<PAGE>
Pursuant to Rule 424(b)(5)
Registration No. 333-52021
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus supplement and the accompanying prospectus +
+is not complete and may be changed. We may not sell these securities until we +
+deliver a final prospectus. This prospectus supplement and the accompanying +
+prospectus is not an offer to sell these securities and it is not soliciting +
+an offer to buy these securities in any state where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 9, 1999
Prospectus Supplement
To Prospectus dated November , 1999
- --------------------------------------------------------------------------------
$116,000,000
PeopleFirst.com Auto Receivables Owner Trust 1999-1
[LOGO OF PEOPLEFIRST.COM]
Asset-Backed Notes, Series 1999-1
PeopleFirst Finance, LLC
Originator and Servicer
Prudential Securities Secured Financing Corporation
Depositor
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proceeds to
Principal Interest Price to Underwriting the
Amount Rate Public(1) Discount Originator(2)
----------- -------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Class A-1 Notes...... $56,000,000 Fixed % % %
Class A-2 Notes...... $42,000,000 Fixed % % %
Class A-3 Notes...... $18,000,000 Fixed % % %
</TABLE>
- ------
(1) Plus accrued interest from November , 1999.
(2) Before deducting expenses payable by the Originator, estimated to be $ .
Full and timely payment of the noteholders' distributable amount on each
payment date is unconditionally and irrevocably guaranteed pursuant to a
financial guaranty insurance policy to be issued by:
[LOGO OF FSA]
Prospective investors should carefully read the "risk factors" beginning on
page S-8 in this prospectus supplement and on page 19 in the prospectus.
The notes represent obligations of the Issuer only and do not represent
obligations of or interests in, and are not guaranteed by, Prudential
Securities Secured Financing Corporation, PeopleFirst.com Inc., PeopleFirst
Finance, LLC or any of their affiliates.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement or the accompanying prospectus are accurate or
complete. Any representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
Delivery of the notes, in book-entry form only, will be made through The
Depository Trust Company, or through Cedelbank, societe anonyme or the
Euroclear System, on or about November , 1999, against payment in immediately
available funds.
Prudential Securities Barclays Capital
The date of this Prospectus Supplement is November , 1999
<PAGE>
Important Notice About Information Presented In This
Prospectus Supplement And The Accompanying Prospectus
We tell you about the notes in two separate documents that progressively
provide more detail: (a) the accompanying prospectus, which provides general
information, some of which may not apply to your notes; and (b) this
prospectus supplement, which describes the specific terms of your notes.
If the description of the terms of your notes vary between this prospectus
supplement and the prospectus, you should rely on the information in this
prospectus supplement.
You should rely only on the information provided in this prospectus
supplement and the accompanying prospectus, including the information
incorporated by reference. We have not authorized anyone to provide you with
different information.
We include cross-references in this prospectus supplement and in the
accompanying prospectus to captions in these materials where you can find
further related discussions. The Table of Contents below and the Table of
Contents included in the accompanying prospectus provide the page numbers on
which these captions are located.
We are not offering the notes in any state where the offer of the notes is
not permitted.
We do not claim the accuracy of the information in this prospectus
supplement as of any date other than the date stated on the cover of this
prospectus supplement.
Dealers will deliver a prospectus and prospectus supplement when acting as
underwriters of the notes and with respect to their unsold allotments or
subscriptions. In addition, all dealers that effect transactions in the notes,
whether or not participating in the offering of the notes, will be required to
deliver a prospectus and prospectus supplement until February , 1999.
- -------------------------------------------------------------------------------
You can find a list of the pages where capitalized terms used in this
prospectus supplement are defined under the caption Index of Defined Terms in
this prospectus supplement and under the caption Index of Terms in the
accompanying prospectus.
i
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SUMMARY OF TERMS.......................................... S-3
RISK FACTORS.............................................. S-8
THE TRUST................................................. S-13
THE TRUST FUND............................................ S-14
THE RECEIVABLES POOL...................................... S-14
THE TRANSFEROR............................................ S-21
THE DEPOSITOR............................................. S-22
PEOPLEFIRST AND THE SERVICER.............................. S-22
WEIGHTED AVERAGE LIFE OF THE SECURITIES................... S-26
DESCRIPTION OF THE NOTES.................................. S-26
DESCRIPTION OF THE CERTIFICATES........................... S-33
THE INSURER............................................... S-33
THE POLICY................................................ S-36
DESCRIPTION OF THE TRUST AGREEMENTS....................... S-38
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES.................. S-49
FEDERAL INCOME TAX CONSEQUENCES........................... S-49
STATE TAX CONSEQUENCES.................................... S-55
ERISA CONSIDERATIONS...................................... S-56
UNDERWRITING.............................................. S-57
EXPERTS................................................... S-58
LEGAL OPINIONS............................................ S-58
RATINGS OF THE NOTES...................................... S-58
</TABLE>
S-2
<PAGE>
SUMMARY OF TERMS
This summary highlights selected information from this prospectus supplement and
does not contain all of the information that you need to consider in making your
investment decision. To understand all of the terms of an offering of the
notes, carefully read this entire prospectus supplement and the accompanying
prospectus.
The Issuer
PeopleFirst.com Auto Receivables Owner Trust 1999-1, a Delaware business
trust, will issue the notes.
Originator
PeopleFirst Finance LLC originates the auto loans and will sell and
contribute the auto loans to the transferor. PeopleFirst Finance LLC is a
California limited liability company, whose executive offices are located at 401
West A Street, Suite 1000, San Diego, California.
Transferor
PF Funding II, LLC will assign the auto loans to the depositor. PF Funding
II, LLC is a Delaware limited liability company and is a wholly-owned subsidiary
of the originator.
Depositor
Prudential Securities Secured Financing Corporation (formerly known as P-B
Secured Financing Corporation) will assign the auto loans to the issuer.
Prudential Securities Secured Financing Corporation is a Delaware corporation
and is 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.
Servicer
PeopleFirst Finance LLC will service the auto loans assigned to the issuer.
Indenture Trustee, Backup Servicer
and Indenture Collateral Agent
Norwest Bank Minnesota, National Association will serve as the indenture
trustee under the indenture, as backup servicer under the sale and servicing
agreement, as indenture collateral agent for the reserve account and as
custodian for the receivables files.
Owner Trustee
Wilmington Trust Company will serve as trustee of the issuer.
Initial Cut-off Date
Beginning of business on November 1, 1999. The issuer will receive payments
due on, or received with respect to, the auto loans on or after this date.
Closing Date
The issuer will issue the notes on or about November __, 1999.
Payment Dates
The first payment date will be December 15, 1999. After that, the payment
dates will be the 15th day of each month if the 15th day is a business day. If
the 15th day is not a business day, then the payment date will be the following
business day.
The Notes
Each class of notes will have the initial principal amount and interest rate
set forth in the following table.
S-3
<PAGE>
<TABLE>
<CAPTION>
Principal Interest
Class Amount Rate
- ------- ------------ --------
<S> <C> <C>
A-1 $56,000,000 %
A-2 42,000,000 %
A-3 18,000,000 %
</TABLE>
Final Scheduled Payment Date
If any class of notes is not repaid in full on or prior to ______________,
200__, which is the final scheduled payment date for the notes, an event of
default will occur.
Book-Entry Registration
The notes will be initially available only in book-entry form through the
facilities of The Depository Trust Company, Cedelbank, societe anonyme, or the
Euroclear System, except under limited circumstances. See "Description of the
Securities--Book-Entry Registration" in the prospectus.
The Auto Loans and the Other Trust Fund Properties
The primary assets of the issuer will be the auto loans secured by new or
used automobiles, light duty trucks and vans. The auto loans will be sold by
the originator to the transferor, and assigned by the transferor to the
depositor, by the depositor to the issuer, and then by the issuer to the
indenture trustee for the benefit of the noteholders on the day of closing and
from time to time on subsequent transfer dates on or before February 29, 2000.
The Receivables Pool
As of the beginning of business on November 1, 1999, the auto loans in the
pool have:
. an aggregate principal balance of $78,830,610.41;
. a weighted average annual percentage rate of approximately 7.204%;
. a weighted average remaining term to stated maturity of approximately
48.72 months; and
. a remaining term to stated maturity of not more than 59 months and not
less than 9 months.
Other Trust Fund Properties
In addition to the auto loans, the trust fund will also include:
. all moneys received with respect to the initial auto loans after the
initial cut-off date and the subsequent receivables after the applicable
subsequent cut-off dates;
. the security interests in the vehicles financed by the receivables;
. any proceeds from claims under insurance policies covering the financed
vehicles or the related obligors;
. all instruments and documents relating to the auto loans;
. a security interest in amounts on deposit in certain bank accounts; and
. all rights of the issuer under the sale and servicing agreement.
Pre-Funding Feature
Pre-funding Account
On the day of closing, the transferor will deposit approximately $38,746,000
of the proceeds of the notes into a pre-funding account held by the indenture
trustee. The issuer will use funds on deposit in this account to acquire
additional auto
S-4
<PAGE>
loans from the transferor from time to time on or before February 29, 2000.
The auto loans acquired by the issuer during the period between the day of
the closing and February 29, 2000 will also have been originated by PeopleFirst
Finance, LLC.
The characteristics of the subsequently-acquired auto loans will not differ
materially from the auto loans acquired by the issuer on the day of the closing.
Capitalized Interest Account
On the day of closing, the transferor will also deposit $_________ into a
capitalized interest account held by the indenture trustee. The amount, if any,
deposited into the capitalized interest account will be applied on the payment
dates occurring on or prior to March 15, 2000 to fund an amount equal to the
amount of interest accrued for each such payment date at the weighted average
interest rates on the portion of the notes having a principal balance in excess
of the principal balances of the auto loans. Any amounts remaining in the
capitalized interest account on March 15, 2000 and not used for such purposes
will be paid to the transferor on such date. See "Description of the Trust
Agreements--Accounts--Capitalized Interest Account."
Interest Payments
Each class of notes will bear interest each year at the rate listed in the
table under "--The Notes" above. Interest on each class of notes will accrue on
a "30/360" basis. This means that the interest payable on each payment date on
each class of notes will be the product of:
1. the outstanding principal balance of such class of notes;
2. the applicable interest rate; and
3. 1/12.
Principal Payments
Calculation
The aggregate amount of principal payable on the notes on each payment date
will be equal to an amount called the "noteholders' principal distributable
amount," which will generally be equal to the noteholders' percentage of the sum
of:
1. the amount of principal collected on the receivables during the prior
calendar month,
2. the outstanding principal balance of any auto loans that became
liquidated auto loans during the prior calendar month,
3. the principal balance of each auto loan that was purchased by PeopleFirst
Finance LLC or the transferor during the prior calendar month, and at the
option of the insurer, the principal balance of each auto loan that was
required to be, but was not, so purchased,
4. the aggregate amount of any reduction of the principal balance of an auto
loan as a result of a court order in an insolvency proceeding, and
5. any unpaid portion of the amounts included in 1, 2, 3 and 4 above for a
prior payment date that were not paid to the noteholders (because of
insufficient available cash).
Sequential Pay Feature
Absent an event of default which has resulted in an acceleration of the
notes, the noteholders' principal distributable amount will be payable to the
Class A-1 notes, the Class A-2 notes and the Class A-3 notes in that order
(meaning that no principal will be paid to the Class A-2 notes until the Class
A-1 notes have been paid in full, and so forth). The noteholders' principal
distributable amount is more fully described in this
S-5
<PAGE>
prospectus supplement under "Description of the Trust Agreements -- Payments."
The Certificates
The issuer will also issue $2,367,346.94 aggregate principal amount of non-
interest bearing asset backed certificates pursuant to a trust agreement to be
dated as of November 1, 1999 between the depositor and the owner trustee. The
certificates are not being offered pursuant to this prospectus supplement and
will initially be held by the transferor.
The certificates will not receive any distributions on a payment date until
the noteholders have received all amounts required to be distributed to them on
such payment date and until the reserve account has been fully funded and
certain amounts owed to the insurer have been paid.
The Reserve Account
The transferor will establish a reserve account for the benefit of the
insurer. On the day of closing, the transferor will make an initial deposit of
cash into the reserve account. On each payment date, if the amount on deposit
in the reserve account is less than the required amount, additional amounts will
be deposited into the reserve account from collections on the auto loans that
are available for this purpose. Funds will be withdrawn from the reserve
account on each payment date if the amount of available funds on any payment
date is not sufficient to pay:
. the monthly servicing fee,
. accrued and unpaid fees owing to the indenture trustee, the owner trustee,
the indenture collateral agent, the custodian and the backup servicer,
. required payments of interest and principal to the noteholders, and
. amounts owed to the insurer.
The amount required to be on deposit in the reserve account may increase or
decrease without the consent of the noteholders, therefore, you should not rely
on amounts on deposit in or required to be deposited to the reserve account as a
source of funds for payments on the notes.
The Yield Supplement Account
The transferor will establish a yield supplement account held by indenture
trustee for the benefit of the noteholders. On the day of closing, the
transferor will deposit $_________________ in the yield supplement account.
On each payment date, the issuer will use funds in the yield supplement
account to cover any shortfall between:
. the weighted average interest rate on the notes plus _____%; and
. the interest rate on each auto loan.
Insurer and the Policy
Financial Security Assurance Inc. is a New York financial guaranty insurance
company. Financial Security Assurance Inc. will issue a policy, which will
guarantee the payment of timely interest and principal due on the notes, but
only as set forth under the heading "The Policy" in this prospectus supplement.
Optional Redemption
If the aggregate principal balance of the auto loans on any payment date is
15% or less of the sum of the aggregate principal balance of the initial auto
loans as of November 1, 1999 and the aggregate principal balance of all
subsequently-acquired auto loans as of their subsequent cut-off dates, the
transferor may reacquire the auto loans. If the transferor elects to reacquire
the auto loans, the outstanding principal balance of the notes will be paid in
full together with accrued interest.
S-6
<PAGE>
Tax Status
In the opinion of Rogers & Wells LLP for federal income tax and Saxon,
Barry, Gardner & Kincannon for California corporation franchise tax purposes,
the notes will be characterized as debt, and the issuer will not be classified
as a separate entity that is an association (or a publicly traded partnership)
taxable as a corporation.
If you purchase a note, you agree to treat it as debt for tax purposes. See
"Federal Income Tax Consequences" and "State Tax Consequences" in this
prospectus supplement for additional information concerning the application of
federal and state tax laws to the issuer and the notes.
ERISA Considerations
The notes are generally eligible for purchase by employee benefit plans that
are subject to ERISA. However, administrators of employee benefit plans should
review the matters discussed under "ERISA Considerations" in the prospectus and
in this prospectus supplement before purchasing notes.
Rating of the Notes
The notes must receive at least the following ratings from Moody's Investors
Service, Inc. and Standard & Poor's, a division of the McGraw-Hill Companies,
Inc. in order to be issued:
<TABLE>
<CAPTION>
Class Rating
- ------- -----------------
Moody's S&P
------- ---
<S> <C> <C>
A-1 Aaa AAA
A-2 Aaa AAA
A-3 Aaa AAA
</TABLE>
S-7
<PAGE>
RISK FACTORS
You should consider the following risk factors (as well as the section
"Risk Factors" in the prospectus) in deciding whether to purchase the notes.
You may not be able to resell the There is currently no secondary
notes market for the notes. The underwriters
currently intend to make a market to
enable resale of the notes, but are
under no obligation to do so. As such,
we cannot assure you that a secondary
market will develop for your notes or,
if one does develop, that such market
will provide you with liquidity of
investment or that it will continue for
the life of your notes.
Prepayments on the auto loans will The auto loans may be prepaid, in
cause prepayments on the notes full or in part, voluntarily or as a
resulting in reinvestment risk to you result of defaults, casualties to the
related vehicles or other reasons. Since
the rate of payment of principal of the
notes depends in part on the rate of
payment (including prepayments) of the
principal balance of the auto loans,
final payment of the notes could occur
significantly earlier than the final
scheduled payment date for the notes.
You will bear the risk that you may have
to reinvest the principal on your notes
earlier than you expected at a rate of
interest that is less than the rate of
interest on your notes.
Prepayments on the auto loans may If you purchase your notes at a
affect your yield on your notes premium, prepayments on the auto loans
may reduce your yield. The ratings on
the notes do not address the possibility
that prepayment rates may affect your
yield on your notes.
Potential prepayments on notes due to If all of the funds on deposit in
failure to transfer a sufficient the pre-funding account are not used to
number of additional auto loans to purchase additional auto loans during
the trust the pre-funding period, any remaining
amount on deposit in the pre-funding
account will be used to make principal
payments on the notes. See "Notes--
Mandatory Redemption." The originator
has identified an existing pool of auto
loans that the originator believes will
satisfy the established criteria for
auto loans that will be assigned to the
issuer on subsequent transfer dates. See
"The Receivables Pool--Subsequent
Receivables." However, the issuer cannot
assure you that the identified auto
loans will in fact satisfy such criteria
and that there will be a sufficient
number of eligible auto loans to assign
to the issuer. For example, any auto
loan that is more than 30 days
delinquent or that has not had at least
three scheduled payments made prior to
the end of the pre-funding period will
not be eligible for assignment to the
issuer. The ability of the transferor to
assign a sufficient number of additional
auto loans to the issuer therefore
depends in part on whether obligors make
scheduled payments on the auto loans
when due.
S-8
<PAGE>
Risk of potential prepayments on The auto loans that the originator
notes due to failure to obtain has identified for possible transfer to
release of existing lien on the issuer on subsequent transfer dates
subsequent auto loans are subject to a lien securing amounts
advanced under a warehouse credit line
that the originator uses to finance auto
loans it owns. Although the originator
anticipates that amounts on deposit in
the pre-funding account will be
sufficient to repay the related
warehouse debt and release the lien on
additional auto loans, no assurance can
be given that such amounts will be
sufficient or that the originator will
have other sources of cash that could be
used to repay the warehouse debt. If the
related warehouse debt were not repaid
and the lien released, the transferor
would be unable to assign additional
auto loans to the issuer and any amount
remaining in the pre-funding account at
the end of the pre-funding period will
be used to partially redeem the notes in
the manner described herein under
"Description of the Notes--Mandatory
Redemption."
You may experience a loss on your The issuer's primary assets or
notes because the issuer has limited source of funds for payments on the
assets notes are the auto loans, the pre-
funding account, the reserve account,
the yield supplement account, the
capitalized interest account and the
policy issued by Financial Security
Assurance Inc. For repayment, you must
rely upon payments on the auto loans,
amounts on deposit in the pre-funding
account, the reserve account, the yield
supplement account and the capitalized
interest account. The pre-funding
account and the capitalized interest
account will only be maintained until
the first payment date after the pre-
funding period. The money in the pre-
funding account will only be used to
purchase additional auto loans and is
not available to cover losses on the
auto loans. The capitalized interest
account covers obligations of the issuer
relating to the portion of the issuer's
assets not invested in auto loans and is
not designed to provide protection
against losses on the auto loans.
Although the policy will be available to
cover shortfalls in distributions each
month, if Financial Security Assurance
Inc. defaults in its obligations under
the policy, the noteholders must rely
solely on (i) amounts received with
respect to the auto loans without the
benefit of the policy, (ii) amounts, if
any, on deposit in the reserve account
and (iii) the amount released from the
yield supplement account on each payment
date. In such event, certain factors may
affect the indenture trustee's ability
to realize on the collateral securing
the auto loans and thus may ultimately
reduce the proceeds to be distributed to
noteholders on a current basis.
PeopleFirst has a limited operating All of the auto loans were
history originated by PeopleFirst Finance LLC in
accordance with its credit underwriting
criteria. The originator was formed in
1995 and commenced its operations as an
originator of auto loans only in October
1997. Since that time it has experienced
rapid growth in its portfolio of auto
loans.
S-9
<PAGE>
The originator therefore has limited
historical performance data with respect
to the majority of the auto loans it
currently services. Although the
originator has calculated and presented
herein its delinquency and net loss
experience with respect to its entire
portfolio of serviced auto loans, there
can be no assurance that the information
presented will reflect actual experience
with respect to the auto loans. In
addition, there can be no assurance that
the future delinquency or loan loss
experience of the servicer with respect
to the auto loans will be better or
worse than that set forth herein in the
table headed "Delinquency and Loss
Experience." The originator is at an
early stage of operations, is subject to
the risks inherent in the establishment
of a new business and must, among other
things, continue to attract and retain
qualified credit and collection
personnel and support its automobile
lending business. See "PeopleFirst and
the Servicer" in this prospectus
supplement.
PeopleFirst's internet-based loan The originator generally uses the
origination program may give rise to internet and the mail to communicate
risks that are not found in customary with obligors during the process of
loan origination programs underwriting and originating auto loans.
For a discussion of the underwriting and
origination process, see "PeopleFirst
and The Servicer" in this prospectus
supplement. The underwriting and
origination processes and loan
documentation used by the originator are
novel and were developed to capitalize
on the potential benefits of conducting
its business over the internet and
through the mail. As such, these
processes and the related loan
documentation may entail risks that
would not exist in a customary auto loan
origination program and may give rise to
challenges based on consumer protection
or other laws based on issues that are
currently untested in the courts. No
assurance can be given that these risks
could not adversely affect the
collectability or enforceability of the
contracts or the security interests in
the motor vehicles.
You may experience a loss in Unless an insurer default has
connection with an event of default occurred and is continuing, neither the
under the indenture indenture trustee nor the noteholders
may declare an event of default under
the indenture. So long as an insurer
event of default has not occurred and is
continuing, an event of default will
occur only upon delivery by the insurer
to the indenture trustee of notice of
the occurrence of certain events of
default under the insurance agreement.
If a default occurs under the indenture
(so long as an insurer default has not
occurred and is continuing), the insurer
will have the right, but not the
obligation, to cause the sale, in whole
or in part, of the auto loans and the
other assets of the trust, which will
result in a prepayment, in whole or in
part, of the notes in advance of their
maturity dates. Following the occurrence
of an event of default, the indenture
trustee will continue to submit claims
under the insurance policy
S-10
<PAGE>
as necessary to enable the issuer to
continue to make payments on the notes
in accordance with the terms of the
indenture on each payment date.
Following the occurrence of an event of
default, however, the insurer may elect,
in its sole discretion, to pay all or
any portion of the outstanding amount of
the notes, plus accrued interest on the
notes. You may not be able to reinvest
the principal repaid to you earlier than
expected at a rate of return that is at
least equal to the rate of return on
your notes.
Potential losses on your notes due to Economic conditions in the states
geographic concentration of auto where the obligors under the auto loans
loans reside may affect the delinquency, loan
loss and repossession experience of the
issuer with respect to the auto loans.
Based on the principal balance of the
original pool of auto loans as of
November 1, 1999, 26.58% of the auto
loans were originated in California,
9.51% in Texas, and 7.59% in New York.
No other states have concentrations in
excess of 5%. Accordingly, adverse
economic conditions or other factors
affecting California, Texas or New York
could have an especially significant
impact on the delinquency, loan loss or
repossession experience of the issuer
and may adversely affect the timing and
amount of payment of principal and
interest on your notes.
Potential delays in payments on your An issue affecting PeopleFirst and
notes due to potential computer others is the possible inability of many
program problems related to the year computer systems and applications to
2000 process the year 2000 and beyond. To
address this problem, PeopleFirst has
developed an extensive year 2000 action
plan to ensure that its systems will be
year 2000 compliant in advance of the
new millennium. However, PeopleFirst
cannot make any assurances that
significant customers or critical third
parties on which it depends will
adequately address their year 2000
issues. As a result, failure of these
organizations to adequately address
their year 2000 issues may result in a
delay in collecting auto loans, which in
turn could result in a delay in making
payments on your notes.
Risk of recharacterization of true The originator warrants to the
sale as a pledge transferor in the sale and servicing
agreement that the sale and contribution
of the auto loans by it to the
transferor is a valid sale and
contribution of the auto loans to the
transferor. In addition, pursuant to the
sale and servicing agreement the
originator and the transferor have
agreed to treat the transactions
described herein as a sale and
contribution of such auto loans to the
transferor, and the originator will take
all actions that are required under
applicable law to perfect the
transferor's ownership interest in the
auto loans. Notwithstanding the
foregoing, if the originator were to
become a debtor in a bankruptcy case and
a creditor or trustee-in-bankruptcy of
the originator or the originator itself
as debtor-in-possession were to take the
position that the sale and contribution
S-11
<PAGE>
of auto loans from the originator to the
transferor should be recharacterized as
a pledge of such auto loans to secure a
borrowing from the originator, then
delays in payments of collections of
auto loans could occur or (should the
court rule in favor of any such trustee,
debtor-in-possession or creditor)
reductions in the amount of such
payments could result.
It is possible that the risk of
recharacterization of the transfer
between the originator and the
transferor may be increased by the fact
that, for accounting purposes, the
transferor will treat the notes as debt
and the transfer of the auto loans from
the transferor to the depositor as a
pledge rather than a sale and
contribution.
If the transfer of auto loans to the
transferor were respected as a sale and
contribution, the auto loans would not
be part of the originator's bankruptcy
estate and would not be available to the
originator's creditors.
In addition, if the originator were
to become a debtor in a bankruptcy case
and a creditor or trustee-in-bankruptcy
of such debtor or the originator itself
were to request a court to order that
the originator should be substantively
consolidated with the transferor, delays
in payments on the notes could result.
Should the bankruptcy court rule in
favor of any such creditor, trustee-in-
bankruptcy or the originator, reductions
in such payments could result.
S-12
<PAGE>
THE TRUST
General
The Issuer, PeopleFirst.com Auto Receivables Owner Trust 1999-1 (the
"Trust" or the "Issuer"), is a business trust formed under the laws of the State
of Delaware pursuant to a trust agreement (as amended and supplemented from time
to time, the "Owner Trust Agreement") for the transactions described in this
Prospectus Supplement. After its formation, the Issuer will not engage in any
activity other than (a) acquiring, holding and managing the Trust Fund, (b)
issuing the Notes and Certificates to finance its acquisition of its interest in
the Trust Fund, (c) making payments on the Notes and the Certificates issued by
it, and (d) engaging in other activities that are necessary, suitable or
convenient to accomplish the foregoing or are incidental thereto or connected
therewith.
The Trust's principal offices are in Delaware, in care of Wilmington Trust
Company, as Owner Trustee, at the address listed below under "--The Owner
Trustee."
Capitalization of the Issuer
The following table illustrates the capitalization of the Issuer as of
November __, 1999 (the "Closing Date"), as if the issuance and sale of the Notes
and the Certificates have taken place on such date:
Class A-1 ____% Asset Backed Notes (the "Class A-1 Notes")... $ 56,000,000.00
Class A-2 ____% Asset Backed Notes (the "Class A-2 Notes")... 42,000,000.00
Class A-3 ____% Asset Backed Notes (the "Class A-3 Notes")... 18,000,000.00
Asset Backed Certificates (the "Certificates")............... 2,367,346.94
---------------
Total.................................................... $118,367,346.94
===============
The Class A-1 Notes, Class A-2 Notes and Class A-3 Notes are collectively
referred to herein as the "Notes".
The Owner Trustee
Wilmington Trust Company is the Owner Trustee (in such capacity, the "Owner
Trustee") under the Owner Trust Agreement. Wilmington Trust Company is a
Delaware banking corporation and its principal offices where information can be
obtained relating to the Issuer and the Certificates are located at Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890. The
Originator, the Transferor, the Depositor and their respective affiliates may
maintain normal commercial banking relations with the Owner Trustee and its
affiliates.
The Indenture Trustee
Norwest Bank Minnesota, National Association is the Indenture Trustee (in
such capacity, the "Indenture Trustee") under the Indenture. Norwest Bank
Minnesota, National Association is a national banking association and its
principal offices are located at Norwest Center, Sixth Street and Marquette
Avenue, MAC N9311-161, Minneapolis, Minnesota 55479. The Originator, the
Transferor, the Depositor and their respective affiliates may maintain normal
commercial banking relations with the Indenture Trustee and its affiliates.
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THE TRUST FUND
The property of the Issuer (the "Trust Fund") will include, among other
things, the following: (1) motor vehicle loans assigned to the Issuer on the
Closing Date (the "Initial Receivables") or assigned to the Issuer from time to
time after the Closing Date and prior to February 29, 2000 (the "Subsequent
Receivables"; and together with the Initial Receivables, the "Receivables"), in
each case secured by new and used automobiles, light duty trucks and vans
financed thereby; (2) all payments due on or received under the Initial
Receivables after the beginning of business on November 1, 1999 (the "Initial
Cut-off Date") and under the Subsequent Receivables after the respective dates
designated by the Transferor from time to time as subsequent cut-off dates
(each, a "Subsequent Cut-off Date"); (3) such amounts as from time to time may
be held in the Collection Account, the Note Distribution Account, the Yield
Supplement Account, the Pre-Funding Account and the Capitalized Interest
Account; (4) an assignment of the security interests of PeopleFirst Finance LLC
("PeopleFirst") in the Financed Vehicles; (5) an assignment of the right to
receive proceeds from claims on certain physical damage, credit life and
disability insurance policies covering the Financed Vehicles or the Obligors,
(6) the receivable file related to each Receivable and (7) certain other rights
under the Trust Agreements (all of the foregoing being the "Trust Fund").
The Trust Fund will also include an assignment of the Transferor's rights
against the Originator and the Depositor's rights against the Transferor and the
Originator under the Sale and Servicing Agreement upon the occurrence of certain
breaches of representations and warranties.
The Receivables were originated by PeopleFirst in the ordinary course of
business pursuant to its underwriting criteria. All of the Receivables will be
sold and assigned by PeopleFirst to the Transferor, assigned by the Transferor
to the Depositor and assigned by the Depositor to the Issuer under the Sale and
Servicing Agreement. The Subsequent Receivables will be purchased by the
Transferor from PeopleFirst pursuant to one or more subsequent transfer
agreements (each, a "Subsequent Transfer Agreement") and will be assigned from
the Transferor to the Depositor and from the Depositor to the Issuer in
accordance with the Sale and Servicing Agreement.
Pursuant to the Indenture, the Issuer will grant a security interest in the
Trust Fund in favor of the Indenture Trustee on behalf of the Noteholders.
THE RECEIVABLES POOL
Eligibility Criteria
The Receivables were originated by the Originator in the ordinary course of
its business. The pool of Receivables (the "Receivables Pool") will consist of
the Initial Receivables purchased by the Issuer as of the Cut-off Date and the
Subsequent Receivables purchased by the Issuer as of the related Subsequent Cut-
off Dates. The Initial Receivables have been selected, and the Subsequent
Receivables will be selected, from the motor vehicle loan portfolio of the
Originator for inclusion in the Receivables Pool by several criteria, including
the following: (a) each Receivable has an annual percentage rate ("APR") of at
least 6.74%, (b) each Receivable as of the related Cut-off Date, was not more
than 30 days past due, (c) each Receivable has a scheduled maturity not later
than ___ months before _________, 200__, (d) no Receivable was subject to a
force-placed physical damage insurance policy on the related Financed Vehicle,
(e) each Receivable had an original term to stated maturity of not more than 60
months and (f)
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each Receivable has had at least three scheduled payments received by the
Servicer prior to the related Cut-off Date. No selection criteria or procedures
believed by the Originator or the Transferor to be adverse to the Insurer, the
Noteholders or the Certificateholders were used in selecting the Receivables.
Subsequent Receivables
During the Pre-Funding Period, the Transferor is obligated to purchase from
the Originator and to assign to the Depositor the Subsequent Receivables, which
will then be assigned to the Issuer, on each Subsequent Transfer Date. The
aggregate Principal Balance of the Subsequent Receivables is anticipated by the
Originator to equal approximately $39,536,736. In connection with each
assignment of Subsequent Receivables, the Issuer will be required to pay to the
Depositor a cash purchase price equal to 98% of the outstanding Principal
Balance of the Subsequent Receivables as of their Subsequent Cut-off Dates,
which price the Depositor will pay to the Transferor and the Transferor in turn
will pay to the Originator. At this agreed upon purchase price, the Initial Pre-
Funded Amount will be sufficient to purchase the entire $39,536,736 aggregate
Principal Balance of Subsequent Receivables that the Originator anticipates will
be transferred to the Transferor. The purchase price will be withdrawn from the
Pre-Funding Account and paid to the Depositor for further payment to the
Transferor and the Originator as described in the second preceding sentence.
Any assignment of Subsequent Receivables is subject to the following
conditions, among others: (i) each such Subsequent Receivable and the related
Financed Vehicle satisfies the eligibility criteria specified in clauses (a)
through (f) under "Eligibility Criteria" above as of the related Subsequent Cut-
off Date; (ii) the Insurer (so long as no Insurer Default has occurred and be
continuing) will have approved in its absolute and sole discretion the
assignment of such Subsequent Receivables to the Issuer; (iii) neither the
Originator nor the Transferor will have selected such Subsequent Receivables in
a manner that it believes is adverse to the interests of the Insurer, the
Certificateholders or the Noteholders; (iv) the Originator has delivered certain
opinions of counsel with respect to the validity of the conveyance of such
Subsequent Receivables; (v) Standard & Poor's Ratings Service, a division of the
McGraw-Hill Companies Inc. ("S&P") and Moody's Investors Service, Inc.
("Moody's; and together with S&P, the "Rating Agencies"), will have confirmed
that the ratings on the Notes have not been withdrawn or reduced as a result of
the assignment of such Subsequent Receivables to the Issuer; and (vi) no Event
of Default under the Indenture has occurred and is continuing.
In addition, the obligation of the Issuer to purchase the Subsequent
Receivables on a Subsequent Transfer Date is subject to the condition that the
Receivables assigned to the Issuer, including the Subsequent Receivables to be
conveyed to the Trust on such Subsequent Transfer Date meet the following
criteria (based on the characteristics of the Initial Receivables on the Initial
Cut-off Date and the Subsequent Receivables on the related Subsequent Cut-off
Dates): (i) each Subsequent Receivable assigned to the Issuer will have an APR
of 6.88% or higher; (ii) each Subsequent Receivable assigned to the Issuer will
have a remaining term to stated maturity of not more than 60 months; and (iii)
not more than 10% of the Pool Balance will have Obligors whose mailing addresses
are in any one state other than California unless an Opinion of Counsel
acceptable to the Rating Agencies and the Insurer with respect to the security
interest in the related Financed Vehicles is furnished by the Transferor on or
prior to such Subsequent Transfer Date.
Except for the criteria described in the preceding paragraphs, there are no
required characteristics for the Subsequent Receivables. Therefore, following
the transfer of Subsequent Receivables to the Trust, the aggregate
characteristics of the entire pool of Receivables included in the Trust,
including the
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composition of the Receivables, the distribution by APR, the geographic
distribution and the distribution by remaining term described in the following
tables, will vary from those of the Initial Receivables.
The following terms are used in this section:
"Amount Financed" means, with respect to a Receivable, the amount
advanced under such Receivable toward the purchase price or refinancing of
the Financed Vehicle and any related costs, including amounts in respect of
accessories, insurance premiums, service, car club and warranty contracts,
other items customarily financed as part of automobile loans.
"Cram Down Loss" means, with respect to a Receivable if a court of
appropriate jurisdiction in an insolvency proceeding has issued an order
reducing the amount owed on such Receivable or otherwise modifying or
restructuring the scheduled payments to be made on such Receivable, an
amount equal to (i) the excess of the principal balance of such Receivable
immediately prior to such order over the principal balance of such
Receivable as so reduced and/or (ii) if such court shall have issued an
order reducing the effective rate of interest on such Receivable, the net
present value (using as the discount rate the higher of the APR on such
Receivable or the rate of interest, if any, specified by the court in such
order) of the scheduled payments with respect to the Receivables as so
modified or restructured. A "Cram Down Loss" shall be deemed to have
occurred on the date of issuance of such order.
"Liquidated Receivable" means, with respect to any Determination Date,
a Receivable as to which, as of the last day of the related Collection
Period, (i) 60 days have elapsed since the Servicer repossessed the
Financed Vehicle, (ii) the Servicer has determined in good faith that all
amounts it expects to recover have been received, (iii) the Financed
Vehicle has been sold and the proceeds received or (iv) all or any portion
of any scheduled payment by the Obligor is 120 days or more delinquent.
"Pool Balance" means, at any time, the sum of the Principal Balances of
the Receivables (excluding Purchased Receivables and Liquidated
Receivables).
"Principal Balance" for any Receivable, at any time, means the Amount
Financed minus (i) that portion of all amounts received on or prior to such
date and allocable to principal in accordance with the terms of the
Receivable, and (ii) any Cram Down Loss in respect of such Receivable.
"Purchased Receivable" means a Receivable purchased as of the close of
business on the last day of a Collection Period by the Servicer or
repurchased by the Transferor or the Originator pursuant to the Sale and
Servicing Agreement.
Pool Composition
Set forth in the following tables is information concerning the
composition, distribution by geographic location, distribution by remaining
Principal Balance, distribution by APR, distribution by original term to stated
maturity, distribution by remaining term to stated maturity and distribution by
loan purpose of the Initial Receivables to be assigned to the Issuer as of the
Initial Cut-off Date.
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Composition of the Initial Receivables Pool
as of the Initial Cut-off Date
Aggregate Principal Balance..................................$78,830,610.41
Number of Receivables.................................................4,742
Average Principal Balance........................................$16,623.92
(Range)...........................................$3,432.25 to $71,580.54
Average Original Amount Financed.................................$19,057.33
(Range).................................................$6,000 to $75,000
Weighted Average APR.................................................7.204%
(Range)..................................................6.740% to 8.300%
Weighted Average Original Term.................................55.74 months
(Range)...................................................12 to 60 months
Weighted Average Remaining Term............................... 48.72 months
(Range)................................................... 9 to 59 months
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Geographic Distribution of the Initial Receivables Pool as of the
Initial Cut-off Date
<TABLE>
<CAPTION>
Percentage of
Number of Aggregate Aggregate
State (1) Receivables Principal Balance Principal Balance(2)
- -------- ----------- ----------------- --------------------
<S> <C> <C> <C>
Alabama..................... 62 $ 1,047,169.98 1.33%
Arizona..................... 112 1,937,189.12 2.46
Arkansas.................... 44 697,698.22 0.89
California.................. 1,162 20,952,623.08 26.58
Colorado.................... 115 1,786,969.88 2.27
Connecticut................. 108 1,707,748.20 2.17
District of Columbia........ 4 63,435.75 0.08
Florida..................... 244 3,890,410.21 4.94
Georgia..................... 159 2,600,689.69 3.30
Idaho....................... 24 395,251.22 0.50
Indiana..................... 56 747,845.64 0.95
Iowa........................ 37 527,307.50 0.67
Kansas...................... 71 1,222,337.61 1.55
Kentucky.................... 41 684,125.41 0.87
Maine....................... 17 239,673.49 0.30
Maryland.................... 15 226,614.77 0.29
Massachusetts............... 162 2,580,367.84 3.27
Michigan.................... 132 2,027,209.86 2.57
Minnesota................... 98 1,596,835.24 2.03
Missouri.................... 104 1,562,807.80 1.98
Montana..................... 19 373,464.01 0.47
Nebraska.................... 35 505,890.93 0.64
New Jersey.................. 209 3,844,226.55 4.88
New Mexico.................. 38 511,849.10 0.65
New York.................... 376 5,981,809.32 7.59
North Carolina.............. 91 1,404,315.60 1.78
Ohio........................ 189 2,810,467.49 3.57
Oklahoma.................... 25 397,967.86 0.50
Oregon...................... 95 1,551,467.55 1.97
Rhode Island................ 2 19,262.67 0.02
South Carolina.............. 26 396,194.24 0.50
Tennessee................... 9 144,323.54 0.18
Texas....................... 416 7,497,134.77 9.51
Utah........................ 16 221,459.77 0.28
Virginia.................... 153 2,292,424.56 2.91
Washington.................. 167 2,868,705.15 3.64
West Virginia............... 25 385,658.31 0.49
Wisconsin................... 84 1,129,678.48 1.43
----- -------------- ------
Total.................. 4,742 $78,830,610.41 100.00%
===== ============== ======
</TABLE>
- ------------------------------
(1) Based on mailing addresses of the Obligors as of the Cutoff Date.
(2) Percentages may not add to 100.00% due to rounding.
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<TABLE>
<CAPTION>
Distribution by Remaining Principal Balance of the Initial Receivables as of
the Initial Cut-off Date
Percentage of
Number of Aggregate Aggregate
Range of Remaining Principal Balance Receivables Principal Balance Principal Balance(1)
- -------------------------------------- ----------- ----------------- --------------------
<S> <C> <C> <C>
$ 0 to $ 5,000.00......................... 34 $ 147,691.42 0.19%
$ 5,000.01 to $10,000.00................... 855 6,850,581.70 8.69
$10,000.01 to $15,000.00................... 1,372 17,280,069.52 21.92
$15,000.01 to $20,000.00................... 1,210 20,926,082.67 26.55
$20,000.01 to $25,000.00................... 690 15,412,623.42 19.55
$25,000.01 to $30,000.00................... 328 8,960,101.01 11.37
$30,000.01 to $35,000.00................... 145 4,664,763.61 5.92
$35,000.01 to $40,000.00................... 50 1,861,182.75 2.36
$40,000.01 to $45,000.00................... 34 1,439,570.90 1.83
$45,000.01 to $50,000.00................... 12 574,034.26 0.73
$50,000.01 and greater..................... 12 713,909.15 0.91
----- -------------- ------
Total................................. 4,742 $78,830,610.41 100.00%
===== ============== ======
</TABLE>
________________
(1) Percentages may not add to 100.00% due to rounding.
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<TABLE>
<CAPTION>
Distribution by Annual Percentage Rate of the Initial Receivables as of
the Initial Cut-off Date
Percentage of
Aggregate
Number of Aggregate Principal
Range of Annual Percentage Rates Receivables Principal Balance Balance(1)
- ---------------------------------- ----------- ----------------- -------------
<S> <C> <C> <C>
6.501% to 6.750%........................... 235 $ 4,130,632.31 5.24%
6.751% to 7.000%........................... 2,007 39,595,625.83 50.23
7.001% to 7.250%........................... 365 5,980,458.07 7.59
7.251% to 7.500%........................... 1,044 14,441,241.88 18.32
7.501% to 7.750%........................... 853 11,662,267.66 14.79
7.751% to 8.000%........................... 144 1,864,588.54 2.37
8.001% to 8.250%........................... 88 1,067,382.29 1.35
8.251% to 8.500%........................... 6 88,433.83 0.11
----- -------------- ------
Total................................. 4,742 $78,830,610.41 100.00%
===== ============== ======
</TABLE>
________________
(1) Percentages may not add to 100.00% due to rounding.
<TABLE>
<CAPTION>
Distribution by Original Term to Stated Maturity of the Initial Receivables as of
the Initial Cut-off Date
Percentage of
Aggregate
Number of Aggregate Principal
Range of Original Terms Receivables Principal Balance Balance (1)
- ----------------------- ----------- ----------------- -------------
<S> <C> <C> <C>
7 to 12 Months............................. 1 $ 11,375.09 0.01%
13 to 18 Months............................ 2 11,401.16 0.01
19 to 24 Months............................ 44 400,491.60 0.51
25 to 30 Months............................ 14 118,395.34 0.15
31 to 36 Months............................ 462 5,167,334.62 6.55
37 to 42 Months............................ 56 562,573.06 0.71
43 to 48 Months............................ 1,047 14,875,891.68 18.87
49 to 54 Months............................ 34 455,391.98 0.58
55 to 60 Months............................ 3,082 57,227,755.88 72.60
----- -------------- ------
Total................................. 4,742 $78,830,610.41 100.00%
===== ============== ======
</TABLE>
________________
(1) Percentages may not add to 100.00% due to rounding.
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<TABLE>
<CAPTION>
Distribution by Remaining Term to Stated Maturity of the
Initial Receivables as of the Initial Cut-off Date
Percentage of
Aggregate Aggregate
Number of Principal Principal
Range of Remaining Terms Receivables Balance Balance
- ------------------------ ----------- --------- -------------
<S> <C> <C> <C>
7 to 12 Months............................ 12 $ 72,461.61 0.09%
13 to 18 Months............................ 20 181,402.04 0.23
19 to 24 Months............................ 101 889,872.36 1.13
25 to 30 Months............................ 223 2,427,133.12 3.08
31 to 36 Months............................ 382 4,645,253.14 5.89
37 to 42 Months............................ 479 6,813,547.35 8.64
43 to 48 Months............................ 951 14,845,937.17 18.83
49 to 54 Months............................ 1,373 25,417,522.91 32.24
55 to 60 Months............................ 1,201 23,537,480.71 29.86
----- -------------- ------
Total................................. 4,742 $78,830,610.41 100.00%
===== ============== ======
</TABLE>
________________
(1) Percentages may not add to 100.00% due to rounding.
<TABLE>
<CAPTION>
Distribution by Loan Purpose as of the Initial Cut-off Date
Percentage of
Aggregate Aggregate
Number of Principal Principal
Loan Purpose Receivables Balance Balance
- ------------ ----------- --------- -------------
<S> <C> <C> <C>
New Vehicle Purchase....................... 2,520 $48,512,530.69 61.54%
Used Vehicle Purchase...................... 1,015 13,819,324.82 17.53
Refinance of Existing Loan................. 763 10,549,835.36 13.38
Lease Buyout............................... 444 5,948,919.54 7.55
----- -------------- ------
Total................................. 4,742 $78,830,610.41 100.00%
===== ============== ======
</TABLE>
________________
(1) Percentages may not add to 100.00% due to rounding.
THE TRANSFEROR
PF Funding II, LLC (the "Transferor"), will be organized as a Delaware
limited liability company on or before the Closing Date and is wholly-owned by
PeopleFirst. The Transferor will be organized for limited purposes, which
include selling and assigning receivables sold to it by PeopleFirst to the
Depositor and any activities incidental to and necessary or convenient for the
accomplishment of such purpose. The principal executive offices of the
Transferor are located at 401 West A Street, Suite 1000, San Diego, California,
92101, and its telephone number is (619) 232-5660.
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THE DEPOSITOR
Prudential Securities Secured Financing Corporation (formerly known as P-B
Secured Financing Corporation, a Delaware corporation (the "Depositor"), is a
wholly-owned limited purpose finance subsidiary of Prudential Securities
Incorporated. The principal executive offices of the Depositor are located at
One New York Plaza, New York, New York 10292.
PEOPLEFIRST AND THE SERVICER
PeopleFirst Finance, LLC, a California limited liability company
("PeopleFirst" or in its capacity as originator of the Receivables, the
"Originator" or, in its capacity as servicer of the Receivables, the
"Servicer"), was formed in January 1995. Its executive offices are located at
401 West A Street, Suite 1000, San Diego, California 92101, and its telephone
number is (619) 232-5660.
General
PeopleFirst is an automotive lender engaged in the direct financing of
automobile purchases (new and used vehicles, refinancing and lease buyouts from
other financial institutions) by individuals with credit histories that satisfy
its underwriting criteria. This market segment is comprised of individuals who
PeopleFirst believes present acceptable credit risks due to various factors,
including the manner in which they have handled previous credit, the extent of
their prior credit history and/or the extent of their financial resources.
PeopleFirst loans are designed for use at any franchised new car dealership and
independent used car dealers approved by PeopleFirst (collectively, "Dealers")
in certain states within the United States.
PeopleFirst serves as a direct source of financing for consumers by
offering them a convenient, highly automated, internet-based product at
competitive interest rates. PeopleFirst lends to borrowers residing in 40
states; however, PeopleFirst may from time to time determine to commence
business in additional states or cease doing business in any state in which it
currently does business.
All PeopleFirst contracts are fully amortizing simple interest loans that
provide for equal payments over the term of the contract (12 to 60 months)
except the final payment which may be different. The portions of such payments
allocable to principal and interest are, for payoff and deficiency purposes,
determined by a "simple interest" method. See "The Receivables" in the
prospectus.
Origination Process and Credit Evaluation Procedures
PeopleFirst has developed procedures and controls to investigate and
analyze each credit applicant in an effort to eliminate those applicants whose
credit characteristics indicate an unacceptably high probability of loss. These
procedures include an investigation, verification, and evaluation of credit
bureau reports as well as the general credit information provided by the
applicant. Applications received over the internet are completed by the
applicant. For other applications, a customer service representative inputs
application data. Upon submission by a customer of an application, PeopleFirst
completes a series of procedures designed (i) to substantiate the accuracy of
information critical to PeopleFirst's credit decision and (ii) to confirm that
any documentation required complies with PeopleFirst's underwriting criteria.
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The credit evaluation procedures include an evaluation of an individual's
application, credit bureau report and a Fair, Isaac National Automotive Industry
Market Score. Any applicant with an unacceptably high probability of default,
or whose credit experience is too limited for PeopleFirst to assess the
probability of performance, is declined. PeopleFirst may also require
verification of certain applicant information prior to making its final credit
decision, including further documentation regarding: employment, income,
collateral and other assets. This verification process in many instances
requires submission of supporting documentation by the applicant and is
performed by PeopleFirst personnel.
The credit decision may be (i) to approve the application, (ii) approve the
application with certain information verification, (iii) to approve for a lower
amount than requested by the application (counteroffer), or (iv) to decline the
application. The underwriter documents the decision and the applicant is
notified by electronic mail and/or telephonically for a declined application and
telephonically for all approved applications.
Upon approval of an Obligor's application for an auto loan, PeopleFirst
mails a note and security agreement to the Obligor that is attached to a
perforated check drawn on the Originator's bank. The Obligor signs the check,
but is not required to sign the note or the security agreement. The Obligor
purchases the vehicle from the dealer using the check. The check is payable to
any franchised new car dealer or other authorized new or used dealer or broker
(or finance lender in the case of refinancing or lease buy out) in an amount
between $7,500 (in most states) and the maximum approved loan amount. The check
is valid for 45 days, after which it expires if unused. However, the Obligor
may receive a new check (at the then existing interest rate) for an additional
45 days without having to reapply.
Upon purchase of a motor vehicle by the customer, the terms of the note and
security agreement grant to PeopleFirst a security interest in the vehicle
financed and require the Obligor to have the Servicer noted as lien holder on
the certificate of title for the vehicle. Restrictive endorsement language on
the check also obligates the dealer or existing lienholder to note the Servicer
as lienholder.
The note and security agreement also requires that the Servicer arrange
standard comprehensive and collision insurance for the vehicle and name the
Servicer as loss payee on the policy. However, the Servicer does not require
the Obligor to provide evidence that the appropriate insurance policy is in
place.
Loss Exposure Management
Evaluating the degree of exposure to the lender in any transaction is a
function of (i) determining the customer's intent to pay and (ii) determining
the customer's ability to pay. PeopleFirst seeks to control loss exposure by
(i) analysis of the applicant's credit history and (ii) determining whether the
applicant has sufficient disposable income to meet existing obligations,
including the obligation resulting from the proposed transaction.
Contract Processing, Purchase, Servicing and Administration
Upon the purchase of a vehicle by a customer with a PeopleFirst check,
PeopleFirst delivers a welcome package to the customer. The welcome package
includes an initial acknowledgment of the loan, material that completes the
disclosure of the final terms of the loan, and a form and instructions to the
applicant on how to complete the autodebit payment setup procedure (if
selected). This welcome package is mailed the day the customer's check is
funded.
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PeopleFirst performs all primary collection functions for the contracts in
its portfolio of serviced receivables (the "Servicing Portfolio"). In its
servicing activities, PeopleFirst (i) collects payments; (ii) accounts for and
posts all payments received; (iii) responds to borrower inquiries; (iv) takes
all necessary action to maintain the security interest granted in the financed
vehicle; (v) investigates delinquencies and communicates with the borrower to
obtain timely payments, and (vi) if necessary, repossesses and disposes of the
financed vehicle.
For most customers, collections are accomplished through an automated debit
of the customer's checking or savings account for all monthly payments. For the
small volume of "invoice" customers, PeopleFirst uses a monthly billing system
that includes an invoice, statement and postage paid envelope.
PeopleFirst contacts borrowers for first payment delinquencies commencing
five days after the borrower's due date and ten days after the due date for
other payments continuing weekly until payment has been received. Generally, at
30 days, delinquent loans are turned over to the Servicer's outside collection
agency.
Delinquency Control and Collection Strategy
PeopleFirst's management generally reviews any account that becomes twelve
(12) days delinquent to assess the collection effort to date and to refine, if
necessary, the collection strategy. PeopleFirst customer service personnel,
together with senior management, generally will design a collection strategy
that includes a specific deadline within which the obligation must be collected.
Accounts that have not been collected during such periods are again reviewed,
and, unless there are specific circumstances which warrant further collection
efforts, the Servicer will seek repossession and liquidation of the financial
vehicle or assign the account to the Servicer's outside agency for collection
and possible repossession of the financed vehicle. Repossessed vehicles are
generally resold by PeopleFirst through its outside collection agency.
Regardless of the actions taken or circumstances of a specific delinquent
account, generally any account that reaches 90 days delinquent is charged-off
and either the Servicer or the Servicer's outside collection agency, subject to
legal limitation, seeks repossession and liquidation of the financed vehicle and
recovery from the borrower of any deficiency.
Delinquency and Loss Experience
PeopleFirst began its operations in September 1997. The table below sets
forth, as of the end of the quarterly periods indicated, the delinquency and
loss experience of PeopleFirst pertaining to its managed new and used
automobile, light duty truck and van receivables portfolio, including those
receivables previously sold which the servicer continues to service. The
information set forth in the following table may be affected by the size, rapid
growth and relative lack of seasoning of the receivables. Accordingly, no
assurances can be given that the delinquency and loss experience presented in
the tables below will be indicative of such experience on the Receivables.
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<PAGE>
Delinquency Experience
<TABLE>
<CAPTION>
Nine months Ended Year Ended
September 30, December 31,
----------------- ------------------
1999 1998 1998 1997
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Number of Loans Outstanding 8,274 2,039 3,055 59
Delinquencies as a Percentage of Loans (1)
31-60 Days 0.02% 0.00% 0.00% 0.00%
61-90 Days 0.00% 0.00% 0.00% 0.00%
Over 90 Days 0.00% 0.00% 0.00% 0.00%
</TABLE>
_______________________
(1) Calculated as the number of delinquencies during the period divided by the
number of loans outstanding at the end of the period.
Net Loss and Repossession Experience
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Nine months Ended Year Ended
September 30, December 31,
------------------ -------------------
1999 1998 1998 1997
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
Average Number of Loans Outstanding (1) 5,665 1,049 1,557 30
Average Principal Amount Outstanding (1) $96,484 $18,319 $26,813 $578
Number of Repossessions 2 0 0 0
Number of Repossessions as a Percent of
Average Number of Loans Outstanding
(Annualized) 0.05% 0.00% 0.00% 0.00%
Principal Amount of Repossessions as a
Percent of Average Principal Amount
Outstanding (Annualized) 0.07% 0.00% 0.00% 0.00%
Net Losses for the Period Ended $ 38 $ 0 $ 0 $ 1
Net Losses as a Percent of Average
Principal Amount Outstanding 0.05% 0.00% 0.00% 0.17%
(Annualized) (2)
</TABLE>
_______________________
(1) Averages are calculated based on beginning and end-of-period balances.
(2) "Net Losses" are equal to the aggregate balance for all contracts which are
determined to be uncollectible in the period less any recoveries on
contracts in the period or any prior periods excluding expenses associated
with collection, repossession and disposition of the vehicle.
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WEIGHTED AVERAGE LIFE OF THE SECURITIES
Information regarding certain maturity and prepayment considerations with
respect to the Notes and Certificates is set forth under "Risk Factors--Maturity
and Prepayment Considerations" and "The Receivables--Maturity and Prepayment
Considerations" in the Prospectus. No principal payments on any class of Notes
will be made until all Notes with lower class designations have been paid in
full. For example, no payments on the Class A-3 Notes will be made until the
Class A-1 Notes and Class A-2 Notes have been paid in full. See "Description of
the Notes--Payments of Principal." As the rate of payment of principal of
each class of Notes depends primarily on the rate of payment (including
prepayments) of the principal balance of the Receivables, final payment of any
class of the Notes could occur significantly earlier than the Final Scheduled
Payment Date. Reinvestment risk associated with early payment of the Notes will
be borne exclusively by the Noteholders. It is expected that final payment of
each class of Notes will occur on or prior to the Final Scheduled Payment Date.
However, if sufficient funds are not available to pay the Notes of any class in
full on or prior to the Final Scheduled Payment Date, final payment of such
class of Notes would occur later than such date.
DESCRIPTION OF THE NOTES
The Notes will be issued pursuant to an Indenture (the "Indenture") to be
dated as of November 1, 1999 between the Issuer and the Indenture Trustee, a
form of which has been filed as an exhibit to the Registration Statement. A
copy of the Indenture will be filed with the Securities and Exchange Commission
(the "Commission") following the issuance of the Notes. The following summary,
together with the description in the Prospectus under the heading "Description
of the Securities," describes the material terms of the Notes and the Indenture,
but it does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Notes and the Indenture.
Where particular provisions or terms used in the Indenture are referred to, the
actual provisions (including definitions of terms) are incorporated by reference
as part of such summary. The following summary supplements the description of
the general terms and provisions of the Notes of any given series and the
related Indenture set forth in the Prospectus, to which description reference is
hereby made.
Payments of Interest
The Class A-1 Notes will bear interest at the rate of ___% per annum (the
"Class A-1 Interest Rate"); the Class A-2 Notes will bear interest at the rate
of ___% per annum (the "Class A-2 Interest Rate") and the Class A-3 Notes will
bear interest at a rate of ___% per annum (the "Class A-3 Interest Rate"). The
Class A-1 Interest Rate, the Class A-2 Interest Rate and the Class A-3 Interest
Rate are referred to herein collectively as "Interest Rates."
Each class of the Notes will constitute Fixed Income Securities, as such
term is defined under "Summary of Terms--The Securities--General Nature of the
Securities as Investments" in the Prospectus. Interest on the principal
balances of each class of the Notes will accrue at the respective Interest Rate
for such class and will be payable to the Noteholders monthly on each Payment
Date commencing December 15, 1999. With respect to any Payment Date, interest
on the outstanding amount of each class of Notes will be an amount equal to one
twelfth of the applicable Interest Rate, multiplied by the principal amount of
such class of Notes as of the close of business on the preceding Payment Date
(or the Closing Date, for the initial Payment Date). Interest distributions
payable for any Payment Date but not distributed on such Payment Date will be
payable on the next Payment Date increased by an amount
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equal to interest on such amount at the applicable Interest Rate (to the extent
lawful). See "Description of the Trust Agreements--Payments."
Interest payments to the holders of the Notes of any class will have the
same priority. If an Insurer Default occurs, the amount available for interest
payments could be less than the amount of interest payable on the Notes on any
Payment Date, in which case each class of holders of Notes will receive their
ratable share (based upon the aggregate amount of interest payable to each class
of Notes) of the aggregate amount available to be distributed in respect of
interest on the Notes.
Payments of Principal
Principal payments will be made to the Noteholders on each Payment Date in
an amount generally equal to the Noteholders' Principal Distributable Amount.
See "Description of the Trust Agreements--Payments" and "--Accounts." The
"Noteholders' Principal Distributable Amount" for any Payment Date will equal
the sum of (i) the Noteholders' Percentage of the Principal Distributable Amount
and (ii) any unpaid portion of the amount described in clause (i) with respect
to a prior Payment Date. The "Principal Distributable Amount" with respect to
any Payment Date will be an amount equal to the sum of the following amounts (i)
the principal portion (allocable on the basis of the simple interest method) of
all Collected Funds received during the immediately preceding calendar month
(other than Liquidated Receivables and Purchased Receivables) including the
principal portion of all prepayments, (ii) the Principal Balance of all
Receivables that became Liquidated Receivables during the related calendar month
(other than Purchased Receivables), (iii) the principal portion of the Purchase
Amounts received with respect to all Receivables that became Purchased
Receivables during the related calendar month, (iv) at the option of the
Insurer, the Principal Balance of the Receivables that were required to be
purchased by the Transferor and the Servicer during the related calendar month
but were not purchased and (v) the aggregate amount of Cram Down Losses that
have occurred during the related calendar month.
The "Noteholders' Percentage" will be approximately 98%, for each Payment
Date until the Class A-3 Notes have been paid in full, and thereafter will be
equal to zero. Absent an Event of Default, on each Payment Date, to the extent
of available funds, the Indenture Trustee will distribute an amount up to the
Noteholders' Principal Distributable Amount in respect of principal on the Notes
first to the Class A-1 Notes, then to the Class A-2 Notes and then to the Class
A-3 Notes.
The principal balance of the Class A-1 Notes, the Class A-2 Notes and the
Class A-3 Notes, to the extent not previously paid, will be due on _________,
200_ (the "Final Scheduled Payment Date").
The actual date on which the aggregate outstanding principal balance of any
class of Notes is paid in full may be earlier than the Final Scheduled Payment
Date based on a variety of factors, including those described under "Weighted
Average Life of the Securities" herein and under the headings "Risk Factors--
Maturity and Prepayment Considerations" and "The Receivables--Maturity and
Prepayment Considerations" in the Prospectus.
Optional Redemption
The Transferor may reacquire the Receivables when the Pool Balance as of the
end of the related Collection Period (as defined below) has declined to 15% or
less of the sum of the Pool Balance as of the Initial Cut-off Date, plus the
aggregate Principal Balance of the Subsequent Receivables as of their
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respective Subsequent Cut-off Dates (the "Original Pool Balance"), as described
in the Prospectus under "Description of the Trust Agreements--Termination." Such
redemption will cause an early retirement of the Notes. The redemption price
will be equal to the unpaid principal amount of the Notes plus accrued and
unpaid interest thereon.
"Collection Period" is any calendar month (or, in the case of the initial
Collection Period, the period from the Initial Cut-off Date to and including
November 30, 1999). References to the "Collection Period" in this Prospectus
Supplement are to the "Remittance Period" referred to in the Prospectus.
Mandatory Redemption
On the Payment Date on or immediately following the last day of the Pre-
Funding Period (the "Mandatory Redemption Date"), any funds remaining in the
Pre-Funding Account (after giving effect to the purchase of all Subsequent
Receivables, including any such purchase on the last day of the Pre-Funding
Period) exclusive of any net earnings from the investment of funds on deposit in
the Pre-Funding Account (the "Remaining Pre-Funding Amount") will be applied to
redeem the Notes then outstanding. The aggregate principal amount of each class
of Notes to be redeemed will be an amount equal to such class's pro rata share
(based on respective current principal amount of each class of Notes) of the
Remaining Pre-Funding Amount; provided, that if the Remaining Pre-Funding Amount
is $100,000 or less, such amount will be applied exclusively to reduce the
outstanding principal balance of the class of Notes then entitled to receive
distributions of the Noteholders' Principal Distributable Amount. It is unlikely
that the aggregate principal amount of Subsequent Receivables will exactly equal
the Pre-Funded Amount, and therefore it is likely that at least a nominal amount
of principal will be prepaid to the Noteholders at the end of the Pre-Funding
Period. See "Risk Factors--Potential Prepayments on notes due to failure of
certificateholder to pay deferred purchase price to issuer."
The Indenture
Events of Default, Rights Upon Event of Default
Unless Financial Security is in continuing default on its obligations under
the Policy or certain bankruptcy events have occurred with respect to Financial
Security (an "Insurer Default"), "Events of Default" under the Indenture will
consist of Insurance Agreement Indenture Cross Defaults, and will constitute an
Event of Default under the Indenture only if the Insurer has delivered to the
Indenture Trustee, and not rescinded, a written notice specifying that any such
Insurance Agreement Indenture Cross Default constitutes an Event of Default
under the Indenture. "Insurance Agreement Indenture Cross Defaults" include,
among others: (i) any failure of the Issuer to make any payment when due on the
Notes; (ii) a demand for payment being made under the Policy; (iii) certain
events of bankruptcy, insolvency, receivership or liquidation of the Issuer;
(iv) the Issuer is treated as an association (or publicly traded partnership)
taxable as a corporation for federal or state income tax purposes; (v) the sum
of the Available Funds with respect to any Distribution Date plus the amount (if
any) available to be withdrawn from the Reserve Account is less than the sum of
the amounts described in clauses 1 through 5 under "Description of the Trust
Agreements--Payments" herein; (vi) the Notes not being treated as indebtedness
for federal or applicable state income tax purposes and such characterization
having a material adverse effect on the Trust, the Noteholders or the Insurer;
(vii) any failure to observe or perform in any material respect any other
covenants or agreements in the Indenture, or any representation or warranty of
the Issuer made in the Indenture or in any certificate or other writing
delivered pursuant thereto or in connection therewith proving to have been
incorrect in any material respect when made, and
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<PAGE>
such failure continuing or not being cured, or the circumstance or condition in
respect of which such misrepresentation or warranty was incorrect not having
been eliminated or otherwise cured, for 30 days after the giving of written
notice of such failure or incorrect representation or warranty to the Issuer and
the Indenture Trustee by the Insurer; and (viii) the violation of certain
portfolio performance tests specified in the Insurance Agreement.
Upon the occurrence of an Event of Default, so long as an Insurer Default
has not occurred and is continuing, the Insurer will have the right, but not the
obligation, to cause the Indenture Trustee to liquidate the assets of the Trust
Fund in whole or in part, on any date or dates following the acceleration of the
Notes due to such Event of Default as the Insurer, in its sole discretion, may
elect, and to distribute the proceeds of such liquidation in accordance with the
terms of the Indenture. The Insurer may not, however, cause the Indenture
Trustee to liquidate the Trust Fund in whole or in part if the proceeds of such
liquidation would not be sufficient to pay all outstanding principal of and
accrued interest on the Notes, unless such Event of Default arose from a claim
being made on the Policy or from certain events of bankruptcy, insolvency,
receivership or liquidation of the assets of the Trust. Following the
occurrence of any Event of Default, the Indenture Trustee will continue to
submit claims under the Policy for any shortfalls in the Scheduled Payments on
the Notes. Following any Event of Default under the Indenture, the Insurer may
elect to pay all or any portion of the outstanding amount of the Notes, plus
accrued interest thereon. See "The Policy" herein.
If an Insurer Default has occurred and is continuing, an "Event of Default"
means any one of the following events (whatever the reason for such Event of
Default and whether it is voluntary or involuntary or is effected by operation
of law or pursuant to any judgment, decree or order of any court or any order,
rule or regulation of any administrative or governmental body): (i) default in
the payment of any interest on the Notes when it becomes due and payable, and
such default shall continue for a period of five days; (ii) default in the
payment of the principal of or any installment of the principal of the Notes
when it becomes due and payable; (iii) default in the observance or performance
of any covenant or agreement of the Issuer made in the Indenture, or any
representation or warranty of the Issuer made in the Indenture or in any
certificate or other writing delivered pursuant thereto or in connection
therewith proving to have been incorrect in any material respect as of the time
when the same shall have been made, and such default shall continue or not be
cured, or the circumstance or condition in respect of which such
misrepresentation or warranty was incorrect shall not have been eliminated or
otherwise cured, for a period of 30 days (or for such longer period, not in
excess of 90 days, as may be reasonably necessary to remedy such default;
provided that such default is capable of remedy within 90 days or less and the
Servicer on behalf of the Indenture Trustee delivers an officer's certificate to
the Indenture Trustee to the effect that the Issuer has commenced, or will
promptly commence and diligently pursue, all reasonable efforts to remedy such
default) after there shall have been given, by registered or certified mail, to
the Issuer by the Indenture Trustee or to the Issuer and the Indenture Trustee
by the holders of at least 25% of the outstanding principal balance of the
Notes, a written notice specifying such default or incorrect representation or
warranty and requiring it to be remedied and stating that such notice is a
"Notice of Default" thereunder; (iv) certain events of bankruptcy, insolvency,
receivership or liquidation with respect to the Originator, the Transferor or
the Issuer.
If an Event of Default should occur and be continuing (and an Insurer
Default has occurred and is continuing), the Indenture Trustee or holders of 50%
or more of the aggregate principal balance of the Notes (a "Note Majority") may
declare the principal of the Notes to be immediately due and payable. Such
declaration may be rescinded by the Note Majority if (i) the Issuer has paid to
the Indenture Trustee
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a sum sufficient to pay all amounts then due and (ii) all Events of Default
(other than nonpayment of the principal of the Notes due solely as a result of
such acceleration) have been cured or waived.
If the Notes have been declared due and payable following an Event of
Default, the Indenture Trustee may with the consent of the Controlling Party and
must, at the direction of the Controlling Party, institute proceedings to
collect amounts due or foreclose on the Trust Fund, exercise remedies as a
secured party, sell the Trust Fund or elect to have the Issuer maintain
possession of such Trust Fund and continue to apply collections on such Trust
Fund as if there had been no declaration of acceleration. The Indenture
Trustee, however, will be prohibited from selling the Trust Fund following an
Event of Default if the proceeds thereof are not sufficient to pay all
outstanding principal of and accrued interest on the Notes, unless (i) no
Insurer Default has occurred and is continuing and the related Event of Default
arose from a claim being made on the Policy or from certain events of
bankruptcy, insolvency, receivership or liquidation with respect to the Issuer
or (ii) an Insurer Default shall have occurred and be continuing and (a) the
Holders of all the outstanding Notes consent to such sale; or (b) the Indenture
Trustee determines that the Trust Fund would not be sufficient on an ongoing
basis to make all payments on the Notes as such payments would have become due
if such obligations had not been declared due and payable and the Indenture
Trustee provides written notice to the Rating Agencies and obtains the consent
of the holders of Notes representing 66-2/3% of the aggregate principal balance
of the outstanding Notes.
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee, if an Event of Default occurs and is continuing with respect
to the Notes, the Indenture Trustee will be under no obligation to exercise any
of the rights or powers under the Indenture at the request or direction of any
of the Controlling Party or holders of such Notes, if the Indenture Trustee
reasonably believes it will not be adequately indemnified against the costs,
expenses and liabilities which might be incurred by it in complying with such
request. Subject to the provisions for indemnification and certain limitations
contained in the Indenture, the Controlling Party will have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Indenture Trustee with respect to the Notes or exercising any trust or
power conferred on the Indenture Trustee and the Controlling Party may, in
certain cases, waive any default with respect thereto, except a default in the
payment of principal or interest or a default in respect of a covenant or
provision of the Indenture that cannot be modified without the waiver or consent
of all of the holders of such outstanding Notes.
Neither the Insurer, nor any holder of a Note will have the right to
institute any proceeding with respect to the Indenture unless (i) the Insurer or
such holder previously has given to the Indenture Trustee written notice of a
continuing Event of Default, (ii) the Insurer or the holders of not less than
25% in principal amount of the outstanding Notes have made written request of
the Indenture Trustee to institute such proceeding in its own name as Indenture
Trustee, (iii) the Insurer or such holder or holders have offered the Indenture
Trustee reasonable indemnity, (iv) the Indenture Trustee has for 60 days failed
to institute such proceeding and (v) no direction inconsistent with such written
request has been given to the Indenture Trustee during such 60-day period by a
Note Majority.
If an Event of Default occurs and is continuing and if it is known to the
Indenture Trustee, the Indenture Trustee will mail to each Noteholder and the
Insurer (unless an Insurer Default has occurred and is continuing) notice of the
Event of Default within 90 days after it occurs. Except in the case of a
failure to pay principal of or interest on any Note, the Indenture Trustee may
withhold the notice of an Event of Default and so long as it determines in good
faith that withholding the notice is in the interest of the Noteholders.
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In addition, the Indenture Trustee and the Noteholders, by accepting the
Notes, will covenant that they will not at any time institute against the
Depositor, the Transferor, the Servicer or the Issuer any bankruptcy,
reorganization or other proceeding under any federal or state bankruptcy or
similar law.
No recourse may be taken, directly or indirectly, with respect to the
obligations of the Issuer or the Indenture Trustee on the Notes or under the
Indenture or any certificate or other writing delivered in connection therewith,
against (i) the Depositor, the Issuer or the Indenture Trustee in its individual
capacity or (ii) any partner, owner, beneficiary, agent, officer, director,
employee or agent of the Depositor, the Issuer or the Indenture Trustee or of
any successor or assignee of the Depositor, the Issuer or the Indenture Trustee
in its individual capacity, except as any such person may have expressly agreed
(it being understood that the Indenture Trustee will have no such obligations in
its individual capacity) and except that any such partner, owner or beneficiary
shall be fully liable, to the extent provided by applicable law, for any unpaid
consideration for stock, unpaid capital contribution or failure to pay any
installment or call owing to such entity.
Amendment
The Indenture may be amended by the Issuer, with the consent of the
Indenture Trustee and, if the Insurer is the Controlling Party, the Insurer, but
without the consent of the Noteholders to cure any ambiguity, or to correct or
supplement any provision therein which may be inconsistent with any other
provision therein. The Issuer and the Indenture Trustee may also amend the
Indenture (i) with the consent of the Insurer, if the Insurer is the Controlling
Party, or (ii) if the Insurer is no longer the Controlling Party, with the
consent of a Note Majority to add, change or eliminate any other provisions with
respect to matters or questions arising under such Indenture or affecting the
rights of the Noteholders; provided that such action will not (i) increase or
reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments on the Notes or distributions that are required to be
made for the benefit of the Noteholders or (ii) reduce the aforesaid percentage
of the Noteholders required to consent to any such amendment, without, in either
case, the consent of the holders of all Notes outstanding. The Indenture
requires the Issuer to deliver to the Indenture Trustee and the Insurer upon the
execution and delivery of the Indenture and any amendment thereto an opinion of
counsel, satisfactory to the Insurer and the Indenture Trustee that all
financing statements and continuation statements have been filed that are
necessary to fully protect and preserve the Indenture Trustee's interest in the
Trust Fund.
Certain Covenants
The Indenture will provide that the Issuer may not consolidate with or merge
into any other entity, unless (i) the entity formed by or surviving such
consolidation or merger is organized under the laws of the United States or any
state; (ii) such entity expressly assumes the Issuer's obligation to make due
and punctual payments upon the Notes and the performance or observance of every
agreement and covenant of the Issuer under the Indenture; (iii) no Event of
Default will have occurred and be continuing immediately after such transaction;
(iv) the Issuer has been advised that the rating of the Notes then in effect
would not be reduced or withdrawn by the Rating Agencies as a result of such
transaction; (v) the Issuer has received an opinion of counsel to the effect
that such transaction would have no material adverse tax consequence to the
Issuer, the Insurer, any Noteholder or any Certificateholder; (vi) any action
necessary to maintain the lien and security interest under the Indenture has
been taken; (vii) the Issuer has delivered an officer's certificate and an
opinion of counsel each stating that such transaction and such supplemental
indenture comply with the provisions of the Indenture of the Issuer and that all
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conditions precedent in the Indenture to such transaction have been complied
with; and (viii) so long as no Insurer Default has occurred and is continuing,
the Issuer has given the Insurer written notice of such transaction at least 20
Business Days prior to the consolidation or merger and the Issuer or the Person
(if other than the Issuer) formed by or surviving such consolidation or merger
has a net worth, immediately prior to giving effect to such consolidation or
merger, that is (a) greater than zero and (b) not less than the net worth of the
Issuer immediately prior to giving effect to such consolidation or merger.
The Indenture will also provide that the Issuer may not convey or transfer
all or substantially all of its properties or assets to any other entity, unless
(i) the entity that acquires the assets of the Issuer (A) agrees that all right,
title and interest conveyed or transferred shall be subject and subordinate to
the rights of Noteholders, (B) unless otherwise agreed, expressly agrees to
indemnify, defend and hold harmless the Issuer against and from any loss,
liability or expense arising under or related to the Indenture and the Notes,
(C) expressly agrees to make all filings with the Securities and Exchange
Commission (and any other appropriate entity) required by the Exchange Act in
connection with the Notes and (D) is organized under the laws of the United
States or any state; and (ii) the criteria specified in clauses (ii) through
(vii) of the preceding paragraph have been complied with.
The Issuer will not, among other things, (i) except as expressly permitted
by the Trust Agreements or certain related documents with respect to the Issuer
(collectively, the "Basic Documents"), sell, transfer, exchange or otherwise
dispose of any of the assets of the Issuer; (ii) claim any credit on or make any
deduction from the principal and interest payable in respect of the Notes (other
than amounts withheld under the Code) or assert any claim against any present or
former holder of the Notes because of the payment of taxes levied or assessed
upon any part of the Trust Fund; (iii) permit the validity or effectiveness of
the Indenture to be impaired or permit the lien in favor of the Indenture
Trustee created by the Indenture to be amended, hypothecated, subordinated,
terminated or discharged or permit any person to be released from any covenants
or obligations with respect to the Notes except as may be expressly permitted by
the Indenture; (iv) permit any lien, charge, excise, claim, security interest,
mortgage or other encumbrance (other than certain liens that arise by operation
of law) to be created on or extend to or otherwise arise upon or burden the
Trust Fund or any part thereof, or any interest therein or the proceeds thereof;
(v) permit the lien of the related Indenture not to constitute a valid first
priority (other than certain liens that arise by operation of law) security
interest in the assets of Trust Fund or (vi) amend, modify or fail to comply
with the provisions of the Basic Documents without the prior written consent of
the Controlling Party.
The Issuer will not incur, assume, guarantee or otherwise become liable,
directly or indirectly, for any indebtedness other than indebtedness incurred
pursuant to the Notes obligations owing from time to time to the Insurer under
the Insurance Agreement and the Indenture or otherwise in accordance with the
Basic Documents.
Annual Compliance Statement
The Issuer will be required to file annually with the Indenture Trustee and
the Insurer a written statement as to the fulfillment of its obligations under
the Indenture.
Indenture Trustee's Annual Report
The Indenture Trustee will be required to mail each year to all Noteholders
a brief report relating to, among other things, its eligibility and
qualification to continue as Indenture Trustee under the
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Indenture, any amounts advanced by it under the Indenture, the amount, interest
rate and maturity date of certain indebtedness owing by the Trust to the
Indenture Trustee in its individual capacity, the property and funds physically
held by the Indenture Trustee as such and any action taken by it that materially
affects the Notes and that has not been previously reported.
Satisfaction and Discharge of Indenture
The Indenture Trustee will be discharged with respect to the collateral
securing the Notes upon the delivery to the Indenture Trustee for cancellation
of all Notes or, with certain limitations, upon deposit with the Indenture
Trustee of funds sufficient for the payment in full of all of such Notes.
Trust Indenture Act
The Indenture will comply with applicable provisions of the Trust Indenture
Act of 1939, as amended.
The Indenture Trustee
The Indenture Trustee may resign at any time, in which event the Issuer will
be obligated to appoint a successor trustee eligible under the Indenture which,
if there is no Insurer Default, shall be acceptable to the Insurer. The Issuer
will remove the Indenture Trustee, if the Indenture Trustee ceases to be
eligible to continue as such under the Indenture or if the Indenture Trustee
becomes insolvent. In such circumstances, the Issuer will be obligated to
appoint a successor trustee eligible under the Indenture that, if no Insurer
Default exists, is acceptable to the Insurer. Any resignation or removal of the
Indenture Trustee and appointment of a successor trustee will be subject to any
conditions or approvals, including the approval of the Insurer and will not
become effective until acceptance of the appointment by a successor trustee.
DESCRIPTION OF THE CERTIFICATES
The Certificates are not being offered hereby. The Certificates will be
issued pursuant to the Owner Trust Agreement, a form of which has been filed as
an exhibit to the Registration Statement. A copy of the Owner Trust Agreement
will be filed with the Commission following the issuance of the Notes.
The Certificates will initially be sold to by the Transferor on the Closing
Date for cash in an amount of $____________.
On each Payment Date, all distributions on the Certificates will be
subordinated in priority of payment in full of the Noteholders' Principal
Distributable Amount and Noteholders' Interest Distributable Amount for such
Payment Date. The Certificateholders' will not receive any distribution on any
Payment Date unless the Noteholders' Distributable Amount has been deposited in
the Note Distribution Account and unless the amount on deposit in the Reserve
Account is at least equal the Required Reserve Account Amount. See "Description
of the Trust Agreements--Payments" and "--Accounts."
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THE INSURER
The following information has been obtained from Financial Security
Assurance Inc. (the "Insurer" or "Financial Security") and has not been verified
by the Issuer, the Depositor, the Transferor, PeopleFirst or the Underwriters.
No representation or warranty is made by the Issuer, the Depositor, the
Transferor, PeopleFirst or the Underwriters.
General
Financial Security is a monoline insurance company incorporated in 1984
under the laws of the State of New York. Financial Security is licensed to
engage in the financial guaranty insurance business in all 50 states, the
District of Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged in the business of
writing financial guaranty insurance, principally in respect of securities
offered in domestic and foreign markets. In general, financial guaranty
insurance consists of the issuance of a guaranty of scheduled payments of an
issuer's securities--thereby enhancing the credit rating of those securities--in
consideration for the payment of a premium to the insurer. Financial Security
and its subsidiaries principally insure asset-backed, collateralized and
municipal securities. Asset-backed securities 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 insures both newly issued securities sold in the
primary market and outstanding securities sold in the secondary market that
satisfy Financial Security's underwriting criteria.
Financial Security is a wholly owned subsidiary of Financial Security
Assurance Holdings Ltd. ("Holdings"), a New York Stock Exchange listed company.
Major shareholders of Holdings include White Mountains Insurance Group, Inc.,
Media One Capital Corporation, The Tokio Marine and Fire Insurance Co. Ltd. and
XL Capital Ltd. No shareholder of Holdings is obligated to pay any debt of
Financial Security or any claim under any insurance policy issued by Financial
Security or to make any additional contribution to the capital of Financial
Security.
The principal executive offices of Financial Security are located at 350
Park Avenue, New York, New York 10022, and its telephone number at that location
is (212) 826-0100.
Reinsurance
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written or reinsured from third parties by Financial Security or any
of its domestic or Bermuda operating insurance company subsidiaries are
generally reinsured among such companies on an agreed-upon percentage
substantially proportional to their respective capital, surplus and reserves,
subject to applicable statutory risk limitations. In addition, Financial
Security reinsures a portion of its liabilities under certain of its financial
guaranty insurance policies with other reinsurers under various quota share
treaties and on a transaction-by-transaction basis. Such reinsurance is
utilized by Financial Security as a risk management device and to comply with
certain statutory and rating agency requirements; it does not alter or limit
Financial Security's obligations under any financial guaranty insurance policy.
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Rating of Claims-Paying Ability
Financial Security's insurance financial strength is rated "Aaa" by Moody's.
Financial Security's insurer financial strength is rated "AAA" by S&P.
Financial Security's claims-paying ability is rated "AAA" by Fitch IBCA, Inc.
and Japan Rating and 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 and
its wholly owned subsidiaries on the basis of generally accepted accounting
principles as of June 30, 1999 (in thousands):
<TABLE>
<CAPTION>
June 30, 1999
(Unaudited)
--------------
<S> <C>
Deferred Premium Revenue (net of prepaid
reinsurance premiums)...................... $ 520,986
Surplus Notes................................ 120,000
Minority Interest............................ 21,429
Shareholder's Equity:
Common Stock............................... 15,000
Additional Paid-in Capital................. 706,117
Accumulated Other Comprehensive
Income (net of deferred income taxes)...... (1,937)
Accumulated Earnings......................... 418,772
----------
Total Shareholder's Equity................... 1,137,952
----------
Total Deferred Premium Revenue,
Surplus Notes, Minority Interest and
Shareholder's Equity....................... $1,800,367
==========
</TABLE>
For further information concerning Financial Security, see the Consolidated
Financial Statements of Financial Security and Subsidiaries, and the notes
thereto, incorporated by reference herein. Financial Security's financial
statements are included as Exhibits to the Annual Report on Form 10-K and
Quarterly Reports on Form 10-Q filed with the Commission by Holdings and may be
reviewed at the EDGAR Website maintained by the Commission and at Holdings'
website, http://www.FSA.com. Copies of the statutory quarterly and annual
statements filed with the State of New York Insurance Department by Financial
Security are available upon request to the State of New York Insurance
Department.
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Insurance Regulation
Financial Security is licensed and subject to regulation as a financial
guaranty insurance corporation under the laws of the State of New York, its
state of domicile. In addition, Financial Security and its insurance
subsidiaries are subject to regulation by insurance laws of the various other
jurisdictions in which they are licensed to do business. As a financial guaranty
insurance corporation licensed to do business in the State of New York,
Financial Security is subject to Article 69 of the New York Insurance Law which,
among other things, limits the business of each such insurer to financial
guaranty insurance and related lines, requires that each such insurer maintain a
minimum surplus to policyholders, establishes contingency, loss and unearned
premium reserve requirements for each such insurer, and limits the size of
individual transactions ("single risks") and the volume of transactions
("aggregate risks") that may be underwritten by each such insurer. Other
provisions of the New York Insurance Law, applicable to non-life insurance
companies such as Financial Security, regulate, among other things, permitted
investments, payment of dividends, transactions with affiliates, mergers,
consolidations, acquisitions or sales of assets and incurrence of liability for
borrowings.
THE POLICY
The following summary of the terms of the Policy does not purport to be
complete and is qualified in its entirety by reference to the Policy.
Simultaneously with the issuance of the Notes, the Insurer will deliver the
Policy to the Indenture Trustee for the benefit of each Noteholder. Under the
Policy, the Insurer will unconditionally and irrevocably guarantee to the
Indenture Trustee for the benefit of each Noteholder the full and complete
payment of (i) Scheduled Payments (as defined below) on the Notes and (ii) the
amount of any Scheduled Payment which subsequently is avoided in whole or in
part as a preference payment under applicable law. In the event the Indenture
Trustee fails to make a claim under the Policy, Noteholders do not have the
right to make a claim directly under the Policy, but may sue to compel the
Indenture Trustee to do so.
"Scheduled Payment" means payments which are scheduled to be made on the
Notes during the term of the Policy in accordance with the original terms of the
Notes when issued and without regard to any subsequent amendment or modification
of the Notes or the Indenture that has not been consented to by the Insurer,
which payments for each Payment Date are (i) the Noteholders' Interest
Distributable Amount for such Payment Date and (ii) the Noteholders' Principal
Distributable Amount. Scheduled Payments do not include payments which become
due on an accelerated basis as a result of (a) a default by the Issuer, (b) an
election by the Issuer to pay principal on an accelerated basis, (c) the
occurrence of an Event of Default under the Indenture or (d) any other cause,
unless the Insurer elects, in its sole discretion, to pay in whole or in part
such principal due upon acceleration, together with any accrued interest to the
date of acceleration. In the event the Insurer does not so elect, the Policy
will continue to guarantee Scheduled Payments due on the Notes in accordance
with their original terms. Scheduled Payments shall not include (x) any portion
of the Noteholders' Interest Distributable Amount due to Noteholders because the
appropriate notice and certificate for payment in proper form was not timely
Received (as defined below) by the Insurer, or (y) any portion of the
Noteholders' Interest Distributable Amount due to Noteholders representing
interest on any Noteholders' Interest Carryover Shortfall accrued from and
including the date of payment of the amount of such Noteholders' Carryover
Interest Shortfall pursuant to the Policy unless, in each case, the Insurer
elects, in its sole discretion, to pay such amount in whole or in part.
Scheduled Payments shall not include any amounts due in respect of the
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Notes attributable to any increase in interest rate, penalty or other sum
payable by the Issuer by reason of any default or event of default in respect of
the Notes or by reason of any deterioration of the creditworthiness of the
Issuer nor shall coverage be provided under the Policy in respect of any taxes,
withholding or other charge imposed with respect to any Noteholder by any
governmental authority due in connection with the payment of any Scheduled
Payment to a Noteholder.
Payment of claims on the Policy made in respect of Scheduled Payments will
be made by the Insurer following Receipt (as defined below) by the Insurer of
the appropriate notice for payment on the later to occur of (i) 12:00 noon, New
York City time, on the third Business Day following Receipt of such notice for
payment, and (ii) 12:00 noon, New York City time, on the date on which such
payment was due on the Notes.
If payment of any amount avoided as a preference under applicable
bankruptcy, insolvency, receivership or similar law is required to be made under
the Policy, the Insurer shall cause such payment to be made on the later of (a)
the date when due to be paid pursuant to the Order referred to below and (b) the
first to occur of (i) the fourth Business Day following Receipt by the Insurer
from the Indenture Trustee of (A) a certified copy of the order (the "Order") of
the court or other governmental body that exercised jurisdiction to the effect
that Noteholders are required to return Scheduled Payments made with respect to
the Notes during the term of the Policy because such payments were avoidable as
preference payments under applicable bankruptcy law, (B) a certificate of the
Indenture Trustee that the Order has been entered and is not subject to any stay
and (C) an assignment duly executed and delivered by the Noteholder, in such
form as is reasonably required by the Insurer and provided to the Noteholder by
the Insurer, irrevocably assigning to the Insurer all rights and claims of the
Noteholder relating to or arising under the Notes against the Issuer or
otherwise with respect to such preference payment, and (ii) the date of Receipt
(as defined below) by the Insurer from the Indenture Trustee of the items
referred to in clauses (A), (B) and (C) above if, at least four Business Days
prior to such date of Receipt, the Insurer shall have Received (as defined
below) written notice from the Indenture Trustee that such items were to be
delivered on such date and such date was specified in such notice. Such payment
shall be disbursed to the receiver, conservator, debtor-in-possession or trustee
in bankruptcy named in the Order and not to the Indenture Trustee or any
Noteholder directly (unless a Noteholder has previously paid such amount to the
receiver, conservator, debtor-in-possession or trustee in bankruptcy named in
the Order, in which case such payment shall be disbursed to the Indenture
Trustee for distribution to such Noteholder upon proof of such payment
reasonably satisfactory to the Insurer). In connection with the foregoing, the
Insurer shall have the rights provided pursuant to the Indenture including,
without limitation, the right (in the absence of an Insurer Default) to direct
all matters relating to any preference claim and subrogation to the rights of
the Indenture Trustee and each Noteholder in the conduct of any proceeding with
respect to a preference claim.
Other Provisions of the Policy
The terms "Receipt" and "Received" with respect to the Policy shall mean
actual delivery to the Insurer and to its fiscal agent, if any, prior to 12:00
noon, New York City time, on a Business Day; delivery either on a day that is
not a Business Day or after 12:00 noon, New York City time, shall be deemed to
be Received on the next succeeding Business Day. If any notice or certificate
given under a Policy by the Indenture Trustee is not in proper form or is not
properly completed, executed or delivered, it shall be deemed not to have been
Received, and the Insurer or its fiscal agent shall promptly so advise the
Indenture Trustee and the Indenture Trustee may submit an amended notice.
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Under the Policy, "Business Day" means any day other than a Saturday,
Sunday, legal holiday or other day on which commercial banking institutions in
San Diego, California, Wilmington, Delaware, New York, New York or Minneapolis,
Minnesota are authorized or obligated by law, executive order or governmental
decree to be closed.
The Insurer's obligations under the Policy in respect of Scheduled Payments
shall be discharged to the extent funds are transferred to the Indenture Trustee
as provided in the Policy whether or not such funds are properly applied by the
Indenture Trustee.
The Insurer shall be subrogated to the rights of each Noteholder to receive
payments of principal and interest to the extent of any payment by the Insurer
under the Policy.
Claims under the Policy constitute direct, unsecured and unsubordinated
obligations of the Insurer ranking not less than pari passu with other unsecured
and unsubordinated indebtedness of the Insurer for borrowed money. Claims
against the Insurer under the Policy and each other financial guaranty insurance
policy issued thereby constitute pari passu claims against the general assets of
the Insurer. The terms of the Policy cannot be modified or altered by any other
agreement or instrument, or by the merger, consolidation or dissolution of the
Issuer. The Policy may not be canceled or revoked prior to distribution in full
of all Scheduled Payments. The Policy is not covered by the Property/Casualty
Insurance Security Fund specified in Article 76 of the New York Insurance Law.
The Policy is governed by the laws of New York.
It is a condition to issuance that the Notes be rated AAA by S&P and Aaa by
Moody's. The ratings by the Rating Agencies of the Notes will be based primarily
on the issuance of the Policy. A rating is not a recommendation to purchase,
hold or sell Notes. In the event that the rating initially assigned to any of
the Notes is subsequently lowered or withdrawn for any reason, including by
reason of a downgrading of the claims-paying ability of the Insurer, no person
or entity will be obligated to provide any additional credit enhancement with
respect to the Notes. Any reduction or withdrawal of the rating may have an
adverse effect on the liquidity and market price of the Notes.
DESCRIPTION OF THE TRUST AGREEMENTS
The following summary, together with the description in the Prospectus
under the heading "Description of the Trust Agreements," describes certain terms
of the Sale and Servicing Agreement, the Owner Trust Agreement, the Indenture
and any Subsequent Transfer Agreement (collectively, the "Trust Agreements").
Copies of the Trust Agreements will be filed with the Commission following the
issuance of the Notes. The summary describes the material terms of the Trust
Agreements, but it does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all the provisions of the Trust
Agreements. The following summary supplements the description of the general
terms and provisions of the Trust Agreements set forth in the Prospectus, to
which description reference is hereby made.
Assignment of Receivables
Pursuant to a Sale and Servicing Agreement, dated as of November 1, 1999
(the "Sale and Servicing Agreement"), between the Originator, as seller and
servicer, the Transferor, the Depositor, the Issuer and Norwest Bank Minnesota,
National Association, as Indenture Trustee, Backup Servicer and Custodian, the
Originator will sell and contribute to the Transferor, on or prior to the
Closing Date, or,
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with respect to the Subsequent Receivables, the related Subsequent Transfer
Date, without recourse, all of its right, title and interest in and to the
related Receivables including, without limitation, (i) the related Receivables,
and all moneys due or received thereon after the Cut-off Date; (ii) an
assignment of the security interests in the Financed Vehicles granted by
Obligors pursuant such Receivables and any other interest of the Originator in
such Financed Vehicles; (iii) any proceeds with respect to such Receivables from
claims on any theft, physical damage, credit life or disability insurance
policies covering Financed Vehicles or Obligors and any proceeds from the
liquidation of such Receivables; (iv) all rights under any agreements providing
for the repair of the related Financed Vehicles (including any extended
warranty); (v) the related files with respect to such Receivables; and (vi) the
proceeds of any and all of the foregoing. Also pursuant to the Sale and
Servicing Agreement, the Transferor will assign such Receivables and other
assets to the Depositor, which will in turn assign such Receivables and other
assets to the Issuer. Finally, pursuant to the Indenture, the Issuer will assign
such assets to the Indenture Trustee to secure the obligations of the Issuer
under the Notes. The assignments of Receivables under the Sale and Servicing
Agreement may be treated as pledges under the bankruptcy code and under other
applicable insolvency law. See "Risk Factors--Ownership of the Contracts"
and "--Insolvency and Bankruptcy Matters" in the Prospectus and "Risk Factors--
Risk of recharacterization of true sale as a pledge" in this Prospectus
Supplement.
In connection with the transfer and assignment of the Receivables on the
Closing Date and each Subsequent Transfer Date, the Originator will be required
to deliver or cause to be delivered to Norwest Bank Minnesota, National
Association, as custodian (the "Custodian"), the following with respect to each
Receivable:
(a) the note and security agreement or other evidence of the
Obligor's indebtedness to repay such Receivable;
(b) a record of the information supplied by the Obligor in the
original credit application;
(c) the original certificate of title or such documents that the
Servicer shall keep on file, in accordance with its customary
procedures, evidencing the security interest of PeopleFirst in
the Financed Vehicle (however, original certificates of title
generally are not delivered to the Originator for 120 days, but
promptly upon delivery they will be delivered to the Custodian);
and
(d) any and all other documents that the Servicer shall keep on file,
in accordance with its customary procedures, relating to a
Receivable, an Obligor or a Financed Vehicle.
In the Sale and Servicing Agreement, the Originator will represent and
warrant to the Transferor and the Transferor will represent and warrant to the
Depositor and the Issuer, among other things, that: (i) the information provided
in the related schedule of Receivables and the related computer tape with
respect to the Receivables is correct in all material respects; (ii) the Obligor
on each related Receivable is required to maintain physical damage insurance
covering the Financed Vehicle; (iii) neither the Transferor nor the Originator
has received notice of any liens or claims, including liens for work, labor,
materials or unpaid state or federal taxes, relating to the Financed Vehicle
securing the Receivable, that are or may be prior to or equal to the lien
granted by the Receivable; (iv) as of the Closing Date or the applicable
Subsequent Transfer Date, if any, each of such Receivables is owned by
Transferor free and
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clear of any lien and is secured by a first perfected security interest in favor
of the Transferor in the Financed Vehicle; (v) each related Receivable, at the
time it was originated, complied and, as of the Closing Date or the applicable
Subsequent Transfer Date, if any, complies in all material respects with
applicable federal and state laws, including, without limitation, consumer
credit, truth in lending, equal credit opportunity and disclosure laws; and (vi)
each of such Receivables as of the related Cut-off Date satisfied the
eligibility criteria for inclusion in the Receivables Pool that are described
under "The Receivables -- Eligibility Criteria" above.
Obligation to Repurchase Receivables
Pursuant to the Sale and Servicing Agreement, the Originator and the
Transferor, respectively, will be obligated to repurchase a Receivable from the
Transferor and the Issuer, respectively, if the interests of the Issuer, the
Insurer or the Noteholders are materially and adversely affected by any breach
of any representation or warranty made by the Originator or the Transferor,
respectively, with respect to the Receivable, if such breach has not been cured
following discovery by or notice to the Originator or the Transferor,
respectively, of the breach. Each Receivable will be purchased from the Trust by
the Originator or the Transferor, as the case may be, at a price equal to the
"Purchase Amount" (as defined below). The purchase obligations will constitute
the sole remedy available to the Noteholders or the Indenture Trustee for any
such uncured breaches.
Pursuant to the Sale and Servicing Agreement, the Servicer will be
obligated to purchase a Receivable from the Issuer if the interests of the
Noteholders, the Insurer or the Issuer in such Receivable are materially
adversely affected by a breach of certain of its servicing obligations under the
Sale and Servicing Agreement (including its obligation to maintain perfection of
the first priority security interest created by each Receivable in the related
Financed Vehicle or certain other covenants with respect to the Servicer), if
the breach has not been cured following the discovery or notice to the Servicer
of the breach.
The "Purchase Amount" means, with respect to a Receivable, the Principal
Balance and accrued interest on the Receivable (including one month's interest
thereon, in the month of payment, at the APR less, so long as PeopleFirst is the
Servicer, the Servicing Fee), after giving effect to the receipt of any moneys
collected (from whatever source) on such Receivable, if any.
Accounts
Collection Account
The Issuer will establish and maintain with the Indenture Trustee one or
more accounts (the "Collection Account"), in the name of the Indenture Trustee
on behalf of the Noteholders, the Certificateholders and the Insurer, into which
payments or other amounts received with respect to the Receivables will be
deposited. The Collection Account will be maintained with the Indenture Trustee
so long as the Indenture Trustee's deposits have a rating acceptable to the
Insurer and the Rating Agencies. If the deposits of the Indenture Trustee or its
corporate parent no longer have such acceptable rating, the Servicer will, with
the Indenture Trustee's assistance as necessary, cause such accounts to be moved
within 30 days to a bank whose deposits have such rating.
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Distribution Accounts
The Servicer will also establish and maintain an account, in the name of
the Indenture Trustee, on behalf of the Noteholders and the Insurer, in which
amounts released from the Collection Account for distribution to noteholders
will be deposited and from which all distributions to Noteholders will be made
(the "Note Distribution Account"). A separate account, the "Certificate
Distribution Account," will be maintained for the purpose of making
distributions to Certificateholders.
Reserve Account
Pursuant to a Master Reserve Account Agreement, dated as of the Closing
Date (the "Reserve Account Agreement"), among the Transferor, the Insurer, the
Indenture Trustee and Norwest Bank Minnesota, National Association, as indenture
collateral agent (the "Indenture Collateral Agent"), the Transferor will cause
the Indenture Collateral Agent to establish the Reserve Account in the name of
the Indenture Collateral Agent for the benefit of the Insurer. On the Closing
Date, the Transferor will make an initial deposit of cash into the Reserve
Account. On each Payment Date, additional amounts will be deposited into the
Reserve Account from collections on the Receivables to the extent funds are
available therefor as described under "Description of the Trust Agreements--
Payments" and from amounts, if any, released from the Yield Supplement Account
as described under "--Yield Supplement Account." Funds will be withdrawn from
the Reserve Account on or before each Payment Date to pay any Deficiency Claim
Amount for such Payment Date, including amounts needed to pay the Noteholders'
Interest Distributable Amount and the Noteholders' Principal Distributable
Amount for such Payment Date.
The amount required under the Reserve Account Agreement to be on deposit in
the Reserve Account at any time (the "Reserve Account Required Amount") may
increase or decrease without Noteholder consent and there can be no assurance
that the amounts on deposit in the Reserve Account will reach the Reserve
Account Required Amount since the existence of the Reserve Account and any other
term or provision in the Reserve Account Agreement regarding the Reserve Account
may be amended by the Insurer without Noteholder consent. Consequently, the
Noteholders should not rely on amounts on deposit in or to be deposited to the
Reserve Account in evaluating the likelihood of receiving repayment of the
Notes.
Amounts, if any, on deposit in the Reserve Account on any Payment Date in
excess of the Reserve Account Required Amount for each Payment Date will be paid
to the Certificateholders.
In addition, the Issuer, the Depositor, the Insurer and the Indenture
Collateral Agent may amend the Reserve Account Agreement (and any provisions in
the Insurance Agreement relating to the Reserve Account) in any respect
(including, without limitation, reducing or eliminating the Reserve Account
Required Amount and/or reducing or eliminating the funding requirements of the
Reserve Account or permitting such funds to be used for the benefit of persons
other than Noteholders) without the consent of, or notice to, the Indenture
Trustee, the Owner Trustee or the Noteholders. The Indenture Collateral Agent
shall not withhold or delay its consent with respect to any amendment that does
not adversely affect the Indenture Collateral Agent in its individual capacity.
Notwithstanding any reduction in or elimination of the funding requirements of
the Reserve Account or the depletion thereof, the Insurer will be obligated on
each Payment Date to fund for the benefit of the Noteholders the full amount of
each Scheduled Payment otherwise required to be made on such Payment Date in
accordance with the terms of the Policy.
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Yield Supplement Account
The Transferor will establish a yield supplement account (the "Yield
Supplement Account") for the benefit of the Noteholders, which will initially be
a segregated trust account in the corporate trust department of the Indenture
Trustee. On the Closing Date, the Transferor will make an initial deposit to the
Yield Supplement Account in the amount specified in the Sale and Servicing
Agreement.
No later than 12:00 noon (New York City time) on each Payment Date, the
Indenture Trustee will cause an amount equal to the Yield Supplement Amount for
such Payment Date, determined as described below, to be transferred from the
Yield Supplement Account to the Collection Account. The "Yield Supplement
Amount" with respect to any Payment Date will determined by aggregating for all
of the Receivables, one twelfth of the difference (if positive) between (x) the
product of (1) the Principal Balance of such Receivable multiplied by (2) a rate
equal the Weighted Average Rate plus ___% (which percentage represents the
Servicing Rate plus ___%) and (y) the product of (1) the Principal Balance of
such Receivable multiplied by (2) the APR on such Receivable. For purposes of
calculating the Yield Supplement Amount on each Payment Date, the Servicer will
determine the Principal Balance of each Receivable and the Weighted Average Rate
as of the first day of the related Collection Period.
The "Weighted Average Rate" means, with respect to any date of
determination, a per annum rate equal to (1) the sum of (a) the product of (x)
the outstanding principal amount of the Class A-1 Notes on such date and (y) the
Class A-1 Interest Rate, plus (b) the product of (x) the outstanding principal
amount of the Class A-2 Notes on such date and (y) the Class A-2 Interest Rate,
plus (c) the product of (x) the outstanding principal amount of the Class A-3
Notes on such date and (y) the Class A-3 Interest Rate, divided by (2) the
outstanding principal amount of the Notes on such date.
On each Payment Date, the amount required to be on deposit in the Yield
Supplement Account (after giving effect to the transfer of the Yield Supplement
Amount for such Payment Date to the Collection Account on such Payment Date)
will be an amount equal to the sum of all projected Yield Supplement Amounts for
all future Payment Dates, which will be determined assuming that future
scheduled payments on the Receivables are made on their scheduled due dates. The
amount on deposit in the Yield Supplement Account in excess of the maximum
required balance on each Payment Date will be transferred to the Reserve
Account.
Pre-Funding Account
On the Closing Date, a cash amount equal to approximately $38,746,000 (the
"Initial Pre-Funded Amount") will be deposited in an account (the "Pre-Funding
Account") which will be established with the Indenture Trustee. The Pre-Funding
Account will be an asset of the Trust and will be pledged to the Indenture
Trustee for the benefit the Noteholders. The "Funding Period" is the period from
the Closing Date until the earliest of (i) the date on which the amount on
deposit in the Pre-Funding Account is less than $100,000, (ii) the occurrence of
a Servicer Default under the Sale and Servicing Agreement, or (iii) February 29,
2000.
The Initial Pre-Funded Amount as reduced from time to time during the
Funding Period by the amount thereof used to purchase Subsequent Receivables in
accordance with the Sale and Servicing Agreement is referred to herein as the
"Pre-Funded Amount." The Transferor expects that the Pre-Funded Amount will be
reduced to less than $100,000 on or before the end of the Funding Period. Any
Pre-
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Funded Amount remaining at the end of the Funding Period will be payable to the
Noteholders as described herein under "Description of the Notes--Mandatory
Redemption."
Capitalized Interest Account
On the Closing Date, a cash amount may be deposited in an account (the
"Capitalized Interest Account") which will be established with the Indenture
Trustee. The Capitalized Interest Account will be an asset of the Trust, and
will be pledged to the Indenture Trustee for the benefit of the Noteholders. The
amount, if any, deposited in the Capitalized Interest Account will be applied on
the Payment Dates occurring on or prior to March 15, 2000 to fund an amount (the
"Monthly Capitalized Interest Amount") equal to the amount of interest accrued
for each such Distribution Date at the weighted average Interest Rates on the
portion of the Notes having a principal balance in excess of the principal
balances of the Receivables (which portion will equal the Pre-Funded Amount).
Any amounts remaining in the Capitalized Interest Account on the Mandatory
Redemption Date and not used for such purposes are required to be paid directly
to the Transferor on such date.
Certain Allocations
On or before the fifth Business Day prior to the each Payment Date, (each,
a "Determination Date"), the Servicer will be required to deliver a certificate
(the "Servicer's Certificate") to the Indenture Trustee and the Insurer,
specifying, among other things, the amount of aggregate collections on the
Receivables and the aggregate Purchase Amount of Receivables to be purchased by
the Transferor or the Servicer, all with respect to the preceding Collection
Period.
Not later than the fourth Business Day prior to each Payment Date (each
such day, a "Deficiency Claim Date"), the Indenture Trustee will, based solely
on the information contained in the Servicer's Certificate delivered on the
related Determination Date, deliver to the Indenture Collateral Agent, the
Insurer and the Servicer a written notice (a "Deficiency Notice") specifying the
Deficiency Claim Amount (as defined below) for such Payment Date. Such
Deficiency Notice will direct the Indenture Collateral Agent to transfer such
Deficiency Claim Amount from amounts on deposit in the Reserve Account for
deposit in the Collection Account. The "Deficiency Claim Amount" on any
Determination Date will equal the excess, if any, of (i) the sum of the amounts
payable on the related Payment Date pursuant to clauses (1) through (5) under
"--Payments" below over (ii) the amount of Available Funds with respect to such
Determination Date.
On each Payment Date, the Servicer is required to instruct the Indenture
Trustee to distribute funds in the amounts and priority set forth under "--
Payments" below.
Payments
On each Payment Date, the Indenture Trustee will make the following
payments from the Collection Account in the following order of priority:
1. first, from the Distribution Amount, to the Servicer, any accrued and
unpaid Base Servicing Fee for the related calendar month and any
Supplemental Servicing Fee for such month to the extent not retained
by the Servicer;
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2. second, from the Distribution Amount, pro rata, all accrued and unpaid
fees and expenses due and owing the Indenture Trustee, the Owner
Trustee, the Backup Servicer, the Custodian and the Indenture
Collateral Agent;
3. third, from the Distribution Amount, to the Note Distribution Account,
the Noteholders' Interest Distributable Amount;
4. fourth, from the Distribution Amount, to the Note Distribution
Account, the Noteholders' Principal Distributable Amount, to be
distributed as described under "Description of the Notes -- Payments
of Principal";
5. fifth, from the Distribution Amount, to the Insurer, any amounts due
and owing under the Insurance Agreement;
6. sixth, from Available Funds, to the Reserve Account, all Available
Funds remaining after the distributions pursuant to clauses 1 through
5 above;
7. seventh, from amounts, if any, released from the Reserve Account on
such Payment Date due to an excess of the amount on deposit in the
Reserve Account over the Required Reserve Account Amount, to the
Certificate Distribution Account for distribution to the
Certificateholders, the Certificateholders' Principal Distributable
Amount; and
8. eighth, all remaining amounts released from the Reserve Account on
such Payment Date (after giving effect to the payment under clause 7)
to the Certificate Distribution Account for distribution to the
Certificateholders.
In the event that the Servicer's Certificate indicates that the
Distribution Amount will be insufficient on any Payment Date to make the
payments required under clauses (1) through (4) above on such Payment Date, the
Indenture Trustee will furnish to the Insurer no later than 12:00 noon, New York
City time on the related Draw Date a notice of claim in the amount of the Policy
Claim Amount. Amounts paid by the Insurer pursuant to any such notice of claim
shall be deposited by the Insurer into the Note Distribution Account for payment
to the Noteholders on the related Payment Date.
The following defined terms are used in this "--Payments" section:
"Available Funds" means, with respect to any Determination Date, the
sum of (i) the Collected Funds for the related Collection Period, (ii) all
Purchase Amounts deposited in the Collection Account during the related
Collection Period, (iii) the Monthly Capitalized Interest Amount with
respect to the related Payment Date, (iv) the Yield Supplement Amount with
respect to the related Payment Date, and (v) following the acceleration of
the Notes pursuant to the Indenture, the amount of money or property
collected by the Indenture Trustee with respect to the assets of the Issuer
(from the sale of the assets or otherwise) since the preceding
Determination Date.
"Certificateholders' Monthly Principal Distributable Amount" means,
with respect to any Payment Date, the Certificateholders' Percentage of the
Principal Distributable Amount.
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"Certificateholders' Percentage" means (1) for each Payment Date prior
to the Payment Date on which the Class A-3 Notes are paid in full, 2%, (ii)
on the Payment Date on which the Class A-3 Notes are paid in full, the
percentage equivalent of a fraction, the numerator of which is the excess,
if any, of (x) the Principal Distributable Amount for such Payment Date
over (y) the outstanding principal amount of the Class A-3 Notes
immediately prior to such Payment Date, and the denominator of which is the
Principal Distributable Amount for such Payment Date, and (iii) for each
Payment Date thereafter to and including the Payment Date on which the
Certificate Balance is reduced to zero, 100%.
"Certificateholders' Principal Carryover Shortfall" means, with
respect to any Payment Date, the excess of the Certificateholders' Monthly
Principal Distributable Amount for the preceding Payment Date, over the
amount in respect of principal that was actually deposited in the
Certificate Distribution Account on such preceding Payment Date.
"Certificateholders' Principal Distributable Amount" means , with
respect to any Payment Date, the sum of the Certificateholders' Monthly
Principal Distributable Amount for such Payment Date and the
Certificateholders' Principal Carryover Shortfall for such Payment Date;
provided that the Certificateholder's Principal Distributable Amount may
not exceed the Certificate Balance.
"Collected Funds" means, with respect to any Determination Date, the
amount of funds in the Collection Account representing collections on the
Receivables during the related Collection Period, including all Net
Liquidation Proceeds collected during the related Collection Period.
"Distribution Amount" with respect to any Payment Date, the sum of (i)
the Available Funds for the immediately preceding Determination Date, plus
(ii) the Deficiency Claim Amount, if any, received (from the Reserve
Account, an Insurer Optional Deposit or otherwise other than from draws
under the Policy) by the Indenture Trustee, with respect to such Payment
Date.
"Draw Date" means, with respect to any Payment Date, the second
Business Day (as defined in the Policy) immediately preceding such Payment
Date.
"Insurer Optional Deposit" means, with respect to any Payment Date, an
amount delivered by the Insurer for deposit into the Collection Account for
any of the following purposes: (i) to provide funds in respect of the
payment of fees or expenses of any provider of services to the Issuer with
respect to such Payment Date, or (ii) to include such amount to the extent
that without such amount a draw would be required to be made on the Policy.
"Net Liquidation Proceeds" means, with respect to any Liquidated
Receivable, all amounts realized with respect to such Receivable (other
than amounts withdrawn from the Reserve Account and drawings under the
Policy) net of (i) reasonable expenses incurred by the Servicer in
connection with the collection of such Receivable and the repossession and
disposition of the Financed Vehicle and (ii) amounts that are required to
be refunded to the Obligor on such Receivable; provided that Net
Liquidation Proceeds with respect to any Receivable may not be less than
zero.
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"Noteholders' Distributable Amount" means, with respect to any Payment
Date, the sum of the Noteholder's Principal Distributable Amount and the
Noteholders' Interest Distributable Amount.
"Noteholders' Interest Distributable Amount" means, with respect to
any Payment Date, the sum of the Noteholders' Monthly Interest
Distributable Amount for such Payment Date and the Noteholders' Interest
Carryover Shortfall for such Payment Date.
"Noteholders' Interest Carryover Shortfall" means, with respect to any
Payment Date the excess of the Noteholders' Interest Distributable Amount
for the preceding Payment Date, over the amount in respect of interest that
was actually deposited in the Note Distribution Account on such preceding
Payment Date, plus interest on the amount of interest due but not paid to
Noteholders on the preceding Payment Date, to the extent permitted by law,
at the Interest Rate borne by such Notes from such preceding Payment Date
to but excluding the current Payment Date.
"Noteholders' Monthly Interest Distributable Amount" means, with
respect to any Payment Date, the sum of the products for each class of
Notes of (i) the product of the applicable Interest Rate for such class and
1/12 and (ii) the outstanding principal amount of such class of Notes
immediately preceding such Payment Date.
"Noteholders' Principal Carryover Shortfall" means, with respect to
any Payment Date, the excess of the Noteholders' Principal Distributable
Amount for the preceding Payment Date, over the amount in respect of
principal that was actually deposited in the Note Distribution Account on
such preceding Payment Date, plus interest on the amount of principal due
but not paid to Noteholders on the preceding Payment Date, to the extent
permitted by law, at the Interest Rate borne by such Notes from such
preceding Payment Date to but excluding the current Payment Date.
"Policy Claim Amount" means, the amount by which (a) the Distribution
Amount is less than (b) the amount necessary to make the Scheduled Payments
on the Notes for the related Payment Date.
Statements to Noteholders
On or prior to each Payment Date, the Indenture Trustee will be required to
forward a statement to the Noteholders, the Rating Agencies and the Insurer.
Such statements will be based on the information contained in the Servicer's
Certificate delivered by the Servicer on or before the related Determination
Date. Each such statement will include the following information as to the
Notes, with respect to such Payment Date or the period since the previous
Payment Date, as applicable:
(i) the amount of the distribution allocable to interest on or with
respect to the Notes:
(ii) the amount of the distribution allocable to principal with
respect to the Notes;
(iii) the Noteholders' Interest Shortfall if any, the Noteholders'
Principal Shortfall, if any, and the change in such amounts from the
preceding statement;
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(iv) the amount of the distribution, if any, payable pursuant to a
claim on the Policy;
(v) the amount of the Servicing Fee paid to the Servicer with respect
to the related Collection period; and
(vi) the aggregate Purchase Amounts for Receivables, if any, that were
repurchased in such period.
Each amount set forth pursuant to subclauses (i), (ii) and (iii) with
respect to Notes will be expressed as a dollar amount per $1,000 of the initial
principal amount of the Notes.
Unless and until Definitive Notes are issued, such reports will be sent on
behalf of the Issuer to Cede & Co., as registered holder of the Notes and the
nominee of DTC.
Within the required period of time after the end of each calendar year, the
Indenture Trustee will furnish to each person who at any time during such
calendar year was a Noteholder, a statement as to the aggregate amounts of
interest and principal paid to such Noteholder and such other information as the
Issuer deems necessary to enable such Noteholder to prepare its tax returns.
Servicer Default; Rights Upon Servicer Default
A "Servicer Default" under the Sale and Servicing Agreement will include:
(a) any failure by the Servicer to deliver to the Owner Trustee or the
Indenture Trustee any deposit or payment required to be so made, which
failure continues unremedied for two Business Days after written
notice from the Insurer, the Owner Trustee or the Indenture Trustee is
received by the Servicer or after discovery of such failure by the
Servicer,
(b) any failure by the Servicer duly to observe or perform in any material
respect any other covenant or agreement in the Sale and Servicing
Agreement which failure materially and adversely affects the rights of
the Noteholders and the Insurer and which continues unremedied after
applicable grace periods,
(c) certain events of insolvency, readjustment of debt, marshaling of
assets and liabilities or similar proceedings with respect to the
Servicer or the Transferor and certain actions by the Servicer or the
Transferor indicating its insolvency, reorganization pursuant to
bankruptcy proceedings, or inability to pay its obligations,
(d) failure to deliver a Servicer's Certificate or annual statement of
Servicer's compliance within specified periods,
(e) breach of any representation or warranty of the Servicer set forth in
the Sale and Servicing Agreement, which materially and adversely
affects the rights of the Noteholders or the Insurer and remains
uncured after applicable grace periods, and
(f) unless an Insurer Default has occurred and is continuing, certain
defaults under the Insurance Agreement.
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If a Servicer Default occurs, then the Controlling Party or holders of
Notes representing not less than 25% of the voting rights thereof (or, if the
Notes have been paid in full and the Indenture has been discharged in accordance
with its terms, by holders of Certificates evidencing not less than 25% of the
voting interest thereof) may terminate the rights and obligations of the
Servicer under the Sale and Servicing Agreement. If such event occurs when
PeopleFirst is the Servicer, or, if PeopleFirst is terminated as Servicer,
Norwest Bank Minnesota, National Association (in such capacity, the "Backup
Servicer") has agreed, subject to the qualifications contained in the Sale and
Servicing Agreement, to serve as successor Servicer under the Sale and Servicing
Agreement or any other entity serving at the time as Backup Servicer becomes the
successor Servicer, it will receive compensation at the Servicing Fee Rate and
will no longer be entitled to receive a fee as Backup Servicer.
Consistent with its customary procedures, the Servicer may, in its
discretion, arrange with the Obligor on a Receivable to extend or modify the
payment schedule, but no such arrangement will reduce the principal balance or
APR of any Receivable or modify any Receivable if such amendment or modification
would extend the final payment date of any Receivable beyond the Final Scheduled
Maturity Date. Some of such arrangements may result in the Servicer purchasing
the Receivable for the Purchase Amount. See "Risk Factors -- Maturity and
Prepayment Considerations" in the Prospectus. The Servicer may sell the Financed
Vehicle securing the respective Receivable at public or private sale, or take
any other action permitted by applicable law.
The Servicer may refinance any Receivable by accepting a new promissory
note from the related Obligor and applying the proceeds of such refinancing to
pay all obligations in full of such Obligor under such Receivable. The
receivable created by the refinancing shall not be property of the Issuer.
Servicing Compensation
The Servicer is entitled under the Sale and Servicing Agreement on each
Payment Date to a servicing fee (the "Servicing Fee") for the related Monthly
Period equal to the sum of (i) 0.50% (the "Servicing Fee Rate") multiplied by
the Pool Balance as of the first day of such Monthly Period (the "Base Servicing
Fee") and (ii) the investment earnings (net of losses) on the Collection
Account. The Servicer may retain the Base Servicing Fee from collections on the
Receivables. The Servicer will retain from collections a supplemental servicing
fee (the "Supplemental Servicing Fee") for each Monthly Period equal to any late
fees, prepayment fees, rebates and other administrative fees and expenses
collected during the Monthly Period plus reinvestment proceeds on any payments
received in respect of Receivables. See "Description of the Trust Agreements --
Servicing Compensation and Payment of Expenses" in the Prospectus.
Appointment of Subservicer
The Servicer may at any time appoint a subservicer to perform all or any
portion of its obligations as Servicer upon the prior written consent of the
Controlling Party; provided, however, that the Servicer shall remain obligated
and be liable to the Indenture Trustee, the Insurer and the Noteholders for the
servicing and administering of the Receivables in accordance with the provisions
thereof without diminution of such obligation and liability by virtue of the
appointment of such subservicer and to the same extent and under the same terms
and conditions as if the Servicer alone were servicing and administering the
Receivables. The fees and expenses of the subservicer shall be as agreed between
the Servicer and its subservicer from time to time and none of the Indenture
Trustee, the Insurer, the Noteholders shall have any responsibility therefor.
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The Servicer will also collect and retain any late fees, extension fees,
prepayment charges and certain non-sufficient funds charges and other
administrative fees or similar charges (the "Supplemental Servicing Fee")
allowed by applicable law with respect to the Receivables. Payments by or on
behalf of Obligors will be allocated to scheduled payments and late fees and
other charges in accordance with the Servicer's normal practices and procedures.
As additional compensation, the Servicer may be entitled to receive for the
related Collection Period some or all of the portion, if any, of the Reserve
Account Excess for such Collection Period. See "Description of the Trust
Agreements -- Servicing Compensation and Payment of Expenses" in the Prospectus
and "-- Payments" herein.
Amendment
The Sale and Servicing Agreement may be amended from time to time by the
Transferor, the Depositor, the Indenture Trustee, the Originator, the Servicer,
the Backup Servicer, the Custodian and the Issuer, with the consent of the
Insurer (so long as no Insurer Default has occurred and is continuing) but
without the consent of any of the Noteholders or Certificateholders to cure any
ambiguity, to correct or supplement any provisions therein, to comply with any
changes in the Code, or to make any other provisions with respect to matters or
questions arising thereunder which would not be inconsistent with the provisions
of the Sale and Servicing Agreement or the Insurance Agreement; provided that,
if the Insurer is no longer the Controlling Party, such action would not, as
evidenced by an opinion of counsel delivered to the Depositor, the Owner
Trustee, the Rating Agencies and the Indenture Trustee, adversely affect in any
material respect the interests of any Noteholders and the Certificateholders.
The Sale and Servicing Agreement may also be amended from time to time by
the Transferor, the Depositor, the Originator, the Servicer, the Backup
Servicer, the Indenture Trustee and the Owner Trustee, with (i) the consent of
the Insurer, if the Insurer is the Controlling Party, but without the consent of
any Noteholders or Certificateholders, or (ii) if the Insurer is no longer the
Controlling Party, with the consent of a Note Majority and the consent of the
holders of Certificates evidencing not less than a majority of the aggregate
outstanding principal amount of the Certificates, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement or of modifying in any manner the rights of the Noteholders or
the Certificateholders; provided that no such amendment shall (a) increase or
reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments on Receivables or distributions that shall be required
to be made for the benefit of the Noteholders or the Certificateholders or (b)
reduce the aforesaid percentage of the outstanding principal amount of the Notes
and the Certificates, the holders of which are required to consent to any such
amendment, without the consent of the holders of all the outstanding Notes and
the holders of all the outstanding Certificates, of such class affected thereby;
provided further, that if an Insurer Default has occurred and is continuing,
such action shall not materially adversely affect the interest of the Insurer.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
Information regarding certain legal aspects of the Receivables is set forth
under "Certain Legal Aspects of the Receivables" in the Prospectus.
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FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material Federal income tax consequences
of the purchase, ownership and disposition of the Notes. This summary is based
upon current provisions of the Internal Revenue Code of 1986, called the "Code,"
proposed, temporary and final Treasury regulations thereunder, and published
rulings and court decisions currently in effect. The current tax laws and the
current regulations, rulings and court decisions may be changed, possibly
retroactively. The portions of this summary which relate to matters of law or
legal conclusions represent the opinion of Rogers & Wells LLP, special Federal
tax counsel for the Issuer, as qualified in this summary. Rogers & Wells LLP has
prepared or reviewed the statements in this Prospectus Supplement under the
headings "Summary of Terms--Tax Status" and "Federal Income Tax Consequences,"
and "Summary of Terms--Tax Considerations" and "Certain Tax Considerations" in
the Prospectus, and are of the opinion that they are correct in all material
respects.
The following summary does not furnish information in the level of detail
or with the attention to an investor's specific tax circumstances that would be
provided by an investor's own tax advisor and, thus, is not tax advice. For
example, it does not discuss the tax consequences of the purchase, ownership and
disposition of the notes by investors that are subject to special treatment
under the Federal income tax laws, including banks and thrifts, insurance
companies, regulated investment companies, dealers in securities, holders that
will hold the notes as a position in a "straddle" for tax purposes or as a part
of a "synthetic security" or "conversion transaction" or other integrated
investment comprised of the Notes and one or more other investments, trusts and
estates and pass-through entities the equity holders of which are any of these
specified investors. In addition, the discussion regarding the Notes is limited
to the Federal income tax consequences of the initial investors and not a
purchaser in the secondary market.
The Issuer will be provided with an opinion of Rogers & Wells LLP regarding
certain Federal income tax matters discussed below. An opinion of Rogers & Wells
LLP, however, is not binding on the Internal Revenue Service, called the "IRS,"
or the courts. Moreover, there are no cases or IRS rulings on similar
transactions involving both debt and equity interests issued by an issuer with
terms similar to those of the Notes and the Certificates. As a result, the IRS
may disagree with all or a part of the discussion below. No ruling on any of the
issues discussed below will be sought from the IRS.
Tax Consequences to Holders of the Notes
Treatment of the Notes as Indebtedness
We will agree, and you will agree by your purchase of Notes, to treat the
Notes as debt for Federal, state and local income and franchise tax purposes.
Rogers & Wells LLP is of the opinion that although there is no directly
governing authority that discusses the classification of securities issued in
transactions with facts similar to the Issuer, the Notes will be classified as
debt for Federal income tax purposes. The discussion below assumes the Notes are
classified as debt for Federal income tax purposes.
Interest Income on the Notes
Except as discussed below, the notes will not be considered issued with
original issue discount, or "OID." You will be required to report as ordinary
interest income the stated interest on the Notes when received or accrued in
accordance with your method of tax accounting. Under Treasury regulations,
called the "OID Regulations," if you hold a Note issued with a de minimis amount
of OID, you must
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include this OID in income, on a pro rata basis, as principal payments are made
on the Note. If you purchase a note for more or less than its principal amount,
you will generally be subject to the premium amortization or market discount
rules of the Code, respectively.
Sale or Other Disposition
If you sell a Note, you will recognize gain or loss in an amount equal to
the difference between the amount realized on the sale and your adjusted tax
basis in the Note. Your adjusted tax basis of a Note will equal your cost for
the Note, increased by any market discount, OID and gain previously included in
your income with respect to the Note and decreased by the amount of premium, if
any, previously amortized and by the amount of principal payments you have
previously received on the Note. Any gain or loss will be capital gain or loss
provided that you held the Note as a capital asset within the meaning of Section
1221 of the Code, except for gain representing accrued interest and accrued
market discount not previously included in income. Capital losses generally may
be used by a corporate taxpayer only to offset capital gains, and by an
individual taxpayer only to the extent of capital gains plus $3,000 of other
income. In the case of an individual taxpayer, any capital gain on the sale of a
Note will be taxed at a maximum rate of 39.6% if the Note is held for not more
than 12 months and at a maximum rate of 20% if the note is held for more than 12
months.
Foreign Holders
If you are a nonresident alien, foreign corporation or other non-United
States person, called a "foreign person," any interest paid or accrued to you
will generally be considered "portfolio interest," and generally will not be
subject to United States Federal income tax and withholding tax, if the interest
is not effectively connected with the conduct of a trade or business within the
United States by you and you:
. are not actually or constructively a "10 percent shareholder" of the
Issuer or the Transferor, including a holder of 10% of the outstanding
certificates, or a "controlled foreign corporation" with respect to
which the Issuer or the Transferor is a "related person" (as defined
in the Code); and
. satisfy the statement requirement set forth in Section 871(h) and
Section 881(c) of the Code and the regulations thereunder.
To satisfy this statement requirement, you, or a financial institution holding
the note on your behalf, must provide, in accordance with specified procedures,
a paying agent of the issuer with a statement to the effect that you are not a
United States person. Currently these requirements will be met if you provide
your name and address, and certify, under penalties of perjury, that you are not
a United States person, which certification may be made on an IRS Form W-8 or on
new IRS Form W-8BEN, or if a financial institution holding the note on your
behalf certifies, under penalties of perjury, that the required statement has
been received by it and furnishes a paying agent with a copy of the statement.
Under recently finalized Treasury regulations, called the "Final Regulations,"
the statement requirement may also be satisfied with other documentary evidence
with respect to an offshore account or through certain foreign intermediaries.
The Final Regulations will generally be effective for payments made after
December 31, 2000. We recommend that you consult your own tax advisors regarding
the Final Regulations.
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If you are a foreign person and interest paid or accrued to you is not
"portfolio interest," then it will be subject to a 30% withholding tax unless
you provide the issuer or its paying agent, as the case may be, with a properly
executed:
. IRS Form 1001, or new IRS Form W-8BEN, claiming an exemption from
withholding tax or a reduction in withholding tax under the benefit of
a tax treaty, or
. IRS Form 4224, or new IRS Form W-8ECI, stating that interest paid on
the note is not subject to withholding tax because it is effectively
connected with your conduct of a trade or business in the United
States.
If you are a foreign person engaged in a trade or business in the United
States and interest on the note is effectively connected with the conduct of
that trade or business, although you will be exempt from the withholding tax
discussed above, you will be subject to United States Federal income tax on your
interest on a net income basis in the same manner as if you were a United States
person. In addition, if you are a foreign corporation, you may be subject to a
branch profits tax equal to 30%, or lower treaty rate, of your effectively
connected earnings and profits for the taxable year, subject to adjustments.
If you are a foreign person, any capital gain realized by you on the sale,
redemption, retirement or other taxable disposition of a note by you will be
exempt from United States Federal income and withholding tax; provided that:
. the gain is not effectively connected with the conduct of a trade or
business in the United States by you, and
. if you are an individual foreign person, you have not been present in
the United States for 183 days or more in the taxable year.
Backup Withholding
If you are not an exempt holder including a corporation, tax-exempt
organization, qualified pension and profit-sharing trust, individual retirement
account or nonresident alien who provides certification as to status as a
nonresident, you will be required to provide, under penalties of perjury, a
certificate containing your name, address, correct federal taxpayer
identification number and a statement that you are not subject to backup
withholding. If you are not an exempt holder and you fail to provide the
required certification, the issuer will be required to withhold 31% of the
amount otherwise payable to you, and remit the withheld amount to the IRS as a
credit against your Federal income tax liability. The Final Regulations make
modifications to the backup withholding rules. We recommend that you consult
your own tax advisors regarding the Final Regulations.
Possible Alternative Treatments of the Notes
If, contrary to the opinion of Rogers & Wells LLP, the IRS successfully
asserted that one or more of the notes did not represent debt for Federal income
tax purposes, the notes might be treated as equity interests in the issuer. If
so treated, the issuer might be treated as a publicly traded partnership, but it
would not be taxable as a corporation because it would meet certain qualifying
income tests. Nonetheless, treatment of the notes as equity interests in a
publicly traded partnership could have adverse tax consequences to you. For
example, if you are a tax-exempt entity, income to you would be "unrelated
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business taxable income," if you are a foreign person, income to you might be
subject to U.S. tax and U.S. tax return filing and withholding requirements, and
if you are an individual holder, you might be subject to certain limitations on
your ability to deduct your share of trust expenses. Furthermore,
characterization of the issuer as a publicly traded partnership may cause you to
be subject to state and local taxation in jurisdictions in which you are not
currently subject to tax.
The following is a general summary of material federal income tax
consequences of the purchase, ownership and disposition of the Notes. The
following summary represents the opinion of Rogers & Wells LLP ("Federal Tax
Counsel") subject to the qualifications set forth herein. An opinion of Federal
Tax Counsel, however, is not binding on the Internal Revenue Service (the "IRS")
or the courts. No ruling on any of the issues discussed below will be sought
from the IRS. The following summary is intended as an explanatory discussion of
the possible effects of certain federal income tax consequences to holders
generally, but does not purport to furnish information in the level of detail or
with the attention to a holder's specific tax circumstances that would be
provided by a holder's own tax advisor. For example, it does not discuss the tax
treatment of Noteholders that are insurance companies, regulated investment
companies or dealers in securities. In addition, the discussion regarding the
Notes is limited to the federal income tax consequences of the initial
Noteholders and not a purchaser in the secondary market. Moreover, there are no
cases or IRS rulings on similar transactions involving both debt and equity
interests issued by a trust with terms similar to those of the Notes. As a
result, the IRS may disagree with all or a part of the discussion below.
Prospective investors are urged to consult their own tax advisors in determining
the federal, state, local, foreign and any other tax consequences to them of the
purchase, ownership and disposition of the Notes.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive.
Scope of the Tax Opinions
In the opinion of Federal Tax Counsel, the Issuer will not be classified as
a separate entity that is an association (or publicly traded partnership)
taxable as a corporation for federal income tax purposes. Further, with respect
to the Notes, Federal Tax Counsel is of the opinion that the Notes will be
characterized as debt for federal income tax purposes.
In addition, Federal Tax Counsel has prepared or reviewed the statements
under the heading "Summary of Terms--Tax Status" as they related to federal
income tax matters and under the heading "Federal Income Tax Consequences"
herein and "Summary of Terms--Tax Considerations" and "Certain Tax
Considerations" in the Prospectus and is of the opinion that such statements are
correct in all material respects. Such statements are intended as an explanatory
discussion of certain federal tax matters affecting investors generally, but do
not purport to furnish information in the level of detail or with the attention
to the investor's specific tax circumstances that would be provided by an
investor's own tax advisor. Accordingly, each investor is advised to consult its
own tax advisors with regard to the tax consequences to it of investing in the
Notes.
Tax Classification of the Issuer as a Partnership
Federal Tax Counsel is of the opinion that the Issuer (which the Trust
Agreement specifies is intended to be treated as a partnership) will not be
classified as a separate entity that is an association (or
S-53
<PAGE>
publicly traded partnership) taxable as a corporation for federal income tax
purposes. A copy of such opinion of Federal Tax Counsel will be filed with the
Commission as an exhibit to a Form 8-K prior to an issuance of Notes by the
Issuer. This opinion is based on the assumption that all of the transactions
will comply with the terms of the Trust Agreement and related documents, and on
Federal Tax Counsel's conclusion that the nature of the income of the Issuer
will exempt if from the rule that certain publicly traded partnerships are
taxable as corporations.
If the Issuer were taxable as a corporation or as a publicly traded
partnership treated as an association taxable as a corporation, the Issuer would
be subject to federal income tax at corporate income tax rates on the income it
derives from the Receivables, which would reduce the amounts available for
payment to the Noteholders.
Tax Consequences to Holders of the Notes
Treatment of the Notes as Indebtedness. The Transferor will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for federal, state and local income and franchise tax purposes. In the opinion
of Federal Tax Counsel, although there is no directly governing authority that
discusses the classification of securities issued in transactions with facts
similar to the Issuer, the Notes will be characterized as debt for federal
income tax purposes. A copy of such opinion of Federal Tax Counsel will be filed
with the Commission with a Form 8-K. Such agreement and opinion are not binding
on the IRS and, as stated above, no assurance can be given that the
characterization of the Notes as debt will prevail if the issue were challenged
by the IRS. The discussion below assumes that this characterization of the Notes
is correct.
The discussion below assumes that all payments on the Notes are denominated
in U.S. dollars, and that the Notes are not Strip Notes. Moreover, the
discussion assumes that the interest formula for the Notes meets the
requirements for "qualified stated interest" under Treasury regulations (the
"OID Regulations") relating to original issue discount ("OID"), and that any OID
on the Notes (i.e., any excess of the principal amount of the Notes over their
issue price) does not exceed a de minimis amount (i.e., 1/4% of their principal
amount multiplied by the number of full years included in their term), all
within the meaning of the OID regulations.
Interest Income on the Notes. Based on the above assumptions, the Notes
will not be considered issued with OID. The stated interest thereon will be
taxable to a Noteholder as ordinary interest income when received or accrued in
accordance with such Noteholders' method of tax accounting. Under the OID
regulations, a holder of a Note issued with a de minimis amount of OID must
include such OID in income, on a pro rata basis, as principal payments are made
on the Note. A purchaser who buys a Note for more or less than its principal
amount will generally be subject, respectively, to the premium amortization or
market discount rules of the Code.
Sale or Other Disposition. If a Noteholder sells a Note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will equal the holder's
cost of the Note, increased by any market discount, OID and gain previously
included by such Noteholder in income with respect to the Note and decreased by
the amount of bond premium (if any) previously amortized and by the amount of
principal payments previously received by such Noteholder with respect to such
Note. Any such gain or loss will be capital gain or loss if the Note was held as
a capital asset, except for gain representing accrued interest and accrued
market discount not previously included in
S-54
<PAGE>
income. Capital losses generally may be used by a corporate taxpayer only to
offset capital gains, and by an individual taxpayer only to the extent of
capital gains plus $3,000 of other income.
Foreign Holders. Interest payments made (or accrued) to a Noteholder who is
a nonresident alien, foreign corporation or other non-United States person (a
"foreign person") generally will be considered "portfolio interest", and
generally will not be subject to United States federal income tax and
withholding tax, if the interest is not effectively connected with the conduct
of a trade or business within the United States by the foreign person and the
foreign person (i) is not actually or constructively a "10 percent shareholder"
of the Issuer or the Transferor (including a holder of 10% of the outstanding
Certificates) or a "controlled foreign corporation" with respect to which the
Issuer or the Transferor is a "related person" within the meaning of the Code
and (ii) provides the Trustee or other person who is otherwise required to
withhold U.S. tax with respect to the Notes with an appropriate statement (on
IRS Form W-8, new Form W-8BEN or a similar form), signed under penalties of
perjury, certifying that the beneficial owner of the Notes is a foreign person
and providing the foreign person's name and address. If a Note is held through a
securities clearing organization or certain other financial institutions, the
organization or institution may provide the relevant signed statement to the
withholding agent; in that case, however, the signed statement must be
accompanied by a Form W-8, new Form W-8BEN or substitute form provided by the
foreign person that owns the Note. If such interest is not portfolio interest,
then it will be subject to United States federal income and withholding tax at a
rate of 30 percent, unless that rate is reduced or eliminated pursuant to an
applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) such gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year.
In October 1997, final Treasury regulations (the "Withholding Tax
Regulations") were issued that modify certain of the filing requirements with
which foreign persons must comply in order to be entitled to an exemption from
U.S. withholding tax or a reduction to the applicable U.S. withholding tax rate.
Those persons currently required to file Form W-8 or Form 1001 will be required
to file new Form W-8BEN, while those persons currently required to file Form
4224 will be required to file new Form W-8ECI. The Withholding Tax Regulations
generally are effective for payments of interest due after December 31, 2000,
and Forms W-8, 4224 and 1001 filed prior to that date will continue to be
effective until the earlier of December 31, 2000 or the current expiration date
of those forms. Prospective investors are urged to consult their tax advisors
with respect to the effect of the Withholding Tax Regulations.
Backup Withholding. Each holder of a Note (other than an exempt holder such
as a corporation, tax exempt organization, qualified pension and profit sharing
trust, individual retirement account or nonresident alien who provides
certification as to status as a nonresident) will be required to provide, under
penalties of perjury, a certificate containing the holder's name, address,
correct federal taxpayer identification number and a statement that the holder
is not subject to backup withholding. Should a nonexempt Noteholder fail to
provide the required certification, the Issuer will be required to withhold 31
percent of the amount otherwise payable to the holder, and remit the withheld
amount to the IRS as a credit against the holder's federal income tax liability.
Noteholders should consult with their tax advisors as to their eligibility for
exemption from backup withholding and the procedure for obtaining the exemption,
and the potential impact of the Withholding Tax Regulations.
S-55
<PAGE>
Possible Alternative Treatments of the Notes. If, contrary to the opinion
of Federal Tax Counsel, the IRS successfully asserted that one or more of the
Notes did not represent debt for federal income tax purposes, the Notes might be
treated as equity interests in the Issuer. If so treated, the Issuer might be
treated as a publicly traded partnership but it would not be taxable as a
corporation because it would meet certain qualifying income tests. Nonetheless,
treatment of the Notes as equity interests in such a publicly traded partnership
could have adverse tax consequences to certain holders. For example, income to
certain tax-exempt entities (including pension funds) would be "unrelated
business taxable income", income to foreign holders generally would be subject
to U.S. tax and U.S. tax return filing and withholding requirements, and
individual holders might be subject to certain limitations on their ability to
deduct their share of Issuer expenses. Furthermore, such a characterization
could subject holders to state and local taxation in jurisdictions in which they
are not currently subject to tax.
STATE TAX CONSEQUENCES
In the opinion of Saxon, Barry, Gardner & Kincannon, California tax counsel
to the Issuer, although there is no directly governing authority that discusses
the classification of securities issued in transactions with facts similar to
the Issuer's, the Notes will be characterized as debt for California corporation
franchise tax purposes. In addition, since California follows the entity
classification rules of federal income tax law, the Issuer will not be treated
as a separate entity taxable as a corporation for California corporation
franchise tax purposes. However, if the Notes were treated as equity interests
in the Issuer by California, the Issuer may be subject to one or both of an
income tax or a withholding tax that California imposes on pass-through entities
(including partnerships). Moreover, if California changes its position on the
federal entity classification rules and thus decided not to follow them, the
Issuer may be treated as a separate entity taxable as a corporation for
California corporation franchise tax purposes. Any income, withholding, or
franchise tax liability of the Issuer incurred by the Issuer is expected not to
be material, and the Servicer will indemnify the Issuer for any such tax
liability.
Prospective investors are urged to consult with their own tax advisors
regarding the state tax consequences to them of purchasing, holding and
disposing of Notes.
ERISA CONSIDERATIONS
The Notes may be purchased by an employee benefit plan or an individual
retirement account (a "Plan") subject to ERISA or Section 4975 of the Code. A
fiduciary of a Plan must determine that the purchase of a Note is consistent
with its fiduciary duties under ERISA and does not result in the assets of the
Issuer being deemed to constitute plan assets or in a nonexempt prohibited
transaction as defined in Section 406 of ERISA or Section 4975 of the Code.
Under Section 2510.3-101 of the Regulations (the "Plan Asset Regulation")
issued by the U.S. Department of Labor (the "DOL"), when a Plan invests in an
"equity interest" an entity (including for these purposes interests that may be
denominated as debt but that have substantial equity features), the Plan's
assets could be deemed, for purposes of ERISA and Section 4975 of the Code, to
include both the equity interest and an undivided interest in each of the
underlying assets of the entity. If the underlying assets of the entity are
deemed to be Plan assets, the obligations and other responsibilities of Plan
sponsors, Plan fiduciaries, Plan administrators, and parties in interest (under
ERISA) and (disqualified persons under the Code) under Parts 1 and 4 of Subtitle
B of Title I of ERISA and Section 4975 of the
S-56
<PAGE>
Code, as applicable, may be expanded, and there may be an increase in their
liability under these and other provisions of ERISA and the Code (except to the
extent (if any) that a favorable statutory or administrative exemption or
exception applies). In addition, various providers of fiduciary or other
services to the Issuer, and any other parties with authority or control with
respect to the Issuer, could be deemed to be Plan fiduciaries or otherwise
parties in interest or disqualified persons by virtue of their provision of such
services. Although there is little guidance on the subject, the Transferor
intends to take the position that, at the time of their issuance, the Notes
should be treated as indebtedness without substantial equity features for
purposes of the Plan Asset Regulation. In analyzing these issues with their own
counsel, prospective purchasers of Notes should consider, among other things,
that although special counsel has concluded that the Notes are debt for federal
income tax purposes, see "Federal Income Tax Consequences," it is not clear
whether the Notes would be treated as issued by the Issuer, the Transferor or
another person related to the Transferor.
Without regard to whether the Notes are treated as an equity interest for
such purposes, the acquisition or holding of Notes by or on behalf of a Plan
could be considered to give rise to a prohibited transaction if an Affiliate,
the Transferor, the Issuer, the Servicer, the Indenture Trustee or the Owner
Trustee is or becomes a party in interest (under ERISA) or disqualified person
(under the Code) with respect to such Plan. Certain exemptions from the
prohibited transaction rules could be applicable to the purchase and holding of
Notes by a Plan depending on the type and circumstances of the plan fiduciary
making the decision to acquire such Notes. Such exemptions, even if applicable,
may not apply to all possible prohibited transactions and other violations of
ERISA and Section 4975 of the Code. By its acceptance of a Note, each
Noteholder shall be deemed to have represented and warranted that its purchase
and holding of the Note will not result in a nonexempt prohibited transaction
under Section 406(a) of ERISA or Section 4975 of the Code.
PRIOR TO MAKING AN INVESTMENT IN NOTES, EMPLOYEE BENEFIT PLAN INVESTORS
(WHETHER OR NOT SUBJECT TO ERISA OR SECTION 4975 OF THE CODE) SHOULD CONSULT
WITH THEIR LEGAL AND OTHER ADVISORS CONCERNING THE IMPACT OF ERISA AND THE CODE
(AND, PARTICULARLY IN THE CASE OF NON-ERISA PLANS AND ARRANGEMENTS, ANY
ADDITIONAL STATE, LOCAL AND FOREIGN LAW CONSIDERATIONS), AS APPLICABLE, AND THE
POTENTIAL CONSEQUENCES IN THEIR SPECIFIC CIRCUMSTANCES OF AN INVESTMENT IN
NOTES.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement,
the Depositor has agreed to cause the Issuer to sell to each of the underwriters
listed below (each, an "Underwriter"), and each of the Underwriters has agreed
to purchase, the principal amount of each class of the Notes set forth opposite
its name below. Under the terms and conditions of the Underwriting Agreement,
each of the Underwriters is obligated to take and pay for all of the Notes if
any are taken.
<TABLE>
<CAPTION>
Class A-1 Class A-2 Class A-3
Underwriters Notes Notes Notes
- ------------ -------------- -------------- --------------
<S> <C> <C> <C>
Prudential Securities Incorporated.... $ $ $
Barclays Capital...................... $ $ $
</TABLE>
S-57
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Total.............................. $56,000,000.00 $42,000,000.00 $18,000,000.00
============== ============== ==============
</TABLE>
The Depositor has been advised by the Underwriters that they propose
initially to offer the Notes to the public at the prices set forth herein, and
to selling group members at such prices less the initial concession not in
excess of ___% per Class A-1 Note, ___% per Class A-2 Note and ___% per Class A-
3 Note. The Underwriters may allow, and such selling group members may also
allow, a concession not in excess of ___% per Class A-1 Note, ___% per Class A-2
Note and ___% per Class A-3 Note to certain other broker/dealers. After the
initial public offering, the public offering prices and such concessions may be
changed.
The Depositor does not intend to apply for listing of the Notes on a
national securities exchange, but has been advised by the Underwriters that they
may make a market in the Notes. The Underwriters are not obligated, however, to
make a market in the Notes and may discontinue market making at any time without
notice. No assurance can be given as to the liquidity of the trading market for
the Notes.
The Depositor, the Transferor and the Servicer have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
In the ordinary course of their respective businesses, each Underwriter and
its affiliates have engaged and may in the future engage in commercial banking
and investment banking transactions with the Depositor, the Transferor and the
Servicer.
After the initial distribution of the Notes by the Underwriter, this
Prospectus Supplement may be used by the Underwriters or its successors, in
connection with offers and sales relating to market making transactions in the
Notes. The Underwriters may act as principal or agent in such transactions.
Such transactions will be at prices related to prevailing market prices at the
time of sale. Each Underwriter is a member of the New York Stock Exchange, Inc.
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.
LEGAL OPINIONS
In addition to the legal opinions described in the Prospectus, certain
legal matters relating to the Notes and the Certificates and certain federal
income tax and other matters will be passed upon for the Issuer by Rogers &
Wells LLP, New York, New York. Certain legal matters will be passed upon for
the Underwriters by Mayer, Brown & Platt, Chicago, Illinois. Rogers & Wells LLP
and Mayer, Brown & Platt may from time to time render legal services to the
Originator, Transferor, the Depositor, the Servicer and its affiliates. Certain
partners of Rogers & Wells LLP hold equity interests in PeopleFirst.com Inc.,
the parent company of PeopleFirst Finance LLC.
S-58
<PAGE>
RATINGS OF THE NOTES
Although the Issuer will not issue the Notes unless S&P and Moody's rate
each class of Notes in the highest long-term rating category, there is no
guarantee that such ratings will not be lowered or withdrawn by a Rating Agency
in the future. The ratings of the Notes by the Rating Agencies will be based on
the Policy. A rating is not a recommendation to purchase, hold or sell the
Notes.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
In addition to the documents described in the prospectus under
"Incorporation of Certain Documents by Reference," the consolidated financial
statements of Financial Security Assurance Inc. and its subsidiaries included
in, or as exhibits to, the following documents which have been filed with the
Commission by Financial Security Assurance Holdings Ltd., are hereby
incorporated by reference in this prospectus supplement:
(a) Annual Report on Form 10-K, as amended, for the year ended December 31,
1998,
(b) Quarterly Report on Form 10-Q, as amended, for the period ended March
31, 1999, and
(c) Quarterly Report on Form 10-Q for the period ended June 30, 1999.
All financial statements of Financial Security Assurance Inc. and
subsidiaries included in documents filed by Financial Security Assurance
Holdings Ltd. pursuant to Section 13(a), 13(c), 14, or 15(d) of the Securities
and Exchange Act of 1934, as amended, subsequent to the date of this prospectus
supplement and prior to the termination of the offering of the notes, shall be
deemed to be incorporated by reference into this prospectus supplement and to be
a part hereof from the respective dates of filing of such documents.
S-59
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
<S> <C>
aggregate risks.................................................... S-36
Amount Financed.................................................... S-16
APR................................................................ S-14
Available Funds.................................................... S-44
Backup Servicer.................................................... S-47
Base Servicing Fee................................................. S-48
Basic Document..................................................... S-32
Business Day....................................................... S-37
Capitalized Interest Account....................................... S-42
Certificate Distribution Account................................... S-40
Certificateholders' Monthly Principal Distributable Amount......... S-44
Certificateholders' Percentage..................................... S-44
Certificateholders' Principal Carryover Shortfall.................. S-44
Certificateholders' Principal Distributable Amount................. S-45
Certificates....................................................... S-13
Class A-1 Interest Rate............................................ S-26
Class A-1 Notes.................................................... S-13
Class A-2 Interest Rate............................................ S-26
Class A-2 Notes.................................................... S-13
Class A-3 Interest Rate............................................ S-26
Class A-3 Notes.................................................... S-13
Closing Date....................................................... S-13
Code.......................................................... S-49,S-53
Collected Funds.................................................... S-45
Collection Account................................................. S-40
Collection Period.................................................. S-28
Commission......................................................... S-26
Cram Down Loss......................................................S-16
Custodian.......................................................... S-39
Dealers............................................................ S-22
Deficiency Claim Amount............................................ S-43
Deficiency Claim Date.............................................. S-43
Deficiency Notice.................................................. S-43
Depositor.......................................................... S-22
Determination Date................................................. S-43
Distribution Amount................................................ S-45
DOL................................................................ S-56
Draw Date.......................................................... S-45
Event of Default................................................... S-29
Federal Tax Counsel................................................ S-52
Final Scheduled Payment Date....................................... S-27
Financial Security................................................. S-33
foreign person..................................................... S-54
Funding Period..................................................... S-42
Holdings........................................................... S-34
Indenture.......................................................... S-26
S-60
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Indenture Collateral Agent......................................... S-41
Indenture Trustee.................................................. S-13
Initial Cut-off Date............................................... S-14
Initial Pre-Funded Amount.......................................... S-42
Initial Receivables................................................ S-14
Insurance Agreement Indenture Cross Defaults....................... S-28
Insurer............................................................ S-33
Insurer Default.................................................... S-28
Interest Rates..................................................... S-26
IRS.......................................................... S-50, S-52
Issuer............................................................. S-13
Liquidated Receivable.............................................. S-16
Mandatory Redemption Date.......................................... S-28
Monthly Capitalized Interest Amount................................ S-42
Moody's............................................................ S-15
Net Liquidation Proceeds........................................... S-45
Note Distribution Account.......................................... S-40
Note Majority...................................................... S-29
Noteholders' Distributable Amount.................................. S-45
Noteholders' Interest Distributable Amount......................... S-45
Noteholders' Interest Shortfall.................................... S-45
Noteholders' Monthly Interest Distributable Amount................. S-46
Noteholders' Percentage............................................ S-27
Noteholders' Principal Distributable Amount........................ S-27
Noteholders' Principal Shortfall................................... S-46
Notes.............................................................. S-13
Notice of Default.................................................. S-29
OID.......................................................... S-50, S-54
OID Regulations.............................................. S-50, S-54
Order.............................................................. S-37
Original Pool Balance.............................................. S-27
Originator......................................................... S-22
Owner Trust Agreement.............................................. S-13
Owner Trustee...................................................... S-13
PeopleFirst........................................................ S-22
Plan............................................................... S-56
Plan Asset Regulation.............................................. S-56
Policy Claim Amount................................................ S-46
Pre-Funded Amount.................................................. S-42
Pre-Funding Account................................................ S-42
Principal Distributable Amount..................................... S-27
Purchase Amount.................................................... S-40
Purchased Receivable............................................... S-16
Rating Agencies.................................................... S-15
Receipt............................................................ S-37
Receivables........................................................ S-14
Receivables Pool................................................... S-14
Received........................................................... S-37
</TABLE>
S-61
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Remaining Pre-Funding Amount....................................... S-28
Reserve Account Agreement.......................................... S-41
Reserve Account Required Amount.................................... S-41
Risk Factors....................................................... S-8
S&P................................................................ S-15
Sale and Servicing Agreement....................................... S-38
Scheduled Payment.................................................. S-36
Seller............................................................. S-21
Servicer........................................................... S-22
Servicer Default................................................... S-47
Servicer's Certificate............................................. S-43
Servicing Fee...................................................... S-48
Servicing Fee Rate................................................. S-48
Servicing Portfolio................................................ S-23
single risks....................................................... S-36
Subsequent Cut-off Date............................................ S-14
Subsequent Receivables............................................. S-14
Subsequent Transfer Agreement...................................... S-14
Supplemental Servicing Fee......................................... S-48
Trust.............................................................. S-13
Trust Agreements................................................... S-38
Trust Fund......................................................... S-14
Underwriter........................................................ S-57
Weighted Average Rate.............................................. S-42
Withholding Tax Regulations........................................ S-55
Yield Supplement Account........................................... S-41
</TABLE>
S-62
<PAGE>
Subject to Completion, dated November 9, 1999
PROSPECTUS
- --------------------------------------------------------------------------------
Auto Receivables Backed Securities Issuable in Series
PRUDENTIAL SECURITIES SECURED FINANCING
CORPORATION,
Depositor
This Prospectus describes certain Auto Receivables Backed Notes (the
"Notes") and Auto Receivables Backed Certificates (the "Certificates" and,
together with the Notes, the "Securities") that may be sold from time to time in
one or more series, in amounts, at prices and on terms to be determined at the
time of sale and to be set forth in a supplement to this Prospectus (each, a
"Prospectus Supplement"). Each series of Securities may include one or more
classes of Notes and one or more classes of Certificates, which will be issued
either by the Depositor, a Transferor (as hereinafter defined), or by a trust to
be formed by the Depositor for the purpose of issuing one or more series of such
Securities (each, a "Trust"). The Depositor, a Transferor or a Trust as
appropriate, issuing Securities as described in this Prospectus and the related
Prospectus Supplement shall be referred to herein as the "Issuer."
Each class of Securities of any series will evidence beneficial ownership
in a segregated pool of assets (each, a "Trust Fund") (such Securities,
"Certificates") or will represent indebtedness of the Issuer secured by the
Trust Fund (such Securities, "Notes"), as described herein and in the related
Prospectus Supplement. Each Trust Fund may consist of any combination of retail
installment sales contracts between manufacturers, dealers or certain other
originators and retail purchasers and note and security agreements secured by
new and used automobiles and light duty trucks financed thereby, or
participation or security interests therein, together with all monies received
relating thereto (the "Contracts"). Each Trust Fund may also include a security
interest in the underlying new and used automobiles and light duty trucks and
property relating thereto, together with the proceeds thereof (the "Vehicles"
together with the Contracts, the "Receivables"). If and to the extent specified
in the related Prospectus Supplement, credit enhancement with respect to a Trust
Fund or any class of Securities may include any one or more of the following: a
financial guaranty insurance policy (a "Policy") issued by an insurer specified
in the related Prospectus Supplement, a reserve account, letters of credit,
credit or liquidity facilities, third party payments or other support, cash
deposits or other arrangements. In addition to or in lieu of the foregoing,
credit enhancement may be provided by means of subordination, cross-support
among the Receivables or over-collateralization. See "Description of the Trust
Agreement -- Credit and Cash Flow Enhancement." (continued on next page)
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."
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
The date of this Prospectus is November __, 1999.
<PAGE>
(continued from previous page)
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"). 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. See "Description of the Securities."
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 policies, 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
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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.
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SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to the Securities of any series contained in the
related Prospectus Supplement to be prepared and delivered in connection with
the offering of such Securities. Certain capitalized terms used in the summary
are defined elsewhere in the Prospectus on the pages indicated in the "Index of
Terms."
Issuer........... With respect to each series of Securities, either the
Depositor, a special-purpose finance subsidiary of the
Depositor which may be organized and established by the
Depositor with respect to one or more Trust Funds (each
such special-purpose finance subsidiary, a "Transferor")
or a trust (each, a "Trust") to be formed by the
Depositor. For purposes of this Prospectus, the term
"Depositor" includes the term "Transferor". The
Depositor, a Transferor or a Trust issuing Securities
pursuant to this Prospectus and the related Prospectus
Supplement shall be referred to herein as the "Issuer"
with respect to the related Securities. See "The Issuer."
Depositor........ Prudential Securities Secured Financing Corporation,
formerly known as P-B Secured Financing Corporation (the
"Depositor"), a Delaware corporation, a wholly-owned
limited purpose finance subsidiary of Prudential
Securities 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 Vehicles ("Manufacturers") and acquired
by the related Originator, (iii) originated by various
dealers, which may or may not be affiliated with one or
more Manufacturers ("Dealers", and together with
Manufacturers, "Vendors") or (iv) acquired by the related
Originator from other originators or owners of
Receivables.
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In addition, to the extent that the Depositor acquires
Receivables directly from a Vendor, such Vendor will be
the Originator for purposes of the related Receivables
and this Prospectus. See "The Originator" and "The
Servicer" in the related Prospectus Supplement.
Trustee .......... The Trustee for each series of Securities will be
specified in the related Prospectus Supplement. In
addition, a Trust may separately enter into an Indenture
and may issue Notes pursuant to such Indenture; in any
such case the Trust and the Indenture will be
administered by separate, independent trustees as
required by the rules and regulations under the Trust
Indenture Act of 1939 and the Investment Company Act of
1940.
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 retail
installment sales contracts between manufacturers,
dealers or certain other originators and retail
purchasers or note and security agreements secured by new
and used automobiles and light duty trucks financed
thereby, or participation or security interests therein,
together with all monies received relating thereto (the
"Contracts"). Each Trust Fund also may include a security
interest in the underlying new and used automobiles and
light duty trucks and property relating thereto, together
with the proceeds thereof (the "Vehicles" and together
with the Contracts, the "Receivables").
Each Trust Fund will include Receivables with respect to
which the related Contract or the related underlying
Vehicles is subject to federal or state registration or
titling requirements. No Trust Fund will include
Receivables with respect to which the underlying
Contracts or Vehicles relate to office equipment,
aircraft, ships or boats, firearms or other weapons,
railroad rolling stock or facilities such as factories,
warehouses or plants subject to state laws governing the
manner in which title or security interest in real
property is determined or perfected.
If and to the extent specified in the related Prospectus
Supplement, credit enhancement with respect to a Trust
Fund or any class of Securities may include any one or
more of the following: a financial guaranty insurance
policy (a "Policy") issued by an insurer specified in the
related Prospectus Supplement, a reserve account, letters
of credit, credit or liquidity facilities, third party
payments or other
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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
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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 interests
in the related Trust, such Securities will represent the
beneficial ownership interests in such Trust and the sole
source of payment will be the assets of such Trust. In
the case of Securities that represent debt issued by the
related Issuer, such Securities will be secured by assets
in the related Trust Fund. Notwithstanding the foregoing,
and as to be described in the related Prospectus
Supplement, certain types of credit enhancement, such as
a letter of credit, financial guaranty insurance policy
or reserve fund may constitute a full recourse obligation
of the issuer of such credit enhancement.
General Nature of the Securities as Investments.
All of the Securities offered pursuant to this Prospectus
and the related Prospectus Supplement will be rated in
one of the four highest rating categories by one or more
Rating Agencies (as defined herein).
Additionally, all of the Securities offered pursuant to
this Prospectus and the related Prospectus Supplement
will be of the fixed-income type ("Fixed Income
Securities"). Fixed Income Securities will generally be
styled as debt instruments, having a principal balance
and a specified interest rate ("Interest Rate"). Fixed
Income Securities may either represent beneficial
ownership interests in the related Receivables held by
the related Trust or debt secured by certain assets of
the related Issuer.
Each series or Class of Fixed Income Securities offered
pursuant to this Prospectus may have a different Interest
Rate, which may be a fixed or adjustable Interest Rate.
The related Prospectus Supplement will specify the
Interest Rate for each series or Class of Fixed Income
Securities described 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
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distributions. In addition, a series of Securities may
include two or more Classes of Fixed Income Securities
that differ as to timing, sequential order, priority of
payment, Interest Rate or amount of distribution of
principal or interest or both, or as to which
distributions of principal or interest or both on any
Class may be made upon the occurrence of specified
events, in accordance with a schedule or formula, or on
the basis of collections from designated portions of the
related pool of Receivables. Any such series may include
one or more Classes of Fixed Income Securities ("Accrual
Securities"), as to which certain accrued interest will
not be distributed but rather will be added to the
principal balance (or nominal balance, in the case of
Accrual Securities which are also Strip Securities)
thereof on each Payment Date, as hereinafter defined, or
in the manner described in the related Prospectus
Supplement.
If so provided in the related Prospectus Supplement, a
series may include one or more other Classes of Fixed
Income Securities (collectively, the "Senior Securities")
that are senior to one or more other Classes of Fixed
Income Securities (collectively, the "Subordinate
Securities") in respect of certain distributions of
principal and interest and allocations of losses on
Receivables.
In addition, certain Classes of Senior (or Subordinate)
Securities may be senior to other Classes of Senior (or
Subordinate) Securities in respect of such distributions
or losses.
General Payment Terms of Securities.
As provided in the related Trust Agreement and as
described in the related Prospectus Supplement, the
holders of the Securities ("Securityholders") will be
entitled to receive payments on their Securities on
specified dates (each, a "Payment Date"). Payment Dates
with respect to Fixed Income Securities will occur
monthly, quarterly or semi-annually, as described in the
related Prospectus Supplement.
The related Prospectus Supplement will describe a date
(the "Record Date") preceding such Payment Date, as of
which the Trustee or its paying agent will fix the
identity of the Securityholders for the purpose of
receiving payments on the next succeeding Payment Date.
As described in the related Prospectus Supplement, the
Payment Date will be a specified day of each month,
commonly the fifteenth or twenty-fifth day of each month
(or, in the case of quarterly-pay Securities, the
fifteenth or twenty-fifth day of every third month; and
in the case of semi-annual pay Securities, the
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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 (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.
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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 With respect to each Trust, the "Equity Interest" at any
Interest......... 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 "Master
Trust") to issue additional series of Securities from
time to time and any such issuance will have the effect
of decreasing the Equity Interest in the related Master
Trust to the extent of the aggregate principal amount of
the Securities. See "Description of Securities -- Master
Trusts." A portion of the Equity interest in any Trust
may be sold separately in one or more public or private
transactions.
Master Trusts;
Issuance of
Additional Series. As may be described in the related Prospectus Supplement,
a Trust Agreement may authorize the Trustee to issue
certificates (the "Equity Certificates") evidencing the
Equity Interest in a Master Trust, and may provide that,
pursuant to any one or more supplements to such Trust
Agreement, the Depositor may cause the related Trustee to
issue one or more new series of Securities and
accordingly cause a reduction in the related Equity
Interest in such Master Trust represented by the related
Equity Certificate. Under each such Trust Agreement
(each, a "Master Trust Agreement"), the Depositor may
determine the terms of any such new series. See
"Description of the Securities -- Master Trusts."
The Depositor may cause the related Trustee to offer any
such new series to the public or other investors, in
transactions either registered under the Securities Act
or exempt from registration thereunder, directly or
through one or more underwriters or placement agents, in
fixed-price offerings or in negotiated transactions or
otherwise.
A new series to be issued by a Trust which has a series
outstanding may, unless otherwise described in the
related Prospectus
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Supplement, only be issued upon satisfaction of the
conditions described herein under "Description of the
Securities -- Master Trusts", including, earning 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... Except 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 Funds......... 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 Vehicles. If
and to the extent specified in the related Prospectus
Supplement, credit enhancement with respect to a Trust
Fund or any class of Securities may include any one or
more of the following: a Policy issued by an insurer
specified in the related Prospectus Supplement, a reserve
account, letters of credit, credit or liquidity
facilities, repurchase obligations, third party payments
or other support, cash deposits or other arrangements. In
addition to or in lieu of the foregoing, credit
enhancement may be provided by means of subordination,
cross-support among the Receivables or
overcollateralization. See "Description of the Trust
Agreement -- Credit and Cash Flow Enhancement." The
Contracts are obligations for the purchase of the
Vehicles, or evidence borrowings used to acquire the
Vehicles or refinancings of such borrowings. As specified
in the related Prospectus Supplement, the Contracts may
consist of any combination of Rule of 78s Contracts,
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Fixed Value Contracts or Simple Interest Contracts.
Generally, "Rule of 78s Contracts" provide for fixed
level monthly payments which will amortize the full
amount of the Contract over its term. The Rule of 78s
Contracts provide for allocation of payments according to
the "sum of periodic balances" or "sum of monthly
payments" method (the "Rule of 78s"). Each Rule of 78s
Contract provides for the payment by the Obligor of a
specified total amount of payments, payable in monthly
installments on the related due date, which total
represents the principal amount financed and finance
charges in an amount calculated on the basis of a stated
annual percentage rate ("APR") for the term of such
Contract. The rate at which such amount of finance
charges is earned and, correspondingly, the amount of
each fixed monthly payment allocated to reduction of the
outstanding principal balance of the related Contract are
calculated in accordance with the Rule of 78s. Under the
Rule of 78s, the portion of each payment allocable to
interest is higher during the early months of the term of
a Contract and lower during later months than that under
a constant yield method for allocating payments between
interest and principal. Notwithstanding the foregoing, as
specified in the related Prospectus Supplement, all
payments received by the related Servicer on or in
respect of the Rule of 78s Contracts may be allocated on
an actuarial basis.
Generally, the "Fixed Value Contracts" provide for
monthly payments with a final fixed value payment which
is greater than the scheduled monthly payments. A Fixed
Value Contract provides for amortization of the loan over
a series of fixed level payment monthly installments, but
also requires a final fixed value payment due after
payment of such monthly installments which may be
satisfied by (i) payment in full in cash of such amount,
(ii) transfer of the vehicle to the related Originator
provided certain conditions are satisfied or (iii)
refinancing the fixed value payment in accordance with
certain conditions. With respect to Fixed Value
Contracts, as specified in the related Prospectus
Supplement, only the principal and interest payments due
prior to the final fixed value payment and not the final
fixed value payment may be included initially in the
related Trust Fund.
"Simple Interest Contracts" provide for the amortization
of the amount financed under the receivable over a series
of fixed level monthly payments. However, unlike the
monthly payment under Rule of 78s Contracts, each monthly
payment consists of an installment of interest which is
calculated on the basis of the outstanding principal
balance of the receivable multiplied by the stated APR
and further multiplied by the period elapsed (as a
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fraction of a calendar year) since the preceding payment
of interest was made. As payments are received under a
Simple Interest Contract, the amount received is applied
first to interest accrued to the date of payment and the
balance is applied to reduce the unpaid principal
balance. Accordingly, if an Obligor pays a fixed monthly
installment before its scheduled due date, the portion of
the payment allocable to interest for the period since
the preceding payment was made will be less than it would
have been had the payment been made as scheduled, and the
portion of the payment applied to reduce the unpaid
principal balance will be correspondingly greater.
Conversely, if an Obligor pays a fixed monthly
installment after its scheduled due date, the portion of
the payment allocable to interest for the period since
the preceding payment was made will be greater than it
would have been had the payment been made as scheduled,
and the portion of the payment applied to reduce the
unpaid principal balance will be correspondingly less. In
either case, the Obligor pays a fixed monthly installment
until the final scheduled payment date, at which time the
amount of the final installment is increased or decreased
as necessary to repay the then outstanding principal
balance.
If an Obligor elects to prepay a Rule of 78s Contract in
full, it is entitled to a rebate of the portion of the
outstanding balance then due and payable attributable to
unearned finance charges. If a Simple Interest Contract
is prepaid, rather than receive a rebate, the Obligor is
required to pay interest only to the date of prepayment.
The amount of a rebate under a Rule of 78s Contract
calculated in accordance with the Rule of 78s will always
be less than had such rebate been calculated on an
actuarial basis and generally will be less than the
remaining scheduled payments of interest that would be
due under a Simple Interest Contract for which all
payments were made on schedule. Distributions to
Securityholders may not be affected by Rule of 78s
rebates under the Rule of 78s Contract because pursuant
to the related Prospectus Supplement such distributions
may be determined using the actuarial method.
The related Prospectus Supplement will further describe
the type and characteristics of the Contracts included in
each Trust Fund relating to the Securities offered
pursuant to this Prospectus and the related Prospectus
Supplement.
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 unless otherwise provided in the related
Prospectus Supplement. The Contracts so acquired
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may consist of a participation or security interests in
the retail installment sales contracts or note and
security agreements that evidence the Obligor's
obligation to pay. 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.
If applicable under 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 Subsequent Receivables from time to time during
the "Pre-Funding Period" specified in the related
Prospectus Supplement. The Pre-Funding Account, if any,
will be reduced during the related Pre-Funding Period by
the amount thereof used to purchase Subsequent
Receivables. Any amount remaining in the Pre-Funding
Account at the end of the related Pre-Funding Period will
be distributed to the related Securityholders, pro rata,
on the Payment Date immediately following the end of the
Pre-Funding Period.
If and to the extent provided in the related Prospectus
Supplement, the Depositor will be obligated (subject only
to the availability thereof) to acquire from the related
Originator(s) and to either transfer to a Trust or pledge
to a Trustee on behalf of Securityholders, Subsequent
Receivables (the "Subsequent 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
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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.
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
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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 that such transfer is either
a valid transfer and assignment of the Contracts to
the Trust or the Issuer, as the case may be, or
that the pledge is effective to create the security
interest in the Contracts. Each Prospectus
Supplement will specify what actions will be taken
by which parties as will be required to perfect
either the Issuer's or the Securityholders'
security interest in the Contracts. The Depositor
may also warrant that, if the transfer or pledge by
it to the Trust or to the Securityholders is deemed
to be a grant to the Trust or to the
Securityholders of a security interest in the
Contracts, then the related Issuer or the
Securityholders will have a first priority
perfected security interest therein, except for
certain liens which have priority over previously
perfected security interests by operation of law,
and, with certain exceptions, in the proceeds
thereof. Similar security interest and priority
representations and warranties, as described in the
related Prospectus Supplement, may also be made by
the Depositor with respect to the Vehicles.
Perfection of security interests in automobiles and
light duty trucks is generally governed by the
vehicle registration or titling laws of the state
in which each vehicle is registered or titled. In
most states, a security interest in a vehicle is
perfected by notation of the secured party's lien
on the vehicle's certificate of title. Unless
otherwise provided in the related Prospectus
Supplement, due to the administrative burden and
expense, none of the Depositor, the related
Servicer nor the Trustee will amend any certificate
of title to identify the Depositor or the Trustee
as the new secured party on the certificates of
title relating to the Vehicles. See "Certain Legal
Aspects of the Receivables."
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 Vehicles 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 Vehicles will not be perfected in favor of the
related Trust or Trustee. See "Certain Legal
Aspects of the Receivables."
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Optional Termination... The related Servicer, the related Originator, the
Depositor, or, if specified in the related
Prospectus Supplement, certain other entities may,
at their respective options, effect early
retirement of a Series of Securities under the
circumstances and in the manner set forth herein
under "The Trust Agreement - Termination;
Retirement of Securities" and in the related
Prospectus Supplement.
Mandatory Termination.. The Trustee, the related Servicer or certain other
entities specified in the related Prospectus
Supplement may be required to effect early
retirement of all or any portion of a series of
Securities by soliciting competitive bids for the
purchase of the related Trust Fund or otherwise,
under other circumstances and in the manner
specified in "The Trust Agreement Termination;
Retirement of Securities" and in the related
Prospectus Supplement.
Tax Considerations..... Securities of each series offered hereby will, for
federal income tax purposes, constitute either (i)
interests in a Trust treated as a grantor trust
under applicable provisions of the Code ("Grantor
Trust Securities"), (ii) debt issued by a Trust or
by the Depositor ("Debt Securities") or (iii)
interests in a Trust which is treated as a
partnership ("Partnership Interests").
The Prospectus Supplement for each series of
Securities will summarize, subject to the
limitations stated therein, federal income tax
considerations relevant to the purchase, ownership
and disposition of such Securities.
Investors are advised to consult their tax advisors
and to review "Certain Federal and State Income Tax
Consequences" in the related Prospectus Supplement.
ERISA Considerations... The Prospectus Supplement for each series of
Securities will summarize, subject to the
limitations discussed therein, considerations under
the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), relevant to the
purchase of such Securities by employee benefit
plans and individual retirement accounts. See
"ERISA Considerations" in the related Prospectus
Supplement.
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
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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 or, if specified in the
related Prospectus Supplement, that the transfer to the Depositor is either a
valid assignment, transfer and conveyance of Contracts to the Depositor or that
the Depositor has a valid security interest in the Contracts. The Receivables
held by the Depositor may, if specified in the related Prospectus Supplement,
consist of a security interest in the retail installment of contracts or note
and security agreements evidencing the Obligor's obligation to pay. 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 Interests. The transfer of the Receivables by the related
Originators to the Depositor pursuant to each Receivables Acquisition Agreement
and then by the Depositor to the Trustee pursuant to
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the related Trust Agreement, the perfection of the security interests in the
Receivables and the enforcement of rights to realize on the Vehicles as
collateral for the Receivables are subject to a number of federal and state
laws, including the UCC as in effect in various states. As specified in each
Prospectus Supplement, the related Servicer will take such action as is required
to perfect the rights of the Trustee in the Receivables. If, through
inadvertence or otherwise, a third party were to purchase (including the taking
of a security interest in) a Receivable for new value in the ordinary course of
its business, without actual knowledge of the Trust's interest, and take
possession of a Receivable, the purchaser would acquire an interest in such
Receivable superior to the interest of the Trust. As further specified in each
Prospectus Supplement, no action will be taken to perfect the rights of the
Trustee in proceeds of the VSI Insurance Policy or of any other insurance
policies covering individual Vehicles or Obligors. Therefore, the rights of a
third party with an interest in such proceeds could prevail against the rights
of the Trust prior to the time such proceeds are deposited by the related
Servicer into a Trust Account. See "Certain Legal Aspects of the Receivables".
Restrictions on Recoveries. Unless specific limitations are described
on the related Prospectus Supplement with respect to specific Contracts, all
Contracts will provide that the obligations of the Obligors thereunder are
absolute and unconditional, regardless of any defense, set-off or abatement
which the Obligor may have against the related Originator or any other person or
entity whatsoever. The Originators will warrant that no claims or defenses have
been asserted or threatened with respect to the Contracts and that all
requirements of applicable law with respect to the Contracts have been
satisfied.
In the event that the Depositor or the Trustee must rely on
repossession and disposition of Vehicles to recover scheduled payments due on
Defaulted Contracts, the Issuer may not realize the full amount due on a
Contract (or may not realize the full amount on a timely basis). Other factors
that in any affect the ability of the Issuer to realize the full amount due on a
Contract include whether amendments to certificates of title relating to the
Vehicles had been filed, whether financing statements to perfect the security
interest in the Vehicles had been filed, depreciation, obsolescence, damage or
loss of any Vehicle, and the application of Federal and state bankruptcy and
insolvency laws. As a result, the Securityholders may be subject to delays in
receiving payments and suffer loss of their investment in the Securities.
Insolvency and Bankruptcy Matters. The Depositor will take steps in
structuring the transactions contemplated hereby that are intended to ensure
that the voluntary or involuntary application for relief by the related
Originator or the Depositor (the Originators and the Depositors, collectively
for these purposes, "Debtors") under the United States Bankruptcy Code or
similar applicable state laws ("Insolvency Laws") will not result in the assets
of the related Trust Fund becoming property of the estate of a Debtor within the
meaning of such Insolvency Laws. Such steps will generally involve the creation
by the related Originator of a separate, limited-purpose subsidiary (each, a
"Finance Subsidiary") pursuant to articles of incorporation containing certain
limitations (including restrictions on the nature of such Finance Subsidiary's
business and a restriction on such Finance Subsidiary's ability to commence a
voluntary case or proceeding under any Insolvency Law without the prior
unanimous affirmative vote of all its directors). However, there can be no
assurance that the activities of any Finance Subsidiary would not result in a
court's concluding that the assets and liabilities of such Finance Subsidiary
should be consolidated with those of the related Originator in a proceeding
under any Insolvency Law.
Except to the extent otherwise described in the related Prospectus
Supplement, each Receivables Acquisition Agreement and each Trust Agreement will
generally require that the related Originator sell or 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
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described in the related Prospectus Supplement, the Equity Interest in a Trust
Fund, if any, 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 to its Finance Subsidiary and, unless otherwise provided in the
related Prospectus Supplement, by 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 the transferor of Receivables, a
court, among other remedies, could attempt to recharacterize the transfer of the
Receivables as a borrowing by the transferor of Receivables or the related
Securityholders, secured by a pledge of such Receivables. Such an attempt, even
if unsuccessful, could result in delays in payments on the Securities. If such
an attempt were successful, a court, among other remedies, could elect to
accelerate payment of the Securities and liquidate the Receivables, with the
Securityholders entitled to the then outstanding principal amount thereof and
interest thereon at the applicable Interest Rate to the date of payment. Thus,
the Securityholders could lose the right to future payments of interest and
might incur reinvestment losses. As more fully described in the related
Prospectus Supplement, in the event the related Issuer is rendered insolvent,
the Trustee for a Trust, in accordance with the Trust Agreement, will promptly
sell, dispose of or otherwise liquidate the related Receivables in a
commercially reasonable manner on commercially reasonable terms. The proceeds
from any such sale, disposition or liquidation of such Receivables will be
treated as collections on such Receivables. If the proceeds from the
liquidation of the Receivables and any amount available from any credit
enhancement, if any, are not sufficient to pay Securities of the related series
in full, the amount of principal returned to such Securityholders will be
reduced and such Securityholders will incur a loss.
Obligors of the Vehicles may be entitled to assert against the related
Originator, the Depositor, or the Trust, if any, claims and defenses which they
have against such Originator with respect to the Receivables. The Originator(s)
will warrant that no such claims or defenses have been asserted or threatened
with respect to the Receivables and that all requirements of applicable law with
respect to the Receivables have been satisfied.
Insurance on Vehicles. Each Receivable generally requires the related
Obligor to maintain insurance covering physical damage to the Vehicle in an
amount not less than the unpaid principal balance of such Receivable pursuant to
which the Originator is named as a loss payee. Since the Obligors select their
own insurers to provide the requisite coverage, the specific terms and
conditions of their policies may vary.
In addition to physical damage insurance which may be required to be
maintained by the Obligors pursuant to the Receivables, each Vehicle, as
specified in the related Prospectus Supplement, may be insured against physical
damage risks by a policy of vendor's single interest physical damage insurance
(the "VSI Insurance Policy") which provides limited coverage (subject to
deductibles) for, among other things, (i) physical loss or damage from any
external cause to such vehicle and (ii) inability to locate such
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vehicle or the related Obligor. Any recovery under the VSI Insurance Policy may
be less than the outstanding principal and interest due on the related
Receivable. In the event of any such shortfall Securityholders could suffer a
loss on their investment.
Delinquencies. There can be no assurance that the historical levels
of delinquencies and losses experienced by the related Originator on its
portfolio of retail installment sales contracts or note and security agreements
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 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
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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 motor vehicle lending industry.
The rate of Prepayments of Contracts cannot be predicted and is influenced by a
wide variety of economic, social, and other factors, including prevailing
interest rates, the availability of alternate financing and local and regional
economic conditions. Therefore, no assurance can be given as to the level of
Prepayments that a Trust Fund will experience.
Securityholders should consider, in the case of Securities purchased
at a discount, the risk that a slower than anticipated rate of Prepayments on
the Receivables could result in an actual yield that is less than the
anticipated yield and, in the case of any Securities purchased at a premium, the
risk that a faster than anticipated rate of Prepayments on the Receivables could
result in an actual yield that is less than the anticipated yield.
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THE TRUST FUNDS
The property of each Trust Fund will include, as specified in the
related Prospectus Supplement, (i) a pool of Receivables, which Receivables may
consist of a security interest in the retail installment sales contract or note
and security agreement evidencing the Obligor's obligations to pay (ii) all
moneys (including accrued interest) due thereunder on or after the applicable
Cut-off Date, (iii) such amounts as from time to time may be held in one or more
accounts established and maintained by the Servicer pursuant to the related
Trust Agreement, as described below and in the related Prospectus Supplement,
(iv) the security interests, if any, in the Vehicles relating to such pool of
Receivables, (v) the right to proceeds from claims on physical damage policies,
if any, covering such Vehicles or the related Obligors, as the case may be, (vi)
the proceeds of any repossessed Vehicles related to such pool of Receivables,
(vii) the rights of the Depositor under the related Receivables Acquisition
Agreement and (viii) interest earned on certain short-term investments held by
such Trust Fund, unless the related Prospectus Supplement specifies that such
earnings may be paid to the related Servicer or Originator(s). The Trust Fund
will also include, if so specified in the related Prospectus Supplement, monies
on deposit in a Pre-Funding Account, which will be used by the Trustee to
acquire or receive a security interest in Subsequent 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 or more classes of Securities.
The Receivables comprising a Trust Fund will, as specifically
described in the related Prospectus Supplement, be either (i) originated by the
related Originator, (ii) originated by various manufacturers and acquired by the
related Originator, (iii) originated by various Dealers and acquired by the
related Originator or (iv) acquired by the related Originator from originators
or owners of Receivables.
Each Trust Fund will include Receivables with respect to which the
related Contract or the related Vehicles is subject to federal or state
registration or titling requirements. No Trust Fund will include Receivables
with respect to which the underlying Contracts or Vehicles relate to office
equipment, aircraft, ships or boats, firearms or other weapons, railroad rolling
stock or facilities such as factories, warehouses or plants subject to state
laws governing the manner in which title or security interest in real property
is determined or perfected.
The Receivables will be acquired by the Depositor from the related
Originator pursuant to a Receivables Acquisition Agreement or pursuant to
provisions of the Trust Agreements between the Originator and the Depositor (the
Receivables Acquisition Agreement or the Trust Agreement provisions under which
Receivables are acquired are referred to as the "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
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such Originator's(s') specified underwriting criteria. The underwriting criteria
applicable to the Receivables included in any Trust Fund will be described in
all material respects in the related Prospectus Supplement.
THE ISSUERS
With respect to each series of Securities, the Depositor will either
establish a separate Trust that will issue such Securities, or the Depositor
will issue such Securities, in each case pursuant to the related Trust
Agreement. For purposes of this Prospectus and the related Prospectus
Supplement, the Depositor, if the Depositor issues the related Securities, or
the related Trust, if a Trust issues the related Securities, shall be referred
to as the "Issuer" with respect to such Securities.
Upon the issuance of the Securities of a given series, the proceeds
from such issuance will be used by the Depositor to acquire the related
Receivables from the related Originator. The related Servicer will service the
related Receivables pursuant to the applicable Servicing Agreement, and will be
compensated for acting as the Servicer. To facilitate servicing and to minimize
administrative burden and expense, the Servicers may be appointed custodians for
the related Receivables by each Trustee and the Depositor, as may be set forth
in the related Prospectus Supplement.
If the protection provided to the Securityholders of a given class by
the Subordination of another Class of Securities of such series and by the
availability of the funds in the reserve account, if any, or any other Credit
Enhancement for such series is insufficient, the Issuer must rely solely on the
payments from the Obligors on the related Contracts, and the proceeds from the
sale of Vehicles which secure or are leased under the Defaulted Contracts. In
such event, certain factors may affect such Issuer's ability to realize on the
collateral securing such Contracts, and thus may reduce the proceeds to be
distributed to the Securityholders of such series.
THE RECEIVABLES
Receivables Pools
Information with respect to the Receivables in each Trust Fund will be
set forth in the related Prospectus Supplement, including, the identity of the
related Originator(s), the related underwriting criteria and collection
policies, together with, to the extent appropriate, the composition of such
Receivables and the distribution of such Receivables by geographic location,
APR, and remaining principal balance as of the applicable Cut-off Date.
The Contracts
As specified in the related Prospectus Supplement, the Contracts may
consist of any combination of Rule of 78s Contracts, Fixed Value Contracts or
Simple Interest Contracts. Generally, "Rule of 78s Contracts" provide for fixed
level monthly payments which will amortize the full amount of the Contract over
its term. The Rule of 78s Contracts provide for allocation of payments
according to the "sum of periodic balances" or "sum of monthly payments" method
(the "Rule of 78s"). Each Rule of 78s Contract provides for the payment by the
Obligor of a specified total amount of payments, payable in monthly installments
on the related due date, which total represents the principal amount financed
and finance charges in an amount calculated on the basis of a stated annual
percentage rate ("APR") for the term of such Contract. The rate at which such
amount of finance charges is earned and, correspondingly, the amount of each
fixed monthly payment allocated to reduction of the outstanding principal
balance of the related Contract are
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calculated in accordance with the Rule of 78s. Under the Rule of 78s, the
portion of each payment allocable to interest is higher during the early months
of the term of a Contract and lower during later months than that under a
constant yield method for allocating payments between interest and principal.
Notwithstanding the foregoing, as specified in the related Prospectus
Supplement, all payments received by the related Servicer on or in respect of
the Rule of 78s Contracts may be allocated on an actuarial basis.
Generally, the "Fixed Value Contracts" provide for monthly payments
with a final fixed value payment which is greater than the scheduled monthly
payments. A Fixed Value Contract provides for amortization of the loan over a
series of fixed level payment monthly installments, but also requires a final
fixed value payment due after payment of such monthly installments which may be
satisfied by (i) payment in full in cash of such amount, (ii) transfer of the
vehicle to the related Originator provided certain conditions are satisfied or
(iii) refinancing the fixed value payment in accordance with certain conditions.
With respect to Fixed Value Contracts, as specified in the related Prospectus
Supplement, only the principal and interest payments due prior to the final
fixed value payment and not the final fixed value payment may be included
initially in the related Trust Fund.
"Simple Interest Contracts" provide for the amortization of the amount
financed under the receivable over a series of fixed level monthly payments.
However, unlike the monthly payment under Rule of 78s Contracts, each monthly
payment consists of an installment of interest which is calculated on the basis
of the outstanding principal balance of the receivable multiplied by the stated
APR and further multiplied by the period elapsed (as a fraction of a calendar
year) since the preceding payment of interest was made. As payments are received
under a Simple Interest Contract, the amount received is applied first to
interest accrued to the date of payment and the balance is applied to reduce the
unpaid principal balance. Accordingly, if an Obligor pays a fixed monthly
installment before its scheduled due date, the portion of the payment allocable
to interest for the period since the preceding payment was made will be less
than it would have been had the payment been made as scheduled, and the portion
of the payment applied to reduce the unpaid principal balance will be
correspondingly greater. Conversely, if an Obligor pays a fixed monthly
installment after its scheduled due date, the portion of the payment allocable
to interest for the period since the preceding payment was made will be greater
than it would have been had the payment been made as scheduled, and the portion
of the payment applied to reduce the unpaid principal balance will be
correspondingly less. In either case, the Obligor pays a fixed monthly
installment until the final scheduled payment date, at which time the amount of
the final installment is increased or decreased as necessary to repay the then
outstanding principal balance.
If an Obligor elects to prepay a Rule of 78s Contract in full, it is
entitled to a rebate of the portion of the outstanding balance then due and
payable attributable to unearned finance charges. If a Simple Interest Contract
is prepaid, rather than receive a rebate, the Obligor is required to pay
interest only to the date of prepayment. The amount of a rebate under a Rule of
78s Contract calculated in accordance with the Rule of 78s will always be less
than had such rebate been calculated on an actuarial basis and generally will be
less than the remaining scheduled payments of interest that would be due under a
Simple Interest Contract for which all payments were made on schedule.
Distributions to Security holders may not be affected by Rule of 78s rebates
under the Rule of 78s Contract because pursuant to the related Prospectus
Supplement such distributions may be determined using the actuarial method.
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Delinquencies, Repossessions, and Net Losses
Certain information relating to the related Originator's delinquency,
repossession and net loss experience with respect to Contracts it has originated
or acquired will be set forth in each Prospectus Supplement. This information
may include, among other things, the experience with respect to all Contracts in
such Originator's portfolio during certain specified periods, including
Contracts which may not meet the criteria for selection as a Receivable for any
particular Trust Fund. There can be no assurance that the delinquency,
repossession and net loss experience on any Trust Fund will be comparable to the
related Originator's prior experience.
Maturity and Prepayment Considerations
As more fully described in the related Prospectus Supplement, if a
Contract permits a Prepayment, such payment, together with accelerated payments
resulting from defaults, will shorten the weighted average life of the related
pool of Receivables and the weighted average life of the related Securities. The
rate of Prepayments on the Receivables may be influenced by a variety of
economic, financial and other factors. In addition, under certain circumstances,
the Depositor or the related Originator will be obligated to acquire Receivables
from the related Trust Fund pursuant to the applicable Trust Agreement or
Receivables Acquisition Agreement as a result of breaches of representations and
warranties. Any reinvestment risks resulting from a faster or slower
amortization of the related Securities which results from Prepayments will be
borne entirely by the related Securityholders.
The related Prospectus Supplement will set forth certain additional
information with respect to the maturity and prepayment considerations
applicable to a particular pool of Receivables and the related series of
Securities, together with a description of any applicable prepayment penalties.
Acquisition of Receivables From Originators
The Receivables underlying a Series of Securities will be acquired by
the Depositor, either directly or through affiliates (such as a Transferor),
from the related Originator pursuant to a Receivables Acquisition Agreement
between the Depositor or such affiliate and each such Originator.
The Depositor expects that, unless otherwise specified in the related
Prospectus Supplement, each Receivable so acquired will have been originated by
the Originator thereof in accordance with the underwriting criteria specified in
such Prospectus Supplement. Unless otherwise specified in the applicable
Prospectus Supplement, each Originator will be an institution experienced in
originating and servicing retail installment sales contracts and note and
security agreements 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.
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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.
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.
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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.
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 a specified period following any resignation or removal, the Trustee or
any Securityholder may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
DESCRIPTION OF THE SECURITIES
General
The Securities will be issued in series. Each series of Securities
(or, in certain instances, two or more series of Securities) will be issued
pursuant to a Trust Agreement. The following summaries (together with additional
summaries under "The Trust Agreement" below) describe all material terms and
provisions relating to the Securities common to each Trust Agreement. The
summaries do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, all of the provisions of the Trust Agreement for
the related Securities and the related Prospectus Supplement.
All of the Securities offered pursuant to this Prospectus and the
related Prospectus Supplement will be rated in one of the four highest rating
categories by one or more Rating Agencies.
The Securities will generally be styled as debt instruments, having a
principal balance and a specified Interest Rate. The Securities may either
represent beneficial ownership interests in the related Receivables held by the
related Trust or debt secured by certain assets of the related Issuer.
Each series or Class of Securities offered pursuant to this Prospectus
may have a different Interest Rate, which may be a fixed or adjustable interest
rate. The related Prospectus Supplement will specify the Interest Rate for each
series or Class of Securities described therein, or the initial interest rate
and the method for determining subsequent changes to the Interest Rate.
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
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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 subsequent
Receivables during a specified period (rather than be used to fund payments of
principal to Securityholders during such period) with the result that the
related Securities will possess an interest-only period, also commonly referred
to as a revolving period, which will be followed by an amortization period. Any
such interest only or revolving period may, upon the occurrence of certain
events to be described in the related Prospectus Supplement, terminate prior to
the end of the specified period and result in the earlier than expected
amortization of the related Securities.
In addition, and as may be described in the related Prospectus
Supplement, the related Trust Agreement may provide that all or a portion of
such collected payments may be retained by the Trustee (and held in certain
temporary investments, including Receivables) for a specified period prior to
being used to fund payments of principal to Securityholders.
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Such retention and temporary investment by the Trustee of such
collected payments may be required by the related Trust Agreement for the
purposes of (a) slowing the amortization rate of the related Securities relative
to the 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 or security interests in Receivables, the related Prospectus
Supplement will describe the material terms and conditions of such certificates
or participations or describe such security interest.
Master Trusts
As may be described in the related Prospectus Supplement, each Trust
Agreement may provide that, pursuant to any one or more supplements thereto, the
Depositor may direct the related Trustee to issue from time to time new series
subject to the conditions described below (each such issuance a "Master Trust
New Issuance"). Each Master Trust New Issuance will have the effect of
decreasing the Equity Interest in the related Master Trust. Under each such
Master Trust Agreement, the Depositor may designate, with respect to any newly
issued series: (i) its name or designation; (ii) its initial principal amount
(or method for calculating such amount); (iii) its Interest Rate (or formula for
the determination thereof); (iv) the Payment Dates and the date or dates from
which interest shall accrue; (v) the method for allocating collections to
Securityholders of such series; (vi) any bank accounts to be used by such series
and the terms governing the operation of any such bank accounts; (vii) the
percentage used to calculate monthly servicing fees; (viii) the provider and
terms of any form of Credit Enhancement with respect thereto; (ix) the terms on
which the Securities of such series may be repurchased or remarketed to other
investors; (x) the number of Classes of Securities of such series, and if such
series consists of more than one Class, the rights and priorities of each such
Class; (xi) the extent to which the Securities of such series will be issuable
in book-entry form; (xii) the priority of such series with respect to any other
series; and (xiii) any other relevant terms. None of the Depositor, the related
Servicer, the related Trustee or any Master Trust is required or intends to
obtain the consent of any Securityholder of any outstanding series to issue any
additional series.
Each Master Trust Agreement provides that the Depositor may designate
terms such that each Master Trust New Issuance has an amortization period which
may have a different length and begin on a different date than such periods for
any series previously issued by the related Master Trust and then outstanding.
Moreover, each Master Trust New Issuance may have the benefits of Credit
Enhancements issued by enhancement providers different from the providers of the
Credit Enhancement, if any, with respect to any series previously issued by the
related Master Trust and then outstanding. Under each Master Trust Agreement,
the related Trustee shall hold any such Credit Enhancement only on behalf of the
Securityholders to which such Credit Enhancement relates. The Depositor will
have the option under each Master Trust Agreement to vary among series the terms
upon which a series may be repurchased by the Issuer or
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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
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Participants through electronic book-entries, thereby eliminating the need for
physical movement of notes or certificates. Participants include securities
brokers and dealers, banks, trust companies and clearing corporations. Indirect
access to the DTC system also is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
Transfers between DTC Participants will occur in accordance with DTC
rules. Transfers between CEDEL Participants and Euroclear Participants will
occur in the ordinary way in accordance with their applicable rules and
operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
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
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transfers and receive and transmit such payments on behalf of their respective
Securityholders of such series. Accordingly, although such Securityholders will
not possess Securities, the Rules provide a mechanism by which Participants will
receive payments and will be able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder of a given series to pledge Securities of such series to persons
or entities that do not participate in the DTC system, or to otherwise act with
respect to such Securities, may be limited due to the lack of a physical
certificate for such Securities.
DTC will advise the Trustee in respect of each Series that it will
take any action permitted to be taken by a Securityholder of the related series
only at the direction of one or more Participants to whose accounts with DTC the
Securities of such series are credited. DTC may take conflicting actions with
respect to other undivided interests to the extent that such actions are taken
on behalf of Participants whose holdings include such undivided interests.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
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 of any Securities. Indirect access to the
Euroclear System is also available to other firms that clear through or maintain
a custodial relationship with a Euroclear Participant, either directly or
indirectly.
The "Euroclear Operator" 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
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Governors of the Federal Reserve System and the New York State Banking
Department, as well as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no record
of relationship with persons holding through Euroclear Participants.
Except as required by law, the Trustee in respect of a series will not
have any liability for any aspect of the records relating to or payments made or
account of beneficial ownership interests of the related Securities held by
Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Definitive Notes
As may be described in the related Prospectus Supplement, the
Securities will be issued in fully registered, certificated form ("Definitive
Securities") to the Securityholders of a given series or their nominees, rather
than to DTC or its nominee, only if (i) the Trustee in respect of the related
series advises in writing that DTC is no longer willing or able to discharge
properly its responsibilities as depository with respect to such Securities and
such Trustee is unable to locate a qualified successor, (ii) the Servicer, 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
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to holders of such Definitive Securities. No service charge will be imposed for
any registration of transfer or exchange, but the applicable Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
Reports to Securityholders
With respect to each series of Securities, on or prior to each Payment
Date for such series, the related Servicer or the related Trustee will forward
or cause to be forwarded to each holder of record of such class of Securities a
statement or statements with respect to the related Trust Fund setting forth the
information specifically described in the related Trust Agreement which
generally will include the following information:
(i) the amount of the distribution with respect to each class of
Securities;
(ii) the amount of such distribution allocable to principal;
(iii) the amount of such distribution allocable to interest;
(iv) the Pool Balance, if applicable, as of the close of business on
the last day of the related Remittance Period;
(v) the aggregate outstanding principal balance and the Pool Factor
for each Class of Securities after giving effect to all payments reported
under (ii) above on such Payment Date;
(vi) the amount paid to the Servicer, if any, with respect to the
related Remittance Period;
(vii) the amount of the aggregate purchase amounts for Receivables
that have been reacquired, if any, for such Remittance Period; and
(viii) the amount of coverage under any letter of credit, financial
guaranty insurance policy, reserve account or other form of credit
enhancement covering default risk as of the close of business on the
applicable Payment Date and a description of any Credit Enhancement
substituted therefor.
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,
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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 or a security
interest therein 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 or the related Originator of the breach.
To the extent that the Depositor so acquires any Receivables, the related
Originator will be obligated to acquire such Receivables from the Depositor
pursuant to the related Receivables Acquisition Agreement contemporaneously with
the Depositor's acquisition of its interest in such Receivables from the
applicable Trust Fund. The obligation of the Depositor to acquire any such
Receivables with respect to which an Originator has breached a representation or
warranty is subject to such Originator's acquisition of such Receivables from
the Depositor. In addition, if so specified in the related Prospectus
Supplement, the Depositor may from time to time reacquire certain Receivables or
substitute other Receivables for such Receivable held by a Trust Fund subject to
specified conditions set forth in the related Trust Agreement and Receivables
Acquisition Agreement.
Accounts
With respect to each series of Securities issued by a Trust, the
related Servicer will establish and maintain with the applicable Trustee one or
more accounts, in the name of such Trustee on behalf of the related
Securityholders, into which all payments made on or with respect to the related
Receivables will be deposited (the "Collection Account"). The Servicer will also
establish and maintain with such Trustee separate accounts, in the name of such
Trustee on 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.
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For any series of Securities, funds in the Collection Account, the
Distribution Account, any reserve account and other accounts identified as such
in the related Prospectus Supplement (collectively, the "Trust Accounts") shall
be invested as provided in the related Trust Agreement in Eligible Investments.
"Eligible Investments" are generally limited to investments acceptable to the
Rating Agencies as being consistent with the rating of such Securities. Subject
to certain conditions, Eligible Investments may include securities issued by the
Depositor, the related Originator, the related Servicer or their respective
affiliates or other trusts created by the Depositor or its affiliates. Except as
described below or in the related Prospectus Supplement, Eligible Investments
are limited to obligations or securities that mature not later than the business
day immediately preceding the related Payment Date. However, subject to certain
conditions, funds in the reserve account may be invested in securities that will
not mature prior to the date of the next distribution and will not be sold to
meet any shortfalls. Thus, the amount of cash in any reserve account at any time
may be less than the balance of such reserve account. If the amount required to
be withdrawn from any reserve account to cover shortfalls in collections on the
related Receivables exceeds the amount of cash in such reserve account a
temporary shortfall in the amounts distributed to the related Securityholders
could result, which could, in turn, increase the average life of the Securities
of such series. Except as otherwise specified in the related Prospectus
Supplement, investment earnings on funds deposited in the applicable Trust
Accounts, net of losses and investment expenses (collectively, "Investment
Earnings"), shall be deposited in the applicable Collection Account on each
Payment Date and shall be treated as collections of interest on the related
Receivables.
The Trust Accounts will be maintained as Eligible Deposit Accounts.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States of America or any one of the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), having corporate trust powers and
acting as trustee for funds deposited in such account, so long as any of the
securities of such depository institution has a credit rating from each Rating
Agency in one of its generic rating categories which signifies investment grade.
"Eligible Institution" means, with respect to a Trust, (a) the corporate trust
department of the related Indenture Trustee or the related Trustee, as
applicable, or (b) a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), which (i) (A) has either
(w) a long-term unsecured debt rating acceptable to the Rating Agencies or (x) a
short-term unsecured debt rating or certificate of deposit rating acceptable to
the Rating Agencies or (B) the parent corporation of which has either (y) a
long-term unsecured debt rating acceptable to the Rating Agencies or (z) a
short-term unsecured debt rating or certificate of deposit rating acceptable to
the Rating Agencies and (ii) whose deposits are insured by the FDIC.
To the extent that an Originator's or a Servicer's unsecured debt
ratings are acceptable to the Rating Agencies, amounts deposited to any Trust
Account may be commingled with Originator's or Servicer's general account
moneys. Any rights to so commingle moneys will be described in the related
Prospectus Supplement.
The Servicer
The Servicer under each Trust Agreement will be named in the related
Prospectus Supplement. The entity serving as Servicer may be an affiliate of the
Depositor and may have other business relationships with the Depositor or the
Depositor's affiliates. The Servicer with respect to each Series will service
the Receivables contained in the Trust Fund for such Series. Any Servicer may
delegate its servicing responsibilities to one or more sub-servicers, but will
not be relieved of its liabilities with respect thereto.
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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, and,
to the extent described in the related Prospectus Supplement, the Servicer may,
in its discretion and on a case-by-case basis, arrange with the Obligor on a
Receivable to extend or modify the payment schedule. Some of such arrangements
(including, without limitation any extension of the payment schedule beyond the
final scheduled Payment Date for the related Securities) may result in the
Servicer acquiring such Receivable if such Contract becomes a Defaulted
Contract. The Servicer may sell the Vehicle securing the respective Defaulted
Contract, if any, at a public or private sale, or take any other action
permitted by applicable law. See "Certain Legal Aspects of the Receivables".
The material aspects of any particular Servicer's collections
procedures will be set forth in the related Prospectus Supplement.
Payments on Receivables
With respect to each series of Securities, the related Servicer will
deposit all payments on the related Receivables (from whatever source) and all
proceeds of such Receivables collected within two (2) business days of receipt
thereof in the related collection facility, such as a lock-box account or
collection account. Moneys deposited in such collection facility for a Trust
Fund may be commingled with funds from other sources. As specified in the
related Prospectus Supplement, the related Servicer will be required to deposit
payments on the related Receivables (from whatever source) collected during each
collection period (each, a "Collection Period") into the related Collection
Account on a specified day each month. Pending deposit into the related
Collection Account, collections in such collection facility may be invested by
the related Servicer at its own risk and for its own benefit, and will not be
segregated from funds of the related Servicer.
Servicing Compensation
As may be described in the related Prospectus Supplement with respect
to any series of securities issued by a Trust, the related Servicer will be
entitled to receive a servicing fee for each Collection Period (the "Servicing
Fee") in an amount equal to a specified percentage per annum (as set forth in
the related Prospectus Supplement, the "Servicing Fee Rate") of the value of the
assets held in the related Trust Fund, generally as of the first day of such
Collection Period. Each Prospectus Supplement and Servicing Agreement will
specify the priority of distributions with respect to the Servicing Fee
(together with any portion of the Servicing Fee that remains unpaid from prior
Payment Dates), such Servicing Fee may be paid prior to any distribution to the
related Securityholders.
Each Servicer will also collect and retain any late fees, the penalty
portion of interest paid on past due amounts and other administrative fees or
similar charges allowed by applicable law with respect
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to the Receivables, and will be entitled to reimbursement from each Trust for
certain liabilities. Payments by or on behalf of Obligors will be allocated to
scheduled payments and late fees and other charges in accordance with such
Servicer's normal practices and procedures.
The Servicing Fee will compensate the related Servicer for performing
the functions of a third party servicer of similar types of receivables as an
agent for their beneficial owner, including collecting and posting all payments,
responding to inquiries of Obligors on the related Receivables, investigating
delinquencies, sending payment coupons to Obligors, reporting tax information to
Obligors, paying costs of collection and disposition of defaults, and policing
the collateral. The Servicing Fee also will compensate the related Servicer for
administering the related Receivables, accounting for collections and furnishing
statements to the applicable Trustee and the applicable Indenture Trustee, if
any, with respect to distributions. The Servicing Fee also will reimburse the
related Servicer for certain taxes, accounting fees, outside auditor fees, data
processing costs and other costs incurred in connection with administering the
Receivables.
Distributions
With respect to each series of Securities, beginning on the Payment
Date specified in the related Prospectus Supplement, distributions of principal
and interest (or, where applicable, of principal or interest only) on each Class
of such Securities entitled thereto will be made by the applicable Indenture
Trustee to the Noteholders and by the applicable Trustee to the
Certificateholders of such series. The timing, calculation, allocation, order,
source, priorities of and requirements for each class of Noteholders and all
distributions to each class of Certificateholders of such series will be set
forth in the related Prospectus Supplement.
With respect to each series of Securities, on each Payment Date
collections on the related Receivables will be transferred from the Collection
Account to the Distribution Account for distribution to Securityholders,
respectively, to the extent provided in the related Prospectus Supplement.
Credit Enhancement, such as a reserve account, may be available to cover any
shortfalls in the amount available for distribution on such date, to the extent
specified in the related Prospectus Supplement. As more fully described in the
related Prospectus Supplement, and unless otherwise specified therein,
distributions in respect of principal of a Class of Securities of a given series
will be subordinate to distributions in respect of interest on such Class, and
distributions in respect of the Certificates of such series may be subordinate
to payments in respect of the Notes of such series.
Credit and Cash Flow Enhancements
The amounts and types of Credit Enhancement arrangements, if any, and
the provider thereof, if applicable, with respect to each class of Securities of
a given series will be set forth in the related Prospectus Supplement. If and to
the extent provided in the related Prospectus Supplement, credit enhancement may
be in the form of a Policy, subordination of one or more Classes of Securities,
reserve accounts, overcollateralization, letters of credit, credit or liquidity
facilities, third party payments or other support, surety bonds, guaranteed cash
deposits or such other arrangements as may be described in the related
Prospectus Supplement or any combination of two or more of the foregoing. If
specified in the applicable Prospectus Supplement, Credit Enhancement for a
Class of Securities may cover one or more other Classes of Securities of the
same series, and Credit Enhancement for a series of Securities may cover one or
more other series of Securities.
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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 Remittance Period a statement setting forth
substantially the same information as is required to be provided in the periodic
reports provided to Securityholders of such series described under "Description
of the Securities -- Reports to Securityholders".
Evidence as to Compliance
Each Trust Agreement will provide that a firm of independent public
accountants will furnish to the related Trust and/or the applicable Indenture
Trustee and Credit Enhancer, annually, a statement as to compliance by the
related Servicer during the preceding twelve months (or, in the case of the
first such certificate, the period from the applicable Closing Date) with
certain standards relating to the servicing of the Receivables.
Each Trust Agreement will also provide for delivery to the related
Trust and/or the applicable Indenture Trustee of a certificate signed by an
officer of the related Servicer stating that such Servicer either has fulfilled
its obligations under such Trust Agreement in all material respects throughout
the preceding 12 months (or, in the case of the first such certificate, the
period from the applicable Closing Date) or, if there has been a default in the
fulfillment of any such obligation in any material respect, describing each such
default. Each Servicer also will agree to give each Indenture Trustee and each
Trustee notice of certain "Servicer Defaults" (as defined below) under the
related Trust Agreement.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the applicable Indenture
Trustee or the applicable Trustee.
Certain Matters Regarding the Servicers
Each Trust Agreement will provide that the related Servicer may not
resign from its obligations and duties as Servicer thereunder, except upon
determination that the performance by such Servicer of such duties is no longer
permissible under applicable law. No such resignation will become effective
until the related Trustee or a successor servicer has assumed such Servicer's
servicing obligations and duties under the Trust Agreement.
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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 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 two (2) 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 a period not to
exceed greater than one hundred and twenty (120) 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 other Person permitted to
provide notice under the Trust Agreement 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,
marshaling 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
Except as otherwise provided 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
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transfer of servicing. In the event that the Trustee is unwilling or unable to
so act, it may appoint, or petition a court of competent jurisdiction for the
appointment of, a successor with a net worth of at least $25,000,000 and whose
regular business includes the servicing of a similar type of receivables. Such
Trustee may make such arrangements for compensation to be paid, which in no
event may be greater than the servicing compensation payable to the Servicer
under the related Trust Agreement.
Waiver of Past Defaults
With respect to each Trust Fund, unless otherwise provided in the
related Prospectus Supplement and subject to the approval of any Credit
Enhancer, the holders of Notes evidencing at least a majority of the voting
rights of such then outstanding Securities may, on behalf of all Securityholders
of the related Securities, waive any default by the Servicer, or by the related
Originator, in the performance of its obligations under the related Trust
Agreement and its consequences, except a default in making any required deposits
to or payments from any of the Trust Accounts in accordance with such Trust
Agreement. No such waiver shall impair the Securityholders' rights with respect
to subsequent defaults.
Amendment
To the extent provided 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. To the
extent provided 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 Matters
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
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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 transfer of the Receivables by the related Originators to the
Depositor pursuant to each Receivables Acquisition Agreement and then by the
Depositor to the Trustee pursuant to the related Trust Agreement, the perfection
of the security interests in the Receivables and the enforcement of rights to
realize on the Vehicles as collateral for the Receivables are subject to a
number of federal and state laws, including the UCC as in effect in various
states. As specified in each Prospectus Supplement, the related Servicer will
take such action as is required to perfect the rights of the Trustee in the
Receivables. If, through inadvertence or otherwise, a third party were to
purchase (including the taking of a security interest in) a Receivable for new
value in the ordinary course of its business, without actual knowledge of the
Trust's interest, and take possession of a Receivable, the purchaser would
acquire an interest in such Receivable superior to the interest of the Trust. As
further specified in each Prospectus Supplement, no action will be taken to
perfect the rights of the Trustee in proceeds of any VSI Insurance Policy or of
any other insurance policies covering individual Vehicles or Obligors.
Therefore, the rights of a third party with an interest in such proceeds could
prevail against the rights of the Trust prior to the time such proceeds are
deposited by the related Servicer into a Trust Account.
Security Interests in the Financed Vehicles
General
Retail installment sale contracts and note and security agreements
such as the Receivables evidence the credit sale of or indebtedness incurred to
acquire automobiles and light duty trucks by dealers
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<PAGE>
to consumers. The contracts and agreements also constitute personal property
security agreements and include grants of security interests in the related
automobiles and light duty trucks under the UCC. Perfection of security
interests in automobiles and light duty trucks is generally governed by the
vehicle registration or titling laws of the state in which each vehicle is
registered or titled. In most states a security interest in a vehicle is
perfected by notation of the secured party's lien on the vehicle's certificate
of title.
Unless otherwise specified in the related Prospectus Supplement, all
of the Contracts acquired from Originators name the related Originator as
obligee or assignee and as the secured party. As specified in the related
Prospectus Supplement, the related Originator will represent that it has taken
all actions necessary under the laws of the state in which the related Vehicles
are titled to perfect its security interest in such Vehicles, including, where
applicable, having a notation of its lien recorded on the related certificate of
title.
Perfection
Pursuant to the related Receivables Acquisition Agreement, the
Originator will sell and assign or, if so specified in the related Prospectus
Supplement, either sell and assign or pledge the Receivables and its security
interests in the Vehicles to the Depositor and, pursuant to the related Trust
Agreement, the Depositor will assign to the Trustee the Receivables and its
interest in the Originator's security interests in the Financed Vehicles. Unless
specified in the related Prospectus Supplement, because of the administrative
burden and expense, none of the Depositor, the related Servicer nor the Trustee
will amend any certificate of title to identify the Depositor or the Trustee as
the new secured party on the certificates of title relating to the Vehicles.
Each related Prospectus Supplement will specify the UCC financing statements to
be filed in order to perfect the transfer to the Depositor of the Receivables
and the transfer to the Trustee of the Receivables. Further, although neither
the Depositor nor the Trustee will rely on possession of the Receivables as the
legal basis for the perfection of their respective interests therein or in the
security interests in the Vehicles, the Trustee, if so specified in the related
Prospectus Supplement, will continue to hold the Receivables and any
certificates of title relating to the Vehicles in its possession as custodian
for the Trustee pursuant to the related Trust Agreement which, as a practical
matter, should preclude any other party from claiming a competing security
interest in the Receivables on the basis that the security interest is perfected
by possession.
A security interest in a motor vehicle registered in most states may
be perfected against creditors and subsequent purchasers without notice for
valuable consideration only by one or more of the following: depositing with the
related Department of Motor Vehicles or analogous state office a properly
endorsed certificate of title for the vehicle showing the secured party as legal
owner or lienholder thereon, or filing a sworn notice of lien with the related
Department of Motor Vehicles or analogous state office and noting such lien on
the certificate of title, or, if the vehicle has not been previously registered,
filing an application in usual form for an original registration together with
an application for registration of the secured party as legal owner or
lienholder, as the case may be. However, under the laws of most states, a
transferee of a security interest in a motor vehicle is not required to reapply
to the related Department of Motor Vehicles or analogous state office for a
transfer of registration when the security interest is sold or when the interest
of the transferee arises from the transfer of a security interest by the
lienholder to secure payment or performance of an obligation. Accordingly, under
the laws of such states, the assignment by the related Originators of their
interests in the Receivables to the Depositor under the related Receivables
Acquisition Agreement, and the assignment by the Depositor of its interest in
the Receivables to the Trustee under the related Trust Agreement are effective
conveyances of the respective security interests of the related Originators and
the Depositor in the Receivables, and specifically, the Vehicles, without such
re-registration
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<PAGE>
and without amendment of any lien noted on the related certificate of title, and
(subject to the immediately succeeding paragraphs) the Depositor will succeed to
the related Originator's rights as secured party and the Trustee will succeed to
the Depositor's rights as secured party.
Although re-registration of the vehicle is not necessary to convey a
perfected security interest in the Vehicles to the Trustee, the Trustee's
security interest could be defeated through fraud, negligence, forgery or
administrative error since it may not be listed as legal owner or lienholder on
the certificates of title to the Vehicles. However, in the absence of fraud,
negligence, forgery or administrative error, the notation of the related
Originator's lien on the certificates of title will be sufficient to protect the
Trust against the rights of subsequent purchasers of a Vehicle or subsequent
creditors who take a security interest in a Vehicle. In each Receivables
Acquisition Agreement, the related Originators will represent and warrant that
it has, or has taken all action necessary to obtain, a perfected security
interest in each Vehicle. If there are any Vehicles as to which the related
Originator failed to obtain a first priority perfected security interest, its
security interest would be subordinate to, among others, subsequent purchasers
of such Vehicles and holders of first priority perfected security interests
therein. Such a failure, however, would constitute a breach of the related
Originator's representations and warranties under the related Receivables
Acquisition Agreement. Accordingly, pursuant to the related Receivables
Acquisition Agreement, the related Originators would be required to repurchase
such Receivables in each case unless the breach were cured.
Continuity of Perfection
Under the laws of most states, a perfected security interest in a
motor vehicle continues for four months after the vehicle is moved to a new
state from the one in which it is initially registered and thereafter until the
owner re-registers such motor vehicle in the new state. A majority of states
generally require surrender of a certificate of title to re-register a vehicle.
In those states that require a secured party to hold possession of the
certificate of title to maintain perfection of the security interest, the
secured party would learn of the reregistration through the request from the
Obligor under the related installment sale contract or note and security
agreement to surrender possession of the certificate of title to assist in such
re-registration. In the case of vehicles registered in states providing for the
notation of a lien on the certificate of title but not requiring possession by
the secured party (such as Texas), the secured party would receive notice of
surrender from the state of re-registration if the security interest is noted on
the certificate of title. Thus, the secured party would have the opportunity to
reperfect its security interest in the vehicle in the state of relocation.
However, these procedural safeguards will not protect the secured party if,
through fraud, forgery or administrative error, the debtor somehow procures a
new certificate of title that does not list the secured party's lien.
Additionally, in states that do not require surrender of a certificate of title
for re-registration of a vehicle, re-registration could defeat perfection. In
each of the Trust Agreements, the related Servicer will be required to take
steps to effect re-perfection upon receipt of notice of re-registration or
information from the Obligor as to relocation. Similarly, when an Obligor sells
a Vehicle, the related Servicer will have an opportunity to require satisfaction
of the related Receivable before release of the lien, either because the related
Servicer will be required to surrender possession of the certificate of title in
connection with the sale, or because the related Servicer will receive notice as
a result of its lien noted thereon. Pursuant to the related Trust Agreement, the
related Servicer will hold the certificates of title for the related Vehicles as
custodian for the Trustee. Under the related Trust Agreement, the related
Servicer will be obligated to take appropriate steps, at its own expense, to
maintain perfected security interests in the Vehicles.
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Priority of Certain Liens Arising by Operation of Law
Under the laws of most states, certain statutory liens such as
mechanics', repairmen's and garagemen's liens for repairs performed on a motor
vehicle, motor vehicle accident liens, towing and storage liens, liens arising
under various state and federal criminal statutes and liens for unpaid taxes
take priority over even a first priority perfected security interest in such
vehicle by operation of law. The UCC also grants priority to certain federal tax
liens over the lien of a secured party. The laws of most states and federal law
permit the confiscation of motor vehicles by governmental authorities under
certain circumstances if used in or acquired with the proceeds of unlawful
activities, which may result in the loss of a secured party's perfected security
interest in a confiscated vehicle. The related Originators will represent and
warrant to the Depositor and the Issuer in the related Receivables Acquisition
Agreement that, as of the related Closing Date, each security interest in a
Vehicle shall be a valid, subsisting and enforceable first priority security
interest in such Vehicle. However, liens for repairs or taxes superior to the
security interest of the Trustee in any such Vehicle, or the confiscation of
such Vehicle, could arise at any time during the term of a Receivable. No notice
will be given to the Trustee or any Securityholder in the event such a lien or
confiscation arises and any such lien or confiscation arising after the related
Closing Date would not give rise to the related Originator's repurchase
obligation under the related Receivables Acquisition Agreement.
Repossession
In the event of default by an Obligor, the holder of the related
retail installment sale contract or note and security agreement has all the
remedies of a secured party under the UCC, except where specifically limited by
other state laws. The UCC remedies of a secured party include the right to
repossession by self-help means, unless such means would constitute a breach of
the peace. Unless a vehicle is voluntarily surrendered, self-help repossession
is accomplished simply by taking possession of the related financed vehicle. In
cases where the Obligor objects or raises a defense to repossession, or if
otherwise required by applicable state law, a court order is obtained from the
appropriate state court, and the vehicle must then be recovered in accordance
with that order. In some jurisdictions, the secured party is required to notify
the debtor of the default and the intent to repossess the collateral and give
the debtor a time period within which to cure the default prior to repossession.
Generally, this right of cure may only be exercised on a limited number of
occasions during the term of the related contract. Other jurisdictions permit
repossession without prior notice if it can be accomplished without a breach of
the peace (although in some states, a course of conduct in which the creditor
has accepted late payments has been held to create a right by the Obligor to
receive prior notice).
Notice of Sale; Redemption Rights
The UCC and other state laws require a secured party to provide the
Obligor with reasonable notice of the date, time and place of any public sale
and/or the date after which any private sale of the collateral may be held. In
addition, some states also impose substantive timing requirements on the sale of
repossessed vehicles in certain circumstances and/or various substantive timing
and content requirements on such notices. In most states, under certain
circumstances after a financed vehicle has been repossessed, the Obligor may
redeem the collateral by paying the delinquent installments and other amounts
due. The Obligor has the right to redeem the collateral prior to actual sale or
entry by the secured party into a contract for sale of the collateral by paying
the secured party the unpaid principal balance of the obligation, accrued
interest thereon, reasonable expenses for repossessing, holding, and preparing
the collateral for disposition and arranging for its sale, plus, in some
jurisdictions, reasonable attorneys' fees and legal expenses or in some other
states, by payment of delinquent installments on the unpaid principal balance of
the related obligation.
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Deficiency Judgments and Excess Proceeds
The proceeds of resale of the Vehicles generally will be applied first
to the expenses of resale and repossession and then to the satisfaction of the
indebtedness. In many instances, the remaining principal amount of such
indebtedness will exceed such proceeds. Under the UCC and laws applicable in
some states, a creditor is entitled to bring an action to obtain a deficiency
judgment from a debtor for any deficiency on repossession and resale of a motor
vehicle securing such debtor's loan; however, in some states, a creditor may not
seek a deficiency judgment from a debtor whose financed vehicle had an initial
cash sales price of less than specified amounts. Some states, impose
prohibitions or limitations or notice requirements on actions for deficiency
judgments. In addition to the notice requirement described above, the UCC
requires that every aspect of the sale or other disposition, including the
method, manner, time, place and terms, be "commercially reasonable". Generally,
courts have held that when a sale is not "commercially reasonable", the secured
party loses its right to a deficiency judgment. In addition, the UCC permits the
debtor or other interested party to recover for any loss caused by noncompliance
with the provisions of the UCC. Also, prior to a sale, the UCC permits the
debtor or other interested person to obtain an order mandating that the secured
party refrain from disposing of the collateral if it is established that the
secured party is not proceeding in accordance with the "default" provisions
under the UCC. However, the deficiency judgment would be a personal judgment
against the Obligor for the shortfall, and a defaulting Obligor can be expected
to have very little capital or sources of income available following
repossession. Therefore, in many cases, it may not be useful to seek a
deficiency judgment or, if one is obtained, it may be settled at a significant
discount or be uncollectible.
Occasionally, after resale of a vehicle and payment of all expenses
and indebtedness, there is a surplus of funds. In that case, the UCC requires
the creditor to remit the surplus to any holder of a subordinate lien with
respect to the vehicle or if no such lienholder exists or if there are remaining
funds, the UCC requires the creditor to remit the surplus to the Obligor under
the contract.
Consumer Protection Laws
Numerous federal and state consumer protection laws and related
regulations impose substantial requirements upon creditors and servicers
involved in consumer finance. These laws include the Truth-in-Lending Act, the
Equal Credit Opportunity Act, the Federal Trade Commission Act, the Fair Credit
Billing Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices
Act, the Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B
and Z, state adaptations of the National Consumer Act and of the Uniform
Consumer Credit Code, state motor vehicle retail installment sale acts, state
"lemon" laws and other similar laws. In addition, the laws of certain states,
impose finance charge ceilings and other restrictions on consumer transactions
and require contract disclosures in addition to those required under federal
law. These requirements impose specific statutory liabilities upon creditors who
fail to comply with their provisions. In some cases, this liability could affect
the ability of an assignee such as the Trustee to enforce consumer finance
contracts such as the Receivables.
The so-called "Holder-in-Due-Course Rule" of the Federal Trade
Commission (the "FTC Rule") has the effect of subjecting any assignee of the
seller in a consumer credit transaction (and certain related creditors and their
assignees) to all claims and defenses which the Obligor in the transaction could
assert against the seller. Liability under the FTC Rule is limited to the
amounts paid by the Obligor under the contract, and the holder of the contract
may also be unable to collect any balance remaining due thereunder from the
Obligor. The FTC Rule is generally duplicated by the Uniform Consumer Credit
Code, other state statutes or the common law in certain states. To the extent
that the Receivables will be subject to the requirements of the FTC Rule, the
Trustee, as holder of the Receivables, will be subject to any claims or
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defenses that the purchaser of the related Vehicle may assert against the seller
of such Vehicle. Such claims will be limited to a maximum liability equal to the
amounts paid by the Obligor under the related Receivable.
Under most state vehicle dealer licensing laws, sellers of automobiles
and light duty trucks are required to be licensed to sell vehicles at retail
sale. In addition, with respect to used vehicles, the Federal Trade Commission's
Rule on Sale of Used Vehicles requires that all sellers of used vehicles
prepare, complete and display a "Buyer's Guide" which explains the warranty
coverage for such vehicles. Furthermore, Federal Odometer Regulations
promulgated under the Motor Vehicle Information and Cost Savings Act and the
motor vehicle title laws of most states require that all sellers of used
vehicles furnish a written statement signed by the seller certifying the
accuracy of the odometer reading. If a seller is not properly licensed or if
either a Buyer's Guide or Odometer Disclosure Statement was not provided to the
purchaser of a Vehicle, the Obligor may be able to assert a defense against the
seller of the Vehicle. If an Obligor on a Receivable were successful in
asserting any such claim or defense, the related Servicer would pursue on behalf
of the Trust any reasonable remedies against the seller or manufacturer of the
vehicle, subject to certain limitations as to the expense of any such action to
be specified in the related Trust Agreement.
Any such loss, to the extent not covered by credit support (as
specified in the Related Prospectus Supplement), could result in losses to the
Securityholders. As specified in the related Prospectus Supplement, if an
Obligor were successful in asserting any such claim or defense as described in
this paragraph or the two immediately preceding paragraphs, such claim or
defense may constitute a breach of a representation and warranty under the
related Receivables Acquisition Agreement and the related Trust Agreement and
may create an obligation of the related Originator and the Depositor to
repurchase such Receivable unless the breach were cured.
Courts have applied general equitable principles to secured parties
pursuing repossession or litigation involving deficiency balances. These
equitable principles may have the effect of relieving an Obligor from some or
all of the legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies
of secured parties under the UCC and related laws violate the due process
protections of the 14th Amendment to the Constitution of the United States.
Courts have generally either upheld the notice provisions of the UCC and related
laws as reasonable or have found that the creditor's repossession and resale do
not involve sufficient state action to afford constitutional protection to
consumers.
As specified in the related Prospectus Supplement, the related
Originators will represent and warrant under the related Receivables Acquisition
Agreement that each Receivable complies with all requirements of law in all
material respects. Accordingly, if an Obligor has a claim against the Trustee
for violation of any law and such claim materially and adversely affects the
Trustee's interest in a Receivable, such violation would constitute a breach of
representation and warranty under the related Receivables Acquisition Agreement
and would create an obligation of the related Originators to repurchase such
Receivable unless the breach were cured.
Other Limitations
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a creditor to
realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
creditor from repossessing a motor
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vehicle, and, as part of the rehabilitation plan, reduce the amount of the
secured indebtedness to the market value of the motor vehicle at the time of
bankruptcy (as determined by the court), leaving the party providing financing
as a general unsecured creditor for the remainder of the indebtedness. A
bankruptcy court may also reduce the monthly payments due under a contract or
chance the rate of interest and time of repayment of the indebtedness. Any such
shortfall, to the extent not covered by credit support (as specified in each
Prospectus Supplement), could result in losses to the Securityholders.
CERTAIN TAX CONSIDERATIONS
The Prospectus Supplement for each series of Securities will
summarize, subject to the limitations stated therein, federal income tax
considerations relevant to the purchase, ownership and disposition of such
Securities.
ERISA CONSIDERATIONS
The Prospectus Supplement for each series of Securities will
summarize, subject to the limitations discussed therein, considerations under
ERISA relevant to the purchase of such Securities by employee benefit plans and
individual retirement accounts.
METHODS OF DISTRIBUTION
The Securities offered hereby and by the related Prospectus Supplement
will be offered in series through one or more of the methods described below.
The Prospectus Supplement prepared for each series will describe the method of
offering being utilized for that series and will state the public offering or
purchase price of such series and the net proceeds to the Depositor from such
sale.
The Depositor intends that Securities will be offered through the
following methods from time to time and that offerings may be made concurrently
through more than one of these methods or that an offering of a particular
series of Securities may be made through a combination of two or more of these
methods. Such methods are as follows:
1. By negotiated firm commitment or best efforts underwriting
and public re-offering by underwriters;
2. By placements by the Depositor with institutional investors
through dealers;
3. By direct placements by the Depositor with institutional
investors; and
4. By competitive bid.
In addition, if specified in the related Prospectus Supplement, a
series of Securities may be offered in whole or in part in exchange for the
Receivables (and other assets, if applicable) that would comprise the Trust Fund
in respect of such Securities.
If underwriters are used in a sale of any Securities (other than in
connection with an underwriting on a best efforts basis), such Securities will
be acquired by the underwriters for their own account and may be resold from
time to time in one or more transactions, including negotiated transactions, at
fixed public offering prices or at varying prices to be determined at the time
of sale or at the time of
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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 Mayer, Brown & Platt, Chicago, Illinois,
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.
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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.
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INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus
and the pages on which the definitions of such terms may be found herein.
<TABLE>
<CAPTION>
<S> <C>
Accrual Securities..................................... 8, 11, 12, 22, 32, 44
APR................................................................... 12, 14
Cede...................................................................... 14
CEDEL Participants........................................................ 32
Certificates............................................................ 1, 6
Class...................................................................... 1
Collection Account........................................................ 35
Collection Period......................................................... 36
Commission................................................................. 3
Contracts............................................................... 1, 6
Cooperative............................................................... 32
Credit Enhancement........................................................ 21
Credit Enhancer........................................................... 21
Debt Securities........................................................... 16
Debtors............................................................... 19, 20
Definitive Securities..................................................... 33
Depositaries.............................................................. 31
Depositor.............................................................. 5, 27
Direct Participants....................................................... 21
Discounted Contract Balance............................................... 13
Distribution Account...................................................... 35
DTC........................................................ 14, 19, 21, 30-33
Eligible Deposit Account............................................ 5, 6, 35
Eligible Institution...................................................... 35
Eligible Investments...................................................... 35
Equity Certificates....................................................... 10
ERISA..................................................................... 16
Euroclear Operator........................................................ 32
Euroclear Participants.................................................... 32
Exchange Act........................................................... 3, 17
Finance Subsidiary........................................................ 19
Fixed Income Securities................................................... 8
FTC Rule.............................................................. 44, 45
Grantor Trust Securities.................................................. 16
Indenture................................................................. 6
Indenture Trustee...................................................... 7, 31
Indirect Participants..................................................... 21
Insolvency Event.......................................................... 39
Insolvency Laws........................................................... 19
Interest Rate........................................................... 3, 8
Investment Company Act.................................................... 10
Investment Earnings....................................................... 35
Issuer.............................................................. 1, 5, 23
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Master Trust............................................................ 10
Master Trust Agreement............................................... 5, 10
Master Trust New Issuance............................................... 29
Notes................................................................. 1, 6
Originator............................................................ 1, 5
Participants............................................................ 31
Partnership Interests................................................... 16
Pass-Through Rate........................................................ 3
Payment Date............................................................. 9
Policy................................................................ 1, 6
Pool Balance............................................................ 25
Pool Factor............................................................. 25
Pooling Agreement........................................................ 6
Pre-Funding Account..................................................... 14
Pre-Funding Period...................................................... 14
Prepayment.............................................................. 21
Prospectus Supplement.................................................... 1
Ratings Effect...................................................... 21, 30
Receivables........................................................... 1, 6
Receivables Acquisition Agreement....................................... 22
Record Date.............................................................. 9
Registration Statement................................................... 3
Remittance Period........................................................ 9
Rule of 78s............................................................. 11
Rules................................................................... 31
Securities............................................................... 1
Securities Act........................................................... 3
Security Insurer........................................................ 14
Securityholders.......................................................... 8
Senior Securities........................................................ 8
Servicer................................................................. 1
Servicer Defaults....................................................... 38
Servicing Agreement...................................................... 7
Servicing Fee........................................................... 37
Servicing Fee Rate...................................................... 37
Strip Securities......................................................... 8
Sub-Servicer............................................................. 5
Subordinate Securities................................................... 8
Subsequent Receivables.............................................. 14, 22
Terms and Conditions.................................................... 33
Transferor............................................................... 5
Trust................................................................. 1, 5
Trust Accounts.......................................................... 35
Trust Agreement.......................................................... 7
Trust Fund............................................................ 1, 6
Trustee.................................................................. 7
Vehicles.............................................................. 1, 6
VSI Insurance Policy............................................ 20, 32, 41
</TABLE>
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You should rely only on the information contained in or incorporated by
reference into this Prospectus Supplement or the Prospectus. We have not
authorized anyone to give you different information. We do not claim the
accuracy of the information in this prospectus supplement or the prospectus as
of any date other than the date stated on the cover page. We are not offering
the Notes in any states where it is not permitted.
-----------------
[LOGO OF PEOPLE FIRST.COM]
PeopleFirst Finance, LLC
Originator and Servicer
Prudential Securities
Secured Financing Corporation
Depositor
-----------------
Dealer Prospectus Delivery Obligation. Until February , 2000 all dealers that
effect transactions in these Securities, whether or not participating in the
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
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PeopleFirst.com Auto
Receivables Owner
Trust 1999-1
$116,000,000
Asset-Backed Notes,
Series 1999-1
--------------------------
PROSPECTUS SUPPLEMENT
--------------------------
Prudential Securities
Barclays Capital
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