<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 14, 2000
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-----------------------------
PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION
(Originator of the Trusts Described Herein)
(Exact name of Registrant as specified in its charter)
Delaware ONE NEW YORK PLAZA 13-3526694
(State or other jurisdiction of NEW YORK, NEW YORK 10292 (I.R.S. Employer
incorporation or organization) (212) 778-1000 Identification No.)
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
P. CARTER RISE
GROUP HEAD & MANAGING DIRECTOR OF FINANCIAL SERVICES
PRUDENTIAL SECURITIES INCORPORATED
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10292
(212) 778-1000
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
COPY TO:
PAUL A. JORISSEN, ESQ. FRED ROBUSTELLI, ESQ.
MAYER, BROWN & PLATT FIRST VICE PRESIDENT/
190 SOUTH LASALLE STREET ASSOCIATE GENERAL COUNSEL
CHICAGO, ILLINOIS 60603 PRUDENTIAL SECURITIES INCORPORATED
(312) 782-0600 ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10292
(212) 778-1000
Approximate date of commencement of proposed sale to the public: from
time to time after the effective date of this registration statement as
determined by market conditions.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act of 1933, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum
Title of Securities Amount to be Aggregate Aggregate Amount of
to be Registered Registered Price Per Unit(1) Offering Price(1) Registration Fee
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
asset backed $1,000,000 100% $1,000,000 $264 (1)
securities..............
-------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
INTRODUCTORY NOTE
This registration statement contains:
- a form of prospectus relating to the offering of series of
notes and certificates by the various special purpose finance
companies formed from time to time by the depositor or various
trusts created from time to time by the depositor that are
backed by:
(1) motor vehicles consisting of automobiles, light duty
trucks, sport utility vehicles, motorcycles and
recreational vehicles (including motor homes and van
campers) ("Prospectus Version 1");
(2) financed assets consisting of motor vehicles,
recreational sport and power boats (including any
boat motors and accompanying trailers) and personal
watercraft ("Prospectus Version 2") or
(3) equipment ("Prospectus Version 3");
- a form of prospectus supplement relating to offerings of
particular series of certificates using the grantor trust
structure described in the prospectus that are backed by
(1) motor vehicles ("Prospectus Supplement Version 1A");
(2) financed assets ("Prospectus Supplement
Version 2A") or
(3) equipment ("Prospectus Supplement Version 3A");
- a form of prospectus supplement relating to offerings of
particular series of notes and certificates using the owner
trust structure described in the prospectus that are backed by
(1) motor vehicles ("Prospectus Supplement Version 1B");
(2) financed assets ("Prospectus Supplement
Version 2B") or
(3) equipment ("Prospectus Supplement Version 3B");
<PAGE>
The information in this prospectus supplement and the accompanying prospectus
is not complete and may be changed. We may not sell these securities until
the registration statement filed with the Securities and Exchange Commission
is effective. This prospectus supplement and the accompanying prospectus are
not an offer to sell these securities and they are not soliciting an offer to
buy these securities in any state where the offer or sale is not permitted.
<PAGE>
[PROSPECTUS SUPPLEMENT VERSION 1A]
[Form of Grantor Trust Prospectus Supplement]
Subject to completion, dated __________ __, _____
Prospectus Supplement dated [_______ __, 20__] (to prospectus
dated _____ __, 20__)
$_____________
[______________________]
ISSUER
PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION
DEPOSITOR
The trust will issue [__] classes of asset backed certificates that are
offered under this prospectus supplement.
Credit Enhancement for the certificates is provided by:
[Description of applicable credit enhancement]
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-[__] IN THIS
PROSPECTUS SUPPLEMENT AND ON PAGE [__] IN THE PROSPECTUS.
[[________] will offer [__] classes of certificates to the public [at varying
prices to be determined at the time of sale].
<TABLE>
<CAPTION>
Final
Interest Rate Price to Underwriting Proceeds to Scheduled
Class Principal Amount (per annum) Public(1) Discount(2) Trust(3) Maturity Date
----- ---------------- ------------- --------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
(1) Total price to public = [$___________________].
(2) Total underwriting discount =[$__________________].
(3) Total proceeds to Trust = [$_____________________], before deducting
expenses estimated to be [$__________________].
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THESE SECURITIES OR DETERMINED THAT THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
[UNDERWRITER]
<PAGE>
TABLE OF CONTENTS
TABLE OF CONTENTS
<TABLE>
<S> <C>
Overview of the Information in this Prospectus Supplement and the Prospectus............ iii
Summary of Transaction Parties........................................................... iv
Summary of the Certificates.............................................................. v
Prospectus Supplement Summary............................................................S-1
Depositor.............................................................................S-1
Issuer................................................................................S-1
Servicer..............................................................................S-1
Trustee...............................................................................S-1
Seller(s).............................................................................S-1
Originator(s).........................................................................S-1
Certificates..........................................................................S-1
Closing Date..........................................................................S-1
Payment Dates.........................................................................S-1
Cut-off Date(s).......................................................................S-1
Collection Period.....................................................................S-1
Closing Date..........................................................................S-2
Interest Payments.....................................................................S-2
Principal Payments....................................................................S-2
[Interest Only Certificates]..........................................................S-3
[Principal-Only Certificates].........................................................S-3
[Accrual Certificates]................................................................S-3
Final Scheduled Maturity Date.........................................................S-4
Optional Redemption...................................................................S-4
Mandatory Termination.................................................................S-4
Trust Assets..........................................................................S-4
The [Initial] Receivables.............................................................S-5
[Pre-Funding].........................................................................S-6
[Interest Reserve Account]............................................................S-7
[Residual Payment Certificates].......................................................S-7
[Credit Enhancement]..................................................................S-7
[Cross Collateralization].............................................................S-7
Distributions.........................................................................S-7
Available Funds.......................................................................S-7
Application of Payments...............................................................S-8
Federal Tax Considerations............................................................S-8
ERISA Considerations..................................................................S-9
Ratings...............................................................................S-9
RISK FACTORS.............................................................................S-10
Payments will be made only from the limited assets of the trust.......................S-10
You bear reinvestment risk and payment delay risk due to repurchase...................S-10
[Variations in regional economic conditions may cause payment
reductions or delays.]............................................................S-11
[Possible prepayments as a result of pre-funding period.].............................S-11
[Changes in pool characteristics as a result of pre-funding period.]..................S-11
[Subordination of the class [__] certificates provides only limited protection
against losses.]..................................................................S-12
[Additional risk factors applicable for a specific series.]...........................S-12
The Trust................................................................................S-13
The Trustee...........................................................................S-13
[Use of Proceeds]........................................................................S-13
The Receivables..........................................................................S-13
Eligibility Criteria..................................................................S-13
The Seller(s)............................................................................S-14
The Originator(s)........................................................................S-14
The Servicer.............................................................................S-14
Delinquency and Loss Experience.......................................................S-15
Servicing and Collections.............................................................S-15
Weighted Average Life of the Certificates................................................S-15
Description of the Certificates...................................................S-16
Description of the Certificates...................................................S-16
Payments..........................................................................S-16
[Pre-funding Account].............................................................S-18
Optional Redemption...............................................................S-18
Description of the Transaction Documents.................................................S-19
[Description of Originator/Seller Representations and Warranties].................S-19
[Sale and] Assignment of [Initial] Receivables [and Additional Receivables].......S-19
i
<PAGE>
Accounts..........................................................................S-20
Servicing Compensation and Payment of Expenses....................................S-20
Available Funds...................................................................S-20
Application of Payments...........................................................S-21
[Subordination of Class [ ] Certificates]........................................S-21
Legal Aspects of the Receivables.........................................................S-21
Federal Income Tax Considerations........................................................S-21
Tax Characterization of the Trust.................................................S-22
Stripped Bonds and Stripped Coupons...............................................S-25
Tax Consequences to Foreign Certificateholders....................................S-27
State Tax Consequences...................................................................S-29
Certain ERISA Considerations.............................................................S-29
Ratings..................................................................................S-32
Underwriting.............................................................................S-33
Legal Opinions...........................................................................S-34
</TABLE>
ii
<PAGE>
OVERVIEW OF THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS
We provide information to you about the certificates in two separate
documents that progressively provide more detail:
- this prospectus supplement, which describes the
specific terms of your series of certificates; and
- the accompanying prospectus, which provides general
information, some of which may not apply to your
series of certificates.
THE PROSPECTUS SUPPLEMENT AND THE PROSPECTUS, TOGETHER, PROVIDE A
DESCRIPTION OF THE MATERIAL TERMS OF YOUR CERTIFICATES. YOU SHOULD RELY ON
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT TO THE EXTENT IT PROVIDES A
MORE SPECIFIC DESCRIPTION OF YOUR CERTIFICATES.
You should rely only on the information provided in this prospectus
supplement and the accompanying prospectus, including the information
incorporated by reference. You can request information incorporated by
reference from Prudential Securities Secured Financing Corporation, One New
York Plaza, New York, New York 10292, Attention: P. Carter Rise. See "Where
You Can Find More Information" and "Incorporation of Information by
Reference" in the prospectus. We have not authorized anyone to provide you
with different information. We are not offering the certificates in any
state where the offer is not permitted.
We include cross-references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
further related discussions. The table of contents in this prospectus
supplement and the table of contents included in the accompanying prospectus
provide the pages on which these captions are located.
iii
<PAGE>
Summary of Transaction Parties
[SCHEMATIC DRAWING DESCRIBING TRANSACTION]
This chart provides only a simplified overview of the relations
between the key parties to the transaction. Refer to this prospectus
supplement and the prospectus for a further description.
iv
<PAGE>
SUMMARY OF THE CERTIFICATES
<TABLE>
<CAPTION>
[Class __] [Class ___] [Class ___] [Class ___]*
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Initial Principal
Balance:
--------------------------------------------------------------------------------------------------------------------
% of Total: [ %] [ %] [ %] [ %]
--------------------------------------------------------------------------------------------------------------------
Anticipated
Ratings:
[_______]
[_______]
[_______]
--------------------------------------------------------------------------------------------------------------------
Interest Rate:
--------------------------------------------------------------------------------------------------------------------
Interest Accrual
Method:
--------------------------------------------------------------------------------------------------------------------
Payment Dates: [___] day of each [________], or if [__] day is not a business day, then the
next business day
--------------------------------------------------------------------------------------------------------------------
Final Scheduled
Payment Date:**
--------------------------------------------------------------------------------------------------------------------
Clearance/ [DTC/Euroclear/Clearstream- [DTC/Euroclear/
Settlement: Luxembourg] Clearstream-
Luxembourg]
--------------------------------------------------------------------------------------------------------------------
Cut-Off Date: Close of business,[_____________]
--------------------------------------------------------------------------------------------------------------------
Closing Date: On or about [_______ ___, 20__]
--------------------------------------------------------------------------------------------------------------------
Final Maturity The payment date [_______]
Date:
--------------------------------------------------------------------------------------------------------------------
</TABLE>
* We are providing information for the non-offered certificates solely to
assist the reader's understanding of the certificates offered by this
prospectus supplement.
** Assuming that there are no prepayments on the trust assets, that no party
exercises its right of optional redemption of the certificates and the
other modeling assumptions contained in "Prepayment and Yield
Considerations" occur.
v
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights selected information from this document. To
understand all of the terms of the offering of the certificates, you should
carefully read this entire document and the accompanying prospectus
supplement.
THE TRANSACTION PARTIES
DEPOSITOR.............. Prudential Securities Secured Financing Corporation,
formerly known as P-B Secured Financing Corporation,
a Delaware corporation, a wholly-owned limited
purpose finance subsidiary of Prudential Securities
Incorporated.
ISSUER................. [______________].
SERVICER............... [______________].
TRUSTEE................ [______________].
SELLER(S).............. [______________].
ORIGINATOR(S).......... [______________].
SUMMARY OF TERMS
CERTIFICATES.......... The trust will issue the asset backed certificates
described in "Summary of the Certificates."
[The issuer is offering the class [__] certificates
pursuant to this prospectus supplement and
prospectus. The issuer is not offering the class
[__] certificates to the public.] The certificates
will represent factional undivided interests in the
trust and will be issued pursuant to the pooling and
servicing agreement.
CLOSING DATE.......... [__________ __, 20__].
PAYMENT DATES......... The [__] day of each [_____], beginning in
[________ __, 20__]. If the [__] day is not a
business day, then the payment date will be the next
business day.
CUT-OFF DATE(S)....... [__________ __, 20__].
S-1
<PAGE>
COLLECTION PERIOD..... [begins on the [__] day of each [month] [quarter]
and runs until and includes the [__] day of the next
[month][quarter]. However, the first and last
collection periods are as follows:
- FIRST: period from and including the cut-off
date to and including [__] days prior to the first
payment date
- LAST: period from but excluding the last day
of the collection period before the termination
date to and including the termination date]
CLOSING DATE.......... On or about [__________ __, 20__].
INTEREST PAYMENTS..... The interest rates for each class of certificates is
described in "Summary of the Certificates."
[Insert mechanics applicable to any floating rate
certificates]. The trustee will calculate interest on
the certificates on the basis of [a 360-day year of
twelve 30-day months]. On the first payment date, the
interest payable to certificateholders will be based
upon the actual number of days elapsed from and
including the closing date to but excluding the first
payment date [and assuming a 30-day month].
PRINCIPAL PAYMENTS.... The trustee will pay principal on the certificates on
each payment date in an amount equal to the
certificateholder's percentage of the principal
payment amount.
The principal payment amount for a payment date
generally will equal the sum of the following amounts,
without duplication:
- collections on the receivables, other than
charged-off receivables) during the preceding
calendar month allocable to principal including
full and partial prepayments;
- the portion of the purchase amount deposited
in the collection account allocable to
principal of each receivable that was
repurchased by [the originator] [the seller]
[the servicer] as of the last day of the
preceding calendar month due to a breach of
certain
S-2
<PAGE>
representations or warranties by the originator
or breach of certain covenants by the servicer
relating to that receivable; and
- the principal balance of each receivable that
first became a charged-off receivable during
the preceding calendar month (other than
charged-off receivable for which substitutions
occur); and
- the aggregate amount of the reduction in the
principal balances of auto loans resulting
from court orders during the preceding
calendar month in obligor insolvency
proceedings which reduce the amount owed on
those obligors' auto loans.
The certificateholder percentage of the
principal payment amount for any payment will
be equal to [insert mechanics specific to
building and/or maintaining any form of credit
enhancement].
[[See "Description of the Certificates--
Payments"] for additional detail and for special
priority rules that would apply in a default
situation.]
[Description of priority of payments among
various classes].
[INTEREST ONLY
CERTIFICATES]........... [The class [___] certificates are interest only
certificates. This means that the trustee will
distribute interest, based upon a notional
amount, but will not distribute principal on
these certificates.]
[PRINCIPAL-ONLY
CERTIFICATES]........... [The class [___] certificates are principal only
certificates. This means that the trustee will
not distribute interest on these certificates.
The trustee will distribute a portion of the
principal payment amount to the investors of
these certificates.]
[ACCRUAL CERTIFICATES].. [The class [___] certificates are accrual
certificates. Interest accrued on this class of
certificates will be added to its principal
balance rather than distributed to the holders of
S-3
<PAGE>
these certificates until [insert mechanics
describing when interest accrual ceases.]]
FINAL SCHEDULED
MATURITY DATE............. The outstanding principal amount, if any, of
the certificates will be payable on their
final scheduled maturity dates as described
in the "Summary of the Certificates" table.
OPTIONAL REDEMPTION...... [The seller] [the depositor] [the servicer] may
purchase all the receivables when the total
outstanding principal amount of the receivables
declines to less than [___%] of the total
principal balance of the receivables as of the
cut-off date.
The purchase price for the certificates will be
equal to the remaining unpaid principal amount of
the receivables plus accrued interest through the
payment date on which the redemption occurs. If
[the seller] [the depositor] [the servicer]
exercises this option, the outstanding principal
balance of the certificates will be paid in full
with accrued interest.]
MANDATORY TERMINATION.... [The trust will have a funding period during which
it will purchase additional receivables. On the
payment date on or after the last day of the
funding period, any funds remaining in the trust's
pre-funding account after the purchase of
receivables on that payment date will be applied
to partially redeem the certificates then
outstanding.]
TRUST ASSETS............. The primary assets of the trust will be
[participation interests in] [security interests
in] a pool of motor vehicle [retail installment
contracts] [note and security agreements executed
by retail purchasers in favor of motor vehicle
lenders] used to finance the purchase of new and
used automobiles, light duty trucks [and sport
utility vehicles. We refer to these [contracts]
[note and security agreements] as "receivables" and
to the persons who financed their purchases with
these receivables as "obligors." [__________] is
the originator of the receivables. The receivables
in the trust will be transferred by [the originator
to the seller, by the seller to the depositor, and
then by the depositor to the trust.] The trust will
grant a security
S-4
<PAGE>
interest in the receivables and the other trust
property to the trustee for the benefit of the
certificateholders. The trust assets will also
include the following:
- monies received under the [initial]
receivables after a cutoff date of
[______ __, 20__] [and under
additional receivables sold to the trust
after a later cutoff date];
- amounts held in bank accounts established
for the trust [including amounts on deposit
in the collection account, pre-funding
account, reserve account and yield
supplement account];
- security interests in the automobiles,
light duty trucks [and sport utility
vehicles] financed by the receivables;
- any proceeds from insurance policies
covering financed vehicles or obligors on
those vehicles;
- any rights [_______] has against dealers
from which it purchased receivables; [and]
- rights of the seller under its purchase
agreement with [_____] and rights of the
depositor under its receivables
acquisition agreement with the seller
[; and]
- [insert description of any other credit
enhancement applicable to a particular
series].
THE [INITIAL] RECEIVABLES.. On the closing date, the trust will acquire [a
participation interest in] [a security interest
in] motor vehicle retail installment contracts or
note and security agreements with an aggregate
principal balance of [$__________]as of the
[initial] cutoff date of [______ __, 20__]. As of
the [initial] cutoff date:
- the weighted average annual percentage
rate of the initial receivables was
approximately [___%];
S-5
<PAGE>
- the weighted average remaining term to
scheduled maturity of the initial
receivables was approximately [__] months;
- the weighted average original term to
scheduled maturity of the initial
receivables was approximately [__] months;
- approximately [__%] of the receivables by
aggregate principal balance were secured
by used vehicles; and
- [insert description of additional pool
criteria applicable for a particular
series.]
No [initial] receivable has a scheduled maturity
later than [________ __, 20__], which is [___]
months before the final scheduled payment date
of the certificates.
[PRE-FUNDING]............. [In addition to the initial receivables, the trust
will purchase additional receivables during a
funding period, not to exceed 90 days, beginning on
the closing date and ending not later than the
close of business on [_______ __, 20__].]
[The trust will pay the purchase price for
additional receivables with [funds on deposit in]
[investments held in] a pre-funding account
established for the trust. The seller will deposit]
[[$________]] [insert description of investments]
into the pre-funding account on the closing date.
[In addition, during the period beginning on the
closing date and ending on __________, the trust
will deposit [all/a portion of] the payments
collected on the receivables in the pre-funding
account, rather than pay such amounts to
certificateholders. These additional amounts will
also be used to purchase additional receivables
during [the same period]. The trust expects to
purchase additional receivables with an aggregate
principal balance approximately equal to the amount
deposited in the pre-funding account. Prior to
being used to purchase receivables, funds on
deposit in the pre-funding account will be invested
from time to time in highly rated short-term
securities.]
S-6
<PAGE>
[The funding period will end earlier than
[_______ __, ____] if the balance in the
pre-funding account is reduced to less than
[$____].] [The funding period will also terminate
early if specified servicer defaults or events of
default under the pooling and servicing agreement
occur. Any balance remaining in the pre-funding
account at the end of the funding period will be
applied to partially redeem the certificates then
outstanding.]
[INTEREST RESERVE
ACCOUNT]................. [We anticipate that the average interest rate
earned by the trust on investment of funds in the
pre-funding account will be less than the interest
rate on the certificates. To provide a source of
funds to cover any shortfall resulting from this
difference, we will [deposit [$_______] into a
special interest reserve account of the trust]
[fund a special interest reserve account of the
trust from collections received on the receivables].
On each payment date during the pre-funding period,
money from the interest reserve account will be
used to make up for this interest shortfall.]
[RESIDUAL PAYMENT
CERTIFICATES............. [The issuer may issue one or more new series of
certificates backed by some or all of the "equity
interest" or rights to the trust assets that are
in excess of the certificateholders rights in
those assets.]
[CREDIT ENHANCEMENT]..... [Description of any credit enhancement applicable
for a particular series.]
[CROSS COLLATERALIZATION].. [Description of any cross collateralization between
series.]
DISTRIBUTIONS............ The servicer, or the trustee on behalf of and at
the direction of the servicer, will establish and
maintain a collection account in the name of the
trustee into which all payment made on the
receivables will be deposited and held pending
distribution to certificateholders.
AVAILABLE FUNDS........... The available funds for a payment date will be the
sum of the following amounts with respect to the
preceding calendar month:
- all principal and interest payments on the
receivables;
S-7
<PAGE>
- all proceeds received during the preceding
calendar month, including actual recovery
amounts, with respect to receivables that
became charged-off receivables during the
preceding calendar month, net of the
reasonable and customary out-of-pocket
expenses incurred by the servicer in
connection with collection, enforcement or
liquidation and any amounts required by
law to be remitted to the obligor on the
charged-off receivable;
- proceeds from actual recovery amounts on
charged-off receivables;
- earnings on investments of funds in the
collection account [, pre-funding account,
reserve account, interest reserve account
and yield supplement account] during the
preceding calendar month;
- the purchase amount deposited in the
collection account for each receivable
that was repurchased by [the originator]
[the seller] [the servicer] and]
- [insert any other amounts applicable for
a particular series].
APPLICATION OF PAYMENTS... On each payment date, the trustee will distribute
funds on deposit in the collection account
relating to the prior collection period in the
priority indicated:
[insert description of the order and priority of
payments applicable for a series]
FEDERAL TAX
CONSIDERATIONS............ Mayer, Brown & Platt, special Federal tax counsel
to [________] ("Federal Tax Counsel"), is of the
opinion that for Federal income tax purposes the
trust will be treated as a grantor trust under
subpart E, Part I of subchapter J of the Code, and
will not be subject to federal income tax.
Accordingly, the certificateholders will be treated
as owners of the receivables for federal income tax
purposes. See "Federal Income Tax Considerations"
for a summary
S-8
<PAGE>
of material federal income tax consequences of
the purchaser, ownership and disposition of the
certificates.
ERISA CONSIDERATIONS...... Subject to the restrictions and considerations
discussed under "ERISA Considerations," the class
[__] certificates may be eligible for purchase by
employee benefit plans.
The class [__] certificates and any beneficial
interest in the class [__] certificates may not
be acquired with the assets of an employee benefit
plan subject to the Employee Retirement Income
Security Act of 1974, as amended, or with the
assets of an individual retirement account or any
other "plan" described by Section 4975 of the
Internal Revenue Code of 1986, as amended, except
as permitted under a prohibited transaction
exemption available only to certain insurance
companies using general account assets.
RATINGS................... It is a condition to the issuance of the
certificates that the class [_____]
certificates be rated at least ["____"] by
[______] and the class [_____] certificates be
rated at least ["____"] by [_____]. The ratings of
the certificates address the likelihood of the
timely payment of interest on and the ultimate
payment of principal of the certificates under
their terms. These ratings are not a recommendation
to buy, sell or hold the certificates. We cannot
assure you that a rating will not be lowered or
withdrawn by a rating agency if circumstances so
warrant.
S-9
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether
to purchase the certificates.
PAYMENTS WILL BE MADE The trust does not have any significant assets
ONLY FROM THE LIMITED or sources of funds other than the receivables,
ASSETS OF THE TRUST amounts on deposit in the trust accounts [and]
[insert description of any credit enhancement].
You must rely on payments on the receivables,
amounts, if any, on deposit in the trust
accounts [and] [insert description of credit
enhancement] for repayment of the certificates.
YOU BEAR REINVESTMENT The receivables may be prepaid at any time, in
RISK AND PAYMENT DELAY full or in part, voluntarily or as a result of
RISK DUE TO REPURCHASE defaults, casualties to the related vehicles,
death of an obligor or other reasons. [The
originator] [the seller] [the servicer] may be
required to repurchase one or more receivables
from the trust if it breaches specified
representations or covenants relating to the
receivables described in ["Description of the
Transaction Documents--Sale and Assignment of
[Initial] Receivables [and Additional
Receivables]."] [The servicer] [the seller] [the
depositor]] also will have the right to purchase
all remaining receivables from the trust pursuant
to a clean-up call described in ["Summary --
Optional Redemption" and "Description of the
Certificates--Optional Redemption."] Each
prepayment, repurchase or purchase will shorten
the average life of the certificates. [The class
[__]certificates will be extremely sensitive to
the rate and timing of payments, including
prepayments, on the receivables. If you
purchase a class [__] certificate at a premium,
under some prepayment scenarios, you could fail
to recoup your original investment.] [The class
__ certificates will be adversely affected by a
lower than anticipated rate of payment on the
receivables.] [The reinvestment risk to an
investor in the class [__] certificates may be
exacerbated in the event of [an increase in the
rate of payment on the receivables in a
decreasing interest rate environment] [a
decrease in the rate of payment on the
receivables in an increasing rate environment.]
Prepayment rates may be influenced by a variety
of factors and cannot be predicted with any
assurance. You will bear
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any reinvestment risks resulting from a faster
rate of prepayment or repurchase of receivables.
Any time your principal is repaid to you at a
time when you did not expect to receive it, you
may not be able to reinvest your funds at the
same or a higher rate of return than the
interest rate on your certificates.
VARIATIONS IN REGIONAL As of the [initial] cutoff date, obligors
ECONOMIC CONDITIONS located in _______, ________ and ________,
MAY CAUSE PAYMENT respectively, comprised [__%], [__%] and [__%]of
REDUCTIONS OR DELAYS the [initial] receivables by aggregate principal
balance. Adverse economic conditions or other
factors particularly affecting these states may
affect the delinquency, loan loss and
repossession experience of the receivables.
UNENFORCEABILITY OF THE When dealers or [________] first originate
TRUST'S SECURITY INTERESTS receivables, [_______'s] security interests in
IN FINANCED VEHICLES the financed vehicles are noted on the
BECAUSE CERTIFICATES OF certificates of title for the vehicles.
TITLE WILL NOT BE AMENDED [_______] will transfer and assign security
MAY CAUSE PAYMENT interests in the financed vehicles to the
REDUCTIONS OR DELAYS seller. The seller, in turn, will transfer
and assign those security interests to the
depositor, who will transfer and assign those
security interests to the trust. The trust,
in turn, will assign those security interests
to the trustee for the benefit of the
certificateholders. In most states, these
assignments are effective assignments of a
security interest, and the assignee succeeds
to the assignor's rights as secured party.
However, due to the administrative burden and
expense, the certificates of title for the
financed vehicles will not be marked, amended
or reissued to identify the seller, the
depositor, the trust or the trustee as the
secured party. In the absence of this action,
the trustee may not have a perfected security
interest in the financed vehicles securing the
receivables. For a more complete description
of perfection issues, see ["Legal Aspects of
the Receivables--Security Interests in
Vehicles" in the prospectus.
[POSSIBLE PREPAYMENTS AS [If the principal amount of eligible receivables
A RESULT OF FUNDING PERIOD] purchased or directly originated by [________]
during the trust's funding period is less than
the amount [accumulated from collections and]
deposited in the trust's pre-funding account, we
will not have sufficient receivables to sell to
the trust during the funding period. This would
result in a
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prepayment of principal to the
certificateholders as described below.
If the aggregate principal balance of
receivables we sell to the trust during the
funding period is less than the amount
[accumulated from collections and] deposited
in the trust's pre-funding account, the excess
will be applied at the end of the pre-funding
period to partially prepay the certificates.
Any prepayment under these circumstances will
shorten the weighted average life of the
certificates to an extent that we cannot
predict with assurance, since we cannot
predict the amount of any prepayment with
assurance.]
[CHANGES IN POOL [The only required characteristics of the
CHARACTERISTICS AS A RESULT additional receivables transferred to the trust
OF PRE-FUNDING PERIOD] during the pre-funding period will be the
eligibility criteria specified in the pooling
and servicing agreement. These additional
receivables may be originated using credit
criteria different from those that were applied
to the initial receivables and may be of a
different credit quality and seasoning. As a
result, following the transfer of additional
receivables to the trust, the characteristics
of the entire receivables pool may vary from
those of the initial receivables described in
["The Receivables"]. Since the weighted average
life of the certificates will be influenced by
the rate at which the principal balances of the
receivables are paid, some of these variations
may affect the weighted average life of the
certificates.]
[SUBORDINATION OF THE CLASS [The subordination of the class [__]certificates
[__] CERTIFICATES PROVIDES is intended to increase the likelihood of
ONLY LIMITED PROTECTION payments on the class [__] certificates. The
AGAINST LOSSES] amount of credit enhancement provided through
the subordination of the class [__] certificates
to the class [__] certificates, however, is
limited and could be depleted prior to the
payment in full of the class [__] certificates.
If the principal amount of the class [__]
certificates is reduced to zero, you may suffer
losses on your certificates.]
LIMITATIONS ON INTEREST Generally, under the terms of the Soldiers' and
PAYMENTS AND FORECLOSURES Sailors' Civil Relief Act of 1940, as amended,
or similar state legislation, an obligor who
enters military service after the origination of
an auto loan may not be charged interest,
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including fees and charges, above an annual rate
of 6% during the period of the obligor's active
duty status unless a court orders otherwise upon
application of the lender. This includes any
obligor who is a member of the National Guard or
is in reserve status at the time of the
origination of the auto loan and is later
called to active duty. It is possible that for
an indeterminate period of time, the servicer
may be unable to collect full amounts of interest
on some of the auto loans. In addition, the
Soldiers' and Sailors' Civil Relief Act of 1940
imposes limitations that would impair the
ability of the servicer to foreclose on an
affected auto loan during an obligor's
period of active duty status. Thus, in the
event that an auto loan goes into default,
there may be delays and losses occasioned by
the inability of the servicer to realize upon
the vehicle in a timely fashion.
[ADDITIONAL RISK FACTORS
APPLICABLE FOR A SPECIFIC
SERIES]
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THE TRUST
The depositor will establish the trust by selling and assigning the
trust assets to the trustee in exchange for the certificates. Each
certificate represents a fractional undivided ownership interest in the
trust. After its formation, the trust will not engage in any activity other
than acquiring, holding and managing the receivables and the other assets of
the trust and proceeds therefrom and issuing the certificates and making
payments thereon.
The trust has no directors, officers or employees and is not
involved in any legal proceedings.
THE TRUSTEE
[___________] is the trustee under the pooling and servicing
agreement. It is a [__________] corporation and its principal offices are
located at [________________]. The trustee's duties in connection with the
certificates are limited solely to its express obligations under the pooling
and servicing agreement.
[USE OF PROCEEDS]
[describe any uses not specified in base prospectus]
THE RECEIVABLES
[_________] [purchased or originated] [was granted a security interest
in] the receivables in the ordinary course of its business. The pool of
receivables will consist of [participation interests in] [security interests in]
[initial] receivables purchased by the trust as of the closing date [and
[participation interests in] [security interests in] any additional receivables
purchased during the trust's funding period.] [[________] has selected
receivables from its portfolio to include in the pool of [initial]
receivables [and will select receivables from its portfolio for inclusion in
the pool of additional receivables] using the following eligibility criteria
described below.]
ELIGIBILITY CRITERIA
Eligibility criteria include that each receivable:
- has no payment 10% or more of which was more than
29 days past due;
- has an annual percentage interest rate or APR of
not less than [__%] and not more than [__%];
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- [provides for level monthly payments that fully
amortize the amount financed over an original
term to scheduled maturity of at least [__]
months and not more than [__] months; provided that
payments are made on the applicable due dates and
except that the final payment may differ;
- has an outstanding principal balance of not less
than [$_____] and not more than [$_____];
- has a remaining term to scheduled maturity of at
least [__] months and not more than [__] months;
[and]
- is either a rule of 78s receivable, fixed value
receivable, simple interest receivable or actuarial
receivable[; and]
- [insert any other criteria applicable for a
particular series].
[In addition, the seller will represent and warrant, among other
things, that, after giving effect to each transfer of additional receivables,
the receivables in the trust will meet the following criteria:]
[insert criteria applicable to pool after transfer of
additional receivables]
The [initial] receivables were originated on or before
[________ __, 20__.] The composition of the pool of receivables as of the
closing date will not deviate from the composition of the pool of receivables
as of the [initial] cut-off date. The seller did not [and will not] utilize
any selection procedures it believed would be adverse to the
certificateholders in selecting the receivables.
Please refer to the tables in Appendix A which set forth information
regarding the composition and characteristics of the receivables pool as of
the [initial] cutoff date.
THE SELLER(S)
[Insert description of each seller(s).]
THE ORIGINATOR(S)
[Insert description of each originator(s) and its underwriting
procedures and criteria.]
THE SERVICER
[Insert description of the servicer.]
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DELINQUENCY AND LOSS EXPERIENCE
[Insert description of servicer's loss and delinquency experience
including loss and delinquency tables.]
SERVICING AND COLLECTIONS
[Insert description of servicer's servicing and collection procedures
and any commingling rights, including specific percentage of securityholders
required to terminate servicer upon servicer default.]
WEIGHTED AVERAGE LIFE OF THE CERTIFICATES
The rate of payment of principal of each class of certificates
depends primarily on the rate of payment, including prepayments, of the
principal balance of the receivables. As a result, the final distribution on
the certificates could occur significantly earlier than the final scheduled
payment dates for each class certificates. We expect that the final
distribution on the certificates will occur on or prior to the applicable
final scheduled payment date for each class. However, if sufficient funds
are not available to pay the certificates in full on or prior to the
applicable final scheduled payment date, the final distribution on the
certificates could occur later than expected.
The weighted average life of the certificates of any series will
generally be influenced by the rate at which the principal balances of the
related receivables are paid, which payment may be in the form of scheduled
amortization or prepayments. All of the receivables are repayable at any
time without penalty, or with only a nominal penalty, to the obligor. The
rate of prepayment of automotive receivables is influenced by a variety of
economic, social and other factors, including decreases in the general level
of prevailing interest rates, the desire of the obligor to purchase a new
vehicle and the fact that an obligor generally may not sell or transfer the
financed asset securing a receivable unless the receivable is paid in full.
In addition, under certain circumstances, [the originator] [the seller]
[the servicer] will be obligated to repurchase receivables from the trust
pursuant to the pooling and servicing agreement as a result of breaches of
representations and warranties. You should consider, in the case of
certificates purchased at a discount, the risk that a slower than anticipated
rate of principal payments on the receivables could result in an actual yield
that is less than the anticipated yield. In the case of certificates
purchased at a premium, the risk that a faster than anticipated rate of
principal payments on the receivables could result in an actual yield that is
less than the anticipated yield.
No prediction can be made as to the rate of prepayment on the
receivables. We are not aware of any publicly available industry statistics
for the entire industry on an aggregate basis that set forth principal
prepayment experience for receivables similar to the receivables over an
extended period of time.
In light of the above considerations, we cannot assure you as to the
amount of principal distributions to be made on the certificates on each
payment date, since the amount will depend,
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in part, on the amount of principal collected during the applicable
collection period. Any reinvestment risks resulting from a faster or slower
incidence of prepayment of receivables will be borne entirely by the
certificateholders.
[Description of prepayment speed assumption and modeling assumptions,
if any, applicable for a particular series.]
DESCRIPTION OF THE CERTIFICATES
DESCRIPTION OF THE CERTIFICATES
The trustee will issue the certificates pursuant to the pooling and
servicing agreement. The certificates initially will be represented by
certificates registered in the name of Cede & Co. ("CEDE") as the nominee of
The Depository Trust Company ("DTC"), and will only be available in the form
of book-entries on the records of DTC and its participating members. The
certificates will be issued in minimum denominations of [$_____] and integral
multiples of [$_____], except that one certificate of each class may be
issued in another denomination. All references to "holders" or
"certificateholders" and to authorized denominations, shall reflect the
rights of beneficial owners of the certificates or "certificate owners."
PAYMENTS
The certificates will bear interest at the [fixed] [floating] rates
described in "Summary of the Certificates." [Insert description of any floating
rate mechanics applicable for a particular series.] The certificates constitute
[fixed-income securities, strip securities and accrual securities] as described
in ["Prospectus Summary--Fixed-Income Securities, --Strip Securities and
--Accrual Securities" in the prospectus]. The trustee will distribute payments
of interest to certificateholders [monthly] [quarterly] on each payment date
commencing [________ __, 20__]. Payment dates will occur on the [__] day of
each [month] [quarter] or, if that day is not a business day, the next
succeeding business day. A business day is any day other than a Saturday,
Sunday or any other day on which banks in [___________] are authorized or
obligated by law or order to be closed. The trustee will calculate interest on
the certificates on the basis of [a 360-day year consisting of twelve
30-day months].
On each determination date, the trustee will determine the amount in
the collection account allocable to interest and the amount allocable to
principal. The determination date will be the [__] day of the calendar [month]
[quarter] during which any payment date occurs, or if that day is not a
business day, the next business day.
On each payment date, certificateholders and certificateholders as of
the related record date will be entitled to receive [thirty] days interest at
the interest rate on their certificates on the outstanding principal balance of
their certificates, as applicable, as of the close of the preceding payment
date. Nevertheless, on the first payment date, the interest payable to
certificateholders will be an amount equal to the product of:
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- the interest rate on the certificate;
- the initial principal amount of the certificate; and
- a fraction:
- the numerator of which is the number of days (assuming a
30-day month) from and including the closing date to but
excluding the first payment date; and
- the denominator of which is 360.
Interest on the certificates which is due but not paid on any
payment date will be payable on the next payment date together with, to the
extent permitted by law, interest on the unpaid amount at the interest rate
for that class of certificates.
The trustee will distribute payments of principal to
certificateholders [monthly][quarterly] on each payment date commencing
[________ __, 20__]. The amount of principal available for distribution will
generally equal the principal payment amount.
The actual date on which the aggregate outstanding principal amount
of any class of certificates is paid may be earlier than the final scheduled
payment dates for that class of certificates. See "Weighted Average Life of
the Certificates."
On each payment date, all amounts on deposit in the collection
account, other than investment earnings, will be generally paid in the
following order of priority:
(1) to servicer, the servicing fee for the related collection
period and all accrued and unpaid servicing fees for
prior collection periods;
(2) to trustee, all accrued and unpaid fees and expenses accrued
and owing to the trustee;
(3) to the certificate distribution account for distribution to
the certificateholders, on a pro rata basis, accrued and
unpaid interest for that payment date;
(4) to the certificate distribution account for distribution to
the certificateholders, on a pro rata basis, the
certificateholders principal distributable amount; and
(5) to the seller or servicer, any remaining amounts.
[Insert description of any special priority rules that would apply in
a default situation.]
[PRE-FUNDING ACCOUNT]
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[On the Closing Date, approximately $____________ of initial
receivables will be transferred by the seller to the depositor and by the
depositor to the trust and approximately $______________ will be [deposited]
[accumulated from collections on the receivables for deposit into] the
pre-funding account. If the principal amount of eligible receivables
originated by [__________]during the funding period is less than the
pre-funded amount, the seller will have insufficient receivables to transfer
to the depositor and the depositor will have insufficient receivables to
transfer to the trust on the subsequent transfer dates, thereby resulting in
a prepayment of principal to the certificateholders.]
[To the extent that the pre-funded amount has not been fully applied
to the purchase of subsequent receivables by the trust during the funding
period, the certificateholders will receive a prepayment of principal, on the
payment date on or immediately following the last day of the funding period.
The prepayment amount will be equal to each certificateholder's pro rata share
(based on the current principal balance of each class of certificates) of any
remaining pre-funded amount following the purchase of any subsequent
receivables on that payment date. We anticipate that the principal amount of
subsequent receivables sold to the trust will not be exactly equal to the
[original pre-funded amount] and that therefore there will be at least a
nominal amount of principal prepaid to the certificateholders.]
[If the amount of the pre-funding account will exceed 25% of the
aggregate proceeds from the offering, including the specific investments in
which the pre-funding account will be invested, then the depositor will specify
the actual investments of the pre-funding account in its periodic reports to be
filed on Form 8-K and Form 10-K.]
OPTIONAL REDEMPTION
The [originator] [seller] [servicer] [depositor] is permitted at its
option to purchase all remaining receivables from the trust. The [originator]
[seller] [servicer] [depositor] may exercise this repurchase option on or
after the last day of any month on or after which the then outstanding
aggregate principal balance of the receivables is less than or equal to ten
percent (10%) of the initial aggregate principal balance of the receivables
as of the closing date at a price equal to the remaining unpaid principal
amount of the receivables as of such last day of the month plus accrued
interest thereon through the payment date on which the redemption will occur.
Exercise of these rights will result in the early retirement of the
certificates. Upon declaration of an optional redemption, the trustee will
give written notice of termination to each certificateholder of record. The
final payment to any certificateholder will be made only upon surrender and
cancellation of that holder's certificate, at the office or agency of the
trustee specified in the notice of termination.
DESCRIPTION OF THE TRANSACTION DOCUMENTS
The following summary describes the material terms of the
transaction documents. The transaction documents include, among others,
[the purchase agreement], the receivables
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transfer agreement and the pooling and servicing agreement [insert other
relevant agreements]. Copies of the transaction documents will be filed with
the Securities and Exchange Commission following the issuance of the
certificates. This summary is qualified in its entirety by reference to the
actual transaction documents.
[DESCRIPTION OF ORIGINATOR/SELLER REPRESENTATIONS AND WARRANTIES]
[Insert description of representations and warranties.]
[SALE AND] ASSIGNMENT OF [INITIAL] RECEIVABLES [AND ADDITIONAL RECEIVABLES]
[The seller originated the receivables.] [The seller acquired the
receivables from the originator under a purchase agreement dated
[_______ __, ____]. On the closing date, the seller will [sell] [pledge]
[participation interests in] [security interests in] the [initial] receivables
to the depositor under the receivables transfer agreement. In turn, the
depositor will [sell] [pledge] [participation interests in] [security interests
in] the [initial] receivables to the trust under the pooling and servicing
agreement. The trust will pledge the [initial] receivables to the trustee for
the benefit of the certificateholders.
[In addition, during the funding period, under the receivables
transfer agreement, the seller will be obligated to sell the depositor, for
sale by the depositor to the trust, additional receivables up to the amount
on deposit in the pre-funding account. We expect that the seller will convey
additional receivables to the depositor on subsequent transfer dates specified
by the seller. The funding period is the period beginning on the closing date
and ending on the earliest to occur of:
- [the date on which the amount in the pre-funding
account is less than [$____];]
- the date on which an event of default or a servicer
termination event occurs under the pooling and
servicing agreement; or
- the close of business on [________ __, 20__].]
[On each subsequent transfer date, the seller will [sell] [pledge]
[participation interests in] [security interests in] the [additional]
receivables to the depositor under a subsequent receivables transfer agreement.
In turn, the depositor will [sell] [pledge] [participation interests in]
[security interests in] the [additional] receivables listed on a schedule
attached to an assignment to the trust.]
[Insert description of additional conditions to transfer of subsequent
receivables]
[Except for the criteria described above, there are no required
characteristics of the additional receivables. Therefore, following the
transfer of additional receivables to the trust,
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the aggregate characteristics of the entire receivable pool may vary from
those of the initial receivables.]
[Although [__________] will continue to service and administer the
receivables under the pooling and servicing agreement, [_________] will deliver
the original documents evidencing each receivable and the certificate of title
for the related financed vehicle to the trustee as custodian for the trust.]
[In order to facilitate servicing and to minimize administrative burden and
expense, the servicer will act as custodian for the receivables.]
[Insert description of actions that will be taken by the related
parties as applicable to perfect either the issuer's or the
certificateholder's security interest in the receivables.]
ACCOUNTS
The servicer, or the trustee on behalf of and at the direction of
the servicer, will establish and maintain the collection account, the
certificate distribution account, [the reserve account,] [the pre-funding
account,] [the interest reserve account] [and the yield supplement account]
in the name of the trustee for the benefit of certificateholders. We refer
to these accounts as the trust accounts. The servicer will forward the
proceeds of payments on the receivables to the trustee for deposit in the
collection account within two business days of its receipt. The trustee
will invest funds on deposit in any trust account in Eligible Investments
selected by [the seller][the depositor] that mature not later than the next
payment date.
[Description of trust account mechanics applicable to a particular
series.]
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The servicing fee rate will be [__%] per annum of the aggregate
principal balance of the receivables as of the opening of business on the
first day of the related collection period. The servicer will also collect
and retain any late fees, non-sufficient funds fees, liquidation fees and
other administrative fees as a supplemental servicing fee for servicing the
receivables. The servicer will allocate payments by or on behalf of obligors
to scheduled payments and late fees and other charges in accordance with its
normal practices and procedures.
AVAILABLE FUNDS
On each payment date, the trustee will apply the available funds in
the collection account to distribute required payments of principal and
interest to certificateholders. See "Summary--Available Funds" for a
description of available funds.
APPLICATION OF PAYMENTS
[Insert description of the priority and right to payment for each
series.]
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[SUBORDINATION OF CLASS [ ] CERTIFICATES]
[The rights of the class [_] certificateholders to receive
distributions on the receivables will be subordinated to the rights of the
class [__] certificateholders in the event of defaults and delinquencies on
the receivables as provided in the pooling and servicing agreement. The
protection afforded to the certificateholders through subordination will be
effected [both] by the preferential right of the class [__]
certificateholders to receive current distributions with respect to the
receivables [and by the establishment of the reserve account]. If on any
payment date there are not enough funds to distribute amounts due to the
class [__] certificateholders, the class [__] certificateholders may receive
a reduced distribution or no distribution at all.]
[The subordination of the class [__] certificates [and the reserve
account] are intended to enhance the likelihood of receipt by the class [__]
certificateholders of the full amount of principal and interest due them and
to decrease the likelihood that these certificateholders will experience
losses. [In addition, the reserve account is intended to enhance the likelihood
of receipt by certificateholders of the full amount of principal and interest
due them and to decrease the likelihood that the certificateholders will
experience losses. However, in certain circumstances, the reserve account
could be depleted. If the amount required to be withdrawn from the reserve
account to cover shortfalls in collections on the receivables exceeds the
amount of available cash in the reserve account, certificateholders could incur
losses or a temporary shortfall in the amounts distributed could result, which
could, in turn, increase the average life of the certificates.]
LEGAL ASPECTS OF THE RECEIVABLES
[Insert discussion of any legal aspects of the receivables relevant to a
particular series.] [See "Legal Aspects of the Receivables" in the prospectus.]
FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes generally the material federal
income tax consequences of the purchase, ownership and disposition of the
certificates and such summary represents the opinion of 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 or the
courts. No ruling on any of the issues discussed below will be sought from
the Internal Revenue Service. The following summary is intended as a
discussion of the possible effects of certain federal income tax provisions
to holders, 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.
In addition, this summary does not address all federal income tax
consequences that may be relevant to an investment in certificates to
investors in light of their particular circumstances or special tax
situations. For example, the discussion does not apply to:
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- banks and thrifts,
- insurance companies,
- regulated investment companies,
- dealers in securities,
- tax-exempt organizations,
- investors subject to alternative minimum tax,
- foreign investors, and
- trusts, estates or pass-through entities, the equity
holders of which are any of the entities described
above.
In addition, the discussion of certificates is limited to the
federal income tax consequences of the initial certificateholders and does
not address federal income tax consequences to a purchaser of certificates in
the secondary market. Further, this discussion is addressed only to holders
who hold the certificates as capital assets and does not address tax
consequences of investors holding the certificates as part of a conversion
transaction, hedge or hedging transaction, or as a position in a straddle or
other integrated investment for tax purposes.
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. However, there
are no cases or Internal Revenue Service rulings on similar transactions
involving interests issued by a trust with terms and conditions of issuance
similar to those of the certificates. As a result, the Internal Revenue
Service may disagree with all or a part of the discussion below. We suggest
that prospective investors 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 certificates.
TAX CHARACTERIZATION OF THE TRUST
Federal Tax Counsel is of the opinion that, although no transaction
closely comparable to that contemplated herein has been the subject of any
United States Treasury Regulation, revenue ruling or judicial decision, the
trust will not be characterized as an association taxable as a corporation or
a partnership and that the trust will be classified as a grantor trust under
subpart E, Part I of subchapter J of the Code. As a result, the trust will not
be subject to federal income tax. This opinion is based on the assumption that
the terms of the trust agreement and related documents will be complied with in
all respects. However, this opinion is not binding on the Internal Revenue
Service and no assurance can be given that this characterization will prevail.
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In our tax discussion, we refer to the owners of the certificates as grantor
trust certificateholders and the certificates issued by the trust as grantor
trust certificates. Grantor trust certificateholders will be treated for
federal income tax purposes as owners of a portion of the trust's assets as
described below.
POSSIBLE ALTERNATIVE TREATMENT OF THE TRUST. In a recently released
technical advice memorandum, the Internal Revenue Service recharacterized two
high quality auto loan grantor trust securitizations as secured borrowings
for federal income tax purposes. Although Federal Tax Counsel is of the
opinion that the trust will be classified as a grantor trust for federal
income tax purposes, the Internal Revenue Service could disagree with this
opinion and assert that the [depositor's] [seller's] assignment to the trust
followed by the issuance of certificates by the trust should be
recharacterized as a secured borrowing by the [seller] [depositor] rather
than as a sale for federal income tax purposes. Even if the Internal Revenue
Service were successful in recharacterizing the [depositor's] [seller's]
assignment to the trust in this matter, a recharacterization would not be
anticipated to have a material adverse effect on the timing or character of
income to the trust or certificateholders.
GRANTOR TRUST CHARACTERIZATION. Based on Federal Tax Counsel's
conclusion that the trust will not be classified as an association or a
publicly traded partnership taxable as an association and that the trust will
be classified as a grantor trust under subpart E, Part I of subchapter J of
the Code for federal income tax purposes, each grantor trust
certificateholder:
- will be treated as the owner of a pro rata undivided interest
in the interest and principal portions of the trust
represented by the grantor trust certificates and
- will be considered the equitable owner of a pro rata
undivided interest in each of the receivables in the trust.
Any amounts received by a grantor trust certificateholder in lieu of amounts
due on any receivable because of a default or delinquency in payment will be
treated for federal income tax purposes as having the same character as the
payments they replace.
Each grantor trust certificateholder will be required to report on
its federal income tax return in accordance with its method of accounting its
pro rata share of the entire income from the receivables in the trust
represented by the grantor trust certificates. These amounts may include the
following:
- interest,
- OID,
- market discount,
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- prepayment fees,
- assumption fees,
- any gain recognized upon an assumption and
- late payment charges received by the servicer.
Under Sections 162 or 212 of the Code each grantor trust certificateholder
will be entitled to deduct its pro rata share of servicing fees, prepayment
fees, assumption fees, any loss recognized upon an assumption and late
payment charges retained by the servicer, provided that these amounts are
reasonable compensation for services rendered to the trust. Further, under
Section 67 of the Code, an individual, estate or trust holding a grantor
trust certificate directly or through certain pass-through entities will be
allowed a deduction for such reasonable servicing fees and expenses only to
the extent that the aggregate of such holder's miscellaneous itemized
deductions exceeds two percent of such holder's adjusted gross income. In
addition, Section 68 of the Code provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a specified amount will be reduced by the lesser of (i) 3% of the
excess of the individual's adjusted gross income over such amount or (ii) 80%
of the amount of itemized deductions otherwise allowable for the taxable
year. The amount of additional taxable income reportable by holders of
grantor trust certificates who are subject to the limitations of either
Section 67 or 68 of the Code may be substantial. Further, certificateholders
(other than corporations) subject to the alternative minimum tax may not
deduct miscellaneous itemized deductions in determining such holder's
alternative minimum taxable income. Although it is not entirely clear, it
appears that in transactions in which multiple classes of grantor trust
certificates are issued, such fees and expenses should be allocated among the
classes of grantor trust certificates using a method that recognizes that
each such class benefits from the related services.
A grantor trust certificateholder using the cash method of
accounting must take into account its pro rata share of income and deductions
as and when collected by or paid to the servicer. A grantor trust
certificateholder using an accrual method of accounting must take into
account its pro rata share of income and deductions as they become due or are
paid to the servicer, whichever is earlier. If the servicing fees paid to the
servicer are deemed to exceed reasonable servicing compensation, the amount
of the excess could be considered as an ownership interest retained by the
servicer (or any person to whom the servicer assigned for value all or a
portion of the servicing fees) in a portion of the interest payments on the
receivables. The receivables would then be subject to the "coupon stripping"
rules of the Code discussed below.
PREMIUM. The price paid for a grantor trust certificate by a holder
will be allocated to the holder's undivided interest in each receivable based
on each receivable's relative fair market
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value, so that the holder's undivided interest in each receivable will have
its own tax basis. A grantor trust certificateholder that acquires an
interest in receivables at a premium may elect under Section 171 of the Code
to amortize the premium under a constant yield method. Amortizable bond
premium will be treated as an offset to interest income on the grantor trust
certificate. The basis for a grantor trust certificate will be reduced to
the extent that amortizable premium is applied to offset interest payments.
A grantor trust certificateholder that makes this election for a grantor
trust certificate that is acquired at a premium will be deemed to have made
an election to amortize bond premium for all debt instruments having
amortizable bond premium that the grantor trust certificateholder held at the
beginning of the year of the election or acquired thereafter. Absent such an
election, the premium will be deductible as an ordinary loss only upon
disposition of the certificate or pro rata as principal is paid on the
receivables.
STRIPPED BONDS AND STRIPPED COUPONS
To the extent a transaction is determined to involve "excess
servicing" (as described above), or that the classes of certificates
represent stripped interests in the underlying receivables, the grantor trust
certificates will represent interests in stripped bonds for federal income
tax purposes. Although the tax treatment of stripped bonds is not entirely
clear, based on recent guidance by the Internal Revenue Service, each
purchaser of a grantor trust certificate (whether a cash or accrued method
taxpayer) will be treated as the purchaser of a stripped bond which should
generally be treated as a single debt instrument issued on the day it is
purchased for purposes of calculating any original issue discount ("OID")
within the meaning of Section 273(a) of the Code. Under the OID Treasury
regulations, if the discount on a stripped bond is larger than a DE MINIMIS
amount (as calculated for purposes of the OID rules of the Code) the stripped
bond will be considered to have been issued with OID. If OID rules were to
apply, all of the taxable income to be recognized on the certificates would
be includible in income as OID but would not be includible again when the
interest is actually received. Regulations do not adequately address the
circumstances in which payment of interest on certificates such as the
grantor trust certificates would be considered unconditionally payable, and
thus, Federal Tax Counsel is unable to opine as to the extent to which
interest payments on the certificates would be treated as qualified stated
interest.
MARKET DISCOUNT. A grantor trust certificateholder that acquires an
undivided interest in receivables may be subject to the market discount rules
of Code Sections 1276 through 1278 to the extent an undivided interest in a
receivable is considered to have been purchased at a "market discount."
Generally, the amount of market discount is equal to the excess of the
portion of the principal amount of the receivable allocable to the holder's
undivided interest over the holder's tax basis in that interest. Market
discount on a grantor trust certificate will be considered to be zero if the
amount allocable to the grantor trust certificate is less than 0.25% of the
grantor trust certificate's stated redemption price at maturity multiplied by
the weighted average maturity remaining after the date of purchase. Treasury
regulations implementing the market discount rules have not yet been issued;
therefore, we suggest that investors consult their own tax advisors
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regarding the application of these rules and the advisability of making any
of the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment shall be treated as
ordinary income to the extent that it does not exceed the accrued market
discount at the time of the payment. For this purpose, principal payments
include scheduled payments, prepayments and any gain on disposition of a
market discount bond. The amount of accrued market discount for purposes of
determining the tax treatment of subsequent principal payments or
dispositions of the market discount bond is to be reduced by the amount so
treated as ordinary income.
The Code also grants the Treasury Department authority to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
While the Treasury Department has not yet issued regulations, rules described
in the relevant legislative history likely will apply. Under those rules,
the holder of a market discount bond may elect to accrue market discount on
the basis of a constant yield method.
A holder who acquired a grantor trust certificate at a market
discount may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry such grantor trust certificate purchased with market
discount. For these purposes, the DE MINIMIS rule referred to above applies.
Any deferred interest expense would not exceed the market discount that
accrues during that taxable year and is, in general, allowed as a deduction
not later than the year in which the market discount is includible in income.
If the holder elects to include market discount in income currently as it
accrues on all market discount instruments acquired by that holder in that
taxable year or thereafter, the interest deferral rule described above will
not apply.
To the extent a grantor trust certificateholder is considered to
have purchased an undivided interest in a receivable for an amount that is
greater than its stated redemption price at maturity of the receivable, the
grantor trust certificateholder will be considered to have purchased the
receivable with "amortizable bond premium" equal in amount to the excess.
See "--Premium."
ELECTION TO TREAT ALL INTEREST AS OID. The OID regulations permit a
grantor trust certificateholder to elect to accrue all interest, discount
(including DE MINIMIS market or OID) and premium in income as interest, based
on a constant yield method. If this election were to be made for a grantor
trust certificate with market discount, the certificateholder would be deemed
to have made an election to include in income currently market discount for
all other debt instruments having market discount that the grantor trust
certificateholder acquires during the year of the election or thereafter.
Similarly, a grantor trust certificateholder that makes this election for a
grantor trust certificate that is acquired at a premium will be deemed to
have made an election to amortize bond premium for all debt instruments
having amortizable bond premium
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that the grantor trust certificateholder held at the beginning of the year of
the election or acquired thereafter. See "--Premium." The election to accrue
interest, discount and premium on a constant yield method for a grantor trust
certificate is generally irrevocable.
SALE OR EXCHANGE OF A GRANTOR TRUST CERTIFICATE. Sale or exchange
of a grantor trust certificate prior to its maturity will result in gain or
loss equal to the difference, if any, between the amount realized in the sale
or exchange of the grantor trust certificate and the owner's adjusted basis
in the grantor trust certificate. Such adjusted basis generally will equal
the seller's purchase price for the grantor trust certificate, increased by
the OID included in the seller's gross income on the grantor trust
certificate, and reduced (but not below zero) by principal payments on the
grantor trust certificate previously received by the seller. This gain or
loss will be capital gain or loss to an owner for which a grantor trust
certificate is a "capital asset" within the meaning of Code Section 1221, and
will be long-term or short-term depending on whether the grantor trust
certificate has been owned for the long-term capital gain holding period.
For individuals, estates and trusts, the current maximum long-term capital
gain rate is generally 20% if the capital asset has been held for more than
12 months.
Gain or loss from the sale or exchange of a grantor trust
certificate may be partially or wholly ordinary and not capital in certain
circumstances. Gain attributable to accrued and unrecognized market discount
will be treated as ordinary income, as will gain or loss recognized by banks
and other financial institutions subject to Section 582(c) of the Code.
Furthermore, a portion of any gain that might otherwise be capital gain may
be treated as ordinary income to the extent that the grantor trust
certificate is held as part of a "conversion transaction" within the meaning
of Section 1258 of the Code. A conversion transaction generally is one in
which the taxpayer has taken two or more positions in the same or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in such transaction. The amount of gain realized in a conversion
transaction that is recharacterized as ordinary income generally will not
exceed the amount of interest that would have accrued on the taxpayer's net
investment at 120% of the appropriate "applicable federal rate" (which rate
is computed and published monthly by the IRS) at the time the taxpayer enters
into the conversion transaction, subject to appropriate reduction for prior
inclusion of interest and other ordinary income items from the transaction.
Finally, a taxpayer may elect to have net capital gain taxed at
ordinary income rates rather than capital gains rates in order to include
such net capital gain in total net investment income for that taxable year,
for purposes of the rule that limits the deduction of interest on
indebtedness incurred to purchase or carry property held for investment to a
taxpayer's net investment income.
TAX CONSEQUENCES TO FOREIGN CERTIFICATEHOLDERS
Interest or OID paid on a certificate to a nonresident alien
individual, foreign partnership or foreign corporation that has no connection
with the United States other than holding
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certificates ("Nonresidents") will normally qualify as portfolio interest
(except where (i) the recipient is a holder, directly or by attribution, of
10% or more of the trust, or (ii) the recipient is a controlled foreign
corporation to which the trust is a related person) and will be exempt from
federal income tax. Upon receipt of the appropriate ownership statements and
certifications, the trustee to the trust normally will be relieved of
obligations to withhold tax from such interest payments. These provisions
supersede the generally applicable provisions of United States law that would
otherwise require the trustee of the trust to withhold at a 30% rate (unless
such rate were reduced or eliminated by an applicable tax treaty) on, among
other things, interest and other fixed and determinable, annual or periodic
income paid to Nonresidents.
To the extent that interest or OID on a grantor trust certificate
would be exempt under Sections 871(h)(1) and 881(c) of the Code from United
States withholding tax, and the grantor trust certificate is not held in
connection with a certificateholders's trade or business in the United
States, such grantor trust certificate will not be subject to United States
estate taxes in the estate of a Nonresident alien individual.
On October 6, 1997, final Treasury regulations (the "WITHHOLDING TAX
REGULATIONS") were issued that modify certain of the filing requirements with
which Nonresidents 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 Nonresidents currently required to file Form W-8 or W-8BEN
generally will continue to be required to file that form. However, the
requirement that Nonresidents submit Form W-8 or W-8ECI is extended to most
Nonresidents who wish to seek an exemption from withholding tax on the basis
that income from the certificates is effectively connected with the conduct
of a United States trade or business (in lieu of Form 4224) and to
Nonresidents wishing to rely on a tax treaty to reduce the withholding tax
rate (in lieu of Form 1001). Under the Withholding Tax Regulations,
Nonresidents would generally be required to submit Form W-8BEN in lieu of
Form 1001 or to submit Form W-8ECI in lieu of Form 4224, although alternative
documentation may be applicable in certain situations. The Withholding Tax
Regulations are effective for payments of interest due after December 31,
2000, but Forms 4224 and 1001 filed prior to that date will continue to be
effective until the earlier of December 31, 2001 or the current expiration
date of those forms. Prospective investors should consult their tax advisors
with respect to the effect of the Withholding Tax Regulations.
INFORMATION REPORTING AND BACKUP WITHHOLDING. The servicer will
furnish or make available, within a reasonable time after the end of each
calendar year, to each person who was a grantor trust certificateholder at
any time during the year:
- information as may be deemed necessary or desirable to
assist grantor trust certificateholders in preparing their
federal income tax returns, or
- to enable holders to make the information available to
beneficial owners or financial intermediaries that hold
grantor trust certificates as nominees on behalf of
beneficial owners.
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If a holder, beneficial owner, financial intermediary or other recipient of a
payment on behalf of a beneficial owner fails to supply a certified taxpayer
identification number or if the Secretary of the Treasury determines that a
person has not reported all interest and dividend income required to be shown
on its federal income tax return, 31% backup withholding may be required with
respect to any payments. Any amounts deducted and withheld from a
distribution to a recipient would be allowed as a credit against the
recipient's federal income tax liability. Prospective investors should
consult their own tax advisors concerning the potential impact of the
Withholding Tax Regulations.
STATE TAX CONSEQUENCES
In addition to the federal income tax consequences described in
["Federal Income Tax Considerations"] above, we suggest that potential
purchasers consider the state income tax consequences of the acquisition,
ownership and disposition of the certificates. State income tax law may vary
substantially from state to state, and this discussion does not purport to
describe any aspect of the income tax laws of any state. Therefore,
potential purchasers should consult their own tax advisors with respect to
the various tax consequences of an investment in the certificates.
CERTAIN ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other retirement plan or
arrangement, including individual retirement accounts and annuities, Keogh
plans and collective investment funds, separate accounts and general accounts
in which such plans, accounts or arrangements are invested, that is subject
to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
or Section 4975 of the Code (each, a "Plan") should carefully review with its
legal advisors whether the purchase or holding of the offered certificates
could give rise to a transaction that is prohibited or is not otherwise
permitted either under ERISA or Section 4975 of the Code or whether a
statutory or administrative exemption may be available.
The U.S. Department of Labor has issued an individual exemption to
[NAME OF UNDERWRITER] (the "Exemption"), which generally exempts from the
application of the prohibited transaction provisions of Sections 406(a) and
(b) and 407(a) of ERISA, and the excise taxes imposed on such prohibited
transactions pursuant to Sections 4975(a) and (b) of the Code, the purchase,
sale and holding of certain pass-through certificates underwritten by an
Underwriter, as hereinafter defined, provided that certain conditions set
forth in the Exemption are satisfied. For purposes of this discussion, the
term "Underwriter" shall include (a) [NAME OF UNDERWRITER] (c) any person
directly or indirectly, through one or more intermediaries, controlling,
controlled by or under common control with [NAME OF UNDERWRITER] and (d) any
member of the underwriting syndicate or selling group of [NAME OF UNDERWRITER]
or a person described in (c) who is a manager or co-manager with respect to the
offered certificates.
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The obligations covered by the Exemption include vehicle installment
obligations such as the receivables. The Exemption would apply to the
acquisition, holding and resale of the certificates by a Plan only if
specific conditions (certain of which are described below) are met. It is not
clear whether the Exemption applies to participant directed plans as
described in Section 404(c) of ERISA or plans that are subject to Section
4975 of the Code but that are not subject to Title I of ERISA, such as
certain Keogh plans and certain individual retirement accounts.
The Exemption sets forth six general conditions that, among others,
must be satisfied for a transaction involving the purchase, sale and holding
of [LIST CLASS(ES) THAT ARE NOT SUBORDINATE] certificates by a Plan to be
eligible for exemptive relief thereunder. First, the acquisition of the
certificates by a Plan must be on terms that are at least as favorable to the
Plan as they would be in an arm's-length transaction with an unrelated party.
Second, the rights and interests evidenced by such certificates must not be
subordinated to the rights and interests evidenced by the other certificates
of the same trust. Third, such certificates at the time of acquisition by the
Plan must be rated in one of the three highest generic rating categories by
Standard & Poor's Rating Services, a division of The McGraw-Hill Companies,
Inc. ("S&P"), Duff & Phelps Credit Rating Co. ("DCR"), Moody's Investors
Service, Inc. ("Moody's") and Fitch IBCA, Inc. ("Fitch") (each, a "Rating
Agency"). Fourth, the Trustee cannot be an affiliate of any other member of
the "Restricted Group," which consists of each of the Underwriters, the
Depositor, the Servicer, the Trustee, any sub-servicer, and any borrower with
respect to the receivables constituting more than 5.0% of the aggregate
unamortized principal balance of the receivables as of the date of initial
issuance of such certificates. Fifth, the sum of all payments made to and
retained by any Underwriter in connection with the distribution or placement
of certificates must represent not more than reasonable compensation for
underwriting such certificates; the sum of all payments made to and retained
by the Depositor pursuant to the assignment of the receivables to the trust
must represent not more than the fair market value of such obligations; and
the sum of all payments made to and retained by the Servicer or any
sub-servicer must represent not more than reasonable compensation for such
person's services under the pooling and servicing agreement and reimbursement
of such person's reasonable expenses in connection therewith. Sixth, the
investing Plan must be an accredited investor as defined in Rule 501(a)(1) of
Regulation D of the Securities and Exchange Commission under the Securities
Act.
A fiduciary of a Plan contemplating purchasing any such certificate
must make its own determination that, at the time of such purchase, such
certificate satisfies the general conditions set forth above.
The Exemption also requires that the trust meet the following
requirements: (i) the trust must consist solely of assets of the type that
have been included in other investment pools; (ii) certificates in such other
investment pools must have been rated in one of the three highest categories
of S&P, DCR, Moody's or Fitch for at least one year prior to the Plan's
acquisition of such certificates; and (iii) certificates in such other
investment pools must have been purchased
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by investors other than Plans for at least one year prior to any Plan's
acquisition of such certificates.
If the general conditions of the Exemption are satisfied, they may
provide an exemption from the restrictions imposed by Sections 406(a) and
407(a) of ERISA (as well as the excise taxes imposed by Sections 4975(a) and
(b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of the Code)
in connection with (i) the direct or indirect sale, exchange or transfer of
such certificates in the initial issuance of certificates between the
Depositor or an Underwriter and a Plan when the Depositor, an Underwriter,
the Trustee, Servicer, a sub-servicer or a borrower is a "party in interest"
with respect to the investing Plan, (ii) the direct or indirect acquisition
or disposition in the secondary market of the certificates by a Plan and
(iii) the holding of the certificates by a Plan. However, no exemption is
provided from the restrictions of Sections 406(a)(1)(E), 406(a)(2) and 407 of
ERISA for the acquisition or holding of such certificate on behalf of an
"Excluded Plan" by any person who has discretionary authority or renders
investment advice with respect to the assets of such Excluded Plan. For
purposes hereof, an Excluded Plan is a Plan sponsored by any member of the
Restricted Group.
If certain specific conditions of the Exemptions are also satisfied,
each such Exemption may provide relief from the restrictions imposed by
Sections 406(b)(1) and (b)(2) of ERISA and the taxes imposed by Section
4975(c)(1)(E) of the Code to an obligor acting as a fiduciary with respect to
the investment of a Plan's assets in the certificates (or such obligor's
affiliate) only if, among other requirements (i) such obligor (or its
affiliate) is an obligor with respect to 5% or less of the fair market value
of the assets contained in the trust and is otherwise not a member of the
Restricted Group, (ii) a Plan's investment in certificates does not exceed
25% of all of the Certificates outstanding at the time of the acquisition,
(iii) immediately after the acquisition, no more than 25% of the assets of
the Plan are invested in certificates representing an interest in trusts
(including the trust) containing assets sold or serviced by the Depositor or
the Servicer and (iv) in the case of the acquisition of the certificates in
connection with their initial issuance, at least 50% of the aggregate
interest in the trust is acquired by persons independent of the Restricted
Group.
The Exemptions also apply to transactions in connection with the
servicing, management and operation of the trust, provided that, in addition
to the general requirements described above, (a) such transactions are
carried out in accordance with the terms of a binding pooling and servicing
agreement and (b) the pooling and servicing agreement is provided to, or
described in all material respects in the prospectus or private placement
memorandum provided to, investing Plans before their purchase of certificates
issued by the trust. The pooling and servicing agreement is a pooling and
servicing agreement as defined in the Exemption. The pooling and servicing
agreement provides that all transactions relating to the servicing,
management and operations of the trust must be carried out in accordance with
the pooling and servicing agreement.
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Before purchasing any [LIST NON-SUBORDINATE CLASSE(S)] certificate,
a fiduciary of a Plan should itself confirm that the specific and general
conditions of the Exemption and the other requirements set forth in the
Exemption would be satisfied.
THE CHARACTERISTICS OF THE [LIST SUBORDINATE CLASSES] CERTIFICATES
DO NOT MEET THE REQUIREMENTS OF THE EXEMPTION. ACCORDINGLY, CERTIFICATES OF
THOSE CLASSES MAY NOT BE ACQUIRED BY A PLAN, OTHER THAN AN INSURANCE COMPANY
GENERAL ACCOUNT, WHICH MAY BE ABLE TO RELY ON SECTION III OF PTE 95-60
(DISCUSSED BELOW).
Section III of Department of Labor Prohibited Transaction Class
Exemption 95-60 ("PTE 95-60") provides relief from the application of the
prohibited transaction provisions of Sections 406(a), 406(b) and 407(a) of
ERISA and Section 4975 of the Code for transactions in connection with the
servicing, management and operation of a trust (such as the trust) in which
an insurance company general account has an interest as a result of its
acquisition of certificates issued by the trust, provided that certain
conditions are satisfied. If these conditions are met, insurance company
general accounts would be allowed to purchase classes of certificates (such
as the [LIST SUBORDINATE CLASSES] certificates) which do not meet the
requirements of the Exemption solely because they (i) are subordinated to
other classes of certificates in the trust and/or (ii) have not received a
rating at the time of the acquisition in one of the three highest rating
categories from S&P, DCR, Moody's or Fitch. All other conditions of the
Exemption would have to be satisfied in order for PTE 95-60 to be available.
Before purchasing [LIST SUBORDINATE CLASSES] certificates, an insurance
company general account seeking to rely on Section III of PTE 95-60 should
itself confirm that it is eligible for, and has satisfied all applicable
conditions and other requirements of relief under such section. Any Plan
fiduciary considering the purchase of certificates should consult with its
counsel with respect to the applicability of the Exemption and other issues
and determine on its own whether all conditions have been satisfied and
whether the certificates are an appropriate investment for a Plan under ERISA
and the Code (or, in the case of governmental plans, under applicable
Federal, state or local law). Each purchaser of [LIST NON-SUBORDINATE
CLASSE(S)] certificates with the assets of one or more Plans shall be deemed
to represent that each such Plan qualifies as an "accredited investor" as
defined in Rule 501(a)(1) of Regulation D under the Securities Act. No Plan
may purchase or hold [LIST NON-SUBORDINATE CLASSE(S)] certificates unless
such certificates are rated in one of the top three rating categories by at
least one Rating Agency at the time of such purchase, unless such Plan is an
insurance company general account that represents and warrants that it is
eligible for, and meets all of the requirements of, Part III of PTCE 95-60.
Each Purchaser of [LIST SUBORDINATE CLASSES] certificates shall be deemed to
represent that it is eligible for, and meets all of the requirements of,
Part III of PTCE 95-60.
RATINGS
It is a condition to the issuance of the certificates that the class
[__] certificates be rated at least ["___"] by [_________] and the class [__]
certificates be rated at least ["___"] by [__________]. We collectively
refer to [________] and [________] as the rating agencies.
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A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating agency. Each security rating should be evaluated
independently of any other security rating.
The ratings on the certificates address the likelihood of the
receipt by certificateholders of all distributions with respect to the
underlying receivables to which they are entitled. The ratings do not
represent any assessment of the likelihood that the rate of principal
prepayments by obligors might differ from those originally anticipated. As a
result of the differences in the rate of principal prepayments,
certificateholders might suffer a lower-than-anticipated yield to maturity.
See "Risk Factors" and "Weighted Average Life of the Certificates."
The [depositor] has not requested a rating on the offered
certificates by any rating agency other than [_________ and ________].
However, we cannot assure you as to whether any other rating agency will rate
the offered certificates, or, if it does, what rating would be assigned by
any such other rating agency. A rating on the offered certificates by
another rating agency, if assigned at all, may be lower than the ratings
assigned to the offered certificates by [___________ and __________].
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting
agreement, dated [____________ __, 20__], the depositor has agreed to cause
the trust to sell to [______________], the underwriter, all of the
certificates. The underwriting agreement provides that the underwriter is
obligated to purchase all of the certificates if any are purchased.
The underwriter proposes to offer the certificates initially [at the
prices on the cover page of this prospectus supplement, and to certain dealers
at that price less a discount of up to [___%] of the principal on each class
[__]certificate and [___%] on each class [__] certificate] [in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale]. The underwriter and those dealers may allow a discount of [___%] of the
principal of each class [__] certificate and [___%] of each class [__]
certificate on sales to certain other dealers. After the initial public
offering, the public offering price and such discounts may change.
The depositor estimates that its out of pocket expenses for this
offering will be approximately [$________].
The depositor does not intend to apply for listing of the
certificates. Further, the certificates are a new issue of securities with
no established trading market. The underwriter intends to make a secondary
market for the certificates. However, it is not obligated to do so and may
discontinue making a secondary market for the certificates at any time
without notice. We cannot assure you as to how liquid the trading market for
the certificates will be.
S-34
<PAGE>
[________] has agreed to indemnify the underwriter against certain
liabilities under the Securities Act, or contribute to payments which the
underwriter may be required to make in respect thereof.
The underwriters may engage in over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids in accordance
with Regulation M under the Securities Exchange Act. To explain:
- Over-allotment involves syndicate sales in excess
of the offering size, which creates a syndicate
short position;
- Stabilizing transactions permit bids to purchase the
underlying security as long as the stabilizing bids
do not exceed a specified maximum;
- Syndicate covering transactions involve purchases of
the certificates in the open market after the
distribution has been completed in order to cover
syndicate short positions;
- Penalty bids permit the underwriters to reclaim a
selling concession from a syndicate member when the
certificates originally sold by a syndicate member
are purchased in a syndicate covering transaction to
cover syndicate short positions.
Stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the certificates to be higher than it
would otherwise be in the absence of these transactions. The underwriter is
not required to engage in these activities and, if commenced, may end any of
these activities at any time.
[In the ordinary course of their respective businesses, the
underwriter and its affiliates have engaged and may in the future engage in
investment banking, commercial banking, insurance or other transactions with
[the originator] [the seller] [the depositor] and its affiliates.
LEGAL OPINIONS
Certain legal matters relating to the certificates and certain
federal income tax and other matters will be passed upon for the trust and by
[the originator] [the seller] [the servicer] by [____________] and for the
underwriter, the depositor and the trust by Mayer, Brown & Platt, Chicago,
Illinois. [Mayer, Brown & Platt may from time to time render legal services to
the originator, the seller, the servicer and their affiliates.]
S-35
<PAGE>
APPENDIX A
COMPOSITION OF THE RECEIVABLES
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<S> <C>
Aggregate Principal Balance.......................................................$___________
Number of Receivables...................................................................._____
Average Amount Financed...........................................................$___________
Range of Amounts Financed.........................................$___________ to $___________
Average Remaining Principal Balance...............................................$___________
Range of Remaining Principal Balances.............................$___________ to $___________
Weighted Average APR...................................................................._____%
Range of APRs................................................................._____% to _____%
Weighted Average Original Term to Maturity (1).....................................____ months
Range of Original Terms to Maturity........................................____ to ____ months
Weighted Average Remaining Term to Maturity (1)....................................____ months
Range of Remaining Terms to Maturity.......................................____ to ____ months
New Vehicles (Percentage of Aggregate Principal Balance).................................____%
Used Vehicles (Percentage of Aggregate Principal Balance)................................____%
</TABLE>
(1) Rounded to the nearest month.
A-1
<PAGE>
DISTRIBUTION OF THE RECEIVABLES BY APR
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<CAPTION>
Percentage
Aggregate by Aggregate Percentage
Principal Principal Number of by Number of
APR Range Balance Balance (1) Receivables Receivables (1)
--------- --------- ------------ ----------- ---------------
<S> <C> <C> <C> <C>
% $ %
--------- --------- ----------- ----------
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
A-2
<PAGE>
GEOGRAPHIC DISTRIBUTION OF RECEIVABLES
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<CAPTION>
Percentage
by Aggregate Percentage
Aggregate Principal Number of by Number of
State Principal Balance Balance (1) Receivables Receivables (1)
----- ----------------- ------------- ----------- ----------------
<S> <C> <C> <C> <C>
$ % %
----------------- ------------- ------------ -------------
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
A-3
<PAGE>
DISTRIBUTION BY ORIGINAL TERM TO SCHEDULED MATURITY OF THE RECEIVABLES
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<CAPTION>
Percentage
Aggregate by Aggregate Percentage
Principal Principal Number of by Number of
Range of Original Terms Balance Balance (1) Receivables Receivables(1)
----------------------- --------- ------------- ----------- ---------------
<S> <C> <C> <C> <C>
to months $ % %
to months
to months
to months
to months
to months
to months
to months
to months
months
------------ ----------- ----------- ------------
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
A-4
<PAGE>
DISTRIBUTION BY REMAINING TERM TO SCHEDULED MATURITY OF THE RECEIVABLES
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<CAPTION>
Percentage
Aggregate by Aggregate Percentage
Range of Principal Principal Number of by Number of
Remaining Terms Balance Balance (1) Receivables Receivables (1)
--------------- --------- ------------- ----------- ---------------
<S> <C> <C> <C> <C>
to months $ % %
to months
to months
to months
to months
to months
to months
to months
to months
to months
months ------------ ----------- ----------- -------------
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
A-5
<PAGE>
DISTRIBUTION OF RECEIVABLES BY AMOUNT FINANCED
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<CAPTION>
Percentage
Aggregate by Aggregate Percentage
Principal Principal Number of by Number of
Amount Financed Balance Balance (1) Receivables Receivables(1)
--------------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
$5,000.00 to $9,999.99 $ % %
$10,000.00 to $14,999.99
$15,000.00 to $19,999.99
$20,000.00 to $24,999.99
$25,000.00 to $29,999.99
$30,000.00 to $34,999.99
$35,000.00 to $39,999.99
$40,000.00 to $44,999.99
$45,000.00 to $49,999.99
$50,000.00 to $54,999.99
$55,000.00 to $59,999.99
$60,000.00 to $64,999.99
$65,000.00 to $69,999.99
$100,000.00 and above ------------ --------- ------------ ------------
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
A-6
<PAGE>
DISTRIBUTION OF RECEIVABLES BY CURRENT PRINCIPAL BALANCE
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<CAPTION>
Percentage
Aggregate by Aggregate Percentage
Current Principal Principal Number of by Number of
Principal Balance Balance Balance (1) Receivables Receivables(1)
----------------- --------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
$5,000.00 to $9,999.99 $ % %
$10,000.00 to $14,999.99
$15,000.00 to $19,999.99
$20,000.00 to $24,999.99
$25,000.00 to $29,999.99
$30,000.00 to $34,999.99
$35,000.00 to $39,999.99
$40,000.00 to $44,999.99
$45,000.00 to $49,999.99
$50,000.00 to $54,999.99
$55,000.00 to $59,999.99
$60,000.00 to $64,999.99
$95,000.00 to $99,999.99 ---------- ----------- ----------- ------------
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
A-7
<PAGE>
DISTRIBUTION OF RECEIVABLES BY TYPE
<TABLE>
<CAPTION>
Percentage
Aggregate by Aggregate Percentage
Principal Principal Number of by Number of
Balance Balance (1) Receivables Receivables(1)
--------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
Rule of 78's receivables $ % %
Fixed value receivables
Simple interest receivables
Actuarial receivables
------------ ---------- ----------- ------------
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
A-8
<PAGE>
The information in this prospectus supplement and the accompanying prospectus is
not complete and may be changed. We may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This prospectus supplement and the accompanying prospectus are not an
offer to sell these securities and they are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
[PROSPECTUS SUPPLEMENT VERSION 1B]
[Form of Owner Trust Prospectus Supplement]
Subject to completion, dated __________ __, _____
Prospectus Supplement dated [_____ __, 20__] (to prospectus dated ____ __, 20__)
$_____________
[_______________________]
ISSUER
PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION
DEPOSITOR
The trust will issue [__] classes of asset backed notes and [__] classes of
asset backed certificates that are offered under this prospectus supplement.
Credit Enhancement for the notes and certificates is provided by:
[Description of applicable credit enhancement]
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-[__] IN THIS
PROSPECTUS SUPPLEMENT AND ON PAGE [__] IN THE PROSPECTUS.
[[________] will offer [__] classes of notes and certificates to the public [at
varying prices to be determined at the time of sale].
<TABLE>
<CAPTION>
Final
Interest Rate Price to Underwriting Proceeds to Scheduled
Class Principal Amount (per annum) Public(1) Discount(2) Trust(3) Maturity Date
----- ---------------- ----------- --------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
(1) Total price to public = [$___________________].
(2) Total underwriting discount =[$__________________].
(3) Total proceeds to Trust = [$_____________________], before deducting
expenses estimated to be [$__________________].
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THESE SECURITIES OR DETERMINED THAT THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
[UNDERWRITER]
<PAGE>
<TABLE>
--------------------------------------------------------------------------------------------------------------
TABLE OF CONTENTS
<S> <C>
Overview of the Information in this Prospectus Supplement and the Prospectus
Summary of Transaction.....................................................................................v
Summary of the Notes and Certificates.....................................................................vi
Prospectus Supplement Summary ...........................................................................S-1
Depositor.........................................................................................S-1
Issuer............................................................................................S-1
Servicer..........................................................................................S-1
Trustee...........................................................................................S-1
Indenture Trustee.................................................................................S-1
Seller(s).........................................................................................S-1
Originator(s).....................................................................................S-1
The Notes and Certificates........................................................................S-1
Closing Date......................................................................................S-1
Payment Dates.....................................................................................S-1
Cut-off Date(s)...................................................................................S-2
Collection Period.................................................................................S-2
Closing Date......................................................................................S-2
Interest Payments.................................................................................S-2
Principal Payments................................................................................S-2
[Interest Only Notes].............................................................................S-3
[Principal-Only Notes]............................................................................S-3
[Accrual Notes]...................................................................................S-4
Final Scheduled Maturity Date.....................................................................S-4
Optional Redemption...............................................................................S-4
Mandatory Termination.............................................................................S-4
Trust Assets......................................................................................S-4
The [Initial] Receivables.........................................................................S-5
[Pre-Funding].....................................................................................S-6
Revolving Period..................................................................................S-7
[Interest Reserve Account]........................................................................S-7
[Residual Payment Securities].....................................................................S-8
[Credit Enhancement]..............................................................................S-8
[Cross Collateralization].........................................................................S-8
[The Certificates]................................................................................S-8
Distributions.....................................................................................S-8
Available Funds...................................................................................S-8
Application of Payments...........................................................................S-9
Federal Tax Considerations........................................................................S-9
ERISA Considerations.............................................................................S-10
Ratings..........................................................................................S-10
RISK FACTORS............................................................................................S-11
Payments will be made only from the limited assets of the trust..................................S-11
You bear reinvestment risk and payment delay risk due to repurchase..............................S-11
Variations in regional economic conditions may cause payment reductions or delays................S-12
[Possible pre-payments as a result of funding or revolving period.]..............................S-12
[Changes in pool characteristics as a result of pre-funding or revolving period.]................S-12
[Subordination of the class [__] notes provides only limited protection against losses.].........S-13
[Additional risk factors applicable for a specific series.]......................................S-13
The Trust...............................................................................................S-14
Capitalization of the Trust......................................................................S-14
The Trustee......................................................................................S-14
The Indenture Trustee............................................................................S-14
[Use of Proceeds].......................................................................................S-15
The Receivables.........................................................................................S-15
Eligibility Criteria.............................................................................S-15
The Seller(s)...........................................................................................S-16
The Originator(s).......................................................................................S-16
The Servicer............................................................................................S-16
Delinquency and Loss Experience..................................................................S-16
Servicing and Collections........................................................................S-16
Description of the Securities...........................................................................S-17
Description of the Notes.........................................................................S-17
Description of the Certificates..................................................................S-18
Payments.........................................................................................S-18
--------------------------------------------------------------------------------------------------------------
iii
<PAGE>
--------------------------------------------------------------------------------------------------------------
[Pre-funding Account] [Revolving Period].........................................................S-20
Optional Redemption..............................................................................S-20
Description of the Transaction
Documents........................................................................................S-21
[Description of Originator/Seller Representations and Warranties]................................S-21
[Sale and] Assignment of [Initial] Receivables [and Additional Receivables]......................S-21
Accounts.........................................................................................S-22
Servicing Compensation and Payment of Expenses...................................................S-22
Available Funds..................................................................................S-23
Application of Payments..........................................................................S-23
[Subordination of Certificateholders]............................................................S-23
Legal Aspects of the Receivables........................................................................S-23
Legal Investment........................................................................................S-23
Federal Income Tax Considerations.......................................................................S-24
Tax Characterization of the Trust................................................................S-25
Tax Consequences to Holders of the Notes.........................................................S-25
Tax Consequences to Holders of the Certificates..................................................S-28
State Tax Consequences..................................................................................S-33
ERISA Considerations....................................................................................S-34
General..........................................................................................S-34
The Notes........................................................................................S-34
The Certificates.................................................................................S-36
Ratings.................................................................................................S-36
Underwriting............................................................................................S-37
Legal Opinions..........................................................................................S-38
--------------------------------------------------------------------------------------------------------------
</TABLE>
iv
<PAGE>
OVERVIEW OF THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS
We provide information to you about the securities in two separate
documents that progressively provide more detail:
- this prospectus supplement, which describes the specific terms of your
series of securities; and
- the accompanying prospectus, which provides general information, some
of which may not apply to your series of securities.
THE PROSPECTUS SUPPLEMENT AND THE PROSPECTUS, TOGETHER, PROVIDE A
DESCRIPTION OF THE MATERIAL TERMS OF YOUR SECURITIES. YOU SHOULD RELY ON THE
INFORMATION IN THIS PROSPECTUS SUPPLEMENT TO THE EXTENT IT PROVIDES A MORE
SPECIFIC DESCRIPTION OF YOUR SECURITIES.
You should rely only on the information provided in this prospectus
supplement and the accompanying prospectus, including the information
incorporated by reference. You can request information incorporated by reference
from Prudential Securities Secured Financing Corporation, One New York Plaza,
New York, New York 10292, Attention: P. Carter Rise. See "Where You Can Find
More Information" and "Incorporation of Information by Reference" in the
prospectus. We have not authorized anyone to provide you with different
information. We are not offering the securities in any state where the offer is
not permitted.
We include cross-references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
further related discussions. The table of contents in this prospectus supplement
and the table of contents included in the accompanying prospectus provide the
pages on which these captions are located.
ii
<PAGE>
Summary of Transaction Parties
[SCHEMATIC DRAWING DESCRIBING TRANSACTION]
This chart provides only a simplified overview of the relations between
the key parties to the transaction. Refer to this prospectus supplement and the
prospectus for a further description.
iii
<PAGE>
SUMMARY OF THE NOTES AND CERTIFICATES
<TABLE>
<CAPTION>
[Class __] [Class ___] [Class ___] [Class ___]*
------------------------------------------------------
<S> <C> <C> <C> <C>
Initial Principal
Balance:
-------------------------------------------------------------------------------
% of Total: [ %] [ %] [ %] [ %]
-------------------------------------------------------------------------------
Anticipated
Ratings:
[_______]
[_______]
[_______]
-------------------------------------------------------------------------------
Interest Rate:
-------------------------------------------------------------------------------
Interest Accrual
Method:
-------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Payment Dates: [__] day of each [______], or if [__] day is not a
business day, then the next business day
-------------------------------------------------------------------------------
Final Scheduled
Payment Date:**
-------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Clearance/ [DTC/Euroclear/Clearstream- [DTC/Euroclear/
Settlement: Luxembourg] Clearstream-
Luxembourg]
-------------------------------------------------------------------------------
Cut-Off Date: Close of business,[_____________]
-------------------------------------------------------------------------------
Closing Date: On or about [_______ ___, 20__]
-------------------------------------------------------------------------------
Final Maturity The payment date [_______]
Date:
-------------------------------------------------------------------------------
</TABLE>
* We are providing information for the non-offered notes and certificates
solely to assist the reader's understanding of the notes and certificates
offered by this prospectus supplement.
** Assuming that there are no prepayments on the trust assets, that no party
exercises its right of optional redemption of the notes and certificates
and the other modeling assumptions contained in "Prepayment and Yield
Considerations" occur.
iv
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights selected information from this document. To understand
all of the terms of the offering of the notes and certificates, you should
carefully read this entire document and the accompanying prospectus supplement.
THE TRANSACTION PARTIES
DEPOSITOR........................ Prudential Securities Secured Financing
Corporation, formerly known as P-B Secured
Financing Corporation, a Delaware
corporation, a wholly-owned limited purpose
finance subsidiary of Prudential Securities
Incorporated.
ISSUER........................... [______________].
SERVICER......................... [______________].
OWNER TRUSTEE.................... [______________].
INDENTURE TRUSTEE................ [______________].
SELLER(S)........................ [______________].
ORIGINATOR(S).................... [______________].
SUMMARY OF TERMS
THE NOTES AND CERTIFICATES....... The trust will issue the asset backed notes
and asset backed certificates described in
"Summary of the Notes and Certificates". We
refer to the notes and certificates as
securities. [The issuer is offering the class
[__] notes and the class [___] certificates
pursuant to this prospectus supplement and
prospectus. The issuer is not offering the
class [__] notes or the class [__]
certificates to the public.] The certificates
will represent fractional undivided interests
in the trust and will be issued pursuant to
the trust agreement. The notes will represent
obligations of the trust and will be issued
pursuant to the indenture.
CLOSING DATE..................... [__________ __, 20__].
S-1
<PAGE>
PAYMENT DATES.................... The [__] day of each [_____], beginning in
[______ __, 20__]. If the [__] day is not a
business day, then the payment date will be
the next business day.
CUT-OFF DATE(S).................. [__________ __, 20__].
COLLECTION PERIOD................ [begins on the [__] day of each [month]
[quarter] and runs until and includes the
[__] day of the next [month] [quarter].
However, the first and last collection
periods are as follows:
- FIRST: period from and including the
cut-off date to and including [__] days
prior to the first payment date
- LAST: period from but excluding the last
day of the collection period before the
termination date to and including the
termination date]
CLOSING DATE..................... On or about [__________ __, 20__].
INTEREST PAYMENTS................ The interest rates for each class of notes
and certificates is described in "Summary of
the Notes and Certificates." [Insert
mechanics applicable to any floating rate
securities]. The indenture trustee will
calculate interest on the notes and
certificates on the basis of [a 360-day year
of twelve 30-day months]. On the first
payment date, the interest payable to
securityholders will be based upon the actual
number of days elapsed from and including the
closing date to but excluding the first
payment date [and assuming a 30-day month].
PRINCIPAL PAYMENTS............... The indenture trustee will pay principal on
the notes and certificates on each payment
date in an amount equal to the
securityholder's percentage of the principal
payment amount.
The principal payment amount for a payment
date generally will equal the sum of the
following amounts, without duplication:
S-2
<PAGE>
- collections on the receivables, other
than charged-off receivables) during
the preceding calendar month allocable
to principal including full and partial
prepayments;
- the portion of the purchase amount
deposited in the collection account
allocable to principal of each
receivable that was repurchased by
[the originator] [the seller]
[the servicer] as of the last day of
the preceding calendar month due to a
breach of certain representations or
warranties by the originator or breach
of certain covenants by the servicer
relating to that receivable; and
- the principal balance of each receivable
that first became a charged-off
receivable during the preceding calendar
month (other than charged-off receivable
for which substitutions occur); and
- the aggregate amount of the reduction in
the principal balances of auto loans
resulting from court orders during the
preceding calendar month in obligor
insolvency proceedings which reduce the
amount owed on those obligors' auto
loans.
The securityholder percentage of the
principal payment amount for any payment will
be equal to [insert mechanics specific to
building and/or maintaining any form of
credit enhancement].
[[See "Description of the
Securities--Payments"] for additional detail
and for special priority rules that would
apply in a default situation.]
[Description of priority of payments among
various classes].
[INTEREST ONLY NOTES]............ [The class [___] notes are interest only
notes. This means that the indenture trustee
will distribute interest, based upon a
notional amount, but will not distribute
principal on these notes.]
S-3
<PAGE>
[PRINCIPAL-ONLY NOTES]........... [The class [___] notes are principal only
notes. This means that the indenture trustee
will not distribute interest on these notes.
The indenture trustee will distribute a
portion of the principal payment amount to
the investors of these notes.]
[ACCRUAL NOTES].................. [The class [___] notes are accrual notes.
Interest accrued on this class of notes will
be added to its principal balance rather than
distributed to the holders of these notes
until [insert mechanics describing when
interest accrual ceases.]]
FINAL SCHEDULED
MATURITY DATE.................... The outstanding principal amount, if any, of
the notes and certificates will be payable on
their final scheduled maturity dates as
described in the "Summary of Notes and
Certificates" table.
OPTIONAL REDEMPTION.............. [The seller] [the depositor] [the servicer]
may purchase all the receivables when the
total outstanding principal amount of the
receivables declines to less than [___%] of
the total principal balance of the
receivables as of the cut-off date.
The purchase price for the securities will be
equal to the remaining unpaid principal
amount of the receivables plus accrued
interest through the payment date on which
the redemption occurs. If [the seller] [the
depositor] [the servicer] exercises this
option, the outstanding principal balance of
the securities will be paid in full with
accrued interest.]
MANDATORY TERMINATION............ [The trust will have a [funding] [revolving]
period during which it will purchase
additional receivables. On the payment date
on or after the last day of the [funding]
[revolving] period, any funds remaining in
the trust's [pre-funding] [revolving]
account after the purchase of receivables on
that payment date will be applied to
partially redeem the notes and certificates
then outstanding.]
TRUST ASSETS..................... The primary assets of the trust will be
[participation interests in] [security
interests in] a pool of motor vehicle
[retail installment contracts] [note and
security agreements executed by retail
purchasers in favor of motor vehicle
S-4
<PAGE>
lenders] used to finance the purchase of new
and used automobiles, light duty trucks [and
sport utility vehicles]. We refer to these
[contracts] [note and security agreements] as
"receivables" and to the persons who financed
their purchases with these receivables as
"obligors." [__________] is the originator of
the receivables. The receivables in the trust
will be transferred by [the originator to the
seller, by the seller to the depositor, and
then by the depositor to the trust.] The
trust will grant a security interest in the
receivables and the other trust property to
the indenture trustee for the benefit of the
noteholders. The trust assets will also
include the following:
- monies received under the [initial]
receivables after a cutoff date of
[______ __, 20__] [and under additional
receivables sold to the trust after a
later cutoff date];
- amounts held in bank accounts
established for the trust [including
amounts on deposit in the collection
account, pre-funding account, revolving
account, reserve account and yield
supplement account];
- security interests in the automobiles,
light duty trucks [and sport utility
vehicles] financed by the receivables;
- any proceeds from insurance policies
covering financed vehicles or obligors
on those vehicles;
- any rights [_______] has against dealers
from which it purchased receivables;
[and]
- rights of the seller under its purchase
agreement with [_____] and rights of the
depositor under its receivables
acquisition agreement with the seller
[; and]
- [insert description of any other credit
enhancement applicable to a particular
series].
S-5
<PAGE>
THE [INITIAL] RECEIVABLES........ On the closing date, the trust will acquire
[a participation interest in] [a security
interest in] motor vehicle retail installment
contracts or note and security agreements
with an aggregate principal balance of
[$__________]as of the [initial] cutoff date
of [______ __, 20__]. As of the [initial]
cutoff date:
- the weighted average annual percentage
rate of the initial receivables was
approximately [___%];
- the weighted average remaining term to
scheduled maturity of the initial
receivables was approximately [__]
months;
- the weighted average original term to
scheduled maturity of the initial
receivables was approximately [__]
months;
- approximately [__%] of the receivables
by aggregate principal balance were
secured by used vehicles; and
- [insert description of additional pool
criteria applicable for a particular
series.]
No [initial] receivable has a scheduled
maturity later than [________ __, 20__],
which is [___] months before the final
scheduled payment date of the securities.
[PRE-FUNDING].................... [In addition to the initial receivables, the
trust will purchase additional receivables
during a funding period beginning on the
closing date and ending not later than the
close of business on [_______ __, 20__].]
[The trust will pay the purchase price for
additional receivables with [funds on deposit
in] [investments held in] a pre-funding
account established for the trust. The seller
will deposit] [[$________]] [insert
description of investments] into the
pre-funding account on the closing date. [In
addition, during the period beginning on the
closing date and ending on __________, the
trust will deposit [all/a portion of] the
payments collected on the
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receivables in the pre-funding account,
rather than pay such amounts to
securityholders. These additional amounts
will also be used to purchase additional
receivables during [the same period]. The
trust expects to purchase additional
receivables with an aggregate principal
balance approximately equal to the amount
deposited in the pre-funding account. Prior
to being used to purchase receivables, funds
on deposit in the pre-funding account will be
invested from time to time in highly rated
short-term securities.]
[The funding period will end earlier than
[_______ __, ____] if the balance in the
pre-funding account is reduced to less than
[$____].] [The funding period will also
terminate early if specified servicer
defaults or events of default under the sale
and servicing agreement or the indenture
occur. Any balance remaining in the
pre-funding account at the end of the funding
period will be applied to partially redeem
the securities then outstanding.]
REVOLVING PERIOD................. [In addition to the initial receivables, the
trust will purchase additional receivables
during a revolving period beginning on the
closing date and ending not later than the
close of business on [_________ __, 20__].]
[The trust will pay the purchase price for
additional receivables with funds on deposit
in a revolving account established for the
trust. During the revolving period, the
servicer will not distribute principal
collections on the securities to
securityholders. Instead, it will deposit
principal collections into the revolving
account. The trust expects to purchase
additional receivables with an aggregate
principal balance approximately equal to the
total amount of funds to be deposited into
the revolving account. Prior to being used
to purchase receivables, funds on deposit in
the pre-funding account will be invested from
time to time in highly rated short-term
securities.]
[The revolving period will end no later than
[_______ __, 20__].] [The revolving period
will terminate earlier if specified servicer
defaults or events of default under the sale
and servicing agreement or indenture occur.
Any
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balance remaining in the revolving
account at the end of the revolving period
will be applied to partially redeem the
securities then outstanding.]
[INTEREST RESERVE ACCOUNT]....... [We anticipate that the average interest rate
earned by the trust on investment of funds in
the [pre-funding] [revolving] account will be
less than the interest rate on the
securities. To provide a source of funds to
cover any shortfall resulting from this
difference, we will [deposit [$_______] into
a special interest reserve account of the
trust] [fund a special interest reserve
account of the trust from collections
received on the receivables]. On each payment
date during the [pre-funding] [revolving]
period, money from the interest reserve
account will be used to make up for this
interest shortfall.]
[RESIDUAL PAYMENT SECURITIES].... [The issuer may issue one or more new series
of notes or certificates backed by some or
all of the "equity interest" or rights to the
trust assets that are in excess of the
noteholders and certificateholders rights in
those assets.]
[CREDIT ENHANCEMENT]............. [Description of any credit enhancement
applicable for a particular series.]
[CROSS COLLATERALIZATION]........ [Description of any cross collateralization
between series.]
[THE CERTIFICATES]............... [On the closing date, the issuer will issue
certificates in an aggregate principal amount
of [$_________]. [[__________] will retain
the entire principal amount of the
certificates.] The certificates will be
subordinated in priority of payment to
interest and principal on the notes to the
extent described in this prospectus
supplement. The subordination of the
certificates will provide credit enhancement
for the notes.]
DISTRIBUTIONS.................... The servicer, or the indenture trustee on
behalf of and at the direction of the
servicer, will establish and maintain a
collection account in the name of the
indenture trustee into which all payment made
on the receivables will be deposited and held
pending distribution to securityholders.
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AVAILABLE FUNDS.................. The available funds for a payment date will
be the sum of the following amounts with
respect to the preceding calendar month:
- all principal and interest payments on
the receivables;
- all proceeds received during the
preceding calendar month, including
actual recovery amounts, with respect
to receivables that became charged-off
receivables during the preceding
calendar month, net of the reasonable
and customary out-of-pocket expenses
incurred by the servicer in connection
with collection, enforcement or
liquidation and any amounts required by
law to be remitted to the obligor on the
charged-off receivable;
- proceeds from actual recovery amounts on
charged-off receivables;
- earnings on investments of funds in the
collection account [, pre-funding
account, revolving account, reserve
account, interest reserve account and
yield supplement account] during the
preceding calendar month;
- the purchase amount deposited in the
collection account for each receivable
that was repurchased by [the originator]
[the seller] [the servicer]; and]
- [insert any other amounts applicable for
a particular series].
APPLICATION OF PAYMENTS........... On each payment date, the indenture trustee
will distribute funds on deposit in the
collection account relating to the prior
collection period in the priority indicated:
[insert description of the order and priority
of payments applicable for a series]
FEDERAL TAX CONSIDERATIONS........ Mayer, Brown & Platt, special Federal tax
counsel to [________] ("Federal Tax
Counsel"), is of the opinion that
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for Federal income tax purposes the notes
will be characterized as debt and the trust
will not be characterized as an association
(or publicly traded partnership) taxable as a
corporation. Each noteholder, by accepting a
note, will agree to treat the notes as debt
and each certificateholder, by its acceptance
of a certificate, will agree to treat the
trust as a partnership in which the
certificateholders are partners for federal,
state and local tax purposes. See "Federal
Income Tax Considerations" for a summary of
material federal income tax consequences of
the purchase, ownership and disposition of
the notes and certificates.
ERISA CONSIDERATIONS............. Subject to the restrictions and
considerations discussed under "ERISA
Considerations," the notes may be eligible
for purchase by employee benefit plans.
An investor that is, or is acting on behalf
of, an employee benefit plan, account or
other retirement arrangement subject to the
Employee Retirement Income Security Act of
1974, as amended ("ERISA") or Section 4975 of
the Code or any entity deemed to hold "plan
assets" of the foregoing will be deemed to
represent and warrant that its investment in
the notes, as applicable, will not result in
a non-exempt prohibited transaction under
ERISA or Section 4975 of the Internal Revenue
Code of 1986, as amended (the "Code").
The certificates may not be acquired with the
assets of any employee benefit plan, account
or other retirement arrangement subject to
ERISA or Section 4975 of the Code (including
the assets of an individual retirement
account.)
RATINGS.......................... It is a condition to the issuance of the
securities that the class [_____] notes be
rated at least ["____"] by [______] and the
class [_____] certificates be rated at least
[ "____"] by [_____]. The ratings of the
securities address the likelihood of the
timely payment of interest on and the
ultimate payment of principal of the
securities under their terms. These ratings
are not a recommendation to buy, sell or hold
the securities. We cannot assure you that a
rating will not be lowered or withdrawn by a
rating agency if circumstances so warrant.
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<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase the securities.
PAYMENTS WILL BE MADE The trust does not have any significant
ONLY FROM THE LIMITED assets or sources of funds other than the
ASSETS OF THE TRUST receivables, amounts on deposit in the trust
accounts [and] [insert description of any
credit enhancement]. You must rely on
payments on the receivables, amounts, if any,
on deposit in the trust accounts [and]
[insert description of credit enhancement]
for repayment of the securities.
YOU BEAR REINVESTMENT The receivables may be prepaid at any time,
RISK AND PAYMENT DELAY in full or in part, voluntarily or as a
RISK DUE TO REPURCHASE result of defaults, casualties to the
related vehicles, death of an obligor or
other reasons. [The originator[ [the seller]
[the servicer] may be required to repurchase
one or more receivables from the trust if it
breaches specified representations or
covenants relating to the receivables
described in ["Description of the Transaction
Documents-- Sale and Assignment of [Initial]
Receivables [and Additional Receivables]."]
[The servicer] [the seller] [the depositor]]
also will have the right to purchase all
remaining receivables from the trust pursuant
to a clean-up call described in ["Summary --
Optional Redemption" and "Description of the
Securities--Optional Redemption."] Each
prepayment, repurchase or purchase will
shorten the average life of the securities.
[The class [__] notes will be extremely
sensitive to the rate and timing of payments,
including prepayments, on the receivables. If
you purchase a class [__] note at a premium,
under some prepayment scenarios, you could
fail to recoup your original investment.]
[The class __ notes will be adversely
affected by a lower than anticipated rate of
payment on the receivables.] [The
reinvestment risk to an investor in the class
[__] notes may be exacerbated in the event of
[an increase in the rate of payment on the
receivables in a decreasing interest rate
environment] [a decrease in the rate of
payment on the receivables in an increasing
rate environment.]
Prepayment rates may be influenced by a
variety of factors and cannot be predicted
with any assurance. You will bear any
reinvestment risks resulting from a faster
rate of
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<PAGE>
prepayment or repurchase of receivables. Any
time your principal is repaid to you at a
time when you did not expect to receive it,
you may not be able to reinvest your funds at
the same or a higher rate of return than the
interest rate on your securities.
VARIATIONS IN REGIONAL As of the [initial] cutoff date, obligors
ECONOMIC CONDITIONS located in _______, ________ and ________,
MAY CAUSE PAYMENT respectively, comprised [__%], [__%] and
REDUCTIONS OR DELAYS [__%] of the [initial] receivables by
aggregate principal balance. Adverse
economic conditions or other factors
particularly affecting these states may
affect the delinquency, loan loss and
repossession experience of the receivables.
UNENFORCEABILITY OF THE When dealers or [________]first originate
TRUST'S SECURITY INTERESTS IN receivables, [_______'s] security interests
FINANCED VEHICLES BECAUSE in the financed assets are noted on the
CERTIFICATES OF TITLE WILL certificates of title for the vehicles.
NOT BE AMENDED MAY [_______] will transfer and assign security
CAUSE PAYMENT REDUCTIONS interests in the financed vehicles to the
OR DELAYS seller. The seller, in turn, will transfer
and assign those security interests to the
depositor, who will transfer and assign
those security interests to the trust. The
trust, in turn, will assign those security
interests to the indenture trustee for the
benefit of the noteholders. In most states,
these assignments are effective assignments
of a security interest, and the assignee
succeeds to the assignor's rights as secured
party. However, due to the administrative
burden and expense, the certificates of title
for the financed vehicles will not be marked,
amended or reissued to identify the seller,
the depositor, the trust or the indenture
trustee as the secured party. In the absence
of this action, the indenture trustee may
not have a perfected security interest in
the financed vehicles securing the
receivables. For a more complete description
of perfection issues, see ["Legal Aspects of
the Receivables--Security Interests in
Vehicles"] in the prospectus.
START [POSSIBLE PREPAYMENTS AS A [If the principal amount of eligible
RESULT OF FUNDING OR receivables purchased or directly originated
REVOLVING PERIOD] by [________] during the trust's [funding]
[revolving] period is less than the amount
[accumulated from collections and] deposited
in the trust's [pre-funding] [revolving]
account, we will not have sufficient
receivables to sell to the trust
during the [funding] period. This would
result in a prepayment of principal to the
securityholders as described below.
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If the aggregate principal balance of
receivables we sell to the trust during the
[funding] [revolving] period is less than
the amount [accumulated from collections
and] deposited in the trust's [pre-funding]
[revolving] account, the excess will be
applied at the end of the [pre-funding]
[revolving] period to partially prepay the
securities. Any prepayment under these
circumstances will shorten the weighted
average life of the securities to an extent
that we cannot predict with assurance, since
we cannot predict the amount of any
prepayment with assurance.]
[CHANGES IN POOL CHARACTERISTICS [The only required characteristics
AS A RESULT OF PRE-FUNDING of the additional receivables transferred
OR REVOLVING PERIOD] to the trust during the [pre-funding]
[revolving] period will be the
eligibility criteria specified in the
sale and servicing agreement. These
additional receivables may be originated
using credit criteria different from those
that were applied to the initial receivables
and may be of a different credit quality and
seasoning. As a result, following the
transfer of additional receivables to the
trust, the characteristics of the entire
receivables pool may vary from those of the
initial receivables described in ["The
Receivables]." Since the weighted average
life of the securities will be influenced by
the rate at which the principal balances of
the receivables are paid, some of these
variations may affect the weighted average
life of the securities.]
[SUBORDINATION OF THE CLASS [The subordination of the class [__] notes
[__] NOTES PROVIDES ONLY is intended to increase the likelihood of
LIMITED PROTECTION payments on the class [__] notes. The amount
AGAINST LOSSES] of credit enhancement provided through the
subordination of the class [__] notes to the
class [__] notes, however, is limited and
could be depleted prior to the payment in
full of the class [__] notes. If the
principal amount of the class [__] notes is
reduced to zero, you may suffer losses on
your notes.]
LIMITATIONS ON INTEREST PAYMENTS Generally, under the terms of the Soldiers'
AND FORECLOSURES and Sailors' Civil Relief Act of 1940, as
amended, or similar state legislation, an
obligor who enters military service after
the origination of an auto loan may not
be charged interest, including fees and
charges, above an annual rate of 6% during
the period of the obligor's active duty
status unless a court orders otherwise upon
application of the lender. This includes any
obligor who is a member of the National
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Guard or is in reserve status at the time of
the origination of the auto loan and is
later called to active duty. It is possible
that for an indeterminate period of time,
the servicer may be unable to collect full
amounts of interest on some of the auto
loans. In addition, the Soldiers' and
Sailors' Civil Relief Act of 1940 imposes
limitations that would impair the ability of
the servicer to foreclose on an affected
auto loan during an obligor's period of
active duty status. Thus, in the event that
an auto loan goes into default, there may be
delays and losses occasioned by the inability
of the servicer to realize upon the vehicle
in a timely fashion.
[ADDITIONAL RISK FACTORS
APPLICABLE FOR A SPECIFIC
SERIES]
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THE TRUST
The trust was formed under the trust agreement between the owner trustee
and the depositor for the transaction described in this prospectus supplement.
After its formation, the trust will not engage in any activity other than
acquiring, holding and managing the receivables and the other assets of the
trust and proceeds therefrom and issuing the notes and certificates and making
payments thereon.
The trust has no directors, officers or employees and is not involved
in any legal proceedings.
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the trust as of the
closing date, as if the issuance and sale of the notes and the certificates had
taken place on such date:
Asset Backed Notes................ [$___________]
Asset Backed Certificates......... [$_______]
Total..............................[$_______]
[An audited balance sheet of the trust as of [________ __, 20__]is attached
as Appendix A to this prospectus supplement.]
THE OWNER TRUSTEE
[_________] will serve as the owner trustee under the Trust Agreement.
[________]is a [_______] and its principal offices where information can be
obtained relating to the trust are located at [_________________]. The
[originator] [the seller] [the depositor] [the servicer] and its affiliates may
maintain normal commercial banking relations with the owner trustee and its
affiliates.
THE INDENTURE TRUSTEE
[___________] is the indenture trustee under the Indenture. It is a
[__________] corporation and its principal offices are located at
[________________]. The indenture trustee's duties in connection with the notes
are limited solely to its express obligations under the indenture and the sale
and servicing agreement.
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<PAGE>
[USE OF PROCEEDS]
[describe any uses not specified in base prospectus]
THE RECEIVABLES
[_________] [purchased or originated] [was granted a security interest in]
the receivables in the ordinary course of its business. The pool of receivables
will consist of [participation interests in] [security interests in] [initial]
receivables purchased by the trust as of the closing date [and [participation
interests in] [security interests in] any additional receivables purchased
during the trust's funding period.] [[________] has selected receivables from
its portfolio to include in the pool of [initial] receivables [and will select
receivables from its portfolio for inclusion in the pool of additional
receivables] using the following eligibility criteria described below.]
ELIGIBILITY CRITERIA
Eligibility criteria include that each receivable:
- has no payment 10% or more of which was more than 29 days past due;
- has an annual percentage interest rate or APR of not less than [__%] and
not more than [__%];
- [provides for level monthly payments that fully amortize the amount
financed over an original term to scheduled maturity of at least [__]
months and not more than [__] months; provided that payments are made
on the applicable due dates and except that the final payment may differ;
- has an outstanding principal balance of not less than [$_____] and not
more than [$_____];
- has a remaining term to scheduled maturity of at least [__] months and
not more than [__] months; [and]
- is either a rule of 78s receivable, fixed value receivable, simple
interest receivable or actuarial receivable[; and]
- [insert any other criteria applicable for a particular series].
[In addition, the seller will represent and warrant, among other things,
that, after giving effect to each transfer of additional receivables, the
receivables in the trust will meet the following criteria:]
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[insert criteria applicable to pool after transfer of additional receivables]
The [initial] receivables were originated on or before [________ __, 20__.]
The composition of the pool of receivables as of the closing date will not
deviate from the composition of the pool of receivables as of the [initial]
cut-off date. The seller did not [and will not] utilize any selection procedures
it believed would be adverse to the securityholders in selecting the
receivables.
Please refer to the tables in Appendix B which set forth information
regarding the composition and characteristics of the receivables pool as of the
[initial] cutoff date.
THE SELLER(S)
[Insert description of each seller(s).]
THE ORIGINATOR(S)
[Insert description of each originator(s) and its underwriting procedures
and criteria.]
THE SERVICER
[Insert description of the servicer.]
DELINQUENCY AND LOSS EXPERIENCE
[Insert description of servicer's loss and delinquency experience including
loss and delinquency tables.]
SERVICING AND COLLECTIONS
[Insert description of servicer's servicing and collection procedures and
any commingling rights, including specific percentage of securityholders
required to terminate servicer upon servicer default.]
WEIGHTED AVERAGE LIFE OF THE SECURITIES
The rate of payment of principal of each class of notes and the
certificates depends primarily on the rate of payment, including prepayments, of
the principal balance of the receivables. As a result, final payment of any
class of the notes and the final distribution in respect of the certificates
could occur significantly earlier than the final scheduled payment dates for
each class of notes and certificates. We expect that final payment of the notes
and the final distribution on the certificates will occur on or prior to the
applicable final scheduled payment date for each class. However, if sufficient
funds are not available to pay the notes or the
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certificates in full on or prior to the applicable final scheduled payment date,
final payment of the notes and the final distribution on the certificates could
occur later than expected.
The weighted average life of the notes and the certificates of any series
will generally be influenced by the rate at which the principal balances of the
related receivables are paid, which payment may be in the form of scheduled
amortization or prepayments. All of the receivables are repayable at any time
without penalty, or with only a nominal penalty, to the obligor. The rate of
prepayment of automotive receivables is influenced by a variety of economic,
social and other factors, including decreases in the general level of prevailing
interest rates, the desire of the obligor to purchase a new vehicle and the fact
that an obligor generally may not sell or transfer the financed vehicle securing
a receivable unless the receivable is paid in full. In addition, under certain
circumstances, [the originator] [the seller] [the servicer] will be obligated to
repurchase receivables from the trust pursuant to the sale and servicing
agreement as a result of breaches of representations and warranties. You should
consider, in the case of securities purchased at a discount, the risk that a
slower than anticipated rate of principal payments on the receivables could
result in an actual yield that is less than the anticipated yield. In the case
of securities purchased at a premium, the risk that a faster than anticipated
rate of principal payments on the receivables could result in an actual yield
that is less than the anticipated yield.
No prediction can be made as to the rate of prepayment on the receivables.
We are not aware of any publicly available industry statistics for the entire
industry on an aggregate basis that set forth principal prepayment experience
for receivables similar to the receivables over an extended period of time.
In light of the above considerations, we cannot assure you as to the amount
of principal payments to be made on the notes, if any, or the certificates on
each payment date, since the amount will depend, in part, on the amount of
principal collected during the applicable collection period. Any reinvestment
risks resulting from a faster or slower incidence of prepayment of receivables
will be borne entirely by the noteholders and the certificateholders.
[Description of prepayment speed assumption and modeling assumptions, if
any, applicable for a particular series.]
DESCRIPTION OF THE SECURITIES
DESCRIPTION OF THE NOTES
The indenture trustee will issue the notes pursuant to the indenture
between the indenture trustee and the trust. The notes initially will be
represented by notes registered in the name of Cede & Co. ("CEDE") as the
nominee of The Depository Trust Company ("DTC"), and will only be available in
the form of book-entries on the records of DTC and its participating members.
The notes will be issued in minimum denominations of [$_____]and integral
multiples of [$_____], except that one note of each class may be issued in
another denomination. All
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references to "holders" or "noteholders" and to authorized denominations, shall
reflect the rights of beneficial owners of the notes or "note owners."
DESCRIPTION OF THE CERTIFICATES
The trust will issue the certificates pursuant to the trust agreement
between the depositor and the owner trustee.
PAYMENTS
The notes and certificates will bear interest at the [fixed] [floating]
rates described in "Summary of the Notes and Certificates." [Insert description
of any floating rate mechanics applicable for a particular series.] The notes
and certificates constitute [fixed-income securities, strip securities and
accrual securities] as described in "[Prospectus Summary--Fixed-Income
Securities, --Strip Securities and --Accrual Securities" in the prospectus]. The
indenture trustee will distribute payments of interest to noteholders and
certificateholders [monthly] [quarterly] on each payment date commencing
[________ __, 20__]. Payment dates will occur on the [__] day of each [month]
[quarter] or, if that day is not a business day, the next succeeding business
day. A business day is any day other than a Saturday, Sunday or any other day on
which banks in [___________] are authorized or obligated by law or order to be
closed. The indenture trustee will calculate interest on the notes and
certificates on the basis of [a 360-day year consisting of twelve 30-day
months].
On each determination date, the indenture trustee will determine the amount
in the collection account allocable to interest and the amount allocable to
principal. The determination date will be the [__] day of the calendar [month]
[quarter] during which any payment date occurs, or if that day is not a business
day, the next business day.
On each payment date, noteholders and certificateholders as of the related
record date will be entitled to receive [thirty] days interest at the interest
rate on their securities on the outstanding principal balance of their notes or
certificates, as applicable, as of the close of the preceding payment date.
Nevertheless, on the first payment date, the interest payable to securityholders
will be an amount equal to the product of:
- the interest rate on the note or certificate;
- the initial principal amount of the note or certificate; and
- a fraction:
- the numerator of which is the number of days (assuming a 30-day
month) from and including the closing date to but excluding the
first payment date; and
- the denominator of which is 360.
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Interest on the securities which is due but not paid on any payment date
will be payable on the next payment date together with, to the extent permitted
by law, interest on the unpaid amount at the interest rate for that class of
securities.
The indenture trustee will distribute payments of principal to noteholders
and certificateholders [monthly] [quarterly] on each payment date commencing
[________ __, 20__]. The amount of principal available for distribution will
generally equal the principal payment amount.
The actual date on which the aggregate outstanding principal amount of
any class of securities is paid may be earlier than the final scheduled payment
dates for that class of notes. See "Weighted Average Life of the Securities."
On each payment date, all amounts on deposit in the collection account,
other than investment earnings, will be generally paid in the following order of
priority:
(1) to Servicer, the servicing fee for the related collection period and
all accrued and unpaid servicing fees for prior collection periods;
(2) to trustee and indenture trustee, all accrued and unpaid fees and
expenses accrued owing the indenture trustee and the owner trustee;
(3) to the note payment account for distribution to noteholders on
a pro rata basis, accrued and unpaid interest for that payment date;
(4) to the note payment account for distribution to noteholders, on a pro
rata basis, the noteholders principal distributable amount;
(5) to the certificate distribution account for distribution to
the certificateholders, on a pro rata basis, accrued and unpaid
interest for that payment date;
(6) to the certificate distribution account for distribution to the
certificateholders, on a pro rata basis, the certificateholders
principal distributable amount; and
(7) to the seller or servicer, any remaining amounts.
[Insert description of any special priority rules that would apply in a
default situation.]
[PRE-FUNDING ACCOUNT] [REVOLVING PERIOD]
[On the Closing Date, approximately $____________ of initial receivables
will be transferred by the seller to the depositor and by the depositor to the
trust and approximately $______________ will be [deposited] [accumulated from
collections on the receivables for deposit into] the [pre-funding] [revolving]
account. If the principal amount of eligible
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receivables originated by [__________]during the [funding] [revolving] period is
less than the pre-funded amount, the seller will have insufficient receivables
to transfer to the depositor and the depositor will have insufficient
receivables to transfer to the trust on the subsequent transfer dates, thereby
resulting in a prepayment of principal to the noteholders and the
certificateholders.]
[To the extent that the [pre-funded amount] [total amount accumulated in
the revolving account] has not been fully applied to the purchase of subsequent
receivables by the trust during the [funding] [revolving] period, the
noteholders and the certificateholders will receive a prepayment of principal,
on the payment date on or immediately following the last day of the funding
period. The prepayment amount will be equal to each noteholder's or
certificateholder's pro rata share (based on the current principal balance of
each class of notes and certificates) of any remaining [pre-funded amount]
[amounts in the revolving account] following the purchase of any subsequent
receivables on that payment date. We anticipate that the principal amount of
subsequent receivables sold to the trust will not be exactly equal to the
[original pre-funded amount] [total amount accumulated in the revolving account]
and that therefore there will be at least a nominal amount of principal prepaid
to the noteholders and to the certificateholders.]
[If the amount of the pre-funding account will exceed 25% of the aggregate
proceeds from the offering, including the specific investments in which the
pre-funding account will be invested, then the depositor will specify the actual
investments of the pre-funding account in its periodic reports to be filed on
Form 8-K and Form 10-K.]
OPTIONAL REDEMPTION
The [originator] [seller] [servicer] [depositor] is permitted at its option
to purchase all remaining receivables from the trust. The [originator] [seller]
[servicer] [depositor] may exercise this repurchase option on or after the last
day of any month on or after which the then outstanding aggregate principal
balance of the receivables is less than or equal to ten percent (10%) of the
initial aggregate principal balance of the receivables as of the closing date at
a price equal to the remaining unpaid principal amount of the receivables as of
such last day of the month plus accrued interest thereon through the payment
date on which the redemption will occur. Exercise of these rights will result in
the early retirement of the notes and certificates. Upon declaration of an
optional redemption, the indenture trustee will give written notice of
termination to each noteholder and certificateholder of record. The final
payment to any noteholder or certificateholder will be made only upon surrender
and cancellation of that holder's note or certificate, as applicable, at the
office or agency of the indenture trustee specified in the notice of
termination.
DESCRIPTION OF THE TRANSACTION DOCUMENTS
The following summary describes the material terms of the transaction
documents. The transaction documents include, among others, [the purchase
agreement], the receivables
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transfer agreement, the sale and servicing agreement, the trust agreement, and
the indenture [insert other relevant agreements]. Copies of the transaction
documents will be filed with the Securities and Exchange Commission following
the issuance of the securities. This summary is qualified in its entirety by
reference to the actual transaction documents.
[DESCRIPTION OF ORIGINATOR/ SELLER REPRESENTATIONS AND WARRANTIES]
[Insert description of representations and warranties.]
[SALE AND] ASSIGNMENT OF [INITIAL] RECEIVABLES [AND ADDITIONAL RECEIVABLES]
[The seller originated the receivables.] [The seller acquired the
receivables from the originator under a purchase agreement dated [_______ __,
____]. On the closing date, the seller will [sell] [pledge] [participation
interests in] [security interests in] the [initial] receivables to the depositor
under the receivables transfer agreement. In turn, the depositor will [sell]
[pledge] [participation interests in] [security interests in] the [initial]
receivables to the trust under the sale and servicing agreement. The trust will
pledge the [initial] receivables to the indenture trustee for the benefit of the
noteholders under the indenture.
[In addition, during the [funding] [revolving] period, under the
receivables transfer agreement, the seller will be obligated to sell the
depositor, for sale by the depositor to the trust, additional receivables up to
the amount on deposit in the [pre-funding] [revolving] account. We expect that
the seller will convey additional receivables to the depositor on subsequent
transfer dates specified by the seller. [The funding] [revolving] period is the
period beginning on the closing date and ending on the earliest to occur of:
- [the date on which the amount in the pre-funding account is less than
[$____];]
- the date on which an event of default occurs under the indenture or a
servicer termination event occurs under the sale and servicing agreement;
or
- the close of business on [________ __, 20__].]
[On each subsequent transfer date, the seller will [sell] [pledge]
[participation interests in] [security interests in] the [additional]
receivables to the depositor under a subsequent receivables transfer agreement.
In turn, the depositor will [sell] [pledge] [participation interests in]
[security interests in] the [additional] receivables listed on a schedule
attached to an assignment to the trust.]
[Insert description of additional conditions to transfer of subsequent
receivables]
[Except for the criteria described above, there are no required
characteristics of the additional receivables. Therefore, following the transfer
of additional receivables to the trust,
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the aggregate characteristics of the entire receivable pool may vary from those
of the initial receivables.]
[Although [__________] will continue to service and administer the
receivables under the sale and servicing agreement, [_________] will deliver the
original documents evidencing each receivable and the certificate of title for
the related financed vehicle to the indenture trustee as custodian for the
trust.] [In order to facilitate servicing and to minimize administrative burden
and expense, the servicer will act as custodian for the receivables.]
[Insert description of actions that will be taken by the related parties as
applicable to perfect either the issuer's or the securityholder's security
interest in the receivables.]
ACCOUNTS
The servicer, or the indenture trustee on behalf of and at the direction of
the servicer, will establish and maintain the collection account, [the reserve
account,] [the pre-funding account,] [the revolving account] [the interest
reserve account] [and the yield supplement account] in the name of the indenture
trustee for the benefit of noteholders. We refer to these accounts as the trust
accounts. The servicer will forward the proceeds of payments on the receivables
to the indenture trustee for deposit in the collection account within two
business days of its receipt. The indenture trustee will invest funds on deposit
in any trust account in Eligible Investments selected by [the seller] [the
depositor] that mature not later than the next payment date.
[Description of trust account mechanics applicable to a particular series.]
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The servicing fee rate will be [__%] per annum of the aggregate
principal balance of the receivables as of the opening of business on the first
day of the related collection period. The servicer will also collect and retain
any late fees, non-sufficient funds fees, liquidation fees and other
administrative fees as a supplemental servicing fee for servicing the
receivables. The servicer will allocate payments by or on behalf of obligors to
scheduled payments and late fees and other charges in accordance with its normal
practices and procedures.
AVAILABLE FUNDS
On each payment date, the indenture trustee will apply the available funds
in the collection account to make required payments of principal and interest to
noteholders and certificateholders. See "Summary--Available Funds" for a
description of available funds.
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APPLICATION OF PAYMENTS
[Insert description of the priority and right to payment for each series.]
[SUBORDINATION OF CERTIFICATEHOLDERS]
[The rights of the certificateholders to receive distributions on the
receivables will be subordinated to the rights of the noteholders in the event
of defaults and delinquencies on the receivables as provided in the sale and
servicing agreement. The protection afforded to the noteholders through
subordination will be effected [both] by the preferential right of the
noteholders to receive current distributions with respect to the receivables
[and by the establishment of the reserve account]. If on any payment date there
are not enough funds to distribute amounts due to noteholders, the
certificateholders may receive a reduced distribution or no distribution at
all.]
[The subordination of the certificates [and the reserve account] are
intended to enhance the likelihood of receipt by noteholders of the full amount
of principal and interest due them and to decrease the likelihood that the
noteholders will experience losses. [In addition, the reserve account is
intended to enhance the likelihood of receipt by certificateholders of the full
amount of principal and interest due them and to decrease the likelihood that
the certificateholders will experience losses. However, in certain
circumstances, the reserve account could be depleted. If the amount required to
be withdrawn from the reserve account to cover shortfalls in collections on the
receivables exceeds the amount of available cash in the reserve account,
noteholders and/or certificateholders could incur losses or a temporary
shortfall in the amounts distributed could result, which could, in turn,
increase the average life of the notes and/or the certificates.]
LEGAL ASPECTS OF THE RECEIVABLES
[Insert discussion of any legal aspects of the receivables relevant to a
particular series.] [See "Legal Aspects of the Receivables" in the prospectus.]
LEGAL INVESTMENT
[The class [__] notes will be eligible for purchase by money market funds
under paragraph (a)(10) of Rule 2a-7 under the Investment Company Act of 1940,
as amended.]
FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes generally the material federal income
tax consequences of the purchase, ownership and disposition of the notes and
certificates and such summary represents the opinion of 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 or the courts.
No ruling on any of the issues discussed below will be sought from the
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Internal Revenue Service. The following summary is intended as a discussion of
the possible effects of certain federal income tax provisions to holders, 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. In addition, this summary does not address all federal
income tax consequences that may be relevant to an investment in notes or
certificates to investors in light of their particular circumstances or special
tax situations. For example, the discussion does not apply to:
- banks and thrifts,
- insurance companies,
- regulated investment companies,
- dealers in securities,
- tax-exempt organizations,
- investors subject to the alternative minimum tax,
- foreign investors, and
- trusts, estates or pass-through entities, the equity holders of which are
any of the entities described above.
In addition, the discussion is limited to the federal income tax consequences of
the initial noteholders and certificateholders and does not address federal
income tax consequences to a purchaser of notes or certificates in the secondary
market. Further, this discussion is addressed only to holders who hold the notes
or certificates as capital assets and does not address tax consequences of
investors holding the notes or certificates as part of a conversion transaction,
hedge or hedging transaction, of as a position in a straddle or other integrated
investment for tax purposes.
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. However, there are no cases
or Internal Revenue Service rulings on similar transactions involving both debt
and equity interests issued by a trust with terms and conditions of issuance
similar to those of the notes and the certificates. As a result, the Internal
Revenue Service may disagree with all or a part of the discussion below. We
suggest that prospective investors consult their own tax advisors in determining
the federal, state, local, foreign and any other tax consequences to them of the
purchase, ownership and disposition of the notes and certificates.
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TAX CHARACTERIZATION OF THE TRUST
Federal Tax Counsel is of the opinion that, although no transaction closely
comparable to that contemplated herein has been the subject of any treasury
regulation, revenue ruling or judicial decision, the trust will not be
characterized as a separate entity that is an association (or publicly traded
partnership) taxable as a corporation for federal income tax purposes. As a
result, the trust will not be subject to federal income tax. This opinion is
based on the assumption that the terms of the trust agreement and related
documents will be complied with, and on Federal Tax Counsel's conclusion that
the nature of the income of the trust will exempt it from the rule that certain
publicly traded partnerships are taxable as corporations. However, this opinion
is not binding on the Internal Revenue Service and no assurance can be given
that this characterization will prevail.
If the trust were taxable as a corporation for federal income tax purposes,
the trust would be subject to corporate income tax on its taxable income. The
trust's taxable income would include all its income on the receivables, reduced
by its interest expense on the notes provided the notes are respected as debt
for federal income tax purposes (see discussion in the following paragraph). Any
corporate income tax of this nature could materially reduce cash available to
make payments on the notes or certificates.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
TREATMENT OF THE NOTES AS INDEBTEDNESS. The depositor will agree, and the
noteholders will agree by their purchase of notes, to treat the notes as debt
for federal, state and local income and franchise tax purposes. In the opinion
of Federal Tax Counsel, although no transaction closely comparable to that
contemplated herein has been the subject of any treasury regulation, revenue
ruling or judicial decision, the notes will be characterized as debt for federal
income tax purposes. The discussion below assumes that this characterization of
the notes will be respected.
The discussion below assumes that all payments on the notes are denominated
in U.S. dollars, and that the notes are not strip securities. 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, except as
discussed in the following paragraph, the notes will not be considered issued
with OID. The stated interest thereon will be includible in gross income when
received or accrued in accordance with that noteholder's usual method of tax
accounting. Under the OID regulations, a holder of a note issued with a DE
MINIMIS amount of OID must include that OID in income, on a pro rata basis, as
principal payments are made on the note. It is believed that any prepayment
premium paid as a
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result of a mandatory redemption will be taxable as contingent interest when it
becomes fixed and unconditionally payable.
MARKET DISCOUNT; PREMIUM. A holder who purchases a note at a discount that
exceeds any OID not previously includible in income may be subject to the
"market discount" rules of sections 1276 through 1278 of the Code. These rules
provide, in part, that gain on the sale or other disposition of a note and
partial principal payments on a note are treated as ordinary income to the
extent of accrued market discount. The market discount rules also provide for
deferral of interest deductions with respect to debt incurred to purchase or
carry a note that has market discount. Further, a holder who purchases a note at
a price that exceeds the principal amount of the note may elect to amortize the
premium against interest income over the remaining term of the note in
accordance with the provisions of section 171 of the Code.
SALE OR OTHER DISPOSITION. If a noteholder sells or otherwise disposes of a
note, the holder will generally recognize taxable gain or loss in an amount
equal to the difference between the amount realized on the disposition (other
than amounts attributable to accrued interest, which will be taxable as such)
and the holder's adjusted tax basis in the note. The adjusted tax basis of a
note to a particular noteholder will equal the holder's cost for the note,
increased by any market discount, OID and gain previously included by that
noteholder in income for the note and decreased by the amount of bond premium
(if any) previously amortized and by the amount of principal payments previously
received by the noteholder for that note. Any such gain or loss will be capital
gain or loss if the note was held as a capital asset, except for such gain
representing accrued market discount not previously included in income, and will
be long-term capital gain or loss if at the time of the disposition the note has
been held for more than one year. Capital losses 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 as
to the United States is a nonresident alien individual, 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 (1) actually or constructively a "10
percent shareholder" of the trust or [the seller] [the depositor] or (2) a
"controlled foreign corporation" with respect to which the trust or [the seller]
[the depositor] is a "related person" within the meaning of the Code and (ii)
provides the indenture trustee or other person who is otherwise required to
withhold U.S. tax with respect to the notes with an appropriate statement (on
Internal Revenue Service Form W-8 BEN or a similar form), signed under penalties
of perjury, certifying that the beneficial owner of the note is a foreign person
and providing the foreign person's name and address. If a note is held through a
securities clearing organization or certain other financial institutions, the
organization or institution may provide the relevant signed statement to the
withholding agent; in that case, however, the signed statement must be
accompanied by a Form W-8 BEN or substitute form provided by the foreign person
that owns the note. If the interest is not portfolio interest, then it will be
subject to United States federal withholding tax at a rate of
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30 percent, unless that rate is reduced or eliminated pursuant to an applicable
tax treaty and the foreign person provides the trustee or other payor of the
interest with a copy of Internal Revenue Service Form W-8 BEN, or if the
interest is effectively connected with the conduct of a U.S. trade or business
and the foreign person provides a copy of Internal Revenue Service Form W-8 ECI.
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 (1) such gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (2) 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.
On October 6, 1997, final Treasury regulations (the "Withholding Tax
Regulations") were issued that modify certain of the above procedures 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. The
Withholding Tax Regulations will generally be effective for payments made on the
notes after December 31, 2000. Prospective investors should consult their tax
advisors with respect to the potential impact to them, if any, 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 trust will be required to withhold 31
percent of the amount otherwise payable to the holder, and remit the withheld
amount to the Internal Revenue Service as a credit against the holder's federal
income tax liability. We suggest that noteholders 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 to them, if any,
of the Withholding Tax Regulations.
POSSIBLE ALTERNATIVE TREATMENTS OF THE NOTES. If, contrary to the
opinion of Federal Tax Counsel, the Internal Revenue Service successfully
asserted that one or more of the notes did not represent debt for federal income
tax purposes, the notes might be treated as equity interests in the trust. If so
treated, the trust might be taxable as a corporation with the adverse
consequences described above (and the taxable corporation would not be able to
reduce its taxable income by deductions for interest expense on notes
recharacterized as equity). Alternatively, and most likely in the view of
Federal Tax Counsel, the trust might be treated as a publicly traded partnership
that would not be taxable as a corporation because it would meet certain
qualifying income tests. Nonetheless, treatment of the notes as equity interests
in such a 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
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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 trust expenses. Furthermore, this characterization could subject holders to
state and local taxation in jurisdictions in which they are not currently
subject to tax. Prospective investors should consult their own tax advisors with
regard to the consequences of each such possible alternative characterization to
them in their particular circumstances.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
TREATMENT OF THE TRUST AS A PARTNERSHIP. The seller, the servicer, the
owner trustee, and the certificateholders, by their purchase of certificates,
will agree to treat the trust as a partnership for purposes of federal and state
income tax, franchise tax and any other tax measured in whole or in part by
income, with the assets of the partnership being the assets held by the trust,
the partners of the partnership being the certificateholders [the seller] [and
the depositor], and the notes being debt of the partnership. However, the proper
characterization of the arrangement involving the trust, the certificates, the
notes, the seller, the depositor and the servicer is not clear because there is
no authority on transactions closely comparable to that contemplated herein.
A variety of alternative characterizations are possible. For example,
because the certificates have certain features characteristic of debt, the
certificates might be considered debt of the seller, the depositor or the trust.
Any such characterization would not result in materially adverse tax
consequences to certificateholders as compared to the intended consequences from
treatment of the certificates as equity in a partnership, described below. The
following discussion assumes that the certificates represent equity interests in
a partnership.
The following discussion assumes that all payments on the certificates are
denominated in U.S. dollars, none of the certificates are strip securities, and
that a series of securities includes a single class of certificates.
PARTNERSHIP TAXATION. As a partnership, the trust will not be subject to
federal income tax. Rather, each certificateholder will be required to
separately take into account such holder's accruals of guaranteed payments from
the trust and its allocated share of other income, gains, losses, deductions and
credits of the trust. The trust's income will consist primarily of interest and
finance charges earned on the receivables (including appropriate adjustments for
market discount, OID and bond premium) and any gain upon collection or
disposition of receivables. The trust's deductions will consist primarily of
interest accruing with respect to the notes, guaranteed payments on the
certificates, servicing and other fees, and losses or deductions upon collection
or disposition of receivables.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the trust agreement and related documents). Under the trust agreement,
interest payments on the certificates at the certificate
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interest rate (including interest on amounts previously due on the certificates
but not yet distributed) will be treated as "guaranteed payments" under Section
707(c) of the Code. Guaranteed payments are payments to partners for the use of
their capital and, in the present circumstances, are treated as deductible to
the trust and ordinary income to the certificateholders. The trust will have a
calendar year tax year and will deduct the guaranteed payments under the accrual
method of accounting. Certificateholders with a calendar year tax year are
required to include the accruals of guaranteed payments in income in their
taxable year that corresponds to the year in which the trust deducts the
payments, and certificateholders with a different taxable year are required to
include the payments in income in their taxable year that includes the December
31 of the trust year in which the trust deducts the payments. It is possible
that guaranteed payments will not be treated as interest for all purposes of the
Code.
In addition, the trust agreement will provide, in general, that the
certificateholders will be allocated taxable income of the trust for each
collection period equal to the sum of:
- any trust income attributable to discount on the receivables that
corresponds to any excess of the principal amount of the certificates
over their initial issue price,
- prepayment premium, if any, payable to the certificateholders for that
month and
- any other amounts of income payable to the certificateholders for that
month.
This allocation will be reduced by any amortization by the trust of premium on
receivables that corresponds to any excess of the issue price of certificates
over their principal amount. All remaining items of taxable income, gain, loss
and deduction of the trust, if any, will be allocated to the depositor.
Based on the economic arrangement of the parties, this approach for
allocating trust income arguably should be permissible under applicable Treasury
regulations, although no assurance can be given that the Internal Revenue
Service would not require a greater amount of income to be allocated to
certificateholders. Moreover, even under the foregoing method of allocation,
certificateholders may be allocated income equal to the entire certificate
interest rate plus the other items described above even though the trust might
not have sufficient cash to make current cash distributions of such amount.
Thus, cash basis holders would, in effect, be required to report income from the
certificates on the accrual basis and certificateholders may become liable for
taxes on trust income even if they have not received cash from the trust to pay
these taxes. In addition, because tax allocations and tax reporting will be done
on a uniform basis for all certificateholders but certificateholders may be
purchasing certificates at different times and at different prices,
certificateholders may be required to report on their tax returns taxable income
that is greater or less than the amount reported to them by the trust.
All of the guaranteed payments and taxable income allocated to a
certificateholder that is a pension, profit sharing or employee benefit plan or
other tax-exempt entity (including an
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individual retirement account) will constitute "unrelated business taxable
income" generally taxable to such a holder under the Code.
An individual taxpayer's share of expenses of the trust (including fees to
the servicer but not interest expense) would be miscellaneous itemized
deductions. These deductions might be disallowed to the individual in whole or
in part and might result in such holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such holder over the life of
the trust. It is not clear whether these rules would be applicable to a
certificateholder accruing guaranteed payments.
The trust intends to make all tax calculations relating to income and
allocations to certificateholders on an aggregate basis. If the Internal Revenue
Service were to require that these calculations be made separately for each
receivable, the trust might be required to incur additional expense but it is
believed that there would not be a material adverse effect on
certificateholders.
DISCOUNT AND PREMIUM. It is believed that the receivables were not issued
with OID, and, therefore, the trust should not have OID income. However, the
purchase price paid by the trust for the receivables may be greater or less than
the remaining principal balance of the receivables at the time of purchase. If
so, the receivables will have been acquired at a premium or discount, as the
case may be. (As indicated above, the trust will make this calculation on an
aggregate basis, but might be required to recompute it on a
receivable-by-receivable basis.)
If the trust acquires the receivables at a market discount or premium, the
trust will elect to include any such discount in income currently as it accrues
over the life of the receivables or to offset any such premium against interest
income on the receivables. As indicated above, a portion of such market discount
income or premium deduction may be allocated to certificateholders.
SECTION 708 TERMINATION. Under Section 708 of the Code, the trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the trust are sold or exchanged within a
12-month period. If such a termination occurs, under current Treasury
regulations the trust will be deemed to contribute all of its assets and
liabilities to a new partnership in exchange for an interest in the new
partnership; and, immediately thereafter, the terminated partnership will be
deemed to have distributed interests in the new partnership to the new and
remaining partners in liquidation of the old partnership. The trust will not
comply with certain technical requirements that might apply when such a
constructive termination occurs. As a result, the trust may be subject to
certain tax penalties and may incur additional expenses if it is required to
comply with those requirements. Furthermore, the trust might not be able to
comply due to lack of data.
DISPOSITION OF CERTIFICATES. Subject to the discussion in the
immediately following paragraph, generally, capital gain or loss will be
recognized on a sale of certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the certificates
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sold. A certificateholder's tax basis in a certificate will generally equal the
holder's cost increased by the holder's share of trust income (includible in
income) and decreased by any distributions received with respect to such
certificate. In addition, both the tax basis in the certificates and the amount
realized on a sale of a certificate would include the holder's share of the
notes and other liabilities of the trust. A holder acquiring certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such certificates, and, upon sale or other disposition of some of the
certificates, allocate a portion of such aggregate tax basis to the certificates
sold (rather than maintaining a separate tax basis in each certificate for
purposes of computing gain or loss on a sale of that certificate).
Any gain on the sale of a certificate attributable to the holder's share of
unrecognized accrued market discount on the receivables would generally be
treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The trust does not expect to have any other assets that
would give rise to such special reporting requirements. Thus, to avoid those
special reporting requirements, the trust will elect to include market discount
in income as it accrues.
If a certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the certificates.
ALLOCATIONS BETWEEN TRANSFERORS AND TRANSFEREES. In general, the
trust's taxable income and losses will be determined monthly and the tax items
for a particular calendar month will be apportioned among the certificateholders
in proportion to the principal amount of certificates owned by them as of the
close of the last day of such month. As a result, a holder purchasing
certificates may be allocated tax items (which will affect its tax liability and
tax basis) attributable to periods before the actual purchase.
The use of such a monthly convention may not be permitted by existing
Treasury regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the trust might be reallocated among the certificateholders. The depositor is
authorized to revise the trust's method of allocation between transferors and
transferees to conform to a method permitted by future regulations.
SECTION 754 ELECTION. In the event that a certificateholder sells its
certificates at a profit (loss), the purchasing certificateholder will have a
higher (lower) basis in the certificates than the selling certificateholder had.
The tax basis of the trust's assets will not be adjusted to reflect that higher
(or lower) basis unless the trust were to file an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the trust will not make such election. As a
result, certificateholders might be allocated a greater or lesser amount of
trust income than would be appropriate based on their own purchase price for
certificates.
S-32
<PAGE>
ADMINISTRATIVE MATTERS. The trustee is required to keep or have kept
complete and accurate books of the trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the trust will be the calendar year. The trust will file a partnership
information return (IRS Form 1065) with the Internal Revenue Service for each
taxable year of the trust and will report each certificateholder's allocable
share of items of trust income and expense to holders and the Internal Revenue
Service on Schedule K-1. The trust will provide the Schedule K-1 information to
nominees that fail to provide the trust with the information statement described
below and such nominees will be required to forward such information to the
beneficial owners of the certificates. Holders must file tax returns that are
consistent with the information return filed by the trust or be subject to
penalties unless the holder notifies the Internal Revenue Service of all such
inconsistencies.
Under Section 6031 of the Code, any person that holds certificates as a
nominee at any time during a calendar year is required to furnish the trust with
a statement containing certain information on the nominee, the beneficial owners
and the certificates so held. Such information includes (1) the name, address
and taxpayer identification number of the nominee and (2) as to each beneficial
owner (x) the name, address and identification number of such person, (y)
whether such person is a United States person, a tax-exempt entity or a foreign
government, an international organization, or any wholly-owned agency or
instrumentality of either of the foregoing, and (z) certain information on
certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold certificates
through a nominee are required to furnish directly to the trust information as
to themselves and their ownership of certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any such
information statement to the trust. The information referred to above for any
calendar year must be furnished to the trust on or before the following January
31. Nominees, brokers and financial institutions that fail to provide the trust
with the information described above may be subject to penalties.
The [seller] will be designated as the tax matters partner in the related
trust agreement and, as such, will be responsible for representing the
certificateholders in any dispute with the Internal Revenue Service. The Code
provides for administrative examination of a partnership as if the partnership
were a separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the trust by the appropriate taxing authorities could
result in an adjustment of the returns of the certificateholders, and, under
certain circumstances, a certificateholder may be precluded from separately
litigating a proposed adjustment to the items of the trust. An adjustment could
also result in an audit of a certificateholder's returns and adjustments of
items not related to the income and losses of the trust.
TAX CONSEQUENCES TO FOREIGN CERTIFICATEHOLDERS. Interest paid on a
certificate to a nonresident alien individual, foreign partnership or foreign
corporation that has no connection with the United States other than holding
certificates ("Nonresidents") will normally qualify as portfolio interest
(except where (i) the recipient is a holder, directly or by attribution, of 10%
or
S-33
<PAGE>
more of the trust, or (ii) the recipient is a controlled foreign corporation to
which the trust is a related person) and will be exempt from federal income tax.
Upon receipt of the appropriate ownership statements and certifications, the
trustee to the trust normally will be relieved of obligations to withhold tax
from such interest payments. These provisions supersede the generally applicable
provisions of United States law that would otherwise require the trustee of the
trust to withhold at a 30% rate (unless such rate were reduced or eliminated by
an applicable tax treaty) on, among other things, interest and other fixed and
determinable, annual or periodic income paid to Nonresidents.
The Withholding Tax Regulations modify certain of the filing requirements
with which Nonresidents must comply in order to be entitled to an exemption from
United States withholding tax or a reduction to the applicable United States
withholding tax rate. Those Nonresidents currently required to file Form W-8 or
W-8 BEN generally will continue to be required to file that form. However, the
requirement that Nonresidents submit Form W-8 or W-8 ECI is extended to most
Nonresidents who wish to seek an exemption from withholding tax on the basis
that income from the certificates is effectively connected with the conduct of a
United States trade or business (in lieu of Form 4224) and to Nonresidents
wishing to rely on a tax treaty to reduce the withholding tax rate (in lieu of
Form 1001). The Withholding Tax Regulations are effective for payments of
interest due after December 31, 1999, but Forms 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. We suggest that prospective
investors consult their tax advisors with respect to the effect of the
Withholding Tax Regulations.
BACKUP WITHHOLDING. Distributions made on the certificates and proceeds
from the sale of the certificates will be subject to a "backup" withholding tax
of 31% if, in general, the certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code. Certificateholders should consult with their
tax advisors as to their eligibility for exemption to backup withholding, the
procedure for obtaining the exemption, and the potential impact of the
Withholding Tax Regulations.
STATE TAX CONSEQUENCES
In addition to the federal income tax consequences described in "Federal
Income Tax Considerations" above, potential purchasers should consider the state
income tax consequences of the acquisition, ownership and disposition of the
notes and certificates. State income tax law may vary substantially from state
to state, and this discussion does not purport to describe any aspect of the
income tax laws of any state.
S-34
<PAGE>
ERISA CONSIDERATIONS
GENERAL
Section 406 of ERISA and Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan subject to ERISA, as well as
individual retirement accounts, certain types of Keogh Plans and other plans
subject to Section 4975 of the Code and any entity deemed to hold "plan assets"
of any of the foregoing by reason of investment in such entity (each a "Benefit
Plan"), from engaging in certain transactions with persons that are "parties in
interest" under ERISA or "disqualified persons" under the Code with respect to
such Benefit Plan. A violation of these "prohibited transaction" rules may
result in an excise tax or other penalties and liabilities under ERISA and the
Code for such persons.
A fiduciary of a Benefit Plan considering the purchase of securities should
carefully review with its legal and other advisors whether the assets of the
trust would be considered plan assets, and whether the purchase or holding of
the securities could give rise to a transaction prohibited or otherwise
impermissible under ERISA or the Code. Prospective purchasers of securities
using the assets of government plans (as defined in Section 3(32) of ERISA) and
certain Church plans (as defined in Section 3(33) of ERISA), which are not
subject to Title I of ERISA, should consider applicable state and other laws,
which may be substantially similar to ERISA or the Code.
THE NOTES
Subject to the considerations below, the Notes may generally be acquired by
a Benefit Plan. Certain transactions involving the trust might be deemed to
constitute prohibited transactions under ERISA and the Code with respect to a
Benefit Plan that purchased notes or certificates if assets of the trust were
deemed to be assets of the Benefit Plan. Under a regulation issued by the United
States Department of Labor (the "Plan Asset Regulation"), the assets of a trust
would be treated as plan assets of a Benefit Plan for the purposes of ERISA and
the Code only if the Benefit Plan acquired an "equity interest" in the trust and
none of the exceptions contained in the Plan Asset Regulation was applicable. An
equity interest is defined under the Plan Asset Regulation as an interest other
than an instrument which is treated as indebtedness under applicable local law
and which has no substantial equity features.
Although there is little guidance on the subject, the depositor believes
that, at the time of their issuance, the notes should be treated as an
instrument without substantial equity features for purposes of the Plan Asset
Regulation. The debt status of the notes could change, after their initial
issuance (i.e., they could be treated as equity), by certain changes in the
financial condition of the trust. The risk of recharacterization is enhanced for
subordinate classes of notes.
Regardless of whether the notes are treated as an equity interest for
purposes of the Plan Asset Regulation, the acquisition or holding of the notes
with plan assets of a Benefit Plan could be considered to give rise to a
prohibited transaction if the seller, the servicer, the issuer, or
S-35
<PAGE>
Indenture Trustee is or becomes a party in interest under ERISA or a
disqualified person under the Code with respect to that Benefit Plan. In such a
case, certain exemptions from the prohibited transactions rules may be
available, depending upon the type and circumstances of the Benefit Plan
fiduciary making the decision to purchase the notes with assets of the Benefit
Plan. Included among these exemptions are the following Prohibited Transaction
Exemptions ("PTE"):
- PTE 84-14, applicable to certain transactions effected by a qualified
professional asset manager;
- PTE 90-1, applicable to certain transactions entered into by an insurance
company separate account;
- PTE 91-38, applicable to certain transactions entered into by a bank
collective investment trust;
- PTE 95-60, applicable to certain transactions entered into by an insurance
company general account; and
- PTE 96-23, applicable to certain transactions entered into by an in-house
asset manager.
Purchasers acquiring notes with the assets of a Benefit Plan shall be deemed to
represent and warrant that such purchase and holding will not give rise to a
nonexempt prohibited transaction.
A fiduciary of a Benefit 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 trust 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.
By its acceptance of a note, each noteholder shall be deemed to have
represented and warranted that either (i) it is not a Benefit Plan or (ii) its
purchase and holding of the note will not result in a nonexempt prohibited
transaction under Section 406 of ERISA or Section 4975 of the Code (or any
substantially similar applicable law).
S-36
<PAGE>
THE CERTIFICATES
The Certificates are not likely to be treated as indebtedness for purposes of
the Regulation. Under one exception to the Plan Asset Regulation, however, the
assets of the trust will not be treated as plan assets if participation by Plans
(as defined below) in the issuer is not "significant." Plan participation will
not be "significant" for purposes of the Regulation if less than 25% of each
class of equity interests is held by Plans (excluding interests held by persons
(other than Plans) that have discretionary authority or control with respect to
the assets of Issuer, or who provide investment advice for a fee (direct or
indirect) with respect to such assets, or any Affiliate of such a Person (each,
a "Controlling Person")). The Department of Labor has taken the position that
for purposes of determining whether equity participation in an entity is
"significant" for purposes of the Regulation, only the proportion of an
insurance company general account's investment that represents Plan assets
should be taken into account.
Accordingly, the Certificates may not be purchased by or transferred to any
"employee benefit plan" within the meaning of section 3(3) of ERISA (whether or
not subject to ERISA, and including, without limitation, foreign or government
plans) or by any "plan" described in section 4975(e)(1) of the Code, or any
entity whose underlying assets include plan assets by reason of a plan's
investment in such entity (each, a "Plan"),except for an insurance company using
the assets of its general account that represents and warrants that, at the time
of acquisition and throughout the period it holds the Certificates, (i) it is
eligible for and meets the requirements of Department of Labor Prohibited
Transaction Class Exemption 95-60 (ii) less than 25% of the assets are (or
represent) assets of a Plan, and (iii) it is not the Servicer or any other
service provider to the trust, or an affiliate of any of the foregoing, and
would not otherwise be excluded under 2510.3-101(f)(1).
RATINGS
It is a condition to the issuance of the securities that the class [__]
of notes be rated at least ["___"] by [_________] and the class [__]
certificates be rated at least ["___"] by [__________]. We collectively refer to
[________] and [________] as the rating agencies.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
agency. Each security rating should be evaluated independently of any other
security rating.
The ratings on the offered securities address the likelihood of the
receipt by securityholders of all distributions with respect to the underlying
receivables to which they are entitled. The ratings do not represent any
assessment of the likelihood that the rate of principal prepayments by obligors
might differ from those originally anticipated. As a result of the differences
in the rate of principal prepayments, securityholders might suffer a lower-than-
anticipated yield to maturity. See "Risk Factors" and "Weighted Average Life of
the Securities."
S-37
<PAGE>
The [depositor] has not requested a rating on the offered securities by any
rating agency other than [_________ and ________]. However, we cannot assure you
as to whether any other rating agency will rate the offered securities, or, if
it does, what rating would be assigned by any such other rating agency. A rating
on the offered notes by another rating agency, if assigned at all, may be lower
than the ratings assigned to the offered securities by [___________ and
_____________].
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement,
dated [____________ __, 20__], the depositor has agreed to cause the trust to
sell to [______________], the underwriter, all of the notes [and the
certificates]. The underwriting agreement provides that the underwriter is
obligated to purchase all of the notes [and all of the certificates] if any are
purchased.
The underwriter proposes to offer the notes and certificates initially [at
the prices on the cover page of this prospectus supplement, and to certain
dealers at that price less a discount of up to [___%] of the principal on each
class [__] note and [___%] on each class [__] certificate.] [in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale] The underwriter and those dealers may allow a discount of [___%] of the
principal of each class [__] note and [___%] of each class [__] certificate on
sales to certain other dealers. After the initial public offering, the public
offering price and such discounts may change.
The depositor estimates that its out of pocket expenses for this offering
will be approximately [$________].
The depositor does not intend to apply for listing of the notes [or the
certificates]. Further, the notes and certificates are a new issue of securities
with no established trading market. The underwriter intends to make a secondary
market for the notes [and the certificates]. However, it is not obligated to do
so and may discontinue making a secondary market for the notes [and the
certificates] at any time without notice. We cannot assure you as to how liquid
the trading market for the notes [and certificates] will be.
[________]has agreed to indemnify the underwriter against certain
liabilities under the Securities Act, or contribute to payments which the
underwriter may be required to make in respect thereof.
The underwriters may engage in over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids in accordance
with Regulation M under the Securities Exchange Act. To explain:
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position;
S-38
<PAGE>
- Stabilizing transactions permit bids to purchase the underlying security
as long as the stabilizing bids do not exceed a specified maximum;
- Syndicate covering transactions involve purchases of the notes
[and certificates] in the open market after the distribution has been
completed in order to cover syndicate short positions;
- Penalty bids permit the underwriters to reclaim a selling concession from
a syndicate member when the notes [and certificates] originally sold by a
syndicate member are purchased in a syndicate covering transaction to
cover syndicate short positions.
Stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the notes [and certificates] to be higher than it would
otherwise be in the absence of these transactions. The underwriter is not
required to engage in these activities and, if commenced, may end any of these
activities at any time.
[In the ordinary course of their respective businesses, the underwriter and
its affiliates have engaged and may in the future engage in investment banking,
commercial banking, insurance or other transactions with [the originator] [the
seller] [the depositor] and its affiliates.
LEGAL OPINIONS
Certain legal matters relating to the notes and certificates and certain
federal income tax and other matters will be passed upon for the trust and by
[the originator] [the seller] [the servicer] by [____________] and for the
underwriter, the depositor and the trust by Mayer, Brown & Platt, Chicago,
Illinois. [Mayer, Brown & Platt may from time to time render legal services to
the originator, the seller, the servicer and their affiliates.]
S-39
<PAGE>
[APPENDIX A]
[AUDITED BALANCE SHEET OF THE TRUST]
A-1
<PAGE>
APPENDIX B
COMPOSITION OF THE RECEIVABLES
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<CAPTION>
<S> <C>
Aggregate Principal Balance.........................................$___________
Number of Receivables......................................................_____
Average Amount Financed.............................................$___________
Range of Amounts Financed...........................$___________ to $___________
Average Remaining Principal Balance.................................$___________
Range of Remaining Principal Balances...............$___________ to $___________
Weighted Average APR......................................................_____%
Range of APRs..................................................._____% to _____%
Weighted Average Original Term to Maturity (1).......................____ months
Range of Original Terms to Maturity..........................____ to ____ months
Weighted Average Remaining Term to Maturity (1)......................____ months
Range of Remaining Terms to Maturity.........................____ to ____ months
New Vehicles (Percentage of Aggregate Principal Balance)...................____%
Used Vehicles (Percentage of Aggregate Principal Balance)..................____%
</TABLE>
(1) Rounded to the nearest month.
B-1
<PAGE>
DISTRIBUTION OF THE RECEIVABLES BY APR
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<CAPTION>
Percentage
Aggregate by Aggregate Percentage
Principal Principal Number of by Number of
APR Range Balance Balance (1) Receivables Receivables (1)
--------- ------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
% $ %
_______ _______ _______ _______
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
B-2
<PAGE>
GEOGRAPHIC DISTRIBUTION OF RECEIVABLES
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<CAPTION>
Percentage
by Aggregate Percentage
Aggregate Principal Number of by Number of
State Principal Balance Balance (1) Receivables Receivables (1)
----- ----------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
$ % %
_______ __________ ________ __________
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
B-3
<PAGE>
DISTRIBUTION BY ORIGINAL TERM TO SCHEDULED MATURITY OF THE RECEIVABLES
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<CAPTION>
Percentage
Aggregate by Aggregate Percentage
Principal Principal Number of by Number of
Range of Original Terms Balance Balance (1) Receivables Receivables(1)
----------------------- ------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
to months $ % %
to months
to months
to months
to months
to months
to months
to months
to months
months
__________ ________ ______ __________
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
B-4
<PAGE>
DISTRIBUTION BY REMAINING TERM TO SCHEDULED MATURITY OF THE RECEIVABLES
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<CAPTION>
Percentage
Aggregate by Aggregate Percentage
Range of Principal Principal Number of by Number of
Remaining Terms Balance Balance (1) Receivables Receivables (1)
--------------- ------- -------------- ----------- ---------------
<S> <C> <C> <C> <C>
to months $ % %
to months
to months
to months
to months
to months
to months
to months
to months
to months
months
__________ _____ _______ ___
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
B-5
<PAGE>
DISTRIBUTION OF RECEIVABLES BY AMOUNT FINANCED
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<CAPTION>
Percentage
Aggregate by Aggregate Percentage
Principal Principal Number of by Number of
Amount Financed Balance Balance (1) Receivables Receivables(1)
--------------- ------- ------- ----------- --------------
<S> <C> <C> <C> <C>
$5,000.00 to $9,999.99 $ % %
$10,000.00 to $14,999.99
$15,000.00 to $19,999.99
$20,000.00 to $24,999.99
$25,000.00 to $29,999.99
$30,000.00 to $34,999.99
$35,000.00 to $39,999.99
$40,000.00 to $44,999.99
$45,000.00 to $49,999.99
$50,000.00 to $54,999.99
$55,000.00 to $59,999.99
$60,000.00 to $64,999.99
$65,000.00 to $69,999.99
$100,000.00 and above
_________ __________ ______ _______
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
B-6
<PAGE>
DISTRIBUTION OF RECEIVABLES BY CURRENT PRINCIPAL BALANCE
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<CAPTION>
Percentage
Aggregate by Aggregate Percentage
Current Principal Principal Number of by Number of
Principal Balance Balance Balance (1) Receivables Receivables(1)
----------------- ------- ------- ----------- -----------
<S> <C> <C> <C> <C>
$5,000.00 to $9,999.99 $ % %
$10,000.00 to $14,999.99
$15,000.00 to $19,999.99
$20,000.00 to $24,999.99
$25,000.00 to $29,999.99
$30,000.00 to $34,999.99
$35,000.00 to $39,999.99
$40,000.00 to $44,999.99
$45,000.00 to $49,999.99
$50,000.00 to $54,999.99
$55,000.00 to $59,999.99
$60,000.00 to $64,999.99
$95,000.00 to $99,999.99
__________ ________ _____ ________
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
B-7
<PAGE>
DISTRIBUTION OF RECEIVABLES BY TYPE
<TABLE>
<CAPTION>
Percentage
Aggregate by Aggregate Percentage
Principal Principal Number of by Number of
Balance Balance (1) Receivables Receivables(1)
------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Rule of 78's receivables $ % %
Fixed value receivables
Simple interest receivables
Actuarial receivables
_____ _________ ______ __________
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
B-8
<PAGE>
[PROSPECTUS VERSION 1]
PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION
Depositor
ASSET BACKED NOTES
ASSET BACKED CERTIFICATES
VARIOUS SPECIAL-PURPOSE FINANCE COMPANIES FORMED BY THE DEPOSITOR AND VARIOUS
TRUSTS CREATED BY THE DEPOSITOR MAY FROM TIME TO TIME ISSUE ONE OR MORE SERIES
AND CLASSES OF ASSET-BACKED NOTES AND ASSET-BACKED CERTIFICATES REPRESENTING
INTERESTS IN A SEGREGATED POOL OF ASSETS.
THE SECURITIES IN A SERIES:
- will be paid only from the assets related to that series; and
- may be divided into multiple classes of notes and certificates
having different rights as to distributions, security and
priority.
THE ASSETS UNDERLYING THE SECURITIES OF A SERIES WILL INCLUDE OWNERSHIP,
PARTICIPATION OR SECURITY INTERESTS IN:
- note and security agreements secured by motor vehicles
consisting of automobiles, light duty trucks, sport utility
vehicles, motorcycles and recreational vehicles (including
motor homes and van campers);
- motor vehicle retail installment sale contracts;
- a combination of note and security agreements secured by motor
vehicles and motor vehicle retail installment sale contracts.
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS ON PAGE [ ] IN THIS PROSPECTUS.
Any notes of a series represent obligations of, and certificates of a series
represent interests in, the related assets only. Any notes and certificates of a
series do not represent interests in or obligations of any servicer, any seller,
any originator, depositor or any of their affiliates.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS OR ANY RELATED PROSPECTUS SUPPLEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This prospectus may be used to offer and sell any of the notes and certificates
only if accompanied by the prospectus supplement for the related series.
The date of this prospectus is [insert date].
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
||Page
----
<S> <C>
Prospectus Overview of the Information in this
Prospectus and the Prospectus Supplement Summary . . . . . . . . . . . . . . . . . .1
Depositor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Issuer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
The Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Pre-funding; Purchase of
Receivables after the Closing
Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Revolving Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Receivables Purchased
after the Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . .5
Servicer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Seller(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Originator(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
The Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Characteristics of the Securities . . . . . . . . . . . . . . . . . . . . . . .7
Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Strip Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Accrual Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Distributions to the
Securityholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Interest Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Optional Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Mandatory Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Credit and Payment
Enhancement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Cross-collateralization . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Legal Considerations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Repurchase by Originator and/or
Seller Required for Breaches of
Representation or Warranty . . . . . . . . . . . . . . . . . . . . . . . 12
Tax Status. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ERISA Considerations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
It may not be possible to find an Investor to Purchase
your Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Interests of other persons in the receivables or the Vehicles
could Reduce the Funds Available to Make Payments on
your Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Insolvency of a party in possession of the Receivables may Reduce
the Funds Available to Make Payments on your Securities . . . . . . . . 17
Bankruptcy of an Originator, a Seller or the Depositor Could Result
in Delays in Payment or Losses on the Securities . . . . . . . . . . . . 17
The Securities are not Guaranteed and only the Related Assets
are Available to Pay your Securities . . . . . . . . . . . . . . . . . . 18
You may Suffer Losses if a Third party Purchases a Receivable without
Knowledge of the Issuer's Interests. . . . . . . . . . . . . . . . . . . 19
You may Suffer Losses upon a Liquidation of the Receivables if the
Proceeds of the Liquidation are less than the Amounts due on the
Outstanding Securities . . . . . . . . . . . . . . . . . . . . . . . . . 19
Statutory Limitations on Realization of Financed Vehicles due to
Insolvency of Obligors may cause Payment Reductions and delays . . . . . 20
Limitations on Enforceability of the Receivables because of Consumer
Protection Laws may cause Payment Reductions or Delays . . . . . . . . . 20
iii
<PAGE>
Extension or Deferral of Payments on Receivables may Increase
Weighted Average Life of securities. . . . . . . . . . . . . . . . . . . 21
Subordination may cause some Classes of Securities to Bear Additional
Credit Risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
You may have to Reinvest your Principal at a Lower Rate of
Return because of Prepayments on the Securities. . . . . . . . . . . . . 22
The yield to maturity of some types of securities will be extremely
Sensitive to Prepayments.. . . . . . . . . . . . . . . . . . . . . . . . 23
If Book-Entry Registration is used, you may be able to Exercise
your Rights as a Securityholder only through the Clearing Agency . . . . 23
You may Experience Losses on your Securities if Insurance on
Vehicle, is less than Outstanding Principal and
interest on the Related Receivable . . . . . . . . . . . . . . . . . . . 23
Limited Remedies for Breaches of Representations could Reduce or Delay
Payments to you. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
The Issuers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
The Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Rule of 78s Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Fixed Value Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Simple Interest Receivables . . . . . . . . . . . . . . . . . . . . . . . . . 27
Actuarial Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Prepayment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Maturity and Prepayment Considerations. . . . . . . . . . . . . . . . . . . . 28
Delinquencies, Repossessions, and Net Losses . . . . . . . . . . . . . . . . . . . 29
Origination of Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . 29
Issuance of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Pre-funding; Purchase of Receivables after the Closing Date . . . . . . . . . 29
Revolving Period; Purchase of Receivables after the Closing Date. . . . . . . 29
The Depositor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
The Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Description of the Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Distributions of Principal and Interest . . . . . . . . . . . . . . . . . . . 32
Pool Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Book-Entry Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Definitive Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Reports to Securityholders. . . . . . . . . . . . . . . . . . . . . . . . . . 37
Description of the Purchase Agreements, Receivables Transfer Agreements
and the Transfer and Servicing Agreements . . . . . . . . . . . . . . . . . . 38
Acquisition of Receivables by Seller; Originator Repurchase
Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Acquisition of Receivables by Depositor; Seller Repurchase
Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Acquisition of Receivables by Issuer. . . . . . . . . . . . . . . . . . . . . 39
Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Eligible Deposit Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Eligible Institution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Servicing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
The Servicer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
iv
<PAGE>
Servicing Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Payments on Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Servicing Compensation and Expenses . . . . . . . . . . . . . . . . . . . . . 42
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Credit and Cash Flow Enhancements . . . . . . . . . . . . . . . . . . . . . . 43
Statements to Indenture Trustees and Trustees . . . . . . . . . . . . . . . . 44
Evidence as to Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Matters Regarding the Servicers . . . . . . . . . . . . . . . . . . . . . . . 45
Servicer Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Rights upon Servicer Default. . . . . . . . . . . . . . . . . . . . . . . . . 46
Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Insolvency Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Legal Aspects of the Receivables . . . . . . . . . . . . . . . . . . . . . . . . . 48
Insolvency of an Originator, a Seller or the Depositor may result in
Consolidation of their Assets with the Issuer. . . . . . . . . . . . . . 48
Security Interests in the Vehicles. . . . . . . . . . . . . . . . . . . . . . 50
Perfection Continuity of Pertection
Priority of Liens Arising by Operation of Law . . . . . . . . . . . . . . . . 51
Repossession. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Notice of Sale; Redemption Rights . . . . . . . . . . . . . . . . . . . . . . 52
Deficiency Judgments and Excess Proceeds. . . . . . . . . . . . . . . . . . . 52
Consumer Protection Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Other Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
ERISA Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Methods of Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Financial Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Where You Can Find More Information. . . . . . . . . . . . . . . . . . . . . . . . 57
Incorporation of Information by Reference. . . . . . . . . . . . . . . . . . . . . 57
</TABLE>
v
<PAGE>
OVERVIEW OF THE INFORMATION IN THIS PROSPECTUS
AND THE PROSPECTUS SUPPLEMENT
We provide information to you about the securities in two separate
documents that progressively provide more detail:
- this prospectus, which provides general information, some of
which may not apply to your series of securities; and
- the accompanying prospectus supplement, which describes the
specific terms of your series of securities, including:
- the class or classes of securities;
- the timing, priority and rate of interest and
principal distributions for each class of securities;
- financial and other information about the related
assets;
- any credit enhancement for each class of securities;
- information regarding the servicer and any trustee(s)
for the series;
- information regarding the seller(s) of the related
assets and the underwriting guidelines used by that
seller;
- information regarding tax considerations;
- the ratings for each class; and
- the method for selling the securities.
THE PROSPECTUS AND THE PROSPECTUS SUPPLEMENT, TOGETHER, PROVIDE A
DESCRIPTION OF THE MATERIAL TERMS OF YOUR SECURITIES. YOU SHOULD RELY ON THE
INFORMATION IN THE PROSPECTUS SUPPLEMENT TO THE EXTENT IT PROVIDES A MORE
SPECIFIC DESCRIPTION OF YOUR SECURITIES.
You should rely only on the information provided in this prospectus and
the accompanying prospectus supplement, including the information incorporated
by reference. You can request information incorporated by reference from
Prudential Securities Secured Financing Corporation, One New York Plaza, New
York, New York 10292, Attention: P. Carter Rise. See "Where You Can Find More
Information" and "Incorporation of Information by Reference" in this prospectus.
We have not authorized anyone to provide you with different information. We are
not offering the securities in any state where the offer is not permitted.
3
<PAGE>
We include cross-references in this prospectus and the accompanying
prospectus supplement to captions in these materials where you can find further
related discussions. The following table of contents and the table of contents
included in the accompanying prospectus supplement provide the pages on which
these captions are located.
4
<PAGE>
PROSPECTUS SUMMARY
- This summary highlights selected information from this document. To
understand all of the terms of the offering of the securities, you
should carefully read this entire document and the accompanying
prospectus supplement.
DEPOSITOR............... Prudential Securities Secured Financing Corporation,
formerly known as P-B Secured Financing Corporation,
a Delaware corporation, a wholly-owned limited
purpose finance subsidiary of Prudential Securities
Incorporated.
ISSUER.................. The issuer for a series may be a special-purpose
finance company formed by the depositor or a trust
created by the depositor. An owner trust may be
formed by a trust agreement between the trustee and
the depositor. A grantor trust may be formed by a
pooling and servicing agreement among the trustee,
the depositor and the servicer for that trust.
THE ASSETS.............. The assets supporting the securities of a series will
consist of a combination of:
- receivables consisting of ownership,
participation or security interests in:
- motor vehicle retail installment sales
contracts between retail purchasers and
manufacturers, dealers or other originators;
or
- note and security agreements executed by
retail purchasers in favor of vehicle
lenders secured by new and used motor
vehicles financed thereby;
- monies received under the initial receivables
after the related cut-off date(s) related to the
assets of the series and under additional
receivables transferred to the issuer after a
later cut-off date;
- amounts held in bank accounts established for
that series, including amounts on deposit in any
collection account, pre-funding account,
revolving account, reserve account, yield
supplement account or other account for that
series as specified in the related prospectus
supplement.
5
<PAGE>
- security interests in the motor vehicles
financed by the receivables;
- any proceeds from insurance policies covering
financed vehicles or obligors on those financed
vehicles;
- any rights a seller has against dealers from
which it purchased receivables; and
- rights of any seller under its purchase
agreement with an originator and rights of the
depositor under its receivables transfer
agreement with the seller; and
- any credit enhancement for each class of the
series;
We refer to the retail installment sales contracts
and the note and security agreements as "receivables"
and to the persons who financed their purchases with
these receivables as "obligors." The receivables
supporting each series will be registered or titled
under federal or state requirements.
Receivables that are to be included in any asset pool
will be sold or pledged by one or more sellers to the
depositor under a receivables transfer agreement. On
or before the closing date specified in the related
prospectus supplement, the depositor will transfer
the initial receivables having an aggregate principal
balance specified in the related prospectus
supplement as of the dates specified therein to a
trust or special-purpose finance company under a
transfer and servicing agreement.
The transfer and servicing agreement may be in the
form of:
- a sale and servicing agreement among the
depositor, the related servicer and indenture
trustee and the related issuer and, in the case
of an owner trust will include the related trust
agreement; or
- a pooling and servicing agreement among the
depositor, the related servicer and the related
trust if the trust is to be treated as a grantor
trust for federal income tax purposes.
6
<PAGE>
PREFUNDING; PURCHASE OF
RECEIVABLES AFTER THE
CLOSING DATE............ If specified in the related prospectus supplement, an
issuer may be permitted to purchase additional
receivables during a specified pre-funding period
after the closing date for that series not to exceed
one year from the closing date. An issuer will
purchase additional receivables with amounts
deposited in a pre-funding account on the closing
date.
The pre-funded amount will initially equal the amount
specified in the related prospectus supplement. The
pre- funded amount may be up to 40% of the aggregate
principal amount of the related series of securities.
The pre-funding account will be reduced by the amount
used to purchase receivables after the closing date.
One or more classes of securities of the related
series may be prepaid with any amounts remaining in
the pre-funded account for that series at the end of
the specified pre-funding period for that series.
In addition, during some or all of a pre-funding
period, all or a portion of the payments collected on
the related receivables may be used to purchase
additional receivables, rather than to fund payments
of principal to securityholders. As a result, the
related securities may have an interest-only period.
The interest only period may terminate before the end
of the specified period if events described in the
related prospectus supplement occur.
REVOLVING PERIOD........ If specified in the related prospectus supplement for
any issuer that issues notes, all principal
collections received on the related receivables
during a specified revolving period and any other
amounts described in the related prospectus
supplement, will be deposited in a revolving account
and used to purchase additional receivables after the
closing date. No principal collections on the
receivables will be distributed to the
securityholders of that series during the revolving
period. Although the specific parameters of the
revolving account for any issuance of securities will
be specified in the related prospectus supplement, it
is anticipated that the revolving period will not
exceed three years from the related closing date.
If the amount on deposit in a revolving account at
specified times during the revolving period exceeds
the maximum
7
<PAGE>
permitted revolving account balance specified in the
related prospectus supplement, the holders of that
series of securities will receive a distribution of
principal on their securities on the next payment
date in an amount equal to the amount of that excess.
One or more classes of securities of the related
series may be prepaid with any amounts remaining in
the revolving account for that series at the end of
the specified revolving period for that series.
Thereafter principal distributions will be made to
the holders of the related series of securities in
the manner otherwise specified in this prospectus and
in the related prospectus supplement.
RECEIVABLES PURCHASED
AFTER THE CLOSING DATE.. Subsequent receivables to be acquired during any
prefunding period or revolving period will be subject
to the same types of representations and warranties
as the initial receivables included in the related
receivables pool on the related closing date.
Additional criteria, however, may also be required to
be satisfied, as described in the related prospectus
supplement. Any subsequent receivables will have been
originated in accordance with the underwriting
criteria described in the related prospectus
supplement.
SERVICER................ The related prospectus supplement will identify the
servicer for that series. The servicer will service
and administer the related assets for that series
under the related transfer and servicing agreement.
The servicer may subcontract all or any portion of
its obligations as servicer to qualified
subservicers. The servicer will remain obligated for
its obligations as servicer whether or not
subservicers are used.
TRUSTEE................. If the issuer for a series is a trust, the related
prospectus supplement will identify the trustee for
that series.
INDENTURE TRUSTEE....... If a series of securities includes notes, the related
prospectus supplement will identify the indenture
trustee for that series. The notes will be issued and
secured under an indenture between the issuer and the
indenture trustee. If the issuer is a trust, it and
the indenture will be administered by separate
independent trustees.
8
<PAGE>
SELLER(S)............... The related prospectus supplement will identify the
seller(s) of receivables supporting that series. The
depositor may acquire receivables from one or more
sellers in connection with a series under one or more
receivables transfer agreements. Sellers may be
affiliates of the depositor.
ORIGINATOR(S)........... The originators for a particular series will be
identified in the related prospectus supplement. An
originator of receivables may be:
- a manufacturer of vehicles;
- a dealer that may or may not be affiliated with
one or more manufacturers; or
- an originator or owner of vehicle retail
installment sale contracts or note and security
agreements secured by vehicles.
A seller may be the originator of the receivables or
may have acquired the receivables from an originator.
A seller may acquire receivables from one or more
originators in connection with a series under one or
more purchase agreements.
THE SECURITIES.......... The securities will be issued in series. A series may
include one or more classes of certificates. A series
may also include one or more classes of notes. Any
certificates of a series represent beneficial
ownership in the related assets and will be issued
under a trust agreement or a pooling and servicing
agreement. The notes of a series represent
indebtedness of the issuer and will be issued under
an indenture. Each series will be backed by a
segregated pool of assets.
The rights and benefits of any issuer under a sale
and servicing agreement will be assigned to the
related indenture trustee as collateral for the notes
of the related series. The securities will not be
obligations, either recourse or non-recourse of the
depositor, the related servicer, the related
seller(s), the related originator(s) or any person
other than the related issuer.
An owner trust form of prospectus supplement will be
used for a series that includes both notes and
certificates. A
9
<PAGE>
grantor trust form of prospectus supplement will be
used for a series that includes only certificates.
Each prospectus supplement will specify the
securities being offered. Some or all of the
securities of a series may not be offered to the
public.
CHARACTERISTICS
OF THE SECURITIES....... Securities, other than strip securities, offered by
this prospectus and the related prospectus supplement
will have a principal balance and a specified
interest rate.
The characteristics of the securities issued may
differ from one another. Any differences in
characteristics will be specified in the prospectus
supplement. Some of these characteristics are:
- rate at which interest, if any, accrues;
- fixed, variable or adjustable interest rate;
- timing and frequency of interest payments;
- amount of payments of interest and principal or
other distributions;
- priority of interest and principal payments and
allocation of losses relative to other classes;
- whether or not distributions of principal and
interest will be delayed or not made at all upon
the occurrence of specified events; and
- whether payments of principal and interest may
or may not be made from designated portions of
the pool of receivables.
SUBORDINATION........... A series may include one or more classes of
securities that are senior to one or more other
classes of securities as to distributions of
principal and interest and allocations of losses on
the related receivables.
STRIP SECURITIES........ A series may include one or more classes of strip
securities that provide for distributions of interest
which are disproportionately large or small in
comparison to the principal distribution, including:
10
<PAGE>
- distributions of interest with no or only a
nominal distribution of principal; or
- distributions of principal with no or only a
nominal distribution of interest.
ACCRUAL SECURITIES...... A series may include one or more classes of accrual
securities as to which certain accrued interest will
not be distributed to securityholders. That interest
will instead be added to the principal balance of the
securities on each payment date. If the security is
also a strip security, that interest will be added to
the nominal balance of the securities on each payment
date.
DISTRIBUTIONS TO THE
SECURITYHOLDERS......... Principal and interest on the securities will be paid
on specified payment dates that may occur monthly,
quarterly or semi-annually, over the life of the
securities. The payment date or dates for each class
of a series will be described in the related
prospectus supplement.
Collections on the related assets received during the
collection period preceding the payment date will be
used to fund payments to securityholders on the next
payment date. The collection period for a series will
be specified in the related prospectus supplement.
All or a portion of collected payments from a
collection period may be used to acquire additional
receivables during a pre-funding period or a
revolving period. See "The Receivables--Prefunding;
Purchase of Receivables after the Closing Date and
--Revolving Period; Purchase of Receivables after the
Closing Date."
In addition, all or a portion of the collected
payments may be retained by the related trustee and
held in temporary investments for a specified period
before being used to fund payments to securityholders
as may be required by the related transfer and
servicing agreement to:
- slow the amortization rate of the related
securities; or
- attempt to match the amortization rate of the
related securities to an amortization schedule
established when the securities were issued.
11
<PAGE>
The transfer and servicing agreement may terminate
these features if specified events described in the
related prospectus supplement occur. As a result,
distributions may be made to the related
securityholders earlier than anticipated and the
amortization of the related securities may be
accelerated.
INTEREST RATES.......... Each class of securities may have a different
interest rate, which may be fixed or adjustable. The
related prospectus supplement will specify the
interest rate for each class of securities, or the
initial interest rate and the method for determining
subsequent changes to the interest rate.
OPTIONAL REDEMPTION..... The related servicer, the related seller, the
depositor or, if specified in the related prospectus
supplement, other entities may, at their option,
purchase the receivables related to a series when the
remaining receivables related to that series are less
than a specified percentage of (unless otherwise
specified in the related prospectus supplement) the
aggregate principal balance of the receivables at the
time the related series was issued.
MANDATORY TERMINATION... The related trustee or servicer or 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
assets or otherwise, under other circumstances and in
the manner specified in the related prospectus
supplement.
CREDIT AND PAYMENT
ENHANCEMENT............. The related prospectus supplement will describe the
credit enhancement, if any, for any class or classes
or series of securities. Limitations or exclusions
from coverage could apply to any form of credit
enhancement. The prospectus supplement will describe
the credit enhancement and related limitations and
exclusions applicable for securities issued in
connection with that prospectus supplement. Credit or
payment enhancement may consist of one or more of the
following:
- subordination of one or more classes of
securities;
- a financial guaranty insurance policy;
- a reserve account;
12
<PAGE>
- a yield supplement account;
- collateralization greater than the principal
amount of securities issued;
- letters of credit;
- credit or liquidity facilities;
- repurchase obligations;
- cash deposits; or
- other agreements with respect to third party
payments or other support.
CROSS-
COLLATERALIZATION....... 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.
Except to the limited extent that some 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, no payment received on any
receivable related to any series may be applied to
the payment of securities of any other series.
LEGAL CONSIDERATIONS.... The related seller(s) and/or any originator from whom
the seller acquired the receivables for a series,
will warrant in a receivables transfer agreement or
purchase agreement, as applicable, that the transfer
of the receivables by it to the depositor or the
seller, as applicable, is:
- a valid assignment, transfer and conveyance of
the receivables; or
- if specified in the related prospectus
supplement, either:
13
<PAGE>
- a valid assignment, transfer and conveyance of
receivables to the seller or the depositor as
applicable; or
- a valid grant of a security interest in the
receivables.
The depositor will warrant in a transfer and
servicing agreement:
- if the depositor or the related seller(s) retain
title to the receivables, that the issuer for
the benefit of the securityholders has a valid
security interest in the receivables; or
- if the depositor transfers the receivables to an
issuer, that the transfer of the receivables to
the issuer is either:
- a valid assignment, transfer and conveyance
of the receivables to the issuer; or
- the issuer on behalf of the securityholders
has a valid security interest in the
receivables.
Each prospectus supplement will specify what actions
will be taken by the related parties as applicable to
perfect the issuer's and, if applicable, the
securityholder's security interest in the
receivables.
REPURCHASE BY ORIGINATOR
AND/OR SELLER REQUIRED FOR
BREACHES OF REPRESENTATION
OR WARRANTY............. The related originator and/or seller will make
representations and warranties in the related
purchase agreement or receivables transfer agreement,
as applicable, relating to the receivables in which
it transfers an interest to the seller or the
depositor. An originator and/or seller will be
required to repurchase the interest transferred by it
in a receivable if:
- one of its representations or warranties is
breached and remains uncured with respect to
that receivable; and
- the interest of the securityholders of those
assets is materially adversely affected by the
breach.
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For a discussion of the representations and
warranties given by an originator and/or the seller
and its related repurchase obligations, see
"Description of the receivables transfer agreements
and the transfer and servicing agreements--
"acquisition of receivables by seller/originator
repurchase obligations" and "acquisition of
receivables by depositor/seller repurchase
obligations" in this prospectus.
TAX STATUS.............. Securities of each series offered hereby will, for
federal income tax purposes, constitute either:
- interests in a trust treated as a grantor trust
under applicable provisions of the code,
- debt issued by an issuer; or
- interests in a trust or other entity which is
treated as a partnership.
The prospectus supplement for each series of
securities will summarize federal income tax
considerations relevant to the purchase, ownership
and disposition of the securities offered by that
prospectus supplement.
If specified in the related prospectus supplement, a
trust may make an election to be treated as a
"financial asset securitization investment trust" or
"FASIT." The applicable transfer and servicing
agreement may contain provisions to make FASIT
election and issue the securities on terms and
conditions as are permitted to a FASIT and described
in the related prospectus supplement.
Investors are advised to consult their tax advisors
and to review "Federal Tax Considerations" and "State
Tax Consequences" in the related prospectus
supplement.
ERISA
CONSIDERATIONS.......... The prospectus supplement for each series of
securities will summarize considerations under the
Employee Retirement Income Security Act of 1974, as
amended, relevant to the purchase of the securities
by employee benefit plans and individual retirement
accounts. Some classes of securities will not be
eligible for purchase by such plans and accounts. See
"ERISA Considerations" in the related prospectus
supplement.
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RATINGS................. At issuance, each class of securities offered by this
prospectus will be rated not lower than investment
grade by one or more nationally recognized
statistical rating agencies. See "Ratings" in this
prospectus and in your prospectus supplement.
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RISK FACTORS
You should consider the following risk factors in deciding whether to purchase
any of the securities.
IT MAY NOT BE POSSIBLE The underwriters may assist in resales of securities,
TO FIND AN INVESTOR TO but they are not required to do so. A secondary
PURCHASE YOUR SECURITIES market for your securities may not develop. If a
secondary market does develop, it might not continue
or it might not be sufficiently liquid to allow you
to resell any of your securities. Illiquidity also
could have an adverse effect on the market value of
your securities. Securities will not be listed on any
securities exchange.
INTERESTS OF OTHER PERSONS As described in the related prospectus supplement,
IN THE RECEIVABLES OR THE under the related transfer and servicing agreement,
VEHICLES COULD REDUCE THE either the trustee, the depositor, the related
FUNDS AVAILABLE TO MAKE seller(s) or the related servicer will be required to
PAYMENTS ON YOUR maintain possession of the original copies of all
SECURITIES.............. receivables that constitute chattel paper. If the
depositor or a seller retains possession of the
related receivables,
- the servicer may take possession of original
copies as necessary for the enforcement of any
receivable;
- the related prospectus supplement may describe
specific trigger events that will require
delivery of those receivables to the issuer.
Another person could acquire an interest in a
receivable that is superior to the issuer's interest
by obtaining physical possession of the receivable.
If the depositor, the servicer, the trustee, a
seller, an originator or other third party, while in
possession of the receivables, sells or pledges and
delivers the receivables to another party, in
violation of the purchase agreement, the receivables
transfer agreement or the transfer and servicing
agreement, there is a risk that another party could
acquire an interest in the receivables having
priority over the issuer's interest. If another
person acquires an interest in a receivable that is
superior to the issuer's interest in the receivable,
the collections on that receivable will not be
available to make payment on the securities.
Another person could acquire an interest in a vehicle
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financed by a receivable that is superior to the
issuer's interest because the depositor will not
amend the certificate of title or ownership to
identify itself or the issuer as the new secured
party. If another person acquires an interest in a
vehicle that is superior to the issuer's interest in
the vehicle, the proceeds from the sale of the
vehicle will not be available to make payments on the
securities.
The issuer's security interest in the receivables or
the vehicles could be impaired for one or more of the
following reasons:
- the originator or seller, might fail to perfect
its security interest in a vehicle;
- the issuer may not have a security interest in
the vehicles in all states because the
certificates of title to the vehicles may not be
amended to reflect assignment to the issuer;
- holders of some types of liens, such as tax
liens or mechanics liens, may have priority over
the issuer's security interest;
- the issuer may lose its security interest in
vehicles confiscated by the government; and
- the issuer could lose its priority to a person
who obtains physical possession of a receivable
without knowledge of the assignment of the
receivable to the issuer.
The related seller(s) and/or the related originator,
as specified in the related prospectus supplement,
will make representations and warranties with respect
to the ownership of the receivables as of the date of
the transfer to the seller and the depositor,
respectively. The related originator and/or seller
will be obligated to repurchase the interest
transferred by it in a receivable from the related
issuer if there is an uncured breach of its
representations and warranties and the interest of
the securityholders of those assets is materially
adversely affected by the breach. None of the
originator or the seller will be required to
repurchase the interest transferred by it in a
receivable, however, if the interest in a receivable
or a related vehicle becomes impaired after the
receivable is sold or pledged to the issuer.
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INSOLVENCY OF A PARTY If the depositor, the servicer, a seller, an
IN POSSESSION OF THE originator or a third party is rendered insolvent
RECEIVABLES MAY REDUCE while in possession of the receivables, competing
THE FUNDS AVAILABLE TO claims to ownership or security interests in the
MAKE PAYMENTS ON YOUR receivables may result. Even if unsuccessful,
SECURITIES competing claims could result in delays in payments
on the securities. If successful, competing claims
could result in losses to the securityholders or an
acceleration of the repayment of the securities.
BANKRUPTCY OF AN If a seller, originator or the depositor becomes
ORIGINATOR, A SELLER OR subject to bankruptcy proceedings, you could
THE DEPOSITOR COULD RESULT experience losses or delays in payments on your
IN DELAYS IN PAYMENT OR securities. A "transferor" or non-bankruptcy remote
LOSSES ON THE SECURITIES entity, which may be an originator or a seller, will
transfer the receivables to a "transferee" or
bankruptcy-remote entity, which may be a seller or
the depositor. This transfer is designed to be a
"true sale." The issuer will acquire its rights in
the receivables either directly or indirectly from
the bankruptcy remote entity for that series.
However, if a seller, originator or the depositor
becomes subject to a bankruptcy proceeding, a court
in the bankruptcy proceeding could conclude that the
transferor still owns the receivables by concluding
that the sale by the transferor was not a "true
sale" or that the transferor should be consolidated
with the transferee for bankruptcy purposes. If a
court were to reach this conclusion, you could
experience losses or delays in payments on your
securities due to, among other things:
- the "automatic stay" which prevents secured
creditors from exercising remedies against a
debtor in bankruptcy without permission from the
court and provisions of the U.S. Bankruptcy Code
that permit substitution of collateral in
certain circumstances;
- certain tax or government liens on the
originator's, the seller's or the depositor's
property that arose before the transfer of the
receivables, as applicable, have a claim on
collections that is senior to payments on your
securities; and
- the issuer not having a perfected security
interest in
- one or more of the vehicles securing the
receivables; or
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- any cash collections held by an originator,
a seller or the depositor at the time that
the originator, seller or the depositor, as
applicable, becomes the subject of a
bankruptcy proceeding.
The depositor will take steps in structuring the
transactions to minimize the risk that a court would
consolidate the transferor with the transferee for
bankruptcy purposes or conclude that the sale of the
receivables by the transferor was not a "true sale."
THE SECURITIES ARE NOT No servicer, seller, the depositor or any of their
GUARANTEED AND ONLY THE affiliates is obligated to make any payments relating
RELATED ASSETS ARE to:
AVAILABLE TO PAY YOUR
SECURITIES
- the securities of a series; or
- the receivables.
Therefore, payment on the related assets and any
credit enhancement will be the only source of payment
to you. If these assets are insufficient, you may
suffer losses on your securities.
YOU MAY SUFFER LOSSES IF The transfer of the receivables by the an originator
A THIRD PARTY PURCHASES A to a seller under a purchase agreement, by a seller
RECEIVABLE WITHOUT to the depositor under a receivables transfer
KNOWLEDGE OF THE ISSUER'S agreement and by the depositor to an issuer under a
INTERESTS transfer and servicing 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
action that is required to perfect the rights of the
seller, the depositor and issuer in the receivables.
If, through inadvertence or otherwise, a third party
were to
- purchase or take a security interest in a
receivable for new value;
- in the ordinary course of its business;
- without actual knowledge of the seller's,
depositor's or
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issuer's interest; and
- take possession of a receivable;
the purchaser would acquire an interest in that
receivable superior to the interest of the seller,
depositor or issuer. As further specified in each
prospectus supplement, no action will be taken to
perfect the rights of the issuer in proceeds of any
vendor's single interest physical damage insurance or
of any other insurance policies covering individual
vehicles or obligors. Therefore, the rights of a
third party with an interest in those proceeds could
prevail against the rights of the issuer before the
time those proceeds are deposited by the related
servicer into an issuer account. See "Legal Aspects
of the Receivables".
YOU MAY SUFFER LOSSES If the receivables supporting any series are
UPON A LIQUIDATION OF THE liquidated, the related securityholders may suffer
RECEIVABLES IF THE losses if the issuer sells the receivables for less
PROCEEDS OF THE than the total amount due on the securities or does
LIQUIDATION ARE LESS not realize the full amount due on the receivables on
THAN THE AMOUNTS DUE ON a timely basis.
THE OUTSTANDING
SECURITIES
The ability of the issuer or a trustee to realize the
total amount due on the receivables may be affected
by whether:
- amendments to certificates of title in 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, securityholders may be subject to delays
in payments and suffer loss of their investment in
the securities. The market value of the receivables
may be less than the aggregate principal amount of
the outstanding securities of the series. Therefore,
upon an event of default
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with respect to the securities of any series, there
can be no assurance that sufficient funds will be
available to repay the related securityholders in
full.
STATUTORY LIMITATIONS ON Numerous statutory provisions, including insolvency
REALIZATION OF VEHICLES laws, may interfere with or affect the ability of a
DUE TO INSOLVENCY OF secured party to realize upon collateral or to
OBLIGORS MAY CAUSE enforce a deficiency judgment against an obligor. For
PAYMENT REDUCTIONS AND example, in a Chapter 13 proceeding under the
DELAYS Bankruptcy Code, a court may prevent a creditor from
repossessing a vehicle, and, as part of the obligor's
rehabilitation plan, reduce the amount of the secured
indebtedness to the market value of the vehicle at
the time of bankruptcy, as determined by the court,
leaving the creditor 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 change the rate of interest and time of
repayment of the indebtedness. To the extent that any
credit enhancement for that series were insufficient
to cover all losses, those actions could result in an
inability of the securityholders of that series to
recover payment in full of their respective principal
amounts and interest thereon or could result in
delays in those payments.
LIMITATIONS ON Federal and state consumer protection laws regulate
ENFORCEABILITY OF THE the creation and enforcement of consumer contracts
RECEIVABLES BECAUSE OF and loans such as the receivables. Specific statutory
CONSUMER PROTECTION LAWS liabilities are imposed upon creditors who fail to
MAY CAUSE PAYMENT comply with these regulatory provisions. In some
REDUCTIONS OR DELAYS cases, this liability could affect an assignee's
ability to enforce a receivable. Application of these
laws could also render a receivable unenforceable,
cause the issuer to be unable to collect any balance
remaining due on the receivable or result in
liability to the issuer. If an obligor had a claim
against any issuer for violation of these laws before
the cutoff date for the related receivable, the
seller and/or any other originator will be obligated
to repurchase the related receivable unless the
breach is cured. If the receivable is not
repurchased, payments to securityholders could be
reduced or delayed. See "Legal Aspects of the
Receivables--Consumer Protection Laws."
EXTENSION OR DEFERRAL OF To the extent provided in the related prospectus
PAYMENTS ON RECEIVABLES supplement, the servicer may permit the extension or
modification of receivables on a case-by-case basis.
Any extensions or
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MAY INCREASE WEIGHTED modifications may increase the weighted average life
AVERAGE LIFE OF SECURITIES of the related securities. Any reinvestment risks
resulting from faster or slower payment resulting
from extensions, modifications or amendments of
payments on receivables of a series will be borne
entirely by the securityholders of that series. The
servicer will not be permitted to grant any extension
or modification if, as a result, the final scheduled
payment on a receivable would fall after the final
scheduled maturity date for that series, unless the
servicer agrees to repurchase the affected receivable
if that receivable becomes defaulted.
SUBORDINATION MAY CAUSE The rights of the holders of any class of notes to
SOME CLASSES OF SECURITIES receive payments of interest and principal may be
TO BEAR ADDITIONAL CREDIT subordinated to one or more other classes of notes.
RISK In addition, the rights of the holders of any class
of certificates to receive payments of interest and
principal may be subordinated to one or more classes
of notes and to one or more other classes of
certificates.
Holders of subordinated classes of securities will
bear more credit risk than more senior classes.
Subordination may take the following forms:
- interest payments on any date on which interest
is due may first be allocated to the more senior
classes;
- principal payments on the subordinated classes
may not begin until principal of the more senior
classes is repaid in full;
- subordinated classes may bear the first risk of
losses; and
- if the receivables are sold, the net proceeds of
that sale may be allocated first to pay
principal and interest on the more senior
classes.
The timing and priority of payment, seniority,
allocations of losses and method of determining
payments on the respective classes of securities of
any series will be described in the related
prospectus supplement.
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YOU MAY HAVE TO REINVEST If your securities are prepaid earlier than expected,
YOUR PRINCIPAL AT A LOWER you may not be able to reinvest the principal repaid
RATE OF RETURN BECAUSE OF to you at a rate of return that is equal to or
PREPAYMENTS ON THE greater than the rate of return on your securities.
SECURITIES Faster than expected prepayments on the receivables
may require the issuer to make payments on the
securities earlier than expected.
Prepayments may include:
- full or partial prepayments on receivables that
permit prepayment;
- receipts of proceeds from physical damage,
credit life and disability insurance policies;
- repurchases by originators or sellers for
breaches of representations and warranties;
- optional purchases by the depositor,
originators, sellers, servicers or others;
- payments resulting from liquidations due to
default; and
- residuals.
The depositor does not have available to it any
statistics regarding prepayment rates historically
experienced in the vehicle lending industry. The rate
of prepayments cannot be predicted. The risk of
reinvesting distributions of the principal of the
securities will be borne by the securityholders.
THE YIELD TO MATURITY OF The yield to maturity on securities purchased at
SOME TYPES OF SECURITIES premiums or discounts to par will be extremely
WILL BE EXTREMELY sensitive to the rate of prepayments on the related
SENSITIVE TO PREPAYMENTS receivables. In addition, the yield to maturity on
other types of securities, including:
- strip securities;
- accrual securities; and
- classes in a series including more than one
class of securities,
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may be more sensitive to the rate of prepayment of
the related receivables than other classes of
securities.
IF BOOK-ENTRY REGISTRATION
IS USED, YOU MAY BE ABLE If the prospectus supplement specifies that
TO EXERCISE YOUR RIGHTS securityholders of your series will hold their
AS A SECURITYHOLDER ONLY interests through a clearing agency or one of its
THROUGH THE CLEARING participating organizations, the securities will be
AGENCY registered in the name of a nominee of the clearing
agency and physical certificates will not be issued
to individual securityholders. You will not be
recognized directly by the issuer or your trustee and
must exercise all of rights and receive any payments
through the clearing agency or the participating
organization, unless physical certificates are
issued. Physical certificates will only be issued in
the limited circumstances described in "Description
of the Securities -- Definitive Securities". The
clearing agency in the U.S. is expected to be DTC and
in Europe either Clearstream, Luxembourg, societe
anonyme or Euroclear.
YOU MAY EXPERIENCE LOSSES Each receivable generally requires the related
ON YOUR SECURITIES IF obligor to maintain insurance covering physical
INSURANCE ON VEHICLES IS damage to the vehicle in at least the amount of the
LESS THAN OUTSTANDING unpaid principal balance of the receivable under
PRINCIPAL AND INTEREST which the originator is named as a loss payee. Since
ON THE RELATED RECEIVABLE the obligors select their own insurers to provide the
requisite coverage, the specific terms and conditions
of their policies may vary.
As specified in the related prospectus supplement,
each vehicle may also be insured against physical
damage risks by a policy of vendor's single interest
physical damage insurance which provides limited
coverage, subject to deductibles, for:
- physical loss or damage from any external cause
to that vehicle; and
- inability to locate that vehicle or the related
obligor.
Any recovery under any vendor's single interest
physical damage insurance policy may be less than the
outstanding principal and interest due on the related
receivable. Securityholders could suffer a loss on
their investment if there is a shortfall.
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LIMITED REMEDIES FOR The seller and any originator, if specified in the
BREACHES OF related prospectus supplement, of a receivable will
REPRESENTATIONS COULD be the only persons making representations and
REDUCE OR DELAY PAYMENTS warranties on that receivable. The applicable seller
TO YOU or originator may not have the financial ability to
effect any repurchase obligation it has relating to
any breaches of those representations and warranties.
Resulting losses may reduce the payment and yield on
your securities.
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THE ISSUERS
For each series of securities, the depositor will either:
- establish a separate trust that will issue the securities; or
- establish a special-purpose finance company that will issue
the securities;
in each case under the related transfer and servicing agreement.
The related servicer will service the related receivables under the
applicable transfer and servicing agreement. 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 provided in the related prospectus supplement.
THE RECEIVABLES
The receivables are obligations for the purchase of vehicles, or
evidence borrowings used to acquire vehicles or refinancings of those
borrowings. The receivables may consist of any combination of:
- rule of 78s receivables;
- fixed value receivables;
- simple interest receivables; and
- actuarial receivables.
Information about the receivables supporting the securities of a series
will be provided in the related prospectus supplement, including:
- the identity of the related seller(s) and originator(s), if
applicable;
- the related underwriting criteria and collection policies;
- the aggregate principal balance of all of the receivables;
- the number of receivables;
- the distribution of the receivables by geographic location
and APR;
- the portion of the receivables pool consisting of rule of 78s
receivables, fixed value receivables, simple interest
receivables, and actuarial receivables; and
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- the aggregate principal balance of the receivables as of the
applicable cut-off date.
RULE OF 78s RECEIVABLES
Rule of 78s receivables typically provide for fixed level monthly
payments which will amortize the full amount of the receivable over its term.
Rule of 78s receivables provide for allocation of payments according to the "sum
of periodic balances" or "sum of monthly payments" method. Each rule of 78s
receivable provides for the payment by the obligor of a specified total amount
of payments, payable in scheduled monthly installments. The total amount of all
payments represents the principal amount financed plus finance charges. Finance
charges are calculated on the basis of a stated annual percentage rate for the
term of the receivable. The rate at which the amount of finance charges is
earned and the amount of each fixed monthly payment allocated to reduction of
the outstanding principal balance of the related receivable 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
receivable and lower during later months than that under a constant yield method
for allocating payments between interest and principal. Payments received by the
related servicer related to rule of 78s receivables may, however, be allocated
on an actuarial basis.
FIXED VALUE RECEIVABLES
Fixed value receivables typically provide for monthly payments with a
final fixed value payment which is greater than the scheduled monthly payments.
A fixed value receivable provides for amortization of the loan over a series of
fixed level payment monthly installments. It also requires a final fixed value
payment due after payment of all monthly installments which may be satisfied by:
- payment in full in cash of that amount;
- transfer of the vehicle to the related seller; or
- refinancing the fixed value payment.
The principal and interest payments due before the final fixed value payment may
be included in the assets supporting any series. The final fixed value payment
may not be included in the assets supporting any series.
SIMPLE INTEREST RECEIVABLES
Simple interest receivables 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 receivables, under fixed
value receivables 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
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received under a simple interest receivable, 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.
ACTUARIAL RECEIVABLES
Actuarial receivables provide for amortization of the amount financed
under the receivable over a series of fixed level payment monthly installments.
Each monthly payment on an actuarial receivable, including the monthly payment
representing the last payment on the receivable, consists of an amount of
interest equal to 1/12 of the outstanding principal balance of the receivable
multiplied by the stated APR, and an amount of principal equal to the remainder
of the monthly payment.
PREPAYMENT
If an obligor elects to prepay a rule of 78s receivable 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
receivable 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 receivable calculated in accordance with the rule of 78s will always be
less than had that 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 receivable for which all payments were made on schedule.
Because interest and principal are not computed separately on actuarial
receivables, obligors under actuarial receivables will be entitled to rebates of
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unearned finance charges if they prepay or if their obligations are accelerated.
If an actuarial receivable is prepaid in full, with minor variations based upon
state law, actuarial receivables require that any rebate be calculated on the
basis of a constant interest rate. Distributions to securityholders may not be
affected by rule of 78s rebates under the rule of 78s receivable because under
the related prospectus supplement those distributions may be determined using
the actuarial method.
MATURITY AND PREPAYMENT CONSIDERATIONS
The weighted average life of the related securities will generally be
influenced by the rate at which the principal balances of the related
receivables are paid. A variety of economic, social and other factors will
influence the rate of prepayments on the receivables, including:
- current interest rates;
- loan structure;
- prohibitions on sale of the vehicle securing a receivable
without the consent of the servicer,
- obsolescence;
- current economic conditions; and
- tax considerations.
DELINQUENCIES, REPOSSESSIONS, AND NET LOSSES
Information relating to the delinquency, repossession and net loss
experience of the servicer will be described in the related prospectus
supplement. This information may describe the experience of the servicer's
entire portfolio during specified periods, including receivables which may not
meet the criteria for selection as a receivable for any particular series. There
can be no assurance that the delinquency, repossession and loss experience on
any assets supporting a series will be comparable to the related servicers's
prior experience.
ORIGINATION OF RECEIVABLES
A seller or other originator or a party from whom an originator
indirectly or directly acquired the receivables, will have originated the
receivables in accordance with the underwriting criteria specified in the
related prospectus supplement. Each seller, originator or other party will be
an institution experienced in originating retail installment sales contracts
and note and security agreements in accordance with accepted industry
practices and prudent guidelines.
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ISSUANCE OF SECURITIES
The issuer of the series will issue the related securities. An issuer
may also issue one or more classes of securities to the depositor in partial
payment for the receivables.
PRE-FUNDING; PURCHASE OF RECEIVABLES AFTER THE CLOSING DATE
On the closing date, the depositor will sell and transfer receivables
to the issuer in an amount specified in the related prospectus supplement. If
specified in the related prospectus supplement, a seller or the depositor will
transfer additional receivables to the issuer as frequently as daily during the
pre-funding period specified in the related prospectus supplement. The issuer
will use amounts on deposit in a pre-funding account to purchase additional
receivables after the closing date. Up to 100% of the net proceeds from the sale
of the securities issued by an issuer may be deposited into a pre-funding
account to purchase receivables after the closing date. Any receivables
purchased by the issuer after the closing date will also be assets of the issuer
and will be subject to the prior rights of the issuer and the securityholders.
In addition, during some or all of a pre-funding period, all or a
portion of the payments collected on the related receivables may be used to
purchase additional receivables, rather than to fund payments of principal to
securityholders. As a result, the related securities may possess an
interest-only period. The interest only period may terminate before the end of
the specified period if events described in the related prospectus supplement
occur.
REVOLVING PERIOD; PURCHASE OF RECEIVABLES AFTER THE CLOSING DATE
On the closing date, the depositor will sell and transfer receivables
to the issuer in an amount specified in the related prospectus supplement. If
specified in the related prospectus supplement, a seller or the depositor will
transfer additional receivables to the issuer as frequently as daily during the
revolving period specified in the related prospectus supplement. The issuer will
use amounts on deposit in a revolving account to purchase additional receivables
after the closing date. During a revolving period, principal collections on the
related receivables and any other amount described in the related prospectus
supplement will be deposited in a revolving account. Any receivables purchased
by the issuer after the closing date will also be assets of the issuer and will
be subject to the prior rights of the issuer and the securityholders.
On the payment date following the end of the related revolving period,
the amount, if any, on deposit in the related revolving account at the close of
business on the last day of that revolving period, less any investment earnings
on deposit therein will be distributed to the related securityholders. In
addition, on each payment date, during the related revolving period,
distributions to the related securityholders will be made on each payment date
in an amount, if any, by which the amount on deposit in the related revolving
account at the close of business on the last day of the preceding calendar
month, less any investment earnings on deposit therein, exceeds the maximum
permitted revolving account balance specified in the related prospectus
supplement.
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THE DEPOSITOR
Prudential Securities Secured Financing Corporation, formerly known as
P-B Secured Financing Corporation, was incorporated in the State of Delaware on
August 26, 1988 as a wholly-owned, limited purpose finance subsidiary of
Prudential Securities Incorporated. Prudential Securities Incorporated is 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.
The only obligations, if any, of the depositor as to a series of
securities may be limited undertakings to repurchase or substitute receivables
under specified circumstances. Unless otherwise specified in the applicable
prospectus supplement, the depositor will have no servicing obligations or
responsibilities with respect to any issuer. The depositor does not have, nor is
it expected in the future to have, any significant assets.
The servicer for any series of securities may be an affiliate of the
depositor. The depositor may acquire receivables through or from an affiliate.
Neither the depositor nor Prudential Securities Incorporated nor any of
its affiliates, including The Prudential Insurance Company of America, will
insure or guarantee the securities of any series.
TRUSTEE
A trustee's liability in connection with the issuance and sale of the
related securities is limited to the express obligations of that trustee
described in the related transfer and servicing agreement. The trustee for any
trust may resign for cause at any time, in which case the trust will be
obligated to appoint a successor trustee for that trust. Any resignation or
removal of the trustee and appointment of a successor trustee for that trust
will not become effective until acceptance of the appointment by the successor
trustee for that trust. If a successor trustee is not appointed by the depositor
or the securityholders, or if no successor trustee has accepted appointment
within a specified period following any resignation or removal, the trustee or
any securityholder of the related series may petition any court of competent
jurisdiction for the appointment of a successor trustee.
THE INDENTURE TRUSTEE
The indenture trustee for any trust may resign at any time, in which
event the issuer will be obligated to appoint a successor indenture trustee for
that trust. The issuer may also remove any indenture trustee if that indenture
trustee ceases to be eligible to continue as the indenture trustee under the
related indenture or if the indenture trustee becomes insolvent. In those
circumstances, the issuer will be obligated to appoint a successor indenture
trustee for the related notes. Any resignation or removal of the indenture
trustee and appointment of a successor indenture trustee for the related notes
does not become effective until acceptance of the appointment by the successor
indenture trustee.
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USE OF PROCEEDS
The net proceeds from the sale of the securities of a given issuer will
be applied by the issuer:
- to the purchase of the related receivables from the depositor
or the seller(s);
- to make the initial deposit into any pre-funding account or
revolving account;
- to make the initial deposit into any reserve account or yield
supplement account or any related accounts of that series as
provided in the related prospectus supplement; and
- for any other purposes specified in the related prospectus
supplement.
DESCRIPTION OF THE SECURITIES
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
Each class of securities will have a stated principal amount and may
accrue interest on that amount at the rate indicated in the related prospectus
supplement. The timing and priority of distributions, seniority, allocations of
losses and amount of or method of determining distributions with respect to
principal and interest of each class of securities will be described in the
related prospectus supplement. Distributions of interest on the securities will
be made before distributions with respect to principal of the payment date
specified in the prospectus supplement.
POOL FACTORS
The pool factor for each class of securities will be a seven-digit
decimal that indicates the outstanding principal balance of that class at that
time as a fraction of the outstanding principal balance of that class as of the
closing date. Each pool factor will be initially 1.0000000. As distributions are
made to that class of securities, the pool factor will decline to reflect
reductions in the outstanding principal balance of the applicable class. Before
each distribution to a class of securities, the related servicer will calculate
the pool factor for that class as of the date of the related distribution.
A securityholder's portion of the aggregate outstanding principal
balance of the related class of securities will be:
- the original purchase price of that securityholder's
securities, MULTIPLIED BY
- the applicable pool factor.
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BOOK-ENTRY REGISTRATION
As may be described in the related prospectus supplement,
securityholders of a given series may hold their securities directly through DTC
in the United States or Clearstream, Luxembourg or Euroclear in Europe if they
are participants of those systems. Securityholders that are not participants of
those systems may hold their securities indirectly through organizations that
are participants in those systems.
Cede, as nominee for DTC, will hold the global securities for a given
series. Clearstream, Luxembourg and Euroclear will hold omnibus positions on
behalf of the Clearstream, Luxembourg participants and the Euroclear
participants, respectively, through customers' securities accounts in
Clearstream, Luxembourg's and Euroclear's names on the books of their respective
depositaries which in turn will hold those positions in customers' securities
accounts in the depositaries' names on the books of DTC.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC and a "clearing agency"
registered pursuant to Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and to facilitate the clearance and settlement
of securities transactions between participants through electronic book-entries,
thereby eliminating the need for physical movement of notes or certificates.
Participants include:
- securities brokers and dealers
- banks
- trust companies
- clearing corporations
Indirect access to the DTC system 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.
Transfers between DTC participants will occur in accordance with DTC
rules. Transfers between Clearstream, Luxembourg 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 Clearstream,
Luxembourg 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. Cross-market transactions will,
however, require delivery of instructions to the relevant European international
clearing system by the counterparty in that system in accordance with its rules
and procedures
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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. Clearstream, Luxembourg participants and
Euroclear participants may not deliver instructions directly to the
depositaries.
Because of time-zone differences, credits of securities in Clearstream,
Luxembourg 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 those credits or any
transactions in those securities settled during that processing will be reported
to the relevant Clearstream, Luxembourg participant or Euroclear participant on
that business day. Cash received in Clearstream, Luxembourg or Euroclear as a
result of sales of securities by or through a Clearstream, Luxembourg
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
Clearstream, Luxembourg 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 that 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 those payments will be forwarded by the applicable
trustee to Cede, as nominee for DTC. DTC will forward those payments to its
participants, which thereafter will forward them to indirect participants or
securityholders. It is anticipated that the only "securityholder" in respect of
any series will be Cede, as nominee of DTC. Securityholders of a given series
will not be recognized as securityholders of that series, and those
securityholders will be permitted to exercise the rights of securityholders of
that series only indirectly through DTC and its participants.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers of securities
of a given series among participants on whose behalf it acts with respect to
those securities and to receive and transmit distributions of principal of, and
interest on, those securities. Participants and indirect participants with which
the securityholders of a given series have accounts for those securities
similarly are required to make book-entry transfers and receive and transmit
payments on behalf of their respective securityholders of the series.
Accordingly, although those securityholders will not possess securities, the DTC
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 that series to persons
or entities that do not participate in the DTC system, or to
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otherwise act with respect to those securities, may be limited due to the lack
of a physical certificate for those securities.
DTC will advise the trustee for 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 that series are credited. DTC may take conflicting actions with
respect to other undivided interests to the extent that those actions are taken
on behalf of participants whose holdings include those undivided interests.
Clearstream, Luxembourg is incorporated under the laws of Luxembourg as
a professional depository. Clearstream, Luxembourg holds securities for its
participating organizations and facilitates the clearance and settlement of
securities transactions between Clearstream, Luxembourg participants through
electronic book-entry changes in accounts of Clearstream, Luxembourg
participants, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in Clearstream, Luxembourg in any of
28 currencies, including United States dollars. Clearstream, Luxembourg provides
to its Clearstream, Luxembourg participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. Clearstream, Luxembourg
interfaces with domestic markets in several countries. As a professional
depository, Clearstream, Luxembourg is subject to regulation by the Luxembourg
Monetary Institute. Clearstream, Luxembourg participants are recognized
financial institutions around the world, including underwriters, securities
brokers and dealers, banks, trust companies, clearing corporations and other
organizations. Indirect access to Clearstream, Luxembourg is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Clearstream, Luxembourg participant,
either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
the Euroclear System 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. All operations are conducted by
the "Euroclear Operator," and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not Euroclear
Clearance System. Euroclear Clearance System 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.
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The "Euroclear Operator" is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. It is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
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. These 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 those 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 issuer for 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 those beneficial ownership interests.
DEFINITIVE SECURITIES
As may be described in the related prospectus supplement, the
securities will be issued in fully registered, certificated form to the
securityholders of a given series or their nominees, rather than to DTC or its
nominee, only if:
- the trustee for a related series advises in writing that DTC
is no longer willing or able to discharge properly its
responsibilities as depository with respect to those
securities and the trustee is unable to locate a qualified
successor
- the servicer, at its option, elects to terminate the
book-entry-system through DTC
- after the occurrence of an "event of default" under the
related indenture or a default by the servicer under the
related transfer and servicing agreements, securityholders
representing at least a majority of the outstanding principal
amount of the 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 the
securityholders' best interest
The applicable trustee will be required to notify all securityholders
of the affected series securityholders through participants of the availability
of definitive securities. Upon surrender by DTC of the definitive certificates
representing the securities and receipt of instructions for re-registration,
the applicable trustee will reissue those securities as definitive securities to
those securityholders.
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Distributions of principal of, and interest on, those securities will
thereafter be made by the applicable trustee in accordance with the procedures
provided in the related indenture or transfer and servicing 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 those securities in the related prospectus supplement. Distributions will be
made by check mailed to the address of the holder as it appears on the register
maintained by the applicable trustee. The final payment on any definitive
security, however, will be made only upon presentation and surrender of the
security at the office or agency specified in the notice of final distribution
to the applicable securityholders.
Definitive securities for a given series of securities will be
transferable and exchangeable at the offices of the applicable trustee or of a
certificate registrar named in a notice delivered to holders of the definitive
securities. No service charge will be imposed for any registration of transfer
or exchange, but the trustee may require payment of a sum sufficient to cover
any tax or other governmental charge imposed in connection therewith.
REPORTS TO SECURITYHOLDERS
As more specifically described in the related prospectus supplement for
each series of securities, the related securityholders of record will receive
reports on or about each payment date as to the securities of their series with
respect to that payment date or the period since the previous payment date, as
applicable:
(1) the amount of the distribution allocable to principal for each
class of the series;
(2) the amount of the distribution allocable to interest for each
class of the series;
(3) the pool balance, if applicable, as of the close of business
on the last day of the related remittance period;
(4) the aggregate outstanding principal balance and the Pool
Factor for each class of securities after giving effect to all
payments reported under (1) above on that payment date;
(5) the amount paid to the servicer for the series, if any, with
respect to the related remittance period and the amount of any
unpaid servicing fees for the related remittance period or
remittance periods, as the case may be;
(6) the amount of the aggregate purchase amounts for Receivables
that have been reacquired, if any, for that remittance period;
(7) any overcollateralization amount or credit enhancement amount;
(8) any previously due and unpaid interest payments on the
securities and the change in those amounts from the preceding
statement;
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(9) any previously due and unpaid principal payments on the
securities and the change in those amounts from the preceding
statement;
(10) the aggregate amount of any receivables that were repurchased
in that remittance period;
(11) for each payment date during any pre-funding period, the
amount remaining in the pre-funding account; and
(12) for the first payment date that is on or immediately following
the end of any pre-funding period, the amount remaining in
the pre-funding account that has not been used to fund the
purchase of additional receivables and is being passed through
as payments of principal on the securities of the series.
Each amount set forth pursuant to subclauses (1), (2) and (4) with
respect to the securities of any series will be expressed as a dollar amount per
$1,000 of the initial principal balance of those securities, as applicable.
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.
DESCRIPTION OF THE PURCHASE AGREEMENTS, RECEIVABLES TRANSFER AGREEMENTS
AND THE TRANSFER AND SERVICING AGREEMENTS
ACQUISITION OF RECEIVABLES BY SELLER; ORIGINATOR REPURCHASE OBLIGATIONS
On or before the closing date on which securities backed by receivables
are to be issued, a seller, if it is not the originator of those receivables,
will acquire the related receivables from the related originator(s), in each
case, under a purchase agreement between the seller and each originator. If
specified in the related prospectus supplement, in the related purchase
agreement, each originator will make representations and warranties to the
seller regarding the receivables it is selling to the seller. The material terms
of these representations and warranties will be described in the related
prospectus supplement.
ACQUISITION OF RECEIVABLES BY DEPOSITOR; SELLER REPURCHASE OBLIGATIONS
On or before the closing date on which securities backed by receivables
are to be issued, the depositor will acquire the related receivables, or a
security interest in the receivables, from the related seller(s), in each case,
under a receivables transfer agreement between the depositor and each seller. If
specified in the related prospectus supplement, in the related receivables
transfer agreement, each seller will make representations and warranties to the
depositor regarding the receivables in which it is transferring its interest to
the depositor. The material terms of these representations and warranties will
be described in the related prospectus supplement.
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Each seller will assign all of its rights, except certain rights of
indemnification, and interest in the related purchase agreement to the
depositor, who will in turn assign those rights to the related issuer for the
benefit of the securityholders of that series. As a result, each originator will
be liable to the related issuer for any uncured breach of the originator's
representations or warranties that materially adversely affected the
securityholders of that series.
ACQUISITION OF RECEIVABLES BY ISSUER
On or before the closing date on which securities backed by those
receivables are to be issued, the depositor will transfer its interest in the
receivables to a trust or to a special purpose finance company, in each case
under a transfer and servicing agreement.
The depositor will assign all of its rights, except certain rights of
indemnification, and interest in the related receivables transfer agreement to
the related issuer for the benefit of the securityholders of that series. As a
result, each seller will be liable to the related issuer for any uncured breach
of the seller's representations or warranties that materially adversely affected
the securityholders of that series.
If specified in the related prospectus supplement, the depositor may
reacquire receivables or substitute receivables for receivables held by an
issuer subject to specified conditions described in the related transfer and
servicing agreement and receivables transfer agreement.
ACCOUNTS
The servicer for each series will establish and maintain with the
applicable trustee one or more collection accounts in the name of the trustee on
behalf of the related securityholders into which all payments made on the
related receivables will be deposited. The servicer for each series will
establish and maintain with the related trustee one or more distribution
accounts, in the name of the trustee on behalf of the securityholders, into
which amounts released from the collection account and any reserve account or
other credit or cash flow enhancement for distribution to the related
securityholders will be deposited and from which all distributions to the
securityholders will be made.
Any other accounts to be established for securities of a series will be
described in the related prospectus supplement.
For any series of securities, funds in the collection accounts,
distribution accounts and any other accounts identified in the related
prospectus supplement will be invested as provided in the related transfer and
servicing agreement in eligible investments. Eligible investments are generally
limited to obligations or securities that mature on or before the date of the
next distribution for that series. However, to the extent permitted by the
rating agencies rating that series, funds in any reserve account may be invested
in securities that will not mature before the date of the next distribution on
the securities and which will not be sold to meet any shortfalls. Thus, the
amount of cash available for withdrawal in any reserve account at any time may
be less than the balance of the reserve account at that time. If the amount
required to be withdrawn
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from any reserve account to cover shortfalls in collections on the related
receivables, as provided in the related prospectus supplement, exceeds the
amount of cash in the 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 that series. Eligible investments
may include securities issued by the depositor, or its affiliates, or any trusts
created by the depositor, any servicer, seller or their respective affiliates.
Net investment earnings on funds deposited in the accounts will be deposited in
the applicable collection account or distributed as provided in the related
prospectus supplement.
ELIGIBLE DEPOSIT ACCOUNTS
The accounts will be maintained as eligible deposit accounts. An
eligible deposit account means either:
- a segregated account with an eligible institution; or
- a segregated trust account with the corporate trust department
of a depository institution organized under the laws of the U.
S. 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 that account, so long as any of the securities of
that depository institution have a credit rating from each
rating agency in one of its generic rating categories which
signifies investment grade.
ELIGIBLE INSTITUTION
An eligible institution means, for securities of a series:
- the corporate trust department of the related indenture
trustee or the related trustee; or
- a depository institution organized under the laws of the U. S.
or any one of the states thereof or the District of Columbia,
or any domestic branch of a foreign bank,
- which has or the parent corporation of which has
either:
- a long-term unsecured debt rating acceptable to
the relevant rating agencies; or
- a short-term unsecured debt rating or
certificate of deposit rating acceptable to the
relevant rating agencies; and
- whose deposits are insured by the FDIC.
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Amounts deposited in any account may be commingled with amounts in the
related seller's or servicer's general account to the extent that the seller's
or servicer's unsecured debt ratings are acceptable to the relevant rating
agencies. Any commingling rights will be described in the related prospectus
supplement.
SERVICING
THE SERVICER
The servicer for each series will be named in the related prospectus
supplement. The servicer for a series may be the depositor or an affiliate of
the depositor and may have other business relationships with the depositor or
its affiliates. The servicer for each series will service the related
receivables. A servicer may delegate its servicing responsibilities to one or
more sub-servicers, but will not be relieved of its liabilities as to any
delegated responsibilities.
Each servicer will make representations and warranties regarding its
authority to enter into, and its ability to perform its obligations under, the
related agreements for that series. An uncured breach of a representation or
warranty of the servicer that in any respect materially adversely affects the
interests of the securityholders will constitute a servicer default by the
servicer.
SERVICING PROCEDURES
Each servicer will make reasonable efforts to collect all payments due
on the related receivables. The servicer will use the same collection procedures
that it follows for the particular type of receivable as for receivables of that
type that it services for itself and others. Consistent with its normal
procedures, the servicer may, in its discretion, arrange with the obligor on a
receivable to extend or modify the payment schedule. Some of those arrangements,
including, any extension of the payment schedule beyond the final scheduled
payment date for the related securities, may require the servicer to purchase
the receivable if the receivable becomes defaulted. See "Legal Aspects of the
Receivables".
If the servicer determines that eventual payment in full of a
receivable is unlikely, the servicer will follow its normal practices and
procedures to realize upon the receivable, including the repossession and
disposition of the vehicle securing the receivable at a public or private sale,
or the taking of any other action permitted by applicable law.
The material aspects of any particular servicer's collections
procedures will be described in the related prospectus supplement.
PAYMENTS ON RECEIVABLES
For each series of securities, the related servicer will deposit all
payments on the related receivables received and all proceeds of the related
receivables collected into the related collection facility, such as a lock-box
account or the collection account within two business days
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of receipt. Moneys deposited in the collection facility for a series may be
commingled with funds from other sources. The related servicer will be required
to deposit payments on the related receivables collected during each collection
period into the related collection account on a specified day of each month.
Pending deposit into the collection account, collections may be invested by the
servicer at its own risk and for its own benefit and will not be segregated from
its own funds.
SERVICING COMPENSATION AND EXPENSES
The servicer for each series will receive a servicing fee for each
collection period equal to a specified percentage of the pool balance as of the
first day of that collection period. The servicer also will be entitled to
receive as a supplemental servicing fee for each collection period any late,
prepayment, and other administrative fees and expenses collected during that
collection period. Each prospectus supplement will specify the priority of
distributions on any payment date as to the servicing fee and any unpaid portion
of the servicing fee from prior payment dates. The servicing fees may be paid
before any distribution to the related securityholders.
The servicing fee and the supplemental servicing fee are intended to
compensate the servicer for performing the functions of a third party servicer
of the receivables as an agent for their beneficial owner, including:
- collecting and posting all payments
- responding to inquiries of obligors on the receivables
- investigating delinquencies
- sending payment coupons to obligors
- reporting federal income tax information to obligors
- paying costs of collections
- policing the collateral
- administering the particular receivables pool
- accounting for collections
- furnishing monthly and annual statements to the related
trustee and indenture trustee with respect to distributions
- reimbursement of certain taxes
- the fees of the related trustee and indenture trustee
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- accounting fees
- outside auditor fees
- data processing costs
- Other costs incurred in connection with administering the
applicable receivables
DISTRIBUTIONS
For 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 securities
entitled thereto will be made by the applicable trustee to the related
securityholders. The timing, calculation, allocation, order, source, priorities
of and requirements for all payments to each class of related securityholders
and all distributions to each class of related securityholders will be described
in the related prospectus supplement.
For each series of securities, on each payment date, collections on the
related receivables will be transferred from the collection account to the note
payment account for distribution to noteholders, if any, and to the certificate
distribution account for distribution to certificateholders, to the extent
provided in the related prospectus supplement. Credit enhancement will be
available to the related securityholders to cover any shortfalls in the amount
available for distribution on that date to the extent specified in the related
prospectus supplement. Distributions of principal of a class of securities will
be subordinate to distributions of interest on that class. Distributions for one
or more classes of securities of the issuer may be subordinate to payments of
other securities of that issuer.
CREDIT AND CASH FLOW ENHANCEMENTS
The amounts and types of credit enhancement arrangements, if any, and
the provider, if applicable, for each class of securities of a given series will
be described in the related prospectus supplement. If specified in the
applicable prospectus supplement, credit enhancement for a class of securities
may cover one or more other classes of securities of the same series, and credit
enhancement for a series of securities may cover one or more other series of
securities.
The presence of credit enhancement for the benefit of any class or
series of securities is intended to enhance the likelihood of receipt by the
securityholders of that class or series of the full amount of principal and
interest due thereon and to decrease the likelihood that those 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
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addition, if a form of credit enhancement covers more than one series of
securities, securityholders of any of those series will be subject to the risk
that the credit enhancement will be exhausted by the claims of securityholders
of other series.
STATEMENTS TO INDENTURE TRUSTEES AND TRUSTEES
Before each payment date for a series of securities, the related
servicer will provide to the applicable trustee and credit enhancer as of the
close of business on the last day of the preceding related collection period a
statement setting forth substantially the same information as is required to be
provided in the periodic reports provided to securityholders of that series
described under "Description of the Securities -- Reports to Securityholders".
EVIDENCE AS TO COMPLIANCE
Each transfer and servicing agreement will provide that a firm of
independent public accountants will furnish to the related issuer and/or the
applicable 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 certificate, the period from the applicable closing date, with
standards relating to the servicing of the receivables.
Each transfer and servicing agreement will also provide for delivery to
the related issuer and/or the applicable trustee of a certificate signed by an
officer of the related servicer stating that the servicer either has fulfilled
its obligations under that transfer and servicing agreement in all material
respects throughout the preceding 12 months, or, in the case of the first
certificate, the period from the applicable closing date, or, if there has been
a default in the fulfillment of any obligation in any material respect,
describing each default. Each servicer also will agree to give each indenture
trustee and each trustee notice of "servicer defaults" under the related
transfer and servicing agreement.
Copies of statements and certificates may be obtained by
securityholders by a request in writing addressed to the applicable trustee.
MATTERS REGARDING THE SERVICERS
Each transfer and servicing 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 the servicer of those duties
is no longer permissible under applicable law. No resignation will become
effective until the related trustee or a successor servicer has assumed the
servicer's servicing obligations and duties under the transfer and servicing
agreement.
Each transfer and servicing agreement will further provide that neither
the related servicer nor any of its respective directors, officers, employees,
or agents will be liable to the related issuer or the related securityholders
for taking any action or for refraining from taking any action pursuant to the
transfer and servicing agreement, or for errors in judgment. No person, however,
will be protected against any liability due to willful misfeasance, bad faith or
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negligence in the performance of duties or by reason of reckless disregard of
obligations and duties. In addition, the transfer and servicing 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 the transfer and servicing agreement and that, in its
opinion, may cause it to incur any expense or liability.
Under the circumstances specified in each transfer and servicing
agreement, any entity into which the related servicer may be merged or
consolidated, or any entity resulting from any merger or consolidation to which
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 that servicer,
will be the successor to that servicer under the related transfer and servicing
agreement.
SERVICER DEFAULT
"Servicer default" under a transfer and servicing agreement will
include:
- any failure by the related servicer to deliver to the
applicable trustee for deposit in any of the related accounts
any required payment or to direct that trustee to make any
required distributions therefrom, which failure continues
unremedied for more than two business days after written
notice from trustee is received by servicer or after discovery
by servicer
- any failure by servicer duly to observe or perform in any
material respect any other covenant or agreement in the
transfer and servicing agreement, which failure materially
adversely affects the rights of the related securityholders
and which continues unremedied for a period of up to one
hundred and twenty (120) days after the giving of written
notice of the failure:
- to servicer by the applicable trustee or other person
permitted to provide notice under the transfer and
servicing agreement; or
- to the servicer and to the applicable trustee by
holders of the related securities, as applicable,
evidencing not less than 25% of the voting rights of
those outstanding securities
- any insolvency event
An "insolvency event" means financial insolvency, readjustment of debt,
marshaling of assets and liabilities, or similar proceedings as to the servicer,
the related originator or the related seller and actions by the servicer, the
related originator or the related seller indicating its insolvency,
reorganization under bankruptcy proceedings, or inability to pay its
obligations.
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RIGHTS UPON SERVICER DEFAULT
As long as a servicer default under a transfer and servicing agreement
remains unremedied, the applicable trustee, credit enhancer or holders of
securities of the related series evidencing not less than a percentage specified
in the related prospectus supplement of the voting rights of those then
outstanding securities may terminate all the rights and obligations of the
servicer, if any, under the transfer and servicing agreement, whereupon a
successor servicer will replace the servicer. If, however, a bankruptcy trustee
or similar official has been appointed for the servicer, and no servicer default
other than that appointment has occurred, the bankruptcy trustee or official may
have the power to prevent the applicable trustee or the securityholders from
effecting a transfer of servicing. If the trustee is unwilling or unable to act
as successor servicer, 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. The trustee may make arrangements for compensation to be paid,
which may not be greater than the servicing compensation payable to the servicer
under the transfer and servicing agreement.
WAIVER OF PAST DEFAULTS
With respect to each series, 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 those
then outstanding securities may, on behalf of all securityholders of the related
series, waive any default by the servicer in the performance of its obligations
under the related transfer and servicing agreement and its consequences, except
a default in making any required deposits to or payments from any of the
accounts in accordance with the transfer and servicing agreement. No waiver
shall impair the securityholders' rights with respect to subsequent defaults.
AMENDMENT
Each of the purchase agreements, transfer and servicing agreements and
receivables transfer agreements may be amended by the parties to that agreement,
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 the agreements
- modifying in any manner the rights of the securityholders;
PROVIDED that the action will not, in the opinion of counsel
satisfactory to the applicable issuer, materially and
adversely affect the interests of any securityholder and
subject to the approval of any credit enhancer
To the extent provided in the related prospectus supplement, the
transfer and servicing agreement 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 the
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then outstanding securities for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the transfer and
servicing agreements or of modifying in any manner the rights of the
securityholders; PROVIDED, HOWEVER, that the amendment may not:
(1) increase or reduce in any manner the amount of, or accelerate
or delay the timing of, collections of payments on the related
receivables or distributions that are required to be made for
the benefit of the securityholders
(2) reduce the percentage of the securities of the series which
are required to consent to any amendment described in (1)
above, without the consent of the securityholders of that
series.
Additionally, each of the transfer and servicing agreements may be
amended by the parties to that agreement at the direction of the servicer
without the consent of any of the related securityholders to add, modify or
eliminate provisions as may be necessary or advisable to enable all or a portion
of a trust to quality as, and to permit an election to be made to cause all or a
portion of a trust to be treated as, a "financial asset securitization
investment trust" as described in the provisions of the "Small Business Job
Protection Act of 1996," H.R. 3448, and in connection with an election, to
modify or eliminate existing provisions of a transfer and servicing agreement
relating to the intended federal income tax treatment of the securities and the
related trust in the absence of an election. It is a condition to an amendment
of this type that each rating agency for that series notify the seller(s),
servicer and the applicable trustee in writing that the amendment will not
result in a reduction or withdrawal of the rating of any outstanding securities
with respect to which it is a rating agency.
INSOLVENCY MATTERS
Each transfer and servicing agreement will provide that the applicable
trustee does not have the power to commence a voluntary proceeding in bankruptcy
with respect to any related issuer without the unanimous prior approval of all
certificateholders, including the depositor, if applicable, of that issuer and
the delivery to that trustee by each certificateholder of a certificate
certifying that the certificateholder reasonably believes that the issuer is
insolvent.
To avoid excessive administrative expense, the servicer for the related
receivables may, unless otherwise specified in the related prospectus
supplement, at its option purchase the remaining receivables from that issuer,
as of the end of any collection period if the balance of the related receivables
is less than a specified percentage provided in the related prospectus
supplement of the initial pool balance for that series. The purchase price will
be the aggregate of the purchase amounts of the remaining receivables as of the
end of that collection period. The related securities will be redeemed following
that purchase.
If the servicer does not purchase the remaining receivables, the
applicable trustee will, within ten days following the next payment date,
solicit bids for the purchase of the remaining receivables, in the manner and
subject to the terms and conditions provided in the related
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prospectus supplement. If the trustee receives satisfactory bids as described in
the related prospectus supplement, then the remaining receivables 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
under the applicable transfer and servicing agreement may effect the prepayment
of the certificates of that series.
LEGAL ASPECTS OF THE RECEIVABLES
INSOLVENCY OF AN ORIGINATOR, A SELLER OR THE DEPOSITOR MAY RESULT IN
CONSOLIDATION OF THEIR ASSETS WITH THE ISSUER
The depositor will take steps in structuring the transactions
contemplated in this prospectus and in the related prospectus supplement that
are intended to ensure that the voluntary or involuntary application for relief
by any of an originator, a seller or the depositor as a "debtor" under any
insolvency law will not result in the assets of the related issuer becoming
property of the estate of a debtor within the meaning of the insolvency laws.
A "transferor" or non-bankruptcy remote entity, typically an originator
or a seller, will transfer the receivables to a "transferee" or
bankruptcy-remote entity, typically a seller or the depositor. This transfer is
designed to be a "true sale" so that the receivables and related assets would
not be part of that transferor's bankruptcy estate under the insolvency laws
should the transferor become the subject of a bankruptcy case after its transfer
of the receivables. In a typical transaction, the transferor would be an
originator that is an operating company selling receivables to a bankruptcy
remote seller created by the transferor. A bankruptcy-remote entity is a
separate, limited-purpose entity under a charter containing limitations,
including restrictions on the nature of its business and a restriction on its
ability to commence a voluntary case or proceeding under any insolvency law
without the unanimous affirmative vote of all of its directors. The issuer for a
series will acquire its rights in the receivables either directly or indirectly
from the bankruptcy remote entity.
However, if the depositor or a seller or originator subject to the
Bankruptcy Code were to become a "debtor" in a bankruptcy case, a creditor or
trustee in bankruptcy of the debtor or the debtor itself could attempt to argue
that the transfer of the receivables by the transferor was not a true sale and
instead should be treated as a pledge of the receivables to secure a borrowing
of the debtor and thus that the transferor still owns the receivables. An
attempt, even if unsuccessful, could result in delays in payments of collections
on the receivables and on the securities. If the attempt was successful, a court
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, if the issuer is rendered insolvent, a trustee
for the trust, in accordance with the transfer and servicing agreement, will
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promptly sell, dispose of or otherwise liquidate the related receivables in a
commercially reasonable manner on commercially reasonable terms. The proceeds
from that sale, disposition or liquidation of receivables will be treated as
collections on those 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 the related securityholders will be reduced and you will
incur a loss.
Furthermore, should the court decide that the assets and liabilities of
the transferee should be consolidated with those of the transferor, then any
true sale to the transferee would be ineffective to remove the receivables and
related assets from the bankruptcy estate of the transferor, and delays and
reductions in payments of collections on the related receivables could results.
The issuer and, by acceptance of any securities of that series, each
securityholder of a series will covenant that they will not at any time
institute against the depositor, or the related transferor(s) any bankruptcy,
reorganization or other proceeding under any federal or state bankruptcy or
similar law.
In addition, if an originator or a seller is the servicer, cash
collections held by that servicer may, subject to certain conditions, be
commingled and used for the benefit of that servicer before each payment date.
As a result, in the event of the bankruptcy of that servicer, the depositor, a
trust or trustee may not have a perfected interest in those collections.
Obligors of the vehicles may be entitled to assert against the related
seller, originator, the depositor, or the issuer or any trustee, claims and
defenses which they have against the originator as to the receivables. Each
originator will warrant that no claims or defenses have been asserted or
threatened as to the receivables and that all requirements of applicable law as
to the receivables have been satisfied.
SECURITY INTERESTS IN THE VEHICLES
Retail installment sale contracts and note and security agreements such
as the receivables evidence the credit sale of or indebtedness incurred to
acquire motor vehicles by originators to consumers. The contracts and agreements
also constitute personal property security agreements and include grants of
security interests in the related motor vehicle under the UCC. Perfection of
security interests in motor vehicles is generally governed by the motor vehicle
registration or titling laws of the state in which each vehicle is registered or
titled. In most states a security interest in a motor vehicle is perfected by
notation of the secured party's lien on the vehicle's certificate of title. In
certain states, however, folding camping trailers and/or slide-in campers, which
may constitute the motor vehicles securing the receivables, are not subject to
state titling and vehicle registration laws and a security interest in those
motor vehicles is perfected by filing pursuant to the provisions of the UCC.
Unless otherwise specified in the related prospectus supplement, all of
the receivables acquired from originators name the related originator as obligee
or assignee and as the secured
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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 those vehicles, including, where applicable, having a notation of its lien
recorded on the related certificate of title.
PERFECTION
Under the related purchase agreement or receivables transfer agreement,
as applicable, the originator or seller, as applicable, will transfer the
receivables and its security interests in the vehicles to the related seller or
the depositor. The issuer, in turn, will acquire an ownership or security
interest in those receivables, including an assignment of the originator's or
seller's security interests in the vehicles. Unless specified in the related
prospectus supplement, because of the administrative burden and expense, none of
the depositor, the related servicer nor any issuer will amend any certificate of
title to identify the depositor or any issuer 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
issuer of the receivables. Further, although neither the depositor nor the
issuer 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 under the related
transfer and servicing 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 that 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 those states, the assignment by the related originator or seller, as
transferor, of its interests in the receivables to the related seller or the
depositor, and the assignment of its interest in the receivables to the issuer
under the related transfer and servicing agreement are effective conveyances of
the respective interests of the related transferors and the depositor in the
vehicles, without re-registration 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
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transferor's rights as secured party and the issuer 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 issuer, the issuer'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 and/or seller's lien on the certificates of title will be
sufficient to protect the issuer against the rights of subsequent purchasers of
a vehicle or subsequent creditors who take a security interest in a vehicle. In
the related purchase agreement or receivables transfer agreement, the related
originators and/or seller 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 and/or seller
failed to obtain a first priority perfected security interest, its security
interest would be subordinate to, among others, subsequent purchasers of those
vehicles and holders of first priority perfected security interests therein. A
failure, however, would constitute a breach of the related originator's and/or
seller's representations and warranties under the related purchase agreement and
receivables transfer agreement. Accordingly, the related originator and/or
seller would be required to repurchase those receivables 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 that 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 that 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 transfer and servicing 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
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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. Under the related transfer and servicing
agreement, the related servicer will hold the certificates of title for the
related vehicles as custodian for the issuer. Under the related transfer and
servicing agreement, the related servicer will be obligated to take appropriate
steps, at its own expense, to maintain perfected security interests in the
vehicles.
PRIORITY OF LIENS ARISING BY OPERATION OF LAW
Under the laws of most states, certain statutory liens, such as
mechanics', repairmen's and garage men'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 that
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 and/or sellers will
represent and warrant to the seller or the depositor, as applicable, and in the
related purchase agreement or receivables transfer 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 that vehicle.
However, liens for repairs or taxes superior to the security interest of the
issuer in any vehicle, or the confiscation of a vehicle, could arise at any time
during the term of a receivable. No notice will be given to the issuer or any
securityholder if a lien or confiscation arises and any lien or confiscation
arising after the related closing date would not give rise to the related
originator's and/or the seller's repurchase obligation.
REPOSSESSION
If an obligor defaults on a receivable, the holder of the related
receivable 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 those 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 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 before 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).
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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 various substantive timing and
content requirements on those notices. In most states, under certain
circumstances after a 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 before actual sale or entry by
the secured party into a contract for sale of the collateral by paying the
secured party the unpaid principal balance of the obligation, accrued interest
thereon, reasonable expenses for repossessing, holding, and preparing the
collateral for disposition and arranging for its sale, plus, in some
jurisdictions, reasonable attorneys' fees and legal expenses or in some other
states, by payment of delinquent installments on the unpaid principal balance of
the related obligation.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of the vehicles generally will be applied first
to the expenses of resale and repossession and then to the satisfaction of the
indebtedness. In many instances, the remaining principal amount of the
indebtedness will exceed the 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 the debtor's loan; however, in some states, a creditor may not
seek a deficiency judgment from a debtor whose 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, before 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 subordinate lienholder exists or if there are remaining
funds, the UCC requires the creditor to remit the surplus to the obligor under
the contract.
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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 vehicle retail installment sale acts, state "lemon"
laws and other similar laws. In addition, the laws of some 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 issuer to enforce consumer finance contracts
such as the receivables.
Under most state vehicle dealer licensing laws, sellers of motor
vehicles 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
those 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 that claim or defense, the related
servicer would pursue on behalf of the issuer any reasonable remedies against
the seller or manufacturer of the vehicle, subject to limitations as to the
expense of any action to be specified in the related transfer and servicing
agreement.
Any loss, to the extent not covered by credit support specified in the
related prospectus supplement could result in losses to the securityholders. As
specified in the related prospectus
55
<PAGE>
supplement, if an obligor were successful in asserting any claim or defense as
described in this paragraph or the two immediately preceding paragraphs, that
claim or defense may constitute a breach of a representation and warranty under
the related purchase agreement, receivables transfer agreement or transfer and
servicing agreement and may create an obligation of the related originator
and/or seller to repurchase that 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 sellers and any
other originators will represent and warrant under the related purchase
agreement or receivables transfer agreement that each receivable complies with
all requirements of law in all material respects. Accordingly, if an obligor has
a claim against the issuer for violation of any law and that claim materially
and adversely affects the issuer's interest in a receivable, the violation would
constitute a breach of representation and warranty under the related purchase
agreement or receivables transfer agreement and would create an obligation of
the related seller and any other originator to repurchase that receivable unless
the breach were cured.
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a creditor to
realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
creditor from repossessing a motor vehicle, and, as part of the rehabilitation
plan, reduce the amount of the secured indebtedness to the market value of the
motor vehicle at the time of bankruptcy as determined by the court, leaving the
party providing financing as a general unsecured creditor for the remainder of
the indebtedness. A bankruptcy court may also reduce the monthly payments due
under a contract or chance the rate of interest and time of repayment of the
indebtedness. Any shortfall, to the extent not covered by credit support as
specified in each prospectus supplement, could result in losses to the
securityholders.
TAX CONSIDERATIONS
The prospectus supplement for each series of securities will summarize,
subject to limitations, federal income tax considerations relevant to the
purchase, ownership and disposition of those securities.
56
<PAGE>
ERISA CONSIDERATIONS
The prospectus supplement for each series of securities will discuss
whether employee benefit plans and other retirement arrangements may purchase
such securities, and will summarize, subject to limitations, considerations and
restrictions under ERISA relevant to the purchase of those securities by such
retirement plans or 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 that series and the net proceeds to the depositor from that
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:
- By negotiated firm commitment or best efforts underwriting
and public re-offering by underwriters
- By placements by the depositor with institutional investors
through dealers
- By direct placements by the depositor with institutional
investors
- 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 receivables
backing those securities.
If underwriters are used in a sale of any securities, other than in
connection with an underwriting on a best efforts basis, those securities will
be acquired by the underwriters for their own account and may be resold from
time to time in one or more transactions, including negotiated transactions, at
fixed public offering prices or at varying prices to be determined at the time
of sale or at the time of commitment therefor. The securities will be set forth
on the cover of the prospectus supplement relating to that series and the
members of the underwriting syndicate, if any, will be named in that 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 those securities, and any discounts or
57
<PAGE>
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
compensation of this type 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 conditions
precedent,
- that the underwriters will be obligated to purchase all related
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 for any series offered by placements through
dealers will contain information regarding the nature of the offering and any
agreements to be entered into between the depositor and purchasers of securities
of that series.
Purchasers of securities, including dealers, may, depending on the
facts and circumstances of those 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 before any 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 or special purpose finance company will be formed as to each
series of securities and no issuer will engage in any business activities or
have any assets or obligations before the issuance of the related series of
securities. The depositor's activities will be limited solely to the activities
of issuers to be formed for each series of securities. Accordingly, no financial
statements for any issuer 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.
58
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
The depositor has filed with the SEC a Registration Statement,
Registration No. 333-[ ] under the Securities Act, with respect to the
securities offered by this prospectus. You may read and copy any notices,
reports, statements or other information that any of the depositor, its
affiliates, or any seller has filed or causes to be filed and obtain copies of
the Registration Statement at the SEC's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549; and at the SEC's regional offices at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and Seven World Trade Center, New York, New York 10048. Copies of the
Registration Statement may be obtained from the Public Reference Section of the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In
addition, the SEC maintains a public access site on the Internet through the
World Wide Web at which site reports, information statements and other
information, including all electronic filings, may be viewed. The Internet
address of that World Wide Web site is http://www.sec.gov. You may obtain more
information on the operation of the public room by calling the SEC at
1-800-SEC-0330.
INCORPORATION OF INFORMATION BY REFERENCE
All documents filed by the depositor under Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended, after the date of this
prospectus and before the termination of the offering of the securities shall be
deemed to be incorporated by reference in this prospectus. Any statement
contained in this prospectus or in a document incorporated or deemed to be
incorporated by reference in this prospectus shall be deemed to be modified or
superseded for purposes of this prospectus to the extent that a statement
contained in this prospectus or in any subsequently filed document which also is
or is deemed to be incorporated by reference in this prospectus modifies or
supersedes that statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
prospectus.
The depositor will provide without charge to each person, including any
beneficial owner of securities, to whom a copy of this prospectus is delivered,
on the written or oral request of that person, a copy of any or all of the
documents incorporated in this prospectus or in any related prospectus
supplement by reference, except the exhibits to those documents, unless those
exhibits are specifically incorporated by reference in the documents. Requests
for copies should be directed to:
Prudential Securities Secured Financing Corporation
One New York Plaza
New York, New York 10292
Attention: Asset Finance Group
59
<PAGE>
Until , all dealers that effect transactions in these securities, whether or not
participating in this 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.
Table of Contents
[Underwriters]
60
<PAGE>
The information in this prospectus supplement and the accompanying prospectus
is not complete and may be changed. We may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This prospectus supplement and the accompanying prospectus are not
an offer to sell these securities and they are not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
<PAGE>
[PROSPECTUS SUPPLEMENT VERSION 2A]
[Form of Financed Assets--Grantor Trust Prospectus Supplement]
Subject to completion, dated __________ __, _____
Prospectus Supplement dated [____ __, 20__] (to prospectus dated ____ __, 20__)
$_____________
[______________________]
ISSUER
PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION
DEPOSITOR
The trust will issue [__] classes of asset backed certificates that are
offered under this prospectus supplement.
Credit Enhancement for the certificates is provided by:
[Description of applicable credit enhancement]
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-[__] IN
THIS PROSPECTUS SUPPLEMENT AND ON PAGE [__] IN THE PROSPECTUS.
[[________] will offer [__] classes of certificates to the public
[at varying prices to be determined at the time of sale].
<TABLE>
<CAPTION>
Final
Interest Rate Price to Underwriting Proceeds to Scheduled
Class Principal Amount (per annum) Public(1) Discount(2) Trust(3) Maturity Date
----- ---------------- ------------- --------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
(1) Total price to public = [$___________________].
(2) Total underwriting discount =[$__________________].
(3) Total proceeds to Trust = [$_____________________], before deducting
expenses estimated to be [$__________________].
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THESE SECURITIES OR DETERMINED THAT THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
[UNDERWRITER]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Overview of the Information in this Prospectus Supplement and the Prospectus.............iii
Summary of Transaction Parties........................................................... iv
Summary of the Certificates.............................................................. v
Prospectus Supplement Summary............................................................S-1
Depositor.............................................................................S-1
Issuer................................................................................S-1
Servicer..............................................................................S-1
Trustee...............................................................................S-1
Seller(s).............................................................................S-1
Originator(s).........................................................................S-1
Certificates..........................................................................S-1
Closing Date..........................................................................S-1
Payment Dates.........................................................................S-1
Cut-off Date(s).......................................................................S-1
Collection Period.....................................................................S-1
Closing Date..........................................................................S-2
Interest Payments.....................................................................S-2
Principal Payments....................................................................S-2
[Interest Only Certificates]..........................................................S-3
[Principal-Only Certificates].........................................................S-3
[Accrual Certificates]................................................................S-3
Final Scheduled Maturity Date.........................................................S-4
Optional Redemption...................................................................S-4
Mandatory Termination.................................................................S-4
Trust Assets..........................................................................S-4
The [Initial] Receivables.............................................................S-5
[Pre-Funding].........................................................................S-6
[Interest Reserve Account]............................................................S-7
[Residual Payment Certificates].......................................................S-7
[Credit Enhancement]..................................................................S-7
[Cross Collateralization].............................................................S-7
Distributions.........................................................................S-7
Available Funds.......................................................................S-7
Application of Payments...............................................................S-8
Federal Tax Considerations............................................................S-8
ERISA Considerations..................................................................S-9
Ratings...............................................................................S-9
RISK FACTORS.............................................................................S-10
Payments will be made only from the limited assets of the trust.......................S-10
You bear reinvestment risk and payment delay risk due to repurchase...................S-10
[Variations in regional economic conditions may cause payment
reductions or delays.]............................................................S-11
[Possible prepayments as a result of pre-funding period.].............................S-11
[Changes in pool characteristics as a result of pre-funding period.]..................S-11
[Subordination of the class [__] certificates provides only limited protection
against losses.]..................................................................S-12
[Additional risk factors applicable for a specific series.]...........................S-12
The Trust................................................................................S-13
The Trustee...........................................................................S-13
[Use of Proceeds]........................................................................S-13
The Receivables..........................................................................S-13
Eligibility Criteria..................................................................S-13
The Seller(s)............................................................................S-14
The Originator(s)........................................................................S-14
The Servicer.............................................................................S-14
Delinquency and Loss Experience.......................................................S-15
Servicing and Collections.............................................................S-15
Weighted Average Life of the Certificates................................................S-15
Description of the Certificates...................................................S-16
Description of the Certificates...................................................S-16
Payments..........................................................................S-16
[Pre-funding Account].............................................................S-18
Optional Redemption...............................................................S-18
Description of the Transaction Documents.................................................S-19
[Description of Originator/Seller Representations and Warranties].................S-19
[Sale and] Assignment of [Initial] Receivables [and Additional Receivables].......S-19
i
<PAGE>
Accounts..........................................................................S-20
Servicing Compensation and Payment of Expenses....................................S-20
Available Funds...................................................................S-20
Application of Payments...........................................................S-21
[Subordination of Class [ ] Certificates]........................................S-21
Legal Aspects of the Receivables.........................................................S-21
Federal Income Tax Considerations........................................................S-21
Tax Characterization of the Trust.................................................S-22
Stripped Bonds and Stripped Coupons...............................................S-25
Tax Consequences to Foreign Certificateholders....................................S-27
State Tax Consequences...................................................................S-29
Certain ERISA Considerations.............................................................S-29
Ratings..................................................................................S-32
Underwriting.............................................................................S-33
Legal Opinions...........................................................................S-34
</TABLE>
ii
<PAGE>
OVERVIEW OF THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS
We provide information to you about the certificates in two separate
documents that progressively provide more detail:
- this prospectus supplement, which describes the
specific terms of your series of certificates; and
- the accompanying prospectus, which provides general
information, some of which may not apply to your
series of certificates.
THE PROSPECTUS SUPPLEMENT AND THE PROSPECTUS, TOGETHER, PROVIDE A
DESCRIPTION OF THE MATERIAL TERMS OF YOUR CERTIFICATES. YOU SHOULD RELY ON THE
INFORMATION IN THIS PROSPECTUS SUPPLEMENT TO THE EXTENT IT PROVIDES A MORE
SPECIFIC DESCRIPTION OF YOUR CERTIFICATES.
You should rely only on the information provided in this prospectus
supplement and the accompanying prospectus, including the information
incorporated by reference. You can request information incorporated by
reference from Prudential Securities Secured Financing Corporation, One New
York Plaza, New York, New York 10292, Attention: P. Carter Rise. See "Where
You Can Find More Information" and "Incorporation of Information by Reference"
in the prospectus. We have not authorized anyone to provide you with different
information. We are not offering the certificates in any state where the offer
is not permitted.
We include cross-references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
further related discussions. The table of contents in this prospectus
supplement and the table of contents included in the accompanying prospectus
provide the pages on which these captions are located.
iii
<PAGE>
Summary of Transaction Parties
[SCHEMATIC DRAWING DESCRIBING TRANSACTION]
This chart provides only a simplified overview of the relations between
the key parties to the transaction. Refer to this prospectus supplement and
the prospectus for a further description.
iv
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
SUMMARY OF THE CERTIFICATES
-----------------------------------------------------------------------------------------------------------------------
[Class __] [Class ___] [Class ___] [Class ___]*
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Initial Principal Balance:
-----------------------------------------------------------------------------------------------------------------------
% of Total: [ %] [ %] [ %] [ %]
-----------------------------------------------------------------------------------------------------------------------
Anticipated Ratings:
[-------]
[-------]
[-------]
-----------------------------------------------------------------------------------------------------------------------
Interest Rate:
-----------------------------------------------------------------------------------------------------------------------
Interest Accrual Method:
---------------------------- ------------------------------------------------------------------------------------------
Payment Dates: [___] day of each [________], or if [__] day is not a business day, then the next
business day
-----------------------------------------------------------------------------------------------------------------------
Final Scheduled Payment
Date:**
-----------------------------------------------------------------------------------------------------------------------
Clearance/ [DTC/Euroclear/Clearstream- [DTC/Euroclear/
Settlement: Luxembourg] Clearstream-Luxembourg]
-----------------------------------------------------------------------------------------------------------------------
Cut-Off Date: Close of business,[_____________]
-----------------------------------------------------------------------------------------------------------------------
Closing Date: On or about [_______ ___, 20__]
-----------------------------------------------------------------------------------------------------------------------
Final Maturity Date: The payment date [_______]
-----------------------------------------------------------------------------------------------------------------------
* We are providing information for the non-offered certificates solely to
assist the reader's understanding of the certificates offered by this
prospectus supplement.
** Assuming that there are no prepayments on the trust assets, that no party
exercises its right of optional redemption of the certificates and the
other modeling assumptions contained in "Prepayment and Yield
Considerations" occur.
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
v
<PAGE>
-------------------------------------------------------------------------------
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights selected information from this document. To understand
all of the terms of the offering of the certificates, you should carefully
read this entire document and the accompanying prospectus supplement.
<TABLE>
<S> <C>
THE TRANSACTION PARTIES
DEPOSITOR............................... Prudential Securities Secured
Financing Corporation, formerly
known as P-B Secured Financing
Corporation, a Delaware corporation,
a wholly-owned limited purpose
finance subsidiary of Prudential
Securities Incorporated.
ISSUER.................................. [______________].
SERVICER................................ [______________].
TRUSTEE................................. [______________].
SELLER(S)............................... [______________].
ORIGINATOR(S)........................... [______________].
SUMMARY OF TERMS
CERTIFICATES............................ The trust will issue the asset
backed certificates described in
"Summary of the Certificates." [The
issuer is offering the class [__]
certificates pursuant to this
prospectus supplement and
prospectus. The issuer is not
offering the class [__] certificates
to the public.] The certificates
will represent factional undivided
interests in the trust and will be
issued pursuant to the pooling and
servicing agreement.
CLOSING DATE............................ [__________ __, 20__].
PAYMENT DATES........................... The [__] day of each [_____],
beginning in [________ __, 20__]. If
the [__] day is not a business day,
then the payment date will be the
next business day.
CUT-OFF DATE(S)......................... [__________ __, 20__].
-------------------------------------------------------------------------------
S-1
<PAGE>
-------------------------------------------------------------------------------
COLLECTION PERIOD....................... [begins on the [__] day of each
[month] [quarter] and runs until and
includes the [__] day of the next
[month] [quarter]. However, the
first and last collection periods
are as follows:
-FIRST: period from and including
the cut-off date to and including
[__] days prior to the first payment
date
-LAST: period from but excluding the
last day of the collection period
before the termination date to and
including the termination date]
CLOSING DATE............................ On or about [__________ __, 20__].
INTEREST PAYMENTS....................... The interest rates for each class of
certificates is described in
"Summary of the Certificates."
[Insert mechanics applicable to any
floating rate certificates]. The
trustee will calculate interest on
the certificates on the basis of [a
360-day year of twelve 30-day
months]. On the first payment date,
the interest payable to
certificateholders will be based
upon the actual number of days
elapsed from and including the
closing date to but excluding the
first payment date [and assuming a
30-day month].
PRINCIPAL PAYMENTS...................... The trustee will pay principal on
the certificates on each payment
date in an amount equal to the
certificateholder's percentage of
the principal payment amount.
The principal payment amount for a
payment date generally will equal
the sum of the following amounts,
without duplication:
- collections on the
receivables, other than
charged-off receivables)
during the preceding
calendar month allocable to
principal including full
and partial prepayments;
- the portion of the purchase
amount deposited in the
collection account
allocable to principal of
each receivable that was
repurchased by [the
originator] [the seller]
[the servicer] as of the
last day of the preceding
calendar month due to a
breach of certain
-------------------------------------------------------------------------------
S-2
<PAGE>
-------------------------------------------------------------------------------
representations or
warranties by the
originator or breach of
certain covenants by the
servicer relating to that
receivable; and
- the principal balance of
each receivable that first
became a charged-off
receivable during the
preceding calendar month
(other than charged-off
receivable for which
substitutions occur); and
- the aggregate amount of the
reduction in the principal
balances of auto loans
resulting from court orders
during the preceding
calendar month in obligor
insolvency proceedings
which reduce the amount
owed on those obligors'
auto loans.
The certificateholder percentage of
the principal payment amount for any
payment will be equal to [insert
mechanics specific to building
and/or maintaining any form of
credit enhancement].
[[See "Description of the
Certificates--Payments"] for
additional detail and for special
priority rules that would apply in a
default situation.]
[Description of priority of payments
among various classes].
[INTEREST ONLY CERTIFICATES]............ [The class [___] certificates are
interest only certificates. This
means that the trustee will
distribute interest, based upon a
notional amount, but will not
distribute principal on these
certificates.]
[PRINCIPAL-ONLY CERTIFICATES]........... [The class [___] certificates are
principal only certificates. This
means that the trustee will not
distribute interest on these
certificates. The trustee will
distribute a portion of the
principal payment amount to the
investors of these certificates.]
[ACCRUAL CERTIFICATES].................. [The class [___] certificates are
accrual certificates. Interest
accrued on this class of
certificates will be added to its
principal balance rather than
distributed to the holders of
-------------------------------------------------------------------------------
S-3
<PAGE>
-------------------------------------------------------------------------------
these certificates until [insert
mechanics describing when interest
accrual ceases.]]
FINAL SCHEDULED
MATURITY DATE........................... The outstanding principal amount, if
any, of the certificates will be
payable on their final scheduled
maturity dates as described in the
"Summary of the Certificates" table.
OPTIONAL REDEMPTION..................... [The seller] [the depositor] [the
servicer] may purchase all the
receivables when the total
outstanding principal amount of the
receivables declines to less than
[___%] of the total principal
balance of the receivables as of the
cut-off date.
The purchase price for the
certificates will be equal to the
remaining unpaid principal amount of
the receivables plus accrued
interest through the payment date on
which the redemption occurs. If [the
seller] [the depositor] [the
servicer] exercises this option, the
outstanding principal balance of the
certificates will be paid in full
with accrued interest.]
MANDATORY TERMINATION................... [The trust will have a funding
period during which it will purchase
additional receivables. On the
payment date on or after the last
day of the funding period, any funds
remaining in the trust's pre-funding
account after the purchase of
receivables on that payment date
will be applied to partially redeem
the certificates then outstanding.]
TRUST ASSETS............................ The primary assets of the trust will
be [participation interests in]
[security interests in] a pool of
[retail installment contracts] [note
and security agreements executed by
retail purchasers in favor of
vehicle lenders] used to finance the
purchase of new and used
automobiles, light duty trucks,
sport utility vehicles, motorcycles,
recreational vehicles (including
motor homes and van campers),
recreational sport and power boats
(including any boat motors and
accompanying trailers) and personal
watercraft. We refer to these
[contracts] [note and security
agreements] as "receivables" and to
the persons who financed their
purchases with these receivables as
"obligors." [__________] is the
originator of the
-------------------------------------------------------------------------------
S-4
<PAGE>
-------------------------------------------------------------------------------
receivables. The receivables in the
trust will be transferred by [the
originator to the seller, by the
seller to the depositor, and then by
the depositor to the trust.] The
trust will grant a security interest
in the receivables and the other
trust property to the trustee for
the benefit of the
certificateholders. The trust assets
will also include the following:
- monies received under the
[initial] receivables
after a cutoff date of
[______ __, 20__] [and
under additional
receivables sold to the
trust after a later
cutoff date];
- amounts held in bank
accounts established for
the trust [including
amounts on deposit in the
collection account,
pre-funding account,
reserve account and yield
supplement account];
- security interests in the
automobiles, light duty
trucks, sport utility
vehicles, motorcycles,
recreational vehicles
(including motor homes
and van campers),
recreational sport and
power boats (including
any boat motors and
accompanying trailers)
and personal watercraft
financed by the
receivables;
- any proceeds from
insurance policies
covering financed assets
or obligors on those
assets;
- any rights [_______] has
against dealers from
which it purchased
receivables; [and]
- rights of the seller
under its purchase
agreement with [_____]
and rights of the
depositor under its
receivables acquisition
agreement with the seller
[; and]
- [insert description of
any other credit
enhancement applicable to
a particular series].
THE [INITIAL] RECEIVABLES............... On the closing date, the trust will
acquire [a participation interest
in] [a security interest in] retail
installment
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contracts or note and security
agreements with an aggregate
principal balance of [$__________]as
of the [initial] cutoff date of
[______ __, 20__]. As of the
[initial] cutoff date:
- the weighted average
annual percentage rate of
the initial receivables
was approximately [___%];
- the weighted average
remaining term to
scheduled maturity of the
initial receivables was
approximately [__]
months;
- the weighted average
original term to
scheduled maturity of the
initial receivables was
approximately [__]
months;
- approximately [__%] of
the receivables by
aggregate principal
balance were secured by
used assets; and
- [insert description of
additional pool criteria
applicable for a
particular series.]
No [initial] receivable has a
scheduled maturity later than
[________ __, 20__], which is [___]
months before the final scheduled
payment date of the certificates.
[PRE-FUNDING]........................... [In addition to the initial
receivables, the trust will purchase
additional receivables during a
funding period, not to exceed 90
days, beginning on the closing date
and ending not later than the close
of business on [_______ __, 20__].]
[The trust will pay the purchase
price for additional receivables
with [funds on deposit in]
[investments held in] a pre-funding
account established for the trust.
The seller will deposit]
[[$________]] [insert description of
investments] into the pre-funding
account on the closing date. [In
addition, during the period
beginning on the closing date and
ending on __________, the trust will
deposit [all/a portion of] the
payments collected on the
receivables in the pre-funding
account, rather than pay such
amounts to certificateholders. These
additional amounts will also be used
to purchase additional receivables
during
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</TABLE>
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<TABLE>
<S> <C>
[the same period]. The trust
expects to purchase additional
receivables with an aggregate
principal balance approximately
equal to the amount deposited in the
pre-funding account. Prior to being
used to purchase receivables, funds
on deposit in the pre-funding
account will be invested from time
to time in highly rated short-term
securities.]
[The funding period will end earlier
than [_______ __, ____] if the
balance in the pre-funding account
is reduced to less than [$____].]
[The funding period will also
terminate early if specified
servicer defaults or events of
default under the pooling and
servicing agreement occur. Any
balance remaining in the pre-funding
account at the end of the funding
period will be applied to partially
redeem the certificates then
outstanding.]
[INTEREST RESERVE ACCOUNT].............. [We anticipate that the average
interest rate earned by the trust on
investment of funds in the
pre-funding account will be less
than the interest rate on the
certificates. To provide a source of
funds to cover any shortfall
resulting from this difference, we
will [deposit [$_______] into a
special interest reserve account of
the trust] [fund a special interest
reserve account of the trust from
collections received on the
receivables]. On each payment date
during the pre-funding period, money
from the interest reserve account
will be used to make up for this
interest shortfall.]
[RESIDUAL PAYMENT CERTIFICATES]......... [The issuer may issue one or more
new series of certificates backed by
some or all of the "equity interest"
or rights to the trust assets that
are in excess of the
certificateholders rights in those
assets.]
[CREDIT ENHANCEMENT].................... [Description of any credit
enhancement applicable for a
particular series.]
[CROSS COLLATERALIZATION]............... [Description of any cross
collateralization between series.]
DISTRIBUTIONS........................... The servicer, or the trustee on
behalf of and at the direction of
the servicer, will establish and
maintain a collection account in the
name of the trustee into which all
payment
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<PAGE>
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made on the receivables will be
deposited and held pending
distribution to certificateholders.
AVAILABLE FUNDS......................... The available funds for a payment
date will be the sum of the
following amounts with respect to
the preceding calendar month:
- all principal and interest
payments on the receivables;
- all proceeds received
during the preceding
calendar month, including
actual recovery amounts,
with respect to receivables
that became charged-off
receivables during the
preceding calendar month,
net of the reasonable and
customary out-of-pocket
expenses incurred by the
servicer in connection with
collection, enforcement or
liquidation and any amounts
required by law to be
remitted to the obligor on
the charged-off receivable;
- proceeds from actual
recovery amounts on
charged-off receivables;
- earnings on investments of
funds in the collection
account [, pre-funding
account, reserve account,
interest reserve account
and yield supplement
account] during the
preceding calendar month;
- the purchase amount
deposited in the collection
account for each receivable
that was repurchased by
[the originator] [the
seller] [the servicer] and]
- [insert any other amounts
applicable for a particular
series].
APPLICATION OF PAYMENTS................. On each payment date, the trustee
will distribute funds on deposit in
the collection account relating to
the prior collection period in the
priority indicated:
[insert description of the order and
priority of payments applicable for
a series]
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<PAGE>
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FEDERAL TAX CONSIDERATIONS.............. Mayer, Brown & Platt, special
Federal tax counsel to [________]
("Federal Tax Counsel"), is of the
opinion that for Federal income tax
purposes the trust will be treated
as a grantor trust under subpart E,
Part I of subchapter J of the Code,
and will not be subject to federal
income tax. Accordingly, the
certificateholders will be treated
as owners of the receivables for
federal income tax purposes. See
"Federal Income Tax Considerations"
for a summary of material federal
income tax consequences of the
purchaser, ownership and disposition
of the certificates.
ERISA CONSIDERATIONS.................... Subject to the restrictions and
considerations discussed under
"ERISA Considerations," the class
[__] certificates may be eligible
for purchase by employee benefit
plans.
The class [__] certificates and any
beneficial interest in the class
[__] certificates may not be
acquired with the assets of an
employee benefit plan subject to the
Employee Retirement Income Security
Act of 1974, as amended, or with the
assets of an individual retirement
account or any other "plan"
described by Section 4975 of the
Internal Revenue Code of 1986, as
amended, except as permitted under a
prohibited transaction exemption
available only to certain insurance
companies using general account
assets.
RATINGS................................. It is a condition to the issuance of
the certificates that the class
[_____] certificates be rated at
least ["____"] by [______] and the
class [_____] certificates be rated
at least ["____"] by [_____]. The
ratings of the certificates address
the likelihood of the timely payment
of interest on and the ultimate
payment of principal of the
certificates under their terms.
These ratings are not a
recommendation to buy, sell or hold
the certificates. We cannot assure
you that a rating will not be
lowered or withdrawn by a rating
agency if circumstances so warrant.
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</TABLE>
S-9
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase the certificates.
<TABLE>
<S> <C>
PAYMENTS WILL BE MADE ONLY FROM THE The trust does not have any
LIMITED ASSETS OF THE TRUST significant assets or sources of
funds other than the receivables,
amounts on deposit in the trust
accounts [and] [insert description
of any credit enhancement]. You must
rely on payments on the receivables,
amounts, if any, on deposit in the
trust accounts [and] [insert
description of credit enhancement]
for repayment of the certificates.
YOU BEAR REINVESTMENT RISK AND PAYMENT The receivables may be prepaid at
DELAY RISK DUE TO REPURCHASE any time, in full or in part,
voluntarily or as a result of
defaults, casualties to the related
assets, death of an obligor or other
reasons. [The originator] [the
seller] [the servicer] may be
required to repurchase one or more
receivables from the trust if it
breaches specified representations
or covenants relating to the
receivables described in
["Description of the Transaction
Documents-- Sale and Assignment of
[Initial] Receivables [and
Additional Receivables]."] [The
servicer] [the seller] [the
depositor]] also will have the right
to purchase all remaining
receivables from the trust pursuant
to a clean-up call described in
["Summary -- Optional Redemption"
and "Description of the
Certificates--Optional Redemption."]
Each prepayment, repurchase or
purchase will shorten the average
life of the certificates. [The class
[__]certificates will be extremely
sensitive to the rate and timing of
payments, including prepayments, on
the receivables. If you purchase a
class [__] certificate at a premium,
under some prepayment scenarios, you
could fail to recoup your original
investment.] [The class __
certificates will be adversely
affected by a lower than anticipated
rate of payment on the receivables.]
[The reinvestment risk to an
investor in the class [__]
certificates may be exacerbated in
the event of [an increase in the
rate of payment on the receivables
in a decreasing interest rate
environment] [a decrease in the rate
of payment on the receivables in an
increasing rate environment.]
Prepayment rates may be influenced
by a variety of factors and cannot
be predicted with any assurance. You
will bear
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<PAGE>
any reinvestment risks resulting
from a faster rate of prepayment or
repurchase of receivables. Any time
your principal is repaid to you at a
time when you did not expect to
receive it, you may not be able to
reinvest your funds at the same or a
higher rate of return than the
interest rate on your certificates.
VARIATIONS IN REGIONAL As of the [initial] cutoff date,
ECONOMIC CONDITIONS obligors located in _______,
MAY CAUSE PAYMENT ________ and ________, respectively,
REDUCTIONS OR DELAYS comprised [__%], [__%] and [__%]of
the [initial] receivables by
aggregate principal balance. Adverse
economic conditions or other factors
particularly affecting these states
may affect the delinquency, loan
loss and repossession experience of
the receivables.
UNENFORCEABILITY OF THE TRUST'S When dealers or [________] first
SECURITY INTERESTS IN FINANCED originate receivables, unless the
ASSETS BECAUSE CERTIFICATES OF TITLE asset is of a type that cannot be
WILL NOT BE AMENDED MAY CAUSE PAYMENT perfected by notation on a related
REDUCTIONS OR DELAYS certificate of title, [_______'s]
security interests in the financed
assets are noted on the certificates
of title for the assets. [_______]
will transfer and assign security
interests in the financed assets to
the seller. The seller, in turn,
will transfer and assign those
security interests to the depositor,
who will transfer and assign those
security interests to the trust. The
trust, in turn, will assign those
security interests to the trustee
for the benefit of the
certificateholders. In most states,
these assignments are effective
assignments of a security interest,
and the assignee succeeds to the
assignor's rights as secured party.
However, due to the administrative
burden and expense, the certificates
of title for the financed assets
will not be marked, amended or
reissued to identify the seller, the
depositor, the trust or the trustee
as the secured party. In the absence
of this action, the trustee may not
have a perfected security interest
in the financed assets securing the
receivables. For a more complete
description of perfection issues,
see ["Legal Aspects of the
Receivables--Security Interests in
Vehicles" and "--Security Interests
in Boats"] in the prospectus.
[POSSIBLE PREPAYMENTS AS A RESULT OF [If the principal amount of eligible
FUNDING PERIOD] receivables purchased or directly
originated by [________] during the
trust's funding period is less than
the amount [accumulated from
collections and] deposited in the
trust's pre-funding account, we will
not have sufficient receivables to
sell to
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<PAGE>
the trust during the funding period.
This would result in a prepayment of
principal to the certificateholders
as described below.
If the aggregate principal balance
of receivables we sell to the trust
during the funding period is less
than the amount [accumulated from
collections and] deposited in the
trust's pre-funding account, the
excess will be applied at the end of
the pre-funding period to partially
prepay the certificates. Any
prepayment under these circumstances
will shorten the weighted average
life of the certificates to an
extent that we cannot predict with
assurance, since we cannot predict
the amount of any prepayment with
assurance.]
[CHANGES IN POOL CHARACTERISTICS AS [The only required characteristics
A RESULT OF PRE-FUNDING PERIOD] of the additional receivables
transferred to the trust during the
pre-funding period will be the
eligibility criteria specified in
the pooling and servicing agreement.
These additional receivables may be
originated using credit criteria
different from those that were
applied to the initial receivables
and may be of a different credit
quality and seasoning. As a result,
following the transfer of additional
receivables to the trust, the
characteristics of the entire
receivables pool may vary from those
of the initial receivables described
in ["The Receivables"]. Since the
weighted average life of the
certificates will be influenced by
the rate at which the principal
balances of the receivables are
paid, some of these variations may
affect the weighted average life of
the certificates.]
[SUBORDINATION OF THE CLASS [The subordination of the class
[__] CERTIFICATES PROVIDES ONLY [__]certificates is intended to
LIMITED PROTECTION AGAINST LOSSES] increase the likelihood of payments
on the class [__] certificates. The
amount of credit enhancement
provided through the subordination
of the class [__] certificates to
the class [__] certificates,
however, is limited and could be
depleted prior to the payment in
full of the class [__] certificates.
If the principal amount of the class
[__] certificates is reduced to
zero, you may suffer losses on your
certificates.]
LIMITATIONS ON INTEREST PAYMENTS Generally, under the terms of the
AND FORECLOSURES Soldiers' and Sailors' Civil Relief
Act of 1940, as amended, or similar
state legislation, an obligor who
enters military service after the
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<PAGE>
origination of an auto loan [__]may
not be charged interest, including
fees and charges, above an annual
rate of 6% during the period of the
obligor's active duty status unless
a court orders otherwise upon
application of the lender. This
includes any obligor who is a member
of the National Guard or is in
reserve status at the time of the
origination of the [auto] loan and
is later called to active duty. It
is possible that for an
indeterminate period of time, the
servicer may be unable to collect
full amounts of interest on some of
the [auto] loans. In addition, the
Soldiers' and Sailors' Civil Relief
Act of 1940 imposes limitations that
would impair the ability of the
servicer to foreclose on an affected
[auto] loan during an obligor's
period of active duty status. Thus,
in the event that an [auto] loan
goes into default, there may be
delays and losses occasioned by the
inability of the servicer to realize
upon the [vehicle] in a timely
fashion.
[ADDITIONAL RISK FACTORS
APPLICABLE FOR A SPECIFIC SERIES]
</TABLE>
S-13
<PAGE>
THE TRUST
The depositor will establish the trust by selling and assigning the
trust assets to the trustee in exchange for the certificates. Each certificate
represents a fractional undivided ownership interest in the trust. After its
formation, the trust will not engage in any activity other than acquiring,
holding and managing the receivables and the other assets of the trust and
proceeds therefrom and issuing the certificates and making payments thereon.
The trust has no directors, officers or employees and is not involved
in any legal proceedings.
THE TRUSTEE
[___________] is the trustee under the pooling and servicing agreement.
It is a [__________] corporation and its principal offices are located at
[________________]. The trustee's duties in connection with the certificates are
limited solely to its express obligations under the pooling and servicing
agreement.
[USE OF PROCEEDS]
[describe any uses not specified in base prospectus]
THE RECEIVABLES
[_________] [purchased or originated] [was granted a security interest
in] the receivables in the ordinary course of its business. The pool of
receivables will consist of [participation interests in] [security interests in]
[initial] receivables purchased by the trust as of the closing date [and
[participation interests in] [security interests in] any additional receivables
purchased during the trust's funding period.] [[________] has selected
receivables from its portfolio to include in the pool of [initial] receivables
[and will select receivables from its portfolio for inclusion in the pool of
additional receivables] using the following eligibility criteria described
below.]
ELIGIBILITY CRITERIA
Eligibility criteria include that each receivable:
- has no payment 10% or more of which was more than 29 days
past due;
- has an annual percentage interest rate or APR of not less
than [__%] and not more than [__%];
S-14
<PAGE>
- [provides for level monthly payments that fully amortize the
amount financed over an original term to scheduled maturity
of at least [__] months and not more than [__] months;
provided that payments are made on the applicable due dates
and except that the final payment may differ;
- has an outstanding principal balance of not less than [$____]
and not more than [$_____];
- has a remaining term to scheduled maturity of at least [__]
months and not more than [__] months; [and]
- is either a rule of 78s receivable, fixed value receivable,
simple interest receivable or actuarial receivable[; and]
- [insert any other criteria applicable for a particular
series].
[In addition, the seller will represent and warrant, among other
things, that, after giving effect to each transfer of additional receivables,
the receivables in the trust will meet the following criteria:]
[insert criteria applicable to pool after transfer of additional
receivables]
The [initial] receivables were originated on or before [________ __,
20__.] The composition of the pool of receivables as of the closing date will
not deviate from the composition of the pool of receivables as of the [initial]
cut-off date. The seller did not [and will not] utilize any selection procedures
it believed would be adverse to the certificateholders in selecting the
receivables.
Please refer to the tables in Appendix A which set forth information
regarding the composition and characteristics of the receivables pool as of the
[initial] cutoff date.
THE SELLER(S)
[Insert description of each seller(s).]
THE ORIGINATOR(S)
[Insert description of each originator(s) and its underwriting
procedures and criteria.]
THE SERVICER
[Insert description of the servicer.]
S-15
<PAGE>
DELINQUENCY AND LOSS EXPERIENCE
[Insert description of servicer's loss and delinquency experience
including loss and delinquency tables.]
SERVICING AND COLLECTIONS
[Insert description of servicer's servicing and collection procedures
and any commingling rights, including specific percentage of securityholders
required to terminate servicer upon servicer default.]
WEIGHTED AVERAGE LIFE OF THE CERTIFICATES
The rate of payment of principal of each class of certificates depends
primarily on the rate of payment, including prepayments, of the principal
balance of the receivables. As a result, the final distribution on the
certificates could occur significantly earlier than the final scheduled payment
dates for each class certificates. We expect that the final distribution on the
certificates will occur on or prior to the applicable final scheduled payment
date for each class. However, if sufficient funds are not available to pay the
certificates in full on or prior to the applicable final scheduled payment date,
the final distribution on the certificates could occur later than expected.
The weighted average life of the certificates of any series will
generally be influenced by the rate at which the principal balances of the
related receivables are paid, which payment may be in the form of scheduled
amortization or prepayments. All of the receivables are repayable at any time
without penalty, or with only a nominal penalty, to the obligor. The rate of
prepayment of automotive receivables is influenced by a variety of economic,
social and other factors, including decreases in the general level of prevailing
interest rates, the desire of the obligor to purchase a new vehicle and the fact
that an obligor generally may not sell or transfer the financed asset securing a
receivable unless the receivable is paid in full. In addition, under certain
circumstances, [the originator] [the seller] [the servicer] will be obligated to
repurchase receivables from the trust pursuant to the pooling and servicing
agreement as a result of breaches of representations and warranties. You should
consider, in the case of certificates purchased at a discount, the risk that a
slower than anticipated rate of principal payments on the receivables could
result in an actual yield that is less than the anticipated yield. In the case
of certificates purchased at a premium, the risk that a faster than anticipated
rate of principal payments on the receivables could result in an actual yield
that is less than the anticipated yield.
No prediction can be made as to the rate of prepayment on the
receivables. We are not aware of any publicly available industry statistics for
the entire industry on an aggregate basis that set forth principal prepayment
experience for receivables similar to the receivables over an extended period of
time.
In light of the above considerations, we cannot assure you as to the
amount of principal distributions to be made on the certificates on each payment
date, since the amount will depend,
S-16
<PAGE>
in part, on the amount of principal collected during the applicable
collection period. Any reinvestment risks resulting from a faster or slower
incidence of prepayment of receivables will be borne entirely by the
certificateholders.
[Description of prepayment speed assumption and modeling assumptions,
if any, applicable for a particular series.]
DESCRIPTION OF THE CERTIFICATES
DESCRIPTION OF THE CERTIFICATES
The trustee will issue the certificates pursuant to the pooling and
servicing agreement. The certificates initially will be represented by
certificates registered in the name of Cede & Co. ("CEDE") as the nominee of
The Depository Trust Company ("DTC"), and will only be available in the form of
book-entries on the records of DTC and its participating members. The
certificates will be issued in minimum denominations of [$_____] and integral
multiples of [$_____], except that one certificate of each class may be issued
in another denomination. All references to "holders" or "certificateholders"
and to authorized denominations, shall reflect the rights of beneficial owners
of the certificates or "certificate owners."
PAYMENTS
The certificates will bear interest at the [fixed] [floating] rates
described in "Summary of the Certificates." [Insert description of any floating
rate mechanics applicable for a particular series.] The certificates constitute
[fixed-income securities, strip securities and accrual securities] as described
in ["Prospectus Summary--Fixed-Income Securities, --Strip Securities and
--Accrual Securities" in the prospectus]. The trustee will distribute payments
of interest to certificateholders [monthly] [quarterly] on each payment date
commencing [________ __, 20__]. Payment dates will occur on the [__] day of each
[month] [quarter] or, if that day is not a business day, the next succeeding
business day. A business day is any day other than a Saturday, Sunday or any
other day on which banks in [___________] are authorized or obligated by law or
order to be closed. The trustee will calculate interest on the certificates on
the basis of [a 360-day year consisting of twelve 30-day months].
On each determination date, the trustee will determine the amount in
the collection account allocable to interest and the amount allocable to
principal. The determination date will be the [__] day of the calendar [month]
[quarter] during which any payment date occurs, or if that day is not a business
day, the next business day.
On each payment date, certificateholders and certificateholders as of
the related record date will be entitled to receive [thirty] days interest at
the interest rate on their certificates on the outstanding principal balance of
their certificates, as applicable, as of the close of the preceding payment
date. Nevertheless, on the first payment date, the interest payable to
certificateholders will be an amount equal to the product of:
S-17
<PAGE>
- the interest rate on the certificate;
- the initial principal amount of the certificate; and
- a fraction:
- the numerator of which is the number of days (assuming a
30-day month) from and including the closing date to but
excluding the first payment date; and
- the denominator of which is 360.
Interest on the certificates which is due but not paid on any payment
date will be payable on the next payment date together with, to the extent
permitted by law, interest on the unpaid amount at the interest rate for that
class of certificates.
The trustee will distribute payments of principal to certificateholders
[monthly] [quarterly] on each payment date commencing [________ __, 20__]. The
amount of principal available for distribution will generally equal the
principal payment amount.
The actual date on which the aggregate outstanding principal amount of
any class of certificates is paid may be earlier than the final scheduled
payment dates for that class of certificates. See "Weighted Average Life of the
Certificates."
On each payment date, all amounts on deposit in the collection account,
other than investment earnings, will be generally paid in the following order of
priority:
(1) to servicer, the servicing fee for the related collection
period and all accrued and unpaid servicing fees for prior
collection periods;
(2) to trustee, all accrued and unpaid fees and expenses accrued
and owing to the trustee;
(3) to the certificate distribution account for distribution to
the certificateholders, on a pro rata basis, accrued and
unpaid interest for that payment date;
(4) to the certificate distribution account for distribution to
the certificateholders, on a pro rata basis, the
certificateholders principal distributable amount; and
(5) to the seller or servicer, any remaining amounts.
[Insert description of any special priority rules that would apply in a
default situation.]
S-18
<PAGE>
[PRE-FUNDING ACCOUNT]
[On the Closing Date, approximately $____________ of initial
receivables will be transferred by the seller to the depositor and by the
depositor to the trust and approximately $______________ will be [deposited]
[accumulated from collections on the receivables for deposit into] the
pre-funding account. If the principal amount of eligible receivables originated
by [__________]during the funding period is less than the pre-funded amount, the
seller will have insufficient receivables to transfer to the depositor and the
depositor will have insufficient receivables to transfer to the trust on the
subsequent transfer dates, thereby resulting in a prepayment of principal to the
certificateholders.]
[To the extent that the pre-funded amount has not been fully applied to
the purchase of subsequent receivables by the trust during the funding period,
the certificateholders will receive a prepayment of principal, on the payment
date on or immediately following the last day of the funding period. The
prepayment amount will be equal to each certificateholder's pro rata share
(based on the current principal balance of each class of certificates) of any
remaining pre-funded amount following the purchase of any subsequent receivables
on that payment date. We anticipate that the principal amount of subsequent
receivables sold to the trust will not be exactly equal to the [original
pre-funded amount] and that therefore there will be at least a nominal amount of
principal prepaid to the certificateholders.]
[If the amount of the pre-funding account will exceed 25% of the
aggregate proceeds from the offering, including the specific investments in
which the pre-funding account will be invested, then the depositor will specify
the actual investments of the pre-funding account in its periodic reports to be
filed on Form 8-K and Form 10-K.]
OPTIONAL REDEMPTION
The [originator] [seller] [servicer] [depositor] is permitted at its
option to purchase all remaining receivables from the trust. The [originator]
[seller] [servicer] [depositor] may exercise this repurchase option on or after
the last day of any month on or after which the then outstanding aggregate
principal balance of the receivables is less than or equal to ten percent (10%)
of the initial aggregate principal balance of the receivables as of the closing
date at a price equal to the remaining unpaid principal amount of the
receivables as of such last day of the month plus accrued interest thereon
through the payment date on which the redemption will occur. Exercise of these
rights will result in the early retirement of the certificates. Upon declaration
of an optional redemption, the trustee will give written notice of termination
to each certificateholder of record. The final payment to any certificateholder
will be made only upon surrender and cancellation of that holder's certificate,
at the office or agency of the trustee specified in the notice of termination.
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DESCRIPTION OF THE TRANSACTION DOCUMENTS
The following summary describes the material terms of the transaction
documents. The transaction documents include, among others, [the purchase
agreement], the receivables transfer agreement and the pooling and servicing
agreement [insert other relevant agreements]. Copies of the transaction
documents will be filed with the Securities and Exchange Commission following
the issuance of the certificates. This summary is qualified in its entirety by
reference to the actual transaction documents.
[DESCRIPTION OF ORIGINATOR/SELLER REPRESENTATIONS AND WARRANTIES]
[Insert description of representations and warranties.]
[SALE AND] ASSIGNMENT OF [INITIAL] RECEIVABLES [AND ADDITIONAL RECEIVABLES]
[The seller originated the receivables.] [The seller acquired the
receivables from the originator under a purchase agreement dated [_______ __,
____]. On the closing date, the seller will [sell] [pledge] [participation
interests in] [security interests in] the [initial] receivables to the depositor
under the receivables transfer agreement. In turn, the depositor will [sell]
[pledge] [participation interests in] [security interests in] the [initial]
receivables to the trust under the pooling and servicing agreement. The trust
will pledge the [initial] receivables to the trustee for the benefit of the
certificateholders.
[In addition, during the funding period, under the receivables transfer
agreement, the seller will be obligated to sell the depositor, for sale by the
depositor to the trust, additional receivables up to the amount on deposit in
the pre-funding account. We expect that the seller will convey additional
receivables to the depositor on subsequent transfer dates specified by the
seller. The funding period is the period beginning on the closing date and
ending on the earliest to occur of:
- [the date on which the amount in the pre-funding account
is less than [$____];]
- the date on which an event of default or a servicer
termination event occurs under the pooling and servicing
agreement; or
- the close of business on [________ __, 20__].]
[On each subsequent transfer date, the seller will [sell] [pledge]
[participation interests in] [security interests in] the [additional]
receivables to the depositor under a subsequent receivables transfer agreement.
In turn, the depositor will [sell] [pledge] [participation interests in]
[security interests in] the [additional] receivables listed on a schedule
attached to an assignment to the trust.]
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[Insert description of additional conditions to transfer of subsequent
receivables]
[Except for the criteria described above, there are no required
characteristics of the additional receivables. Therefore, following the transfer
of additional receivables to the trust, the aggregate characteristics of the
entire receivable pool may vary from those of the initial receivables.]
[Although [__________] will continue to service and administer the
receivables under the pooling and servicing agreement, [_________] will deliver
the original documents evidencing each receivable and the certificate of title
for the related financed asset if it is of a type that can be perfected by
notation on a related certificate of title, to the trustee as custodian for the
trust.] [In order to facilitate servicing and to minimize administrative burden
and expense, the servicer will act as custodian for the receivables.]
[Insert description of actions that will be taken by the related
parties as applicable to perfect either the issuer's or the certificateholder's
security interest in the receivables.]
ACCOUNTS
The servicer, or the trustee on behalf of and at the direction of the
servicer, will establish and maintain the collection account, the certificate
distribution account, [the reserve account,] [the pre-funding account,] [the
interest reserve account] [and the yield supplement account] in the name of the
trustee for the benefit of certificateholders. We refer to these accounts as the
trust accounts. The servicer will forward the proceeds of payments on the
receivables to the trustee for deposit in the collection account within two
business days of its receipt. The trustee will invest funds on deposit in any
trust account in Eligible Investments selected by [the seller] [the depositor]
that mature not later than the next payment date.
[Description of trust account mechanics applicable to a particular
series.]
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The servicing fee rate will be [__%] per annum of the aggregate
principal balance of the receivables as of the opening of business on the first
day of the related collection period. The servicer will also collect and retain
any late fees, non-sufficient funds fees, liquidation fees and other
administrative fees as a supplemental servicing fee for servicing the
receivables. The servicer will allocate payments by or on behalf of obligors to
scheduled payments and late fees and other charges in accordance with its normal
practices and procedures.
AVAILABLE FUNDS
On each payment date, the trustee will apply the available funds in the
collection account to distribute required payments of principal and interest to
certificateholders. See "Summary--Available Funds" for a description of
available funds.
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APPLICATION OF PAYMENTS
[Insert description of the priority and right to payment for each
series.]
[SUBORDINATION OF CLASS [ ] CERTIFICATES]
[The rights of the class [_] certificateholders to receive
distributions on the receivables will be subordinated to the rights of the class
[__] certificateholders in the event of defaults and delinquencies on the
receivables as provided in the pooling and servicing agreement. The protection
afforded to the certificateholders through subordination will be effected [both]
by the preferential right of the class [__] certificateholders to receive
current distributions with respect to the receivables [and by the establishment
of the reserve account]. If on any payment date there are not enough funds to
distribute amounts due to the class [__] certificateholders, the class [__]
certificateholders may receive a reduced distribution or no distribution at
all.]
[The subordination of the class [__] certificates [and the reserve
account] are intended to enhance the likelihood of receipt by the class [__]
certificateholders of the full amount of principal and interest due them and to
decrease the likelihood that these certificateholders will experience losses.
[In addition, the reserve account is intended to enhance the likelihood of
receipt by certificateholders of the full amount of principal and interest due
them and to decrease the likelihood that the certificateholders will experience
losses. However, in certain circumstances, the reserve account could be
depleted. If the amount required to be withdrawn from the reserve account to
cover shortfalls in collections on the receivables exceeds the amount of
available cash in the reserve account, certificateholders could incur losses or
a temporary shortfall in the amounts distributed could result, which could, in
turn, increase the average life of the certificates.]
LEGAL ASPECTS OF THE RECEIVABLES
[Insert discussion of any legal aspects of the receivables relevant to
a particular series.] [See "Legal Aspects of the Receivables" in the
prospectus.]
FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes generally the material federal income
tax consequences of the purchase, ownership and disposition of the certificates
and such summary represents the opinion of 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 or the courts. No ruling on any of
the issues discussed below will be sought from the Internal Revenue Service. The
following summary is intended as a discussion of the possible effects of certain
federal income tax provisions to holders, 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.
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In addition, this summary does not address all federal income tax
consequences that may be relevant to an investment in certificates to investors
in light of their particular circumstances or special tax situations. For
example, the discussion does not apply to:
- banks and thrifts,
- insurance companies,
- regulated investment companies,
- dealers in securities,
- tax-exempt organizations,
- investors subject to alternative minimum tax,
- foreign investors, and
- trusts, estates or pass-through entities, the equity
holders of which are any of the entities described
above.
In addition, the discussion of certificates is limited to the federal
income tax consequences of the initial certificateholders and does not address
federal income tax consequences to a purchaser of certificates in the secondary
market. Further, this discussion is addressed only to holders who hold the
certificates as capital assets and does not address tax consequences of
investors holding the certificates as part of a conversion transaction, hedge or
hedging transaction, or as a position in a straddle or other integrated
investment for tax purposes.
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. However, there are no cases
or Internal Revenue Service rulings on similar transactions involving interests
issued by a trust with terms and conditions of issuance similar to those of the
certificates. As a result, the Internal Revenue Service may disagree with all or
a part of the discussion below. We suggest that prospective investors 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
certificates.
TAX CHARACTERIZATION OF THE TRUST
Federal Tax Counsel is of the opinion that, although no transaction
closely comparable to that contemplated herein has been the subject of any
United States Treasury Regulation, revenue ruling or judicial decision, the
trust will not be characterized as an association taxable as a corporation or a
partnership and that the trust will be classified as a grantor trust under
subpart E,
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Part I of subchapter J of the Code. As a result, the trust will not be
subject to federal income tax. This opinion is based on the assumption that
the terms of the trust agreement and related documents will be complied with
in all respects. However, this opinion is not binding on the Internal Revenue
Service and no assurance can be given that this characterization will
prevail. In our tax discussion, we refer to the owners of the certificates as
grantor trust certificateholders and the certificates issued by the trust as
grantor trust certificates. Grantor trust certificateholders will be treated
for federal income tax purposes as owners of a portion of the trust's assets
as described below.
POSSIBLE ALTERNATIVE TREATMENT OF THE TRUST. In a recently released
technical advice memorandum, the Internal Revenue Service recharacterized two
high quality auto loan grantor trust securitizations as secured borrowings for
federal income tax purposes. Although Federal Tax Counsel is of the opinion that
the trust will be classified as a grantor trust for federal income tax purposes,
the Internal Revenue Service could disagree with this opinion and assert that
the [depositor's] [seller's] assignment to the trust followed by the issuance of
certificates by the trust should be recharacterized as a secured borrowing by
the [seller] [depositor] rather than as a sale for federal income tax purposes.
Even if the Internal Revenue Service were successful in recharacterizing the
[depositor's] [seller's] assignment to the trust in this matter, a
recharacterization would not be anticipated to have a material adverse effect on
the timing or character of income to the trust or certificateholders.
GRANTOR TRUST CHARACTERIZATION. Based on Federal Tax Counsel's
conclusion that the trust will not be classified as an association or a publicly
traded partnership taxable as an association and that the trust will be
classified as a grantor trust under subpart E, Part I of subchapter J of the
Code for federal income tax purposes, each grantor trust certificateholder:
- will be treated as the owner of a pro rata undivided interest
in the interest and principal portions of the trust
represented by the grantor trust certificates and
- will be considered the equitable owner of a pro rata undivided
interest in each of the receivables in the trust.
Any amounts received by a grantor trust certificateholder in lieu of amounts due
on any receivable because of a default or delinquency in payment will be treated
for federal income tax purposes as having the same character as the payments
they replace.
Each grantor trust certificateholder will be required to report on its
federal income tax return in accordance with its method of accounting its pro
rata share of the entire income from the receivables in the trust represented by
the grantor trust certificates. These amounts may include the following:
- interest,
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- OID,
- market discount,
- prepayment fees,
- assumption fees,
- any gain recognized upon an assumption and
- late payment charges received by the servicer.
Under Sections 162 or 212 of the Code each grantor trust certificateholder will
be entitled to deduct its pro rata share of servicing fees, prepayment fees,
assumption fees, any loss recognized upon an assumption and late payment charges
retained by the servicer, provided that these amounts are reasonable
compensation for services rendered to the trust. Further, under Section 67 of
the Code, an individual, estate or trust holding a grantor trust certificate
directly or through certain pass-through entities will be allowed a deduction
for such reasonable servicing fees and expenses only to the extent that the
aggregate of such holder's miscellaneous itemized deductions exceeds two percent
of such holder's adjusted gross income. In addition, Section 68 of the Code
provides that the amount of itemized deductions otherwise allowable for an
individual whose adjusted gross income exceeds a specified amount will be
reduced by the lesser of (i) 3% of the excess of the individual's adjusted gross
income over such amount or (ii) 80% of the amount of itemized deductions
otherwise allowable for the taxable year. The amount of additional taxable
income reportable by holders of grantor trust certificates who are subject to
the limitations of either Section 67 or 68 of the Code may be substantial.
Further, certificateholders (other than corporations) subject to the alternative
minimum tax may not deduct miscellaneous itemized deductions in determining such
holder's alternative minimum taxable income. Although it is not entirely clear,
it appears that in transactions in which multiple classes of grantor trust
certificates are issued, such fees and expenses should be allocated among the
classes of grantor trust certificates using a method that recognizes that each
such class benefits from the related services.
A grantor trust certificateholder using the cash method of accounting
must take into account its pro rata share of income and deductions as and when
collected by or paid to the servicer. A grantor trust certificateholder using an
accrual method of accounting must take into account its pro rata share of income
and deductions as they become due or are paid to the servicer, whichever is
earlier. If the servicing fees paid to the servicer are deemed to exceed
reasonable servicing compensation, the amount of the excess could be considered
as an ownership interest retained by the servicer (or any person to whom the
servicer assigned for value all or a portion of the servicing fees) in a portion
of the interest payments on the receivables. The receivables would then be
subject to the "coupon stripping" rules of the Code discussed below.
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PREMIUM. The price paid for a grantor trust certificate by a holder
will be allocated to the holder's undivided interest in each receivable based on
each receivable's relative fair market value, so that the holder's undivided
interest in each receivable will have its own tax basis. A grantor trust
certificateholder that acquires an interest in receivables at a premium may
elect under Section 171 of the Code to amortize the premium under a constant
yield method. Amortizable bond premium will be treated as an offset to interest
income on the grantor trust certificate. The basis for a grantor trust
certificate will be reduced to the extent that amortizable premium is applied to
offset interest payments. A grantor trust certificateholder that makes this
election for a grantor trust certificate that is acquired at a premium will be
deemed to have made an election to amortize bond premium for all debt
instruments having amortizable bond premium that the grantor trust
certificateholder held at the beginning of the year of the election or acquired
thereafter. Absent such an election, the premium will be deductible as an
ordinary loss only upon disposition of the certificate or pro rata as principal
is paid on the receivables.
STRIPPED BONDS AND STRIPPED COUPONS
To the extent a transaction is determined to involve "excess servicing"
(as described above), or that the classes of certificates represent stripped
interests in the underlying receivables, the grantor trust certificates will
represent interests in stripped bonds for federal income tax purposes. Although
the tax treatment of stripped bonds is not entirely clear, based on recent
guidance by the Internal Revenue Service, each purchaser of a grantor trust
certificate (whether a cash or accrued method taxpayer) will be treated as the
purchaser of a stripped bond which should generally be treated as a single debt
instrument issued on the day it is purchased for purposes of calculating any
original issue discount ("OID") within the meaning of Section 273(a) of the
Code. Under the OID Treasury regulations, if the discount on a stripped bond is
larger than a DE MINIMIS amount (as calculated for purposes of the OID rules of
the Code) the stripped bond will be considered to have been issued with OID. If
OID rules were to apply, all of the taxable income to be recognized on the
certificates would be includible in income as OID but would not be includible
again when the interest is actually received. Regulations do not adequately
address the circumstances in which payment of interest on certificates such as
the grantor trust certificates would be considered unconditionally payable, and
thus, Federal Tax Counsel is unable to opine as to the extent to which interest
payments on the certificates would be treated as qualified stated interest.
MARKET DISCOUNT. A grantor trust certificateholder that acquires an
undivided interest in receivables may be subject to the market discount rules of
Code Sections 1276 through 1278 to the extent an undivided interest in a
receivable is considered to have been purchased at a "market discount."
Generally, the amount of market discount is equal to the excess of the portion
of the principal amount of the receivable allocable to the holder's undivided
interest over the holder's tax basis in that interest. Market discount on a
grantor trust certificate will be considered to be zero if the amount allocable
to the grantor trust certificate is less than 0.25% of the grantor trust
certificate's stated redemption price at maturity multiplied by the weighted
average maturity
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remaining after the date of purchase. Treasury regulations implementing the
market discount rules have not yet been issued; therefore, we suggest that
investors consult their own tax advisors regarding the application of these
rules and the advisability of making any of the elections allowed under Code
Sections 1276 through 1278.
The Code provides that any principal payment shall be treated as
ordinary income to the extent that it does not exceed the accrued market
discount at the time of the payment. For this purpose, principal payments
include scheduled payments, prepayments and any gain on disposition of a market
discount bond The amount of accrued market discount for purposes of determining
the tax treatment of subsequent principal payments or dispositions of the market
discount bond is to be reduced by the amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
While the Treasury Department has not yet issued regulations, rules described in
the relevant legislative history likely will apply. Under those rules, the
holder of a market discount bond may elect to accrue market discount on the
basis of a constant yield method.
A holder who acquired a grantor trust certificate at a market discount
may be required to defer a portion of its interest deductions for the taxable
year attributable to any indebtedness incurred or continued to purchase or carry
such grantor trust certificate purchased with market discount. For these
purposes, the DE MINIMIS rule referred to above applies. Any deferred interest
expense would not exceed the market discount that accrues during that taxable
year and is, in general, allowed as a deduction not later than the year in which
the market discount is includible in income. If the holder elects to include
market discount in income currently as it accrues on all market discount
instruments acquired by that holder in that taxable year or thereafter, the
interest deferral rule described above will not apply.
To the extent a grantor trust certificateholder is considered to have
purchased an undivided interest in a receivable for an amount that is greater
than its stated redemption price at maturity of the receivable, the grantor
trust certificateholder will be considered to have purchased the receivable with
"amortizable bond premium" equal in amount to the excess. See "--Premium."
ELECTION TO TREAT ALL INTEREST AS OID. The OID regulations permit a
grantor trust certificateholder to elect to accrue all interest, discount
(including DE MINIMIS market or OID) and premium in income as interest, based on
a constant yield method. If this election were to be made for a grantor trust
certificate with market discount, the certificateholder would be deemed to have
made an election to include in income currently market discount for all other
debt instruments having market discount that the grantor trust certificateholder
acquires during the year of the election or thereafter. Similarly, a grantor
trust certificateholder that makes this
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election for a grantor trust certificate that is acquired at a premium will
be deemed to have made an election to amortize bond premium for all debt
instruments having amortizable bond premium that the grantor trust
certificateholder held at the beginning of the year of the election or
acquired thereafter. See "--Premium." The election to accrue interest,
discount and premium on a constant yield method for a grantor trust
certificate is generally irrevocable.
SALE OR EXCHANGE OF A GRANTOR TRUST CERTIFICATE. Sale or exchange of a
grantor trust certificate prior to its maturity will result in gain or loss
equal to the difference, if any, between the amount realized in the sale or
exchange of the grantor trust certificate and the owner's adjusted basis in the
grantor trust certificate. Such adjusted basis generally will equal the seller's
purchase price for the grantor trust certificate, increased by the OID included
in the seller's gross income on the grantor trust certificate, and reduced (but
not below zero) by principal payments on the grantor trust certificate
previously received by the seller. This gain or loss will be capital gain or
loss to an owner for which a grantor trust certificate is a "capital asset"
within the meaning of Code Section 1221, and will be long-term or short-term
depending on whether the grantor trust certificate has been owned for the
long-term capital gain holding period. For individuals, estates and trusts, the
current maximum long-term capital gain rate is generally 20% if the capital
asset has been held for more than 12 months.
Gain or loss from the sale or exchange of a grantor trust certificate
may be partially or wholly ordinary and not capital in certain circumstances.
Gain attributable to accrued and unrecognized market discount will be treated as
ordinary income, as will gain or loss recognized by banks and other financial
institutions subject to Section 582(c) of the Code. Furthermore, a portion of
any gain that might otherwise be capital gain may be treated as ordinary income
to the extent that the grantor trust certificate is held as part of a
"conversion transaction" within the meaning of Section 1258 of the Code. A
conversion transaction generally is one in which the taxpayer has taken two or
more positions in the same or similar property that reduce or eliminate market
risk, if substantially all of the taxpayer's return is attributable to the time
value of the taxpayer's net investment in such transaction. The amount of gain
realized in a conversion transaction that is recharacterized as ordinary income
generally will not exceed the amount of interest that would have accrued on the
taxpayer's net investment at 120% of the appropriate "applicable federal rate"
(which rate is computed and published monthly by the IRS) at the time the
taxpayer enters into the conversion transaction, subject to appropriate
reduction for prior inclusion of interest and other ordinary income items from
the transaction.
Finally, a taxpayer may elect to have net capital gain taxed at
ordinary income rates rather than capital gains rates in order to include such
net capital gain in total net investment income for that taxable year, for
purposes of the rule that limits the deduction of interest on indebtedness
incurred to purchase or carry property held for investment to a taxpayer's net
investment income.
TAX CONSEQUENCES TO FOREIGN CERTIFICATEHOLDERS
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Interest or OID paid on a certificate to a nonresident alien
individual, foreign partnership or foreign corporation that has no connection
with the United States other than holding certificates ("Nonresidents") will
normally qualify as portfolio interest (except where (i) the recipient is a
holder, directly or by attribution, of 10% or more of the trust, or (ii) the
recipient is a controlled foreign corporation to which the trust is a related
person) and will be exempt from federal income tax. Upon receipt of the
appropriate ownership statements and certifications, the trustee to the trust
normally will be relieved of obligations to withhold tax from such interest
payments. These provisions supersede the generally applicable provisions of
United States law that would otherwise require the trustee of the trust to
withhold at a 30% rate (unless such rate were reduced or eliminated by an
applicable tax treaty) on, among other things, interest and other fixed and
determinable, annual or periodic income paid to Nonresidents.
To the extent that interest or OID on a grantor trust certificate would
be exempt under Sections 871(h)(1) and 881(c) of the Code from United States
withholding tax, and the grantor trust certificate is not held in connection
with a certificateholders's trade or business in the United States, such grantor
trust certificate will not be subject to United States estate taxes in the
estate of a Nonresident alien individual.
On October 6, 1997, final Treasury regulations (the "WITHHOLDING TAX
REGULATIONS") were issued that modify certain of the filing requirements with
which Nonresidents 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 Nonresidents currently required to file Form W-8 or W-8BEN generally will
continue to be required to file that form. However, the requirement that
Nonresidents submit Form W-8 or W-8ECI is extended to most Nonresidents who wish
to seek an exemption from withholding tax on the basis that income from the
certificates is effectively connected with the conduct of a United States trade
or business (in lieu of Form 4224) and to Nonresidents wishing to rely on a tax
treaty to reduce the withholding tax rate (in lieu of Form 1001). Under the
Withholding Tax Regulations, Nonresidents would generally be required to submit
Form W-8BEN in lieu of Form 1001 or to submit Form W-8ECI in lieu of Form 4224,
although alternative documentation may be applicable in certain situations. The
Withholding Tax Regulations are effective for payments of interest due after
December 31, 2000, but Forms 4224 and 1001 filed prior to that date will
continue to be effective until the earlier of December 31, 2001 or the current
expiration date of those forms. Prospective investors should consult their tax
advisors with respect to the effect of the Withholding Tax Regulations.
INFORMATION REPORTING AND BACKUP WITHHOLDING. The servicer will furnish
or make available, within a reasonable time after the end of each calendar year,
to each person who was a grantor trust certificateholder at any time during the
year:
- information as may be deemed necessary or desirable to assist
grantor trust certificateholders in preparing their federal
income tax returns, or
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- to enable holders to make the information available to
beneficial owners or financial intermediaries that hold
grantor trust certificates as nominees on behalf of beneficial
owners.
If a holder, beneficial owner, financial intermediary or other recipient of a
payment on behalf of a beneficial owner fails to supply a certified taxpayer
identification number or if the Secretary of the Treasury determines that a
person has not reported all interest and dividend income required to be shown on
its federal income tax return, 31% backup withholding may be required with
respect to any payments. Any amounts deducted and withheld from a distribution
to a recipient would be allowed as a credit against the recipient's federal
income tax liability. Prospective investors should consult their own tax
advisors concerning the potential impact of the Withholding Tax Regulations.
STATE TAX CONSEQUENCES
In addition to the federal income tax consequences described in
["Federal Income Tax Considerations"] above, we suggest that potential
purchasers consider the state income tax consequences of the acquisition,
ownership and disposition of the certificates. State income tax law may vary
substantially from state to state, and this discussion does not purport to
describe any aspect of the income tax laws of any state. Therefore, potential
purchasers should consult their own tax advisors with respect to the various tax
consequences of an investment in the certificates.
CERTAIN ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other retirement plan or
arrangement, including individual retirement accounts and annuities, Keogh plans
and collective investment funds, separate accounts and general accounts in which
such plans, accounts or arrangements are invested, that is subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
Section 4975 of the Code (each, a "Plan") should carefully review with its legal
advisors whether the purchase or holding of the offered certificates could give
rise to a transaction that is prohibited or is not otherwise permitted either
under ERISA or Section 4975 of the Code or whether a statutory or administrative
exemption may be available.
The U.S. Department of Labor has issued an individual exemption to
[NAME OF UNDERWRITER] (the "Exemption"), which generally exempts from the
application of the prohibited transaction provisions of Sections 406(a) and (b)
and 407(a) of ERISA, and the excise taxes imposed on such prohibited
transactions pursuant to Sections 4975(a) and (b) of the Code, the purchase,
sale and holding of certain pass-through certificates underwritten by an
Underwriter, as hereinafter defined, provided that certain conditions set forth
in the Exemption are satisfied. For purposes of this discussion, the term
"Underwriter" shall include (A) [NAME OF UNDERWRITER] (c) any person directly or
indirectly, through one or more intermediaries, controlling, controlled by or
under common control with [NAME OF UNDERWRITER] and (d) any
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member of the underwriting syndicate or selling group of [NAME OF UNDERWRITER]
or a person described in (c) who is a manager or co-manager with respect to
the offered certificates.
The obligations covered by the Exemption include vehicle installment
obligations such as the receivables. The Exemption would apply to the
acquisition, holding and resale of the certificates by a Plan only if specific
conditions (certain of which are described below) are met. It is not clear
whether the Exemption applies to participant directed plans as described in
Section 404(c) of ERISA or plans that are subject to Section 4975 of the Code
but that are not subject to Title I of ERISA, such as certain Keogh plans and
certain individual retirement accounts.
The Exemption sets forth six general conditions that, among others,
must be satisfied for a transaction involving the purchase, sale and holding of
[LIST CLASS(ES) THAT ARE NOT SUBORDINATE] certificates by a Plan to be eligible
for exemptive relief thereunder. First, the acquisition of the certificates by a
Plan must be on terms that are at least as favorable to the Plan as they would
be in an arm's-length transaction with an unrelated party. Second, the rights
and interests evidenced by such certificates must not be subordinated to the
rights and interests evidenced by the other certificates of the same trust.
Third, such certificates at the time of acquisition by the Plan must be rated in
one of the three highest generic rating categories by Standard & Poor's Rating
Services, a division of The McGraw-Hill Companies, Inc. ("S&P"), Duff & Phelps
Credit Rating Co. ("DCR"), Moody's Investors Service, Inc. ("Moody's") and Fitch
IBCA, Inc. ("Fitch") (each, a "Rating Agency"). Fourth, the Trustee cannot be an
affiliate of any other member of the "Restricted Group," which consists of each
of the Underwriters, the Depositor, the Servicer, the Trustee, any sub-servicer,
and any borrower with respect to the receivables constituting more than 5.0% of
the aggregate unamortized principal balance of the receivables as of the date of
initial issuance of such certificates. Fifth, the sum of all payments made to
and retained by any Underwriter in connection with the distribution or placement
of certificates must represent not more than reasonable compensation for
underwriting such certificates; the sum of all payments made to and retained by
the Depositor pursuant to the assignment of the receivables to the trust must
represent not more than the fair market value of such obligations; and the sum
of all payments made to and retained by the Servicer or any sub-servicer must
represent not more than reasonable compensation for such person's services under
the pooling and servicing agreement and reimbursement of such person's
reasonable expenses in connection therewith. Sixth, the investing Plan must be
an accredited investor as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act.
A fiduciary of a Plan contemplating purchasing any such certificate
must make its own determination that, at the time of such purchase, such
certificate satisfies the general conditions set forth above.
The Exemption also requires that the trust meet the following
requirements: (i) the trust must consist solely of assets of the type that have
been included in other investment pools; (ii) certificates in such other
investment pools must have been rated in one of the three highest
S-31
<PAGE>
categories of S&P, DCR, Moody's or Fitch for at least one year prior to the
Plan's acquisition of such certificates; and (iii) certificates in such other
investment pools must have been purchased by investors other than Plans for
at least one year prior to any Plan's acquisition of such certificates.
If the general conditions of the Exemption are satisfied, they may
provide an exemption from the restrictions imposed by Sections 406(a) and 407(a)
of ERISA (as well as the excise taxes imposed by Sections 4975(a) and (b) of the
Code by reason of Sections 4975(c)(1)(A) through (D) of the Code) in connection
with (i) the direct or indirect sale, exchange or transfer of such certificates
in the initial issuance of certificates between the Depositor or an Underwriter
and a Plan when the Depositor, an Underwriter, the Trustee, Servicer, a
sub-servicer or a borrower is a "party in interest" with respect to the
investing Plan, (ii) the direct or indirect acquisition or disposition in the
secondary market of the certificates by a Plan and (iii) the holding of the
certificates by a Plan. However, no exemption is provided from the restrictions
of Sections 406(a)(1)(E), 406(a)(2) and 407 of ERISA for the acquisition or
holding of such certificate on behalf of an "Excluded Plan" by any person who
has discretionary authority or renders investment advice with respect to the
assets of such Excluded Plan. For purposes hereof, an Excluded Plan is a Plan
sponsored by any member of the Restricted Group.
If certain specific conditions of the Exemptions are also satisfied,
each such Exemption may provide relief from the restrictions imposed by Sections
406(b)(1) and (b)(2) of ERISA and the taxes imposed by Section 4975(c)(1)(E) of
the Code to an obligor acting as a fiduciary with respect to the investment of a
Plan's assets in the certificates (or such obligor's affiliate) only if, among
other requirements (i) such obligor (or its affiliate) is an obligor with
respect to 5% or less of the fair market value of the assets contained in the
trust and is otherwise not a member of the Restricted Group, (ii) a Plan's
investment in certificates does not exceed 25% of all of the Certificates
outstanding at the time of the acquisition, (iii) immediately after the
acquisition, no more than 25% of the assets of the Plan are invested in
certificates representing an interest in trusts (including the trust) containing
assets sold or serviced by the Depositor or the Servicer and (iv) in the case of
the acquisition of the certificates in connection with their initial issuance,
at least 50% of the aggregate interest in the trust is acquired by persons
independent of the Restricted Group.
The Exemptions also apply to transactions in connection with the
servicing, management and operation of the trust, provided that, in addition to
the general requirements described above, (a) such transactions are carried out
in accordance with the terms of a binding pooling and servicing agreement and
(b) the pooling and servicing agreement is provided to, or described in all
material respects in the prospectus or private placement memorandum provided to,
investing Plans before their purchase of certificates issued by the trust. The
pooling and servicing agreement is a pooling and servicing agreement as defined
in the Exemption. The pooling and servicing agreement provides that all
transactions relating to the servicing, management and operations of the trust
must be carried out in accordance with the pooling and servicing agreement.
S-32
<PAGE>
Before purchasing any [LIST NON-SUBORDINATE CLASSE(S)] certificate, a
fiduciary of a Plan should itself confirm that the specific and general
conditions of the Exemption and the other requirements set forth in the
Exemption would be satisfied.
THE CHARACTERISTICS OF THE [LIST SUBORDINATE CLASSES ] CERTIFICATES DO
NOT MEET THE REQUIREMENTS OF THE EXEMPTION. ACCORDINGLY, CERTIFICATES OF THOSE
CLASSES MAY NOT BE ACQUIRED BY A PLAN, OTHER THAN AN INSURANCE COMPANY GENERAL
ACCOUNT, WHICH MAY BE ABLE TO RELY ON SECTION III OF PTE 95-60 (DISCUSSED
BELOW).
Section III of Department of Labor Prohibited Transaction Class
Exemption 95-60 ("PTE 95-60") provides relief from the application of the
prohibited transaction provisions of Sections 406(a), 406(b) and 407(a) of ERISA
and Section 4975 of the Code for transactions in connection with the servicing,
management and operation of a trust (such as the trust) in which an insurance
company general account has an interest as a result of its acquisition of
certificates issued by the trust, provided that certain conditions are
satisfied. If these conditions are met, insurance company general accounts would
be allowed to purchase classes of certificates (such as the [LIST SUBORDINATE
CLASSES] certificates) which do not meet the requirements of the Exemption
solely because they (i) are subordinated to other classes of certificates in the
trust and/or (ii) have not received a rating at the time of the acquisition in
one of the three highest rating categories from S&P, DCR, Moody's or Fitch. All
other conditions of the Exemption would have to be satisfied in order for PTE
95-60 to be available. Before purchasing [LIST SUBORDINATE CLASSES]
certificates, an insurance company general account seeking to rely on Section
III of PTE 95-60 should itself confirm that it is eligible for, and has
satisfied all applicable conditions and other requirements of relief under such
section. Any Plan fiduciary considering the purchase of certificates should
consult with its counsel with respect to the applicability of the Exemption and
other issues and determine on its own whether all conditions have been satisfied
and whether the certificates are an appropriate investment for a Plan under
ERISA and the Code (or, in the case of governmental plans, under applicable
Federal, state or local law). Each purchaser of [LIST NON-SUBORDINATE CLASSE(S)]
certificates with the assets of one or more Plans shall be deemed to represent
that each such Plan qualifies as an "accredited investor" as defined in Rule
501(a)(1) of Regulation D under the Securities Act. No Plan may purchase or hold
[LIST NON-SUBORDINATE CLASSE(S)] certificates unless such certificates are rated
in one of the top three rating categories by at least one Rating Agency at the
time of such purchase, unless such Plan is an insurance company general account
that represents and warrants that it is eligible for, and meets all of the
requirements of, Part III of PTCE 95-60. Each Purchaser of [LIST SUBORDINATE
CLASSES] certificates shall be deemed to represent that it is eligible for, and
meets all of the requirements of, Part III of PTCE 95-60.
RATINGS
It is a condition to the issuance of the certificates that the class
[__] certificates be rated at least ["___ "] by [_________] and the class [__]
certificates be rated at least ["___ "] by [__________]. We collectively refer
to [________] and [________] as the rating agencies.
S-33
<PAGE>
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating agency. Each security rating should be evaluated independently
of any other security rating.
The ratings on the certificates address the likelihood of the receipt
by certificateholders of all distributions with respect to the underlying
receivables to which they are entitled. The ratings do not represent any
assessment of the likelihood that the rate of principal prepayments by obligors
might differ from those originally anticipated. As a result of the differences
in the rate of principal prepayments, certificateholders might suffer a
lower-than-anticipated yield to maturity. See "Risk Factors" and "Weighted
Average Life of the Certificates."
The [depositor] has not requested a rating on the offered certificates
by any rating agency other than [_________ and ________]. However, we cannot
assure you as to whether any other rating agency will rate the offered
certificates, or, if it does, what rating would be assigned by any such other
rating agency. A rating on the offered certificates by another rating agency, if
assigned at all, may be lower than the ratings assigned to the offered
certificates by [___________ and __________].
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting
agreement, dated [____________ __, 20__], the depositor has agreed to cause the
trust to sell to [______________], the underwriter, all of the certificates. The
underwriting agreement provides that the underwriter is obligated to purchase
all of the certificates if any are purchased.
The underwriter proposes to offer the certificates initially [at the
prices on the cover page of this prospectus supplement, and to certain dealers
at that price less a discount of up to [___%] of the principal on each class
[__]certificate and [___%] on each class [__] certificate] [in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale]. The underwriter and those dealers may allow a discount of [___%] of the
principal of each class [__] certificate and [___%] of each class [__]
certificate on sales to certain other dealers. After the initial public
offering, the public offering price and such discounts may change.
The depositor estimates that its out of pocket expenses for this
offering will be approximately [$________].
The depositor does not intend to apply for listing of the certificates.
Further, the certificates are a new issue of securities with no established
trading market. The underwriter intends to make a secondary market for the
certificates. However, it is not obligated to do so and may discontinue making a
secondary market for the certificates at any time without notice. We cannot
assure you as to how liquid the trading market for the certificates will be.
S-34
<PAGE>
[________] has agreed to indemnify the underwriter against certain
liabilities under the Securities Act, or contribute to payments which the
underwriter may be required to make in respect thereof.
The underwriters may engage in over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids in accordance
with Regulation M under the Securities Exchange Act. To explain:
- Over-allotment involves syndicate sales in excess of
the offering size, which creates a syndicate short
position;
- Stabilizing transactions permit bids to purchase the
underlying security as long as the stabilizing bids
do not exceed a specified maximum;
- Syndicate covering transactions involve purchases of
the certificates in the open market after the
distribution has been completed in order to cover
syndicate short positions;
- Penalty bids permit the underwriters to reclaim a
selling concession from a syndicate member when the
certificates originally sold by a syndicate member
are purchased in a syndicate covering transaction to
cover syndicate short positions.
Stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the certificates to be higher than it would
otherwise be in the absence of these transactions. The underwriter is not
required to engage in these activities and, if commenced, may end any of these
activities at any time.
[In the ordinary course of their respective businesses, the underwriter
and its affiliates have engaged and may in the future engage in investment
banking, commercial banking, insurance or other transactions with [the
originator] [the seller] [the depositor] and its affiliates.
LEGAL OPINIONS
Certain legal matters relating to the certificates and certain federal
income tax and other matters will be passed upon for the trust and by [the
originator] [the seller] [the servicer] by [____________] and for the
underwriter, the depositor and the trust by Mayer, Brown & Platt, Chicago,
Illinois. [Mayer, Brown & Platt may from time to time render legal services to
the originator, the seller, the servicer and their affiliates.]
S-35
<PAGE>
APPENDIX A
COMPOSITION OF THE RECEIVABLES
AS OF THE [INITIAL] CUTOFF DATE
Aggregate Principal Balance.........................................$___________
Number of Receivables......................................................_____
Average Amount Financed.............................................$___________
Range of Amounts Financed...........................$___________ to $___________
Average Remaining Principal Balance.................................$___________
Range of Remaining Principal Balances...............$___________ to $___________
Weighted Average APR......................................................_____%
Range of APRs..................................................._____% to _____%
Weighted Average Original Term to Maturity (1)...................... ____ months
Range of Original Terms to Maturity......................... ____ to ____ months
Weighted Average Remaining Term to Maturity (1)......................____ months
Range of Remaining Terms to Maturity.........................____ to ____ months
New Assets (Percentage of Aggregate Principal Balance).....................____%
Used Assets (Percentage of Aggregate Principal Balance)....................____%
(1) Rounded to the nearest month.
A-1
<PAGE>
DISTRIBUTION OF THE RECEIVABLES BY APR
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<CAPTION>
Percentage
Aggregate by Aggregate Percentage
Principal Principal Number of by Number of
APR Range Balance Balance(1) Receivables Receivables(1)
---------- --------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
% $ %
------- ------ ------- ------
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
A-2
<PAGE>
GEOGRAPHIC DISTRIBUTION OF RECEIVABLES
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<CAPTION>
Percentage
by Aggregate Percentage
Aggregate Principal Number of by Number of
State Principal Balance Balance(1) Receivables Receivables(1)
----- ----------------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
$ % %
------------ ------ ------- ------
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
A-3
<PAGE>
DISTRIBUTION BY ORIGINAL TERM TO SCHEDULED MATURITY OF THE RECEIVABLES
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<CAPTION>
Percentage
Aggregate by Aggregate Percentage
Principal Principal Number of by Number of
Range of Original Terms Balance Balance (1) Receivables Receivables(1)
----------------------- ---------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
to months $ % %
to months
to months
to months
to months
to months
to months
to months
to months
months
---------- ------ ------- ------
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
A-4
<PAGE>
DISTRIBUTION BY REMAINING TERM TO SCHEDULED MATURITY OF THE RECEIVABLES
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<CAPTION>
Percentage
Aggregate by Aggregate Percentage
Range of Principal Principal Number of by Number
Remaining Terms Balance Balance (1) Receivables Receivable(1)
--------------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
to months $ % %
to months
to months
to months
to months
to months
to months
to months
to months
to months
months
---------- ------ ------- ------
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
A-5
<PAGE>
DISTRIBUTION OF RECEIVABLES BY AMOUNT FINANCED
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<CAPTION>
Percentage
Aggregate by Aggregate Percentage
Principal Principal Number of by Number
Amount Financed Balance Balance (1) Receivables Receivable(1)
--------------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
$5,000.00 to $9,999.99 $ % %
$10,000.00 to $14,999.99
$15,000.00 to $19,999.99
$20,000.00 to $24,999.99
$25,000.00 to $29,999.99
$30,000.00 to $34,999.99
$35,000.00 to $39,999.99
$40,000.00 to $44,999.99
$45,000.00 to $49,999.99
$50,000.00 to $54,999.99
$55,000.00 to $59,999.99
$60,000.00 to $64,999.99
$65,000.00 to $69,999.99
$100,000.00 and above
---------- ------ ------- ------
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
A-6
<PAGE>
DISTRIBUTION OF RECEIVABLES BY CURRENT PRINCIPAL BALANCE
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<CAPTION>
Percentage
Aggregate by Aggregate Percentage
Current Principal Principal Number of by Number
Principal Balance Balance Balance (1) Receivables Receivable(1)
----------------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
$5,000.00 to $9,999.99 $ % %
$10,000.00 to $14,999.99
$15,000.00 to $19,999.99
$20,000.00 to $24,999.99
$25,000.00 to $29,999.99
$30,000.00 to $34,999.99
$35,000.00 to $39,999.99
$40,000.00 to $44,999.99
$45,000.00 to $49,999.99
$50,000.00 to $54,999.99
$55,000.00 to $59,999.99
$60,000.00 to $64,999.99
$95,000.00 to $99,999.99
---------- ------ ------- ------
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
A-7
<PAGE>
DISTRIBUTION OF RECEIVABLES BY TYPE
<TABLE>
<CAPTION>
Percentage
Aggregate by Aggregate Percentage
Principal Principal Number of by Number
Balance Balance (1) Receivables Receivable(1)
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Rule of 78's receivables $ % %
Fixed value receivables
Simple interest receivables
Actuarial receivables
---------- ------ ------- ------
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
A-8
<PAGE>
The information in this prospectus supplement and the accompanying prospectus is
not complete and may be changed. We may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This prospectus supplement and the accompanying prospectus are not an
offer to sell these securities and they are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
[PROSPECTUS SUPPLEMENT VERSION 2B]
[Form of Financed Assets--Owner Trust Prospectus Supplement]
Subject to completion, dated __________ __, _____
Prospectus Supplement dated [_____ __, 20__] (to prospectus dated ____ __, 20__)
$_____________
[______________________]
ISSUER
PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION
DEPOSITOR
The trust will issue [__] classes of asset backed notes and [__] classes of
asset backed certificates that are offered under this prospectus supplement.
Credit Enhancement for the notes and certificates is provided by:
[Description of applicable credit enhancement]
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-[__] IN THIS
PROSPECTUS SUPPLEMENT AND ON PAGE [__] IN THE PROSPECTUS.
[[________] will offer [__] classes of notes and certificates to the public [at
varying prices to be determined at the time of sale].
<TABLE>
<CAPTION>
Final
Interest Rate Price to Underwriting Proceeds to Scheduled
Class Principal Amount (per annum) Public(1) Discount(2) Trust(3) Maturity Date
----- ---------------- ------------- --------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
(1) Total price to public = [$___________________].
(2) Total underwriting discount =[$__________________].
(3) Total proceeds to Trust = [$_____________________], before deducting
expenses estimated to be [$__________________].
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THESE SECURITIES OR DETERMINED THAT THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
[UNDERWRITER]
<PAGE>
<TABLE>
--------------------------------------------------------------------------------------------------------------
TABLE OF CONTENTS
<S> <C>
Overview of the Information in this Prospectus Supplement and the Prospectus.............................iii
Summary of Transaction....................................................................................iv
Summary of the Notes and Certificates......................................................................v
Prospectus Supplement Summary............................................................................S-1
Depositor.........................................................................................S-1
Issuer............................................................................................S-1
Servicer..........................................................................................S-1
Trustee...........................................................................................S-1
Indenture Trustee.................................................................................S-1
Seller(s).........................................................................................S-1
Originator(s).....................................................................................S-1
The Notes and Certificates........................................................................S-1
Closing Date......................................................................................S-1
Payment Dates.....................................................................................S-1
Cut-off Date(s)...................................................................................S-2
Collection Period.................................................................................S-2
Closing Date......................................................................................S-2
Interest Payments.................................................................................S-2
Principal Payments................................................................................S-2
[Interest Only Notes].............................................................................S-3
[Principal-Only Notes]............................................................................S-3
[Accrual Notes]...................................................................................S-4
Final Scheduled Maturity Date.....................................................................S-4
Optional Redemption...............................................................................S-4
Mandatory Termination.............................................................................S-4
Trust Assets......................................................................................S-4
The [Initial] Receivables.........................................................................S-5
[Pre-Funding].....................................................................................S-6
Revolving Period..................................................................................S-7
[Interest Reserve Account]........................................................................S-7
[Residual Payment Securities].....................................................................S-8
[Credit Enhancement]..............................................................................S-8
[Cross Collateralization].........................................................................S-8
[The Certificates]................................................................................S-8
Distributions.....................................................................................S-8
Available Funds...................................................................................S-8
Application of Payments...........................................................................S-9
Federal Tax Considerations........................................................................S-9
ERISA Considerations.............................................................................S-10
Ratings..........................................................................................S-10
RISK FACTORS............................................................................................S-11
Payments will be made only from the limited assets of the trust..................................S-11
You bear reinvestment risk and payment delay risk due to repurchase..............................S-11
Variations in regional economic conditions may cause payment reductions or delays................S-12
[Possible pre-payments as a result of funding or revolving period.]..............................S-12
[Changes in pool characteristics as a result of pre-funding or revolving period.]................S-12
[Subordination of the class [__] notes provides only limited protection against losses.].........S-13
[Additional risk factors applicable for a specific series.]......................................S-13
The Trust...............................................................................................S-14
Capitalization of the Trust......................................................................S-14
The Trustee......................................................................................S-14
The Indenture Trustee............................................................................S-14
[Use of Proceeds].......................................................................................S-15
The Receivables.........................................................................................S-15
Eligibility Criteria.............................................................................S-15
The Seller(s)...........................................................................................S-16
The Originator(s).......................................................................................S-16
The Servicer............................................................................................S-16
Delinquency and Loss Experience..................................................................S-16
Servicing and Collections........................................................................S-16
Description of the Securities...........................................................................S-17
Description of the Notes.........................................................................S-17
Description of the Certificates..................................................................S-18
Payments.........................................................................................S-18
--------------------------------------------------------------------------------------------------------------
i
<PAGE>
--------------------------------------------------------------------------------------------------------------
[Pre-funding Account] [Revolving Period].........................................................S-20
Optional Redemption..............................................................................S-20
Description of the Transaction
Documents........................................................................................S-21
[Description of Originator/Seller Representations and Warranties]................................S-21
[Sale and] Assignment of [Initial] Receivables [and Additional Receivables]......................S-21
Accounts.........................................................................................S-22
Servicing Compensation and Payment of Expenses...................................................S-22
Available Funds..................................................................................S-23
Application of Payments..........................................................................S-23
[Subordination of Certificateholders]............................................................S-23
Legal Aspects of the Receivables........................................................................S-23
Legal Investment........................................................................................S-23
Federal Income Tax Considerations.......................................................................S-24
Tax Characterization of the Trust................................................................S-25
Tax Consequences to Holders of the Notes.........................................................S-25
Tax Consequences to Holders of the Certificates..................................................S-28
State Tax Consequences..................................................................................S-33
ERISA Considerations....................................................................................S-34
General..........................................................................................S-34
The Notes........................................................................................S-34
The Certificates.................................................................................S-36
Ratings.................................................................................................S-36
Underwriting............................................................................................S-37
Legal Opinions..........................................................................................S-38
--------------------------------------------------------------------------------------------------------------
</TABLE>
ii
<PAGE>
OVERVIEW OF THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS
We provide information to you about the securities in two separate
documents that progressively provide more detail:
- this prospectus supplement, which describes the specific terms
of your series of securities; and
- the accompanying prospectus, which provides general
information, some of which may not apply to your series of
securities.
THE PROSPECTUS SUPPLEMENT AND THE PROSPECTUS, TOGETHER, PROVIDE A
DESCRIPTION OF THE MATERIAL TERMS OF YOUR SECURITIES. YOU SHOULD RELY ON THE
INFORMATION IN THIS PROSPECTUS SUPPLEMENT TO THE EXTENT IT PROVIDES A MORE
SPECIFIC DESCRIPTION OF YOUR SECURITIES.
You should rely only on the information provided in this prospectus
supplement and the accompanying prospectus, including the information
incorporated by reference. You can request information incorporated by reference
from Prudential Securities Secured Financing Corporation, One New York Plaza,
New York, New York 10292, Attention: P. Carter Rise. See "Where You Can Find
More Information" and "Incorporation of Information by Reference" in the
prospectus. We have not authorized anyone to provide you with different
information. We are not offering the securities in any state where the offer is
not permitted.
We include cross-references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
further related discussions. The table of contents in this prospectus supplement
and the table of contents included in the accompanying prospectus provide the
pages on which these captions are located.
iii
<PAGE>
Summary of Transaction Parties
[SCHEMATIC DRAWING DESCRIBING TRANSACTION]
This chart provides only a simplified overview of the relations between
the key parties to the transaction. Refer to this prospectus supplement and the
prospectus for a further description.
iv
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF THE NOTES AND CERTIFICATES
--------------------------------------------------------------------------------------------------------------------------
[Class __] [Class ___] [Class ___] [Class ___]*
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Initial Principal Balance:
--------------------------------------------------------------------------------------------------------------------------
% of Total: [ %] [ %] [ %] [ %]
--------------------------------------------------------------------------------------------------------------------------
Anticipated Ratings:
[-------]
[-------]
[-------]
--------------------------------------------------------------------------------------------------------------------------
Interest Rate:
--------------------------------------------------------------------------------------------------------------------------
Interest Accrual Method:
--------------------------------------------------------------------------------------------------------------------------
Payment Dates: [___] day of each [________], or if [__] day is not a business day, then the next
business day
--------------------------------------------------------------------------------------------------------------------------
Final Scheduled Payment
Date:**
--------------------------------------------------------------------------------------------------------------------------
Clearance/ [DTC/Euroclear/Clearstream- [DTC/Euroclear/
Settlement: Luxembourg] Clearstream-Luxembourg]
--------------------------------------------------------------------------------------------------------------------------
Cut-Off Date: Close of business,[_____________]
--------------------------------------------------------------------------------------------------------------------------
Closing Date: On or about [_______ ___, 20__]
--------------------------------------------------------------------------------------------------------------------------
Final Maturity Date: The payment date [_______]
--------------------------------------------------------------------------------------------------------------------------
* We are providing information for the non-offered notes and certificates solely to assist the
reader's understanding of the notes and certificates offered by this prospectus supplement.
** Assuming that there are no prepayments on the trust assets, that no party exercises its right
of optional redemption of the notes and certificates and the other modeling assumptions contained
in "Prepayment and Yield Considerations" occur.
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
v
<PAGE>
--------------------------------------------------------------------------------
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights selected information from this document. To understand
all of the terms of the offering of the notes and certificates, you should
carefully read this entire document and the accompanying prospectus supplement.
THE TRANSACTION PARTIES
DEPOSITOR............................... Prudential Securities Secured
Financing Corporation, formerly
known as P-B Secured Financing
Corporation, a Delaware corporation,
a wholly-owned limited purpose
finance subsidiary of Prudential
Securities Incorporated.
ISSUER.................................. [______________].
SERVICER................................ [______________].
OWNER TRUSTEE........................... [______________].
INDENTURE TRUSTEE....................... [______________].
SELLER(S)............................... [______________].
ORIGINATOR(S)........................... [______________].
SUMMARY OF TERMS
THE NOTES AND CERTIFICATES.............. The trust will issue the asset
backed notes and asset backed
certificates described in "Summary
of the Notes and Certificates". We
refer to the notes and certificates
as securities. [The issuer is
offering the class [__] notes and
the class [___] certificates
pursuant to this prospectus
supplement and prospectus. The
issuer is not offering the class
[__] notes or the class [__]
certificates to the public.] The
certificates will represent
fractional undivided interests in
the trust and will be issued
pursuant to the trust agreement. The
notes will represent obligations of
the trust and will be issued
pursuant to the indenture.
CLOSING DATE............................ [__________ __, 20__].
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PAYMENT DATES........................... The [__] day of each [_____],
beginning in [________ __, 20__]. If
the [__] day is not a business day,
then the payment date will be the
next business day.
CUT-OFF DATE(S)......................... [__________ __, 20__].
COLLECTION PERIOD....................... [begins on the [__] day of each
[month] [quarter] and runs until and
includes the [__] day of the next
[month] [quarter]. However, the
first and last collection periods
are as follows:
- FIRST: period from and
including the cut-off date
to and including [__] days
prior to the first payment
date
- LAST: period from but
excluding the last day of
the collection period
before the termination date
to and including the
termination date]
CLOSING DATE............................ On or about [__________ __, 20__].
INTEREST PAYMENTS....................... The interest rates for each class of
notes and certificates is described
in "Summary of the Notes and
Certificates." [Insert mechanics
applicable to any floating rate
securities]. The indenture trustee
will calculate interest on the notes
and certificates on the basis of [a
360-day year of twelve 30-day
months]. On the first payment date,
the interest payable to
securityholders will be based upon
the actual number of days elapsed
from and including the closing date
to but excluding the first payment
date [and assuming a 30-day month].
PRINCIPAL PAYMENTS...................... The indenture trustee will pay
principal on the notes and
certificates on each payment date in
an amount equal to the
securityholder's percentage of the
principal payment amount.
The principal payment amount for a
payment date generally will equal
the sum of the following amounts,
without duplication:
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- collections on the
receivables, other than
charged-off receivables)
during the preceding
calendar month allocable to
principal including full
and partial prepayments;
- the portion of the purchase
amount deposited in the
collection account
allocable to principal of
each receivable that was
repurchased by [the
originator] [the seller]
[the servicer] as of the
last day of the preceding
calendar month due to a
breach of certain
representations or
warranties by the
originator or breach of
certain covenants by the
servicer relating to that
receivable; and
- the principal balance of
each receivable that first
became a charged-off
receivable during the
preceding calendar month
(other than charged-off
receivable for which
substitutions occur); and
- the aggregate amount of the
reduction in the principal
balances of auto loans
resulting from court orders
during the preceding
calendar month in obligor
insolvency proceedings
which reduce the amount
owed on those obligors'
auto loans.
The securityholder percentage of the
principal payment amount for any
payment will be equal to [insert
mechanics specific to building
and/or maintaining any form of
credit enhancement].
[[See "Description of the
Securities--Payments"] for
additional detail and for special
priority rules that would apply in a
default situation.]
[Description of priority of payments
among various classes].
[INTEREST ONLY NOTES]................... [The class [___] notes are interest
only notes. This means that the
indenture trustee will distribute
interest, based upon a notional
amount, but will not distribute
principal on these notes.]
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[PRINCIPAL-ONLY NOTES].................. [The class [___] notes are principal
only notes. This means that the
indenture trustee will not
distribute interest on these notes.
The indenture trustee will
distribute a portion of the
principal payment amount to the
investors of these notes.]
[ACCRUAL NOTES]......................... [The class [___] notes are accrual
notes. Interest accrued on this
class of notes will be added to its
principal balance rather than
distributed to the holders of these
notes until [insert mechanics
describing when interest accrual
ceases.]]
FINAL SCHEDULED
MATURITY DATE........................... The outstanding principal amount, if
any, of the notes and certificates
will be payable on their final
scheduled maturity dates as
described in the "Summary of Notes
and Certificates" table.
OPTIONAL REDEMPTION..................... [The seller] [the depositor] [the
servicer] may purchase all the
receivables when the total
outstanding principal amount of the
receivables declines to less than
[___%] of the total principal
balance of the receivables as of the
cut-off date.
The purchase price for the
securities will be equal to the
remaining unpaid principal amount of
the receivables plus accrued
interest through the payment date on
which the redemption occurs. If [the
seller] [the depositor] [the
servicer] exercises this option, the
outstanding principal balance of the
securities will be paid in full with
accrued interest.]
MANDATORY TERMINATION................... [The trust will have a [funding]
[revolving] period during which it
will purchase additional
receivables. On the payment date on
or after the last day of the
[funding] [revolving] period, any
funds remaining in the trust's
[pre-funding] [revolving] account
after the purchase of receivables on
that payment date will be applied to
partially redeem the notes and
certificates then outstanding.]
TRUST ASSETS............................ The primary assets of the trust will
be [participation interests in]
[security interests in] a pool of
[retail installment contracts] [note
and security agreements executed by
retail purchasers in favor of
vehicle lenders]
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used to finance the purchase of new
and used automobiles, light duty
trucks, sport utility vehicles,
motorcycles, recreational vehicles
(including motor homes and van
campers), recreational sport and
power boats (including any boat
motors and accompanying trailers)
and personal watercraft. We refer
to these [contracts] [note and
security agreements] as
"receivables" and to the persons
who financed their purchases with
these receivables as "obligors."
[__________] is the originator of
the receivables. The receivables in
the trust will be transferred by
[the originator to the seller, by
the seller to the depositor, and
then by the depositor to the trust.]
The trust will grant a security
interest in the receivables and the
other trust property to the
indenture trustee for the benefit
of the noteholders. The trust assets
will also include the following:
- monies received under the
[initial] receivables
after a cutoff date of
[______ __, 20__] [and
under additional
receivables sold to the
trust after a later
cutoff date];
- amounts held in bank
accounts established for
the trust [including
amounts on deposit in the
collection account,
pre-funding account,
revolving account,
reserve account and yield
supplement account];
- security interests in the
automobiles, light duty
trucks, sport utility
vehicles, motorcycles,
recreational vehicles
(including motor homes
and van campers),
recreational sport and
power boats (including
any boat motors and
accompanying trailers)
and personal watercraft
financed by the
receivables;
- any proceeds from
insurance policies
covering financed assets
or obligors on those
assets;
- any rights [_______] has
against dealers from
which it purchased
receivables; [and]
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- rights of the seller
under its purchase
agreement with [_____]
and rights of the
depositor under its
receivables acquisition
agreement with the seller
[; and]
- [insert description of
any other credit
enhancement applicable to
a particular series].
THE [INITIAL] RECEIVABLES............... On the closing date, the trust will
acquire [a participation interest
in] [a security interest in] retail
installment contracts or note and
security agreements with an
aggregate principal balance of
[$__________]as of the [initial]
cutoff date of [______ __, 20__]. As
of the [initial] cutoff date:
- the weighted average
annual percentage rate of
the initial receivables
was approximately [___%];
- the weighted average
remaining term to
scheduled maturity of the
initial receivables was
approximately [__]
months;
- the weighted average
original term to
scheduled maturity of the
initial receivables was
approximately [__]
months;
- approximately [__%] of
the receivables by
aggregate principal
balance were secured by
used assets; and
- [insert description of
additional pool criteria
applicable for a
particular series.]
No [initial] receivable has a
scheduled maturity later than
[________ __, 20__], which is [___]
months before the final scheduled
payment date of the securities.
[PRE-FUNDING]........................... [In addition to the initial
receivables, the trust will purchase
additional receivables during a
funding period beginning on the
closing date and ending not later
than the close of business on
[_______ __, 20__].]
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S-6
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[The trust will pay the purchase
price for additional receivables
with [funds on deposit in]
[investments held in] a pre-funding
account established for the trust.
The seller will deposit]
[[$________]] [insert description of
investments] into the pre-funding
account on the closing date. [In
addition, during the period
beginning on the closing date and
ending on __________, the trust will
deposit [all/a portion of] the
payments collected on the
receivables in the pre-funding
account, rather than pay such
amounts to securityholders. These
additional amounts will also be used
to purchase additional receivables
during [the same period]. The trust
expects to purchase additional
receivables with an aggregate
principal balance approximately
equal to the amount deposited in the
pre-funding account. Prior to being
used to purchase receivables, funds
on deposit in the pre-funding
account will be invested from time
to time in highly rated short-term
securities.]
[The funding period will end earlier
than [_______ __, ____] if the
balance in the pre-funding account
is reduced to less than [$____].]
[The funding period will also
terminate early if specified
servicer defaults or events of
default under the sale and servicing
agreement or the indenture occur.
Any balance remaining in the
pre-funding account at the end of
the funding period will be applied
to partially redeem the securities
then outstanding.]
REVOLVING PERIOD........................ [In addition to the initial
receivables, the trust will purchase
additional receivables during a
revolving period beginning on the
closing date and ending not later
than the close of business on
[_________ __, 20__].]
[The trust will pay the purchase
price for additional receivables
with funds on deposit in a revolving
account established for the trust.
During the revolving period, the
servicer will not distribute
principal collections on the
securities to securityholders.
Instead, it will deposit principal
collections into the revolving
account. The trust expects to
purchase additional receivables with
an aggregate principal balance
approximately equal to the total
amount of funds to be deposited into
the revolving
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S-7
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account. Prior to being used to
purchase receivables, funds on
deposit in the pre-funding account
will be invested from time to
time in highly rated short-term
securities.]
[The revolving period will end no
later than [_______ __, 20__].] [The
revolving period will terminate
earlier if specified servicer
defaults or events of default under
the sale and servicing agreement or
indenture occur. Any balance
remaining in the revolving account
at the end of the revolving period
will be applied to partially redeem
the securities then outstanding.]
[INTEREST RESERVE ACCOUNT].............. [We anticipate that the average
interest rate earned by the trust on
investment of funds in the
[pre-funding] [revolving] account
will be less than the interest rate
on the securities. To provide a
source of funds to cover any
shortfall resulting from this
difference, we will [deposit
[$_______] into a special interest
reserve account of the trust] [fund
a special interest reserve account
of the trust from collections
received on the receivables]. On
each payment date during the
[pre-funding] [revolving] period,
money from the interest reserve
account will be used to make up for
this interest shortfall.]
[RESIDUAL PAYMENT SECURITIES]........... [The issuer may issue one or more
new series of notes or certificates
backed by some or all of the "equity
interest" or rights to the trust
assets that are in excess of the
noteholders and certificateholders
rights in those assets.]
[CREDIT ENHANCEMENT].................... [Description of any credit
enhancement applicable for a
particular series.]
[CROSS COLLATERALIZATION]............... [Description of any cross
collateralization between series.]
[THE CERTIFICATES]...................... [On the closing date, the issuer
will issue certificates in an
aggregate principal amount of
[$_________]. [[__________] will
retain the entire principal amount
of the certificates.] The
certificates will be subordinated in
priority of payment to interest and
principal on the notes to the extent
described in this prospectus
supplement. The subordination of the
certificates will provide credit
enhancement for the notes.]
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DISTRIBUTIONS........................... The servicer, or the indenture
trustee on behalf of and at the
direction of the servicer, will
establish and maintain a collection
account in the name of the indenture
trustee into which all payment made
on the receivables will be deposited
and held pending distribution to
securityholders.
AVAILABLE FUNDS......................... The available funds for a payment
date will be the sum of the
following amounts with respect to
the preceding calendar month:
- all principal and interest
payments on the
receivables;
- all proceeds received
during the preceding
calendar month, including
actual recovery amounts,
with respect to receivables
that became charged-off
receivables during the
preceding calendar month,
net of the reasonable and
customary out-of-pocket
expenses incurred by the
servicer in connection with
collection, enforcement or
liquidation and any amounts
required by law to be
remitted to the obligor on
the charged-off receivable;
- proceeds from actual
recovery amounts on
charged-off receivables;
- earnings on investments of
funds in the collection
account [, pre-funding
account, revolving account,
reserve account, interest
reserve account and yield
supplement account] during
the preceding calendar
month;
- the purchase amount
deposited in the collection
account for each receivable
that was repurchased by
[the originator] [the
seller] [the servicer];
and]
- [insert any other amounts
applicable for a particular
series].
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APPLICATION OF PAYMENTS................. On each payment date, the indenture
trustee will distribute funds on
deposit in the collection account
relating to the prior collection
period in the priority indicated:
[insert description of the order and
priority of payments applicable for
a series]
FEDERAL TAX CONSIDERATIONS.............. Mayer, Brown & Platt, special
Federal tax counsel to [________]
("Federal Tax Counsel"), is of the
opinion that for Federal income tax
purposes the notes will be
characterized as debt and the trust
will not be characterized as an
association (or publicly traded
partnership) taxable as a
corporation. Each noteholder, by
accepting a note, will agree to
treat the notes as debt and each
certificateholder, by its acceptance
of a certificate, will agree to
treat the trust as a partnership in
which the certificateholders are
partners for federal, state and
local tax purposes. See "Federal
Income Tax Considerations" for a
summary of material federal income
tax consequences of the purchase,
ownership and disposition of the
notes and certificates.
ERISA CONSIDERATIONS.................... Subject to the restrictions and
considerations discussed under
"ERISA Considerations," the notes
may be eligible for purchase by
employee benefit plans.
An investor that is, or is acting on
behalf of, an employee benefit plan,
account or other retirement
arrangement subject to the Employee
Retirement Income Security Act of
1974, as amended ("ERISA") or
Section 4975 of the Code or any
entity deemed to hold "plan assets"
of the foregoing will be deemed to
represent and warrant that its
investment in the notes, as
applicable, will not result in a
non-exempt prohibited transaction
under ERISA or Section 4975 of the
Internal Revenue Code of 1986, as
amended (the "Code").
The certificates may not be acquired
with the assets of any employee
benefit plan, account or other
retirement arrangement subject to
ERISA or Section 4975 of the Code
(including the assets of an
individual retirement account.)
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RATINGS................................. It is a condition to the issuance of
the securities that the class
[_____] notes be rated at least
["____"] by [______] and the class
[_____] certificates be rated at
least ["____"] by [_____]. The
ratings of the securities address
the likelihood of the timely payment
of interest on and the ultimate
payment of principal of the
securities under their terms. These
ratings are not a recommendation to
buy, sell or hold the securities. We
cannot assure you that a rating will
not be lowered or withdrawn by a
rating agency if circumstances so
warrant.
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S-11
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase the securities.
PAYMENTS WILL BE MADE ONLY FROM THE
LIMITED ASSETS OF THE TRUST
The trust does not have any
significant assets or sources of
funds other than the receivables,
amounts on deposit in the trust
accounts [and] [insert description
of any credit enhancement]. You must
rely on payments on the receivables,
amounts, if any, on deposit in the
trust accounts [and] [insert
description of credit enhancement]
for repayment of the securities.
YOU BEAR REINVESTMENT RISK AND PAYMENT The receivables may be prepaid at
DELAY RISK DUE TO REPURCHASE any time, in full or in part,
voluntarily or as a result of
defaults, casualties to the related
assets, death of an obligor or other
reasons. [The originator[ [the
seller] [the servicer] may be
required to repurchase one or more
receivables from the trust if it
breaches specified representations
or covenants relating to the
receivables described in
["Description of the Transaction
Documents-- Sale and Assignment of
[Initial] Receivables [and
Additional Receivables]."] [The
servicer] [the seller] [the
depositor]] also will have the right
to purchase all remaining
receivables from the trust pursuant
to a clean-up call described in
["Summary -- Optional Redemption"
and "Description of the
Securities--Optional Redemption."]
Each prepayment, repurchase or
purchase will shorten the average
life of the securities. [The class
[__] notes will be extremely
sensitive to the rate and timing of
payments, including prepayments, on
the receivables. If you purchase a
class [__] note at a premium, under
some prepayment scenarios, you could
fail to recoup your original
investment.] [The class __ notes
will be adversely affected by a
lower than anticipated rate of
payment on the receivables.] [The
reinvestment risk to an investor in
the class [__] notes may be
exacerbated in the event of [an
increase in the rate of payment on
the receivables in a decreasing
interest rate environment] [a
decrease in the rate of payment on
the receivables in an increasing
rate environment.]
Prepayment rates may be influenced
by a variety of factors and cannot
be predicted with any assurance. You
will bear any reinvestment risks
resulting from a faster rate of
S-12
<PAGE>
prepayment or repurchase of
receivables. Any time your principal
is repaid to you at a time when you
did not expect to receive it, you
may not be able to reinvest your
funds at the same or a higher rate
of return than the interest rate on
your securities.
VARIATIONS IN REGIONAL As of the [initial] cutoff date,
ECONOMIC CONDITIONS obligors located in _______,
MAY CAUSE PAYMENT ________ and ________, respectively,
REDUCTIONS OR DELAYS comprised [__%], [__%] and [__%]of
the [initial] receivables by
aggregate principal balance. Adverse
economic conditions or other factors
particularly affecting these states
may affect the delinquency, loan
loss and repossession experience of
the receivables.
UNENFORCEABILITY OF THE TRUST'S SECURITY When dealers or [________]first
INTERESTS IN FINANCED ASSETS BECAUSE originate receivables, unless the
CERTIFICATES OF TITLE WILL NOT BE AMENDED asset is of a type that cannot be
MAY CAUSE PAYMENT REDUCTIONS OR DELAYS perfected by notation on a related
certificate of title, [_______'s]
security interests in the financed
assets are noted on the certificates
of title for the assets. [_______]
will transfer and assign security
interests in the financed assets to
the seller. The seller, in turn,
will transfer and assign those
security interests to the depositor,
who will transfer and assign those
security interests to the trust. The
trust, in turn, will assign those
security interests to the indenture
trustee for the benefit of the
noteholders. In most states, these
assignments are effective
assignments of a security interest,
and the assignee succeeds to the
assignor's rights as secured party.
However, due to the administrative
burden and expense, the certificates
of title for the financed assets
will not be marked, amended or
reissued to identify the seller, the
depositor, the trust or the
indenture trustee as the secured
party. In the absence of this
action, the indenture trustee may
not have a perfected security
interest in the financed assets
securing the receivables. For a more
complete description of perfection
issues, see ["Legal Aspects of the
Receivables--Security Interests in
Vehicles" and "--Security Interests
in Boats"] in the prospectus.
[POSSIBLE PREPAYMENTS AS A [If the principal amount of eligible
RESULT OF FUNDING OR REVOLVING PERIOD] receivables purchased or directly
originated by [________] during the
trust's [funding] [revolving] period
is less than the amount [accumulated
from collections and] deposited in
the trust's [pre-funding]
[revolving] account, we will not
have
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<PAGE>
sufficient receivables to sell
to the trust during the [funding]
period. This would result in a
prepayment of principal to the
securityholders as described below.
If the aggregate principal balance
of receivables we sell to the trust
during the [funding] [revolving]
period is less than the amount
[accumulated from collections and]
deposited in the trust's
[pre-funding] [revolving] account,
the excess will be applied at the
end of the [pre-funding] [revolving]
period to partially prepay the
securities. Any prepayment under
these circumstances will shorten the
weighted average life of the
securities to an extent that we
cannot predict with assurance, since
we cannot predict the amount of any
prepayment with assurance.]
[CHANGES IN POOL CHARACTERISTICS [The only required characteristics
AS A RESULT OF PRE-FUNDING OR of the additional receivables
REVOLVING PERIOD] transferred to the trust during the
[pre-funding] [revolving] period
will be the eligibility criteria
specified in the sale and servicing
agreement. These additional
receivables may be originated using
credit criteria different from those
that were applied to the initial
receivables and may be of a
different credit quality and
seasoning. As a result, following
the transfer of additional
receivables to the trust, the
characteristics of the entire
receivables pool may vary from those
of the initial receivables described
in ["The Receivables]." Since the
weighted average life of the
securities will be influenced by the
rate at which the principal balances
of the receivables are paid, some of
these variations may affect the
weighted average life of the
securities.]
[SUBORDINATION OF THE CLASS [__] [The subordination of the class [__]
NOTES PROVIDES ONLY LIMITED notes is intended to increase the
PROTECTION AGAINST LOSSES] likelihood of payments on the class
[__] notes. The amount of credit
enhancement provided through the
subordination of the class [__]
notes to the class [__] notes,
however, is limited and could be
depleted prior to the payment in
full of the class [__] notes. If the
principal amount of the class [__]
notes is reduced to zero, you may
suffer losses on your notes.]
LIMITATIONS ON INTEREST PAYMENTS Generally, under the terms of the
AND FORECLOSURES Soldiers' and Sailors' Civil Relief
Act of 1940, as amended, or similar
state legislation, an obligor who
enters military service after the
origination of an auto [__] loan may
not be charged
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<PAGE>
interest, including fees and
charges, above an annual rate of 6%
during the period of the
obligor's active duty status unless
a court orders otherwise upon
application of the lender. This
includes any obligor who is a member
of the National Guard or is in
reserve status at the time of the
origination of the auto [__] loan
and is later called to active duty.
It is possible that for an
indeterminate period of time, the
servicer may be unable to collect
full amounts of interest on some of
the auto [__] loans. In addition,
the Soldiers' and Sailors' Civil
Relief Act of 1940 imposes
limitations that would impair the
ability of the servicer to foreclose
on an affected auto [__] loan during
an obligor's period of active duty
status. Thus, in the event that an
auto [__] loan goes into default,
there may be delays and losses
occasioned by the inability of the
servicer to realize upon the asset
in a timely fashion.
[ADDITIONAL RISK FACTORS APPLICABLE FOR A
SPECIFIC SERIES]
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<PAGE>
THE TRUST
The trust was formed under the trust agreement between the owner
trustee and the depositor for the transaction described in this prospectus
supplement. After its formation, the trust will not engage in any activity
other than acquiring, holding and managing the receivables and the other
assets of the trust and proceeds therefrom and issuing the notes and
certificates and making payments thereon.
The trust has no directors, officers or employees and is not involved
in any legal proceedings.
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the trust as of
the closing date, as if the issuance and sale of the notes and the
certificates had taken place on such date:
<TABLE>
<S> <C>
Asset Backed Notes [$_____________]
Asset Backed Certificates [$ ]
-----------------------
Total [$ ]
=======================
</TABLE>
[An audited balance sheet of the trust as of [________ __, 20__]is
attached as Appendix A to this prospectus supplement.]
THE OWNER TRUSTEE
[_________] will serve as the owner trustee under the Trust
Agreement. [________]is a [_______] and its principal offices where
information can be obtained relating to the trust are located at
[_________________]. The [originator] [the seller] [the depositor]
[the servicer] and its affiliates may maintain normal commercial banking
relations with the owner trustee and its affiliates.
THE INDENTURE TRUSTEE
[___________] is the indenture trustee under the Indenture. It is a
[__________] corporation and its principal offices are located at
[________________]. The indenture trustee's duties in connection with the
notes are limited solely to its express obligations under the indenture and
the sale and servicing agreement.
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<PAGE>
[USE OF PROCEEDS]
[describe any uses not specified in base prospectus]
THE RECEIVABLES
[_________] [purchased or originated] [was granted a security interest
in] the receivables in the ordinary course of its business. The pool of
receivables will consist of [participation interests in] [security interests
in] [initial] receivables purchased by the trust as of the closing date [and
[participation interests in] [security interests in] any additional receivables
purchased during the trust's funding period.] [[________] has selected
receivables from its portfolio to include in the pool of [initial] receivables
[and will select receivables from its portfolio for inclusion in the pool of
additional receivables] using the following eligibility criteria described
below.]
ELIGIBILITY CRITERIA
Eligibility criteria include that each receivable:
- has no payment 10% or more of which was more than 29 days past
due;
- has an annual percentage interest rate or APR of not less than
[__%] and not more than [__%];
- [provides for level monthly payments that fully amortize the
amount financed over an original term to scheduled maturity of
at least [__] months and not more than [__] months; provided
that payments are made on the applicable due dates and except
that the final payment may differ;
- has an outstanding principal balance of not less than [$_____]
and not more than [$_____];
- has a remaining term to scheduled maturity of at least [__]
months and not more than [__] months; [and]
- is either a rule of 78s receivable, fixed value receivable,
simple interest receivable or actuarial receivable[; and]
- [insert any other criteria applicable for a particular
series].
[In addition, the seller will represent and warrant, among other
things, that, after giving effect to each transfer of additional receivables,
the receivables in the trust will meet the following criteria:]
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[insert criteria applicable to pool after transfer of additional
receivables]
The [initial] receivables were originated on or before
[________ __, 20__.] The composition of the pool of receivables as of the
closing date will not deviate from the composition of the pool of receivables
as of the [initial]cut-off date. The seller did not [and will not] utilize any
selection procedures it believed would be adverse to the securityholders in
selecting the receivables.
Please refer to the tables in Appendix B which set forth information
regarding the composition and characteristics of the receivables pool as of
the [initial] cutoff date.
THE SELLER(S)
[Insert description of each seller(s).]
THE ORIGINATOR(S)
[Insert description of each originator(s) and its underwriting
procedures and criteria.]
THE SERVICER
[Insert description of the servicer.]
DELINQUENCY AND LOSS EXPERIENCE
[Insert description of servicer's loss and delinquency experience
including loss and delinquency tables.]
SERVICING AND COLLECTIONS
[Insert description of servicer's servicing and collection procedures
and any commingling rights, including specific percentage of securityholders
required to terminate servicer upon servicer default.]
WEIGHTED AVERAGE LIFE OF THE SECURITIES
The rate of payment of principal of each class of notes and the
certificates depends primarily on the rate of payment, including prepayments,
of the principal balance of the receivables. As a result, final payment of any
class of the notes and the final distribution in respect of the certificates
could occur significantly earlier than the final scheduled payment dates for
each class of notes and certificates. We expect that final payment of the
notes and the final distribution on the certificates will occur on or prior to
the applicable final scheduled payment date for each class. However, if
sufficient funds are not available to pay the notes or the
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certificates in full on or prior to the applicable final scheduled payment
date, final payment of the notes and the final distribution on the
certificates could occur later than expected.
The weighted average life of the notes and the certificates of any
series will generally be influenced by the rate at which the principal
balances of the related receivables are paid, which payment may be in the form
of scheduled amortization or prepayments. All of the receivables are repayable
at any time without penalty, or with only a nominal penalty, to the obligor.
The rate of prepayment of automotive receivables is influenced by a variety of
economic, social and other factors, including decreases in the general level
of prevailing interest rates, the desire of the obligor to purchase a new
vehicle and the fact that an obligor generally may not sell or transfer the
financed asset securing a receivable unless the receivable is paid in full. In
addition, under certain circumstances, [the originator] [the seller]
[the servicer] will be obligated to repurchase receivables from the trust
pursuant to the sale and servicing agreement as a result of breaches of
representations and warranties. You should consider, in the case of securities
purchased at a discount, the risk that a slower than anticipated rate of
principal payments on the receivables could result in an actual yield that is
less than the anticipated yield. In the case of securities purchased at a
premium, the risk that a faster than anticipated rate of principal payments on
the receivables could result in an actual yield that is less than the
anticipated yield.
No prediction can be made as to the rate of prepayment on the
receivables. We are not aware of any publicly available industry statistics
for the entire industry on an aggregate basis that set forth principal
prepayment experience for receivables similar to the receivables over an
extended period of time.
In light of the above considerations, we cannot assure you as to the
amount of principal payments to be made on the notes, if any, or the
certificates on each payment date, since the amount will depend, in part, on
the amount of principal collected during the applicable collection period. Any
reinvestment risks resulting from a faster or slower incidence of prepayment
of receivables will be borne entirely by the noteholders and the
certificateholders.
[Description of prepayment speed assumption and modeling assumptions,
if any, applicable for a particular series.]
DESCRIPTION OF THE SECURITIES
DESCRIPTION OF THE NOTES
The indenture trustee will issue the notes pursuant to the indenture
between the indenture trustee and the trust. The notes initially will be
represented by notes registered in the name of Cede & Co. ("CEDE") as the
nominee of The Depository Trust Company ("DTC"), and will only be available
in the form of book-entries on the records of DTC and its participating
members. The notes will be issued in minimum denominations of [$_____]and
integral multiples of [$_____], except that one note of each class may be
issued in another denomination. All
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references to "holders" or "noteholders" and to authorized denominations,
shall reflect the rights of beneficial owners of the notes or "note owners."
DESCRIPTION OF THE CERTIFICATES
The trust will issue the certificates pursuant to the trust agreement
between the depositor and the owner trustee.
PAYMENTS
The notes and certificates will bear interest at the [fixed]
[floating] rates described in "Summary of the Notes and Certificates." [Insert
description of any floating rate mechanics applicable for a particular series.]
The notes and certificates constitute [fixed-income securities, strip
securities and accrual securities] as described in "[Prospectus
Summary--Fixed-Income Securities, --Strip Securities and --Accrual Securities"
in the prospectus]. The indenture trustee will distribute payments of interest
to noteholders and certificateholders [monthly] [quarterly] on each payment
date commencing [________ __, 20__]. Payment dates will occur on the [__] day
of each [month][quarter] or, if that day is not a business day, the next
succeeding business day. A business day is any day other than a Saturday,
Sunday or any other day on which banks in [___________] are authorized or
obligated by law or order to be closed. The indenture trustee will calculate
interest on the notes and certificates on the basis of
[a 360-day year consisting of twelve 30-day months].
On each determination date, the indenture trustee will determine the
amount in the collection account allocable to interest and the amount
allocable to principal. The determination date will be the [__] day of the
calendar [month] [quarter] during which any payment date occurs, or if that
day is not a business day, the next business day.
On each payment date, noteholders and certificateholders as of the
related record date will be entitled to receive [thirty] days interest at the
interest rate on their securities on the outstanding principal balance of
their notes or certificates, as applicable, as of the close of the preceding
payment date. Nevertheless, on the first payment date, the interest payable to
securityholders will be an amount equal to the product of:
- the interest rate on the note or certificate;
- the initial principal amount of the note or certificate; and
- a fraction:
- the numerator of which is the number of days (assuming a
30-day month) from and including the closing date to but
excluding the first payment date; and
- the denominator of which is 360.
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Interest on the securities which is due but not paid on any payment
date will be payable on the next payment date together with, to the extent
permitted by law, interest on the unpaid amount at the interest rate for that
class of securities.
The indenture trustee will distribute payments of principal to
noteholders and certificateholders [monthly] [quarterly] on each payment date
commencing [________ __, 20__]. The amount of principal available for
distribution will generally equal the principal payment amount.
The actual date on which the aggregate outstanding principal amount
of any class of securities is paid may be earlier than the final scheduled
payment dates for that class of notes. See "Weighted Average Life of the
Securities."
On each payment date, all amounts on deposit in the collection
account, other than investment earnings, will be generally paid in the
following order of priority:
(1) to Servicer, the servicing fee for the related collection
period and all accrued and unpaid servicing fees for prior
collection periods;
(2) to trustee and indenture trustee, all accrued and unpaid fees
and expenses accrued owing the indenture trustee and the owner
trustee;
(3) to the note payment account for distribution to noteholders on
a pro rata basis, accrued and unpaid interest for that payment
date;
(4) to the note payment account for distribution to noteholders,
on a pro rata basis, the noteholders principal distributable
amount;
(5) to the certificate distribution account for distribution to
the certificateholders, on a pro rata basis, accrued and
unpaid interest for that payment date;
(6) to the certificate distribution account for distribution to
the certificateholders, on a pro rata basis, the
certificateholders principal distributable amount; and
(7) to the seller or servicer, any remaining amounts.
[Insert description of any special priority rules that would apply in
a default situation.]
[PRE-FUNDING ACCOUNT] [REVOLVING PERIOD]
[On the Closing Date, approximately $____________ of initial
receivables will be transferred by the seller to the depositor and by the
depositor to the trust and approximately $______________ will be [deposited]
[accumulated from collections on the receivables for deposit into] the
[pre-funding] [revolving] account. If the principal amount of eligible
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receivables originated by [_________]during the [funding] [revolving] period is
less than the pre-funded amount, the seller will have insufficient receivables
to transfer to the depositor and the depositor will have insufficient
receivables to transfer to the trust on the subsequent transfer dates, thereby
resulting in a prepayment of principal to the noteholders and the
certificateholders.]
[To the extent that the [pre-funded amount] [total amount accumulated
in the revolving account] has not been fully applied to the purchase of
subsequent receivables by the trust during the [funding] [revolving] period,
the noteholders and the certificateholders will receive a prepayment of
principal, on the payment date on or immediately following the last day of the
funding period. The prepayment amount will be equal to each noteholder's or
certificateholder's pro rata share (based on the current principal balance of
each class of notes and certificates) of any remaining [pre-funded amount]
[amounts in the revolving account] following the purchase of any subsequent
receivables on that payment date. We anticipate that the principal amount of
subsequent receivables sold to the trust will not be exactly equal to the
[original pre-funded amount] [total amount accumulated in the revolving
account]and that therefore there will be at least a nominal amount of
principal prepaid to the noteholders and to the certificateholders.]
[If the amount of the pre-funding account will exceed 25% of the
aggregate proceeds from the offering, including the specific investments in
which the pre-funding account will be invested, then the depositor will specify
the actual investments of the pre-funding account in its periodic reports to be
filed on Form 8-K and Form 10-K.]
OPTIONAL REDEMPTION
The [originator] [seller] [servicer] [depositor] is permitted at its
option to purchase all remaining receivables from the trust. The [originator]
[seller] [servicer] [depositor] may exercise this repurchase option on or
after the last day of any month on or after which the then outstanding
aggregate principal balance of the receivables is less than or equal to ten
percent (10%) of the initial aggregate principal balance of the receivables as
of the closing date at a price equal to the remaining unpaid principal amount
of the receivables as of such last day of the month plus accrued interest
thereon through the payment date on which the redemption will occur. Exercise
of these rights will result in the early retirement of the notes and
certificates. Upon declaration of an optional redemption, the indenture
trustee will give written notice of termination to each noteholder and
certificateholder of record. The final payment to any noteholder or
certificateholder will be made only upon surrender and cancellation of that
holder's note or certificate, as applicable, at the office or agency of the
indenture trustee specified in the notice of termination.
DESCRIPTION OF THE TRANSACTION DOCUMENTS
The following summary describes the material terms of the transaction
documents. The transaction documents include, among others, [the purchase
agreement], the receivables
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transfer agreement, the sale and servicing agreement, the trust agreement, and
the indenture [insert other relevant agreements]. Copies of the transaction
documents will be filed with the Securities and Exchange Commission following
the issuance of the securities. This summary is qualified in its entirety by
reference to the actual transaction documents.
[DESCRIPTION OF ORIGINATOR/SELLER REPRESENTATIONS AND WARRANTIES]
[Insert description of representations and warranties.]
[SALE AND] ASSIGNMENT OF [INITIAL] RECEIVABLES [AND ADDITIONAL RECEIVABLES]
[The seller originated the receivables.] [The seller acquired the
receivables from the originator under a purchase agreement dated [_______ __,
____]. On the closing date, the seller will [sell] [pledge] [participation
interests in] [security interests in] the [initial] receivables to the
depositor under the receivables transfer agreement. In turn, the depositor
will [sell][pledge] [participation interests in] [security interests in] the
[initial]receivables to the trust under the sale and servicing agreement. The
trust will pledge the [initial] receivables to the indenture trustee for the
benefit of the noteholders under the indenture.
[In addition, during the [funding] [revolving] period, under the
receivables transfer agreement, the seller will be obligated to sell the
depositor, for sale by the depositor to the trust, additional receivables up
to the amount on deposit in the [pre-funding] [revolving] account. We expect
that the seller will convey additional receivables to the depositor on
subsequent transfer dates specified by the seller. [The funding] [revolving]
period is the period beginning on the closing date and ending on the earliest
to occur of:
- [the date on which the amount in the pre-funding account is
less than [$____];]
- the date on which an event of default occurs under the
indenture or a servicer termination event occurs under the
sale and servicing agreement; or
- the close of business on [________ __, 20__].]
[On each subsequent transfer date, the seller will [sell] [pledge]
[participation interests in] [security interests in] the [additional]
receivables to the depositor under a subsequent receivables transfer
agreement. In turn, the depositor will [sell] [pledge] [participation
interests in][security interests in] the [additional] receivables listed on a
schedule attached to an assignment to the trust.]
[Insert description of additional conditions to transfer of subsequent
receivables]
[Except for the criteria described above, there are no required
characteristics of the additional receivables. Therefore, following the
transfer of additional receivables to the trust,
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the aggregate characteristics of the entire receivable pool may vary from
those of the initial receivables.]
[Although [__________] will continue to service and administer the
receivables under the sale and servicing agreement, [_________] will deliver
the original documents evidencing each receivable and the certificate of title
for the related financed asset if it is of a type that can be perfected by
notation on a related certificate of title to the indenture trustee as
custodian for the trust.] [In order to facilitate servicing and to minimize
administrative burden and expense, the servicer will act as custodian for the
receivables.]
[Insert description of actions that will be taken by the related
parties as applicable to perfect either the issuer's or the securityholder's
security interest in the receivables.]
ACCOUNTS
The servicer, or the indenture trustee on behalf of and at the
direction of the servicer, will establish and maintain the collection account,
[the reserve account,] [the pre-funding account,] [the revolving account]
[the interest reserve account] [and the yield supplement account] in the name
of the indenture trustee for the benefit of noteholders. We refer to these
accounts as the trust accounts. The servicer will forward the proceeds of
payments on the receivables to the indenture trustee for deposit in the
collection account within two business days of its receipt. The indenture
trustee will invest funds on deposit in any trust account in Eligible
Investments selected by [the seller][the depositor] that mature not later than
the next payment date.
[Description of trust account mechanics applicable to a particular
series.]
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The servicing fee rate will be [__%] per annum of the aggregate
principal balance of the receivables as of the opening of business on the
first day of the related collection period. The servicer will also collect and
retain any late fees, non-sufficient funds fees, liquidation fees and other
administrative fees as a supplemental servicing fee for servicing the
receivables. The servicer will allocate payments by or on behalf of obligors
to scheduled payments and late fees and other charges in accordance with its
normal practices and procedures.
AVAILABLE FUNDS
On each payment date, the indenture trustee will apply the available
funds in the collection account to make required payments of principal and
interest to noteholders and certificateholders. See "Summary--Available Funds"
for a description of available funds.
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APPLICATION OF PAYMENTS
[Insert description of the priority and right to payment for each
series.]
[SUBORDINATION OF CERTIFICATEHOLDERS]
[The rights of the certificateholders to receive distributions on the
receivables will be subordinated to the rights of the noteholders in the event
of defaults and delinquencies on the receivables as provided in the sale and
servicing agreement. The protection afforded to the noteholders through
subordination will be effected [both] by the preferential right of the
noteholders to receive current distributions with respect to the receivables
[and by the establishment of the reserve account]. If on any payment date there
are not enough funds to distribute amounts due to noteholders, the
certificateholders may receive a reduced distribution or no distribution at
all.]
[The subordination of the certificates [and the reserve account] are
intended to enhance the likelihood of receipt by noteholders of the full amount
of principal and interest due them and to decrease the likelihood that the
noteholders will experience losses. [In addition, the reserve account is
intended to enhance the likelihood of receipt by certificateholders of the full
amount of principal and interest due them and to decrease the likelihood that
the certificateholders will experience losses. However, in certain
circumstances, the reserve account could be depleted. If the amount required to
be withdrawn from the reserve account to cover shortfalls in collections on the
receivables exceeds the amount of available cash in the reserve account,
noteholders and/or certificateholders could incur losses or a temporary
shortfall in the amounts distributed could result, which could, in turn,
increase the average life of the notes and/or the certificates.]
LEGAL ASPECTS OF THE RECEIVABLES
[Insert discussion of any legal aspects of the receivables relevant to
a particular series.] [See "Legal Aspects of the Receivables" in the
prospectus.]
LEGAL INVESTMENT
[The class [__] notes will be eligible for purchase by money market
funds under paragraph (a)(10) of Rule 2a-7 under the Investment Company Act of
1940, as amended.]
FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes generally the material federal income
tax consequences of the purchase, ownership and disposition of the notes and
certificates and such summary represents the opinion of 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 or the
courts. No ruling on any of the issues discussed below will be sought from the
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Internal Revenue Service. The following summary is intended as a discussion of
the possible effects of certain federal income tax provisions to holders, 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. In addition, this summary does not address all
federal income tax consequences that may be relevant to an investment in notes
or certificates to investors in light of their particular circumstances or
special tax situations. For example, the discussion does not apply to:
- banks and thrifts,
- insurance companies,
- regulated investment companies,
- dealers in securities,
- tax-exempt organizations,
- investors subject to the alternative minimum tax,
- foreign investors, and
- trusts, estates or pass-through entities, the equity holders
of which are any of the entities described above.
In addition, the discussion is limited to the federal income tax consequences
of the initial noteholders and certificateholders and does not address federal
income tax consequences to a purchaser of notes or certificates in the
secondary market. Further, this discussion is addressed only to holders who
hold the notes or certificates as capital assets and does not address tax
consequences of investors holding the notes or certificates as part of a
conversion transaction, hedge or hedging transaction, of as a position in a
straddle or other integrated investment for tax purposes.
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. However, there
are no cases or Internal Revenue Service rulings on similar transactions
involving both debt and equity interests issued by a trust with terms and
conditions of issuance similar to those of the notes and the certificates. As
a result, the Internal Revenue Service may disagree with all or a part of the
discussion below. We suggest that prospective investors consult their own tax
advisors in determining the federal, state, local, foreign and any other tax
consequences to them of the purchase, ownership and disposition of the notes
and certificates.
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TAX CHARACTERIZATION OF THE TRUST
Federal Tax Counsel is of the opinion that, although no transaction
closely comparable to that contemplated herein has been the subject of any
treasury regulation, revenue ruling or judicial decision, the trust will not
be characterized as a separate entity that is an association (or publicly
traded partnership) taxable as a corporation for federal income tax purposes.
As a result, the trust will not be subject to federal income tax. This
opinion is based on the assumption that the terms of the trust agreement and
related documents will be complied with, and on Federal Tax Counsel's
conclusion that the nature of the income of the trust will exempt it from the
rule that certain publicly traded partnerships are taxable as corporations.
However, this opinion is not binding on the Internal Revenue Service and no
assurance can be given that this characterization will prevail.
If the trust were taxable as a corporation for federal income tax
purposes, the trust would be subject to corporate income tax on its taxable
income. The trust's taxable income would include all its income on the
receivables, reduced by its interest expense on the notes provided the notes
are respected as debt for federal income tax purposes (see discussion in the
following paragraph). Any corporate income tax of this nature could
materially reduce cash available to make payments on the notes or
certificates.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
TREATMENT OF THE NOTES AS INDEBTEDNESS. The depositor will agree,
and the noteholders will agree by their purchase of notes, to treat the notes
as debt for federal, state and local income and franchise tax purposes. In
the opinion of Federal Tax Counsel, although no transaction closely
comparable to that contemplated herein has been the subject of any treasury
regulation, revenue ruling or judicial decision, the notes will be
characterized as debt for federal income tax purposes. The discussion below
assumes that this characterization of the notes will be respected.
The discussion below assumes that all payments on the notes are
denominated in U.S. dollars, and that the notes are not strip securities.
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, except
as discussed in the following paragraph, the notes will not be considered
issued with OID. The stated interest thereon will be includible in gross
income when received or accrued in accordance with that noteholder's usual
method of tax accounting. Under the OID regulations, a holder of a note
issued with a DE MINIMIS amount of OID must include that OID in income, on a
pro rata basis, as principal payments are made on the note. It is believed
that any prepayment premium paid as a
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result of a mandatory redemption will be taxable as contingent interest when it
becomes fixed and unconditionally payable.
MARKET DISCOUNT; PREMIUM. A holder who purchases a note at a
discount that exceeds any OID not previously includible in income may be
subject to the "market discount" rules of sections 1276 through 1278 of the
Code. These rules provide, in part, that gain on the sale or other
disposition of a note and partial principal payments on a note are treated as
ordinary income to the extent of accrued market discount. The market discount
rules also provide for deferral of interest deductions with respect to debt
incurred to purchase or carry a note that has market discount. Further, a
holder who purchases a note at a price that exceeds the principal amount of
the note may elect to amortize the premium against interest income over the
remaining term of the note in accordance with the provisions of section 171
of the Code.
SALE OR OTHER DISPOSITION. If a noteholder sells or otherwise
disposes of a note, the holder will generally recognize taxable gain or loss
in an amount equal to the difference between the amount realized on the
disposition (other than amounts attributable to accrued interest, which will
be taxable as such) and the holder's adjusted tax basis in the note. The
adjusted tax basis of a note to a particular noteholder will equal the
holder's cost for the note, increased by any market discount, OID and gain
previously included by that noteholder in income for the note and decreased
by the amount of bond premium (if any) previously amortized and by the amount
of principal payments previously received by the noteholder for that note.
Any such gain or loss will be capital gain or loss if the note was held as a
capital asset, except for such gain representing accrued market discount not
previously included in income, and will be long-term capital gain or loss if
at the time of the disposition the note has been held for more than one year.
Capital losses 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 as to the United States is a nonresident alien individual, 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 (1)
actually or constructively a "10 percent shareholder" of the trust or
[the seller] [the depositor] or (2) a "controlled foreign corporation" with
respect to which the trust or [the seller] [the depositor] is a "related
person" within the meaning of the Code and (ii) provides the indenture
trustee or other person who is otherwise required to withhold U.S. tax with
respect to the notes with an appropriate statement (on Internal Revenue
Service Form W-8 BEN or a similar form), signed under penalties of perjury,
certifying that the beneficial owner of the note is a foreign person and
providing the foreign person's name and address. If a note is held through a
securities clearing organization or certain other financial institutions, the
organization or institution may provide the relevant signed statement to the
withholding agent; in that case, however, the signed statement must be
accompanied by a Form W-8 BEN or substitute form provided by the foreign
person that owns the note. If the interest is not portfolio interest, then it
will be subject to United States federal withholding tax at a rate of
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30 percent, unless that rate is reduced or eliminated pursuant to an
applicable tax treaty and the foreign person provides the trustee or other
payor of the interest with a copy of Internal Revenue Service Form W-8 BEN,
or if the interest is effectively connected with the conduct of a U.S. trade
or business and the foreign person provides a copy of Internal Revenue
Service Form W-8 ECI.
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 (1) such gain
is not effectively connected with the conduct of a trade or business in the
United States by the foreign person and (2) 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.
On October 6, 1997, final Treasury regulations (the "Withholding Tax
Regulations") were issued that modify certain of the above procedures 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. The Withholding Tax Regulations will generally be effective for
payments made on the notes after December 31, 2000. Prospective investors
should consult their tax advisors with respect to the potential impact to
them, if any, 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 trust will be
required to withhold 31 percent of the amount otherwise payable to the
holder, and remit the withheld amount to the Internal Revenue Service as a
credit against the holder's federal income tax liability. We suggest that
noteholders 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 to them, if any, of the Withholding Tax
Regulations.
POSSIBLE ALTERNATIVE TREATMENTS OF THE NOTES. If, contrary to the
opinion of Federal Tax Counsel, the Internal Revenue Service successfully
asserted that one or more of the notes did not represent debt for federal
income tax purposes, the notes might be treated as equity interests in the
trust. If so treated, the trust might be taxable as a corporation with the
adverse consequences described above (and the taxable corporation would not
be able to reduce its taxable income by deductions for interest expense on
notes recharacterized as equity). Alternatively, and most likely in the view
of Federal Tax Counsel, the trust might be treated as a publicly traded
partnership that would not be taxable as a corporation because it would meet
certain qualifying income tests. Nonetheless, treatment of the notes as
equity interests in such a 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
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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 trust expenses. Furthermore, this characterization could subject
holders to state and local taxation in jurisdictions in which they are not
currently subject to tax. Prospective investors should consult their own tax
advisors with regard to the consequences of each such possible alternative
characterization to them in their particular circumstances.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
TREATMENT OF THE TRUST AS A PARTNERSHIP. The seller, the servicer,
the owner trustee, and the certificateholders, by their purchase of
certificates, will agree to treat the trust as a partnership for purposes of
federal and state income tax, franchise tax and any other tax measured in
whole or in part by income, with the assets of the partnership being the
assets held by the trust, the partners of the partnership being the
certificateholders [the seller] [and the depositor], and the notes being debt
of the partnership. However, the proper characterization of the arrangement
involving the trust, the certificates, the notes, the seller, the depositor
and the servicer is not clear because there is no authority on transactions
closely comparable to that contemplated herein.
A variety of alternative characterizations are possible. For
example, because the certificates have certain features characteristic of
debt, the certificates might be considered debt of the seller, the depositor
or the trust. Any such characterization would not result in materially
adverse tax consequences to certificateholders as compared to the intended
consequences from treatment of the certificates as equity in a partnership,
described below. The following discussion assumes that the certificates
represent equity interests in a partnership.
The following discussion assumes that all payments on the
certificates are denominated in U.S. dollars, none of the certificates are
strip securities, and that a series of securities includes a single class of
certificates.
PARTNERSHIP TAXATION. As a partnership, the trust will not be
subject to federal income tax. Rather, each certificateholder will be
required to separately take into account such holder's accruals of guaranteed
payments from the trust and its allocated share of other income, gains,
losses, deductions and credits of the trust. The trust's income will consist
primarily of interest and finance charges earned on the receivables
(including appropriate adjustments for market discount, OID and bond premium)
and any gain upon collection or disposition of receivables. The trust's
deductions will consist primarily of interest accruing with respect to the
notes, guaranteed payments on the certificates, servicing and other fees, and
losses or deductions upon collection or disposition of receivables.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the trust agreement and related documents). Under the trust agreement,
interest payments on the certificates at the certificate
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interest rate (including interest on amounts previously due on the
certificates but not yet distributed) will be treated as "guaranteed
payments" under Section 707(c) of the Code. Guaranteed payments are payments
to partners for the use of their capital and, in the present circumstances,
are treated as deductible to the trust and ordinary income to the
certificateholders. The trust will have a calendar year tax year and will
deduct the guaranteed payments under the accrual method of accounting.
Certificateholders with a calendar year tax year are required to include the
accruals of guaranteed payments in income in their taxable year that
corresponds to the year in which the trust deducts the payments, and
certificateholders with a different taxable year are required to include the
payments in income in their taxable year that includes the December 31 of the
trust year in which the trust deducts the payments. It is possible that
guaranteed payments will not be treated as interest for all purposes of the
Code.
In addition, the trust agreement will provide, in general, that the
certificateholders will be allocated taxable income of the trust for each
collection period equal to the sum of:
- any trust income attributable to discount on the receivables
that corresponds to any excess of the principal amount of the
certificates over their initial issue price,
- prepayment premium, if any, payable to the certificateholders
for that month and
- any other amounts of income payable to the certificateholders
for that month.
This allocation will be reduced by any amortization by the trust of premium
on receivables that corresponds to any excess of the issue price of
certificates over their principal amount. All remaining items of taxable
income, gain, loss and deduction of the trust, if any, will be allocated to
the depositor.
Based on the economic arrangement of the parties, this approach for
allocating trust income arguably should be permissible under applicable
Treasury regulations, although no assurance can be given that the Internal
Revenue Service would not require a greater amount of income to be allocated
to certificateholders. Moreover, even under the foregoing method of
allocation, certificateholders may be allocated income equal to the entire
certificate interest rate plus the other items described above even though
the trust might not have sufficient cash to make current cash distributions
of such amount. Thus, cash basis holders would, in effect, be required to
report income from the certificates on the accrual basis and
certificateholders may become liable for taxes on trust income even if they
have not received cash from the trust to pay these taxes. In addition,
because tax allocations and tax reporting will be done on a uniform basis for
all certificateholders but certificateholders may be purchasing certificates
at different times and at different prices, certificateholders may be
required to report on their tax returns taxable income that is greater or
less than the amount reported to them by the trust.
All of the guaranteed payments and taxable income allocated to a
certificateholder that is a pension, profit sharing or employee benefit plan
or other tax-exempt entity (including an
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individual retirement account) will constitute "unrelated business taxable
income" generally taxable to such a holder under the Code.
An individual taxpayer's share of expenses of the trust (including
fees to the servicer but not interest expense) would be miscellaneous
itemized deductions. These deductions might be disallowed to the individual
in whole or in part and might result in such holder being taxed on an amount
of income that exceeds the amount of cash actually distributed to such holder
over the life of the trust. It is not clear whether these rules would be
applicable to a certificateholder accruing guaranteed payments.
The trust intends to make all tax calculations relating to income
and allocations to certificateholders on an aggregate basis. If the Internal
Revenue Service were to require that these calculations be made separately
for each receivable, the trust might be required to incur additional expense
but it is believed that there would not be a material adverse effect on
certificateholders.
DISCOUNT AND PREMIUM. It is believed that the receivables were not
issued with OID, and, therefore, the trust should not have OID income.
However, the purchase price paid by the trust for the receivables may be
greater or less than the remaining principal balance of the receivables at
the time of purchase. If so, the receivables will have been acquired at a
premium or discount, as the case may be. (As indicated above, the trust will
make this calculation on an aggregate basis, but might be required to
recompute it on a receivable-by-receivable basis.)
If the trust acquires the receivables at a market discount or
premium, the trust will elect to include any such discount in income
currently as it accrues over the life of the receivables or to offset any
such premium against interest income on the receivables. As indicated above,
a portion of such market discount income or premium deduction may be
allocated to certificateholders.
SECTION 708 TERMINATION. Under Section 708 of the Code, the trust
will be deemed to terminate for federal income tax purposes if 50% or more of
the capital and profits interests in the trust are sold or exchanged within a
12-month period. If such a termination occurs, under current Treasury
regulations the trust will be deemed to contribute all of its assets and
liabilities to a new partnership in exchange for an interest in the new
partnership; and, immediately thereafter, the terminated partnership will be
deemed to have distributed interests in the new partnership to the new and
remaining partners in liquidation of the old partnership. The trust will not
comply with certain technical requirements that might apply when such a
constructive termination occurs. As a result, the trust may be subject to
certain tax penalties and may incur additional expenses if it is required to
comply with those requirements. Furthermore, the trust might not be able to
comply due to lack of data.
DISPOSITION OF CERTIFICATES. Subject to the discussion in the
immediately following paragraph, generally, capital gain or loss will be
recognized on a sale of certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the certificates
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sold. A certificateholder's tax basis in a certificate will generally equal
the holder's cost increased by the holder's share of trust income (includible
in income) and decreased by any distributions received with respect to such
certificate. In addition, both the tax basis in the certificates and the
amount realized on a sale of a certificate would include the holder's share
of the notes and other liabilities of the trust. A holder acquiring
certificates at different prices may be required to maintain a single
aggregate adjusted tax basis in such certificates, and, upon sale or other
disposition of some of the certificates, allocate a portion of such aggregate
tax basis to the certificates sold (rather than maintaining a separate tax
basis in each certificate for purposes of computing gain or loss on a sale of
that certificate).
Any gain on the sale of a certificate attributable to the holder's
share of unrecognized accrued market discount on the receivables would
generally be treated as ordinary income to the holder and would give rise to
special tax reporting requirements. The trust does not expect to have any
other assets that would give rise to such special reporting requirements.
Thus, to avoid those special reporting requirements, the trust will elect to
include market discount in income as it accrues.
If a certificateholder is required to recognize an aggregate amount
of income (not including income attributable to disallowed itemized
deductions described above) over the life of the certificates that exceeds
the aggregate cash distributions with respect thereto, such excess will
generally give rise to a capital loss upon the retirement of the certificates.
ALLOCATIONS BETWEEN TRANSFERORS AND TRANSFEREES. In general, the
trust's taxable income and losses will be determined monthly and the tax
items for a particular calendar month will be apportioned among the
certificateholders in proportion to the principal amount of certificates
owned by them as of the close of the last day of such month. As a result, a
holder purchasing certificates may be allocated tax items (which will affect
its tax liability and tax basis) attributable to periods before the actual
purchase.
The use of such a monthly convention may not be permitted by
existing Treasury regulations. If a monthly convention is not allowed (or
only applies to transfers of less than all of the partner's interest),
taxable income or losses of the trust might be reallocated among the
certificateholders. The depositor is authorized to revise the trust's method
of allocation between transferors and transferees to conform to a method
permitted by future regulations.
SECTION 754 ELECTION. In the event that a certificateholder sells
its certificates at a profit (loss), the purchasing certificateholder will
have a higher (lower) basis in the certificates than the selling
certificateholder had. The tax basis of the trust's assets will not be
adjusted to reflect that higher (or lower) basis unless the trust were to
file an election under Section 754 of the Code. In order to avoid the
administrative complexities that would be involved in keeping accurate
accounting records, as well as potentially onerous information reporting
requirements, the trust will not make such election. As a result,
certificateholders might be allocated a greater or lesser amount of trust
income than would be appropriate based on their own purchase price for
certificates.
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<PAGE>
ADMINISTRATIVE MATTERS. The trustee is required to keep or have kept
complete and accurate books of the trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year
of the trust will be the calendar year. The trust will file a partnership
information return (IRS Form 1065) with the Internal Revenue Service for each
taxable year of the trust and will report each certificateholder's allocable
share of items of trust income and expense to holders and the Internal
Revenue Service on Schedule K-1. The trust will provide the Schedule K-1
information to nominees that fail to provide the trust with the information
statement described below and such nominees will be required to forward such
information to the beneficial owners of the certificates. Holders must file
tax returns that are consistent with the information return filed by the
trust or be subject to penalties unless the holder notifies the Internal
Revenue Service of all such inconsistencies.
Under Section 6031 of the Code, any person that holds certificates
as a nominee at any time during a calendar year is required to furnish the
trust with a statement containing certain information on the nominee, the
beneficial owners and the certificates so held. Such information includes (1)
the name, address and taxpayer identification number of the nominee and (2)
as to each beneficial owner (x) the name, address and identification number
of such person, (y) whether such person is a United States person, a
tax-exempt entity or a foreign government, an international organization, or
any wholly-owned agency or instrumentality of either of the foregoing, and
(z) certain information on certificates that were held, bought or sold on
behalf of such person throughout the year. In addition, brokers and financial
institutions that hold certificates through a nominee are required to furnish
directly to the trust information as to themselves and their ownership of
certificates. A clearing agency registered under Section 17A of the Exchange
Act is not required to furnish any such information statement to the trust.
The information referred to above for any calendar year must be furnished to
the trust on or before the following January 31. Nominees, brokers and
financial institutions that fail to provide the trust with the information
described above may be subject to penalties.
The [seller] will be designated as the tax matters partner in the
related trust agreement and, as such, will be responsible for representing
the certificateholders in any dispute with the Internal Revenue Service. The
Code provides for administrative examination of a partnership as if the
partnership were a separate and distinct taxpayer. Generally, the statute of
limitations for partnership items does not expire before three years after
the date on which the partnership information return is filed. Any adverse
determination following an audit of the return of the trust by the
appropriate taxing authorities could result in an adjustment of the returns
of the certificateholders, and, under certain circumstances, a
certificateholder may be precluded from separately litigating a proposed
adjustment to the items of the trust. An adjustment could also result in an
audit of a certificateholder's returns and adjustments of items not related
to the income and losses of the trust.
TAX CONSEQUENCES TO FOREIGN CERTIFICATEHOLDERS. Interest paid on a
certificate to a nonresident alien individual, foreign partnership or foreign
corporation that has no connection with the United States other than holding
certificates ("Nonresidents") will normally qualify as portfolio interest
(except where (i) the recipient is a holder, directly or by attribution, of
10% or
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more of the trust, or (ii) the recipient is a controlled foreign corporation
to which the trust is a related person) and will be exempt from federal
income tax. Upon receipt of the appropriate ownership statements and
certifications, the trustee to the trust normally will be relieved of
obligations to withhold tax from such interest payments. These provisions
supersede the generally applicable provisions of United States law that would
otherwise require the trustee of the trust to withhold at a 30% rate (unless
such rate were reduced or eliminated by an applicable tax treaty) on, among
other things, interest and other fixed and determinable, annual or periodic
income paid to Nonresidents.
The Withholding Tax Regulations modify certain of the filing
requirements with which Nonresidents must comply in order to be entitled to
an exemption from United States withholding tax or a reduction to the
applicable United States withholding tax rate. Those Nonresidents currently
required to file Form W-8 or W-8 BEN generally will continue to be required
to file that form. However, the requirement that Nonresidents submit Form W-8
or W-8 ECI is extended to most Nonresidents who wish to seek an exemption
from withholding tax on the basis that income from the certificates is
effectively connected with the conduct of a United States trade or business
(in lieu of Form 4224) and to Nonresidents wishing to rely on a tax treaty to
reduce the withholding tax rate (in lieu of Form 1001). The Withholding Tax
Regulations are effective for payments of interest due after December 31,
1999, but Forms 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. We suggest that prospective investors consult their tax
advisors with respect to the effect of the Withholding Tax Regulations.
BACKUP WITHHOLDING. Distributions made on the certificates and
proceeds from the sale of the certificates will be subject to a "backup"
withholding tax of 31% if, in general, the certificateholder fails to comply
with certain identification procedures, unless the holder is an exempt
recipient under applicable provisions of the Code. Certificateholders should
consult with their tax advisors as to their eligibility for exemption to
backup withholding, the procedure for obtaining the exemption, and the
potential impact of the Withholding Tax Regulations.
STATE TAX CONSEQUENCES
In addition to the federal income tax consequences described in
"Federal Income Tax Considerations" above, potential purchasers should
consider the state income tax consequences of the acquisition, ownership and
disposition of the notes and certificates. State income tax law may vary
substantially from state to state, and this discussion does not purport to
describe any aspect of the income tax laws of any state.
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ERISA CONSIDERATIONS
GENERAL
Section 406 of ERISA and Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan subject to ERISA, as well as
individual retirement accounts, certain types of Keogh Plans and other plans
subject to Section 4975 of the Code and any entity deemed to hold "plan
assets" of any of the foregoing by reason of investment in such entity (each a
"Benefit Plan"), from engaging in certain transactions with persons that are
"parties in interest" under ERISA or "disqualified persons" under the Code
with respect to such Benefit Plan. A violation of these "prohibited
transaction" rules may result in an excise tax or other penalties and
liabilities under ERISA and the Code for such persons.
A fiduciary of a Benefit Plan considering the purchase of securities
should carefully review with its legal and other advisors whether the assets
of the trust would be considered plan assets, and whether the purchase or
holding of the securities could give rise to a transaction prohibited or
otherwise impermissible under ERISA or the Code. Prospective purchasers of
securities using the assets of government plans (as defined in Section 3(32)
of ERISA) and certain Church plans (as defined in Section 3(33) of ERISA),
which are not subject to Title I of ERISA, should consider applicable state
and other laws, which may be substantially similar to ERISA or the Code.
THE NOTES
Subject to the considerations below, the Notes may generally be
acquired by a Benefit Plan. Certain transactions involving the trust might be
deemed to constitute prohibited transactions under ERISA and the Code with
respect to a Benefit Plan that purchased notes or certificates if assets of
the trust were deemed to be assets of the Benefit Plan. Under a regulation
issued by the United States Department of Labor (the "Plan Asset
Regulation"), the assets of a trust would be treated as plan assets of a
Benefit Plan for the purposes of ERISA and the Code only if the Benefit Plan
acquired an "equity interest" in the trust and none of the exceptions
contained in the Plan Asset Regulation was applicable. An equity interest is
defined under the Plan Asset Regulation as an interest other than an
instrument which is treated as indebtedness under applicable local law and
which has no substantial equity features.
Although there is little guidance on the subject, the depositor
believes that, at the time of their issuance, the notes should be treated as
an instrument without substantial equity features for purposes of the Plan
Asset Regulation. The debt status of the notes could change, after their
initial issuance (i.e., they could be treated as equity), by certain changes
in the financial condition of the trust. The risk of recharacterization is
enhanced for subordinate classes of notes.
Regardless of whether the notes are treated as an equity interest for
purposes of the Plan Asset Regulation, the acquisition or holding of the notes
with plan assets of a Benefit Plan could be considered to give rise to a
prohibited transaction if the seller, the servicer, the issuer, or
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Indenture Trustee is or becomes a party in interest under ERISA or a
disqualified person under the Code with respect to that Benefit Plan. In such
a case, certain exemptions from the prohibited transactions rules may be
available, depending upon the type and circumstances of the Benefit Plan
fiduciary making the decision to purchase the notes with assets of the Benefit
Plan. Included among these exemptions are the following Prohibited Transaction
Exemptions ("PTE"):
- PTE 84-14, applicable to certain transactions effected by a
qualified professional asset manager;
- PTE 90-1, applicable to certain transactions entered into by
an insurance company separate account;
- PTE 91-38, applicable to certain transactions entered into by
a bank collective investment trust;
- PTE 95-60, applicable to certain transactions entered into by
an insurance company general account; and
- PTE 96-23, applicable to certain transactions entered into by
an in-house asset manager.
Purchasers acquiring notes with the assets of a Benefit Plan shall be deemed
to represent and warrant that such purchase and holding will not give rise to
a nonexempt prohibited transaction.
A fiduciary of a Benefit 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 trust 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.
By its acceptance of a note, each noteholder shall be deemed to have
represented and warranted that either (i) it is not a Benefit Plan or (ii) its
purchase and holding of the note will not result in a nonexempt prohibited
transaction under Section 406 of ERISA or Section 4975 of the Code (or any
substantially similar applicable law).
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THE CERTIFICATES
The Certificates are not likely to be treated as indebtedness for purposes of
the Regulation. Under one exception to the Plan Asset Regulation, however, the
assets of the trust will not be treated as plan assets if participation by
Plans (as defined below) in the issuer is not "significant." Plan
participation will not be "significant" for purposes of the Regulation if less
than 25% of each class of equity interests is held by Plans (excluding
interests held by persons (other than Plans) that have discretionary authority
or control with respect to the assets of Issuer, or who provide investment
advice for a fee (direct or indirect) with respect to such assets, or any
Affiliate of such a Person (each, a "Controlling Person")). The Department of
Labor has taken the position that for purposes of determining whether equity
participation in an entity is "significant" for purposes of the Regulation,
only the proportion of an insurance company general account's investment that
represents Plan assets should be taken into account.
Accordingly, the Certificates may not be purchased by or transferred
to any "employee benefit plan" within the meaning of section 3(3) of ERISA
(whether or not subject to ERISA, and including, without limitation, foreign
or government plans) or by any "plan" described in section 4975(e)(1) of the
Code, or any entity whose underlying assets include plan assets by reason of a
plan's investment in such entity (each, a "Plan"),except for an insurance
company using the assets of its general account that represents and warrants
that, at the time of acquisition and throughout the period it holds the
Certificates, (i) it is eligible for and meets the requirements of Department
of Labor Prohibited Transaction Class Exemption 95-60 (ii) less than 25% of
the assets are (or represent) assets of a Plan, and (iii) it is not the
Servicer or any other service provider to the trust, or an affiliate of any of
the foregoing, and would not otherwise be excluded under 2510.3-101(f)(1).
RATINGS
It is a condition to the issuance of the securities that the class
[__]of notes be rated at least ["___ "] by [_________] and the class [__]
certificates be rated at least ["___ "] by [__________]. We collectively refer
to [________] and [________] as the rating agencies.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating agency. Each security rating should be evaluated
independently of any other security rating.
The ratings on the offered securities address the likelihood of the
receipt by securityholders of all distributions with respect to the underlying
receivables to which they are entitled. The ratings do not represent any
assessment of the likelihood that the rate of principal prepayments by
obligors might differ from those originally anticipated. As a result of the
differences in the rate of principal prepayments, securityholders might suffer
a lower-than-anticipated yield to maturity. See "Risk Factors" and "Weighted
Average Life of the Securities."
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<PAGE>
The [depositor] has not requested a rating on the offered securities by
any rating agency other than [_________ and ________]. However, we cannot assure
you as to whether any other rating agency will rate the offered securities, or,
if it does, what rating would be assigned by any such other rating agency. A
rating on the offered notes by another rating agency, if assigned at all, may be
lower than the ratings assigned to the offered securities by [___________ and
__________].
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting
agreement, dated [____________ __, 20__], the depositor has agreed to cause
the trust to sell to [______________], the underwriter, all of the notes
[and the certificates]. The underwriting agreement provides that the
underwriter is obligated to purchase all of the notes [and all of the
certificates] if any are purchased.
The underwriter proposes to offer the notes and certificates
initially [at the prices on the cover page of this prospectus supplement, and to
certain dealers at that price less a discount of up to [___%] of the principal
on each class [__] note and [___%] on each class [__] certificate.] [in
negotiated transactions or otherwise at varying prices to be determined at the
time of sale] The underwriter and those dealers may allow a discount of [___%]
of the principal of each class [__] note and [___%] of each class [__]
certificate on sales to certain other dealers. After the initial public
offering, the public offering price and such discounts may change.
The depositor estimates that its out of pocket expenses for this
offering will be approximately [$________].
The depositor does not intend to apply for listing of the notes
[or the certificates]. Further, the notes and certificates are a new issue of
securities with no established trading market. The underwriter intends to make
a secondary market for the notes [and the certificates]. However, it is not
obligated to do so and may discontinue making a secondary market for the notes
[and the certificates] at any time without notice. We cannot assure you as to
how liquid the trading market for the notes [and certificates] will be.
[________]has agreed to indemnify the underwriter against certain
liabilities under the Securities Act, or contribute to payments which the
underwriter may be required to make in respect thereof.
The underwriters may engage in over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids in accordance
with Regulation M under the Securities Exchange Act. To explain:
- Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position;
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- Stabilizing transactions permit bids to purchase the
underlying security as long as the stabilizing bids do not
exceed a specified maximum;
- Syndicate covering transactions involve purchases of the notes
[and certificates] in the open market after the distribution
has been completed in order to cover syndicate short
positions;
- Penalty bids permit the underwriters to reclaim a selling
concession from a syndicate member when the notes [and
certificates] originally sold by a syndicate member are
purchased in a syndicate covering transaction to cover
syndicate short positions.
Stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the notes [and certificates] to be higher than it
would otherwise be in the absence of these transactions. The underwriter is
not required to engage in these activities and, if commenced, may end any of
these activities at any time.
[In the ordinary course of their respective businesses, the
underwriter and its affiliates have engaged and may in the future engage in
investment banking, commercial banking, insurance or other transactions with
[the originator] [the seller] [the depositor] and its affiliates.
LEGAL OPINIONS
Certain legal matters relating to the notes and certificates and
certain federal income tax and other matters will be passed upon for the trust
and by [the originator] [the seller] [the servicer] by [____________] and for
the underwriter, the depositor and the trust by Mayer, Brown & Platt, Chicago,
Illinois. [Mayer, Brown & Platt may from time to time render legal services to
the originator, the seller, the servicer and their affiliates.]
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[APPENDIX A]
[AUDITED BALANCE SHEET OF THE TRUST]
A-1
<PAGE>
APPENDIX B
COMPOSITION OF THE RECEIVABLES
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<S> <C> <C>
Aggregate Principal Balance.........................................$___________
Number of Receivables......................................................_____
Average Amount Financed.............................................$___________
Range of Amounts Financed...........................$___________ to $___________
Average Remaining Principal Balance.................................$___________
Range of Remaining Principal Balances...............$___________ to $___________
Weighted Average APR......................................................_____%
Range of APRs..................................................._____% to _____%
Weighted Average Original Term to Maturity (1).......................____ months
Range of Original Terms to Maturity..........................____ to ____ months
Weighted Average Remaining Term to Maturity (1)......................____ months
Range of Remaining Terms to Maturity.........................____ to ____ months
New Assets (Percentage of Aggregate Principal Balance).....................____%
Used Assets (Percentage of Aggregate Principal Balance)....................____%
</TABLE>
(1) Rounded to the nearest month.
B-1
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF THE RECEIVABLES BY APR
AS OF THE [INITIAL] CUTOFF DATE
Percentage
Aggregate by Aggregate Percentage
Principal Principal Number of by Number of
APR Range Balance Balance(1) Receivables Receivables(1)
---------- --------- ---------- ------------- ---------------
<S> <C> <C> <C> <C>
% $ %
--------- ---------- ------------- ---------------
TOTAL $ 100.00% 100.00%
(1) Percentages may not add up to 100.00% because of rounding.
</TABLE>
B-2
<PAGE>
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION OF RECEIVABLES
AS OF THE [INITIAL] CUTOFF DATE
Percentage
by Aggregate Percentage
Aggregate Principal Number of by Number of
State Principal Balance Balance(1) Receivables Receivables(1)
----- ----------------- ---------- ------------- ---------------
<S> <C> <C> <C> <C>
$ % %
----------------- ---------- ------------- ---------------
TOTAL $ 100.00% 100.00%
(1) Percentages may not add up to 100.00% because of rounding.
</TABLE>
B-3
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION BY ORIGINAL TERM TO SCHEDULED MATURITY OF THE RECEIVABLES
AS OF THE [INITIAL] CUTOFF DATE
Percentage
Aggregate by Aggregate Percentage
Principal Principal Number of by Number of
Range of Original Terms Balance Balance(1) Receivables Receivables(1)
----------------------- ------- --------- ----------- -------------
<S> <C> <C> <C> <C>
to months $ % %
to months
to months
to months
to months
to months
to months
to months
to months
months -------------- --------- ----------- -------------
TOTAL $ 100.00% 100.00%
(1) Percentages may not add up to 100.00% because of rounding.
</TABLE>
B-4
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION BY REMAINING TERM TO SCHEDULED MATURITY OF THE RECEIVABLES
AS OF THE [INITIAL] CUTOFF DATE
Percentage
Aggregate by Aggregate Percentage
Range of Principal Principal Number of by Number of
Remaining Terms Balance Balance (1) Receivables Receivables (1)
--------------- ------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
to months $ % %
to months
to months
to months
to months
to months
to months
to months
to months
to months
months
-------------- ------------ ----------- -------------
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
B-5
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF RECEIVABLES BY AMOUNT FINANCED
AS OF THE [INITIAL] CUTOFF DATE
Percentage
Aggregate by Aggregate Percentage
Principal Principal Number of by Number of
Amount Financed Balance Balance(1) Receivables Receivables(1)
--------------- ------- ------- ----------- -----------
<S> <C> <C> <C> <C>
$5,000.00 to $9,999.99 $ % %
$10,000.00 to $14,999.99
$15,000.00 to $19,999.99
$20,000.00 to $24,999.99
$25,000.00 to $29,999.99
$30,000.00 to $34,999.99
$35,000.00 to $39,999.99
$40,000.00 to $44,999.99
$45,000.00 to $49,999.99
$50,000.00 to $54,999.99
$55,000.00 to $59,999.99
$60,000.00 to $64,999.99
$65,000.00 to $69,999.99
$100,000.00 and above
-------------- -------- ----------- -----------
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
B-6
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF RECEIVABLES BY CURRENT PRINCIPAL BALANCE
AS OF THE [INITIAL] CUTOFF DATE
Percentage
Aggregate by Aggregate Percentage
Current Principal Principal Number of by Number of
Principal Balance Balance Balance(1) Receivables Receivables(1)
----------------- ------- ------- ----------- -----------
<S> <C> <C> <C> <C>
$5,000.00 to $9,999.99 $ % %
$10,000.00 to $14,999.99
$15,000.00 to $19,999.99
$20,000.00 to $24,999.99
$25,000.00 to $29,999.99
$30,000.00 to $34,999.99
$35,000.00 to $39,999.99
$40,000.00 to $44,999.99
$45,000.00 to $49,999.99
$50,000.00 to $54,999.99
$55,000.00 to $59,999.99
$60,000.00 to $64,999.99
$95,000.00 to $99,999.99
-------- ------- ----------- -----------
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
B-7
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF RECEIVABLES BY TYPE
Percentage
Aggregate by Aggregate Percentage
Principal Principal Number of by Number of
Balance Balance(1) Receivables Receivables(1)
------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Rule of 78's receivables $ % %
Fixed value receivables
Simple interest receivables
Actuarial receivables
------- ------- ----------- -----------
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
B-8
<PAGE>
[PROSPECTUS VERSION 2]
PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION
Depositor
ASSET BACKED NOTES
ASSET BACKED CERTIFICATES
VARIOUS SPECIAL-PURPOSE FINANCE COMPANIES FORMED BY THE DEPOSITOR AND VARIOUS
TRUSTS CREATED BY THE DEPOSITOR MAY FROM TIME TO TIME ISSUE ONE OR MORE SERIES
AND CLASSES OF ASSET-BACKED NOTES AND ASSET-BACKED CERTIFICATES REPRESENTING
INTERESTS IN A SEGREGATED POOL OF ASSETS.
THE SECURITIES IN A SERIES:
- will be paid only from the assets related to that series; and
- may be divided into multiple classes of notes and certificates
having different rights as to distributions, security and
priority.
THE ASSETS UNDERLYING THE SECURITIES OF A SERIES WILL INCLUDE OWNERSHIP,
PARTICIPATION OR SECURITY INTERESTS IN:
- note and security agreements secured by financed assets consisting
of automobiles, light duty trucks, sport utility vehicles,
motorcycles, recreational vehicles (including motor homes and van
campers), recreational sport and power boats (including any boat
motors and accompanying trailers) and personal watercraft; or
- financed asset retail installment sale contracts;
- a combination of note and security agreements secured by financed
assets and financed asset retail installment sale contracts.
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS ON PAGE [ ] IN THIS PROSPECTUS.
Any notes of a series represent obligations of, and certificates of a series
represent interests in, the related assets only. Any notes and certificates of a
series do not represent interests in or obligations of any servicer, any seller,
any originator, depositor or any of their affiliates.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS OR ANY RELATED PROSPECTUS SUPPLEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This prospectus may be used to offer and sell any of the notes and certificates
only if accompanied by the prospectus supplement for the related series.
The date of this prospectus is [insert date].
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Overview of the Information in this Prospectus and the Prospectus Supplement . . . .3
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Depositor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Issuer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
The Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Pre-funding; Purchase of
Receivables after the Closing
Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Revolving Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Receivables Purchased
after the Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . .7
Servicer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Seller(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Originator(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
The Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Characteristics of the Securities . . . . . . . . . . . . . . . . . . . . . . .9
Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Strip Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Accrual Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Distributions to the
Securityholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Interest Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Optional Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Mandatory Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Credit and Payment
Enhancement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Cross-collateralization . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Legal Considerations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Repurchase by Originator and/or
Seller Required for Breaches of
Representation or Warranty . . . . . . . . . . . . . . . . . . . . . . . 13
Tax Status. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ERISA Considerations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
It may not be Possible to find an Investor to Purchase
your Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Interests of Other Persons in the Receivables or the Financed
Assets Could Reduce the Funds Available to Make Payments on
your Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Insolvency of a Party in Possession of the Receivables may Reduce
the Funds Available to Make Payments on your Securities . . . . . . . . 16
Bankruptcy of an Originator, a Seller or the Depositor Could Result
in Delays in Payment or Losses on the Securities . . . . . . . . . . . . 17
The Securities are not Guaranteed and only the Related Assets
are Available to Pay your Securities . . . . . . . . . . . . . . . . . . 17
You may Suffer Losses if a Third Party Purchases a Receivable without
Knowledge of the Issuer's Interests. . . . . . . . . . . . . . . . . . . 18
You may Suffer Losses upon a Liquidation of the Receivables if the
Proceeds of the Liquidation are less than the Amounts due on the
Outstanding Securities . . . . . . . . . . . . . . . . . . . . . . . . . 18
Statutory Limitations on Realization of Financed Assets due to
Insolvency of Obligors may cause Payment Reductions and Delays . . . . . 19
Limitations on Enforceability of the Receivables because of Consumer
Protection Laws may cause Payment Reductions or Delays . . . . . . . . . 19
Extension or Deferral of Payments on Receivables may Increase
Weighted Average Life of Securities . . . . . . . . . . . . . . . . . . 20
Subordination may cause some Classes of Securities to Bear Additional
Credit Risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
You may have to Reinvest your Principal at a Lower Rate of
Return because of Prepayments on the Securities. . . . . . . . . . . . . 21
The Yield to Maturity of some Types of Securities will be Extremely
Sensitive to Prepayments.. . . . . . . . . . . . . . . . . . . . . . . . 21
If Book-Entry Registration is used, you may be able to Exercise
your Rights as a Securityholder only through the Clearing Agency . . . . 22
You may Experience Losses on your Securities if Insurance on
Financed Assets is less than Outstanding Principal and
Interest on the Related Receivable . . . . . . . . . . . . . . . . . . . 22
Limited Remedies for Breaches of Representations could Reduce or Delay
Payments to you. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
The Issuers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
The Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Rule of 78s Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Fixed Value Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Simple Interest Receivables . . . . . . . . . . . . . . . . . . . . . . . . . 25
Actuarial Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Prepayment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Maturity and Prepayment Considerations. . . . . . . . . . . . . . . . . . . . 27
Delinquencies, Repossessions, and Net Losses . . . . . . . . . . . . . . . . . . . 27
Origination of Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . 27
Issuance of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Pre-funding; Purchase of Receivables after the Closing Date . . . . . . . . . 27
Revolving Period; Purchase of Receivables after the Closing Date. . . . . . . 28
The Depositor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
The Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Description of the Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Distributions of Principal and Interest . . . . . . . . . . . . . . . . . . . 30
Pool Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Book-Entry Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Definitive Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Reports to Securityholders. . . . . . . . . . . . . . . . . . . . . . . . . . 34
Description of the Purchase Agreements, Receivables Transfer Agreements
and the Transfer and Servicing Agreements . . . . . . . . . . . . . . . . . . 35
Acquisition of Receivables by Seller; Originator Repurchase
Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Acquisition of Receivables by Depositor; Seller Repurchase
Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Acquisition of Receivables by Issuer. . . . . . . . . . . . . . . . . . . . . 36
Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Eligible Deposit Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Eligible Institution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Servicing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
The Servicer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Servicing Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Payments on Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Servicing Compensation and Expenses . . . . . . . . . . . . . . . . . . . . . 39
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Credit and Cash Flow Enhancements . . . . . . . . . . . . . . . . . . . . . . 40
Statements to Indenture Trustees and Trustees . . . . . . . . . . . . . . . . 40
Evidence as to Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Matters Regarding the Servicers . . . . . . . . . . . . . . . . . . . . . . . 41
Servicer Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Rights upon Servicer Default. . . . . . . . . . . . . . . . . . . . . . . . . 42
Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Insolvency Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Legal Aspects of the Receivables . . . . . . . . . . . . . . . . . . . . . . . . . 44
Insolvency of an Originator, a Seller or the Depositor may result in
Consolidation of their Assets with the Issuer. . . . . . . . . . . . . . 44
Security Interests in Financed Assets . . . . . . . . . . . . . . . . . . . . 46
Perfection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Continuity of Perfection. . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Priority of Liens Arising by Operation of Law . . . . . . . . . . . . . . . . 48
Security Interests in the Boats . . . . . . . . . . . . . . . . . . . . . . . 48
Continuity of Perfection. . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Repossession. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Notice of Sale; Redemption Rights . . . . . . . . . . . . . . . . . . . . . . 51
Deficiency Judgments and Excess Proceeds. . . . . . . . . . . . . . . . . . . 51
Consumer Protection Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Other Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
ERISA Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Methods of Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Financial Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Where You Can Find More Information. . . . . . . . . . . . . . . . . . . . . . . . 55
Incorporation of Information by Reference. . . . . . . . . . . . . . . . . . . . . 56
</TABLE>
2
<PAGE>
OVERVIEW OF THE INFORMATION IN THIS PROSPECTUS
AND THE PROSPECTUS SUPPLEMENT
We provide information to you about the securities in two separate
documents that progressively provide more detail:
- this prospectus, which provides general information, some of which
may not apply to your series of securities; and
- the accompanying prospectus supplement, which describes the
specific terms of your series of securities, including:
- the class or classes of securities;
- the timing, priority and rate of interest and principal
distributions for each class of securities;
- financial and other information about the related assets;
- any credit enhancement for each class of securities;
- information regarding the servicer and any trustee(s) for
the series;
- information regarding the seller(s) of the related assets
and the underwriting guidelines used by that seller;
- information regarding tax considerations;
- the ratings for each class; and
- the method for selling the securities.
THE PROSPECTUS AND THE PROSPECTUS SUPPLEMENT, TOGETHER, PROVIDE A
DESCRIPTION OF THE MATERIAL TERMS OF YOUR SECURITIES. YOU SHOULD RELY ON THE
INFORMATION IN THE PROSPECTUS SUPPLEMENT TO THE EXTENT IT PROVIDES A MORE
SPECIFIC DESCRIPTION OF YOUR SECURITIES.
You should rely only on the information provided in this prospectus and
the accompanying prospectus supplement, including the information incorporated
by reference. You can request information incorporated by reference from
Prudential Securities Secured Financing Corporation, One New York Plaza, New
York, New York 10292, Attention: P. Carter Rise. See "Where You Can Find More
Information" and "Incorporation of Information by Reference" in this prospectus.
We have not authorized anyone to provide you with different information. We are
not offering the securities in any state where the offer is not permitted.
3
<PAGE>
We include cross-references in this prospectus and the accompanying
prospectus supplement to captions in these materials where you can find further
related discussions. The following table of contents and the table of contents
included in the accompanying prospectus supplement provide the pages on which
these captions are located.
4
<PAGE>
PROSPECTUS SUMMARY
- This summary highlights selected information from this document. To
understand all of the terms of the offering of the securities, you should
carefully read this entire document and the accompanying prospectus
supplement.
DEPOSITOR.................. Prudential Securities Secured Financing Corporation,
formerly known as P-B Secured Financing Corporation,
a Delaware corporation, a wholly-owned limited
purpose finance subsidiary of Prudential Securities
Incorporated.
ISSUER..................... The issuer for a series may be a special-purpose
finance company formed by the depositor or a trust
created by the depositor. An owner trust may be
formed by a trust agreement between the trustee and
the depositor. A grantor trust may be formed by a
pooling and servicing agreement among the trustee,
the depositor and the servicer for that trust.
THE ASSETS................. The assets supporting the securities of a series
will consist of a combination of:
- receivables consisting of ownership,
participation or security interests in:
- financed asset retail installment
sales contracts between retail
purchasers and manufacturers,
dealers or other originators; or
- note and security agreements
executed by retail purchasers in
favor of lenders secured by new and
used financed assets financed
thereby;
- monies received under the initial
receivables after the related cut-off
date(s) related to the assets of the
series and under additional receivables
transferred to the issuer after a later
cut-off date;
- amounts held in bank accounts established
for that series, including amounts on
deposit in any collection account,
pre-funding account, revolving account,
reserve account, yield supplement account
or other account for that series as
specified in the related prospectus
supplement.
- security interests in the financed assets
financed by the receivables;
- any proceeds from insurance policies
covering financed assets or obligors on
those financed assets;
5
<PAGE>
- any rights a seller has against dealers
from which it purchased receivables; and
- rights of any seller under its purchase
agreement with an originator and rights of
the depositor under its receivables
transfer agreement with the seller; and
- any credit enhancement for each class of
the series;
We refer to the retail installment sales contracts
and the note and security agreements as
"receivables" and to the persons who financed their
purchases with these receivables as "obligors." The
receivables supporting each series will be
registered or titled under federal or state
requirements.
Receivables that are to be included in any asset
pool will be sold or pledged by one or more sellers
to the depositor under a receivables transfer
agreement. On or before the closing date specified
in the related prospectus supplement, the depositor
will transfer the initial receivables having an
aggregate principal balance specified in the related
prospectus supplement as of the dates specified
therein to a trust or special-purpose finance
company under a transfer and servicing agreement.
The transfer and servicing agreement may be in the
form of:
- a sale and servicing agreement among the
depositor, the related servicer and indenture
trustee and the related issuer and, in the
case of an owner trust will include the
related trust agreement; or
- a pooling and servicing agreement among the
depositor, the related servicer and the
related trust if the trust is to be treated
as a grantor trust for federal income tax
purposes.
PREFUNDING; PURCHASE OF
RECEIVABLES AFTER THE
CLOSING DATE............... If specified in the related prospectus supplement,
an issuer may be permitted to purchase additional
receivables during a specified pre-funding period
after the closing date for that series not to exceed
one year from the closing date. An issuer will
purchase additional receivables with amounts
deposited in a pre-funding account on the closing
date.
The pre-funded amount will initially equal the
amount specified in the related prospectus
supplement. The pre-funded amount may be up to 40%
of the aggregate principal amount of the related
series of securities. The pre-funding account will
be reduced by the amount used to purchase
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receivables after the closing date. One or more
classes of securities of the related series may be
prepaid with any amounts remaining in the pre-funded
account for that series at the end of the specified
pre-funding period for that series.
In addition, during some or all of a pre-funding
period, all or a portion of the payments collected
on the related receivables may be used to purchase
additional receivables, rather than to fund payments
of principal to securityholders. As a result, the
related securities may have an interest-only period.
The interest only period may terminate before the
end of the specified period if events described in
the related prospectus supplement occur.
REVOLVING PERIOD ...........If specified in the related prospectus supplement
for any issuer that issues notes, all principal
collections received on the related receivables
during a specified revolving period and any other
amounts described in the related prospectus
supplement, will be deposited in a revolving account
and used to purchase additional receivables after
the closing date. No principal collections on the
receivables will be distributed to the
securityholders of that series during the revolving
period. Although the specific parameters of the
revolving account for any issuance of securities
will be specified in the related prospectus
supplement, it is anticipated that the revolving
period will not exceed three years from the related
closing date.
If the amount on deposit in a revolving account at
specified times during the revolving period exceeds
the maximum permitted revolving account balance
specified in the related prospectus supplement, the
holders of that series of securities will receive a
distribution of principal on their securities on the
next payment date in an amount equal to the amount
of that excess. One or more classes of securities of
the related series may be prepaid with any amounts
remaining in the revolving account for that series
at the end of the specified revolving period for
that series.
Thereafter principal distributions will be made to
the holders of the related series of securities in
the manner otherwise specified in this prospectus
and in the related prospectus supplement.
RECEIVABLES PURCHASED
AFTER THE CLOSING DATE......Subsequent receivables to be acquired during any
prefunding period or revolving period will be
subject to the same types of representations and
warranties as the initial receivables included in
the related receivables pool on the related closing
date.
Additional criteria, however, may also be required
to be satisfied, as described in the related
prospectus supplement. Any subsequent
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receivables will have been originated in accordance
with the underwriting criteria described in the
related prospectus supplement.
SERVICER....................The related prospectus supplement will identify the
servicer for that series. The servicer will service
and administer the related assets for that series
under the related transfer and servicing agreement.
The servicer may subcontract all or any portion of
its obligations as servicer to qualified
subservicers. The servicer will remain obligated for
its obligations as servicer whether or not
subservicers are used.
TRUSTEE.....................If the issuer for a series is a trust, the related
prospectus supplement will identify the trustee for
that series.
INDENTURE TRUSTEE...........If a series of securities includes notes, the
related prospectus supplement will identify the
indenture trustee for that series. The notes will be
issued and secured under an indenture between the
issuer and the indenture trustee. If the issuer is a
trust, it and the indenture will be administered by
separate independent trustees.
SELLER(S).................. The related prospectus supplement will identify the
seller(s) of receivables supporting that series. The
depositor may acquire receivables from one or more
sellers in connection with a series under one or
more receivables transfer agreements. Sellers may be
affiliates of the depositor.
ORIGINATOR(S)...............The originators for a particular series will be
identified in the related prospectus supplement. An
originator of receivables may be:
- a manufacturer of financed assets;
- a dealer that may or may not be affiliated
with one or more manufacturers; or
- an originator or owner of financed asset
retail installment sale contracts or note and
security agreements secured by financed
assets.
A seller may be the originator of the receivables or
may have acquired the receivables from an
originator. A seller may acquire receivables from
one or more originators in connection with a series
under one or more purchase agreements.
THE SECURITIES..............The securities will be issued in series. A series
may include one or more classes of certificates. A
series may also include one or more classes of
notes. Any certificates of a series represent
beneficial ownership in the related assets and will
be issued under a trust agreement or a pooling and
servicing agreement. The notes of a
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series represent indebtedness of the issuer and will
be issued under an indenture. Each series will be
backed by a segregated pool of assets.
The rights and benefits of any issuer under a sale
and servicing agreement will be assigned to the
related indenture trustee as collateral for the
notes of the related series. The securities will not
be obligations, either recourse or non-recourse of
the depositor, the related servicer, the related
seller(s), the related originator(s) or any person
other than the related issuer.
An owner trust form of prospectus supplement will be
used for a series that includes both notes and
certificates. A grantor trust form of prospectus
supplement will be used for a series that includes
only certificates. Each prospectus supplement will
specify the securities being offered. Some or all
of the securities of a series may not be offered to
the public.
CHARACTERISTICS OF THE
SECURITIES Securities, other than strip securities, offered by
this prospectus and the related prospectus
supplement will have a principal balance and a
specified interest rate.
The characteristics of the securities issued may
differ from one another. Any differences in
characteristics will be specified in the prospectus
supplement. Some of these characteristics are:
- rate at which interest, if any, accrues;
- fixed, variable or adjustable interest rate;
- timing and frequency of interest payments;
- amount of payments of interest and principal
or other distributions;
- priority of interest and principal payments
and allocation of losses relative to other
classes;
- whether or not distributions of principal and
interest will be delayed or not made at all
upon the occurrence of specified events; and
- whether payments of principal and interest
may or may not be made from designated
portions of the pool of receivables.
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SUBORDINATION...............A series may include one or more classes of
securities that are senior to one or more other
classes of securities as to distributions of
principal and interest and allocations of losses on
the related receivables.
STRIP SECURITIES............A series may include one or more classes of strip
securities that provide for distributions of
interest which are disproportionately large or small
in comparison to the principal distribution,
including:
- distributions of interest with no or only a
nominal distribution of principal; or
- distributions of principal with no or only a
nominal distribution of interest.
ACCRUAL SECURITIES..........A series may include one or more classes of accrual
securities as to which certain accrued interest will
not be distributed to securityholders. That interest
will instead be added to the principal balance of
the securities on each payment date. If the security
is also a strip security, that interest will be
added to the nominal balance of the securities on
each payment date.
DISTRIBUTIONS TO THE
SECURITYHOLDERS.............Principal and interest on the securities will be
paid on specified payment dates that may occur
monthly, quarterly or semi-annually, over the life
of the securities. The payment date or dates for
each class of a series will be described in the
related prospectus supplement.
Collections on the related assets received during
the collection period preceding the payment date
will be used to fund payments to securityholders
on the next payment date. The collection period
for a series will be specified in the related
prospectus supplement. All or a portion of
collected payments from a collection period may
be used to acquire additional receivables during
a pre-funding period or a revolving period. See
"The Receivables--Prefunding; Purchase of
Receivables after the Closing Date and
--Revolving Period; Purchase of Receivables after
the Closing Date."
In addition, all or a portion of the collected
payments may be retained by the related trustee and
held in temporary investments for a specified period
before being used to fund payments to
securityholders as may be required by the related
transfer and servicing agreement to:
- slow the amortization rate of the related
securities; or
- attempt to match the amortization rate of the
related securities to an amortization
schedule established when the securities were
issued.
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The transfer and servicing agreement may terminate
these features if specified events described in the
related prospectus supplement occur. As a result,
distributions may be made to the related
securityholders earlier than anticipated and the
amortization of the related securities may be
accelerated.
INTEREST RATES..............Each class of securities may have a different
interest rate, which may be fixed or adjustable. The
related prospectus supplement will specify the
interest rate for each class of securities, or the
initial interest rate and the method for determining
subsequent changes to the interest rate.
OPTIONAL REDEMPTION.........The related servicer, the related seller, the
depositor or, if specified in the related prospectus
supplement, other entities may, at their option,
purchase the receivables related to a series when
the remaining receivables related to that series are
less than a specified percentage of (unless
otherwise specified in the related prospectus
supplement) the aggregate principal balance of the
receivables at the time the related series was
issued.
MANDATORY TERMINATION.......The related trustee or servicer or 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
assets or otherwise, under other circumstances and
in the manner specified in the related prospectus
supplement.
CREDIT AND PAYMENT
ENHANCEMENT.................The related prospectus supplement will describe
the credit enhancement, if any, for any class or
classes or series of securities. Limitations or
exclusions from coverage could apply to any form of
credit enhancement. The prospectus supplement will
describe the credit enhancement and related
limitations and exclusions applicable for securities
issued in connection with that prospectus
supplement. Credit or payment enhancement may
consist of one or more of the following:
- subordination of one or more classes of
securities;
- a financial guaranty insurance policy;
- a reserve account;
- a yield supplement account;
- collateralization greater than the principal
amount of securities issued;
- letters of credit;
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- credit or liquidity facilities;
- repurchase obligations;
- cash deposits; or
- other agreements with respect to third party
payments or other support.
CROSS-
COLLATERALIZATION...........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. Except to the limited extent that some
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, no payment received
on any receivable related to any series may be
applied to the payment of securities of any other
series.
LEGAL CONSIDERATIONS........The related seller(s) and/or any originator from
whom the seller acquired the receivables for a
series, will warrant in a receivables transfer
agreement or purchase agreement, as applicable, that
the transfer of the receivables by it to the
depositor or the seller, as applicable, is:
- a valid assignment, transfer and conveyance
of the receivables; or
- if specified in the related prospectus
supplement, either:
- a valid assignment, transfer and
conveyance of receivables to the
seller or the depositor as
applicable; or
- that the seller or the depositor as
applicable has a valid security
interest in the receivables.
The depositor will warrant in a transfer and
servicing agreement:
- if the depositor or the related seller(s)
retain title to the receivables, that the
issuer for the benefit of the securityholders
has a valid security interest in the
receivables; or
- if the depositor transfers the receivables to
an issuer, that the transfer of the
receivables to the issuer is either:
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- a valid assignment, transfer and
conveyance of the receivables to
the issuer; or
- a valid grant of a security interest
in the receivables.
Each prospectus supplement will specify what actions
will be taken by the related parties as applicable
to perfect the issuer's and, if applicable, the
securityholder's security interest in the
receivables.
REPURCHASE BY ORIGINATOR AND/OR
SELLER REQUIRED FOR BREACHES OF
REPRESENTATION OR
WARRANTY....................The related originator and/or seller will make
representations and warranties in the related
purchase agreement or receivables transfer
agreement, as applicable, relating to the
receivables in which it transfers an interest to the
seller or the depositor. An originator and/or seller
will be required to repurchase the interest
transferred by it in a receivable if:
- one of its representations or warranties is
breached and remains uncured with respect
to that receivable; and
- the interest of the securityholders of those
assets is materially adversely affected by
the breach.
For a discussion of the representations and
warranties given by an originator and/or the seller
and its related repurchase obligations, see
"Description of the receivables transfer agreements
and the transfer and servicing
agreements--"acquisition of receivables by
seller/originator repurchase obligations" and
"acquisition of receivables by depositor/seller
repurchase obligations" in this prospectus.
TAX STATUS..................Securities of each series offered hereby will, for
federal income tax purposes, constitute either:
- interests in a trust treated as a grantor
trust under applicable provisions of the
code,
- debt issued by an issuer; or
- interests in a trust or other entity which is
treated as a partnership.
The prospectus supplement for each series of
securities will summarize federal income tax
considerations relevant to the purchase, ownership
and disposition of the securities offered by that
prospectus supplement.
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If specified in the related prospectus supplement, a
trust may make an election to be treated as a
"financial asset securitization investment trust" or
"FASIT." The applicable transfer and servicing
agreement may contain provisions to make FASIT
election and issue the securities on terms and
conditions as are permitted to a FASIT and described
in the related prospectus supplement.
Investors are advised to consult their tax advisors
and to review "Federal Tax Considerations" and
"State Tax Consequences" in the related prospectus
supplement.
ERISA
CONSIDERATIONS..............The prospectus supplement for each series of
securities will summarize considerations under the
Employee Retirement Income Security Act of 1974, as
amended, relevant to the purchase of the securities
by employee benefit plans and individual retirement
accounts. Some classes of securities will not be
eligible for purchase by such plans and accounts.
See "ERISA Considerations" in the related prospectus
supplement.
RATINGS.....................At issuance, each class of securities offered by
this prospectus will be rated not lower than
investment grade by one or more nationally
recognized statistical rating agencies. See
"Ratings" in this prospectus and in your prospectus
supplement.
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<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to purchase
any of the securities.
IT MAY NOT BE POSSIBLE TO The underwriters may assist in resales of
FIND AN INVESTOR TO securities, but they are not required to do so. A
PURCHASE YOUR SECURITIES secondary market for your securities may not
develop. If a secondary market does develop, it
might not continue or it might not be sufficiently
liquid to allow you to resell any of your
securities. Illiquidity also could have an adverse
effect on the market value of your securities.
Securities will not be listed on any securities
exchange.
INTERESTS OF OTHER PERSONS As described in the related prospectus supplement,
IN THE RECEIVABLES OR THE under the related transfer and servicing agreement,
FINANCED ASSETS COULD either the trustee, the depositor, the related
REDUCE THE FUNDS AVAILABLE seller(s) or the related servicer will be required
TO MAKE PAYMENTS ON YOUR to maintain possession of the original copies of all
SECURITIES receivables that constitute chattel paper. If the
depositor or a seller retains possession of the
related receivables,
- the servicer may take possession of original
copies as necessary for the enforcement of
any receivable;
- the related prospectus supplement may
describe specific trigger events that will
require delivery of those receivables to the
issuer.
Another person could acquire an interest in a
receivable that is superior to the issuer's interest
by obtaining physical possession of the receivable.
If the depositor, the servicer, the trustee, a
seller, an originator or other third party, while in
possession of the receivables, sells or pledges and
delivers the receivables to another party, in
violation of the purchase agreement, the receivables
transfer agreement or the transfer and servicing
agreement, there is a risk that another party could
acquire an interest in the receivables having
priority over the issuer's interest. If another
person acquires an interest in a receivable that is
superior to the issuer's interest in the receivable,
the collections on that receivable will not be
available to make payment on the securities.
Another person could acquire an interest in a
finaned asset financed by a receivable that is
superior to the issuer's interest because the
depositor will not amend the certificate of title or
ownership to identify itself or the issuer as the
new secured party. If another person acquires an
interest in a financed asset that is superior to the
issuer's interest in the financed asset, the
proceeds from the sale of the
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<PAGE>
financed asset will not be available to make
payments on the securities.
The issuer's security interest in the receivables or
the financed assets could be impaired for one or
more of the following reasons:
- the originator or seller, might fail to
perfect its security interest in a financed
asset;
- the issuer may not have a security interest
in the financed assets in all states because
the certificates of title to the financed
assets may not be amended to reflect
assignment to the issuer;
- holders of some types of liens, such as tax
liens or mechanics liens, may have priority
over the issuer's security interest;
- the issuer may lose its security interest in
financed assets confiscated by the
government; and
- the issuer could lose its priority to a
person who obtains physical possession of a
receivable without knowledge of the
assignment of the receivable to the issuer.
The related seller(s) and/or the related originator,
as specified in the related prospectus supplement,
will make representations and warranties with
respect to the ownership of the receivables as of
the date of the transfer to the seller and the
depositor, respectively. The related originator
and/or seller will be obligated to repurchase the
interest transferred by it in a receivable from the
related issuer if there is an uncured breach of its
representations and warranties and the interest of
the securityholders of those assets is materially
adversely affected by the breach. None of the
originator or the seller will be required to
repurchase the interest transferred by it in a
receivable, however, if the interest in a receivable
or a related financed asset becomes impaired after
the receivable is sold or pledged to the issuer.
INSOLVENCY OF A PARTY If the depositor, the servicer, a seller, an
IN POSSESSION OF THE originator or a third party is rendered insolvent
RECEIVABLES MAY REDUCE while in possession of the receivables, competing
THE FUNDS AVAILABLE TO claims to ownership or security interests in the
MAKE PAYMENTS ON YOUR receivables may result. Even if unsuccessful,
SECURITIES competing claims could result in delays in payments
on the securities. If successful, competing claims
could result in losses to the securityholders or an
acceleration of the repayment of the securities.
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<PAGE>
BANKRUPTCY OF AN If a seller, originator or the depositor becomes
ORIGINATOR, A SELLER OR subject to bankruptcy proceedings, you could
THE DEPOSITOR COULD experience losses or delays in payments on your
RESULT IN DELAYS IN securities. A "transferor" or non-bankruptcy remote
PAYMENT OR LOSSES ON THE entity, which may be an originator or a seller, will
SECURITIES transfer the receivables to a "transferee" or
bankruptcy-remote entity, which may be a seller or
the depositor. This transfer is designed to be a
"true sale." The issuer will acquire its rights in
the receivables either directly or indirectly from
the bankruptcy remote entity for that series.
However, if a seller, originator or the depositor
becomes subject to a bankruptcy proceeding, a court
in the bankruptcy proceeding could conclude that the
transferor still owns the receivables by concluding
that the sale by the transferor was not a "true
sale" or that the transferor should be consolidated
with the transferee for bankruptcy purposes. If a
court were to reach this conclusion, you could
experience losses or delays in payments on your
securities due to, among other things:
- the "automatic stay" which prevents secured
creditors from exercising remedies against a
debtor in bankruptcy without permission from
the court and provisions of the U.S.
Bankruptcy Code that permit substitution of
collateral in certain circumstances;
- certain tax or government liens on the
originator's, the seller's or the depositor's
property that arose before the transfer of
the receivables, as applicable, have a claim
on collections that is senior to payments on
your securities; and
- the issuer not having a perfected security
interest in
- one or more of the financed assets
securing the receivables; or
- any cash collections held by an
originator, a seller or the depositor
at the time that the originator,
seller or the depositor, as
applicable, becomes the subject of a
bankruptcy proceeding.
The depositor will take steps in structuring the
transactions to minimize the risk that a court would
consolidate the transferor with the transferee for
bankruptcy purposes or conclude that the sale of the
receivables by the transferor was not a "true sale."
THE SECURITIES ARE NOT No servicer, seller, the depositor or any of their
GUARANTEED AND ONLY THE affiliates is obligated to make any payments
RELATED ASSETS ARE relating to:
AVAILABLE TO PAY YOUR
SECURITIES
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- the securities of a series; or
- the receivables.
Therefore, payment on the related assets and any
credit enhancement will be the only source of
payment to you. If these assets are insufficient,
you may suffer losses on your securities.
YOU MAY SUFFER LOSSES IF The transfer of the receivables by the an originator
A THIRD PARTY PURCHASES to a seller under a purchase agreement, by a seller
A RECEIVABLE WITHOUT to the depositor under a receivables transfer
KNOWLEDGE OF THE agreement and by the depositor to an issuer under a
ISSUER'S INTERESTS transfer and servicing agreement, the perfection of
the security interests in the receivables and the
enforcement of rights to realize on the financed
assets 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 action that is required to perfect the
rights of the seller, the depositor and issuer in
the receivables. If, through inadvertence or
otherwise, a third party were to
- purchase or take a security interest in a
receivable for new value;
- in the ordinary course of its business;
- without actual knowledge of the seller's,
depositor's or issuer's interest; and
- take possession of a receivable;
the purchaser would acquire an interest in that
receivable superior to the interest of the seller,
depositor or issuer. As further specified in each
prospectus supplement, no action will be taken to
perfect the rights of the issuer in proceeds of any
vendor's single interest physical damage insurance
or of any other insurance policies covering
individual financed assets or obligors. Therefore,
the rights of a third party with an interest in
those proceeds could prevail against the rights of
the issuer before the time those proceeds are
deposited by the related servicer into an issuer
account. See "Legal Aspects of the Receivables".
YOU MAY SUFFER LOSSES If the receivables supporting any series are
UPON A LIQUIDATION OF THE liquidated, the related securityholders may suffer
RECEIVABLES IF THE losses if the issuer sells the receivables for less
PROCEEDS OF THE than the total amount due on the securities or does
LIQUIDATION ARE LESS THAN not realize the full amount due on the receivables
THE AMOUNTS DUE ON THE on a timely basis.
OUTSTANDING SECURITIES
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The ability of the issuer or a trustee to realize
the total amount due on the receivables may be
affected by whether:
- amendments to certificates of title in the
financed assets had been filed;
- whether financing statements to perfect the
security interest in the financed assets had
been filed;
- depreciation;
- obsolescence;
- damage or loss of any financed asset; and
- the application of Federal and state
bankruptcy and insolvency laws.
As a result, securityholders may be subject to
delays in payments and suffer loss of their
investment in the securities. The market value of
the receivables may be less than the aggregate
principal amount of the outstanding securities of
the series. Therefore, upon an event of default with
respect to the securities of any series, there can
be no assurance that sufficient funds will be
available to repay the related securityholders in
full.
STATUTORY LIMITATIONS Numerous statutory provisions, including insolvency
ON REALIZATION OF laws, may interfere with or affect the ability of a
FINANCED ASSETS DUE TO secured party to realize upon collateral or to
INSOLVENCY OF OBLIGORS enforce a deficiency judgment against an obligor.
MAY CAUSE PAYMENT For example, in a Chapter 13 proceeding under the
REDUCTIONS AND DELAYS Bankruptcy Code, a court may prevent a creditor from
repossessing a financed asset, and, as part of the
obligor's rehabilitation plan, reduce the amount of
the secured indebtedness to the market value of the
financed asset at the time of bankruptcy, as
determined by the court, leaving the creditor 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 change the
rate of interest and time of repayment of the
indebtedness. To the extent that any credit
enhancement for that series were insufficient to
cover all losses, those actions could result in an
inability of the securityholders of that series to
recover payment in full of their respective
principal amounts and interest thereon or could
result in delays in those payments.
LIMITATIONS ON Federal and state consumer protection laws regulate
ENFORCEABILITY OF THE the creation and enforcement of consumer contracts
RECEIVABLES BECAUSE OF and loans such as the receivables.
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CONSUMER PROTECTION LAWS Specific statutory liabilities are imposed upon
MAY CAUSE PAYMENT creditors who fail to comply with these
REDUCTIONS OR DELAYS regulatory provisions. In some cases, this
liability could affect an assignee's ability to
enforce a receivable. Application of these laws
could also render a receivable unenforceable,
cause the issuer to be unable to collect any
balance remaining due on the receivable or result
in liability to the issuer. If an obligor had a
claim against any issuer for violation of these
laws before the cutoff date for the related
receivable, the seller and/or any other
originator will be obligated to repurchase the
related receivable unless the breach is cured. If
the receivable is not repurchased, payments to
securityholders could be reduced or delayed. See
"Legal Aspects of the Receivables--Consumer
Protection Laws."
EXTENSION OR DEFERRAL To the extent provided in the related prospectus
OF PAYMENTS ON RECEIVABLES supplement, the servicer may permit the extension or
MAY INCREASE WEIGHTED modification of receivables on a case-by-case basis.
AVERAGE LIFE OF Any extensions or modifications may increase the
SECURITIES weighted average life of the related securities. Any
reinvestment risks resulting from faster or slower
payment resulting from extensions, modifications or
amendments of payments on receivables of a series
will be borne entirely by the securityholders of
that series. The servicer will not be permitted to
grant any extension or modification if, as a result,
the final scheduled payment on a receivable would
fall after the final scheduled maturity date for
that series, unless the servicer agrees to
repurchase the affected receivable if that
receivable becomes defaulted.
SUBORDINATION MAY CAUSE The rights of the holders of any class of notes to
SOME CLASSES OF receive payments of interest and principal may be
SECURITIES TO BEAR subordinated to one or more other classes of notes.
ADDITIONAL CREDIT RISK In addition, the rights of the holders of any class
of certificates to receive payments of interest and
principal may be subordinated to one or more classes
of notes and to one or more other classes of
certificates.
Holders of subordinated classes of securities will
bear more credit risk than more senior classes.
Subordination may take the following forms:
- interest payments on any date on which
interest is due may first be allocated to the
more senior classes;
- principal payments on the subordinated
classes may not begin until principal of the
more senior classes is repaid in full;
- subordinated classes may bear the first risk
of losses; and
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- if the receivables are sold, the net proceeds
of that sale may be allocated first to pay
principal and interest on the more senior
classes.
The timing and priority of payment, seniority,
allocations of losses and method of determining
payments on the respective classes of securities of
any series will be described in the related
prospectus supplement.
YOU MAY HAVE TO REINVEST If your securities are prepaid earlier than
YOUR PRINCIPAL AT A LOWER expected, you may not be able to reinvest the
RATE OF RETURN BECAUSE OF principal repaid to you at a rate of return that is
PREPAYMENTS ON THE equal to or greater than the rate of return on your
SECURITIES securities. Faster than expected prepayments on the
receivables may require the issuer to make payments
on the securities earlier than expected.
Prepayments may include:
- full or partial prepayments on receivables
that permit prepayment;
- receipts of proceeds from physical damage,
credit life and disability insurance
policies;
- repurchases by originators or sellers for
breaches of representations and warranties;
- optional purchases by the depositor,
originators, sellers, servicers or others;
- payments resulting from liquidations due to
default; and
- residuals.
The depositor does not have available to it any
statistics regarding prepayment rates historically
experienced in the financed asset lending industry.
The rate of prepayments cannot be predicted. The
risk of reinvesting distributions of the principal
of the securities will be borne by the
securityholders.
THE YIELD TO MATURITY OF The yield to maturity on securities purchased at
SOME TYPES OF SECURITIES premiums or discounts to par will be extremely
WILL BE EXTREMELY sensitive to the rate of prepayments on the related
SENSITIVE TO PREPAYMENTS receivables. In addition, the yield to maturity on
other types of securities, including:
- strip securities;
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- accrual securities; and
- classes in a series including more than one
class of securities,
may be more sensitive to the rate of prepayment of
the related receivables than other classes of
securities.
IF BOOK-ENTRY REGISTRATION If the prospectus supplement specifies that
IS USED, YOU MAY BE ABLE securityholders of your series will hold their
TO EXERCISE YOUR RIGHTS interests through a clearing agency or one of its
AS A SECURITYHOLDER participating organizations, the securities will be
ONLY THROUGH THE CLEARING registered in the name of a nominee of the clearing
AGENCY agency and physical certificates will not be issued
to individual securityholders. You will not be
recognized directly by the issuer or your trustee
and must exercise all of rights and receive any
payments through the clearing agency or the
participating organization, unless physical
certificates are issued. Physical certificates will
only be issued in the limited circumstances
described in "Description of the Securities --
Definitive Securities". The clearing agency in the
U.S. is expected to be DTC and in Europe either
Clearstream, Luxembourg, societe anonyme or
Euroclear.
YOU MAY EXPERIENCE LOSSES Each receivable generally requires the related
ON YOUR SECURITIES IF obligor to maintain insurance covering physical
INSURANCE ON FINANCED damage to the financed asset in at least the amount
ASSETS IS LESS THAN of the unpaid principal balance of the receivable
OUTSTANDING PRINCIPAL under which the originator is named as a loss payee.
AND INTEREST ON THE Since the obligors select their own insurers to
RELATED RECEIVABLE provide the requisite coverage, the specific terms
and conditions of their policies may vary.
As specified in the related prospectus supplement,
each financed asset may also be insured against
physical damage risks by a policy of vendor's single
interest physical damage insurance which provides
limited coverage, subject to deductibles, for:
- physical loss or damage from any external
cause to that financed asset; and
- inability to locate that financed asset or
the related obligor.
Any recovery under any vendor's single interest
physical damage insurance policy may be less than
the outstanding principal and
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interest due on the related receivable.
Securityholders could suffer a loss on their
investment if there is a shortfall.
LIMITED REMEDIES FOR The seller and any originator, if specified in the
BREACHES OF related prospectus supplement, of a receivable will
REPRESENTATIONS COULD be the only persons making representations and
REDUCE OR DELAY PAYMENTS warranties on that receivable. The applicable seller
TO YOU or originator may not have the financial ability to
effect any repurchase obligation it has relating to
any breaches of those representations and
warranties. Resulting losses may reduce the payment
and yield on your securities.
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THE ISSUERS
For each series of securities, the depositor will either:
- establish a separate trust that will issue the securities; or
- establish a special-purpose finance company that will issue the
securities;
in each case under the related transfer and servicing agreement.
The related servicer will service the related receivables under the
applicable transfer and servicing agreement. 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 provided in the related prospectus supplement.
THE RECEIVABLES
The receivables are obligations for the purchase of financed assets, or
evidence borrowings used to acquire financed assets or refinancings of those
borrowings. The receivables may consist of any combination of:
- rule of 78s receivables;
- fixed value receivables;
- simple interest receivables; and
- actuarial receivables.
Information about the receivables supporting the securities of a series
will be provided in the related prospectus supplement, including:
- the identity of the related seller(s) and originator(s), if
applicable;
- the related underwriting criteria and collection policies;
- the aggregate principal balance of all of the receivables;
- the number of receivables;
- the distribution of the receivables by geographic location and
APR;
- the portion of the receivables pool consisting of rule of 78s
receivables, fixed value receivables, simple interest receivables,
and actuarial receivables; and
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- the aggregate principal balance of the receivables as of the
applicable cut-off date.
RULE OF 78s RECEIVABLES
Rule of 78s receivables typically provide for fixed level monthly
payments which will amortize the full amount of the receivable over its term.
Rule of 78s receivables provide for allocation of payments according to the "sum
of periodic balances" or "sum of monthly payments" method. Each rule of 78s
receivable provides for the payment by the obligor of a specified total amount
of payments, payable in scheduled monthly installments. The total amount of all
payments represents the principal amount financed plus finance charges. Finance
charges are calculated on the basis of a stated annual percentage rate for the
term of the receivable. The rate at which the amount of finance charges is
earned and the amount of each fixed monthly payment allocated to reduction of
the outstanding principal balance of the related receivable 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
receivable and lower during later months than that under a constant yield method
for allocating payments between interest and principal. Payments received by the
related servicer related to rule of 78s receivables may, however, be allocated
on an actuarial basis.
FIXED VALUE RECEIVABLES
Fixed value receivables typically provide for monthly payments with a
final fixed value payment which is greater than the scheduled monthly payments.
A fixed value receivable provides for amortization of the loan over a series of
fixed level payment monthly installments. It also requires a final fixed value
payment due after payment of all monthly installments which may be satisfied by:
- payment in full in cash of that amount;
- transfer of the financed asset to the related seller; or
- refinancing the fixed value payment.
The principal and interest payments due before the final fixed value payment may
be included in the assets supporting any series. The final fixed value payment
may not be included in the assets supporting any series.
SIMPLE INTEREST RECEIVABLES
Simple interest receivables 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 receivables, under fixed
value receivables 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 receivable,
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,
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- 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.
ACTUARIAL RECEIVABLES
Actuarial receivables provide for amortization of the amount financed
under the receivable over a series of fixed level payment monthly installments.
Each monthly payment on an actuarial receivable, including the monthly payment
representing the last payment on the receivable, consists of an amount of
interest equal to 1/12 of the outstanding principal balance of the receivable
multiplied by the stated APR, and an amount of principal equal to the remainder
of the monthly payment.
PREPAYMENT
If an obligor elects to prepay a rule of 78s receivable 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
receivable 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 receivable calculated in accordance with the rule of 78s will always be
less than had that 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 receivable for which all payments were made on schedule.
Because interest and principal are not computed separately on actuarial
receivables, obligors under actuarial receivables will be entitled to rebates of
unearned finance charges if they prepay or if their obligations are accelerated.
If an actuarial receivable is prepaid in full, with minor variations based upon
state law, actuarial receivables require that any rebate be calculated on the
basis of a constant interest rate. Distributions to securityholders may not be
affected by rule of 78s rebates under the rule of 78s receivable because under
the related prospectus supplement those distributions may be determined using
the actuarial method.
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MATURITY AND PREPAYMENT CONSIDERATIONS
The weighted average life of the related securities will generally be
influenced by the rate at which the principal balances of the related
receivables are paid. A variety of economic, social and other factors will
influence the rate of prepayments on the receivables, including:
- current interest rates;
- loan structure;
- prohibitions on sale of the financed asset securing a receivable
without the consent of the servicer,
- obsolescence;
- current economic conditions; and
- tax considerations.
DELINQUENCIES, REPOSSESSIONS, AND NET LOSSES
Information relating to the delinquency, repossession and net loss
experience of the servicer will be described in the related prospectus
supplement. This information may describe the experience of the servicer's
entire portfolio during specified periods, including receivables which may not
meet the criteria for selection as a receivable for any particular series. There
can be no assurance that the delinquency, repossession and loss experience on
any assets supporting a series will be comparable to the related servicers's
prior experience.
ORIGINATION OF RECEIVABLES
A seller or other originator or a party from whom an originator
indirectly or directly acquired the receivables, will have originated the
receivables in accordance with the underwriting criteria specified in the
related prospectus supplement. Each seller, originator or other party will be
an institution experienced in originating retail installment sales contracts
and note and security agreements in accordance with accepted industry
practices and prudent guidelines.
ISSUANCE OF SECURITIES
The issuer of the series will issue the related securities. An issuer may
also issue one or more classes of securities to the depositor in partial payment
for the receivables.
PRE-FUNDING; PURCHASE OF RECEIVABLES AFTER THE CLOSING DATE
On the closing date, the depositor will sell and transfer receivables to
the issuer in an amount specified in the related prospectus supplement. If
specified in the related prospectus supplement, a seller or the depositor will
transfer additional receivables to the issuer as frequently as daily during the
pre-funding period specified in
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the related prospectus supplement. The issuer will use amounts on deposit in a
pre-funding account to purchase additional receivables after the closing date.
Up to 100% of the net proceeds from the sale of the securities issued by an
issuer may be deposited into a pre-funding account to purchase receivables after
the closing date. Any receivables purchased by the issuer after the closing date
will also be assets of the issuer and will be subject to the prior rights of the
issuer and the securityholders.
In addition, during some or all of a pre-funding period, all or a portion
of the payments collected on the related receivables may be used to purchase
additional receivables, rather than to fund payments of principal to
securityholders. As a result, the related securities may possess an
interest-only period. The interest only period may terminate before the end of
the specified period if events described in the related prospectus supplement
occur.
REVOLVING PERIOD; PURCHASE OF RECEIVABLES AFTER THE CLOSING DATE
On the closing date, the depositor will sell and transfer receivables to
the issuer in an amount specified in the related prospectus supplement. If
specified in the related prospectus supplement, a seller or the depositor will
transfer additional receivables to the issuer as frequently as daily during the
revolving period specified in the related prospectus supplement. The issuer will
use amounts on deposit in a revolving account to purchase additional receivables
after the closing date. During a revolving period, principal collections on the
related receivables and any other amount described in the related prospectus
supplement will be deposited in a revolving account. Any receivables purchased
by the issuer after the closing date will also be assets of the issuer and will
be subject to the prior rights of the issuer and the securityholders.
On the payment date following the end of the related revolving period,
the amount, if any, on deposit in the related revolving account at the close of
business on the last day of that revolving period, less any investment earnings
on deposit therein will be distributed to the related securityholders. In
addition, on each payment date, during the related revolving period,
distributions to the related securityholders will be made on each payment date
in an amount, if any, by which the amount on deposit in the related revolving
account at the close of business on the last day of the preceding calendar
month, less any investment earnings on deposit therein, exceeds the maximum
permitted revolving account balance specified in the related prospectus
supplement.
THE DEPOSITOR
Prudential Securities Secured Financing Corporation, formerly known as
P-B Secured Financing Corporation, was incorporated in the State of Delaware on
August 26, 1988 as a wholly-owned, limited purpose finance subsidiary of
Prudential Securities Incorporated. Prudential Securities Incorporated is 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.
The only obligations, if any, of the depositor as to a series of
securities may be limited undertakings to repurchase or substitute receivables
under specified circumstances. Unless otherwise specified in the applicable
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prospectus supplement, the depositor will have no servicing obligations or
responsibilities with respect to any issuer. The depositor does not have, nor is
it expected in the future to have, any significant assets.
The servicer for any series of securities may be an affiliate of the
depositor. The depositor may acquire receivables through or from an affiliate.
Neither the depositor nor Prudential Securities Incorporated nor any of
its affiliates, including The Prudential Insurance Company of America, will
insure or guarantee the securities of any series.
TRUSTEE
A trustee's liability in connection with the issuance and sale of the
related securities is limited to the express obligations of that trustee
described in the related transfer and servicing agreement. The trustee for any
trust may resign for cause at any time, in which case the trust will be
obligated to appoint a successor trustee for that trust. Any resignation or
removal of the trustee and appointment of a successor trustee for that trust
will not become effective until acceptance of the appointment by the successor
trustee for that trust. If a successor trustee is not appointed by the depositor
or the securityholders, or if no successor trustee has accepted appointment
within a specified period following any resignation or removal, the trustee or
any securityholder of the related series may petition any court of competent
jurisdiction for the appointment of a successor trustee.
THE INDENTURE TRUSTEE
The indenture trustee for any trust may resign at any time, in which
event the issuer will be obligated to appoint a successor indenture trustee for
that trust. The issuer may also remove any indenture trustee if that indenture
trustee ceases to be eligible to continue as the indenture trustee under the
related indenture or if the indenture trustee becomes insolvent. In those
circumstances, the issuer will be obligated to appoint a successor indenture
trustee for the related notes. Any resignation or removal of the indenture
trustee and appointment of a successor indenture trustee for the related notes
does not become effective until acceptance of the appointment by the successor
indenture trustee.
USE OF PROCEEDS
The net proceeds from the sale of the securities of a given issuer will
be applied by the issuer:
- to the purchase of the related receivables from the depositor or
the seller(s);
- to make the initial deposit into any pre-funding account or
revolving account;
- to make the initial deposit into any reserve account or yield
supplement account or any related accounts of that series as
provided in the related prospectus supplement; and
- for any other purposes specified in the related prospectus
supplement.
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DESCRIPTION OF THE SECURITIES
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
Each class of securities will have a stated principal amount and may
accrue interest on that amount at the rate indicated in the related prospectus
supplement. The timing and priority of distributions, seniority, allocations of
losses and amount of or method of determining distributions with respect to
principal and interest of each class of securities will be described in the
related prospectus supplement. Distributions of interest on the securities will
be made before distributions with respect to principal of the payment date
specified in the prospectus supplement.
POOL FACTORS
The pool factor for each class of securities will be a seven-digit
decimal that indicates the outstanding principal balance of that class at that
time as a fraction of the outstanding principal balance of that class as of the
closing date. Each pool factor will be initially 1.0000000. As distributions are
made to that class of securities, the pool factor will decline to reflect
reductions in the outstanding principal balance of the applicable class. Before
each distribution to a class of securities, the related servicer will calculate
the pool factor for that class as of the date of the related distribution.
A securityholder's portion of the aggregate outstanding principal balance
of the related class of securities will be:
- the original purchase price of that securityholder's securities,
MULTIPLIED BY
- the applicable pool factor.
BOOK-ENTRY REGISTRATION
As may be described in the related prospectus supplement, securityholders
of a given series may hold their securities directly through DTC in the United
States or Clearstream, Luxembourg or Euroclear in Europe if they are
participants of those systems. Securityholders that are not participants of
those systems may hold their securities indirectly through organizations that
are participants in those systems.
Cede, as nominee for DTC, will hold the global securities for a given
series. Clearstream, Luxembourg and Euroclear will hold omnibus positions on
behalf of the Clearstream, Luxembourg participants and the Euroclear
participants, respectively, through customers' securities accounts in
Clearstream, Luxembourg's and Euroclear's names on the books of their respective
depositaries which in turn will hold those positions in customers' securities
accounts in the depositaries' names on the books of DTC.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC and a "clearing agency"
registered pursuant to Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and to facilitate the clearance and settlement
of securities transactions between participants
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through electronic book-entries, thereby eliminating the need for physical
movement of notes or certificates. Participants include:
- securities brokers and dealers
- banks
- trust companies
- clearing corporations
Indirect access to the DTC system 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.
Transfers between DTC participants will occur in accordance with DTC
rules. Transfers between Clearstream, Luxembourg 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 Clearstream,
Luxembourg 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. Cross-market transactions will,
however, require delivery of instructions to the relevant European international
clearing system by the counterparty in that 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. Clearstream,
Luxembourg participants and Euroclear participants may not deliver instructions
directly to the depositaries.
Because of time-zone differences, credits of securities in Clearstream,
Luxembourg 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 those credits or any
transactions in those securities settled during that processing will be reported
to the relevant Clearstream, Luxembourg participant or Euroclear participant on
that business day. Cash received in Clearstream, Luxembourg or Euroclear as a
result of sales of securities by or through a Clearstream, Luxembourg
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
Clearstream, Luxembourg 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 that 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,
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since those payments will be forwarded by the applicable trustee to Cede, as
nominee for DTC. DTC will forward those payments to its participants, which
thereafter will forward them to indirect participants or securityholders. It is
anticipated that the only "securityholder" in respect of any series will be
Cede, as nominee of DTC. Securityholders of a given series will not be
recognized as securityholders of that series, and those securityholders will be
permitted to exercise the rights of securityholders of that series only
indirectly through DTC and its participants.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers of securities
of a given series among participants on whose behalf it acts with respect to
those securities and to receive and transmit distributions of principal of, and
interest on, those securities. Participants and indirect participants with which
the securityholders of a given series have accounts for those securities
similarly are required to make book-entry transfers and receive and transmit
payments on behalf of their respective securityholders of the series.
Accordingly, although those securityholders will not possess securities, the DTC
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 that series to persons
or entities that do not participate in the DTC system, or to otherwise act with
respect to those securities, may be limited due to the lack of a physical
certificate for those securities.
DTC will advise the trustee for 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 that series are credited. DTC may take conflicting actions with respect to
other undivided interests to the extent that those actions are taken on behalf
of participants whose holdings include those undivided interests.
Clearstream, Luxembourg is incorporated under the laws of Luxembourg as a
professional depository. Clearstream, Luxembourg holds securities for its
participating organizations and facilitates the clearance and settlement of
securities transactions between Clearstream, Luxembourg participants through
electronic book-entry changes in accounts of Clearstream, Luxembourg
participants, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in Clearstream, Luxembourg in any of
28 currencies, including United States dollars. Clearstream, Luxembourg provides
to its Clearstream, Luxembourg participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. Clearstream, Luxembourg
interfaces with domestic markets in several countries. As a professional
depository, Clearstream, Luxembourg is subject to regulation by the Luxembourg
Monetary Institute. Clearstream, Luxembourg participants are recognized
financial institutions around the world, including underwriters, securities
brokers and dealers, banks, trust companies, clearing corporations and other
organizations. Indirect access to Clearstream, Luxembourg is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Clearstream, Luxembourg participant,
either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of the
Euroclear System 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
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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. All operations are conducted by the "Euroclear Operator," and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not Euroclear Clearance System. Euroclear Clearance
System 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. It is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law. These 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 those 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 issuer for 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 those beneficial ownership interests.
DEFINITIVE SECURITIES
As may be described in the related prospectus supplement, the securities
will be issued in fully registered, certificated form to the securityholders of
a given series or their nominees, rather than to DTC or its nominee, only if:
- the trustee for a related series advises in writing that DTC is no
longer willing or able to discharge properly its responsibilities
as depository with respect to those securities and the trustee is
unable to locate a qualified successor
- the servicer, at its option, elects to terminate the
book-entry-system through DTC
- after the occurrence of an "event of default" under the related
indenture or a default by the servicer under the related transfer
and servicing agreements, securityholders representing at least
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a majority of the outstanding principal amount of the 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 the securityholders' best interest
The applicable trustee will be required to notify all securityholders of
the affected series securityholders through participants of the availability of
definitive securities. Upon surrender by DTC of the definitive certificates
representing the securities and receipt of instructions for re-registration, the
applicable trustee will reissue those securities as definitive securities to
those securityholders.
Distributions of principal of, and interest on, those securities will
thereafter be made by the applicable trustee in accordance with the procedures
provided in the related indenture or transfer and servicing 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 those securities in the related prospectus supplement. Distributions will be
made by check mailed to the address of the holder as it appears on the register
maintained by the applicable trustee. The final payment on any definitive
security, however, will be made only upon presentation and surrender of the
security at the office or agency specified in the notice of final distribution
to the applicable securityholders.
Definitive securities for a given series of securities will be
transferable and exchangeable at the offices of the applicable trustee or of a
certificate registrar named in a notice delivered to holders of the definitive
securities. No service charge will be imposed for any registration of transfer
or exchange, but the trustee may require payment of a sum sufficient to cover
any tax or other governmental charge imposed in connection therewith.
REPORTS TO SECURITYHOLDERS
As more specifically described in the related prospectus supplement for
each series of securities, the related securityholders of record will receive
reports on or about each payment date as to the securities of their series with
respect to that payment date or the period since the previous payment date, as
applicable:
(1) the amount of the distribution allocable to principal for each
class of the series;
(2) the amount of the distribution allocable to interest for each
class of the series;
(3) the pool balance, if applicable, as of the close of business on
the last day of the related remittance period;
(4) the aggregate outstanding principal balance and the Pool Factor
for each class of securities after giving effect to all payments
reported under (1) above on that payment date;
(5) the amount paid to the servicer for the series, if any, with
respect to the related remittance period and the amount of any
unpaid servicing fees for the related remittance period or
remittance periods, as the case may be;
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(6) the amount of the aggregate purchase amounts for Receivables that
have been reacquired, if any, for that remittance period;
(7) any overcollateralization amount or credit enhancement amount;
(8) any previously due and unpaid interest payments on the securities
and the change in those amounts from the preceding statement;
(9) any previously due and unpaid principal payments on the securities
and the change in those amounts from the preceding statement;
(10) the aggregate amount of any receivables that were repurchased in
that remittance period;
(11) for each payment date during any pre-funding period, the amount
remaining in the pre-funding account; and
(12) for the first payment date that is on or immediately following the
end of any pre-funding period, the amount remaining in the
pre-funding account that has not been used to fund the purchase of
additional receivables and is being passed through as payments of
principal on the securities of the series.
Each amount set forth pursuant to subclauses (1), (2) and (4) with
respect to the securities of any series will be expressed as a dollar amount per
$1,000 of the initial principal balance of those securities, as applicable.
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.
DESCRIPTION OF THE PURCHASE AGREEMENTS, RECEIVABLES TRANSFER AGREEMENTS AND THE
TRANSFER AND SERVICING AGREEMENTS
ACQUISITION OF RECEIVABLES BY SELLER; ORIGINATOR REPURCHASE OBLIGATIONS
On or before the closing date on which securities backed by receivables
are to be issued, a seller, if it is not the originator of those receivables,
will acquire the related receivables from the related originator(s), in each
case, under a purchase agreement between the seller and each originator. If
specified in the related prospectus supplement, in the related purchase
agreement, each originator will make representations and warranties to the
seller regarding the receivables it is selling to the seller. The material terms
of these representations and warranties will be described in the related
prospectus supplement.
ACQUISITION OF RECEIVABLES BY DEPOSITOR; SELLER REPURCHASE OBLIGATIONS
On or before the closing date on which securities backed by receivables
are to be issued, the depositor will acquire the related receivables, or a
security interest in the receivables, from the related seller(s), in each case,
under a receivables transfer agreement between the depositor and each seller. If
specified in the related prospectus supplement, in the related receivables
transfer agreement, each seller will make representations and
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warranties to the depositor regarding the receivables in which it is
transferring its interest to the depositor. The material terms of these
representations and warranties will be described in the related prospectus
supplement.
Each seller will assign all of its rights, except certain rights of
indemnification, and interest in the related purchase agreement to the
depositor, who will in turn assign those rights to the related issuer for the
benefit of the securityholders of that series. As a result, each originator will
be liable to the related issuer for any uncured breach of the originator's
representations or warranties that materially adversely affected the
securityholders of that series.
ACQUISITION OF RECEIVABLES BY ISSUER
On or before the closing date on which securities backed by those
receivables are to be issued, the depositor will transfer its interest in the
receivables to a trust or to a special purpose finance company, in each case
under a transfer and servicing agreement.
The depositor will assign all of its rights, except certain rights of
indemnification, and interest in the related receivables transfer agreement to
the related issuer for the benefit of the securityholders of that series. As a
result, each seller will be liable to the related issuer for any uncured breach
of the seller's representations or warranties that materially adversely affected
the securityholders of that series.
If specified in the related prospectus supplement, the depositor may
reacquire receivables or substitute receivables for receivables held by an
issuer subject to specified conditions described in the related transfer and
servicing agreement and receivables transfer agreement.
ACCOUNTS
The servicer for each series will establish and maintain with the
applicable trustee one or more collection accounts in the name of the trustee on
behalf of the related securityholders into which all payments made on the
related receivables will be deposited. The servicer for each series will
establish and maintain with the related trustee one or more distribution
accounts, in the name of the trustee on behalf of the securityholders, into
which amounts released from the collection account and any reserve account or
other credit or cash flow enhancement for distribution to the related
securityholders will be deposited and from which all distributions to the
securityholders will be made.
Any other accounts to be established for securities of a series will be
described in the related prospectus supplement.
For any series of securities, funds in the collection accounts,
distribution accounts and any other accounts identified in the related
prospectus supplement will be invested as provided in the related transfer and
servicing agreement in eligible investments. Eligible investments are generally
limited to obligations or securities that mature on or before the date of the
next distribution for that series. However, to the extent permitted by the
rating agencies rating that series, funds in any reserve account may be invested
in securities that will not mature before the date of the next distribution on
the securities and which will not be sold to meet any shortfalls. Thus, the
amount of cash available for withdrawal in any reserve account at any time may
be less than the balance of the reserve account at that time. If the amount
required to be withdrawn from any
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reserve account to cover shortfalls in collections on the related receivables,
as provided in the related prospectus supplement, exceeds the amount of cash in
the 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 that series. Eligible investments may include
securities issued by the depositor, or its affiliates, or any trusts created by
the depositor, any servicer, seller or their respective affiliates. Net
investment earnings on funds deposited in the accounts will be deposited in the
applicable collection account or distributed as provided in the related
prospectus supplement.
ELIGIBLE DEPOSIT ACCOUNTS
The accounts will be maintained as eligible deposit accounts. An eligible
deposit account means either:
- a segregated account with an eligible institution; or
- a segregated trust account with the corporate trust department of
a depository institution organized under the laws of the U. S. 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 that account, so long
as any of the securities of that depository institution have a
credit rating from each rating agency in one of its generic rating
categories which signifies investment grade.
ELIGIBLE INSTITUTION
An eligible institution means, for securities of a series:
- the corporate trust department of the related indenture trustee or
the related trustee; or
- a depository institution organized under the laws of the U. S. or
any one of the states thereof or the District of Columbia, or any
domestic branch of a foreign bank,
- which has or the parent corporation of which has either:
- a long-term unsecured debt rating acceptable to the
relevant rating agencies; or
- a short-term unsecured debt rating or certificate of
deposit rating acceptable to the relevant rating
agencies; and
- whose deposits are insured by the FDIC.
Amounts deposited in any account may be commingled with amounts in the
related seller's or servicer's general account to the extent that the seller's
or servicer's unsecured debt ratings are acceptable to the relevant rating
agencies. Any commingling rights will be described in the related prospectus
supplement.
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SERVICING
THE SERVICER
The servicer for each series will be named in the related prospectus
supplement. The servicer for a series may be the depositor or an affiliate of
the depositor and may have other business relationships with the depositor or
its affiliates. The servicer for each series will service the related
receivables. A servicer may delegate its servicing responsibilities to one or
more sub-servicers, but will not be relieved of its liabilities as to any
delegated responsibilities.
Each servicer will make representations and warranties regarding its
authority to enter into, and its ability to perform its obligations under, the
related agreements for that series. An uncured breach of a representation or
warranty of the servicer that in any respect materially adversely affects the
interests of the securityholders will constitute a servicer default by the
servicer.
SERVICING PROCEDURES
Each servicer will make reasonable efforts to collect all payments due on
the related receivables. The servicer will use the same collection procedures
that it follows for the particular type of receivable as for receivables of that
type that it services for itself and others. Consistent with its normal
procedures, the servicer may, in its discretion, arrange with the obligor on a
receivable to extend or modify the payment schedule. Some of those arrangements,
including, any extension of the payment schedule beyond the final scheduled
payment date for the related securities, may require the servicer to purchase
the receivable if the receivable becomes defaulted. See "Legal Aspects of the
Receivables".
If the servicer determines that eventual payment in full of a receivable
is unlikely, the servicer will follow its normal practices and procedures to
realize upon the receivable, including the repossession and disposition of the
financed asset securing the receivable at a public or private sale, or the
taking of any other action permitted by applicable law.
The material aspects of any particular servicer's collections procedures
will be described in the related prospectus supplement.
PAYMENTS ON RECEIVABLES
For each series of securities, the related servicer will deposit all
payments on the related receivables received and all proceeds of the related
receivables collected into the related collection facility, such as a lock-box
account or the collection account within two business days of receipt. Moneys
deposited in the collection facility for a series may be commingled with funds
from other sources. The related servicer will be required to deposit payments on
the related receivables collected during each collection period into the related
collection account on a specified day of each month. Pending deposit into the
collection account, collections may be invested by the servicer at its own risk
and for its own benefit and will not be segregated from its own funds.
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SERVICING COMPENSATION AND EXPENSES
The servicer for each series will receive a servicing fee for each
collection period equal to a specified percentage of the pool balance as of the
first day of that collection period. The servicer also will be entitled to
receive as a supplemental servicing fee for each collection period any late,
prepayment, and other administrative fees and expenses collected during that
collection period. Each prospectus supplement will specify the priority of
distributions on any payment date as to the servicing fee and any unpaid portion
of the servicing fee from prior payment dates. The servicing fees may be paid
before any distribution to the related securityholders.
The servicing fee and the supplemental servicing fee are intended to
compensate the servicer for performing the functions of a third party servicer
of the receivables as an agent for their beneficial owner, including:
- collecting and posting all payments
- responding to inquiries of obligors on the receivables
- investigating delinquencies
- sending payment coupons to obligors
- reporting federal income tax information to obligors
- paying costs of collections
- policing the collateral
- administering the particular receivables pool
- accounting for collections
- furnishing monthly and annual statements to the related trustee
and indenture trustee with respect to distributions
- reimbursement of certain taxes
- the fees of the related trustee and indenture trustee
- accounting fees
- outside auditor fees
- data processing costs
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- other costs incurred in connection with administering the
applicable receivables
DISTRIBUTIONS
For 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 securities
entitled thereto will be made by the applicable trustee to the related
securityholders. The timing, calculation, allocation, order, source, priorities
of and requirements for all payments to each class of related securityholders
and all distributions to each class of related securityholders will be described
in the related prospectus supplement.
For each series of securities, on each payment date, collections on the
related receivables will be transferred from the collection account to the note
payment account for distribution to noteholders, if any, and to the certificate
distribution account for distribution to certificateholders, to the extent
provided in the related prospectus supplement. Credit enhancement will be
available to the related securityholders to cover any shortfalls in the amount
available for distribution on that date to the extent specified in the related
prospectus supplement. Distributions of principal of a class of securities will
be subordinate to distributions of interest on that class. Distributions for one
or more classes of securities of the issuer may be subordinate to payments of
other securities of that issuer.
CREDIT AND CASH FLOW ENHANCEMENTS
The amounts and types of credit enhancement arrangements, if any, and the
provider, if applicable, for each class of securities of a given series will be
described in the related prospectus supplement. If specified in the applicable
prospectus supplement, credit enhancement for a class of securities may cover
one or more other classes of securities of the same series, and credit
enhancement for a series of securities may cover one or more other series of
securities.
The presence of credit enhancement for the benefit of any class or series
of securities is intended to enhance the likelihood of receipt by the
securityholders of that class or series of the full amount of principal and
interest due thereon and to decrease the likelihood that those 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 of those series will be subject to
the risk that the credit enhancement will be exhausted by the claims of
securityholders of other series.
STATEMENTS TO INDENTURE TRUSTEES AND TRUSTEES
Before each payment date for a series of securities, the related servicer
will provide to the applicable trustee and credit enhancer as of the close of
business on the last day of the preceding related collection period a statement
setting forth substantially the same information as is required to be provided
in the periodic reports
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provided to securityholders of that series described under "Description of the
Securities -- Reports to Securityholders".
EVIDENCE AS TO COMPLIANCE
Each transfer and servicing agreement will provide that a firm of
independent public accountants will furnish to the related issuer and/or the
applicable 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 certificate, the period from the applicable closing date, with
standards relating to the servicing of the receivables.
Each transfer and servicing agreement will also provide for delivery to
the related issuer and/or the applicable trustee of a certificate signed by an
officer of the related servicer stating that the servicer either has fulfilled
its obligations under that transfer and servicing agreement in all material
respects throughout the preceding 12 months, or, in the case of the first
certificate, the period from the applicable closing date, or, if there has been
a default in the fulfillment of any obligation in any material respect,
describing each default. Each servicer also will agree to give each indenture
trustee and each trustee notice of "servicer defaults" under the related
transfer and servicing agreement.
Copies of statements and certificates may be obtained by securityholders
by a request in writing addressed to the applicable trustee.
MATTERS REGARDING THE SERVICERS
Each transfer and servicing 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 the servicer of those duties
is no longer permissible under applicable law. No resignation will become
effective until the related trustee or a successor servicer has assumed the
servicer's servicing obligations and duties under the transfer and servicing
agreement.
Each transfer and servicing agreement will further provide that neither
the related servicer nor any of its respective directors, officers, employees,
or agents will be liable to the related issuer or the related securityholders
for taking any action or for refraining from taking any action pursuant to the
transfer and servicing agreement, or for errors in judgment. No person, however,
will be protected against any liability due to willful misfeasance, bad faith or
negligence in the performance of duties or by reason of reckless disregard of
obligations and duties. In addition, the transfer and servicing 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 the transfer and servicing agreement and that, in its
opinion, may cause it to incur any expense or liability.
Under the circumstances specified in each transfer and servicing
agreement, any entity into which the related servicer may be merged or
consolidated, or any entity resulting from any merger or consolidation to which
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 that servicer,
will be the successor to that servicer under the related transfer and servicing
agreement.
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SERVICER DEFAULT
"Servicer default" under a transfer and servicing agreement will include:
- any failure by the related servicer to deliver to the applicable
trustee for deposit in any of the related accounts any required
payment or to direct that trustee to make any required
distributions therefrom, which failure continues unremedied for
more than two business days after written notice from trustee is
received by servicer or after discovery by servicer
- any failure by servicer duly to observe or perform in any material
respect any other covenant or agreement in the transfer and
servicing agreement, which failure materially adversely affects
the rights of the related securityholders and which continues
unremedied for a period of up to one hundred and twenty (120) days
after the giving of written notice of the failure:
- to servicer by the applicable trustee or other person
permitted to provide notice under the transfer and
servicing agreement; or
- to the servicer and to the applicable trustee by holders of
the related securities, as applicable, evidencing not less
than 25% of the voting rights of those outstanding
securities
- any insolvency event
An "insolvency event" means financial insolvency, readjustment of debt,
marshaling of assets and liabilities, or similar proceedings as to the servicer,
the related originator or the related seller and actions by the servicer, the
related originator or the related seller indicating its insolvency,
reorganization under bankruptcy proceedings, or inability to pay its
obligations.
RIGHTS UPON SERVICER DEFAULT
As long as a servicer default under a transfer and servicing agreement
remains unremedied, the applicable trustee, credit enhancer or holders of
securities of the related series evidencing not less than a percentage specified
in the related prospectus supplement of the voting rights of those then
outstanding securities may terminate all the rights and obligations of the
servicer, if any, under the transfer and servicing agreement, whereupon a
successor servicer will replace the servicer. If, however, a bankruptcy trustee
or similar official has been appointed for the servicer, and no servicer default
other than that appointment has occurred, the bankruptcy trustee or official may
have the power to prevent the applicable trustee or the securityholders from
effecting a transfer of servicing. If the trustee is unwilling or unable to act
as successor servicer, 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. The trustee may make arrangements for compensation to be paid,
which may not be greater than the servicing compensation payable to the servicer
under the transfer and servicing agreement.
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WAIVER OF PAST DEFAULTS
With respect to each series, 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 those
then outstanding securities may, on behalf of all securityholders of the related
series, waive any default by the servicer in the performance of its obligations
under the related transfer and servicing agreement and its consequences, except
a default in making any required deposits to or payments from any of the
accounts in accordance with the transfer and servicing agreement. No waiver
shall impair the securityholders' rights with respect to subsequent defaults.
AMENDMENT
Each of the purchase agreements, transfer and servicing agreements and
receivables transfer agreements may be amended by the parties to that agreement,
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 the agreements
- modifying in any manner the rights of the securityholders;
PROVIDED that the action will not, in the opinion of counsel
satisfactory to the applicable issuer, materially and adversely
affect the interests of any securityholder and subject to the
approval of any credit enhancer
To the extent provided in the related prospectus supplement, the transfer
and servicing agreement 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 the then outstanding securities for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of the transfer and servicing agreements or of modifying
in any manner the rights of the securityholders; PROVIDED, HOWEVER, that the
amendment may not:
(1) increase or reduce in any manner the amount of, or accelerate or
delay the timing of, collections of payments on the related
receivables or distributions that are required to be made for the
benefit of the securityholders
(2) reduce the percentage of the securities of the series which are
required to consent to any amendment described in (1) above,
without the consent of the securityholders of that series.
Additionally, each of the transfer and servicing agreements may be
amended by the parties to that agreement at the direction of the servicer
without the consent of any of the related securityholders to add, modify or
eliminate provisions as may be necessary or advisable to enable all or a portion
of a trust to quality as, and to permit an election to be made to cause all or a
portion of a trust to be treated as, a "financial asset securitization
investment trust" as described in the provisions of the "Small Business Job
Protection Act of 1996," H.R. 3448, and in connection with an election, to
modify or eliminate existing provisions of a transfer and servicing agreement
relating to the intended federal income tax treatment of the securities and the
related trust in the absence of an election. It is a condition to an amendment
of this type that each rating agency for
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that series notify the seller(s), servicer and the applicable trustee in writing
that the amendment will not result in a reduction or withdrawal of the rating of
any outstanding securities with respect to which it is a rating agency.
INSOLVENCY MATTERS
Each transfer and servicing agreement will provide that the applicable
trustee does not have the power to commence a voluntary proceeding in bankruptcy
with respect to any related issuer without the unanimous prior approval of all
certificateholders, including the depositor, if applicable, of that issuer and
the delivery to that trustee by each certificateholder of a certificate
certifying that the certificateholder reasonably believes that the issuer is
insolvent.
To avoid excessive administrative expense, the servicer for the related
receivables may, unless otherwise specified in the related prospectus
supplement, at its option purchase the remaining receivables from that issuer,
as of the end of any collection period if the balance of the related receivables
is less than a specified percentage provided in the related prospectus
supplement of the initial pool balance for that series. The purchase price will
be the aggregate of the purchase amounts of the remaining receivables as of the
end of that collection period. The related securities will be redeemed following
that purchase.
If the servicer does not purchase the remaining receivables, the
applicable trustee will, within ten days following the next payment date,
solicit bids for the purchase of the remaining receivables, in the manner and
subject to the terms and conditions provided in the related prospectus
supplement. If the trustee receives satisfactory bids as described in the
related prospectus supplement, then the remaining receivables 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
under the applicable transfer and servicing agreement may effect the prepayment
of the certificates of that series.
LEGAL ASPECTS OF THE RECEIVABLES
INSOLVENCY OF AN ORIGINATOR, A SELLER OR THE DEPOSITOR MAY RESULT IN
CONSOLIDATION OF THEIR ASSETS WITH THE ISSUER
The depositor will take steps in structuring the transactions
contemplated in this prospectus and in the related prospectus supplement that
are intended to ensure that the voluntary or involuntary application for relief
by any of an originator, a seller or the depositor as a "debtor" under any
insolvency law will not result in the assets of the related issuer becoming
property of the estate of a debtor within the meaning of the insolvency laws.
A "transferor" or non-bankruptcy remote entity, typically an originator
or a seller, will transfer the receivables to a "transferee" or
bankruptcy-remote entity, typically a seller or the depositor. This transfer is
designed to be a "true sale" so that the receivables and related assets would
not be part of that transferor's bankruptcy estate under the insolvency laws
should the transferor become the subject of a bankruptcy case after its transfer
of the receivables. In a typical transaction, the transferor would be an
originator that is an operating
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company selling receivables to a bankruptcy remote seller created by the
transferor. A bankruptcy-remote entity is a separate, limited-purpose entity
under a charter containing limitations, including restrictions on the nature of
its business and a restriction on its ability to commence a voluntary case or
proceeding under any insolvency law without the unanimous affirmative vote of
all of its directors. The issuer for a series will acquire its rights in the
receivables either directly or indirectly from the bankruptcy remote entity.
However, if the depositor or a seller or originator subject to the
Bankruptcy Code were to become a "debtor" in a bankruptcy case, a creditor or
trustee in bankruptcy of the debtor or the debtor itself could attempt to argue
that the transfer of the receivables by the transferor was not a true sale and
instead should be treated as a pledge of the receivables to secure a borrowing
of the debtor and thus that the transferor still owns the receivables. An
attempt, even if unsuccessful, could result in delays in payments of collections
on the receivables and on the securities. If the attempt was successful, a court
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, if the issuer is rendered insolvent, a trustee
for the trust, in accordance with the transfer and servicing agreement, will
promptly sell, dispose of or otherwise liquidate the related receivables in a
commercially reasonable manner on commercially reasonable terms. The proceeds
from that sale, disposition or liquidation of receivables will be treated as
collections on those 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 the related securityholders will be reduced and you will
incur a loss.
Furthermore, should the court decide that the assets and liabilities of
the transferee should be consolidated with those of the transferor, then any
true sale to the transferee would be ineffective to remove the receivables and
related assets from the bankruptcy estate of the transferor, and delays and
reductions in payments of collections on the related receivables could results.
The issuer and, by acceptance of any securities of that series, each
securityholder of a series will covenant that they will not at any time
institute against the depositor, or the related transferor(s) any bankruptcy,
reorganization or other proceeding under any federal or state bankruptcy or
similar law.
In addition, if an originator or a seller is the servicer, cash
collections held by that servicer may, subject to certain conditions, be
commingled and used for the benefit of that servicer before each payment date.
As a result, in the event of the bankruptcy of that servicer, the depositor, a
trust or trustee may not have a perfected interest in those collections.
Obligors of the financed assets may be entitled to assert against the
related seller, originator, the depositor, or the issuer or any trustee, claims
and defenses which they have against the originator as to the receivables. Each
originator will warrant that no claims or defenses have been asserted or
threatened as to the receivables and that all requirements of applicable law as
to the receivables have been satisfied.
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SECURITY INTERESTS IN THE FINANCED ASSETS
Retail installment sale contracts and note and security agreements such
as the receivables evidence the credit sale of or indebtedness incurred to
acquire financed assets by originators to consumers. The contracts and
agreements also constitute personal property security agreements and include
grants of security interests in the related financed assets under the UCC.
Unless otherwise specified in the related prospectus supplement, all of
the receivables 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 financed assets are
titled to perfect its security interest in those financed assets, including,
where applicable, having a notation of its lien recorded on the related
certificate of title.
SECURITY INTERESTS IN THE FINANCED ASSETS
Perfection of security interests in motor vehicles is generally governed
by the motor vehicle registration or titling laws of the state in which each
vehicle is registered or titled. In most states a security interest in a motor
vehicle is perfected by notation of the secured party's lien on the vehicle's
certificate of title. In certain states, however, folding camping trailers
and/or slide-in campers, which may constitute the motor vehicles securing the
receivables, are not subject to state titling and vehicle registration laws and
a security interest in those motor vehicles is perfected by filing pursuant to
the provisions of the UCC.
PERFECTION
Under the related purchase agreement or receivables transfer agreement,
as applicable, the originator or seller, as applicable, will transfer the
receivables and its security interests in the vehicles to the related seller or
the depositor. The issuer, in turn, will acquire an ownership or security
interest in those receivables, including an assignment of the originator's or
seller's security interests in the vehicles. Unless specified in the related
prospectus supplement, because of the administrative burden and expense, none of
the depositor, the related servicer nor any issuer will amend any (1)
certificate of title to identify the depositor or any issuer as the new secured
party on the certificates of title relating to financed assets financed in
states where security interests in the financed assets are subject to
certificate of title statute, or (2) any UCC financing statements in respect of
those financed assets financed in states where security interests in those
financed assets are perfected by filing a UCC financing statement.. 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 issuer of the receivables. Further, although neither the
depositor nor the issuer 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 under the related transfer and servicing 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:
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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 that 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 those states, the assignment by the related
originator or seller, as transferor, of its interests in the receivables to the
related seller or the depositor, and the assignment of its interest in the
receivables to the issuer under the related transfer and servicing agreement are
effective conveyances of the respective interests of the related transferors and
the depositor in the vehicles, without re-registration 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
transferor's rights as secured party and the issuer 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 issuer, the issuer'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 and/or seller's lien on the certificates of title will be
sufficient to protect the issuer against the rights of subsequent purchasers of
a vehicle or subsequent creditors who take a security interest in a vehicle. In
the related purchase agreement or receivables transfer agreement, the related
originators and/or seller 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 and/or seller
failed to obtain a first priority perfected security interest, its security
interest would be subordinate to, among others, subsequent purchasers of those
vehicles and holders of first priority perfected security interests therein. A
failure, however, would constitute a breach of the related originator's and/or
seller's representations and warranties under the related purchase agreement and
receivables transfer agreement. Accordingly, the related originator and/or
seller would be required to repurchase those receivables 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 that 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 that 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
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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 transfer and servicing 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. Under the
related transfer and servicing agreement, the related servicer will hold the
certificates of title for the related vehicles as custodian for the issuer.
Under the related transfer and servicing agreement, the related servicer will be
obligated to take appropriate steps, at its own expense, to maintain perfected
security interests in the vehicles.
PRIORITY OF LIENS ARISING BY OPERATION OF LAW
Under the laws of most states, certain statutory liens, such as
mechanics', repairmen's and garage men'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 that
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 and/or sellers will
represent and warrant to the seller or the depositor, as applicable, and in the
related purchase agreement or receivables transfer 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 that vehicle.
However, liens for repairs or taxes superior to the security interest of the
issuer in any vehicle, or the confiscation of a vehicle, could arise at any time
during the term of a receivable. No notice will be given to the issuer or any
securityholder if a lien or confiscation arises and any lien or confiscation
arising after the related closing date would not give rise to the related
originator's and/or the seller's repurchase obligation.
SECURITY INTERESTS IN THE BOATS
Generally, security interests in boats may be perfected in one of three
ways: (1) in "title" states a security interest is perfected by notation of the
secured party's lien on the certificate of title issued by an applicable state
motor department or other appropriate state agency; (2) in other states, a
security interest may be perfected by filing a UCC financing statement, however,
a purchase money lien in consumer goods is perfected without any filing
requirement; and (3) if a boat qualifies for documentation under Federal law, a
Preferred Mortgage may be obtained under the Ship Mortgage Act by filing the
mortgage with the Secretary of Transportation and endorsing the secured party's
lien on the certificate of documentation. Vessels of at least five net tons
qualify for documentation under Federal law. None of the financed assets qualify
for documentation under Federal Law. In addition, under certain certificate of
title statutes, a security interest in boat motors otherwise subject to
certificate of title statutes is required to be perfected under the UCC.
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CONTINUITY OF PERFECTION
If the security interest in the boat is perfected under a title statute
and the related obligor moves to a state other than the state in which the boat
is registered, under the laws of most title states the perfection of the
security interest in the boat would continue for a brief period of time after
such relocation. Some states issuing certificates of title on boats require
surrender of a certificate of title to reregister a boat. In those states that
also provide for possession of the certificate of title by the secured party,
the secured party must surrender possession of the certificate of title in such
circumstance for any related financed boat to be reregistered. Some states do
not give the secured party possession of the certificate of title, but indicate
the secured party on the certificate of title and provide notice to such secured
party of surrender of the certificate of title by another person. If either the
secured party is in possession of a certificate of title that must be
surrendered to reregister the financed boat or the secured party receives notice
of any surrender of the certificate of title by another person, the secured
party would then have the opportunity to continue the perfection of the security
interest in the financed boat in the state of registration.
Additionally, if the obligor moves to a state which does not require
surrender of a certificate of title for reregistration of a boat,
re-registration could defeat perfection. Similarly, when an Obligor sells a
boat, under the laws of many states, the purchaser cannot reregister the boat
unless the related lienholder of record surrenders possession of the certificate
of title and accordingly the servicer, in such circumstance, would have an
opportunity to require satisfaction of the related receivable before release of
the lien. In each of the transfer and servicing 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 financed asset, 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.
Under the related transfer and servicing agreement, the related servicer will
hold the certificates of title for the related financed assets as custodian for
the issuer. Under the related transfer and servicing agreement, the related
servicer will be obligated to take appropriate steps, at its own expense, to
maintain perfected security interests in the financed assets.
CERTAIN LIENS WILL HAVE PRIORITY OVER A PERFECTED SECURITY INTEREST. To
the extent the security interest is perfected, the issuer Trust will have a
prior claim over subsequent purchasers of such financed asset and holders of
subsequently perfected security interests. However, as against liens for
storage and repairs of a financed asset or for taxes unpaid by an obligor
under a receivable, or through fraud or negligence, such issuer could lose the
priority of its security interest or its security interest in a financed
asset. In addition, in the case of a financed boat, certain additional liens,
including a lien for damages arising out of a maritime tort, for wages of a
stevedore when employed directly by the owner, operator, master, ship's
husband, or agent of the vessel, for wages of the crew of a vessel, for
general average, or a lien for salvage may, as a matter of law, have priority
over perfected first priority liens. The above described risk for crew wages
exists in the case of the financed boats because, although not typical, there
exists the possibility that recreational boat owners will utilize crew members
and because liens for wages owed to such crew members could, as described
above, have priority over the issuer's lien in such asset.
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If the security interest in the boat is perfected by the filing of a UCC
financing statement or if the obligor moves from a title state to a non-title
statate, a new UCC financing statement must be filed in the new state of the
obligor. In the event that an obligor moves to a state other than the state in
which the UCC financing statement is filed or in certain states to a different
county in such state, under the laws of most states the perfection of the
security interest in the financed boat would continue for four months after such
relocation, unless the perfection in the original jurisdiction would have
expired earlier. A new financing statement must be filed in the state of
relocation or, if such state is a title state, a notation on the certificate of
title must be made in order to continue the issuer's security interest.
Due to the administrative burden and expense of endorsing the certificate
of title of each financed boat to reflect the issuer's interest therein and
delivering each such certificate of title for filing (and the payment of related
filing fees), in the case of financed boats licensed in states where security
interests in boats are subject to certificate of title statues, and filing
amendments to UCC financing statement relating to each financed boat (and the
payment of related filing fees) to reflect the issuer's interest therein, in the
case of financed boats licensed in states where security interests in boats are
perfected by filing a UCC financing statement, none of such certificates of
title will be endorsed, delivered and filed, or UCC financing statements
amended. In absence of such procedures, the issuer may not have a perfected
security interest in the financed boats licensed in certificate of title or UCC
states, but the failure to make such endorsements, filings or recordations will
not affect the validity of the original security interest as against the obligor
under a receivable in UCC states.
In the case of "title" states, in the absence of the step described in
clause (i) above, the seller will continue to be named as the secured party on
the certificates of title relating to the financed boats registered in such
states. In most such states, such a transfer would be an effective conveyance of
such a security interest and the new secured party would succeed to the rights
of the seller as the secured party. In the absence of fraud or forgery by the
obligor or administrative error by Federal, state or local recording officials,
the notation of the lien of the seller on the certificate of title will be
sufficient to protect the issuer against the rights of subsequent purchasers of
a financed boat covered by the laws of such state or subsequent lenders who take
a security interest in the financed boat. There exists a risk, however, in not
identifying the issuer as the new secured party on the certificate of title,
that the issuer may in some states be subordinate to claims of creditors or the
receiver of the seller in the event of the insolvency of the seller and that,
through fraud or negligence, the security interest of such issuer could be
released by the seller as security holder of record.
In the related purchase agreement or receivables transfer agreement, the
related originators and/or seller will represent and warrant that it has, or has
taken all action necessary to obtain, a perfected security interest in each
financed assets. If there are any financed boats as to which the related
originator and/or seller failed to obtain a first priority perfected security
interest, its security interest would be subordinate to, among others,
subsequent purchasers of those boats and holders of first priority perfected
security interests therein. A failure, however, would constitute a breach of the
related originator's and/or seller's representations and warranties under the
related purchase agreement and receivables transfer agreement. Accordingly, the
related originator and/or seller would be required to repurchase those
receivables unless the breach were cured.
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REPOSSESSION
If an obligor defaults on a receivable, the holder of the related
receivable 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 those 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 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 before 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 various substantive timing and
content requirements on those notices. In most states, under certain
circumstances after a 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 before actual sale or entry by
the secured party into a contract for sale of the collateral by paying the
secured party the unpaid principal balance of the obligation, accrued interest
thereon, reasonable expenses for repossessing, holding, and preparing the
collateral for disposition and arranging for its sale, plus, in some
jurisdictions, reasonable attorneys' fees and legal expenses or in some other
states, by payment of delinquent installments on the unpaid principal balance of
the related obligation.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of the vehicles generally will be applied first to
the expenses of resale and repossession and then to the satisfaction of the
indebtedness. In many instances, the remaining principal amount of the
indebtedness will exceed the 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 the debtor's loan; however, in some states, a creditor may not
seek a deficiency judgment from a debtor whose 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, before 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
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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 subordinate 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 vehicle retail installment sale acts, state "lemon"
laws and other similar laws. In addition, the laws of some 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 issuer to enforce consumer finance contracts
such as the receivables.
Under most state vehicle dealer licensing laws, sellers of motor
vehicles 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 those 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
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receivable were successful in asserting that claim or defense, the related
servicer would pursue on behalf of the issuer any reasonable remedies against
the seller or manufacturer of the vehicle, subject to limitations as to the
expense of any action to be specified in the related transfer and servicing
agreement.
Any loss, to the extent not covered by credit support 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 claim or defense as described in this paragraph or the two
immediately preceding paragraphs, that claim or defense may constitute a breach
of a representation and warranty under the related purchase agreement,
receivables transfer agreement or transfer and servicing agreement and may
create an obligation of the related originator and/or seller to repurchase that
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 sellers and any
other originators will represent and warrant under the related purchase
agreement or receivables transfer agreement that each receivable complies with
all requirements of law in all material respects. Accordingly, if an obligor has
a claim against the issuer for violation of any law and that claim materially
and adversely affects the issuer's interest in a receivable, the violation would
constitute a breach of representation and warranty under the related purchase
agreement or receivables transfer agreement and would create an obligation of
the related seller and any other originator to repurchase that receivable unless
the breach were cured.
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a creditor to
realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
creditor from repossessing a motor vehicle, and, as part of the rehabilitation
plan, reduce the amount of the secured indebtedness to the market value of the
motor vehicle at the time of bankruptcy as determined by the court, leaving the
party providing financing as a general unsecured creditor for the remainder of
the indebtedness. A bankruptcy court may also reduce the monthly payments due
under a contract or chance the rate of interest and time of repayment of the
indebtedness. Any shortfall, to the extent not covered by credit support as
specified in each prospectus supplement, could result in losses to the
securityholders.
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TAX CONSIDERATIONS
The prospectus supplement for each series of securities will summarize,
subject to limitations, federal income tax considerations relevant to the
purchase, ownership and disposition of those securities.
ERISA CONSIDERATIONS
The prospectus supplement for each series of securities will discuss
whether employee benefit plans and other retirement arrangements may purchase
such securities, and will summarize, subject to limitations, considerations and
restrictions under ERISA relevant to the purchase of those securities by such
retirement plans or 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 that series and the net proceeds to the depositor from that
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:
- By negotiated firm commitment or best efforts underwriting and
public re-offering by underwriters
- By placements by the depositor with institutional investors
through dealers
- By direct placements by the depositor with institutional investors
- 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 receivables backing
those securities.
If underwriters are used in a sale of any securities, other than in
connection with an underwriting on a best efforts basis, those securities will
be acquired by the underwriters for their own account and may be resold from
time to time in one or more transactions, including negotiated transactions, at
fixed public offering prices or at varying prices to be determined at the time
of sale or at the time of commitment therefor. The securities will be set forth
on the cover of the prospectus supplement relating to that series and the
members of the underwriting syndicate, if any, will be named in that 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
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dealers participating in the distribution of the securities may be deemed to be
underwriters in connection with those 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
compensation of this type 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 conditions
precedent;
- that the underwriters will be obligated to purchase all related
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 for any series offered by placements through
dealers will contain information regarding the nature of the offering and any
agreements to be entered into between the depositor and purchasers of securities
of that series.
Purchasers of securities, including dealers, may, depending on the facts
and circumstances of those 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 before any 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 or special purpose finance company will be formed as to each
series of securities and no issuer will engage in any business activities or
have any assets or obligations before the issuance of the related series of
securities. The depositor's activities will be limited solely to the activities
of issuers to be formed for each series of securities. Accordingly, no financial
statements for any issuer 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.
WHERE YOU CAN FIND MORE INFORMATION
The depositor has filed with the SEC a Registration Statement,
Registration No. 333-[ ] under the Securities Act, with respect to the
securities offered by this prospectus. You may read and copy any notices,
reports, statements or other information that any of the depositor, its
affiliates, or any seller has filed or causes
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to be filed and obtain copies of the Registration Statement at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549; and at the
SEC's regional offices at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and Seven World Trade Center, New York, New York 10048.
Copies of the Registration Statement may be obtained from the Public Reference
Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, the SEC maintains a public access site on the
Internet through the World Wide Web at which site reports, information
statements and other information, including all electronic filings, may be
viewed. The Internet address of that World Wide Web site is http://www.sec.gov.
You may obtain more information on the operation of the public room by calling
the SEC at 1-800-SEC-0330.
INCORPORATION OF INFORMATION BY REFERENCE
All documents filed by the depositor under Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended, after the date of this
prospectus and before the termination of the offering of the securities shall be
deemed to be incorporated by reference in this prospectus. Any statement
contained in this prospectus or in a document incorporated or deemed to be
incorporated by reference in this prospectus shall be deemed to be modified or
superseded for purposes of this prospectus to the extent that a statement
contained in this prospectus or in any subsequently filed document which also is
or is deemed to be incorporated by reference in this prospectus modifies or
supersedes that statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
prospectus.
The depositor will provide without charge to each person, including any
beneficial owner of securities, to whom a copy of this prospectus is delivered,
on the written or oral request of that person, a copy of any or all of the
documents incorporated in this prospectus or in any related prospectus
supplement by reference, except the exhibits to those documents, unless those
exhibits are specifically incorporated by reference in the documents. Requests
for copies should be directed to:
Prudential Securities Secured Financing Corporation
One New York Plaza
New York, New York 10292
Attention: Asset Finance Group
56
<PAGE>
Until , all dealers that effect transactions in these securities, whether
or not participating in this 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.
Table of Contents
[Underwriters]
57
<PAGE>
The information in this prospectus supplement and the accompanying prospectus is
not complete and may be changed. We may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This prospectus supplement and the accompanying prospectus are not an
offer to sell these securities and they are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
[PROSPECTUS SUPPLEMENT VERSION 3A]
[Form of Grantor Trust Prospectus Supplement]
Subject to completion, dated __________ __, _____
Prospectus Supplement dated [_____ __, 20__] (to Prospectus dated ____ __, 20__)
$_____________
[______________________]
ISSUER
PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION
DEPOSITOR
The trust will issue [__] classes of asset backed certificates that are offered
under this prospectus supplement.
Credit enhancement for the certificates is provided by:
[Description of applicable credit enhancement]
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-[__] IN THIS
PROSPECTUS SUPPLEMENT AND ON PAGE [__] IN THE PROSPECTUS.
[[________] will offer [__] classes of certificates to the public [at varying
prices to be determined at the time of sale].
<TABLE>
<CAPTION>
Final
Interest Rate Price to Underwriting Proceeds to Scheduled
Class Principal Amount (per annum) Public(1) Discount(2) Trust(3) Maturity Date
----- ---------------- ------------- --------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
(1) Total price to public = [$___________________].
(2) Total underwriting discount = [$__________________].
(3) Total proceeds to Trust = [$_____________________], before deducting
expenses estimated to be [$_____________________].
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THESE SECURITIES OR DETERMINED THAT THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
[UNDERWRITER]
<PAGE>
OVERVIEW OF THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS
We provide information to you about the certificates in two separate
documents that progressively provide more detail:
- this prospectus supplement, which describes the
specific terms of your series of certificates; and
- the accompanying prospectus, which provides general
information, some of which may not apply to your
series of certificates.
THE PROSPECTUS SUPPLEMENT AND THE PROSPECTUS, TOGETHER, PROVIDE A
DESCRIPTION OF THE MATERIAL TERMS OF YOUR CERTIFICATES. YOU SHOULD RELY ON THE
INFORMATION IN THIS PROSPECTUS SUPPLEMENT TO THE EXTENT IT PROVIDES A MORE
SPECIFIC DESCRIPTION OF YOUR CERTIFICATES.
You should rely only on the information provided in this prospectus
supplement and the accompanying prospectus, including the information
incorporated by reference. You can request information incorporated by reference
from Prudential Securities Secured Financing Corporation, One New York Plaza,
New York, New York 10292, Attention: P. Carter Rise. See "Where You Can Find
More Information" and "Incorporation of Information by Reference" in the
prospectus. We have not authorized anyone to provide you with different
information. We are not offering the certificates in any state where the offer
is not permitted.
We include cross-references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
further related discussions. The table of contents in this prospectus supplement
and the table of contents included in the accompanying prospectus provide the
pages on which these captions are located.
We have made forward-looking statements in this prospectus supplement and
the accompanying prospectus. Forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements. Forward-looking statements are statements, other
than statements of historical facts, that address activities, events or
developments that we expect or anticipate will or may occur in the future.
Forward-looking statements also include any other statements that include words
such as "anticipate," "believe," "plan," "estimate," "expect," "intend" and
other similar expressions.
Forward-looking statements are based on certain assumptions and analyses
we have made in light of our experience and our perception of historical trends,
current conditions, expected future developments and other factors we believe
are appropriate. Whether actual results and development will conform with our
expectations and predictions is subject to a number of risks and uncertainties.
<PAGE>
All of the forward-looking statements made in this prospectus supplement
and the accompanying prospectus are qualified by these cautionary statements,
and there can be no assurance that the actual results or developments we have
anticipated will be realized. Even if the results and developments in our
forward-looking statements are substantially realized, there is no assurance
that they will have the expected consequences to or effects on us, the trust,
the seller(s), the originator(s) or any other person or on our respective
businesses or operations. The foregoing review of important factors, including
those discussed in detail in this prospectus supplement and the accompanying
prospectus should not be construed as exhaustive. We undertake no obligation to
release the results of any future revisions we may make to forward-looking
statements to reflect events or circumstances after the date of this prospectus
supplement and the accompanying prospectus or to reflect the occurrences of
anticipated events.
-----------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Overview of the Information in this Prospectus Supplement and the Prospectus.............iii
Summary of Transaction Parties........................................................... iv
Summary of the Certificates.............................................................. v
Prospectus Supplement Summary............................................................S-1
Depositor.............................................................................S-1
Issuer................................................................................S-1
Servicer..............................................................................S-1
Trustee...............................................................................S-1
Seller(s).............................................................................S-1
Originator(s).........................................................................S-1
Certificates..........................................................................S-1
Closing Date..........................................................................S-1
Payment Dates.........................................................................S-1
Cut-off Date(s).......................................................................S-1
Collection Period.....................................................................S-1
Closing Date..........................................................................S-2
Interest Payments.....................................................................S-2
Principal Payments....................................................................S-2
[Interest Only Certificates]..........................................................S-3
[Principal-Only Certificates].........................................................S-3
[Accrual Certificates]................................................................S-3
Final Scheduled Maturity Date.........................................................S-4
Optional Redemption...................................................................S-4
Mandatory Termination.................................................................S-4
Trust Assets..........................................................................S-4
The [Initial] Receivables.............................................................S-5
[Pre-Funding].........................................................................S-6
[Interest Reserve Account]............................................................S-7
[Residual Payment Certificates].......................................................S-7
[Credit Enhancement]..................................................................S-7
[Cross Collateralization].............................................................S-7
Distributions.........................................................................S-7
Available Funds.......................................................................S-7
Application of Payments...............................................................S-8
Federal Tax Considerations............................................................S-8
ERISA Considerations..................................................................S-9
Ratings...............................................................................S-9
RISK FACTORS.............................................................................S-10
Payments will be made only from the limited assets of the trust.......................S-10
You bear reinvestment risk and payment delay risk due to repurchase...................S-10
[Variations in regional economic conditions may cause payment
reductions or delays.]............................................................S-11
[Possible prepayments as a result of pre-funding period.].............................S-11
[Changes in pool characteristics as a result of pre-funding period.]..................S-11
[Subordination of the class [__] certificates provides only limited protection
against losses.]..................................................................S-12
[Additional risk factors applicable for a specific series.]...........................S-12
The Trust................................................................................S-13
The Trustee...........................................................................S-13
[Use of Proceeds]........................................................................S-13
The Receivables..........................................................................S-13
Eligibility Criteria..................................................................S-13
The Seller(s)............................................................................S-14
The Originator(s)........................................................................S-14
The Servicer.............................................................................S-14
Delinquency and Loss Experience.......................................................S-15
Servicing and Collections.............................................................S-15
Weighted Average Life of the Certificates................................................S-15
Description of the Certificates...................................................S-16
Description of the Certificates...................................................S-16
Payments..........................................................................S-16
[Pre-funding Account].............................................................S-18
Optional Redemption...............................................................S-18
Description of the Transaction Documents.................................................S-19
[Description of Originator/Seller Representations and Warranties].................S-19
[Sale and] Assignment of [Initial] Receivables [and Additional Receivables].......S-19
i
<PAGE>
Accounts..........................................................................S-20
Servicing Compensation and Payment of Expenses....................................S-20
Available Funds...................................................................S-20
Application of Payments...........................................................S-21
[Subordination of Class [ ] Certificates]........................................S-21
Legal Aspects of the Receivables.........................................................S-21
Federal Income Tax Considerations........................................................S-21
Tax Characterization of the Trust.................................................S-22
Stripped Bonds and Stripped Coupons...............................................S-25
Tax Consequences to Foreign Certificateholders....................................S-27
State Tax Consequences...................................................................S-29
Certain ERISA Considerations.............................................................S-29
Ratings..................................................................................S-32
Underwriting.............................................................................S-33
Legal Opinions...........................................................................S-34
</TABLE>
ii
<PAGE>
SUMMARY OF TRANSACTION
[SCHEMATIC DRAWING DESCRIBING TRANSACTION]
This chart provides only a simplified overview of the relations between
the key parties to the transaction. Refer to this prospectus supplement and the
prospectus for a further description.
iv
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
SUMMARY OF THE CERTIFICATES
----------------------------------------------------------------------------------------------------------------------------
[Class __] [Class ___] [Class ___] [Class ___]*
<S> <C> <C> <C> <C>
Initial Principal Balance:
----------------------------------------------------------------------------------------------------------------------------
% of Total: [ %] [ %] [ %] [ %]
----------------------------------------------------------------------------------------------------------------------------
Anticipated Ratings:
[_______]
[_______]
[_______]
----------------------------------------------------------------------------------------------------------------------------
Interest Rate:
----------------------------------------------------------------------------------------------------------------------------
Interest Accrual Method:
----------------------------------------------------------------------------------------------------------------------------
Payment Dates: [___] day of each [________], or if [__] day is not a business day, then the next
business day
----------------------------------------------------------------------------------------------------------------------------
Final Scheduled Payment
Date:**
----------------------------------------------------------------------------------------------------------------------------
Clearance/ [DTC/Euroclear/Clearstream- [DTC/Euroclear/
Settlement: Luxembourg] Clearstream-Luxembourg]
----------------------------------------------------------------------------------------------------------------------------
Cut-Off Date: Close of business,[_____________]
----------------------------------------------------------------------------------------------------------------------------
Closing Date: On or about [__________, 20__]
----------------------------------------------------------------------------------------------------------------------------
Final Maturity Date: The payment date [_______]
----------------------------------------------------------------------------------------------------------------------------
* We are providing information for the non-offered certificates solely to assist the reader's understanding of the
certificates offered by this prospectus supplement.
** Assuming that there are no prepayments on the trust assets, that no party exercises its right of optional
redemption of the certificates and the other modeling assumptions contained in "Weighted Average Life of
the Certificates" occur.
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
v
<PAGE>
--------------------------------------------------------------------------------
SUMMARY OF TERMS
This summary highlights selected information from this document. To understand
all of the terms of the offering of the certificates, you should carefully read
this entire document and the accompanying prospectus supplement.
DEPOSITOR .............................. Prudential Securities Secured
Financing Corporation, formerly
known as P-B Secured Financing
Corporation, a Delaware corporation,
a wholly-owned limited purpose
finance subsidiary of Prudential
Securities Incorporated.
ISSUER ................................. [______________].
SERVICER ............................... [______________].
TRUSTEE ................................ [______________].
SELLER(S) .............................. [______________].
ORIGINATOR(S) .......................... [______________].
CERTIFICATES ........................... The trust will issue the asset
backed certificates described in
"Summary of the Certificates." [The
issuer is offering the class [__]
certificates pursuant to this
prospectus supplement and
prospectus. The issuer is not
offering the class [__] certificates
to the public.] The certificates
will represent factional undivided
interests in the trust and will be
issued pursuant to the pooling and
servicing agreement.
CLOSING DATE ........................... [__________ __, 20__].
PAYMENT DATES .......................... The [__] day of each [_____],
beginning on [________ __, 20__]. If
the [__] day is not a business day,
then the payment date will be the
next business day.
CUT-OFF DATE(S) ........................ [__________ __, 20__].
COLLECTION PERIOD ...................... [Begins on the [__] day of each
[month] [quarter] and runs until and
includes the [__] day of the next
[month]
--------------------------------------------------------------------------------
S-1
<PAGE>
--------------------------------------------------------------------------------
[quarter]. However, the first and
last collection periods are as
follows:
- first: period from and
including the cut-off
date to and including
[__] days prior to the
first payment date.
- last: period from but
excluding the last day of
the collection period
before the termination
date to and including the
termination date.
CLOSING DATE ........................... On or about [__________ __, 20__].
INTEREST PAYMENTS ...................... The interest rates for each class of
certificates is described in
"Summary of the Certificates."
[Insert mechanics applicable to any
floating rate certificates]. The
trustee will calculate interest on
the certificates on the basis of [a
360-day year of twelve 30-day
months]. On the first payment date,
the interest payable to
certificateholders will be based
upon the actual number of days
elapsed from and including the
closing date to but excluding the
first payment date [and assuming a
30-day month].
PRINCIPAL PAYMENTS ..................... The trustee will pay principal on
the certificates on each payment
date in an amount equal to the
certificateholder's percentage of
the principal payment amount.
The principal payment amount for a
payment date generally will equal
the sum of the following amounts,
without duplication:
- collections on the
receivables (other than
charged-off receivables)
during the preceding
collection period allocable
to principal including full
and partial prepayments;
- the portion of the purchase
amount deposited in the
collection account
allocable to principal of
each receivable that was
repurchased by [the
originator] [the seller]
[the servicer] as of the
last day of the preceding
collection period due to a
breach of certain
representations or
warranties by the
--------------------------------------------------------------------------------
S-2
<PAGE>
--------------------------------------------------------------------------------
originator or a breach of
certain covenants by the
servicer relating to that
receivable;
- the principal balance of
each receivable that first
became a charged-off
receivable during the
preceding collection period
(other than charged-off
receivables for which
substitutions occur); and
- the aggregate amount of the
reductions in the principal
balances of the receivables
resulting from court orders
during the preceding
collection period in
obligor insolvency
proceedings which reduce
the amount owed on those
obligor's receivables.
The certificateholder percentage of
the principal payment amount for any
payment will be equal to [insert
mechanics specific to building
and/or maintaining any form of
credit enhancement].
[[See "Description of the
Certificates--Payments"] for
additional detail and for special
priority rules that would apply in a
default situation.]
[Description of priority of payments
among various classes].
[INTEREST ONLY CERTIFICATES] ........... [The class [___] certificates are
interest only certificates. This
means that the trustee will
distribute interest, based upon a
notional amount, but will not
distribute principal on these
certificates.]
[PRINCIPALONLY CERTIFICATES] ........... [The class [___] certificates are
principal only certificates. This
means that the trustee will not
distribute interest on these
certificates. The trustee will
distribute a portion of the
principal payment amount to the
investors of these certificates.]
[ACCRUAL CERTIFICATES] ................. [The class [___] certificates are
accrual certificates. Interest
accrued on this class of
certificates will be added to its
principal balance rather than
distributed to the holders of these
certificates until [insert mechanics
describing when interest accrual
ceases.]]
--------------------------------------------------------------------------------
S-3
<PAGE>
--------------------------------------------------------------------------------
FINAL SCHEDULED PAYMENT DATE ........... The outstanding principal amount, if
any, of the certificates will be
payable on their final scheduled
payment dates as described in the
"Summary of the Certificates" table.
OPTIONAL REDEMPTION .................... [The seller] [the depositor] [the
servicer] may purchase all the
receivables when the total
outstanding principal amount of the
receivables declines to less than
[___%] of the total principal
balance of the receivables as of the
cut-off date.
The purchase price for the
certificates will be equal to the
remaining unpaid principal amount of
the receivables plus accrued
interest through the payment date on
which the redemption occurs. If [the
seller] [the depositor] [the
servicer] exercises this option, the
outstanding principal balance of the
certificates will be paid in full
with accrued interest.]
MANDATORY TERMINATION .................. [The trust will have a pre-funding
period during which it will purchase
additional receivables. On the
payment date on or after the last
day of the pre-funding period, any
funds remaining in the trust's
pre-funding account after the
purchase of receivables on that
payment date will be applied to
partially redeem the certificates
then outstanding.]
TRUST ASSETS ........................... The primary assets of the trust will
be [participation interests in]
[security interests in] a pool of
[installment sales
contracts][and][loan
contracts][secured by][and][finance
leases of] equipment. [We refer to
these [installment sales
contracts][and][loan contracts] as
"installment sales contracts" and
installment sales contracts and
leases, collectively, as
"receivables."] [__________] is the
originator of the receivables. The
receivables in the trust will be
transferred by [the originator to
the seller, by the seller to the
depositor, and then by the depositor
to the trust.] The trust will grant
a security interest in the
receivables and the other trust
property to the trustee for the
benefit of the certificateholders.
The trust assets will also include
the following:
--------------------------------------------------------------------------------
S-4
<PAGE>
--------------------------------------------------------------------------------
- monies received under the
[initial] receivables
after a cutoff date of
[______ __, 20__] [and
under additional
receivables sold to the
trust after a later
cutoff date];
- amounts held in bank
accounts established for
the trust [including
amounts on deposit in the
collection account,
pre-funding account,
reserve account and yield
supplement account];
[- interest and other
investment income earned
on short-term investments
held by, or on behalf of,
the trust;]
- security interests in the
equipment financed by the
receivables;
- any proceeds from
insurance policies
covering financed
equipment or the related
obligors;
- the proceeds of any
repossessed equipment
financed by the
receivables;
- rights of the seller
under its purchase
agreement with [_____]
and rights of the
depositor under its
receivables transfer
agreement with the seller
[; and]
- [insert description of
any other credit
enhancement applicable to
a particular series].
THE [INITIAL] RECEIVABLES............... On the closing date, the trust will
acquire [a participation interest
in] [a security interest in]
receivables with an aggregate
principal balance of [$__________]as
of the [initial] cutoff date of
[______ __, 20__]. As of the
[initial] cutoff date:
- the weighted average
annual percentage rate of
the initial receivables
was approximately [___%];
--------------------------------------------------------------------------------
S-5
<PAGE>
--------------------------------------------------------------------------------
- the weighted average
remaining term to
scheduled maturity of the
initial receivables was
approximately [__]
months;
- the weighted average
original term to
scheduled maturity of the
initial receivables was
approximately [__]
months;
- approximately [__%] of
the receivables by
aggregate principal
balance were secured by
used equipment; and
- [insert description of
additional pool criteria
applicable for a
particular series.]
No [initial] receivable has a
scheduled maturity later than
[________ __, 20__], which is [___]
months before the final scheduled
payment date of the certificates.
[PRE-FUNDING]........................... [In addition to the initial
receivables, the trust will purchase
additional receivables during a
pre-funding period, not to exceed 90
days, beginning on the closing date
and ending not later than the close
of business on [_______ __, 20__].]
[The trust will pay the purchase
price for additional receivables
with [funds on deposit in]
[investments held in] a pre-funding
account established for the trust.
The seller will deposit] [$________]
[insert description of investments]
into the pre-funding account on the
closing date. [In addition, during
the period beginning on the closing
date and ending on __________, the
trust will deposit [all/a portion
of] the payments collected on the
receivables in the pre-funding
account, rather than pay such
amounts to certificateholders. These
additional amounts will also be used
to purchase additional receivables
during [the same period]. The trust
expects to purchase additional
receivables with an aggregate
principal balance approximately
equal to the amount deposited in the
pre-funding account. Prior to being
used to purchase receivables, funds
on deposit in the pre-funding
account will be invested from time
to time in highly rated short-term
securities.]
--------------------------------------------------------------------------------
S-6
<PAGE>
--------------------------------------------------------------------------------
[The pre-funding period will end
earlier than [_______ __, ____] if
the balance in the pre-funding
account is reduced to less than
[$____].] [The pre-funding period
will also terminate early if
specified servicer defaults or
events of default under the pooling
and servicing agreement occur. Any
balance remaining in the pre-funding
account at the end of the
pre-funding period will be applied
to partially redeem the certificates
then outstanding.]
[INTEREST RESERVE ACCOUNT].............. [We anticipate that the average
interest rate earned by the trust on
investment of funds in the
pre-funding account will be less
than the interest rate on the
certificates. To provide a source of
funds to cover any shortfall
resulting from this difference, we
will [deposit [$_______] into a
special interest reserve account of
the trust] [fund a special interest
reserve account of the trust from
collections received on the
receivables]. On each payment date
during the pre-funding period, money
from the interest reserve account
will be used to make up for this
interest shortfall.]
[RESIDUAL PAYMENT CERTIFICATES]........ [The issuer may issue one or more
new series of certificates backed by
some or all of the "equity interest"
or rights to the trust assets that
are in excess of the
certificateholders rights in those
assets.]
[CREDIT ENHANCEMENT].................... [Description of any credit
enhancement applicable for a
particular series.]
[CROSS COLLATERALIZATION]............... [Description of any cross
collateralization between series.]
DISTRIBUTIONS........................... The servicer, or the trustee on
behalf of and at the direction of
the servicer, will establish and
maintain a collection account in the
name of the trustee into which all
payments made on the receivables
will be deposited and held pending
distribution to certificateholders.
AVAILABLE FUNDS......................... The available funds for a
payment date will be the sum of the
following amounts with respect to
the preceding collection period:
- all principal and
interest payments on the
receivables;
--------------------------------------------------------------------------------
S-7
<PAGE>
-------------------------------------------------------------------------------
- all proceeds received
during the preceding
collection period,
including actual recovery
amounts, with respect to
receivables that became
charged-off receivables
during the preceding
collection period, net of
the reasonable and
customary out-of-pocket
expenses incurred by the
servicer in connection with
collection, enforcement or
liquidation and any amounts
required by law to be
remitted to the obligor on
the charged-off receivable;
- proceeds from actual
recovery amounts on
charged-off receivables;
- earnings on investments of
funds in the collection
account [, pre-funding
account, reserve account,
interest reserve account
and yield supplement
account] during the
preceding collection
period;
- the purchase amount
deposited in the collection
account for each receivable
that was repurchased by
[the originator] [the
seller] [the servicer] and]
- [insert any other amounts
applicable for a particular
series].
APPLICATION OF PAYMENTS................. On each payment date, the trustee
will distribute funds on deposit in
the collection account relating to
the prior collection period in the
priority indicated:
[insert description of the order and
priority of payments applicable for
a series]
FEDERAL TAX CONSIDERATIONS.............. Mayer, Brown & Platt, special
Federal tax counsel to [________],
is of the opinion that for Federal
income tax purposes the trust will
be treated as a grantor trust under
subpart E, Part I of subchapter J of
the Code, and will not be subject to
federal income tax. Accordingly, the
certificateholders will be treated
as owners of the receivables for
federal income tax purposes. See
"Federal Income Tax Considerations"
for a summary of material
-------------------------------------------------------------------------------
S-8
<PAGE>
federal income tax consequences of
the purchaser, ownership and
disposition of the certificates.
ERISA CONSIDERATIONS.................... Subject to the restrictions and
considerations discussed under
"ERISA Considerations," the class
[__] certificates may be eligible
for purchase by employee benefit
plans.
The class [__] certificates and any
beneficial interest in the class
[__] certificates may not be
acquired with the assets of an
employee benefit plan subject to the
Employee Retirement Income Security
Act of 1974, as amended, or with the
assets of an individual retirement
account or any other "plan"
described by Section 4975 of the
Internal Revenue Code of 1986, as
amended, except as permitted under a
prohibited transaction exemption
available only to certain insurance
companies using general account
assets.
RATINGS................................. It is a condition to the issuance of
the certificates that the class
[_____] certificates be rated at
least ["____"] by [______] and the
class [_____] certificates be rated
at least ["____"] by [_____]. The
ratings of the certificates address
the likelihood of the timely payment
of interest on and the ultimate
payment of principal of the
certificates under their terms.
These ratings are not a
recommendation to buy, sell or hold
the certificates. We cannot assure
you that a rating will not be
lowered or withdrawn by a rating
agency if circumstances so warrant.
-------------------------------------------------------------------------------
S-9
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase the certificates.
<TABLE>
<S> <C>
PAYMENTS WILL BE MADE ONLY The trust does not have any
FROM THE LIMITED ASSETS OF significant assets or sources of
THE TRUST. funds other than the receivables,
amounts on deposit in the trust
accounts [and] [insert description
of any credit enhancement]. You must
rely on payments on the receivables,
amounts, if any, on deposit in the
trust accounts [and] [insert
description of credit enhancement]
for repayment of the certificates.
YOU BEAR REINVESTMENT RISK The receivables may be prepaid at
AND PAYMENT DELAY RISK DUE any time, in full or in part,
TO REPURCHASE. voluntarily or as a result of
defaults, casualties to the related
equipment, death of an obligor or
lessor or other reasons. [The
originator] [the seller] [the
servicer] may be required to
repurchase one or more receivables
from the trust if it breaches
specified representations or
covenants relating to the
receivables described in
["Description of the Transaction
Documents-- [Sale and] Assignment of
[Initial] Receivables [and
Additional Receivables]."] [The
servicer] [the seller] [the
depositor]] also will have the right
to purchase all remaining
receivables from the trust pursuant
to a clean-up call described in
["Summary of Terms--Optional
Redemption" and "Description of the
Certificates--Optional Redemption."]
Each prepayment, repurchase or
purchase will shorten the average
life of the certificates. [The class
[__]certificates will be extremely
sensitive to the rate and timing of
payments, including prepayments, on
the receivables. If you purchase a
class [__] certificate at a premium,
under some prepayment scenarios, you
could fail to recoup your original
investment.] [The class __
certificates will be adversely
affected by a lower than anticipated
rate of payment on the receivables.]
[The reinvestment risk to an
investor in the class [__]
certificates may be exacerbated in
the event of [an increase in the
rate of payment on the receivables
in a decreasing interest rate
environment] [a decrease in the rate
of payment on the receivables in an
increasing rate environment.]
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Prepayment rates may be influenced
by a variety of factors and cannot
be predicted with any assurance. You
will bear any reinvestment risks
resulting from a faster rate of
prepayment or repurchase of
receivables. Any time your principal
is repaid to you at a time when you
did not expect to receive it, you
may not be able to reinvest your
funds at the same or a higher rate
of return than the interest rate on
your certificates.
[VARIATIONS IN REGIONAL As of the [initial] cutoff date,
ECONOMIC CONDITIONS obligors located in _______,
MAY CAUSE PAYMENT ________ and ________, respectively,
REDUCTIONS OR DELAYS.] comprised [__%], [__%] and [__%]of
the [initial] receivables aggregate
principal balance. Adverse economic
conditions or other factors
particularly affecting these states
may affect the delinquency, loss and
repossession experience of the
receivables.
[POSSIBLE PREPAYMENTS AS A [If the principal amount of eligible
RESULT OF PRE-FUNDING receivables purchased or directly
PERIOD.] originated by [________] during the
trust's pre- funding period is less
than the amount [accumulated from
collections and the amount]
deposited in the trust's pre-funding
account, we will not have sufficient
receivables to sell to the trust
during the pre-funding period. This
would result in a prepayment of
principal to the certificateholders
as described below.
If the aggregate principal balance
of receivables we sell to the trust
during the pre-funding period is
less than the amount [accumulated
from collections and the amount]
deposited in the trust's pre-funding
account, the excess will be applied
at the end of the pre-funding period
to partially prepay the
certificates. Any prepayment under
these circumstances will shorten the
weighted average life of the
certificates to an extent that we
cannot predict with assurance, since
we cannot predict the amount of any
prepayment with assurance.]
[CHANGES IN POOL [The only required characteristics
CHARACTERISTICS AS A RESULT OF of the additional receivables
PREFUNDING PERIOD.] transferred to the trust during the
pre-funding period will be the
eligibility criteria specified in
the pooling and servicing agreement.
These additional receivables may be
originated using credit criteria
different from those that were
applied to the initial receivables
and may be of a different credit
quality and seasoning. As a result,
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following the transfer of additional
receivables to the trust, the
characteristics of the entire
receivables pool may vary from those
of the initial receivables described
in ["The Receivables"]. Since the
weighted average life of the
certificates will be influenced by
the rate at which the principal
balances of the receivables are
paid, some of these variations may
affect the weighted average life of
the certificates.]
[SUBORDINATION OF THE CLASS [The subordination of the class
[__] CERTIFICATES PROVIDES [__]certificates is intended to
ONLY LIMITED PROTECTION increase the likelihood of payments
AGAINST LOSSES.] on the class [__] certificates. The
amount of credit enhancement
provided through the subordination
of the class [__] certificates to
the class [__] certificates,
however, is limited and could be
depleted prior to the payment in
full of the class [__] certificates.
If the principal amount of the class
[__] certificates is reduced to
zero, you may suffer losses on your
certificates.]
[ADDITIONAL RISK FACTORS
APPLICABLE FOR A SPECIFIC
SERIES.]
</TABLE>
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THE TRUST
The depositor will establish the trust by selling and assigning the
trust assets to the trustee in exchange for the certificates. Each certificate
represents a fractional undivided ownership interest in the trust. After its
formation, the trust will not engage in any activity other than acquiring,
holding and managing the receivables and the other assets of the trust and
proceeds therefrom and issuing the certificates and making payments thereon.
The trust has no directors, officers or employees and is not involved
in any legal proceedings.
THE TRUSTEE
[___________] is the trustee under the pooling and servicing
agreement. It is a [__________] corporation and its principal offices are
located at [________________]. The trustee's duties in connection with the
certificates are limited solely to its express obligations under the pooling
and servicing agreement.
[USE OF PROCEEDS]
[describe any uses not specified in base prospectus]
THE RECEIVABLES
[_________] [purchased or originated] [was granted a security interest
in] the receivables in the ordinary course of its business. The pool of
receivables will consist of [participation interests in] [security interests
in] [initial] receivables purchased by the trust as of the closing date [and
[participation interests in] [security interests in] any additional receivables
purchased during the trust's funding period.] [[________] has selected
receivables from its portfolio to include in the pool of [initial] receivables
[and will select receivables from its portfolio for inclusion in the pool of
additional receivables] using the following eligibility criteria described
below.]
ELIGIBILITY CRITERIA
In addition to eligibility criteria set forth in the prospectus under
"Summary of Terms--The Assets," the eligibility criteria include that each
receivable:
- has no payment 10% or more of which was more than 29
days past due;
- has an annual percentage interest rate or APR of not
less than [__%] and not more than [__%];
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<PAGE>
- [provides for level monthly payments that fully
amortize the amount financed over an original term to
scheduled maturity of at least [__] months and not
more than [__] months; provided that payments are
made on the applicable due dates and except that the
final payment may differ];
- has an outstanding principal balance of not less than
[$_____] and not more than [$_____];
- has a remaining term to scheduled maturity of at
least [__] months and not more than [__] months;
[and]
- is either a rule of 78s receivable, fixed value
receivable, simple interest receivable or actuarial
receivable[; and]
- [insert any other criteria applicable for a
particular series].
[In addition, the seller will represent and warrant, among other
things, that, after giving effect to each transfer of additional receivables,
the receivables in the trust will meet the following criteria:]
[insert criteria applicable to pool after transfer of additional
receivables]
The [initial] receivables were originated on or before [________ __,
20__.] The composition of the pool of receivables as of the closing date will
not deviate from the composition of the pool of receivables as of the [initial]
cut-off date. The seller did not [and will not] utilize any selection
procedures it believed would be adverse to the certificateholders in selecting
the receivables.
Please refer to the tables in Appendix A which set forth information
regarding the composition and characteristics of the receivables pool as of the
[initial] cutoff date.
THE SELLER(S)
[Insert description of each seller(s).]
THE ORIGINATOR(S)
[Insert description of each originator(s) and its underwriting
procedures and criteria.]
THE SERVICER
[Insert description of the servicer.]
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<PAGE>
DELINQUENCY AND LOSS EXPERIENCE
[Insert description of servicer's loss and delinquency experience
including loss and delinquency tables.]
SERVICING AND COLLECTIONS
[Insert description of servicer's servicing and collection procedures
and any commingling rights, including specific percentage of securityholders
required to terminate servicer upon servicer default.]
WEIGHTED AVERAGE LIFE OF THE CERTIFICATES
The rate of payment of principal of each class of certificates
depends primarily on the rate of payment, including prepayments, of the
principal balance of the receivables. As a result, the final distribution on
the certificates could occur significantly earlier than the final scheduled
payment dates for each class certificates. We expect that the final
distribution on the certificates will occur on or prior to the applicable
final scheduled payment date for each class. However, if sufficient funds are
not available to pay the certificates in full on or prior to the applicable
final scheduled payment date, the final distribution on the certificates could
occur later than expected.
The weighted average life of the certificates of any series will
generally be influenced by the rate at which the principal balances of the
related receivables are paid, which payment may be in the form of scheduled
amortization or prepayments. All of the receivables are repayable at any time
without penalty, or with only a nominal penalty, to the obligor. The rate of
prepayment of equipment receivables is influenced by a variety of economic,
social and other factors, which, in addition to the factors set forth in the
prospectus under "The Receivables--Maturity and Prepayment Considerations,"
include: [insert prepayment considerations applicable to the receivables
supporting the relevant series of securities]. In addition, under certain
circumstances, [the originator] [the seller] [the servicer] will be obligated
to repurchase receivables from the trust pursuant to the pooling and servicing
agreement as a result of breaches of specified representations and warranties.
You should consider, in the case of certificates purchased at a discount, the
risk that a slower than anticipated rate of principal payments on the
receivables could result in an actual yield that is less than the anticipated
yield. In the case of certificates purchased at a premium, the risk that a
faster than anticipated rate of principal payments on the receivables could
result in an actual yield that is less than the anticipated yield.
No prediction can be made as to the rate of prepayment on the
receivables. We are not aware of any publicly available industry statistics
for the entire industry on an aggregate basis that set forth principal
prepayment experience for receivables similar to the receivables over an
extended period of time.
In light of the above considerations, we cannot assure you as to the
amount of principal distributions to be made on the certificates on each
payment date, since the amount will depend,
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<PAGE>
in part, on the amount of principal collected during the applicable collection
period. Any reinvestment risks resulting from a faster or slower incidence of
prepayment of receivables will be borne entirely by the certificateholders.
[Description of prepayment speed assumption and modeling assumptions,
if any, applicable for a particular series.]
DESCRIPTION OF THE CERTIFICATES
DESCRIPTION OF THE CERTIFICATES
The trustee will issue the certificates pursuant to the pooling and
servicing agreement. The certificates initially will be represented by
certificates registered in the name of Cede & Co. as the nominee of The
Depository Trust Company (" DTC"), and will only be available in the form of
book-entries on the records of DTC and its participating members. The
certificates will be issued in minimum denominations of [$_____] and integral
multiples of [$_____], except that one certificate of each class may be issued
in another denomination. All references to " holders" or "certificateholders"
and to authorized denominations, shall reflect the rights of beneficial owners
of the certificates or "certificate owners."
PAYMENTS
The certificates will bear interest at the [fixed] [floating] rates
described in "Summary of the Certificates." [Insert description of any floating
rate mechanics applicable for a particular series.] [The certificates
constitute [strip securities] [accrual securities] as described under ["Summary
of Terms[--Strip Securities][--Accrual Securities]" in the prospectus]. The
trustee will distribute payments of interest to certificateholders [monthly]
[quarterly] on each payment date commencing [________ __, 20__]. Payment dates
will occur on the [__] day of each [month] [quarter] or, if that day is not a
business day, the next succeeding business day. A business day is any day other
than a Saturday, Sunday or any other day on which banks in [___________] are
authorized or obligated by law or order to be closed. The trustee will
calculate interest on the certificates on the basis of [a 360-day year
consisting of twelve 30-day months].
On each determination date, the trustee will determine the amount in
the collection account allocable to interest and the amount allocable to
principal. The determination date will be the [__] day of the calendar [month]
[quarter] during which any payment date occurs, or if that day is not a
business day, the next business day.
On each payment date, certificateholders as of the related record date
will be entitled to receive [thirty] days interest at the interest rate on
their certificates on the outstanding principal balance of their certificates,
as applicable, as of the close of the preceding payment date. Nevertheless, on
the first payment date, the interest payable to certificateholders will be an
amount equal to the product of:
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<PAGE>
- the interest rate on the certificate;
- the initial principal amount of the certificate; and
- a fraction:
- the numerator of which is the number of days (assuming a
30-day month) from and including the closing date to but
excluding the first payment date; and
- the denominator of which is 360.
Interest on the certificates which is due but not paid on any payment
date will be payable on the next payment date together with, to the extent
permitted by law, interest on the unpaid amount at the interest rate for that
class of certificates.
The trustee will distribute payments of principal to
certificateholders [monthly] [quarterly] on each payment date commencing
[________ __, 20__]. The amount of principal available for distribution will
generally equal the principal payment amount.
The actual date on which the aggregate outstanding principal amount
of any class of certificates is paid may be earlier than the final scheduled
payment dates for that class of certificates. See "Weighted Average Life of
the Certificates."
On each payment date, all amounts on deposit in the collection
account, other than investment earnings, will be generally paid in the
following order of priority:
(1) to servicer, the servicing fee for the related collection
period and all accrued and unpaid servicing fees for prior
collection periods;
(2) to trustee, all accrued and unpaid fees and expenses accrued
and owing to the trustee;
(3) to the certificate distribution account for distribution to
the certificateholders, on a pro rata basis, accrued and
unpaid interest for that payment date;
(4) to the certificate distribution account for distribution to
the certificateholders, on a pro rata basis, the
certificateholders principal distributable amount; and
(5) to the seller or servicer, any remaining amounts.
[Insert description of any special priority rules that would apply in
a default situation.]
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<PAGE>
[PRE-FUNDING ACCOUNT]
[On the closing date, approximately $____________ of initial
receivables will be transferred by the seller to the depositor and by the
depositor to the trust and approximately $______________ will be [deposited]
[accumulated from collections on the receivables for deposit into] the
pre-funding account. If the principal amount of eligible receivables
originated by [__________] during the pre-funding period is less than the
pre-funded amount, the seller will have insufficient receivables to transfer
to the depositor and the depositor will have insufficient receivables to
transfer to the trust on the subsequent transfer dates, thereby resulting in a
prepayment of principal to the certificateholders.]
[To the extent that the pre-funded amount has not been fully applied
to the purchase of subsequent receivables by the trust during the pre-funding
period, the certificateholders will receive a prepayment of principal, on the
payment date on or immediately following the last day of the pre-funding
period. The prepayment amount will be equal to each certificateholder's pro
rata share (based on the current principal balance of each class of
certificates) of any remaining pre-funded amount following the purchase of any
subsequent receivables on that payment date. We anticipate that the principal
amount of subsequent receivables sold to the trust will not be exactly equal
to the [original pre-funded amount] and that therefore there will be at least a
nominal amount of principal prepaid to the certificateholders.]
[If the amount of the pre-funding account will exceed 25% of the
aggregate proceeds from the offering, including the specific investments in
which the pre-funding account will be invested, then the depositor will specify
the actual investments of the pre-funding account in its periodic reports to be
filed on Form 8-K and Form 10-K.]
OPTIONAL REDEMPTION
The [originator] [seller] [servicer] [depositor] is permitted at its
option to purchase all remaining receivables from the trust. The [originator]
[seller] [servicer] [depositor] may exercise this repurchase option on or
after the last day of any month on or after which the then outstanding
aggregate principal balance of the receivables is less than or equal to ten
percent (10%) of the initial aggregate principal balance of the receivables as
of the closing date at a price equal to the remaining unpaid principal amount
of the receivables as of such last day of the month plus accrued interest
thereon through the payment date on which the redemption will occur. Exercise
of these rights will result in the early retirement of the certificates. Upon
declaration of an optional redemption, the trustee will give written notice of
termination to each certificateholder of record. The final payment to any
certificateholder will be made only upon surrender and cancellation of that
holder's certificate, at the office or agency of the trustee specified in the
notice of termination.
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<PAGE>
DESCRIPTION OF THE TRANSACTION DOCUMENTS
The following summary describes the material terms of the transaction
documents. The transaction documents include, among others, [the purchase
agreement], the receivables transfer agreement and the pooling and servicing
agreement [insert other relevant agreements]. Copies of the transaction
documents will be filed with the Securities and Exchange Commission following
the issuance of the certificates. This summary is qualified in its entirety by
reference to the actual transaction documents.
[DESCRIPTION OF ORIGINATOR/SELLER REPRESENTATIONS AND WARRANTIES]
[Insert description of representations and warranties.]
[SALE AND] ASSIGNMENT OF [INITIAL] RECEIVABLES [AND ADDITIONAL RECEIVABLES]
[The seller originated the receivables.] [The seller acquired the
receivables from the originator under a purchase agreement dated [_______ __,
____]]. On the closing date, the seller will [sell] [pledge] [participation
interests in] [security interests in] the [initial] receivables to the
depositor under the receivables transfer agreement. In turn, the depositor
will [sell][pledge] [participation interests in] [security interests in] the
[initial] receivables to the trust under the pooling and servicing agreement.
The trust will pledge the [initial] receivables to the trustee for the benefit
of the certificateholders.
[In addition, during the pre-funding period, under the receivables
transfer agreement, the seller will be obligated to sell the depositor, for
sale by the depositor to the trust, additional receivables up to the amount on
deposit in the pre-funding account. We expect that the seller will convey
additional receivables to the depositor on subsequent transfer dates specified
by the seller. The pre-funding period is the period beginning on the closing
date and ending on the earliest to occur of:
- [the date on which the amount in the pre-funding
account is less than [$____];]
- the date on which an event of default or a servicer
termination event occurs under the pooling and
servicing agreement; or
- the close of business on [________ __, 20__].]
[On each subsequent transfer date, the seller will [sell] [pledge]
[participation interests in] [security interests in] the [additional]
receivables to the depositor under the receivables transfer agreement. In turn,
the depositor will [sell] [pledge] [participation interests in] [security
interests in] the [additional] receivables listed on a schedule attached to an
assignment to the trust.]
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<PAGE>
[Insert description of additional conditions to transfer of subsequent
receivables]
[Except for the criteria described above, there are no required
characteristics of the additional receivables. Therefore, following the
transfer of additional receivables to the trust, the aggregate characteristics
of the entire receivable pool may vary from those of the initial receivables.]
[Although [__________] will continue to service and administer the
receivables under the pooling and servicing agreement, [_________] will deliver
the original documents evidencing each receivable to the trustee as custodian
for the trust.] [In order to facilitate servicing and to minimize
administrative burden and expense, the servicer will act as custodian for the
receivables.]
[Insert description of actions that will be taken by the related
parties as applicable to perfect either the issuer's or the certificateholder's
security interest in the receivables.]
ACCOUNTS
The servicer, or the trustee on behalf of and at the direction of the
servicer, will establish and maintain the collection account, the certificate
distribution account, [the reserve account,] [the pre-funding account,] [the
interest reserve account] [and the yield supplement account] in the name of the
trustee for the benefit of certificateholders. We refer to these accounts as
the trust accounts. The servicer will forward the proceeds of payments on the
receivables to the trustee for deposit in the collection account within two
business days of its receipt. The trustee will invest funds on deposit in any
trust account in eligible investments selected by [the seller] [the depositor]
that mature not later than the next payment date.
[Description of trust account mechanics applicable to a particular
series.]
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The servicing fee rate will be [__%] per annum of the aggregate
principal balance of the receivables as of the opening of business on the first
day of the related collection period. The servicer will also collect and retain
any late fees, non-sufficient funds fees, liquidation fees and other
administrative fees as a supplemental servicing fee for servicing the
receivables. The servicer will allocate payments by or on behalf of obligors to
scheduled payments and late fees and other charges in accordance with its
normal practices and procedures.
AVAILABLE FUNDS
On each payment date, the trustee will apply the available funds in
the collection account to distribute required payments of principal and
interest to certificateholders. See "Summary of Terms--Available Funds" for a
description of available funds.
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<PAGE>
APPLICATION OF PAYMENTS
[Insert description of the priority and right to payment for each
series.]
[SUBORDINATION OF CLASS [ ] CERTIFICATES]
[The rights of the class [_] certificateholders to receive
distributions on the receivables will be subordinated to the rights of the
class [__] certificateholders in the event of defaults and delinquencies on
the receivables as provided in the pooling and servicing agreement. The
protection afforded to the certificateholders through subordination will be
effected [both]by the preferential right of the class [__] certificateholders
to receive current distributions with respect to the receivables [and by the
establishment of the reserve account]. If on any payment date there are not
enough funds to distribute amounts due to the class [__] certificateholders,
the class [__]certificateholders may receive a reduced distribution or no
distribution at all.]
[The subordination of the class [__] certificates [and the reserve
account] are intended to enhance the likelihood of receipt by the class [__]
certificateholders of the full amount of principal and interest due them and to
decrease the likelihood that these certificateholders will experience losses.
[In addition, the reserve account is intended to enhance the likelihood of
receipt by certificateholders of the full amount of principal and interest due
them and to decrease the likelihood that the certificateholders will experience
losses. However, in certain circumstances, the reserve account could be
depleted. If the amount required to be withdrawn from the reserve account to
cover shortfalls in collections on the receivables exceeds the amount of
available cash in the reserve account, certificateholders could incur losses or
a temporary shortfall in the amounts distributed could result, which could, in
turn, increase the average life of the certificates.]
LEGAL ASPECTS OF THE RECEIVABLES
[Insert discussion of any legal aspects of the receivables relevant to
a particular series.] [See "Legal Aspects of the Receivables" in the
prospectus.]
FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes generally the material federal income
tax consequences of the purchase, ownership and disposition of the
certificates and such summary represents the opinion of 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 or the
courts. No ruling on any of the issues discussed below will be sought from the
Internal Revenue Service. The following summary is intended as a discussion of
the possible effects of certain federal income tax provisions to holders, 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.
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<PAGE>
In addition, this summary does not address all federal income tax
consequences that may be relevant to an investment in certificates to investors
in light of their particular circumstances or special tax situations.
For example, the discussion does not apply to:
- banks and thrifts,
- insurance companies,
- regulated investment companies,
- dealers in securities,
- tax-exempt organizations,
- investors subject to alternative minimum tax,
- foreign investors, and
- trusts, estates or pass-through entities, the equity
holders of which are any of the entities described
above.
In addition, the discussion of certificates is limited to the federal
income tax consequences of the initial certificateholders and does not address
federal income tax consequences to a purchaser of certificates in the secondary
market. Further, this discussion is addressed only to holders who hold the
certificates as capital assets and does not address tax consequences of
investors holding the certificates as part of a conversion transaction, hedge or
hedging transaction, or as a position in a straddle or other integrated
investment for tax purposes.
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. However, there are no cases
or Internal Revenue Service rulings on similar transactions involving interests
issued by a trust with terms and conditions of issuance similar to those of the
certificates. As a result, the Internal Revenue Service may disagree with all or
a part of the discussion below. We suggest that prospective investors 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
certificates.
TAX CHARACTERIZATION OF THE TRUST
Federal Tax Counsel is of the opinion that, although no transaction
closely comparable to that contemplated herein has been the subject of any
United States Treasury Regulation, revenue ruling or judicial decision, the
trust will not be characterized as an association taxable as a corporation or a
partnership and that the trust will be classified as a grantor trust under
subpart E,
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<PAGE>
Part I of subchapter J of the Code. As a result, the trust will not
be subject to federal income tax. This opinion is based on the assumption that
the terms of the trust agreement and related documents will be complied with in
all respects. However, this opinion is not binding on the Internal Revenue
Service and no assurance can be given that this characterization will prevail.
In our tax discussion, we refer to the owners of the certificates as grantor
trust certificateholders and the certificates issued by the trust as grantor
trust certificates. Grantor trust certificateholders will be treated for federal
income tax purposes as owners of a portion of the trust's assets as described
below.
POSSIBLE ALTERNATIVE TREATMENT OF THE TRUST. In a recently released
technical advice memorandum, the Internal Revenue Service recharacterized two
high quality auto loan grantor trust securitizations as secured borrowings for
federal income tax purposes. Although Federal Tax Counsel is of the opinion that
the trust will be classified as a grantor trust for federal income tax purposes,
the Internal Revenue Service could disagree with this opinion and assert that
the [depositor's] [seller's] assignment to the trust followed by the issuance of
certificates by the trust should be recharacterized as a secured borrowing by
the [seller] [depositor] rather than as a sale for federal income tax purposes.
Even if the Internal Revenue Service were successful in recharacterizing the
[depositor's] [seller's] assignment to the trust in this matter, a
recharacterization would not be anticipated to have a material adverse effect on
the timing or character of income to the trust or certificateholders.
GRANTOR TRUST CHARACTERIZATION. Based on Federal Tax Counsel's
conclusion that the trust will not be classified as an association or a publicly
traded partnership taxable as an association and that the trust will be
classified as a grantor trust under subpart E, Part I of subchapter J of the
Code for federal income tax purposes, each grantor trust certificateholder:
- will be treated as the owner of a pro rata undivided interest
in the interest and principal portions of the trust
represented by the grantor trust certificates and
- will be considered the equitable owner of a pro rata undivided
interest in each of the receivables in the trust.
Any amounts received by a grantor trust certificateholder in lieu of amounts due
on any receivable because of a default or delinquency in payment will be treated
for federal income tax purposes as having the same character as the payments
they replace.
Each grantor trust certificateholder will be required to report on its
federal income tax return in accordance with its method of accounting its pro
rata share of the entire income from the receivables in the trust represented by
the grantor trust certificates. These amounts may include the following:
- interest,
- OID,
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- market discount,
- prepayment fees,
- assumption fees,
- any gain recognized upon an assumption and
- late payment charges received by the servicer.
Under Sections 162 or 212 of the Code each grantor trust certificateholder will
be entitled to deduct its pro rata share of servicing fees, prepayment fees,
assumption fees, any loss recognized upon an assumption and late payment charges
retained by the servicer, provided that these amounts are reasonable
compensation for services rendered to the trust. Further, under Section 67 of
the Code, an individual, estate or trust holding a grantor trust certificate
directly or through certain pass-through entities will be allowed a deduction
for such reasonable servicing fees and expenses only to the extent that the
aggregate of such holder's miscellaneous itemized deductions exceeds two percent
of such holder's adjusted gross income. In addition, Section 68 of the Code
provides that the amount of itemized deductions otherwise allowable for an
individual whose adjusted gross income exceeds a specified amount will be
reduced by the lesser of (i) 3% of the excess of the individual's adjusted gross
income over such amount or (ii) 80% of the amount of itemized deductions
otherwise allowable for the taxable year. The amount of additional taxable
income reportable by holders of grantor trust certificates who are subject to
the limitations of either Section 67 or 68 of the Code may be substantial.
Further, certificateholders (other than corporations) subject to the alternative
minimum tax may not deduct miscellaneous itemized deductions in determining such
holder's alternative minimum taxable income. Although it is not entirely clear,
it appears that in transactions in which multiple classes of grantor trust
certificates are issued, such fees and expenses should be allocated among the
classes of grantor trust certificates using a method that recognizes that each
such class benefits from the related services.
A grantor trust certificateholder using the cash method of accounting
must take into account its pro rata share of income and deductions as and when
collected by or paid to the servicer. A grantor trust certificateholder using an
accrual method of accounting must take into account its pro rata share of income
and deductions as they become due or are paid to the servicer, whichever is
earlier. If the servicing fees paid to the servicer are deemed to exceed
reasonable servicing compensation, the amount of the excess could be considered
as an ownership interest retained by the servicer (or any person to whom the
servicer assigned for value all or a portion of the servicing fees) in a portion
of the interest payments on the receivables. The receivables would then be
subject to the "coupon stripping" rules of the Code discussed below.
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PREMIUM. The price paid for a grantor trust certificate by a holder
will be allocated to the holder's undivided interest in each receivable based on
each receivable's relative fair market value, so that the holder's undivided
interest in each receivable will have its own tax basis. A grantor trust
certificateholder that acquires an interest in receivables at a premium may
elect under Section 171 of the Code to amortize the premium under a constant
yield method. Amortizable bond premium will be treated as an offset to interest
income on the grantor trust certificate. The basis for a grantor trust
certificate will be reduced to the extent that amortizable premium is applied to
offset interest payments. A grantor trust certificateholder that makes this
election for a grantor trust certificate that is acquired at a premium will be
deemed to have made an election to amortize bond premium for all debt
instruments having amortizable bond premium that the grantor trust
certificateholder held at the beginning of the year of the election or acquired
thereafter. Absent such an election, the premium will be deductible as an
ordinary loss only upon disposition of the certificate or pro rata as principal
is paid on the receivables.
STRIPPED BONDS AND STRIPPED COUPONS
To the extent a transaction is determined to involve "excess servicing"
(as described above), or that the classes of certificates represent stripped
interests in the underlying receivables, the grantor trust certificates will
represent interests in stripped bonds for federal income tax purposes. Although
the tax treatment of stripped bonds is not entirely clear, based on recent
guidance by the Internal Revenue Service, each purchaser of a grantor trust
certificate (whether a cash or accrued method taxpayer) will be treated as the
purchaser of a stripped bond which should generally be treated as a single debt
instrument issued on the day it is purchased for purposes of calculating any
original issue discount ("OID") within the meaning of Section 273(a) of the
Code. Under the OID Treasury regulations, if the discount on a stripped bond is
larger than a DE MINIMIS amount (as calculated for purposes of the OID rules of
the Code) the stripped bond will be considered to have been issued with OID. If
OID rules were to apply, all of the taxable income to be recognized on the
certificates would be includible in income as OID but would not be includible
again when the interest is actually received. Regulations do not adequately
address the circumstances in which payment of interest on certificates such as
the grantor trust certificates would be considered unconditionally payable, and
thus, Federal Tax Counsel is unable to opine as to the extent to which interest
payments on the certificates would be treated as qualified stated interest.
MARKET DISCOUNT. A grantor trust certificateholder that acquires an
undivided interest in receivables may be subject to the market discount rules of
Code Sections 1276 through 1278 to the extent an undivided interest in a
receivable is considered to have been purchased at a "market discount."
Generally, the amount of market discount is equal to the excess of the portion
of the principal amount of the receivable allocable to the holder's undivided
interest over the holder's tax basis in that interest. Market discount on a
grantor trust certificate will be considered to be zero if the amount allocable
to the grantor trust certificate is less than 0.25% of the grantor trust
certificate's stated redemption price at maturity multiplied by the weighted
average maturity remaining after the date of purchase. Treasury regulations
implementing the market discount rules have not yet been issued; therefore, we
suggest that investors consult their own tax advisors
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regarding the application of these rules and the advisability of making any
of the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment shall be treated as
ordinary income to the extent that it does not exceed the accrued market
discount at the time of the payment. For this purpose, principal payments
include scheduled payments, prepayments and any gain on disposition of a market
discount bond The amount of accrued market discount for purposes of determining
the tax treatment of subsequent principal payments or dispositions of the market
discount bond is to be reduced by the amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
While the Treasury Department has not yet issued regulations, rules described in
the relevant legislative history likely will apply. Under those rules, the
holder of a market discount bond may elect to accrue market discount on the
basis of a constant yield method.
A holder who acquired a grantor trust certificate at a market discount
may be required to defer a portion of its interest deductions for the taxable
year attributable to any indebtedness incurred or continued to purchase or carry
such grantor trust certificate purchased with market discount. For these
purposes, the DE MINIMIS rule referred to above applies. Any deferred interest
expense would not exceed the market discount that accrues during that taxable
year and is, in general, allowed as a deduction not later than the year in which
the market discount is includible in income. If the holder elects to include
market discount in income currently as it accrues on all market discount
instruments acquired by that holder in that taxable year or thereafter, the
interest deferral rule described above will not apply.
To the extent a grantor trust certificateholder is considered to have
purchased an undivided interest in a receivable for an amount that is greater
than its stated redemption price at maturity of the receivable, the grantor
trust certificateholder will be considered to have purchased the receivable with
"amortizable bond premium" equal in amount to the excess. See "--Premium."
ELECTION TO TREAT ALL INTEREST AS OID. The OID regulations permit a
grantor trust certificateholder to elect to accrue all interest, discount
(including DE MINIMIS market or OID) and premium in income as interest, based on
a constant yield method. If this election were to be made for a grantor trust
certificate with market discount, the certificateholder would be deemed to have
made an election to include in income currently market discount for all other
debt instruments having market discount that the grantor trust certificateholder
acquires during the year of the election or thereafter. Similarly, a grantor
trust certificateholder that makes this election for a grantor trust certificate
that is acquired at a premium will be deemed to have made an election to
amortize bond premium for all debt instruments having amortizable bond premium
that the grantor trust certificateholder held at the beginning of the year of
the election or acquired
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thereafter. See "--Premium." The election to accrue interest, discount and
premium on a constant yield method for a grantor trust certificate is
generally irrevocable.
SALE OR EXCHANGE OF A GRANTOR TRUST CERTIFICATE. Sale or exchange of a
grantor trust certificate prior to its maturity will result in gain or loss
equal to the difference, if any, between the amount realized in the sale or
exchange of the grantor trust certificate and the owner's adjusted basis in the
grantor trust certificate. Such adjusted basis generally will equal the seller's
purchase price for the grantor trust certificate, increased by the OID included
in the seller's gross income on the grantor trust certificate, and reduced (but
not below zero) by principal payments on the grantor trust certificate
previously received by the seller. This gain or loss will be capital gain or
loss to an owner for which a grantor trust certificate is a "capital asset"
within the meaning of Code Section 1221, and will be long-term or short-term
depending on whether the grantor trust certificate has been owned for the
long-term capital gain holding period. For individuals, estates and trusts, the
current maximum long-term capital gain rate is generally 20% if the capital
asset has been held for more than 12 months.
Gain or loss from the sale or exchange of a grantor trust certificate
may be partially or wholly ordinary and not capital in certain circumstances.
Gain attributable to accrued and unrecognized market discount will be treated as
ordinary income, as will gain or loss recognized by banks and other financial
institutions subject to Section 582(c) of the Code. Furthermore, a portion of
any gain that might otherwise be capital gain may be treated as ordinary income
to the extent that the grantor trust certificate is held as part of a
"conversion transaction" within the meaning of Section 1258 of the Code. A
conversion transaction generally is one in which the taxpayer has taken two or
more positions in the same or similar property that reduce or eliminate market
risk, if substantially all of the taxpayer's return is attributable to the time
value of the taxpayer's net investment in such transaction. The amount of gain
realized in a conversion transaction that is recharacterized as ordinary income
generally will not exceed the amount of interest that would have accrued on the
taxpayer's net investment at 120% of the appropriate "applicable federal rate"
(which rate is computed and published monthly by the IRS) at the time the
taxpayer enters into the conversion transaction, subject to appropriate
reduction for prior inclusion of interest and other ordinary income items from
the transaction.
Finally, a taxpayer may elect to have net capital gain taxed at
ordinary income rates rather than capital gains rates in order to include such
net capital gain in total net investment income for that taxable year, for
purposes of the rule that limits the deduction of interest on indebtedness
incurred to purchase or carry property held for investment to a taxpayer's net
investment income.
TAX CONSEQUENCES TO FOREIGN CERTIFICATEHOLDERS
Interest or OID paid on a certificate to a nonresident alien
individual, foreign partnership or foreign corporation that has no connection
with the United States other than holding certificates ("Nonresidents") will
normally qualify as portfolio interest (except where (i) the recipient is a
holder, directly or by attribution, of 10% or more of the trust, or (ii) the
recipient is
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a controlled foreign corporation to which the trust is a related person) and
will be exempt from federal income tax. Upon receipt of the appropriate
ownership statements and certifications, the trustee to the trust normally
will be relieved of obligations to withhold tax from such interest payments.
These provisions supersede the generally applicable provisions of United
States law that would otherwise require the trustee of the trust to withhold
at a 30% rate (unless such rate were reduced or eliminated by an applicable
tax treaty) on, among other things, interest and other fixed and
determinable, annual or periodic income paid to Nonresidents.
To the extent that interest or OID on a grantor trust certificate would
be exempt under Sections 871(h)(1) and 881(c) of the Code from United States
withholding tax, and the grantor trust certificate is not held in connection
with a certificateholders's trade or business in the United States, such grantor
trust certificate will not be subject to United States estate taxes in the
estate of a Nonresident alien individual.
On October 6, 1997, final Treasury regulations (the "WITHHOLDING TAX
REGULATIONS") were issued that modify certain of the filing requirements with
which Nonresidents 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 Nonresidents currently required to file Form W-8 or W-8BEN generally will
continue to be required to file that form. However, the requirement that
Nonresidents submit Form W-8 or W-8ECI is extended to most Nonresidents who wish
to seek an exemption from withholding tax on the basis that income from the
certificates is effectively connected with the conduct of a United States trade
or business (in lieu of Form 4224) and to Nonresidents wishing to rely on a tax
treaty to reduce the withholding tax rate (in lieu of Form 1001). Under the
Withholding Tax Regulations, Nonresidents would generally be required to submit
Form W-8BEN in lieu of Form 1001 or to submit Form W-8ECI in lieu of Form 4224,
although alternative documentation may be applicable in certain situations. The
Withholding Tax Regulations are effective for payments of interest due after
December 31, 2000, but Forms 4224 and 1001 filed prior to that date will
continue to be effective until the earlier of December 31, 2001 or the current
expiration date of those forms. Prospective investors should consult their tax
advisors with respect to the effect of the Withholding Tax Regulations.
INFORMATION REPORTING AND BACKUP WITHHOLDING. The servicer will furnish
or make available, within a reasonable time after the end of each calendar year,
to each person who was a grantor trust certificateholder at any time during the
year:
- information as may be deemed necessary or desirable to assist
grantor trust certificateholders in preparing their federal
income tax returns, or
- to enable holders to make the information available to
beneficial owners or financial intermediaries that hold
grantor trust certificates as nominees on behalf of beneficial
owners.
If a holder, beneficial owner, financial intermediary or other recipient of a
payment on behalf of a beneficial owner fails to supply a certified taxpayer
identification number or if the Secretary of
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the Treasury determines that a person has not reported all interest and
dividend income required to be shown on its federal income tax return, 31%
backup withholding may be required with respect to any payments. Any amounts
deducted and withheld from a distribution to a recipient would be allowed as
a credit against the recipient's federal income tax liability. Prospective
investors should consult their own tax advisors concerning the potential
impact of the Withholding Tax Regulations.
STATE TAX CONSEQUENCES
In addition to the federal income tax consequences described in
["Federal Income Tax Considerations"] above, we suggest that potential
purchasers consider the state income tax consequences of the acquisition,
ownership and disposition of the certificates. State income tax law may vary
substantially from state to state, and this discussion does not purport to
describe any aspect of the income tax laws of any state. Therefore, potential
purchasers should consult their own tax advisors with respect to the various tax
consequences of an investment in the certificates.
CERTAIN ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other retirement plan or
arrangement, including individual retirement accounts and annuities, Keogh plans
and collective investment funds, separate accounts and general accounts in which
such plans, accounts or arrangements are invested, that is subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
Section 4975 of the Code (each, a "Plan") should carefully review with its legal
advisors whether the purchase or holding of the offered certificates could give
rise to a transaction that is prohibited or is not otherwise permitted either
under ERISA or Section 4975 of the Code or whether a statutory or administrative
exemption may be available.
The U.S. Department of Labor has issued an individual exemption to
[NAME OF UNDERWRITER] (the "Exemption"), which generally exempts from the
application of the prohibited transaction provisions of Sections 406(a) and (b)
and 407(a) of ERISA, and the excise taxes imposed on such prohibited
transactions pursuant to Sections 4975(a) and (b) of the Code, the purchase,
sale and holding of certain pass-through certificates underwritten by an
Underwriter, as hereinafter defined, provided that certain conditions set forth
in the Exemption are satisfied. For purposes of this discussion, the term
"Underwriter" shall include (a) [NAME OF UNDERWRITER] (c) any person directly or
indirectly, through one or more intermediaries, controlling, controlled by or
under common control with [NAME OF UNDERWRITER] and (d) any member of the
underwriting syndicate or selling group of [NAME OF UNDERWRITER] or a person
described in (c) who is a manager or co-manager with respect to the offered
certificates.
The obligations covered by the Exemption include equipment installment
obligations such as the receivables. The Exemption would apply to the
acquisition, holding and resale of the certificates by a Plan only if specific
conditions (certain of which are described below) are met. It is not clear
whether the Exemption applies to participant directed plans as described in
Section 404(c) of ERISA or plans that are subject to Section 4975 of the Code
but that are not
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subject to Title I of ERISA, such as certain Keogh plans and certain
individual retirement accounts.
The Exemption sets forth six general conditions that, among others,
must be satisfied for a transaction involving the purchase, sale and holding
of [LIST CLASS(ES) THAT ARE NOT SUBORDINATE] certificates by a Plan to be
eligible for exemptive relief thereunder. First, the acquisition of the
certificates by a Plan must be on terms that are at least as favorable to the
Plan as they would be in an arm's-length transaction with an unrelated party.
Second, the rights and interests evidenced by such certificates must not be
subordinated to the rights and interests evidenced by the other certificates
of the same trust. Third, such certificates at the time of acquisition by the
Plan must be rated in one of the three highest generic rating categories by
Standard & Poor's Rating Services, a division of The McGraw-Hill Companies,
Inc. ("S&P"), Duff & Phelps Credit Rating Co. ("DCR"), Moody's Investors
Service, Inc. ("Moody's") and Fitch IBCA, Inc. ("Fitch") (each, a "Rating
Agency"). Fourth, the Trustee cannot be an affiliate of any other member of
the "Restricted Group," which consists of each of the Underwriters, the
Depositor, the Servicer, the Trustee, any sub-servicer, and any borrower with
respect to the receivables constituting more than 5.0% of the aggregate
unamortized principal balance of the receivables as of the date of initial
issuance of such certificates. Fifth, the sum of all payments made to and
retained by any Underwriter in connection with the distribution or placement
of certificates must represent not more than reasonable compensation for
underwriting such certificates; the sum of all payments made to and retained
by the Depositor pursuant to the assignment of the receivables to the trust
must represent not more than the fair market value of such obligations; and
the sum of all payments made to and retained by the Servicer or any
sub-servicer must represent not more than reasonable compensation for such
person's services under the pooling and servicing agreement and reimbursement
of such person's reasonable expenses in connection therewith. Sixth, the
investing Plan must be an accredited investor as defined in Rule 501(a)(1) of
Regulation D of the Securities and Exchange Commission under the Securities
Act.
A fiduciary of a Plan contemplating purchasing any such certificate
must make its own determination that, at the time of such purchase, such
certificate satisfies the general conditions set forth above.
The Exemption also requires that the trust meet the following
requirements: (i) the trust must consist solely of assets of the type that
have been included in other investment pools; (ii) certificates in such other
investment pools must have been rated in one of the three highest categories
of S&P, DCR, Moody's or Fitch for at least one year prior to the Plan's
acquisition of such certificates; and (iii) certificates in such other
investment pools must have been purchased by investors other than Plans for
at least one year prior to any Plan's acquisition of such certificates.
If the general conditions of the Exemption are satisfied, they may
provide an exemption from the restrictions imposed by Sections 406(a) and
407(a) of ERISA (as well as the excise taxes imposed by Sections 4975(a) and
(b) of the Code by reason of Sections 4975(c)(1)(A)
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through (D) of the Code) in connection with (i) the direct or indirect sale,
exchange or transfer of such certificates in the initial issuance of
certificates between the Depositor or an Underwriter and a Plan when the
Depositor, an Underwriter, the Trustee, Servicer, a sub-servicer or a
borrower is a "party in interest" with respect to the investing Plan, (ii)
the direct or indirect acquisition or disposition in the secondary market of
the certificates by a Plan and (iii) the holding of the certificates by a
Plan. However, no exemption is provided from the restrictions of Sections
406(a)(1)(E), 406(a)(2) and 407 of ERISA for the acquisition or holding of
such certificate on behalf of an "Excluded Plan" by any person who has
discretionary authority or renders investment advice with respect to the
assets of such Excluded Plan. For purposes hereof, an Excluded Plan is a Plan
sponsored by any member of the Restricted Group.
If certain specific conditions of the Exemptions are also satisfied,
each such Exemption may provide relief from the restrictions imposed by Sections
406(b)(1) and (b)(2) of ERISA and the taxes imposed by Section 4975(c)(1)(E) of
the Code to an obligor acting as a fiduciary with respect to the investment of a
Plan's assets in the certificates (or such obligor's affiliate) only if, among
other requirements (i) such obligor (or its affiliate) is an obligor with
respect to 5% or less of the fair market value of the assets contained in the
trust and is otherwise not a member of the Restricted Group, (ii) a Plan's
investment in certificates does not exceed 25% of all of the Certificates
outstanding at the time of the acquisition, (iii) immediately after the
acquisition, no more than 25% of the assets of the Plan are invested in
certificates representing an interest in trusts (including the trust) containing
assets sold or serviced by the Depositor or the Servicer and (iv) in the case of
the acquisition of the certificates in connection with their initial issuance,
at least 50% of the aggregate interest in the trust is acquired by persons
independent of the Restricted Group.
The Exemptions also apply to transactions in connection with the
servicing, management and operation of the trust, provided that, in addition to
the general requirements described above, (a) such transactions are carried out
in accordance with the terms of a binding pooling and servicing agreement and
(b) the pooling and servicing agreement is provided to, or described in all
material respects in the prospectus or private placement memorandum provided to,
investing Plans before their purchase of certificates issued by the trust. The
pooling and servicing agreement is a pooling and servicing agreement as defined
in the Exemption. The pooling and servicing agreement provides that all
transactions relating to the servicing, management and operations of the trust
must be carried out in accordance with the pooling and servicing agreement.
Before purchasing any [LIST NON-SUBORDINATE CLASSE(S)] certificate, a
fiduciary of a Plan should itself confirm that the specific and general
conditions of the Exemption and the other requirements set forth in the
Exemption would be satisfied.
THE CHARACTERISTICS OF THE [LIST SUBORDINATE CLASSES ] CERTIFICATES DO
NOT MEET THE REQUIREMENTS OF THE EXEMPTION. ACCORDINGLY, CERTIFICATES OF THOSE
CLASSES MAY NOT BE ACQUIRED BY A PLAN, OTHER THAN AN INSURANCE COMPANY GENERAL
ACCOUNT, WHICH MAY BE ABLE TO RELY ON SECTION III OF PTE 95-60 (DISCUSSED
BELOW).
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Section III of Department of Labor Prohibited Transaction Class
Exemption 95-60 ("PTE 95-60") provides relief from the application of the
prohibited transaction provisions of Sections 406(a), 406(b) and 407(a) of ERISA
and Section 4975 of the Code for transactions in connection with the servicing,
management and operation of a trust (such as the trust) in which an insurance
company general account has an interest as a result of its acquisition of
certificates issued by the trust, provided that certain conditions are
satisfied. If these conditions are met, insurance company general accounts would
be allowed to purchase classes of certificates (such as the [LIST SUBORDINATE
CLASSES] certificates) which do not meet the requirements of the Exemption
solely because they (i) are subordinated to other classes of certificates in the
trust and/or (ii) have not received a rating at the time of the acquisition in
one of the three highest rating categories from S&P, DCR, Moody's or Fitch. All
other conditions of the Exemption would have to be satisfied in order for PTE
95-60 to be available. Before purchasing [LIST SUBORDINATE CLASSES]
certificates, an insurance company general account seeking to rely on Section
III of PTE 95-60 should itself confirm that it is eligible for, and has
satisfied all applicable conditions and other requirements of relief under such
section. Any Plan fiduciary considering the purchase of certificates should
consult with its counsel with respect to the applicability of the Exemption and
other issues and determine on its own whether all conditions have been satisfied
and whether the certificates are an appropriate investment for a Plan under
ERISA and the Code (or, in the case of governmental plans, under applicable
Federal, state or local law). Each purchaser of [LIST NON-SUBORDINATE CLASSE(S)]
certificates with the assets of one or more Plans shall be deemed to represent
that each such Plan qualifies as an "accredited investor" as defined in Rule
501(a)(1) of Regulation D under the Securities Act. No Plan may purchase or hold
[LIST NON-SUBORDINATE CLASSE(S)] certificates unless such certificates are rated
in one of the top three rating categories by at least one Rating Agency at the
time of such purchase, unless such Plan is an insurance company general account
that represents and warrants that it is eligible for, and meets all of the
requirements of, Part III of PTCE 95-60. Each Purchaser of [LIST SUBORDINATE
CLASSES] certificates shall be deemed to represent that it is eligible for, and
meets all of the requirements of, Part III of PTCE 95-60.
RATINGS
It is a condition to the issuance of the certificates that the class
[__] certificates be rated at least ["___ "] by [_________] and the class [__]
certificates be rated at least ["___ "] by [__________]. We collectively refer
to [________] and [________] as the rating agencies.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating agency. Each security rating should be evaluated independently
of any other security rating.
The ratings on the certificates address the likelihood of the receipt
by certificateholders of all distributions with respect to the underlying
receivables to which they are entitled. The ratings do not represent any
assessment of the likelihood that the rate of principal prepayments by obligors
or lessees might differ from those originally anticipated. As a result of the
differences in the rate of principal prepayments, certificateholders might
suffer a lower-than-
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anticipated yield to maturity. See "Risk Factors" and "Weighted Average Life
of the Certificates."
The [depositor] has not requested a rating on the offered certificates
by any rating agency other than [_________ and ________]. However, we cannot
assure you as to whether any other rating agency will rate the offered
certificates, or, if it does, what rating would be assigned by any such other
rating agency. A rating on the offered certificates by another rating agency, if
assigned at all, may be lower than the ratings assigned to the offered
certificates by [___________ and __________].
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting
agreement, dated [____________ __, 20__], the depositor has agreed to cause the
trust to sell to [______________], the underwriter, all of the certificates. The
underwriting agreement provides that the underwriter is obligated to purchase
all of the certificates if any are purchased.
The underwriter proposes to offer the certificates initially [at the
prices on the cover page of this prospectus supplement, and to certain dealers
at that price less a discount of up to [___%] of the principal on each class
[__]certificate and [___%] on each class [__] certificate] [in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale]. The underwriter and those dealers may allow a discount of [___%] of the
principal of each class [__] certificate and [___%] of each class [__]
certificate on sales to certain other dealers. After the initial public
offering, the public offering price and such discounts may change.
The depositor estimates that its out of pocket expenses for this
offering will be approximately [$______________].
The depositor does not intent do apply for listing of the certificates.
Further, the certificates are a new issue of securities with no established
trading market. The underwriter intends to make a secondary market for the
certificates. However, it is not obligated to do so and may discontinue making a
secondary market for the certificates at any time without notice. We cannot
assure you as to how liquid the trading market for the certificates will be.
[________] has agreed to indemnify the underwriter against certain
liabilities under the Securities Act, or contribute to payments which the
underwriter may be required to make in respect thereof.
The underwriters may engage in over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids in accordance
with Regulation M under the Securities Exchange Act. To explain:
- Over-allotment involves syndicate sales in excess of
the offering size, which creates a syndicate short
position;
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- Stabilizing transactions permit bids to purchase the
underlying security as long as the stabilizing bids
do not exceed a specified maximum;
- Syndicate covering transactions involve purchases of
the certificates in the open market after the
distribution has been completed in order to cover
syndicate short positions;
- Penalty bids permit the underwriters to reclaim a
selling concession from a syndicate member when the
certificates originally sold by a syndicate member
are purchased in a syndicate covering transaction to
cover syndicate short positions.
Stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the certificates to be higher than it would
otherwise be in the absence of these transactions. The underwriter is not
required to engage in these activities and, if commenced, may end any of these
activities at any time.
[In the ordinary course of their respective businesses, the underwriter
and its affiliates have engaged and may in the future engage in investment
banking, commercial banking, insurance or other transactions with [the
originator] [the seller] [the depositor] and its affiliates.
LEGAL OPINIONS
Certain legal matters relating to the certificates and certain federal
income tax and other matters will be passed upon for the trust and by [the
originator] [the seller] [the servicer] by [____________] and for the
underwriter, the depositor and the trust by Mayer, Brown & Platt, Chicago,
Illinois. [Mayer, Brown & Platt may from time to time render legal services to
the originator, the seller, the servicer and their affiliates.]
S-34
<PAGE>
APPENDIX A
COMPOSITION OF THE RECEIVABLES
AS OF THE [INITIAL] CUTOFF DATE
Aggregate Principal Balance.........................................$___________
Number of Receivables......................................................_____
Average Amount Financed.............................................$___________
Range of Amounts Financed...........................$___________ to $___________
Average Remaining Principal Balance.................................$___________
Range of Remaining Principal Balances...............$___________ to $___________
Weighted Average APR......................................................_____%
Range of APRs..................................................._____% to _____%
Weighted Average Original Term to Maturity (1) ......................____ months
Range of Original Terms to Maturity......................... ____ to ____ months
Weighted Average Remaining Term to Maturity (1)......................____ months
Range of Remaining Terms to Maturity..........................___ to ____ months
New Equipment (Percentage of Aggregate Principal Balance)..................____%
Used Equipment (Percentage of Aggregate Principal Balance).................____%
(1) Rounded to the nearest month.
A-1
<PAGE>
DISTRIBUTION OF THE RECEIVABLES BY APR
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<CAPTION>
Percentage
Aggregate by Aggregate Percentage
Principal Principal Number of by Number of
APR Range Balance Balance (1) Receivables Receivables (1)
---------- --------- ------------ ----------- ---------------
<S> <C> <C> <C> <C>
% $ %
-------- ----- ------- ------
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
A-2
<PAGE>
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION OF RECEIVABLES
AS OF THE [INITIAL] CUTOFF DATE
Percentage
by Aggregate Percentage
Aggregate Principal Number of by Number of
State Principal Balance Balance(1) Receivables Receivables(1)
----- ----------------- ------- ----------- -----------
<S> <C> <C> <C> <C>
$ % %
----------------- ------- ----------- -----------
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
A-3
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION BY ORIGINAL TERM TO SCHEDULED MATURITY OF THE RECEIVABLES
AS OF THE [INITIAL] CUTOFF DATE
Percentage
Aggregate by Aggregate Percentage
Principal Principal Number of by Number of
Range of Original Terms Balance Balance(1) Receivables Receivables(1)
----------------------- ------- ------- ----------- -----------
<S> <C> <C> <C> <C>
to months $ % %
to months
to months
to months
to months
to months
to months
to months
to months
months
----------------- -------- ----------- -----------
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
A-4
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION BY REMAINING TERM TO SCHEDULED MATURITY OF THE RECEIVABLES
AS OF THE [INITIAL] CUTOFF DATE
Percentage
Aggregate by Aggregate Percentage
Range of Principal Principal Number of by Number of
Remaining Terms Balance Balance(1) Receivables Receivables(1)
--------------- ------- -------- ----------- -----------
<S> <C> <C> <C> <C>
to months $ % %
to months
to months
to months
to months
to months
to months
to months
to months
to months
months
--------------- ------- -------- ----------- -----------
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
A-5
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF RECEIVABLES BY AMOUNT FINANCED
AS OF THE [INITIAL] CUTOFF DATE
Percentage
Aggregate by Aggregate Percentage
Principal Principal Number of by Number of
Amount Financed Balance Balance(1) Receivables Receivables(1)
--------------- ------- ------- ----------- -----------
<S> <C> <C> <C> <C>
$5,000.00 to $9,999.99 $ % %
$10,000.00 to $14,999.99
$15,000.00 to $19,999.99
$20,000.00 to $24,999.99
$25,000.00 to $29,999.99
$30,000.00 to $34,999.99
$35,000.00 to $39,999.99
$40,000.00 to $44,999.99
$45,000.00 to $49,999.99
$50,000.00 to $54,999.99
$55,000.00 to $59,999.99
$60,000.00 to $64,999.99
$65,000.00 to $69,999.99
$100,000.00 and above
------- ------- ----------- -----------
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
A-6
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF RECEIVABLES BY CURRENT PRINCIPAL BALANCE
AS OF THE [INITIAL] CUTOFF DATE
Percentage
Aggregate by Aggregate Percentage
Current Principal Principal Number of by Number of
Principal Balance Balance Balance(1) Receivables Receivables(1)
----------------- ------- ------- ----------- -----------
<S> <C> <C> <C> <C>
$5,000.00 to $9,999.99 $ % %
$10,000.00 to $14,999.99
$15,000.00 to $19,999.99
$20,000.00 to $24,999.99
$25,000.00 to $29,999.99
$30,000.00 to $34,999.99
$35,000.00 to $39,999.99
$40,000.00 to $44,999.99
$45,000.00 to $49,999.99
$50,000.00 to $54,999.99
$55,000.00 to $59,999.99
$60,000.00 to $64,999.99
$95,000.00 to $99,999.99
------- ------- ----------- -----------
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
A-7
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF RECEIVABLES BY TYPE
Percentage
Aggregate by Aggregate Percentage
Principal Principal Number of by Number of
Balance Balance(1) Receivables Receivables(1)
------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Rule of 78's receivables $ % %
Fixed value receivables
Simple interest receivables
Actuarial receivables
------- ------- ----------- ----------
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
[Insert additional tables setting forth information applicable to receivables
supporting a specific series.]
A-8
<PAGE>
The information in this prospectus supplement and the accompanying prospectus
is not complete and may be changed. We may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This prospectus supplement and the accompanying prospectus are not
an offer to sell these securities and they are not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
<PAGE>
[PROSPECTUS SUPPLEMENT VERSION 3B]
[Form of Owner Trust Prospectus Supplement]
Subject to completion, dated __________ __, _____
Prospectus Supplement dated [_______ __, 20__] (to Prospectus
dated _____ __, 20__)
$_____________
[______________________]
ISSUER
PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION
DEPOSITOR
The trust will issue [__] classes of asset backed notes and [__] classes of
asset backed certificates that are offered under this prospectus supplement.
Credit enhancement for the notes and certificates is provided by:
[Description of applicable credit enhancement]
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-[__] IN
THIS PROSPECTUS SUPPLEMENT AND ON PAGE [__] IN THE PROSPECTUS.
[[________] will offer [__] classes of notes and certificates to the public
[at varying prices to be determined at the time of sale].
<TABLE>
<CAPTION>
Final
Interest Rate Price to Underwriting Proceeds to Scheduled
Class Principal Amount (Per Annum) Public(1) Discount(2) Trust(3) Maturity Date
----- ---------------- ----------- --------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
(1) Total price to public = [$___________________].
(2) Total underwriting discount =[$__________________].
(3) Total proceeds to Trust = [$_____________________], before deducting
expenses estimated to be [$__________________].
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THESE SECURITIES OR DETERMINED THAT THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
[UNDERWRITER]
<PAGE>
OVERVIEW OF THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS
We provide information to you about the securities in two separate
documents that progressively provide more detail:
- this prospectus supplement, which describes the specific terms
of your series of securities; and
- the accompanying prospectus, which provides general
information, some of which may not apply to your series of
securities.
THE PROSPECTUS SUPPLEMENT AND THE PROSPECTUS, TOGETHER, PROVIDE A
DESCRIPTION OF THE MATERIAL TERMS OF YOUR SECURITIES. YOU SHOULD RELY ON THE
INFORMATION IN THIS PROSPECTUS SUPPLEMENT TO THE EXTENT IT PROVIDES A MORE
SPECIFIC DESCRIPTION OF YOUR SECURITIES.
You should rely only on the information provided in this prospectus
supplement and the accompanying prospectus, including the information
incorporated by reference. You can request information incorporated by
reference from Prudential Securities Secured Financing Corporation, One New
York Plaza, New York, New York 10292, Attention: P. Carter Rise. See "Where
You Can Find More Information" and "Incorporation of Information by Reference"
in the prospectus. We have not authorized anyone to provide you with different
information. We are not offering the securities in any state where the offer
is not permitted.
We include cross-references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
further related discussions. The table of contents in this prospectus
supplement and the table of contents included in the accompanying prospectus
provide the pages on which these captions are located.
We have made forward-looking statements in this prospectus
supplement and the accompanying prospectus. Forward-looking statements involve
risks and uncertainties that could cause actual results to differ materially
from those in the forward-looking statements. Forward-looking statements are
statements, other than statements of historical facts, that address
activities, events or developments that we expect or anticipate will or may
occur in the future. Forward-looking statements also include any other
statements that include words such as "anticipate," "believe," "plan,"
"estimate," "expect," "intend" and other similar expressions.
i
<PAGE>
Forward-looking statements are based on certain assumptions and
analyses we have made in light of our experience and our perception of
historical trends, current conditions, expected future developments and other
factors we believe are appropriate. Whether actual results and development
will conform with our expectations and predictions is subject to a number of
risks and uncertainties.
All of the forward-looking statements made in this prospectus
supplement and the accompanying prospectus are qualified by these cautionary
statements, and there can be no assurance that the actual results or
developments we have anticipated will be realized. Even if the results and
developments in our forward-looking statements are substantially realized,
there is no assurance that they will have the expected consequences to or
effects on us, the trust, the seller(s), the originator(s) or any other person
or on our respective businesses or operations. The foregoing review of
important factors, including those discussed in detail in this prospectus
supplement and the accompanying prospectus should not be construed as
exhaustive. We undertake no obligation to release the results of any future
revisions we may make to forward- looking statements to reflect events or
circumstances after the date of this prospectus supplement and the
accompanying prospectus or to reflect the occurrences of anticipated events.
ii
<PAGE>
<TABLE>
--------------------------------------------------------------------------------------------------------------
TABLE OF CONTENTS
<S> <C>
Overview of the Information in this Prospectus Supplement and the Prospecuts...............................i
Summary of Transaction.....................................................................................v
Summary of the Notes and Certificates.....................................................................vi
Prospectus Supplement Summary............................................................................S-1
Depositor.........................................................................................S-1
Issuer............................................................................................S-1
Servicer..........................................................................................S-1
Trustee...........................................................................................S-1
Indenture Trustee.................................................................................S-1
Seller(s).........................................................................................S-1
Originator(s).....................................................................................S-1
The Notes and Certificates........................................................................S-1
Closing Date......................................................................................S-1
Payment Dates.....................................................................................S-1
Cut-off Date(s)...................................................................................S-2
Collection Period.................................................................................S-2
Closing Date......................................................................................S-2
Interest Payments.................................................................................S-2
Principal Payments................................................................................S-2
[Interest Only Notes].............................................................................S-3
[Principal-Only Notes]............................................................................S-3
[Accrual Notes]...................................................................................S-4
Final Scheduled Materials Date....................................................................S-4
Optional Redemption...............................................................................S-4
Mandatory Termination.............................................................................S-4
Trust Assets......................................................................................S-4
The [Initial] Receivables.........................................................................S-5
[Pre-Funding].....................................................................................S-6
Revolving Period..................................................................................S-7
[Interest Reserve Account]........................................................................S-7
[Residual Payment Securities].....................................................................S-8
[Credit Enhancement]..............................................................................S-8
[Cross Collateralization].........................................................................S-8
[The Certificates]................................................................................S-8
Distributions.....................................................................................S-8
Available Funds...................................................................................S-8
Application of Payments...........................................................................S-9
Federal Tax Considerations........................................................................S-9
ERISA Considerations.............................................................................S-10
Ratings..........................................................................................S-10
RISK FACTORS............................................................................................S-11
Payments will be made only from the limited assets of the trust..................................S-11
You bear reinvestment risk and payment delay risk due to repurchase..............................S-11
Variations in regional economic conditions may cause payment reductions or delays................S-12
[Possible pre-payments as a result of funding or revolving period.]..............................S-12
[Changes in pool characteristics as a result of pre-funding or revolving period.]................S-12
[Subordination of the class [__] notes provides only limited protection against losses.].........S-13
[Additional risk factors applicable for a specific series.]......................................S-13
The Trust...............................................................................................S-14
Capitalization of the Trust......................................................................S-14
The Trustee......................................................................................S-14
The Indenture Trustee............................................................................S-14
[Use of Proceeds].......................................................................................S-15
The Receivables.........................................................................................S-15
Eligibility Criteria.............................................................................S-15
The Seller(s)...........................................................................................S-16
The Originator(s).......................................................................................S-16
The Servicer............................................................................................S-16
Delinquency and Loss Experience..................................................................S-16
Servicing and Collections........................................................................S-16
Description of the Securities...........................................................................S-17
Description of the Notes.........................................................................S-17
Description of the Certificates..................................................................S-18
Payments.........................................................................................S-18
--------------------------------------------------------------------------------------------------------------
iii
<PAGE>
--------------------------------------------------------------------------------------------------------------
[Pre-funding Account] [Revolving Period].........................................................S-20
Optional Redemption..............................................................................S-20
Description of the Transaction
Documents........................................................................................S-21
[Description of Originator/Seller Representations and Warranties]................................S-21
[Sale and] Assignment of [Initial] Receivables [and Additional Receivables]......................S-21
Accounts.........................................................................................S-22
Servicing Compensation and Payment of Expenses...................................................S-22
Available Funds..................................................................................S-23
Application of Payments..........................................................................S-23
[Subordination of Certificateholders]............................................................S-23
Legal Aspects of the Receivables........................................................................S-23
Legal Investment........................................................................................S-23
Federal Income Tax Considerations.......................................................................S-24
Tax Characterization of the Trust................................................................S-25
Tax Consequences to Holders of the Notes.........................................................S-25
Tax Consequences to Holders of the Certificates..................................................S-28
State Tax Consequences..................................................................................S-33
ERISA Considerations....................................................................................S-34
General..........................................................................................S-34
The Notes........................................................................................S-34
The Certificates.................................................................................S-36
Ratings.................................................................................................S-36
Underwriting............................................................................................S-37
Legal Opinions..........................................................................................S-38
--------------------------------------------------------------------------------------------------------------
</TABLE>
iv
<PAGE>
-------------------------------------------------------------------------------
SUMMARY OF TRANSACTION
[SCHEMATIC DRAWING DESCRIBING TRANSACTION]
This chart provides only a simplified overview of the relations between the
key parties to the transaction. Refer to this prospectus supplement and the
prospectus for a further description.
-------------------------------------------------------------------------------
v
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
SUMMARY OF THE NOTES AND CERTIFICATES
-------------------------------------------------------------------------------------------------------------------
[Class __] [Class ___] [Class ___] [Class ___]*
<S> <C> <C> <C>
Initial Principal
Balance:
-----------------------------------------------------------------------------------------------------------------
% of Total: [ %] [ %] [ %] [ %]
-----------------------------------------------------------------------------------------------------------------
Anticipated
Ratings:
[_______]
[_______]
[_______]
-----------------------------------------------------------------------------------------------------------------
Interest Rate:
-----------------------------------------------------------------------------------------------------------------
Interest Accrual
Method:
-----------------------------------------------------------------------------------------------------------------
Payment Dates: [___] day of each [________], or if [__] day is not a business day, then the
next business day
-----------------------------------------------------------------------------------------------------------------
Final Scheduled
Payment Date:**
-----------------------------------------------------------------------------------------------------------------
Clearance/ [DTC/Euroclear/Clearstream- [DTC/Euroclear/
Settlement: Luxembourg] Clearstream-
Luxembourg]
-----------------------------------------------------------------------------------------------------------------
Cut-Off Date: Close of business,[_____________]
-----------------------------------------------------------------------------------------------------------------
Closing Date: On or about [_______ ___, 20__]
-----------------------------------------------------------------------------------------------------------------
Final Maturity The payment date [_______]
Date:
-----------------------------------------------------------------------------------------------------------------
* We are providing information for the non-offered notes and certificates
solely to assist the reader's understanding of the notes and certificates
offered by this prospectus supplement.
** Assuming that there are no prepayments on the trust assets, that no party
exercises its right of optional redemption of the notes and certificates
and the other modeling assumptions contained in "Weighted Average Life of
the Securities" occur.
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
vi
<PAGE>
-------------------------------------------------------------------------------
SUMMARY OF TERMS
This summary highlights selected information from this document. To
understand all of the terms of the offering of the notes and certificates,
you should carefully read this entire document and the accompanying
prospectus supplement.
<TABLE>
<CAPTION>
<S> <C>
DEPOSITOR.......................... Prudential Securities Secured Financing
Corporation, formerly known as P-B Secured
Financing Corporation, a Delaware
corporation, a wholly-owned limited purpose
finance subsidiary of Prudential Securities
Incorporated.
ISSUER............................. [______________].
SERVICER........................... [______________].
TRUSTEE............................ [______________].
INDENTURE TRUSTEE.................. [______________].
SELLER(S).......................... [______________].
ORIGINATOR(S)...................... [______________].
THE NOTES AND CERTIFICATES The trust will issue the asset backed notes
and asset backed certificates described in
"Summary of the Notes and Certificates". We
refer to the notes and certificates as
securities. [The issuer is offering the
class [__] notes and the class [___]
certificates pursuant to this prospectus
supplement and prospectus. The issuer is not
offering the class [__] notes or the class
[__] certificates to the public.] The
certificates will represent fractional
undivided interests in the trust and will be
issued pursuant to the trust agreement. The
notes will represent obligations of the
trust and will be issued pursuant to the
indenture.
CLOSING DATE....................... [__________ __, 20__].
PAYMENT DATES...................... The [__] day of each [_____], beginning on
[________ __, 20__]. If the [__] day is not
a business day, then the payment date will
be the next business day.
-------------------------------------------------------------------------------
S-1
<PAGE>
-------------------------------------------------------------------------------
CUT-OFF DATE(S).................... [__________ __, 20__].
COLLECTION PERIOD.................. [Begins on the [__] day of each [month]
[quarter] and runs until and includes the
[__] day of the next [month] [quarter].
However, the first and last collection
periods are as follows:
- first: period from and including
the cut-off date to and including
[__] days prior to the first
payment date.
- last: period from but excluding the
last day of the collection period
before the termination date to and
including the termination date.
CLOSING DATE....................... On or about [__________ __, 20__].
INTEREST PAYMENTS.................. The interest rates for each class of notes
and certificates is described in "Summary of
the Notes and Certificates." [Insert
mechanics applicable to any floating rate
securities]. The indenture trustee will
calculate interest on the notes and
certificates on the basis of [a 360-day year
of twelve 30-day months]. On the first
payment date, the interest payable to
securityholders will be based upon the
actual number of days elapsed from and
including the closing date to but excluding
the first payment date [and assuming a
30-day month].
PRINCIPAL PAYMENTS................. The indenture trustee will pay principal on
the notes and certificates on each payment
date in an amount equal to the
securityholder's percentage of the principal
payment amount.
The principal payment amount for a payment
date generally will equal the sum of the
following amounts, without duplication:
- collections on the receivables
(other than charged-off
receivables) during the preceding
collection period allocable to
principal including full and
partial prepayments;
-------------------------------------------------------------------------------
S-2
<PAGE>
-------------------------------------------------------------------------------
- the portion of the purchase amount
deposited in the collection account
allocable to principal of each
receivable that was repurchased by
[the originator] [the seller] [the
servicer] as of the last day of the
preceding collection period due to
a breach of certain representations
or warranties by the originator or
a breach of certain covenants by
the servicer relating to that
receivable;
- the principal balance of each
receivable that first became a
charged-off receivable during the
preceding collection period (other
than charged-off receivables for
which substitutions occur); and
- the aggregate amount of the
reductions in the principal
balances of the receivables
resulting from court orders during
the preceding collection period in
obligor insolvency proceedings
which reduce the amount owed on
those obligor's receivables.
The securityholder percentage of the
principal payment amount for any payment
will be equal to [insert mechanics specific
to building and/or maintaining any form of
credit enhancement].
[[See "Description of the
Securities--Payments"] for additional detail
and for special priority rules that would
apply in a default situation.]
[Description of priority of payments among
various classes].
[INTEREST ONLY NOTES].............. [The class [___] notes are interest only
notes. This means that the indenture trustee
will distribute interest, based upon a
notional amount, but will not distribute
principal on these notes.]
[PRINCIPAL-ONLY NOTES]............. [The class [___] notes are principal only
notes. This means that the indenture trustee
will not distribute interest on these notes.
The indenture trustee will distribute a
portion of the principal payment amount to
the investors of these notes.]
-------------------------------------------------------------------------------
S-3
<PAGE>
-------------------------------------------------------------------------------
[ACCRUAL NOTES].................... [The class [___] notes are accrual notes.
Interest accrued on this class of notes will
be added to its principal balance rather
than distributed to the holders of these
notes until [insert mechanics describing
when interest accrual ceases.]]
FINAL SCHEDULED
PAYMENT DATE....................... The outstanding principal amount, if any, of
the notes and certificates will be payable
on their final scheduled payment dates as
described in the "Summary of Notes and
Certificates" table.
OPTIONAL REDEMPTION................ [The seller] [the depositor] [the servicer]
may purchase all the receivables when the
total outstanding principal amount of the
receivables declines to less than [___%] of
the total principal balance of the
receivables as of the cut-off date.
The purchase price for the securities will
be equal to the remaining unpaid principal
amount of the receivables plus accrued
interest through the payment date on which
the redemption occurs. If [the seller] [the
depositor] [the servicer] exercises this
option, the outstanding principal balance of
the securities will be paid in full with
accrued interest.]
MANDATORY TERMINATION.............. [The trust will have a [pre-funding]
[revolving] period during which it will
purchase additional receivables. On the
payment date on or after the last day of the
[pre- funding] [revolving] period, any funds
remaining in the trust's [pre-funding]
[revolving] account after the purchase of
receivables on that payment date will be
applied to partially redeem the notes and
certificates then outstanding.]
TRUST ASSETS....................... The primary assets of the trust will be
[participation interests in] [security
interests in] a pool of [installment sales
contracts][and][loan contracts][secured
by][and][finance leases of] equipment. We
refer to these [installment sales
contracts][and][loan contracts] as
"installment sales contracts" and to
installment sales contracts and leases,
collectively, as "receivables."]
[__________] is the originator of the
receivables. The receivables in the trust
will be transferred by [the originator to
the seller, by the seller to the depositor,
and then by the
-------------------------------------------------------------------------------
S-4
<PAGE>
-------------------------------------------------------------------------------
depositor to the trust.] The trust will
grant a security interest in the receivables
and the other trust property to the
indenture trustee for the benefit of the
noteholders. The trust assets will also
include the following:
- monies received under the [initial]
receivables after a cutoff date of
[______ __, 20__] [and under
additional receivables sold to the
trust after a later cutoff date];
- amounts held in bank accounts
established for the trust
[including amounts on deposit in
the collection account, pre-funding
account, revolving account, reserve
account and yield supplement
account];
- [interest and other investment
income earned on short-term
investments held by, or on behalf
of, the trust;]
- security interests in the equipment
financed by the receivables;
- any proceeds from insurance
policies covering financed
equipment or the related obligors;
- the proceeds of any repossessed
equipment financed by the
receivables;
- rights of the seller under its
purchase agreement with [_____] and
rights of the depositor under its
receivables transfer agreement with
the seller [; and]
- [insert description of any other
credit enhancement applicable to a
particular series].
THE [INITIAL] RECEIVABLES.......... On the closing date, the trust will acquire
[a participation interest in] [a security
interest in] receivables with an aggregate
principal balance of [$__________]as of the
[initial] cutoff date of [______ __, 20__].
As of the [initial] cutoff date:
-------------------------------------------------------------------------------
S-5
<PAGE>
-------------------------------------------------------------------------------
- the weighted average annual
percentage rate of the initial
receivables was approximately
[___%];
- the weighted average remaining term
to scheduled maturity of the
initial receivables was
approximately [__] months;
- the weighted average original term
to scheduled maturity of the
initial receivables was
approximately [__] months;
- approximately [__%] of the
receivables by aggregate principal
balance were secured by used
equipment; and
- [insert description of additional
pool criteria applicable for a
particular series.]
No [initial] receivable has a scheduled
maturity later than [________ __, 20__],
which is [___] months before the final
scheduled payment date of the securities.
[PRE-FUNDING]...................... [In addition to the initial receivables, the
trust will purchase additional receivables
during a pre-funding period beginning on the
closing date and ending not later than the
close of business on [_______ __, 20__].]
[The trust will pay the purchase price for
additional receivables with [funds on
deposit in] [investments held in] a
pre-funding account established for the
trust. The seller will deposit]
[[$________]] [insert description of
investments] into the pre-funding account on
the closing date. [In addition, during the
period beginning on the closing date and
ending on __________, the trust will deposit
[all/a portion of] the payments collected on
the receivables in the pre-funding account,
rather than pay such amounts to
securityholders. These additional amounts
will also be used to purchase additional
receivables during [the same period]. The
trust expects to purchase additional
receivables with an aggregate principal
balance approximately equal to the amount
deposited in the pre- funding account. Prior
to being used to purchase
-------------------------------------------------------------------------------
S-6
<PAGE>
-------------------------------------------------------------------------------
receivables, funds on deposit in the
pre-funding account will be invested from
time to time in highly rated short-term
securities.]
[The pre-funding period will end earlier
than [_______ __, ____] if the balance in
the pre-funding account is reduced to less
than [$____].] [The pre-funding period will
also terminate early if specified servicer
defaults or events of default under the sale
and servicing agreement or the indenture
occur. Any balance remaining in the
pre-funding account at the end of the
pre-funding period will be applied to
partially redeem the securities then
outstanding.]
REVOLVING PERIOD................... [In addition to the initial receivables, the
trust will purchase additional receivables
during a revolving period beginning on the
closing date and ending not later than the
close of business on [_________ __, 20__].]
[The trust will pay the purchase price for
additional receivables with funds on deposit
in a revolving account established for the
trust. During the revolving period, the
servicer will not distribute principal
collections on the securities to
securityholders. Instead, it will deposit
principal collections into the revolving
account. The trust expects to purchase
additional receivables with an aggregate
principal balance approximately equal to the
total amount of funds to be deposited into
the revolving account. Prior to being used
to purchase receivables, funds on deposit in
the pre-funding account will be invested
from time to time in highly rated short-term
securities.]
[The revolving period will end no later than
[_______ __, 20__].] [The revolving period
will terminate earlier if specified servicer
defaults or events of default under the sale
and servicing agreement or indenture occur.
Any balance remaining in the revolving
account at the end of the revolving period
will be applied to partially redeem the
securities then outstanding.]
[INTEREST RESERVE ACCOUNT]......... [We anticipate that the average interest
rate earned by the trust on investment of
funds in the [pre-funding] [revolving]
account will be less than the interest rate
on the
-------------------------------------------------------------------------------
S-7
<PAGE>
-------------------------------------------------------------------------------
securities. To provide a source of funds to
cover any shortfall resulting from this
difference, we will [deposit [$_______] into
a special interest reserve account of the
trust] [fund a special interest reserve
account of the trust from collections
received on the receivables]. On each
payment date during the [pre-funding]
[revolving] period, money from the interest
reserve account will be used to make up for
this interest shortfall.]
[RESIDUAL PAYMENT SECURITIES] [The issuer may issue one or more new series
of notes or certificates backed by some or
all of the "equity interest" or rights to
the trust assets that are in excess of the
noteholders and certificateholders rights in
those assets.]
[CREDIT ENHANCEMENT]............... [Description of any credit enhancement
applicable for a particular series.]
[CROSS COLLATERALIZATION].......... [Description of any cross collateralization
between series.]
[THE CERTIFICATES]................. [On the closing date, the issuer will issue
certificates in an aggregate principal
amount of [$_________]. [[__________] will
retain the entire principal amount of the
certificates.] The certificates will be
subordinated in priority of payment to
interest and principal on the notes to the
extent described in this prospectus
supplement. The subordination of the
certificates will provide credit enhancement
for the notes.]
DISTRIBUTIONS...................... The servicer, or the indenture trustee on
behalf of and at the direction of the
servicer, will establish and maintain a
collection account in the name of the
indenture trustee into which all payments
made on the receivables will be deposited
and held pending distribution to
securityholders.
AVAILABLE FUNDS.................... The available funds for a payment date will
be the sum of the following amounts with
respect to the preceding collection period:
- all principal and interest payments
on the receivables;
</TABLE>
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S-8
<PAGE>
- all proceeds received during the
preceding collection period,
including actual recovery amounts,
with respect to receivables that
became charged-off receivables
during the preceding collection
period, net of the reasonable and
customary out-of-pocket expenses
incurred by the servicer in
connection with collection,
enforcement or liquidation and any
amounts required by law to be
remitted to the obligor on the
charged-off receivable;
- proceeds from actual recovery
amounts on charged-off receivables;
- earnings on investments of funds in
the collection account [,
pre-funding account, revolving
account, reserve account, interest
reserve account and yield
supplement account] during the
preceding collection period;
- the purchase amount deposited in
the collection account for each
receivable that was repurchased by
[the originator] [the seller] [the
servicer]; and]
- [insert any other amounts
applicable for a particular
series].
APPLICATION OF PAYMENTS............ On each payment date, the indenture trustee
will distribute funds on deposit in the
collection account relating to the prior
collection period in the priority indicated:
[insert description of the order and
priority of payments applicable for a
series]
FEDERAL TAX CONSIDERATIONS......... Mayer, Brown & Platt, special Federal tax
counsel to [________], is of the opinion
that for Federal income tax purposes the
notes will be characterized as debt and the
trust will not be characterized as an
association (or publicly traded partnership)
taxable as a corporation. Each noteholder,
by accepting a note, will agree to treat the
notes as debt and each certificateholder, by
its acceptance of a certificate, will agree
to treat the trust as a partnership in
S-9
<PAGE>
which the certificateholders are partners
for federal, state and local tax purposes.
See "Federal Income Tax Considerations" for
a summary of material federal income tax
consequences of the purchase, ownership and
disposition of the notes and certificates.
ERISA CONSIDERATIONS............... Subject to the restrictions and
considerations discussed under "ERISA
Considerations," the notes may be eligible
for purchase by employee benefit plans.
An investor that is, or is acting on behalf
of, an employee benefit plan, account or
other retirement arrangement subject to the
Employee Retirement Income Security Act of
1974, as amended ("ERISA") or Section 4975
of the Code or any entity deemed to hold
"plan assets" of the foregoing will be
deemed to represent and warrant that its
investment in the notes, as applicable, will
not result in a non-exempt prohibited
transaction under ERISA or Section 4975 of
the Internal Revenue Code of 1986, as
amended (the "Code").
The certificates may not be acquired with
the assets of any employee benefit plan,
account or other retirement arrangement
subject to ERISA or Section 4975 of the Code
(including the assets of an individual
retirement account.)
RATINGS............................ It is a condition to the issuance of the
securities that the class [_____] notes be
rated at least ["____"] by [______] and the
class [_____] certificates be rated at least
["____"] by [_____]. The ratings of the
securities address the likelihood of the
timely payment of interest on and the
ultimate payment of principal of the
securities under their terms. These ratings
are not a recommendation to buy, sell or
hold the securities. We cannot assure you
that a rating will not be lowered or
withdrawn by a rating agency if
circumstances so warrant.
S-10
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase the securities.
PAYMENTS WILL BE MADE ONLY The trust does not have any significant
FROM THE LIMITED ASSETS OF assets or sources of funds other than the
THE TRUST. receivables, amounts on deposit in the trust
accounts [and] [insert description of any
credit enhancement]. You must rely on
payments on the receivables, amounts, if
any, on deposit in the trust accounts [and]
[insert description of credit enhancement]
for repayment of the securities.
YOU BEAR REINVESTMENT RISK The receivables may be prepaid at any time,
AND PAYMENT DELAY RISK in full or in part, voluntarily or as a
DUE TO REPURCHASE. result of defaults, casualties to the
related equipment, death of an obligor or
lessor or other reasons. [The originator[
[the seller] [the servicer] may be required
to repurchase one or more receivables from
the trust if it breaches specified
representations or covenants relating to the
receivables described in ["Description of
the Transaction Documents-- [Sale and]
Assignment of [Initial] Receivables [and
Additional Receivables]."] [The servicer]
[the seller] [the depositor]] also will have
the right to purchase all remaining
receivables from the trust pursuant to a
clean-up call described in ["Summary of
Terms--Optional Redemption" and "Description
of the Securities--Optional Redemption."]
Each prepayment, repurchase or purchase will
shorten the average life of the securities.
[The class [__] notes will be extremely
sensitive to the rate and timing of
payments, including prepayments, on the
receivables. If you purchase a class [__]
note at a premium, under some prepayment
scenarios, you could fail to recoup your
original investment.] [The class __ notes
will be adversely affected by a lower than
anticipated rate of payment on the
receivables.] [The reinvestment risk to an
investor in the class [__] notes may be
exacerbated in the event of [an increase in
the rate of payment on the receivables in a
decreasing interest rate environment] [a
decrease in the rate of payment on the
receivables in an increasing rate
environment.]
Prepayment rates may be influenced by a
variety of factors and cannot be predicted
with any assurance. You will bear any
reinvestment risks resulting from a faster
rate of prepayment or repurchase of
receivables. Any time your
S-11
<PAGE>
principal is repaid to you at a time when
you did not expect to receive it, you may
not be able to reinvest your funds at the
same or a higher rate of return than the
interest rate on your securities.
[VARIATIONS IN REGIONAL As of the [initial] cutoff date, obligors
ECONOMIC CONDITIONS located in _______, ________ and ________,
MAY CAUSE PAYMENT respectively, comprised [__%], [__%] and
REDUCTIONS OR DELAYS.] [__%]of the [initial] receivables aggregate
principal balance. Adverse economic
conditions or other factors particularly
affecting these states may affect the
delinquency, loss and repossession
experience of the receivables.
[POSSIBLE PRE-PAYMENTS AS A [If the principal amount of eligible
RESULT OF FUNDING OR receivables purchased or directly originated
REVOLVING PERIOD.] by [________] during the trust's [pre-
funding] [revolving] period is less than the
amount [accumulated from collections and the
amount] deposited in the trust's
[pre-funding] [revolving] account, we will
not have sufficient receivables to sell to
the trust during the [pre-funding] period.
This would result in a prepayment of
principal to the securityholders as
described below.
If the aggregate principal balance of
receivables we sell to the trust during the
[pre-funding] [revolving] period is less
than the amount [accumulated from
collections and the amount] deposited in the
trust's [pre-funding] [revolving] account,
the excess will be applied at the end of the
[pre-funding] [revolving] period to
partially prepay the securities. Any
prepayment under these circumstances will
shorten the weighted average life of the
securities to an extent that we cannot
predict with assurance, since we cannot
predict the amount of any prepayment with
assurance.]
[CHANGES IN POOL [The only required characteristics of the
CHARACTERISTICS AS A RESULT OF additional receivables transferred to the
PRE-FUNDING OR REVOLVING trust during the [pre-funding] [revolving]
PERIOD.] period will be the eligibility criteria
specified in the sale and servicing
agreement. These additional receivables may
be originated using credit criteria
different from those that were applied to
the initial receivables and may be of a
different credit quality and seasoning. As a
result, following the transfer of additional
receivables to the trust, the
characteristics of the entire receivables
pool may vary from those of the initial
receivables described in
S-12
<PAGE>
["The Receivables "]. Since the weighted
average life of the securities will be
influenced by the rate at which the
principal balances of the receivables are
paid, some of these variations may affect
the weighted average life of the
securities.]
[SUBORDINATION OF THE CLASS [The subordination of the class [__] notes
[__] NOTES PROVIDES ONLY is intended to increase the likelihood of
LIMITED PROTECTION payments on the class [__] notes. The amount
AGAINST LOSSES.] of credit enhancement provided through the
subordination of the class [__] notes to the
class [__] notes, however, is limited and
could be depleted prior to the payment in
full of the class [__] notes. If the
principal amount of the class [__] notes is
reduced to zero, you may suffer losses on
your notes.]
[ADDITIONAL RISK FACTORS
APPLICABLE FOR A SPECIFIC SERIES.]
S-13
<PAGE>
THE TRUST
The trust was formed under the trust agreement between the trustee and
the depositor for the transaction described in this prospectus supplement. After
its formation, the trust will not engage in any activity other than acquiring,
holding and managing the receivables and the other assets of the trust and
proceeds therefrom and issuing the notes and certificates and making payments
thereon.
The trust has no directors, officers or employees and is not involved
in any legal proceedings.
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the trust as of
the closing date, as if the issuance and sale of the notes and the certificates
had taken place on such date:
<TABLE>
<S> <C>
Asset Backed Notes..............[$_____________]
Asset Backed Certificates.......[$ ]
----------------
Total...........................[$ ]
================
</TABLE>
[An audited balance sheet of the trust as of [________ __, 20__]is
attached as Appendix A to this prospectus supplement.]
THE TRUSTEE
[_________] will serve as the trustee under the trust agreement.
[________]is a [_______] and its principal offices where information can be
obtained relating to the trust are located at [_________________]. The
[originator] [the seller] [the depositor] [the servicer] and its affiliates may
maintain normal commercial banking relations with the trustee and its
affiliates.
THE INDENTURE TRUSTEE
[___________] is the indenture trustee under the indenture. It is a
[__________] corporation and its principal offices are located at
[________________]. The indenture trustee's duties in connection with the notes
are limited solely to its express obligations under the indenture and the sale
and servicing agreement.
S-14
<PAGE>
[USE OF PROCEEDS]
[describe any uses not specified in base prospectus]
THE RECEIVABLES
[_________] [purchased or originated] [was granted a security interest
in] the receivables in the ordinary course of its business. The pool of
receivables will consist of [participation interests in] [security interests in]
[initial] receivables purchased by the trust as of the closing date [and
[participation interests in] [security interests in] any additional receivables
purchased during the trust's funding period.] [[________] has selected
receivables from its portfolio to include in the pool of [initial] receivables
[and will select receivables from its portfolio for inclusion in the pool of
additional receivables] using the following eligibility criteria described
below.]
ELIGIBILITY CRITERIA
In addition to eligibility criteria set forth in the prospectus under "Summary
of Terms--The Assets," the eligibility criteria include that each receivable:
- has no payment 10% or more of which was more than 29 days past
due;
- has an annual percentage interest rate or APR of not less than
[__%] and not more than [__%];
- [provides for level monthly payments that fully amortize the
amount financed over an original term to scheduled maturity of
at least [__] months and not more than [__] months; provided
that payments are made on the applicable due dates and except
that the final payment may differ];
- has an outstanding principal balance of not less than [$_____]
and not more than [$-----];
- has a remaining term to scheduled maturity of at least [__]
months and not more than [__] months; [and]
- is either a rule of 78s receivable, fixed value receivable,
simple interest receivable or actuarial receivable[; and]
- [insert any other criteria applicable for a particular
series].
S-15
<PAGE>
[In addition, the seller will represent and warrant, among other
things, that, after giving effect to each transfer of additional receivables,
the receivables in the trust will meet the following criteria:]
[insert criteria applicable to pool after transfer of additional receivables]
The [initial] receivables were originated on or before [________ __,
20__.] The composition of the pool of receivables as of the closing date will
not deviate from the composition of the pool of receivables as of the [initial]
cut-off date. The seller did not [and will not] utilize any selection procedures
it believed would be adverse to the securityholders in selecting the
receivables.
Please refer to the tables in Appendix B which set forth information
regarding the composition and characteristics of the receivables pool as of the
[initial] cutoff date.
THE SELLER(S)
[Insert description of each seller(s).]
THE ORIGINATOR(S)
[Insert description of each originator(s) and its underwriting
procedures and criteria.]
THE SERVICER
[Insert description of the servicer.]
DELINQUENCY AND LOSS EXPERIENCE
[Insert description of servicer's loss and delinquency experience
including loss and delinquency tables.]
SERVICING AND COLLECTIONS
[Insert description of servicer's servicing and collection procedures
and any commingling rights, including specific percentage of securityholders
required to terminate servicer upon servicer default.]
WEIGHTED AVERAGE LIFE OF THE SECURITIES
The rate of payment of principal of each class of notes and the
certificates depends primarily on the rate of payment, including prepayments, of
the principal balance of the receivables. As a result, final payment of any
class of the notes and the final distribution in
S-16
<PAGE>
respect of the certificates could occur significantly earlier than the final
scheduled payment dates for each class of notes and certificates. We expect that
final payment of the notes and the final distribution on the certificates will
occur on or prior to the applicable final scheduled payment date for each class.
However, if sufficient funds are not available to pay the notes or the
certificates in full on or prior to the applicable final scheduled payment date,
final payment of the notes and the final distribution on the certificates could
occur later than expected.
The weighted average life of the notes and the certificates of any
series will generally be influenced by the rate at which the principal balances
of the related receivables are paid, which payment may be in the form of
scheduled amortization or prepayments. [All of the receivables are repayable at
any time without penalty, or with only a nominal penalty, to the obligor.] The
rate of prepayment of equipment receivables is influenced by a variety of
economic, social and other factors, which, in addition to the factors set forth
in the prospectus under "The Receivables--Maturity and Prepayment
Considerations," include: [insert prepayment considerations applicable to the
receivables supporting the relevant series of securities]. In addition, under
certain circumstances, [the originator] [the seller] [the servicer] will be
obligated to repurchase receivables from the trust pursuant to the sale and
servicing agreement as a result of breaches of specified representations and
warranties. You should consider, in the case of securities purchased at a
discount, the risk that a slower than anticipated rate of principal payments on
the receivables could result in an actual yield that is less than the
anticipated yield. In the case of securities purchased at a premium, the risk
that a faster than anticipated rate of principal payments on the receivables
could result in an actual yield that is less than the anticipated yield.
No prediction can be made as to the rate of prepayment on the
receivables. We are not aware of any publicly available industry statistics for
the entire industry on an aggregate basis that set forth principal prepayment
experience for receivables similar to the receivables over an extended period of
time.
In light of the above considerations, we cannot assure you as to the
amount of principal payments to be made on the notes, if any, or the
certificates on each payment date, since the amount will depend, in part, on the
amount of principal collected during the applicable collection period. Any
reinvestment risks resulting from a faster or slower incidence of prepayment of
receivables will be borne entirely by the noteholders and the
certificateholders.
[Description of prepayment speed assumption and modeling assumptions,
if any, applicable for a particular series.]
DESCRIPTION OF THE SECURITIES
DESCRIPTION OF THE NOTES
The indenture trustee will issue the notes pursuant to the indenture
between the indenture trustee and the trust. The notes initially will be
represented by notes registered in the name of
S-17
<PAGE>
Cede & Co. as the nominee of The Depository Trust Company ("DTC"), and will only
be available in the form of book-entries on the records of DTC and its
participating members. The notes will be issued in minimum denominations of
[$_____]and integral multiples of [$_____], except that one note of each class
may be issued in another denomination. All references to "holders" or
"noteholders" and to authorized denominations, shall reflect the rights of
beneficial owners of the notes or "note owners."
DESCRIPTION OF THE CERTIFICATES
The trust will issue the certificates pursuant to the trust agreement
between the depositor and the trustee.
PAYMENTS
The notes and certificates will bear interest at the [fixed] [floating]
rates described in "Summary of the Notes and Certificates." [Insert description
of any floating rate mechanics applicable for a particular series.] [The notes
and certificates constitute [strip securities][accrual securities] as described
under "[Summary of Terms--[--Strip Securities][--Accrual Securities" in the
prospectus]. The indenture trustee will distribute payments of interest to
noteholders and certificateholders [monthly] [quarterly] on each payment date
commencing [________ __, 20__]. Payment dates will occur on the [__] day of each
[month] [quarter] or, if that day is not a business day, the next succeeding
business day. A business day is any day other than a Saturday, Sunday or any
other day on which banks in [___________] are authorized or obligated by law or
order to be closed. The indenture trustee will calculate interest on the notes
and certificates on the basis of [a 360-day year consisting of twelve 30-day
months].
On each determination date, the indenture trustee will determine the
amount in the collection account allocable to interest and the amount allocable
to principal. The determination date will be the [__] day of the calendar
[month] [quarter] during which any payment date occurs, or if that day is not a
business day, the next business day.
On each payment date, noteholders and certificateholders as of the
related record date will be entitled to receive [thirty] days interest at the
interest rate on their securities on the outstanding principal balance of their
notes or certificates, as applicable, as of the close of the preceding payment
date. Nevertheless, on the first payment date, the interest payable to
securityholders will be an amount equal to the product of:
- the interest rate on the note or certificate;
- the initial principal amount of the note or certificate; and
- a fraction:
S-18
<PAGE>
- the numerator of which is the number of days (assuming a 30-day
month) from and including the closing date to but excluding the
first payment date; and
- the denominator of which is 360.
Interest on the securities which is due but not paid on any payment
date will be payable on the next payment date together with, to the extent
permitted by law, interest on the unpaid amount at the interest rate for that
class of securities.
The indenture trustee will distribute payments of principal to
noteholders and certificateholders [monthly] [quarterly] on each payment date
commencing [________ __, 20__]. The amount of principal available for
distribution will generally equal the principal payment amount.
The actual date on which the aggregate outstanding principal amount of
any class of securities is paid may be earlier than the final scheduled payment
dates for that class of notes. See "Weighted Average Life of the Securities."
On each payment date, all amounts on deposit in the collection account,
other than investment earnings, will be generally paid in the following order of
priority:
(1) to servicer, the servicing fee for the related collection
period and all accrued and unpaid servicing fees for prior
collection periods;
(2) to trustee and indenture trustee, all accrued and unpaid fees
and expenses accrued owing the indenture trustee and the owner
trustee;
(3) to the note payment account for distribution to noteholders on
a pro rata basis, accrued and unpaid interest for that payment
date;
(4) to the note payment account for distribution to noteholders,
on a pro rata basis, the noteholders principal distributable
amount;
(5) to the certificate distribution account for distribution to
the certificateholders, on a pro rata basis, accrued and
unpaid interest for that payment date;
(6) to the certificate distribution account for distribution to
the certificateholders, on a pro rata basis, the
certificateholders principal distributable amount; and
(7) to the seller or servicer, any remaining amounts.
[Insert description of any special priority rules that would apply in a
default situation.]
S-19
<PAGE>
[PRE-FUNDING ACCOUNT] [REVOLVING PERIOD]
[On the closing date, approximately $____________ of initial
receivables will be transferred by the seller to the depositor and by the
depositor to the trust and approximately $______________ will be [deposited]
[accumulated from collections on the receivables for deposit into] the
[pre-funding] [revolving] account. If the principal amount of eligible
receivables originated by [__________] during the [pre-funding] [revolving]
period is less than the pre-funded amount, the seller will have insufficient
receivables to transfer to the depositor and the depositor will have
insufficient receivables to transfer to the trust on the subsequent transfer
dates, thereby resulting in a prepayment of principal to the noteholders and the
certificateholders.]
[To the extent that the [pre-funded amount] [total amount accumulated
in the revolving account] has not been fully applied to the purchase of
subsequent receivables by the trust during the [pre-funding] [revolving] period,
the noteholders and the certificateholders will receive a prepayment of
principal, on the payment date on or immediately following the last day of the
pre-funding period. The prepayment amount will be equal to each noteholder's or
certificateholder's pro rata share (based on the current principal balance of
each class of notes and certificates) of any remaining [pre-funded amount]
[amounts in the revolving account] following the purchase of any subsequent
receivables on that payment date. We anticipate that the principal amount of
subsequent receivables sold to the trust will not be exactly equal to the
[original pre-funded amount] [total amount accumulated in the revolving account]
and that therefore there will be at least a nominal amount of principal prepaid
to the noteholders and to the certificateholders.]
[If the amount of the pre-funding account will exceed 25% of the
aggregate proceeds from the offering, including the specific investments in
which the pre-funding account will be invested, then the depositor will specify
the actual investments of the pre-funding account in its periodic reports to be
filed on Form 8-K and Form 10-K.]
OPTIONAL REDEMPTION
The [originator] [seller] [servicer] [depositor] is permitted at its
option to purchase all remaining receivables from the trust. The [originator]
[seller] [servicer] [depositor] may exercise this repurchase option on or after
the last day of any month on or after which the then outstanding aggregate
principal balance of the receivables is less than or equal to ten percent (10%)
of the initial aggregate principal balance of the receivables as of the closing
date at a price equal to the remaining unpaid principal amount of the
receivables as of such last day of the month plus accrued interest thereon
through the payment date on which the redemption will occur. Exercise of these
rights will result in the early retirement of the notes and certificates. Upon
declaration of an optional redemption, the indenture trustee will give written
notice of termination to each noteholder and certificateholder of record. The
final payment to any noteholder or certificateholder will be made only upon
surrender and cancellation of that
S-20
<PAGE>
holder's note or certificate, as applicable, at the office or agency of the
indenture trustee specified in the notice of termination.
DESCRIPTION OF THE TRANSACTION DOCUMENTS
The following summary describes the material terms of the transaction
documents. The transaction documents include, among others, [the purchase
agreement], the receivables transfer agreement, the sale and servicing
agreement, the trust agreement, and the indenture [insert other relevant
agreements]. Copies of the transaction documents will be filed with the
Securities and Exchange Commission following the issuance of the securities.
This summary is qualified in its entirety by reference to the actual transaction
documents.
[DESCRIPTION OF ORIGINATOR/SELLER REPRESENTATIONS AND WARRANTIES]
[Insert description of representations and warranties.]
[SALE AND] ASSIGNMENT OF [INITIAL] RECEIVABLES [AND ADDITIONAL RECEIVABLES]
[The seller originated the receivables.] [The seller acquired the
receivables from the originator under a purchase agreement dated [_______ __,
____]]. On the closing date, the seller will [sell] [pledge] [participation
interests in] [security interests in] the [initial] receivables to the depositor
under the receivables transfer agreement. In turn, the depositor will [sell]
[pledge] [participation interests in] [security interests in] the [initial]
receivables to the trust under the sale and servicing agreement. The trust will
pledge the [initial] receivables to the indenture trustee for the benefit of the
noteholders under the indenture.
[In addition, during the [pre-funding] [revolving] period, under the
receivables transfer agreement, the seller will be obligated to sell the
depositor, for sale by the depositor to the trust, additional receivables up to
the amount on deposit in the [pre-funding] [revolving] account. We expect that
the seller will convey additional receivables to the depositor on subsequent
transfer dates specified by the seller. The [pre-funding] [revolving] period is
the period beginning on the closing date and ending on the earliest to occur of:
- [the date on which the amount in the pre-funding account is
less than [$____];]
- the date on which an event of default occurs under the
indenture or a servicer termination event occurs under the
sale and servicing agreement; or
- the close of business on [________ __, 20__].]
[On each subsequent transfer date, the seller will [sell] [pledge]
[participation interests in] [security interests in] the [additional]
receivables to the depositor under the receivables transfer agreement. In turn,
the depositor will [sell] [pledge] [participation interests in] [security
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interests in] the [additional] receivables listed on a schedule attached to an
assignment to the trust.]
[Insert description of additional conditions to transfer of subsequent
receivables]
[Except for the criteria described above, there are no required
characteristics of the additional receivables. Therefore, following the transfer
of additional receivables to the trust, the aggregate characteristics of the
entire receivable pool may vary from those of the initial receivables.]
[Although [__________] will continue to service and administer the
receivables under the sale and servicing agreement, [_________] will deliver the
original documents evidencing each receivable to the indenture trustee as
custodian for the trust.] [In order to facilitate servicing and to minimize
administrative burden and expense, the servicer will act as custodian for the
receivables.]
[Insert description of actions that will be taken by the related
parties as applicable to perfect either the issuer's or the securityholder's
security interest in the receivables.]
ACCOUNTS
The servicer, or the indenture trustee on behalf of and at the
direction of the servicer, will establish and maintain the collection account,
[the reserve account,] [the pre-funding account,] [the revolving account] [the
interest reserve account] [and the yield supplement account] in the name of the
indenture trustee for the benefit of noteholders. We refer to these accounts as
the trust accounts. The servicer will forward the proceeds of payments on the
receivables to the indenture trustee for deposit in the collection account
within two business days of its receipt. The indenture trustee will invest funds
on deposit in any trust account in eligible investments selected by [the seller]
[the depositor] that mature not later than the next payment date.
[Description of trust account mechanics applicable to a particular
series.]
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The servicing fee rate will be [__%] per annum of the aggregate
principal balance of the receivables as of the opening of business on the first
day of the related collection period. The servicer will also collect and retain
any late fees, non-sufficient funds fees, liquidation fees and other
administrative fees as a supplemental servicing fee for servicing the
receivables. The servicer will allocate payments by or on behalf of obligors to
scheduled payments and late fees and other charges in accordance with its normal
practices and procedures.
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AVAILABLE FUNDS
On each payment date, the indenture trustee will apply the available
funds in the collection account to make required payments of principal and
interest to noteholders and certificateholders. See "Summary of Terms--Available
Funds" for a description of available funds.
APPLICATION OF PAYMENTS
[Insert description of the priority and right to payment for each
series.]
[SUBORDINATION OF CERTIFICATEHOLDERS]
[The rights of the certificateholders to receive distributions on the
receivables will be subordinated to the rights of the noteholders in the event
of defaults and delinquencies on the receivables as provided in the sale and
servicing agreement. The protection afforded to the noteholders through
subordination will be effected [both] by the preferential right of the
noteholders to receive current distributions with respect to the receivables
[and by the establishment of the reserve account]. If on any payment date there
are not enough funds to distribute amounts due to noteholders, the
certificateholders may receive a reduced distribution or no distribution at
all.]
[The subordination of the certificates [and the reserve account] are
intended to enhance the likelihood of receipt by noteholders of the full amount
of principal and interest due them and to decrease the likelihood that the
noteholders will experience losses. [In addition, the reserve account is
intended to enhance the likelihood of receipt by certificateholders of the full
amount of principal and interest due them and to decrease the likelihood that
the certificateholders will experience losses. However, in certain
circumstances, the reserve account could be depleted. If the amount required to
be withdrawn from the reserve account to cover shortfalls in collections on the
receivables exceeds the amount of available cash in the reserve account,
noteholders and/or certificateholders could incur losses or a temporary
shortfall in the amounts distributed could result, which could, in turn,
increase the average life of the notes and/or the certificates.]
LEGAL ASPECTS OF THE RECEIVABLES
[Insert discussion of any legal aspects of the receivables relevant to
a particular series.] [See "Legal Aspects of the Receivables" in the
prospectus.]
LEGAL INVESTMENT
[The class [__] notes will be eligible for purchase by money market
funds under paragraph (a)(10) of Rule 2a-7 under the Investment Company Act of
1940, as amended.]
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FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes generally the material federal income
tax consequences of the purchase, ownership and disposition of the notes and
certificates and such summary represents the opinion of 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 or the courts.
No ruling on any of the issues discussed below will be sought from the Internal
Revenue Service. The following summary is intended as a discussion of the
possible effects of certain federal income tax provisions to holders, 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. In addition, this summary does not address all federal income
tax consequences that may be relevant to an investment in notes or certificates
to investors in light of their particular circumstances or special tax
situations. For example, the discussion does not apply to:
- banks and thrifts,
- insurance companies,
- regulated investment companies,
- dealers in securities,
- tax-exempt organizations,
- investors subject to the alternative minimum tax,
- foreign investors, and
- trusts, estates or pass-through entities, the equity holders
of which are any of the entities described above.
In addition, the discussion is limited to the federal income tax consequences of
the initial noteholders and certificateholders and does not address federal
income tax consequences to a purchaser of notes or certificates in the secondary
market. Further, this discussion is addressed only to holders who hold the notes
or certificates as capital assets and does not address tax consequences of
investors holding the notes or certificates as part of a conversion transaction,
hedge or hedging transaction, of as a position in a straddle or other integrated
investment for tax purposes.
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. However, there are no cases
or Internal Revenue Service rulings on similar transactions
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involving both debt and equity interests issued by a trust with terms and
conditions of issuance similar to those of the notes and the certificates. As a
result, the Internal Revenue Service may disagree with all or a part of the
discussion below. We suggest that prospective investors consult their own tax
advisors in determining the federal, state, local, foreign and any other tax
consequences to them of the purchase, ownership and disposition of the notes and
certificates.
TAX CHARACTERIZATION OF THE TRUST
Federal Tax Counsel is of the opinion that, although no transaction
closely comparable to that contemplated herein has been the subject of any
treasury regulation, revenue ruling or judicial decision, the trust will not be
characterized as a separate entity that is an association (or publicly traded
partnership) taxable as a corporation for federal income tax purposes. As a
result, the trust will not be subject to federal income tax. This opinion is
based on the assumption that the terms of the trust agreement and related
documents will be complied with, and on Federal Tax Counsel's conclusion that
the nature of the income of the trust will exempt it from the rule that certain
publicly traded partnerships are taxable as corporations. However, this opinion
is not binding on the Internal Revenue Service and no assurance can be given
that this characterization will prevail.
If the trust were taxable as a corporation for federal income tax
purposes, the trust would be subject to corporate income tax on its taxable
income. The trust's taxable income would include all its income on the
receivables, reduced by its interest expense on the notes provided the notes are
respected as debt for federal income tax purposes (see discussion in the
following paragraph). Any corporate income tax of this nature could materially
reduce cash available to make payments on the notes or certificates.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
TREATMENT OF THE NOTES AS INDEBTEDNESS. The depositor will agree, and
the noteholders will agree by their purchase of notes, to treat the notes as
debt for federal, state and local income and franchise tax purposes. In the
opinion of Federal Tax Counsel, although no transaction closely comparable to
that contemplated herein has been the subject of any treasury regulation,
revenue ruling or judicial decision, the notes will be characterized as debt for
federal income tax purposes. The discussion below assumes that this
characterization of the notes will be respected.
The discussion below assumes that all payments on the notes are
denominated in U.S. dollars, and that the notes are not strip securities.
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.
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INTEREST INCOME ON THE NOTES. Based on the above assumptions, except as
discussed in the following paragraph, the notes will not be considered issued
with OID. The stated interest thereon will be includible in gross income when
received or accrued in accordance with that noteholder's usual method of tax
accounting. Under the OID regulations, a holder of a note issued with a DE
MINIMIS amount of OID must include that OID in income, on a pro rata basis, as
principal payments are made on the note. It is believed that any prepayment
premium paid as a result of a mandatory redemption will be taxable as contingent
interest when it becomes fixed and unconditionally payable.
MARKET DISCOUNT; PREMIUM. A holder who purchases a note at a discount
that exceeds any OID not previously includible in income may be subject to the
"market discount" rules of sections 1276 through 1278 of the Code. These rules
provide, in part, that gain on the sale or other disposition of a note and
partial principal payments on a note are treated as ordinary income to the
extent of accrued market discount. The market discount rules also provide for
deferral of interest deductions with respect to debt incurred to purchase or
carry a note that has market discount. Further, a holder who purchases a note at
a price that exceeds the principal amount of the note may elect to amortize the
premium against interest income over the remaining term of the note in
accordance with the provisions of section 171 of the Code.
SALE OR OTHER DISPOSITION. If a noteholder sells or otherwise disposes
of a note, the holder will generally recognize taxable gain or loss in an amount
equal to the difference between the amount realized on the disposition (other
than amounts attributable to accrued interest, which will be taxable as such)
and the holder's adjusted tax basis in the note. The adjusted tax basis of a
note to a particular noteholder will equal the holder's cost for the note,
increased by any market discount, OID and gain previously included by that
noteholder in income for the note and decreased by the amount of bond premium
(if any) previously amortized and by the amount of principal payments previously
received by the noteholder for that note. Any such gain or loss will be capital
gain or loss if the note was held as a capital asset, except for such gain
representing accrued market discount not previously included in income, and will
be long-term capital gain or loss if at the time of the disposition the note has
been held for more than one year. Capital losses 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 as to the United States is a nonresident alien individual, 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 (1) actually or
constructively a "10 percent shareholder" of the trust or [the seller] [the
depositor] or (2) a "controlled foreign corporation" with respect to which the
trust or [the seller] [the depositor] is a "related person" within the meaning
of the Code and (ii) provides the indenture trustee or other person who is
otherwise required to withhold U.S. tax with respect to the notes with an
appropriate statement (on Internal Revenue Service Form W-8 BEN or a similar
form), signed under penalties of perjury, certifying
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that the beneficial owner of the note is a foreign person and providing the
foreign person's name and address. If a note is held through a securities
clearing organization or certain other financial institutions, the organization
or institution may provide the relevant signed statement to the withholding
agent; in that case, however, the signed statement must be accompanied by a Form
W-8 BEN or substitute form provided by the foreign person that owns the note. If
the interest is not portfolio interest, then it will be subject to United States
federal withholding tax at a rate of 30 percent, unless that rate is reduced or
eliminated pursuant to an applicable tax treaty and the foreign person provides
the trustee or other payor of the interest with a copy of Internal Revenue
Service Form W-8 BEN, or if the interest is effectively connected with the
conduct of a U.S. trade or business and the foreign person provides a copy of
Internal Revenue Service Form W-8 ECI.
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 (1) such gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (2) 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.
On October 6, 1997, final Treasury regulations (the "Withholding Tax
Regulations") were issued that modify certain of the above procedures 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. The
Withholding Tax Regulations will generally be effective for payments made on the
notes after December 31, 2000. Prospective investors should consult their tax
advisors with respect to the potential impact to them, if any, 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 trust will be required to withhold 31
percent of the amount otherwise payable to the holder, and remit the withheld
amount to the Internal Revenue Service as a credit against the holder's federal
income tax liability. We suggest that noteholders 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 to them, if any,
of the Withholding Tax Regulations.
POSSIBLE ALTERNATIVE TREATMENTS OF THE NOTES. If, contrary to the
opinion of Federal Tax Counsel, the Internal Revenue Service successfully
asserted that one or more of the notes did not represent debt for federal income
tax purposes, the notes might be treated as equity interests in the trust. If so
treated, the trust might be taxable as a corporation with the adverse
consequences described above (and the taxable corporation would not be able to
reduce its taxable income by
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deductions for interest expense on notes recharacterized as equity).
Alternatively, and most likely in the view of Federal Tax Counsel, the trust
might be treated as a publicly traded partnership that would not be taxable as a
corporation because it would meet certain qualifying income tests. Nonetheless,
treatment of the notes as equity interests in such a 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 trust expenses. Furthermore, this characterization could
subject holders to state and local taxation in jurisdictions in which they are
not currently subject to tax. Prospective investors should consult their own tax
advisors with regard to the consequences of each such possible alternative
characterization to them in their particular circumstances.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
TREATMENT OF THE TRUST AS A PARTNERSHIP. The seller, the servicer, the
owner trustee, and the certificateholders, by their purchase of certificates,
will agree to treat the trust as a partnership for purposes of federal and state
income tax, franchise tax and any other tax measured in whole or in part by
income, with the assets of the partnership being the assets held by the trust,
the partners of the partnership being the certificateholders [the seller] [and
the depositor], and the notes being debt of the partnership. However, the proper
characterization of the arrangement involving the trust, the certificates, the
notes, the seller, the depositor and the servicer is not clear because there is
no authority on transactions closely comparable to that contemplated herein.
A variety of alternative characterizations are possible. For example,
because the certificates have certain features characteristic of debt, the
certificates might be considered debt of the seller, the depositor or the trust.
Any such characterization would not result in materially adverse tax
consequences to certificateholders as compared to the intended consequences from
treatment of the certificates as equity in a partnership, described below. The
following discussion assumes that the certificates represent equity interests in
a partnership.
The following discussion assumes that all payments on the certificates
are denominated in U.S. dollars, none of the certificates are strip securities,
and that a series of securities includes a single class of certificates.
PARTNERSHIP TAXATION. As a partnership, the trust will not be subject
to federal income tax. Rather, each certificateholder will be required to
separately take into account such holder's accruals of guaranteed payments from
the trust and its allocated share of other income, gains, losses, deductions and
credits of the trust. The trust's income will consist primarily of interest and
finance charges earned on the receivables (including appropriate adjustments for
market discount, OID and bond premium) and any gain upon collection or
disposition of receivables. The trust's deductions will consist primarily of
interest accruing with respect to the notes,
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guaranteed payments on the certificates, servicing and other fees, and losses
or deductions upon collection or disposition of receivables.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the trust agreement and related documents). Under the trust agreement,
interest payments on the certificates at the certificate interest rate
(including interest on amounts previously due on the certificates but not yet
distributed) will be treated as "guaranteed payments" under Section 707(c) of
the Code. Guaranteed payments are payments to partners for the use of their
capital and, in the present circumstances, are treated as deductible to the
trust and ordinary income to the certificateholders. The trust will have a
calendar year tax year and will deduct the guaranteed payments under the
accrual method of accounting. Certificateholders with a calendar year tax year
are required to include the accruals of guaranteed payments in income in their
taxable year that corresponds to the year in which the trust deducts the
payments, and certificateholders with a different taxable year are required to
include the payments in income in their taxable year that includes the
December 31 of the trust year in which the trust deducts the payments. It is
possible that guaranteed payments will not be treated as interest for all
purposes of the Code.
In addition, the trust agreement will provide, in general, that the
certificateholders will be allocated taxable income of the trust for each
collection period equal to the sum of:
- any trust income attributable to discount on the receivables
that corresponds to any excess of the principal amount of the
certificates over their initial issue price,
- prepayment premium, if any, payable to the certificateholders
for that month and
- any other amounts of income payable to the certificateholders
for that month.
This allocation will be reduced by any amortization by the trust of premium on
receivables that corresponds to any excess of the issue price of certificates
over their principal amount. All remaining items of taxable income, gain, loss
and deduction of the trust, if any, will be allocated to the depositor.
Based on the economic arrangement of the parties, this approach for
allocating trust income arguably should be permissible under applicable
Treasury regulations, although no assurance can be given that the Internal
Revenue Service would not require a greater amount of income to be allocated
to certificateholders. Moreover, even under the foregoing method of
allocation, certificateholders may be allocated income equal to the entire
certificate interest rate plus the other items described above even though the
trust might not have sufficient cash to make current cash distributions of
such amount. Thus, cash basis holders would, in effect, be required to report
income from the certificates on the accrual basis and certificateholders may
become liable for taxes on trust income even if they have not received cash
from the trust to pay these taxes. In addition, because tax allocations and
tax reporting will be done on a uniform basis for all certificateholders but
certificateholders may be purchasing certificates at different
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times and at different prices, certificateholders may be required to report on
their tax returns taxable income that is greater or less than the amount
reported to them by the trust.
All of the guaranteed payments and taxable income allocated to a
certificateholder that is a pension, profit sharing or employee benefit plan
or other tax-exempt entity (including an individual retirement account) will
constitute "unrelated business taxable income" generally taxable to such a
holder under the Code.
An individual taxpayer's share of expenses of the trust (including
fees to the servicer but not interest expense) would be miscellaneous itemized
deductions. These deductions might be disallowed to the individual in whole or
in part and might result in such holder being taxed on an amount of income
that exceeds the amount of cash actually distributed to such holder over the
life of the trust. It is not clear whether these rules would be applicable to
a certificateholder accruing guaranteed payments.
The trust intends to make all tax calculations relating to income and
allocations to certificateholders on an aggregate basis. If the Internal
Revenue Service were to require that these calculations be made separately for
each receivable, the trust might be required to incur additional expense but
it is believed that there would not be a material adverse effect on
certificateholders.
DISCOUNT AND PREMIUM. It is believed that the receivables were not
issued with OID, and, therefore, the trust should not have OID income.
However, the purchase price paid by the trust for the receivables may be
greater or less than the remaining principal balance of the receivables at the
time of purchase. If so, the receivables will have been acquired at a premium
or discount, as the case may be. (As indicated above, the trust will make this
calculation on an aggregate basis, but might be required to recompute it on a
receivable-by-receivable basis.)
If the trust acquires the receivables at a market discount or
premium, the trust will elect to include any such discount in income currently
as it accrues over the life of the receivables or to offset any such premium
against interest income on the receivables. As indicated above, a portion of
such market discount income or premium deduction may be allocated to
certificateholders.
SECTION 708 TERMINATION. Under Section 708 of the Code, the trust
will be deemed to terminate for federal income tax purposes if 50% or more of
the capital and profits interests in the trust are sold or exchanged within a
12-month period. If such a termination occurs, under current Treasury
regulations the trust will be deemed to contribute all of its assets and
liabilities to a new partnership in exchange for an interest in the new
partnership; and, immediately thereafter, the terminated partnership will be
deemed to have distributed interests in the new partnership to the new and
remaining partners in liquidation of the old partnership. The trust will not
comply with certain technical requirements that might apply when such a
constructive termination occurs. As a result, the trust may be subject to
certain tax penalties and may incur
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additional expenses if it is required to comply with those requirements.
Furthermore, the trust might not be able to comply due to lack of data.
DISPOSITION OF CERTIFICATES. Subject to the discussion in the
immediately following paragraph, generally, capital gain or loss will be
recognized on a sale of certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the certificates
sold. A certificateholder's tax basis in a certificate will generally equal
the holder's cost increased by the holder's share of trust income (includible
in income) and decreased by any distributions received with respect to such
certificate. In addition, both the tax basis in the certificates and the
amount realized on a sale of a certificate would include the holder's share of
the notes and other liabilities of the trust. A holder acquiring certificates
at different prices may be required to maintain a single aggregate adjusted
tax basis in such certificates, and, upon sale or other disposition of some of
the certificates, allocate a portion of such aggregate tax basis to the
certificates sold (rather than maintaining a separate tax basis in each
certificate for purposes of computing gain or loss on a sale of that
certificate).
Any gain on the sale of a certificate attributable to the holder's
share of unrecognized accrued market discount on the receivables would
generally be treated as ordinary income to the holder and would give rise to
special tax reporting requirements. The trust does not expect to have any
other assets that would give rise to such special reporting requirements.
Thus, to avoid those special reporting requirements, the trust will elect to
include market discount in income as it accrues.
If a certificateholder is required to recognize an aggregate amount
of income (not including income attributable to disallowed itemized deductions
described above) over the life of the certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise
to a capital loss upon the retirement of the certificates.
ALLOCATIONS BETWEEN TRANSFERORS AND TRANSFEREES. In general, the
trust's taxable income and losses will be determined monthly and the tax items
for a particular calendar month will be apportioned among the
certificateholders in proportion to the principal amount of certificates owned
by them as of the close of the last day of such month. As a result, a holder
purchasing certificates may be allocated tax items (which will affect its tax
liability and tax basis) attributable to periods before the actual purchase.
The use of such a monthly convention may not be permitted by existing
Treasury regulations. If a monthly convention is not allowed (or only applies
to transfers of less than all of the partner's interest), taxable income or
losses of the trust might be reallocated among the certificateholders. The
depositor is authorized to revise the trust's method of allocation between
transferors and transferees to conform to a method permitted by future
regulations.
SECTION 754 ELECTION. In the event that a certificateholder sells its
certificates at a profit (loss), the purchasing certificateholder will have a
higher (lower) basis in the certificates than the selling certificateholder
had. The tax basis of the trust's assets will not be adjusted to reflect that
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higher (or lower) basis unless the trust were to file an election under
Section 754 of the Code. In order to avoid the administrative complexities
that would be involved in keeping accurate accounting records, as well as
potentially onerous information reporting requirements, the trust will not
make such election. As a result, certificateholders might be allocated a
greater or lesser amount of trust income than would be appropriate based on
their own purchase price for certificates.
ADMINISTRATIVE MATTERS. The trustee is required to keep or have kept
complete and accurate books of the trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year
of the trust will be the calendar year. The trust will file a partnership
information return (IRS Form 1065) with the Internal Revenue Service for each
taxable year of the trust and will report each certificateholder's allocable
share of items of trust income and expense to holders and the Internal Revenue
Service on Schedule K-1. The trust will provide the Schedule K-1 information
to nominees that fail to provide the trust with the information statement
described below and such nominees will be required to forward such information
to the beneficial owners of the certificates. Holders must file tax returns
that are consistent with the information return filed by the trust or be
subject to penalties unless the holder notifies the Internal Revenue Service
of all such inconsistencies.
Under Section 6031 of the Code, any person that holds certificates as
a nominee at any time during a calendar year is required to furnish the trust
with a statement containing certain information on the nominee, the beneficial
owners and the certificates so held. Such information includes (1) the name,
address and taxpayer identification number of the nominee and (2) as to each
beneficial owner (x) the name, address and identification number of such
person, (y) whether such person is a United States person, a tax-exempt entity
or a foreign government, an international organization, or any wholly-owned
agency or instrumentality of either of the foregoing, and (z) certain
information on certificates that were held, bought or sold on behalf of such
person throughout the year. In addition, brokers and financial institutions
that hold certificates through a nominee are required to furnish directly to
the trust information as to themselves and their ownership of certificates. A
clearing agency registered under Section 17A of the Exchange Act is not
required to furnish any such information statement to the trust. The
information referred to above for any calendar year must be furnished to the
trust on or before the following January 31. Nominees, brokers and financial
institutions that fail to provide the trust with the information described
above may be subject to penalties.
The [seller] will be designated as the tax matters partner in the
related trust agreement and, as such, will be responsible for representing the
certificateholders in any dispute with the Internal Revenue Service. The Code
provides for administrative examination of a partnership as if the partnership
were a separate and distinct taxpayer. Generally, the statute of limitations
for partnership items does not expire before three years after the date on
which the partnership information return is filed. Any adverse determination
following an audit of the return of the trust by the appropriate taxing
authorities could result in an adjustment of the returns of the
certificateholders, and, under certain circumstances, a certificateholder may
be precluded from separately litigating a proposed adjustment to the items of
the trust. An adjustment could also
S-32
<PAGE>
result in an audit of a certificateholder's returns and adjustments of items
not related to the income and losses of the trust.
TAX CONSEQUENCES TO FOREIGN CERTIFICATEHOLDERS. Interest paid on a
certificate to a nonresident alien individual, foreign partnership or foreign
corporation that has no connection with the United States other than holding
certificates ("Nonresidents") will normally qualify as portfolio interest
(except where (i) the recipient is a holder, directly or by attribution, of
10% or more of the trust, or (ii) the recipient is a controlled foreign
corporation to which the trust is a related person) and will be exempt from
federal income tax. Upon receipt of the appropriate ownership statements and
certifications, the trustee to the trust normally will be relieved of
obligations to withhold tax from such interest payments. These provisions
supersede the generally applicable provisions of United States law that would
otherwise require the trustee of the trust to withhold at a 30% rate (unless
such rate were reduced or eliminated by an applicable tax treaty) on, among
other things, interest and other fixed and determinable, annual or periodic
income paid to Nonresidents.
The Withholding Tax Regulations modify certain of the filing
requirements with which Nonresidents must comply in order to be entitled to an
exemption from United States withholding tax or a reduction to the applicable
United States withholding tax rate. Those Nonresidents currently required to
file Form W-8 or W-8 BEN generally will continue to be required to file that
form. However, the requirement that Nonresidents submit Form W-8 or W-8 ECI is
extended to most Nonresidents who wish to seek an exemption from withholding
tax on the basis that income from the certificates is effectively connected
with the conduct of a United States trade or business (in lieu of Form 4224)
and to Nonresidents wishing to rely on a tax treaty to reduce the withholding
tax rate (in lieu of Form 1001). The Withholding Tax Regulations are effective
for payments of interest due after December 31, 1999, but Forms 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. We suggest
that prospective investors consult their tax advisors with respect to the
effect of the Withholding Tax Regulations.
BACKUP WITHHOLDING. Distributions made on the certificates and
proceeds from the sale of the certificates will be subject to a "backup"
withholding tax of 31% if, in general, the certificateholder fails to comply
with certain identification procedures, unless the holder is an exempt
recipient under applicable provisions of the Code. Certificateholders should
consult with their tax advisors as to their eligibility for exemption to
backup withholding, the procedure for obtaining the exemption, and the
potential impact of the Withholding Tax Regulations.
STATE TAX CONSEQUENCES
In addition to the federal income tax consequences described in
"Federal Income Tax Considerations" above, potential purchasers should
consider the state income tax consequences of the acquisition, ownership and
disposition of the notes and certificates. State income tax law may vary
substantially from state to state, and this discussion does not purport to
describe any aspect of the income tax laws of any state.
S-33
<PAGE>
ERISA CONSIDERATIONS
GENERAL
Section 406 of ERISA and Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan subject to ERISA, as well as
individual retirement accounts, certain types of Keogh Plans and other plans
subject to Section 4975 of the Code and any entity deemed to hold "plan
assets" of any of the foregoing by reason of investment in such entity (each a
"Benefit Plan"), from engaging in certain transactions with persons that are
"parties in interest" under ERISA or "disqualified persons" under the Code
with respect to such Benefit Plan. A violation of these "prohibited
transaction" rules may result in an excise tax or other penalties and
liabilities under ERISA and the Code for such persons.
A fiduciary of a Benefit Plan considering the purchase of securities
should carefully review with its legal and other advisors whether the assets
of the trust would be considered plan assets, and whether the purchase or
holding of the securities could give rise to a transaction prohibited or
otherwise impermissible under ERISA or the Code. Prospective purchasers of
securities using the assets of government plans (as defined in Section 3(32)
of ERISA) and certain Church plans (as defined in Section 3(33) of ERISA),
which are not subject to Title I of ERISA, should consider applicable state
and other laws, which may be substantially similar to ERISA or the Code.
THE NOTES
Subject to the considerations below, the Notes may generally be
acquired by a Benefit Plan. Certain transactions involving the trust might be
deemed to constitute prohibited transactions under ERISA and the Code with
respect to a Benefit Plan that purchased notes or certificates if assets of
the trust were deemed to be assets of the Benefit Plan. Under a regulation
issued by the United States Department of Labor (the "Plan Asset Regulation"),
the assets of a trust would be treated as plan assets of a Benefit Plan for
the purposes of ERISA and the Code only if the Benefit Plan acquired an
"equity interest" in the trust and none of the exceptions contained in the
Plan Asset Regulation was applicable. An equity interest is defined under the
Plan Asset Regulation as an interest other than an instrument which is treated
as indebtedness under applicable local law and which has no substantial equity
features.
Although there is little guidance on the subject, the depositor
believes that, at the time of their issuance, the notes should be treated as
an instrument without substantial equity features for purposes of the Plan
Asset Regulation. The debt status of the notes could change, after their
initial issuance (i.e., they could be treated as equity), by certain changes
in the financial condition of the trust. The risk of recharacterization is
enhanced for subordinate classes of notes.
Regardless of whether the notes are treated as an equity interest for
purposes of the Plan Asset Regulation, the acquisition or holding of the notes
with plan assets of a Benefit Plan could be considered to give rise to a
prohibited transaction if the seller, the servicer, the issuer, or
S-34
<PAGE>
Indenture Trustee is or becomes a party in interest under ERISA or a
disqualified person under the Code with respect to that Benefit Plan. In such
a case, certain exemptions from the prohibited transactions rules may be
available, depending upon the type and circumstances of the Benefit Plan
fiduciary making the decision to purchase the notes with assets of the Benefit
Plan. Included among these exemptions are the following Prohibited Transaction
Exemptions ("PTE"):
- PTE 84-14, applicable to certain transactions effected by a
qualified professional asset manager;
- PTE 90-1, applicable to certain transactions entered into by
an insurance company separate account;
- PTE 91-38, applicable to certain transactions entered into by
a bank collective investment trust;
- PTE 95-60, applicable to certain transactions entered into by
an insurance company general account; and
- PTE 96-23, applicable to certain transactions entered into by
an in-house asset manager.
Purchasers acquiring notes with the assets of a Benefit Plan shall be deemed
to represent and warrant that such purchase and holding will not give rise to
a nonexempt prohibited transaction.
A fiduciary of a Benefit 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 trust 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.
By its acceptance of a note, each noteholder shall be deemed to have
represented and warranted that either (i) it is not a Benefit Plan or (ii) its
purchase and holding of the note will not result in a nonexempt prohibited
transaction under Section 406 of ERISA or Section 4975 of the Code (or any
substantially similar applicable law).
S-35
<PAGE>
THE CERTIFICATES
The Certificates are not likely to be treated as indebtedness for purposes of
the Regulation. Under one exception to the Plan Asset Regulation, however, the
assets of the trust will not be treated as plan assets if participation by
Plans (as defined below) in the issuer is not "significant." Plan
participation will not be "significant" for purposes of the Regulation if less
than 25% of each class of equity interests is held by Plans (excluding
interests held by persons (other than Plans) that have discretionary authority
or control with respect to the assets of Issuer, or who provide investment
advice for a fee (direct or indirect) with respect to such assets, or any
Affiliate of such a Person (each, a "Controlling Person")). The Department of
Labor has taken the position that for purposes of determining whether equity
participation in an entity is "significant" for purposes of the Regulation,
only the proportion of an insurance company general account's investment that
represents Plan assets should be taken into account.
Accordingly, the Certificates may not be purchased by or transferred
to any "employee benefit plan" within the meaning of section 3(3) of ERISA
(whether or not subject to ERISA, and including, without limitation, foreign
or government plans) or by any "plan" described in section 4975(e)(1) of the
Code, or any entity whose underlying assets include plan assets by reason of a
plan's investment in such entity (each, a "Plan"), except for an insurance
company using the assets of its general account that represents and warrants
that, at the time of acquisition and throughout the period it holds the
Certificates, (i) it is eligible for and meets the requirements of Department
of Labor Prohibited Transaction Class Exemption 95-60 (ii) less than 25% of
the assets are (or represent) assets of a Plan, and (iii) it is not the
Servicer or any other service provider to the trust, or an affiliate of any of
the foregoing, and would not otherwise be excluded under 2510.3-101(f)(1).
RATINGS
It is a condition to the issuance of the securities that the class
[__]of notes be rated at least ["___"] by [_________] and the class [__]
certificates be rated at least ["___"] by [__________]. We collectively refer
to [________] and [________] as the rating agencies.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating agency. Each security rating should be evaluated
independently of any other security rating.
The ratings on the offered securities address the likelihood of the
receipt by securityholders of all distributions with respect to the underlying
receivables to which they are entitled. The ratings do not represent any
assessment of the likelihood that the rate of principal prepayments by
obligors or lessees might differ from those originally anticipated. As a
result of the differences in the rate of principal prepayments,
securityholders might suffer a lower-than-anticipated yield to maturity. See
"Risk Factors" and "Weighted Average Life of the Securities."
S-36
<PAGE>
The [depositor] has not requested a rating on the offered securities
by any rating agency other than [_________ and ________]. However, we cannot
assure you as to whether any other rating agency will rate the offered
securities, or, if it does, what rating would be assigned by any such other
rating agency. A rating on the offered notes by another rating agency, if
assigned at all, may be lower than the ratings assigned to the offered
securities by [___________ and __________].
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting
agreement, dated [____________ __, 20__], the depositor has agreed to cause
the trust to sell to [______________], the underwriter, all of the notes [and
the certificates]. The underwriting agreement provides that the underwriter is
obligated to purchase all of the notes [and all of the certificates] if any are
purchased.
The underwriter proposes to offer the notes and certificates initially
[at the prices on the cover page of this prospectus supplement, and to certain
dealers at that price less a discount of up to [___%] of the principal on each
class [__] note and [___%] on each class [__] certificate.] [in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale] The underwriter and those dealers may allow a discount of [___%] of the
principal of each class [__] note and [___%] of each class [__] certificate on
sales to certain other dealers. After the initial public offering, the public
offering price and such discounts may change.
The depositor estimates that its out of pocket expenses for this
offering will be approximately [$________].
The depositor does not intent do apply for listing of the notes
[or the certificates]. Further, the notes and certificates are a new issue of
securities with no established trading market. The underwriter intends to make
a secondary market for the notes [and the certificates]. However, it is not
obligated to do so and may discontinue making a secondary market for the notes
[and the certificates] at any time without notice. We cannot assure you as to
how liquid the trading market for the notes [and certificates] will be.
[________] has agreed to indemnify the underwriter against certain
liabilities under the Securities Act, or contribute to payments which the
underwriter may be required to make in respect thereof.
The underwriters may engage in over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids in accordance
with Regulation M under the Securities Exchange Act. To explain:
- Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position;
S-37
<PAGE>
- Stabilizing transactions permit bids to purchase the
underlying security as long as the stabilizing bids do not
exceed a specified maximum;
- Syndicate covering transactions involve purchases of the
notes [and certificates] in the open market after the
distribution has been completed in order to cover syndicate
short positions;
- Penalty bids permit the underwriters to reclaim a selling
concession from a syndicate member when the notes [and
certificates] originally sold by a syndicate member are
purchased in a syndicate covering transaction to cover
syndicate short positions.
Stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the notes [and certificates] to be higher than it
would otherwise be in the absence of these transactions. The underwriter is
not required to engage in these activities and, if commenced, may end any of
these activities at any time.
[In the ordinary course of their respective businesses, the
underwriter and its affiliates have engaged and may in the future engage in
investment banking, commercial banking, insurance or other transactions with
[the originator] [the seller] [the depositor] and its affiliates.
LEGAL OPINIONS
Certain legal matters relating to the notes and certificates and
certain federal income tax and other matters will be passed upon for the trust
and by [the originator] [the seller] [the servicer] by [____________] and for
the underwriter, the depositor and the trust by Mayer, Brown & Platt, Chicago,
Illinois. [Mayer, Brown & Platt may from time to time render legal services to
the originator, the seller, the servicer and their affiliates.]
S-38
<PAGE>
[APPENDIX A]
[AUDITED BALANCE SHEET OF THE TRUST]
A-1
<PAGE>
APPENDIX B
COMPOSITION OF THE RECEIVABLES
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<S> <C> <C>
Aggregate Principal Balance....................................................................................$___________
Number of Receivables................................................................................................._____
Average Amount Financed........................................................................................$___________
Range of Amounts Financed......................................................................$___________ to $___________
Average Remaining Principal Balance............................................................................$___________
Range of Remaining Principal Balances..........................................................$___________ to $___________
Weighted Average APR................................................................................................._____%
Range of APRs.............................................................................................._____% to _____%
Weighted Average Original Term to Maturity (1)..................................................................____ months
Range of Original Terms to Maturity.....................................................................____ to ____ months
Weighted Average Remaining Term to Maturity (1).................................................................____ months
Range of Remaining Terms to Maturity....................................................................____ to ____ months
New Equipment (Percentage of Aggregate Principal Balance).............................................................____%
Used Equipment (Percentage of Aggregate Principal Balance)............................................................____%
</TABLE>
(1) Rounded to the nearest month.
B-1
<PAGE>
DISTRIBUTION OF THE RECEIVABLES BY APR
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<CAPTION>
Percentage
Aggregate by Aggregate Percentage
Principal Principal Number of by Number of
APR Range Balance Balance (1) Receivables Receivables (1)
--------- ------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
% $ %
------- --------- ----------- -----------
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
B-2
<PAGE>
GEOGRAPHIC DISTRIBUTION OF RECEIVABLES
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<CAPTION>
Percentage
by Aggregate Percentage
Aggregate Principal Number of by Number of
State Principal Balance Balance (1) Receivables Receivables (1)
----- ----------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
$ % %
----------------- -------- ----------- ------------
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
B-3
<PAGE>
DISTRIBUTION BY ORIGINAL TERM TO SCHEDULED MATURITY OF THE RECEIVABLES
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<CAPTION>
Percentage
Aggregate by Aggregate Percentage
Principal Principal Number of by Number of
Range of Original Terms Balance Balance (1) Receivables Receivables(1)
----------------------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
to months $ % %
to months
to months
to months
to months
to months
to months
to months
to months
months
------------------ -------- ---------- --------
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
B-4
<PAGE>
DISTRIBUTION BY REMAINING TERM TO SCHEDULED MATURITY OF THE RECEIVABLES
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<CAPTION>
Percentage
Aggregate by Aggregate Percentage
Principal Principal Number of by Number of
Range of Remaining Terms Balance Balance (1) Receivables Receivables(1)
------------------------ ------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
to months $ % %
to months
to months
to months
to months
to months
to months
to months
to months
months
------------------ -------- ---------- --------
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
B-5
<PAGE>
DISTRIBUTION OF RECEIVABLES BY AMOUNT FINANCED
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<CAPTION>
Percentage
Aggregate by Aggregate Percentage
Principal Principal Number of by Number of
Amount Financed Balance Balance (1) Receivables Receivables(1)
--------------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
$5,000.00 to $9,999.99 $ % %
$10,000.00 to $14,999.99
$15,000.00 to $19,999.99
$20,000.00 to $24,999.99
$25,000.00 to $29,999.99
$30,000.00 to $34,999.99
$35,000.00 to $39,999.99
$40,000.00 to $44,999.99
$45,000.00 to $49,999.99
$50,000.00 to $54,999.99
$55,000.00 to $59,999.99
$60,000.00 to $64,999.99
$65,000.00 to $69,999.99
$100,000.00 and above
------------------ -------- ---------- --------
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
B-6
<PAGE>
DISTRIBUTION OF RECEIVABLES BY CURRENT PRINCIPAL BALANCE
AS OF THE [INITIAL] CUTOFF DATE
<TABLE>
<CAPTION>
Percentage
Aggregate by Aggregate Percentage
Current Principal Principal Number of by Number of
Principal Balance Balance Balance (1) Receivables Receivables(1)
----------------- ------- ------- ----------- -----------
<S> <C> <C> <C> <C>
$5,000.00 to $9,999.99 $ % %
$10,000.00 to $14,999.99
$15,000.00 to $19,999.99
$20,000.00 to $24,999.99
$25,000.00 to $29,999.99
$30,000.00 to $34,999.99
$35,000.00 to $39,999.99
$40,000.00 to $44,999.99
$45,000.00 to $49,999.99
$50,000.00 to $54,999.99
$55,000.00 to $59,999.99
$60,000.00 to $64,999.99
$95,000.00 to $99,999.99
---------- -------- ------- --------
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
B-7
<PAGE>
DISTRIBUTION OF RECEIVABLES BY TYPE
<TABLE>
<CAPTION>
Percentage
Aggregate by Aggregate Percentage
Principal Principal Number of by Number of
Balance Balance (1) Receivables Receivables(1)
------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Rule of 78's receivables $ % %
Fixed value receivables
Simple interest receivables
Actuarial receivables
---------- -------- ------- --------
TOTAL $ 100.00% 100.00%
</TABLE>
(1) Percentages may not add up to 100.00% because of rounding.
[Insert additional tables setting forth information applicable to
receivables supporting a specific series.]
B-8
<PAGE>
[PROSPECTUS VERSION 3]
The information in this prospectus and the accompanying prospectus supplement is
not complete and may be changed. We may not sell these securities until the
registration statement with the Securities and Exchange Commission is effective.
This prospectus and the accompanying prospectus supplement are not an offer to
sell these securities and they are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION
Depositor
ASSET-BACKED NOTES
ASSET-BACKED CERTIFICATES
VARIOUS SPECIAL-PURPOSE FINANCE COMPANIES FORMED BY THE DEPOSITOR, AND VARIOUS
TRUSTS CREATED BY THE DEPOSITOR MAY FROM TIME TO TIME ISSUE ONE OR MORE SERIES
AND CLASSES OF ASSET-BACKED NOTES AND ASSET-BACKED CERTIFICATES REPRESENTING
INTERESTS IN A SEGREGATED POOL OF ASSETS.
THE SECURITIES IN A SERIES:
- will be paid only from the assets related to that series; and
- may be divided into multiple classes of notes and certificates having
different rights as to distributions, security and priority.
THE ASSETS UNDERLYING THE SECURITIES OF A SERIES WILL INCLUDE OWNERSHIP,
PARTICIPATION OR SECURITY INTERESTS IN:
- installment sales contracts and loan contracts secured by equipment;
- finance leases of equipment; or
- a combination of installment sales contracts and loan contracts
secured by, and finance leases of, equipment.
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS ON PAGE [ ] IN THIS PROSPECTUS
AND PAGE S-[ ] IN THE ACCOMPANYING PROSPECTUS SUPPLEMENT.
Any notes of a series represent obligations of, and certificates of a series
represent interests in, the related assets only. Any notes and certificates of
a series do not represent interests in or obligations of any servicer, any
seller, any originator, depositor or any of their affiliates.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS OR ANY RELATED PROSPECTUS SUPPLEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is [INSERT DATE].
<PAGE>
OVERVIEW OF THE INFORMATION IN THIS PROSPECTUS
AND THE PROSPECTUS SUPPLEMENT
We provide information to you about the securities in two separate
documents that progressively provide more detail:
- this prospectus, which provides general information, some of which may
not apply to your series of securities; and
- the accompanying prospectus supplement, which describes the specific
terms of your series of securities, including:
- the class or classes of securities;
- the timing, priority and rate of interest and principal
distributions for each class of securities;
- financial and other information about the related assets;
- any credit enhancement for each class of securities;
- information regarding the servicer and any trustee(s) for the
series;
- information regarding the seller(s) of the related assets and the
underwriting guidelines used by that seller;
- information regarding tax considerations;
- the ratings for each class; and
- the method for selling the securities.
THE PROSPECTUS AND THE PROSPECTUS SUPPLEMENT, TOGETHER, PROVIDE A
DESCRIPTION OF THE MATERIAL TERMS OF YOUR SECURITIES. YOU SHOULD RELY ON THE
INFORMATION IN THE PROSPECTUS SUPPLEMENT TO THE EXTENT IT PROVIDES A MORE
SPECIFIC DESCRIPTION OF YOUR SECURITIES.
You should rely only on the information provided in this prospectus and the
accompanying prospectus supplement, including the information incorporated by
reference. You can request information incorporated by reference from
Prudential Securities Secured Financing Corporation, One New York Plaza, New
York, New York 10292, Attention: P. Carter Rise. See "Where You Can Find More
Information" and "Incorporation of Information by Reference" in this prospectus.
We have not authorized anyone to provide you with different information. We are
not offering the securities in any state where the offer is not permitted.
i
<PAGE>
We include cross-references in this prospectus and the accompanying
prospectus supplement to captions in these materials where you can find further
related discussions. The following table of contents and the table of contents
included in the accompanying prospectus supplement provide the pages on which
these captions are located.
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
||Page
----
<S> <C>
Summary of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Depositor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Issuer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
The Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Pre-funding; Purchase of
Receivables after the Closing
Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Revolving Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Receivables Purchased
after the Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . .5
Servicer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Seller(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Originator(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
The Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Characteristics of the Securities . . . . . . . . . . . . . . . . . . . . . . .7
Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Strip Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Accrual Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Distributions to the
Securityholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Interest Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Optional Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Mandatory Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Credit and Payment
Enhancement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Cross-collateralization . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Legal Considerations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Repurchase by Originator and/or
Seller Required for Breaches of
Representation or Warranty . . . . . . . . . . . . . . . . . . . . . . . 12
Tax Status. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ERISA Considerations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
It may not be possible to find an investor to purchase
your securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Interests of other persons in the receivables or the financed
equipment could reduce the funds available to make payments on
your securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Insolvency of a party in possession of the receivables may reduce
the funds available to make payments on your securities . . . . . . . . 17
Bankruptcy of an originator, a seller or the depositor could result
in delays in payment or losses on the securities . . . . . . . . . . . . 17
The securities are not guaranteed and only the related assets
are available to pay your securities . . . . . . . . . . . . . . . . . . 18
You may suffer losses if a third party purchases a receivable without
knowledge of the issuer's interests. . . . . . . . . . . . . . . . . . . 19
You may suffer losses upon a liquidation of the receivables if the
proceeds of the liquidation are less than the amounts due on the
outstanding securities . . . . . . . . . . . . . . . . . . . . . . . . . 19
Statutory limitations on realization of financed equipment due to
insolvency of obligors may cause payment reductions and delays . . . . . 20
Limitations on enforceability of the receivables because of consumer
protection laws may cause payment reductions or delays . . . . . . . . . 20
iii
<PAGE>
Extension or deferral of payments on receivables may increase
weighted average life of the securities. . . . . . . . . . . . . . . . . 21
Subordination may cause some classes of securities to bear additional
credit risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
You may have to reinvest your principal at a lower rate of
return because of prepayments on the securities. . . . . . . . . . . . . 22
The yield to maturity of some types of securities will be extremely
sensitive to prepayments.. . . . . . . . . . . . . . . . . . . . . . . . 23
If book-entry registration is used, you may be able to exercise
your rights as a securityholder only through the clearing agency . . . . 23
You may experience losses on your securities if insurance on the
financed equipment is less than outstanding principal and
interest on the related receivable . . . . . . . . . . . . . . . . . . . 23
Limited remedies for breaches of representations could reduce or delay
payments to you. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
The Issuers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
The Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Rule of 78s Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Fixed Value Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Simple Interest Receivables . . . . . . . . . . . . . . . . . . . . . . . . . 27
Actuarial Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Prepayment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Maturity and Prepayment Considerations. . . . . . . . . . . . . . . . . . . . 28
Delinquencies, Repossessions, and Net Losses . . . . . . . . . . . . . . . . . . . 29
Origination of Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . 29
Issuance of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Pre-funding; Purchase of Receivables after the Closing Date . . . . . . . . . 29
Revolving Period; Purchase of Receivables after the Closing Date. . . . . . . 29
The Depositor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
The Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Description of the Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Distributions of Principal and Interest . . . . . . . . . . . . . . . . . . . 32
Pool Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Book-Entry Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Definitive Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Reports to Securityholders. . . . . . . . . . . . . . . . . . . . . . . . . . 37
Description of the Purchase Agreements, Receivables Transfer Agreements
and the Transfer and Servicing Agreements . . . . . . . . . . . . . . . . . . 38
Acquisition of Receivables by Seller; Originator Repurchase
Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Acquisition of Receivables by Depositor; Seller Repurchase
Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Acquisition of Receivables by Issuer. . . . . . . . . . . . . . . . . . . . . 39
Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Eligible Deposit Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Eligible Institution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Servicing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
The Servicer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
iv
<PAGE>
Servicing Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Payments on Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Servicing Compensation and Expenses . . . . . . . . . . . . . . . . . . . . . 42
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Credit and Cash Flow Enhancements . . . . . . . . . . . . . . . . . . . . . . 43
Statements to Indenture Trustees and Trustees . . . . . . . . . . . . . . . . 44
Evidence as to Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Matters Regarding the Servicers . . . . . . . . . . . . . . . . . . . . . . . 45
Servicer Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Rights upon Servicer Default. . . . . . . . . . . . . . . . . . . . . . . . . 46
Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Insolvency Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Legal Aspects of the Receivables . . . . . . . . . . . . . . . . . . . . . . . . . 48
Insolvency of an Originator, a Seller or the Depositor may result in
Consolidation of their Assets with the Issuer. . . . . . . . . . . . . . 48
Perfection and Priority With Respect to Receivables . . . . . . . . . . . . . 50
Security Interests in Financed Equipment. . . . . . . . . . . . . . . . . . . 50
Priority of Liens Arising by Operation of Law . . . . . . . . . . . . . . . . 51
Repossession. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Notice of Sale; Redemption Rights . . . . . . . . . . . . . . . . . . . . . . 52
Deficiency Judgments and Excess Proceeds. . . . . . . . . . . . . . . . . . . 52
Consumer Protection Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Other Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
ERISA Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Methods of Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Financial Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Where You Can Find More Information. . . . . . . . . . . . . . . . . . . . . . . . 57
Incorporation of Information by Reference. . . . . . . . . . . . . . . . . . . . . 57
</TABLE>
v
<PAGE>
SUMMARY OF TERMS
- THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS 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 THE OFFERING OF THE
SECURITIES, CAREFULLY READ THIS ENTIRE PROSPECTUS AND THE ACCOMPANYING
PROSPECTUS SUPPLEMENT.
DEPOSITOR . . . . . . . . . . . . . Prudential Securities Secured Financing
Corporation, formerly known as P-B
Secured Financing Corporation, a
Delaware corporation, a wholly-owned
limited purpose finance subsidiary of
Prudential Securities Incorporated.
ISSUER. . . . . . . . . . . . . . . The issuer for a series may be a
special-purpose finance company formed
by the depositor or a trust created by
the depositor. An owner trust may be
formed by a trust agreement between the
trustee and the depositor. A grantor
trust may be formed by a pooling and
servicing agreement among the trustee,
the depositor and the servicer for that
trust. No issuer will register as an
"investment company" under the
Investment Company Act of 1940, as
amended.
THE ASSETS. . . . . . . . . . . . . The assets supporting the securities of
a series will consist of a combination
of:
- receivables consisting of
ownership, participation or
security interests in:
- installment sales contracts
and loan contracts secured by
equipment; or
- finance leases of equipment;
- monies received under the initial
receivables after the related
cut-off date related to the assets
of the series and under additional
receivables transferred to the
issuer after a later cut-off date;
- amounts held in bank accounts
established for that series,
including amounts on deposit in any
collection account, pre-funding
account, revolving account,
<PAGE>
reserve account, yield supplement
account or other account for that
series as specified in the related
prospectus supplement;
- unless otherwise specified in the
accompanying prospectus supplement,
interest and other investment
income earned on short-term
investments held by, or on behalf
of, your issuer;
- security interests in the equipment
financed by the receivables;
- any proceeds from insurance
policies covering financed
equipment or the related obligors;
- the proceeds of any repossessed
equipment financed by the
receivables;
- rights of any seller under its
purchase agreement with an
originator and rights of the
depositor under its receivables
transfer agreement with the
seller; and
- any credit enhancement for each
class of the series;
We refer to the installment sales
contracts and loan contracts as
"installment sales contracts" and to
installment sales contracts and leases,
collectively, as "receivables."
The receivables supporting each series
of securities will be selected using
several criteria. These criteria will
include that:
(1) each receivable is for the purchase
or lease of equipment which:
- is personal property that is
subject to Uniform Commercial Code
provisions relating to title
transfer, security interests and
remedies upon default; and
- was purchased by the related
obligor, or leased to the related
lessee, in the ordinary course of
business or for home use;
2
<PAGE>
(2) the related installment sales
contract or lease which gave rise
to the receivable constitutes
chattel paper within the meaning of
the Uniform Commercial Code, or,
but for a technical definitional
matter, would be treated as chattel
paper for purposes of Uniform
Commercial Code provisions relating
to title transfer, security
interests and remedies upon
default;
(3) each receivable was either
originated by a seller or acquired
by a seller from one or more
originators;
(4) neither the receivable nor the
equipment related thereto is
subject to federal or state
registration requirements which
differ materially from, or
supplant, standard Uniform
Commercial Code provisions
governing (x) remedies upon
default, or (y) the manner in which
title or security interests in
chattel paper or the related
equipment is determined or
perfected--for example we will
exclude receivables for the
purchase or lease of motor
vehicles, ships or boats, aircraft
and firearms or other weapons;
(5) in the case of leases, constitutes
a finance lease and that provides
for payments of rent and related
payments and to either the return
of the equipment at the termination
of the lease or the payment of a
nominal (i.e., $1) purchase price
for the equipment at the election
of the lessee; and
(6) in the case of installment sales
contracts, provide for scheduled
payments that fully amortize the
amount financed over the original
term to maturity of the receivable.
Additional criteria for any particular
issuer's receivables may be listed in
the related prospectus supplement. We
will not use selection procedures that
we believe to be adverse to you in
selecting the receivables to be
transferred to your issuer.
Receivables that are to be included in
any asset pool will be sold or pledged
by one or more sellers to the depositor
under a receivables transfer agreement.
On or before the
3
<PAGE>
closing date specified in the related
prospectus supplement, the depositor
will transfer the initial receivables
having an aggregate principal balance
specified in the related prospectus
supplement as of the cut-off date
related to those receivables to a trust
or special-purpose finance company under
a transfer and servicing agreement.
The transfer and servicing agreement may
be in the form of:
- a sale and servicing agreement
among the depositor, the related
servicer, the related indenture
trustee and the related issuer; or
- a pooling and servicing agreement
among the depositor, the related
servicer and the related trust if
the trust is to be treated as a
grantor trust for federal income
tax purposes.
PRE-FUNDING; PURCHASE OF
RECEIVABLES AFTER THE CLOSING
DATE. . . . . . . . . . . . . . . . If specified in the related prospectus
supplement, an issuer may be permitted
to purchase additional receivables
during a specified pre-funding period
after the closing date for that series
not to exceed one year from the closing
date. An issuer will purchase
additional receivables with amounts
deposited in a pre-funding account on
the closing date.
The pre-funded amount will initially
equal the amount specified in the
related prospectus supplement. The
pre-funded amount may be up to 40% of
the aggregate principal amount of the
related series of securities. The
pre-funding account will be reduced by
the amount used to purchase receivables
after the closing date. One or more
classes of securities of the related
series may be prepaid with any amounts
remaining in the pre-funded account for
that series at the end of the specified
pre-funding period for that series.
In addition, during some or all of a
pre-funding period, all or a portion of
the payments collected on the related
receivables may be used to purchase
additional receivables, rather than to
fund payments of principal to
4
<PAGE>
securityholders. As a result, the
related securities may have an
interest-only period. The pre-funding
period or interest only period for any
series of securities may terminate
earlier than anticipated if events
described in the related prospectus
supplement occur.
REVOLVING PERIOD. . . . . . . . . . If specified in the related prospectus
supplement, all or a portion of the
collections received on the related
receivables during a specified revolving
period and any other amounts described
in the related prospectus supplement,
will be deposited in a revolving account
and used to purchase additional
receivables after the closing date. No
principal collections on the receivables
will be distributed to the
securityholders of that series during
the revolving period. Although the
specific parameters of the revolving
account for any issuance of securities
will be specified in the related
prospectus supplement, it is anticipated
that the revolving period will not
exceed three years from the related
closing date. The revolving period for
any series of securities may terminate
earlier than anticipated if events
described in the related prospectus
supplement occur.
If the amount on deposit in a revolving
account at specified times during the
revolving period exceeds the maximum
permitted revolving account balance
specified in the related prospectus
supplement, the holders of that series
of securities will receive a
distribution of principal on their
securities on the next payment date in
an amount equal to the amount of that
excess. One or more classes of
securities of the related series may be
prepaid with any amounts remaining in
the revolving account for that series at
the end of the specified revolving
period for that series.
Thereafter principal distributions will
be made to the holders of the related
series of securities in the manner
otherwise specified in this prospectus
and in the related prospectus
supplement.
RECEIVABLES PURCHASED
AFTER THE CLOSING DATE. . . . . . . Subsequent receivables to be acquired
during any pre-funding period or
revolving period will be subject to the
same types of representations and
warranties as the initial
5
<PAGE>
receivables included in the related
receivables pool on the related closing
date.
Additional criteria, however, may also
be required to be satisfied, as
described in the related prospectus
supplement. Any subsequent receivables
will have been originated in accordance
with the underwriting criteria described
in the related prospectus supplement.
SERVICER. . . . . . . . . . . . . . The related prospectus supplement will
identify the servicer for that series.
The servicer will service and administer
the related assets for that series under
the related transfer and servicing
agreement. The servicer may subcontract
all or any portion of its obligations as
servicer to qualified subservicers. The
servicer will remain obligated for its
obligations as servicer whether or not
subservicers are used.
TRUSTEE . . . . . . . . . . . . . . If the issuer for a series is a trust,
the related prospectus supplement will
identify the trustee for that series.
INDENTURE TRUSTEE . . . . . . . . . If a series of securities includes
notes, the related prospectus supplement
will identify the indenture trustee for
that series. The notes will be issued
and secured under an indenture between
the issuer and the indenture trustee.
If the issuer is a trust, it and the
indenture will be administered by
separate independent trustees.
SELLER(s) . . . . . . . . . . . . . The related prospectus supplement will
identify the seller(s) of receivables
supporting that series. The depositor
may acquire receivables from one or more
sellers in connection with a series
under one or more receivables transfer
agreements. Sellers may be affiliates
of the depositor.
ORIGINATOR(s) . . . . . . . . . . . The originators for a particular series
will be identified in the related
prospectus supplement. An originator of
receivables may be:
- a manufacturer of equipment;
- a dealer or vendor that may or may
not be affiliated with one or more
manufacturers; or
6
<PAGE>
- an originator or owner of
installment sales contracts secured
by, or leases of, equipment.
A seller may be the originator of the
receivables or may have acquired the
receivables from an originator. A
seller may acquire receivables from one
or more originators in connection with a
series under one or more purchase
agreements.
THE SECURITIES. . . . . . . . . . . The securities will be issued in series.
A series may include one or more classes
of certificates. A series may also
include one or more classes of notes.
Any certificates of a series represent
beneficial ownership in the related
assets and will be issued under a trust
agreement or a pooling and servicing
agreement. The notes of a series
represent indebtedness of the issuer and
will be issued under an indenture. Each
series will be backed by a segregated
pool of assets.
The rights and benefits of any issuer
under a sale and servicing agreement
will be assigned to the related
indenture trustee as collateral for the
notes of the related series. The
securities will not be obligations,
either recourse or non-recourse, of the
depositor, the related servicer, the
related seller(s), the related
originator(s) or any person other than
the related issuer.
An owner trust form of prospectus
supplement will be used for a series
that includes both notes and
certificates. A grantor trust form of
prospectus supplement will be used for a
series that includes only certificates.
Each prospectus supplement will specify
the securities being offered. Some or
all of the securities of a series may
not be offered to the public.
CHARACTERISTICS OF THE SECURITIES . Securities, other than strip securities,
offered by this prospectus and the
related prospectus supplement will have
a principal balance and a specified
interest rate.
The characteristics of the securities
issued may differ from one another. Any
differences in characteristics will be
7
<PAGE>
specified in the prospectus supplement.
Some of these characteristics are:
- rate at which interest, if any,
accrues;
- fixed, variable or adjustable
interest rates;
- timing and frequency of interest
payments;
- amount of payments of interest and
principal or other distributions;
- priority of interest and principal
payments and allocation of losses
relative to other classes;
- whether or not distributions of
principal and interest will be
delayed or not made at all upon the
occurrence of specified events; and
- whether payments of principal and
interest may or may not be made
from designated portions of the
pool of receivables.
SUBORDINATION . . . . . . . . . . . A series may include one or more classes
of securities that are senior to one or
more other classes of securities as to
distributions of principal and interest
and allocations of losses on the related
receivables.
STRIP SECURITIES. . . . . . . . . . A series may include one or more classes
of strip securities that provide for
distributions of interest which are
disproportionately large or small in
comparison to the principal
distribution, including:
- distributions of interest with no
or only a nominal distribution of
principal; or
- distributions of principal with no
or only a nominal distribution of
interest.
ACCRUAL SECURITIES. . . . . . . . . A series may include one or more classes
of accrual securities as to which
certain accrued interest will not be
distributed to securityholders. That
interest will instead be added to the
principal balance of the securities on
each
8
<PAGE>
payment date. If the security is also a
strip security, that interest will be
added to the nominal balance of the
securities on each payment date.
DISTRIBUTIONS TO THE
SECURITYHOLDERS . . . . . . . . . . Principal and interest on the securities
will be paid on specified payment dates
that may occur monthly, quarterly or
semi-annually, over the life of the
securities. The payment date or dates
for each class of a series will be
described in the related prospectus
supplement.
Collections on the related assets
received during the collection period
preceding the payment date will be used
to fund payments to securityholders on
the next payment date. The collection
period for a series will be specified in
the related prospectus supplement. All
or a portion of collected payments from
a collection period may be used to
acquire additional receivables during a
pre-funding period or a revolving
period. See "The
Receivables--Pre-funding; Purchase of
Receivables after the Closing Date" and
"--Revolving Period; Purchase of
Receivables after the Closing Date."
In addition, all or a portion of the
collected payments may be retained by
the related trustee and held in
temporary investments for a specified
period before being used to fund
payments to securityholders as may be
required by the related transfer and
servicing agreement to:
- slow the amortization rate of the
related securities; or
- attempt to match the amortization
rate of the related securities to
an amortization schedule
established when the securities
were issued.
The transfer and servicing agreement may
terminate these features if specified
events described in the related
prospectus supplement occur. As a
result, distributions may be made to the
related securityholders earlier than
anticipated and the amortization of the
related securities may be accelerated.
9
<PAGE>
INTEREST RATES. . . . . . . . . . . Each class of securities may have a
different interest rate, which may be
fixed or adjustable. The related
prospectus supplement will specify the
interest rate for each class of
securities, or the initial interest rate
and the method for determining
subsequent changes to the interest rate.
OPTIONAL REDEMPTION . . . . . . . . The related servicer, the related
seller, the depositor or, if specified
in the related prospectus supplement,
other entities may, at their option,
purchase the receivables related to a
series when the remaining receivables
related to that series are less than a
specified percentage of (unless other
specified in the related prospectus
supplement) the aggregate principal
balance of the receivables at the time
the related series was issued.
MANDATORY TERMINATION . . . . . . . The related trustee or servicer or 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 assets or
otherwise, under other circumstances and
in the manner specified in the related
prospectus supplement.
CREDIT AND PAYMENT
ENHANCEMENT . . . . . . . . . . . . The related prospectus supplement will
describe the credit enhancement, if any,
for any class or classes or series of
securities. Limitations or exclusions
from coverage could apply to any form of
credit enhancement. The prospectus
supplement will describe the credit
enhancement and related limitations and
exclusions applicable for securities
issued in connection with that
prospectus supplement. Credit or
payment enhancement may consist of one
or more of the following:
- subordination of one or more
classes of securities;
- a financial guaranty insurance
policy;
- a reserve account;
- a yield supplement account;
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- collateralization greater than the
principal amount of securities
issued;
- letters of credit;
- credit or liquidity facilities;
- repurchase obligations;
- cash deposits; or
- other agreements with respect to
third party payments or other
support.
CROSS-
COLLATERALIZATION . . . . . . . . . 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. Except to the
limited extent that some 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, no
payment received on any receivable
related to any series may be applied to
the payment of securities of any other
series.
LEGAL CONSIDERATIONS. . . . . . . . The related seller(s) and/or any
originator from whom the seller acquired
the receivables for a series, will
warrant in a receivables transfer
agreement or purchase agreement, as
applicable, that the transfer of the
receivables by it to the depositor or
the seller, as applicable, is:
- a valid assignment, transfer
and conveyance of the
receivables; or
- if specified in the related
prospectus supplement, either:
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- a valid assignment, transfer
and conveyance of receivables
to the seller or the depositor
as applicable; or
- a valid grant of a security
interest in the receivables.
The depositor will warrant in a transfer
and servicing agreement:
- if the depositor or the related
seller(s) retain title to the
receivables, that the issuer for
the benefit of the securityholders
has a valid security interest in
the receivables; or
- if the depositor transfers the
receivables to an issuer, that the
transfer of the receivables to the
issuer is either:
- a valid assignment, transfer
and conveyance of the
receivables to the issuer; or
- the issuer on behalf of the
securityholders has a valid
security interest in the
receivables.
Each prospectus supplement will specify
what actions will be taken by the
related parties as applicable to perfect
the issuer's and, if applicable, the
securityholder's security interest in
the receivables.
REPURCHASE BY ORIGINATOR AND/OR
SELLER REQUIRED FOR BREACHES OF
REPRESENTATION OR
WARRANTY. . . . . . . . . . . . . . The related originator and/or seller
will make representations and warranties
in the related purchase agreement or
receivables transfer agreement, as
applicable, relating to the receivables
in which it transfers an interest to the
seller or the depositor. An originator
and/or seller will be required to
repurchase the interest transferred by
it in a receivable if:
- one of its representations or
warranties is breached and remains
uncured with respect to that
receivable; and
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- the interest of the securityholders
of those assets is materially
adversely affected by the breach.
For a discussion of the representations
and warranties given by an originator
and/or the seller and its related
repurchase obligations, see "Description
of the Purchase Agreements, Receivables
Transfer Agreements and the Transfer and
Servicing Agreements--Acquisition of
Receivables by Seller; Originator
Repurchase Obligations" and
"--Acquisition of Receivables by
Depositor; Seller Repurchase
Obligations" in this prospectus.
TAX STATUS. . . . . . . . . . . . . Securities of each series offered hereby
will, for federal income tax purposes,
constitute either:
- interests in a trust treated as a
grantor trust under applicable
provisions of the internal revenue
code,
- debt issued by an issuer; or
- interests in a trust or other
entity which is treated as a
partnership.
The prospectus supplement for each
series of securities will summarize
federal income tax considerations
relevant to the purchase, ownership and
disposition of the securities offered by
that prospectus supplement.
If specified in the related prospectus
supplement, a trust may make an election
to be treated as a "financial asset
securitization investment trust" or
"FASIT." The applicable transfer and
servicing agreement may contain
provisions to make FASIT election and
issue the securities on terms and
conditions as are permitted to a FASIT
and described in the related prospectus
supplement.
Investors are advised to consult their
tax advisors and to review "Federal Tax
Considerations" and "State Tax
Consequences" in the related prospectus
supplement.
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<PAGE>
ERISA
CONSIDERATIONS. . . . . . . . . . . The prospectus supplement for each
series of securities will summarize
considerations under the Employee
Retirement Income Security Act of 1974,
as amended, relevant to the purchase of
the securities by employee benefit plans
and individual retirement accounts.
Some classes of securities will not be
eligible for purchase by such plans and
accounts. See "ERISA Considerations" in
the related prospectus supplement.
RATINGS . . . . . . . . . . . . . . At issuance, each class of securities
offered by this prospectus will be rated
not lower than investment grade by one
or more nationally recognized
statistical rating agencies. See
"Ratings" in this prospectus and in your
prospectus supplement.
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<PAGE>
RISK FACTORS
You should consider the following risk factors carefully in deciding whether to
purchase any of the securities.
IT MAY NOT BE POSSIBLE TO FIND The underwriters may assist in resales of
AN INVESTOR TO PURCHASE YOUR securities, but they are not required to do
SECURITIES. so. A secondary market for your securities
may not develop. If a secondary market does
develop, it might not continue or it might
not be sufficiently liquid to allow you to
resell any of your securities. Illiquidity
also could have an adverse effect on the
market value of your securities. Securities
will not be listed on any securities
exchange.
INTERESTS OF OTHER PERSONS IN As described in the related prospectus
THE RECEIVABLES OR THE supplement, under the related transfer and
FINANCED EQUIPMENT COULD servicing agreement, either the trustee, the
REDUCE THE FUNDS AVAILABLE TO depositor, the related seller(s) or the
MAKE PAYMENTS ON YOUR related servicer will be required to
SECURITIES. maintain possession of the original copies
of all receivables that constitute chattel
paper. If the depositor or a seller retains
possession of the related receivables,
- the servicer may take possession of
original copies as necessary for the
enforcement of any receivable; and
- the related prospectus supplement may
describe specific trigger events that
will require delivery of those
receivables to the issuer.
Another person could acquire an interest in
a receivable that is superior to the
issuer's interest by obtaining physical
possession of the chattel paper that
evidences the receivable. If the depositor,
the servicer, the trustee, a seller, an
originator or other third party, while in
possession of the receivables, sells or
pledges and delivers the receivables to
another party, in violation of the purchase
agreement, the receivables transfer
agreement or the transfer and servicing
agreement, as applicable, there is a risk
that another party could acquire an interest
in the receivables having priority over the
issuer's interest. If another person
acquires an interest in a receivable that is
superior to the issuer's
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interest in the receivable, the collections
on that receivable will not be available to
make payment on the securities.
Unless otherwise specified in the related
prospectus supplement, the related
originator will transfer a security interest
in all of its right, title and interest in
and to the financed equipment to the
depositor or to the seller which will in
turn transfer the security interest to the
depositor. The depositor will in turn
pledge a security interest in all of its
right, title and interest in and to the
financed equipment to the issuer.
As specified in the related prospectus
supplement, due to administrative burden and
expense, no action will be taken to record
the transfers of security interests from the
related originator to us or from an
originator to a seller and ultimately to us
or, in any case, from us to the issuer. In
most states, an assignment like the
transfers referred to above is effective to
convey a security interest, without any
action to record the transfer of record. In
those states, the proper initial filing of
the financing statement relating to the
equipment will be sufficient to protect the
related issuer against the rights of
subsequent purchasers of financed equipment
or subsequent lenders who take a security
interest in financed equipment. However, by
not identifying an issuer as the secured
party on the financing statement, the
security interest of the issuer in financed
equipment could be defeated through fraud or
negligence. If another person acquires an
interest in the financed equipment that is
superior to the issuer's interest in the
financed equipment, the proceeds from the
sale of the financed equipment will not be
available to make payments on the
securities.
The issuer's security interest in the
receivables or the financed equipment could
be impaired for one or more of the following
reasons:
- the originator or seller, might fail to
perfect its security interest in the
financed equipment;
- holders of some types of liens, such as
tax liens or mechanics liens, may have
priority over the issuer's security
interest; and
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- the issuer could lose its priority to a
person who obtains physical possession
of a receivable without knowledge of
the assignment of the receivable to the
issuer.
The related seller(s) and/or the related
originator, as specified in the related
prospectus supplement, will make
representations and warranties with respect
to the ownership of the receivables as of
the date of the transfer to the seller and
the depositor, respectively. The related
originator and/or seller will be obligated
to repurchase the interest transferred by it
in a receivable from the related issuer if
there is an uncured breach of its
representations and warranties and the
interest of the securityholders of those
assets is materially adversely affected by
the breach. None of the originator or the
seller will be required to repurchase the
interest transferred by it in a receivable,
however, if the interest in a receivable or
the related equipment becomes impaired after
the receivable is sold or pledged to the
issuer.
INSOLVENCY OF A PARTY IN If the depositor, the servicer, a seller, an
POSSESSION OF THE RECEIVABLES originator or a third party is rendered
MAY REDUCE THE FUNDS AVAILABLE insolvent while in possession of the
TO MAKE PAYMENTS ON YOUR receivables, then competing claims to
SECURITIES. ownership or security interests in the
receivables may result. Even if
unsuccessful, competing claims could result
in delays in payments on the securities. If
successful, competing claims could result in
losses to the securityholders or an
acceleration of the repayment of the
securities.
BANKRUPTCY OF AN ORIGINATOR, A If a seller, originator or the depositor
SELLER OR THE DEPOSITOR COULD becomes subject to bankruptcy proceedings,
RESULT IN DELAYS IN PAYMENT OR you could experience losses or delays in
LOSSES ON THE SECURITIES. payments on your securities. A "transferor"
or non-bankruptcy remote entity, which may
be an originator or a seller, will transfer
the receivables to a "transferee" or
bankruptcy-remote entity, which may be a
seller or the depositor. This transfer is
designed to be a "true sale." The issuer
will acquire its rights in the receivables
either directly or indirectly from the
bankruptcy remote entity for that series.
However, if a seller, originator or the
depositor becomes subject to a bankruptcy
proceeding, a court in the bankruptcy
proceeding could conclude that the
transferor still owns the receivables by
concluding that the sale by the transferor
was not a "true sale" or that the transferor
should be consolidated with the transferee
for bankruptcy purposes.
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<PAGE>
If a court were to reach this conclusion,
you could experience losses or delays in
payments on your securities due to, among
other things:
- the "automatic stay" which prevents
secured creditors from exercising
remedies against a debtor in bankruptcy
without permission from the court and
provisions of the U.S. Bankruptcy Code
that permit substitution of collateral
in certain circumstances;
- tax or government liens on the
originator's, the seller's or the
depositor's property that arose before
their transfer of the receivables
having a claim on collections that is
senior to payments on your securities;
- the issuer not having a perfected
security interest in
- all or a portion of the financed
equipment securing the
receivables; or
- any cash collections held by an
originator, a seller or the
depositor at the time that the
originator, seller or the
depositor, as applicable, becomes
the subject of a bankruptcy
proceeding.
The depositor will take steps in structuring
the transactions to minimize the risk that a
court would consolidate the transferor with
the transferee for bankruptcy purposes or
conclude that the sale of the receivables by
the transferor was not a "true sale."
THE SECURITIES ARE NOT None of the servicer for any series, the
GUARANTEED AND ONLY THE seller(s) for any series, the depositor or
RELATED ASSETS ARE AVAILABLE any of their affiliates is obligated to make
TO PAY YOUR SECURITIES. any payments relating to:
- the securities of a series; or
- the receivables.
Therefore, payment on the related assets and
any credit enhancement will be the only
source of payment to you. If these assets
are insufficient, you may suffer losses on
your securities.
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<PAGE>
YOU MAY SUFFER LOSSES IF A The transfer of the receivables by an
THIRD PARTY PURCHASES A originator to a seller under a purchase
RECEIVABLE WITHOUT KNOWLEDGE agreement, by a seller to the depositor
OF THE ISSUER'S INTERESTS. under a receivables transfer agreement and
by the depositor to an issuer under a
transfer and servicing agreement, the
perfection of the security interests in the
receivables and the enforcement of rights to
realize on the financed equipment as
collateral for the receivables, are subject
to a number of federal and state laws,
including the Uniform Commercial Code as in
effect in various states. As specified in
each prospectus supplement, the related
servicer will take the action required to
perfect the rights of the seller, the
depositor and issuer in the receivables.
If, through inadvertence or otherwise, a
third party were to
- purchase or take a security interest in
a receivable for new value;
- in the ordinary course of its business;
- without actual knowledge of the
seller's, depositor's or issuer's
interest; and
- take possession of the chattel paper
that evidences a receivable;
the purchaser would acquire an interest in
that receivable superior to the interest of
the seller, depositor or issuer.
YOU MAY SUFFER LOSSES UPON A If the receivables supporting any series are
LIQUIDATION OF THE RECEIVABLES liquidated, the related securityholders may
IF THE PROCEEDS OF THE suffer losses if the issuer sells the
LIQUIDATION ARE LESS THAN THE receivables for less than the total amount
AMOUNTS DUE ON THE OUTSTANDING due on the securities or does not realize
SECURITIES. the full amount due on the receivables on a
timely basis.
The ability of the issuer or a trustee to
realize the total amount due on the
receivables may be affected by:
- whether financing statements to perfect
the security interest in the financed
equipment had been filed;
- depreciation;
- obsolescence;
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- damage or loss of any financed
equipment; and
- the application of Federal and state
bankruptcy and insolvency laws.
As a result, securityholders may be subject
to delays in payments and suffer loss of
their investment in the securities. The
market value of the receivables may be less
than the aggregate principal amount of the
outstanding securities of the series.
Therefore, upon an event of default with
respect to the securities of any series,
there can be no assurance that sufficient
funds will be available to repay the related
securityholders in full.
STATUTORY LIMITATIONS ON Numerous statutory provisions, including
REALIZATION OF FINANCED insolvency laws, may interfere with or
EQUIPMENT DUE TO INSOLVENCY OF affect the ability of a secured party to
OBLIGORS MAY CAUSE PAYMENT realize upon collateral or to enforce a
REDUCTIONS AND DELAYS. deficiency judgment against an obligor. For
example, in a Chapter 13 proceeding under
the Bankruptcy Code, a court may prevent a
creditor from repossessing financed
equipment, and, as part of the obligor's
rehabilitation plan, reduce the amount of
the secured indebtedness to the market value
of the financed equipment at the time of
bankruptcy, as determined by the court,
leaving the creditor 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 change the rate of interest and
time of repayment of the indebtedness. To
the extent that any credit enhancement for
that series were insufficient to cover all
losses, those actions could result in an
inability of the securityholders of that
series to recover payment in full of their
respective principal amounts and interest
thereon or could result in delays in those
payments.
LIMITATIONS ON ENFORCEABILITY Federal and state consumer protection laws
OF THE RECEIVABLES BECAUSE OF regulate the creation and enforcement of
CONSUMER PROTECTION LAWS MAY consumer contracts and loans such as the
CAUSE PAYMENT REDUCTIONS OR receivables. Specific statutory liabilities
DELAYS. are imposed upon creditors who fail to
comply with these regulatory provisions. In
some cases, this liability could affect an
assignee's ability to enforce a receivable.
Application of these laws could also render
a receivable unenforceable, cause the issuer
to be unable to collect any balance
remaining due on the receivable or result in
liability
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to the issuer. If an obligor had a claim
against any issuer for violation of these
laws before the cutoff date for the related
receivable, the seller and/or any other
originator will be obligated to repurchase
the related receivable unless the breach is
cured. If the receivable is not
repurchased, payments to securityholders
could be reduced or delayed. See "Legal
Aspects of the Receivables--Consumer
Protection Laws."
EXTENSION OR DEFERRAL OF To the extent provided in the related
PAYMENTS ON RECEIVABLES MAY prospectus supplement, the servicer may
INCREASE WEIGHTED AVERAGE LIFE permit the extension or modification of
OF THE SECURITIES. receivables on a case-by-case basis. Any
extensions or modifications may increase the
weighted average life of the related
securities. Any reinvestment risks
resulting from faster or slower payment
resulting from extensions, modifications or
amendments of payments on receivables of a
series will be borne entirely by the
securityholders of that series. The
servicer will not be permitted to grant any
extension or modification if, as a result,
the final scheduled payment on a receivable
would fall after the latest final scheduled
payment date for that series, unless the
servicer agrees to repurchase the affected
receivable if that receivable becomes
defaulted.
SUBORDINATION MAY CAUSE SOME The rights of the holders of any class of
CLASSES OF SECURITIES TO BEAR notes to receive payments of interest and
ADDITIONAL CREDIT RISK. principal may be subordinated to one or more
other classes of notes. In addition, the
rights of the holders of any class of
certificates to receive payments of interest
and principal may be subordinated to one or
more classes of notes and to one or more
other classes of certificates.
Holders of subordinated classes of
securities will bear more credit risk than
more senior classes. Subordination may take
the following forms:
- interest payments on any date on which
interest is due may first be allocated
to the more senior classes;
- principal payments on the subordinated
classes may not begin until principal
of the more senior classes is repaid in
full;
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- subordinated classes may bear the first
risk of losses; and
- if the receivables are sold, the net
proceeds of that sale may be allocated
first to pay principal and interest on
the more senior classes.
The timing and priority of payment,
seniority, allocations of losses and method
of determining payments on the respective
classes of securities of any series will be
described in the related prospectus
supplement.
YOU MAY HAVE TO REINVEST YOUR If your securities are prepaid earlier than
PRINCIPAL AT A LOWER RATE OF expected, you may not be able to reinvest
RETURN BECAUSE OF PREPAYMENTS the principal repaid to you at a rate of
ON THE SECURITIES. return that is equal to or greater than the
rate of return on your securities. Faster
than expected prepayments on the receivables
may require the issuer to make payments on
the securities earlier than expected.
Prepayments may include:
- full or partial prepayments on
receivables that permit prepayment;
- receipts of proceeds from physical
damage, credit life and disability
insurance policies;
- repurchases by originators or sellers
for breaches of representations and
warranties;
- optional purchases by the depositor,
originators, sellers, servicers or
others; and
- payments resulting from liquidations
due to default.
The depositor does not have available to it
any statistics regarding prepayment rates
historically experienced in the equipment
finance or leasing industries. The rate of
prepayments cannot be predicted. The risk
of reinvesting distributions of the
principal of the securities will be borne by
the securityholders.
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<PAGE>
THE YIELD TO MATURITY OF SOME The yield to maturity on securities
TYPES OF SECURITIES WILL BE purchased at premiums or discounts to par
EXTREMELY SENSITIVE TO will be extremely sensitive to the rate of
PREPAYMENTS. prepayments on the related receivables. In
addition, the yield to maturity on other
types of securities, including:
- strip securities;
- accrual securities; and
- classes in a series including more than
one class of securities,
may be more sensitive to the rate of
prepayment of the related receivables than
other classes of securities.
IF BOOK-ENTRY REGISTRATION IS If the prospectus supplement specifies that
USED, YOU MAY BE ABLE TO securityholders of your series will hold
EXERCISE YOUR RIGHTS AS A their interests through a clearing agency or
SECURITYHOLDER ONLY THROUGH one of its participating organizations, the
THE CLEARING AGENCY. securities will be registered in the name of
a nominee of the clearing agency and
physical certificates will not be issued to
individual securityholders. You will not be
recognized directly by the issuer or your
trustee and must exercise all of rights and
receive any payments through the clearing
agency or the participating organization,
unless physical certificates are issued.
Physical certificates will only be issued in
the limited circumstances described in
"Description of the Securities--Definitive
Securities". The clearing agency in the
U.S. is expected to be DTC and in Europe
either Clearstream, Luxembourg, society
anonyme or Euroclear.
YOU MAY EXPERIENCE LOSSES ON Each receivable generally requires the
YOUR SECURITIES IF INSURANCE related obligor to maintain insurance
ON THE FINANCED EQUIPMENT IS covering physical damage to the financed
LESS THAN OUTSTANDING equipment in at least the amount of the
PRINCIPAL AND INTEREST ON THE unpaid principal balance of the receivable
RELATED RECEIVABLE. under 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.
Any recovery under any insurance policy may
be less than the outstanding principal and
interest due on the related receivable.
Securityholders could suffer a loss on their
investment if a shortfall of this type were
to occur.
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<PAGE>
LIMITED REMEDIES FOR BREACHES The seller and any originator, if specified
OF REPRESENTATIONS COULD in the related prospectus supplement, of a
REDUCE OR DELAY PAYMENTS TO receivable will be the only persons making
YOU. representations and warranties on that
receivable. The applicable seller or
originator may not have the financial
ability to effect any repurchase obligation
it has relating to any breaches of those
representations and warranties. Resulting
losses may reduce the payment and yield on
your securities.
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THE ISSUERS
For each series of securities, the depositor will either:
- establish a separate trust that will issue the securities; or
- establish a special-purpose finance company that will issue the
securities;
in each case under the related transfer and servicing agreement.
The related servicer will service the related receivables under the
applicable transfer and servicing agreement. 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 provided in the related prospectus supplement.
THE RECEIVABLES
The receivables are obligations for the purchase of equipment, evidence
borrowings used to acquire equipment, refinancings of those borrowings and/or
the lease of equipment. The receivables may include fixed rate receivables and
floating rate receivables, as well as receivables that provide for different
fixed or floating interest rates or different formulae to calculate the floating
interest rate at different times during the life of the receivable. Receivables
that are installment sales contracts typically have an explicit interest rate
that is usually named in the contract that evidences the receivable. Other
receivables, including leases, may not disclose an explicit interest rate, but
they have an implicit interest rate that is used to calculate the periodic
rental payments in a way similar to the way that periodic installment payments
are calculated under an installment sales contract. The receivables may consist
of any combination of:
- rule of 78s receivables;
- fixed value receivables;
- simple interest receivables; and
- actuarial receivables.
Information about the receivables supporting the securities of a series
will be provided in the related prospectus supplement, including:
- the identity of the related seller(s) and originator(s), if
applicable;
- the related underwriting criteria and collection policies;
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<PAGE>
- the aggregate principal balance of all of the receivables;
- the number of receivables;
- the distribution of the receivables by geographic location and APR;
- the portion of the receivables pool consisting of rule of 78s
receivables, fixed value receivables, simple interest receivables, and
actuarial receivables; and
- the aggregate principal balance of the receivables as of the
applicable cut-off date.
RULE OF 78s RECEIVABLES
Rule of 78s receivables typically provide for fixed level monthly payments
which will amortize the full amount of the receivable over its term. Rule of
78s receivables provide for allocation of payments according to the "sum of
periodic balances" or "sum of monthly payments" method. Each rule of 78s
receivable provides for the payment by the obligor of a specified total amount
of payments, payable in scheduled monthly installments. The total amount of all
payments represents the principal amount financed plus finance charges. Finance
charges are calculated on the basis of a stated annual percentage rate for the
term of the receivable. The rate at which the amount of finance charges is
earned and the amount of each fixed monthly payment allocated to reduction of
the outstanding principal balance of the related receivable 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
receivable and lower during later months than that under a constant yield method
for allocating payments between interest and principal. Payments received by
the related servicer related to rule of 78s receivables may, however, be
allocated on an actuarial basis.
FIXED VALUE RECEIVABLES
Fixed value receivables typically provide for monthly payments with a final
fixed value payment which is greater than the scheduled monthly payments. A
fixed value receivable provides for amortization of the loan over a series of
fixed level payment monthly installments. It also requires a final fixed value
payment due after payment of all monthly installments which may be satisfied by:
- payment in full in cash of that amount;
- transfer of the financed equipment to the related seller; or
- refinancing the fixed value payment.
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The principal and interest payments due before the final fixed value payment may
be included in the assets supporting any series. The final fixed value payment
may not be included in the assets supporting any series.
SIMPLE INTEREST RECEIVABLES
Simple interest receivables 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 receivables, under fixed
value receivables 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 receivable,
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.
ACTUARIAL RECEIVABLES
Actuarial receivables provide for amortization of the amount financed under
the receivable over a series of fixed level payment monthly installments. Each
monthly payment on an actuarial receivable, including the monthly payment
representing the last payment on the receivable, consists of an amount of
interest equal to 1/12 of the outstanding principal balance of
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the receivable multiplied by the stated APR, and an amount of principal equal to
the remainder of the monthly payment.
PREPAYMENT
If an obligor elects to prepay a rule of 78s receivable 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
receivable 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 receivable calculated in accordance with the rule of 78s will always
be less than had that 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 receivable for which all payments were made on schedule.
Because interest and principal are not computed separately on actuarial
receivables, obligors under actuarial receivables will be entitled to rebates of
unearned finance charges if they prepay or if their obligations are accelerated.
If an actuarial receivable is prepaid in full, with minor variations based upon
state law, actuarial receivables require that any rebate be calculated on the
basis of a constant interest rate. Distributions to securityholders may not be
affected by rule of 78s rebates under the rule of 78s receivable because under
the related prospectus supplement those distributions may be determined using
the actuarial method.
MATURITY AND PREPAYMENT CONSIDERATIONS
The weighted average life of the related securities will generally be
influenced by the rate at which the principal balances of the related
receivables are paid. A variety of economic, social and other factors may
influence the rate of defaults, repurchases and prepayments on the receivables,
including:
- current interest rates;
- loan or lease structure;
- alternate sources of financing;
- obsolescence;
- current economic conditions; and
- tax considerations.
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DELINQUENCIES, REPOSSESSIONS, AND NET LOSSES
Information relating to the delinquency, repossession and net loss
experience of the servicer will be described in the related prospectus
supplement. This information may describe the experience of the servicer's
entire portfolio during specified periods, including receivables which may not
meet the criteria for selection as a receivable for any particular series. There
can be no assurance that the delinquency, repossession and loss experience on
any assets supporting a series will be comparable to the related servicers's
prior experience.
ORIGINATION OF RECEIVABLES
A seller or other originator or a party from whom an originator indirectly
or directly acquired the receivables, will have originated the receivables in
accordance with the underwriting criteria specified in the related prospectus
supplement. Each seller, originator or other party will be an institution
experienced in originating installment sales contracts and/or leases in
accordance with accepted industry practices and prudent guidelines.
ISSUANCE OF SECURITIES
The issuer of the series will issue the related securities. An issuer may
also issue one or more classes of securities to the depositor in partial payment
for the receivables.
PRE-FUNDING; PURCHASE OF RECEIVABLES AFTER THE CLOSING DATE
On the closing date, the depositor will sell and transfer receivables to
the issuer in an amount specified in the related prospectus supplement. If
specified in the related prospectus supplement, a seller or the depositor will
transfer additional receivables to the issuer as frequently as daily during the
pre-funding period specified in the related prospectus supplement. The issuer
will use amounts on deposit in a pre-funding account to purchase additional
receivables after the closing date. Up to 40% of the net proceeds from the sale
of the securities issued by an issuer may be deposited into a pre-funding
account to purchase receivables after the closing date. Any receivables
purchased by the issuer after the closing date will also be assets of the issuer
and will be subject to the prior rights of the issuer and the securityholders.
In addition, during some or all of a pre-funding period, all or a portion
of the payments collected on the related receivables may be used to purchase
additional receivables, rather than to fund payments of principal to
securityholders. As a result, the related securities may possess an
interest-only period. The interest-only period may terminate before the end of
the specified period if events described in the related prospectus supplement
occur.
REVOLVING PERIOD; PURCHASE OF RECEIVABLES AFTER THE CLOSING DATE
On the closing date, the depositor will sell and transfer receivables to
the issuer in an amount specified in the related prospectus supplement. If
specified in the related prospectus
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supplement, a seller or the depositor will transfer additional receivables to
the issuer as frequently as daily during the revolving period specified in
the related prospectus supplement. The issuer will use amounts on deposit in
a revolving account to purchase additional receivables after the closing
date. During a revolving period, principal collections on the related
receivables and any other amount described in the related prospectus
supplement will be deposited in a revolving account. Any receivables
purchased by the issuer after the closing date will also be assets of the
issuer and will be subject to the prior rights of the issuer and the
securityholders.
On the payment date following the end of the related revolving period, the
amount, if any, on deposit in the related revolving account at the close of
business on the last day of that revolving period, less any investment earnings
on deposit therein will be distributed to the related securityholders. In
addition, on each payment date, during the related revolving period,
distributions to the related securityholders will be made on each payment date
in an amount, if any, by which the amount on deposit in the related revolving
account at the close of business on the last day of the preceding calendar
month, less any investment earnings on deposit therein, exceeds the maximum
permitted revolving account balance specified in the related prospectus
supplement.
THE DEPOSITOR
Prudential Securities Secured Financing Corporation, formerly known as P-B
Secured Financing Corporation, was incorporated in the State of Delaware on
August 26, 1988 as a wholly-owned, limited purpose finance subsidiary of
Prudential Securities Incorporated. Prudential Securities Incorporated is 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.
The only obligations, if any, of the depositor as to a series of securities
may be limited undertakings to repurchase or substitute receivables under
specified circumstances. Unless otherwise specified in the applicable
prospectus supplement, the depositor will have no servicing obligations or
responsibilities with respect to any issuer. The depositor does not have, nor is
it expected in the future to have, any significant assets.
The servicer for any series of securities may be an affiliate of the
depositor. The depositor may acquire receivables through or from an affiliate.
Neither the depositor nor Prudential Securities Incorporated nor any of its
affiliates, including The Prudential Insurance Company of America, will insure
or guarantee the securities of any series.
TRUSTEE
A trustee's liability in connection with the issuance and sale of the
related securities is limited to the express obligations of that trustee
described in the related transfer and servicing
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agreement. The trustee for any trust may resign for cause at any time, in which
case the trust will be obligated to appoint a successor trustee for that trust.
Any resignation or removal of the trustee and appointment of a successor trustee
for that trust will not become effective until acceptance of the appointment by
the successor trustee for that trust. If a successor trustee is not appointed by
the depositor or the securityholders, or if no successor trustee has accepted
appointment within a specified period following any resignation or removal, the
trustee or any securityholder of the related series may petition any court of
competent jurisdiction for the appointment of a successor trustee.
THE INDENTURE TRUSTEE
The indenture trustee for any trust may resign at any time, in which event
the issuer will be obligated to appoint a successor indenture trustee for that
trust. The issuer may also remove any indenture trustee if that indenture
trustee ceases to be eligible to continue as the indenture trustee under the
related indenture or if the indenture trustee becomes insolvent. In those
circumstances, the issuer will be obligated to appoint a successor indenture
trustee for the related notes. Any resignation or removal of the indenture
trustee and appointment of a successor indenture trustee for the related notes
does not become effective until acceptance of the appointment by the successor
indenture trustee.
USE OF PROCEEDS
The net proceeds from the sale of the securities of a given issuer will be
applied by the issuer:
- to the purchase of the related receivables from the depositor or the
seller(s);
- to make the initial deposit into any pre-funding account or revolving
account;
- to make the initial deposit into any reserve account or yield
supplement account or any related accounts of that series as provided
in the related prospectus supplement; and
- for any other purposes specified in the related prospectus supplement.
DESCRIPTION OF THE SECURITIES
We summarize below the material terms and provisions common to all of the
securities to be issued under this prospectus and the related prospectus
supplement. This summary does not include all the terms and provisions of the
securities and the related agreements under which they will be issued and is
qualified by reference to those agreements and the actual securities.
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DISTRIBUTIONS OF PRINCIPAL AND INTEREST
Each class of securities will have a stated principal amount and may accrue
interest on that amount at the rate indicated in the related prospectus
supplement. The timing and priority of distributions, seniority, allocations of
losses and amount of or method of determining distributions with respect to
principal and interest of each class of securities will be described in the
related prospectus supplement. Distributions of interest on the securities will
be made before distributions with respect to principal of the payment date
specified in the prospectus supplement.
POOL FACTORS
The pool factor for each class of securities will be a seven-digit decimal
that indicates the outstanding principal balance of that class at that time as a
fraction of the outstanding principal balance of that class as of the closing
date. Each pool factor will be initially 1.0000000. As distributions are made
to that class of securities, the pool factor will decline to reflect reductions
in the outstanding principal balance of the applicable class. Before each
distribution to a class of securities, the related servicer will calculate the
pool factor for that class as of the date of the related distribution.
A securityholder's portion of the aggregate outstanding principal balance
of the related class of securities will be:
- the original purchase price of that securityholder's securities,
MULTIPLIED BY
- the applicable pool factor.
BOOK-ENTRY REGISTRATION
As may be described in the related prospectus supplement, securityholders
of a given series may hold their securities directly through DTC in the United
States or Clearstream, Luxembourg or Euroclear in Europe if they are
participants of those systems. Securityholders that are not participants of
those systems may hold their securities indirectly through organizations that
are participants in those systems.
Cede, as nominee for DTC, will hold the global securities for a given
series. Clearstream, Luxembourg and Euroclear will hold omnibus positions on
behalf of the Clearstream, Luxembourg participants and the Euroclear
participants, respectively, through customers' securities accounts in
Clearstream, Luxembourg's and Euroclear's names on the books of their respective
depositaries which in turn will hold those 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
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the New York UCC and a "clearing agency" registered pursuant to Section 17A of
the Exchange Act. DTC was created to hold securities for its participants and
to facilitate the clearance and settlement of securities transactions between
participants through electronic book-entries, thereby eliminating the need for
physical movement of notes or certificates. Participants include:
- securities brokers and dealers
- banks
- trust companies
- clearing corporations
Indirect access to the DTC system 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.
Transfers between DTC participants will occur in accordance with DTC rules.
Transfers between Clearstream, Luxembourg 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 Clearstream,
Luxembourg 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. Cross-market transactions
will, however, require delivery of instructions to the relevant European
international clearing system by the counterparty in that 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.
Clearstream, Luxembourg participants and Euroclear participants may not deliver
instructions directly to the depositaries.
Because of time-zone differences, credits of securities in Clearstream,
Luxembourg 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 those credits or any
transactions in those securities settled during that processing will be reported
to the relevant Clearstream, Luxembourg participant or Euroclear participant on
that business day. Cash received in Clearstream, Luxembourg or Euroclear as a
result of sales of securities by or through a Clearstream, Luxembourg
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
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relevant Clearstream, Luxembourg 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 that 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 those payments will be forwarded by the applicable trustee to
Cede, as nominee for DTC. DTC will forward those payments to its participants,
which thereafter will forward them to indirect participants or securityholders.
It is anticipated that the only "securityholder" in respect of any series will
be Cede, as nominee of DTC. Securityholders of a given series will not be
recognized as securityholders of that series, and those securityholders will be
permitted to exercise the rights of securityholders of that series only
indirectly through DTC and its participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers of securities of a
given series among participants on whose behalf it acts with respect to those
securities and to receive and transmit distributions of principal of, and
interest on, those securities. Participants and indirect participants with
which the securityholders of a given series have accounts for those securities
similarly are required to make book-entry transfers and receive and transmit
payments on behalf of their respective securityholders of the series.
Accordingly, although those securityholders will not possess securities, the DTC
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 that series to persons
or entities that do not participate in the DTC system, or to otherwise act with
respect to those securities, may be limited due to the lack of a physical
certificate for those securities.
DTC will advise the trustee for 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 that series are credited. DTC may take conflicting actions with respect to
other undivided interests to the extent that those actions are taken on behalf
of participants whose holdings include those undivided interests.
Clearstream, Luxembourg is incorporated under the laws of Luxembourg as a
professional depository. Clearstream, Luxembourg holds securities for its
participating organizations and facilitates the clearance and settlement of
securities transactions between Clearstream, Luxembourg participants through
electronic book-entry changes in accounts of Clearstream, Luxembourg
participants, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in Clearstream, Luxembourg in any of
28 currencies,
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including United States dollars. Clearstream, Luxembourg provides to its
Clearstream, Luxembourg participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. Clearstream, Luxembourg
interfaces with domestic markets in several countries. As a professional
depository, Clearstream, Luxembourg is subject to regulation by the Luxembourg
Monetary Institute. Clearstream, Luxembourg participants are recognized
financial institutions around the world, including underwriters, securities
brokers and dealers, banks, trust companies, clearing corporations and other
organizations. Indirect access to Clearstream, Luxembourg is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Clearstream, Luxembourg participant,
either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of the
Euroclear System 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. All operations are conducted
by the "Euroclear Operator," and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not Euroclear
Clearance System. Euroclear Clearance System 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. It is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law.
These 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
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Operator acts under those 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 issuer for 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 those beneficial ownership interests.
DEFINITIVE SECURITIES
As may be described in the related prospectus supplement, the securities
will be issued in fully registered, certificated form to the securityholders of
a given series or their nominees, rather than to DTC or its nominee, only if:
- the trustee for a related series advises in writing that DTC is no
longer willing or able to discharge properly its responsibilities as
depository with respect to those securities and the trustee is unable
to locate a qualified successor
- the servicer, at its option, elects to terminate the book-entry-system
through DTC
- after the occurrence of an "event of default" under the related
indenture or a default by the servicer under the related transfer and
servicing agreements, securityholders representing at least a majority
of the outstanding principal amount of the 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
the securityholders' best interest
The applicable trustee will be required to notify all securityholders of
the affected series securityholders through participants of the availability of
definitive securities. Upon surrender by DTC of the definitive certificates
representing the securities and receipt of instructions for re-registration, the
applicable trustee will reissue those securities as definitive securities to
those securityholders.
Distributions of principal of, and interest on, those securities will
thereafter be made by the applicable trustee in accordance with the procedures
provided in the related indenture or transfer and servicing 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 those securities in the related prospectus supplement. Distributions will
be made by check mailed to the address of the holder as it appears on the
register maintained by the applicable trustee. The final payment on any
definitive security, however, will be made only upon presentation and surrender
of the security at the office or agency specified in the notice of final
distribution to the applicable securityholders.
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Definitive securities for a given series of securities will be transferable
and exchangeable at the offices of the applicable trustee or of a certificate
registrar named in a notice delivered to holders of the definitive securities.
No service charge will be imposed for any registration of transfer or exchange,
but the trustee may require payment of a sum sufficient to cover any tax or
other governmental charge imposed in connection therewith.
REPORTS TO SECURITYHOLDERS
As more specifically described in the related prospectus supplement for
each series of securities, the related securityholders of record will receive
reports on or about each payment date as to the securities of their series with
respect to that payment date or the period since the previous payment date, as
applicable:
(1) the amount of the distribution allocable to principal for each class
of the series;
(2) the amount of the distribution allocable to interest for each class of
the series;
(3) the pool balance, if applicable, as of the close of business on the
last day of the related remittance period;
(4) the aggregate outstanding principal balance and the pool factor for
each class of securities after giving effect to all payments reported
under (1) above on that payment date;
(5) the amount paid to the servicer for the series, if any, with respect
to the related remittance period and the amount of any unpaid
servicing fees for the related remittance period or remittance
periods, as the case may be;
(6) the amount of the aggregate purchase amounts for receivables that have
been reacquired, if any, for that remittance period;
(7) any overcollateralization amount or credit enhancement amount;
(8) any previously due and unpaid interest payments on the securities and
the change in those amounts from the preceding statement;
(9) any previously due and unpaid principal payments on the securities and
the change in those amounts from the preceding statement;
(10) the aggregate amount of any receivables that were repurchased in that
remittance period;
(11) for each payment date during any pre-funding period, the amount
remaining in the pre-funding account; and
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(12) for the first payment date that is on or immediately following the end
of any pre-funding period, the amount remaining in the pre-funding
account that has not been used to fund the purchase of additional
receivables and is being passed through as payments of principal on
the securities of the series.
Each amount set forth pursuant to subclauses (1), (2) and (4) with respect
to the securities of any series will be expressed as a dollar amount per $1,000
of the initial principal balance of those securities, as applicable.
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.
DESCRIPTION OF THE PURCHASE AGREEMENTS, RECEIVABLES TRANSFER AGREEMENTS AND THE
TRANSFER AND SERVICING AGREEMENTS
We summarize below the material terms of the agreements under which the
originators will transfer receivables to a seller, that seller will transfer
receivables to us, and we will transfer the receivables to the issuer of your
securities and under which the receivables supporting your securities will be
serviced. We will disclose any additional material terms of these agreements in
the prospectus supplement for your securities. This summary does not include
all the terms and provisions of these agreements and is qualified by reference
to those agreements.
ACQUISITION OF RECEIVABLES BY SELLER; ORIGINATOR REPURCHASE OBLIGATIONS
On or before the closing date on which your securities are to be issued, a
seller, if it is not the originator of those receivables, will acquire the
related receivables from the related originator(s), in each case, under a
purchase agreement between the seller and each originator. If specified in the
related prospectus supplement, in the related purchase agreement, each
originator will make representations and warranties to the seller regarding the
receivables it is transferring to the seller. The material terms of these
representations and warranties will be described in the related prospectus
supplement.
ACQUISITION OF RECEIVABLES BY DEPOSITOR; SELLER REPURCHASE OBLIGATIONS
On or before the closing date on which your securities are to be issued,
the depositor will acquire the related receivables, or a security interest in
the receivables, from the related seller(s), in each case, under a receivables
transfer agreement between the depositor and each seller. If specified in the
related prospectus supplement, in the related receivables transfer agreement,
each seller will make representations and warranties to the depositor regarding
the receivables in which it is transferring its interest to the depositor. The
material terms of these representations and warranties will be described in the
related prospectus supplement.
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Each seller will assign all of its rights, except certain rights of
indemnification, and interest in the related purchase agreement to the
depositor, who will in turn assign those rights to the related issuer for the
benefit of the securityholders of that series. As a result, each originator
will be liable to the related issuer for any uncured breach of the originator's
representations or warranties that materially adversely affected the
securityholders of that series.
ACQUISITION OF RECEIVABLES BY ISSUER
On or before the closing date on which your securities are to be issued,
the depositor will transfer its interest in the receivables to a trust or to a
special purpose finance company, in each case under a transfer and servicing
agreement.
The depositor will assign all of its rights, except certain rights of
indemnification, and interest in the related receivables transfer agreement to
the related issuer for the benefit of the securityholders of that series. As a
result, each seller will be liable to the related issuer for any uncured breach
of the seller's representations or warranties that materially adversely affected
the securityholders of that series.
If specified in the related prospectus supplement, the depositor may
reacquire receivables or substitute receivables for receivables held by an
issuer subject to specified conditions described in the related transfer and
servicing agreement and receivables transfer agreement.
ACCOUNTS
The servicer for each series will establish and maintain with the
applicable trustee one or more collection accounts in the name of the trustee on
behalf of the related securityholders into which all payments made on the
related receivables will be deposited. The servicer for each series will
establish and maintain with the related trustee one or more distribution
accounts, in the name of the trustee on behalf of the securityholders, into
which amounts released from the collection account and any reserve account or
other credit or cash flow enhancement for distribution to the related
securityholders will be deposited and from which all distributions to the
securityholders will be made.
Any other accounts to be established for securities of a series will be
described in the related prospectus supplement.
For any series of securities, funds in the collection accounts,
distribution accounts and any other accounts identified in the related
prospectus supplement will be invested as provided in the related transfer and
servicing agreement in eligible investments. Eligible investments are generally
limited to obligations or securities that mature on or before the date of the
next distribution for that series. However, to the extent permitted by the
rating agencies rating that series, funds in any reserve account may be invested
in securities that will not mature before the date of the next distribution on
the securities and which will not be sold to meet any shortfalls. Thus, the
amount of cash available for withdrawal in any reserve account at any time may
be
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less than the balance of the reserve account at that time. If the amount
required to be withdrawn from any reserve account to cover shortfalls in
collections on the related receivables, as provided in the related prospectus
supplement, exceeds the amount of cash in the 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
that series. Eligible investments may include securities issued by the
depositor, or its affiliates, or any trusts created by the depositor, any
servicer, seller or their respective affiliates. Net investment earnings on
funds deposited in the accounts will be deposited in the applicable collection
account or distributed as provided in the related prospectus supplement.
ELIGIBLE DEPOSIT ACCOUNTS
The accounts will be maintained as eligible deposit accounts. An eligible
deposit account means either:
- a segregated account with an eligible institution; or
- a segregated trust account with the corporate trust department of a
depository institution organized under the laws of the U.S. 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 that account, so long as any
of the securities of that depository institution have a credit rating
from each rating agency in one of its generic rating categories which
signifies investment grade.
ELIGIBLE INSTITUTION
An eligible institution means, for securities of a series:
- the corporate trust department of the related indenture trustee
or the related trustee; or
- a depository institution organized under the laws of the U.S. or
any one of the states thereof or the District of Columbia, or any
domestic branch of a foreign bank,
- which has or the parent corporation of which has either:
- a long-term unsecured debt rating acceptable to the relevant
rating agencies; or
- a short-term unsecured debt rating or certificate of deposit
rating acceptable to the relevant rating agencies; and
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- whose deposits are insured by the FDIC.
Amounts deposited in any account may be commingled with amounts in the
related seller's or servicer's general account to the extent that the seller's
or servicer's unsecured debt ratings are acceptable to the relevant rating
agencies. Any commingling rights will be described in the related prospectus
supplement.
SERVICING
THE SERVICER
The servicer for each series will be named in the related prospectus
supplement. The servicer for a series may be the depositor or an affiliate of
the depositor and may have other business relationships with the depositor or
its affiliates. The servicer for each series will service the related
receivables. A servicer may delegate its servicing responsibilities to one or
more sub-servicers, but will not be relieved of its liabilities as to any
delegated responsibilities.
Each servicer will make representations and warranties regarding its
authority to enter into, and its ability to perform its obligations under, the
related agreements for that series. An uncured breach of a representation or
warranty of the servicer that in any respect materially adversely affects the
interests of the securityholders will constitute a servicer default by the
servicer.
SERVICING PROCEDURES
Each servicer will make reasonable efforts to collect all payments due on
the related receivables. The servicer will use the same collection procedures
that it follows for the particular type of receivable as for receivables of that
type that it services for itself and others. Consistent with its normal
procedures, the servicer may, in its discretion, arrange with the obligor on a
receivable to extend or modify the payment schedule. Some of those
arrangements, including, any extension of the payment schedule beyond the final
scheduled payment date for the related securities, may require the servicer to
purchase the receivable if the receivable becomes defaulted. See "Legal Aspects
of the Receivables".
If the servicer determines that eventual payment in full of a receivable is
unlikely, the servicer will follow its normal practices and procedures to
realize upon the receivable, including the repossession and disposition of the
equipment related to that receivable at a public or private sale, or the taking
of any other action permitted by applicable law.
The material aspects of any particular servicer's collections procedures
will be described in the related prospectus supplement.
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PAYMENTS ON RECEIVABLES
For each series of securities, the related servicer will, except as
provided below, be required to deposit all payments on the related receivables
received, and all proceeds of the related receivables collected, into the
related collection facility, such as a lock-box account or the collection
account within two business days of receipt. Moneys deposited in the collection
facility for a series may be commingled with funds from other sources. If
permitted by the related transfer and servicing agreement, and if specified in
the related prospectus supplement, the related servicer will only be required to
deposit payments on the related receivables collected during each collection
period into the related collection account on a specified day of each month.
Pending deposit into the collection account, collections may be invested by the
servicer at its own risk and for its own benefit and will not be segregated from
its own funds.
SERVICING COMPENSATION AND EXPENSES
The servicer for each series will receive a servicing fee for each
collection period equal to a specified percentage of the pool balance as of the
first day of that collection period. The servicer also will be entitled to
receive as a supplemental servicing fee for each collection period any late,
prepayment, and other administrative fees and expenses collected during that
collection period. Each prospectus supplement will specify the priority of
distributions on any payment date as to the servicing fee and any unpaid portion
of the servicing fee from prior payment dates. The servicing fees may be paid
before any distribution to the related securityholders.
The servicing fee and the supplemental servicing fee are intended to
compensate the servicer for performing the functions of a third party servicer
of the receivables as an agent for their beneficial owner, including:
- collecting and posting all payments
- responding to inquiries of obligors on the receivables
- investigating delinquencies
- sending payment coupons to obligors
- reporting federal income tax information to obligors
- paying costs of collections
- policing the collateral
- administering the particular receivables pool
- accounting for collections
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- furnishing monthly and annual statements to the related trustee and
indenture trustee with respect to distributions
- reimbursement of certain taxes
- the fees of the related trustee and indenture trustee
- accounting fees
- outside auditor fees
- data processing costs
- other costs incurred in connection with administering the applicable
receivables
DISTRIBUTIONS
For 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 securities
entitled thereto will be made by the applicable trustee to the related
securityholders. The timing, calculation, allocation, order, source, priorities
of and requirements for all payments to each class of related securityholders
and all distributions to each class of related securityholders will be described
in the related prospectus supplement.
For each series of securities, on each payment date, collections on the
related receivables will be transferred from the collection account to the note
payment account for distribution to noteholders, if any, and to the certificate
distribution account for distribution to certificateholders, to the extent
provided in the related prospectus supplement. Credit enhancement will be
available to the related securityholders to cover any shortfalls in the amount
available for distribution on that date to the extent specified in the related
prospectus supplement. Distributions of principal of a class of securities will
be subordinate to distributions of interest on that class. Distributions for
one or more classes of securities of the issuer may be subordinate to payments
of other securities of that issuer.
CREDIT AND CASH FLOW ENHANCEMENTS
The amounts and types of credit enhancement arrangements, if any, and the
provider, if applicable, for each class of securities of a given series will be
described in the related prospectus supplement. 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 of that class or series of the full amount of principal and
interest due thereon and to decrease the likelihood that those 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 of those series will be subject to
the risk that the credit enhancement will be exhausted by the claims of
securityholders of other series.
STATEMENTS TO INDENTURE TRUSTEES AND TRUSTEES
Before each payment date for a series of securities, the related servicer
will provide to the applicable trustee and credit enhancer as of the close of
business on the last day of the preceding related collection period a statement
setting forth substantially the same information as is required to be provided
in the periodic reports provided to securityholders of that series described
under "Description of the Securities--Reports to Securityholders".
EVIDENCE AS TO COMPLIANCE
Each transfer and servicing agreement will provide that a firm of
independent public accountants will furnish to the related issuer and/or the
applicable 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 certificate, the period from the applicable closing date, with
standards relating to the servicing of the receivables.
Each transfer and servicing agreement will also provide for delivery to the
related issuer and/or the applicable trustee of a certificate signed by an
officer of the related servicer stating that the servicer either has fulfilled
its obligations under that transfer and servicing agreement in all material
respects throughout the preceding 12 months, or, in the case of the first
certificate, the period from the applicable closing date, or, if there has been
a default in the fulfillment of any obligation in any material respect,
describing each default. Each servicer also will agree to give each indenture
trustee and each trustee notice of "servicer defaults" under the related
transfer and servicing agreement.
Copies of statements and certificates may be obtained by securityholders by
a request in writing addressed to the applicable trustee.
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MATTERS REGARDING THE SERVICERS
Each transfer and servicing 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 the servicer of those duties
is no longer permissible under applicable law. No resignation will become
effective until the related trustee or a successor servicer has assumed the
servicer's servicing obligations and duties under the transfer and servicing
agreement.
Each transfer and servicing agreement will further provide that neither the
related servicer nor any of its respective directors, officers, employees, or
agents will be liable to the related issuer or the related securityholders for
taking any action or for refraining from taking any action pursuant to the
transfer and servicing agreement, or for errors in judgment. No person,
however, will be protected against any liability due to willful misfeasance, bad
faith or negligence in the performance of duties or by reason of reckless
disregard of obligations and duties. In addition, the transfer and servicing
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 the transfer and servicing agreement and that,
in its opinion, may cause it to incur any expense or liability.
Under the circumstances specified in each transfer and servicing agreement,
any entity into which the related servicer may be merged or consolidated, or any
entity resulting from any merger or consolidation to which 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 that servicer, will be the successor
to that servicer under the related transfer and servicing agreement.
SERVICER DEFAULT
"Servicer default" under a transfer and servicing agreement will include:
- any failure by the related servicer to deliver to the applicable
trustee for deposit in any of the related accounts any required
payment or to direct that trustee to make any required distributions
therefrom, which failure continues unremedied for more than two
business days after written notice from trustee is received by
servicer or after discovery by servicer,
- any failure by servicer duly to observe or perform in any material
respect any other covenant or agreement in the transfer and servicing
agreement, which failure materially adversely affects the rights of
the related securityholders and which continues unremedied for a
period of up to one hundred and twenty (120) days after the giving of
written notice of the failure:
- to servicer by the applicable trustee or other person permitted
to provide notice under the transfer and servicing agreement; or
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- to the servicer and to the applicable trustee by holders of the
related securities, as applicable, evidencing not less than 25%
of the voting rights of those outstanding securities, and
- any insolvency event.
An "insolvency event" means financial insolvency, readjustment of debt,
marshaling of assets and liabilities, or similar proceedings as to the servicer,
the related originator or the related seller and actions by the servicer, the
related originator or the related seller indicating its insolvency,
reorganization under bankruptcy proceedings, or inability to pay its
obligations.
RIGHTS UPON SERVICER DEFAULT
As long as a servicer default under a transfer and servicing agreement
remains unremedied, the applicable trustee, credit enhancer or holders of
securities of the related series evidencing not less than a percentage specified
in the related prospectus supplement of the voting rights of those then
outstanding securities may terminate all the rights and obligations of the
servicer, if any, under the transfer and servicing agreement, whereupon a
successor servicer will replace the servicer. If, however, a bankruptcy trustee
or similar official has been appointed for the servicer, and no servicer default
other than that appointment has occurred, the bankruptcy trustee or official may
have the power to prevent the applicable trustee or the securityholders from
effecting a transfer of servicing. If the trustee is unwilling or unable to act
as successor servicer, 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. The trustee may make arrangements for compensation to be paid,
which may not be greater than the servicing compensation payable to the servicer
under the transfer and servicing agreement.
WAIVER OF PAST DEFAULTS
With respect to each series, 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 those
then outstanding securities may, on behalf of all securityholders of the related
series, waive any default by the servicer, in the performance of its obligations
under the related transfer and servicing agreement and its consequences, except
a default in making any required deposits to or payments from any of the
accounts in accordance with the transfer and servicing agreement. No waiver
shall impair the securityholders' rights with respect to subsequent defaults.
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AMENDMENT
Each of the purchase agreements, transfer and servicing agreements and
receivables transfer agreements may be amended by the parties to that agreement,
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 the agreements, or
- modifying in any manner the rights of the securityholders; PROVIDED
that the action will not, in the opinion of counsel satisfactory to
the applicable issuer, materially and adversely affect the interests
of any securityholder and subject to the approval of any credit
enhancer.
To the extent provided in the related prospectus supplement, the transfer
and servicing agreement 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 the then outstanding securities for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of the transfer and servicing agreements or of modifying
in any manner the rights of the securityholders; PROVIDED, HOWEVER, that the
amendment may not:
(1) increase or reduce in any manner the amount of, or accelerate or delay
the timing of, collections of payments on the related receivables or
distributions that are required to be made for the benefit of the
securityholders, or
(2) reduce the percentage of the securities of the series which are
required to consent to any amendment described in (1) above, without
the consent of the securityholders of that series.
Additionally, each of the transfer and servicing agreements may be amended
by the parties to that agreement at the direction of the servicer without the
consent of any of the related securityholders to add, modify or eliminate
provisions as may be necessary or advisable to enable all or a portion of a
trust to quality as, and to permit an election to be made to cause all or a
portion of a trust to be treated as, a "financial asset securitization
investment trust" as described in the provisions of the "Small Business Job
Protection Act of 1996," H.R. 3448, and in connection with an election, to
modify or eliminate existing provisions of a transfer and servicing agreement
relating to the intended federal income tax treatment of the securities and the
related trust in the absence of an election. It is a condition to an amendment
of this type that each rating agency for that series notify the seller(s),
servicer and the applicable trustee in writing that the amendment will not
result in a reduction or withdrawal of the rating of any outstanding securities
with respect to which it is a rating agency.
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INSOLVENCY MATTERS
Each transfer and servicing agreement will provide that the applicable
trustee does not have the power to commence a voluntary proceeding in bankruptcy
with respect to any related issuer without the unanimous prior approval of all
certificateholders, including the depositor, if applicable, of that issuer and
the delivery to that trustee by each certificateholder of a certificate
certifying that the certificateholder reasonably believes that the issuer is
insolvent.
To avoid excessive administrative expense, the servicer for the related
receivables may, unless otherwise specified in the related prospectus
supplement, at its option purchase the remaining receivables from that issuer,
as of the end of any collection period if the balance of the related receivables
is less than a specified percentage provided in the related prospectus
supplement of the initial pool balance for that series. The purchase price will
be the aggregate of the purchase amounts of the remaining receivables as of the
end of that collection period. The related securities will be redeemed
following that purchase.
If the servicer does not purchase the remaining receivables, the applicable
trustee will, within ten days following the next payment date, solicit bids for
the purchase of the remaining receivables, in the manner and subject to the
terms and conditions provided in the related prospectus supplement. If the
trustee receives satisfactory bids as described in the related prospectus
supplement, then the remaining receivables 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
under the applicable transfer and servicing agreement may effect the prepayment
of the certificates of that series.
LEGAL ASPECTS OF THE RECEIVABLES
INSOLVENCY OF AN ORIGINATOR, A SELLER OR THE DEPOSITOR MAY RESULT IN
CONSOLIDATION OF THEIR ASSETS WITH THE ISSUER
The depositor will take steps in structuring the transactions contemplated
in this prospectus and in the related prospectus supplement that are intended to
ensure that the voluntary or involuntary application for relief by any of an
originator, a seller or the depositor as a "debtor" under any insolvency law
will not result in the assets of the related issuer becoming property of the
estate of a debtor within the meaning of the insolvency laws.
A "transferor" or non-bankruptcy remote entity, typically an originator or
a seller, will transfer the receivables to a "transferee" or bankruptcy-remote
entity, typically a seller or the depositor. This transfer is designed to be a
"true sale" so that the receivables and related assets would not be part of that
transferor's bankruptcy estate under the insolvency laws should the transferor
become the subject of a bankruptcy case after its transfer of the receivables.
In a
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typical transaction, the transferor would be an originator that is an operating
company selling receivables to a bankruptcy remote seller created by the
transferor. A bankruptcy-remote entity is a separate, limited-purpose entity
formed under a charter containing limitations, including restrictions on the
nature of its business and a restriction on its ability to commence a voluntary
case or proceeding under any insolvency law without the unanimous affirmative
vote of all of its directors. The issuer for a series will acquire its rights
in the receivables either directly or indirectly from the bankruptcy remote
entity.
However, if the depositor or a seller or originator subject to the
Bankruptcy Code were to become a "debtor" in a bankruptcy case, a creditor or
trustee in bankruptcy of the debtor or the debtor itself could attempt to argue
that the transfer of the receivables by the transferor was not a true sale and
instead should be treated as a pledge of the receivables to secure a borrowing
of the debtor and thus that the transferor still owns the receivables. An
attempt, even if unsuccessful, could result in delays in payments of collections
on the receivables and on the securities. If the attempt was successful,
reductions in the amount of payments to your issuer in respect of collections on
the receivables (and in payments on your securities) could result, including
reductions resulting from a tax, government or other lien on the property of the
transferor arising before the sale of the receivables having priority over the
issuer's interest in the receivables.
Furthermore, should the court decide that the assets and liabilities of the
transferee should be consolidated with those of the transferor, then any true
sale to the transferee would be ineffective to remove the receivables and
related assets from the bankruptcy estate of the transferor, and delays and
reductions in payments of collections on the related receivables could result.
In a 1993 case decided by the U.S. Court of Appeals for the Tenth Circuit,
OCTAGON GAS SYSTEM, INC. V. RIMMER, the court determined that "accounts," as
defined under the Uniform Commercial Code, would be included in the bankruptcy
estate of a transferor regardless of whether the transfer is treated as a sale
or a secured loan. Although the receivables are not likely to be viewed as
accounts, many of the accounts are "chattel paper." The rationale behind the
OCTAGON holding is equally applicable to chattel paper. The circumstances under
which the OCTAGON ruling would apply are not fully known and the extent to which
the OCTAGON decision will be followed in other courts or outside of the Tenth
Circuit is not certain. If the holding in the OCTAGON case were applied in a
bankruptcy of a transferor, however, even if the applicable transfer of
receivables referred to above was treated as a true sale, the receivables would
be part of the applicable transferor's bankruptcy estate and would be subject to
claims of some of its creditors and delays and reductions in payments on the
receivables and to the securityholders could result.
The issuer and, by acceptance of any securities of that series, each
securityholder of a series will covenant that they will not at any time
institute against the depositor, or the related transferor(s) any bankruptcy,
reorganization or other proceeding under any federal or state bankruptcy or
similar law.
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As more fully described in the related prospectus supplement, if the issuer
is rendered insolvent, a trustee for the trust, in accordance with the transfer
and servicing agreement, will promptly sell, dispose of or otherwise liquidate
the related receivables in a commercially reasonable manner on commercially
reasonable terms. The proceeds from that sale, disposition or liquidation of
receivables will be treated as collections on those 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 the related
securityholders will be reduced and you will incur a loss.
In addition, if an originator or a seller is the servicer, cash collections
held by that servicer may, subject to certain conditions, be commingled and used
for the benefit of that servicer before each payment date. As a result, in the
event of the bankruptcy of that servicer, the depositor, a trust or trustee may
not have a perfected interest in those collections.
Obligors of the receivables may be entitled to assert against the related
seller, originator, the depositor, or the issuer or any trustee, claims and
defenses which they have against the originator as to the receivables. Each
originator will warrant that no claims or defenses have been asserted or
threatened as to the receivables and that all requirements of applicable law as
to the receivables have been satisfied.
PERFECTION AND PRIORITY WITH RESPECT TO RECEIVABLES
A purchaser of receivables who gives new value and takes possession of the
chattel paper that evidences the receivable in the ordinary course of the
purchaser's business may have priority over the interest of the related issuer
in the receivables. Any sale of a receivable that had been sold to an issuer
would be a violation of the contractual obligations of the depositor, the
servicer, the trustee, the seller, the originator who sold those receivables.
SECURITY INTERESTS IN FINANCED EQUIPMENT
Unless otherwise specified in the related prospectus supplement, the
related originator will transfer a security interest in all of its right, title
and interest in and to the financed equipment to the depositor or to the seller
which will in turn transfer the security interest to the depositor. The
depositor will in turn pledge a security interest in all of its right, title and
interest in and to the financed equipment to the issuer.
As specified in the related prospectus supplement, due to administrative
burden and expense, no action will be taken to record the transfers of security
interests from the related originator to the depositor or from an originator to
a seller and ultimately to the depositor and, in any case, from the depositor to
the issuer. In most states, an assignment like the transfers referred to above
is effective to convey a security interest, without any action to record the
transfer of record. In those states, the proper initial filing of the financing
statement relating to the equipment will be sufficient to protect the related
issuer against the rights of subsequent purchasers of financed equipment or
subsequent lenders who take a security interest in financed
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equipment. However, by not identifying an issuer as the secured party on the
financing statement, the security interest of the issuer in financed equipment
could be defeated through fraud or negligence.
The related seller(s) and/or the related originator, as specified in the
related prospectus supplement, will make representations and warranties relating
to the ownership of the receivables and the security interest as of the date of
the transfer to the seller and the depositor, respectively. However, no
originator or seller will be required to repurchase the interest transferred by
it in a receivable, if the interest in a receivable or the related financed
equipment becomes impaired after the receivable is sold or pledged to the
issuer.
Under the laws of most states, a perfected security interest in equipment
would continue for four months after the equipment is moved to a state other
than the state in which a financing statement was filed initially to perfect the
security interest.
PRIORITY OF LIENS ARISING BY OPERATION OF LAW
Under the laws of most states, certain statutory liens, such as mechanics',
repairmen's and garage men's liens for repairs performed on the equipment, 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
that equipment by operation of law. The Uniform Commercial Code 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 equipment 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 confiscated equipment. The related
originators and/or sellers will represent and warrant to the seller or the
depositor, as applicable, and in the related purchase agreement or receivables
transfer agreement that, as of the related closing date, each security interest
in the equipment shall be a valid, subsisting and enforceable first priority
security interest in that equipment. However, liens for repairs or taxes
superior to the security interest of the issuer in any equipment, or the
confiscation of equipment, could arise at any time during the term of a
receivable. No notice will be given to the issuer or any securityholder if a
lien or confiscation arises and any lien or confiscation arising after the
related closing date would not give rise to the related originator's and/or the
seller's repurchase obligation.
REPOSSESSION
If an obligor defaults on a receivable, the holder of the related
receivable has all the remedies of a secured party under the Uniform Commercial
Code, except where specifically limited by other state laws. The Uniform
Commercial Code remedies of a secured party include the right to repossession by
self-help means, unless those means would constitute a breach of the peace.
Unless the equipment is voluntarily surrendered, self-help repossession is
accomplished simply by taking possession of the related equipment. In cases
where the obligor objects or raises a defense to repossession, or if otherwise
required by applicable state law, a court order is
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obtained from the appropriate state court, and the equipment 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 before 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 Uniform Commercial Code 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 equipment in certain circumstances and various
substantive timing and content requirements on those notices. In most states,
under certain circumstances after equipment 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 before actual
sale or entry by the secured party into a contract for sale of the collateral by
paying the secured party the unpaid principal balance of the obligation, accrued
interest thereon, reasonable expenses for repossessing, holding, and preparing
the collateral for disposition and arranging for its sale, plus, in some
jurisdictions, reasonable attorneys' fees and legal expenses or in some other
states, by payment of delinquent installments on the unpaid principal balance of
the related obligation.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of any equipment 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 the
indebtedness will exceed the proceeds. Under the Uniform Commercial Code 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 equipment securing the debtor's loan; however, in some states, a
creditor may not seek a deficiency judgment from a debtor whose equipment 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 Uniform
Commercial Code 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 Uniform Commercial Code permits the debtor or other interested
party to recover for any loss caused by noncompliance with the provisions of the
Uniform Commercial Code. Also, before a sale, the Uniform Commercial Code
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
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accordance with the "default" provisions under the Uniform Commercial Code.
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 equipment and payment of all expenses and
indebtedness, there is a surplus of funds. In that case, the Uniform Commercial
Code requires the creditor to remit the surplus to any holder of a subordinate
lien with respect to the equipment or if no subordinate lienholder exists or if
there are remaining funds, the Uniform Commercial Code 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, lessors 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 and other similar laws. In addition, the laws of some
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 and lessors who fail to comply with their provisions. In some
cases, this liability could affect the ability of an assignee to enforce
consumer finance contracts, cause the assignee to be unable to collect any
balance remaining due on the receivable or result in liability to the assignee.
Some of the receivables may be deemed to be consumer finance contracts under
applicable federal or state laws.
As specified in the related prospectus supplement, if an obligor had a
claim or defense of the type described in the two preceding paragraphs prior to
the cutoff date for the related receivables, the seller and/or any other
originator will be obligated to repurchase the related receivable unless the
breach is 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 Uniform Commercial Code 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
Uniform Commercial Code 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.
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<PAGE>
As specified in the related prospectus supplement, the sellers and any
other originators will represent and warrant under the related purchase
agreement or receivables transfer agreement that each receivable complies with
all requirements of law in all material respects. Accordingly, if an obligor
has a claim against the issuer for violation of any law and that claim
materially and adversely affects the issuer's interest in a receivable, the
violation would constitute a breach of representation and warranty under the
related purchase agreement or receivables transfer agreement and would create an
obligation of the related seller and any other originator to repurchase that
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 11, 12 or 13 proceeding under the federal bankruptcy law, a court may
prevent a creditor from repossessing the equipment related to a receivable, and,
as part of the rehabilitation plan, reduce the amount of the secured
indebtedness to the market value of that equipment 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 shortfall, to the
extent not covered by credit support as specified in each prospectus supplement,
could result in losses to the securityholders.
Many states have adopted a version of Article 2A of the Uniform Commercial
Code that purports to codify many provisions of existing common law. Although
there is little precedent regarding how Article 2A will be interpreted, it may,
among other things, limit the enforceability of any "unconscionable" lease or
"unconscionable" provision in a lease, provide a lessee with remedies, including
the right to cancel the lease, for certain lessor breaches or defaults, and may
add to or modify the terms of "consumer leases" and leases where the lessee is a
"merchant lessee." However, the sellers and any originators will represent that,
to the best of their knowledge, each lessee has accepted the equipment leased to
it and, after reasonable opportunity to inspect and test, has not notified it of
any defects. Article 2A does, however, recognize typical commercial lease "hell
or high water" rental payment clauses and validates reasonable liquidated
damages provisions in the event of lessor or lessee defaults. Article 2A also
recognizes the concept of freedom of contract and permits the parties in a
commercial context a wide degree of latitude to vary provisions of the law.
Some of the obligors of the receivables may be governmental entities.
Payment by governmental entities of amounts due under the receivable may be
contingent upon legislative approval. Accordingly, payment delays and
collection difficulties may result in connection with these types of
receivables.
54
<PAGE>
TAX CONSIDERATIONS
The prospectus supplement for each series of securities will summarize,
subject to limitations, federal income tax considerations relevant to the
purchase, ownership and disposition of those securities.
ERISA CONSIDERATIONS
The prospectus supplement for each series of securities will discuss
whether employee benefit plans and other retirement arrangements may purchase
such securities, and will summarize, subject to limitations, considerations and
restrictions under ERISA relevant to the purchase of those securities by such
retirement plans or 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 that series and the net proceeds to the depositor from that
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:
- By negotiated firm commitment or best efforts underwriting and public
re-offering by underwriters
- By placements by the depositor with institutional investors through
dealers
- By direct placements by the depositor with institutional investors
- 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 receivables backing
those securities.
If underwriters are used in a sale of any securities, other than in
connection with an underwriting on a best efforts basis, those securities will
be acquired by the underwriters for their own account and may be resold from
time to time in one or more transactions, including negotiated transactions, at
fixed public offering prices or at varying prices to be determined at the time
of sale or at the time of commitment therefor. The securities will be set forth
on the
55
<PAGE>
cover of the prospectus supplement relating to that series and the members of
the underwriting syndicate, if any, will be named in that 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 those 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
compensation of this type 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 conditions
precedent,
- that the underwriters will be obligated to purchase all related 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 for any series offered by placements through
dealers will contain information regarding the nature of the offering and any
agreements to be entered into between the depositor and purchasers of securities
of that series.
Purchasers of securities, including dealers, may, depending on the facts
and circumstances of those 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 before any 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 or special purpose finance company will be formed as to each series
of securities and no issuer will engage in any business activities or have any
assets or obligations before the issuance of the related series of securities.
The depositor's activities will be limited solely to the activities of issuers
to be formed for each series of securities. Accordingly, no financial
56
<PAGE>
statements for any issuer 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.
WHERE YOU CAN FIND MORE INFORMATION
The depositor has filed with the SEC a Registration Statement, Registration
No. 333-[ ] under the Securities Act, with respect to the securities offered
by this prospectus. You may read and copy any notices, reports, statements or
other information that any of the depositor, its affiliates, or any seller has
filed or causes to be filed and obtain copies of the Registration Statement at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549; and at the SEC's regional offices at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, New
York, New York 10048. Copies of the Registration Statement may be obtained from
the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. In addition, the SEC maintains a public access
site on the Internet through the World Wide Web at which site reports,
information statements and other information, including all electronic filings,
may be viewed. The Internet address of that World Wide Web site is
http://www.sec.gov. You may obtain more information on the operation of the
public room by calling the SEC at 1-800-SEC-0330.
INCORPORATION OF INFORMATION BY REFERENCE
All documents filed by the depositor under Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended, after the date of
this prospectus and before the termination of the offering of the securities
shall be deemed to be incorporated by reference in this prospectus. Any
statement contained in this prospectus or in a document incorporated or deemed
to be incorporated by reference in this prospectus shall be deemed to be
modified or superseded for purposes of this prospectus to the extent that a
statement contained in this prospectus or in any subsequently filed document
which also is or is deemed to be incorporated by reference in this prospectus
modifies or supersedes that statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this prospectus.
The depositor will provide without charge to each person, including any
beneficial owner of securities, to whom a copy of this prospectus is delivered,
on the written or oral request of that person, a copy of any or all of the
documents incorporated in this prospectus or in any related prospectus
supplement by reference, except the exhibits to those documents, unless those
exhibits are specifically incorporated by reference in the documents. Requests
for copies should be directed to:
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<PAGE>
Prudential Securities Secured Financing Corporation
One New York Plaza
New York, New York 10292
Attention: Asset Finance Group
58
<PAGE>
[BACK COVER]
[UNDERWRITERS]
Until , all dealers that effect transactions in these
securities, whether or not participating in this 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.
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with
the offering described in this registration statement.
<TABLE>
<S> <C>
------------------------------------------------------------------------
Securities and Exchange Commission Registration Fees........ $264
------------------------------------------------------------------------
Rating Agency Fees.......................................... $100,000
------------------------------------------------------------------------
Blue Sky Fees and Expenses.................................. $60,000
------------------------------------------------------------------------
Legal Fees and Expenses..................................... $200,000
------------------------------------------------------------------------
Accountants' Fees and Expenses.............................. $120,000
------------------------------------------------------------------------
Indenture Trustee's Fees and Expenses ...................... $120,000
------------------------------------------------------------------------
Owner Trustee's Fees and Expenses........................... $60,000
------------------------------------------------------------------------
Printing Expenses........................................... $150,000
------------------------------------------------------------------------
Credit Enhancer............................................. $200,000
------------------------------------------------------------------------
Miscellaneous expenses...................................... $200,000
----------
------------------------------------------------------------------------
Total.................................................. $1,210,264
==========
------------------------------------------------------------------------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware General Corporation Law (Section 145) ("DGCL") gives Delaware
corporations broad powers to indemnify their present and former directors and
officers and those of affiliated corporations against expenses incurred in the
defense of any lawsuit to which they are made parties by reason of being or
having been such directors or officers, subject to specified conditions and
exclusions, gives a director or officer who successfully defends an action the
right to be so indemnified, and authorizes the registrant to buy directors' and
officers' liability insurance. Such indemnification is not exclusive of any
other rights to which those indemnified may be entitled under any bylaws,
agreement, vote of stockholders or otherwise.
The agreements which the registrant will enter into for each series of
securities will provide that the registrant and any director, officer, employee
or agent of the registrant will be entitled to indemnification by the issuer and
will be held harmless against any loss, liability or
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<PAGE>
expense incurred in connection with any legal action relating to such agreements
or the securities, other than any loss, liability or expense incurred by reason
of willful misfeasance, bad faith or negligence in the performance of his or its
duties thereunder or by reason of reckless disregard of his or its obligations
and duties thereunder.
The form of underwriting agreements filed as a part of Exhibit 1 to this
registration statement provides for indemnification of directors and officers
who sign the registration statement and controlling persons of the registrant by
the underwriters, and for indemnification of each underwriter and its
controlling persons by the registrant, against certain liabilities.
The certificate of incorporation and the bylaws of the registrant provide
for indemnification of present and former directors, officers, employees or
agents of the registrant against expenses, judgments, fines and amounts paid in
settlement incurred by that person in connection with any action, suit or
proceeding by reason of the fact that such person held such a position if the
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the registrant, and with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful, or if such person successfully defends such an action. The
certificate of incorporation and bylaw of the registrant authorize the
registrant to purchase and maintain liability insurance on behalf of such
persons and, if the DGCL is amended, to further indemnify directors, officers,
employees or agents of the registrant to the fullest extent then permitted by
the DGCL.
ITEM 16. EXHIBITS.
1.1* -- Form of underwriting agreement for the notes (PSSFC Equipment
Trusts)
1.2* -- Form of underwriting agreement for the certificates (PSSFC
Equipment Trusts)
1.3** -- Form of underwriting agreement for the notes (PSSFC Motor Vehicle
Trusts and Marine Trusts)
1.4** -- Form of underwriting agreement for the certificates (PSSFC Motor
Vehicle Trusts and Marine Trusts)
4.1* -- Form of indenture between the trust and the indenture trustee
(PSSFC Equipment Trusts)
4.2* -- Form of trust agreement between the registrant and the owner
trustee (PSSFC Equipment Trusts)
4.3* -- Form of pooling and servicing agreement between the trust,
registrant and servicer (PSSFC Equipment Trusts)
4.6** -- Form of indenture between the trust and the indenture trustee
(PSSFC Motor Vehicle Trusts and Marine Trusts)
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<PAGE>
4.7** -- Form of trust agreement between the registrant and the owner
trustee (PSSFC Motor Vehicle Trusts and Marine Trusts)
4.8** -- Form of pooling and servicing agreement between the trust,
registrant and servicer (PSSFC Motor Vehicle Trusts and Marine
Trusts)
5.1*** -- Opinion of Mayer, Brown & Platt with respect to legality
8.1*** -- Opinion of Mayer, Brown & Platt with respect to federal income
tax matters
23.1*** -- Consent of Mayer, Brown & Platt (Included in Exhibits 5.1 and
8.1)
24.1*** -- Power of Attorney (included in the Signature page hereto).
----------
* Such Exhibits are hereby incorporated by reference to the registrant's
registration statement on Form S-3 (Reg. No. 33-79830).
** Such Exhibits are hereby incorporated by reference to the registrant's
registration statement on Form S-3 (Reg. No. 33-84918).
*** Filed herewith.
ITEM 17. UNDERTAKINGS.
(a) Undertakings pursuant to Rule 415:
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
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<PAGE>
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
provided, however, that (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on From S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) Undertakings with respect to documents subsequently filed that are
incorporated by reference:
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Undertakings with respect to equity offerings of nonreporting
registrants:
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
(d) Undertakings with respect to indemnification:
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<PAGE>
That insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described under Item 15
above, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(d) Undertakings with respect to a registration statement permitted under
Rule 430A under the Securities Act of 1933:
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed
to be part of this registration statement as of the time it was declared
effective.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(e) Undertakings with respect to qualification of trust indentures under
the Trust Indenture Act of 1939 for delayed offerings:
The undersigned registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Act.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3, and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 9th day of
August, 2000.
Prudential Securities Structured Financing Corporation
By: /s/ Vincent T. Pica, II
--------------------------------------------
Name: Vincent T. Pica, II
Title: President
Know all men by these presents that each person whose signature appears
below constitutes and appoints P. Carter Rise, such person's true and lawful
attorney-in-fact and agent, with full power of substitution and revocation,
for such person and in such person's name, place and stead, in any and all
capacities to sign any and all amendments (including post-effective
amendments to this registration statement) and to file the same with all
exhibits thereto, and the other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and
things requisite and necessary to be done, as fully to all intents and
purposes as such person might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Kathy A. Jones
------------------------ Director August 9, 2000
Kathy A. Jones
/s/ Vincent T. Pica, II
------------------------ Director August 9, 2000
Vincent T. Pica, II
/s/ P. Carter Rise
------------------------ Director August 9, 2000
P. Carter Rise
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ William J. Horan
------------------------ Chief Financial Officer August 9, 2000
William J. Horan
/s/ William J. Horan
------------------------ Chief Accounting Officer August 9, 2000
William J. Horan
/s/ Vincent T. Pica, II
--------------------- President August 9, 2000
Vincent T. Pica, II
</TABLE>
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<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibits Description
-------- -----------
<S> <C>
1.1* -- Form of underwriting agreement for the notes (PSSFC Equipment
Trusts)
1.2* -- Form of underwriting agreement for the certificates (PSSFC
Equipment Trusts)
1.3** -- Form of underwriting agreement for the notes (PSSFC Motor Vehicle
Trusts and Marine Trusts)
1.4** -- Form of underwriting agreement for the certificates (PSSFC Motor
Vehicle Trusts and Marine Trusts)
4.1* -- Form of indenture between the trust and the indenture trustee
(PSSFC Equipment Trusts)
4.2* -- Form of trust agreement between the registrant and the owner
trustee (PSSFC Equipment Trusts)
4.3* -- Form of pooling and servicing agreement between the trust,
registrant and servicer (PSSFC Equipment Trusts)
4.6** -- Form of indenture between the trust and the indenture trustee
(PSSFC Motor Vehicle Trusts and Marine Trusts)
4.7** -- Form of trust agreement between the registrant and the owner
trustee (PSSFC Motor Vehicle Trusts and Marine Trusts)
4.8** -- Form of pooling and servicing agreement between the trust,
registrant and servicer (PSSFC Motor Vehicle Trusts and Marine
Trusts)
5.1*** -- Opinion of Mayer, Brown & Platt with respect to legality
8.1*** -- Opinion of Mayer, Brown & Platt with respect to federal income
tax matters
23.1*** -- Consent of Mayer, Brown & Platt (Included in Exhibits 5.1 and
8.1)
24.1*** -- Power of Attorney (included in the Signature page hereto).
</TABLE>
----------
* Such Exhibits are hereby incorporated by reference to the registrant's
registration statement on Form S-3 (Reg. No. 33-79830).
** Such Exhibits are hereby incorporated by reference to the registrant's
registration statement on Form S-3 (Reg. No. 33-84918).
*** Filed herewith.
II-8
