<PAGE>
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED MARCH 26, 1999
- --------------------------------------------------------------------------------
$78,146,000
ABFS EQUIPMENT CONTRACT TRUST 1999-A
EQUIPMENT CONTRACT-BACKED NOTES, SERIES 1999-A
$15,000,000 5.3925% CLASS A-1 NOTES
$13,000,000 6.025% CLASS A-2 NOTES
$34,160,000 6.650% CLASS A-3 NOTES
$10,000,000 6.650% CLASS A-4 NOTES
$5,986,000 6.940% CLASS B NOTES
[American Business Financial Services Inc. LOGO]
PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION
Depositor
- --------------------------------------------------------------------------------
YOU SHOULD READ THE SECTION ENTITLED "RISK
FACTORS" STARTING ON PAGE S-4 OF THIS PROSPECTUS
SUPPLEMENT AND PAGE 14 OF THE ACCOMPANYING
PROSPECTUS AND CONSIDER THESE FACTORS BEFORE
MAKING A DECISION TO INVEST IN THE NOTES. The
notes represent non-recourse obligations of the
trust only and are not interests in or obligations
of any other person. Neither the notes nor the
underlying contracts will be insured or guaranteed
by any governmental agency or instrumentality.
THE TRUST FUND --
o The trust fund consists primarily of two pledged
notes which are secured by a pool of receivables
consisting of direct finance leases and
commercial loans and the security interests in
the underlying equipment.
THE OFFERED NOTES --
o Each class of notes will be backed primarily by a
pledge of the two pledged notes.
CREDIT ENHANCEMENT --
o The class A notes will be unconditionally and
irrevocably guaranteed as to the payment of
scheduled interest and to specified payments of
principal pursuant to the terms of a financial
guaranty insurance policy to be issued by
[FSA LOGO]
o The class A notes are senior to the class B
notes. The class B notes are senior to the
residual ownership interests in the trust.
<TABLE>
<CAPTION>
ORIGINAL NOTE PRICE TO THE UNDERWRITING PROCEEDS TO THE FINAL STATED
CLASS PRINCIPAL BALANCE PUBLIC DISCOUNT DEPOSITOR MATURITY DATE
- ----- ----------------- -------------- ------------ --------------- ------------------
<S> <C> <C> <C> <C> <C>
A-1 $15,000,000 100.000000% 0.35% $ 14,947,500.00 July 15, 2000
A-2 $13,000,000 100.000000% 0.35% $ 12,954,500.00 June 15, 2001
A-3 $34,160,000 100.000000% 0.35% $ 34,040,440.00 December 15, 2003
A-4 $10,000,000 98.609375% 0.35% $ 9,825,937.50 November 15, 2007
B $ 5,986,000 N/A N/A N/A November 15, 2007
----------- -------------- ------------ ---------------
Total $78,146,000 $72,020,937.50 $252,560.00 $ 71,768,377.50
</TABLE>
In addition to the price stated above, class A-2, class A-3 and
class A-4 noteholders will also be required to pay the interest
that has accrued on their note from June 15, 1999 to the closing
date. The proceeds to the depositor were calculated without taking
into effect the expenses of this offering, which are estimated to
be $300,000. The class B notes will be delivered by the trust to
the originator in consideration of the sale of the contracts. The
class B notes may be resold from time to time in negotiated
transactions at varying prices to be determined at the time of
resale.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
PRUDENTIAL SECURITIES
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS JUNE 24, 1999
<PAGE>
IMPORTANT NOTICE ABOUT THE INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
We provide information to you about the notes in two separate documents
that progressively provide more detail: (1) the accompanying prospectus, which
provides general information, some of which may not apply to your series of
notes, and (2) this prospectus supplement, which describes the specific terms of
your series of notes. IF THE ACCOMPANYING PROSPECTUS CONTEMPLATES MULTIPLE
OPTIONS, YOU SHOULD RELY ON THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT AS TO
THE APPLICABLE OPTION.
We cannot sell the notes to you unless you have received both this
prospectus supplement and the accompanying prospectus.
We include cross-references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
further information concerning a particular topic. The following table of
contents lists the pages on which these captions are located.
S-ii
<PAGE>
Table of Contents
Summary...........................................S-1
Risk Factors......................................S-4
Transaction Overview..............................S-7
Parties......................................S-7
The Transaction..............................S-8
The Contract Pool.................................S-8
The Contracts................................S-8
The Equipment Subject to the Contracts......S-10
Subsequent Contracts........................S-10
Substitutions and Modifications.............S-10
The Originator and the Servicer..................S-19
The Originator..............................S-19
The Servicer................................S-21
Formation of the Trust...........................S-22
The Owner Trustee...........................S-22
Description of the Notes.........................S-22
The Offered Notes...........................S-23
The Security for the Notes..................S-23
Conveyance of Receivables...................S-24
Representations and Warranties of the
Originator................................S-25
Indemnification.............................S-25
Servicer Advances...........................S-26
Flow of Funds...............................S-26
Withholding.................................S-28
Reports to Noteholders......................S-28
Optional Redemption.........................S-29
Servicing...................................S-29
The Servicer Not to Resign..................S-29
Events of Servicing Termination.............S-30
Rights Upon an Event of Servicing
Termination...............................S-31
Events of Default...........................S-31
Amendment...................................S-32
The Indenture Trustee and the Back-up Servicer...S-32
Duties and Immunities of the Indenture
Trustee...................................S-33
Duties of the Back-up Servicer..............S-33
Prepayment and Yield Considerations..............S-33
Weighted Average Lives of the Offered
Notes.....................................S-34
The Note Insurance Policy........................S-38
The Note Insurer.................................S-41
The Note Insurer............................S-41
Reinsurance.................................S-42
Ratings.....................................S-42
Capitalization..............................S-42
Insurance Regulation........................S-43
Material Federal Income Tax Consequences.........S-43
Tax Characterization of the Trust and the
Transferors...............................S-44
Tax Consequences to Holders of the Notes....S-44
State and Local Income Tax Considerations........S-47
ERISA Considerations.............................S-47
Legal Investment.................................S-48
Underwriting.....................................S-48
Incorporation of Information by Reference........S-49
Additional Information...........................S-50
Experts..........................................S-50
Legal Matters....................................S-50
Ratings..........................................S-51
Glossary.........................................S-52
S-iii
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
Summary
This summary highlights selected information from this
prospectus supplement and does not contain all of the
information that you need to consider in making your
investment decision. You should read this entire prospectus
supplement and the accompanying prospectus carefully to
understand all of the terms of the offering of the notes.
The Notes and the Residual Interests
The ABFS Equipment Contract Trust 1999-A will issue five classes of its
equipment contract-backed notes, series 1999-A: the class A-1 notes, the class
A-2 notes, the class A-3 notes, the class A-4 notes and the class B notes. The
notes are being offered to you by this prospectus supplement.
Each class of notes will be secured by a pledge of the two pledged notes owned
by the trust. Both pledged notes are secured primarily by a pool of receivables
consisting of direct finance leases and commercial loans and the security
interests in the underlying equipment.
Each class of notes will accrue interest at an interest rate, have an original
principal balance and have a final stated maturity date as specified on the
cover of this prospectus supplement.
The trust will also issue residual interests. The residual interests will
represent the entire beneficial ownership interest in the trust remaining after
payments on the notes have been made. The residual interest holders will be
entitled to receive specified payments on each payment date, but only to the
extent that all payments due under the notes have been made to the noteholders
on that payment date. The residual interests are not offered by this prospectus
supplement.
Distributions
Distributions on the notes will be made on each payment date to the holders of
record on the record date. Distributions to a holder will be made in an amount
equal to the holder's percentage interest of the total amount distributed to the
holder's class of notes on that distribution date.
o Payment Dates. Payments will be made on the 15th day of each month, or, if
the 15th is not a business day, on the next business day, beginning on July
15, 1999.
o Record Dates. The record date for the notes will be the last calendar day
of the month preceding a payment date, or, in the case of the July 15, 1999
payment date, the closing date.
Distributions of Interest
On each distribution date, each class of notes is entitled to receive its
current interest.
o Current Interest. The current interest for a payment date is the interest
which accrues on a class of notes at that class's note rate on the
outstanding principal balance of the class during the accrual period.
o Accrual Period. The accrual period for a payment date is the period from
the preceding payment date up to, but excluding, the current payment date.
All computations of interest accrued on the class A-1 notes will be made on the
basis of the actual number of days in the accrual period and a 360-day year. All
computations of interest accrued on the other classes of notes will be made on
the basis of a 360-day year consisting of twelve 30-day months.
Distributions of Principal
The holders of the notes and the residual interests are generally entitled to
receive distributions of principal on each payment date in an aggregate amount
equal to the sum of the scheduled payments, final scheduled payments and any
recoveries on defaulted contracts received on the contract pool during the
preceding calendar month. The holders of the most senior class of notes
outstanding are also
S-1
<PAGE>
entitled to receive additional principal distributions on each payment date in
an aggregate amount equal to the aggregate amount of prepayments, repurchases of
contracts and amounts received at the end of a contract's term -- up to the
originator's booked residual value for the contract -- from the sale or re-lease
of the underlying equipment during the preceding calendar month and the unpaid
amount of any contract which became a defaulted contract during the preceding
calendar month.
However, in accordance with the subordination provisions of the transaction,
principal payments will be made first, to the class A notes, second, to the
class B notes and third, to the residual interests. Moreover, all principal
payments on the class A notes will be made sequentially, so that 100% of the
principal payments made to the class A notes will be made to the outstanding
class of class A notes with the lowest numerical designation --i.e. the class
A-1 notes -- until that class is reduced to zero.
However, if certain restricting events relating to loss or delinquency levels on
the contract pool occur, principal payments to the class B noteholders and the
residual holders may be suspended and those payments paid to the class A
noteholders or, after all of the class A notes have been retired, to the class B
noteholders, as an additional payment of principal. This reallocation of
payments will continue until the restricting event is cured, waived or the class
A notes or class B notes, as applicable, are retired.
This general description of distributions of principal and interest on the notes
is subject to floors and restricting events which may result in the reallocation
of payments. We refer you to "Description of the Notes--Flow of Funds" in this
prospectus supplement for further information regarding the payment of interest
and principal on the notes.
Credit Enhancement
Credit enhancement is provided by means of the subordination and, for the class
A notes, the note insurance policy.
Subordination
The class A notes are senior to the class B notes, which are senior to the
residual interests. More senior classes are entitled to principal payments prior
to the subordinate classes or interests, which provides credit enhancement for
the senior classes. Losses resulting from defaults on the underlying contracts
will be absorbed first, by the residual interest holders, second, by the class B
noteholders, and third, by the class A noteholders.
The Note Insurance Policy
Financial Security Assurance Inc. will issue a financial guaranty insurance
policy for the benefit of the holders of the class A notes.
Under the note insurance policy, the note insurer will be obligated to pay,
o on any payment date, any shortfall in the amount of interest due to the
class A noteholders,
o on any payment date, the amount, if any, by which the outstanding principal
balance of the class A notes, after giving effect to all other
distributions on such payment date, exceeds the outstanding aggregate
discounted principal balance of the contract pool and the collateral value
of the amount on deposit in the pre-funding account, and
o on the final scheduled maturity date for a class of class A notes, any
shortfall in the funds available to pay the outstanding principal balance
of that class.
The Contracts
The principal source of payment for the notes will be the payments received from
the contract pool. You should not rely on the sale of the underlying leased
equipment for payments on your note.
The contracts have the following characteristics:
o The contracts are small-ticket equipment leases and commercial loans, with
an initial aggregate discounted principal balance expected to be
approximately $69,700,000 on the closing date.
S-2
<PAGE>
o The discounted principal balance of a contract at any time will be
calculated by discounting the remaining scheduled payments and any final
scheduled payment on the contract at a discount rate equal to 7.480%.
o The contracts are triple-net leases, which means that the obligor is
required to pay all taxes, maintenance and insurance associated with the
leased equipment.
o The contracts are noncancellable by the obligors.
o A contract cannot be prepaid unless the obligor pays at least the
outstanding discounted contract principal balance of the contract and any
other delinquent scheduled payments due under the contract.
o All payments under the contracts are absolute, unconditional obligations of
the obligors.
o The contracts provide that the payments are not subject to set-off or
reduction without the lessor's consent.
Pre-Funding Account
On the closing date, approximately $12,300,000 will be deposited into a
pre-funding account. These funds will be used from time to time, on or before
September 30, 1999, to fund the acquisition of subsequent contracts for addition
to the contract pool.
To the extent that any amounts on deposit in the pre-funding account are not
used to purchase subsequent contracts by September 30, 1999, the trust will
apply these amounts as a pro rata prepayment of the principal balance of the
notes on the payment date immediately succeeding the end of the pre-funding
period.
Servicing of the Contracts
American Business Leasing, Inc. will act as servicer and will be obligated to
service and administer the contracts.
Optional Redemption
The servicer may redeem the notes on any payment date after the aggregate
outstanding principal balance of the notes is less than or equal to 10% of the
original aggregate principal balance of the notes.
If a redemption occurs, you will receive a final distribution equaling the
entire unpaid principal balance of your note, plus any accrued and unpaid
interest on your note.
Federal Income Tax Consequences
Dewey Ballantine LLP, special tax counsel to the trust, is of the opinion that,
for federal income tax purposes,
o the notes will be treated as debt, and
o the trust will not be treated as an association, or publicly traded
partnership, taxable as a corporation.
By your acceptance of a note, you agree to treat the notes as debt.
ERISA Considerations
Subject to the considerations and conditions described under "ERISA
Considerations" in the prospectus and in this prospectus supplement, pension,
profit-sharing or other employee benefit plans, as well as individual retirement
accounts and types of Keogh Plans, may purchase the notes. Investors should
consult with their counsel regarding the applicability of ERISA before
purchasing a note.
Ratings
The trust will not issue the notes unless they have been assigned the following
ratings:
Class Moody's S&P DCR
----- ------- --- ---
A-1 P-1 A-1+ --
A-2 Aaa AAA --
A-3 Aaa AAA --
A-4 Aaa AAA --
B -- -- BBB
These ratings may be lowered, qualified or withdrawn by the rating agencies.
S-3
<PAGE>
Risk Factors
In addition to the risk factors discussed in the prospectus,
prospective noteholders should consider, among other things, the following
additional factors in connection with the purchase of the notes. Unless
otherwise noted, all statistical percentages are based upon the contract pool
that existed on a statistical calculation date of May 6, 1999.
Concentrations of the obligors and the equipment underlying the contracts in
particular geographic jurisdictions may result in losses on your note if those
regions experience economic downturns.
As of the statistical calculation date, the obligors and
underlying equipment with respect to approximately 22.03% and
10.82% of the contracts were located in the states of
California and Florida, respectively. To the extent adverse
events or economic conditions are particularly severe in these
jurisdictions or in the event an obligor or group of obligors
in these jurisdictions were to experience financial
difficulties due to the economic conditions specific to these
jurisdictions, the delinquency and loss experience of the
contract pool could be adversely impacted and you could
experience delays in receiving payments or suffer losses on
your note.
Prepayments of principal may adversely affect the yield on your note.
Payments on the contracts may include several types of
prepayments, including partial and full prepayments by the
obligor, payments upon the liquidation of defaulted contracts
and payments by the originator or the servicer on account of
breaches of representations and warranties concerning the
receivables. These prepayments will be distributed to the
noteholders in reduction of the principal balance of the
notes. The risk of reinvesting these early distributions of
the principal will be borne by you and there can be no
assurance that you will be able to reinvest them at a yield
equaling or exceeding the yield on your note.
The yield to maturity on notes purchased at premiums or
discounts to par will be extremely sensitive to the rate of
prepayments. Noteholders should consider, in the case of notes
purchased at a discount, the risk that a slower than
anticipated rate of prepayments on the contracts could result
in an actual yield that is less than the anticipated yield
and, in the case of any notes purchased at a premium, the risk
that a faster than anticipated rate of prepayments on the
contracts could result in an actual yield that is less than
the anticipated yield.
In addition, if the funds on deposit in the pre-funding
account are not fully applied to the purchase of subsequent
contracts during the pre-funding period, the remaining funds
will be used to make a principal prepayment on the notes
following the end of the pre-funding period. The purchase of
subsequent contracts is dependent on the ability of the
originator to originate sufficient subsequent contracts that
meet the eligibility criteria described in this prospectus
supplement. The ability of the originator to originate
subsequent contracts may be affected by a variety of social
and economic factors, including interest rates, unemployment
levels, the rate of inflation and consumer perception of
economic conditions generally. If the originator does not
originate sufficient subsequent contracts, there will be a
prepayment on the notes. The risk of reinvesting such a
prepayment of the principal will be borne by you and there can
be no assurance that you will be able to reinvest them at a
yield equaling or exceeding the yield on your note.
S-4
<PAGE>
Year 2000 issues could lead to delays in payment or losses on your note.
There is a significant uncertainty regarding the effect of the
year 2000 problem because computer systems or other systems
with embedded technology that do not properly recognize date
sensitive information when the year changes to 2000 could
generate erroneous data or altogether fail. The servicer and
the originator, as well as third parties that have
relationships with them, including vendors and obligors, may
experience significant year 2000 issues. These issues may have
a serious adverse effect on the operations of the originator,
the servicer, or these third parties, including, without
limitation, inaccurate reports or other data or a shut-down of
operations for a period of time, which may, in turn, have a
material adverse effect on their business, financial condition
and results of operations.
If DTC experiences year 2000 problems, you could experience delays in payment or
losses on your note.
If problems associated with the year 2000 issue were to occur
with respect to DTC, its systems -- as they relate to the
timely payment of distributions, to book-entry deliveries, and
to settlement of trades within DTC -- or third parties --
including, but not limited to, issuers, their agents and DTC's
participating organizations as well as third party vendors on
whom DTC relies for information or the provision of services,
including telecommunication and electrical utility service
providers among others -- distributions to the beneficial
owners of notes could be delayed or otherwise adversely
affected.
Payments on the notes are primarily funded by collections on the contract pool;
if credit enhancement is exhausted for your class of notes, losses on the
contract pool will lead to losses on your note.
The principal source of funds for the repayment of the notes
are the collections on the contract pool. Thus, losses on the
contract pool may cause losses on your note. The structure of
the transaction provides for a limited level of credit
enhancement for the notes by means of subordination. The
residual interests are in a first-loss position. Losses on the
contract pool will be allocated to the residual interests
prior to any losses being allocated to the notes. The class B
notes are in a second-loss position, which means that
investors in the class B notes are likely to suffer losses if
the residual interests are exhausted.
In addition, high losses or delinquencies on the contract pool
may trigger a restricting event. If a restricting event
occurs, principal payments on the class B notes will be
suspended and reallocated to the class A noteholders. This
allocation will continue until the restricting event is cured
or the class A notes are retired. Such an allocation would
change the expected weighted average life of the notes and
could adversely affect the yield on your note.
The bankruptcy of the originator could lead to delays in payments or losses on
your note.
If the originator, or the third-party companies from which the
originator purchased the contracts, were to file for
bankruptcy, the bankruptcy trustee might seek to repudiate the
contracts and/or claim an interest in the contract pool. Such
an attempt, even if unsuccessful, could result in delays in
payments on your note. If such attempts were successful, the
recovery on the contracts would be limited to the then current
value of the contracts. Thus, the noteholders would lose the
right to future payments and could possibly incur reinvestment
losses on amounts recovered.
S-5
<PAGE>
Because the ratings of the class A notes are dependent upon the creditworthiness
of the note insurer, a downgrade of the note insurer could cause a downgrade of
the class A notes.
The ratings of the class A notes will depend primarily on the
creditworthiness of the note insurer as the provider of the
note insurance policy relating to the class A notes. Any
reduction in the note insurer's insurance financial strength
or claims-paying ability ratings could result in a reduction
of the ratings on the class A notes.
S-6
<PAGE>
Some of the terms used in this prospectus supplement are capitalized.
These capitalized terms have specified definitions, which are included at the
end of this prospectus supplement under the heading "Glossary."
Transaction Overview
Parties
The Trust. ABFS Equipment Contract Trust 1999-A, a Delaware statutory
business trust. The principal executive office of the trust is in Wilmington,
Delaware, in care of the owner trustee, at the address of the owner trustee
specified below.
The Depositor. Prudential Securities Secured Financing Corporation, a
Delaware corporation. The principal executive office of the depositor is located
at One New York Plaza, 14th Floor, New York, New York 10292, and its telephone
number is (212) 778-1000.
The Transferors. ABFS Residual LLC 1999-A and ABFS Finance LLC 1999-A,
each of which is owned by the originator. The principal executive office of the
each of the transferors is at Balapointe Centre, 111 Presidential Boulevard,
Suite 127, Bala Cynwyd, Pennsylvania 19004, and their telephone number is (610)
668-2440.
The Originator. American Business Leasing, Inc., a Pennsylvania
corporation, originated or purchased the contracts. For a description of the
business of the originator, see "The Originator and the Servicer" herein.
The Servicer. American Business Leasing will act as servicer of the
contracts. For a description of the business of the servicer, see "The
Originator and the Servicer" herein.
The Indenture Trustee and the Back-up Servicer. The Chase Manhattan
Bank, a New York banking corporation. The corporate trust office of the
indenture trustee is located at 450 West 33rd Street, New York, New York 10001,
and its telephone number is (212) 946-3216. For a description of the indenture
trustee and its responsibilities with respect to the notes, see "The Indenture
Trustee" herein.
The Owner Trustee. First Union Trust Company, National Association, a
national banking association. The corporate trust office of the owner trustee is
located at One Rodney Square, 920 King Street, Suite 102, Wilmington, Delaware
19801, and its telephone number is (302) 888-7539. For a description of the
owner trustee and its responsibilities with respect to the notes, see "The Owner
Trustee" herein.
The Collateral Agent. Chase Bank of Texas, N.A., a national banking
association. The corporate trust office of the collateral agent is located at
801 West Greens Road, Houston, Texas 77067, and its telephone number is (281)
775-5400.
The Note Insurer. Financial Security Assurance Inc., a New York
financial guaranty insurance company. The note insurer will issue a financial
guaranty insurance policy for the benefit of the holders of the class A notes.
For a description of the business and selected financial information of the note
insurer, see "The Note Insurance Policy" and "The Note Insurer" herein.
The Rating Agencies. Standard & Poor's Ratings Services, a division of
the McGraw-Hill Companies, Inc. and Moody's Investors Service, Inc. will issue
ratings with respect to the class A notes, and Duff & Phelps Credit Rating Co.
will issue a rating with respect to the class B notes.
S-7
<PAGE>
The Transaction
Formation of the Trust and Issuance of the Residual Interests. The
trust will be formed pursuant to the terms of a Trust Agreement, dated as of
June 1, 1999, between the owner trustee, the depositor and the transferors.
Under the Trust Agreement, the trust will also issue the residual interests to
the transferors, together evidencing the entire beneficial ownership interest in
the trust.
Sale of the Receivables. The receivables have been originated or
purchased by the originator pursuant to its underwriting guidelines, as
described under "The Originator and the Servicer." The originator will sell the
receivables to the transferors pursuant to the terms of a Receivables Sale
Agreement, dated as of June 1, 1999, among the originator and the transferors.
The Receivables Sale Agreement provides that one of the transferors, ABFS
Finance LLC 1999-A, will acquire that portion of the receivables which are
characterized as "financial assets" under U.S. GAAP -- which consist of, among
other things, the contracts, other than the contracts, if any, which are "true"
or "operating" leases -- while the other transferor, ABFS Residual LLC 1999-A,
will acquire that portion of the receivables which are not characterized as
"financial assets" under U.S. GAAP -- which consist of, among other things, the
contracts, if any, which are "true" or "operating" leases, the ownership
interest or security interest of the originator in each item of equipment and
any Residual Receipts.
Servicing of the Contracts. The servicer will service the receivables
pursuant to the terms of a Servicing Agreement, dated as of June 1, 1999, among
the servicer, the originator, the transferors, the trust, the indenture trustee
and the back-up servicer.
Issuance and Transfer of the Pledged Notes. The transferors will issue
the pledged notes and the depositor, as sponsor of the trust, will direct the
transferors to transfer the pledged notes to the trust pursuant to the terms of
a Receivables Pledge Agreement, dated as of June 1, 1999, among the transferors,
the trust, the depositor and the indenture trustee.
Issuance of the Notes. Pursuant to the terms of an Indenture, dated as
of June 1, 1999, between the trust, the servicer, the back-up servicer and the
indenture trustee, the trust will pledge the trust fund to the indenture
trustee, for the benefit of the holders of the notes and the note insurer, and
issue the notes.
Issuance of the Note Insurance Policy. The note insurer will issue the
note insurance policy pursuant to the terms of an Insurance and Indemnity
Agreement, dated as of June 1, 1999 among the note insurer, the trust, the
depositor, the transferors, the originator and the servicer.
The Contract Pool
The Contracts
The contracts consist of small-ticket leases and commercial loans
acquired by the originator from third parties or originated directly by the
originator or its affiliates. The receivables consist of the contracts and
certain interests in the related equipment or other property. See "The
Originator and the Servicer" herein.
The statistical information concerning the pool of contracts set forth
herein is based upon the contract pool that existed on a statistical calculation
date of May 6, 1999. As of the statistical calculation date, the contracts had
an Aggregate Discounted Contract Principal Balance of $61,261,895.43, which was
calculated using a statistical discount rate 7.25%. The Aggregate Discounted
Contract Principal Balance of the actual contract pool will be calculated using
an actual discount rate of 7.480%, which is equal to the sum of the servicing
fee rate, the back-up servicing fee rate, the indenture trustee fee rate and the
class B note
S-8
<PAGE>
rate. The Aggregate Discounted Contract Principal Balance of the contracts in
the actual contract pool on the closing date is expected to be greater than the
Aggregate Discounted Contract Principal Balance of the contracts in the
statistical contract pool as set forth in this prospectus supplement. The
additional contracts will represent contracts acquired by the transferors on or
prior to the closing date.
Between the statistical calculation date and the closing date, some
amortization of the pool is expected to occur. In addition, certain contracts
included in the pool as of the statistical calculation date may be determined
not to meet the eligibility requirements for the final contract pool, and may
not be included in the final contract pool. While the statistical distribution
of the characteristics as of the closing date for the final contract pool and
calculated at the discount rate will vary somewhat from the statistical
distribution of such characteristics as of the statistical calculation date and
calculated at the statistical discount rate as presented in this prospectus
supplement, such variance is not expected to be material.
In the event that the transferors do not, as of the closing date, have
the full amount of contracts which they expected, the pre-funding account will
be increased accordingly; provided, however, that the Pre-Funded Collateral
Amount will in no event exceed 25% of the Initial Aggregate Collateral Balance.
Unless otherwise noted, all statistical percentages in this prospectus
supplement are measured by the Aggregate Discounted Contract Principal Balance
of the statistical contract pool.
The contracts generally require the periodic, scheduled payment of rent
or other payments on a monthly basis, in arrears. In connection with all
calculations required to be made pursuant to the transaction documents with
respect to the determination of Discounted Contract Principal Balances, on any
determination date the Discounted Contract Principal Balance for each contract
shall be calculated assuming:
(1) scheduled payments are due on the last day of each collection period;
(2) scheduled payments are discounted on a monthly basis using a 30-day
month and a 360-day year; and
(3) scheduled payments are discounted to the last day of the collection
period prior to the determination date.
The contracts have the characteristics specified in the Transfer
Agreements and the Servicing Agreement and described herein, and the contracts
eligible to be designated as substitute contracts or subsequent contracts will
conform to the characteristics specified in the Transfer Agreements or
subsequent Transfer Agreements, as applicable, and herein.
References herein to percentages refer in each case to the percentage
of the Aggregate Discounted Contract Principal Balance of the statistical
contract pool as of the statistical calculation date.
As of the statistical calculation date, the contracts in the
statistical contract pool had the following characteristics:
o the contracts had original terms to maturity of 16 to 84
months, with a weighted average original term to maturity of
approximately 52 months;
o the contracts had remaining terms to maturity of 12 to 83
months, with a weighted average remaining term to maturity of
approximately 46 months;
o the Discounted Contract Principal Balances of the contracts
ranged from $1,557.66 to $329,042.13;
S-9
<PAGE>
o the contracts relating to the largest obligor are equal to
0.54% of the Aggregate Discounted Contract Principal Balance
of the statistical contract pool; and
o the average Discounted Contract Principal Balance is
$22,325.76.
The Equipment Subject to the Contracts
The equipment subject to the contracts consists of equipment used in a
wide variety of businesses consistent with small-ticket equipment leasing. The
equipment and other property underlying the contracts may include, but is not
limited to, the following: equipment utilized in the offices and clinics of
dentists, medical doctors, chiropractors, optometrists, ophthalmologists,
veterinarians, and other professional service providers, restaurant equipment,
point of sale equipment, computer equipment, copier and facsimile equipment,
telecommunications equipment, automobile servicing equipment, materials handling
equipment and other general use equipment in the service sector.
Subsequent Contracts
Subject to the conditions set forth below, prior to the end of the
pre-funding period, all or a portion of the balance of funds in the pre-funding
account may be released for the purchase by the transferors of subsequent
receivables consisting of subsequent contracts and the related equipment, which
purchase will result in an increase in the principal balance of the pledged
notes.
Each subsequent contract shall satisfy certain representations and
warranties set forth in the Servicing Agreement, including the following:
o No selection process materially adverse to the interest of the
noteholders or the note insurer was used in selecting the
subsequent contracts;
o The note insurer shall have approved the acceptance by the
trust of the pledge of such subsequent contracts;
o The indenture trustee shall have released from the pre-funding
account, an amount up to 95.3% of the Aggregate Discounted
Contract Principal Balance of all subsequent contracts,
calculated as of the date of acquisition, to be pledged to the
indenture trustee, on behalf of the trust, on such acquisition
date;
o None of the subsequent contracts then being pledged shall have
a final scheduled payment date later than twelve months before
the Class A-4 Maturity Date; and
o Such pledge shall not occur after the end of the pre-funding
period.
Substitutions and Modifications
Pursuant to the Servicing Agreement, with the consent of the note
insurer, one or more substitute contracts and the related equipment may be
substituted for a contract and the related equipment that (x) becomes a
Defaulted Contract, a Prepayment or an Early Termination Contract or (y) is
required to be reacquired by the originator pursuant to the Servicing Agreement.
Each substitute contract shall be a contract which satisfies certain
representations and warranties set forth herein and in the Servicing Agreement
as of the Cut-Off Date for that substitute contract. In addition, the following
conditions must be satisfied:
o With respect to contracts substituted for Defaulted Contracts,
Prepayments or Early Termination Contracts, on a cumulative
basis from the initial Cut-Off Date, the sum of the Discounted
Contract Principal Balance of such substitute contracts, as of
the Cut-Off Date
S-10
<PAGE>
for the substitute contract, would not exceed 10% of the
Initial Aggregate Collateral Balance;
o As of the Cut-Off Date for the substitute contract, the
substitute contracts then being pledged have an Aggregate
Discounted Contract Principal Balance that is not less than
the Discounted Contract Principal Balance of the contracts
being replaced;
o As of the Cut-Off Date for the substitute contract, none of
the substitute contracts then being pledged have a final
scheduled maturity date later than 12 months before the Class
A-4 Maturity Date;
o The servicer makes a good faith determination, in accordance
with its underwriting guidelines, that the credit quality of
the substitute contract is not worse than that of the contract
being replaced; and
o No substitution shall be permitted if, as a result thereof,
(x) the sum of the scheduled payments and any Final Scheduled
Payments on all contracts, after giving effect to such
substitutions, due in any collection period thereafter would
be less than (y) the sum of the scheduled payments and any
Final Scheduled Payments which would otherwise be due in such
collection period, prior to giving effect to such
substitution.
Under the Servicing Agreement, the servicer is permitted to allow an
obligor to prepay a contract in an amount not less than the Prepayment Amount.
In addition, in the event that an obligor requests an upgrade or trade-in of
equipment, the servicer may remove such equipment and related contract from the
pool, but only upon payment of an amount equal to the Reacquisition Amount.
The servicer may waive, modify or vary any term of a contract if the
servicer, in its reasonable and prudent judgment, determines that it will not be
materially adverse to the noteholders or the note insurer. However, the servicer
will covenant in the Servicing Agreement that,
o it will not forgive any payment of rent or principal,
o unless an obligor is in default, it will not permit any
modification with respect to a contract which would defer the
payment of any scheduled payment or Final Scheduled Payment or
change the final maturity date on any contract; provided,
however, that no change in the final maturity date of any
contract shall be permitted under any circumstances if the new
maturity date for such contract is later than the maturity
date of the latest maturing contract then pledged to the
trust, and
o the servicer may accept Prepayment in part or in full;
provided, however, that,
o in the event of Prepayment in full, the servicer may
consent to such Prepayment only in an amount not less
than the Prepayment Amount, and
o in the event of a partial Prepayment, the servicer
may consent to such partial Prepayment only if (1)
following such partial Prepayment, all delinquent
scheduled payments then due under the contract have
been paid, (2) such partial Prepayment is paid along
with an amount equal to the product of (x)
one-twelfth, (y) the discount rate and (z) the
Discounted Contract Principal Balance of the contract
prior to such partial Prepayment and (3) such partial
Prepayment will not reduce the Discounted Contract
Principal Balance by more than the amount of such
partial Prepayment. In the case of a partial
Prepayment, the servicer is required to accurately
recalculate the Discounted Contract Principal Balance
of such contract, and the allocation of scheduled
payments to principal and interest.
S-11
<PAGE>
Pursuant to the Servicing Agreement, the servicer will manage,
administer, service and make collections on the contracts, in accordance with a
servicing standard which satisfies the terms of the Servicing Agreement, the
contracts, the servicer's current credit and collection policies and applicable
law and, to the extent consistent with such terms, in the same manner in which,
and with the same care, skill, prudence and diligence with which, it services
and administers leases of similar credit quality for itself or others, if any,
giving due consideration to customary and usual standards of practice of prudent
institutional small-ticket equipment finance lease servicers and, in each case,
taking into account its other obligations under the Servicing Agreement. The
servicer shall use commercially reasonable best efforts consistent with the
servicing standard and its customary servicing procedures, to repossess or
otherwise comparably convert the ownership of any equipment that it has
reasonably determined should be repossessed or otherwise converted following a
default under the contract and remarket, either through sale or re-lease, the
equipment and act as sales and processing agent for equipment which it
repossesses. The servicer shall follow such practices and procedures as are
consistent with the servicing standard and as it shall deem necessary or
advisable and as shall be customary and usual in its servicing of equipment
leases and other actions by the servicer in order to realize recoveries upon
such a contract, which may include reasonable efforts to enforce any recourse
obligations of obligors and repossessing and selling the equipment at a public
or private sale. The foregoing is subject to the provision that, in any case in
which the equipment shall have suffered damage, the servicer shall not be
required to pay for any repair or towards the repossession of such equipment
unless it shall determine in its discretion that such repair and/or repossession
will increase the proceeds and recoveries on such equipment by an amount greater
than the amount of such expenses.
The following tables set forth certain statistical information relating
to the contract pool that existed on the statistical calculation date of May 6,
1999 and are calculated using a statistical discount rate of 7.25%. Certain
columns may not total 100% due to rounding.
S-12
<PAGE>
Distribution of the Contracts by
Current Discounted Contract Principal Balance
<TABLE>
<CAPTION>
Percentage
Range of Statistical of Statistical
Discounted Contract Number of Discounted Contract Discounted Contract
Principal Balance Contracts Principal Balance Principal Balance
----------------- --------- ----------------- -----------------
Greater Less Than or
Than Equal to
------- ------------
<S> <C> <C> <C> <C>
$ 0 $ 5,000 456 $1,544,278.36 2.52%
5,000 10,000 618 4,637,086.15 7.57
10,000 15,000 454 5,563,483.82 9.08
15,000 20,000 286 4,993,356.27 8.15
20,000 25,000 207 4,598,145.64 7.51
25,000 30,000 152 4,170,521.76 6.81
30,000 35,000 114 3,682,357.58 6.01
35,000 40,000 78 2,915,998.55 4.76
40,000 45,000 66 2,804,123.47 4.58
45,000 50,000 45 2,130,144.93 3.48
50,000 55,000 35 1,831,036.97 2.99
55,000 60,000 32 1,839,836.92 3.00
60,000 65,000 36 2,247,217.43 3.67
65,000 70,000 23 1,555,900.82 2.54
70,000 75,000 13 939,081.69 1.53
75,000 80,000 14 1,084,788.91 1.77
80,000 85,000 6 493,384.25 0.81
85,000 90,000 19 1,657,366.60 2.71
90,000 95,000 9 838,422.96 1.37
95,000 100,000 9 881,185.06 1.44
100,000 105,000 1 104,063.38 0.17
105,000 110,000 8 859,824.12 1.40
110,000 115,000 10 1,123,737.33 1.83
115,000 120,000 3 351,079.80 0.57
120,000 125,000 3 366,280.41 0.60
125,000 130,000 3 388,456.94 0.63
130,000 135,000 4 526,701.40 0.86
135,000 140,000 6 820,298.11 1.34
140,000 145,000 5 714,941.27 1.17
145,000 150,000 2 294,794.09 0.48
150,000 200,000 19 3,195,911.07 5.22
200,000 250,000 3 667,860.18 1.09
250,000 300,000 4 1,111,187.06 1.81
300,000 350,000 1 329,042.13 0.54
----- -------------- ------
Total...................... 2,744 $61,261,895.43 100.00%
===== ============== ======
</TABLE>
S-13
<PAGE>
Distribution of the Contracts by
Original Equipment Cost
<TABLE>
<CAPTION>
Percentage
Statistical of Statistical
Range of Number of Discounted Contract Discounted Contract
Original Equipment Cost Contracts Principal Balance Principal Balance
----------------------- --------- ----------------- -----------------
Greater Less Than or
Than Equal to
------- ------------
<S> <C> <C> <C> <C>
$ 0 $ 5,000 393 $1,282,825.25 2.09%
5,000 10,000 645 4,632,581.23 7.56
10,000 15,000 440 5,212,303.32 8.51
15,000 20,000 274 4,593,094.77 7.50
20,000 25,000 235 4,987,952.38 8.14
25,000 30,000 139 3,556,370.68 5.81
30,000 35,000 121 3,703,803.30 6.05
35,000 40,000 86 3,037,133.94 4.96
40,000 45,000 67 2,699,452.50 4.41
45,000 50,000 58 2,581,784.21 4.21
50,000 55,000 34 1,724,679.14 2.82
55,000 60,000 38 2,042,216.71 3.33
60,000 65,000 24 1,415,865.51 2.31
65,000 70,000 27 1,754,709.20 2.86
70,000 75,000 19 1,292,830.95 2.11
75,000 80,000 15 1,096,588.54 1.79
80,000 85,000 15 1,140,470.90 1.86
85,000 90,000 6 481,062.04 0.79
90,000 95,000 19 1,629,738.51 2.66
95,000 100,000 6 534,308.84 0.87
100,000 105,000 11 1,063,037.94 1.74
105,000 110,000 4 419,627.47 0.68
110,000 115,000 7 772,090.14 1.26
115,000 120,000 4 460,788.58 0.75
120,000 125,000 1 99,348.10 0.16
125,000 130,000 9 1,151,928.80 1.88
130,000 135,000 5 635,188.34 1.04
135,000 140,000 2 264,539.08 0.43
140,000 145,000 2 272,816.76 0.45
145,000 150,000 4 549,367.19 0.90
150,000 200,000 25 3,891,110.10 6.35
200,000 250,000 4 842,051.82 1.37
250,000 300,000 5 1,440,229.19 2.35
----- -------------- ------
Total...................... 2,744 $61,261,895.43 100.00%
===== ============== ======
</TABLE>
S-14
<PAGE>
Distribution of the Contracts by
Top 10 Industries
<TABLE>
<CAPTION>
Percentage
Statistical of Statistical
Number of Discounted Contract Discounted Contract
Industry Contracts Principal Balance Principal Balance
-------- --------- ----------------- -----------------
<S> <C> <C> <C>
Automotive dealers & service stations 165 $2,503,922.12 4.09%
Auto repair, services, and parking 146 1,959,659.68 3.20
Business services 149 3,118,341.50 5.09
Engineering & management services 109 2,337,037.44 3.81
Health services 483 15,112,908.93 24.67
Industrial machinery and equipment 31 1,677,508.44 2.74
Legal services 346 7,482,096.76 12.21
Personal services 111 3,495,132.87 5.71
Printing and publishing 140 5,583,595.80 9.11
Services, n.e.c. 181 2,334,418.46 3.81
Other 883 15,657,273.43 25.56
----- -------------- ------
Total........................ 2,744 $61,261,895.43 100.00%
===== ============== ======
</TABLE>
S-15
<PAGE>
Distribution of the Contracts by
Equipment Type
<TABLE>
<CAPTION>
Percentage
Statistical of Statistical
Number of Discounted Contract Discounted Contract
Equipment Type Contracts Principal Balance Principal Balance
-------------- --------- ----------------- -----------------
<S> <C> <C> <C>
100% Software 135 $2,367,714.00 3.86%
Alarm/Security Systems 84 1,383,089.63 2.26
Automotive Repair Equipment 194 2,956,600.44 4.83
Cash Dispensing 133 1,275,527.95 2.08
Cash Registers 20 265,867.09 0.43
Cleaning/Janitorial Equipment 89 2,426,111.02 3.96
Communications Equipment 131 1,958,569.60 3.20
Construction Equipment 11 198,606.45 0.32
Copiers 28 311,261.97 0.51
Dental equipment 60 1,063,930.86 1.74
Display Booth 7 134,172.20 0.22
Dry Cleaning 25 1,062,154.95 1.73
Fixtures 8 262,604.10 0.43
Furniture 49 898,597.93 1.47
General Computers 697 13,719,609.75 22.40
HVAC 2 6,165.81 0.01
Industrial Equipment 291 8,478,319.21 13.84
Medical Equipment 386 13,245,553.34 21.62
Mini Computers 2 24,962.10 0.04
Office Automation Equipment 109 2,114,896.55 3.45
Photo/Printing Equipment 131 5,233,545.88 8.54
Restaurant Equipment 42 296,260.16 0.48
Server Computer 4 64,002.61 0.10
Sound Systems 3 22,902.36 0.04
Vending Equipment 99 1,404,650.24 2.29
Workstation Computers 3 77,866.59 0.13
Other 1 8,352.64 0.01
----- -------------- ------
Total........................ 2,744 $61,261,895.43 100.00%
===== ============== ======
</TABLE>
S-16
<PAGE>
Distribution of the Contracts by
Obligor Billing Address
<TABLE>
<CAPTION>
Percentage
Statistical of Statistical
Number of Discounted Contract Discounted Contract
State Contracts Principal Balance Principal Balance
----- --------- ----------------- -----------------
<S> <C> <C> <C>
Alabama 24 $547,542.97 0.89%
Alaska 4 87,455.53 0.14
Arizona 54 1,040,474.80 1.70
Arkansas 22 315,391.64 0.51
California 483 13,494,558.73 22.03
Colorado 38 955,410.07 1.56
Connecticut 44 1,286,088.40 2.10
Delaware 3 30,476.03 0.05
District of Columbia 14 408,410.92 0.67
Florida 366 6,626,406.75 10.82
Georgia 86 1,932,532.42 3.15
Hawaii 9 253,225.59 0.41
Idaho 9 154,286.46 0.25
Illinois 139 3,631,976.52 5.93
Indiana 23 407,728.19 0.67
Iowa 18 366,651.36 0.60
Kansas 11 212,376.98 0.35
Kentucky 11 195,801.20 0.32
Louisiana 17 286,639.66 0.47
Maine 15 166,168.25 0.27
Maryland 33 462,020.21 0.75
Massachusetts 87 1,741,920.55 2.84
Michigan 40 924,535.70 1.51
Minnesota 19 530,532.11 0.87
Mississippi 14 254,319.75 0.42
Missouri 25 599,838.29 0.98
Montana 4 25,275.31 0.04
Nebraska 16 362,888.99 0.59
Nevada 18 567,177.67 0.93
New Hampshire 18 363,435.29 0.59
New Jersey 148 3,018,281.87 4.93
New Mexico 5 82,135.62 0.13
New York 181 4,175,993.97 6.82
North Carolina 57 1,363,039.86 2.22
Ohio 51 1,702,304.90 2.78
Oklahoma 12 166,823.96 0.27
Oregon 30 1,033,048.50 1.69
Pennsylvania 177 2,999,262.96 4.90
Rhode Island 19 284,030.81 0.46
South Carolina 20 399,034.40 0.65
Tennessee 24 446,100.26 0.73
Texas 192 3,966,724.37 6.48
Utah 24 406,196.63 0.66
Vermont 2 21,761.05 0.04
Virginia 62 1,344,006.49 2.19
Washington 34 828,459.96 1.35
West Virginia 12 143,296.42 0.23
Wisconsin 27 631,204.66 1.03
Wyoming 3 18,642.40 0.03
----- -------------- ------
Total...................... 2,744 $61,261,895.43 100.00%
===== ============== ======
</TABLE>
S-17
<PAGE>
Distribution of the Contracts by
Remaining Term to Maturity
<TABLE>
<CAPTION>
Percentage
Range of Statistical of Statistical
Remaining Term Number Discounted Contract Discounted Contract
(in Months) of Contracts Principal Balance Principal Balance
----------- ------------ ----------------- -----------------
Greater Less Than or
Than Equal to
------- ------------
<S> <C> <C> <C> <C>
1 12 9 $151,626.85 0.25%
12 24 260 2,938,127.61 4.80
24 36 1,042 15,873,530.34 25.91
36 48 284 5,464,891.31 8.92
48 60 1,114 33,757,591.40 55.10
60 72 15 1,049,903.57 1.71
72 84 20 2,026,224.35 3.31
----- -------------- ------
Total.................... 2,744 $61,261,895.43 100.00%
===== ============== ======
</TABLE>
Distribution of the Contracts
by Original Term to Maturity
<TABLE>
<CAPTION>
Percentage
Range of Statistical of Statistical
Original Term Number Discounted Contract Discounted Contract
(in Months) of Contracts Principal Balance Principal Balance
----------- ------------ ----------------- -----------------
Greater Less Than or
Than Equal to
------- ------------
<S> <C> <C> <C> <C>
12 24 218 $2,321,696.47 3.79%
24 36 1,068 16,089,988.28 26.26
36 48 266 4,897,209.75 7.99
48 60 1,098 31,176,149.49 50.89
60 72 73 4,665,524.88 7.62
72 84 21 2,111,326.56 3.45
----- -------------- ------
Total.................... 2,744 $61,261,895.43 100.00%
===== ============== ======
</TABLE>
S-18
<PAGE>
Distribution of the Contracts
by Age of Contract
<TABLE>
<CAPTION>
Percentage
Statistical of Statistical
Range of Number Discounted Contract Discounted Contract
Age of Contract of Contracts Principal Balance Principal Balance
--------------- ------------ ----------------- -----------------
Greater Less Than or
Than Equal to
------- ------------
<S> <C> <C> <C> <C>
0 2 $52,537.69 0.09%
0 12 2,710 60,455,643.80 98.68
12 24 28 515,175.30 0.84
24 36 3 230,186.00 0.38
48 60 1 8,352.64 0.01
----- -------------- ------
Total.................... 2,744 $61,261,895.43 100.00%
===== ============== ======
</TABLE>
The Originator and the Servicer
American Business Leasing, Inc., a Pennsylvania corporation, the
servicer and the originator, is a wholly-owned subsidiary of American Business
Credit, Inc., a Pennsylvania corporation. American Business Credit is a
wholly-owned direct subsidiary of American Business Financial Services, Inc., a
Delaware corporation.
American Business Financial Services is a financial services company
operating primarily in the eastern region of the United States. American
Business Financial Services, through American Business Leasing, originates
small-ticket ticket leases -- generally $5,000 to $250,000 -- and, to a lesser
extent, middle market leases --generally $250,000 to $1,000,000 -- for the
acquisition of business equipment. American Business Financial Services, through
American Business Credit, originates, sells and services loans to businesses
secured by real estate and other business assets, and through two wholly-owned
subsidiaries, originates, sells and services non-conforming mortgage loans,
typically to credit impaired borrowers, secured by mortgages on single-family
residences.
American Business Financial Services is a publicly traded company and
its common stock is listed on the Nasdaq National Market System under the symbol
"ABFI". The principal executive offices of American Business Financial Services
and its operating entities are located at Balapointe Office Centre, 111
Presidential Boulevard, Suite 127, Bala Cynwyd, Pennsylvania 19004. Its
telephone number at such address is (610) 668-2440.
The Originator
American Business Leasing currently originates leases in 49 states, the
District of Columbia and the Commonwealth of Puerto Rico and has 5 offices
nationwide.
Marketing Approach
American Business Leasing's goal is to provide superior service to
vendor and end-user customers in select equipment leasing markets in which
American Business Leasing can become a strategic player. American Business
Leasing focuses on serving select niches of the small ticket market to which it
brings
S-19
<PAGE>
added value through its industry knowledge, experience and personalized
service capabilities. American Business Leasing's major target markets are
medical, legal, hard assets and high technology, primarily computers and
software. American Business Leasing uses both a vertical markets approach, with
a dedicated sales team and support staff specializing in the particular market,
and a regional marketing approach. In addition to these marketing approaches,
American Business Leasing has personnel dedicated to association/affinity
marketing for various trade and professional organizations and building bank
alliance relationships. The bank alliance program allows a bank to use American
Business Leasing as its referral agent for its leasing services.
American Business Leasing also has an active broker/wholesale program.
Through the broker/wholesale program, American Business Leasing will purchase
leases originated by third parties that meet its underwriting guidelines.
American Business Leasing reviews each broker and makes the credit decision on
each lease that is submitted prior to purchase.
American Business Leasing offers four types of purchase options:
o a fair market value option;
o a stated purchase option allowing the customer to purchase the
equipment at an agreed upon price;
o a put option that contractually obligates the lessee to
purchase the equipment, and
o a $1 purchase option.
Credit Approval
American Business Leasing is focused on meeting the needs of individual
lessees by providing personalized customer service, creative sales support and
responsive credit policies. American Business Leasing's goal is to turn around a
credit decision within twenty four hours of receipt. For transactions less than
$15,000, the credit analyst uses information from the principal business
owner(s)' credit bureau report, as well as a Dun & Bradstreet report for the
business. On leases up to $25,000, the credit analyst will base decisions on the
following information: personal credit history, Dun & Bradstreet scores, time in
business, commercial bank references, trade reference and acceptable equipment
types. On applications greater than $25,000 but less than $50,000, the credit
investigation will become more extensive. Generally, personal credit history,
Dun & Bradstreet scores, time in business and commercial bank references must be
stronger and more plentiful than those for under $25,000. On applications
greater than $50,000, American Business Leasing will generally look for
financial statements and/or personal tax returns and a minimum time in business
of at least five years. No matter what size a transaction, the credit analyst
has discretion to require further credit investigation and supporting
information.
While American Business Leasing uses standard credit policies and
procedures for all of its transactions, it will modify certain criteria for each
of the specific niches and special situations that may arise. American Business
Leasing has adopted specific policies and procedures for its target markets,
including medical, legal and hard assets.
American Business Leasing also qualifies vendors that source business
to American Business Leasing. Generally, the vendors will need to have at least
three years in business, no derogatory findings on the credit report, and
satisfactory trade and manufacturer references. All credit analysts have the
authority to approve or reject vendors based upon the vendor's experience with
American Business Leasing and the strength of vendor credit criteria. Vendor
performance will be reviewed on an annual basis, upon reaching an initial booked
volume of $250,000 and at the discretion of the credit analyst. The analyst will
reverify all
S-20
<PAGE>
references that are over six months old, pull a new Dun & Bradstreet report and
review various performance measures, including approval percentage, delinquency
and charge off rates and deals booked per application.
American Business Leasing also qualifies brokers that it does business
with to insure the integrity, financial stability and overall credit quality of
the brokers originating business for American Business Leasing. Brokers must
complete a full application, have satisfactory personal credit, a minimum of two
years in business, satisfactory funding sources and clean Dun & Bradstreet
reports. Brokers are reviewed on an annual basis, upon reaching an initial
booked volume of $250,000 and at the discretion of the credit analyst.
The Servicer
American Business Leasing will act as servicer. The purpose of all
collection efforts is to bring a delinquent lease current in as short a time as
possible. American Business Leasing uses state of the art servicing systems that
allow for all contact and collection efforts to be highly automated. American
Business Leasing communicates with all lessees at least once a month. The
initial monthly contact is through the mailing of the lessee's monthly lease
payment invoice. A summary of the collector contact follows, although individual
lessees may be handled differently on a case-by-case basis:
Days Past Due Action
------------- ------
6 Collection call, late charge assessed;
15 Collection call, a system generated letter is sent;
30 Collection call, another invoice is sent demanding
payment in full, a 30-day delinquent letter is
sent;
35+ Collection call plus a demand letter is sent;
45+ Collection call, 45 day collection letter and a
review with the Senior Vice President of the
Collection Department and Senior Vice President of
Credit;
50 Collection call and pre-refer letter sent;
60+ Collection call, 60 day legal department letter,
referral to legal department, consult with legal
department re: default status, determine remedies,
estimate recovery and estimate maximum cost of
recovery;
120 Charge-off leases under $5,000;
180 Charge-off all leases greater than or equal to
$5,000.
Delinquency and Credit Loss Experience
The following tables set forth information relating to the delinquency
and credit loss experience on the contracts included in American Business
Leasing's servicing portfolio for the periods shown. The delinquency and credit
loss experience represents the historical experience of American Business
Leasing through the statistical calculation date. There can be no assurance that
the future experience on the contracts in the trust will be the same as, or more
favorable than, that of the total contracts in American Business Leasing's
servicing portfolio.
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Delinquency Experience and Credit Loss Experience
(Dollars in Thousands)
<TABLE>
<CAPTION>
As of As of As of
June 30, 1997 June 30, 1998 March 31, 1999
------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Portfolio............. $9,461 100.00% $108,463 100.00% $162,871 100.00%
Past due leases:
60-89 days.......... $ 0 0.00% $ 320 0.30% $ 370 0.23%
90 days or more..... $ 86 0.91% $ 1,478 1.36% $ 1,867 1.95%
Total past due........ $ 86 0.91% $ 1,798 1.66% $ 2,137 1.38%
Total net
credit losses....... $ 64 0.68% $ 529 0.49% $ 680 0.42%
</TABLE>
The preceding table was completed assuming that all amounts are based
on a net investment basis and that total net credit losses includes charge-offs,
net of recoveries, and write-downs and/or write-offs of residual assets for
credit reasons.
Formation of the Trust
The trust, ABFS Equipment Contract Trust 1999-A, is a statutory
business trust formed in accordance with the laws of the State of Delaware,
pursuant to the Trust 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, holding and pledging
the property pledged to secure the notes, issuing the notes and distributing
payments on the notes. As described under "Description of the Notes -- Flow of
Funds," a portion of the monthly collections with respect to the contracts will
be paid to the servicer as servicing compensation and to the note insurer, the
back-up servicer, and the indenture trustee, as fees. All other expenses of the
trust will be paid as provided in the Trust Agreement.
Because the trust has no operating history and will not engage in any
business other than activities incidental to the holding and pledging of the
property pledged to secure the notes and the issuance of the notes, no
historical or pro forma financial statements or ratios of earnings to fixed
charges with respect to the trust are provided in this prospectus supplement,
other than the balance sheet of the trust at June 25, 1999 included as Exhibit A
hereto.
The Owner Trustee
First Union Trust Company, National Association is the owner trustee
under the Trust Agreement. First Union Trust Company, National Association, is a
national banking association, the corporate trust offices of which are located
at One Rodney Square, 920 King Street, Suite 102, Wilmington, Delaware 19801.
The owner trustee's duties in connection with the trust are limited solely to
its express obligations under the Trust Agreement.
Description of the Notes
The notes will be issued pursuant to the Indenture to be entered into
by the servicer, the trust, the back-up servicer and the indenture trustee. The
servicer will provide a copy of the Indenture to subsequent noteholders without
charge on written request addressed to it at Balapointe Office Centre, 111
Presidential Boulevard, Suite 127, Bala Cynwyd, Pennsylvania 19004.
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The following summary describes certain terms of the Transfer
Agreements, the Servicing Agreement and the Indenture, does not purport to be
complete, and is subject to and qualified in its entirety by reference to the
Transfer Agreements and the Indenture. Wherever provisions of the Transfer
Agreements and the Indenture are referred to, such provisions are hereby
incorporated herein by reference.
The Offered Notes
The obligations evidenced by the offered notes are recourse to the
assets of the trust only and are not recourse to the originator, the servicer,
the owner trustee, the indenture trustee, or any other person.
The trust will agree in the Indenture and in the respective offered
notes to pay, in each case, at the times, from the sources and on the terms and
conditions set forth in the Indenture and in the respective offered notes,
o to the holders of each class A notes (a) an amount of
principal equal to the initial note principal balance of their
class and (b) Class A Note Interest for their class, and
o to the class B noteholders (a) an amount of principal equal to
the initial class B note principal balance and (b) Class B
Note Interest.
The indenture trustee is required to make payments on the offered notes
on each payment date.
In the aggregate, the class A notes and the class B notes to be issued
hereunder will equal the sum of (x) approximately 95.3% of the initial Aggregate
Discounted Contract Principal Balance of the contracts as of the initial Cut-Off
Date and (y) 100% of the initial amount on deposit in the pre-funding account.
Each class of offered notes will initially be issued in book-entry form only
through DTC in minimum denominations of $100,000 and $1,000 increments above
$100,000 up to the initial note principal balance of each class.
The Class A Insured Distribution Amount due to the class A noteholders
on each payment date is insured by the note insurer pursuant to the note
insurance policy. See "The Note Insurance Policy" and "The Note Insurer" herein.
The Security for the Notes
The notes will be secured by:
o the pledged notes, which in turn are secured by the contract
pool and recoveries on account of the equipment securing the
contracts;
o any guaranties of an obligor's obligations under a contract,
including any guaranties of third-party originators;
o with respect to any contract, an original, executed
counterpart of the contract, any UCC financing statement filed
in accordance with the originator's policies and procedures,
as described below, and other original documents related to
the contract, the application of the related obligor,
documentation evidencing the information with respect to such
contract input into the computerized electronic contract
management system maintained by the servicer for all contracts
and other agreements similar to the contracts, and any other
information required by the servicer pursuant to its customary
policies and procedures;
o the insurance policies maintained by the obligors with respect
to the equipment and the proceeds of such insurance policies;
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o any rights against the originator including the right to
instruct the originator to exercise any unassignable rights of
enforcement under the contracts and any guaranties thereof;
o funds from time to time deposited in the collection account;
and
o and any and all income and proceeds of the foregoing.
The transferors will warrant that the pledge by the transferors of the
receivables is a grant to the trust of a first priority perfected security
interest in the receivables, except for certain liens which have priority over
previously perfected security interests by operation of law, and, with certain
exceptions, in the proceeds thereof. The servicer will be required to take such
action as is required to perfect the trust's interest in the receivables except
as discussed below with respect to the equipment. If the originator, the
transferors, the servicer, the collateral agent or the indenture trustee, while
in possession of an item of receivables, sells or pledges and delivers such
receivables to another party, in violation of the Transfer Agreements, the
Indenture and the Servicing Agreement, there is a risk that the purchaser could
acquire an interest in such receivables having priority over the trust's
interest.
The originator, the transferors and the trust will file financing
statements in accordance with the UCC evidencing the pledge of the trust assets
to the indenture trustee as follows:
o with respect to each contract relating to equipment with an
original cost of $25,000 or more, a UCC-1 financing statement
against the equipment, naming the obligor as debtor and either
(x) the originator as secured party or (y) the third-party
originator, as secured party, in which case the originator has
an assignment of such security interest;
o a UCC-1 financing statement with respect to the assignment of
all contracts and the related security interest in the
equipment to the transferors pursuant to the Receivables Sale
Agreement;
o a UCC-1 financing statement with respect to the assignment of
the pledge of all contracts and the related security interest
in the equipment to the indenture trustee, on behalf of the
trust, pursuant to the Receivables Pledge Agreement;
o UCC-1 financing statements in a majority of the 50 states
against the equipment, (x) naming the originator as debtor,
ABFS Residual, as secured party, and the indenture trustee, as
assignee, and (y) naming ABFS Residual, as debtor, and the
indenture trustee, as secured party; and
o a UCC-1 financing statement with respect to the assignment of
the pledge of all contracts and the related security interest
in the equipment by the trust to the indenture trustee, on
behalf of the noteholders and the note insurer.
Except as described in the immediately preceding paragraph, because of
the administrative burden and expense that would be entailed in so doing, none
of the originator, the transferors, or the servicer has filed or will be
required to file UCC financing statements against the obligor, identifying the
equipment being leased which had an original cost of less than $25,000 as
collateral pledged to the indenture trustee, on behalf of the trust. In the
absence of such filings, any security interest in the related equipment will not
be perfected in favor of the indenture trustee and the indenture trustee shall
have no liability with respect to such lack of perfection. Upon request of the
note insurer, the servicer will be required to make such filings with respect to
Defaulted Contracts.
Conveyance of Receivables
The contracts have been originated or purchased by the originator or
its affiliates. On the closing date, the originator will transfer the initial
receivables pursuant to the Receivables Sale Agreement to two
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<PAGE>
transferors which are both special-purpose finance subsidiaries created by the
originator. The transferors will, at the direction of the depositor, pledge
interests in such receivables to the indenture trustee, on behalf of the trust,
to secure the pledged notes issued pursuant to the Receivables Pledge Agreement.
Pursuant to the Indenture, the trust will further pledge and assign such
property to the indenture trustee, for the benefit of the noteholders and the
note insurer.
The Indenture provides that the transferors may, but shall not be
obligated to, designate from time to time prior to the end of the pre-funding
period, subsequent receivables to be included as part of the assets securing the
pledged notes. The pre-funding period is the period beginning on the closing
date and ending on the earliest of,
o the date on which an Event of Default or a Restricting Event
occurs,
o the close of business on September 30, 1999, and
o the date on which the amount on deposit in the pre-funding
account falls below $100,000.
The originator, in its capacity as such, will make certain
representations and warranties with respect to, among other things, the
contracts and the underlying equipment, which representations and warranties
will be collaterally assigned to the indenture trustee under the transaction
documents.
The collateral agent, on behalf of the indenture trustee, will have
possession of the contracts and the contract files, and the servicer will retain
copies of any other documents which relate to the receivables, any related
evidence of insurance and payment, any delinquency and any related reports as
maintained by the servicer in the ordinary course of business with respect to
each receivable. Prior to the transfer of the receivables to the transferors,
the originator will cause its electronic ledger to be marked to show that such
receivables have been transferred to the transferors and then pledged to the
trust, and the transferors will file UCC financing statements in favor of the
Indenture Trustee reflecting the pledge of the receivables in certain
jurisdictions, as required by the Transfer Agreements and the Servicing
Agreement.
Representations and Warranties of the Originator
The originator will make certain warranties in the Servicing Agreement
with respect to the contracts, the benefits of which will be assigned to the
indenture trustee. These warranties relate to the quality and characteristics of
the contracts and the equipment.
Under the terms of the Servicing Agreement, following its discovery or
receipt of notice of a breach of a warranty that materially adversely affects
any receivable, which breach has not been cured or waived in all material
respects, the originator will be obligated to reacquire any such receivable and
deposit the Reacquisition Amount in the collection account on or before the
earlier of (x) two weeks after discovery or receipt of notice of such breach or
(y) the end of the calendar month.
Indemnification
The Servicing Agreement will provide that the originator will defend
and indemnify the trust, the indenture trustee, the owner trustee, the note
insurer and the noteholders against any and all losses, claims, damages and
liabilities to the extent, but only to the extent, that the same have been
suffered by any such party by virtue of (x) a breach by the originator of its
obligations -- other than breach of the originator's representations and
warranties, with respect to which the sole remedy is expressly limited to the
originator's reacquisition of the affected receivables and the remittance of the
Reacquisition Amount by the originator as discussed above -- under the Servicing
Agreement or (y) in the case of (a) the indenture trustee, its performance of
its duties, except to the extent that such loss, claim, damage or liability
resulted from the indenture trustee's breach of the terms of the Indenture,
negligence or willful misconduct or (b) the owner
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<PAGE>
trustee, its performance of its duties, except to the extent that such loss,
claim, damage or liability resulted from the owner trustee's breach of the terms
of the Trust Agreement, gross negligence or willful misconduct.
The Servicing Agreement will provide that the servicer will defend and
indemnify the trust, the owner trustee, the note insurer and the noteholders
against any and all costs, expenses, losses, damages, claims and liabilities,
arising out of or resulting from the use, repossession or operation by the
servicer or any affiliate thereof of any equipment, as well as from the failure
of the servicer to perform its duties under the Servicing Agreement. The
servicer's obligations to indemnify the trust, the note insurer, and the
noteholders for acts or omissions of the servicer will survive the removal of
the servicer but will not apply to any acts or omissions of a successor
servicer. Such indemnification does not extend to indirect, incidental, special
or consequential damages.
Servicer Advances
In the event that any obligor fails to remit the full scheduled payment
or Final Scheduled Payment due from it with respect to a collection period by
the determination date related to such collection period, the servicer is
required to make a servicer advance from its own funds of an amount equal to
such unpaid portion of a scheduled payment or Final Scheduled Payment if the
servicer, in its sole discretion, determines that eventual recovery of such
servicer advance is likely from collections from or on behalf of the related
obligor. The Servicing Agreement provides for the reimbursement of the servicer
for such servicer advances from funds available for distribution in the
collection account on each subsequent payment date before the required payments
to noteholders have been made as set forth below in "Flow of Funds". If a
contract becomes a Delinquent Contract, and the servicer determines that
recovery of further servicer advances is unlikely, the servicer will not be
required to make such servicer advance or portion thereof, but will be required
to enforce its remedies, including acceleration, under such contract.
Furthermore, if at any time the originator or an affiliate is no longer the
servicer, servicer advances will be permitted but will not be required. The
Servicing Agreement shall provide that, in the event that the servicer
determines that any servicer advances previously made are not recoverable from
the related obligor, or any Delinquent Contracts for which the servicer has made
a servicer advance in respect thereof become Defaulted Contracts, the indenture
trustee shall draw on the collection account to repay such servicer advances as
set below in "Flow of Funds".
Flow of Funds
On each determination date, the servicer is required to deliver to the
indenture trustee, the note insurer and each rating agency a servicer's
certificate setting forth the information needed to make payments on the
upcoming payment date.
On each payment date, the indenture trustee will be required to apply
the Available Funds then on deposit in the collection account to make the
following payments in the following order of priority, to the extent funds are
available therefor:
(1) to the servicer, an amount equal to any unreimbursed servicer
advances, to the extent not previously reimbursed -- other
than servicer advances to be made on such payment date for the
related collection period;
(2) to the servicer, an amount equal to the servicer fee then due,
together with any accrued and unpaid servicer fees from prior
collection periods;
(3) to the servicer, the servicing charges, if any, deposited in
the collection account;
(4) to the back-up servicer, an amount equal to the back-up
servicer fee then due, together with any accrued and unpaid
back-up servicer fees from prior collection periods;
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<PAGE>
(5) to the note insurer, an amount equal to the Premium Amount
then due, together with any accrued and unpaid Premium Amounts
from prior collection periods;
(6) to the indenture trustee, the indenture trustee fees then due,
together with any indenture trustee fees from prior collection
periods;
(7) to the indenture trustee, the Indenture Trustee Expenses then
due, together with any Indenture Trustee Expenses from prior
collection periods, in an amount not to exceed in the
aggregate $30,000 over the life of the transaction;
(8) to the class A noteholders, the sum of the Class A Note
Interest for each class of class A notes for that payment
date, such amount being applied to each such class pari passu
based on the Class A Note Interest due on each such class;
(9) as long as no Cumulative Loss Event has occurred, to the class
B noteholders, the Class B Note Priority Interest for the
related collection period -- to the extent the disbursement of
the Class B Note Priority Interest will not result in or cause
(a) an Available Funds Shortfall or (b) any unpaid
Reimbursement Amount on the payment date;
(10) until the note principal balance of each class of class A
notes has been reduced to zero, to the class A noteholders,
the sum of (a) the Class A Base Principal Distribution Amount
for such payment date, and (b) any Class A Overdue Principal,
such amount to be applied sequentially, with 100% of the
amount being applied to reduce the note principal balance of
the outstanding class of class A notes having the lowest
numerical designation -- i.e., the class A-1 notes -- to zero
before applying any principal payment to the next class;
(11) to the note insurer, the unpaid Reimbursement Amount, if any;
(12) if a Cumulative Loss Event has occurred, to the class B
noteholders, the Class B Note Priority Interest for the
related collection period;
(13) to the class B noteholders, the Class B Note Junior Interest
for the related collection period;
(14) until the class B note principal balance has been reduced to
zero, to the class B noteholders, the sum of (a) the Class B
Base Principal Distribution Amount for such payment date, and
(b) any Class B Overdue Principal, allocated, first, to the
Class B Collateralized Balance, and, second, to the Class B
Uncollateralized Balance; provided, however, that if a
Restricting Event exists on such payment date and the
outstanding class A note principal balance on such payment
date -- after giving effect to all payments of principal to
the class A noteholders made on such payment date pursuant to
clause 10 -- exceeds zero, the amount otherwise required to be
paid to the class B noteholders under this clause 14, shall
instead be paid to the class A noteholders pursuant to this
clause 14 during such time as a Restricting Event is
continuing as an additional reduction of the class A note
principal balance up to the amount necessary to reduce the
class A note principal balance to zero, such amount being paid
in the sequential-pay fashion described in clause 10 above;
(15) to the indenture trustee, the Indenture Trustee Expenses then
due, together with any Indenture Trustee Expenses from prior
collection periods, in excess of the $30,000 limitation set
forth in clause 7, in an amount not to exceed in the aggregate
$45,000 over the life of the transaction;
(16) to the servicer, any other amounts due the servicer as
expressly provided in the Servicing Agreement; and
(17) to the residual interest holders, any remaining Available
Funds; provided, however, that
(A) if a Restricting Event does not exist on such payment
date, but if any payment of funds to the residual
interest holders on such payment date would result in
the
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Residual Balance being less than 4% of the
Initial Aggregate Collateral Balance, such amount
shall not be paid to the residual interest holders
but shall instead be paid to the most senior class of
notes outstanding, and, in the case of the class A
notes, such amount being paid in the sequential-pay
fashion described in clause 10 above, and
(B) if a Restricting Event exists on such payment date,
the amount otherwise required to be paid to the
residual interest holders under this clause 17 shall
instead be paid to the most senior class of notes
outstanding, and, in the case of the class A notes,
such amount being paid in the sequential-pay fashion
described in clause 10 above.
Withholding
The indenture trustee is required to comply with all applicable federal
income tax withholding requirements respecting payments to noteholders of
interest with respect to the offered notes. The consent of the noteholders is
not required for such withholding. In the event the noteholder is other than
DTC, then in the event that the indenture trustee does withhold or causes to be
withheld any amount from interest payments or advances thereof to any
noteholders pursuant to federal income tax withholding requirements, the
indenture trustee shall indicate the amount withheld annually to such
noteholders.
Reports to Noteholders
On each payment date, the indenture trustee will furnish or cause to be
furnished with each payment to noteholders, a statement prepared by the servicer
setting forth the following information:
(1) With respect to a statement to a class A noteholder or a class
B noteholder, the amount of such payment allocable to the
payment of the Class A Base Principal Distribution Amount or
Class B Base Principal Distribution Amount and Class A Overdue
Principal or Class B Overdue Principal, as applicable;
(2) With respect to a statement to a class A noteholder or a class
B noteholder, the amount of such payment allocable to Class A
Note Current Interest or Class B Note Current Interest and
Class A Overdue Interest or Class B Overdue Interest, as
applicable, for such noteholder's class;
(3) The aggregate amount of fees and compensation received by the
servicer pursuant to the Servicing Agreement for the
collection period;
(4) The outstanding aggregate principal balance of each class of
notes and the ratio of the outstanding aggregate principal
balance of each class of notes to the initial aggregate
principal balance of that class, after taking into account all
distributions made on such payment date;
(5) the Aggregate Discounted Contract Principal Balance and the
ratio of the Aggregate Discounted Contract Principal Balance
to the Initial Aggregate Collateral Balance, after taking into
account all distributions made on such payment date;
(6) The total unreimbursed servicer advances with respect to the
related collection period;
(7) The amount of Defaulted Contract Recoveries for the related
collection period and the Aggregate Discounted Contract
Principal Balances for all contracts that became Defaulted
Contracts during the related collection period, calculated
immediately prior to the time such contracts became Defaulted
Contracts;
(8) The total number of contracts and the Aggregate Discounted
Contract Principal Balances thereof, together with the number
and Aggregate Discounted Contract Principal Balances of
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all contracts as to which the obligors were one, two, three or
four Scheduled Payments delinquent, and Delinquent Contracts
reconveyed; and
(9) During the pre-funding period only, the amount on deposit in
the pre-funding account and the capitalized interest account
after giving effect to the withdrawals from the such accounts
on such payment date.
In addition, by January 31 of each calendar year following any year
during which the notes are outstanding, commencing January 31, 2000, the
indenture trustee will furnish to each noteholder of record at any time during
such preceding calendar year, information as to the aggregate of amounts
reported pursuant to items (1) and (2) above for such calendar year to enable
noteholders to prepare their federal income tax returns.
Optional Redemption
The Indenture provides that, following the determination date on which
the aggregate outstanding note principal balance of the notes is less than 10%
of the aggregate initial note principal balance of the notes, the servicer will
have the option to cause the early retirement of the notes. In the event of such
a redemption, the entire outstanding class A note principal balance and class B
note principal balance, together with accrued interest thereon at the related
note rate, will be required to be paid to the class A noteholders and the class
B noteholders, respectively, on such payment date, and all amounts owed to the
note insurer will be required to be paid to the note insurer, on such payment
date.
Servicing
The servicer, as an independent contractor on behalf of the trust and
for the benefit of the noteholders and the note insurer, as their interests may
appear, will be responsible for managing, servicing and administering the
receivables and enforcing and making collections on the contracts and any
insurance policies and for the enforcing of any security interest in any item of
equipment, all as set forth in the Servicing Agreement. The servicer's
responsibilities will include collecting and posting of all payments, responding
to inquiries of obligors, investigating delinquencies, accounting for
collections, furnishing monthly and annual statements to the indenture trustee
and the note insurer with respect to distributions, making servicer advances,
providing appropriate federal income tax information to noteholders, collecting
and remitting sales and property taxes on behalf of taxing authorities and
maintaining the perfected security interest of the trust in the equipment and
the contracts.
The servicer has agreed to manage, administer and service the
receivables and to enforce and make collections on the receivables and any
insurance policies, exercising the degree of skill and care consistent with that
which the servicer customarily exercises with respect to similar property owned,
managed or serviced by it.
For its servicing of the contracts, the servicer will receive servicing
compensation including the monthly servicer fee for each collection period,
which is payable on the next succeeding payment date, and servicing charges
consisting of certain fees paid by obligors, including late payment fees.
The servicing compensation will compensate the servicer for customary
contract servicing activities to be performed by the servicer for the trust,
additional administrative services performed by the servicer on behalf of the
trust and expenses paid by the servicer on behalf of the trust.
The Servicer Not to Resign
The Servicing Agreement will provide that the servicer may not resign
from its obligations and duties as servicer thereunder, except upon consent of
the note insurer or a determination that the servicer's performance of such
duties is no longer permissible under applicable law.
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Events of Servicing Termination
An "Event of Servicing Termination" under the Servicing Agreement
includes the following:
(1) a change of "control" of the servicer -- "control" having the
meaning ascribed to it in the Rules and Regulations under the
Securities Exchange Act of 1934, as amended -- unless the note
insurer has determined that such change in control does not
have a material adverse effect on the interests of the note
insurer;
(2) if the servicer fails to make (x) any servicer advance within
two business days of the related determination date, or (y)
any other payment or deposit required under the Servicing
Agreement within three business days of the date such payment
or deposit is required to be made, but not more than once in
any collection period;
(3) if the servicer fails to submit a servicer's certificate
within two business days following knowledge or notice of
non-receipt;
(4) (x) if the servicer fails to observe or perform in any
material respect any other covenant or agreement in the
Servicing Agreement or the notes or (y) if any representation
or warranty of the servicer in the Servicing Agreement is
incorrect, and such failure or breach materially and adversely
affects the rights of the indenture trustee, the note insurer
or the noteholders and continues unremedied for 30 days after
the earlier to occur of (A) written notice to the servicer by
the indenture trustee or to the indenture trustee or the
servicer by any noteholder or the note insurer or (B) the date
on which any servicing officer or authorized officer of the
indenture trustee knows, or reasonably should have known, of
such failure or of such breach;
(5) upon the filing of an involuntary petition in bankruptcy or
the decree or order of a court, agency or supervisory
authority having jurisdiction over the servicer for the
appointment of a conservator, receiver, trustee in bankruptcy
or liquidator in any bankruptcy, insolvency or similar
proceedings, and the continuance of any such petition, decree
or order undismissed or unstayed and in effect for a period of
60 consecutive days;
(6) upon the voluntary filing of a bankruptcy petition or
assignment for the benefit of creditors, the consent by the
servicer to any such appointment, the admission in writing by
the servicer of its inability to pay its debts as they become
due or the determination by a court that the servicer is
generally not paying its debts as they come due;
(7) in the event that the servicer assigns or attempts to assign
its rights and duties under the Servicing Agreement except as
specifically permitted therein;
(8) a final judgment or order shall be rendered against the
servicer for payment in excess of $1,000,000 and continues for
90 days without a stay;
(9) upon the occurrence of any other event of servicer default
specified in the Insurance Agreement;
(10) American Business Financial Services shall fail to have a U.S.
GAAP net worth, excluding goodwill, of at least $20,000,000;
(11) (x) the average Delinquency Trigger Ratio for any payment date
and the two immediately preceding payment dates exceeds 4.0%,
or (y) the average Net Charge-Off Ratio for any payment date
and the immediately preceding two payment dates exceeds 3.5%;
or
(12) any other events concerning the performance of the contract
pool required by the note insurer.
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<PAGE>
Rights Upon an Event of Servicing Termination
If an Event of Servicing Termination has occurred and is continuing,
either (A) the indenture trustee (1) shall, at the direction of the note
insurer, or (2) may with the consent of the note insurer or (B) the majority of
the holders of the notes may with the consent of the note insurer, terminate
all, but not less than all, of the servicer's rights and obligations under the
Servicing Agreement. Upon such termination, a successor servicer shall be
appointed by the note insurer or, if none has been so appointed, the back-up
servicer will succeed to all the responsibilities, duties and liabilities of the
servicer under the Servicing Agreement; provided, however, that the back-up
servicer shall not
o assume any obligation to reacquire receivables by reason of
misrepresentations or breaches of warranties,
o be required to make any servicer advance if such servicer
advance would be prohibited by applicable law or if the
back-up servicer determines that the servicer advance would
not be reimbursed or
o be liable for acts, omissions or breaches of representations
or warranties by the servicer occurring prior to transfer of
the servicing functions.
Notwithstanding such termination, the servicer shall be entitled to
payment of certain amounts payable to it prior to such termination for services
rendered prior to such termination. The back-up servicer also may appoint, or
petition a court of competent jurisdiction for the appointment of, a successor
servicer acceptable to the note insurer in accordance with the procedures set
forth in the Servicing Agreement.
Events of Default
Upon the occurrence of an Event of Default, the indenture trustee, upon
the direction of the Controlling Party, shall declare the unpaid principal
amount of all the notes to be due and payable together with all accrued and
unpaid interest thereon without presentment, demand, protest or other notice of
any kind, all of which are waived by the trust. An "Event of Default" includes
the following events:
(1) failure to distribute or cause to be distributed to the
indenture trustee, for the benefit of the noteholders, all or
part of any payment of interest required to be made on each
payment date under the terms of such notes or the Indenture
when due and payable; or
(2) failure to distribute or cause to be distributed (x) to the
indenture trustee, for the benefit of the noteholders, on any
payment date an amount equal to the principal due on the
outstanding notes as of such payment date to the extent that
sufficient Available Funds are on deposit in the collection
account or (y) on the Class A Maturity Date or Class B
Maturity Date, as the case may be, any remaining principal
owed on the outstanding class A notes or class B notes, as the
case may be; or
(3) default in the performance, or breach, of any other covenant
of the trust in the Indenture, and continuance of such default
or breach for a period of 30 days after the earliest of
o any officer of the trust first acquiring the
knowledge thereof,
o the indenture trustee's giving written notice thereof
to the trust, or
o the note insurer or the holders of a majority of the
then aggregate outstanding note principal balance of
the notes giving written notice thereof to the trust
and the indenture trustee; or
(4) any representation or warranty of the trust made in the
Indenture or any other writing provided to the holders of the
notes proves to be incorrect in any material respect as of the
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<PAGE>
time when the same has been made; provided, however, that the
breach of any representation or warranty made by the trust
will be deemed to be "material" only if it negatively affects
the note insurer or the noteholders, the enforceability of the
Indenture or the notes; or
(5) insolvency or bankruptcy events relating to the trust; or
(6) an event of default under the Insurance Agreement.
If payments on the class A notes are accelerated, such accelerated
payments will not be covered by the note insurer under the note insurance policy
and Insured Payments on the class A notes shall remain due and payable by the
note insurer in accordance with the original terms of the note insurance policy
regardless of any such acceleration of the class A notes.
Amendment
The transaction documents may be amended by the respective parties
thereto at any time, without consent of the noteholders, but with the prior
written consent of the note insurer, to cure any ambiguity, upon receipt of an
opinion of counsel to the servicer that such amendment will not adversely affect
in any respect the interests of any noteholder.
The transaction documents may also be amended from time to time by the
respective parties thereto and the majority of the holders of the notes, with
the prior written consent of the note insurer, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the transaction documents or of modifying in any manner the rights of the
noteholders; provided, however, that no such amendment shall (a) increase or
reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments on the receivables or distributions which are required
to be made on any note without the consent of the holder of such note and
written confirmation from each rating agency that the amendment will not result
in the reduction or removal of the rating then assigned to the notes or (b)
reduce the aforesaid percentage of noteholders required to consent to any
amendment, without unanimous consent of the noteholders and written confirmation
from each rating agency that the amendment will not result in the reduction or
removal of the rating then assigned to the notes.
The indenture trustee is required under the Indenture to furnish the
noteholders and the rating agencies with written notice of the substance of any
such amendment to the Indenture promptly upon execution of such amendment.
The Indenture Trustee and the Back-up Servicer
The indenture trustee and the back-up servicer, The Chase Manhattan
Bank, a New York banking corporation, has a trust office at 450 W. 33rd St., New
York, New York 10001. The indenture trustee's duties in connection with the
notes are limited solely to its express obligations under the Indenture and the
Servicing Agreement.
The indenture trustee may resign, subject to the conditions set forth
below, at any time upon written notice to the transferors, the note insurer and
the servicer, in which event the servicer will be obligated to appoint a
successor indenture trustee. If no successor indenture trustee shall have been
so appointed and have accepted such appointment within 30 days after the giving
of such notice of resignation, the resigning indenture trustee may petition a
court of competent jurisdiction for the appointment of a successor indenture
trustee. Any successor indenture trustee shall be acceptable to the note insurer
and shall meet the financial and other standards for qualifying as a successor
indenture trustee under the Indenture. The servicer may, with the consent of the
note insurer, and shall, at the direction of the note insurer, or the
noteholders of any
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<PAGE>
class evidencing more than 25% of the Percentage Interests of such class may,
subject to consent of the note insurer, also remove the indenture trustee if the
indenture trustee ceases to be eligible to continue as such under the Indenture
and fails to resign after written request therefor, or is legally unable to act,
or if the indenture trustee is adjudicated to be insolvent. In such
circumstances, the servicer or such noteholders will also be obligated to
appoint a successor indenture trustee which is acceptable to the note insurer.
The note insurer shall also have the right to remove the indenture trustee for
"cause". Any resignation or removal of the indenture trustee and appointment of
a successor indenture trustee will not become effective until acceptance of the
appointment by the successor indenture trustee.
Duties and Immunities of the Indenture Trustee
The indenture trustee will make no representations as to the validity
or sufficiency of the Servicing Agreement, the notes, other than the
authentication thereof, or of any receivable or related document and will not be
accountable for the use or application by the originator or the transferors of
any funds paid to the transferors in consideration of the sale of any notes. If
no Event of Servicing Termination has occurred, the indenture trustee will be
required to perform only those duties specifically required of it under the
Servicing Agreement. However, upon receipt of the various resolutions,
certificates, statements, opinions, reports, documents, orders or other
instruments required to be furnished to it, the indenture trustee will be
required to examine them to determine whether they conform to the requirements
of the Servicing Agreement.
No recourse is available based on any provision of the Servicing
Agreement, the notes or any receivable or assignment thereof against The Chase
Manhattan Bank, in its individual capacity, and The Chase Manhattan Bank shall
not have any personal obligation, liability or duty whatsoever to any noteholder
or any other person with respect to any such claim and such claim shall be
asserted solely against the trust assets or any indemnitor, except for such
liability as is determined to have resulted from the indenture trustee's own
negligence or willful misconduct.
The indenture trustee will be entitled to receive, pursuant to the
priority set forth in the Indenture, a reasonable indenture trustee fee as
compensation for its services as indenture trustee, and reimbursement for the
Indenture Trustee Expenses.
Duties of the Back-up Servicer
The back-up servicer will make no representations as to the validity or
sufficiency of the Servicing Agreement or of any receivable or related document.
Pursuant to the Servicing Agreement, the back-up servicer agrees to reconcile
the monthly servicer reports. In addition, following the resignation or removal
of the servicer, the back-up servicer shall assume the duties of the servicer as
the successor servicer under the Servicing Agreement. The back-up servicer will
be required to exercise the degree of skill and care in performing these
functions that it customarily exercises with respect to similar property owned
or serviced by the back-up servicer.
The back-up servicer will be entitled to receive a monthly back-up
servicer fee equal to the product of (x) one-twelfth of the back-up servicing
fee rate, and (y) the Aggregate Discounted Contract Principal Balance of all
contracts as of the beginning of the previous collection period, payable out of
the collection account, as compensation for acting as back-up servicer.
Prepayment and Yield Considerations
The rate of principal payments on, and the weighted average life of,
the offered notes will be directly related to the rate of payments on the
underlying contracts. If purchased at a price other than par, the yield to
maturity will also be affected by the rate of such principal payments. Payments
on such
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<PAGE>
contracts may be in the form of scheduled payments, prepayments, early
terminations or liquidations due to default, casualty, repurchases for breach
and the like. Any such payments will result in distributions to noteholders of
amounts which would otherwise have been distributed over the remaining term of
the contracts. In general, the rate of such payments may be influenced by a
number of factors, including general economic conditions.
The contracts generally do not provide for the right of the obligor to
prepay. Under the Servicing Agreement, the servicer will be permitted to allow
such Prepayments in full or in part, provided that no Prepayment of a contract
will be allowed in an amount less than the Prepayment Amount.
The expected final payment date for the class A-1 notes is March 15,
2000, for the class A-2 notes is October 15, 2000, for the class A-3 notes is
October 15, 2002, for the class A-4 notes is September 15, 2003 and for the
class B notes is November 15, 2003. Such dates are the dates on which the note
principal balance of the related class of notes would be reduced to zero,
assuming, among other things, (x) Prepayments with respect to the contracts are
received at a rate of 5% CPR and (y) the modeling assumptions apply. The
weighted average life of the offered notes could be shorter than would be the
case if payments actually made on the contracts conformed to the foregoing
assumptions, and the final payment dates with respect to the offered notes could
occur significantly earlier than such final scheduled payment dates due to
defaults, and because the originator is obligated to reacquire contracts in the
event of breaches of representations and warranties.
"Weighted average life" refers to the average amount of time from the
date of issuance of a note until each dollar of principal of such note will be
repaid to the investor. The weighted average lives of the offered notes will be
influenced by the rate at which payments on the contracts are made. Payments on
contracts may be in the form of scheduled payments or prepayments -- for this
purpose, the term "prepayment" includes prepayments and liquidations due to
defaults or other dispositions of the contracts. The weighted average lives of
the offered notes will also be influenced by delays associated with realizing on
Defaulted Contracts. The prepayment model used in this prospectus supplement,
the "Conditional Prepayment Rate" or "CPR", represents an assumed annualized
rate of prepayment relative to the then outstanding balance on a pool of
contracts. The CPR assumes that a fraction of the outstanding contract pool is
prepaid on each payment date, which implies that each contract in the contract
pool is equally likely to prepay. This fraction, expressed as a percentage, is
annualized to arrive at the CPR for the contract pool. The CPR measures
prepayments based on the outstanding principal on the previous payment date. The
CPR further assumes that all contracts are the same size and make scheduled
payments at the same rate and that each contract will be either paid as
scheduled or prepaid in full.
Weighted Average Lives of the Offered Notes
The tables below were prepared assuming, among other things, that the
following modeling assumptions apply:
(1) the closing date for the notes occurs on June 28, 1999,
(2) distributions on the notes are made on the 15th day of each
month regardless of the day on which the payment date actually
occurs, commencing in July 1999 in accordance with the
priorities described herein,
(3) no delinquencies or defaults in the payment of scheduled
payments on the contracts are experienced and such payments
are timely received,
(4) no contract is reacquired for breach of a representation and
warranty or otherwise,
(5) the actual discount rate is 7.480% per annum,
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<PAGE>
(6) Prepayments with respect to the contracts are received on the
last day of each calendar month, commencing on June 30, 1999,
(7) no Restricting Event occurs,
(8) the class A-1 note rate is 5.3925% per annum, the class A-2
note rate is 6.025% per annum, the class A-3 note rate is
6.650% per annum, the class A-4 note rate is 6.650% per annum
and the class B note rate is 6.940% per annum,
(9) the contract pool consists of a pool of contracts with an
Aggregate Discounted Contract Principal Balance equal to
approximately $66,696,668 available on the closing date that
make their first payment in June 1999, and
(10) the contract pool consists of a pre-funded pool of contracts
with an Aggregate Discounted Contract Principal Balance equal
to approximately $15,303,332 available on September 30, 1999
that make their first payment in October 1999.
Since the tables were prepared on the basis of the modeling
assumptions, there are discrepancies between the characteristics of the actual
contracts and the characteristics of the contracts assumed in preparing the
tables. Any such discrepancies may have an effect upon the percentages of the
note principal balances outstanding and weighted average lives of the offered
notes set forth in the tables. In addition, since the actual contracts in the
trust have characteristics which differ from those assumed in preparing the
tables set forth below, the related weighted average life may be longer or
shorter than as indicated in the tables.
The following tables set forth the percentages of the initial principal
amount of the class A-1 notes, the class A-2 notes, the class A-3 notes, the
class A-4 notes and the class B notes that would be outstanding after each of
the dates shown, assuming a CPR of 0%, 2%, 4%, 5%, 6% and 8%, respectively.
Percentage of Initial Note
Principal Balance Outstanding
Class A-1 Notes
<TABLE>
<CAPTION>
Prepayment Speed (CPR)
Payment Date 0% 2% 4% 5% 6% 8%
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Closing Date 100% 100% 100% 100% 100% 100%
June 15, 2000 0 0 0 0 0 0
June 15, 2001 0 0 0 0 0 0
June 15, 2002 0 0 0 0 0 0
June 15, 2003 0 0 0 0 0 0
June 15, 2004 0 0 0 0 0 0
June 15, 2005 0 0 0 0 0 0
June 15, 2006 0 0 0 0 0 0
June 15, 2007 0 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Weighted Average
Life (years) 0.4 0.4 0.4 0.4 0.4 0.4
</TABLE>
S-35
<PAGE>
Percentage of Initial Note
Principal Balance Outstanding
Class A-2 Notes
<TABLE>
<CAPTION>
Prepayment Speed (CPR)
Payment Date 0% 2% 4% 5% 6% 8%
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Closing Date 100% 100% 100% 100% 100% 100%
June 15, 2000 72 63 54 50 45 36
June 15, 2001 0 0 0 0 0 0
June 15, 2002 0 0 0 0 0 0
June 15, 2003 0 0 0 0 0 0
June 15, 2004 0 0 0 0 0 0
June 15, 2005 0 0 0 0 0 0
June 15, 2006 0 0 0 0 0 0
June 15, 2007 0 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Weighted Average
Life (years) 1.1 1.1 1.0 1.0 1.0 0.9
</TABLE>
Percentage of Initial Note
Principal Balance Outstanding
Class A-3 Notes
<TABLE>
<CAPTION>
Prepayment Speed (CPR)
Payment Date 0% 2% 4% 5% 6% 8%
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Closing Date 100% 100% 100% 100% 100% 100%
June 15, 2000 100 100 100 100 100 100
June 15, 2001 66 62 58 55 53 49
June 15, 2002 18 14 10 9 7 3
June 15, 2003 0 0 0 0 0 0
June 15, 2004 0 0 0 0 0 0
June 15, 2005 0 0 0 0 0 0
June 15, 2006 0 0 0 0 0 0
June 15, 2007 0 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Weighted Average
Life (years) 2.4 2.3 2.2 2.2 2.1 2.0
</TABLE>
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<PAGE>
Percentage of Initial Note
Principal Balance Outstanding
Class A-4 Notes
<TABLE>
<CAPTION>
Prepayment Speed (CPR)
Payment Date 0% 2% 4% 5% 6% 8%
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Closing Date 100% 100% 100% 100% 100% 100%
June 15, 2000 100 100 100 100 100 100
June 15, 2001 100 100 100 100 100 100
June 15, 2002 100 100 100 100 100 100
June 15, 2003 40 32 25 21 18 11
June 15, 2004 0 0 0 0 0 0
June 15, 2005 0 0 0 0 0 0
June 15, 2006 0 0 0 0 0 0
June 15, 2007 0 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Weighted Average
Life (years) 3.9 3.8 3.8 3.7 3.7 3.6
</TABLE>
Percentage of Initial Note
Principal Balance Outstanding
Class B Notes
<TABLE>
<CAPTION>
Prepayment Speed (CPR)
Payment Date 0% 2% 4% 5% 6% 8%
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Closing Date 100% 100% 100% 100% 100% 100%
June 15, 2000 75 75 75 75 75 76
June 15, 2001 47 48 49 50 50 51
June 15, 2002 26 28 29 30 31 33
June 15, 2003 10 13 16 17 18 21
June 15, 2004 0 0 0 0 0 0
June 15, 2005 0 0 0 0 0 0
June 15, 2006 0 0 0 0 0 0
June 15, 2007 0 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Weighted Average
Life (years) 2.1 2.1 2.2 2.2 2.2 2.2
</TABLE>
The contracts will not have the characteristics assumed above, and
there can be no assurance that (1) the contracts will prepay at any of the rates
shown in the tables or at any other particular rate or will prepay
proportionately or (2) the weighted average lives of the offered notes will be
as calculated above. Because the rate of distributions of principal of the
offered notes will be a result of the actual payments (including prepayments) of
the contracts, which will include contracts that have remaining terms to stated
maturity
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<PAGE>
shorter or longer than those assumed, the weighted average lives of the
offered notes will differ from those set forth above, even if all of the
contracts prepay at the indicated constant prepayment rates.
The effective yield to noteholders will depend upon, among other
things, the price at which such offered notes are purchased, and the amount of
and rate at which principal, including both scheduled and unscheduled payments
thereof, is paid to the noteholders.
Due to the subordination provisions applicable to the offered notes, it
is likely that the note principal balance of the notes will amortize more
rapidly than will the initial Aggregate Discounted Contract Principal Balance of
the contract pool. See "Summary of Terms -- Subordination Provisions" and
"Description of Notes -- Flow of Funds" in this prospectus supplement.
The Note Insurance Policy
The following summary of the terms of the note insurance policy does
not purport to be complete and is qualified in its entirety by reference to the
note insurance policy. A form of the note insurance policy may be obtained, upon
request, from the transferors.
Simultaneously with the issuance of the notes, the note insurer will
deliver the note insurance policy to the indenture trustee for the benefit of
the class A noteholders. Under the note insurance policy, the note insurer
irrevocably and unconditionally guarantees payment to the indenture trustee for
the benefit of the class A noteholders, of (i) the Class A Insured Distribution
Amount on each payment date and (ii) the amount of any payment of Class A Note
Interest on the note principal balance of any class of class A notes which is
subsequently avoided in whole or in part as a preference payment. The Class A
Insured Distribution Amount shall be calculated in accordance with the original
terms of the class A notes when issued and without regard to any amendment or
modification of the class A notes or the Indenture except amendments or
modifications to which the note insurer has given its prior written consent.
Payments under the class A notes which become due on an accelerated basis as a
result of the occurrence of an Event of Default, an election by the trust to pay
principal on an accelerated basis, or any other cause, do not constitute a
"Class A Insured Distribution Amount", unless the note insurer elects, in its
sole discretion, to pay such principal due upon acceleration, together with
accrued interest to the date of acceleration.
Payment of claims on the note insurance policy will be made by the note
insurer following receipt by the note insurer of the appropriate notice for
payment on the later of (a) 12:00 noon, New York City time, on the second
business day following receipt of such notice for payment, and (b) 12:00 noon,
New York City time, on the relevant payment date.
If any payment of an amount guaranteed by the note insurer pursuant to
the note insurance policy is avoided as a preference under applicable
bankruptcy, insolvency, receivership or similar law, the note insurer will cause
such payment to be made on the later of
o the date when due to be paid pursuant to the order referred to
below or
o the first to occur of
o the fourth business day following receipt by the note
insurer from the indenture trustee of (A) a certified
copy of the order of the court or other governmental
body which exercised jurisdiction to the effect that
a class A noteholder is required to return principal
or interest paid with respect to a class A note
during the term of the note insurance policy because
such payments were avoidable as preference payments
under applicable
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<PAGE>
bankruptcy law, (B) a certificate of the
class A noteholder(s) 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
noteholder(s), in such form as is reasonably required
by the note insurer and provided to the class A
noteholder(s) by the note insurer, irrevocably
assigning to the note insurer all rights and claims
of the class A noteholder(s) relating to or arising
under the class A notes against the debtor which made
such preference payment or otherwise with respect to
such preference payment, or
o the date of receipt by the note insurer from the
indenture trustee of the items referred to in clauses
(A), (B) and (C) above if, at least four business
days prior to the date of receipt, the note insurer
shall have received written notice from the indenture
trustee that such items were to be delivered on that
date and that date was specified in the written
notice.
Such payment shall be disbursed to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the order and not to the
indenture trustee or any class A noteholder directly -- unless a class A
noteholder has previously paid such amount to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the order, in which case
such payment shall be disbursed to the indenture trustee for distribution to
such class A noteholder upon proof of such payment reasonably satisfactory to
the note insurer.
The terms "receipt" and "received," with respect to the note insurance
policy, means actual delivery to the note insurer and to its fiscal agent, if
any, prior to 12:00 p.m., New York City time, on a business day; delivery either
on a day that is not a business day or after 12:00 p.m., New York City time,
shall be deemed to be receipt on the next succeeding business day. If any notice
or certificate given under the note insurance policy is not in proper form or is
not properly completed, executed or delivered, it shall be deemed not to have
been received, and the note insurer or the fiscal agent shall promptly so advise
the indenture trustee and the indenture trustee may submit an amended notice.
Under the note insurance policy, "business day" means any day other
than a Saturday or Sunday or a day on which banking institutions in the City of
New York, New York or the State of New York, are authorized or obligated by law
or executive order to be closed. The note insurer's obligations under the note
insurance policy to make Insured Payments shall be discharged to the extent
funds are transferred to the indenture trustee as provided in the note insurance
policy, whether or not such funds are properly applied by the indenture trustee.
The note insurer shall be subrogated to the rights of each class A
noteholder to receive payments of principal and interest, as applicable, with
respect to distributions on the class A notes to the extent of any payment by
the note insurer under the note insurance policy. To the extent the note insurer
makes an insured payment under the note insurance policy, either directly or
indirectly, as by paying through the indenture trustee, to the class A
noteholders, the note insurer will be subrogated to the rights of the class A
noteholders, with respect to such insured payment and shall be deemed to the
extent of the payments so made to be a registered class A noteholder for
purposes of payment.
To the fullest extent permitted by applicable law, the note insurer
agrees under the note insurance policy not to assert, and waives, for the
benefit of each class A noteholder, all its rights (whether by counterclaim,
setoff or otherwise) and defense (including, without limitation, the defense of
fraud), whether acquired by subrogation, assignment or otherwise, to the extent
that such rights and defenses may be available to the note insurer to avoid
payment of its obligations under the note insurance policy in accordance with
the express provisions of the note insurance policy.
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<PAGE>
Claims under the note insurance policy constitute direct, unsecured and
unsubordinated obligations of the note insurer ranking not less than pari passu
with other unsecured and unsubordinated indebtedness of the note insurer for
borrowed money. Claims against the note insurer under the note insurance policy
and claims against the note insurer under each other financial guaranty
insurance policy issued thereby constitute pari passu claims against the general
assets of the note insurer. The terms of the note insurance policy cannot be
modified or altered by any other agreement or instrument, or by the merger,
consolidation or dissolution of the trust. The note insurance policy may not be
cancelled or revoked prior to payment in full of the class A notes. The note
insurance policy is not covered by the property/casualty insurance security fund
specified in Article 76 of the New York Insurance Law. The note insurance policy
is governed by the laws of the State of New York.
Pursuant to the terms of the Indenture, unless a note insurer default
exists, the note insurer shall be deemed to be the class A noteholder for all
purposes (other than with respect to payment on the notes), and will be entitled
to exercise all rights of the class A noteholders thereunder, without the
consent of such noteholders, and the class A noteholders may exercise such
rights only with the prior written consent of the note insurer. In addition, the
note insurer will, as a third party beneficiary to the Indenture and the
Transfer Agreements, have, among others, the following rights:
o the right to give notices of breach or to terminate the rights
and obligations of the servicer under the Indenture in the
event of an Event of Default by the servicer and to institute
proceedings against the servicer;
o the right to consent to or direct any waivers of defaults by
the servicer;
o the right to remove the indenture trustee pursuant to the
Indenture;
o the right to direct the actions of the indenture trustee
during the continuation of a servicer default;
o the right to require the originator to reacquire contracts for
breach of representation and warranty or defect in
documentation;
o the right to direct foreclosures upon the failure of the
servicer to do so in accordance with the Indenture;
o the right to direct all matters relating to a bankruptcy or
other insolvency proceeding involving the transferors; and
o the right to direct the indenture trustee to investigate
certain matters.
The note insurer's consent will be required prior to, among other
things,
o the removal of the indenture trustee or the servicer,
o the appointment of any successor indenture trustee or servicer
or
o any amendment to the Indenture.
The transferors, the originator, the servicer, the depositor, American
Business Credit, the trust and the note insurer will enter into the Insurance
Agreement pursuant to which the servicer will agree to reimburse, with interest,
the note insurer for amounts paid pursuant to claims under the note insurance
policy. The servicer will further agree to pay the note insurer all reasonable
charges and expenses which the note insurer may pay or incur relative to any
amounts paid under the note insurance policy or otherwise in connection with the
transaction and to indemnify the note insurer against certain liabilities.
Except to the extent provided therein, amounts owing under the Insurance
Agreement will be payable solely from the trust fund. An "event of default"
under the Insurance Agreement will constitute an event of default under the
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Indenture and allow the note insurer, among other things, to direct the
indenture trustee to terminate the servicer. An "event of default" under the
Insurance Agreement includes
(1) the originator's, the transferors' or the servicer's failure
to pay when due any amount owed under the Insurance Agreement
or certain other documents,
(2) the inaccuracy or incompleteness in any material respect of
any representation or warranty of the originator, the trust,
the transferors or the servicer in the Insurance Agreement,
the Indenture or certain other documents,
(3) the originator's, the transferors' or the servicer's failure
to perform or to comply with any covenant or agreement in the
Insurance Agreement, the Indenture and certain other
documents,
(4) a finding or ruling by a governmental authority or agency that
the Insurance Agreement, the Indenture or certain other
documents are not binding on the originator, the trust, the
transferors or the servicer,
(5) the originator's, the trust's, the transferors' or the
servicer's failure to pay its debts in general or the
occurrence of certain events of insolvency or bankruptcy with
respect to the transferors or the servicer, and
(6) the occurrence of certain "performance test violations"
designed to measure the performance of the contracts.
The Note Insurer
The following information has been obtained from Financial Security
Assurance Inc. and has not been verified by American Business Financial
Services, the originator, the transferors or the underwriters. No representation
or warranty is made by American Business Financial Services, the transferors,
the originator or the underwriter as to the accuracy and completeness of such
information.
The Note Insurer
Financial Security Assurance Inc. is a monoline insurance company
incorporated in 1984 under the laws of the State of New York. Financial Security
Assurance Inc. is licensed to engage in the financial guaranty insurance
business in all 50 states, the District of Columbia and Puerto Rico.
Financial Security Assurance Inc. 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 Assurance Inc. and its subsidiaries principally insure
asset-backed, collateralized and municipal securities. Asset-backed securities
are generally 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 Assurance Inc. insures both
newly issued securities sold in the primary market and outstanding securities
sold in the secondary market that satisfy Financial Security Assurance Inc.'s
underwriting criteria.
Financial Security Assurance Inc. is a wholly-owned subsidiary of
Financial Security Assurance Holdings Ltd., a New York Stock Exchange listed
company. Major shareholders of Financial Security Assurance Holdings Ltd.
include White Mountains Insurance Group, Inc., MediaOne Capital Corporation,
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The Tokio Marine and Fire Insurance Co., Ltd. and XL Capital Ltd. No shareholder
of Financial Security Assurance Holdings Ltd. is obligated to pay any debt of
Financial Security Assurance Inc. or any claim under any insurance policy issued
by Financial Security Assurance Inc. or to make any additional contribution to
the capital of Financial Security Assurance Inc.
The principal executive offices of Financial Security Assurance Inc.
are located at 350 Park Avenue, New York, New York 10022, and its telephone
number at that location is (212) 826-0100.
Reinsurance
Pursuant to an intercompany agreement, liabilities on financial
guaranty insurance written or reinsured from third parties by Financial Security
Assurance Inc. or any of its domestic or Bermuda operating insurance company
subsidiaries are generally reinsured among such companies on an agreed-upon
percentage substantially proportional to their respective capital, surplus and
reserves, subject to applicable statutory risk limitations. In addition,
Financial Security Assurance Inc. reinsures a portion of its liabilities under
certain of its financial guaranty insurance policies with other reinsurers under
various treaties and on a transaction-by-transaction basis. Such reinsurance is
utilized by Financial Security Assurance Inc. as a risk management device and to
comply with certain statutory and rating agency requirements; it does not alter
or limit Financial Security Assurance Inc.'s obligations under any financial
guaranty insurance policy.
Ratings
Financial Security Assurance Inc.'s insurance financial strength is
rated "Aaa" by Moody's. Financial Security Assurance Inc.'s insurer financial
strength is rated "AAA" by Standard & Poor's and Standard and Poor's (Australia)
Pty. Ltd. Financial Security Assurance Inc.'s claims-paying ability is rated
"AAA" by Fitch IBCA, Inc. and Japan Rating and Investment Information, Inc. 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.
Capitalization
The following table sets forth the capitalization of Financial Security
Assurance Inc. and its wholly owned subsidiaries on the basis of generally
accepted accounting principles as of March 31, 1999 (in thousands):
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<TABLE>
<CAPTION>
March 31, 1999
(unaudited)
-----------
<S> <C>
Deferred Premium Revenue
(net of prepaid reinsurance premiums)............................... $ 512,383
Surplus Notes............................................................ 120,000
Minority Interest........................................................ 20,973
----------
Shareholder's Equity:
Common Stock........................................................ 15,000
Additional Paid-In Capital.......................................... 706,117
Accumulated Other Comprehensive Income
(net of deferred income taxes).................................. 25,879
Accumulated Earnings................................................ 391,745
Total Shareholder's Equity............................................... ----------
$1,138,741
----------
Total Deferred Premium Revenue, Surplus Notes, Minority Interest and
Shareholder's Equity................................................ $1,792,097
==========
</TABLE>
For further information concerning Financial Security Assurance Inc.,
see the Consolidated Financial Statements of Financial Security Assurance Inc.
and Subsidiaries, and the notes thereto, incorporated by reference herein.
Financial Security Assurance Inc.'s financial statements are included as
exhibits to the Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q
filed with the Securities and Exchange Commission by Financial Security
Assurance Holdings Ltd. and may be reviewed at the EDGAR web site maintained by
the Securities and Exchange Commission and at Financial Security Assurance
Holdings Ltd.'s web side, http://www.FSA.com. Copies of the statutory quarterly
and annual statements filed with the State of New York Insurance Department by
Financial Security Assurance Inc. are available upon request to the State of New
York Insurance Department.
Insurance Regulation
Financial Security Assurance Inc. 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 Assurance Inc. 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 Assurance Inc.,
regulate, among other things, permitted investments, payment of dividends,
transactions with affiliates, mergers, consolidations, acquisitions or sales of
assets and incurrence of liability for borrowings.
Material Federal Income Tax Consequences
The following is a general discussion of the material anticipated
federal income tax considerations to investors of the purchase, ownership and
disposition of the securities offered hereby. The discussion is
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based upon laws, regulations, rulings and decisions now in effect, all of which
are subject to change. The discussion below does not purport to deal with all
federal tax considerations applicable to all categories of investors, some of
which may be subject to special rules. Investors should consult their own tax
advisors in determining the federal, state, local and any other tax consequences
to them of the purchase, ownership and disposition of the securities.
Tax Characterization of the Trust and the Transferors
Dewey Ballantine LLP, tax counsel to the trust, is of the opinion that,
assuming compliance with the terms of the Trust Agreement and related documents,
the trust will not be treated as an association, or publicly traded partnership,
taxable as a corporation for federal income tax purposes. In addition, tax
counsel is of the opinion that, assuming compliance with the terms of the
Transaction Documents, neither of the transferors will be treated as an
association, or publicly traded partnership, taxable as a corporation for
federal income tax purposes.
Tax Consequences to Holders of the Notes
Treatment of the Notes as Indebtedness. The transferors and the
originator agree, and the noteholders will agree by their purchase of the
offered notes, to treat the offered notes as indebtedness for all income and
franchise tax purposes. There are no regulations, published rulings or judicial
decisions involving the characterization for federal income tax purposes of
securities with terms substantially the same as the offered notes. In general,
whether instruments such as the offered notes constitute indebtedness for
federal income tax purposes is a question of fact, the resolution of which is
based primarily upon the economic substance of the instruments and the
transaction pursuant to which they are issued rather than merely upon the form
of the transaction or the manner in which the instruments are labeled. The IRS
and the courts have set forth various factors to be taken into account in
determining, for federal income tax purposes, whether or not an instrument
constitutes indebtedness and whether a transfer of property is a sale because
the transferors have relinquished substantial incidents of ownership in the
property or whether such transfer is a borrowing secured by the property. On the
basis of its analysis of such factors as applied to the facts and its analysis
of the economic substance of the contemplated transaction, and based in part on
the facts set forth in this prospectus supplement and additional information and
representations (including financial calculations relating to the contracts
provided or reviewed and verified by the originator and the underwriter), tax
counsel is of the opinion that, for federal income tax purposes, the notes will
be properly treated as indebtedness. Such opinion is not binding on the IRS and
thus no assurance can be given that such a characterization will prevail. See
"Material Federal Income Tax Consequences" herein for additional information
concerning the application of federal income tax laws.
If the offered notes are characterized as indebtedness, interest paid
or accrued on an offered note will be treated as ordinary income to the
noteholders and principal payments on an offered note will be treated as a
return of capital to the extent of the noteholder's basis in the offered note
allocable thereto. An accrual method taxpayer will be required to include in
income interest on the offered notes when earned, even if not paid, unless it is
determined to be uncollectible. The trust will report to noteholders of record
and the IRS in respect of the interest paid and original discount, if any,
accrued on the offered notes to the extent required by law.
Although the transferors, the originator and the noteholders all agree
to treat the offered notes as indebtedness for all income and franchise tax
purposes, no assurance can be given that such a characterization will prevail.
If the IRS successfully asserted that the class A notes or the class B notes did
not represent debt for federal income tax purposes, holders of such class of
notes would likely be treated as owning an equity interest in the trust or an
equity interest in the transferors. If the noteholders were treated as owning an
equitable interest in a partnership, the partnership itself would not be subject
to federal income tax; rather each partner would be taxed individually on their
respective distributive share of the partnership's
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income, gain, loss, deductions and credits. The amount, timing and
characterization of items of income and deductions for a noteholder would differ
if such class of notes were held to constitute partnership interests rather than
indebtedness. Since the trust will treat the offered notes as indebtedness for
federal income tax purposes, the servicer will not attempt to satisfy the tax
reporting requirements that would apply under such alternative characterization
of the offered notes. Investors that are foreign persons are strongly advised to
consult their own tax advisors in determining the federal, state, local and
other tax consequences to them of the purchase, ownership and disposition of the
offered notes.
Original Issue Discount. In general, an offered note will be considered
to be issued with original issue discount equal to the excess, if any, of its
"stated redemption price at maturity" over its "issue price." The issue price of
an offered note is the initial offering price to the public excluding bond
houses and brokers at which a substantial amount of the offered notes is sold.
The issue price also includes any accrued interest attributable to the period
between the beginning of the first interest accrual period and the closing date.
The stated redemption price at maturity of any offered note is its stated
principal amount, plus an amount equal to the excess, if any, of the interest
payable on the first payment date over the interest that accrues for the period
from issuance of the offered note to the first payment date. The indenture
trustee will supply, at the time and in the manner required by the IRS, to
beneficial owners, brokers and middlemen information with respect to the
original issue discount accruing on the offered notes.
Notwithstanding the general definition, original issue discount will be
treated as zero if the discount is less than 0.25 percent of the stated
redemption price at maturity of an offered note multiplied by its weighted
average life. The weighted average life of an offered note is apparently
computed for this purpose as the sum, for all distributions included in the
stated redemption price at maturity, of the amounts determined by multiplying
(x) the number of complete years -- rounding down for partial years -- from the
date of issuance until the date on which each of those distributions is expected
to be made by (y) a fraction, the numerator of which is the amount of the
distribution and the denominator of which is the offered note's stated
redemption price at maturity. Even if original issue discount is treated as zero
under this rule, the actual amount of original issue discount must be allocated
to the principal distributions on the offered note and, when each such
distribution is received, gain equal to the discount allocated to the
distribution will be recognized.
The adjusted issue price of an offered note at any time will equal the
issue price of the offered note, increased by the aggregate amount of previously
accrued original issue discount with respect to that offered note, and reduced
by the amount of any distributions made on that offered note, as of that time,
of amounts included in the stated redemption price at maturity. The original
issue discount accruing during any accrual period will then be allocated ratably
to each day during the period to determine the daily portion of original issue
discount.
A subsequent purchaser of an offered note that purchases it at a cost
less than its remaining stated redemption price at maturity also will be
required to include in gross income for each day on which it holds the offered
note, the daily portion of original issue discount with respect to the offered
note -- but reduced, if the cost of the offered note to the purchaser exceeds
its adjusted issue price, by an amount equal to the product of (x) that daily
portion and (y) a constant fraction, the numerator of which is that excess and
the denominator of which is the sum of the daily portions of original issue
discount on the offered note for all days on or after the day of purchase.
Market Discount. A subsequent purchaser who buys an offered note for
less than its principal amount may be subject to the "market discount" rules of
Section 1276 through 1278 of the Code. If a subsequent purchaser of an offered
note disposes of such offered note (including certain nontaxable dispositions
such as a gift), or receives a principal payment, any gain upon such sale or
other disposition will be recognized, or the amount of such principal payment
will be treated as ordinary income to the extent of
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any "market discount" accrued for the period that such purchaser holds the
offered note. Such holder may instead elect to include market discount in income
as it accrues with respect to all debt instruments acquired in the year of
acquisition of the offered notes and thereafter. Market discount generally will
equal the excess, if any, of the then current unpaid principal balance of the
note over the purchaser's basis in the offered note immediately after such
purchaser acquired the note. In general, market discount on an offered note will
be treated as accruing over the term of such offered note in the ratio of
interest for the current period over the sum of such current interest and the
expected amount of all remaining interest payments, or at the election of the
holder, under a constant yield method (taking into account the CPR). At the
request of a holder of an offered note, information will be made available that
will allow the holder to compute the accrual of market discount under the first
method described in the preceding sentence.
The market discount rules also provide that a holder who incurs
indebtedness to acquire an offered note at a market discount may be required to
defer the deduction of all or a portion of the interest on such indebtedness
until the corresponding amount of market discount is included in income.
Notwithstanding the above rules, market discount on an offered note
will be considered to be zero if it is less than a de minimis amount, which is
0.25% of the remaining principal balance of the note multiplied by its expected
weighted average remaining life. If OID or market discount is de minimis, the
actual amount of discount must be allocated to the remaining principal
distributions on the offered notes and, when each such distribution is received,
capital gain equal to the discount allocated to such distribution will be
recognized.
Market Premium. A subsequent purchaser who buys an offered note for
more than its principal amount generally will be considered to have purchased
the offered note at a premium. Such holder may amortize such premium, using a
constant yield method, over the remaining term of the offered note applying such
amortized amounts to reduce the amount of interest reportable with respect to
such offered note over the period from the purchase date to the date of maturity
of the offered note. The amortization of such premium on an obligation that
provides for partial principal payments prior to maturity should be governed by
the methods for accrual of market discount on such an obligation (described
above). A holder that elects to amortize premium must reduce his tax basis in
the related obligation by the amount of the aggregate deductions (or interest
offsets) allowable for amortizable premium. If a debt instrument purchased at a
premium is redeemed in full prior to its maturity, a purchaser who has elected
to amortize premium should be entitled to a deduction for any remaining
unamortized premium in the taxable year of redemption.
Sale or Redemption of Notes. If an offered note is sold or retired, the
seller will recognize gain or loss equal to the difference between the amount
realized on the sale and such noteholder's adjusted basis in the offered note.
Such adjusted basis generally will equal the cost of the offered note to the
seller, increased by any original issue discount included in the seller's gross
income in respect of the offered note (and by any market discount which the
taxpayer elected to include in income or was required to include in income), and
reduced by payments other than payments of qualified stated interest in respect
of the offered note received by the seller and by any amortized premium.
Similarly, a holder who receives a payment other than a payment of qualified
stated interest in respect of an offered note, either on the date on which such
payment is scheduled to be made or as a prepayment, will recognize gain equal to
the excess, if any, of the amount of the payment over his adjusted basis in the
note allocable thereto. A noteholder who receives a final payment which is less
than his adjusted basis in the offered note will generally recognize a loss in
the amount of the shortfall on the last day of his taxable year. Generally, any
such gain or loss realized by an investor who holds a note as a "capital asset"
within the meaning of Code Section 1221 should be capital gain or loss, except
as described above in respect of market discount and except that a loss
attributable to accrued but unpaid interest may be an ordinary loss.
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Taxation of Certain Foreign Investors. Interest payments (including
OID, if any) on the offered notes made to a noteholder who is a nonresident
alien individual, foreign corporation or other non-United States person (a
"foreign person") generally will be "portfolio interest" which is not subject to
United States tax if such payments are not effectively connected with the
conduct of a trade or business in the United States by such foreign person and
if the trust (or other person who would otherwise be required to withhold tax
from such payments) is provided with an appropriate statement that the
beneficial owner of the note identified on the statement is a foreign person.
Backup Withholding. Distributions of interest and principal as well as
distributions of proceeds from the sale of the offered notes, may be subject to
the "backup withholding tax" under Section 3406 of the Code at rate of 31% if
recipients of such distributions fail to furnish to the payer certain
information, including their taxpayer identification numbers, or otherwise fail
to establish an exemption from such tax. Any amounts deducted and withheld from
a distribution to a recipient would be allowed as a credit against such
recipient's federal income tax. Furthermore, certain penalties may be imposed by
the IRS on a recipient of distributions that is required to supply information
but that does not do so in the proper manner.
State and Local Income Tax Considerations
Potential noteholders should consider the state and local income tax
consequences of the purchase, ownership and disposition of the offered notes.
State and local income tax laws may differ substantially from the corresponding
federal law, and this discussion does not purport to describe any aspect of the
income tax laws of any state or locality. Therefore, potential noteholders
should consult their own tax advisors with respect to the various state and
local tax consequences of an investment in the offered notes.
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 relevant here. 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 offered notes
that are insurance companies should consult with their counsel with respect to
the 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 offered notes.
Certain transactions involving the trust might be deemed to constitute
prohibited transactions under ERISA and the Code if assets of the trust were
deemed to be "plan assets" of an employee benefit plan subject to ERISA or the
Code, or an "individual retirement account" or "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. Under a regulation issued by the United States Department of Labor, the
assets of the trust would be treated as plan assets of a benefit plan for the
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purposes of ERISA and the Code only if the benefit plan acquires an "equity
interest" in the trust and none of the exceptions contained in this plan assets
regulation is applicable. An equity interest is defined under the plan assets
regulation as an interest other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features. The notes should be treated as indebtedness without substantial equity
features for purposes of the plan assets regulation. This determination is based
in part upon the traditional debt features of the notes, including the
reasonable expectation of purchasers of notes that the notes will be repaid when
due, as well as the absence of conversion rights, warrants and other typical
equity features. The debt treatment of the notes for ERISA purposes could change
if the trust incurred losses. However, without regard to whether the notes are
treated as an equity interest for such purposes, the acquisition or holding of
the notes by or on behalf of a benefit plan could be considered to give rise to
a prohibited transaction if the trust or any of its affiliates is or becomes, a
party in interest or disqualified person with respect to such benefit plan. In
such case, certain exemptions from the prohibited transaction rules could be
applicable depending on the type and circumstances of the plan fiduciary making
the decision to acquire a note. Included among these exemptions are: Prohibited
Transaction Class Exemption or "PTCE" 90-1, regarding investments by insurance
company pooled separate accounts; PTCE 95-60, regarding investments by insurance
company general accounts; PTCE 96-23, regarding transactions by in-house asset
managers; and PTCE 84-14, regarding transactions by "qualified professional
assets managers." Each investor using the assets of a benefit plan which
acquires the notes, or to whom the notes are transferred, will be deemed to have
represented that the acquisition and continued holding of the notes will be
covered by a Department of Labor class exemption.
Employee plans that are government plans -- as defined in Section 3(32)
of ERISA -- and certain church plans -- as defined in Section 3(33) of ERISA --
are not subject to ERISA; however, such plans may be subject to comparable state
law restrictions.
Any benefit plan fiduciary considering the purchase of a note 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 notes 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.
Legal Investment
The class A-1 notes will be eligible securities for purchase by money
market funds under the Investment Company Act of 1940.
Underwriting
The class A notes will be acquired by Prudential Securities
Incorporated, as underwriter, for its 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 class B notes will be delivered by the trust to the originator or
its affiliate in consideration for the sale of the contracts. The class B notes
may be resold from time to time in negotiated transactions at varying prices to
be determined at the time of the resale. This prospectus supplement and the
accompanying prospectus also cover the resale of the class B notes from time to
time by or on behalf of the originator or its affiliates.
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In connection with the sale of the notes, the underwriter may receive
compensation from the trust or from purchasers of the notes in the form of
discounts, concessions or commissions. The underwriter and dealers participating
in the distribution of the notes may be deemed to be underwriters in connection
with the notes, and any discounts or commissions received by them from the trust
and any profit on the resale of notes by them may be deemed to be underwriting
discounts and commissions under the Securities Act.
In connection with this offering, the underwriter may over-allot or
effect transactions which stabilize or maintain the market prices of the notes
at levels above those which might otherwise prevail in the open market. Any
stabilizing, if commenced, may be discontinued at any time.
The underwriting agreement pertaining to the sale of the notes will
provide that the obligations of the underwriter will be subject to certain
conditions precedent, that the underwriter will be obligated to purchase all the
notes subject to that agreement if any are purchased and that, in limited
circumstances, the servicer will indemnify the underwriter and, in limited
circumstances, the underwriter will indemnify the trust and the servicer against
civil liabilities, including liabilities under the Securities Act, or will
contribute to payments required to be made in respect thereof.
Purchasers of notes, including dealers, may, depending on the facts and
circumstances of their purchases, be deemed to be "underwriters" within the
meaning of the Securities Act in connection with reoffers and sales by them of
notes. Noteholders should consult with their legal advisors in this regard prior
to any reoffer or sale.
The underwriter is an affiliate of the depositor.
Incorporation of Information by Reference
The Securities and Exchange Commission allows us to "incorporate by
reference" certain information already on file with it. This means that we can
disclose important information to you by referring you to those documents. Such
information is considered part of this prospectus supplement, and later
information that is filed will automatically update and supersede this
information. We incorporate by reference all of the documents listed in the
accompanying prospectus under the heading "Incorporation of Certain Documents by
Reference" and the consolidated financial statements of Financial Security
Assurance Inc. included in, or as exhibits to, the following documents, which
have been filed with the Securities and Exchange Commission by Financial
Security Assurance Holdings Ltd.:
o the Annual Report on Form 10-K for the year ended December 31,
1998; and
o the Quarterly Report on Form 10-Q for the quarter ended March
31, 1999.
All financial statements of Financial Security Assurance Inc. included
in documents filed by Financial Security Assurance Holdings Ltd. pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities and Exchange Act subsequent
to the date of this prospectus supplement and prior to the termination of the
offering of the notes shall be deemed to be incorporated by reference into this
prospectus supplement and to be a part hereof from the respective dates of
filing such documents.
The servicer will provide without charge to any person to whom this
prospectus supplement is delivered, upon the oral or written request of such
person, a copy of any or all of the foregoing financial statements incorporated
herein by reference. Requests for such copies should be directed to the servicer
in writing at 111 Presidential Boulevard, Suite 127, Bala Cynwyd, Pennsylvania
19004.
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The depositor on behalf of the trust undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the trust's
annual report pursuant to section 13(a) or 15(d) of the Securities and Exchange
Act and each filing of the financial statements of Financial Security Assurance
Inc. included in or as an exhibit to the annual report of Financial Security
Assurance Holdings Ltd. filed pursuant to section 13(a) or section 15(d) of the
Securities and Exchange Act that is incorporated by reference in the
registration statement relating to the accompanying prospectus shall be deemed
to be a new registration statement relating to the notes offered hereby, and the
offering of such notes at that time shall be deemed to be the initial bona fide
offering thereof.
You should rely only on the information incorporated by reference or
provided in this prospectus supplement and the accompanying prospectus. We have
not authorized anyone else to provide you with different information. You should
not assume that the information in this prospectus supplement or the
accompanying prospectus is accurate as of any date other than the date on the
cover page of this prospectus supplement or the accompanying prospectus.
Additional Information
Prudential Securities Secured Financing Corporation has filed with the
Securities and Exchange Commission a registration statement (Registration No.
333-52021) under the Securities Act of 1933 with respect to the notes offered
pursuant to this prospectus supplement. This prospectus supplement and the
accompanying 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 Securities and Exchange Commission. You may read
and copy the registration statement at the Public Reference Room at the
Securities and Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. and at the Securities and Exchange 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. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the Public Reference Rooms. In
addition, the Securities and Exchange Commission maintains a site on the World
Wide Web containing reports, proxy materials, information statements and other
items. The address is http://www.sec.gov.
Experts
The consolidated balance sheets of Financial Security Assurance Inc.
and subsidiaries as of December 31, 1998 and 1997 and the related consolidated
statements of income, changes in shareholder's equity, and cash flows for each
of the three years in the period ended December 31, 1998, incorporated by
reference in this prospectus supplement, have been incorporated herein in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of that firm as experts in accounting and auditing.
The balance sheet of ABFS Equipment Contract Trust 1999-A at June 25,
1999, set forth as Exhibit A hereto, has been audited by BDO Seidman LLP,
independent auditors, as set forth in their report appearing elsewhere in this
prospectus supplement, and is included in reliance upon the report given on the
authority of that firm as experts in accounting and auditing.
Legal Matters
Certain legal matters relating to the originator, the transferors and
the servicer will be passed upon by Blank Rome Comisky & McCauley LLP,
Philadelphia, Pennsylvania. Certain legal matters relating to
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the offered notes will be passed upon by Dewey Ballantine LLP, New York, New
York. Certain Federal income tax matters will be passed upon for the trust by
Dewey Ballantine LLP, New York, New York.
Ratings
As a condition to the issuance of the class A notes, the class A-1
notes must be rated "A-1+" by Standard & Poor's Ratings Services and "P-1" by
Moody's Investors Service, Inc., and the class A-2 notes, the class A-3 notes
and the class A-4 notes must be rated "AAA" by Standard & Poor's Ratings
Services and "Aaa" by Moody's Investors Service, Inc. As a condition to the
issuance of the class B notes, the class B notes must be rated at least "BBB" by
Duff & Phelps Credit Rating Co.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time. The ratings
assigned to the offered notes address the likelihood of the receipt by
noteholders of all distributions to which such noteholders are entitled. The
ratings assigned to the offered notes do not represent any assessment of the
likelihood that principal prepayments might differ from those originally
anticipated or address the possibility that noteholders might suffer a lower
than anticipated yield.
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Glossary
As used in this prospectus supplement, the following terms have the
following meanings:
Advance Payment: With respect to a contract and a collection period,
any scheduled payment, Final Scheduled Payment, Purchase Option Payment or
portion of either made by or on behalf of an obligor and received by the
servicer during such collection period, which scheduled payment, Final Scheduled
Payment, Purchase Option Payment or portion thereof does not become due until a
subsequent collection period; provided, however, that Advance Payments do not
include Prepayment Amounts.
Aggregate Discounted Contract Principal Balance: Means, at any time of
determination and with respect to any contracts, any amount equal to the sum of
the Discounted Contract Principal Balances of such contracts.
Available Distribution Amount: With respect to a payment date, the
excess of (a) the Available Funds with respect to the related collection period,
over (b) the Trust Operating Expenses.
Available Funds: With respect to a payment date, all amounts --
including scheduled payments, Unscheduled Payments, and servicer advances --
held in the collection account on the related determination date, after taking
into account all deposits required to be made on such determination date, other
than any Advance Payment.
Available Funds Shortfall: An event which occurs on a payment date if
either (a) amounts are then or would otherwise be payable under the note
insurance policy or (b) the sum of (x) the Class A Insured Distribution Amount
for such payment date exceeds the Available Distribution Amount for such payment
date.
Base Principal Amount: With respect to any payment date, an amount
equal to the excess of (x) the sum of (i) the Aggregate Discounted Contract
Principal Balance of the contracts, as of the close of business on the last day
of the second preceding collection period, and (ii) the Pre-Funded Collateral
Amount, as of the close of business on the last day of the second preceding
collection period, over (y) the sum of (i) the Aggregate Discounted Contract
Principal Balance of the contracts, as of the close of business on the last day
of the immediately preceding collection period, (ii) the Pre-Funded Collateral
Amount, as of the close of business on the last day of the immediately preceding
collection period, (iii) the aggregate Prepayment Amounts received by the
servicer during the related collection period, (iv) any Defaulted Contract
Amounts relating to the related collection period and (v) the amount of any
funds released from the pre-funding account as a prepayment of principal on the
offered notes, divided by 95.3%.
Class A Accelerated Percentage: 92.34%.
Class A Additional Principal Distribution Amount: Means (a) with
respect to any payment date prior to the Class A Termination Date, any
Unscheduled Payments with respect to the related collection period; and (b) with
respect to the Class A Termination Date, the amount described in clause (a)
above, to the extent necessary to reduce the note principal balance of each
class of class A notes to zero.
Class A Base Principal Distribution Amount: Means (a) with respect to
any payment date prior to the Class A Termination Date, the sum of (x) the
product of (i) the Class A Percentage and (ii) the Base Principal Amount for
such payment date, (y) the Class A Additional Principal Distribution Amount and
(z) the product of (i) the Class A Accelerated Percentage and (ii) the amount of
any funds released from the pre-funding account as a prepayment of principal;
and (b) with respect to the Class A Termination Date, the
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amount described in clause (a) above, to the extent necessary to reduce the note
principal balance of each class of class A notes to zero.
Class A Default Interest: Means, for any payment date and each class of
class A notes, the product of (x) the sum of clauses (1) and (2) of the
definition of Class A Overdue Interest with respect to such class, (y) (1) for
the class A-1 notes, the actual number of days elapsed in the Interest Accrual
Period divided by 360 days and (2) for each other class of class A notes,
one-twelfth, and (z) 1%.
Class A Insured Distribution Amount: Means, with respect to any payment
date, the sum of the Class A Insured Distribution Amounts for each class of
class A notes. The "Class A Insured Distribution Amount" for each class of class
A notes is (a) with respect to any payment date -- other than any payment date
which is the Class A Maturity Date for such class -- the sum of (1) Class A Note
Interest for such class less the amount of any Class A Default Interest for such
class, and (2) such class's pro rata portion of the excess, if any, of (A) the
note principal balance of the class A notes over (B) the sum of the Aggregate
Discounted Contract Principal Balance of the contracts and the Pre-Funded
Collateral Amount, and (b) with respect to the payment date which is the Class A
Maturity Date for such class, the sum of (1) Class A Note Interest for such
class less the amount of any Class A Default Interest for such class and (2) the
then-outstanding note principal balance for such class.
Class A Maturity Date: Means the final stated maturity date for each
class of class A notes, as set forth below,
o for the class A-1 notes, July 15, 2000,
o for the class A-2 notes, June 15, 2001,
o for the class A-3 notes, December 15, 2003, and
o for the class A-4 notes, November 15, 2007.
Class A Note Current Interest: With respect to any payment date and
each class of class A notes, the interest accrued during the related Interest
Accrual Period, equal to the product of (x) (1) for the class A-1 notes, the
actual number of days elapsed in the Interest Accrual Period divided by 360 days
and (2) for each other class of class A notes, one-twelfth, (y) the note rate
for that class of class A notes and (z) the aggregate note principal balance of
that class of class A notes outstanding on the immediately preceding payment
date, after taking into account all distributions made on such payment date.
Class A Note Interest: Means, for any payment date and any class of
class A notes, the sum of the Class A Current Note Interest for that class of
class A notes and the Class A Overdue Note Interest for that class of class A
notes.
Class A Overdue Interest: With respect to any payment date and each
class of class A notes, the difference between (x) the sum of
(1) the excess, if any, of that portion of any Class A
Note Interest due on the immediately preceding
payment date for that class of class A notes over
that portion of the Class A Note Interest paid on
such immediately preceding payment date for that
class of class A notes,
(2) without duplication of the amount described in clause
(1), the amount of the Class A Overdue Interest due
and unpaid as of the immediately preceding payment
date attributable to that class of class A notes, and
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(3) the product of (x) the sum of clauses (1) and (2),
(y) (1) for the class A-1 notes, the actual number of
days elapsed in the Interest Accrual Period divided
by 360 days and (2) for each other class of class A
notes, one-twelfth, and (z) the note rate for that
class of class A notes, and
(y) any Class A Overdue Interest attributable to that class of class A
notes paid on such payment date.
Class A Overdue Principal: With respect to any payment date, the
difference, if any, equal to (a) the aggregate of the Class A Base Principal
Distribution Amounts due on all prior payment dates and (b) the aggregate amount
of the principal, from whatever source, actually distributed to class A
noteholders on all prior payment dates.
Class A Percentage: 88.0%.
Class A Termination Date: The payment date on which the note principal
balance of each class of class A notes is reduced to zero.
Class B Accelerated Percentage: 7.66%.
Class B Additional Principal Distribution Amount: Means, (a) with
respect to any payment date prior to the Class A Termination Date, zero; (b)
with respect to the Class A Termination Date, the excess, if any, of (x) any
Unscheduled Payments with respect to the related collection period, over (y) the
amount of such sum necessary to reduce the note principal balance of each class
of class A notes to zero; and (c) with respect to any period following the Class
A Termination Date, the amount described in clause (b)(x) above, to the extent
necessary to reduce the class B note principal balance to zero.
Class B Base Principal Distribution Amount: Means, (a) with respect to
any payment date prior to the Class A Termination Date, the sum of (x) the
product of (1) the Class B Percentage and (2) the Base Principal Amount for such
payment date, (y) the Class B Additional Principal Distribution Amount and (z)
the product of (1) the Class B Accelerated Percentage and (2) the amount of any
funds released from the pre-funding account as a prepayment of principal; and
(b) with respect to the Class A Termination Date, the amount described in clause
(a) above plus the portion of the Class A Base Principal Distribution Amount,
not applied as a reduction of the note principal balance of the class A notes,
on such date.
Class B Collateralized Balance: The positive difference, if any, of the
class B note principal balance over the Class B Uncollateralized Balance.
Class B Maturity Date: Means the final stated maturity date for each
class of class B notes, which is November 15, 2007.
Class B Note Current Junior Interest: With respect to any payment date,
the interest accrued during the related Interest Accrual Period, equal to the
product of (x) one-twelfth of the class B note rate and (y) the aggregate Class
B Uncollateralized Balance outstanding on the immediately preceding payment
date.
Class B Note Current Priority Interest: With respect to any payment
date, the interest accrued during the related Interest Accrual Period, equal to
the product of (x) one-twelfth of the class B note rate and (y) the aggregate
Class B Collateralized Balance outstanding on the immediately preceding payment
date.
Class B Note Junior Interest: With respect to any payment date, the
Class B Note Current Junior Interest and the Class B Overdue Junior Interest.
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Class B Note Priority Interest: With respect to any payment date, the
Class B Note Current Priority Interest and the Class B Overdue Priority
Interest.
Class B Overdue Junior Interest: With respect to any payment date, the
difference between (x) the sum of,
(1) the excess, if any, of any Class B Note Junior
Interest due on the immediately preceding payment
date over the Class B Note Junior Interest paid on
such immediately preceding payment date,
(2) without duplication of the amount described in clause
(1), the amount of the Class B Overdue Junior
Interest due and unpaid as of the immediately
preceding payment date and
(3) the product of (x) the sum of clauses (1) and (2),
(y) one-twelfth and (z) the sum of the class B note
rate plus 1%, and
(y) any Class B Overdue Junior Interest paid on such payment date.
Class B Overdue Principal: With respect to any payment date, the
difference, if any, equal to (a) the aggregate of the Class B Base Principal
Distribution Amounts due on all prior payment dates and (b) the aggregate amount
of the principal, from whatever source, actually distributed to class B
noteholders on all prior payment dates.
Class B Overdue Priority Interest: With respect to any payment date,
the difference between (x) the sum of,
(1) the excess, if any, of any Class B Note Priority
Interest due on the immediately preceding payment
date over the Class B Note Priority Interest paid on
such immediately preceding payment date,
(2) without duplication of the amount described in clause
(1), the amount of the Class B Overdue Priority
Interest due and unpaid as of the immediately
preceding payment date and
(3) the product of (x) the sum of clauses (1) and (2),
(y) one-twelfth and (z) the sum of the class B note
rate plus 1%, and
(y) any Class B Overdue Priority Interest paid on such payment date.
Class B Percentage: 7.3%.
Class B Termination Date: The payment date on which the class B note
principal balance is reduced to zero.
Class B Uncollateralized Balance: The positive difference, if any, of
(x) the sum of (a) the class A note principal balance and (b) the class B note
principal balance, over (y) the sum of (a) the Aggregate Discounted Contract
Principal Balance of all of the contracts and (b) the Pre-Funding Collateral
Amount.
Controlling Party: Means the note insurer, but if the note insurer has
defaulted on its obligations under the note insurance policy and such default is
continuing, the Controlling Party shall mean the majority of the holders of the
notes.
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Cumulative Loss Event: Means that the sum of the Defaulted Contract
Amounts (as of the first payment date for which such contract is classified as a
Defaulted Contract) of all contracts which have become Defaulted Contracts, on a
cumulative basis since the closing date, less any Defaulted Contract Recoveries,
exceeds an amount equal to 5.25% of the Initial Aggregate Collateral Balance.
Cut-Off Date: Means (x) with respect to the initial contracts, the
close of business on May 31, 1999, and (y) with respect to any subsequent
contracts or substitute contracts, the close of business on the last day of the
month preceding the month in which the contract was transferred to the
transferors.
Defaulted Contract: A contract becomes a "Defaulted Contract" at the
earliest of the date on which,
o the servicer has determined in its sole discretion, in
accordance with the servicing standard and its customary
servicing procedures, that such contract is not collectible,
o all or part of a Scheduled Payment thereunder is more than 120
days delinquent,
o the servicer elected not to make a servicer advance or for
which the servicer has determined that a prior servicer
advance is not recoverable or
o a bankruptcy proceeding has been instituted by or against the
obligor, and the obligor has failed to make a Scheduled
Payment or Final Scheduled Payment.
Defaulted Contract Amounts: Means, with respect to any payment date,
the sum of (x) the present value of all of the remaining scheduled payments and
any Final Scheduled Payment due or to become due under each contract which
became a Defaulted Contract during the related collection period, discounted
monthly at the actual discount rate and (y) any scheduled payments theretofore
due and not paid by the obligor.
Defaulted Contract Recoveries: All proceeds of the sale or re-lease of
equipment related to Defaulted Contracts and any amounts collected as judgments
against an obligor or others related to the failure of such obligor to pay any
required amounts under the related contract or to return the equipment, in each
case as reduced by (x) any unreimbursed servicer advances with respect to such
contract and (y) any reasonably incurred out-of-pocket expenses incurred by the
servicer in enforcing such contract or in liquidating such equipment.
Delinquency Trigger Event: Exists on any payment date on which the
average of the Delinquency Trigger Ratios for such payment date and the two
immediately preceding payment dates exceeds 3%. Once a Delinquency Trigger Event
occurs, then such condition shall be deemed to continue until the payment date
which is the third consecutive payment date for which the average of the
Delinquency Trigger Ratio for such payment date and the two immediately
preceding payment dates is less than 3%.
Delinquency Trigger Ratio: With respect to any payment date, the
quotient, expressed as a percentage of (a) the Aggregate Discounted Contract
Principal Balance of all contracts as to which all or a portion of a scheduled
payment remained unpaid for more than 60 days from its due date, determined as
of the end of the immediately preceding calendar month, divided by (b) the
Aggregate Discounted Contract Principal Balance of all contracts as of the last
day of the immediately preceding calendar month.
Delinquent Contract: As of any determination date, any contract --
other than a contract which became a Defaulted Contract prior to such
determination date -- with respect to which all or a portion of any scheduled
payment was not received by the servicer as of 30 days from its due date.
Discounted Contract Principal Balance: With respect to any contract, on
any determination date, the sum of the present value of all of the remaining
scheduled payments and any Final Scheduled Payment
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becoming due under such contract after the end of the prior collection period,
discounted monthly at the actual discount rate in the manner described below;
provided, however, that except to the extent expressly provided in the Servicing
Agreement, the Discounted Contract Principal Balance of any Defaulted Contract,
Early Termination Contract, Expired Contract or contract reacquired by the
originator pursuant to the Servicing Agreement, shall be equal to zero.
In connection with all calculations required to be made pursuant to the
Transaction Documents with respect to the determination of Discounted Contract
Principal Balances, for any date of determination the "Discounted Contract
Principal Balance" for each contract shall be calculated assuming:
o scheduled payments are due on the last day of each collection
period;
o scheduled payments are discounted on a monthly basis using a
30-day month and a 360-day year; and
o scheduled payments are discounted to the last day of the
collection period prior to the determination date.
Early Termination Contract: Any contract that has terminated pursuant
to the terms of such contract prior to its scheduled expiration date, other than
a Defaulted Contract.
Expired Contract: Any contract that has terminated on its scheduled
expiration date.
Event of Default: Has the meaning given in "Description of the Notes --
Events of Default" in this prospectus supplement.
Event of Servicing Termination: Has the meaning given in "Description
of the Notes -- Events of Servicing Termination" in this prospectus supplement.
Final Scheduled Payment: With respect to any contract, any payment set
forth in such contract other than the regular scheduled payment which is
required to be paid by the related obligor at the maturity of such contract.
Indenture Trustee Expenses: Means the sum of the reimbursement to the
indenture trustee for its reasonable expenses in its capacity as indenture
trustee, including, without limitation, amounts payable to the indenture
trustee, in its capacity as back-up servicer, in respect of a transfer of
servicing from the servicer to the back-up servicer, and indemnification for
loss, liability or expense incurred without negligence or bad faith on its part,
arising out of performance of its duties thereunder.
Initial Aggregate Collateral Balance: The sum of (x) the Aggregate
Discounted Contract Principal Balance of the contracts as of the Cut-Off Date,
and (y) the Pre-Funded Collateral Amount on the closing date.
Initial Unpaid Amount: With respect to a contract, the excess of (x)
the aggregate amount of all scheduled payments due prior to the Cut-Off Date
over (y) the aggregate of all Scheduled Payments made prior to the Cut-Off Date
with respect to such contract.
Interest Accrual Period: With respect to any payment date, the period
from and including the prior payment date to but excluding such payment date and
with respect to the initial payment date, (x) for the class A-1 notes, the
period from and including the closing date up to but excluding such payment
date, and (y) for each other class of notes, the period from and including June
15, 1999 up to but excluding such payment date.
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Net Charge-Off Event: Exists on any payment date on which the weighted
average of the Net Charge-Off Ratio for such payment date and the two
immediately preceding payment dates exceeds 2.5%. Once a Net Charge-Off Event
occurs, then such condition shall be deemed to continue until the payment date
which is the fourth consecutive payment date for which the weighted average of
the Net Charge-Off Ratio for such payment dates and the two immediately
preceding payment dates is less than 2.5%.
Net Charge-Off Ratio: With respect to any payment date, twelve times
the quotient, expressed as a percentage, of (a) the sum of the Discounted
Contract Principal Balance of all contracts that become Defaulted Contracts
during the immediately preceding calendar month -- regardless of whether a
substitute contract was provided therefor -- less all recoveries received during
the immediately preceding calendar month, including, but not limited to,
liquidation proceeds, divided by (b) the Aggregate Discounted Contract Principal
Balance of all contracts as of the end of the immediately preceding calendar
month. For the purposes of the calculation of the Net Charge-Off Ratio, the
Discounted Contract Principal Balance of any contract which is a Defaulted
Contract shall not be zero, but shall instead be calculated as provided in the
definition of Discounted Contract Principal Balance without reference to the
last proviso in such definition.
Pre-Funded Collateral Amount: As of any date of determination, is the
amount on deposit in the pre-funding account, divided by 95.3%.
Premium Amount: With respect to any payment date, the product of (a)
one-twelfth, (b) the Premium Rate and (c) the outstanding class A note principal
balance as of the end of the immediately preceding collection period.
Premium Rate: Has the meaning given in the Premium Letter, dated as of
June 1, 1999, between the originator and the note insurer.
Prepayment: With respect to a collection period and a contract other
than a Defaulted Contract, the amount received by the servicer during such
collection period from or on behalf of an obligor with respect to such contract
in excess of the sum of (x) any scheduled payment and any Final Scheduled
Payment due during such collection period, plus (y) the aggregate of any overdue
Scheduled Payments, Initial Unpaid Amounts and unpaid Servicing Charges for such
contract, so long as such amount is designated by the obligor as a prepayment
and the servicer has consented to such prepayment. Neither Residual Receipts nor
Defaulted Contract Recoveries are Prepayments.
Prepayment Amount: With respect to a payment date and a contract, an
amount, without duplication, equal to the sum of,
o the Discounted Contract Principal Balance as of the beginning
of the immediately preceding collection period -- without any
deduction for any security deposit paid by an obligor, unless
such security deposit has been deposited in the collection
account pursuant to the Indenture,
o the product of (x) the Discounted Contract Principal Balance
of such contract as of the beginning of the immediately
preceding collection period and (y) one-twelfth of the actual
discount rate, and
o any scheduled payments theretofore due and not paid by an
obligor.
Purchase Option Payment: With respect to a contract, any payment set
forth in such contract payable by the obligor (including any security deposit
applied in respect thereof) upon the exercise of a purchase option for the
equipment relating to such contract at the end of the term of such contract,
whether or not the obligor actually exercises such purchase option, or with
respect to any contract which does not set
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forth a purchase option, any payment made by an obligor to purchase the
equipment relating to such contract at the end of the term of such contract.
Reacquisition Amount: With respect to a payment date and a contract,
the sum, without duplication, of,
o the Discounted Contract Principal Balance as of the beginning
of the immediately preceding collection period (without any
deduction for any security deposit paid by an obligor, unless
such security deposit has been deposited in the collection
account pursuant to the Indenture),
o the product of (x) Discounted Contract Principal Balance of
such contract as of the beginning of the immediately preceding
collection period and (y) one-twelfth of the actual discount
rate, and
o any scheduled payments theretofore due and not paid by an
obligor.
Reimbursement Amount: As of any payment date, the sum of (x)(a) all
insured payments under the note insurance policy previously received by the
indenture trustee from the note insurer and not previously repaid to the note
insurer pursuant to the Indenture plus (b) interest accrued on each such insured
payment, at the late payment rate specified in the Insurance Agreement, not
previously repaid to the note insurer from the date the indenture trustee
received the related insured payment to, but not including, such payment date
and (y)(a) any amounts then due and owing to the note insurer under the
Insurance Agreement plus (b) interest on such amounts at the late payment rate
specified in the Insurance Agreement.
Residual Balance: As of any payment date, the difference, if any,
between (a) the sum of (x) the Aggregate Discounted Contract Principal Balance
of all contracts as of the end of the immediately preceding collection period
and (y) the amount on deposit in the pre-funding account, and (b) the sum of (x)
the outstanding class A note principal balance and (y) the outstanding class B
note principal balance (each, without taking into account any previous
distributions thereon attributable to Residual Receipts), after taking into
account any distributions on such payment date.
Residual Receipts: All Purchase Option Payments or other proceeds of
the sale, re-lease or re-marketing of the underlying equipment, to the extent
such proceeds exceed any scheduled payments and any Final Scheduled Payments
remaining unpaid, but limited to the originator's booked residual value for such
contract.
Restricting Event: An event which shall occur on a payment date on
which,
o an Event of Servicing Termination has occurred under the
Servicing Agreement and is not cured within the grace period
set forth in the Servicing Agreement,
o the note insurer makes an insured payment under the note
insurance policy,
o a Net Charge-Off Event exists,
o a Delinquency Trigger Event exists,
o a Subordination Deficiency Event exists, or
o a Cumulative Loss Event exists.
Subordination Deficiency Event: Exists on any payment date on which (x)
the excess of (1) the sum of (A) the Aggregate Discounted Contract Principal
Balance of the contracts as of the end of the immediately preceding collection
period and (B) the Pre-Funded Collateral Amount as of the end of the
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immediately preceding collection period, over (2) the outstanding class A
note principal balance on such payment date, after taking into account
distributions which would have been made on such payment date, is less than (y)
3% of the Initial Aggregate Collateral Balance.
Transfer Agreements: Means the Receivables Sale Agreement and the
Receivables Pledge Agreement.
Trust Operating Expenses: With respect to any payment date, an amount
equal to the amounts owing to the servicer, the back-up servicer, the note
insurer and the indenture trustee pursuant to the Indenture and payable out of
Available Funds in priority to the Class A Note Interest then owing to the class
A noteholders.
Unscheduled Payments: With respect to any payment date, any Prepayment
Amount, Residual Receipts and Reacquisition Amounts received on account of a
contract during the preceding calendar month and Defaulted Contract Amounts on
contracts which became Defaulted Contracts during the preceding calendar month.
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Report of Independent Auditors
First Union Trust Company, National Association,
as Owner Trustee of
ABFS Equipment Contract Trust 1999-A
We have audited the accompanying balance sheet of ABFS Equipment
Contract Trust 1999-A, a Delaware business trust as of June 25, 1999. This
balance sheet is the responsibility of the trust. Our responsibility is to
express an opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in
all material respects, the financial position of ABFS Equipment Contract Trust
1999-A, at June 25, 1999, in conformity with generally accepted accounting
principals.
BDO Seidman LLP
June 25, 1999
Philadelphia, Pennsylvania
A-1
<PAGE>
Index to Financial Statements
Page
----
Report of Independent Auditors.............................................A-1
Balance Sheet of the Trust as of June 25, 1999.............................A-3
Notes to Balance Sheet.....................................................A-4
A-2
<PAGE>
ABFS Equipment Contract Trust 1999-A
Balance Sheet
June 25, 1999
- --------------------------------------------------------------------------------
Assets
Cash.................................................... $ 1,000
---------
Total assets....................................... $ 1,000
=========
Liabilities and Certificateholders Equity
Liabilities............................................. $ 0
Certificateholders equity............................... $ 1,000
---------
Total liabilities and certificateholders equity.... $ 1,000
=========
See accompanying notes.
A-3
<PAGE>
ABFS Equipment Contract Trust 1999-A
Notes to Balance Sheet
June 25, 1999
1. Organization
ABFS Equipment Contract Trust 1999-A, a Delaware statutory business
trust, was organized in the state of Delaware on June 25, 1999, with First Union
Trust Company, National Association, as its owner trustee.
The trust was organized to engage exclusively in the following business
and financial activities: to purchase or acquire from certain direct and
indirect subsidiaries of American Business Leasing, Inc. certain property
relating to certain receivables consisting of small-ticket equipment leases and
commercial loans and the security interests in the underlying equipment, and to
pledge such receivables or interests therein to The Chase Manhattan, as
indenture trustee.
2. Capital Contribution
ABFS Finance LLC, 1999-A and ABFS Residual LLC, 1999-A together made an
initial capital contribution of $1,000 to the trust on June 1, 1999.
3. Registration Statement
At June 1, 1999, the trust was in the process of preparing to issue up
to $80 million of its Equipment Contract-Backed Notes, Series 1999-A.
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PROSPECTUS
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Equipment Lease Backed Securities Issuable in Series
PRUDENTIAL SECURITIES SECURED FINANCING
CORPORATION,
Depositor
This Prospectus describes certain Equipment Lease Backed Notes (the
"Notes") and Equipment Lease 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
finance leases, installment sale contracts, loan contracts or participation
interests therein, together with all monies received relating thereto (the
"Contracts"). Each Trust Fund may also include a security interest in the
underlying equipment and property relating thereto, together with the proceeds
thereof (the "Equipment" 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 "RISK
FACTORS" 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 "RISK FACTORS."
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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 March 26, 1999.
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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, Suite 1400, 14th Floor, Chicago, Illinois 60661 and
Seven World Trade Center, 13th Floor, New York, New York 10048. The Commission
maintains a site on the World Wide Web at http://www.sec.gov containing reports,
proxy materials, information statements and other items. 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, One New York Plaza, New York, New York 10292,
Attention: Joe Donovan (212) 778-1000.
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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."
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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 Incorporated The Depositor's principal executive
offices are located at One New York Plaza, New York, New York 10292, and
its telephone number is (212) 778-1000. 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 Equipment
("Vendors") and acquired by the related Originator or (iii) 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".
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, as amended, and the Investment Company Act
of 1940, as amended.
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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 finance leases, installment sale contracts, loan contracts
or participation interests therein, together with all monies received
relating thereto (the "Contracts"). Each Trust Fund also may include a
security interest in the underlying equipment and property relating
thereto, together with the proceeds thereof (the "Equipment" and together
with the Contracts, the "Receivables").
The Equipment underlying the Receivables included in each Trust Fund will be
limited to personal property which is leased or financed by the related
Originator to the Lessee pursuant to Contracts which either are "chattel
paper" (as defined in the Uniform Commercial Code) or would be "chattel
paper" but for a technical definitional matter, but in any event are not
treated materially differently from "chattel paper" for purposes of title
transfer, security interests or remedies on default. Such Equipment will be
further limited to personal property which is subject to Uniform Commercial
Code provisions relating to title transfer, security interests and remedies
on default and further limited to Equipment leased to the related Lessee for
use by such Lessee in the ordinary course of business or for home use such
as medical equipment, restaurant equipment, film and video production
equipment, other industrial and production equipment, data processing
equipment, telecommunications equipment, office equipment and furniture.
No Trust Fund will include Receivables with respect to which the related
Contract or the related Equipment is subject to federal or state
registration or titling requirements which (x) differ materially from, or
supplant, standard Uniform Commercial Code provisions governing the manner
in which title or security interests in "chattel paper" (as defined in the
Uniform Commercial Code) or the related equipment is determined or perfected
or (y) differ materially from, or supplant, standard Uniform Commercial Code
provisions governing remedies on default. By way of illustration of the
foregoing, no Trust Fund will include Receivables with respect to which the
underlying Contracts or Equipment relate to motor vehicles, 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. However, the Receivables may generally include Contracts and a
security interest in theEquipment relating to individual, discrete
components of assets such as the foregoing; for example a leased computer on
the ship may qualify as "Equipment", a security interest in which may be
included in a Trust Fund, provided that both the lease and the computer are
generally within the scope of the Uniform Commercial Code.
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
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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.
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 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
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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
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
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"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.
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
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(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 of such Trust Fund changes from time to
time. In addition, the Depositor may cause one or more of the Trusts
(such a Trust, a xxxxx "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
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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).
Trust Fund.......................... As specified in the related Prospectus Supplement, each Trust Fund will
consist of the related Contracts, and may include a security interest in
the related Equipment. 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
lease (a "Lease") or purchase of the Equipment, or evidence borrowings
used to acquire the Equipment, entitling the obligor thereunder (the
"Lessor") to payments of rent and related payments and to either the
return of the Equipment at the termination of the related Contract or,
with respect to certain of the Contracts, the payment of a purchase price
for the Equipment at the election of the obligee thereunder (the
"Lessee").
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The Leases will consist of finance leases. "Finance Leases" usually have a
term greater than three years. In a Finance Lease, the Lessor transfers
substantially all benefits and risks of ownership to the Lessee. In
accordance with Statement of Financial Accounting Standards No. 13 ("FASB
13"), a Lease is classified as a Finance Lease if the collectibility of
lease payments are reasonably certain and it meets one of the following
criteria: (1) the Lease transfers title and ownership of the Equipment to
the Lessee by the end of the Lease term; (2) the Lease contains a bargain
purchase option; (3) the Lease term at inception is at least 75% of the
estimated life of the Equipment; or (4) the present value of the minimum
Lease payments is at least 90% of the fair market value of the Equipment at
inception of the Lease. Installment sale contracts and loan contracts (the
"Purchase Contracts") secured by the related Equipment provide for scheduled
payments which fully amortize the amount financed by an obligor. The related
Prospectus Supplement will 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 Vendors and
acquired by such Originator or (iii) 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
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 Pre-Funding Account (the
"Pre-Funding Account") to be established with the Trustee, which will be
used to acquire Additional Receivables from time to
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time during the "Pre-Funding Period" specified in the related Prospectus
Supplement.
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."
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.
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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 Contracts.................... 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 security interest in the Equipment.
Each Prospectus Supplement will specify if the related Originator or the
Depositor has filed or will be required to file UCC (as herein defined)
financing statements identifying the Equipment as collateral pledged in
favor of the related Trust or Trustee on behalf of the Securityholders. In
the absence of such filings any security interest in the Equipment will not
be perfected in favor of the related Trust or Trustee. See "Risk Factors --
Certain Legal Aspects" and "Interests in the Conveyed Property -- UCC and
Bankruptcy Considerations."
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
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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.
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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RISK FACTORS
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.
Security Interest in the Equipment. Unless otherwise described in the
related Prospectus Supplement, the related Originator will also contribute a
security interest in all of its right, title and interest in and to the related
Equipment to the Depositor. The Receivables Acquisition Agreement shall require
the Originator to make certain representations and warranties with respect to
the security interest in the Equipment. The Depositor shall pledge a security
interest in all of its right, title and interest in and to such Equipment to the
Trust. Pursuant to a Trust Agreement, the Depositor shall warrant that it has
granted to the Trustee for the benefit of Securityholders a valid security
interest in such Equipment.
As specified herein and related Prospectus Supplement, because of the
administrative burden and expense that would be entailed in so doing, neither
the Originators nor the Depositor will file, or necessarily will be required to
file, UCC financing statements identifying the Equipment as collateral pledged
in favor of the related Trust or Trustee on behalf of the Securityholders. In
the absence of such filings any security interest in the Equipment will not be
perfected in favor of the related Trust or Trustee. As a result the Trust or
Trustee could lose priority of its security interest in such Equipment. Neither
the
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Originators nor the Depositor will have any obligation to reacquire Equipment as
to which such aforementioned occurrence results in the loss of lien priority
after the date such Trust Fund receives an interest in such Equipment unless
otherwise obligated in the related Prospectus Supplement.
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 Lessees thereunder are
absolute and unconditional, regardless of any defense, set-off or abatement
which the Lessee 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 Equipment 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 financing statements to perfect the security interest
in the Equipment had been filed, depreciation, obsolescence, damage or loss of
any item of Equipment, 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.
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
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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.
Lessees of the Equipment 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.
Equipment Obsolescence. In the event a Contract becomes a Defaulted
Contract and the Lessee (and any guarantor) has insufficient assets available to
pay the Contract payments on the scheduled payment dates, the only other source
of moneys (other than the applicable credit enhancements, if any) for such
amounts will be the income and proceeds from the disposition of the related
Equipment. Because the market value of equipment generally declines with age and
may be subject to sudden, significant declines in value because of technological
advances, in the event of a repossession and sale of Equipment subject to a
Defaulted Contract, the Issuer may not recover the entire amount due on such
Contract. As a result, the Securityholders may be subject to delays in receiving
payments and suffer loss of their investment in the Securities.
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
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
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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
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
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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.
Certain UCC Considerations. Certain states have adopted a version of
Article 2A of the Uniform Commercial Code ("Article 2A"). Article 2A purports to
codify many provisions of existing common law. Although there is little
precedent regarding how Article 2A will be interpreted, it may, among other
things, limit enforceability of any "unconscionable" lease or "unconscionable"
provision in a lease, provide a lessee with remedies, including the right to
cancel the lease contract, for certain lessor breaches or defaults, and may add
to or modify the terms of "consumer leases" and leases where the lessee is a
"merchant lessee". Article 2A, moreover, recognizes typical commercial lease
"hell or high water" rental payment clauses and validates reasonable liquidated
damages provisions in the event of lessor or lessee defaults. Article 2A also
recognizes the concept of freedom of contract and permits the parties in a
commercial context a wide degree of latitude to vary provisions of the law.
Contracts Related to Software and Services. Certain Contracts, as
described in the related Prospectus Supplement, may relate to software and
services that are not owned by the related Originator and in which no related
interest will be transferred to the Issuer. Accordingly, if any such Contract
becomes a Defaulted Contract, the Issuer will not realize any proceeds from the
related software and services from which to satisfy any unpaid payments under
such Contracts.
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 Equipment relating to such pool of
Receivables, (v) the right to proceeds from claims on physical damage policies,
if any, covering such Equipment or the related Lessees, as the case may be, (vi)
the proceeds of any repossessed Equipment 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 Vendors and acquired by the related
Originator or (iii) acquired by the related Originator from originators or other
lessors of Receivables.
The Equipment underlying the Receivables included in each Trust Fund
will be limited to personal property which is leased or financed by the related
Originator to the Lessee pursuant to Contracts which either are "chattel paper"
(as defined in the Uniform Commercial Code) or would be "chattel paper" but for
a technical definitional matter, but in any event are not treated materially
differently from "chattel paper"
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for purposes of title transfer, security interests or remedies on default. The
Equipment underlying the Receivables will be further limited to personal
property which is subject to Uniform Commercial Code provisions relating to
title transfer, security interests and remedies on default and further limited
to Equipment leased to the related Lessee for use by such Lessee in the ordinary
course of business or for home use such as medical equipment, restaurant
equipment, film and video production equipment, other industrial and production
equipment, data processing equipment, telecommunications equipment, office
equipment and furniture.
No Trust Fund will include Receivables with respect to which the
related Contract or the related Equipment is subject to federal or state
registration or titling requirements which (x) differ materially from, or
supplant, standard Uniform Commercial Code provisions governing the manner in
which title or security interests in "chattel paper" (as defined in the Uniform
Commercial Code) or the related equipment is determined or perfected or (y)
differ materially from, or supplant, standard Uniform Commercial Code provisions
governing remedies on default. By way of illustration of the foregoing, no Trust
Fund will include Receivables with respect to which the underlying Contracts or
Equipment relate to motor vehicles, 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. However, Receivables may
include Contracts and a security interest in the Equipment relating to
individual, discrete components of assets such as the foregoing; for example a
leased computer on the ship may qualify as "Equipment", a security interest in
which may be included in a Trust Fund, provided that both the lease and the
computer are generally within the scope of the Uniform Commercial Code.
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.
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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 Lessees on the related Contracts, and the proceeds from the
sale of Equipment 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.
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.
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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.
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 Incorporated (a wholly-owned indirect
subsidiary of The Prudential Insurance Company of America). The Depositor's
principal executive offices are located at One New York Plaza, New York, New
York 10292. Its telephone number is (212) 778-1000.
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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
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 Incorporated 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.
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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.
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.
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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
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
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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.
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").
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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
clearing system by its Depositary; however, such cross-market transactions will
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
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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
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.
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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 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;
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(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.
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
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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 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
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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
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
Lessee 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.
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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 Lessees will be allocated to scheduled payments and
late fees and other charges in accordance with such Servicer's normal practices
and procedures.
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 Lessees on the related Receivables, investigating
delinquencies, sending payment coupons to Lessees, reporting tax information to
Lessees, 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
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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.
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
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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.
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
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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
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.
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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
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 Contracts that comprise 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.
The Equipment
The related Originator will convey a security interest in the related
Equipment to the Depositor. UCC financing statements will not be filed to
perfect any security interest in the Equipment unless otherwise specified in the
related Prospectus Supplement. Moreover, in the event of the repossession
36
<PAGE>
and resale of Equipment, it may be subject to a superior lien. In such case, the
senior lienholder may be entitled to be paid the full amount of the indebtedness
owed to it out of the sale proceeds before such proceeds could be applied to the
payment of claims of the related Servicer on behalf of the Trust.
In the event of a default by the Lessee, the related Servicer on behalf
of the related Trustee may take action to enforce such Defaulted Contract by
repossession and resale of the leased Equipment. Under the UCC in most states, a
creditor can, without prior notice to the debtor, repossess assets securing a
defaulted contract by the Lessee's voluntary surrender of such assets or by
"self-help" repossession that does not involve a breach of the peace and by
judicial process.
In the event of a default by the Lessee, some jurisdictions require
that the Lessee be notified of the default and be given a time period within
which it may cure the default prior to repossession. Generally, this right of
reinstatement may be exercised on a limited number of occasions in any one-year
period.
The UCC and other state laws place restrictions on repossession sales,
including requirements that the secured party provide the Lessee 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 and that any such sale be
conducted in a commercially reasonable manner. Each Trust Agreement may require
the related Servicer to sell promptly any repossessed item of Equipment,
reacquire such Equipment from the Trust Fund, re - lease such Equipment for the
benefit of the Securityholders or take such other action as specified in the
related Prospectus Supplement.
Under most state laws, a Lessee has the right to redeem collateral for
its obligations prior to actual sale by paying the secured party the unpaid
balance of the obligation plus reasonable expenses for repossession, holding and
preparing the collateral for disposition and arranging for its sale, plus, to
the extent provided for in the written agreement of the parties, reasonable
attorneys' fees.
In addition, because the market value of the equipment of the type
financed pursuant to the Receivables generally declines with age and because of
obsolescence, the net disposition proceeds of leased Equipment at any time
during the term of the lease may be less than the outstanding balance on the
Contract principal balance which it secures. Because of this, and because other
creditors may have rights in the related leased Equipment superior to those of
the related Trust Fund, the related Servicer may not be able to recover the
entire amount due on a Defaulted Contract in the event that such Servicer elects
to repossess and sell such leased Equipment at any time.
Under the UCC and laws applicable in most states, a creditor is
entitled to obtain a deficiency judgment from a Lessee for any deficiency on
repossession and resale of the asset securing the unpaid balance of such
Lessee's contract. However, some states impose prohibitions or limitations on
deficiency judgments. In most jurisdictions the courts, in interpreting the UCC,
would impose upon a creditor an obligation to repossess the equipment in a
commercially reasonable manner and to "mitigate damages" in the event of a
Lessee's failure to cure a default. The creditor would be required to exercise
reasonable judgment and follow acceptable commercial practice in seizing and
disposing of the equipment and to offset the net proceeds of such disposition
against its claim. In addition, a Lessee may successfully invoke an election of
remedies defense to a deficiency claim in the event that the related Servicer's
repossession and sale of the leased Equipment is found to be a retention
discharging the Lessee from all further obligations under UCC Section 9-505(2).
If a deficiency judgment were granted, the judgment would be a personal judgment
against the Lessee for the shortfall, but a defaulting Lessee may 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.
Certain statutory provisions, including federal and state bankruptcy
and insolvency laws, may also limit the ability of the related Servicer to
repossess and resell collateral or obtain a deficiency judgment. In the event of
the bankruptcy or reorganization of a Lessee, various provisions of the
Bankruptcy Code of 1978 (the "Bankruptcy Code") and related laws may interfere
with or eliminate the ability of the Servicer or the Trustee to enforce its
rights under the Receivables. If bankruptcy
37
<PAGE>
proceedings were instituted in respect of a Lessee, the Trustee could be
prevented from continuing to collect payments due from or on behalf of such
Lessee or exercising any remedies assigned to such Trustee without the approval
of the bankruptcy court, and the bankruptcy court could permit the Lessee to use
or dispose of the leased Equipment and provide the Trustee with a lien on
substitute collateral, so long as such substitute collateral constituted
"adequate protection" as defined under the Bankruptcy Code.
In addition, certain of the Receivables may be leased by the Originator
to governmental entities. Payment by governmental authorities of amounts due
under such Contracts may be contingent upon legislative approval. Accordingly,
payment delays and collection difficulties as described in the related
Prospectus Supplement may limit collections with respect to certain governmental
Contracts.
These UCC and bankruptcy provisions, in addition to the possible
decrease in value of a repossessed item of Equipment may limit the amount
realized on the sale of the collateral to less than the amount due on the
related Receivable.
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:
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.
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<PAGE>
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 LLP, New York, New York, or
other counsel specified in the related Prospectus Supplement.
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.
39
<PAGE>
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.
40
<PAGE>
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.
<TABLE>
<CAPTION>
<S> <C>
Accrual Securities............................................................................6
Additional Receivables.......................................................................11
Article 2A...................................................................................18
Bankruptcy Code..............................................................................37
Cede.........................................................................................11
CEDEL Participants...........................................................................27
Certificates...............................................................................1, 4
Class.........................................................................................1
clearing agency..............................................................................25
clearing corporation.........................................................................25
Collection Account...........................................................................30
Collection Period............................................................................31
Commission....................................................................................2
Contracts..................................................................................1, 4
Cooperative..................................................................................27
Credit Enhancement...........................................................................17
Credit Enhancer..............................................................................17
Debt Securities..............................................................................13
Debtors......................................................................................15
Definitive Securities........................................................................28
Depositaries.................................................................................25
Depositor.................................................................................3, 21
Direct Participants..........................................................................17
Discounted Contract Balance..................................................................10
Distribution Account.........................................................................30
DTC..........................................................................................11
Eligible Deposit Account.....................................................................30
Eligible Institution.........................................................................30
Eligible Investments.........................................................................30
Equipment..............................................................................1, 4, 19
Equity Certificates...........................................................................8
Equity Interest...............................................................................8
ERISA........................................................................................13
Euroclear Operator...........................................................................27
Euroclear Participants.......................................................................27
Event of Default.............................................................................28
Exchange Act..............................................................................2, 13
FASB 13......................................................................................10
Finance Leases...............................................................................10
Finance Subsidiary...........................................................................15
Fixed Income Securities.......................................................................6
Grantor Trust Securities.....................................................................13
Indenture.....................................................................................5
Indenture Trustee.............................................................................5
Indirect Participants....................................................................17, 25
Insolvency Laws..............................................................................15
Interest Rate..............................................................................2, 6
investment company............................................................................8
Investment Company Act........................................................................8
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Investment Earnings..........................................................................30
Issuer....................................................................................3, 19
Lease.........................................................................................9
Lessee........................................................................................9
Lessor........................................................................................9
Master Trust..................................................................................8
Master Trust Agreement........................................................................8
Master Trust New Issuance....................................................................24
Notes......................................................................................1, 4
Originator.................................................................................1, 3
Participants.................................................................................25
Partnership Interests........................................................................13
Pass-Through Rate.............................................................................2
Payment Date..................................................................................7
Policy.....................................................................................1, 4
Pool Balance.................................................................................21
Pool Factor..................................................................................21
Pooling Agreement.............................................................................5
Pre-Funding Account..........................................................................10
Pre-Funding Period...........................................................................11
Prepayment...................................................................................17
Prospectus Supplement.........................................................................1
Purchase Contracts...........................................................................10
Rating Agencies..............................................................................13
Ratings Effect...........................................................................17, 25
Receivables............................................................................1, 4, 31
Receivables Acquisition Agreement............................................................19
Record Date...................................................................................7
Registration Statement........................................................................2
Remittance Period.............................................................................7
Securities............................................................................1, 12, 13
Securities Act................................................................................2
Security Insurer.............................................................................11
Securityholder...............................................................................26
Securityholders...........................................................................7, 33
Senior Securities.............................................................................6
Servicer...................................................................................1, 3
Servicer Default.............................................................................34
Servicer Defaults............................................................................33
Servicing Agreement...........................................................................5
Servicing Fee................................................................................32
Servicing Fee Rate...........................................................................32
Strip Securities..............................................................................6
Subordinate Securities........................................................................7
Sub-Servicer..................................................................................3
Terms and Conditions.........................................................................27
The Trust Agreement..........................................................................22
Transferor....................................................................................3
Trust......................................................................................1, 3
Trust Accounts...............................................................................30
Trust Agreement...........................................................................5, 29
Trust Fund.................................................................................1, 4
Trustee.......................................................................................5
Vendors.......................................................................................3
</TABLE>
ii
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NO DEALER, SALESMAN OR 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 BY ANYONE IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS
NOT AUTHORIZED OR 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 SUPPLEMENT AND THE
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
<TABLE>
<S> <C>
Table of Contents..................................... S-iii
Summary............................................... S-1
Risk Factors.......................................... S-4
Transaction Overview.................................. S-7
The Contract Pool..................................... S-8
The Originator and the Servicer....................... S-19
Formation of the Trust................................ S-22
Description of the Notes.............................. S-22
The Indenture Trustee and the Back-up Servicer........ S-32
Prepayment and Yield Considerations................... S-33
The Note Insurance Policy............................. S-38
The Note Insurer...................................... S-41
Material Federal Income Tax Conseqquences............. S-43
State and Local Tax Considerations.................... S-47
ERISA Considerations.................................. S-47
Legal Investment...................................... S-48
Underwriting.......................................... S-48
Incorporation of Information by Reference............. S-49
Additional Information................................ S-50
Experts............................................... S-50
Legal Matters......................................... S-50
Ratings............................................... S-51
Glossary.............................................. S-52
</TABLE>
PROSPECTUS
<TABLE>
<S> <C>
Prospectus Supplement................................. 2
Available Information................................. 2
Incorporation of Certain Documents By Reference....... 2
Reports to Securityholders............................ 2
Summary of Terms...................................... 3
Risk Factors.......................................... 14
The Trust Funds....................................... 18
The Issuers........................................... 19
The Receivables....................................... 20
Pool Factors.......................................... 21
Use of Proceeds....................................... 21
The Depositor......................................... 21
The Trustee........................................... 22
Description of the Securities......................... 22
Description of the Trust Agreements................... 29
Certain Legal Aspects of the Receivables.............. 36
Certain Tax Considerations............................ 38
ERISA Considerations.................................. 38
Methods of Distribution............................... 38
Legal Opinions........................................ 39
Financial Information................................. 39
Additional Information................................ 40
Index of Terms........................................ 41
</TABLE>
$78,146,000
ABFS EQUIPMENT CONTRACT
TRUST 1999-A
ISSUER
AMERICAN BUSINESS FINANCIAL
SERVICES, INC.
AMERICAN BUSINESS LEASING, INC.
SERVICER
PRUDENTIAL SECURITIES
SECURED FINANCING CORPORATION
DEPOSITOR
$15,000,000
CLASS A-1 NOTES
$13,000,000
CLASS A-2 NOTES
$34,160,000
CLASS A-3 NOTES
$10,000,000
CLASS A-4 NOTES
$5,986,000
CLASS B NOTES
EQUIPMENT CONTRACT-BACKED NOTES,
SERIES 1999-A
----------------
PROSPECTUS SUPPLEMENT
----------------
PRUDENTIAL SECURITIES
JUNE 24, 1999
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