assets of the related Issuer.
Each series or Class of Securities offered pursuant to this Prospectus may
have a different Interest Rate, which may be a fixed or adjustable interest
rate. The related Prospectus Supplement will specify the Interest Rate for each
series or Class of Securities described therein, or the initial interest rate
and the method for determining subsequent changes to the Interest Rate.
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A series may include one or more Classes of Strip Securities entitled (i)
to principal distributions, with disproportionate, nominal or no interest
distributions, or (ii) to interest distributions, with disproportionate, nominal
or no principal distributions. In addition, a series of Securities may include
two or more Classes of Securities that differ as to timing, sequential order,
priority of payment, Interest Rate or amount of distribution of principal or
interest or both, or as to which distributions of principal or interest or both
on any Class may be made upon the occurrence of specified events, in accordance
with a schedule or formula, or on the basis of collections from designated
portions of the related pool of Receivables. Any such series may include one or
more Classes of Accrual Securities, as to which certain accrued interest will
not be distributed but rather will be added to the principal balance (or nominal
balance, in the case of Accrual Securities which are also Strip Securities)
thereof on each Payment Date, as hereinafter defined, or in the manner described
in the related Prospectus Supplement.
If so provided in the related Prospectus Supplement, a series may include
one or more other Classes of Senior Securities that are senior to one or more
other Classes of Subordinate Securities in respect of certain distributions of
principal and interest and allocations of losses on Receivables.
In addition, certain Classes of Senior (or Subordinate) Securities may be
senior to other Classes of Senior (or Subordinate) Securities in respect of such
distributions or losses.
General Payment Terms of Securities
As provided in the related Trust Agreement and as described in the related
Prospectus Supplement, Securityholders will be entitled to receive payments on
their Securities on the specified Payment Dates. Payment Dates with respect to
the Securities will occur monthly, quarterly or semi--annually, as described in
the related Prospectus Supplement.
The related Prospectus Supplement will describe the Record Date preceding
such Payment Date, as of which the Trustee or its paying agent will fix the
identity of the Securityholders for the purpose of receiving payments on the
next succeeding Payment Date. As more fully described in the related Prospectus
Supplement, the Payment Date may be the fifteenth or twenty-fifth day of each
month (or, in the case of quarterly-pay Securities, the fifteenth or
twenty-fifth day of every third month; and in the case of semi-annual pay
Securities, the fifteenth or twenty-fifth day of every sixth month) and the
Record Date will be the close of business as of the last day of the calendar
month that precedes the calendar month in which such Payment Date occurs.
Each Trust Agreement will describe a Remittance Period preceding each
Payment Date (for example, in the case of monthly-pay Securities, the calendar
month preceding the month in which a Payment Date occurs). As more fully
provided in the related Prospectus Supplement, collections received on or with
respect to the related Receivables held by a Trust during a Remittance Period
will be required to be remitted by the related Servicer to the related Trustee
prior to the related Payment Date and will be used to fund payments to
Securityholders on such Payment Date. As may be described in the related
Prospectus Supplement, the related Trust Agreement may provide that all or a
portion of the payments collected on or with respect to the related Receivables
may be applied by the related Trustee to the acquisition of additional
Receivables during a specified period (rather than be used to fund payments of
principal to Securityholders during such period) with the result that the
related Securities will possess an interest-only period, also commonly referred
to as a revolving period, which will be followed by an amortization period. Any
such interest only or revolving period may, upon the occurrence of certain
events to be described in the related Prospectus Supplement, terminate prior to
the end of the specified period and result in the earlier than expected
amortization of the related Securities.
In addition, and as may be described in the related Prospectus Supplement,
the related Trust Agreement may provide that all or a portion of such collected
payments may be retained by the Trustee (and held in certain temporary
investments, including Receivables) for a specified period prior to being used
to fund payments of principal to Securityholders.
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Such retention and temporary investment by the Trustee of such collected
payments may be required by the related Trust Agreement for the purposes of (a)
slowing the amortization rate of the related Securities relative to the rent
payment schedule of the related Receivables, or (b) attempting to match the
amortization rate of the related Securities to an amortization schedule
established at the time such Securities are issued. Any such feature applicable
to any Securities may terminate upon the occurrence of events to be described in
the related Prospectus Supplement, resulting in distributions to the specified
Securityholders and an acceleration of the amortization of such Securities.
Neither the Securities nor the underlying Receivables will be guaranteed or
insured by any governmental agency or instrumentality or the Depositor, the
related Servicer, the related Originator, any Trustee or any of their respective
affiliates unless specifically set forth in the related Prospectus Supplement.
As may be described in the related Prospectus Supplement, Securities of
each series covered by a particular Trust Agreement will either evidence
specified beneficial ownership interest in a separate Trust Fund created
pursuant to such Trust Agreement or represent debt secured by the related Trust
Fund. To the extent that any Trust Fund includes certificates of interest or
participations in Receivables, the related Prospectus Supplement will describe
the material terms and conditions of such certificates or participations.
Master Trusts
As may be described in the related Prospectus Supplement, each Trust
Agreement may provide that, pursuant to any one or more supplements thereto, the
Depositor may direct the related Trustee to issue from time to time new series
subject to the conditions described below (each such issuance a "Master Trust
New Issuance"). Each Master Trust New Issuance will have the effect of
decreasing the Equity Interest in the related Master Trust. Under each such
Master Trust Agreement, the Depositor may designate, with respect to any newly
issued series: (i) its name or designation; (ii) its initial principal amount
(or method for calculating such amount); (iii) its Interest Rate (or formula for
the determination thereof); (iv) the Payment Dates and the date or dates from
which interest shall accrue; (v) the method for allocating collections to
Securityholders of such series; (vi) any bank accounts to be used by such series
and the terms governing the operation of any such bank accounts; (vii) the
percentage used to calculate monthly servicing fees; (viii) the provider and
terms of any form of Credit Enhancement with respect thereto; (ix) the terms on
which the Securities of such series may be repurchased or remarketed to other
investors; (x) the number of Classes of Securities of such series, and if such
series consists of more than one Class, the rights and priorities of each such
Class; (xi) the extent to which the Securities of such series will be issuable
in book-entry form; (xii) the priority of such series with respect to any other
series; and (xiii) any other relevant terms. None of the Depositor, the related
Servicer, the related Trustee or any Master Trust is required or intends to
obtain the consent of any Securityholder of any outstanding series to issue any
additional series.
Each Master Trust Agreement provides that the Depositor may designate terms
such that each Master Trust New Issuance has an amortization period which may
have a different length and begin on a different date than such periods for any
series previously issued by the related Master Trust and then outstanding.
Moreover, each Master Trust New Issuance may have the benefits of Credit
Enhancements issued by enhancement providers different from the providers of the
Credit Enhancement, if any, with respect to any series previously issued by the
related Master Trust and then outstanding. Under each Master Trust Agreement,
the related Trustee shall hold any such Credit Enhancement only on behalf of the
Securityholders to which such Credit Enhancement relates. The Depositor will
have the option under each Master Trust Agreement to vary among series the terms
upon which a series may be repurchased by the Issuer or remarketed to other
investors. As more fully described in a related Prospectus Supplement, there is
no limit to the number of Master Trust New Issuances that the Depositor may
cause under a Master Trust Agreement. Each Master Trust will terminate only as
provided in the related Master Trust Agreement. There can be no assurance that
the terms of any Master Trust New Issuance might not have an impact on the
timing and amount of payments received by Securityholders of another series
issued by the same Master Trust.
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Under each Master Trust Agreement and pursuant to a related supplement, a
Master Trust New Issuance may only occur upon the satisfaction of certain
conditions provided in each such Master Trust Agreement. The obligation of the
related Trustee to authenticate the Securities of any such Master Trust New
Issuance and to execute and deliver the supplement to the related Master Trust
Agreement is subject to the satisfaction of the following conditions: (a) on or
before the fifth business day immediately preceding the date upon which the
Master Trust New Issuance is to occur, the Depositor shall have given the
related Trustee, the related Servicer, the Rating Agency and certain related
providers of Credit Enhancement, if any, written notice of such Master Trust New
Issuance and the date upon which the Master Trust New Issuance is to occur; (b)
the Depositor shall have delivered to the related Trustee a supplement to the
related Master Trust Agreement, in form satisfactory to such Trustee, executed
by each party to the related Master Trust Agreement other than such Trustee; (c)
the Depositor shall have delivered to the related Trustee any related Credit
Enhancement agreement; (d) the related Trustee shall have received confirmation
from the Rating Agency that such Master Trust New Issuance will not result in
any Rating Agency reducing or withdrawing its rating with respect to any other
series or Class of such Trust (any such reduction or withdrawal is referred to
herein as a "Ratings Effect"); (e) the Depositor shall have delivered to the
related Trustee, the Rating Agency and certain providers of Credit Enhancement,
if any, an opinion of counsel acceptable to the related Trustee that for federal
income tax purposes (i) following such Master Trust New Issuance the related
Master Trust will not be deemed to be an association (or publicly traded
partnership) taxable as a corporation, (ii) such Master Trust New Issuance will
not affect the tax characterization as debt of Securities of any outstanding
series or Class issued by such Master Trust that were characterized as debt at
the time of their issuance and (iii) such Master Trust New Issuance will not
cause or constitute an event in which gain or loss would be recognized by any
Securityholders or the related Master Trust; and (f) any other conditions
specified in any supplement. Upon satisfaction of the above conditions, the
related Trustee shall execute the supplement to the related Master Trust
Agreement and issue the Securities of such new series.
Book-Entry Registration
As may be described in the related Prospectus Supplement, Securityholders
of a given series may hold their Securities through DTC (in the United States)
or CEDEL or Euroclear (in Europe) if they are participants of such systems, or
indirectly through organizations that are participants in such systems.
Cede, as nominee for DTC, will hold the global Securities in respect of a
given series. CEDEL and Euroclear will hold omnibus positions on behalf of the
CEDEL Participants (as defined below) and the Euroclear Participants (as defined
below) (collectively, the "Participants"), respectively, through customers'
securities accounts in CEDEL's and Euroclear's names on the books of their
respective depositaries (collectively, the "Depositaries") which in turn will
hold such positions in customers' securities accounts in the Depositaries' names
on the books of DTC.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC and a "clearing agency"
registered pursuant to Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and to facilitate the clearance and settlement
of securities transactions between Participants through electronic book-entries,
thereby eliminating the need for physical movement of notes or certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations. Indirect access to the DTC system also is available to
others such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants").
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
the ordinary way in accordance with their applicable rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearingsystem by its Depositary; however, such cross-market transactions will
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require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. CEDEL Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant CEDEL
Participant or Euroclear Participant on such business day. Cash received in
CEDEL or Euroclear as a result of sales of securities by or through a CEDEL
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
CEDEL or Euroclear cash account only as of the business day following settlement
in DTC.
The Securityholders of a given series that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, Securities of such series may do so only through
Participants and Indirect Participants. In addition, Securityholders of a given
series will receive all distributions of principal and interest through the
Participants who in turn will receive them from DTC. Under a book-entry format,
Securityholders of a given series may experience some delay in their receipt of
payments, since such payments will be forwarded by the applicable Trustee to
Cede, as nominee for DTC. DTC will forward such payments to its Participants,
which thereafter will forward them to Indirect Participants or such
Securityholders. It is anticipated that the only "Securityholder" in respect of
any series will be Cede, as nominee of DTC. Securityholder of a given series
will not be recognized as Securityholders of such series, and such
Securityholders will be permitted to exercise the rights of Securityholders of
such series only indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Securities of a given series among Participants on whose behalf it acts with
respect to such Securities and to receive and transmit distributions of
principal of, and interest on, such Securities. Participants and Indirect
Participants with which the Securityholders of a given series have accounts with
respect to such Securities similarly are required to make book-entry transfers
and receive and transmit such payments on behalf of their respective
Securityholders of such series. Accordingly, although such Securityholders will
not possess Securities, the Rules provide a mechanism by which Participants will
receive payments and will be able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder of a given series to pledge Securities of such series to persons
or entities that do not participate in the DTC system, or to otherwise act with
respect to such Securities, may be limited due to the lack of a physical
certificate for such Securities.
DTC will advise the Trustee in respect of each Series that it will take any
action permitted to be taken by a Securityholder of the related series only at
the direction of one or more Participants to whose accounts with DTC the
Securities of such series are credited. DTC may take conflicting actions with
respect to other undivided interests to the extent that such actions are taken
on behalf of Participants whose holdings include such undivided interests.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
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lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of the
Euroclear System ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 28 currencies, including United
States dollars. The Euroclear System includes various other services, including
securities lending and borrowing and interfaces with domestic markets in several
countries generally similar to the arrangements for cross-market transfers with
DTC described above. Euroclear is operated by Morgan Guaranty Trust Company of
New York, Brussels, Belgium office, under contract with Euroclear Clearance
System, S.C., a Belgian cooperative corporation (the "Cooperative"). All
operations are conducted by the "Euroclear Operator" (as defined below), and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for the Euroclear System on behalf of Euroclear Participants. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include the
Underwriters. Indirect access to the Euroclear System is also available to other
firms that clear through or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
The "Euroclear Operator" is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no record
of relationship with persons holding through Euroclear Participants.
Except as required by law, the Trustee in respect of a series will not have
any liability for any aspect of the records relating to or payments made or
account of beneficial ownership interests of the related Securities held by
Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Definitive Notes
As may be described in the related Prospectus Supplement, the Securities
will be issued in fully registered, certificated form ("Definitive Securities")
to the Securityholders of a given series or their nominees, rather than to DTC
or its nominee, only if (i) the Trustee in respect of the related series advises
in writing that DTC is no longer willing or able to discharge properly its
responsibilities as depository with respect to such Securities and such Trustee
is unable to locate a qualified successor, (ii) such Trustee, at its option,
elects to terminate the book-entry-system through DTC or (iii) after the
occurrence of an "Event of Default" under the related Indenture or a default by
the Servicer under the related Trust Agreements, Securityholders representing at
least a majority of the outstanding principal amount of such Securities advise
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the applicable Trustee through DTC in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in such
Securityholders' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the applicable Trustee will be required to notify all such
Securityholders through Participants of the availability of Definitive
Securities. Upon surrender by DTC of the definitive certificates representing
such Securities and receipt of instructions for re-registration, the applicable
Trustee will reissue such Securities as Definitive Securities to such
Securityholders.
Distributions of principal of, and interest on, such Securities will
thereafter be made by the applicable Trustee in accordance with the procedures
set forth in the related Indenture or Trust Agreement directly to holders of
Definitive Securities in whose names the Definitive Securities were registered
at the close of business on the applicable Record Date specified for such
Securities in the related Prospectus Supplement. Such distributions will be made
by check mailed to the address of such holder as it appears on the register
maintained by the applicable Trustee. The final payment on any such Security,
however, will be made only upon presentation and surrender of such Security at
the office or agency specified in the notice of final distribution to the
applicable Securityholders.
Definitive Securities in respect of a given series of Securities will be
transferable and exchangeable at the offices of the applicable Trustee or of a
certificate registrar named in a notice delivered to holders of such Definitive
Securities. No service charge will be imposed for any registration of transfer
or exchange, but the applicable Trustee may require payment of a sum sufficient
to cover any tax or other governmental charge imposed in connection therewith.
Reports to Securityholders
With respect to each series of Securities, on or prior to each Payment Date
for such series, the related Servicer or the related Trustee will forward or
cause to be forwarded to each holder of record of such class of Securities a
statement or statements with respect to the related Trust Fund setting forth the
information specifically described in the related Trust Agreement which
generally will include the following information:
(i) the amount of the distribution with respect to each class of
Securities;
(ii) the amount of such distribution allocable to principal;
(iii) the amount of such distribution allocable to interest;
(iv) the Pool Balance, if applicable, as of the close of business on
the last day of the related Remittance Period;
(v) the aggregate outstanding principal balance and the Pool Factor
for each Class of Securities after giving effect to all payments reported
under (ii) above on such Payment Date;
(vi) the amount paid to the Servicer, if any, with respect to the
related Remittance Period;
(vii) the amount of the aggregate purchase amounts for Receivables
that have been reacquired, if any, for such Remittance Period; and
(viii) the amount of coverage under any letter of credit, financial
guaranty insurance policy, reserve account or other form of credit
enhancement covering default risk as of the close of business on the
applicable Payment Date and a description of any Credit Enhancement
substituted therefor.
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Each amount set forth pursuant to subclauses (i), (ii), (iii) and (v) with
respect to the Securities of any series will be expressed as a dollar amount per
$1,000 of the initial principal balance of such Securities, as applicable.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year, the applicable Trustee will provide to the
Securityholders a statement containing the amounts described in (ii) and (iii)
above for that calendar year and any other information required by applicable
tax laws, for the purpose of the Securityholders' preparation of federal income
tax returns.
DESCRIPTION OF THE TRUST AGREEMENTS
The following summary describes certain terms of each Trust Agreement
pursuant to which a Trust Fund will be created and the related Securities in
respect of such Trust Fund will be issued. For purposes of this Prospectus, the
term "Trust Agreement" as used with respect to a Trust means, collectively, and
except as otherwise specified, any and all agreements relating to the
establishment of the related Trust, the servicing of the related Receivables and
the issuance of the related Securities, including without limitation the
Indenture, (i.e. pursuant to which any Notes shall be issued). Forms of the
Trust Agreement have been filed as exhibits to the Registration Statement of
which the Prospectus forms a part. The summary does not purport to be complete.
It is qualified in its entirety by reference to the provisions of the Trust
Agreements.
Acquisition of the Receivables Pursuant to a Receivables Acquisition Agreement
On the Closing Date specified with respect to any given series of
Securities, the Depositor will acquire the related Receivables from the related
Originator pursuant to a Receivables Acquisition Agreement. The Depositor will
either transfer such Receivables to a Trust pursuant to a Pooling Agreement, or
will pledge the Depositor's right, title and interests in and to such
Receivables to a Trustee on behalf of Securityholders pursuant to an Indenture.
The rights and benefits of the Depositor under such Receivables Acquisition
Agreement will be assigned to the Trustee on behalf of Securityholders as
collateral for the Securities of the related series issued by a Trust or
pursuant to an Indenture. The obligations of the Depositor and the related
Servicer under such Trust Agreements include those specified below and in the
related Prospectus Supplement.
As more fully described in the related Prospectus Supplement, the Depositor
and/or the related Originator will be obligated to acquire from the related
Trust Fund its interest in any Receivable transferred to a Trust or pledged to a
Trustee on behalf of Securityholders if the interest of the Securityholders
therein is materially adversely affected by a breach of any representation or
warranty made by the Depositor or the related Originator with respect to such
Receivable, which breach has not been cured following the discovery by or notice
to the Depositor of the breach. To the extent that the Depositor so acquires any
Receivables, the related Originator will be obligated to acquire such
Receivables from the Depositor pursuant to the related Receivables Acquisition
Agreement contemporaneously with the Depositor's acquisition of its interest in
such Receivables from the applicable Trust Fund. The obligation of the Depositor
to acquire any such Receivables with respect to which an Originator has breached
a representation or warranty is subject to such Originator's acquisition of such
Receivables from the Depositor. In addition, if so specified in the related
Prospectus Supplement, the Depositor may from time to time reacquire certain
Receivables or substitute other Receivables for such Receivable held by a Trust
Fund subject to specified conditions set forth in the related Trust Agreement
and Receivables Acquisition Agreement.
Accounts
With respect to each series of Securities issued by a Trust, the related
Servicer will establish and maintain with the applicable Trustee one or more
accounts, in the name of such Trustee on behalf of the related Securityholders,
into which all payments made on or with respect to the related Receivables will
be deposited (the "Collection Account"). The Servicer will also establish and
maintain with such Trustee separate accounts, in the name of such Trustee on
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behalf of such Securityholders, in which amounts released from the Collection
Account and the reserve account or other Credit Enhancement, if any, for
distribution to such Securityholders will be deposited and from which
distributions to such Securityholders will be made (the "Distribution Account").
Any other accounts to be established with respect to a Trust, including any
reserve account, will be described in the related Prospectus Supplement.
For any series of Securities, funds in the Collection Account, the
Distribution Account, any reserve account and other accounts identified as such
in the related Prospectus Supplement (collectively, the "Trust Accounts") shall
be invested as provided in the related Trust Agreement in Eligible Investments.
"Eligible Investments" are generally limited to investments acceptable to the
Rating Agencies as being consistent with the rating of such Securities. Subject
to certain conditions, Eligible Investments may include securities issued by the
Depositor, the related Originator, the related Servicer or their respective
affiliates or other trusts created by the Depositor or its affiliates. Except as
described below or in the related Prospectus Supplement, Eligible Investments
are limited to obligations or securities that mature not later than the business
day immediately preceding the related Payment Date. However, subject to certain
conditions, funds in the reserve account may be invested in securities that will
not mature prior to the date of the next distribution and will not be sold to
meet any shortfalls. Thus, the amount of cash in any reserve account at any time
may be less than the balance of such reserve account. If the amount required to
be withdrawn from any reserve account to cover shortfalls in collections on the
related Receivables exceeds the amount of cash in such reserve account a
temporary shortfall in the amounts distributed to the related Securityholders
could result, which could, in turn, increase the average life of the Securities
of such series. Except as otherwise specified in the related Prospectus
Supplement, investment earnings on funds deposited in the applicable Trust
Accounts, net of losses and investment expenses (collectively, "Investment
Earnings"), shall be deposited in the applicable Collection Account on each
Payment Date and shall be treated as collections of interest on the related
Receivables.
The Trust Accounts will be maintained as Eligible Deposit Accounts.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States of America or any one of the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), having corporate trust powers and
acting as trustee for funds deposited in such account, so long as any of the
securities of such depository institution has a credit rating from each Rating
Agency in one of its generic rating categories which signifies investment grade.
"Eligible Institution" means, with respect to a Trust, (a) the corporate trust
department of the related Indenture Trustee or the related Trustee, as
applicable, or (b) a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), which (i) (A) has either
(w) a long-term unsecured debt rating acceptable to the Rating Agencies or (x) a
short-term unsecured debt rating or certificate of deposit rating acceptable to
the Rating Agencies or (B) the parent corporation of which has either (y) a
long-term unsecured debt rating acceptable to the Rating Agencies or (z) a
short-term unsecured debt rating or certificate of deposit rating acceptable to
the Rating Agencies and (ii) whose deposits are insured by the FDIC.
To the extent that an Originator's or a Servicer's unsecured debt ratings
are acceptable to the Rating Agencies, amounts deposited to any Trust Account
may be commingled with Originator's or Servicer's general account moneys. Any
rights to so commingle moneys will be described in the related Prospectus
Supplement.
The Servicer
The Servicer under each Trust Agreement will be named in the related
Prospectus Supplement. The entity serving as Servicer may be an affiliate of the
Depositor and may have other business relationships with the Depositor or the
Depositor's affiliates. The Servicer with respect to each Series will service
the Receivables contained in the Trust Fund for such Series. Any Servicer may
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delegate its servicing responsibilities to one or more sub-servicers, but will
not be relieved of its liabilities with respect thereto.
Each Servicer will make certain representations and warranties regarding
its authority to enter into, and its ability to perform its obligations under,
the related Trust Agreement. An uncured breach of such a representation or
warranty that in any respect materially and adversely affects the interests of
the Securityholders will constitute a Servicer Default by such Servicer under
the related Trust Agreement.
Servicing Procedures
Each Trust Agreement will provide that the related Servicer will make
reasonable efforts to collect all payments due with respect to the Receivables
held in the related Trust Fund and, in a manner consistent with the related
Trust Agreement, will continue such collection procedures as such Servicer
follows with respect to the particular type of Receivable in the particular pool
it services for itself and others. Consistent with its normal procedures, the
Servicer may, in its discretion and on a case-by-case basis, arrange with the
Obligor on a Receivable to extend or modify the payment schedule. Some of such
arrangements (including, without limitation any extension of the payment
schedule beyond the final scheduled Payment Date for the related Securities may
result in the Servicer acquiring such Receivable if such Contract becomes a
Defaulted Contract. The Servicer may sell the Equipment securing the respective
Defaulted Contract, if any, at a public or private sale, or take any other
action permitted by applicable law. See "Certain Legal Aspects of the
Receivables".
The material aspects of any particular Servicer's collections procedures
will be set forth in the related Prospectus Supplement.
Payments on Receivables
With respect to each series of Securities, the related Servicer will
deposit all payments on the related Receivables (from whatever source) and all
proceeds of such Receivables collected within two (2) business days of receipt
thereof in the related collection facility, such as a lock-box account or
collection account. Moneys deposited in such collection facility for a Trust
Fund may be commingled with funds from other sources. As specified in the
related Prospectus Supplement, the related Servicer will be required to deposit
payments on the related Receivables (from whatever source) collected during each
collection period (each, a "Collection Period") into the related Collection
Account on a specified day each month. Pending deposit into the related
Collection Account, collections in such collection facility may be invested by
the related Servicer at its own risk and for its own benefit, and will not be
segregated from funds of the related Servicer.
Servicing Compensation
As may be described in the related Prospectus Supplement with respect to
any series of securities issued by a Trust, the related Servicer will be
entitled to receive a servicing fee for each Collection Period (the "Servicing
Fee") in an amount equal to a specified percentage per annum (as set forth in
the related Prospectus Supplement, the "Servicing Fee Rate") of the value of the
assets held in the related Trust Fund, generally as of the first day of such
Collection Period. Each Prospectus Supplement and Servicing Agreement will
specify the priority of distributions with respect to the Servicing Fee
(together with any portion of the Servicing Fee that remains unpaid from prior
Payment Dates), such Servicing Fee may be paid prior to any distribution to the
related Securityholders.
Each Servicer will also collect and retain any late fees, the penalty
portion of interest paid on past due amounts and other administrative fees or
similar charges allowed by applicable law with respect to the Receivables, and
will be entitled to reimbursement from each Trust for certain liabilities.
Payments by or on behalf of Obligors will be allocated to scheduled payments and
late fees and other charges in accordance with such Servicer's normal practices
and procedures.
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The Servicing Fee will compensate the related Servicer for performing the
functions of a third party servicer of similar types of receivables as an agent
for their beneficial owner, including collecting and posting all payments,
responding to inquiries of Obligors on the related Receivables, investigating
delinquencies, sending payment coupons to Obligors, reporting tax information to
Obligors, paying costs of collection and disposition of defaults, and policing
the collateral. The Servicing Fee also will compensate the related Servicer for
administering the related Receivables, accounting for collections and furnishing
statements to the applicable Trustee and the applicable Indenture Trustee, if
any, with respect to distributions. The Servicing Fee also will reimburse the
related Servicer for certain taxes, accounting fees, outside auditor fees, data
processing costs and other costs incurred in connection with administering the
Receivables.
Distributions
With respect to each series of Securities, beginning on the Payment Date
specified in the related Prospectus Supplement, distributions of principal and
interest (or, where applicable, of principal or interest only) on each Class of
such Securities entitled thereto will be made by the applicable Indenture
Trustee to the Noteholders and by the applicable Trustee to the
Certificateholders of such series. The timing, calculation, allocation, order,
source, priorities of and requirements for each class of Noteholders and all
distributions to each class of Certificateholders of such series will be set
forth in the related Prospectus Supplement.
With respect to each series of Securities, on each Payment Date collections
on the related Receivables will be transferred from the Collection Account to
the Distribution Account for distribution to Securityholders, respectively, to
the extent provided in the related Prospectus Supplement. Credit Enhancement,
such as a reserve account, may be available to cover any shortfalls in the
amount available for distribution on such date, to the extent specified in the
related Prospectus Supplement. As more fully described in the related Prospectus
Supplement, and unless otherwise specified therein, distributions in respect of
principal of a Class of Securities of a given series will be subordinate to
distributions in respect of interest on such Class, and distributions in respect
of the Certificates of such series may be subordinate to payments in respect of
the Notes of such series.
Credit and Cash Flow Enhancements
The amounts and types of Credit Enhancement arrangements, if any, and the
provider thereof, if applicable, with respect to each class of Securities of a
given series will be set forth in the related Prospectus Supplement. If and to
the extent provided in the related Prospectus Supplement, credit enhancement may
be in the form of a Policy, subordination of one or more Classes of Securities,
reserve accounts, overcollateralization, letters of credit, credit or liquidity
facilities, third party payments or other support, surety bonds, guaranteed cash
deposits or such other arrangements as may be described in the related
Prospectus Supplement or any combination of two or more of the foregoing. If
specified in the applicable Prospectus Supplement, Credit Enhancement for a
Class of Securities may cover one or more other Classes of Securities of the
same series, and Credit Enhancement for a series of Securities may cover one or
more other series of Securities.
The presence of Credit Enhancement for the benefit of any Class or series
of Securities is intended to enhance the likelihood of receipt by the
Securityholders or such Class or series of the full amount of principal and
interest due thereon and to decrease the likelihood that such Securityholders
will experience losses. As more specifically provided in the related Prospectus
Supplement, the credit enhancement for a Class or series of Securities will not
provide protection against all risks of loss and will not guarantee repayment of
the entire principal balance and interest thereon. If losses occur which exceed
the amount covered by any Credit Enhancement or which are not covered by any
Credit Enhancement, Securityholders of any Class or series will bear their
allocable share of deficiencies, as described in the related Prospectus
Supplement. In addition, if a form of Credit Enhancement covers more than one
series of Securities, Securityholders of any such series will be subject to the
risk that such Credit Enhancement will be exhausted by the claims of
Securityholders of other series.
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Statements to Indenture Trustees and Trustees
Prior to each Payment Date with respect to each series of Securities, the
related Servicer will provide to the applicable Indenture Trustee and/or the
applicable Trustee and Credit Enhancer as of the close of business on the last
day of the preceding related Collection Period a statement setting forth
substantially the same information as is required to be provided in the periodic
reports provided to Securityholders of such series described under "Description
of the Securities--Reports to Securityholders".
Evidence as to Compliance
Each Trust Agreement will provide that a firm of independent public
accountants will furnish to the related Trust and/or the applicable Indenture
Trustee and Credit Enhancer, annually, a statement as to compliance by the
related Servicer during the preceding twelve months (or, in the case of the
first such certificate, the period from the applicable Closing Date) with
certain standards relating to the servicing of the Receivables.
Each Trust Agreement will also provide for delivery to the related Trust
and/or the applicable Indenture Trustee of a certificate signed by an officer of
the related Servicer stating that such Servicer either has fulfilled its
obligations under such Trust Agreement in all material respects throughout the
preceding 12 months (or, in the case of the first such certificate, the period
from the applicable Closing Date) or, if there has been a default in the
fulfillment of any such obligation in any material respect, describing each such
default. Each Servicer also will agree to give each Indenture Trustee and each
Trustee notice of certain "Servicer Defaults" (as defined below) under the
related Trust Agreement.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the applicable Indenture
Trustee or the applicable Trustee.
Certain Matters Regarding the Servicers
Each Trust Agreement will provide that the related Servicer may not resign
from its obligations and duties as Servicer thereunder, except upon
determination that the performance by such Servicer of such duties is no longer
permissible under applicable law. No such resignation will become effective
until the related Trustee or a successor servicer has assumed such Servicer's
servicing obligations and duties under the Trust Agreement.
Except as otherwise provided in the related Prospectus Supplement, each
Trust Agreement will further provide that neither the related Servicer nor any
of its respective directors, officers, employees, or agents shall be under any
liability to the related Issuer or the related Securityholders for taking any
action or for refraining from taking any action pursuant to such Trust
Agreement, or for errors in judgment; provided, however, that neither such
Servicer nor any such person will be protected against any liability that would
otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance of duties or by reason of reckless disregard of
obligations and duties thereunder. In addition, such Trust Agreement will
provide that the related Servicer is under no obligation to appear in,
prosecute, or defend any legal action that is not incidental to its servicing
responsibilities under such Trust Agreement and that, in its opinion, may cause
it to incur any expense or liability.
Under the circumstances specified in any such Trust Agreement, any entity
into which the related Servicer may be merged or consolidated, or any entity
resulting from any merger or consolidation to which such Servicer is a party, or
any entity succeeding to the business of the Servicer or, with respect to its
obligations as Servicer, which corporation or other entity in each of the
foregoing cases assumes the obligations of such Servicer, will be the successor
to such Servicer under such Trust Agreement.
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Servicer Default
Except as otherwise provided in the related Prospectus Supplement,
"Servicer Default" under a Trust Agreement will include (i) any failure by the
related Servicer to deliver to the applicable Trustee for deposit in any of the
related Trust Accounts any required payment or to direct such Trustee to make
any required distributions therefrom, which failure continues unremedied for
greater than three (3) Business Days after written notice from such Trustee is
received by such Servicer or after discovery by such Servicer; (ii) any failure
by such Servicer or the related Originator, as the case may be, duly to observe
or perform in any material respect any other covenant or agreement in such Trust
Agreement, which failure materially and adversely affects the rights of the
related Securityholders and which continues unremedied for greater than ninety
(90) days after the giving of written notice of such failure (1) to such
Servicer or the related Originator, as the case may be, by the applicable
Trustee or (2) to the Servicer or the related Originator, as the case may be,
and to the applicable Trustee by holders of the related Securities, as
applicable, evidencing not less than 25% of the voting rights of such
outstanding Securities; and (iii) any Insolvency Event. An "Insolvency Event"
shall mean financial insolvency, readjustment of debt, marshalling of assets and
liabilities, or similar proceedings with respect to the Servicer or the related
Originator and certain actions by the Servicer or the related Originator
indicating its insolvency, reorganization pursuant to bankruptcy proceedings, or
inability to pay its obligations.
Rights upon Servicer Default
As more fully described in the related Prospectus Supplement, as long as a
Servicer Default under a Trust Agreement remains unremedied, the applicable
Trustee, Credit Enhancer or holders of Securities of the related series
evidencing not less than 25% of the voting rights of such then outstanding
Securities may terminate all the rights and obligations of the Servicer, if any,
under such Trust Agreement, whereupon a successor servicer appointed by such
Trustee or such Trustee will succeed to all the responsibilities, duties and
liabilities of the Servicer under such Trust Agreement and will be entitled to
similar compensation arrangements. If, however, a bankruptcy trustee or similar
official has been appointed for the Servicer, and no Servicer Default other than
such appointment has occurred, such bankruptcy trustee or official may have the
power to prevent the applicable Trustee or such Securityholders from effecting a
transfer of servicing. In the event that the Trustee is unwilling or unable to
so act, it may appoint, or petition a court of competent jurisdiction for the
appointment of, a successor with a net worth of at least $25,000,000 and whose
regular business includes the servicing of a similar type of receivables. Such
Trustee may make such arrangements for compensation to be paid, which in no
event may be greater than the servicing compensation payable to the Servicer
under the related Trust Agreement.
Waiver of Past Defaults
With respect to each Trust Fund, unless otherwise provided in the related
Prospectus Supplement and subject to the approval of any Credit Enhancer, the
holders of Notes evidencing at least a majority of the voting rights of such
then outstanding Securities may, on behalf of all Securityholders of the related
Securities, waive any default by the Servicer, or by the related Originator, in
the performance of its obligations under the related Trust Agreement and its
consequences, except a default in making any required deposits to or payments
from any of the Trust Accounts in accordance with such Trust Agreement. No such
waiver shall impair the Securityholders' rights with respect to subsequent
defaults.
Amendment
As more fully described in the related Prospectus Supplement, each of the
Trust Agreements may be amended by the parties thereto, without the consent of
the related Securityholders, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of such Trust
Agreements or of modifying in any manner the rights of such Securityholders;
provided that such action will not, in the opinion of counsel satisfactory to
the applicable Trustee, materially and adversely affect the interests of any
such Securityholder and subject to the approval of any Credit Enhancer. As may
be describe in the related Prospectus Supplement, the Trust Agreements may also
be amended by the Depositor, the Servicer, and the applicable Trustee with the
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consent of the holders of Securities evidencing at least a majority of the
voting rights of such then outstanding Securities for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
such Trust Agreements or of modifying in any manner the rights of such
Securityholders; provided, however, that no such amendment may (i) increase or
reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments on the related Receivables or distributions that are
required to be made for the benefit of such Securityholders or (ii) reduce the
aforesaid percentage of the Securities of such series which are required to
consent to any such amendment, without the consent of the Securityholders of
such series.
Insolvency Event
As described in the related Prospectus Supplement, if an Insolvency Event
occurs with respect to a Debtor relating to the applicable Trust Fund, the
related Trust will terminate, and the Receivables held in the related Trust Fund
will be liquidated and each such Trust will be terminated 90 days after the date
of such Insolvency Event, unless, before the end of such 90-day period, the
Trustee of such Trust shall have received written instructions from each of the
related Securityholders (other than the Depositor) and/or Credit Enhancer to the
effect that such party disapproves of the liquidation of such Receivables.
Promptly after the occurrence of any Insolvency Event with respect to a Debtor,
notice thereof is required to be given to such Securityholders and/or Credit
Enhancer; provided, however, that any failure to give such required notice will
not prevent or delay termination of any Trust. Upon termination of any Trust,
the applicable Trustee shall direct that the assets of such Trust be promptly
sold (other than the related Trust Accounts) in a commercially reasonable manner
and on commercially reasonable terms. The proceeds from any such sale,
disposition or liquidation of such Receivables will be treated as collections on
such Receivables and deposited in the related Collection Account. If the
proceeds from the liquidation of such Receivables and any amounts on deposit in
the Reserve Account, if any, and the related Distribution Account are not
sufficient to pay the Securities of the related series in full, and no
additional Credit Enhancement is available, the amount of principal returned to
Securityholders will be reduced and some or all of such Securityholders will
incur a loss.
Each Trust Agreement will provide that the applicable Trustee does not have
the power to commence a voluntary proceeding in bankruptcy with respect to any
related Trust without the unanimous prior approval of all Certificateholders
(including the Depositor, if applicable) of such Trust and the delivery to such
Trustee by each such Certificateholder of a certificate certifying that such
Certificateholder reasonably believes that such Trust is insolvent.
Termination
With respect to each Trust, the obligations of the related Servicer, the
related Originator(s), the Depositor and the applicable Trustee pursuant to the
related Trust Agreement will terminate upon the earlier to occur of (i) the
maturity or other liquidation of the last related Receivable and the disposition
of any amounts received upon liquidation of any such remaining Receivables and
(ii) the payment to Securityholders of the related series of all amounts
required to be paid to them pursuant to such Trust Agreement. As more fully
described in the related Prospectus Supplement, in order to avoid excessive
administrative expense, the related Servicer will be permitted in respect of the
applicable Trust Fund, unless otherwise specified in the related Prospectus
Supplement, at its option to purchase from such Trust Fund, as of the end of any
Collection Period immediately preceding a Payment Date, if the Discounted
Contract Balance of the related Contracts is less than a specified percentage
(set forth in the related Prospectus Supplement) of the initial Pool Balance in
respect of such Trust Fund, all such remaining Receivables at a price equal to
the aggregate of the Purchase Amounts thereof as of the end of such Collection
Period. The related Securities will be redeemed following such purchase.
If and to the extent provided in the related Prospectus Supplement with
respect to a Trust Fund, the applicable Trustee will, within ten days following
a Payment Date as of which the Pool Balance is equal to or less than the
percentage of the initial Pool Balance specified in the related Prospectus
Supplement, solicit bids for the purchase of the Receivables remaining in such
Trust, in the manner and subject to the terms and conditions set forth in such
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Prospectus Supplement. If such Trustee receives satisfactory bids as described
in such Prospectus Supplement, then the Receivables remaining in such Trust Fund
will be sold to the highest bidder.
As more fully described in the related Prospectus Supplement, any
outstanding Notes of the related series will be redeemed concurrently with
either of the events specified above and the subsequent distribution to the
related Certificateholders of all amounts required to be distributed to them
pursuant to the applicable Trust Agreement may effect the prepayment of the
Certificates of such series.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
General
The transfer of the Receivables by the related Originators to the Depositor
pursuant to each Receivables Acquisition Agreement and then by the Depositor to
the Trustee pursuant to the related Trust Agreement, the perfection of the
Trustee's interests in the Receivables and the enforcement of rights to realize
on the Contracts and on the Vehicles are subject to a number of federal and
state laws, including the UCC as in effect in various states and the vehicle
registration or motor vehicle certificate of title laws, as in effect in various
states. As specified in each Prospectus Supplement, the related Servicer will
take such action as is required to perfect the rights of the Trustee in the
Receivables. If, through inadvertence or otherwise, a third party were to
purchase (including the taking of a security interest in) a Contract for new
value in the ordinary course of its business, without actual knowledge of the
Trust's interest, and take possession of a Receivable, the purchaser would
acquire an interest in such Receivable superior to the interest of the Trust. As
further specified in each Prospectus Supplement, no action will be taken to
perfect the rights of the Trustee in proceeds of the VSI Insurance Policy or of
any other insurance policies covering individual Vehicles or Obligors.
Therefore, the rights of a third party with an interest in such proceeds could
prevail against the rights of the Trust prior to the time such proceeds are
deposited by the related Servicer into a Trust Account.
The Trustee's Interest in the Leased Vehicles
Titling Requirements
In connection with the establishment of each Trust, the related Servicer
and/or Originator will be required (to the extent not done previously) to
deliver to the appropriate motor vehicle agency office in the related states
duly completed and executed applications for (a) transfer of the certificates of
title to the related Leased Vehicles from the related Originator (unless the
Originator itself is a Finance Subsidiary) to either a Finance Subsidiary of the
Originator or to the related Trust, (b) release of any prior liens recorded on
such certificates of title and (c) in the event that the Leased Vehicles are
titled in the name of a Finance Subsidiary and not the Trust, a notation of lien
in favor of the related Trustee on such certificates of title, except, to the
extent described in the related Prospectus Supplement, that the laws of any
particular state do not require such a lien notation to be made to perfect the
Trustee's security interest. Various liens and interests could be imposed upon
or all part of the related Trust Fund that, by operation of law, would take
priority over the Trustee's interest thereon, however perfected. Such liens
include tax liens arising against the Originator, the Finance Subsidiary or the
Issuer, mechanic's, repairman's, garagemen's and motor vehicle accident liens
and certain liens for personal property taxes, in each case arising with respect
to a particular Leased Vehicle, and liens arising under various state and
federal criminal statutes. See "Certain Legal Aspects of the Receivables."
Perfection of Security Interests in Leased Vehicles
In the event that the Leased Vehicles are not re-titled in the name of the
related Trust, the related Trustee will receive a security interest in such
Leased Vehicles.
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A security interest in a motor vehicle registered in most states may be
perfected against creditors and subsequent purchasers without notice for
valuable consideration only by one or more of the following: depositing with the
related Department of Motor Vehicles or analogous state office a properly
endorsed certificate of title for the vehicle showing the secured party as legal
owner or lienholder thereon, or filing a sworn notation of lien with the related
Department of Motor Vehicles or analogous state office and noting such lien on
the certificate of title, or, if the vehicle has not been previously registered,
filing an application in usual form for an original registration together with
an application for registration of the secured party as legal owner or
lienholder, as the case may be. However, under the laws of most states, a
transferee of a security interest in a motor vehicle is not required to reapply
to the related Department of Motor Vehicles or analogous state office for a
transfer of registration when the security interest is sold or when the interest
of the transferee arises from the transfer of a security interest by the
lienholder to secure payment or performance of an obligation.
Although re-registration of the vehicle is not necessary to convey a
perfected security interest in the Vehicles to the Trustee, the Trustee's
security interest could be defeated through fraud, negligence, forgery or
administrative error since it may not be listed as legal owner or lienholder on
the certificates of title to the Vehicles. However, in the absence of fraud,
negligence, forgery or administrative error, the notation of the related
Originator's lien on the certificates of title will be sufficient to protect the
Trust against the rights of subsequent purchasers of a Vehicle or subsequent
creditors who take a security interest in a Vehicle. In each Receivables
Acquisition Agreement, the related Originators will represent and warrant, and
in the related Trust Agreement, the Depositor will represent and warrant that it
has, or has taken all action necessary to obtain, a perfected security interest
in each Vehicle. If there are any Vehicles as to which the related Originator
failed to obtain a first priority perfected security interest, its security
interest would be subordinate to, among others, subsequent purchasers of such
Vehicles and holders of first priority perfected security interests therein.
Such a failure, however, would constitute a breach of the related Originator's
representations and warranties under the related Receivables Acquisition
Agreement and the Depositor's representations and warranties under the related
Trust Agreement. Accordingly, pursuant to the related Trust Agreement, the
Depositor would be required to repurchase the related Receivables from the
Trustee and, pursuant to the related Receivables Acquisition Agreement, the
related Originators would be required to repurchase such Receivables from the
Depositor, in each case unless the breach were cured.
Continuity of Perfection
Under the laws of most states, a perfected security interest in a motor
vehicle continues for four months after the vehicle is moved to a new state from
the one in which it is initially registered and thereafter until the owner
re-registers such motor vehicle in the new state. A majority of states generally
require surrender of a certificate of title to re-register a vehicle. In those
states that require a secured party to hold possession of the certificate of
title to maintain perfection of the security interest, the secured party would
learn of the reregistration through the request from the Obligor under the
related installment sale contract to surrender possession of the certificate of
title to assist in such re-registration. In the case of vehicles registered in
states providing for the notation of a lien on the certificate of title but not
requiring possession by the secured party (such as Texas), the secured party
would receive notice of surrender from the state of re-registration if the
security interest is noted on the certificate of title. Thus, the secured party
would have the opportunity to reperfect its security interest in the vehicle in
the state of relocation. However, these procedural safeguards will not protect
the secured party if, through fraud, forgery or administrative error, the debtor
somehow procures a new certificate of title that does not list the secured
party's lien. Additionally, in states that do not require surrender of a
certificate of title for re-registration of a vehicle, re-registration could
defeat perfection. In each of the Trust Agreements, the related Servicer will be
required to take steps to effect re-perfection upon receipt of notice of
re-registration or information from the Obligor as to relocation. Similarly,
when an Obligor sells a Vehicle, the related Servicer will have an opportunity
to require satisfaction of the related Receivable before release of the lien,
either because the related Servicer will be required to surrender possession of
the certificate of title in connection with the sale, or because the related
Servicer will receive notice as a result of its lien noted thereon. Pursuant to
the related Trust Agreement, the related Servicer will hold the certificates of
title for the related Vehicles as custodian for the Trustee. Under the related
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Trust Agreement, the related Servicer will be obligated to take appropriate
steps, at its own expense, to maintain perfected security interests in the
Vehicles.
Priority of Certain Liens Arising by Operation of Law
Under the laws of most states, certain statutory liens such as mechanics',
repairmen's and garagemen's liens for repairs performed on a motor vehicle,
motor vehicle accident liens, towing and storage liens, liens arising under
various state and federal criminal statutes and liens for unpaid taxes take
priority over even a first priority perfected security interest in such vehicle
by operation of law. The UCC also grants priority to certain federal tax liens
over the lien of a secured party. The laws of most states and federal law permit
the confiscation of motor vehicles by governmental authorities under certain
circumstances if used in or acquired with the proceeds of unlawful activities,
which may result in the loss of a secured party's perfected security interest in
a confiscated vehicle. The related Originators will represent and warrant to the
Depositor in the related Receivables Acquisition Agreement and the Depositor
will represent and warrant to the Trustee in the related Trust Agreement that,
as of the related Closing Date, each security interest in a Vehicle shall be a
valid, subsisting and enforceable first priority security interest in such
Vehicle. However, liens for repairs or taxes superior to the security interest
of the Trustee in any such Vehicle, or the confiscation of such Vehicle, could
arise at any time during the term of a Receivable. No notice will be given to
the Trustee or any Securityholder in the event such a lien or confiscation
arises and any such lien or confiscation arising after the related Closing Date
would not give rise to the related Originator's repurchase obligation under the
related Receivables Acquisition Agreement or the Depositor's repurchase
obligation under the related Trust Agreement.
The Trustee's Interests in the Contracts
The Contracts that comprise a portion of the Receivables will be "chattel
paper" as defined in the Uniform Commercial Code. Pursuant to the UCC for most
purposes, a sale of chattel paper is treated in a manner similar to a
transaction creating a security interest in chattel paper. The Depositor, the
related Servicer and/or the related Originator(s) will cause the filing of
appropriate UCC-1 financing statements to be made with the appropriate
governmental authorities. Under the Trust Agreement, the related Servicer will
be obligated from time to time to take such actions as are necessary to protect
and perfect the Trust's or the Trustee's interests in the Contracts and their
proceeds, which will generally consist of filing UCC filing statements by or on
behalf of (i) __________ as seller and "debtor" in favor of the Issuer as buyer
and "secured party" to perfect the sale of the Contracts under the UCC and (ii)
by the Issuer as "debtor" in favor of the Trustee (on behalf of the
Securityholders) as the "secured party", in each case with respect to the
perfection of a security interest in the Contracts and __________ rights the
transfer of which is perfected pursuant to the UCC. In addition, the related
Servicer will cause the original of each Contract to be stamped to indicate the
security interest of the Trustee therein in order to give notice to third
parties of such security interest and thereby to prevent any sale or other
transfer of an interest in the Contracts to a third party without knowledge or
actual notice of the security interest.
The Trustee's security interest in the Contracts could be subordinate to
the interest of certain other parties who take possession of the Contracts
before the stamping described above has been completed. Specifically, until the
stamping process is completed, the Trustee's security interest in a Contract
could be subordinate to the rights of a purchaser of such Contract who takes
possession thereof without knowledge or actual notice of the Trustee's security
interest.
In most states the Trustee's perfected security interest in the Contracts
will be unaffected by any change of location of any lessee, since, under the UCC
as in effect in most states, this security interest will be perfected by the
filing of a UCC-1 financing statement in the jurisdiction in which the chief
executive office of the "debtor" (in this case, the Issuer) is located, not the
location of any lessee.
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Repossession
In the event of default by an Obligor, the holder of the related retail
installment sale contract has all the remedies of a secured party under the UCC,
except where specifically limited by other state laws. The UCC remedies of a
secured party include the right to repossession by self-help means, unless such
means would constitute a breach of the peace. Unless a vehicle is voluntarily
surrendered, self-help repossession is accomplished simply by taking possession
of the related financed vehicle. In cases where the Obligor objects or raises a
defense to repossession, or if otherwise required by applicable state law, a
court order is obtained from the appropriate state court, and the vehicle must
then be recovered in accordance with that order. In some jurisdictions, the
secured party is required to notify the debtor of the default and the intent to
repossess the collateral and give the debtor a time period within which to cure
the default prior to repossession. Generally, this right of cure may only be
exercised on a limited number of occasions during the term of the related
contract. Other jurisdictions permit repossession without prior notice if it can
be accomplished without a breach of the peace (although in some states, a course
of conduct in which the creditor has accepted late payments has been held to
create a right by the Obligor to receive prior notice).
Notice of Sale; Redemption Rights
The UCC and other state laws require a secured party to provide the Obligor
with reasonable notice of the date, time and place of any public sale and/or the
date after which any private sale of the collateral may be held. In addition,
some states also impose substantive timing requirements on the sale of
repossessed vehicles in certain circumstances and/or various substantive timing
and content requirements on such notices. In most states, under certain
circumstances after a financed vehicle has been repossessed, the Obligor may
redeem the collateral by paying the delinquent installments and other amounts
due. The Obligor has the right to redeem the collateral prior to actual sale or
entry by the secured party into a contract for sale of the collateral by paying
the secured party the unpaid principal balance of the obligation, accrued
interest thereon, reasonable expenses for repossessing, holding, and preparing
the collateral for disposition and arranging for its sale, plus, in some
jurisdictions, reasonable attorneys' fees and legal expenses or in some other
states, by payment of delinquent installments on the unpaid principal balance of
the related obligation.
Deficiency Judgments and Excess Proceeds
The proceeds of resale of the Vehicles generally will be applied first to
the expenses of resale and repossession and then to the satisfaction of the
indebtedness. In many instances, the remaining principal amount of such
indebtedness will exceed such proceeds. Under the UCC and laws applicable in
some states, a creditor is entitled to bring an action to obtain a deficiency
judgment from a debtor for any deficiency on repossession and resale of a motor
vehicle securing such debtor's loan; however, in some states, a creditor may not
seek a deficiency judgment from a debtor whose financed vehicle had an initial
cash sales price below some requisite dollar amount. Some states, impose
prohibitions or limitations or notice requirements on actions for deficiency
judgments. In addition to the notice requirement described above, the UCC
requires that every aspect of the sale or other disposition, including the
method, manner, time, place and terms, be "commercially reasonable". Generally,
courts have held that when a sale is not "commercially reasonable", the secured
party loses its right to a deficiency judgment. In addition, the UCC permits the
debtor or other interested party to recover for any loss caused by noncompliance
with the provisions of the UCC. Also, prior to a sale, the UCC permits the
debtor or other interested person to obtain an order mandating that the secured
party refrain from disposing of the collateral if it is established that the
secured party is not proceeding in accordance with the "default" provisions
under the UCC. However, the deficiency judgment would be a personal judgment
against the Obligor for the shortfall, and a defaulting Obligor can be expected
to have very little capital or sources of income available following
repossession. Therefore, in many cases, it may not be useful to seek a
deficiency judgment or, if one is obtained, it may be settled at a significant
discount or be uncollectible.
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Occasionally, after resale of a vehicle and payment of all expenses and
indebtedness, there is a surplus of funds. In that case, the UCC requires the
creditor to remit the surplus to any holder of a subordinate lien with respect
to the vehicle or if no such lienholder exists or if there are remaining funds,
the UCC requires the creditor to remit the surplus to the Obligor under the
contract.
Consumer Protection Laws
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon creditors and servicers involved in
consumer finance. These laws include the Truth-in--Lending Act, the Equal Credit
Opportunity Act, the Federal Trade Commission Act, the Fair Credit Billing, Act,
the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the
Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B and Z,
state adaptations of the National Consumer Act and of the Uniform Consumer
Credit Code, state motor vehicle retail installment sale acts, state "lemon"
laws and other similar laws. In addition, the laws of certain states, impose
finance charge ceilings and other restrictions on consumer transactions and
require contract disclosures in addition to those required under federal law.
These requirements impose specific statutory liabilities upon creditors who fail
to comply with their provisions. In some cases, this liability could affect the
ability of an assignee such as the Trustee to enforce consumer finance contracts
such as the Receivables.
The so-called "Holder-in-Due-Course Rule" of the Federal Trade Commission
(the "FTC Rule") has the effect of subjecting any assignee of the seller in a
consumer credit transaction (and certain related creditors and their assignees)
to all claims and defenses which the Obligor in the transaction could assert
against the seller. Liability under the FTC Rule is limited to the amounts paid
by the Obligor under the contract, and the holder of the contract may also be
unable to collect any balance remaining due thereunder from the Obligor. The FTC
Rule is generally duplicated by the Uniform Consumer Credit Code, other state
statutes or the common law in certain states. To the extent that the Receivables
will be subject to the requirements of the FTC Rule, the Trustee, as holder of
the Receivables, will be subject to any claims or defenses that the purchaser of
the related Vehicle may assert against the seller of such Vehicle. Such claims
will be limited to a maximum liability equal to the amounts paid by the Obligor
under the related Receivable.
Under most state vehicle dealer licensing laws, sellers of automobiles and
light duty trucks are required to be licensed to sell vehicles at retail sale.
In addition, with respect to used vehicles, the Federal Trade Commission's Rule
on Sale of Used Vehicles requires that all sellers of used vehicles prepare,
complete and display a "Buyer's Guide" which explains the warranty coverage for
such vehicles. Furthermore, Federal Odometer Regulations promulgated under the
Motor Vehicle Information and Cost Savings Act and the motor vehicle title laws
of most states require that all sellers of used vehicles furnish a written
statement signed by the seller certifying the accuracy of the odometer reading.
If a seller is not properly licensed or if either a Buyer's Guide or Odometer
Disclosure Statement was not provided to the purchaser of a Vehicle, the Obligor
may be able to assert a defense against the seller of the Vehicle. If an Obligor
on a Receivable were successful in asserting any such claim or defense, the
related Servicer would pursue on behalf of the Trust any reasonable remedies
against the seller or manufacturer of the vehicle, subject to certain
limitations as to the expense of any such action to be specified in the related
Trust Agreement.
Any such loss, to the extent not covered by credit support (as specified in
the Related Prospectus Supplement), could result in losses to the
Securityholders. As specified in the related Prospectus Supplement, if an
Obligor were successful in asserting any such claim or defense as described in
this paragraph or the two immediately preceding paragraphs, such claim or
defense may constitute a breach of a representation and warranty under the
related Receivables Acquisition Agreement and the related Trust Agreement and
may create an obligation of the related Originator and the Depositor to
repurchase such Receivable unless the breach were cured.
Courts have applied general equitable principles to secured parties
pursuing repossession or litigation involving deficiency balances. These
equitable principles may have the effect of relieving an Obligor from some or
all of the legal consequences of a default.
42
<PAGE>
In several cases, consumers have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections of the 14th Amendment to the Constitution of the United States.
Courts have generally either upheld the notice provisions of the UCC and related
laws as reasonable or have found that the creditor's repossession and resale do
not involve sufficient state action to afford constitutional protection to
consumers.
As specified in the related Prospectus Supplement, the related Originators
and the Depositor will represent and warrant under the related Receivables
Acquisition Agreement and the related Trust Agreement, respectively, that each
Receivable complies with all requirements of law in all material respects.
Accordingly, if an Obligor has a claim against the Trustee for violation of any
law and such claim materially and adversely affects the Trustee's interest in a
Receivable, such violation would constitute a breach of representation and
warranty under the related Receivables Acquisition Agreement and the related
Trust Agreement and would create an obligation of the related Originators and
the Depositor to repurchase such Receivable unless the breach were cured.
Other Limitations
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a creditor to
realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
creditor from repossessing a motor vehicle, and, as part of the rehabilitation
plan, reduce the amount of the secured indebtedness to the market value of the
motor vehicle at the time of bankruptcy (as determined by the court), leaving
the party providing financing as a general unsecured creditor for the remainder
of the indebtedness. A bankruptcy court may also reduce the monthly payments due
under a contract or chance the rate of interest and time of repayment of the
indebtedness. Any such shortfall, to the extent not covered by credit support
(as specified in each Prospectus Supplement), could result in losses to the
Securityholders.
CERTAIN TAX CONSIDERATIONS
The Prospectus Supplement for each series of Securities will summarize,
subject to the limitations stated therein, federal income tax considerations
relevant to the purchase, ownership and disposition of such Securities.
ERISA CONSIDERATIONS
The Prospectus Supplement for each series of Securities will summarize,
subject to the limitations discussed therein, considerations under ERISA
relevant to the purchase of such Securities by employee benefit plans and
individual retirement accounts.
METHODS OF DISTRIBUTION
The Securities offered hereby and by the related Prospectus Supplement will
be offered in series through one or more of the methods described below. The
Prospectus Supplement prepared for each series will describe the method of
offering being utilized for that series and will state the public offering or
purchase price of such series and the net proceeds to the Depositor from such
sale.
The Depositor intends that Securities will be offered through the following
methods from time to time and that offerings may be made concurrently through
more than one of these methods or that an offering of a particular series of
Securities may be made through a combination of two or more of these methods.
Such methods are as follows:
43
<PAGE>
1. By negotiated firm commitment or best efforts underwriting and
public re-offering by underwriters;
2. By placements by the Depositor with institutional investors through
dealers;
3. By direct placements by the Depositor with institutional investors;
and
4. By competitive bid.
In addition, if specified in the related Prospectus Supplement, a series of
Securities may be offered in whole or in part in exchange for the Receivables
(and other assets, if applicable) that would comprise the Trust Fund in respect
of such Securities.
If underwriters are used in a sale of any Securities (other than in
connection with an underwriting on a best efforts basis), such Securities will
be acquired by the underwriters for their own account and may be resold from
time to time in one or more transactions, including negotiated transactions, at
fixed public offering prices or at varying prices to be determined at the time
of sale or at the time of commitment therefor. The Securities will be set forth
on the cover of the Prospectus Supplement relating to such series and the
members of the underwriting syndicate, if any, will be named in such Prospectus
Supplement.
In connection with the sale of the Securities, underwriters may receive
compensation from the Depositor or from purchasers of the Securities in the form
of discounts, concessions or commissions. Underwriters and dealers participating
in the distribution of the Securities may be deemed to be underwriters in
connection with such Securities, and any discounts or commissions received by
them from the Depositor and any profit on the resale of Securities by them may
be deemed to be underwriting discounts and commissions under the Securities Act.
The Prospectus Supplement will describe any such compensation paid by the
Depositor.
It is anticipated that the underwriting agreement pertaining to the sale of
any series of Securities will provide that the obligations of the underwriters
will be subject to certain conditions precedent, that the underwriters will be
obligated to purchase all such Securities if any are purchased (other than in
connection with an underwriting on a best efforts basis) and that, in limited
circumstances, the Depositor will indemnify the several underwriters and the
underwriters will indemnify the Depositor against certain civil liabilities,
including liabilities under the Securities Act or will contribute to payments
required to be made in respect thereof.
The Prospectus Supplement with respect to any series offered by placements
through dealers will contain information regarding the nature of such offering
and any agreements to be entered into between the Depositor and purchasers of
Securities of such series.
Purchasers of Securities, including dealers, may, depending on the facts
and circumstances of such purchases, be deemed to be "underwriters" within the
meaning of the Securities Act in connection with reoffers and sales by them of
Securities. Holders of Securities should consult with their legal advisors in
this regard prior to any such reoffer or sale.
LEGAL OPINIONS
Certain legal matters relating to the issuance of the Securities of any
series, including certain federal and state income tax consequences with respect
thereto, will be passed upon by Dewey Ballantine, New York, New York, or other
counsel specified in the related Prospectus Supplement.
44
<PAGE>
FINANCIAL INFORMATION
A Trust Fund will be formed with respect to each Series of Securities and
no Trust Fund will engage in any business activities or have any assets or
obligations prior to the issuance of the related Series of Securities, except
for serial issuances by a Master Trust. The Depositor's activities will be
limited solely to the activities of Trust Funds to be formed with respect to
each Series of Securities. Accordingly, no financial statements with respect to
any Trust Fund will be included in this Prospectus or in the related Prospectus
Supplement.
A Prospectus Supplement may contain the financial statements of the related
Credit Enhancer, if any.
ADDITIONAL INFORMATION
This Prospectus, together with the Prospectus Supplement for each series of
Securities, contains a summary of the material terms of the applicable exhibits
to the Registration Statement and the documents referred to herein and therein.
Copies of such exhibits are on file at the offices of the Securities and
Exchange Commission in Washington, D.C., and may be obtained at rates prescribed
by the Commission upon request to the Commission and may be inspected, without
charge, at the Commission's offices.
45
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INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus and
the pages on which the definitions of such terms may be found herein.
Accrual Securities.....................................................6
Additional Receivables................................................11
APR ...............................................................9
Cede ..............................................................11
CEDEL Participants....................................................28
Certificates........................................................1, 4
Class ...............................................................1
Closing Date..........................................................22
Collection Account....................................................31
Collection Period.....................................................33
Commission.............................................................2
Contracts...........................................................1, 4
Cooperative...........................................................29
Credit Enhancement....................................................18
Credit Enhancer.......................................................18
Dealers ...............................................................3
Debt Securities.......................................................13
Definitive Securities.................................................29
Depositaries..........................................................27
Depositor..........................................................3, 23
Direct Participants...................................................18
Discounted Contract Balance...........................................11
Distribution Account..................................................31
DTC ..............................................................11
Eligible Deposit Account..............................................32
Eligible Institution..................................................32
Eligible Investments..................................................31
Equipment..............................................................4
Equity Certificates....................................................8
ERISA ..............................................................13
Euroclear Operator....................................................29
Euroclear Participants................................................28
Exchange Act.......................................................2, 13
Finance Subsidiary....................................................16
Fixed Income Securities................................................5
Fixed Value Contracts..................................................9
Forward Purchase Agreement............................................22
Grantor Trust Securities..............................................13
Indenture..............................................................4
Indenture Trustee......................................................4
Indirect Participants.............................................18, 27
Insolvency Event......................................................35
Insolvency Laws.......................................................16
Interest Rate.......................................................2, 5
Investment Company Act.................................................7
Investment Earnings...................................................32
Issuer ............................................................1, 3
Manufacturers..........................................................3
Master Trust...........................................................7
Master Trust Agreement.................................................8
46
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Master Trust New Issuance.............................................26
Notes ............................................................1, 4
Obligor ...............................................................4
Originator..........................................................1, 3
Participants..........................................................27
Partnership Interests.................................................13
Pass-Through Rate......................................................2
Payment Date...........................................................6
Policy ............................................................1, 4
Pool Balance..........................................................23
Pool Factor...........................................................23
Pooling Agreement......................................................4
Pre-Funding Account...................................................11
Pre-Funding Period....................................................11
Prepayment............................................................18
Prospectus Supplement..................................................1
Ratings Effect....................................................18, 27
Receivables.........................................................1, 4
Receivables Acquisition Agreement.................................19, 22
Record Date............................................................6
Registration Statement.................................................2
Remittance Period......................................................6
Rule of 78s............................................................9
Rule of 78s Contracts..................................................9
Rules ..............................................................28
Securities.............................................................1
Securities Act.........................................................2
Security Insurer......................................................11
Securityholders........................................................6
Senior Securities......................................................6
Servicer...............................................................1
Servicer Defaults.....................................................34
Servicing Agreement....................................................4
Servicing Fee.........................................................33
Servicing Fee Rate....................................................33
Simple Interest Contracts..............................................9
Strip Securities.......................................................6
Sub-Servicer...........................................................3
Subordinate Securities.................................................6
Terms and Conditions..................................................29
Transferor.............................................................3
Trust ............................................................1, 3
Trust Accounts........................................................31
Trust Agreement........................................................5
Trust Fund..........................................................1, 4
Trustee ...............................................................5
Vehicles...............................................................1
VSI Insurance Policy..................................................17
47
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement and the Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Depositor or by the Underwriter. This Prospectus Supplement and the Prospectus
do not constitute an offer to sell, or a solicitation of an offer to buy, the
securities offered hereby to anyone in any jurisdiction in which the person
making such offer or solicitation is not qualified to do so or to anyone to whom
it is unlawful to make any such offer or solicitation. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create an implication that information herein or therein is correct as of any
time since the date of this Prospectus Supplement or the Prospectus.
-----------------
Table of Contents
Prospectus Supplement Page
----
Summary of Terms......................................................... S-4
Risk Factors............................................................. S-9
The Receivables.......................................................... S-10
Yield Considerations..................................................... S-15
Use of Proceeds.......................................................... S-15
The Servicer and the Originators......................................... S-15
Description of the Certificates.......................................... S-19
The Certificate Insurer.................................................. S-21
The Policy............................................................... S-23
The Pooling and Servicing Agreement and the
Transfer Agreements.................................................... S-24
Certain Federal Income Tax Considerations................................ S-28
ERISA Considerations..................................................... S-31
Ratings.................................................................. S-33
Underwriting............................................................. S-33
Legal Matters............................................................ S-33
Glossary................................................................. S-34
Index of Defined Terms................................................... S-37
Prospectus
Prospectus Supplement.................................................... 2
Available Information.................................................... 2
Incorporation of Certain Documents
by Reference.......................................................... 2
Reports to Securityholders............................................... 2
Summary of Terms......................................................... 3
Special Considerations................................................... 15
The Trust Funds.......................................................... 19
The Issuers.............................................................. 20
The Receivables.......................................................... 20
Pool Factors............................................................. 23
Use of Proceeds.......................................................... 23
The Depositor............................................................ 23
The Trustee.............................................................. 24
Description of the Securities............................................ 24
Description of the Trust Agreements...................................... 31
Certain Legal Aspects of the Receivables................................. 38
Certain Tax Considerations............................................... 43
ERISA Considerations..................................................... 43
Methods of Distribution.................................................. 43
Legal Opinions........................................................... 44
Financial Information.................................................... 45
Additional Information................................................... 45
Index of Terms........................................................... 46
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Until 90 days after the date of this Prospectus Supplement, all dealers
effecting transactions in the related Certificates, whether or not participating
in the distribution thereof, may be required to deliver this Prospectus and the
related Prospectus Supplement. This delivery requirement is in addition to the
obligation of dealers to deliver a Prospectus Supplement and Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
Emergent Auto Receivables
Trust 1996-A
$14,496,000 Class A
__% Auto Receivables Backed Certificates
---------------------
PRELIMINARY
PROSPECTUS SUPPLEMENT
---------------------
PRUDENTIAL SECURITIES
SECURED FINANCING
CORPORATION
EMERGENT GROUP, INC.
Prudential Securities Incorporated
