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As filed with the Securities and Exchange Commission on September 1, 2000
Registration No. 333-36242
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CHEVY CHASE BANK, F.S.B.
(Exact name of registrant as specified in its charter)
United States 52-0897004
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
Stephen R. Halpin, Jr.
Chevy Chase Bank, F.S.B.
8401 Connecticut Avenue
Chevy Chase, Maryland 20815
(301) 986-7000
(Address, including zip code and telephone
number including area code, or registrant's principal
executive offices)
Copies to:
Lynn Soukup, Esq. Chris DiAngelo, Esq.
Shaw Pittman Dewey Ballantine LLP
2300 N. Street, N.W. 1301 Sixth Avenue
Washington, D.C. 20037 New York, New York 10019
(202) 663-8000 (212) 259-6718
(Name, address, including zip code and telephone number, including area code, of
agent for service)
Approximate date of commencement of proposed sale to the public: From time
to time on or after the date this registration statement becomes effective.
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 interest
reimbursement plans, check the following box. [X]
CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Per Aggregate Offering Amount of
Notes to be Registered Registered(1) Note(2) Price(2) Registration Fee
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<S> <C> <C> <C> <C>
Asset Backed Securities $1,207,679,345.44 100% $1,207,679,345.44 $319,127.07(3)
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(1) In accordance with Rule 429 under the Securities Act of 1933, the
prospectus included in this Form S-3 is a combined prospectus which
also relates to the registrant's prior registration statement on Form
S-3 (Registration Statement No. 333-21707). The amount of securities
eligible to be sold under the prior registration statement
($7,679,345.44, as of August 17, 2000) shall be carried forward to
this registration statement.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) $316,536.00 of the $319,127.07 registration fee was paid with Pre-
Effective Amendment No. 1 to the registration statement. $2,327.07 is
attributable to the amount carried forward from the prior registration
statement for which a filing fee of $454,545.45 was paid at the time
of registration (at a rate of $303.03 per $1,000,000 of securities
registered). The remaining $264.00 was previously paid with the
original filing of this registration statement.
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, as amended, or until this
registration statement shall become effective on such date as the
Securities and Exchange Commission, acting pursuant to said Section 8(a),
may determine.
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CHEVY CHASE BANK, F.S.B.
CROSS REFERENCE SHEET
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Item Caption in Prospectus
No. Name and Caption in Form S-3 and Prospectus Supplement
--- ---------------------------- -------------------------
<S> <C>
1. Forepart of the Registration Forepart of the Registration Statement;
Statement and Outside Front Cover Front Cover Page of Prospectus; Front
Page of Prospectus Cover Page of Prospectus Supplement;
Cross Reference Sheet
2. Inside Front and Outside Back Cover Inside Front Cover and Outside Back
Pages of the Prospectus Cover Pages of Prospectus; Inside Front
Cover Page of Prospectus Supplement;
Important Notice About the Information
Presented in this Prospectus and the
Accompanying Prospectus Supplement;
Table of Contents
3. Summary Information; Risk Factors Prospectus Summary; Risk Factors;
and Ratio of Earnings to Fixed Certain Legal Matters
Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price *
6. Dilution *
7. Selling Security Holders *
8. Plan of Distribution Methods of Distribution
9. Description of Securities to be Prospectus Summary; Description of the
Registered Notes; Material Federal Income Tax
Consequences
10. Interest of Named Experts and Counsel *
11. Material Changes *
12. Incorporation of Certain Information by Where You Can Find More Information
Reference
13. Disclosure of Commission Position on *
Indemnification for Securities Act
Liabilities
* Not Applicable
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What follows in Part I of this Registration Statement is:
(1) Prospectus;
(2) Form of Prospectus Supplement for Notes;
(3) Form of Prospectus Supplement for Certificates;
(4) Form of Prospectus Supplement for the first series of securities issued by
the Registrant.
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PROSPECTUS
Chevy Chase Auto Receivables Trusts
Asset Backed Notes
Asset Backed Certificates
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You are encouraged to read the section entitled "Risk Factors" on page __ of
this prospectus and consider these factors before making a decision to invest in
these securities.
These securities are auto receivable asset-backed securities which represent
interests in or obligations of the trust issuing a series of securities and are
not interests in or obligations of any other person or entity.
Neither these securities nor the auto loans will be insured or guaranteed by any
governmental agency or instrumentality.
Retain this prospectus for future reference. This prospectus may not be used to
consummate sales of securities unless accompanied by the prospectus supplement
relating to the offering of these securities.
The Securities--
o will be issued from time to time in series;
o will be issued by trusts established by Chevy Chase Bank, F.S.B.;
o will be backed by a pool of auto loans held by the issuing trust;
o will be rated in one of the four highest rating categories by at least one
nationally recognized statistical rating organization; and
o may have the benefit of one or more forms of credit enhancement, such as
insurance policies, overcollateralization, subordination or reserve funds.
The Assets--
The assets of each trust will primarily consist of a pool of auto loans, funds
on deposit in one or more accounts and forms of credit support described in this
prospectus and in the prospectus supplement.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is __________, 2000
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Important Information about the Information Presented in this Prospectus and
the Accompanying Prospectus Supplement
We provide information to you about the securities in two separate
documents that progressively provide more detail: (1) this prospectus, which
provides general information, some of which may not apply to a particular series
of securities, and (2) the prospectus supplement, which describes the specific
terms of your series of securities.
This prospectus by itself does not contain complete information about the
offering of your securities; the balance of that information is contained in the
prospectus supplement. We suggest that you read both this prospectus and the
prospectus supplement in full. We cannot sell the securities to you unless you
have received both this prospectus and the prospectus supplement.
Table of Contents
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Page
Summary of Terms................................1
Risk Factors....................................4
Trust Assets....................................9
The Trustee.....................................9
Use of Proceeds.................................9
The Lenders....................................10
General...................................10
The Automobile Financing Business of
the Lenders ..................................10
Underwriting Procedures...................10
Selection Criteria........................11
Payment Terms of the Auto Loans...........11
Insurance.................................12
Description of the Securities..................12
Material Provisions of the Securities.....12
General Payment Terms of Securities.......14
Payment Date Distributions................14
Determination of Principal and
Interest on the Securities...............14
Soft Bullets..............................15
Fixed Rate Securities.....................15
Floating Rate Securities..................16
Indexed Securities........................16
Scheduled Amortization Securities;
Companion Securities.....................17
Maturity and Prepayment Considerations....17
Yield Considerations......................18
Book-Entry Registration...................19
Definitive Securities.....................23
Credit and Cash Flow Enhancements.........24
The Trust Documents............................25
Sale of Auto Loans by the Lenders to
the Trust................................25
Representation and Warranties of the
Lenders; Repurchase Obligation...........26
Accounts..................................26
Collection account....................26
Distribution account..................27
Yield Maintenance Account.............27
Mandatory Repurchase of Auto Loans........28
The Servicer..............................28
Servicing Procedures......................29
Servicer Covenants........................29
Defaulted Auto Loans......................30
Servicing Compensation and
Payment of Expenses......................30
Indemnification...........................31
Evidence as to Compliance.................31
Certain Matters Regarding the Servicer....32
Servicer Default..........................32
Removal of the Servicer...................33
Amendment.................................33
Events of Default.........................34
Rights upon an Event of Default...........35
Certain Covenants of Each Trust...........36
Certain Matters Regarding the
Trustee and the Trust....................37
Limitation on Liability of the Trustee....37
Resignation of Trustee....................38
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<S> <C>
Termination...............................38
Legal Aspects Of The Auto Loans................38
Security Interest in Vehicles.............39
Repossession..............................40
Notice of Sale; Redemption Rights.........41
Deficiency Judgments and Excess Proceeds..41
Consumer Protection Laws..................41
Soldiers' and Sailors' Civil Relief Act
of 1940..................................42
Other Limitations.........................43
Material Federal Income Tax Considerations.....43
General...................................43
Grantor Trust Securities..................44
Debt Securities...........................46
Partnership Interests.....................47
FASIT Securities..........................49
Discount and Premium......................52
Backup Withholding and Information
Reporting................................56
Foreign Investors.........................56
State Tax Considerations.......................58
ERISA Considerations...........................58
General...................................58
ERISA Considerations regarding
Securities which are Certificates........58
ERISA Considerations regarding
Securities which are Notes...............60
Consultation With Counsel.................61
Methods of Distribution........................62
Legal Matters..................................63
Clearance, Settlement and Tax
Documentation Procedures .....................1
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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, we suggest that you carefully read this entire prospectus and the
accompanying prospectus supplement.
The Trusts
Each series of securities will be issued by a separate trust.
The Bank
Chevy Chase Bank, F.S.B., or the bank, is a federal chartered stock savings
bank. The bank's principal executive offices are located at 8401 Connecticut
Avenue Chevy Chase, Maryland 20815.
The auto loans held by each trust will have been originated or purchased by the
bank or its subsidiary, Consumer Finance Corporation, or CFC. We refer to the
bank or Consumer Finance Corporation as the lenders in this prospectus.
The bank is a lender to borrowers of "prime" credit quality; CFC is a
"non-prime" lender.
The Securities
The securities of a series may be issued in one or more classes, as specified in
the prospectus supplement. One or more classes of securities:
o may be entitled to receive distributions only of principal, only of
interest or any combination of principal and interest;
o may be subordinated in right to receive distributions of principal and
interest to one or more other classes of the same series throughout the
life of the securities or during specified time periods;
o may be entitled to receive distributions only after a specified period of
time has passed, a specified amount of principal has been paid down, or a
specified percentage of credit enhancement has built up; this could take
the form of a lockout feature, in which a class receives no principal
distributions for an initial period, then receives all or a portion of the
principal distributions during a subsequent period;
o may be entitled to receive distributions in accordance with a schedule or
formula or on the basis of collections from designated portions of the
assets in the issuing trust;
o may be entitled to receive interest at a fixed rate or a variable rate; and
o may have a balance that may decrease based on the amortization of auto
loans or increase based on principal collections used to purchase
additional auto loans or classes of securities.
The timing and amounts of distributions may vary among classes, over time, or
otherwise as specified in the prospectus supplement.
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Classes of interest only and principal only securities are subject to special
investment risks that are a function of how quickly principal payments are
received on the underlying pool of auto loans, optional or mandatory prepayment
features of the securities, and the price paid for the securities. Investors in
these types of securities could lose their investment. The ratings assigned to
these securities frequently will not address these risks, so a substantial loss
may not be inconsistent with a high rating. These interest only and principal
only securities are appropriate investments only for sophisticated investors who
are able to independently assess the risks of their investment.
Trust Property
Each trust will hold:
o a pool of auto loans, each of which will be secured by new or used
automobiles, vans and light duty trucks;
o amounts held in trust accounts; and
o forms of credit support, if applicable.
You will find a description of the pool of auto loans in the prospectus
supplement. If a trust has not purchased all of the auto loans at the time you
purchase your securities, it will purchase the remainder from the lenders over a
period specified in the prospectus supplement.
Credit Enhancement
Credit enhancement refers to a mechanism that is intended to protect the owners
of securities against losses due to defaults on the auto loans. A series of
securities, or some of the classes within the series, may have the benefit of
one or more types of credit enhancement such as the following:
o the use of excess interest to cover losses and to distribute as principal
to create overcollateralization;
o the subordination of distributions on the lower classes of securities to
the required distributions of more senior classes of securities;
o the allocation of losses on the auto loans to the lower classes of
securities;
o the use of cross support, reserve funds, financial guarantee insurance
policies, guarantees, letters of credit and similar instruments and
arrangements;
o swaps (including currency swaps) and other derivative instruments and
interest rate protection agreements;
o repurchase or put obligations;
o a yield maintenance account or other yield supplement agreements; and
o other arrangements similar to those described above.
The protection against losses afforded by any credit enhancement will be limited
in the manner described in the prospectus supplement.
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Pre-Funding Feature
A trust may enter into agreements with the lenders, in which the lenders will
sell additional auto loans to the trust after the securities are issued. The
transfer of auto loans after the date the securities are issued is known as the
pre-funding feature. Any subsequent auto loans will be required to conform to
the requirements described in the prospectus supplement. If the pre-funding
feature is used, the trustee will be required to deposit all or a portion of the
proceeds of the sale of the securities of the series in a segregated account.
The subsequent auto loans will be transferred to the trust in exchange for money
released from the segregated account. These transfers must occur within a
specified period, not to exceed one year. If a trust elects federal income
treatment as a grantor trust, the pre-funding period will be limited to three
months. If all of the monies originally deposited in the account are not used by
the end of the specified period, all remaining monies will be applied as a
mandatory prepayment of a class or classes of securities.
Federal Income
Tax Considerations
The securities of each series will, for federal income tax purposes, constitute
one of the following:
o interests in a trust treated as a grantor trust under applicable provisions
of the Internal Revenue Code;
o debt secured by the underlying auto loans;
o interests in a trust which is treated as a partnership; or
o regular interests or high-yield interests in a trust treated as a financial
asset securitization investment conduit or FASIT under the Internal Revenue
Code.
We suggest that you review "Material Federal Income Tax Considerations"
beginning on page [__] in this prospectus and in the prospectus supplement. In
addition, you should consult your own tax advisor concerning your investment.
ERISA Considerations
A fiduciary of a pension, profit sharing or other employee benefit plan may wish
to review with its legal advisors whether the purchase, holding or disposition
of securities could give rise to a prohibited transaction under ERISA, or the
Internal Revenue Code, and whether an exemption from the prohibited transaction
rules is available. We suggest that you review "ERISA Considerations" beginning
on page [__] in this prospectus and in the prospectus supplement.
Rating
Each class of securities offered by a prospectus supplement will be rated in one
of the four highest rating categories of at least one nationally recognized
statistical rating agency.
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Risk Factors
You should consider the following risk factors prior to any purchase of any
class of securities. You should also consider the information under the caption
"Risk Factors" in the accompanying prospectus supplement.
You may not be able to sell your securities, and may have to hold your
securities to maturity even though you may want to sell them.
A secondary market for these securities is unlikely to develop. If it does
develop, it may not provide you with sufficient liquidity of investment or
continue for the life of these securities. The underwriters may establish a
secondary market in the securities, although no underwriter will be obligated to
do so. The securities are not expected to be listed on any securities exchange
or quoted in the automated quotation system of a registered securities
association.
Issuance of the securities in book-entry form may also reduce the liquidity in
the secondary trading market, since some investors may be unwilling to purchase
securities for which they cannot obtain definitive physical securities.
Prepayments on the auto loans could cause you to be paid earlier than you
expect, which may adversely affect your yield to maturity.
o The yield to maturity of the securities may be adversely affected by a
higher or lower than anticipated rate of prepayments on the auto loans. If
you purchase a security at a premium based on your expectations as to its
maturity or weighted average life, and the security pays principal more
quickly than you expected, your yield will be reduced. In addition, if you
purchase a security at a discount based on your expectations as to its
maturity or weighted average life, and the security pays principal more
slowly than you expected, your yield will be lower than you anticipated.
o The yield to maturity on interest only securities will be extremely
sensitive to the rate of prepayments on the auto loans. If the auto loans
prepay very quickly the yield on an interest-only security could be
dramatically reduced.
o The auto loans may be prepaid in full or in part at any time.
o We cannot predict the rate of prepayments of the loans, which is influenced
by a wide variety of economic, social and other factors, including
prevailing interest rates, the availability of alternative financing, local
and regional economic conditions and certain natural disasters such as
floods, hurricanes, earthquakes and tornadoes. Therefore, we can give no
assurance as to the level of prepayments that a trust will experience.
o One or more classes of securities of any series may be subject to optional
or mandatory redemption in whole or in part, on or after a specified date,
or on or after
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the time when the aggregate outstanding principal amount of the auto loans
or the securities is less than a specified amount or percentage.
o Since prevailing interest rates are subject to fluctuation, there can be no
assurance that you will be able to reinvest these amounts at a yield
equaling or exceeding the yield on your securities. You will bear the risk
of reinvesting unscheduled distributions resulting from a redemption.
Non-prime auto loan pools will incur higher losses than prime auto loan pools.
Some or all of the assets of a trust may consist of non-prime auto loans. A loan
is usually considered non-prime because the borrower has limited income, past
credit problems, such as prior bankruptcy or a history of delinquent payments on
other debt, or a limited or no credit history. Non-prime loans generally
experience a higher rate of delinquency and loss than prime loans.
The added risk presented by non-prime auto loans is considered in structuring
the issuances of securities. However, we can give no assurance that the
structure established will be adequate to prevent losses to some or all of the
securityholders.
Used vehicles included in the auto loan pool may incur higher losses than new
autos.
Some or all of the assets of a trust may consist of loans to finance the
purchase of used vehicles. Loans for used vehicles may be either prime or
non-prime loans. Because the value of a used vehicle is more difficult to
determine, upon sale of a repossessed vehicle, a greater loss may be incurred.
Security interests may not be perfected, which could allow others superior
rights to the trust assets.
The certificates of title for the financed vehicles may be held by the servicer.
The servicer may use the facilities of a third party, off-site document
retention service to store the loan contracts or the physical certificates of
title. The certificates of title may not be endorsed or amended to identify the
secured party. Because this will not be done, the security interests may be
defeated through fraud, forgery, negligence or error and will not be perfected
in every state. If someone has a security interest in a vehicle that is superior
to the interest of the trustee, you could experience delays in payments or a
loss on your investment in the securities.
State and federal credit protection laws may limit collection of principal and
interest on the auto loans.
Auto lending is regulated at both the federal and state levels and violations of
these laws, policies and principles may limit the ability of the servicer to
collect all or part of the amounts due on the auto loans, may entitle the
borrower to a refund of amounts previously paid and, in addition, could subject
the trust, as the owner of the auto loan, to claims for damages and to
administrative enforcement. The occurrence of any of the foregoing could cause
losses on your securities.
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Defaulted auto loans may result in a delay in payments to securityholders and a
loss of your investment.
In the event that the bank or the servicer must repossess and dispose of
vehicles to recover scheduled payments due on defaulted auto loans, the trust
may not realize the full amount due on an auto loan, or may not realize the full
amount on a timely basis. Other factors that may affect the ability of the trust
to realize the full amount due on an auto loan include whether endorsements or
amendments to certificates of title relating to the vehicles had been filed or
such certificates have been delivered to the trustee, whether financing
statements to perfect the security interest in the auto loans 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, you may be
subject to delays in receiving payments and suffer loss of your investment in
the securities.
Insolvency of either of the lenders may reduce or delay payments to
securityholders.
In some circumstances, an insolvency of the lenders may delay or reduce payments
to securityholders. The bank, as a depositary institution, the deposits of which
are insured by the Federal Deposit Insurance Corporation, is not subject to the
federal bankruptcy laws, but rather to federal laws governing bank insolvency.
These laws require that the FDIC become the receiver of the bank in the event of
its insolvency. CFC is subject to the federal bankruptcy laws. In the event of
the insolvency of either lender, the FDIC, a court or bankruptcy trustee could
conclude that the lender still owns the auto loans or that the bank, CFC and the
trust are all a single entity for bankruptcy purposes. If a court or bankruptcy
trustee would reach either of these conclusions, you could experience delays in
payments or a loss on your investment in the securities.
Securityholders have no recourse against the lenders or the FDIC for losses.
There is no recourse for losses on these securities against either lender. The
securities represent obligations solely of the issuing trust. No securities will
be guaranteed by the lenders, the FDIC, or the trustee. Consequently, if
payments on the auto loans, and to the extent available, any credit enhancement,
are insufficient to pay the securities in full, you have no rights to obtain
payment from either lender, the FDIC, or the trustee.
Insurance on vehicles may not be maintained, which may lead to losses on the
auto loans.
At the time the lenders originate the auto loans they require that the borrowers
have theft and damage insurance on the vehicles. There can be no assurance that
the borrower will maintain the insurance coverage on the vehicle. The servicer
will not obtain insurance coverage without the consent of the borrower if it
learns that a vehicle is uninsured. If an uninsured loss occurs and the borrower
defaults on the auto loan at a time when the credit
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enhancement is not sufficient to ensure payments are made to securityholders,
securityholders may be subject to a delay in receiving payments or a loss on
their investment in the securities.
The ratings assigned to your securities by the rating agencies may be lowered or
withdrawn at any time, which may affect your ability to sell your securities.
The ratings assigned to the securities will be based on, among other things, the
adequacy of the assets of the trust and any credit enhancement for a series of
securities. Any rating which is assigned may not remain in effect for any given
period of time or may be lowered or withdrawn entirely by the rating agencies
if, in their judgment, circumstances in the future so warrant. Ratings may also
be lowered or withdrawn because of an adverse change in the financial or other
condition of a provider of credit enhancement or a change in the rating of a
credit enhancement provider's long term debt at any time, which may affect your
ability to sell your securities.
Inability of the bank or CFC to purchase auto loans from the trust when a
representation or warranty is breached may cause your payments to be reduced or
delayed.
If a representation and warranty concerning an auto loan is breached, the
transaction documents require either of the bank or CFC to purchase the loan
from the trust. If either of the bank or CFC is unable to purchase such auto
loans and no other party is obligated to perform or satisfy these obligations,
you may experience delays in receiving payments and losses.
Subordination of certain securities may result in reduced payments to those
securities.
Distributions on one or more classes of securities of a series may be
subordinated in priority of payment to distributions on one or more other
classes of securities. Subordination of a class of securities has the effect of
increasing the likelihood of payment on the senior classes of securities in that
series and decreasing the likelihood of payment on that subordinated class of
securities.
Credit enhancement, if provided, will be limited in both amount and scope of
coverage, and may not be sufficient to cover all losses or risks on your
investment.
Credit enhancement may be provided in limited amounts to cover some, but not
all, types of losses on the auto loans and may reduce over time in accordance
with a schedule or formula. Furthermore, credit enhancement may provide only
very limited coverage as to some types of losses, and may provide no coverage as
to other types of losses. Credit enhancement does not guarantee any specified
rate of prepayments, which is one of the principal risks of your investment. The
amount and types of credit enhancement coverage, the identification of any
entity providing the credit enhancement, the terms of any subordination and any
other information will be described in the accompanying prospectus supplement.
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The historical levels of delinquencies and losses experienced by a lender may
change significantly in the future.
There can be no assurance that the historical levels of delinquencies and losses
experienced by a lender on its respective loan and vehicle portfolio will be
indicative of the performance of the auto loans included in a trust or that such
levels will continue in the future. Delinquencies and losses could increase
significantly for various reasons, including changes in the local, regional or
national economies or other events.
Book-entry registration may reduce the liquidity of the securities.
Since transactions in the securities, in most cases can be effected only through
DTC, Clearstream, Luxembourg, Euroclear, participating organizations, indirect
participants and certain banks, your ability to pledge securities to persons or
entities that do not participate in the DTC, Clearstream, Luxembourg or
Euroclear systems, or otherwise to take actions in respect of those securities,
may be limited due to lack of a physical certificate representing such
securities.
Potential delays in receipt of payments on the securities.
You may experience some delay in receipt of payments of interest of and
principal on the securities because such payments will be forwarded by the
trustee to DTC and DTC will credit such payments to the accounts of its
participants, which will thereafter credit them to your accounts either directly
or indirectly through indirect participants.
Because the ratings of the securities are dependent upon creditworthiness of the
credit enhancement provider, a downgrade of the credit enhancement provider
could cause a downgrade of the securities.
The ratings of securities enhanced by a credit enhancement provider will depend
primarily on the creditworthiness of the credit enhancement provider. There is a
risk that any reduction in any of the credit enhancement provider's financial
strength ratings could result in a reduction of the ratings on the securities.
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Trust Assets
We will establish a separate trust to issue each series of securities. The
securities will be backed by the property of that issuing trust. The primary
asset of each trust will be a pool of auto loans originated or purchased and
serviced by the lenders.
The property of each trust will include:
o the pool of auto loans for new and used automobiles, vans and light
duty trucks;
o any amounts in the accounts established for that trust;
o security interests in the financed vehicles;
o rights to proceeds from insurance policies covering the borrowers or
the financed vehicles; and
o rights against one or both of the lenders for breaches of
representations or warranties relating to the auto loans.
The Trustee
The trustee for each trust will be named in the accompanying prospectus
supplement. The trustee's liability in connection with the issuance and sale of
the securities is limited to the express obligations of that trustee set out in
the trust documents. A trustee may resign at any time, in which event the
servicer will be obligated to appoint a successor trustee. In addition, if the
trustee ceases to be eligible as trustee pursuant to the trust documents or it
becomes insolvent, the trustee may be removed. Any resignation or removal of a
trustee will not become effective until acceptance of the appointment by the
successor trustee.
Use of Proceeds
The net proceeds received from the sale of the securities of a given series
will be used by the lenders for:
o the origination or purchase of additional auto loans;
o repayment of indebtedness; and
o general working capital purposes.
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The Lenders
General
The bank, which is one of the lenders, is a federally chartered stock
savings bank. The bank's home office is located at 7926 Jones Branch Drive,
McLean, Virginia 22102, and its principal executive offices are located at 8401
Connecticut Avenue, Chevy Chase, Maryland 20815. Its telephone number is (301)
986-7000. The bank is subject to comprehensive regulation, examination and
supervision by the Office of Thrift Supervision within the Department of the
Treasury and by the FDIC. Deposits at the bank are fully insured up to $100,000
per insured depositor by the Savings Association Insurance Fund, which is
administered by the FDIC. Please refer to the prospectus supplement for the
particular series of securities for further information regarding the bank, its
assets, capitalization, and regulatory status and the effect of current
legislation.
The other lender, CFC, is a wholly-owned subsidiary of the bank, formed in
December 1994 for the purpose of providing automobile financing to applicants
who may have experienced certain adverse credit events.
The Automobile Financing Business of the Lenders
Underwriting Procedures
Each lender originates or purchases the auto loans after it has reviewed
each auto loan in accordance with its established underwriting procedures. The
prospectus supplement for your series will describe each lender's underwriting
procedures in detail; however, some of the current underwriting practices of the
lenders are noted below.
The underwriting procedures of the lenders are designed to provide a basis
for assessing the borrower's ability and willingness to repay the loan. In
conducting this assessment, the lenders consider the borrower's ratio of debt to
income and evaluate the borrower's credit history through a review of a credit
report compiled by a recognized consumer credit reporting bureau. The borrower's
equity in the collateral and the terms of the loan are also important in the
lender's analysis. The lenders' guidelines are intended only to provide a basis
for lending decisions, and, within certain limits, exceptions to such guidelines
may be made based upon the credit judgment of the lending officer. The lenders
periodically conduct quality audits to ensure compliance with their established
policies and procedures.
CFC's underwriting guidelines relate to a category of lending in which
loans may be made to applicants who have experienced certain adverse credit
events (and therefore would not necessarily meet all of the bank's guidelines
for its traditional loan program) but who meet certain other creditworthiness
tests. These types of loans experience rates of delinquencies, repossessions and
losses, especially under adverse economic conditions, which are generally higher
than those loans originated under the bank's traditional lending program.
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Selection Criteria
The prospectus supplement will specify the criteria which each lender has
used to select the auto loans from its portfolio for transfer to the issuing
trust. These criteria include the following:
o original term to maturity,
o final maturity date,
o contracts which provide for level monthly payments that fully amortize
the amount financed over the original term (unless otherwise
disclosed),
o maximum number of days delinquent, and
o contracts which have an unpaid principal balance of not less than a
specified amount as of the given cut-off date.
Contracts are generally prepayable at any time. The bank can make no
prediction as to the actual prepayment experience on the auto loans.
You should refer to the prospectus supplement for the particular series for
additional information with respect to maturity and prepayment considerations,
any applicable prepayment penalties, the composition, distribution by the stated
annual percentage rate of interest, commonly known as APR, and geographical
distribution of the auto loans.
Payment Terms of the Auto Loans
Each auto loan provides for the allocation of payments according to the
simple interest method or the actuarial method. Except for balloon loans
described below, the scheduled payment on each auto loan is a fixed level
payment that will pay off the full amount over its term assuming the borrower
makes no early or late payments.
Payments on simple interest loans will be applied first to interest accrued
through the date immediately before the date of payment and then to unpaid
principal. Accordingly, if a borrower makes his payment before its due date, the
portion of the payment applied to interest will be less than if the payment had
been made on the due date. As a result, the portion of the payment applied to
reduce the principal balance will be correspondingly greater, and the principal
balance will pay down more rapidly than scheduled.
Conversely, if a borrower pays an installment after its due date, the
portion of the payment applied to interest will be greater than if the payment
had been made on the due date. As a consequence, the portion of the payment
applied to reduce the principal balance will be correspondingly less, and the
principal balance will pay down more slowly than scheduled, in which case a
larger portion of the principal balance may be due on the final scheduled
payment date.
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An actuarial loan provides for principal reduction of the loan over a
series of fixed level monthly installments. Each scheduled payment is deemed to
consist of an amount of interest equal to 1/12 of the APR of the loan multiplied
by the scheduled principal balance of the receivable and an amount of principal
equal to the remainder of the scheduled payment. No adjustment is made in the
event of early or late payments, although in the case of late payments the
borrower may be subject to a late charge.
A balloon loan is one for which the last scheduled monthly payment is
significantly larger than any prior scheduled monthly payment.
Information with respect to the specific auto loan pool will be set out in
the prospectus supplement, including, to the extent appropriate, the
composition, the distribution by APR and by the states of residence at
origination, the portion of the auto loan pool consisting of actuarial loans and
of simple interest loans and the portion of the auto loan pool secured by new
vehicles and by used vehicles.
Insurance
The lenders require that theft and physical damage insurance policies be
maintained by the borrowers naming the applicable lender as the loss payee.
Although each lender has the right to force place insurance coverage if the
borrower does not maintain the necessary insurance coverage, neither the lender
nor the servicer is obliged to force-place insurance.
The lenders maintain fidelity bond coverage insuring against losses through
wrongdoing of its officers, employees and agents.
Description of the Securities
Material Provisions of the Securities
The securities will be issued in series. The following summaries describe
the material provisions of the securities.
The securities may be offered in the form of certificates representing
beneficial ownership interests in the auto loans held by the trust or in the
form of notes representing debt secured by the auto loans held by the trust.
Each series or class of securities may have a different rate of interest,
which may be fixed or adjustable. The prospectus supplement will specify the
interest rate for your series or class of securities, or the initial interest
rate and the method for determining subsequent changes to the interest rate.
A series may include one or more classes of interest only or principal only
securities. In addition, a series may include two or more classes that differ as
to timing, sequential order, priority of payment, interest rate or amount of
distributions of principal or interest or both. Distributions of principal or
interest or both on any class may be
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made upon the occurrence of specified events, in accordance with a schedule or
formula, or on the basis of collections from designated assets of the trust. A
series may include one or more classes of securities, as to which accrued
interest will not be distributed but rather will be added to the principal or
notional balance of the security on each payment date.
A series of securities may include one or more classes of securities that
are senior to one or more classes of subordinate securities in respect of
distributions of principal and interest and allocations of losses on the auto
loans.
A series of securities may have a balance that may decrease based on the
amortization of auto loans or increase based on principal collections used to
purchase additional auto loans.
Each trust may also issue classes of subordinated equity securities which
will represent the right to receive the proceeds of the trust property after all
required payments have been made to the holders of all of the senior and
subordinate notes or certificates issued by the trust, and following any
required deposits to any reserve account that may be established for the benefit
of the holders of the notes or certificates. These subordinated classes may
constitute what are commonly referred to as the residual interest, the seller's
interest or the general partnership interest, depending upon the treatment of
the trust for federal income tax purposes. These subordinated classes generally
will not have principal and interest components. Any losses suffered by the
trust will first be absorbed by the residual class of securities, or as
described in the prospectus supplement.
The prospectus supplement relating to a series of securities will describe
the following specific terms of that series, including:
o the aggregate principal amount, interest rate, and authorized
denominations of each class of securities;
o a statistical profile of the auto loans backing that series;
o the terms of any credit enhancement for that series;
o a description of other material assets in the trust, including any
reserve fund;
o the final scheduled distribution date of each class of securities;
o the method used to calculate the rate at which interest on each class
of securities will accrue, the time period during which interest on
each class of securities will accrue, the order of priority of the
application of interest to the respective classes and the manner of
distribution of interest among each class of securities;
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o the method to be used to calculate the amount of principal required to
be applied to each class of securities of your series on each payment
date, the timing of the application of principal and the order of
priority of the application of principal to the respective classes of
securities;
o additional information about the plan of distribution of the
securities; and
o the federal income tax characterization of the securities.
General Payment Terms of Securities
Securityholders will be entitled to receive payments on their securities on
specified payment dates. Payment dates will occur monthly, quarterly,
semi-annually or as described in the prospectus supplement.
The prospectus supplement will describe a record date for each payment
date, as of which the trustee or its paying agent will fix the identity of the
securityholders for the purpose of receiving payments on that payment date. The
prospectus supplement and the agreements will describe a period, known as the
collection period, prior to each payment date. Interest accrued and principal
collected on the auto loans during a collection period will be required to be
remitted by the servicer to the trustee prior to the payment date and will be
used to distribute payments to securityholders on that payment date.
None of the securities or the auto loans will be guaranteed or insured by
any governmental agency or instrumentality, the lenders, the servicer, the
trustee, or any of their respective affiliates.
Payment Date Distributions
On each payment date, distributions of principal and interest or, where
applicable, of principal only or interest only, on each class of securities will
be made either by the trustee or a paying agent appointed by the trustee, to the
persons who are registered as securityholders at the close of business on the
record date. Interest that accrues and is not payable on a class of securities
may be added to the principal balance of each security of the class.
Distributions will be made in immediately available funds, by wire transfer or
otherwise, to the account of a securityholder. If the securityholder has
notified the trustee or the paying agent, as the case may be, and the agreements
provide, payment may be in the form of a check mailed to the address of the
person entitled thereto as it appears on
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the register. The final payment distribution upon retirement of the securities
will be made only upon presentation and surrender of the securities at the
office or agency of the trustee specified in the notice to securityholders of
the final distribution.
Determination of Principal and Interest on the Securities
The method of determining, and the amount of, distributions of principal
and interest or, principal only or interest only, on a particular series of
securities will be described in the prospectus supplement. Each class of
securities, except for principal only securities, may bear interest at a
different interest rate. Interest on the securities will be calculated either on
the basis of a 360-day year consisting of twelve 30-day months, on the basis of
the actual number of days in the interest period over 360, or on the basis of
the actual number of days in the interest period over 365 or 366, as the case
may be.
On each payment date, the trustee or the paying agent will distribute to
each securityholder an amount equal to the percentage interest represented by
the security held by the holder multiplied by the total amount to be distributed
on that payment date on account of that class.
For a series of securities that includes two or more classes, the timing,
sequential order, priority of payment, amount of distributions in respect of
principal, any schedule or formula or other provisions applicable to the
determination of distributions among multiple classes of senior securities or
subordinate securities will be described in the prospectus supplement.
Prior to each payment date the trustee will determine the amounts of
principal and interest which will be due to securityholders on that payment
date. If the amount then available to the trustee is insufficient to cover the
amount due to securityholders, the trustee will be required to notify the credit
enhancement provider, if there is one for that series providing credit
enhancement for this type of deficiency. The credit enhancement provider, in
this case, will then be required to fund the deficiency.
Soft Bullets
Since the auto loan pools which will back the securities will generate
principal collections in each period, and will have unpredictable amortization
rates, the securities will generally not be structured as "bullet" maturities
similar to corporate debt, meaning a debt security which pays interest in all
periods but principal only in a single payment at maturity.
However, a trust may enter into forward purchase or liquidity arrangements
which result in a security not unlike "bullet maturity" corporate debt. These
securities, commonly known as soft bullets, typically have interest payments due
in all periods and a single principal payment due on a date certain, but the
payment of that principal on that date certain may be dependent on the trust's
ability at the time to issue refunding debt, or to access the liquidity lines.
If the refunding debt cannot be issued, or if the liquidity lines cannot be
accessed, the securities will then begin to amortize in each period until final
maturity.
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Fixed Rate Securities
Each class of securities may bear interest at an annual fixed rate or at a
variable or adjustable rate per annum, as more fully described below and in the
prospectus supplement. Each class of fixed rate securities will bear interest at
the applicable interest rate specified in the prospectus supplement.
Floating Rate Securities
Each class of floating rate securities will bear interest for each related
interest period at a rate per annum determined by reference to an interest rate
index, commonly known as the base rate, plus or minus a spread, if any, or
multiplied by a spread multiplier, in each case as specified in the prospectus
supplement. The spread is the percentage above or below the base rate at which
interest will be calculated that may be specified in the prospectus supplement
as being applicable to such class, and the spread multiplier is the percentage
that may be specified in the prospectus supplement as being applicable to such
class.
The prospectus supplement will designate a base rate for a given floating
rate security based on the London interbank offered rate, commonly called LIBOR,
eurodollar synthetic forward rates, commercial paper rates, federal funds rates,
U.S. Government treasury securities rates, negotiable certificates of deposit
rates or another rate as set forth in the prospectus supplement.
As specified in the prospectus supplement, floating rate securities may
also have either or both of the following, in each case expressed as an annual
rate: (1) a maximum limitation, or ceiling, on the rate at which interest may
accrue during any interest period, which may be an available funds cap rate and
(2) a minimum limitation, or floor, on the rate at which interest may accrue
during any interest period. The interest rate on either type of security will
not be higher than the maximum rate permitted by applicable law.
Each trust that issues a class of floating rate securities will appoint and
enter into agreements with a calculation agent to calculate interest rates on
each class of floating rate securities. The prospectus supplement will set forth
the identity of the calculation agent for each such class of floating rate
securities which may be the trustee for the series. All determinations of
interest by the calculation agent will, in the absence of manifest error, be
conclusive for all purposes and binding on the holders of floating rate
securities of a given class.
The trust may also include a derivative arrangement for any series or any
class of securities. A derivative arrangement may include a guaranteed rate
agreement, a maturity liquidity facility, a tax protection agreement, an
interest rate cap or floor agreement, an interest rate or currency swap
agreement or any other similar arrangement.
Indexed Securities
Any class of securities may consist of securities in which the indexed
principal amount, the principal amount payable at the final scheduled
distribution date for such
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class is determined by reference to a measure, commonly known as an index, which
will be related to one of the following:
o the difference in the rate of exchange between United States dollars and a
currency or composite currency specified in the prospectus supplement;
o the difference in the price of a specified commodity on specified dates;
o the difference in the level of a specified stock index which may be based
on U.S. or foreign stocks, on specified dates;
o such other objective price or economic measure as is described in the
prospectus supplement. The manner of determining the indexed principal
amount of an indexed security and historical and other information
concerning the applicable index will be set forth in the prospectus
supplement, together with information concerning tax consequences to the
holders of such indexed securities.
If the determination of the indexed principal amount of an indexed security
is based on an index calculated or announced by a third party and that third
party either suspends the calculation or announcement of that index or changes
the basis upon which that index is calculated, then that index shall be
calculated for purposes of such indexed security by an independent calculation
agent named in the prospectus supplement on the same basis, and subject to the
same conditions and controls, as applied to the original third party. If for any
reason that index cannot be calculated on the same basis and subject to the same
conditions and controls as applied to the original third party, then the indexed
principal amount of that indexed security will be calculated in the manner set
out in the prospectus supplement. Any determination of the independent
calculation agent shall in the absence of manifest error be binding on all
parties.
Interest on an indexed security will be payable based on the amount
designated in the prospectus supplement as the face amount of that indexed
security. The prospectus supplement will describe how the principal amount of
the related indexed security, if any, would be paid upon redemption or repayment
prior to the applicable final scheduled distribution date.
Scheduled Amortization Securities; Companion Securities
The securities may include one or more classes of scheduled amortization
securities and companion securities. Scheduled amortization securities are
securities for which payments of principal are to be made in specified amounts
on specified payment dates, to the extent of funds being available on that
payment date. Companion securities are securities which receive payments of all
or a portion of any funds available on a given payment date which are in excess
of amounts required to be applied to payments on scheduled amortization
securities on such payment date. Because of the manner of application of
payments of principal to companion securities, the weighted average lives of
companion securities of a series may be expected to be more sensitive to the
actual rate of prepayments on the auto loans in the related trust than will the
scheduled amortization securities of that series.
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Maturity and Prepayment Considerations
The weighted average life of the securities will be influenced by the rate
at which the principal of the auto loans backing those securities are paid.
Payment on the auto loans may be in the form of scheduled payments or
prepayments.
Prepayments will shorten the weighted average life of the securities. The
rate of prepayments on the auto loans may be influenced by a variety of
economic, financial and other factors. In addition, under various circumstances,
the lender or servicer will be obligated to acquire auto loans from the trust as
a result of breaches of representations and warranties. Any reinvestment risks
resulting from a faster or slower rate of principal repayment on the securities
will be borne entirely by the securityholders.
Each prospectus supplement will set forth additional information about the
maturity and prepayment considerations applicable to a particular pool of auto
loans and series of securities.
Yield Considerations
The yield to maturity of a security will depend on the price paid, its
interest rate and the rate of payment of principal on the security or on its
notional amount, if the security is not entitled to payments of principal, as
well as other factors.
A class of securities may be entitled to variable payments of interest at a
fixed, maximum interest rate, commonly referred to as an available funds cap,
which is calculated based on the weighted average APR of the auto loan pool
minus any interest strips retained by the originator and all trust fees, if
specified in the prospectus supplement, or at another maximum interest rate as
may be described in the prospectus supplement.
The yield to maturity of the securities may be adversely affected by a
higher or lower than anticipated rate of prepayments on the auto loans. If you
purchase a security at a premium based on your expectations as to its maturity
or weighted average life, and the security pays principal more quickly than you
expected, your yield will be reduced. In addition, if you purchase a security at
a discount based on your expectations as to its maturity or weighted average
life, and the security pays principal more slowly than you expected, your yield
will be lower than you anticipated.
The yield on the securities also will be affected by liquidations of auto
loans following borrowers' defaults, receipt of proceeds from credit life,
credit disability or casualty insurance policies and by repurchases of auto
loans in the event of breaches of representations. The yield to maturity on some
types of securities, including interest only and principal only securities, and
securities in a series including more than one class, may be relatively more
sensitive to the rate of prepayment on the auto loans than other classes of
securities.
The timing of changes in the rate of principal payments on or repurchases
of the auto loans may significantly affect an investor's actual yield to
maturity, even if the
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average rate of principal payments experienced over time is consistent with an
investor's expectation. As a result, the effect on an investor's yield of
principal payments and repurchases occurring at a rate higher, or lower, than
the rate anticipated by the investor during the period immediately following the
issuance of a series of securities would not be fully offset by a subsequent
like reduction or increase in the rate of principal payments.
Book-Entry Registration
The securities are sometimes referred to in this prospectus as book-entry
securities. No person acquiring an interest in the book-entry securities will be
entitled to receive a definitive security representing an obligation of, or
interest in, the trust, except under the limited circumstances described in this
prospectus. Beneficial owners may elect to hold their interests through the
Depository Trust Company, commonly known as DTC, in the United States, or
Clearstream Banking, societe anonyme, commonly known as Clearstream, Luxembourg,
or the Euroclear System, in Europe. Transfers within DTC, Clearstream,
Luxembourg or Euroclear, as the case may be, will be in accordance with the
usual rules and operating procedures of that system. So long as the securities
are book-entry securities, they will be evidenced by one or more securities
registered in the name of Cede & Co., which will be the holder of those
securities, as the nominee of DTC or one of the relevant depositaries.
Cross-market transfers between persons holding directly or indirectly through
DTC, on the one hand, and counterparties holding directly or indirectly through
Clearstream, Luxembourg or Euroclear, on the other, will be effected in DTC
through The Chase Manhattan Bank, the relevant depositories of Clearstream,
Luxembourg or Euroclear, respectively, and each participating member of DTC. The
securities will initially be registered in the name of Cede & Co. The interests
of the holders of those securities will be represented by book-entries on the
records of DTC and participating members thereof. All references in this
prospectus to any securities reflect the rights of beneficial owners only as
those rights may be exercised through DTC and its participating organizations
for so long as those securities are held by DTC.
The beneficial owners of securities may elect to hold their securities
through DTC in the United States, or Clearstream, Luxembourg or Euroclear if
they are participants in these systems, or indirectly through organizations
which are participants in these systems. The book-entry securities will be
issued in one or more securities per class of securities which in the aggregate
equal the outstanding principal balance of the related class of securities and
will initially be registered in the name of Cede & Co., the nominee of DTC.
Clearstream, Luxembourg and Euroclear will hold omnibus positions on behalf of
their participants through customers' securities accounts in Clearstream,
Luxembourg's and Euroclear's names on the books of their respective depositaries
which in turn will hold such positions in customers' securities accounts in the
depositaries' names on the books of DTC. The Chase Manhattan Bank will act as
depositary for Clearstream, Luxembourg and Morgan Guaranty Trust Company of New
York will act as depositary for Euroclear. Investors may hold beneficial
interests in the book-entry securities in minimum denominations representing
principal amounts of $1,000. Except as described below, no beneficial owner will
be entitled to receive a physical or definitive security
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representing that security. Unless and until definitive securities are issued,
it is anticipated that the only holder of these securities will be Cede & Co.,
as nominee of DTC. Beneficial owners will not be "holders", "noteholders" or
"certificateholders", as the case may be, as those terms are used in the trust
documents. Beneficial owners are only permitted to exercise their rights
indirectly through participants and DTC.
The beneficial owner's ownership of a book-entry security will be recorded
on the records of the brokerage firm, bank, thrift institution or other
financial intermediary that maintains the beneficial owner's account for that
purpose. In turn, the financial intermediary's ownership of such book-entry
security will be recorded on the records of DTC or on the records of a
participating firm that acts as agent for the financial intermediary, whose
interest will in turn be recorded on the records of DTC, if the beneficial
owner's financial intermediary is not a DTC participant and on the records of
Clearstream, Luxembourg or Euroclear, as appropriate.
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 securities. Participants
include securities brokers and dealers, including the underwriter, banks, trust
companies and clearing corporations. Indirect access to the DTC system also is
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers of book-entry
securities, such as the securities, among participants on whose behalf it acts
with respect to the book-entry securities and to receive and transmit
distributions of principal of and interest on the book-entry securities.
Participants and indirect participants with which beneficial owners have
accounts with respect to the book-entry securities similarly are required to
make book-entry transfers and receive and transmit payments on behalf of their
respective beneficial owners.
Beneficial owners that are not participants or indirect participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, book-entry securities may do so only through participants and indirect
participants. In addition, beneficial owners will receive all distributions of
principal and interest from the trustee, or a paying agent on behalf of the
trustee, through DTC participants. DTC will forward these distributions to its
participants, which thereafter will forward them to indirect participants or
beneficial owners. Beneficial owners will not be recognized by the trustee, the
servicer or any paying agent as holders of the securities, and beneficial owners
will be permitted to exercise the rights of the holders of the securities only
indirectly through DTC and its participants.
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Because of time zone differences, credits of securities received in
Clearstream, Luxembourg or Euroclear as a result of a transaction with a
participant will be made during subsequent securities settlement processing and
dated the business day following the DTC settlement date. Credits or any
transactions in these securities settled during that processing will be reported
to the relevant Euroclear or Clearstream, Luxembourg participants 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
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.
Transfers between participants will conform with DTC rules. Transfers
between Clearstream, Luxembourg participants and Euroclear participants will
conform with their respective 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 the relevant depositary; however, these
cross-market transactions will 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.
The relevant European international clearing system will, if the transaction
meets its settlement requirements, deliver instructions to the relevant
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 European depositaries.
Clearstream, Luxembourg is incorporated under the laws of Luxembourg as a
professional depository. Clearstream, Luxembourg holds securities for its
participant 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 securities.
Transactions may be settled in Clearstream, Luxembourg in any of 38 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 certain
other organizations. Indirect access to Clearstream, Luxembourg is also
available to others, including banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Clearstream,
Luxembourg participant, either directly or indirectly.
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Euroclear was created in 1968 to hold securities for participants of
Euroclear and to clear and settle transactions between Euroclear participants
through simultaneous electronic book-entry delivery against payment, thereby
eliminating both the need for physical movement of securities and any risk from
lack of simultaneous transfers of securities and cash. Transactions may now be
settled in any of 37 currencies, including United States dollars. Euroclear
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 the Brussels, Belgium office of Morgan Guaranty Trust Company of New
York, under contract with Euroclear Clearance Systems 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. Euroclear
Clearance establishes policy for Euroclear on behalf of Euroclear participants.
Euroclear participants include banks (including central banks), securities
brokers and dealers, and other professional financial intermediaries. Indirect
access to Euroclear is also available to other firms that clear through or
maintain a custodial relationship with a Euroclear participant, either directly
or indirectly.
The Euroclear operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law.
The Terms and Conditions govern transfers of securities and cash within
Euroclear, withdrawals of securities and cash from Euroclear, and receipts of
payments with respect to securities in Euroclear. All securities in Euroclear
are held on a fungible basis without attribution of specific securities to
specific securities clearance accounts. The Euroclear operator acts under the
Terms and Conditions only on behalf of Euroclear participants, and has no record
of or relationship with persons holding through Euroclear participants.
Distributions on the book-entry securities will be made on each
distribution date by the trustee to Cede & Co., as nominee of DTC. DTC will be
responsible for crediting the amount of those payments to the accounts of the
applicable DTC participants in accordance with DTC's normal procedures. Each DTC
participant will be responsible for disbursing payments to the beneficial owners
of the book-entry securities that it represents and to each financial
intermediary for which it acts as agent. Each financial intermediary will be
responsible for disbursing funds to the beneficial owners of the book-entry
securities that it represents.
Under a book-entry format, beneficial owners of the book-entry securities
may experience some delay in their receipt of payments, since those payments
will be forwarded by the trustee to Cede & Co., as nominee of DTC. Distributions
with respect to securities held through Clearstream, Luxembourg or Euroclear
will be credited to the
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cash accounts of Clearstream, Luxembourg participants or Euroclear participants
in accordance with the relevant system's rules and procedures, to the extent
received by the relevant depositary. These distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
Because DTC can only act on behalf of financial intermediaries, the ability of a
beneficial owner to pledge book-entry securities to persons or entities that do
not participate in the DTC system, or otherwise take actions on those book-entry
securities, may be limited due to the lack of physical securities for such
book-entry securities. In addition, issuance of the book-entry securities in
book-entry form may reduce the liquidity of such securities in the secondary
market since certain potential investors may be unwilling to purchase securities
for which they cannot obtain physical securities.
Monthly and annual reports on the trust provided by the trustee to Cede &
Co., as nominee of DTC, may be made available to beneficial owners upon request,
in accordance with the rules, regulations and procedures creating and affecting
DTC, and to the financial intermediaries to whose DTC accounts the book-entry
securities of the beneficial owners are credited.
DTC has advised the lenders and the servicer that it will take any action
permitted to be taken by a holder of the securities under the trust documents
only at the direction of one or more participants to whose accounts with DTC the
book-entry securities are credited. Additionally, DTC has advised the lenders
that it will take such actions with respect to specified percentages of voting
rights only at the direction of and on behalf of participants whose holdings of
book-entry securities evidence such specified percentages of voting rights. DTC
may take conflicting actions with respect to percentages of voting rights to the
extent that participants whose holdings of book-entry securities evidence such
percentages of voting rights authorize divergent action.
None of the trust, the lenders, the servicer, any credit enhancement
provider or the trustee will have any responsibility for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of the book-entry securities held by Cede & Co., as nominee for DTC,
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
Although DTC, Clearstream, Luxembourg and Euroclear have agreed to the
foregoing procedures in order to facilitate transfers of securities among
participants of DTC, Clearstream, Luxembourg and Euroclear, they are under no
obligation to perform or continue to perform these procedures and these
procedures may be discontinued at any time.
Definitive Securities
The securities, which will be issued initially as book-entry securities,
will be converted to definitive securities and reissued to beneficial owners or
their nominees, rather than to DTC or its nominee, only if:
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o DTC or the servicer advises the trustee in writing that DTC is no longer
willing or able to discharge properly its responsibilities as depository
with respect to the book-entry securities and DTC or the servicer is unable
to locate a qualified successor, or
o the trustee, at its option, elects to terminate the book-entry system
through DTC.
If any event described in the preceding paragraph occurs, DTC will be
required to notify all participants of the availability through DTC of
definitive securities. Upon delivery of definitive securities, the trustee will
reissue the book-entry securities as definitive securities to beneficial owners.
Distributions of principal of, and interest on, the book-entry securities will
thereafter be made by the trustee, or a paying agent on behalf of the trustee,
directly to holders of definitive securities in accordance with the procedures
set forth in the trust documents.
Definitive securities will be transferable and exchangeable at the offices
of the trustee or the registrar. 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.
Credit and Cash Flow Enhancements
The amounts and types of credit enhancement arrangements, if any, and the
credit enhancement provider, for each class of securities will be detailed in
the related prospectus supplement. Credit enhancement may be in the form of:
o an insurance policy;
o subordination of one or more classes of securities;
o reserve accounts;
o yield maintenance accounts;
o overcollateralization;
o letters of credit;
o credit or liquidity facilities;
o third party payments or other support;
o surety bonds;
o guaranteed cash deposits;
o swap contracts, including interest rate and currency swaps; or
o other arrangements or any combination of two or more of the above.
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Credit enhancement may cover one or more classes of the series. Credit
enhancement for any class or series of securities is intended to enhance the
likelihood that securityholders of that class or series will receive the full
amount of principal and interest due and to decrease the likelihood that the
securityholders will experience losses. Credit enhancement for a class or series
of securities will not provide protection against all risks of loss and may not
guarantee repayment of the entire principal balance and interest. If losses
occur which exceed the amount covered by any credit enhancement or which are not
covered by any credit enhancement, securityholders will bear their allocable
share of deficiencies. In addition, if a form of credit enhancement covers more
than one series of securities, securityholders of those series will be subject
to the risk that the credit enhancement will be exhausted by the claims of
securityholders of other series.
The Trust Documents
Each series of securities will be issued under one or more trust documents
which term refers to pooling and servicing agreements, trust documents,
receivables purchase agreements, sale and servicing agreements and indentures
which will establish the trust, transfer the auto loans, provide for the
servicing of the auto loans and issue the securities. The following paragraphs
describe the material provisions common to the trust documents. A more detailed
discussion of the trust documents governing your specific series will appear in
the prospectus supplement.
Sale of Auto Loans by the Lenders to the Trust
Each of the lenders will sell to the issuing trust all its right, title and
interest in and to all of the auto loans. These sales may occur as direct
transfers from each lender to the trust, or as indirect transfers, as when one
lender first transfers its auto loans to the other lender, which then transfers
all of the auto loans to the trust, or when one or both of the lenders first
transfer the auto loans to a special purpose finance vehicle, which in turn
transfers the auto loans to the trust.
Each of the lenders will indicate in their computer files that the auto
loans have been sold to the trust. The lenders, in their capacities as servicer
or subservicer, may retain possession of the records and agreements relating to
the auto loans. The servicer may use the facilities of a third party, off-site
document retention service to store the loan contracts or the physical
certificates of title. The records and agreements will not be segregated by the
lenders from other documents and agreements relating to other auto loans and are
not stamped or marked to reflect the sale or transfer of the auto loans to the
trust. However, the computer records of the lenders will be marked to evidence
the sale or transfer. The lenders will file UCC financing statements meeting the
requirements of applicable state law and in each of the jurisdictions in which
these filings are required in order to maintain the lien priority of the auto
loans.
All of the auto loans transferred to an issuing trust will be identified in
a schedule of auto loans delivered to the trustee. The net proceeds received
from the sale of the securities will be used by the trust to purchase the auto
loans and, if applicable, to deposit the pre-funded amount into the pre-funding
account. The prospectus supplement for a
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series of securities will specify whether, and the terms, conditions and manner
under which subsequent auto loans for the series will be acquired by the
applicable trust from time to time during any pre-funding period.
Representation and Warranties of the Lenders; Repurchase Obligation
In the trust documents, one or both of the lenders, will represent and
warrant to the issuing trust to the effect, among other things, that:
o the information provided with respect to the auto loans is correct in all
material respects;
o the borrower on each auto loan is generally required to obtain physical
damage and theft insurance in accordance with the related lender's normal
requirements;
o at the date of issuance of the securities, the auto loans are free and
clear of all security interests, liens, charges, and encumbrances and no
setoffs, defenses, or counterclaims against the bank have been asserted or
threatened (other than the interest of the trustee);
o on the closing date, each of the auto loans is or will be secured by a
first priority perfected security interest in the vehicle in favor of the
applicable lender; and
o each auto loan, at the time it was originated or purchased, complied, and
on the closing date complies, in all material respects, with applicable
federal and state laws, including consumer credit, truth in lending, equal
credit opportunity, and disclosure laws.
o Some of the representations and warranties will only be made to the best
knowledge of the lenders.
If the bank or CFC breaches the representations and warranties relating to
the auto loans and the financed vehicles in a manner that materially and
adversely affects any auto loan or the interests of the securityholders or the
interests of the trustee, the bank or CFC will be obligated, unless the breach
is cured, to repurchase the auto loans from the trust. The bank or CFC will be
obligated to repurchase the auto loans if its breach is not cured by the last
day of the second calendar month following the discovery by or notice to the
lenders of the breach.
In addition, the prospectus supplement will specify if the lenders may from
time to time reacquire certain auto loans or substitute other auto loans for
such auto loans subject to the provisions of the trust documents.
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Accounts
Collection account
With respect to your series of securities, the servicer will establish and
maintain a collection account. The collection account will be one or more
accounts, in the name of the trustee on behalf of the securityholders, into
which all payments made on or with respect to the auto loans will be deposited.
Distribution account
The prospectus supplement for a series of securities will specify whether
the servicer will also establish and maintain a distribution account with the
trustee. The distribution account will be one or more separate accounts in the
name of such trustee on behalf of such securityholders. Amounts withdrawn from
the collection account and any reserve account or received under other credit
enhancement, if any, for distribution to such securityholders will be deposited
in the distribution account. Distributions will be made to the securityholders
from the distribution account.
Yield Maintenance Account
The trust documents may provide for the establishment and maintenance of a
yield maintenance account in order to provide payments to securityholders in
those cases where the APR of auto loans is less than the required rate.
The trust documents will describe if money on deposit in the yield
maintenance account may be invested in eligible investments and if investment
earnings on funds in a yield maintenance account will be deposited into the
yield maintenance account.
If a yield maintenance account is established with respect to securities
which have a pre-funding feature, on each subsequent transfer date the bank will
deposit into the yield maintenance account an additional yield maintenance
amount in respect of auto loans having an APR less than the required rate.
Any other accounts to be established with respect to a trust, including any
reserve account, will be described in the prospectus supplement for your series.
The collection account, the distribution account, any reserve account and
any other accounts established by the servicer are referred to as trust
accounts. For any series of securities, funds in the collection account, the
distribution account, any reserve account and other identified trust accounts
shall be invested in eligible investments as directed by the trust documents for
your series.
Eligible investments are generally limited to investments acceptable to the
rating agencies as being consistent with the rating of such securities. Eligible
investments may include securities issued by the bank, the servicer or their
respective affiliates or other trusts created by the bank or its affiliates.
Eligible investments are limited to obligations or securities that mature not
later than the business day immediately preceding the
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distribution date, or are otherwise subject to demand withdrawal. Investment
earnings on funds deposited in the applicable trust accounts, net of losses and
investment expenses may be retained in the related account, deposited in one
particular account, or released to the lenders or the servicer, as provided in
the trust documents.
The trust accounts will generally be maintained as eligible deposit
accounts and the accompanying prospectus supplement will specify if this is not
the case.
An eligible deposit account is an account that is either
o a segregated account with a depository institution organized under the
laws of the United States or any of the states which depository at the
time of any deposit therein has a net worth in excess of $50,000,000
and long-term debt rating acceptable to the rating agencies or a
short-term deposit obligation rating acceptable to the rating
agencies, or
o a segregated trust account with the corporate trust department of a
depository organized under the laws of the United States or any one of
the states, and acting as a trustee for funds deposited in the
account, so long as any of the unsecured, unguaranteed senior debt
securities of the depository shall have a long-term debt rating
acceptable to the rating agencies.
Mandatory Repurchase of Auto Loans
If the bank or CFC breaches the representations and warranties relating to
the auto loans and the financed vehicles in a manner that materially and
adversely affects any auto loan or the interests of the securityholders, a
credit enhancement provider or the interests of the trustee, the bank or CFC
will be obligated, unless the breach is cured, to repurchase the auto loans from
the trust. The bank or CFC will be obligated to repurchase the auto loans by
paying the purchase amount if the breach by the bank or CFC is not cured by the
end of the cure period. The repurchase obligation is the only remedy available
to the securityholders or the trustee against the bank or CFC for any uncured
breach or failure.
The purchase amount of any auto loan is determined at the time of the
particular distribution date and is equal to:
o the outstanding principal balance of the auto loan in question as of
the last day of the preceding collection period, plus
o the amount of accrued interest on the outstanding principal balance at
the related APR from the date a payment was last made by or on behalf
of the borrower through the last day of the collection period
immediately preceding the distribution date, and after any money
collected on the auto loan in the preceding collection period has been
received.
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The Servicer
The prospectus supplement for your series will name the servicer under the
trust documents. The entity serving as servicer may be the bank or an affiliate
of the bank and may have other business relationships with the bank or the
bank's affiliates. The servicer with respect to your series will service the
auto loans constituting the trust property for that series. Any servicer may
delegate its servicing responsibilities to one or more sub-servicers, but will
not be relieved of its liabilities with respect to servicing.
To assure uniform quality in servicing the auto loans and to reduce
administrative costs, the trustee may appoint the servicer as initial custodian
of the auto loans. The servicer, in its capacity as custodian, will hold the
auto loans and all electronic entries, documents, instruments and writings
relating to the auto loans, and commonly referred to as a receivables file,
either directly or through sub-servicers, on behalf of the trustee for the
benefit of securityholders and any credit enhancement provider. The loan
contracts or the certificates of title may be held by an unaffiliated document
retention service, or in some cases may be held by the trustee or its custodian
other than the servicer. In addition, the servicer may designate CFC to act as
custodian with respect to receivables files relating to the CFC auto loans.
Servicing Procedures
The auto loans will be serviced by a servicer pursuant to the trust
documents. The servicer may designate CFC or another entity to act as
sub-servicer with respect to the CFC auto loans, although such designation will
not relieve the servicer from its servicing obligations with respect to such CFC
auto loans. Each trust document will require that servicing of the auto loans by
the servicer shall generally be carried out in the same manner in which it
services auto loans and vehicles held for its own account. In performing its
duties thereunder, the servicer will act on behalf and for the benefit of the
related trustee, subject at all times to the provisions of the trust documents,
without regard to any relationship which the servicer or any affiliate of the
servicer may otherwise have with a borrower.
The servicer, as an independent contractor on behalf of the related trustee
and for the benefit of the securityholders and any credit enhancement provider,
will be responsible for managing, servicing and administering the auto loans and
enforcing and making collections on the auto loans and any insurance policies
and for enforcing any security interest in any of the vehicles, all as set forth
in the trust documents. The servicer's responsibilities will include collecting
and posting of all payments, responding to inquiries of borrowers, investigating
delinquencies, accounting for collections, furnishing monthly and annual
statements to the trustee and any credit enhancement provider, with respect to
distributions, providing appropriate federal income tax information for use in
providing information to securityholders, collecting and remitting sales and
property taxes on behalf of taxing authorities and maintaining the perfected
security interest of the related lender in the vehicles.
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Servicer Covenants
The servicer will covenant in the trust documents that:
o the vehicle securing each auto loan will not be released from the
security interest granted by the contract in whole or in part, except
as contemplated by the trust documents;
o the servicer will not impair in any material respect the rights of the
trustee or the securityholders in the auto loans under any agreements
pursuant to which the lender acquired the auto loans; and
o except in the case of bankrupt borrowers, where the court has ordered
a change in the amount financed under an auto loan or in the APR of an
auto loan or scheduled payment of an auto loan, the servicer will not
increase or decrease the amount of payments or the amount financed
under an auto loan, or change the APR of an auto loan; provided,
however, that the servicer may extend any auto loan for credit-related
reasons that would be acceptable to the servicer with respect to
retail installment sales or finance contracts and installment loans
serviced by it for its own account in accordance with its customary
standards.
However, if the cumulative extensions with respect to any auto loan cause
the term of that auto loan to extend beyond the last day of the collection
period immediately preceding the final scheduled distribution date with respect
to the related securities, then the servicer shall be obligated to purchase that
auto loan as of the last day of the collection period following the collection
period in which the extension was made or, if the servicer chooses, as of the
last day of the collection period or earlier under certain circumstances.
If the servicer breaches any covenant described above in a way that
materially and adversely affects an auto loan or the interests of the trust, the
securityholders or a credit enhancement provider in the auto loan, the servicer,
unless such breach has been cured by the last day of the collection period
following the collection period during which the servicer became aware of, or
received written notice of, such breach, will be required to purchase as of such
day (or, if the servicer chooses, as of the last day of the collection period
during which such breach was discovered) the auto loan from the trustee for the
purchase amount. The servicer will pay the purchase amount on the determination
date in the subsequent collection period or earlier under certain circumstances.
The purchase obligation will constitute the sole remedy available to the
securityholders, any credit enhancement provider or the trustee against the
servicer for any such uncured breach.
Defaulted Auto Loans
The trust documents will also require the servicer to charge off an auto
loan as a defaulted auto loan in accordance with its customary standards and to
follow those normal collection practices and procedures as it deems necessary or
advisable, and that
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are consistent with the standard of care required by the trust documents to
realize upon any auto loan. The servicer may sell the vehicle securing a
defaulted auto loan at a judicial sale or take any other action permitted by
applicable law. The net proceeds of any realization of a defaulted auto loan
will be deposited into the collection account.
Servicing Compensation and Payment of Expenses
For its servicing of the auto loans, the servicer will be entitled to
retain a servicing fee from collections on the auto loans. The details of the
servicing fee will be provided in each prospectus supplement. A portion of the
servicing fee may be paid over by the servicer to CFC or any other sub-servicer
with respect to its sub-servicing of the CFC auto loans.
All costs of servicing the auto loans in the manner required by the trust
documents shall be borne by the servicer, but the servicer shall be entitled to
retain, out of any amounts actually recovered with respect to any defaulted auto
loan or the vehicles subject thereto, the servicer's actual out-of-pocket
expenses reasonably incurred with respect to the defaulted auto loan or vehicle.
Indemnification
The trust documents will provide that the servicer will defend, indemnify
and hold harmless the trustee, the trust, the securityholders, and any credit
enhancement provider against any and all costs, expenses, losses, damages,
claims and liabilities, including reasonable fees and expenses of counsel and
expenses of litigation, reasonably incurred, arising out of or resulting from
the use, repossession or operation by the servicer or any affiliate thereof of
any vehicles; provided, however, that the servicer will have no obligation to
indemnify any person or entity against any credit loss on any auto loan serviced
by the servicer in accordance with the requirements of the trust documents. The
servicer will also indemnify, defend and hold harmless the trust, the trustee
and its officers, directors, employees and agents, and any credit enhancement
provider from and against any loss, liability, expense, damage or injury,
including any judgment, award, settlement, reasonable attorneys' fees and other
costs or expenses incurred in connection with the defense of any action,
proceeding or claim, to the extent such loss, liability, expense, damage or
injury arises out of, or is imposed upon such persons through, the willful
misfeasance, bad faith or negligence of the servicer in the performance of its
duties or by reason of its reckless disregard of its obligations and duties as
servicer under the trust documents. The bank's obligations, as servicer, to
indemnify the trust and the securityholders for acts or omissions of the bank as
servicer will survive the removal of the servicer but will not apply to any acts
or omissions of a successor servicer.
Evidence as to Compliance
The trust documents will require the servicer to deliver an officers'
certificate to the trustee confirming that a review of the activities of the
servicer during the period specified in the related prospectus supplement and of
its performance under the trust documents has been made under the officers'
supervision and that, to the best of the
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officers' knowledge and based on that review, the servicer has fulfilled all of
its obligations under the trust documents throughout such period. If there has
been a default in the fulfillment of any obligation, the certificate will
specify the nature and status of each default known to the officers.
The prospectus supplement shall specify if the servicer shall cause a firm
of independent certified public accountants (who may also render other services
to the servicer) to deliver to the trustee an annual written statement to the
effect that such firm has read the monthly servicer's certificates delivered
pursuant to the trust documents and reviewed the servicing of the auto loans by
the servicer. The annual statement will confirm that the review (1) included
evaluations of servicing practices relating to automobile, light duty truck and
van loans serviced for others in accordance with the requirements of the trust
documents, and (2) except as described in the report, disclosed no exceptions or
errors in the records relating to automobile, light duty truck and van loans
serviced for others that, in the firm's opinion, industry practice requires the
accounting firm to report.
Certain Matters Regarding the Servicer
The servicer may not resign from its obligations and duties as servicer
under the trust documents, unless it is determined that the servicer's
performance of its duties is no longer permissible under applicable law. The
servicer's resignation will not become effective until the related trustee or a
successor servicer has assumed the servicer's servicing obligations and duties
under the trust documents.
Neither the servicer nor any of its respective directors, officers,
employees, or agents shall be under any liability to the trustee or the
securityholders for taking any action or for refraining from taking any action
pursuant to the trust documents, or for errors in judgment; provided, however,
that neither the servicer nor any such person will be protected against any
liability that would otherwise be imposed by reason of willful misfeasance, bad
faith or negligence in the performance of duties or by reason of reckless
disregard of obligations and duties thereunder. In addition, the trust documents
will provide that the servicer is under no obligation to appear in, prosecute,
or defend any legal action that is not incidental to its servicing
responsibilities under the trust documents and that, in its opinion, may cause
it to incur any expense or liability.
Under the circumstances specified in the trust documents, any entity into
which the servicer may be merged or consolidated, or any entity resulting from
any merger or consolidation to which the 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 the servicer, will be the successor to the servicer
under the trust documents.
Servicer Default
A servicer default under the trust documents defining its servicing
obligations will consist of the occurrence and continuance of any of the
following:
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o any failure by the servicer to deliver to the trustee the servicer's
certificate or to deliver to the trustee for distribution to the
securityholders any required payment, if the failure continues
unremedied for more than the number of days specified in the
prospectus supplement after the servicer receives written notice from
(1) the trustee, or the holders of a specified percentage of the
related securities, provided the consent of any credit enhancement
provider is obtained, or (2) any credit enhancement provider;
o any failure by the servicer duly to observe or perform in any material
respect any other covenant or agreement of the servicer in the trust
documents, if the failure materially and adversely affects the rights
of the securityholders and continues unremedied for more than the
number of days specified in the prospectus supplement after written
notice of the failure is given (1) to the servicer by the trustee and
by the credit enhancement provider, (2) to the servicer and to the
trustee by a specified percentage of the related securityholders and
by the credit enhancement provider or (3) to the servicer by the
credit enhancement provider; and
o any events of insolvency, readjustment of debt, marshalling of assets
and liabilities, or similar proceedings with respect to the servicer
and certain actions by the servicer indicating its insolvency or
inability to pay its obligations.
Removal of the Servicer
The servicer can generally only be removed if a servicer default has
occurred and has not been remedied. The prospectus supplement will specify if
this is not the case. If a servicer default has occurred and remains unremedied,
the trustee, acting at the direction of the controlling parties, may give
written notice to the servicer of the termination of all of the rights and
obligations of the servicer under the trust documents providing for the
servicing of the auto loans. On and after the time the servicer receives a
notice of termination, the trustee will be the successor in all respects to the
servicer in its capacity as servicer of the auto loans under the trust
documents. If the trustee is unwilling to act as successor servicer, the trustee
may, and if it is unable to act as successor servicer, the trustee shall be
obliged to, appoint, or petition a court of competent jurisdiction for the
appointment of a successor servicer to act as successor to the outgoing servicer
under the trust documents. The controlling parties of a series will be the
provider of any credit enhancement for that series, if that provider is not in
default, or, if there is no credit enhancement provider for that series, or if
the credit enhancement provider is in default, then the holders of securities of
that series representing more than 50%, or in some cases, 66 2/3, of the voting
rights of that series.
Amendment
If it will not materially adversely affect the securityholders, the trust
documents may be amended, without the consent of the related securityholders,
for the purpose of adding, changing or eliminating any provisions or of
modifying in any manner the rights
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of the securityholders. The trust documents may also be amended by the bank, the
servicer, and the trustee with the consent of securityholders evidencing at
least a majority of the voting rights of the then outstanding securities for the
purpose of adding, changing in any manner, or eliminating any provisions of the
trust documents, including provisions that would adversely affect the ratings of
the securities; but no amendment may, without the consent of all
securityholders, (1) increase or reduce the amount or priority of, or accelerate
or delay the timing of, collections on the related auto loans or distributions
that are required to be made for the benefit of the securityholders or (2)
reduce the percentage of securities which are required to consent to any
amendment, without the consent of all securityholders.
Events of Default
Any of the following will be an event of default for a series of securities
which includes notes:
o a default in the payment of any interest on any note that, when it
becomes due and payable, continues for a period of five days;
o a default in the payment of the outstanding principal balance of a
class of notes of that series on the scheduled maturity date of the
class, that continues for a period of five days;
o default in the observance or performance of any covenant or agreement
of the trust made in the trust documents for that series, or any
representation or warranty of the trust made in the trust documents or
in any certificate or other writing delivered under the trust
documents proving to have been incorrect in any material respect as of
the time when made which has a material adverse effect on note owners,
and the default shall continue or not be cured, for a period of 60
days after notice is given to the trust by the trustee or to the trust
and the trustee by the holders of at least 25% in principal amount of
the notes of that series then outstanding, specifying the default or
incorrect representation or warranty;
o the filing of a decree or order for relief by a court having
jurisdiction in the premises in respect of the trust or any
substantial part of the trust assets in an involuntary case under any
applicable federal or state bankruptcy, insolvency or other similar
law now or hereafter in effect, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the
trust or for any substantial part of the trust assets, or ordering the
winding-up or liquidation of the trust's affairs, and the decree or
order shall remain unstayed and in effect for a period of 60
consecutive days; or
o the commencement by the trust of a voluntary case under any applicable
federal or state bankruptcy, insolvency or other similar law now or
hereafter in effect, or the consent by the trust to the entry of an
order for relief in an involuntary case, or the consent by the trust
to the appointment or taking
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possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the trust or for any substantial
part of the trust assets, or the making by the trust of any general
assignment for the benefit of creditors, or the failure by the trust
generally to pay its debts as those debts become due, or the taking of
any action by the trust in furtherance of any of the foregoing.
The amount of principal required to be paid to noteholders on any payment
date will be limited to amounts available to be deposited in the account.
Therefore, the failure to pay principal on a class of notes will not result in
the occurrence of an event of default until the scheduled maturity date for that
class of notes.
Rights upon an Event of Default
If there is an event of default due to late payment or nonpayment of
interest or principal on a note, interest will continue to accrue on the
principal and the overdue interest at the applicable interest rate on the note
until the overdue principal and interest is paid. If an event of default for a
series occurs and continues, the trustee, acting at the direction of the
controlling parties, shall, declare the principal of the notes to be immediately
due and payable. The declaration may, under some circumstances, be rescinded by
the controlling parities.
If the notes are accelerated following an event of default in that series,
the trustee may institute proceedings to collect amounts due or foreclose on
property comprising trust assets or exercise remedies as a secured party. If the
trustee, at the direction of the controlling parties, determines that the auto
loans will not provide sufficient funds for the payment of principal and
interest on the notes as the payments would become due, any sale, liquidation or
other disposition of the trust assets in that series for an amount less than the
amounts due on the notes will not occur without the consent of the controlling
parties. If the trustee has not made a determination that a sale or liquidation
of the trust assets in that series will not provide sufficient funds to pay
principal and interest on the notes, it may sell, liquidate or otherwise dispose
of the trust assets only if all noteholders consent.
If an event of default occurs and has not been remedied, the trustee will
be under no obligation to exercise any of the rights or powers under the trust
documents at the request or direction of any of the holders of the notes, if the
trustee reasonably believes it will not be adequately indemnified against the
costs, expenses and liabilities which might be incurred by it in complying with
the request. Subject to the provisions for indemnification and limitations
contained in the trust documents, the controlling parties will have the right to
direct the time, method and place of conducting any proceeding or any remedy
available to the trustee, and the controlling parties may, in some cases, waive
any default, except a default in the payment of principal or interest or a
default in respect of a covenant or provision of the trust documents that cannot
be modified without the waiver or consent of all the holders of the outstanding
notes. No holder of a note of a series will have the right to institute any
proceeding under the trust documents, unless:
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o the holder previously has given the trustee written notice of a
continuing event of default;
o the holders of not less than 25% of the aggregate principal balance of
all outstanding notes of a series have made written request to the
trustee to institute the proceeding in its own name as trustee;
o the holder or holders have offered the trustee reasonable indemnity
against costs, expenses and liabilities to be incurred in complying
with the request;
o the trustee has for 60 days failed to institute the proceeding; and
o no direction inconsistent with the written request has been given to
the trustee during the 60-day period by the holders of a majority of
the aggregate principal balance of all outstanding notes of a series.
In addition, the trustee and the note owners, by accepting a
beneficial interest in the notes, will covenant that they will not at
any time institute against the trust or the lenders, or join in any
institution against the trust or the lenders of, any bankruptcy,
reorganization or other proceeding under any federal or state
bankruptcy or similar law.
Certain Covenants of Each Trust
The trust documents provide that the trust may not consolidate with or
merge into any other entity, unless:
o the entity formed by or surviving the consolidation or merger is
organized under the laws of the United States, any state or the
District of Columbia;
o the entity expressly assumes the trust's obligation to make due and
punctual payments upon the securities and the performance or
observance of any agreement and covenant of the trust under the trust
documents;
o no event of default shall have occurred and be continuing immediately
after the merger or consolidation;
o the trust has been advised that the ratings of the securities then in
effect would not be reduced or withdrawn by any rating agency as a
result of the merger or consolidation;
o any action that is necessary to maintain the lien and security
interest created by the indenture is taken; and
o the trust has received an opinion of counsel to the effect that the
consolidation or merger would have no material adverse tax consequence
to the trust or to any securityholder.
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The trust will not, among other things:
o except as expressly permitted by the trust documents, sell, transfer,
exchange or otherwise dispose of any of the assets of the trust,
o claim any credit on or make any deduction from the principal and
interest payable in respect of the securities other than amounts
withheld under the Internal Revenue Code or applicable state law or
assert any claim against any present or former holder of securities
because of the payment of taxes levied or assessed upon the trust,
o permit the validity or effectiveness of the trust documents to be
impaired or permit any person to be released from any covenants or
obligations with respect to the securities under the trust documents
except as may be expressly permitted thereby, or
o permit any lien, charge, excise, claim, security interest, mortgage or
other encumbrance to be created on or extend to or otherwise arise
upon or burden the assets of the trust or any part of the trust, or
any interest therein or the proceeds of the trust.
The trust may not engage in any activity other than as specified under the
trust documents.
Certain Matters Regarding the Trustee and the Trust
Neither the trust, the trustee nor any director, officer or employee of the
trust or the trustee will be under any liability to the trust or the
securityholders for any action taken or for refraining from the taking of any
action in good faith under the trust documents or for errors in judgment.
However, the trustee, the trust and any director, officer or employee will not
be protected against any liability which would otherwise be imposed by reason of
willful malfeasance, bad faith or negligence in the performance of duties or by
reason of reckless disregard of obligations and duties under the trust
documents.
Limitation on Liability of the Trustee
The trustee will make no representations as to the validity or sufficiency
of the trust documents, the securities or of the trust assets or related
documents. If no event of default has occurred, the trustee is required to
perform only those duties specifically required of it under the trust documents.
Upon receipt of the various certificates, statements, reports or other
instruments required to be furnished to it, the trustee will be required to
examine them to determine whether they are in the form required by the trust
documents; however, the trustee will not be responsible for the accuracy or
content of any of the documents furnished to it.
The trustee may be held liable for its own negligent action or failure
to act, or for its own misconduct; provided, however, the trustee will not be
personally liable for any
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action taken, suffered or omitted to be taken by it in good faith in accordance
with the direction of the required percentage of the securityholders in an event
of default. The trustee is not required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
under the trust documents, or in the exercise of any of its rights or powers, if
it has reasonable grounds for believing that repayment of the funds or adequate
indemnity against the risk or liability is not reasonably assured to it.
Resignation of Trustee
The trustee may, upon written notice to the bank and the trust, resign at
any time, in which event the servicer will be obligated to use its best efforts
to appoint a successor trustee. If no successor trustee has been appointed and
has accepted the appointment within 60 days after giving notice of resignation,
the resigning trustee or the trust may petition any court of competent
jurisdiction for appointment of a successor trustee. The trustee may also be
removed at any time by the servicer. In addition, the servicer or the
controlling parties may remove the trustee under a series:
o if the trustee ceases to be eligible to continue as trustee under the
trust documents;
o if the trustee becomes insolvent; or
o the trustee's long-term debt ratings are below investment grade.
Any resignation or removal of the trustee and appointment of a successor
trustee will not become effective until acceptance of the appointment by the
successor trustee.
Termination
The obligations of the servicer, the bank, CFC and the trustee with respect
to a trust will terminate upon the earlier to occur of:
o the maturity or liquidation of the last auto loan held by that trust
and the disposition of any amounts received upon liquidation of any
remaining auto loans; and
o the payment in full to securityholders.
Once the pool balance, or, in the case of securities issued in the form of
notes, the outstanding note balance, has declined to below a specified
percentage, then the servicer will be permitted, at its option, to purchase the
auto loans from the trust. If the auto loans held by a trust are so purchased,
then the related securities will be redeemed.
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Legal Aspects Of The Auto Loans
The following discussion contains summaries of the material legal aspects
of the auto loans that are general in nature. These legal aspects are governed
in part by state laws, which may be different in the various states.
Security Interest in Vehicles
In all the states in which the auto loans have been originated, retail
installment sale contracts evidence the credit sale of automobiles, light duty
trucks and vans by dealers to borrowers. The auto loans are chattel paper under
the UCC.
Perfection of security interests in the financed vehicles is generally
governed by the motor vehicle registration laws of the state in which the
vehicle is located. In most states, a security interest in a vehicle generally
may be perfected only by amendment of that vehicle's certificate of title to
note the security interest of the secured party. That notation of a secured
party's security interest is generally effected in those states by depositing
with the applicable state highway department, motor vehicles registrar, or
similar authority along with any registration fees, the vehicle's certificate of
title and an application containing the name and address of the secured party.
The bank or CFC will assign its security interest in the financed vehicles
securing the auto loans to the trust. However, because of the administrative
burden and expense, involved, we will not amend any certificate of title to
identify the related trust as the new secured party on the certificates of title
relating to the financed vehicles. Also, the bank or CFC may continue to hold
the certificates of title in its possession.
Even though we are not amending the certificates of title, the assignment
to the trust will, in most states, be an effective conveyance of a security
interest. 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 transferred by the lienholder to secure payment or
performance of an obligation. Accordingly, under the laws of these states, the
assignment by the bank or CFC to the trust and any pledge to the trustee
effectively conveys the security in the auto loans, and specifically, the
vehicles, without re-registration and without amendment of any lien noted on the
certificate of title.
If there are any financed vehicles as to which a perfected security
interest is not obtained, the trust's security interest will be subordinate to
the rights of, among others, subsequent purchasers of the financed vehicles and
holders of perfected security interests. Such a failure, however, would
constitute a breach of the bank's or CFC's warranties under the trust documents,
and would create an obligation of the lenders to repurchase the auto loan unless
the breach is cured. By not identifying the trust as the secured party on the
certificate of title, the security interest of the trust in the financed vehicle
could be defeated through fraud or negligence.
In some states, unless the borrower has notice of the sale of its auto
loan, payment by the borrower to the owner of the auto loan last known to that
borrower will be binding
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upon all subsequent owners of the auto loan. By not notifying the borrower of
the sale of the auto loan to the trust, the trust would not have a claim against
the borrower for payments made by the borrower to the owner last known to that
borrower.
In most states, the perfected security interest in a vehicle continues for
four months after a vehicle leaves the state of its registration until
re-registration in the new state. A majority of states generally require a
surrender of a certificate of title to re-register a vehicle; accordingly, a
secured party must surrender possession if it holds the certificate of title to
the vehicle, or, in the case of vehicles registered in states providing for the
notation of a security interest on the certificate of title but not possession
by the secured party, the secured party would receive notice of surrender if the
security interest is noted on the certificate of title. Thus, the secured party
would have the opportunity to re-perfect its security interest in the vehicle in
the new state. In other states that do not require a certificate of title for
registration of a motor vehicle or in cases of fraud on the part of the
borrower, re-registration could defeat perfection. In the ordinary course of
servicing auto loans, the servicer takes steps to re-perfect upon receipt of
notice of re-registration or information from the borrower as to relocation.
Similarly, when a borrower sells a vehicle, the servicer must surrender
possession of the certificate of title or will receive notice as a result of its
security interest and will have an opportunity to require satisfaction of the
related receivable before release of the security interest. The servicer will be
obligated to take appropriate steps, at its expense, to maintain perfection of
security interests in the financed vehicles.
In most states, liens for repairs performed on, and for storage of, a motor
vehicle, and liens for some types of unpaid taxes, take priority over a
perfected security interest in a financed vehicle. The Internal Revenue Code
also grants priority to some federal tax liens over the lien of a secured party.
The laws of some states, and federal law permit the confiscation of motor
vehicles under certain circumstances if used in unlawful activities, which may
result in the loss of a secured party's perfected security interest in the
vehicle. The bank or CFC will represent each security interest in a financed
vehicle is or will be prior to all other present liens, other than tax liens and
liens that arise by operation of law, and security interests in that financed
vehicle.
However, liens for repairs or taxes, or the confiscation of a financed
vehicle, could arise or occur at any time during the term of an auto loan. No
notice will be given to the trustee in the event such a lien arises or
confiscation occurs.
Repossession
In the event of a default by a borrower, the servicer will be entitled to
exercise all the remedies of a secured party under the UCC of the state in which
enforcement is to take place, except where specifically limited by other laws.
In most states, the UCC remedies of a secured party include:
o right to repossession by self-help means, unless those means would
constitute a breach of the peace;
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o unless a vehicle is voluntarily surrendered, self-help repossession is
the method that will be employed by the servicer in the majority of
instances in which a default occurs and is accomplished by retaking
possession of the financed vehicle; and
o in cases where the borrower objects or raises a defense to
repossession, or if otherwise required by applicable state law, a
court order must be obtained from the appropriate state court, and the
vehicle must then be repossessed in accordance with that order.
o In some states, unless the vehicle is voluntarily surrendered or
abandoned, judicial means must be employed to seize the vehicle.
In some states under certain circumstances after the vehicle has been
repossessed, the borrower may reinstate the auto loan by paying the delinquent
amounts due on the auto loan.
Notice of Sale; Redemption Rights
In the event of default by the borrower, some states require that the
borrower be notified of the default and be given some time to cure the default
prior to repossession. Generally, this right of reinstatement may be exercised
on a limited number of occasions in any one-year period, or in some
jurisdictions, over the life of the loan.
The UCC and other state laws require the secured party to provide the
borrower with reasonable notice of the date, time, and place of any public sale
and/or the date after which any private sale of the vehicle may be held. In some
states the borrower has the right to redeem the vehicle prior to actual sale by
paying the secured party the unpaid principal balance of the auto loan plus
reasonable expenses for repossessing, holding, and preparing the vehicle for
disposition and arranging for sale, plus, in some jurisdictions, reasonable
attorneys' fees, or, in some other states, by payment of delinquent installments
or the unpaid balance. Repossessed vehicles are generally resold by the servicer
through automobile auctions attended principally by automotive dealers.
Deficiency Judgments and Excess Proceeds
The proceeds of resale of the repossessed vehicles generally will be
applied to the expenses of resale and repossession and then to the outstanding
balance of the auto loan. While some states impose prohibitions or limitations
on deficiency judgments, if the net proceeds from resale do not cover the full
amount of the auto loan, a deficiency judgment can be sought in those states
that do not prohibit or limit those judgments. Additionally, in most states, in
order for a creditor in a secured transaction to sue for a deficiency, the
lender must first dispose of the vehicle in a commercially reasonable manner in
accordance with the governing UCC provisions. Any deficiency judgment would be a
personal judgment against the borrower for the shortfall, and a defaulting
borrower can be expected to have very little capital or sources of income
available following
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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.
Consumer Protection Laws
Numerous federal and state consumer protection laws and accompanying
regulations impose substantial requirements upon lenders and servicers involved
in consumer finance. Also, state laws may impose finance charge ceilings and
other restrictions on consumer transactions and require disclosures in addition
to those required under federal law. These requirements may impose specific
statutory liabilities upon creditors who fail to comply with their provisions.
In some cases, this liability could affect the ability of the servicer to
enforce auto loans.
The so-called holder-in-due-course rule of the Federal Trade Commission has
the effect of subjecting the trust to all claims and defenses which the borrower
could assert against the originator of the auto loan. The provisions of the
holder-in due-course rule are generally duplicated by the Uniform Consumer
Credit Code, state statutes or the common law in some states. Liability under
the holder-in due-course rule is limited to the amounts paid by the borrower
under the auto loan, and the trust may be unable to collect any remaining
balance from the borrower.
Under most state motor vehicle dealer licensing laws, sellers of motor
vehicles are required to be licensed to sell motor vehicles at retail sale.
Furthermore, federal law requires that all sellers of new and used vehicles
furnish a signed written statement certifying the accuracy of the odometer
reading. If a seller is not properly licensed or if an odometer disclosure
statement was not provided to the purchaser of the financed vehicle, the
borrower may be able to assert a defense against the seller.
Courts have imposed general equitable principles on secured parties
pursuing repossession of collateral or litigation involving deficiency balances.
These equitable principles may relieve a borrower from some or all of the legal
consequences of a default.
In several cases, borrowers have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections provided under the Constitution of the United States. Courts have
generally upheld the notice provisions of the UCC and related laws as reasonable
or have found that the repossession and resale by the creditor do not involve
sufficient state action to afford constitutional protection to consumers.
The bank or CFC will represent and warrant that each auto loan complies
with all requirements of law in all material respects. Accordingly, if a
borrower has a claim against the trust for violation of any law and that claim
materially and adversely affects the trust's interest in the auto loan, that
violation would constitute a breach and would oblige the bank or CFC to
repurchase the auto loan unless the breach is cured.
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Soldiers' and Sailors' Civil Relief Act of 1940
Under the terms of the Soldiers' and Sailors' Relief Act of 1940, which is
referred to in this prospectus as the Relief Act, members of all branches of the
military on active duty, including draftees and reservists on active duty, are
entitled to have interest rates reduced and capped at 6% annum on obligations,
including the auto loans, incurred prior to the commencement of active duty and
for the duration of active duty. Because the Relief Act applies to borrowers who
enter military service after origination of the auto loan, no information can be
provided as to the number of auto loans that may be affected by the Relief Act.
The Relief Act would adversely affect, for an indeterminate period of time, the
ability of the servicer to collect full amounts of interest on some of the auto
loans. Any loss resulting from the application of the Relief Act or similar
legislation or regulations would reduce the amounts available to be paid to the
securityholders. In addition, the Relief Act limits the ability of the servicer
to repossess a vehicle during the borrower's period of active duty status, and,
under certain circumstances, during an additional three month period. Thus, in
the event that the Relief Act or similar legislation or regulations applies to
any auto loan which goes into default, there may be delays in payment and losses
on the securities. Any other interest shortfalls, deferrals or forgiveness of
payments on the auto loans resulting from similar legislation or regulations may
result in delays in payments or losses to securityholders.
Other Limitations
In addition to the laws limiting or prohibiting deficiency judgments, other
statutory provisions, including the United States Bankruptcy Code and similar
state laws, may affect the ability of the trust and the servicer to repossess a
vehicle or enforce a deficiency judgment. For example, in a Chapter 13
proceeding under the federal bankruptcy law, a court may prevent a lender from
repossessing a motor vehicle. Furthermore, as part of the rehabilitation plan, a
court may reduce the amount of the secured indebtedness to the market value of
the motor vehicle at the time of bankruptcy, leaving the lender 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 interest
rate and time of repayment.
Material Federal Income Tax Considerations
General
The following is a general discussion of the material anticipated federal
income tax consequences to investors of the purchase, ownership and disposition
of the securities offered by this prospectus. The discussion is based upon laws,
regulations, rulings and decisions now in effect, all of which are subject to
change. The discussion below does not purport to deal with all federal tax
consequences applicable to all categories of investors, including insurance
companies, tax-exempt organizations, regulated investment companies, financial
institutions or broker dealers, taxpayers subject to the alternative minimum
tax, and holders that will hold the securities as other than capital assets, all
of whom may be subject to special rules. Investors are urged to consult their
own tax
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advisors in determining the particular federal, state and local consequences to
them of the purchase, ownership and disposition of the securities.
With respect to each series of securities, Dewey Ballantine LLP, special
tax counsel to the lenders, will deliver its opinion with respect to federal tax
matters for to that series. Each opinion shall be attached on Form 8-K to be
filed with the SEC prior to the sale of that series.
The following discussion addresses securities of four general types:
(1) grantor trust securities, representing interests in a trust, a grantor
trust;
(2) debt securities, that are intended to be treated for federal income tax
purposes as indebtedness secured by the underlying loans;
(3) partnership interests, representing interests in a trust, a
partnership, that is intended to be treated as a partnership under the Internal
Revenue Code of 1986, as amended, referred to as the "Code"; and
(4) FASIT securities, representing interests in a financial asset
securitization investment trust, a FASIT, or portion thereof, which the lenders
will covenant to elect to have treated as a FASIT under sections 860H through
860L of the Code. The prospectus supplement for your series of securities will
indicate whether a FASIT election, or elections, will be made for the related
trust and, if a FASIT election is to be made, will identify all "regular
interests," "high-yield interests" and the "ownership interest" in the FASIT.
The Taxpayer Relief Act of 1997 adds provisions to the Code that require
the recognition of gain upon the "constructive sale of an appreciated financial
position." A constructive sale of an appreciated financial position occurs if a
taxpayer enters into a transaction or series of transactions with respect to a
financial instrument that have the effect of substantially eliminating the
taxpayer's risk of loss and opportunity for gain with respect to the financial
instrument. These provisions apply only to classes of securities that do not
have a principal balance.
Grantor Trust Securities
Each beneficial owner of a grantor trust security will generally be treated
as the owner of an interest in the auto loans included in the grantor
trust.
For purposes of the following discussion, a grantor trust security
representing an undivided equitable ownership interest in the principal of the
auto loans constituting the related grantor trust, together with interest
thereon at a pass-through rate, will be referred to as a grantor trust
fractional interest security. A grantor trust security representing ownership of
all or a portion of the difference between interest paid on the auto loans
constituting the related grantor trust and interest paid to the beneficial
owners of grantor
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trust fractional interest securities issued with respect to a grantor trust will
be referred to as a grantor trust strip security.
Taxation of Beneficial Owners of Grantor Trust Securities. Beneficial
owners of grantor trust fractional interest securities generally will be
required to report on their federal income tax returns their respective shares
of the income from the auto loans, including amounts used to pay reasonable
servicing fees and other expenses but excluding amounts payable to beneficial
owners of any corresponding grantor trust strip securities, and, subject to the
limitations described below, will be entitled to deduct their shares of any
reasonable servicing fees and other expenses. If a beneficial owner acquires a
grantor trust fractional interest security for an amount that differs from its
outstanding principal amount, the amount includible in income on a grantor trust
fractional interest security may differ from the amount of interest
distributable thereon. See "Discount and Premium" below. Individuals holding a
grantor trust fractional interest security directly or through a pass-through
entity will be allowed a deduction for reasonable servicing fees and expenses
only to the extent that the aggregate of a beneficial owner's miscellaneous
itemized deductions exceeds 2% of a beneficial owner's adjusted gross income.
Further, beneficial owners, other than corporations, subject to the alternative
minimum tax may not deduct miscellaneous itemized deductions in determining
alternative minimum taxable income.
Beneficial owners of grantor trust strip securities generally will be
required to treat the securities as "stripped coupons" under section 1286 of the
Code. Accordingly, a beneficial owner will be required to treat the excess of
the total amount of payments on a security over the amount paid for a security
as original issue discount and to include a discount in income as it accrues
over the life of a security. See "Discount and Premium" below.
Grantor trust fractional interest securities may also be subject to the
coupon stripping rules if a class of grantor trust strip securities is issued as
part of the same series of securities. The consequences of the application of
the coupon stripping rules would appear to be that any discount arising upon the
purchase of a security, and perhaps all stated interest thereon, would be
classified as original issue discount and includible in the beneficial owner's
income as it accrues, regardless of the beneficial owner's method of accounting,
as described below under "Discount and Premium." The coupon stripping rules will
not apply, however, if (1) the pass-through rate is no more than 100 basis
points lower than the gross rate of interest payable on the underlying auto
loans and (2) the difference between the outstanding principal balance on the
security and the amount paid for a security is less than 0.25% of the principal
balance times the weighted average remaining maturity of the security.
Sales of Grantor Trust Securities. Any gain or loss recognized on the sale
of a grantor trust security, equal to the difference between the amount realized
on the sale and the adjusted basis of a grantor trust security, will be capital
gain or loss, except to the extent of accrued and unrecognized market discount,
which will be treated as ordinary income, and in the case of banks and other
financial institutions except as provided under section 582(c) of the Code. The
adjusted basis of a grantor trust security will generally
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equal its cost, increased by any income reported by the originator, including
original issue discount and market discount income, and reduced, but not below
zero, by any previously reported losses, any amortized premium and any
distributions of principal.
Grantor Trust Reporting. The trustee will furnish to each beneficial owner
of a grantor trust fractional interest security with each distribution a
statement setting forth the amount of the distribution allocable to principal on
the underlying the auto loans and to interest thereon at the related interest
rate. In addition, within a reasonable time after the end of each calendar year,
based on information provided by the servicer, the trustee will furnish to each
beneficial owner during the year the customary factual information as the
servicer deems necessary or desirable to enable beneficial owners of grantor
trust securities to prepare their tax returns and will furnish comparable
information to the IRS as and when required to do so by law.
Debt Securities
Debt securities will not be treated as ownership interests in the auto
loans or the trust. Beneficial owners will be required to report income received
with respect to the debt securities in accordance with their normal method of
accounting. For additional tax consequences relating to debt securities
purchased at a discount or with premium, see "Discount and Premium" below.
Taxation of Beneficial Owners of Debt Securities. If the debt securities
are characterized as indebtedness, interest paid or accrued on a debt security
will be treated as ordinary income to the beneficial owner and principal
payments on a debt security will be treated as a return of capital to the extent
of the beneficial owner's basis in the debt security allocable thereto. An
accrual method taxpayer will be required to include in income interest on the
debt security when earned, even if not paid, unless it is determined to be
uncollectible. The trust will report to beneficial owners of record and the IRS
the amounts of interest paid and original issue discount, if any, accrued on the
debt securities to the extent required by law.
Sales of Debt Securities. If a beneficial owner of a debt security sells or
exchanges the security, the beneficial owner will recognize gain or loss equal
to the difference, if any, between the amount received and the beneficial
owner's adjusted basis in the security. The adjusted basis in the security
generally will equal its initial cost, increased by any original issue discount
or market discount previously included in the lenders' gross income with respect
to the security and reduced by the payments previously received on the security,
other than payments of qualified stated interest, and by any amortized premium.
In general, except as described in "Discount and Premium--Market Discount,"
below, except for financial institutions subject to section 582(c) of the Code,
any gain or loss on the sale or exchange of a debt security recognized by an
investor who holds the security as a capital asset, within the meaning of
section 1221 of the Code, will be capital
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gain or loss and will be long-term or short-term depending on whether the
security has been held for more than one year.
Debt Securities Reporting. The trustee will furnish to each beneficial
owner of a debt security with each distribution a statement setting forth the
amount of a distribution allocable to principal on the underlying auto loans and
to interest on it at the related interest rate. In addition, within a reasonable
time after the end of each calendar year, based on information provided by the
servicer, the trustee will furnish to each beneficial owner during a year the
customary factual information as the servicer deems necessary or desirable to
enable beneficial owners of debt securities to prepare their tax returns and
will furnish comparable information to the IRS as and when required to do so by
law.
Partnership Interests
Each beneficial owner of a partnership interest will generally be treated
as the owner of an interest in the auto loans.
Taxation of Beneficial Owners of Partnership Interests. If the trust is
treated as a partnership for federal income tax purposes, the trust will not be
subject to federal income tax. Instead, each beneficial owner of a partnership
interest will be required to separately take into account its allocable share of
income, gains, losses, deductions, credits and other tax items of the trust.
These partnership allocations are made in accordance with the Code, Treasury
regulations and the partnership agreement, here, the trust documents and related
documents.
The trust's assets will be the assets of the partnership. The trust's
income will consist primarily of interest and finance charges earned on the
underlying the auto loans. The trust's deductions will consist primarily of
interest accruing with respect to any indebtedness issued by the trust,
servicing and other fees, and losses or deductions upon collection or
disposition of the trust's assets.
In certain instances, the trust could have an obligation to make payments
of withholding tax on behalf of a beneficial owner of a partnership interest.
See "Backup Withholding" and "Foreign Investors" below.
Substantially all of the taxable income allocated to a beneficial owner of
a partnership interest 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 a
holder under the Code.
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. Under Treasury
regulations issued on May
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9, 1997 if a termination occurs, the trust is deemed to contribute all of its
assets and liabilities to a newly formed partnership in exchange for a
partnership interest. Immediately thereafter, the terminated partnership
distributes interests in the new partnership to the purchasing partners and
remaining partners in proportion to their interests in liquidation of the
terminated partnership.
Sale or Exchange of Partnership Interests. Generally, capital gain or loss
will be recognized on a sale or exchange of partnership interests in an amount
equal to the difference between the amount realized and the lenders' tax basis
in the partnership interests sold. A beneficial owner's tax basis in a
partnership interest will generally equal the beneficial owner's cost increased
by the beneficial owner's share of trust income recognized and decreased by any
distributions received with respect to the partnership interest. In addition,
both the tax basis in the partnership interest and the amount realized on a sale
of a partnership interest would take into account the beneficial owner's share
of any indebtedness of the trust. A beneficial owner acquiring partnership
interests at different prices may be required to maintain a single aggregate
adjusted tax basis in the partnership interests, and upon sale or other
disposition of some of the partnership interests, to allocate a portion of the
aggregate tax basis to the partnership interests sold, rather than maintaining a
separate tax basis in each partnership interest for purposes of computing gain
or loss on a sale of that partnership interest.
Any gain on the sale of a partnership interest attributable to the
beneficial owner's share of unrecognized accrued market discount on the assets
of the trust would generally be treated as ordinary income to the holder and
would give rise to special tax reporting requirements. If a beneficial owner of
a partnership interest is required to recognize an aggregate amount of income
over the life of the partnership interest that exceeds the aggregate cash
distributions with respect thereto, the excess will generally give rise to a
capital loss upon the retirement of the partnership interest. If a beneficial
owner sells its partnership interest at a profit or loss, the transferee will
have a higher or lower basis in the partnership interests than the transferor
had. The tax basis of the trust's assets will not be adjusted to reflect that
higher or lower basis unless the trust files an election under section 754 of
the Code.
Partnership Reporting. The trustee is required to (1) keep complete and
accurate books of the trust, (2) file a partnership information return with the
IRS (IRS Form 1065) and with any state where required for each taxable year of
the trust and (3) report each beneficial owner's allocable share of items of
trust income and expense to beneficial owners and the IRS 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 the nominees will
be required to forward the information to the beneficial owners of the
partnership interests. Generally, beneficial owners of a partnership interest
must file tax returns that are consistent with the information return filed by
the trust or be subject to penalties unless the beneficial owner of a
partnership interest notifies the IRS of all inconsistencies.
Under section 6031 of the Code, any person that holds partnership interests
as a nominee at any time during a calendar year is required to furnish the trust
with a
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statement containing information on the nominee, the beneficial owners and the
partnership interests so held. The information includes (a) the name, address
and taxpayer identification number of the nominee and (b) as to each beneficial
owner (1) the name, address and identification number of the person, (2) whether
the 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 (3) information on partnership
interests that were held, bought or sold on behalf of the person throughout the
year. In addition, brokers and financial institutions that hold partnership
interests through a nominee are required to furnish directly to the trust
information regarding themselves and their ownership of partnership interests. A
clearing agency registered under section 17A of the Securities Exchange Act of
1934 is not required to furnish any information statement to the trust.
Nominees, brokers and financial institutions that fail to provide the trust with
the information described above may be subject to penalties.
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
beneficial owner of a partnership interest, and, under certain circumstances, a
beneficial owner of a partnership interest may be precluded from separately
litigating a proposed adjustment to the items of the trust. An adjustment could
also result in an audit of the beneficial owner of a partnership interest's
returns and adjustments of items not related to the income and losses of the
trust.
FASIT Securities
If provided in a related prospectus supplement, an election will be made to
treat the trust as a FASIT within the meaning of section 860L(a) of the Code.
The trust would make the election at the direction of the lenders. Qualification
as a FASIT requires ongoing compliance with certain conditions. The tax opinion
delivered prior to the sale of, and in connection with, a FASIT issuance, will
state that the characteristics and the composition of the trust property will
enable the trust to meet the requirements for qualification and taxation as a
FASIT. A trust for which a FASIT election is made will be referred to in this
prospectus as a FASIT trust. The securities of each class will be designated as
"regular interests" or "high-yield regular interests" in the FASIT trust except
that one separate class will be designated as the "ownership interest" in the
FASIT trust. The prospectus supplement for your series of securities will state
whether securities of each class will constitute either a regular interest or a
high-yield regular interest, a FASIT regular security, or an ownership interest,
a FASIT ownership security.
Taxation of Beneficial Owners of FASIT Regular Securities. A FASIT trust
will not be subject to federal income tax except with respect to income from
prohibited transactions and in certain other instances as described below. The
FASIT regular
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securities generally will be treated for federal income tax purposes as newly-
originated debt instruments and avoid double taxation (income is not taxed at
the corporate level but only to the investor). Interest paid to holders of
regular interests in a FASIT is deductible by the FASIT in computing its net
income as passed through to its owner. In general, interest, original issue
discount and market discount on a FASIT regular security will be treated as
ordinary income to the beneficial owner, and principal payments, other than
principal payments that do not exceed accrued market discount, on a FASIT
regular security will be treated as a return of capital to the extent of the
beneficial owner's basis allocable thereto. Beneficial owners must use the
accrual method of accounting with respect to FASIT regular securities,
regardless of the method of accounting otherwise used by the beneficial owners.
See "Discount and Premium" below.
In order for the FASIT trust to qualify as a FASIT, there must be ongoing
compliance with the requirements set forth in the Code:
(1) the entity elects to be treated as a FASIT;
(2) there is a single ownership interest held directly by an eligible
corporation;
(3) all other interests that are issued by the FASIT qualify as regular
interest;
(4) no later than three months after formation, substantially all assets
of the FASIT (including assets treated as held by the entity, such as assets
held by the owner or a person related to the owner that support any regular
interest in such entity) are permitted assets; and
(5) the entity is not a regulated investment company (RIC) (such as a
mutual fund).
The FASIT must fulfill an asset test, which requires that substantially all
the assets of the FASIT, as of the close of the third calendar month beginning
after the "startup day", which for purposes of this discussion is the date of
the initial issuance of the FASIT securities, and at all times thereafter, must
consist of cash or cash equivalents, debt instruments, other than debt
instruments issued by the owner of the FASIT or a related party, and hedges, and
contracts to acquire the same, foreclosure property and regular interests in
another FASIT or in a Real Estate Mortgage Investment Conduit, commonly referred
to as a REMIC. Based on proposed regulations issued by the Treasury Department
on February 7, 2000 (the "Proposed Regulations"), the "substantially all"
requirement should be met if at all times the aggregate adjusted basis of the
nonqualified assets is less than one percent of the aggregate adjusted basis of
all the FASIT's assets. The FASIT provisions of the Code, sections 860H through
860L, also require the FASIT ownership interest and "high-yield regular
interests," described below, to be held only by fully taxable domestic
corporations.
The FASIT provisions allow the lenders to add additional assets to a FASIT
trust after the startup day. These assets would be limited to additional auto
loans and credit enhancement support relating to the additional auto loans, such
as cash, hedging agreements, and insurance policies. The FASIT provisions
additionally permit the removal of assets from a FASIT trust.
The trust agreements will require that each FASIT Trust will be limited in
its ability to acquire or dispose of its assets to the degree permitted by the
more restrictive REMIC rules, as opposed to the FASIT rules.
The trust agreements for a FASIT trust will provide that any additional
assets acquired by the trust will be selected if such loans meet specified
requirements similar to the requirements used to purchase pre-funded auto loans,
i.e., a maximum principal balance, a minimum coupon, a latest maturity date and
a maximum used-vehicle percentage.
Permitted debt instruments must bear interest, if any, at a fixed or
qualified variable rate. Permitted hedges include interest rate or foreign
currency notional principal contracts, letters of credit, insurance, guarantees
of payment default and similar instruments to be provided in regulations, and
which are reasonably required to guarantee or hedge against the FASIT's risks
associated with being the borrower on interests issued by the FASIT. Foreclosure
property is real property acquired by the FASIT in connection with the default
or imminent default of a qualified mortgage, provided the lenders had no
knowledge or reason to know as of the date the asset was acquired by the FASIT
that a default had occurred or would occur.
In addition to the foregoing requirements, the various interests in a FASIT
also must meet certain other requirements. All of the interests in a FASIT must
be either of the following: (a) one or more classes of regular interests or (b)
a single class of ownership interest. A regular interest is an interest in a
FASIT that is issued on or after the startup day with fixed terms, is designated
as a regular interest, and (1) unconditionally entitles the holder to receive a
specified principal amount, or other similar amount, (2) provides that interest
payments, or other similar amounts, if any, at or before maturity are payable
based on either a fixed rate or a qualified variable rate, (3) has a stated
maturity of not longer than 30 years, (4) has an issue price not greater than
125% of its stated principal amount, and (5) has a yield to maturity not greater
than 5
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percentage points higher than the related applicable federal rate, as defined in
Code section 1274(d). A regular interest that is described in the preceding
sentence except that it fails to meet one or more of requirements (1), (2), (4),
or (5) is a "high-yield regular interest." A high-yield regular interest that
fails requirement (2) must consist of a specified, nonvarying portion of the
interest payments on the permitted assets, by reference to the REMIC rules. An
ownership interest is an interest in a FASIT other than a regular interest that
is issued on the startup day, is designated an ownership interest and is held by
a single, fully-taxable, domestic corporation. An interest in a FASIT may be
treated as a regular interest even if payments of principal with respect to
interest are subordinated to payments on other regular interests or the
ownership interest in the FASIT, and are dependent on the absence of defaults or
delinquencies on permitted assets lower than reasonably expected returns on
permitted assets, unanticipated expenses incurred by the FASIT or prepayment
interest shortfalls.
If an entity fails to comply with one or more of the ongoing requirements
of the Code for status as a FASIT during any taxable year, the Code provides
that the entity or applicable portion thereof will not be treated as a FASIT
thereafter. The Proposed Regulation indicate, however, that the Commissioner may
allow an entity to continue to be a FASIT or to re-elect FASIT status if loss of
its status is determined by the Commissioner to have been inadvertent, it takes
prompt steps to requalify and the holders of the ownership interests in the
entity agree to make such adjustments as the Commissioner may require with
respect to the period in which the entity failed to qualify as a FASIT. Loss of
FASIT status results in retirement of all regular interests and their
reissuance. If the resulting instruments are treated as equity under general tax
principles, cancellation of debt income may result.
Taxes on a FASIT Trust. Income from certain transactions by a FASIT, called
prohibited transactions, are taxable to the holder of the ownership interest in
a FASIT at a 100% rate. Prohibited transactions generally include (1) the
disposition of a permitted asset other than for (a) foreclosure, default, or
imminent default, (b) bankruptcy or insolvency of the FASIT, (c) a qualified,
complete, liquidation, (d) substitution for another permitted debt instrument or
distribution of the debt instrument to the holder of the ownership interest to
reduce overcollateralization, but only if a principal purpose of acquiring the
debt instrument which is disposed of was not the recognition of gain, or the
reduction of a loss, on the withdrawn asset as a result of an increase in the
market value of the asset after its acquisition by the FASIT or (e) the
retirement of a class of FASIT regular interests; (2) the receipt of income from
nonpermitted assets; (3) the receipt of compensation for services; or (4) the
receipt of any income derived from a loan originated by the FASIT (subject to
certain safe harbors). It is unclear the extent to which tax on the transactions
could be collected from the FASIT trust directly under the applicable statutes
rather than from the holder of the FASIT Residual Security.
The Proposed Regulations issued by the Treasury Department on February 7,
2000 include rules applicable to FASITs. These rules address administrative
provisions, ownership issues, permitted assets, prohibited transactions,
consequences of FASIT cessation, gain recognition on property transferred to a
FASIT, and include a prohibition of foreign FASITs and a special anti-abuse
rule. The Proposed Regulations are proposed
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to become effective on the date final regulations are filed with the Federal
Register, except for the portions of the Proposed Regulations containing the
anti-abuse rule and allowing the deferral of gain on assets held by a
pre-effective date FASIT, which are proposed to become effective February 4,
2000. The Proposed Regulations are subject to change before being adopted as
final regulations, and it is unclear whether they will be applied retroactively
when adopted.
Due to the complexity of these rules and the proposed form of the Treasury
regulations, potential investors may wish to consult their own tax advisors
regarding the tax treatment of their acquisition, ownership and disposition of
the FASIT regular securities.
Discount and Premium
A security purchased for an amount other than its outstanding principal
amount will be subject to the rules governing original issue discount, market
discount or premium. In addition, all grantor trust strip securities and certain
grantor trust fractional interest securities will be treated as having original
issue discount by virtue of the coupon stripping rules in section 1286 of the
Code. In very general terms, (1) original issue discount is treated as a form of
interest and must be included in a beneficial owner's income as it accrues,
regardless of the beneficial owner's regular method of accounting, using a
constant yield method; (2) market discount is treated as ordinary income and
must be included in a beneficial owner's income as principal payments are made
on the security, or upon a sale of a security; and (3) if a beneficial owner so
elects, premium may be amortized over the life of the security and offset
against inclusions of interest income. These tax consequences are discussed in
greater detail below.
Original Issue Discount. In general, a security will be considered to be
issued with original issue discount equal to the excess, if any, of its "stated
redemption price at maturity" over its "issue price." The issue price of a
security is the initial offering price to the public, excluding bond houses and
brokers, at which a substantial number of the securities were sold. The issue
price also includes any accrued interest attributable to the period between the
beginning of the first remittance period and the closing date. The stated
redemption price at maturity of a security that has a notional principal amount
or receives principal only or that provides for or may provide for accruals of
interest is equal to the sum of all distributions to be made under the security.
The stated redemption price at maturity of any other security is its stated
principal amount, plus an amount equal to the excess, if any, of the interest
payable on the first payment date over the interest that accrues for the period
from the closing date to the first payment date. The trustee will supply, at the
time and in the manner required by the IRS, to beneficial owners, brokers and
middlemen information with respect to the original issue discount accruing on
the securities.
Notwithstanding the general definition, original issue discount will be
treated as zero if the discount is less than 0.25% of the stated redemption
price at maturity of the security multiplied by its weighted average life. The
weighted average life of a security is computed for this purpose as the sum, for
all distributions included in the stated
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redemption price at maturity, of the amounts determined by multiplying (1) the
number of complete years, rounding down for partial years, from the closing date
until the date on which each distribution is expected to be made under the
assumption that the auto loans prepay at the rate specified in the related
prospectus supplement, the prepayment assumption, by (2) a fraction, the
numerator of which is the amount of the distribution and the denominator of
which is the security's stated redemption price at maturity. Even if original
issue discount is treated as zero under this rule, the actual amount of original
issue discount must be allocated to the principal distributions on the security
and, when each distribution is received, gain equal to the discount allocated to
the distribution will be recognized.
Section 1272(a)(6) of the Code contains special original issue discount
rules applicable to prepayable securities. Under these rules, described in
greater detail below, (a) the amount and rate of accrual of original issue
discount on each series of securities will be based on (1) a prepayment
assumption as described below, and (2) in the case of a security calling for a
variable rate of interest, an assumption that the value of the index upon which
the variable rate is based remains equal to the value of that rate on the
closing date, and (b) adjustments will be made in the amount of discount
accruing in each taxable year in which the actual prepayment rate differs from
the prepayment assumption.
Section 1272(a)(6)(B)(iii) of the Code requires that the prepayment
assumption used to calculate original issue discount be determined in the manner
prescribed in Treasury regulations. To date, no regulations have been
promulgated. The legislative history of this Code provision indicates that the
assumed prepayment rate must be the rate used by the parties in pricing the
particular transaction. The lenders anticipate that the prepayment assumption
for each series of securities will be consistent with this standard. The lenders
make no representation, however, that the auto loans for a given series will
prepay at the rate reflected in the prepayment assumption for that series or at
any other rate. Each investor must make its own decision as to the appropriate
prepayment assumption to be used in deciding whether or not to purchase any of
the securities.
Each beneficial owner must include in gross income the sum of the "daily
portions" of original issue discount on its security for each day during its
taxable year on which it held the security. For this purpose, in the case of an
original beneficial owner, the daily portions of original issue discount will be
determined as follows. A calculation will first be made of the portion of the
original issue discount that accrued during each "accrual period." Original
issue discount calculations must be based on accrual periods of no longer than
one year either (1) beginning on a payment date, or, in the case of the first
period, the Closing date, and ending on the day before the next payment date or
(2) beginning on the next day following a payment date and ending on the next
payment date.
Under section 1272(a)(6) of the Code, the portion of original issue
discount treated as accruing for any accrual period will equal the excess, if
any, of (a) the sum of (1) the present values of all the distributions remaining
to be made on the security, if any, as of the end of the accrual period and (2)
the distribution made on the security during the accrual period of amounts
included in the stated redemption price at maturity, over (b)
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the adjusted issue price of the security at the beginning of the accrual period.
The present value of the remaining distributions referred to in the preceding
sentence will be calculated based on (1) the yield to maturity of the security,
calculated as of the closing date, giving effect to the prepayment assumption,
(2) events, including actual prepayments, that have occurred prior to the end of
the accrual period, (3) the prepayment assumption, and (4) in the case of a
security calling for a variable rate of interest, an assumption that the value
of the index upon which the variable rate is based remains the same as its value
on the closing date over the entire life of the security. The adjusted issue
price of a security at any time will equal the issue price of the security,
increased by the aggregate amount of previously accrued original issue discount
with respect to the security, and reduced by the amount of any distributions
made on the security as of that time of amounts included in the stated
redemption price at maturity. The original issue discount accruing during any
accrual period will then be allocated ratably to each day during the period to
determine the daily portion of original issue discount.
In the case of grantor trust strip securities as described in the related
prospectus supplement, and certain FASIT securities, the calculation described
in the preceding paragraph may produce a negative amount of original issue
discount for one or more accrual periods. No definitive guidance has been issued
regarding the treatment of negative amounts. The legislative history to section
1272(a)(6) indicates that negative amounts may be used to offset subsequent
positive accruals but may not offset prior accruals and may not be allowed as a
deduction item in a taxable year in which negative accruals exceed positive
accruals. Beneficial owners of the securities should consult their own tax
advisors concerning the treatment of negative accruals.
A subsequent purchaser of a security that purchases the security at a cost
less than its remaining stated redemption price at maturity also will be
required to include in gross income for each day on which it holds the security,
the daily portion of original issue discount with respect to the security, but
reduced, if the cost of the security to the purchaser exceeds its adjusted issue
price, by an amount equal to the product of (1) the daily portion and (2) a
constant fraction, the numerator of which is the excess and the denominator of
which is the sum of the daily portions of original issue discount on the
security for all days on or after the day of purchase.
Market Discount. A beneficial owner that purchases a security at a market
discount, that is, at a purchase price less than the remaining stated redemption
price at maturity of the security, or, in the case of a security with original
issue discount, its adjusted issue price, will be required to allocate each
principal distribution first to accrued market discount on the security, and
recognize ordinary income to the extent the distribution does not exceed the
aggregate amount of accrued market discount on the security not previously
included in income. For securities that have unaccrued original issue discount,
the market discount must be included in income in addition to any original issue
discount. A beneficial owner that incurs or continues indebtedness to acquire a
security at a market discount may also be required to defer the deduction of all
or a portion of the interest on the indebtedness until the corresponding amount
of market discount is included in income. In general terms, market discount on a
security may be treated as accruing either (1) under a constant yield method or
(2) in proportion to
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remaining accruals of original issue discount, if any, or if none, in proportion
to remaining distributions of interest on the security, in any case taking into
account the prepayment assumption. The trustee will make available, as required
by the IRS, to beneficial owners of securities information necessary to compute
the accrual of market discount.
Regardless of the above rules, market discount on a security will be
considered to be zero if the discount is less than 0.25% of the remaining stated
redemption price at maturity of the security multiplied by its weighted average
remaining life. Weighted average remaining life would be calculated in a manner
similar to weighted average life, taking into account payments, including
prepayments, prior to the date of acquisition of the security by the subsequent
purchaser. If market discount on a security is treated as zero under this rule,
the actual amount of market discount must be allocated to the remaining
principal distributions on the security and, when each distribution is received,
gain equal to the discount allocated to the distribution will be recognized.
Premium. A purchaser of a security that purchases the security at a cost
greater than its remaining stated redemption price at maturity will be
considered to have purchased the security, a premium security, at a premium. A
purchaser need not include in income any remaining original issue discount and
may elect, under section 171(c)(2) of the Code, to treat the premium as
"amortizable bond premium." If a beneficial owner makes an election, the amount
of any interest payment that must be included in the beneficial owner's income
for each period ending on a payment date will be reduced by the portion of the
premium allocable to that period based on the premium security's yield to
maturity. The premium amortization should be made using constant yield
principles. If an election is made by the beneficial owner, the election will
also apply to all fully taxable bonds, the interest on which is not excludible
from gross income, held by the beneficial owner at the beginning of the first
taxable year to which the election applies and to all fully taxable bonds
thereafter acquired by it, and is irrevocable without the consent of the IRS. If
an election is not made, (1) a beneficial owner must include the full amount of
each interest payment in income as it accrues, and (2) the premium must be
allocated to the principal distributions on the premium security and when each
distribution is received a loss equal to the premium allocated to the
distribution will be recognized. Any tax benefit from the premium not previously
recognized will be taken into account in computing gain or loss upon the sale or
disposition of the premium security.
Special Election. A beneficial owner may elect to include in gross income
all "interest" that accrues on the security by using a constant yield method.
For purposes of the election, the term interest includes stated interest,
acquisition discount, original issue discount, de minimis original issue
discount, market discount, de minimis market discount and unstated interest as
adjusted by any amortizable bond premium or acquisition premium. A beneficial
owner should consult its own tax advisor regarding the time and manner of making
and the scope of the election and the implementation of the constant yield
method.
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Backup Withholding and Information Reporting
Distributions of interest and principal, as well as distributions of
proceeds from the sale of securities, may be subject to the "backup withholding
tax" under section 3406 of the Code at a rate of 31% if recipients of the
distributions fail to furnish to the payor certain information, including their
taxpayer identification numbers, or otherwise fail to establish an exemption
from the tax. Any amounts deducted and withheld from a distribution to a
recipient would be allowed as a credit against the recipient's federal income
tax. Furthermore, penalties may be imposed by the IRS on a recipient of
distributions that is required to supply information but that does not do so in
the proper manner.
The IRS recently issued Withholding Regulations, which make certain
modifications to withholding, backup withholding and information reporting
rules. The Withholding Regulations attempt to unify certification requirements
and modify certain reliance standards. The Withholding Regulations will
generally be effective for payments made after December 31, 2000. Prospective
investors are urged to consult their own tax advisors regarding the Withholding
Regulations.
Foreign Investors
The Withholding Regulations. The withholding regulations would require, in
the case of securities held by a foreign partnership, that (1) the certification
described above be provided by the partners rather than by the foreign
partnership and (2) the partnership provide information, including a United
States taxpayer identification number. See "Backup Withholding" above. A
look-through rule would apply in the case of tiered partnerships. In addition,
the Withholding Regulations may require that a foreign beneficial owner,
including, in the case of a foreign partnership, the partners thereof, obtain a
United States taxpayer identification number and make certain certifications if
the foreign beneficial owner wishes to claim exemption from, or a reduced rate
of, withholding under an income tax treaty. Non-U.S. persons should consult
their own tax advisors regarding the application to them of the withholding
regulations.
Grantor Trust Securities, Debt Securities, and FASIT Regular Securities.
Distributions made on a grantor trust security, debt security or a FASIT regular
security to, or on behalf of, a beneficial owner that is not a U.S. person
generally will be exempt from U.S. federal income and withholding taxes. The
term U.S. person means a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, an estate that
is subject to U.S. federal income tax regardless of the source of its income, or
a trust if a court within the United States can exercise primary supervision
over its administration and at least one United States person has the authority
to control all substantial decisions of the trust. This exemption is applicable
provided (a) the beneficial owner is not subject to U.S. tax as a result of a
connection to the United States other than ownership of the security, (b) the
beneficial owner signs a statement under penalties of perjury that certifies
that the beneficial owner is not a U.S. person, and provides the name
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and address of the beneficial owner, and (c) the last U.S. person in the chain
of payment to the beneficial owner receives a statement from a beneficial owner
or a financial institution holding on its behalf and does not have actual
knowledge that the statement is false. Beneficial owners should be aware that
the IRS might take the position that this exemption does not apply to a
beneficial owner of a FASIT regular security that also owns 10% or more of the
FASIT ownership securities of any FASIT trust, or to a beneficial owner that is
a "controlled foreign corporation" described in section 881(c)(3)(C) of the
Code.
High-Yield FASIT Regular Securities. High-yield FASIT regular securities
may not be sold to or beneficially owned by non-U.S. persons. Any purported
transfer will be null and void and, upon the trustee's discovery of any
purported transfer in violation of this requirement, the last preceding owner of
a high-yield FASIT regular securities will be restored to ownership thereof as
completely as possible. The last preceding owner will, in any event, be taxable
on all income with respect to a high-yield FASIT regular securities for federal
income tax purposes. The trust documents will provide that, as a condition to
transfer of a high-yield FASIT regular security, the proposed transferee must
furnish an affidavit as to its status as a U.S. person and otherwise as a
permitted transferee.
Partnership Interests. Depending upon the particular terms of the trust
documents, a trust may be considered to be engaged in a trade or business in the
United States for purposes of federal withholding taxes with respect to non-U.S.
persons. If the trust is considered to be engaged in a trade or business in the
United States for such purposes and the trust is treated as a partnership, the
income of the trust distributable to a non-U.S. person would be subject to
federal withholding tax. Also, in such cases, a non-U.S. beneficial owner of a
partnership interest that is a corporation may be subject to the branch profits
tax. If the trust is notified that a beneficial owner of a partnership interest
is a foreign person, the trust may withhold as if it were engaged in a trade or
business in the United States in order to protect the trust from possible
adverse consequences of a failure to withhold. A foreign holder generally would
be entitled to file with the IRS a claim for refund with respect to withheld
taxes, taking the position that no taxes were due because the trust was not in a
U.S. trade or business.
State Tax Considerations
In addition to the federal income tax consequences described above,
potential investors should consider the state and local income tax consequences
of the acquisition, ownership, and disposition of the securities. State and
local income tax law may differ substantially from the corresponding federal
law, and this discussion does not purport to describe any aspect of the income
tax laws of any state or locality. Therefore, potential investors should consult
their own tax advisors with respect to the various state and local tax
consequences of an investment in the securities.
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ERISA Considerations
General
Provisions of ERISA and of the Internal Revenue Code prohibit a pension,
profit sharing or other employee benefit plan and other individual retirement
arrangements from engaging in transactions involving plan assets with persons
that are parties in interest under ERISA or disqualified persons under the Code
with respect to the plan. However, if a statutory or administrative exemption
applies to the transaction, plans may engage in these transactions. ERISA and
the Code also prohibit generally actions involving conflicts of interest by
fiduciaries of plans or arrangements. Persons who violate these prohibited
transaction rules may incur excise tax and other liabilities under ERISA and the
Code. In addition, investments by plans are subject to ERISA's general fiduciary
requirements, including ERISA's investment prudence and diversification
requirements and the requirement that a plan make its investments in accordance
with its governing documents. Employee benefit plans that are governmental plans
and church plans under ERISA, are not subject to ERISA requirements.
Accordingly, these plans may invest in securities without regard to the ERISA
considerations discussed below. Any plan, which is qualified and exempt from
taxation under section 401(a) and 501(a) of the Code, however, is subject to the
prohibited transaction rules detailed in section 503 of the Code.
Transactions involving a trust might be deemed to constitute prohibited
transactions under ERISA and the Code with respect to a plan, including an
individual retirement arrangement, that purchased securities. In the absence of
an exemption, the purchase, sale or holding of a security by a plan, including
an individual retirement arrangement, might result in prohibited transactions.
This may result in excise taxes and civil penalties being imposed.
ERISA Considerations regarding Securities which are Certificates
The Department of Labor has issued to various underwriters individual
prohibited transaction exemptions which generally exempt transactions meeting
the department's requirements from:
a) the application of the prohibited transaction provisions of section
406(a), section 406(b)(1), section 406(b)(2) and section 407(a) of ERISA, and
b) excise taxes imposed under sections 4975(a) and (b) of the Code.
These exempted transactions deal with the initial purchase, holding and the
subsequent resale by plans of certificates in pass-through trusts which hold:
o secured receivables,
o secured loans, and
o other secured obligations.
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These underwriter exemptions will only be available for securities that are
certificates.
Among the conditions that must be satisfied for the underwriter exemptions
to apply are the following:
o the plan must acquire the certificates on terms, including the
certificate's price, that are at least as favorable to the plan as
they would be in an arm's-length transaction with an unrelated party;
o the certificates must not be subordinated to the trust's other
certificates;
o when the plan acquires the certificates, the certificates must have a
rating in one of the three highest generic rating categories from
Standard & Poor's Rating Group, Moody's Investors Service, Duff &
Phelps Credit Rating Co. or Fitch IBCA Inc.;
o the trustee must not be an affiliate of any other member of the
restricted group;
o the sum of all payments made to and retained by the underwriters must
not total more than reasonable compensation for underwriting the
certificates; the sum of all payments made to and retained by the
lenders and the servicer for assigning the loans to the trust must not
total more than the fair market value of the loans; the sum of all
payments made to and retained by the servicer must not total more than
reasonable compensation and expense reimbursement for its services;
o the plan must be an accredited investor as defined in Regulation D of
the commission under the Securities Act; and
o in the event that all of the auto loans to be held by the trust have
not been transferred to the trust on the closing date, additional auto
loans having an aggregate value equal to no more than 25% of the
certificate's total principal amount may be transferred to the trust
under a pre-funding feature, within 90 days or 3 months following the
closing date.
The trust must also meet the following requirements:
o the trust property must consist solely of assets of the type that have
been included in other investment pools;
o certificates in the other investment pools must have been rated in one
of the three highest rating categories of Standard & Poor's Rating
Group, Moody's Investors Service, Fitch IBCA Inc. or Duff & Phelps
Credit Rating Co. for at least one year prior to the date the plan
acquired the certificates; and
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<PAGE>
o investors other than plans must have purchased certificates evidencing
interests in the other investment pools for at least one year prior to
the date the plan acquired the certificates.
Moreover, the underwriter exemptions provide relief from various
self-dealing/conflict of interest prohibited transactions that may occur when
the plan fiduciary causes a plan to acquire certificates in a trust in which the
fiduciary -- or its affiliate -- is a borrower on the auto loans held in the
trust; provided that, among other requirements:
o when a plan acquires an initial issuance of certificates, at least
fifty percent of each class in which a plan has invested is acquired
by persons independent of the restricted group and at least fifty
percent of the aggregate interest in the trust is acquired by persons
independent of the restricted group;
o the fiduciary -- or its affiliate -- is a borrower with respect to
five percent or less of the fair market value of the obligations
contained in the trust;
o when the plan acquires the certificates the plan's investment in any
class does not exceed twenty-five percent of all of the certificates
of that class; and
o immediately after the plan acquires the certificates, no more than
twenty-five percent of the plan's assets for which the person is a
fiduciary are invested in certificates representing an interest in one
or more trusts containing assets sold or serviced by the same entity.
The underwriter exemptions do not apply to plans sponsored by a member of
the restricted group, which is the lenders, the servicer, the underwriters, the
trustee, any borrower with respect to auto loans included in the trust property
constituting more than five percent of the aggregate unamortized principal
balance of the trust estate's assets, or any affiliate of these parties.
ERISA Considerations regarding Securities which are Notes
The underwriter exemptions will not be available for securities that are
notes. Under the plan assets regulation issued by the Department of Labor, the
trust's assets would be treated as a plan's assets for the purposes of ERISA and
the Code only if the plan acquired an equity interest in the trust and none of
the exceptions contained in the plan assets regulation were applicable. An
equity interest is defined under the plan assets regulation as an interest other
than an instrument which:
o is treated as indebtedness under applicable local law, and
o which has no substantial equity features.
If the notes are treated as having substantial equity features, the
purchase, holding and resale of the notes could result in a transaction that is
prohibited under ERISA or the Code. If the notes are treated as indebtedness
without substantial equity features, the
60
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trust's property would not be deemed assets of a plan. In that case, the
acquisition or holding of the notes by or on behalf of a plan could still result
in a prohibited transaction, if the acquisition or holding of notes by or on
behalf of a plan were deemed to be a prohibited loan to a party in interest with
respect to the plan. Exemptions from these prohibited transaction rules could
apply to a plan's purchase and its holding of notes, depending on the type and
circumstances of the plan fiduciary making the decision to acquire the notes.
Included among these exemptions are:
o PTCE 84-14, regarding transactions effected by qualified professional asset
managers;
o PTCE 90-1, regarding transactions entered into by insurance company pooled
separate accounts;
o PTCE 91-38, regarding transactions entered into by bank collective
investment funds;
o PTCE 95-60, regarding transactions entered into by insurance company
general accounts; and
o PTCE 96-23, regarding transactions effected by in-house asset managers.
Each purchaser and each transferee of a note that is treated as debt for
purposes of the plan assets regulation may be required to represent and warrant
that its purchase and holding of the note will be covered by one of the
exemptions listed above or by another Department of Labor class exemption.
Consultation With Counsel
The prospectus supplement will provide further information that plans
should consider before purchasing the securities. A plan fiduciary considering
the purchase of securities may wish to consult its tax or legal advisors
regarding:
o whether the trust's property would be considered plan assets,
o the possibility of exemptive relief from the prohibited transaction
rules; and
o other ERISA issues and their potential consequences.
In addition, each plan fiduciary should determine whether under the general
fiduciary standards of investment prudence and diversification, investing in the
securities is appropriate for the plan, taking into account the plan's overall
investment policy and the composition of the plan's investment portfolio. The
sale of securities to a plan is in no respect a representation by us or by the
underwriters that this investment meets all relevant requirements regarding
investments by plans generally, by any particular plan or that this investment
is appropriate for plans generally or any particular plan.
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In John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings Bank,
510 U.S. 86 (1993), the United States Supreme Court ruled that assets held in an
insurance company's general account may be deemed to be plan assets for ERISA
purposes under certain circumstances.
Methods of Distribution
The trusts will offer the securities in series through one or more of the
methods described below. The prospectus supplement will describe the offering
method and will state the public offering or purchase price and the net proceeds
to the bank from the sale.
The securities will be offered through the following methods from time to
time and offerings may be made concurrently through more than one of these
methods or an offering of a particular series of securities may be made through
a combination of two or more of these methods. The methods are as follows:
o by negotiated firm commitment or best efforts underwriting and public
re-offering by underwriters;
o by placements by the company with institutional investors through
dealers;
o by direct placements by the company with institutional investors; and
o by competitive bid.
In addition, securities may be offered in whole or in part in exchange for
the auto loans -- and other assets, if applicable -- that would comprise the
trust property.
If underwriters are used in a sale of any securities, other than in
connection with an underwriting on a best efforts basis, the 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. The securities will be described on the cover of
the prospectus supplement and the members of the underwriting syndicate, if any,
will be named in the prospectus supplement.
In connection with the sale of the securities, underwriters may receive
compensation from the bank 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 the securities, and any discounts or commissions received by
them and any profit on the resale of securities by them may be deemed to be
underwriting discounts and commissions under the Securities Act of 1933. The
prospectus supplement will describe any compensation paid by the bank or its
affiliates.
It is anticipated that the underwriting agreement pertaining to the sale of
securities will provide that:
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o the obligations of the underwriters will be subject to conditions
precedent;
o the underwriters will be obligated to purchase all the securities if
any are purchased, other than in connection with an underwriting on a
best efforts basis; and
o in limited circumstances, the bank will indemnify the several
underwriters and the underwriters will indemnify the bank against
certain civil liabilities, including liabilities under the Securities
Act of 1933 or will contribute to payments required to be made.
The prospectus supplement for any securities offered by placements through
dealers will contain information regarding the nature of the offering and any
agreements to be entered into between the bank or its affiliates and purchasers
of securities.
Purchasers of securities, including dealers, may, depending on the facts
and circumstances of such purchases, be deemed to be "underwriters" within the
meaning of the Securities Act of 1933 in connection with reoffers and sales by
them of securities. Securityholders should consult with their legal advisors in
this regard prior to any reoffer or sale.
Legal Matters
Legal matters relating to these securities will be passed upon by counsel
specified in the prospectus supplement for the series of securities.
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Annex I
Clearance, Settlement and Tax Documentation Procedures
Except in limited circumstances, the securities will be available only in
book-entry form. Investors in the securities may hold the securities through any
of DTC, Clearstream, Luxembourg or Euroclear. The securities will be tradable as
home market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors through Clearstream, Luxembourg
and Euroclear will be conducted in the ordinary way in accordance with the
normal rules and operating procedures of Clearstream, Luxembourg and Euroclear
and in accordance with conventional eurobond practice, which is seven calendar
day settlement.
Secondary market trading between investors through DTC will be conducted
according to DTC's rules and procedures applicable to U.S. corporate debt
obligations.
Secondary cross-market trading between Clearstream, Luxembourg or Euroclear
and DTC participants holding securities will be effected on a
delivery-against-payment basis through the respective Depositaries of
Clearstream, Luxembourg and Euroclear and as DTC participants.
Non-U.S. holders of global securities will be subject to U.S. withholding
taxes unless the holders meet a number of requirements and deliver appropriate
U.S. tax documents to the securities clearing organizations or their
participants.
Initial Settlement
All securities will be held in book-entry form by DTC in the name of Cede &
Co. as nominee of DTC. Investors' interests in the securities will be
represented through financial institutions acting on their behalf as direct and
indirect participants in DTC. As a result, Clearstream, Luxembourg and Euroclear
will hold positions on behalf of their participants through their relevant
depository which in turn will hold these positions in their accounts as DTC
participants.
Investors electing to hold their securities through DTC will follow DTC
settlement practices. Investor securities custody accounts will be credited with
their holdings against payment in same-day funds on the settlement date.
Investors electing to hold their securities through Clearstream, Luxembourg
or Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary security and no
lock-up or restricted period. Securities will be credited to the securities
custody accounts on the settlement date against payment in same-day funds.
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Secondary Market Trading
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
participants will be settled using the procedures applicable to asset-back
securities issues in same-day funds.
Trading between Clearstream, Luxembourg or Euroclear Participants.
Secondary market trading between Clearstream, Luxembourg participants or
Euroclear participants will be settled using the procedures applicable to
conventional eurobonds in same-day funds.
Trading between DTC, Seller and Clearstream, Luxembourg or Euroclear
Participants. When securities are to be transferred from the account of a DTC
participant to the account of a Clearstream, Luxembourg participant or a
Euroclear participant, the purchaser will send instructions to Clearstream,
Luxembourg or Euroclear through a Clearstream, Luxembourg participant or
Euroclear participant at least one business day prior to settlement.
Clearstream, Luxembourg or Euroclear will instruct the relevant depository, as
the case may be, to receive the securities against payment. Payment will include
interest accrued on the securities from and including the last coupon payment
date to and excluding the settlement date, on the basis of the actual number of
days in the accrual period and a year assumed to consist of 360 days. For
transactions settling on the 31st of the month, payment will include interest
accrued to and excluding the first day of the following month. Payment will then
be made by the relevant depository to the DTC participant's account against
delivery of the securities. After settlement has been completed, the securities
will be credited to the respective clearing system and by the clearing system,
in accordance with its usual procedures, to the Clearstream, Luxembourg
participant's or Euroclear participant's account. The securities credit will
appear the next day, European time and the cash debt will be back-valued to, and
the interest on the global securities will accrue from, the value date, which
would be the preceding day when settlement occurred in New York. If settlement
is not completed on the intended value date and the trade fails, the
Clearstream, Luxembourg or Euroclear cash debt will be valued instead as of the
actual settlement date.
Clearstream, Luxembourg participants and Euroclear participants will need
to make available to the respective clearing systems the funds necessary to
process same-day funds settlement. The most direct means of doing so is to
preposition funds for settlement, either from cash on hand or existing lines of
credit, as they would for any settlement occurring within Clearstream,
Luxembourg or Euroclear. Under this approach, they may take on credit exposure
to Clearstream, Luxembourg or Euroclear until the securities are credited to
their account one day later.
As an alternative, if Clearstream, Luxembourg or Euroclear has extended a
line of credit to them, Clearstream, Luxembourg participants or Euroclear
participants can elect not to preposition funds and allow that credit line to be
drawn upon to finance settlement.
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Under this procedure, Clearstream, Luxembourg participants or Euroclear
participants purchasing securities would incur overdraft charges for one day,
assuming they cleared the overdraft when the securities were credited to their
accounts. However, interest on the securities would accrue from the value date.
Therefore, in many cases the investment income on the global securities earned
during that one-day period may substantially reduce or offset the amount of the
overdraft charges, although the result will depend on each Clearstream,
Luxembourg participant's or Euroclear participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for crediting global securities
to the respective European depository for the benefit of Clearstream, Luxembourg
participants or Euroclear participants. The sale proceeds will be available to
the DTC seller on the settlement date. Thus, to the DTC participants a
cross-market transaction will settle no differently than a trade between two DTC
participants.
Trading between Clearstream, Luxembourg or Euroclear Seller and DTC
Purchaser. Due to time zone differences in their favor, Clearstream, Luxembourg
participants and Euroclear participants may employ their customary procedures
for transactions in which securities are to be transferred by the respective
clearing system, through the respective depository, to a DTC participant. The
seller will send instructions to Clearstream, Luxembourg or Euroclear through a
Clearstream, Luxembourg participant or Euroclear participant at least one
business day prior to settlement. In these cases Clearstream, Luxembourg or
Euroclear will instruct the respective depository, as appropriate, to credit the
securities to the DTC participant's account against payment. Payment will
include interest accrued on the securities from and including the last interest
payment to and excluding the settlement date on the basis of the actual number
of days in the accrual period and a year assumed to consist of 360 days. For
transactions settling on the 31st of the month, payment will include interest
accrued to and excluding the first day of the following month. The payment will
then be reflected in the account of Clearstream, Luxembourg participant or
Euroclear participant the following day, and receipt of the cash proceeds in the
Clearstream, Luxembourg participant's or Euroclear participant's account would
be back-valued to the value date, which would be the preceding day, when
settlement occurred in New York. In the event that the Clearstream, Luxembourg
participant or Euroclear participant has a line of credit with its respective
clearing system and elects to be in debt in anticipation of receipt of the sale
proceeds in its account, the back-valuation will extinguish any overdraft
incurred over that one-day period. If settlement is not completed on the
intended value date and the trade fails, receipt of the cash proceeds in the
Clearstream, Luxembourg participant's or Euroclear participant's account would
instead be valued as of the actual settlement date.
Finally, day traders that use Clearstream, Luxembourg or Euroclear and that
purchase global securities from DTC participants for delivery to Clearstream,
Luxembourg participants or Euroclear participants may wish to note that these
trades would automatically fail on the sale side unless affirmative action is
taken. At least three techniques should be readily available to eliminate this
potential problem:
A-3
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o borrowing through Clearstream, Luxembourg or Euroclear for one day, until
the purchase side of the trade is reflected in their Clearstream,
Luxembourg or Euroclear accounts in accordance with the clearing system's
customary procedures;
o borrowing the securities in the U.S. from a DTC participant no later than
one day prior to settlement, which would give the securities sufficient
time to be reflected in their Clearstream, Luxembourg or Euroclear account
in order to settle the sale side of the trade; or
o staggering the value dates for the buy and sell sides of the trade so that
the value date for the purchase from the DTC participant is at least one
day prior to the value date for the sale to the Clearstream, Luxembourg
participant or Euroclear participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of securities holding securities through Clearstream,
Luxembourg or Euroclear, or through DTC if the holder has an address outside the
U.S., will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest, including original issue discount, on registered debt
issued by U.S. Persons, unless:
(1) each clearing system, bank or other financial institution that
holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between the beneficial owner and the U.S.
entity required to withhold tax complies with applicable certification
requirements and
(2) the beneficial owner takes one of the steps described below to
obtain an exemption or reduced tax rate.
The IRS recently issued Withholding Regulations, which make certain
modifications to withholding, backup withholding and information reporting
rules. The Withholding Regulations attempt to unify certification requirements
and modify certain reliance standards. The Withholding Regulations will
generally be effective for payments made after December 31, 2000. Taxpayers
should begin compliance with the Withholding Regulations immediately, although
the existing rules will remain in effect until the Withholding Regulations take
effect.
This summary does not deal with all aspects of U.S. federal income tax
withholding that may be relevant to foreign holders of the securities as well as
the application of the Withholding Regulations. Prospective investors are urged
to consult their own tax advisors for specific advice regarding their holding
and disposing of the securities.
o Exemption for Non-U.S. Persons. Under the existing rules, beneficial owners
of global securities that are Non-U.S. Persons can obtain a complete
exemption from the withholding tax by filing a signed Form W-8, Certificate
of Foreign Status. Under the Withholding Regulations, a Non-U.S. Person may
claim beneficial owner status by filing Form W-8BEN (Certificate of Foreign
Status of Beneficial Owner for United
A-4
<PAGE>
States Tax Withholding). The old Form W-8 is valid until the earlier of (i)
three years beginning on the date that the form is signed, or (ii) December
31, 2000. The new Form W-8BEN is valid for a period of three years
beginning on the date that the form is signed. If the information shown on
Form W-8 or Form W-8BEN changes, a new Form W-8 or Form W-8BEN must be
filed within 30 days of the change.
o Exemption for Non-U.S. Persons with effectively connected income. Under
existing rules, a Non-U.S. Person, including a non-U.S. corporation or bank
with a U.S. branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224, Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States. Under the Withholding Regulations,
a Non-U.S. Person may claim an exemption from U.S. withholding on income
effectively connected with the conduct of a trade or business in the United
States by filing Form W-8ECI (Certificate of Foreign Person's Claim for
Exemption From Withholding on Income Effectively Connected With the Conduct
of a Trade or Business in the United States). The old Form 4224 is valid
until the earlier of (i) one year beginning on the date that the form is
signed, or (ii) December 31, 2000. The new Form W-8ECI is valid for a
period of three years beginning on the date that the form is signed.
o Exemption or reduced rate for non-U.S. Persons resident in treaty
countries. Non-U.S. Persons residing in a country that has a tax treaty
with the United States can obtain an exemption or reduced tax rate,
depending on the treaty terms, by filing Form 1001, Ownership, Exemption or
Reduced Rate Certificate. If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer alternatively
files Form W-8. Under the Withholding Regulations, a Non-U.S. Person may
claim treaty benefits by filing Form W-8BEN (Certificate of Foreign Status
of Beneficial Owner for United States Tax Withholding). The old Form 1001
is valid until the earlier of (i) three years beginning on the date that
the form is signed, or (ii) December 31, 2000. The new Form W-8BEN is valid
for a period of three years beginning on the date that the form is signed.
o Exemption for U.S. Persons. U.S. Persons can obtain a complete exemption
from the withholding tax by filing Form W-9, Payer's Request for Taxpayer
Identification Number and Certification.
o U.S. Federal Income Tax Reporting Procedure. Under the existing rules, the
owner of a global security or his agent files by submitting the appropriate
form to the person through whom it holds, the clearing agency, in the case
of persons holding directly on the books of the clearing agency. The
Withholding Regulations revise the procedures that withholding agents and
payees must follow to comply with, or to establish an exemption from,
withholding for payments made after December 31, 2000. Each foreign holder
of securities should consult its own tax advisor regarding compliance with
these procedures under the Withholding Regulations.
A-5
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The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity, taxable as such for
federal income tax purposes, organized in or under the laws of the United States
or any state thereof (including the District of Columbia), (iii) an estate that
is subject to U.S. federal income tax regardless of the source of its income, or
(iv) a trust other than a "foreign trust" as defined in Section 7701(a)(31) of
the Internal Revenue Code of 1986, as amended. The term "Non-U.S. Person" means
any person who is not a U.S. Person.
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<PAGE>
Form of Prospectus
Supplement (Notes)
PROSPECTUS SUPPLEMENT
(To prospectus dated ________, 2000)
Chevy Chase Auto Receivables Trust ______ $______________
Auto Receivables Backed Notes,
Series ______
Chevy Chase Bank, F.S.B., Servicer
--------------------------------------------------------------------------------
Consider carefully the risk factors beginning on page __ of this prospectus
supplement and page __ of the prospectus.
The notes represent asset-backed debt secured solely by the auto loans held by
the trust. The notes are not interests in or obligations of any other person.
No governmental agency or instrumentality has insured or guaranteed the notes or
the underlying auto loans.
--------------------------------------------------------------------------------
The trust will issue -
o Three classes of notes which are to be offered by this prospectus
supplement; and
o Subordinate interests in the trust which are to be held by the bank are not
offered by this prospectus supplement but serve as credit support to the
notes offered by this prospectus supplement.
The notes -
o Are backed by a pledge of assets of the trust. The assets of the trust
securing the notes will include a pool of "prime" quality auto loans
secured by new and used automobiles, light duty trucks and vans;
o Receive monthly distributions on the [15th] day of each month beginning on
_________;
o Represent debt obligations of Chevy Chase Auto Receivables Trust ______ and
o Currently have no trading market.
Credit enhancement for the notes will consist of -
o A reserve account that can be used to pay shortfalls in payments on the
notes; and
o Overcollateralization resulting from the excess of the principal amount of
the auto loans over the aggregate principal amount of the notes.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
Issuance Interest Final Scheduled Initial Public Underwriting Proceeds
Amount Rate distribution date Offering Price(1) Discount to Seller(2)
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A-1 Notes
-------------------------------------------------------------------------------------------------------------------------------
Class A-2 Notes
-------------------------------------------------------------------------------------------------------------------------------
Class M-1 Notes
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from ___________.
(2) Before expenses, estimated to be ___________.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon
the accuracy or adequacy of this prospectus supplement. Any representation
to the contrary is a criminal offense.
[UNDERWRITERS]
The date of this prospectus supplement is _____
<PAGE>
Where You Can Find More Information
Federal securities law requires the filing of information with the
Securities and Exchange Commission, including annual, quarterly and special
reports, proxy statements and other information. You can read and copy these
documents at the public reference facility maintained by the SEC at Judiciary
Plaza, 450 Fifth Street, NW, Room 1024, Washington, DC 20549. You can also copy
and inspect these reports, proxy statements and other information at the
following regional offices of the SEC:
New York Regional Office Chicago Regional Office
Seven World Trade Center Citicorp Center
Suite 1300 500 West Madison Street, Suite 1400
New York, New York 10048 Chicago, Illinois 60661
All reports we file on behalf of the trust with the SEC after the date of
this prospectus supplement but before the offering of the notes ends are
considered to be part of this prospectus supplement. Information contained in
those reports updates and supercedes the information in this prospectus
supplement. We will provide you with copies of these reports, at no cost, if you
write to: Chevy Chase Bank, F.S.B., 8401 Connecticut Avenue, 6th Floor, Chevy
Chase, Maryland 20815, telephone ( ) _____ - ______.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. SEC filings are also available to the public on the SEC's web
site at http://www.sec.gov.
This prospectus supplement supplements a prospectus that is part of a
registration statement filed by the seller with the SEC (Registration No.
_________).
You should rely only on the information provided in this prospectus
supplement and the accompanying prospectus. We have not authorized anyone else
to provide you with different information. You should not assume that the
information in this prospectus supplement or in the prospectus is accurate as of
any date other than the date on the cover page of this prospectus supplement.
You can find definitions of the technical cashflow terms used in this
prospectus supplement in the Glossary beginning on page S-____ in this
prospectus supplement.
We include cross-references in this prospectus supplement to captions in
these materials where you can find further discussions. The following table of
contents provides the pages on which these captions are located.
In this prospectus, the terms "we", "us" and "our" refer to Chevy Chase
Bank, F.S.B.
S-2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Where You Can Find More Information ....................................... 3
SUMMARY ................................................................... 5
The Trust .............................................................. 5
The Seller / Servicer .................................................. 5
Cut-Off Date ........................................................... 5
Closing Date ........................................................... 5
Distribution Date ...................................................... 5
Description of the Notes ............................................... 5
General ............................................................. 5
The Notes ........................................................... 5
Distributions ....................................................... 6
Interest ............................................................ 6
Principal ........................................................... 6
Optional Redemption ................................................. 6
Scheduled Maturity Dates ............................................ 6
[Overcollateralization .............................................. 6
The Trust Assets ....................................................... 6
General ............................................................. 6
The Auto Loans ...................................................... 7
Characteristics of the Auto Loans ................................... 7
Reserve Account ..................................................... 7
Servicing .............................................................. 7
Federal Income Tax Consequences ........................................ 7
ERISA Considerations ................................................... 8
Ratings ................................................................ 8
RISK FACTORS .............................................................. 9
THE TRUST ................................................................. 10
General ............................................................. 10
The Owner Trustee ................................................... 11
The Indenture Trustee and the Trust
Collateral Agent ................................................. 11
USE OF PROCEEDS ........................................................... 11
THE ______ TRUST PROPERTY ................................................. 11
General ............................................................. 11
PREPAYMENT AND YIELD CONSIDERATIONS ....................................... 12
THE POOL OF AUTO LOANS .................................................... 16
General ............................................................. 16
Underwriting Procedures ............................................. 16
Selection Criteria .................................................. 17
Composition of the Auto Loans as of
the Cut-Off Date ................................................. 18
THE SELLER AND THE SERVICER ............................................... 22
General ............................................................. 22
Litigation .......................................................... 22
Delinquency and Default Experience .................................. 22
DESCRIPTION OF SALE AND SERVICING AGREEMENT ............................... 24
Conveyance of Auto Loans ............................................ 24
Servicer Default; Waiver of Past
Defaults ......................................................... 24
Servicing Compensation, Payment of
Expenses and Trustees' Fees ...................................... 24
DESCRIPITION OF THE NOTES ................................................. 25
General ............................................................. 25
Distribution Dates .................................................. 25
Interest Payments ................................................... 26
Principal Payments .................................................. 26
Accounts ............................................................ 27
General ............................................................. 27
Reserve Account ..................................................... 27
Transfers from the Collection Account
and the Reserve Account into the Note
Account .......................................................... 28
Flow of Funds ....................................................... 28
Withholding ......................................................... 29
Reports to Noteholders .............................................. 29
Optional Termination ................................................ 30
Events of Default ................................................... 30
MATERIAL FEDERAL INCOME TAX CONSEQUENCES .................................. 30
Tax Characterization of the Trust ................................... 31
Tax Consequences to Holders of the Notes ............................ 31
State and Local Tax Considerations .................................. 32
ERISA Considerations ...................................................... 33
RATINGS ................................................................... 33
UNDERWRITING .............................................................. 34
LEGAL MATTERS ............................................................. 36
</TABLE>
S-3
<PAGE>
--------------------------------------------------------------------------------
SUMMARY
o This summary highlights selected information from this prospectus
supplement and does not contain all of the information that you need to
consider in making your investment decision. To understand all of the terms
of the offering of the notes, read carefully this entire prospectus
supplement and the accompanying prospectus.
o This summary provides an overview of certain calculations, cash flows and
other information to aid your understanding and is qualified by the full
description of these calculations, cash flows and other information in this
prospectus supplement and the accompanying prospectus.
The Trust
Chevy Chase Auto Receivables Trust ______, or the trust, is a Delaware business
trust. The trust will issue the notes and be liable for the payment of interest
and principal on the notes.
The issuing trust's principal assets will be a pool of auto loans and cash held
by the trust.
The Seller / Servicer
Chevy Chase Bank, F.S.B, or the bank, a federally chartered stock savings bank,
will act as servicer of the auto loans.
Cut-Off Date
The opening of business on _____,.
Closing Date
On or about _________,.
Distribution Date
The 15th day of each month, if the 15th is a business day. If the 15th day is
not a business day, the distribution date will be the following day that is a
business day. The first distribution date will be ______,.
Description of the Notes
General
The trust will issue three classes of its asset backed notes. The notes are
designated as the "Class A-1 Notes", the "Class A-2 Notes" and the "Class M-1
Notes".
The notes will be secured solely by a pledge of the assets of the trust
described below.
The trust will also issue a trust certificate. The trust certificate represents
the ownership of the trust. Payments in respect of the trust certificate are
subordinate to payments in respect of the notes. The trust certificate does not
have a principal balance and is not offered to the public.
The Notes
Each class of notes will have the initial principal amounts, interest rates and
final scheduled distribution dates listed on the cover page of this prospectus
supplement.
The notes will be issued initially in book-entry form only and will be issued in
minimum denominations of $1,000 and multiples of $1,000. You may hold your notes
through DTC in the United States or Clearstream, Luxembourg, or the Euroclear
System in Europe.
--------------------------------------------------------------------------------
S-4
<PAGE>
--------------------------------------------------------------------------------
Distributions
Each month, the trust will distribute the amounts received on the auto loans and
any other collections available as property of the trust to the noteholders as
follows:
Interest
On each distribution date, interest that accrued during the interest accrual
period is payable at the applicable note rate. The note rate for each class is
listed on the cover page of this prospectus supplement. Interest on the Class
A-1 Notes will be calculated on the basis of a 360-day year and the actual
number of days elapsed in the interest accrual period. Interest on the Class A-2
Notes and Class M-2 Notes will be calculated on the basis of a 360-day year
consisting of twelve 30-day months.
Amounts paid to holders of the notes will be shared by the holders of the Class
A-1, and Class A-2 Notes in proportion to the interest due on each class.
Principal
On each distribution date, the trust will pay principal in reduction of the
outstanding principal balance of the notes.
Principal payments will be an amount generally equal to a percentage of the
decrease in the principal value of the auto loans between the first and last day
of a calendar month. These principal payments will be paid to the Class A-1
Notes, the Class A-2 Notes, the Class M-1 Notes, sequentially, beginning with
the Class A-1 Notes, in each case, until the respective outstanding principal
amount of each class is paid in full.
Optional Redemption
On any distribution date when the outstanding principal balance of the notes is
less than or equal to $______________, which is 5% of the original principal
balance of the notes the bank may purchase the auto loans from the trust. This
will redeem the notes. If redemption occurs, we will pay you a final
distribution equaling the entire unpaid principal balance of the notes plus any
accrued and unpaid interest.
Scheduled Maturity Dates
If the notes have not already been paid in full, we will pay the outstanding
principal amount of the notes in full on the following distribution dates:
<TABLE>
<S> <C>
Class A-1 ____________
Class A-2 ____________
Class M-1 ____________
</TABLE>
Final payment on the notes will probably be earlier than the scheduled maturity
date stated above for each class of notes.
[Overcollateralization
The overcollateralization amount is the amount by which the pool balance exceeds
the outstanding principal balance of the notes. The overcollateralization amount
will be available to absorb any losses that noteholders would otherwise incur.
As of the closing date, the overcollateralization will be equal to $_______ or
_____ of the pool balance as of ______.]
The Trust Assets
General
The issuer's assets will principally include:
o a pool of auto loans, which are secured by new and used automobiles, light
duty trucks and vans;
o collections on the auto loans received after ______,;
--------------------------------------------------------------------------------
S-5
<PAGE>
--------------------------------------------------------------------------------
o an assignment of the security interests in the vehicles securing the auto
loan pool; and
o amounts held in the reserve account.
The Auto Loans
The auto loans consist of retail installment sales contracts between dealers and
retail purchasers and installment loans which are secured by new and used
automobiles, light duty trucks and vans financed by means of the auto loan. Each
obligor's obligation under its auto loan is a full recourse obligation. The auto
loans contain provisions which unconditionally require the obligor to make all
payments under the related auto loan.
On the closing date, the bank will assign to the trust a pool of auto loans.
On the closing date the trust will pledge the auto loans to the indenture
trustee as collateral for the notes. Payments on the notes will be made from
payments on the pledged auto loans, withdrawals from the reserve account and
payments received under applicable insurance policies.
Characteristics of the Auto Loans
The statistical information presented in this prospectus supplement is based on
the auto loans as of _______ .
The auto loans will consist of "prime" quality auto loans secured by new and
used automobiles, light duty trucks and vans which were purchased from
automobile dealers under the lender's financing program.
As of ______ , the auto loans have:
o an aggregate principal balance of $________________;
o a weighted average annual percentage rate of approximately ____%;
o a weighted average original maturity of approximately __ months;
o a weighted average remaining maturity of approximately __ months; and
o a remaining term of not more than __ months and not less than __ months.
Reserve Account
The trustee will hold a reserve account. An initial deposit of $__________ will
be placed in the reserve account on the closing date. The servicer will deposit
collections received from the auto loans into the reserve account on each
distribution date after interest and principal payments on the notes and payment
of certain fees and expenses have been made.
The servicer will continue to make such deposits on each distribution date until
the balance in the reserve account reaches the reserve balance described in this
prospectus supplement.
We will use funds in the reserve account to pay shortfalls in amounts due to the
noteholders and if the bank is no longer the servicer, to pay any fees due to
the servicer.
Servicing
The bank will be the servicer of the auto loans and will be responsible for
servicing, managing and making collections on, and otherwise enforcing, the auto
loans.
Federal Income Tax Consequences
For federal income tax purposes:
o Dewey Ballantine LLP, special tax counsel to the trust and counsel to the
underwriters, is of the opinion that the notes will be treated as debt and
the trust will not be treated as an association or publicly traded
partnership taxable as a corporation.
--------------------------------------------------------------------------------
S-6
<PAGE>
By your acceptance of a note, you agree to treat the notes as debt.
o Interest on the notes will be taxable as ordinary income when received by a
holder on the cash method of accounting and when accrued by a holder on the
accrual method of accounting.
o Dewey Ballantine LLP has prepared the discussion under "Material Federal
Income Tax Consequences" in this prospectus supplement and in the
prospectus and is of the opinion that the discussion accurately states all
material federal income tax consequences of the purchase, ownership and
disposition of the notes to their original purchaser.
ERISA Considerations
Subject to the important considerations described under "ERISA Considerations"
in this prospectus supplement, pension, profit-sharing and other employee
benefit plans may purchase notes. You should consult with your counsel regarding
the applicability of the provisions of the Employee Retirement Income Security
Act of 1974, as amended, before purchasing a note.
Ratings
o The trust will not issue the notes unless they have been assigned the
ratings stated below.
o You should know that the ratings could be lowered, qualified or withdrawn
by the rating agencies.
<TABLE>
<CAPTION>
Rating
------
Standard &
Class Poor's Moody's
----- ------ -------
<S> <C> <C>
A-1
A-2
M-1
</TABLE>
--------------------------------------------------------------------------------
S-7
<PAGE>
RISK FACTORS
In addition to those factors described under "Risk Factors" in the
prospectus, you should consider, among other things, the following factors in
connection with the purchase of the notes:
An investment in the notes may be an illiquid investment. There currently
is no secondary market for the notes, and there is no assurance that one will
develop or, if one does develop, that it will continue until the notes are paid
in full. The underwriters intend to make a market in the notes but have no
obligation to do so.
The rate at which the notes will amortize cannot be predicted. All of the
auto loans are prepayable at any time without penalty. The rate of prepayments
on the auto loans may be influenced by a variety of economic, social and other
factors. Under certain circumstances, the bank will be obligated to purchase
auto loans as a result of breaches of certain covenants in the transaction
documents. The bank also has the right, subject to certain conditions, to
purchase the auto loans when the total principal balance of the notes is 5% or
less of the total principal balance of the notes as of the date they are issued.
Any reinvestment risks resulting from a faster or slower incidence of
prepayments and/or purchases of auto loans will be borne entirely by the
noteholders.
The Class M-1 Notes are subordinated notes, and the risk of loss or delay
in distributions is greater than on the Class A Notes.
Distributions of interest and principal on the Class M-1 Notes will be
subordinated in priority of payment to interest and principal due on the Class A
Notes. Consequently, the Class M-1Noteholders will not receive any distributions
on a payment date unless the full amount of interest and principal due on the
Class A Notes on that payment date has been distributed to the Class A
Noteholders. This subordination has the effect of increasing the likelihood of
payment on the Class A Notes and therefore decreasing the likelihood of payment
on the Class M-1 Notes.
Geographic concentrations of receivables may result in higher losses if
particular regions experience downturns. As of _______ [the cut-off date], based
upon billing address information provided to the bank, the obligors resided in
__ states and the District of Columbia. [Five of these states, Virginia, North
Carolina, Georgia, Texas and Maryland], account for %, %, % and %, respectively,
of the aggregate principal balance of the receivables in the trust. Adverse
economic conditions in [Virginia, North Carolina, Georgia, Texas and Maryland]
could adversely affect the delinquency, loan loss or repossession experience
with respect to the auto loans. Changes in these factors may also affect the
rate of principal payments on the auto loans.
Failure to obtain a perfected security interest in the vehicles in all
states may lead to a reduction in distributions of principal and interest. The
bank or its agent will hold the auto loans and the certificates of title or
ownership relating to the vehicles as custodian for
S-8
<PAGE>
the indenture trustee. However, the auto loans will not be marked or stamped to
indicate that they have been sold to the trust, and the certificates of title or
ownership for the vehicles will not be endorsed or otherwise amended to identify
the trust as the new secured party. Under such circumstances and in certain
jurisdictions, the trust's interest in the auto loans and the vehicles may be
defeated. See "Legal Aspects of the Auto Loans" in the accompanying prospectus.
If the protection provided to the noteholders by the reserve account is
insufficient to pay principal and interest on the notes, the noteholders would
have to look principally to the obligors on the auto loans and to the proceeds
from the repossession and sale of vehicles which secure the auto loans. In such
event, certain factors, such as the indenture trustee's failure to have
perfected security interests in the vehicles in all states, may affect the
trust's ability to repossess and sell the vehicles securing the auto loans, and
thus may reduce the proceeds to be distributed to noteholders. See "Description
of the Notes--Flow of Funds" in this prospectus supplement, as well as "Legal
Aspects of the Auto Loans" in the accompanying prospectus.
THE TRUST
The following information supplements and, to the extent inconsistent
therewith, supersedes the information contained in the accompanying prospectus.
General
Chevy Chase Auto Receivables Trust ______, or the trust will be a Delaware
business trust formed under the laws of the State of Delaware under a trust
agreement, dated as of ______ between the seller and the owner trustee for the
purpose of engaging in the transactions described in this prospectus supplement.
The trust will only engage in the following activities:
o acquiring, holding and managing the auto loans and the other assets of
the trust,
o issuing notes in private and public offerings, including the issuance
of the notes,
o making payments on the notes, and
o engaging in other activities in connection with the notes.
The trust's principal offices are in Wilmington, Delaware, in care of
Wilmington Trust Company as owner trustee, at the same address as the owner
trustee.
The trust will not acquire any assets other than the trust property, and it
is not anticipated that the trust will have any need for additional capital
resources. No historical or pro forma financial statements or ratios of earnings
to fixed charges with respect to the trust have been included because the trust
will have had no operating history upon its establishment and will not have
engaged in any business other than acquiring and holding the trust property,
issuing the notes and distributing payments on the notes.
S-9
<PAGE>
The Owner Trustee
Wilmington Trust Company will be the owner trustee under the trust
agreement. It is a Delaware banking corporation and its principal offices are
located at 1100 North Market Street, Wilmington, Delaware 19890. The owner
trustee will perform limited administrative functions under the trust agreement.
The owner trustee's liability in connection with the issuance and sale of the
notes is limited solely to the express obligations of the owner trustee as
stated in the trust agreement and the sale and servicing agreement, to be dated
as of ______, among the trust, the seller, the servicer and the indenture
trustee.
The Indenture Trustee and the Trust Collateral Agent
U.S. Bank, National Association will be the indenture trustee under an
indenture, dated as of ______, among the trust and U.S. Bank, National
Association as indenture trustee. U.S. Bank, National Association will also act
as the trust collateral agent under the sale and servicing agreement. U.S. Bank,
National Association is a national banking association, the principal offices of
which are located at 100 East 5th Street, St. Paul, Minnesota 55101.
USE OF PROCEEDS
The net proceeds received by the trust from the sale of the notes will be
used to pay the bank the purchase price for the auto loans and to fund the
initial deposit in the reserve account.
THE ______ TRUST PROPERTY
General
The trust assets consist of the following:
o the auto loans;
o all monies, including accrued interest, due or received on the auto
loans on or after the cut-off date of ________;
o all amounts and property from time to time held in or credited to the
collection account and the note account;
o all of the seller's security interests in new and used automobiles,
light duty trucks and vans, or the financed vehicles;
o all of the seller's rights to proceeds from claims on physical damage,
theft, vendor's single interest, credit life, disability or
hospitalization insurance policies, if any, covering financed vehicles
or obligors, as the case may be, to the extent that such insurance
policies relate to the auto loans;
o any proceeds from the sale of repossessed financed vehicles;
S-10
<PAGE>
o all rights to receive payments under certain circumstances from the
reserve account;
o all of the seller's right to all documents contained in the auto loan
files;
o all of the seller's rights in any proceeds from recourse to dealers in
new and used automobiles, light duty trucks and vans from whom the
bank purchased the auto loans in the ordinary course of business;
o all property, including the right to receive future Liquidation
Proceeds (as defined in the Glossary), that secures an auto loan and
that shall have been acquired by or on behalf of the indenture trustee
and
o all proceeds of the foregoing.
The indenture does not permit the trust to acquire any additional assets.
PREPAYMENT AND YIELD CONSIDERATIONS
The rate of principal payments on each class of notes will be directly
related to the rate of principal payments on the underlying auto loans. If any
class of notes is purchased at a price other than at par, the yield to maturity
on such class also will be affected by the rate of principal payments. The
principal payments on the auto loans may be in the form of scheduled principal
payments, prepayments or liquidations due to default, casualty and the like. Any
payments other than scheduled principal payments will result in distributions to
the noteholders of amounts which would otherwise have been distributed over the
remaining term of the auto loans. In general, the rate of such payments may be
influenced by a number of other factors, including general economic conditions.
The effective yield to the holders of a class of notes will depend upon,
among other things, the price at which such notes are purchased, the amount of
principal, including both scheduled and nonscheduled payments thereof, which is
paid to the noteholders and the rate at which such principal is paid.
The indenture trustee will make distributions of principal and interest
payable on each class of notes to the noteholders on the distribution date.
Interest on the auto loans will be paid to noteholders on each distribution date
in an amount equal to one-twelfth of the applicable note rate applied to the
principal balance of the respective class as of the immediately preceding
distribution date (after giving effect to distributions of principal made on
such immediately preceding distribution date). In the case of the first
distribution date, monthly interest will accrue at the applicable note rate on
the original note principal balance for each class of note. The original note
principal balance for each class is :
<TABLE>
<S> <C>
Class A-1 Notes: $________
Class A-2 Notes: $________ , and
Class M-1 Notes: $__________.
</TABLE>
S-11
<PAGE>
Prepayments on auto loans can be measured relative to a prepayment standard
or model. The model used in this prospectus supplement, the absolute prepayment
model, or ABS, represents an assumed rate of prepayment each month relative to
the original number of auto loans in a pool. ABS further assumes that all the
auto loans are the same size and amortize at the same rate and that each auto
loan in each month of its life will either be paid as scheduled or be prepaid in
full. For example, in a pool of auto loans originally containing 10,000 auto
loans, a 1% ABS rate means that 100 auto loans prepay each month. ABS does not
purport to be an historical description of prepayment experience or a prediction
of the anticipated rate of prepayment of any pool of auto loans.
The tables captioned "Percent of Initial Note Principal Balance at Various
ABS Percentages", also called the ABS Tables, have been prepared on the basis of
the following assumptions:
o the auto loans prepay in full at the specified constant percentage of
ABS monthly, with no defaults, losses or repurchases;
o each scheduled monthly payment on the auto loans is made on the last
day of each month and each month has 30 days;
o the initial principal amount of the notes is as stated on the cover
page;
o interest on the notes accrues during each interest period at the
following assumed coupon rates: Class A Notes, ___%; and Class M-1
Notes, ___%.
o payments on the notes are made on the __ day of each month whether or
not a business day;
o the notes are purchased on the closing date;
o the scheduled monthly payment for each auto loan has been calculated
on the basis of the assumed characteristics presented in the table
below, and each auto loan will amortize in amounts sufficient to repay
the principal balance of the auto loans by its indicated remaining
term to maturity; and
o the seller or the servicer exercises its clean-up call redemption.
The ABS Tables also assume that (1) the auto loans have been aggregated
into hypothetical pools with all of the auto loans within each pool having the
following characteristics, and (2) that the level of scheduled monthly payment
for each of the pools, which is based on its aggregate principal balance, gross
APR, original number of scheduled payments and remaining number of scheduled
payments as of the cut-off date, will be calculated so that each pool will be
fully amortized by the end of its remaining term to maturity.
S-12
<PAGE>
<TABLE>
<CAPTION>
Remaining
Term
Aggregate to Maturity Seasoning
Pool Principal Balance APR (in Months) (in Months)
---- ----------------- --- ----------- -----------
<S> <C> <C> <C> <C>
1 $ %
2
3
4
5
</TABLE>
The ABS Tables indicate, based on the assumptions described above, the
percentages of the initial principal amount of the notes that would be
outstanding after each of the payment dates shown at various percentages of ABS
and the corresponding weighted average lives of the notes. The actual
characteristics and performance of the auto loans will differ from the
assumptions used in constructing the ABS Tables. The assumptions used are
hypothetical and have been provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the auto loans will prepay at a constant level
of ABS until maturity or that all of the auto loans will prepay at the same
level of ABS. Moreover, the diverse terms of auto loans could produce slower or
faster principal distributions than indicated in the ABS Tables at the various
constant percentages of ABS specified, even if the original and remaining terms
to maturity of the auto loans are as assumed. Any difference between the
assumptions and the actual characteristics and performance of the auto loans,
including actual prepayment experience or losses, will affect the percentages of
initial balances outstanding over time and the weighted average lives of the
notes.
S-13
<PAGE>
Percent of Initial Note Principal Balance
at Various ABS Percentages(1)
<TABLE>
<CAPTION>
Class A Certificates Class M-1 Certificates
----------------------------------------------------------------------------------------------------------------------------
Payment Date 0.5% 1.0% 1.7% 2.5% 0.5% 1.0% 1.7% 2.5%
----------- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Weghted Average
Life in
Years(2)
</TABLE>
----------
(1) The percentages in this table have been rounded to nearest whole number.
(2) The weighted average life of a note is determined by (1) multiplying the
amount of each principal payment on a note by the number of years from the date
of the issuance of the certificates to the payment date, (2) adding the results
and (3) dividing the sum by the initial principal amount of the note of that
class.
S-14
<PAGE>
THE POOL OF AUTO LOANS
General
The assets of the trust will primarily consist of the auto loans, which are
secured by the financed vehicles.
The auto loans in the pool were purchased or originated by the bank. You
should note that the bank also acts as servicer under that agreement, and we
refer to the bank in that capacity as the servicer.
With respect to the bank auto loans as of the cut-off date:
o ____% by aggregate principal balance were purchased by the bank from
dealers in the ordinary course of business
o ____% by aggregate principal balance were originated directly by the
bank at or through its deposit branches
o approximately ____% of the aggregate principal balance of the bank
auto loans represents financing of new automobiles, light duty trucks
and vans and,
o approximately ____% represent financing of used automobiles, light
duty trucks and vans.
Underwriting Procedures
Each auto loan was originated or purchased by the bank after a review in
accordance with its established underwriting procedures..
The underwriting procedures of the bank are designed to provide a basis for
assessing the obligor's ability and willingness to repay the loan. In conducting
this assessment, the bank considers the obligor's ratio of debt to income and
evaluates the obligor's credit history through a review of a credit report
compiled by a recognized consumer credit reporting bureau. The obligor's equity
in the collateral and the terms of the loan are also important in the bank's
analysis. For the obligor's purchase of a vehicle, the bank's guidelines provide
for financing up to [115]% of the dealer cost for new vehicles and of the
trade-in value (as published by the National Automobile Dealers Association, a
standard reference source for dealers in used vehicles) for used vehicles. The
bank's guidelines are intended only to provide a basis for lending decisions,
and exceptions to such guidelines may, within certain limits, be made based upon
the credit judgment of the lending officer. The bank periodically conducts
quality audits to ensure compliance with its established policies and
procedures.
S-15
<PAGE>
Selection Criteria
The auto loans were selected from the bank's portfolios on the basis of a
number of criteria, including the following:
o each auto loan has an original term to maturity of ___ to ___ months,
o each auto loan has a maturity of not later than _______________,
o except with respect to the balloon auto loans (as described below),
each auto loan provides for level monthly payments that fully amortize
the amount financed over the original term,
o no auto loan was more than ___ days past due as of the cut-off date,
o each auto loan has an unpaid principal balance of not less than $1,000
as of the cut-off date and
o the weighted average remaining number of payments of the auto loans
was ____ months as of the cut-off date.
All the auto loans are prepayable at any time. The seller makes no
prediction as to the actual prepayment experience on the auto loans. See also
"Description of the Notes--Optional Termination" in this prospectus supplement
regarding the seller's option to purchase the auto loans when the total
principal balance of the notes is 5% or less of total principal balance of the
notes as of the date of issuance of the notes.
The auto loans are simple interest and actuarial installment sales
contracts and installment loans which provide for equal monthly payments, except
for ____% of the auto loans (as a percentage of the initial pool balance as of
the cut-off date) which are balloon auto loans. A balloon auto loan is one for
which the last scheduled monthly payment is significantly larger than any prior
scheduled monthly payment.
The composition, distribution by annual percentage rate, commonly called
APR, and geographical distribution of the auto loans as of the cut-off date are
as set forth in the following tables.
S-16
<PAGE>
Composition of the Auto Loans as of the Cut-Off Date
<TABLE>
<S> <C>
Initial Aggregate Principal Balance............................ $
Number of Auto Loans...........................................
Average Original Principal Balance............................. $
Range of Original Principal Balances........................... $ to $
Average Remaining Principal Balance............................ $
Range of Remaining Principal Balances.......................... $ to $
Weighted Average APR(1)........................................ %
Range of APRs.................................................. % to %
Weighted Average Original Term to Maturity(1).................. months
Range of Original Terms to Maturity............................ 12 months to 72 months
Weighted Average Remaining Term to Maturity(1)................. months
Range of Remaining Terms to Maturity........................... 12 months to 72 months
</TABLE>
(1) Weighted by remaining principal balance.
S-17
<PAGE>
Distribution of the Auto Loans by APR as of the Cut-Off Date
<TABLE>
<CAPTION>
Percentage of
Number of Aggregate Aggregate
Range of APRs Auto Loans Principal Balance Principal Balance
------------- ---------- ----------------- -----------------
<S> <C> <C> <C>
$ %
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
Total........................... $ 100.00%
</TABLE>
S-18
<PAGE>
Geographic Distribution of the Auto Loans as of the Cut-Off Date
<TABLE>
<CAPTION>
Percentage of
Number of Aggregate Aggregate
State(1)(2) Auto Loans Principal Balance Principal Balance
----------- ---------- ----------------- -----------------
<S> <C> <C> <C>
[Florida].................. $ %
[Georgia]...................
[Maryland]..................
[North Carolina]............
[Ohio]......................
[Pennsylvania]..............
[Virginia]..................
Other.......................
Total...................... $ 100.00%
</TABLE>
(1) Based upon the billing address of the obligors.
(2) No other state represents more than 5% of the Auto Loans.
Distribution of the Auto Loans by Remaining Principal Balance as of the Cut-Off
Date
<TABLE>
<CAPTION>
Percentage of
Range of Remaining Number of Aggregate Aggregate
Principal Balances Auto Loans Principal Balance Principal Balance
------------------ ---------- ----------------- -----------------
<S> <C> <C> <C>
$ %
Total................................ $ 100.00%
</TABLE>
S-19
<PAGE>
Distribution of the Auto Loans by Remaining Terms to Maturity as of the
Cut-Off Date
<TABLE>
<CAPTION>
Percentage of
Range of Remaining Terms to Number of Aggregate Aggregate
Maturity (months) Auto Loans Principal Balance Principal Balance
----------------- ---------- ----------------- -----------------
<S> <C> <C> <C>
$ %
Total................................. $ 100.00%
</TABLE>
S-20
<PAGE>
THE SELLER AND THE SERVICER
General
The bank, which is the seller and the servicer, is a federally chartered
stock savings bank. The bank's home office is located at 7926 Jones Branch
Drive, McLean, Virginia 22102, and its executive offices are located at 8401
Connecticut Avenue, Chevy Chase, Maryland 20815. The bank's telephone number is
(301) 986-7000. The bank is subject to comprehensive regulation, examination and
supervision by the Office of Thrift Supervision, or the OTS, within the
Department of the Treasury and, to a lesser extent, by the Federal Deposit
Insurance Corporation, or the FDIC. Deposits at the bank are fully insured up to
$100,000 per insured depositor by the Savings Association Insurance Fund, which
is administered by the FDIC.
Based on unaudited results, at [March 31, 2000] the bank had consolidated
assets of approximately $[10.2] billion, deposits of approximately $[6.5]
billion, and stockholders' equity of approximately $[479.3] million. As a
savings bank chartered under the laws of the United States, the bank is subject
to certain minimum regulatory capital requirements imposed under the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989, as amended, or
FIRREA. At [March 31, 2000], the bank's tangible, core, tier 1 risk-based and
total risk-based regulatory capital ratios were [5.50]%, [5.50]%, [7.44]% and
[11.48]%, respectively. As of such date, the bank's capital ratios exceeded the
requirements under FIRREA as well as the standards established for "well-
capitalized" institutions under the prompt corrective action regulations
established pursuant to the Federal Deposit Insurance Corporation Improvement
Act of 1991. The OTS has the discretion to treat a "well-capitalized"
institution as an "adequately capitalized" institution for purposes of the
prompt corrective action regulations if, after notice and an opportunity for a
hearing, the OTS determines that the institution is being operated in an unsafe
or unsound condition or has received and has not corrected a less than
satisfactory examination rating for asset quality, management, earnings or
liquidity.
Litigation
The seller is not involved in any legal proceedings, and is not aware of
any pending or threatened legal proceedings, that would have a material adverse
effect upon its financial condition or results of operations.
Delinquency and Default Experience
The tables below set forth certain information concerning the bank's
delinquency and loss experience with respect to its gross servicing of retail
installment sales contracts for new and used automobiles, light duty trucks and
vans acquired pursuant to its finance programs. Delinquency is recognized on a
contractual basis only. Past due payments must equal or exceed [___] of the
scheduled payment due for a contract to be considered delinquent. There can be
no assurance that the levels of delinquency and loss experience reflected in the
tables below, are indicative of the performance of the auto loans included in
the trust.
S-21
<PAGE>
CHEVY CHASE BANK, F.S.B.
Delinquency Experience
<TABLE>
<CAPTION>
As of December 31,
-----------------------------------------------------------------------------------------------
1995 1996 1997 1998
---------------------- --------------------- -------------------- ---------------------
Dollar Percentage Dollar Percentage Dollar Percentage Dollar Percentage
Amount of Total Amount of Total Amount of Total Amount of Total
(000) Auto Loans (000) Auto Loans (000) Auto Loans (000) Auto Loans
------- ---------- ------- ----------- ------- ---------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Auto Loans
Outstanding(1)... $431,351 $ 714,320 $853,424 $760,348
-------- --------- -------- --------
Delinquencies:(2)(3)
30-59 Days........... $ 2,491 0.58% $ 8,516 1.19% $ 9,212 1.08% $ 7,919 1.04%
60-89 Days........... 742 0.17% 2,176 0.30% 3,256 0.38% 2,297 0.30%
90 days or more...... 1,667 0.39% 3,588 0.50% 9,188 1.08% 6,155 0.81%
-------- ---- --------- ---- -------- ---- -------- ----
Total Delinquencies.. $ 4,900 1.14% $ 14,280 1.99% $ 21,656 2.54% $ 16,371 2.15%
-------- ---- --------- ---- -------- ---- -------- ----
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
-----------------------
1999 As of
----------------------- ----------------------
Dollar Percentage Dollar Percentage
Amount of Total Amount of Total
(000) Auto Loans (000) Auto Loans
-------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Auto Loans
Outstanding(1)...... $1,133,797 $
---------- ----------
Delinquencies:(2)(3)
30-59 Days.......... $ 10,439 0.92% $ %
60-89 Days.......... $ 3,180 0.28% $ %
90 days or more..... $ 7,709 0.68% $ %
---------- ---- ---------- ----
Total Delinquencies. $ 21,328 1.88% $ %
---------- ---- ---------- ----
</TABLE>
(1) Auto loans outstanding is the remaining principal balance.
(2) The period of delinquency is based on the number of days payments are
contractually past due.
(3) Includes repossessions in inventory.
S-22
<PAGE>
CHEVY CHASE BANK, F.S.B.
Loss Experience
<TABLE>
<CAPTION>
For the year ended December 31,
------------------------------------------------------------------------------------------
1995 1996 1997
---------------------------- ---------------------------- ---------------------------
Percentage of
Average Auto Percentage of Percentage
Loans Average Auto of Average
Dollar Outstanding Dollar Loans Dollar Auto Loans
Amount (000) plain Amount (000) Outstanding Amount (000) Outstanding
------------- ------------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Average Auto Loans
Outstanding(2) $363,845 $565,963 $832,700
-------- -------- ----------
Gross Charge-offs(3) $ 2,120 0.58% $ 3,795 0.67% $ 8,303 1.00%
Recoveries(4) $ 275 0.07% $ 277 0.05% $ 770 0.09%
Net Losses $ 1,845 0.51% $ 3,518 0.62% $ 7,533 0.91%
-------- ---- -------- ---- -------- ----
</TABLE>
<TABLE>
<CAPTION>
For the year ended December 31,
------------------------------------------------------ For the three-month
1998 1999 period ended
------------------------- -------------------------- --------------------
Percentage of Percentage of Percentage of
Dollar Average Auto Average Auto Average Auto
Amount Loans Dollar Loans Dollar Loans
(000) Outstanding Amount (000) Outstanding Amount (000) Outstanding (1)
-------- ----------- ------------ ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Average Auto Loans
Outstanding(2) $771,587 $940,031 $
-------- -------- ---------
Gross Charge-offs(3) $ 12,682 1.64% $ 8,200 0.87% $ %
Recoveries(4) $ 1,211 0.15% $ 1,554 0.16% $ %
Net Losses $ 11,471 1.49% $ 6,646 0.71% $ %
-------- ---- -------- ---- -------- ----
</TABLE>
(1) Annualized.
(2) Equals the arithmetic average of the month-end balances.
(3) Gross charge-offs represent the excess of the outstanding loan balance over
net liquidation proceeds where net liquidation proceeds are the excess of
liquidation proceeds over the sum of repossession, liquidation and other
related expenses.
(4) Includes current post-disposition recoveries on receivables previously
charged off.
S-23
<PAGE>
DESCRIPTION OF SALE AND SERVICING AGREEMENT
Conveyance of Auto Loans
On the closing date, the bank will sell the auto loans to the trust,
without recourse except as expressly set forth in the sale and servicing
agreement. Concurrently with this sale and assignment, the indenture trustee
will execute, authenticate and deliver the notes to the underwriters against
payment to the seller of the net purchase price of the sale of the notes.
Servicer Default; Waiver of Past Defaults
If a servicer default under the sale and servicing agreement, the servicer
may be removed by the indenture trustee or by the majority noteholders. The
majority noteholders may waive certain defaults by the servicer in the
performance of its obligations under the sale and servicing agreement, as
described in "The Trust Documents--Rights upon an Event of Default" in the
accompanying prospectus.
The majority noteholders means, as of any date of determination, holders of
notes representing a majority of the aggregate of the principal balance of each
class of notes as of that date of determination.
Servicer defaults are described in the prospectus under "The Trust
Documents -- Removal of the Servicer."
Servicing Compensation, Payment of Expenses and Trustees' Fees
For its servicing of the auto loans, the servicer will be entitled to
retain from collections on the auto loans a monthly servicing fee which equals
one-twelfth times [ ]% of the pool balance as of the first day of the
immediately preceding collection period. The servicer shall deposit all late
fees, prepayment charges, extension fees or other administrative fees or similar
charges into the collection account and such fees and charges shall be included
in Available Funds.
All costs of servicing each auto loan in the manner required by the sale
and servicing agreement shall be borne by the servicer, but the servicer shall
be entitled to retain, out of any amounts actually recovered with respect to any
Defaulted Auto Loan or the financed vehicles subject to a Defaulted Auto Loan,
the servicer's actual out-of-pocket expenses reasonably incurred with respect to
such Defaulted Auto Loan or financed vehicle.
On each distribution date, the indenture trustee and the owner trustee are
each entitled to receive a fee, payable from Available Funds, for their services
as indenture trustee and owner trustee, respectively, during the prior
collection period in an amount agreed upon by the seller and the indenture
trustee and the owner trustee, respectively.
S-24
<PAGE>
DESCRIPITION OF THE NOTES
General
The issuer will issue the Class A-1 Notes, the Class A-2 Notes and the
Class M-1 Notes under an indenture, a form of which has been filed as an exhibit
to the registration statement. The following summary describes material terms of
the notes and the indenture. The summary does not purport to be complete and is
subject to all the provisions of the notes and the indenture. The following
summary supplements the description of the general terms and provisions of the
notes of any given series and the related indenture as described in the
accompanying prospectus, and to the extent that those descriptions differs from
the descriptions provided in this prospectus supplement, the descriptions
provided in this prospectus supplement replace those descriptions. You can
obtain a copy of the indenture without charge on written request addressed to
the indenture trustee at its Corporate Trust Department at 180 East 5th Street,
St. Paul, Minnesota 55101, Att: Structured Finance/Chevy Chase ______.
The issuer will offer the notes in denominations of $1,000 and integral
multiples of $1,000 in book-entry form only. Persons acquiring beneficial
interests in the notes will hold their interests through The Depository Trust
Company in the United States or Clearstream, Luxembourg or in the Euroclear
System in Europe. See "Description of the Securities -- Book-Entry Registration"
and Annex I in the prospectus.
In addition to the notes, the trust will also issue the trust certificate
which will not be offered by this prospectus supplement.
Distributions to the Class M-1 Noteholders.
Payments of interest and principal on the M-1 will only be made on each
distribution date if Available Funds remain after paying all fees to the
servicer, the indenture trustee and the owner trustee and after making all
distributions of interest or principal on the Class A Notes on that date.
Distribution Dates
The notes will pay interest and principal on the fifteenth day of each
month, or, if the fifteenth day is not a business day, on the next following
business day. The first distribution date will be _____. Only holders of record
as of the close of business on the day (whether or not a business day)
immediately preceding a distribution date, commonly known as a record date, will
receive payments on that distribution date.
A business day is a means any day other than a Saturday, a Sunday or a day
on which banking institutions in New York City, Chevy Chase, Maryland or in the
city in which the Corporate Trust Office of the indenture trustee under the
trust agreement is located are authorized or obligated by law or executive order
to close.
S-25
<PAGE>
Each month the trust will distribute the amounts received on the auto loans
and any other collections available as property of the trust during the calendar
month, before the month in which the distribution date occurs. This period is
referred to as a collection period.
The final scheduled distribution dates are set forth on the cover to this
prospectus supplement.
Interest Payments
Interest on each class of notes will accrue during each interest accrual
period at the applicable interest rate set forth below from and including the
most recent distribution date that interest was paid -- or, in the case of the
first distribution date, from and including the closing date -- but excluding
the following distribution date. In the case of the first distribution date, the
interest period shall be ___ days. The interest accruing during an interest
period will accrue on each class' outstanding principal amount as of the end of
the prior distribution date -- or, in the case of the first distribution date,
as of the closing date.
For any distribution date, interest due but not paid on that distribution
date will be due on the next distribution date together with, to the extent
permitted by law, interest at the applicable interest rate on that unpaid
amount. Interest on the Class A-1 Notes will be calculated on the basis of a
360-day year and the actual number of days elapsed in the applicable interest
accrual period. Interest on the Class A-2 and Class M-1 Notes will be calculated
on the basis of a 360-day year consisting of twelve 30-day months.
The servicer will pay interest on the notes from the note account after
paying accrued and unpaid trustees' fees, the issuer's other administrative fees
and the servicing fees. See "-- Distributions" below.
The note rate for each class of notes is as follows:
o Class A-1 Note Rate: ___% per annum;
o Class A-2 Note Rate: ___% per annum; and
o Class M-1 Note Rate: ___% per annum.
Principal Payments
For each distribution date, each of the holders of the Class A Notes and
the Class M-1 Notes will be entitled to receive payments of principal, to the
extent funds are available, in the priorities set forth in the indenture and
described in this prospectus supplement and below under "Flow of Funds." In no
event will the principal paid in respect of a class of notes exceed the initial
note principal balance of such class of notes.
Principal will be allocated to the Class A Notes and the Class M-1 Notes,
based on the related class percentage. Principal will be paid to the holders of
the Class A Notes in "sequential pay" fashion with all of the amount payable to
the holders of the Class A Notes going
S-26
<PAGE>
first to reduce the principal balance of the Class A-1 Notes until such class is
reduced to zero. No principal will be paid to the holders of the Class A-2 Notes
until the principal balance of the Class A-1 Notes has been reduced to zero.
The principal amount of each class of notes, to the extent not previously
paid, will be due on the related final scheduled distribution date set forth
above. If all payments on the contracts are made as scheduled, final payment
with respect to the notes would occur prior to the final scheduled distribution
date.
Accounts
General
On the closing date, the trust collateral agent, will establish the
following accounts in the name of the indenture trustee, for the benefit of the
noteholders:
o the collection account, into which all payments (other than amounts
representing the servicing fee and other amounts payable to the
servicer) made on or with respect to the auto loans will be deposited,
o the note account, from which all distributions with respect to the
auto loans and the notes will be made; and
o reserve account.
Reserve Account
To further secure the notes, the trust will establish a reserve account
with the trust collateral agent, for the benefit of the noteholders. The reserve
account will be funded by the trust on the closing date with an initial deposit
by the trust of cash in an amount required by the sale and servicing agreement.
After the closing date, Available Funds will be deposited from time to time in
the reserve account as described under "--Flow of Funds" in this prospectus
supplement, to the extent necessary to maintain the amount in the reserve
account at the Specified Reserve Balance.
No later than third business day before the distribution date, if there are
not enough Available Funds to pay Note Interest, the Class A Principal Payment
Amount and the Class M-1 Principal Payment Amount to the noteholders on the
following distribution date in accordance with the priority of payments set
forth below, any amounts on deposit in the reserve account will be deposited in
the note account. Amounts on deposit in the reserve account that are in excess
of the Specified Reserve Balance will be released to the seller or its designee.
Funds on deposit in the reserve account may be invested in eligible
investments, as described in the prospectus. Any net investment income on monies
on deposit in the reserve account will not be available for distribution to the
noteholders or otherwise subject to any claims or rights of the noteholders, and
will be paid to the bank or its designee on each
S-27
<PAGE>
distribution date. Investment expenses and any loss on such investments in
excess of earnings for the related collection period will be charged to the
reserve account on each distribution date.
Transfers from the Collection Account and the Reserve Account into the Note
Account
On or before the earlier of the 8th business day or the 11th calendar day
of each month, or the determination date, the servicer will instruct the
indenture trustee to withdraw from the collection account and deposit in the
note account the amount collected on account of the auto loans for the prior
collection period. The servicer will also on the determination date deliver a
servicer's certificate to the indenture trustee and the rating agencies. The
servicer's certificate will provide the information needed to make payments and
other distributions and transfers on the upcoming distribution date.
If, in preparing the servicer's certificate, the servicer determines that
there are not enough Available Funds to pay Note Interest, the Class A Principal
Payment Amount and the Class M-1 Principal Payment Amount to the noteholders on
the following distribution date in accordance with the priority of payments
listed below, the servicer will calculate the amount Available Funds are
insufficient and notify the indenture trustee. The indenture trustee will
withdraw from the reserve account an amount equal to the lesser of:
o the amount by which Available Funds are insufficient to pay Note
Interest, the Class A Principal Payment Amount and the Class M-1
Principal Payment Amount to the noteholders, and
o the amount then on deposit in the reserve account.
The indenture trustee will then deposit this amount in the note account.
The entire amount of money then on deposit in the note account, including the
amount withdrawn from the reserve account and deposited into the note account,
will be available to make distributions to the noteholders. However, amounts
deposited into the note account in error and Liquidation Proceeds from auto
loans purchased by the seller or the servicer, as the case may be, will be not
be available for distribution.
Flow of Funds
On each distribution date, the indenture trustee will make the following
distributions in the following order of priority, in each case from the
then-remaining Available Funds:
(1) to pay the indenture trustee fee including any overdue indenture
trustee fee;
(2) to pay the owner trustee fee including any overdue owner trustee fee;
(3) to pay Note Interest due on the Class A Notes pari passu based on the
interest due on each class of notes;
S-28
<PAGE>
(4) to pay Note Interest on the Class M-1 Notes;
(5) to pay the Class A Principal Payment Amount sequentially to the
holders of the Class A Notes, with 100% of that amount being paid to
the holders of the Class A-1 Notes until the note principal balance of
the Class A-1 Notes has been reduced to zero, and then 100% of that
amount paid to the holders of the Class A-2 Notes until the note
principal balance of the Class A-2 Notes has been reduced to zero;
(6) to pay the Class M-1 Principal Payment Amount to the holders of the
Class M-1 Notes;
(7) to the reserve account, the amount necessary to increase the amount on
deposit in the reserve account up to the Specified Reserve Balance as
of such distribution date;
(8) to the servicer and the indenture trustee, certain indemnification
amounts to which they may be entitled; and
(9) to the trust certificate holder , any remaining amounts.
Withholding
The indenture trustee is required to comply with all federal income tax
withholding requirements respecting payments to noteholders of interest or
original issue discount with respect to the notes that the indenture trustee
reasonably believes are applicable under the Code. Foreign Beneficial Owners
will be subject to U.S. income and withholding tax unless they provide certain
certifications as described under "Certain Federal Income Tax Consequences--Tax
Consequences to Holders of the notes--Foreign Investors" in this prospectus
supplement. The consent of neither the noteholders nor the Beneficial Owners
will be required for such withholding. In the event that the indenture trustee
does withhold or causes to be withheld any amount from interest or original
issue discount payments or advances thereof to any noteholders pursuant to
federal income tax withholding requirements, the indenture trustee is required
to indicate the amount withheld in its monthly report to such noteholders. If
any withholding or other tax is imposed by any jurisdiction, neither the
noteholders nor the Beneficial Owners have any right to receive additional
interest or other amounts in consequence thereof.
Reports to Noteholders
On each distribution date, the trust collateral agent will furnish or cause
to be furnished with each payment to noteholders, a monthly report, based on
information in the servicer's certificate, setting forth the following
information for that distribution date:
o the amount of the distribution allocable to principal for each class
of notes including any overdue principal;
S-29
<PAGE>
o the amount of the distribution allocable to interest for each class of
notes including any overdue interest;
o the aggregate amount of fees and compensation received by the
servicer, the owner trustee and the indenture trustee for the
collection period;
o the amount, if any, withdrawn from the reserve account with respect to
such distribution date;
o the aggregate net losses on the auto loans for the related collection
period;
o the pool balance and the pool factor as of the end of the related
collection period;
o the aggregate principal balance of all auto loans which were
delinquent 30 days or more as of the last day of the related
collection period; and
o the principal balance for each class of notes on such distribution
date (after giving effect to the distributions on such distribution
date).
Optional Termination
The indenture and the sale and servicing agreement will provide that on any
distribution date following the record date on which the total principal balance
of the notes is 5% or less of the aggregate original note principal balance, the
bank will have the option to acquire all right, title and interest in all, but
not less than all, auto loans held in the trust by paying into the trust for
retirement of the notes an amount equal to the aggregate of the purchase amounts
of the auto loans.
Events of Default
The notes are subject to events of default as described in the prospectus
under "The Trust Documents - Events of Default; Rights Upon Events of Default.".
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
You should consider the following discussion of certain material federal
income tax consequences of the purchase, ownership and disposition of the notes
only in connection with "Material Federal Income Tax Considerations" in the
accompanying prospectus. The discussion in this prospectus supplement and in the
accompanying prospectus is based upon laws, regulations, rulings and decisions
now in effect, all of which are subject to change. The discussion in this
prospectus supplement and in the accompanying prospectus does not purport to
deal with all federal tax considerations applicable to all categories of
investors. Some holders, including insurance companies, tax-exempt
organizations, financial institutions or broker dealers, taxpayers subject to
the alternative minimum tax, and holders that will hold the notes as other
S-30
<PAGE>
than capital assets, may be subject to special rules that are not discussed
below. It is recommended that investors consult their own tax advisors in
determining the federal, state, local and any other tax consequences to them of
the purchase, ownership and disposition of the notes.
Tax Characterization of the Trust
Dewey Ballantine LLP is our tax counsel, and is of the opinion that,
assuming the parties will comply with the terms of the governing agreements, the
trust will not be an association, or publicly traded partnership, taxable as a
corporation for federal income tax purposes.
Tax Consequences to Holders of the Notes
Treatment of the Notes as Indebtedness. The seller, the servicer and the
trust agree and the noteholders will agree by their purchase of notes, to treat
the notes as debt for all federal, state and local income tax purposes. There
are no regulations, published rulings or judicial decisions involving the
characterization for federal income tax purposes of securities with terms
substantially the same as the notes. In general, whether instruments such as the
notes constitute indebtedness for federal income tax purposes is a question of
fact, the resolution of which is based primarily upon the economic substance of
the instruments and the transaction under which they are issued rather than
merely upon the form of the transaction or the manner in which the instruments
are labeled.
The Internal Revenue Service and the courts have stated various factors to
be taken into account in determining, for federal income tax purposes, whether
or not an instrument constitutes indebtedness and whether a transfer of property
is a sale because the transferor has relinquished substantial incidents of
ownership in the property or whether the transfer is a borrowing secured by the
property.
On the basis of its analysis of the above factors as applied to the facts
and its analysis of the economic substance of the contemplated transaction, tax
counsel is of the opinion that, for federal income tax purposes, the notes will
be treated as indebtedness, and not as an ownership interest in the auto loans,
nor as an equity interest in the trust or in a separate association taxable as a
corporation or other taxable entity. See "Material Federal Income Tax
Considerations -- Debt Securities" in the accompanying prospectus.
If the notes are characterized as indebtedness, interest paid or accrued on
a note will be treated as ordinary income to the noteholders and principal
payments on a note will be treated as a return of capital to the extent of the
noteholder's basis in the note allocable thereto. An accrual method taxpayer
will be required to include in income interest on the notes when earned, even if
not paid, unless it is determined to be uncollectible. The trust will report to
noteholders of record and the IRS regarding the interest paid and original issue
discount, if any, accrued on the notes to the extent required by law.
Possible Alternative Characterizations of the Notes. Although, as described
above, it is the opinion of tax counsel that, for federal income tax purposes,
the notes will be
S-31
<PAGE>
characterized as debt, this opinion is not binding on the IRS and thus no
assurance can be given that this characterization will prevail. If the IRS
successfully asserted that one or more of the notes did not represent debt for
federal income tax purposes, the noteholders would likely be treated as owning
an interest in a partnership and not an interest in an association or publicly
traded partnership, taxable as a corporation. If the noteholders were treated as
owning an equitable interest in a partnership, the partnership itself would not
be subject to federal income tax; rather each partner would be taxed
individually on their respective distributive share of the partnership's income,
gain, loss, deductions and credits. The amount, timing and characterization of
types of income and deductions for a noteholder would differ if the notes were
held to constitute partnership interests, rather than indebtedness. Since the
parties will treat the notes as indebtedness for federal income tax purposes,
the servicer will not attempt to satisfy the tax reporting requirements that
would apply under this alternative characterization of the notes. Investors that
are foreign persons should consult their own tax advisors in determining the
federal, state, local and other tax consequences to them of the purchase,
ownership and disposition of the notes.
Discount and Premium. We do not anticipate issuing notes with any original
issue discount. See "Material Federal Income Tax Considerations -- Discount and
Premium -- Original Issue Discount" in the accompanying prospectus. The
prepayment assumption that will be used for purposes of computing original issue
discount, if any, for federal income tax purposes is 1% ABS. See "Prepayment and
Yield Considerations" in this prospectus supplement. In addition, a subsequent
purchaser who buys a note for less than its principal amount may be subject to
the "market discount" rules of the Code. See "Material Federal Income Tax
Considerations -- Discount and Premium -- Market Discount" in the accompanying
prospectus. A subsequent purchaser who buys a note for more than its principal
amount may be subject to the "market premium" rules of the Code. See "Material
Federal Income Tax Considerations -- Discount and Premium -- Premium" in the
accompanying prospectus.
Sale or Redemption of the Notes. If a note is sold or retired, the seller
will recognize gain or loss equal to the difference between the amount realized
on the sale and such holder's adjusted basis in the note. See "Material Federal
Income Tax Considerations -- Debt Securities -- Sales of Debt Securities" in the
accompanying prospectus.
Other Matters. For a discussion of backup withholding and taxation of
foreign investors in the notes, see "Material Federal Income Tax Considerations
-- Backup Withholding and Information Reporting" and "-- Foreign Investors --
The Withholding Regulations" and "-- Foreign Investors -- Grantor Trust
Securities, Debt Securities and FASIT Regular Securities" in the accompanying
prospectus.
State and Local Tax Considerations
Potential noteholders should consider the state and local income tax
consequences of the purchase, ownership and disposition of the notes. State and
local income tax laws may
S-32
<PAGE>
differ substantially from the corresponding federal law, and this discussion
does not purport to describe any aspect of the income tax laws of any state or
locality. Therefore, potential noteholders should consult their own tax advisors
as to the various state and local tax consequences of an investment in the
notes.
ERISA Considerations
The notes may be purchased by ERISA plans as described in the prospectus
under "ERISA Considerations - ERISA Considerations regarding Securities which
are Notes." The notes should be treated as indebtedness without substantial
equity features for purposes of the plan assets regulation. This determination
is based in part on the traditional debt features of the notes, including the
reasonable expectation of purchasers of notes that the notes will be repaid when
due, as well as the absence of conversion rights, warrants and other typical
equity features. The debt treatment of the notes for ERISA purposes could change
if the trust incurred losses. As described in the prospectus, the acquisition or
holding of the notes by or on behalf of an employee benefit plan could still
result in a prohibited transaction if the acquisition or holding of the notes by
or on behalf of the plan were deemed to be a prohibited loan to a party in
interest with respect to the plan. Accordingly, each purchaser and each
transferee using the assets of a plan subject to ERISA or Section 4975 of the
Internal Revenue Code to acquire the notes will be deemed to have represented
that the acquisition and continued holding of the notes will be covered by a
Department of Labor class exemption.
Any plan fiduciary considering the purchase of a note may wish to consult
with its counsel as to the potential applicability of ERISA and the Internal
Revenue Code to the investment. Moreover, each plan fiduciary may wish to
determine whether, under the general fiduciary standards of investment prudence
and diversification, an investment in the notes is appropriate for the plan,
taking into account the overall investment policy of the benefit plan and the
composition of the plan's investment portfolio.
The sale of notes to a plan is in no respect a representation by us or the
underwriters that this investment meets all relevant legal requirements for
investments by plans generally or any particular plan or that this investment is
appropriate for plans generally or any particular plan.
RATINGS
As a condition to issuance, the notes must receive at least the following
ratings from [Moody's Investors Service, Inc.] and [Standard & Poor's, a
division of the McGraw-Hill Companies, Inc.] in order to be issued:
<TABLE>
<CAPTION>
Class Ratings
----- -------
Moody's S&P
------- ---
<S> <C> <C>
A-1
A-2
M-1
</TABLE>
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time. The ratings assigned
to the notes address the likelihood of the receipt by the noteholders of all
distributions to which the noteholders are entitled by their respective final
scheduled distribution dates. The ratings assigned to the notes do not represent
any assessment of the likelihood that principal prepayments might differ from
those originally anticipated or address the possibility that noteholders might
suffer a lower than anticipated yield.
S-33
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions set forth in an underwriting
agreement, dated ______, the underwriters named below have agreed to purchase
from the seller the following respective principal amounts of the notes:
<TABLE>
<CAPTION>
Class A-1 Notes
-------------------------------------- --------------
Principal
Amount of
Underwriter Notes
-------------------------------------- --------------
<S> <C>
[------] $
__________________..................... $
Total.................................. $
</TABLE>
<TABLE>
<CAPTION>
Class A-2 Notes
-------------------------------------- --------------
Principal
Amount of
Underwriter Notes
-------------------------------------- --------------
<S> <C>
[------] $
__________________..................... $
Total.................................. $
</TABLE>
<TABLE>
<CAPTION>
Class M-1 Notes
-------------------------------------- --------------
Principal
Amount of
Underwriter Notes
-------------------------------------- --------------
<S> <C>
[------] $
__________________..................... $
Total.................................. $
</TABLE>
S-34
<PAGE>
The underwriting agreement provides that the obligations of the
underwriters are subject to certain conditions precedent and that the
underwriters will be obligated to purchase all the notes, if any are purchased.
The bank has been advised by the underwriters that the underwriters propose
to offer the notes to the public initially at the public offering price set
forth on the cover page of this prospectus supplement and to certain dealers at
such price less a concession of ____% of the principal amount per Class A-1
Note, ___% of the principal amount per Class A-2 Note and ___% of the principal
amount per Class M-1 Note. The underwriters and such dealers may allow a
discount of _____% of such principal amount per Class A-1 Note, _____% of such
principal amount per Class A-2 Note and _____% of such principal amount per
Class M-1 Note on sales to certain other dealers. After the initial public
offering, the public offering price and concession and discount to dealers may
be changed by the underwriters.
The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Act of 1934. 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 so long
as the stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the notes 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 originally sold by such syndicate member are
purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the notes to be higher than it would
otherwise be in the absence of such transactions.
The bank has agreed to indemnify the underwriters against certain
liabilities, including civil liabilities under the Securities Act, or contribute
to payments which the underwriters may be required to make in respect thereof.
Each underwriter has represented and agreed that:
o it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 and the Public Offers of Securities
Regulations 1995 (the regulations) with respect to anything done by it
in relation to the notes in, from or otherwise involving the United
Kingdom;
o it has only issued or passed on and will only issue or pass on to any
person in the United Kingdom any document received by it in connection
with the issue of the
S-35
<PAGE>
notes if that person is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions)
Order 1996 (as amended) or is a person to whom such document may
otherwise lawfully be issued or passed on; and
o it has not offered or sold and, during the period of six months from
the date hereof, will not offer or sell any notes to persons in the
United Kingdom except to persons whose ordinary activities involve
them in acquiring, holding, managing, or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise
in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the
Regulations.
In the ordinary course of its business, each underwriter and its respective
affiliates have engaged and may in the future engage in commercial banking and
investment banking transactions with the bank and its affiliates.
LEGAL MATTERS
Certain legal matters relating to the issuance of the notes will be passed
upon for the seller and the trust by [______], for the underwriters by
[_________________].
S-36
<PAGE>
GLOSSARY
Available Funds for any distribution date, for the related determination
date, will equal any and all amounts then held in the collection account and
deposited in the collection account with respect to the auto loans during or
otherwise with respect to the related collection period excluding:
o amounts representing the servicing fee and other amounts payable to
the servicer as described in "Description of the Sale and Servicing
Agreement--Servicing Compensation and Payment of Expenses" in this
prospectus supplement for such collection period); and
o amounts, if any, on deposit in or withdrawn from the reserve account.
Base Principal Amount (A) for any distribution date, other than the final
scheduled distribution date, and each class of notes will equal the excess of
o the aggregate unpaid principal balances of the auto loans on the last
day of the second preceding collection period (or, in the case of the
first distribution date, the original note principal balance)
over
o the aggregate unpaid principal balances of the auto loans on the last
day of the collection period immediately preceding such distribution
date; and
(B) on the final scheduled distribution date for each class of notes, the
Base Principal Amount will equal the principal balance for such class on such
date.
For the purpose of determining Base Principal Amount, the unpaid principal
balance of a Defaulted Auto Loan or a Purchased Auto Loan is deemed to be zero
on and after the last day of the collection period in which such auto loan
became a Defaulted Auto Loan or a Purchased Auto Loan. In no event shall the
Base Principal Amount to be distributed exceed the principal balance of the
class of notes as of the related determination date.
Class A Percentage means (A) for any distribution date prior to date on
which the note principal balance of the Class A-1 Notes has been reduced to
zero, 100.0% and (B) on and after the Class A-1 Note balance has been reduced to
zero, the original note principal balance for the Class A Note over the original
note principal balance of all classes of notes or approximately [______%];
provided, however, that, in the event that the principal balance of all
defaulted auto loans exceeds 10% of all auto loans in the trust as of the
closing date, the Class A Percentage shall be equal to 100.0% until the note
principal balance of Class A Notes has been reduced to zero.
Class A Principal Payment Amount means, for any distribution date, the
lesser of:
S-37
<PAGE>
o the sum of the Base Principal Amount times the Class A Percentage plus
Overdue Principal with respect to the Class A Notes; and
o the note principal balance of the Class A Notes.
On the final scheduled distribution date of any class of Class A Notes, the
Class A Principal Payment Amount shall not be less than the amount necessary to
reduce the note principal balance of such class of notes to zero.
Class M-1 Percentage means, 100% minus the Class A Percentage.
Class M-1 Principal Payment Amount means, with respect to any distribution
date, the lesser of:
o the excess of (1) the Base Principal Amount for such distribution date
over (2) the Class A Principal Payment Amount actually distributed on
such distribution date, and
o the amount necessary to reduce the note principal balance of the Class
M-1 Notes to zero.
On the final scheduled distribution date of the Class M-1 Notes, the Class
M-1 Principal Payment Amount shall be equal to the amount necessary to reduce
the note principal balance of the Class M-1 Notes to zero.
Cram Down Loss means, with respect to an auto loan, if a court of
appropriate jurisdiction in an insolvency proceeding issues a final order
reducing the amount owed on the auto loan or otherwise modifying or
restructuring the scheduled payments to be made on the auto loan, an amount
equal to (1) the excess of the Principal Balance of the auto loan immediately
prior to the order over the Principal Balance of the auto loan as reduced and/or
(2) if the court issues an order reducing the effective rate of interest on the
auto loan, the excess of the Principal Balance of the auto loan immediately
prior to the order over the net present value -- using as the discount rate the
higher of the APR on the auto loan or the rate of interest, if any, specified by
the court in the order -- of the scheduled payments as so modified or
restructured. A Cram Down Loss shall be deemed to have occurred on the date of
the order's issuance.
Defaulted Auto Loan means, with respect to any distribution date, an auto
loan with respect to which the earlier of the following has occurred:
o the related obligor is contractually delinquent for 180 days as of the
end of the most recently completed collection period (or, with respect
to an auto loan which the servicer has determined to be either a
"skip" or a bankruptcy, such longer period of delinquency as [the
servicer may determine]), or
o as to which the servicer has determined in accordance with its
customary servicing practices that eventual payment of the scheduled
payments is unlikely.
S-38
<PAGE>
Liquidation Proceeds means, with respect to any Defaulted Auto Loan and
collection period, the monies collected with respect to the Defaulted Auto Loan
during the collection period from whatever source (other than withdrawals from
the reserve account), minus the sum of
o any amounts expended by the servicer for the account of the obligor,
and
o any amount required by law to be remitted to the obligor.
Note Current Interest means, with respect to any collection period and any
distribution date, the interest accrued during the related interest accrual
period, equal to:
(A) for the Class A-1 Notes, the product of (1) a fraction, the numerator
of which is the actual number of days elapsed in the related interest accrual
period and the denominator of which is 360, (2) the related note rate and (3)
the aggregate note principal balance of the related class of notes outstanding
immediately prior to the related distribution date; and
(B) for the Class A-2 Notes and the Class M-1 Notes, the product of (1) a
fraction, the numerator of which is 30 and the denominator of which is 360, (2)
the related note rate and (3) the aggregate note principal balance of the
related class of notes outstanding immediately prior to the related distribution
date.
Note Interest means, for a class of notes and any collection period the sum
of the Note Current Interest and the Overdue Interest for the class.
Overdue Interest means, for a class of notes and any distribution date, the
difference between
o the sum of (1) the excess, if any, of any Note Current Interest due on
the immediately preceding distribution date for that class over the
Note Current Interest paid on that class on the immediately preceding
distribution date, plus (2) without duplication of the amount
described in clause (1), the amount of the Overdue Interest for that
class due and unpaid as of the immediately preceding distribution date
and
o any Overdue Interest for that class paid on the distribution date.
Overdue Principal means, for any class of notes and any distribution date,
the excess, if any, of:
o principal payment amounts with respect to the class due on all prior
distribution dates over
o the aggregate amount of the principal (from whatever source) actually
distributed to noteholders of the class on all prior distribution
dates.
The Overdue Principal with respect to the Class A Notes is equal to the sum
of the Overdue Principal for the Class A-1 Notes and the Class A-2 Notes.
S-39
<PAGE>
Purchased Auto Loan means, with respect to a distribution date, an auto
loan purchased by the seller or the servicer on or prior to the determination
date immediately preceding such distribution date.
Specified Reserve Balance means the lesser of:
o the greater of (1) [ ]% of the principal balance of the auto loans at
the end of last day of the calendar month preceding the current
distribution date, and (2) $___________, and
o the outstanding principal amount of the notes.
S-40
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the managers of Chevy Chase Auto Receivables Trust ______:
In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of Chevy Chase Auto Receivables Trust
______ as of _____, in conformity with generally accepted accounting principals.
This financial statement is the responsibility of the trust's management; our
responsibility is to express an opinion on this financial statement based on our
audit. We conducted our audit in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
[______]
Chevy Chase, Maryland
----------
S-41
<PAGE>
CHEVY CHASE AUTO RECEIVABLES TRUST ______
BALANCE SHEET
----------,
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash ............................................................... $1,000
------
Total Assets ....................................................... $1,000
======
LIABILITIES AND TRUST PRINCIPAL
Interest in trust ................................................... $1,000
------
Total liabilities and trust principal ............................... $1,000
======
</TABLE>
The accompanying notes are an integral part of this financial statement.
S-42
<PAGE>
CHEVY CHASE AUTO RECEIVABLES TRUST ______
NOTES TO FINANCIAL STATEMENT
----------
1. Nature of Operations:
Chevy Chase Auto Receivables Trust ______ (the "Trust"), was formed in the
State of Delaware on ____________. The Trust has been inactive since that date.
The Trust was organized to engage exclusively in the following business and
financial activities: to acquire motor vehicle retail installment sale contracts
from the bank. and any of its affiliates; to issue and sell notes collateralized
by its assets; and to engage in any lawful act or activity and to exercise any
power that is incidental and is necessary or convenient to the foregoing.
2. Capital Contribution:
Chevy Chase Bank F.S.B.. purchased, for $1,000, a 100% beneficial ownership
interest in the Trust.
S-43
<PAGE>
$__________
Chevy Chase Auto Receivables Trust ______
Chevy Chase Bank, F.S.B.
Seller and Servicer
Auto Receivables Backed Notes, Series ______
--------------------------
PROSPECTUS SUPPLEMENT
--------------------------
[______]
---------
You should rely on the information contained or incorporated by reference in
this prospectus supplement and the accompanying prospectus. We have not
authorized anyone to provide you with different information.
We are not offering the securities offered hereby in any state where the offer
is not permitted.
<PAGE>
FORM OF PROSPECTUS
SUPPLEMENT (CERTIFICATES)
PROSPECTUS SUPPLEMENT
(To prospectus dated ____, 2000)
Chevy Chase Auto Receivables Trust ___
Series ________ Certificates
Chevy Chase Bank, F.S.B., servicer
--------------------------------------------------------------------------------
We suggest that you read the section entitled "Risk Factors" on page 4 of the
prospectus and on page S-[ ] of this prospectus supplement and consider these
factors before making a decision to invest in these certificates.
These certificates are auto loan asset-backed certificates which represent
beneficial ownership interests in the trust. The certificates are not interests
in or obligations of any other person or entity.
Neither these certificates nor the auto loans will be insured or guaranteed by
any governmental agency or instrumentality.
Retain this prospectus supplement for future reference. This prospectus
supplement may not be used to consummate sales of certificates unless
accompanied by the prospectus relating to the offering of these certificates.
--------------------------------------------------------------------------------
The trust will issue-
o Two classes of certificates, which are offered by this prospectus
supplement; and
o Additional interests in the trust which are to be held by the seller are
not offered by this prospectus supplement but serve as credit support to
the certificates offered by this prospectus supplement.
The certificates-
o Represent beneficial ownership interests in the assets of the trust. The
assets of the trust securing the certificates will include a pool of prime
and non-prime auto loans secured by new and used automobiles, light trucks
and vans;
o Receive monthly distributions on the [15th] day of each month beginning on
______; and
o Currently have no trading market.
Credit enhancement-
o For the Class A Certificates, the overcollateralization, the reserve
account and the Class B Certificates;
o For the Class B Certificates, the overcollateralization and the reserve
account; and
o [For the Class A Certificates [and the Class B Certificates] a financial
guarantee insurance policy issued by [Name of Insurer] unconditionally or
irrevocably guaranteeing timely payment of interest and principal.]
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
Issuance Pass-through Final Scheduled Initial Public Underwriting Proceeds
Amount Rate Payment Date Offering Price(1) Discount to Seller(2)
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A Certificates
-------------------------------------------------------------------------------------------------------------------------------
Class B Certificates
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from ___________.
(2) Before expenses, estimated to be___________.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus supplement. Any representation to the
contrary is a criminal offense.
[Underwriters]
The date of this prospectus supplement is ________
<PAGE>
Where You Can Find More Information
Federal securities law requires the filing of information with the
Securities and Exchange Commission, including annual, quarterly and special
reports, proxy statements and other information. You can read and copy these
documents at the public reference facility maintained by the SEC at Judiciary
Plaza, 450 Fifth Street, NW, Room 1024, Washington, DC 20549. You can also copy
and inspect these reports, proxy statements and other information at the
following regional offices of the SEC:
New York Regional Office Chicago Regional Office
Seven World Trade Center Citicorp Center
Suite 1300 500 West Madison Street, Suite 1400
New York, New York 10048 Chicago, Illinois 60661
All reports we file on behalf of the trust with the SEC after the date of
this prospectus supplement but before the offering of the certificates ends are
considered to be part of this prospectus supplement. Information contained in
those reports updates and supercedes the information in this prospectus
supplement. We will provide you with copies of these reports, at no cost, if you
write to: 8401 Connecticut Avenue, Chevy Chase, Maryland 20815. Attention:
Secretary.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. SEC filings are also available to the public on the SEC's web
site at http://www.sec.gov.
This prospectus supplement supplements a prospectus that is part of a
registration statement filed by the seller with the SEC (Registration No. 333-
36242).
You should rely only on the information provided in this prospectus
supplement and the accompanying prospectus. We have not authorized anyone else
to provide you with different information. You should not assume that the
information in this prospectus supplement or in the prospectus is accurate as of
any date other than the date on the cover page of this prospectus supplement.
You can find definitions of the technical cashflow terms used in this
prospectus supplement in the Glossary beginning on page S-[ ] in this prospectus
supplement.
We include cross-references in this prospectus supplement to captions in
these materials where you can find further discussions. The following table of
contents provides the pages on which these captions are located.
In this prospectus, the terms "we", "us" and "our" refer to Chevy Chase
Bank, F.S.B.
S-2
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Where You Can Find More Information ....................................... 2
SUMMARY ................................................................... 4
RISK FACTORS .............................................................. 8
USE OF PROCEEDS ........................................................... 10
THE TRUST ................................................................. 10
THE TRUSTEE ............................................................... 10
THE TRUST ASSETS .......................................................... 10
YIELD AND PREPAYMENT CONSIDERATIONS ....................................... 18
THE SELLER AND THE SERVICER ............................................... 22
[THE INSURER] ............................................................. 28
DESCRIPTION OF POOLING AND SERVICING AGREEMENT ............................ 30
DESCRIPTION OF THE CERTIFICATES ........................................... 31
CREDIT ENHANCEMENT ........................................................ 34
MATERIAL FEDERAL INCOME TAX CONSEQUENCES .................................. 37
STATE AND LOCAL TAX CONSIDERATIONS ........................................ 39
ERISA CONSIDERATIONS ...................................................... 39
UNDERWRITING .............................................................. 40
LEGAL MATTERS ............................................................. 42
GLOSSARY .................................................................. 43
</TABLE>
S-3
<PAGE>
--------------------------------------------------------------------------------
SUMMARY
o This summary highlights select information from this prospectus supplement
and does not contain all of the information that you need to consider in
making your investment decision. This summary provides general, simplified
descriptions of matters which, in some cases, are highly technical and
complex. To understand all of the terms of the offering of the
certificates, carefully read both this entire prospectus supplement and the
attached prospectus each in its entirety.
o This summary provides an overview of calculations, cash flows and other
information to aid your understanding. To understand all of the terms of
the offering, we suggest that you carefully read this entire document and,
in particular, the full description of these calculations, cash flows and
other information in this prospectus supplement.
Trust
Chevy Chase Auto Receivables Trust ___. The trust will be a New York common law
trust. The address of the trust is in care of [Name of Trustee] at [address].
Seller/Servicer
Chevy Chase Bank, F.S.B, or the bank, a federally chartered stock savings bank,
will act as servicer of the auto loans.
Servicing
The bank will be the servicer of the auto loans and will be responsible for
servicing, managing and making collections on, and otherwise enforcing, the auto
loans. The servicer may designate its wholly owned subsidiary, Consumer Finance
Corporation, or CFC to act as sub-servicer with respect to the auto loans which
Consumer Finance Corporation has originated.
Insurer
[Name of Insurer], a [New York] financial guaranty insurance company.
Trustee
[Name of Trustee]. The address of the trustee is [address].
The Trust Assets
The trust's assets will include a pool of auto loans, cash on deposit in a
collection account and other assets as described in detail elsewhere in this
prospectus supplement.
Auto Loans
The auto loans consist of simple interest retail installment sales contracts
between dealers and retail purchasers and installment loans which are secured by
new and used automobiles, light duty trucks and vans financed by means of the
auto loan. Each obligor's obligation under its auto loan is a full recourse
obligation. The auto loans contain provisions which unconditionally require the
obligor to make all payments under the related auto loan.
--------------------------------------------------------------------------------
S-4
<PAGE>
--------------------------------------------------------------------------------
Characteristics of the Auto Loans
The statistical information presented in this prospectus supplement is based on
the auto loans as of _______ [,2000].
The auto loans will consist of "prime" and "non-prime" quality auto loans
secured by new and used automobiles, light duty trucks and vans which were
originated through automobile dealers under the lender's financing program.
As of ______ [,2000], the auto loans have:
o an aggregate principal balance of $________________;
o a weighted average annual percentage rate of approximately ____%;
o a weighted average original maturity of approximately __ months;
o a weighted average remaining maturity of approximately __ months; and
o a remaining term of not more than __ months and not less than __
months.
o We will pay the certificates from payments on the auto loans and
amounts recovered when financed vehicles are repossessed and sold,
after deducting expenses.
Cut-Off Date
The opening of business on _____________.
Payment Date
The [15th] day of each month if the [fifteenth] is a business day. If the
[fifteenth] is not a business day, the payment date will be the following day
that is a business day. The first payment date will be _____________.
Closing Date
On or about _______________.
Denominations
The trust will issue the certificates in minimum denominations of $100,000 and
integral multiples of $1,000. One certificate may be issued in another
denomination.
Distributions
Each month, the trust will distribute the amounts received on the auto loans and
any other collections available as property of the trust as follows:
Interest Distributions
On each payment date, interest that accrued during the interest accrual period
is payable at the applicable certificate pass-through rate. The pass-through
rate for the certificates is listed on the cover page of this prospectus
supplement. Interest on the certificates will be calculated on the basis of a
360-day year consisting of twelve thirty day months.
Amounts paid to holders of the certificates will be shared in proportion to
their interest in the trust.
Principal Distributions
On each payment date, the trust will pay principal in reduction of the
outstanding principal balance of the certificates.
Principal payments will be an amount generally equal to a percentage of the
decrease in the principal balance of the auto loan pool during the prior
calendar month. These principal payments will be allocable between the Class A
Certificates and the Class B Certificates, and paid to the
--------------------------------------------------------------------------------
S-5
<PAGE>
--------------------------------------------------------------------------------
individual Certificateholder in proportion to their percentage interest, until
the outstanding principal amount of that class is paid in full.
Subordination of Class B Certificates
The Class B Certificates are subordinate to the Class A Certificates. On each
payment date the Class A Certificateholders will be entitled to receive the full
amount of the interest and principal due to them before any interest or
principal payments will be made to the Class B Certificateholders.
[Overcollateralization
The overcollateralization amount is the amount by which the pool balance exceeds
the outstanding principal balance of the certificates. The overcollateralization
amount will be available to absorb any losses that certificateholders would
otherwise incur. As of the closing date, the overcollateralization will be equal
to $_______ or _____ of the pool balance as of ___________.]
Reserve Account
The [trustee] will hold a reserve account. We will use funds in the reserve
account to pay shortfalls in amounts due to the certificateholders of both
classes.
An initial deposit of $__________ will be placed in the reserve account on the
closing date. The servicer will deposit collections received from the auto loans
into the reserve account on each payment date after interest and principal
payments on the certificates and payment of certain fees and expenses have been
made.
The servicer will continue to make such deposits on each payment date until the
balance in the reserve account reaches the reserve balance described in the
prospectus supplement.
We will use funds in the reserve account to pay shortfalls in amounts due to the
certificateholders and if the bank or CFC is no longer the servicer, to pay any
fees due to the servicer.
[Pre-Funding Feature]
o [The trustee will hold $__________ of the proceeds of the certificates in a
pre-funding account which the trust will use to purchase additional auto
loans from the seller. The seller will acquire these additional auto loans
under the same purchase criteria as the auto loans in the trust on the
closing date.
o The trust will purchase these additional auto loans on or before
__________.]
Optional Redemption
On any payment date when the outstanding principal balance of the auto loans is
less than or equal to $______________, which is 5% of the original principal
balance of the auto loans as of ________, the servicer or the seller may
purchase the auto loans from the trust under a clean-up call. This will redeem
the certificates. If redemption occurs, we will pay you a final distribution
equaling the entire unpaid principal balance of the certificates plus any
accrued and unpaid interest.
Scheduled Maturity Dates
If the certificates have not already been paid in full, we will pay the
outstanding principal
--------------------------------------------------------------------------------
S-6
<PAGE>
amount of the certificates in full on the following payment dates:
Class A: _____________
Class B: _____________
Final payment on the certificates will probably be earlier than the scheduled
maturity date stated above.
Federal Income Tax Consequences
For federal income tax purposes:
In the opinion of Dewey Ballantine LLP, the trust will be treated as a grantor
trust for federal income tax purposes and will not be subject to federal income
tax.
Owners of beneficial interests in the certificates will report their pro rata
share of all income earned on the auto loans, other than amounts if any, treated
as stripped coupons. Subject to certain limitations, such owners who are
individuals, trusts or estates, may deduct their pro rata share of reasonable
servicing and other fees.
Dewey Ballantine LLP has prepared the discussion under "Material Federal Income
Tax Consequences" in this prospectus supplement and in the prospectus and is of
the opinion that the discussion accurately states all material federal income
tax consequences of the purchase, ownership and disposition of the certificates
to their original purchaser.
ERISA Considerations
Subject to the important considerations described under "ERISA Considerations"
in this prospectus supplement, pension, profit-sharing and other employee
benefit plans may purchase the Class A Certificates. The Class B Certificates
are not eligible for purchase by ERISA plans. You should consult with your
counsel regarding the applicability of the particular provisions of ERISA,
before purchasing a Class A Certificate.
Ratings
o The trust will not issue the certificates unless they have been assigned
the ratings stated below:
<TABLE>
<CAPTION>
Rating
------
[Agency 1] [Agency 2]
---------- ----------
<S> <C> <C>
Class A Certificates
Class B Certificates
</TABLE>
o You should know that the ratings could be lowered, qualified or withdrawn
by the rating agencies.
--------------------------------------------------------------------------------
S-7
<PAGE>
RISK FACTORS
We recommend you carefully consider, among other things, the following risk
factors before deciding to invest in the certificates offered by this prospectus
supplement.
Geographic concentration of auto loans may adversely affect the certificates.
As of _______ [the cut-off date], based upon billing address information
provided to the bank, the obligors resided in __ states and the District of
Columbia. [Five of these states, Virginia, North Carolina, Georgia, Texas and
Maryland], account for %, %, % and %, respectively, of the aggregate principal
balance of the receivables in the trust. Adverse economic conditions in
[Virginia, North Carolina, Georgia, Texas and Maryland] could adversely affect
the delinquency, loan loss or repossession experience with respect to the auto
loans. Changes in these factors may also affect the rate of principal payments
on the auto loans.
The Class B Certificates are subordinated certificates, and the risk of loss or
delay in distributions is greater than on the Class A Certificates.
Distributions of interest and principal on the Class B Certificates will be
subordinated in priority of payment to interest and principal due on the Class A
Certificates. Consequently, the Class B Certificateholders will not receive any
distributions on a payment date unless the full amount of interest and principal
due on the Class A Certificates on that payment date has been distributed to the
Class A Certificateholders. This subordination has the effect of increasing the
likelihood of payment on the Class A Certificates and therefore decreasing the
likelihood of payment on the Class B Certificates.
[The seller may be unable to originate enough auto loans to use all moneys in
the pre-funding account and therefore you may be exposed to reinvestment risk].
[The ability of the seller to originate sufficient additional auto loans
may be affected by a variety of social and economic factors including:
o interest rates,
o unemployment levels,
o the rate of inflation, and
o consumer perception of economic conditions generally.
If the seller (1.a) does not originate sufficient additional auto loans,
the money remaining in the pre-funding account as of _______ will not be used to
acquire additional loans and a mandatory redemption of a portion of the
certificates could result.
If a mandatory redemption occurs then you will receive a principal
prepayment. You will bear the risk of reinvesting any prepayment.]
S-8
<PAGE>
[Ratings on certificates are dependent upon the insurer's creditworthiness.]
[The ratings of the certificates will depend primarily on the
creditworthiness of the insurer as the provider of the financial guarantee
insurance policy relating to the certificates. There is a risk that if the
insurer's financial strength ratings are reduced, the rating agencies may reduce
the certificates' ratings.]
S-9
<PAGE>
USE OF PROCEEDS
The net proceeds received by the trust from the sale of the certificates
will be used to pay Chevy Chase Bank, F.S.B. the purchase price for the auto
loans, [to fund the initial deposit in the reserve account] [to deposit the
pre-funded amount into the pre-funding account], and ___________________.
THE TRUST
General
The trust, Chevy Chase Auto Receivables Trust ___, will be a [New York
common law] trust formed under a pooling and servicing agreement, dated as of
____________ between the seller, the servicer and the trustee for the purpose of
engaging in the transactions described in this prospectus supplement. The trust
will not engage in any activity other than (1) acquiring, holding and managing
the auto loans and the other assets of the trust, (2) issuing certificates in
private and public offerings, including the issuance of the certificates, (3)
making payments on the certificates and (4) engaging in other activities in
connection with the certificates.
THE TRUSTEE
[Name of the Trustee] will be the trustee under the pooling and servicing
agreement. [Name of the Trustee] is a [New York] banking corporation, the
principal offices of which are located at [address].
THE TRUST ASSETS
General
The assets of the trust will primarily consist of the [initial] auto loans,
which are secured by the financed vehicles.
The [initial] auto loans in the pool were purchased or originated either by
the bank, or its wholly-owned subsidiary, Consumer Finance Corporation, or CFC.
We refer to the bank and CFC collectively in this prospectus supplement as the
lenders. You should note that the bank also acts as servicer under that
agreement, and we refer to the bank in that capacity as the servicer. As of the
cut-off date, ___% of the aggregate principal balance of the [initial] auto
loans are [initial] auto loans originated or purchased by the bank, or bank
[initial] auto loans, and ____% of the aggregate principal balance of the
[initial] auto loans are [initial] auto loans originated or purchased by CFC, or
CFC [initial] auto loans.
S-10
<PAGE>
With respect to the bank [initial] auto loans as of the cut-off date:
o ____% by aggregate principal balance were purchased by the bank from
dealers in the ordinary course of business,
o ____% by aggregate principal balance were originated directly by the
bank at or through its deposit branches,
o approximately ____% of the aggregate principal balance of the bank
[initial] auto loans represents financing of new automobiles, light
duty trucks and vans and,
o approximately ____% represent financing of used automobiles, light
duty trucks and vans.
With respect to the CFC [initial] auto loans as of the cut-off date:
o all were purchased from dealers,
o approximately ____% by aggregate principal balance represents
financing of new automobiles, light duty trucks and vans, and
o approximately ____% represents financing of used automobiles, light
duty trucks and vans.
Underwriting Procedures
Each [initial] auto loan was originated or purchased by the lenders after a
review by the lenders in accordance with their established underwriting
procedures. Each lender has its own underwriting procedures.
The underwriting procedures of each lender are designed to provide a basis
for assessing the obligor's ability and willingness to repay the loan. In
conducting this assessment, the lenders consider the obligor's ratio of debt to
income and evaluate the obligor's credit history through a review of a credit
report compiled by a recognized consumer credit reporting bureau. The obligor's
equity in the collateral and the terms of the loan are also important in the
lenders' analysis. For the obligor's purchase of a vehicle, the bank's
guidelines provide for financing up to [115]% of the dealer cost for new
vehicles and of the trade-in value (as published by the National Automobile
Dealers Association, a standard reference source for dealers in used vehicles)
for used vehicles. CFC has two sets of guidelines which vary based on the
obligor's credit history. For new vehicles, CFC will finance up to [105]% of
dealer cost, plus sales taxes, license fees and a maximum of $[2,000] of
rebatable warranties and insurance, or [130]% of dealer cost, inclusive of all
additional expenses. For used vehicles, CFC will finance up to [110]% of the
trade-in value, plus sales taxes, license fees and a maximum of $[2,000] of
rebatable warranties and insurance, or [130]% of the trade-in value, inclusive
of all additional expenses. The lenders' guidelines are intended only to provide
a basis for lending decisions, and exceptions to such guidelines may, within
certain limits, be made based upon the credit judgment of the lending officer.
The lenders periodically conduct quality audits to ensure compliance with their
established policies and procedures.
CFC's underwriting guidelines relate to a category of lending in which
loans may be made to applicants who have experienced certain adverse credit
events (and therefore would not
S-11
<PAGE>
necessarily meet all of the bank's guidelines for its traditional loan program)
but who meet certain other creditworthiness tests. Such loans generally
experience higher rates of delinquencies, repossessions and losses, especially
under adverse economic conditions, as compared with loans originated pursuant to
the bank's traditional lending program.
Selection Criteria
The [initial] auto loans were selected from the lenders' portfolios on the
basis of a number of criteria, including the following:
o each [initial] auto loan has an original term to maturity of 12 to 72
months,
o each [initial] auto loan has a maturity of not later than
_______________,
o except with respect to the balloon [initial] auto loans (as described
below), each [initial] auto loan provides for level monthly payments
that fully amortize the amount financed over the original term,
o with respect to bank [initial] auto loans, no [initial] auto loan was
more than ___ days past due as of the cut-off date,
o with respect to CFC [initial] auto loans, no [initial] auto loan was
more than ___ days past due as of the cut-off date,
o each [initial] auto loan has an unpaid principal balance of not less
than $1,000 as of the cut-off date and
o if such [initial] auto loan was purchased or originated by CFC only,
the obligor has made at least one payment with respect thereto as of
the cut-off date.
o the weighted average remaining number of payments of the [initial]
auto loans was ____ months as of the cut-off date.
All the [initial] auto loans are prepayable at any time. The seller makes
no prediction as to the actual prepayment experience on the [initial] auto
loans. See also "Description of the Certificates--Maturity Dates; Optional
Redemption" in this prospectus supplement regarding the seller's option to
purchase the [initial] auto loans when the total principal balance of the auto
loans is 5% or less of total principal balance of the auto loans as of the
cut-off date.
The [initial] auto loans are simple interest and actuarial installment
sales contracts and installment loans which provide for equal monthly payments,
except for ____% of the [initial] auto loans (as a percentage of the initial
pool balance as of the cut-off date) which are balloon [initial] auto loans.
The composition, distribution by annual percentage rate, commonly called
APR, and geographical distribution of the [initial] auto loans as of the cut-off
date are as set forth in the following tables.
S-12
<PAGE>
Composition of the [initial] auto loans as of the Cut-Off Date
<TABLE>
<CAPTION>
<S> <C>
Initial Aggregate Principal Balance.......................................... $
Number of [initial] Auto Loans...............................................
Average Original Principal Balance........................................... $
Range of Original Principal Balances......................................... $ to $
Average Remaining Principal Balance.......................................... $
Range of Remaining Principal Balances........................................ $ to $
Weighted Average APR(1)...................................................... %
Range of APRs................................................................ % to %
Weighted Average Original Term to Maturity(1)................................ months
Range of Original Terms to Maturity.......................................... 12 months to 72 months
Weighted Average Remaining Term to Maturity(1)............................... months
Range of Remaining Terms to Maturity......................................... 12 months to 72 months
</TABLE>
(1) Weighted by remaining principal balance.
S-13
<PAGE>
Distribution of the [initial] auto loans by APR as of the Cut-Off Date
<TABLE>
<CAPTION>
Number of
[initial] Aggregate Percentage of Aggregate
Range of APRs Auto Loans Principal Balance Principal Balance
------------- ---------- ----------------- -----------------
<S> <C> <C> <C>
6.00% to 6.99%.................. $ %
7.00% to 7.99%.................. %
8.00% to 8.99%.................. %
9.00% to 9.99%.................. %
10.00% to 10.99%................. %
11.00% to 11.99%................. %
12.00% to 12.99%................. %
13.00% to 13.99%................. %
14.00% to 14.99%................. %
15.00% to 15.99%................. %
16.00% to 16.99%................. %
17.00% to 17.99%................. %
18.00% to 18.99%................. %
19.00% to 19.99%................. %
20.00% to 20.99%................. %
21.00% to 21.99%................. %
22.00% to 22.99%................. %
23.00% to 23.99%................. %
24.00% to 24.99%................. %
25.00% to 25.99%................. %
26.00% to 26.99%................. %
27.00% to 27.99%................. %
28.00% to 28.99%................. %
29.00% to 29.99%................. %
30.00% to 30.99%................. %
31.00% to 31.99%................. %
Total........................... $ 100.00%
</TABLE>
S-14
<PAGE>
Geographic Distribution of the [initial] auto loans as of the Cut-Off Date
<TABLE>
<CAPTION>
Number of
[initial] Aggregate Percentage of Aggregate
State(1)(2) Auto Loans Principal Balance Principal Balance
----------- ---------- ----------------- -----------------
<S> <C> <C> <C>
[Florida]........................ $ %
[Georgia]........................
[Maryland].......................
[North Carolina].................
[Ohio]...........................
[Pennsylvania]...................
[Virginia].......................
Other............................
Total........................... $ 100%
</TABLE>
(1) Based upon the billing address of the obligors.
(2) No other state represents more than 5% of the [initial] auto loans.
Distribution of the [initial] auto loans by Remaining Principal Balance
as of the Cut-Off Date
<TABLE>
<CAPTION>
Percentage of
Number of Aggregate Aggregate
Range of Remaining [initial] Principal Principal
Principal Balances Auto Loans Balance Balance
------------------ ---------- ------- -------
<S> <C> <C> <C>
$ 00.00 to $ 4,999.99................ $ %
$ 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...................
Total................................ $ 100.00%
</TABLE>
S-15
<PAGE>
Distribution of the [initial] auto loans by Remaining Terms to Maturity
as of the Cut-Off Date
<TABLE>
<CAPTION>
Percentage of
Number of Aggregate Aggregate
Range of Remaining Terms to [initial] Principal Principal
Maturity (months) Auto Loans Balance Balance
----------------- ---------- ------- -------
<S> <C> <C> <C>
1 to 12.................................... $ %
13 to 24....................................
25 to 36....................................
37 to 48....................................
49 to 60....................................
61 to 72....................................
Total................................. $ 100.00%
</TABLE>
[Additional Auto Loans]
[During the funding period, the seller will sell the subsequent auto loans
to the trust on the subsequent transfer dates. The trust will use the funds in
the pre-funding account to purchase the subsequent auto loans.
The trust's obligation to purchase the subsequent auto loans is subject to
the following conditions:
o as of each loan's subsequent cut-off date, each subsequent auto loan
and/or subsequent financed vehicle must satisfy the auto loan
eligibility criteria regarding the initial auto loans;
o [the insurer, if there is no insurer default, has approved the
subsequent auto loans transferred to the trust];
o the seller has not selected the subsequent auto loans in a manner that
either of them believes is adverse to the interests of [the insurer
or] the certificateholders;
o the seller will deliver certain opinions of counsel regarding the
validity of the subsequent auto loan transfer; and
o [Name of rating agency] must confirm that the ratings on the
certificates have not been withdrawn or reduced because of the
subsequent auto loans transfer to the trust.
Because the subsequent auto loans may be originated after the initial auto
loans, the auto loan pool's characteristics after the transfer of subsequent
auto loans to the pool may vary from the initial pool.
In addition, the trust's obligation to purchase the subsequent auto loans
is subject to the condition that the auto loans in the trust, including the
subsequent auto loans to be transferred, meet the following criteria:
S-16
<PAGE>
(a) the auto loans' weighted average annual percentage rate is not less
than __%;
(b) the auto loans' weighted average remaining term on the subsequent
cut-off date is not greater than ___ months; and
(c) not more than __% of the obligors on the auto loans reside in ___ and
___.
The criteria in clauses (a) and (b) will be based:
o on the characteristics of the initial auto loans on the initial
cut-off date and
o the auto loans, including the subsequent auto loans, on the related
subsequent cut-off date.
The criteria in clause (c) will be based on the obligor's mailing addresses
on:
o the initial auto loans on the initial cut-off date and
o the subsequent auto loans on the related subsequent cut-off dates.
Except for the above described criteria, there are no required
characteristics for the subsequent auto loans. Therefore, following the transfer
of subsequent auto loans to the trust, the aggregate characteristics of the
entire pool of auto loans included in the trust may vary in the following
respects:
o composition of the auto loans;
o geographic distribution;
o distribution by remaining principal balance;
o distribution by APR;
o distribution by remaining term; and
o distribution of the auto loans secured by new and used vehicles.]
S-17
<PAGE>
YIELD AND PREPAYMENT CONSIDERATIONS
All the auto loans are prepayable at any time. If prepayments are received
on the auto loans, the actual weighted average life of the auto loans may be
shorter than the scheduled weighted average life, since the scheduled weighted
average life assumes that payments will be made as scheduled, and that no
prepayments occur. For this purpose, the term prepayments also includes
liquidations due to default, as well as receipt of proceeds from credit life,
credit disability, and casualty insurance policies. Weighted average life means
the average amount of time during which each dollar of principal of an auto loan
is outstanding.
The rate of prepayments on the auto loans may be influenced by a variety of
economic, social, and other factors, including the fact that a borrower may not
sell or transfer a financed vehicle without the consent of the originator. The
seller believes that the actual rate of prepayments will result in a
substantially shorter weighted average life than the scheduled weighted average
life of the auto loans. If a certificate is purchased at a premium, and the
actual rate of prepayments exceed the rate of prepayments anticipated at the
time the certificate was purchased, the actual yield to maturity of the
certificate will be less than the yield anticipated at the time of purchase. If
a certificate is purchased at a discount, and the rate of prepayments is less
than the rate of prepayments anticipated at the time the certificate was
purchased, the actual yield to maturity will be less than the yield anticipated
at the time of purchase. Any reinvestment risk, which is the risk that a
certificateholder will not be able to reinvest amounts received in payment on
the certificates at interest rates that are greater than or equal to the
certificate rate, resulting from a faster or slower incidence of prepayment of
auto loans will be borne by the certificateholders.
The rate of payment of principal of the certificates will depend on the
rate of payment, including prepayments, of the principal balance of the auto
loans. As a result, final payment of the certificates could occur significantly
earlier than the final scheduled payment date for the class.
Prepayments on auto loans can be measured relative to a prepayment standard
or model. The model used in this prospectus supplement, the absolute prepayment
model, or ABS, represents an assumed rate of prepayment each month relative to
the original number of auto loans in a pool. ABS further assumes that all the
auto loans are the same size and amortize at the same rate and that each auto
loan in each month of its life will either be paid as scheduled or be prepaid in
full. For example, in a pool of auto loans originally containing 10,000 auto
loans, a 1% ABS rate means that 100 auto loans prepay each month. ABS does not
purport to be an historical description of prepayment experience or a prediction
of the anticipated rate of prepayment of any pool of auto loans.
The tables captioned "Percent of Initial Certificate Principal Balance at
Various ABS Percentages", also called the ABS Tables, have been prepared on the
basis of the following assumptions:
o the auto loans prepay in full at the specified constant percentage of
ABS monthly, with no defaults, losses or repurchases;
S-18
<PAGE>
o each scheduled monthly payment on the auto loans is made on the last
day of each month and each month has 30 days;
o the initial principal amount of the certificates is as stated on the
cover page;
o interest on the certificates accrues during each interest period at
the following assumed coupon rates: Class A Certificates, ___%; and
Class B Certificates, ___%.
o payments on the certificates are made on the __ day of each month
whether or not a business day;
o the certificates are purchased on the closing date;
o [the entire pre-funded amount issued to purchase subsequent auto
loans;]
o the scheduled monthly payment for each auto loan has been calculated
on the basis of the assumed characteristics presented in the table
below, and each auto loan will amortize in amounts sufficient to repay
the principal balance of the auto loans by its indicated remaining
term to maturity; and
o the seller or the servicer exercises its clean-up call redemption.
The ABS Tables also assume that (1) the auto loans have been aggregated
into hypothetical pools with all of the auto loans within each pool having the
following characteristics, and (2) that the level of scheduled monthly payment
for each of the pools, which is based on its aggregate principal balance, gross
APR, original number of scheduled payments and remaining number of scheduled
payments as of the cut-off date, will be calculated so that each pool will be
fully amortized by the end of its remaining term to maturity.
S-19
<PAGE>
<TABLE>
<CAPTION>
Remaining
Term
Aggregate to Maturity Seasoning
Pool Principal Balance APR (in Months) (in Months)
---- ----------------- --- ----------- -----------
<S> <C> <C> <C> <C>
1 $ %
2
3
4
5
</TABLE>
The ABS Tables indicate, based on the assumptions described above, the
percentages of the initial principal amount of the certificates that would be
outstanding after each of the payment dates shown at various percentages of ABS
and the corresponding weighted average lives of the certificates. The actual
characteristics and performance of the auto loans will differ from the
assumptions used in constructing the ABS Tables. The assumptions used are
hypothetical and have been provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the auto loans will prepay at a constant level
of ABS until maturity or that all of the auto loans will prepay at the same
level of ABS. Moreover, the diverse terms of auto loans could produce slower or
faster principal distributions than indicated in the ABS Tables at the various
constant percentages of ABS specified, even if the original and remaining terms
to maturity of the auto loans are as assumed. Any difference between the
assumptions and the actual characteristics and performance of the auto loans,
including actual prepayment experience or losses, will affect the percentages of
initial balances outstanding over time and the weighted average lives of the
certificates.
S-20
<PAGE>
Percent of Initial Certificate Principal Balance
at Various ABS Percentages(1)
<TABLE>
<CAPTION>
Class A Certificates Class M-1 Certificates
----------------------------------------------------------------------------------------------------------------------------
Payment Date 0.5% 1.0% 1.7% 2.5% 0.5% 1.0% 1.7% 2.5%
----------- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Weghted Average
Life in
Years(2)
</TABLE>
----------
(1) The percentages in this table have been rounded to nearest whole
number.
(2) The weighted average life of a certificate is determined by (1)
multiplying the amount of each principal payment on a certificate by the
number of years from the date of the issuance of the certificates to the
payment date, (2) adding the results and (3) dividing the sum by the
initial principal amount of the certificates of that class.
S-21
<PAGE>
THE SELLER AND THE SERVICER
General
The bank, which is the seller, the servicer and one of the lenders, is a
federally chartered stock savings bank. The bank's home office is located at
7926 Jones Branch Drive, McLean, Virginia 22102, and its executive offices are
located at 8401 Connecticut Avenue, Chevy Chase, Maryland 20815. The bank's
telephone number is (301) 986-7000. The bank is subject to comprehensive
regulation, examination and supervision by the Office of Thrift Supervision, or
the OTS, within the Department of the Treasury and to a lesser extent, by the
Federal Deposit Insurance Corporation, or the FDIC. Deposits at the bank are
fully insured up to $100,000 per insured depositor by the Savings Association
Insurance Fund, which is administered by the FDIC.
Based on unaudited results, at [March 31, 2000], the bank had consolidated
assets of approximately $[10.2] billion, deposits of approximately $[6.5]
billion, and stockholders' equity of approximately $[479.3] million. As a
savings bank chartered under the laws of the United States, the bank is subject
to certain minimum regulatory capital requirements imposed under the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989, as amended, or
FIRREA. At [March 31, 2000], the bank's tangible, core, tier 1 risk-based and
total risk-based regulatory capital ratios were [5.50]%, [5.50]%, [7.44]% and
[11.48]%, respectively. As of such date, the bank's capital ratios exceeded the
requirements under FIRREA as well as the standards established for "well-
capitalized" institutions under the prompt corrective action regulations
established pursuant to the Federal Deposit Insurance Corporation Improvement
Act of 1991. The OTS has the discretion to treat a "well-capitalized"
institution as an "adequately capitalized" institution for purposes of the
prompt corrective action regulations if, after notice and an opportunity for a
hearing, the OTS determines that the institution is being operated in an unsafe
or unsound condition or has received and has not corrected a less than
satisfactory examination rating for asset quality, management, earnings or
liquidity.
The other lender, CFC, is a wholly-owned subsidiary of the bank, formed in
December 1994 for the purpose of providing automobile financing to applicants
who may have experienced certain adverse credit events. See "The Auto Loan Pool"
in this prospectus supplement.
Litigation
The seller is not involved in any legal proceedings, and is not aware of
any pending or threatened legal proceedings, that would have a material adverse
effect upon its financial condition or results of operations.
Delinquency and Default Experience
The tables below set forth certain information concerning the bank's and
CFC's delinquency and loss experience with respect to their gross servicing of
retail installment sales contracts for new and used automobiles, light duty
trucks and vans acquired pursuant to their respective finance programs.
Delinquency is recognized on a contractual basis only. Past due payments must
equal or exceed [__%] of the scheduled payment due for a contract to be
considered delinquent. There can be no assurance that the levels of delinquency
and loss
S-22
<PAGE>
experience reflected in the tables below, are indicative of the performance of
the Auto Loans included in the trust.
S-23
<PAGE>
CHEVY CHASE BANK, F.S.B.
Delinquency Experience
<TABLE>
<CAPTION>
As of December 31,
------------------------------------------------------------------------------
1995 1996 1997
--------------------- --------------------- ---------------------- -------
Dollar Percentage Dollar Percentage Dollar Percentage Dollar
------- ---------- ------- ---------- ------- ---------- -------
Amount of Total Amount of Total Amount of Total Amount
------- --------- ------- --------- ------- --------- -------
(000) Auto Loans (000) Auto Loans (000) Auto Loans (000)
----- ---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Auto Loans Outstanding(1) ... $431,351 $714,320 $853,424 $760,348
-------- -------- -------- --------
Delinquencies:(2)(3)
30-59 Days................... $ 2,491 0.58% $ 8,516 1.19% $ 9,212 1.08% $ 7,919
-------- ----- -------- ----- -------- ----- --------
60-89 Days................... 742 0.17% 2,176 0.30% 3,256 0.38% 2,297
-------- ----- -------- ----- -------- ----- --------
90 days or more.............. 1,667 0.39% 3,588 0.50% 9,188 1.08% 6,155
-------- ------- -------- -------- -------- -------- --------
Total Delinquencies.......... $ 4,900 1.14% $ 14,280 1.99% $ 21,656 2.54% $ 16,371
-------- ------- -------- -------- -------- -------- --------
<CAPTION>
As of December 31,
--------------------------------------
1998 1999 As of
-------------- ---------------------- ----------------------
Percentage Dollar Percentage Dollar Percentage
---------- ------- ---------- ------- ----------
of Total Amount of Total Amount of Total
--------- ------- --------- ------- --------
Auto Loans (000) Auto Loans (000) Auto Loans
---------- ----- ---------- ----- ----------
<S> <C> <C> <C> <C> <C>
Auto Loans Outstanding(1) ... $1,133,797 $
---------- ----------
Delinquencies:(2)(3)
30-59 Days................... 1.04% $ 10,439 0.92% $ %
----- ---------- ----- ---------- -----
60-89 Days................... 0.30% $ 3,180 0.28% $ %
----- ---------- ----- ---------- -----
90 days or more.............. 0.81% $ 7,709 0.68% $ %
----- ---------- ----- ---------- -----
Total Delinquencies.......... 2.15% $ 21,328 1.88% $ %
--------- ---------- ------ ---------- -----
</TABLE>
(1) Auto loans outstanding is the remaining principal balance.
(2) The period of delinquency is based on the number of days payments are
contractually past due.
(3) Includes repossessions in inventory.
S-24
<PAGE>
CHEVY CHASE BANK, F.S.B.
Loss Experience
<TABLE>
<CAPTION>
For the year ended December 31,
---------------------------------------------------------------------------------------
1995 1996 1997
----------------------- ----------------------- ----------------------- ----------
Percentage
of Average Percentage Percentage
----------- ----------- -----------
Dollar Auto Loans Dollar of Average Dollar of Average Dollar
------- ----------- ------- ----------- ------- ----------- -------
Amount Outstanding Amount Auto Loans Amount Auto Loans Amount
------- ------------ ------- ----------- ------- ----------- -------
(000) plain (000) Outstanding (000) Outstanding (000)
----- ----- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Average
Auto Loans
Outstanding(2) $363,845 $565,963 $832,700 $771,587
-------- -------- -------- --------
Gross
Charge-offs(3) $ 2,120 0.58% $ 3,795 0.67% $ 8,303 1.00% $ 12,682
-------- ----- -------- ----- -------- ----- --------
Recoveries(4) $ 275 0.07% $ 277 0.05% $ 770 0.09% $ 1,211
--------- ----- -------- ----- -------- ------ ---------
Net Losses $ 1,845 0.51% $ 3,518 0.62% $ 7,533 0.91% $ 11,471
--------- ----- -------- ----- -------- ----- ---------
<CAPTION>
For the year ended December 31,
---------------------------------------
1998 1999 For the three month end
------------- ----------------------- period ended
---------------------------
Percentage Percentage Percentage
----------- ----------- ----------
of Average Dollar of Average of Average
----------- ------- ----------- ----------
Auto Loans Amount Auto Loans Dollar Auto Loans
----------- ------- ----------- ------- ----------
Outstanding (000) Outstanding Amount(000) Outstanding(1)
----------- ----- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Average
Auto Loans
Outstanding(2) $ 940,031 $
--------- -----------
Gross
Charge-offs(3) 1.64% $ 8,200 0.87% $ %
----- --------- ----- ----------- -----
Recoveries(4) 0.15% $ 1,554 0.16% $ %
----- --------- ----- ----------- -----
Net Losses 1.49% $ 6,646 0.71% $ %
----- --------- ----- ----------- -----
</TABLE>
(1) Annualized.
(2) Equals the arithmetic average of the month-end balances.
(3) Gross charge-offs represent the excess of the outstanding loan balance
over net liquidation proceeds where net liquidation proceeds are the
excess of liquidation proceeds over the sum of repossession,
liquidation and other related expenses.
(4) Includes current post-disposition recoveries on receivables previously
charged off.
S-25
<PAGE>
CONSUMER FINANCE CORPORATION
Delinquency Experience
<TABLE>
<CAPTION>
As of December 31,
------------------------------------------------------------------------------------
1995(1) 1996 1997
-------------------------- ------------------------- -------------------------
Percentage Percentage Percentage
---------- ---------- ----------
Dollar of Total Dollar of Total Dollar of Total
------- --------- ------- --------- ------- ---------
Amount (000) Auto Loans Amount (000) Auto Loans Amount (000) Auto Loans
------------ ---------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Auto Loans Outstanding(2)............... $ 49,375 $ 179,105 $ 464,518
-------- --------- ---------
Delinquencies(3)(4)
30-59 Days....................... $ 2,528 5.12% $ 11,222 6.27% $ 32,282 6.95%
60-89 Days....................... 609 1.23% 2,529 1.41% 10,127 2.18%
90 days or more.................. 871 1.76% 5,547 3.10% 24,565 5.29%
-------- ------ --------- ----- --------- -----
Total Delinquencies..................... $ 4,008 8.11% $ 19,298 10.78% $ 66,974 14.42%
-------- ----- --------- ------ --------- ------
<CAPTION>
-------------------------
-------------------------
Percentage
----------
Dollar of Total
------- --------
Amount (000) Auto Loans
------------ ----------
<S> <C> <C>
Auto Loans Outstanding(1)............... $
Delinquencies(2)(3)
30-59 Days....................... $ %
60-89 Days....................... %
90 days or more.................. %
---------- ------------
Total Delinquencies..................... $ %
---------- ------------
</TABLE>
(1) CFC was formed in December 1994.
(2) "Auto Loans Outstanding" is the remaining principal balance.
(3) The period of delinquency is based on the number of days payments are
contractually past due.
(4) Includes repossessions in inventory.
S-26
<PAGE>
CONSUMER FINANCE CORPORATION
Loss Experience
<TABLE>
<CAPTION>
For the year ended December 31,
---------------------------------------------------------------------------------
1995(1) 1996 1997
------------------------- ------------------------- -------------------------
Percentage Percentage Percentage
----------- ----------- -----------
of Average of Average of Average
----------- ----------- -----------
Dollar Auto Loans Dollar Auto Loans Dollar Auto Loans
------- ----------- ------- ----------- ------- -----------
Amount (000) Outstanding Amount (000) Outstanding Amount (000) Outstanding
------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Average Auto Loans
Outstanding(3) $ 21,383 $ 111,510 $ 322,757
-------- ---------- ---------
Gross Charge-offs(4) $ 144 0.67% $ 2,922 2.62% $ 15,538 4.81%
-------- ----- ---------- ----- --------- -----
Recoveries(5) $ 0 0.00% $ 141 0.13% $ 613 0.19%
-------- ------ ---------- ----- --------- -----
Net Losses $ 144 0.67% $ 2,781 2.49% $ 14,925 4.62%
-------- ----- --------- ----- -------- -----
<CAPTION>
----------------------------
----------------------------
Percentage
----------
of Average
----------
Dollar Auto Loans
------- ----------
Amount (000) Outstanding(1)
------------ --------------
<S> <C> <C>
Average Auto Loans
Outstanding(3) $
Gross Charge-offs(4) $ %
Recoveries(5) $ %
------------ --------
Net Losses $ %
------------ --------
</TABLE>
(1) CFC was formed in December 1994.
(2) Annualized.
(3) Equals the arithmetic average of the month-end balances.
(4) Gross charge-offs represent the excess of the outstanding loan balance
over net liquidation proceeds, where net liquidation proceeds are the
excess of liquidation proceeds over the sum of repossession,
liquidation and other related expenses.
(5) includes current post-disposition recoveries on receivables previously
charged off.
S-27
<PAGE>
CFC was formed in December 1994, and commenced originating loans in January
1995. Experience indicates that the loss and delinquency levels of a portfolio
of auto loans typically will change as the portfolio ages, and that statistics
relating to a portfolio of relatively newly originated loans may understate the
loss and delinquency levels of such portfolio over its life. [Due to the
relatively short history of CFC's program, together with the growth in CFC's
portfolio over the periods indicated, the loss and delinquency levels of CFC's
portfolio may be higher in future periods than those reflected in the statistics
presented in this prospectus supplement].
[THE INSURER]
[The following information has been obtained from [Name of Insurer] and has
not been verified by the seller or the underwriters. No representations or
warranty is made by the seller or the underwriters with respect thereto.
General
[Name of Insurer] is a monoline insurance company incorporated in ___ under
the laws of the State of ____. The insurer is licensed to engage in the
financial guaranty insurance business in [all 50 states, the District of
Columbia and Puerto Rico].
The insurer and its subsidiaries are engaged in the business of writing
financial guaranty insurance, principally in respect of securities offered in
domestic and foreign markets. In general, financial guaranty insurance consists
of the issuance of a guaranty of scheduled payments of an issuer's securities --
thereby enhancing the credit rating of those securities -- in consideration for
the payment of a premium to the insurer. The insurer and its subsidiaries
principally insure asset-backed, collateralized and municipal securities.
Asset-backed securities are generally supported by residential mortgage loans,
consumer or trade receivables, securities or other assets having an
ascertainable cash flow or market value. Collateralized securities include
public utility first mortgage bonds and sale/leaseback obligation bonds.
Municipal securities consist largely of general obligation bonds, special
revenue bonds and other special obligations of state and local governments. The
insurer insures both newly issued securities sold in the primary market and
outstanding securities sold in the secondary market that satisfy the insurer's
underwriting criteria.
The principal executive offices of the insurer are located at [address],
and its telephone number at that location is ______.
Reinsurance
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written or reinsured from third parties by the insurer are generally
reinsured among such companies on an agreed-upon percentage substantially
proportional to their respective capital, surplus and reserves, subject to
applicable statutory risk limitations. In addition, the insurer reinsures a
portion of its liabilities under certain of its financial guaranty insurance
policies with other reinsurers under various quota share treaties and on a
transaction-by-transaction basis. Such reinsurance is utilized by the insurer as
a risk management device and to comply with
S-28
<PAGE>
certain statutory and rating agency requirements; it does not alter or limit the
insurer's obligations under any financial guaranty insurance policy.
Rating of Claims-Paying Ability
The insurer's insurance financial strength is rated "___" by [Rating
Agency]. The insurer's financial strength is rated "___" by [Rating Agency]. The
insurer's claims-paying ability is rated "___" by [Rating Agency]. Such ratings
reflect only the views of the respective rating agencies, are not
recommendations to buy, sell or hold securities and are subject to revision or
withdrawal at any time by such rating agencies herein.
Capitalization
The following table sets forth the capitalization of the insurer and its
wholly-owned subsidiaries on the basis of generally accepted accounting
principles as of _____________:
<TABLE>
<CAPTION>
[Date]
(Unaudited)
(in thousands)
<S> <C>
Deferred Premium Revenue (net of prepaid reinsurance premiums) ............... $
Surplus Certificates..........................................................
Minority Interest.............................................................
Shareholder's Equity:
Common Stock...............................................................
Additional Paid-In Capital.................................................
Accumulated Other Comprehensive Income (net of deferred income taxes)......
Accumulated Earnings.......................................................
Total Shareholder's Equity.................................................
Total Deferred Premium Revenue, Surplus Certificates, Minority Interest and
Shareholder's Equity....................................................... $
</TABLE>
For further information concerning the insurer, see the consolidated
financial statements of the insurer and subsidiaries, and the certificates
thereto, incorporated by reference herein. The Insurer's financial statements
are included as exhibits to the annual report on Form 10-K and quarterly reports
on Form 10-Q filed with the Securities and Exchange Commission by [Name of
Insurer] and may be reviewed at the EDGAR website maintained by the Securities
and Exchange Commission. We will provide you with copies of these financial
statements, at no cost, if you write us at: We will provide you with copies of
these reports, at no cost, if you write to: 8401 Connecticut Avenue, Chevy
Chase, Maryland 20815. Attention: Secretary.
Copies of the statutory quarterly and annual statements filed with the
[State of New York Insurance Department] by the insurer are available upon
request to the [State of New York Insurance Department].
S-29
<PAGE>
Insurance Regulation
The insurer is licensed and subject to regulation as a financial guaranty
insurance corporation under the laws of the State of [New York], its state of
domicile. In addition, the insurer and its insurance subsidiaries are subject to
regulation by insurance laws of the various other jurisdictions in which they
are licensed to do business. As a financial guaranty insurance corporation
licensed to do business in the State of [New York], the insurer is subject to
[Article 69 of the New York Insurance Law] which, among other things, limits the
business of each such insurer to financial guaranty insurance and related lines,
requires that each such insurer maintain a minimum surplus to policyholders,
establishes contingency, loss and unearned premium reserve requirements for each
such insurer, and limits the size of individual transactions ("single risks")
and the volume of transactions ("aggregate risks") that may be underwritten by
each such insurer. Other provisions of the [New York Insurance Law], applicable
to non-life insurance companies such as the insurer, regulate, among other
things, permitted investments, payment of dividends, transactions with
affiliates, mergers, consolidations, acquisitions or sales of assets and
incurrence of liabilities for borrowings.]
DESCRIPTION OF POOLING AND SERVICING AGREEMENT
Conveyance of Auto Loans
On the closing date, the bank will sell the auto loans to the trust,
without recourse, except as expressly set forth in the Pooling and Servicing
Agreement. Concurrently with this sale and assignment, the trustee will execute,
authenticate and deliver the certificates to the underwriters against payment to
the seller of the net purchase price of the sale of the certificates.
Servicer Default; Waiver of Past Defaults
If a servicer default under the pooling and servicing agreement has
occurred, the servicer may be removed by the trustee. The trustee may waive
certain defaults by the servicer in the performance of its obligations under the
pooling and servicing agreement, as described in "The Trust Documents--Rights
upon an Event of Default" in the accompanying prospectus.
Servicer defaults are described in the prospectus under the "Trust
Documents -- Removal of the Servicer."
Servicing Compensation, Payment of Expenses and Trustees' Fees
For its servicing of the auto loans, the servicer will be entitled to
retain from collections on the auto loans a monthly servicing fee which equals
one-twelfth times [ ]% of the pool balance as of the first day of the
immediately preceding collection period. A portion of this servicing fee may be
paid over by the servicer to CFC with respect to its sub-servicing of the CFC
auto loans. The servicer shall deposit all late fees, prepayment charges,
extension fees or other administrative fees or similar charges into the
collection account and such fees and charges shall be included in Available
Funds.
S-30
<PAGE>
All costs of servicing each auto loan in the manner required by the Pooling
and Servicing Agreement shall be borne by the servicer, but the servicer shall
be entitled to retain, out of any amounts actually recovered with respect to any
Liquidated Auto Loan or the financed vehicles subject to a Liquidated Auto Loan,
the servicer's actual out-of-pocket expenses reasonably incurred with respect to
such Liquidated Auto Loan or financed vehicle.
On each distribution date, the trustee is entitled to receive a fee
(payable from Available Funds) for its services as trustee, during the prior
collection period in an amount agreed upon by the seller and the trustee.
DESCRIPTION OF THE CERTIFICATES
General
The certificates will be issued according to the terms of the pooling and
servicing agreement. The pooling and servicing agreement has been filed as an
exhibit to the registration statement of which this prospectus supplement is a
part. The following summary describes terms of the certificates and the pooling
and servicing agreement.
The certificates will be issued only in fully registered form, in
denominations of $__________ and integral multiples of $__________. The
certificates will represent beneficial ownership interests in the assets of the
trust. Replacement certificates, if issued, will be transferable and
exchangeable at the corporate trust office of the trustee. No service charge
will be made for any registration, exchange or transfer of certificates, but the
trustee may require payment of a sum sufficient to cover any tax or other
governmental charge.
The payment date is the [15th] day of each month, or if that day is not a
business day, the next succeeding business day.
The class A certificateholders are entitled to receive, on each payment
date, the Class A Percentage of the Principal Distributable Amount plus interest
at the class A pass-through rate on the class A principal balance. Subject to
the prior rights of the class A certificateholders, the class B
certificateholders are entitled receive, on each payment date, the Class B
Percentage of the Principal Distributable Amount plus interest at the Class B
pass-through rate on the class B Principal Balance.
The certificates represent beneficial ownership interests in the trust. The
Class A Certificates will evidence in the aggregate an undivided ownership
interest of approximately __%, which is the class A percentage of the trust and
the Class B Certificates will evidence in the aggregate an undivided ownership
interest of approximately __%, which is the class B percentage of the trust.
Payments of Interest
Interest on the certificates will be payable monthly on each payment date,
commencing on __________, in an amount equal to interest accrued during the
applicable interest period, as defined below, at the certificate rate on the
outstanding principal balance for certificates. The per annum rate of interest
accruing on the certificates of each class is referred to as the pass-through
S-31
<PAGE>
rate for that class certificates. The pass-through rate for the Class A
Certificates is __%, and the pass-through rate for the Class B Certificates is
___%.
Interest on the certificates for a payment date will accrue from, and
including, the preceding payment date, or in the case of the first payment date,
from the closing date, through, and including, the day preceding the payment
date. Each of these periods is an interest period. Interest on the certificates
will be calculated on the basis of a 360-day consisting of twelve thirty day
months. Interest for any payment date due but not paid on the payment date will
bear interest, to the extent permitted by applicable law, at the applicable
pass-through rate until paid.
Payments of Principal
On each payment date, principal payments will be distributed on the
certificates in an amount generally equal to a percentage of the decease in the
principal balance of the auto loan pool during the prior calendar month to the
extent of funds available. These principal payments will be allocable between
the Class A Certificates and the Class B Certificates, and will be paid to the
certificateholders in proportion to their percentage interest, until the
outstanding principal amount of that class is paid in full.
Payment Priorities
You can find definitions of the technical cashflow terms used in this
section in the Glossary beginning on page S-[ ] of this prospectus supplement.
On or prior to each payment date, the servicer will instruct the trustee to
make the following distributions in the following order of priority:
(1) from the Available Funds, to the servicer, any supplemental
servicing fees for the collection period and if the bank or CFC is no
longer acting as servicer, the servicing fee for the collection period;
(2) from the remaining Available Funds, to the trustee, any accrued
and unpaid trustee's fees, but only to the extent these fees have not been
previously paid by the servicer;
(3) from the remaining Available Funds, the Class A Interest
Distributable Amount will be paid to the class A certificateholders;
(4) from the remaining Available Funds, the Class A Principal
Distributable Amount will be paid to the class A certificateholders, until
the outstanding principal amount of the Class A Certificates is paid in
full;
(5) from the remaining Available Funds, the Class B Interest
Distributable Amount will be paid to the class B certificateholders;
(6) from the remaining Available Funds, the Class B Principal
Distributable Amount will be paid to the Class B Certificateholders until
the outstanding Principal Balance of the Class B Certificates is reduced to
zero;
S-32
<PAGE>
(7) from the remaining Available Funds, to the reserve account, the
Reserve Account Deposit Amount, if necessary, required to increase the
amount in the reserve account to its then required level;
(8) from the remaining Available Funds, if the bank or CFC is acting
as the servicer, the servicing fee for the prior Collection Period; and
(9) any remainder to the seller.
[Amounts on deposit in the reserve account on any payment date, after
giving effect to all distributions made on the payment date, in excess of the
Targeted Reserve Account Balance for the payment date may be released first, to
the servicer to pay any servicing fees and supplemental servicing fees that are
due, and any remainder may be released to the seller.]
[Amounts available under the insurance policy are available to pay the
certificate principal only in two circumstances:
o to reduce, after taking into account all reductions funded from other
sources, the aggregate principal balance of the certificates to the
collateral balance - i.e., the sum of the pool balance plus the
pre-funded amount - in the event that the certificate principal
balance would otherwise exceed the collateral balance; and
o to pay off each class's principal on its final scheduled distribution
date, to the extent that the class is not paid off on or prior to the
final scheduled distribution date from other sources.]
[Mandatory Redemption]
[If any portion of the pre-funded amount remains on deposit in the
pre-funding account at the end of the funding period, each class of certificates
will be redeemed in part on the mandatory redemption date. Each class'
certificate prepayment amount of the remaining pre-funded amount on that date
will be an amount equal to that class' pro rata share, based on the respective
current principal amount of each class of certificates. However, if the
aggregate remaining amount in the pre-funding account is $100,000 or less, that
amount will be applied exclusively to reduce the outstanding principal balance
of the class of certificates then entitled to receive principal distributions.]
Maturity Dates; Optional Redemption
Each class of certificates will mature on the earlier of the date the class
of certificates is paid in full or the respective scheduled maturity date for
the class. The class A scheduled maturity date is __________ and the class B
scheduled maturity date is __________. The payment date occurring on __________
is also referred to as the final scheduled payment date. In addition, the trust
will pay the certificates in full on the payment date following exercise by the
seller or the servicer of the option to purchase the auto loans from the trust.
This will cause a redemption of the certificates. The option may be exercised on
or after the payment date on which the outstanding principal balance of the auto
loans is reduced to an amount less than or equal to 5% of the original principal
balance of the auto loans. The redemption price will be
S-33
<PAGE>
equal to the sum of the aggregate certificate principal balance and accrued and
unpaid interest through the day preceding the call date.
Reports to Certificateholders
With each distribution to the certificateholders, the trustee will prepare
and forward to each certificateholder a statement, which will include the
following information for that payment date:
(1) the amount of the distribution allocable to interest on each class
of the certificates;
(2) the amount of the distribution allocable to principal on each
class of the certificates;
(3) the aggregate outstanding principal amount for each class of
certificates, in each case, after giving effect to all payments reported
under (2) above for that payment date;
(4) the Class A Interest Carryover Shortfall and the Class A Principal
Carryover Shortfall, if any, and the change in those amounts from the
preceding statement;
(5) the amount of the servicing fee paid to the servicer for the prior
Collection Period; and
(6) the Targeted Reserve Account Balance and the amount on deposit in
the reserve account at the end of the payment date.
The information furnished under (1) through (4) above will be expressed as
a dollar amount per $__________ in face amount of certificates.
CREDIT ENHANCEMENT
Subordination of the Class B Certificates
The rights of the Class B Certificateholders to receive distributions
generally will be subordinated to the rights of the Class A Certificateholders
in the event of defaults and delinquencies on the auto loans. The protection
afforded to the Class A Certificateholders through subordination will be
effected by the preferential right of the Class A Certificateholders to receive
current distributions of interest and principal, before any interest or
principal is payable to the Class B Certificateholders.
The Reserve Account
An initial deposit of $_______________, which is [ ]% of the Pool Balance
as of the cut-off date, will be placed in the reserve account. The reserve
account will be increased on each payment date by the deposit in the reserve
account of amounts remaining after payments to the certificateholders and any
fees until the amount on deposit in the reserve account equals the
S-34
<PAGE>
Targeted Reserve Account Balance. Amounts in the reserve account on any payment
date, after giving effect to all withdrawals from the reserve account in excess
of the Targeted Reserve Account Balance will be paid, first to the servicer for
any servicing fees and supplemental servicing fees then due, and any remainder
to the seller.
The reserve account will not be part of the trust, but will be a segregated
trust account held by the trustee. Amounts in the reserve account will be held
for the benefit of holders of the certificates of both classes. Funds in the
reserve account shall be invested in eligible investments. The Seller is
entitled to receive all investment earnings on amounts in the reserve account,
as well as any amounts in the reserve account in excess of the Targeted Reserve
Account Balance.
Amounts in the reserve account on a payment date will be used to fund any
shortfalls in Available Funds on that payment date to fund the full amounts of
the servicing fee then payable to the servicer or CFC, the Class A Interest
Distributable Amount, the Class A Principal Distributable Amount, the Class B
Interest Distributable Amount and the Class B Principal Distributable Amount, in
that order.
Overcollateralization
The overcollateralization is the difference between the Pool Balance and
the Aggregate Certificate Principal Balance. On the closing date, the
overcollateralization will be equal to $__________ or ___% of the Pool Balance
as of the cut-off date. The overcollateralization will be available to absorb
losses that would otherwise be allocated to certificateholders.
The subordination of the Class B Certificates, the reserve account and the
overcollateralization are intended to enhance the likelihood of receipt by class
A certificateholders of the full amount of principal and interest due them and
to decrease the likelihood that the class A certificateholders will experience
losses.
If on any payment date the holders of the Class A Certificates do not
receive the full amount then due them, including interest carryover shortfalls
and principal carryover shortfalls, after giving effect to any amounts withdrawn
from the reserve account, the holders of the Class B Certificates generally will
not receive any distributions. While the Class B certificateholders are entitled
to receive amounts from the reserve account their entitlement is subordinated to
the rights of the Class A certificateholders. If the reserve account becomes
depleted and the overcollateralization is exhausted, the Class B
certificateholders may experience shortfalls in the distributions due them and
incur a loss on their investment.
[The Insurance Policy]
[The following summary of the terms of the policy does not purport to be
complete and is qualified in its entirety by reference to the policy.
Simultaneously with the issuance of the certificates, the insurer will
deliver the policy to the trustee for the benefit of each certificateholder.
Under the policy, the insurer will unconditionally and irrevocably guarantee to
the trustee, on each distribution date, for the benefit of each
certificateholder the full and complete payment of (i) scheduled payments (as
defined
S-35
<PAGE>
below) on the certificates and (ii) the amount of any scheduled payment which
subsequently is avoided in whole or in part as a preference payment under
applicable law. In the event the trustee fails to make a claim under the policy,
certificateholders do not have the right to make a claim directly under the
policy, but may sue to compel the trustee to do so.
Scheduled payments means payments which are required to be made on the
certificates during the term of the policy in accordance with the original terms
of the certificates when issued and without regard to any subsequent amendment
or modification of the certificates or the trust documents that has not been
consented to by the insurer.
Payment of claims on the policy made in respect of scheduled payments will
be made by the insurer following receipt (as defined below) by the insurer of
the appropriate notice for payment on the later to occur of (i) 12:00 noon, New
York City time, on the third business day following receipt of such notice for
payment, and (ii) 12:00 noon, New York City time, on the date on which such
payment was due on the certificates.
If payment of any amount avoided as a preference under applicable
bankruptcy, insolvency, receivership or similar law is required to be made under
the policy, the insurer shall cause such payment to be made on the later of (a)
the date when due to be paid pursuant to the order referred to below or (b) the
first to occur of (i) the [fourth] business day following receipt by the insurer
from the trustee of (A) a certified copy of the order of the court or other
governmental body that exercised jurisdiction to the effect that the
certificateholder is required to return scheduled payments made with respect to
the certificates during the term of the policy because such payments were
avoidable as preference payments under applicable bankruptcy law, (B) a
certificate of the certificateholder that the order has been entered and is not
subject to any stay and (C) an assignment duly executed and delivered by the
certificateholder, in such form as is reasonably required by the insurer and
provided to the certificateholder by the insurer, irrevocably assigning to the
insurer all rights and claims of the certificateholder relating to or arising
under the certificates against the trust or otherwise with respect to such
preference payment, or (ii) the date of receipt (as defined below) by the
insurer from the trustee of the items referred to in clauses (A), (B) and (C)
above if, at least four business days prior to such date of receipt, the insurer
shall have received (as defined below) written notice from the trustee that such
items were to be delivered on such date and such date was specified in such
notice. Such payment shall be disbursed to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the order and not to the
trustee or any certificateholder directly (unless a certificateholder has
previously paid such amount to the receiver, conservator, debtor-in-possession
or trustee in bankruptcy named in the order, in which case such payment shall be
disbursed to the trustee for distribution to such certificateholder upon proof
of such payment reasonably satisfactory to the insurer). In connection with the
foregoing, the insurer shall have the rights provided pursuant to the pooling
and servicing agreement, including, without limitation, the right to direct all
matters relating to any preference claim and subrogation to the rights of the
trustee and each certificateholder in the conduct of any proceeding with respect
to a preference claim.
The terms receipt and received with respect to the policy shall mean actual
delivery to the insurer and to its fiscal agent, if any, prior to 12:00 noon,
New York City time, on a business day; delivery either on a day that is not a
business day or after 12:00 noon, New York City time,
S-36
<PAGE>
shall be deemed to be received on the next succeeding business day. If any
notice or certificate given under the policy by the trustee is not in proper
form or is not properly completed, executed or delivered, it shall be deemed not
to have been received, and the insurer or its fiscal agent shall promptly so
advise the trustee, and the trustee may submit an amended notice.
Under the policy, business day means any day other than a Saturday, Sunday,
legal holiday or other day on which commercial banking institutions in ___, ___,
___, ___ and ___ or any other location of any successor servicer or successor
trustee are authorized or obligated by law, executive order or governmental
decree to be closed.
The insurer's obligations under the policy in respect of Scheduled Payments
shall be discharged to the extent funds are transferred to the trustee as
provided in the policy whether or not such funds are properly applied by the
trustee.
The insurer shall be subrogated to the rights of each certificateholder to
receive payments of principal and interest to the extent of any payment by the
insurer under the policy.
Claims under the policy constitute direct, unsecured and unsubordinated
obligations of the insurer ranking not less than pari passu with other unsecured
and unsubordinated indebtedness of the insurer for borrowed money. Claims
against the insurer under the policy and each other financial guaranty insurance
policy issued thereby constitute pari passu claims against the general assets of
the insurer. The terms of the policy cannot be modified or altered by any other
agreement or instrument, or by the merger, consolidation or dissolution of the
trust. The policy may not be canceled or revoked prior to distribution in full
of all Scheduled Payments. [The policy is not covered by the Property/Casualty
Insurance Security Fund specified in Article 76 of the New York insurance Law.]
The Policy is governed by the laws of the State of [New York].
It is a condition to issuance that the Class A Certificates be rated ___ by
[Rating Agency] and ___ by [Rating Agency], and that the Class B Certificates be
rated ___ by [Rating Agency] and ___ by [Rating Agency]. The ratings by the
rating agencies of the certificates will be (i) with respect to the Class A
Certificates, without regard to the policy in the case of [Rating Agency]and
substantially based on the policy in the case of [Rating Agency] and (ii) with
respect to the Class B Certificates, based on the issuance of the policy. To the
extent that such ratings are based on the policy, such ratings apply to
distributions due on the distribution dates, and not to distributions due on the
distribution dates. A rating is not a recommendation to purchase, hold or sell
certificates. In the event that the rating initially assigned to any of the
certificates is subsequently lowered or withdrawn for any reason, including by
reason of a downgrading of the claims-paying ability of the insurer, no person
or entity will be obligated to provide any additional credit enhancement with
respect to the certificates. Any reduction or withdrawal of a rating may have an
adverse effect on the liquidity and market price of the certificates.]
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
You should consider the following discussion of certain material federal
income tax consequences of the purchase, ownership and disposition of the
certificates only in connection with
S-37
<PAGE>
"Material Federal Income Tax Considerations" in the accompanying prospectus. The
discussion in this prospectus supplement and in the accompanying prospectus is
based upon laws, regulations, rulings and decisions currently in effect, all of
which are subject to change. The discussion in this prospectus supplement and in
the accompanying prospectus does not deal with all federal tax consequences
applicable to all categories of investors. Some holders, including insurance
companies, tax-exempt organization, financial institutions or broker dealers,
taxpayers subject to the alternative minimum tax, and holders that will hold the
certificates as other than capital assets, may be subject to special rules that
are not discussed below. You should consult with your own tax advisors in
determining the federal, state, local and other tax consequences involved in
purchases, owning and disposing of the certificates.
Tax Status of the Trust
Dewey Ballantine LLP, is our tax counsel, and is of the opinion that,
assuming the parties will comply with the terms of the governing agreements, the
trust will be classified as a grantor trust under subpart E, part I of
subchapter J of Chapter 1 of Subtitle A of the Code and not as an association,
or publicly traded partnership, taxable as a corporation for federal income tax
purposes. Certificateholders will be treated as the owners of the trust, except
as described below.
Tax Consequences to Holders of the Certificates
Owners of beneficial interests in the certificates will report their pro
rata share of all income earned on the auto loans, other than amounts, if any,
treated as a grantor trust strip security. Subject to certain limitations, such
owners who are individuals, trusts or estates, may deduct their pro rata share
of reasonable servicing and other fees. See "Material Federal Income Tax
Considerations -- Grantor Trust Securities" in the accompanying prospectus.
Discount and Premium. Certain grantor trust fractional interest securities
will be treated as having original issue discount by virtue of the coupon
stripping rules in section 1286 of the Code. See "Material Federal Income Tax
Considerations -- Grantor Trust Securities -- Taxation of Beneficial Owners of
Grantor Trust Securities" and "--Discount and Premium -- Original Issue
Discount" in the accompanying prospectus. The prepayment assumption that will be
used for purposes of computing original issue discount, if any, for federal
income tax purposes is 1% ABS. See "Prepayment and Yield Considerations" in this
prospectus supplement. In addition, a subsequent purchaser who buys a
certificate for less than its principal amount maybe subject to the "market
discount" rules of the Code. See "Material Federal Income Tax Considerations --
Discount and Premium -- Market Discount" in the accompanying prospectus. A
subsequent purchaser who buys a certificate for more than its principal amount
may be subject to the "market premium" rules of the Code. See "Material Federal
Income Tax Considerations -- Discount and Premium -- Premium" in the
accompanying prospectus.
Sale or Redemption of the Certificates. If a certificate is sold or
retired, the seller will recognize gain or loss equal to the difference between
the amount realized on the sale and such holder's adjusted basis in the
certificate. See "Material Federal Income Tax Considerations -- Grantor Trust
Securities -- Sales of Grantor Trust Securities" in the accompanying prospectus.
S-38
<PAGE>
Other Matters. For a discussion of backup withholding and taxation of
foreign investors in the certificates, see "Material Federal Income Tax
Considerations -- Backup Withholding and Information Reporting" and "-- Foreign
Investors -- The Withholding Regulations" and "-- Foreign Investors -- Grantor
Trust Securities, Debt Securities and FASIT Regular Securities" in the
accompanying prospectus.
STATE AND LOCAL TAX CONSIDERATIONS
You should consider the state and local income tax consequences involved in
purchasing, owning and disposing of the certificates. State and local income tax
laws may differ substantially from the corresponding federal law, and this
discussion does not purport to describe any aspect of the income tax laws of any
state or locality. Therefore, you should consult your own tax advisors as to the
various state and local tax consequences of an investment in the certificates.
ERISA CONSIDERATIONS
Class A Certificates
The Class A Certificates may be purchased by ERISA plans as described in
the prospectus under "ERISA Considerations - ERISA Considerations regarding
Securities which are Certificates."
The Department of Labor has issued to the underwriter an individual
prohibited transaction exemption which, as described in the prospectus,
generally exempts from the application of the prohibited transaction provisions
of Section 406(a), Section 406(b)(1), Section 406(b)(2) and Section 407(a) of
ERISA and the excise taxes imposed by Sections 4975(a) and (b) of the Internal
Revenue Code, transactions concerning the initial purchase, the holding and the
subsequent resale by employee benefit plans of certificates in pass-through
trusts that consist of receivables, loans and other obligations that meet the
conditions and requirements of the exemption. The loans covered by the
underwriter's exemption include loans such as the auto loans.
As of the initial cut-off date, there is no single auto loan included in
the trust that constitutes more than five percent of the aggregate unamortized
principal balance of the assets of the trust. Before purchasing a certificate
based on the underwriter's exemption, a fiduciary of a plan should itself
confirm (1) that such certificate constitutes a concerning certificate for
purposes of the exemption and (2) that the conditions and other requirements set
forth in the exemption would be satisfied.
Any plan fiduciary considering the purchase of a Class A Certificate should
consult with its counsel as to the potential applicability of ERISA, the Code
and the underwriter's exemption prior to making an investment in the Class A
Certificates. Moreover, each plan fiduciary should determine whether, under the
general fiduciary standards of investment prudence and
S-39
<PAGE>
diversification, an investment in the certificates is appropriate for the plan,
taking into account the overall investment policy of the plan and the
composition of the plan's investment portfolio.
The sale of the Class A Certificates to a plan is not a representation by
us or the underwriter that this investment meets all relevant legal requirements
for investments by plans generally or by any particular plan or that this
investment is appropriate for plans generally or any particular plan.
Class B Certificates
The Class B Certificates may not be acquired by (1) an employee benefit
plan that is subject to the provisions of ERISA, (2) a plan described in Section
4975 (e) (1) of the Internal Revenue Code or (3) any entity whose underlying
assets include plan assets by reason of a plan's investment in the entity. By
its acceptance of a Class B Certificate, each Class B Certificateholder will be
considered to have represented and warranted that it is not subject to these
limitations. For additional information regarding treatment of the Class B
Certificates under ERISA, see "ERISA Considerations -- ERISA Considerations
regarding Securities which are Certificates" in the prospectus.
UNDERWRITING
Under the terms and subject to the conditions set forth in an underwriting
agreement, dated ______, the underwriters named below have agreed to purchase
from the seller the following respective principal amounts of the certificates:
<TABLE>
<CAPTION>
Class Certificates
--------------------------------------- -----------------
Principal
Amount of
Underwriter Certificates
--------------------------------------- -----------------
<S> <C>
[______] $
__________________..................... $
Total.................................. $
</TABLE>
<TABLE>
<CAPTION>
Class B Certificates
--------------------------------------- -----------------
Principal
Amount of
Underwriter Certificates
--------------------------------------- -----------------
<S> <C>
[______] $
__________________..................... $
Total.................................. $
</TABLE>
S-40
<PAGE>
The underwriting agreement provides that the obligations of the
underwriters are subject to certain conditions precedent and that the
underwriters will be obligated to purchase all the certificates, if any are
purchased.
The bank has been advised by the underwriters that the underwriters propose
to offer the certificates to the public initially at the public offering price
set forth on the cover page of this prospectus supplement and to certain dealers
at such price less a concession of ____% of the principal amount per Class A
Certificate and ___% of the principal amount per Class B Certificate. The
underwriters and such dealers may allow a discount of _____% of such principal
amount per Class A Certificate and _____% of such principal amount per Class B
Certificate on sales to certain other dealers. After the initial public
offering, the public offering price and concession and discount to dealers may
be changed by the underwriters.
The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Act of 1934. 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 so 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 such syndicate member
are purchased in a syndicate covering transaction to cover syndicate short
positions. Such 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 such transactions.
The bank has agreed to indemnify the underwriters against certain
liabilities, including civil liabilities under the Securities Act, or contribute
to payments which the underwriters may be required to make in respect thereof.
[Each] underwriter has represented and agreed that:
o it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 and the Public Offers of Securities
Regulations 1995 (the regulations) with respect to anything done by it
in relation to the certificates in, from or otherwise involving the
United Kingdom;
o it has only issued or passed on and will only issue or pass on to any
person in the United Kingdom any document received by it in connection
with the issue of the certificates if that person is of a kind
described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 (as amended) or is
a person to whom such document may otherwise lawfully be issued or
passed on; and
o it has not offered or sold and, during the period of six months from
the date hereof, will not offer or sell any certificates to persons in
the United Kingdom except to persons whose ordinary activities involve
them in acquiring, holding, managing, or disposing of investments (as
principal or agent) for the purposes of their businesses or
S-41
<PAGE>
otherwise in circumstances which have not resulted and will not result
in an offer to the public in the United Kingdom within the meaning of
the Regulations.
In the ordinary course of its business, each underwriter and its respective
affiliates have engaged and may in the future engage in commercial banking and
investment banking transactions with the bank and its affiliates.
LEGAL MATTERS
Certain legal matters relating to the issuance of the certificates will be
passed upon for the seller and the trust by [______________________], for the
underwriters by [_______________________________________________________]
S-42
<PAGE>
GLOSSARY
Aggregate Certificate Principal Balance means, as of any date, the
aggregate outstanding principal amount of all the certificates on that date.
Amount Financed means, for an auto loan, the aggregate amount advanced
under the auto loan toward the financed vehicle's purchase price and related
costs, including amounts advanced for accessories, insurance premiums, service,
car club and warranty contracts, other items customarily financed as part of
retail automobile installment sale contracts or promissory notes and related
costs.
Available Funds means, for any Collection Period, the sum of (1) the
Collected Funds for that Collection Period, (2) all Purchase Amounts deposited
in the collection account during that Collection Period, (3) income on
investments held in the collection account, (4) the proceeds of any liquidation
of the assets of the trust, (5) the lesser of (a) the excess of the aggregate
amount determined under items (1)-(6) of "Payment Priorities" as stated
beginning on page S-[ ], over the amount on deposit in the collection account
and (b) the reserve account balance.
Class A Interest Carryover Shortfall means, for any payment date, the sum
of: (1) excess of (a) the Class A Interest Distributable Amount for the
preceding payment date, over (b) the amount actually paid as interest to the
class A certificateholders on the preceding payment date, plus (2) interest on
that excess, to the extent permitted by law, at a rate per annum equal to the
Class A pass-through rate from the preceding payment date to but excluding the
current payment date.
Class A Interest Distributable Amount means, for any payment date, an
amount equal to the sum of: (1) the aggregate amount of interest accrued on the
Class A Certificates at the class A pass-through rate from and including the
preceding payment date, or, in the case of the initial payment date, from and
including the closing date, to but excluding the current payment date plus (2)
the applicable Class A Interest Carryover Shortfall for the current payment
date.
Class A Percentage means ___%.
Class A Principal Distributable Amount means, for any payment date, the
Class A Percentage of the Principal Distributable Amount.
Class B Interest Distributable Amount means, for any payment date, an
amount equal to the sum of: (1) the aggregate amount of interest accrued on the
Class B Certificates at the class B pass-through rate from and including the
preceding payment date, or, in the case of the initial payment date, from and
including the closing date, to but excluding the current payment date plus (2)
the applicable Class B Interest Carryover Shortfall for the current payment
date.
Class B Percentage means ___%.
Class B Principal Distributable Amount means, for any payment date, the
Class B Percentage of the Principal Distributable Amount.
S-43
<PAGE>
Collected Funds means, for any Collection Period, the amount of funds in
the collection account representing collections (excluding amounts representing
administrative charges, annual fees, taxes, assessments, credit insurance
charges or similar items) on the auto loans during the Collection Period,
including all Net Liquidation Proceeds collected during the Collection Period
(but excluding any Purchase Amounts).
Collection Period means, for any payment date other than the first payment
date, the calendar month preceding the month in which the payment date occurs,
and in the case of the first payment date, the period from the cut-off date
through ___________.
Cram Down Loss means, with respect to an auto loan, if a court of
appropriate jurisdiction in an insolvency proceeding issues a final order
reducing the amount owed on the auto loan or otherwise modifying or
restructuring the scheduled payments to be made on the auto loan, an amount
equal to (1) the excess of the Principal Balance of the auto loan immediately
prior to the order over the Principal Balance of the auto loan as reduced and/or
(2) if the court issues an order reducing the effective rate of interest on the
auto loan, the excess of the Principal Balance of the auto loan immediately
prior to the order over the net present value -- using as the discount rate the
higher of the APR on the auto loan or the rate of interest, if any, specified by
the court in the order -- of the scheduled payments as so modified or
restructured. A Cram Down Loss shall be deemed to have occurred on the date of
the order's issuance.
Liquidated Auto Loan means with respect to a distribution date, means an
auto loan (other than a purchased auto loan) as to which the earlier of the
following has occurred: (i) a scheduled payment is 180 days contractually
delinquent as of the end of the most recently completed Collection Period (or,
with respect to an auto loan which the servicer has determined to be either a
"skip" or a bankruptcy, such longer period of delinquency as [the servicer may
determine]) or (ii) the servicer has determined in accordance with its customary
servicing practices, during the Collection Period preceding such distribution
date, that eventual payment in full of the amount financed is unlikely.
Maximum Reserve Account Deposit Amount means, for any payment date, an
amount equal to that portion of Collected Funds representing interest
collections on the auto loans and Net Liquidation Proceeds for the applicable
Collection Period less the sum of: the servicing fee paid to any servicer, the
fees due to the trustee, to the extent not paid by the servicer, the Class A
Interest Distributable Amount, the Class B Interest Distributable Amount, the
aggregate Principal Balances of all auto loans which became Liquidated Auto
Loans during the Collection Period, plus the aggregate amount of Cram Down
Losses during the Collection Period.
Net Liquidation Proceeds means, with respect to Liquidated Auto Loans, (1)
proceeds from the disposition of the underlying financed vehicle securing the
Liquidated Auto Loans, minus the servicer's reasonable out-of-pocket costs,
including repossession and resale expenses not already deducted from the
proceeds, and any amounts required by law to be remitted to the borrower, (2)
any insurance proceeds, or (3) other monies received from the borrower or
otherwise.
S-44
<PAGE>
Pool Balance means, as of any date of determination, the aggregate
Principal Balances of the auto loans, unless otherwise specified, as of the
close of business on the preceding business day.
Principal Balance means, with respect to any auto loan, as of any date, the
Amount Financed minus (a) that portion of all amounts received on or prior to
the date and allocable to principal in accordance with the terms of the auto
loan, and (b) any Cram Down Loss in respect of the auto loan. The Principal
Balance of a Liquidated Auto Loan or a purchased auto loan shall be zero.
Principal Distributable Amount means, for any payment date, the product of
(1) 100% and (2) the excess of (a) the Pool Balance at the end of the second
preceding Collection Period, over (b) the Pool Balance at the end of the
immediately preceding Collection Period.
Purchase Amount means, with respect to an auto loan, the Principal Balance
as of the date the auto loan is purchased from the trust by the seller or the
servicer.
Reserve Account Deposit Amount means, for any payment date, the lesser of:
(x) the Maximum Reserve Account Deposit Amount for that payment date and (y) the
Reserve Account Shortfall Amount for that payment date.
Reserve Account Shortfall Amount means, for any payment date, the excess
of: (x) the Targeted Reserve Account Balance for that payment date over (y) the
amount on deposit in the reserve account as of that payment date.
Targeted Reserve Account Balance means, for any payment date, the lesser
of: (1) the greater of (a) ____% of the outstanding Pool Balance as of the end
of the prior Collection Period, and (b) $__________ (___% of the Pool Balance as
of the cut-off date) and (2) the Aggregate Certificate Principal Balance.
S-45
<PAGE>
Chevy Chase Auto Receivables
Trust ___
Series _____
Chevy Chase Bank, F.S.B.,
servicer
[UNDERWRITERS]
Until ____________ all dealers that effect transactions in the certificates,
whether or not participating in this offering, may be required to deliver a
prospectus and a prospectus supplement. This is in addition to the dealers'
obligation to deliver a prospectus and a prospectus supplement when acting as
underwriters and with respect to their unsold allotments or subscriptions.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ Information contained herein is subject to completion or amendment. A +
+ registration statement relating to these securities has been filed and +
+ declared effective with the Securities and Exchange Commission. These +
+ securities may not be sold nor may offers to buy be accepted without +
+ delivery of a final Prospectus Supplement and accompanying Prospectus. +
+ This prospectus shall not constitute an offer to sell or the solicitation +
+ of an offer to buy nor shall there be any sale of these securities in any +
+ State in which such offer, solicitation or sale would be unlawful prior +
+ to registration or qualification under the securities laws of any such +
+ State. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PRELIMINARY PROSPECTUS SUPPLEMENT
(To prospectus dated September __, 2000)
Chevy Chase Auto Receivables Trust 2000-2 $__________
Auto Receivables Backed Notes,
Series 2000-2
Chevy Chase Bank, F.S.B., Seller and Servicer
--------------------------------------------------------------------------------
Consider carefully the risk factors beginning on page S-___ of this preliminary
prospectus supplement and page ___ of the prospectus.
The notes represent asset-backed debt secured solely by the auto loan pool held
by the trust. The notes are not interests in or obligations of any other person.
No governmental agency or instrumentality has insured or guaranteed the notes or
the underlying auto loans.
--------------------------------------------------------------------------------
The trust will issue -
. Six classes of notes that are offered by this preliminary prospectus
supplement; and
. Subordinate interests in the trust that are not offered by this preliminary
prospectus supplement but serve as credit support to the notes offered by
this preliminary prospectus supplement. These subordinate interests will
initially be issued to the bank.
The notes -
. Are backed by a pledge of assets of the trust. The assets of the trust
securing the notes will include a pool of auto loans secured by new and
used automobiles, light duty trucks and vans; all of the auto loans in the
pool will be of "prime" credit quality;
. Receive monthly distributions on the 15th day of each month, or if not a
business day, then on the next business day, beginning on October 16, 2000;
and
. Currently have no trading market.
Credit enhancement for the notes will consist of -
. A reserve account that can be used to pay shortfalls in payments on the
notes; and
. Overcollateralization resulting from the excess of the principal amount of
the auto loans over the aggregate principal amount of the notes.
<TABLE>
<CAPTION>
Issuance Interest Final Scheduled Initial Public Underwriting Proceeds
Amount Rate Payment Date Offering Price Discount to the Bank(1)
--------------- ------------- ------------------- ------------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Class A-1 Notes
Class A-2 Notes
Class A-3 Notes
Class A-4 Notes
Class B Notes
Class C Notes
Total
</TABLE>
(1) Before expenses, estimated to be $ _________.
<PAGE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon
the accuracy or adequacy of this preliminary prospectus supplement. Any
representation to the contrary is a criminal offense.
Class A Underwriters
J. P. Morgan & Co.
Class B and Class C Underwriter
J. P. Morgan & Co.
The date of this preliminary prospectus supplement is _____________
<PAGE>
Where You Can Find More Information
Federal securities law requires the filing of information with the
Securities and Exchange Commission, including annual, quarterly and special
reports, proxy statements and other information. You can read and copy these
documents at the public reference facility maintained by the SEC at Judiciary
Plaza, 450 Fifth Street, NW, Room 1024, Washington, DC 20549. You can also copy
and inspect these reports, proxy statements and other information at the
following regional offices of the SEC:
New York Regional Office Chicago Regional Office
Seven World Trade Center Citicorp Center
Suite 1300 500 West Madison Street, Suite 1400
New York, New York 10048 Chicago, Illinois 60661
All reports we file on behalf of the trust with the SEC after the date
of this preliminary prospectus supplement but before the offering of the notes
ends are considered to be part of this preliminary prospectus supplement.
Information contained in those reports updates the information in this
preliminary prospectus supplement. We will provide you with copies of these
reports, at no cost, if you write to: Chevy Chase Bank, F.S.B., 8401 Connecticut
Avenue, 6th Floor, Chevy Chase, Maryland 20815, telephone (301) 986-7000.
Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. SEC filings are also available to the public on the
SEC's web site at http://www.sec.gov.
This preliminary prospectus supplement supplements a prospectus that
is part of a registration statement filed by the bank with the SEC (Registration
No. 333-36242).
You should rely only on the information provided in this preliminary
prospectus supplement and the accompanying prospectus. We have not authorized
anyone else to provide you with different information. You should not assume
that the information in this preliminary prospectus supplement or in the
prospectus is accurate as of any date other than the date on the cover page of
this preliminary prospectus supplement.
We include cross-references in this preliminary prospectus supplement
to captions in these materials where you can find further discussions. The
following table of contents provides the pages on which these captions are
located.
In this prospectus, the terms "we", "us" and "our" refer to Chevy
Chase Bank, F.S.B.
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Where You Can Find More Information..................................................... ii
SUMMARY................................................................................. 1
The Trust............................................................................ 1
The Seller / Servicer................................................................ 1
Cut-Off Date......................................................................... 1
Closing Date......................................................................... 1
Payment Dates........................................................................ 1
Description of the Notes............................................................. 1
General........................................................................... 1
The Notes......................................................................... 1
Flow of Funds..................................................................... 2
Interest.......................................................................... 2
Principal......................................................................... 3
Optional Redemption............................................................... 3
The Trust Assets..................................................................... 3
General........................................................................... 3
The Auto Loans.................................................................... 3
Characteristics of the Auto Loans................................................. 4
Reserve Account................................................................... 4
Subordination..................................................................... 4
Overcollateralization............................................................. 4
Servicing............................................................................ 5
Federal Income Tax Consequences...................................................... 5
ERISA Considerations................................................................. 5
Ratings.............................................................................. 5
Legal Investment Considerations...................................................... 5
RISK FACTORS............................................................................ 6
THE TRUST............................................................................... 7
General........................................................................... 7
The Owner Trustee................................................................. 8
The Indenture Trustee............................................................. 8
USE OF PROCEEDS......................................................................... 8
THE 2000-2 TRUST PROPERTY............................................................... 8
General........................................................................... 8
PREPAYMENT AND YIELD CONSIDERATIONS..................................................... 9
THE POOL OF AUTO LOANS.................................................................. 18
General........................................................................... 18
Underwriting Procedures........................................................... 18
Selection Criteria................................................................ 19
Composition of the Auto Loans as of the Cut-Off Date.............................. 20
THE BANK................................................................................ 24
General........................................................................... 24
Litigation........................................................................ 24
Delinquency and Default Experience................................................ 24
DESCRIPTION OF SALE AND SERVICING AGREEMENT............................................. 27
Conveyance of Auto Loans.......................................................... 27
Servicing Procedures.............................................................. 28
Servicer's Certificate............................................................ 28
Review by Independent Certified Public Accountants................................ 29
Servicer Default; Waiver of Past Defaults......................................... 29
Servicing Compensation, Payment of Expenses and Trustees' Fees.................... 30
Mandatory Repurchase of Auto Loans................................................ 30
DESCRIPTION OF THE NOTES................................................................ 31
General........................................................................... 31
Distributions to the Noteholders of the Subordinate Notes......................... 32
Payment Dates..................................................................... 32
Accounts.......................................................................... 32
Delivery of the Servicer's Certificate............................................ 32
Flow of Funds..................................................................... 33
Interest Payments................................................................. 34
Credit Enhancement................................................................ 35
Overcollateralization............................................................. 36
Withholding....................................................................... 36
Reports to Noteholders............................................................ 37
Optional Termination.............................................................. 37
Events of Default................................................................. 38
Rights upon an Event of Default................................................... 38
MATERIAL FEDERAL INCOME TAX CONSEQUENCES................................................ 40
Tax Characterization of the Trust................................................. 40
Tax Consequences to Holders of the Notes.......................................... 40
State and Local Tax Considerations................................................ 43
ERISA Considerations.................................................................... 43
RATINGS................................................................................. 44
UNDERWRITING............................................................................ 44
LEGAL MATTERS........................................................................... 48
REPORT OF INDEPENDENT ACCOUNTANTS....................................................... 49
</TABLE>
iii
<PAGE>
SUMMARY
. This summary highlights selected information from this preliminary
prospectus supplement and does not contain all of the information that you
need to consider in making your investment decision. To understand all of
the terms of the offering of the notes, read carefully this entire
preliminary prospectus supplement and the accompanying prospectus.
. This summary provides an overview of certain calculations, cash flows and
other information to aid your understanding and is qualified by the full
description of these calculations, cash flows and other information in this
preliminary prospectus supplement and the accompanying prospectus.
The Trust
Chevy Chase Auto Receivables Trust 2000-2, or the trust, is a Delaware business
trust. The trust will issue the notes and be liable for the payment of interest
and principal on the notes.
The trust's principal assets will be a pool of auto loans and cash held in
certain accounts.
The Seller / Servicer
Chevy Chase Bank, F.S.B, or the bank, a federally chartered stock savings bank,
will sell the auto loans to the trust and will act as servicer of the auto
loans.
Cut-Off Date
The opening of business on September 1, 2000.
Closing Date
On or about September __, 2000.
Payment Dates
The 15th day of each month, if the 15th is a business day. If the 15th day is
not a business day, the payment date will be the following day that is a
business day. The first payment date will be October 16, 2000.
Description of the Notes
General
The trust will issue six classes of its asset backed notes. The notes are
designated as the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes, the
Class A-4 Notes, the Class B Notes and the Class C Notes. The Class A-1 Notes,
the Class A-2 Notes, the Class A-3 Notes and the Class A-4 Notes are the Class A
Notes. The Class B Notes and the Class C Notes are the Subordinate Notes.
The notes will be secured solely by a pledge of the assets of the trust.
The trust will also issue a trust certificate. The trust certificate represents
the ownership of the trust. Payments on the trust certificate are subordinate to
payments on the notes. The trust certificate does not have a principal balance
and is not offered to the public.
The Notes
Each class of notes will have the initial principal amount, interest rate and
final scheduled payment date for that class listed on the cover page of this
preliminary prospectus supplement.
S-1
<PAGE>
The notes will be issued initially in book-entry form only and will be issued in
minimum denominations of $1,000 and multiples of $1. You may hold your notes
through DTC in the United States or Clearstream, Luxembourg, or the Euroclear
System in Europe.
Flow of Funds
On each payment date, the trustee will apply the trust's available funds as
follows:
. first, to pay the monthly servicing fee;
. second, to pay the trustees' fees;
. third, to pay interest on the Class A Notes,
. fourth, to fund a payment of principal, to the extent as may be necessary
to reduce the Class A Note principal balance to the pool balance; i.e., to
maintain parity between the Class A Note principal balance and the pool
balance, which amount will be paid out as described below under
"Principal",
. fifth, to pay interest on the Class B Notes,
. sixth, to fund a payment of principal, to the extent as may be necessary to
reduce the combined Class A and Class B Note principal balance to the pool
balance i.e., to maintain parity between the combined Class A and Class B
Note balance and the pool balance, which amount will be paid out as
described below under "Principal",
. seventh, to pay interest on the Class C Notes,
. eighth, to fund a payment of principal, to the extent as may be necessary
to reduce the combined Class A, Class B, and Class C Note principal balance
to the pool balance, i.e., to maintain parity between the aggregate note
principal balance and the pool balance, which amount will be paid out as
described below under "Principal",
. ninth, to fund a payment of principal in an amount generally equal to the
decrease in the pool balance during the prior month, reduced by the amount
of any principal allocated as provided above, and further reduced by the
amount of any excess level of overcollateralization, which amount will be
paid out as described below under "Principal",
. tenth, to fund a payment of principal, to the extent as may be necessary to
reduce to zero the principal balance of any class which remains outstanding
on or after its final scheduled payment date, which amount will be paid out
as described below under "Principal",
. eleventh, to deposit into the reserve account an amount up to the reserve
account required amount,
. twelfth, to fund using excess cashflow, as well as excess amounts released
from the reserve account, an additional payment of principal, to the extent
as may be necessary to increase the overcollateralization to its required
target level, which amount will be paid out as described below under
"Principal", and
. thirteenth, to pay the remainder, if any, to the holder of the trust
certificate.
Interest
On each payment date, the noteholders of each class will receive
interest that accrued from the preceding payment date, payable at the interest
rate for that class. In the case of the first payment date, interest will accrue
from the closing date. The interest rate for each class is listed on the cover
page of this preliminary prospectus supplement. Interest
S-2
<PAGE>
on the Class A-1 Notes will be calculated on the basis of a 360-day year and the
actual number of days elapsed in the accrual period. Interest on all other
classes will be calculated on the basis of a 360-day year consisting of twelve
30-day months.
Interest amounts paid to the holders of the Class A Notes will be shared by the
holders of the Class A-1, the Class A-2, the Class A-3 and the Class A-4 Notes
in proportion to the interest due on each class.
Principal
On each payment date, all amounts allocated to the payment of principal as
described in "Flow of Funds" above will be aggregated and will be paid out in
the following order of priority:
. first, to the Class A-1 Noteholders until they are paid in full,
. second, to the Class A-2 Noteholders until they are paid in full,
. third, to the Class A-3 Noteholders until they are paid in full,
. fourth, to the Class A-4 Noteholders until they are paid in full,
. fifth, to the Class B Noteholders until they are paid in full, and
. sixth, to the Class C Noteholders until they are paid in full.
If an event of default occurs, the Class A Notes then outstanding will receive
principal payments pro rata, although the Class A Notes as a group will still be
entitled to payment in full before any principal is paid on the Class B Notes or
the Class C Notes.
Optional Redemption
On any payment date when the outstanding principal balance of the notes is less
than or equal to 5% of the original principal balance of the notes, the bank may
purchase the auto loans from the trust. This will result in the redemption of
the notes. If a redemption occurs, you will receive a final distribution
equaling the entire unpaid principal balance of the notes plus any accrued and
unpaid interest.
The Trust Assets
General
The trust's assets will principally include:
. a pool of auto loans, which are secured by new and used automobiles, light
duty trucks and vans;
. collections on the auto loans received on or after September 1, 2000;
. an assignment of the security interests in the vehicles securing the auto
loan pool; and
. amounts held in the reserve account.
The Auto Loans
The auto loans consist of simple interest retail installment sales contracts
between dealers and retail purchasers and installment loans which are secured by
new and used automobiles, light duty trucks and vans financed by means of the
auto loan. Each obligor's obligation under its auto loan is a full recourse
obligation. The auto loans contain provisions which unconditionally require the
obligor to make all payments under the related auto loan.
On the closing date, the bank will sell the auto loans to the trust.
On the closing date the trust will pledge the auto loans to the indenture
trustee as collateral for the notes. Payments on the notes will be made from
payments on the pledged auto loans, withdrawals from the reserve account and
payments received under applicable insurance policies.
S-3
<PAGE>
Characteristics of the Auto Loans
The statistical information presented in this preliminary prospectus supplement
is based on the auto loans as of the cut-off date.
The auto loans will consist of "prime" quality auto loans secured by new and
used automobiles, light duty trucks and vans which were purchased from
automobile dealers under the bank's financing program.
As of the cut-off date, the auto loans have:
. an aggregate principal balance of $________;
. a weighted average annual percentage rate of approximately ____%;
. a weighted average original maturity of approximately _____ months;
. a weighted average remaining maturity of approximately ____ months; and
. a remaining term of not more than 72 months and not less than 12 months.
Reserve Account
On the closing date, the amount in the reserve account will be $_______ which is
____% of the original pool balance, and which is the full required funding of
the reserve account. The amount on deposit in the reserve account is required to
be maintained at this level for so long as the notes are outstanding, except
that the amount on deposit need never be greater than the aggregate outstanding
note principal balance.
Amounts in the reserve account will be available:
. to pay interest on the notes,
. to pay the principal balance of a class of notes to zero on that class's
final scheduled payment date, and
. to pay principal on the notes to the extent necessary to reduce the then
outstanding principal balance of the notes to the then outstanding pool
balance, i.e., to maintain parity between the aggregate note balance and
the pool balance.
Subordination
Payments on the Subordinate Notes are subordinated to payments on the Class A
Notes. This subordination of distributions on the Subordinate Notes is intended
to increase the likelihood that the trust will not default in making payments
due on the Class A Notes.
Payments on the Class C Notes are subordinated to payments on the Class A Notes
and Class B Notes. This subordination of payments on the Class C Notes is
intended to increase the likelihood that the trust will not default in making
payments due on the Class A Notes and the Class B Notes.
Overcollateralization
On the closing date, the original pool balance will exceed the initial principal
amount of the notes of all classes by approximately $_______, which is
approximately ____% of the original pool balance. This excess represents
overcollateralization. The level of overcollateralization is required to
increase to, and thereafter be maintained at, a target level equal to the
greater of (1) ____% of the then-current pool balance, less the amount then on
deposit in the reserve account and (2) the aggregate principal balance of the
auto loans that are delinquent 90 days or more, including repossessions, and
that have not been charged off, less the amount in the reserve account. The
level of
S-4
<PAGE>
overcollateralization is increased and maintained through the application of
excess cashflow available to the trust, primarily in the form of the excess of
interest collections on the auto loan pool over the interest paid out on the
notes, as additional principal paid on the notes. In general, the target amount
of overcollateralization will decrease as the pool balance decreases. However,
the required amount of overcollateralization on any payment date will never be
less than ____% of the original pool balance. The overcollateralization will be
available to absorb losses on the auto loan pool.
Servicing
The bank will be the servicer of the auto loans and will be responsible for
servicing, managing and making collections on, and otherwise enforcing, the auto
loans.
Federal Income Tax Consequences
For federal income tax purposes:
. Dewey Ballantine LLP, tax counsel to the trust and counsel to the
underwriters, is of the opinion that the notes will be treated as debt and
the trust will not be treated as an association or publicly traded
partnership taxable as a corporation. By your acceptance of a note, you
agree to treat the notes as debt.
. Interest on the notes will be taxable as ordinary income when received by a
holder on the cash method of accounting and when accrued by a holder on the
accrual method of accounting.
. Dewey Ballantine LLP has prepared the discussion under "Material Federal
Income Tax Consequences" in this preliminary prospectus supplement and
"Certain Tax Considerations" in the prospectus and is of the opinion that
the discussion accurately states all material federal income tax
consequences of the purchase, ownership and disposition of the notes to
their original purchaser.
ERISA Considerations
Subject to the important considerations described under "ERISA Considerations"
in this preliminary prospectus supplement, pension, profit-sharing and other
employee benefit plans may purchase notes. You should consult with your counsel
regarding the applicability of the provisions of the Employee Retirement Income
Security Act of 1974, as amended, before purchasing a note.
Ratings
. The trust will not issue the notes unless they have been assigned the
ratings stated below.
. You should know that the ratings could be lowered, qualified or withdrawn
by the rating agencies.
Class Ratings
----- -------
S&P Moody's Fitch IBCA
--- ------- ----------
A-1 A-1+ Prime -1 F1+
A-2 AAA Aaa AAA
A-3 AAA Aaa AAA
A-4 AAA Aaa AAA
B A A2 A
C BBB+ Baa2 BBB+
Legal Investment Considerations
The Class A-1 Notes will be eligible for purchase by money market funds under
Rule 2a-7 under the Investment Company Act.
S-5
<PAGE>
RISK FACTORS
In addition to those factors described under "Risk Factors" in the
prospectus, you should consider, among other things, the following factors in
connection with the purchase of the notes:
An investment in the notes may be an illiquid investment. There
currently is no secondary market for the notes, and there is no assurance that
one will develop or, if one does develop, that it will continue until the notes
are paid in full. The underwriters intend to make a market in the notes but have
no obligation to do so.
The rate at which the notes will amortize cannot be predicted. All of
the auto loans are prepayable at any time without penalty. The rate of
prepayments on the auto loans may be influenced by a variety of economic, social
and other factors. Under certain circumstances, the bank will be obligated to
purchase auto loans as a result of breaches of certain representations and
covenants in the transaction documents. The bank also has the right, subject to
certain conditions, to purchase the auto loans when the total principal balance
of the notes is 5% or less of the total principal balance of the notes as of the
date they are issued. Any reinvestment risks resulting from a faster or slower
incidence of prepayments and/or purchases of auto loans will be borne entirely
by the noteholders.
The Subordinate Notes are subordinated notes, and the risk of loss or
delay in distributions is greater than on the Class A Notes.
Payments on the Subordinate Notes will be subordinated in priority of
payment to interest and principal due on the Class A Notes. Consequently, the
holders of Subordinate Notes will not receive any payments of interest on a
payment date unless the full amount of interest due on the Class A Notes on that
payment date as well as an amount of principal to maintain parity between the
Class A Note principal balance and the pool balance has been paid. No principal
will be paid on the Subordinate Notes until the entire principal balance of all
Class A Notes has been paid in full. This subordination has the effect of
increasing the likelihood of payment on the Class A Notes and therefore
decreasing the likelihood of payment on the Subordinate Notes.
The holders of the Subordinate Notes are restricted in their rights to
accelerate the notes.
The most senior class outstanding at any time will have the right
under most circumstances to accelerate the notes or waive an event of default,
as well as to direct remedies following an event of default.
Geographic concentrations of receivables may result in higher losses
if particular regions experience downturns. As of the cut-off date, based upon
billing address information provided to the bank, the obligors resided in [43]
states and the District of Columbia. Five of these states, [Texas, Georgia,
Virginia, Maryland and North Carolina] account for ____%, _____%, _____%, ____%
and ____%, respectively, of the aggregate principal balance of the receivables
in the trust. Adverse economic conditions in these states could adversely
S-6
<PAGE>
affect the delinquency, loan loss or repossession experience with respect to the
auto loans. Changes in these factors may also affect the rate of principal
payments on the auto loans.
Failure to obtain a perfected security interest in the vehicles in all
states may lead to a reduction in distributions of principal and interest. The
bank or its agent will hold the auto loans and the certificates of title or
ownership relating to the vehicles as custodian for the indenture trustee.
However, the auto loans will not be marked or stamped to indicate that they have
been sold to the trust, and the certificates of title or ownership for the
vehicles will not be endorsed or otherwise amended to identify the trust as the
new secured party. Under such circumstances and in certain jurisdictions, the
trust's interest in the auto loans and the vehicles may be defeated. See
"Certain Legal Aspects of the Receivables" in the accompanying prospectus.
If the protection provided to the noteholders by the
overcollateralization and the reserve account is insufficient to pay principal
and interest on the notes, the noteholders would have to look principally to the
obligors on the auto loans and to the proceeds from the repossession and sale of
vehicles which secure the auto loans. In that event, certain factors, such as
the indenture trustee's failure to have perfected security interests in the
vehicles in all states, may affect the trust's ability to repossess and sell the
vehicles securing the auto loans, and thus may reduce the proceeds to be
distributed to noteholders. See "Description of the Notes--Flow of Funds" in
this preliminary prospectus supplement, as well as "Certain Legal Aspects of the
Receivables" in the accompanying prospectus.
THE TRUST
The following information supplements and, to the extent more
specific, supersedes the information contained in the accompanying prospectus.
General
Chevy Chase Auto Receivables Trust 2000-2, or the trust will be a
Delaware business trust formed under the laws of the State of Delaware under a
trust agreement, dated as of September 1, 2000 between the bank and the owner
trustee for the purpose of engaging in the transactions described in this
preliminary prospectus supplement. The trust will only engage in the following
activities:
. acquiring, holding and managing the auto loans and the other assets of
the trust,
. issuing the notes,
. making payments on the notes, and
. engaging in other activities in connection with the notes.
The trust's principal offices are in Wilmington, Delaware, in care of
Wilmington Trust Company as owner trustee, at the same address as the owner
trustee.
S-7
<PAGE>
The trust will not acquire any assets other than the trust property,
and it is not anticipated that the trust will have any need for additional
capital resources. The financial statements of the trust, which were prepared
prior to sale of the auto loans to the trust and the issuance of the notes, are
included in this preliminary prospectus supplement beginning on page S-____. No
historical or pro forma financial statements or ratios of earnings to fixed
charges with respect to the trust have been included because the trust will have
had no operating history upon its establishment and will not have engaged in any
business other than acquiring and holding the trust property, issuing the notes
and distributing payments on the notes.
The Owner Trustee
Wilmington Trust Company will be the owner trustee under the trust
agreement. It is a Delaware banking corporation and its principal offices are
located at 1100 North Market Street, Wilmington, Delaware 19890. The owner
trustee will perform limited administrative functions under the trust agreement.
The owner trustee's liability in connection with the issuance and sale of the
notes is limited solely to the express obligations of the owner trustee as
stated in the trust agreement and the sale and servicing agreement, to be dated
as of September 1, 2000, among the trust, the seller, the servicer and the
indenture trustee.
The Indenture Trustee
U.S. Bank National Association will be the indenture trustee under an
indenture, dated as of September 1, 2000, among the trust and U.S. Bank National
Association, as indenture trustee. U.S. Bank National Association is a national
banking association, the principal offices of which are located at 180 East 5th
Street, St. Paul, Minnesota 55101.
USE OF PROCEEDS
The net proceeds received by the trust from the sale of the notes will
be used to pay the bank the cash portion of the purchase price for the auto
loans and to fund the initial deposit to be made to the reserve account.
THE 2000-2 TRUST PROPERTY
General
The trust assets consist of the following:
. the auto loans;
. all monies, including accrued interest, due or received on the auto
loans on or after the cut-off date of September 1, 2000;
. all amounts and property from time to time held in or credited to the
collection account, the reserve account and the note account;
S-8
<PAGE>
. all of the seller's security interests in new and used automobiles,
light duty trucks and vans, or the financed vehicles;
. all of the seller's rights to proceeds from claims on physical damage,
theft, vendor's single interest, credit life, disability or
hospitalization insurance policies, if any, covering financed vehicles or
obligors, as the case may be, to the extent that such insurance policies
relate to the auto loans;
. any proceeds from the sale of repossessed financed vehicles;
. all of the bank's right to all documents contained in the auto loan
files;
. all property, including the right to receive future liquidation
proceeds, that secures an auto loan and that shall have been acquired
by or on behalf of the indenture trustee; and
. all proceeds of the foregoing.
The indenture does not permit the trust to acquire any additional
assets.
PREPAYMENT AND YIELD CONSIDERATIONS
The rate of principal payments on each class of notes will be directly
related to the rate of principal payments on the underlying auto loans. If any
class of notes is purchased at a price other than at par, the yield to maturity
on such class also will be affected by the rate of principal payments. The
principal collections on the auto loans may be in the form of scheduled
principal payments, prepayments or liquidations due to default, casualty and the
like. Any principal collections other than scheduled principal payments, will
result in distributions to the noteholders of amounts which would otherwise have
been distributed over the remaining term of the auto loans. In general, the rate
of such payments may be influenced by a number of other factors, including
general economic conditions.
The effective yield to the holders of a class of notes will depend
upon, among other things, the price at which such notes are purchased, the
amount of principal, including both scheduled and nonscheduled payments thereof,
which is paid to the noteholders and the rate at which such principal is paid.
On each payment date, the indenture trustee will pay the noteholders
of each class interest that accrued from the preceding payment date, payable at
the interest rate for that class. In the case of the first payment date, monthly
interest will accrue from the closing date at the applicable note rate on the
original note principal balance for each class of the notes. Interest on the
Class A-1 Notes will be calculated on the basis of a 360-day year and the actual
number of days elapsed in the accrual period. Interest on all other classes will
be calculated on the basis of a 360-day year consisting of twelve 30-day months.
The original note principal balance for each class is:
S-9
<PAGE>
Class A-1 Notes: $___________
Class A-2 Notes: $___________
Class A-3 Notes: $___________
Class A-4 Notes: $___________
Class B Notes: $___________, and
Class C Notes: $___________
Prepayments on auto loans can be measured relative to a prepayment
standard or model. The model used in this preliminary prospectus supplement, the
absolute prepayment model, or ABS, represents an assumed rate of prepayment each
month relative to the original number of auto loans in a pool. ABS further
assumes that all the auto loans are the same size and amortize at the same rate
and that each auto loan in each month of its life will either be paid as
scheduled or be prepaid in full. For example, in a pool of auto loans originally
containing 10,000 auto loans, a 1% ABS rate means that 100 auto loans prepay
each month. ABS does not purport to be an historical description of prepayment
experience or a prediction of the anticipated rate of prepayment of any pool of
auto loans.
The tables captioned "Percent of Initial Note Principal Balance at
Various ABS Percentages", also called the ABS Tables, have been prepared on the
basis of the following assumptions:
. the auto loans prepay in full at the specified constant percentage of
ABS monthly, with no defaults, losses or repurchases;
. each scheduled monthly payment on the auto loans is made on the last
day of each month and each month has 30 days;
. the initial principal amount of the notes is as stated on the cover
page;
. interest on the notes accrues during each interest period at the
following assumed coupon rates: Class A-1, ____%; Class A-2, _____%;
Class A-3, ____%; Class A-4, ____%; Class B, _____%; and Class C,
____%;
. payments on the notes are made on the 15th day of each month whether
or not a business day;
. the notes are purchased on the closing date;
. the overcollateralization is initially ____% of the pool balance,
building to ____% of the amortizing pool balance, minus the amount
then on deposit in the reserve account; however, the required amount
of overcollateralization on any payment date will never be less than
____% of the original pool balance;
S-10
<PAGE>
. the scheduled monthly payment for each auto loan has been calculated on
the basis of the assumed characteristics presented in the table below,
and each auto loan will amortize in amounts sufficient to repay the
principal balance of the auto loans by its indicated remaining term to
maturity; and
. the seller or the servicer exercises its clean-up call redemption.
The ABS Tables also assume that (1) the auto loans have been
aggregated into hypothetical pools with all of the auto loans within each pool
having the following characteristics, and (2) that the level of scheduled
monthly payment for each of the pools, which is based on its aggregate principal
balance, gross APR, original number of scheduled payments and remaining number
of scheduled payments as of the cut-off date, will be calculated so that each
pool will be fully amortized by the end of its remaining term to maturity.
<TABLE>
<CAPTION>
Remaining
Term
Aggregate to Maturity Seasoning
Pool Principal Balance APR (in Months) (in Months)
------- ---------------------- ---------- ----------------- -------------------
<S> <C> <C> <C> <C>
1 $ %
2 %
3 %
4 %
5 %
---------------------- ---------- ----------------- -------------------
Total $ %
====================== ========== ================= ===================
</TABLE>
The ABS Tables indicate, based on the assumptions described above, the
percentages of the initial principal amount of the notes that would be
outstanding after each of the payment dates shown at various percentages of ABS
and the corresponding weighted average lives of the notes. The weighted average
life of a note is determined by (1) multiplying the amount of each principal
payment on a note by the number of years from the date of the issuance of the
notes to the payment date, (2) adding the results and (3) dividing the sum by
the initial principal amount of the notes of that class. The actual
characteristics and performance of the auto loans will differ from the
assumptions used in constructing the ABS Tables. The assumptions used are
hypothetical and have been provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the auto loans will prepay at a constant level
of ABS until maturity or that all of the auto loans will prepay at the same
level of ABS. Moreover, the diverse terms of auto loans could produce slower or
faster principal distributions than indicated in the ABS Tables at the various
constant percentages of ABS specified, even if the original and remaining terms
to maturity of the auto loans are as assumed. Any difference between the
assumptions and the actual characteristics and performance of the auto loans,
including actual prepayment experience or losses, will affect the percentages of
initial balances outstanding over time and the weighted
S-11
<PAGE>
average lives of the notes. The percentages in the ABS Tables have been rounded
to the nearest whole number.
S-12
<PAGE>
Percentage of Initial Note Principal Balance
at Various ABS Percentages
<TABLE>
<CAPTION>
Class A -1 Notes
-------------- -----------------------------------------------------------------------------
Payment Date 0.5% 1.0% 1.5% 2.0% 2.5%
-------------- ------------ ------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Closing Date
October 2000
November 2000
December 2000
January 2001
February 2001
March 2001
April 2001
May 2001
June 2001
July 2001
August 2001
September 2001
Average Life (years)
To 5% Call........
To Maturity.......
</TABLE>
Percentage of Initial Note Principal Balance
at Various ABS Percentages
<TABLE>
<CAPTION>
Class A -2 Notes
-------------- -----------------------------------------------------------------------------
Payment Date 0.5% 1.0% 1.5% 2.0% 2.5%
-------------- ------------ ------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Closing Date
October 2000
November 2000
December 2000
January 2001
February 2001
March 2001
April 2001
May 2001
June 2001
July 2001
August 2001
September 2001
October 2001
November 2001
December 2001
January 2002
February 2002
March 2002
April 2002
May 2002
June 2002
July 2002
August 2002
September 2002
Average Life (years)
To 5% Call.....
To Maturity....
</TABLE>
S-13
<PAGE>
Percentage of Initial Note Principal Balance
at Various ABS Percentages
<TABLE>
<CAPTION>
Class A -3 Notes
-------------- -----------------------------------------------------------------------------
Payment Date 0.5% 1.0% 1.5% 2.0% 2.5%
-------------- ------------ ------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Closing Date
October 2000
November 2000
December 2000
January 2001
February 2001
March 2001
April 2001
May 2001
June 2001
July 2001
August 2001
September 2001
October 2001
November 2001
December 2001
January 2002
February 2002
March 2002
April 2002
May 2002
June 2002
July 2002
August 2002
September 2002
October 2002
November 2002
December 2002
January 2003
February 2003
March 2003
April 2003
May 2003
June 2003
July 2003
August 2003
September 2003
October 2003
November 2003
December 2003
January 2004
February 2004
March 2004
April 2004
May 2004
June 2004
July 2004
August 2004
September 2004
Average Life (years)
To 5% Call.........
To Maturity........
</TABLE>
S-14
<PAGE>
Percentage of Initial Note Principal Balance
at Various ABS Percentages
<TABLE>
<CAPTION>
Class A -4 Notes
-------------- -----------------------------------------------------------------------------
Payment Date 0.5% 1.0% 1.5% 2.0% 2.5%
-------------- ------------ ------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Closing Date
October 2000
November 2000
December 2000
January 2001
February 2001
March 2001
April 2001
May 2001
June 2001
July 2001
August 2001
September 2001
October 2001
November 2001
December 2001
January 2002
February 2002
March 2002
April 2002
May 2002
June 2002
July 2002
August 2002
September 2002
October 2002
November 2002
December 2002
January 2003
February 2003
March 2003
April 2003
May 2003
June 2003
July 2003
August 2003
September 2003
October 2003
November 2003
December 2003
January 2004
February 2004
March 2004
April 2004
May 2004
June 2004
July 2004
August 2004
September 2004
October 2004
November 2004
December 2004
January 2005
February 2005
March 2005
April 2005
Average Life (years)
To 5% Call..........
To Maturity.........
</TABLE>
S-15
<PAGE>
Percentage of Initial Note Principal Balance
at Various ABS Percentages
<TABLE>
<CAPTION>
Class B Notes
-------------- -----------------------------------------------------------------------------
Payment Date 0.5% 1.0% 1.5% 2.0% 2.5%
-------------- ------------ ------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Closing Date
October 2000
November 2000
December 2000
January 2001
February 2001
March 2001
April 2001
May 2001
June 2001
July 2001
August 2001
September 2001
October 2001
November 2001
December 2001
January 2002
February 2002
March 2002
April 2002
May 2002
June 2002
July 2002
August 2002
September 2002
October 2002
November 2002
December 2002
January 2003
February 2003
March 2003
April 2003
May 2003
June 2003
July 2003
August 2003
September 2003
October 2003
November 2003
December 2003
January 2004
February 2004
March 2004
April 2004
May 2004
June 2004
July 2004
August 2004
September 2004
October 2004
November 2004
December 2004
January 2005
February 2005
March 2005
April 2005
May 2005
Average Life (years)
To 5% Call.......
To Maturity......
</TABLE>
S-16
<PAGE>
Percentage of Initial Note Principal Balance
at Various ABS Percentages
<TABLE>
<CAPTION>
Class C Notes
-------------- -----------------------------------------------------------------------------
Payment Date 0.5% 1.0% 1.5% 2.0% 2.5%
-------------- ------------ ------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Closing Date
October 2000
November 2000
December 2000
January 2001
February 2001
March 2001
April 2001
May 2001
June 2001
July 2001
August 2001
September 2001
October 2001
November 2001
December 2001
January 2002
February 2002
March 2002
April 2002
May 2002
June 2002
July 2002
August 2002
September 2002
October 2002
November 2002
December 2002
January 2003
February 2003
March 2003
April 2003
May 2003
June 2003
July 2003
August 2003
September 2003
October 2003
November 2003
December 2003
January 2004
February 2004
March 2004
April 2004
May 2004
June 2004
July 2004
August 2004
September 2004
October 2004
November 2004
December 2004
January 2005
February 2005
March 2005
April 2005
May 2005
Average Life (years)
To 5% Call.........
To Maturity........
</TABLE>
S-17
<PAGE>
THE POOL OF AUTO LOANS
General
The assets of the trust will primarily consist of the auto loans,
which are secured by the financed vehicles.
The auto loans in the pool were purchased or originated by the bank.
You should note that the bank also acts as servicer for the auto loans under the
sale and servicing agreement, and we refer to the bank in that capacity as the
servicer.
With respect to the auto loan pool as of the cut-off date:
. ____% by aggregate principal balance were purchased by the bank from
dealers in the ordinary course of business;
. ____% by aggregate principal balance were originated directly by the
bank at or through its deposit branches;
. approximately ____% of the aggregate principal balance represents
financing of new automobiles, light duty trucks and vans; and
. approximately ____% of the aggregate principal balance represents
financing of used automobiles, light duty trucks and vans.
Underwriting Procedures
Each auto loan was originated or purchased by the bank and
underwritten in accordance with the bank's established underwriting policies
described below. The underwriting procedures of the bank are designed to provide
a basis for assessing the obligor's ability and willingness to repay the loan.
The bank requires each applicant to complete an application form
providing various items of general demographic information, financial
information, and employment history. In addition, specific information with
respect to the motor vehicle to be financed is required as part of the
application process. The bank then reviews the application and a credit bureau
report is obtained. In conducting the assessment of the obligor, the bank
considers such factors as the obligor's FICO score, the ratio of the proposed
loan payment to income and the ratio of debt to income. The bank also evaluates
the obligor's credit history through a review of a credit report compiled by a
recognized consumer credit reporting bureau. The obligor's equity in the
collateral and the terms of the loan are also important in the bank's analysis.
For those applications that are approved, the bank then determines the
amount and terms of the financing to be offered. The amount that the bank will
advance against the motor vehicle ranges from 100% to 120% of the invoice for
new vehicles and the NADA trade-in value for used vehicles plus, in each case,
dealer additions, based on the applicable FICO score of the
S-18
<PAGE>
obligor. Dealer additions are limited to 15% of the purchase price. The term for
a loan is a function of the age of the motor vehicle and the applicable FICO
score of the obligor. Acceptable terms generally range from 24 to 72 months in
length.
The bank's guidelines are intended only to provide a basis for lending
decisions, and exceptions to such guidelines may, within certain limits, be made
based upon the credit judgment of the lending officer with appropriate approval
authority. The bank periodically conducts quality audits to ensure compliance
with its established policies and procedures.
Selection Criteria
The auto loans were selected from the bank's portfolio on the basis of
a number of criteria, including the following:
. each auto loan has an original term to maturity of 12 to 72 months;
. each auto loan has a maturity of not later than _________;
. each auto loan provides for level monthly payments that fully amortize
the amount financed over the original term;
. no auto loan was more than 29 days past due as of the cut-off date;
. each auto loan has an unpaid principal balance of not less than $1,000
as of the cut-off date; and
. the weighted average remaining term to maturity of the auto loans was
______ months as of the cut-off date.
All the auto loans are prepayable at any time. The bank makes no
prediction as to the actual prepayment experience on the auto loans. See also
"Description of the Notes--Optional Termination" in this preliminary prospectus
supplement regarding the bank's option to purchase the auto loans when the total
principal balance of the notes is 5% or less of total principal balance of the
notes as of the date of issuance of the notes.
The auto loans are simple interest installment sales contracts and
installment loans which provide for equal monthly payments.
The composition, distribution by annual percentage rate, commonly
called APR, and geographical distribution of the auto loans as of the cut-off
date are as set forth in the following tables.
S-19
<PAGE>
Composition of the Auto Loans as of the Cut-Off Date
<TABLE>
<S> <C>
Initial Aggregate Principal Balance........................................ $
Number of Auto Loans.......................................................
Average Original Principal Balance......................................... $
Range of Original Principal Balances....................................... $ to $
Average Remaining Principal Balance........................................ $
Range of Remaining Principal Balances...................................... $ to $
Weighted Average APR(1).................................................... %
Range of APRs.............................................................. % to %
Weighted Average Original Term to Maturity(1).............................. ______ months
Range of Original Terms to Maturity........................................ __ months to __ months
Weighted Average Remaining Term to Maturity(1)............................. ____ months
Range of Remaining Terms to Maturity....................................... ___ months to ___ months
</TABLE>
--------------------------------------------------------------------------------
(1) Weighted by remaining principal balance.
S-20
<PAGE>
Distribution of the Auto Loans by APR as of the Cut-Off Date
<TABLE>
<CAPTION>
Percentage of
Number of Aggregate Aggregate
Range of APRs Auto Loans Principal Balance Principal Balance
------------- ---------- ----------------- -----------------
<S> <C> <C> <C>
7.00% to 7.99%..................
8.00% to 8.99%..................
9.00% to 9.99%..................
10.00% to 10.99%.................
11.00% to 11.99%.................
12.00% to 12.99%.................
13.00% to 13.99%.................
14.00% to 14.99%.................
15.00% to 15.99%.................
16.00% to 16.99%.................
17.00% to 17.99%.................
18.00% to 18.99%.................
--------------------------------- ---------- ----------------- -----------------
Total............................ $ 100.00%
========== ================= =================
</TABLE>
S-21
<PAGE>
Geographic Distribution of the Auto Loans as of the Cut-Off Date
<TABLE>
<CAPTION>
Percentage of
Number of Aggregate Aggregate
State(1)(2) Auto Loans Principal Balance Principal Balance
----------- ---------- ----------------- -----------------
<S> <C> <C> <C>
Alabama...................
Florida...................
Georgia...................
Maryland..................
North Carolina............
Pennsylvania..............
Tennessee.................
Texas.....................
Virginia..................
Other.....................
-------------------------- ---------- ----------------- -----------------
Total.....................
========== ================= =================
</TABLE>
(1) Based upon the billing address of the obligors.
(2) No other state represents more than 1% of the Auto Loans.
Distribution of the Auto Loans by Remaining Principal Balance as of the
Cut-Off Date
<TABLE>
<CAPTION>
Range of Remaining Number of Aggregate Principal Percentage of Aggregate
Principal Balances Auto Loans Balance Principal Balance
------------------ ---------- ------- -----------------
<S> <C> <C> <C>
$ 00.00 to $ 4,999.99.......
$ 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 $ [______]........
---------- ------------------- -----------------
Total............................ 100.00%
========== =================== =================
</TABLE>
S-22
<PAGE>
Distribution of the Auto Loans by Remaining Terms to Maturity as of the
Cut-Off Date
<TABLE>
<CAPTION>
Aggregate Percentage of
Range of Remaining Terms to Number of Principal Aggregate
Maturity (months) Auto Loans Balance Principal Balance
--------------------------- --------------- --------------- -----------------------
<S> <C> <C> <C>
12 to 24............................
25 to 36............................
37 to 48............................
49 to 60............................
61 to 72............................
--------------- --------------- -----------------------
Total............................... $ 100.00%
=============== =============== =======================
</TABLE>
S-23
<PAGE>
THE BANK
General
The bank, which is the seller and the servicer of the auto loans, is a
federally chartered stock savings bank. The bank's home office is located at
7926 Jones Branch Drive, McLean, Virginia 22102, and its executive offices are
located at 8401 Connecticut Avenue, Chevy Chase, Maryland 20815. The bank's
telephone number is (301) 986-7000. The bank is subject to comprehensive
regulation, examination and supervision by the Office of Thrift Supervision, or
the OTS, within the Department of the Treasury and, to a lesser extent, by the
Federal Deposit Insurance Corporation, or the FDIC. Deposits at the bank are
fully insured up to $100,000 per insured depositor by the Savings Association
Insurance Fund, which is administered by the FDIC.
Based on unaudited results, at March 31, 2000, the bank had
consolidated assets of approximately $10.2 billion, deposits of approximately
$6.5 billion, and stockholders' equity of approximately $479.3 million. As a
savings bank chartered under the laws of the United States, the bank is subject
to certain minimum regulatory capital requirements imposed under the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989, as amended, or
FIRREA. At March 31, 2000, the bank's tangible, core, tier 1 risk-based and
total risk-based regulatory capital ratios were 5.50%, 5.50%, 7.44% and 11.48%,
respectively. As of such date, the bank's capital ratios exceeded the
requirements under FIRREA as well as the standards established for "well-
capitalized" institutions under the prompt corrective action regulations
established pursuant to the Federal Deposit Insurance Corporation Improvement
Act of 1991. The OTS has the discretion to treat a "well-capitalized"
institution as an "adequately capitalized" institution for purposes of the
prompt corrective action regulations if, after notice and an opportunity for a
hearing, the OTS determines that the institution is being operated in an unsafe
or unsound condition or has received and has not corrected a less than
satisfactory examination rating for asset quality, management, earnings or
liquidity.
Litigation
The bank is not involved in any legal proceedings, and is not aware of
any pending or threatened legal proceedings, that would have a material adverse
effect upon its financial condition or results of operations.
Delinquency and Default Experience
The tables below set forth certain information concerning the bank's
delinquency and loss experience with respect to its servicing portfolio of
retail installment sales contracts for new and used automobiles, light duty
trucks and vans acquired pursuant to its finance programs. Delinquency is
recognized on a contractual basis only. The bank cannot assure you that the
levels of delinquency and loss experience reflected in the tables below, are
indicative of the performance of the auto loans included in the trust.
S-24
<PAGE>
CHEVY CHASE BANK, F.S.B.
Delinquency Experience
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------------------------------------------------------
1995 1996 1997 1998
------------------- --------------------- -------------------- ----------------------
Dollar Percentage Dollar Percentage Dollar Percentage Dollar Percentage
Amount of Total Amount of Total Amount of Total Amount of Total
(000) Auto Loans (000) Auto Loans (000) Auto Loans (000) Auto Loans
---------- ------------ -------- ------------ -------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Auto Loans
Outstanding(1) $431,351 $714,320 $853,424 $760,348
Delinquencies:(2)(3)
30-59 Days $ 2,491 0.58% $ 8,516 1.19% $ 9,212 1.08% $ 7,919 1.04%
60-89 Days 742 0.17% 2,176 0.30% 3,256 0.38% 2,297 0.30%
90 days or more 1,667 0.39% 3,588 0.50% 9,188 1.08% 6,155 0.81%
-------- ------ -------- ----- -------- ----- -------- -----
Total Delinquencies $ 4,900 1.14% $ 14,280 1.99% $ 21,656 2.54% $ 16,371 2.15%
======== ===== ======== ===== ======== ===== ======== =====
<CAPTION>
------------------------ ----------------------
1999 As of March 31, 2000
Dollar Percentage Dollar Percentage
------------------------ ----------------------
Amount of Total Amount of Total
(000) Auto Loans (000) Auto Loans
--------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Auto Loans
Outstanding(1) $1,133,797 $1,347,454
Delinquencies:(2)(3)
30-59 Days $ 10,439 0.92% $ 9,796 0.73%
60-89 Days $ 3,180 0.28% $ 2,205 0.16%
90 days or more $ 7,709 0.68% $ 8,129 0.60%
---------- ----- ---------- -----
Total Delinquencies $ 21,328 1.88% $ 20,130 1.49%
========== ===== ========== =====
</TABLE>
(1) Auto loans outstanding is the remaining principal balance.
(2) The period of delinquency is based on the number of days payments are
contractually past due.
(3) Includes repossessions in inventory.
S-25
<PAGE>
CHEVY CHASE BANK, F.S.B.
Loss Experience
For the year ended December 31,
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
1995 1996 1997
------------------------- --------------------------- ------------------------
Percentage Percentage Percentage
Dollar of Average of Average Dollar of Average
Amount Auto Loans Dollar Auto Loans Amount Auto Loans
(000) Outstanding Amount (000) Outstanding (000) Outstanding
------------------------- --------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Average Auto Loans
Outstanding(2) $363,845 $565,963 $832,700
Gross Charge-offs(3) $ 2,120 0.58% $ 3,795 0.67% $ 8,303 1.00%
Recoveries(4) $ 275 0.07% $ 277 0.05% $ 770 0.09%
-------- ----- -------- ----- -------- -----
Net Losses $ 1,845 0.51% $ 3,518 0.62% $ 7,533 0.91%
======== ===== ======== ===== ======== =====
<CAPTION>
-------------------------------------------------- --------------------------------
1998 1999 For the three-month period ended
------------------------ ------------------------- ended
March 31, 2000
--------------------------------
Percentage
Percentage Percentage of of Average
Dollar of Average Dollar Average Auto Auto Loans
Amount Auto Loans Amount Loans Dollar Outstanding
(000) Outstanding (000) Outstanding Amount (000) (1)
--------- -------------- -------- ---------------- ------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
Average Auto Loans
Outstanding(2) $771,587 $940,031 $1,279,333
Gross Charge-offs(3) $ 12,682 1.64% $ 8,200 0.87% $ 2,681 0.84%
Recoveries(4) $ 1,211 0.15% $ 1,554 0.16% $ 504 0.16%
-------- ----- -------- ----- ---------- -----
Net Losses $ 11,471 1.49% $ 6,646 0.71% $ 2,177 0.68%
======== ===== ======== ===== ========== =====
</TABLE>
(1) Annualized.
(2) Equals the arithmetic average of the month-end balances.
(3) Gross charge-offs represent the excess of the outstanding loan
balance over net liquidation proceeds where net liquidation
proceeds are the excess of liquidation proceeds over the sum of
repossession, liquidation and other related expenses.
(4) Includes current post-disposition recoveries on receivables
previously charged off.
S-26
<PAGE>
DESCRIPTION OF SALE AND SERVICING AGREEMENT
Conveyance of Auto Loans
On the closing date, the bank will sell to the trust, without
recourse except as expressly set forth in the sale and servicing agreement, all
of the bank's right, title and interest in and to the auto loans and the other
trust property, including its security interests in the financed vehicles.
Concurrently with this sale and assignment, the indenture trustee will execute,
authenticate and deliver the notes to the underwriters against payment to the
bank of the net purchase price of the sale of the notes.
In the sale and servicing agreement, the bank will make
various representations and warranties to the trust, including:
. the information provided with respect to auto loans is correct in
all material respects;
. the obligor on each auto loan is required to obtain physical
damage and theft insurance in accordance with the bank's normal
requirements;
. at the date of issuance of each class of notes, the auto loans
are free and clear of all security interests, liens, charges, and
encumbrances and no setoffs, defenses, or counterclaims against
the bank have been asserted or threatened (other than the
interest of the trust and indenture trustee;
. on the closing date, each of the auto loans is or will be secured
by a first priority perfected security interest in the financed
vehicle in favor of the bank; and
. at the time it was originated, each auto loan complied, and on
the closing date complies, in all material respects, with
applicable federal and state laws, including consumer credit,
truth in lending, equal credit opportunity, and disclosure laws.
The only recourse the trust and the noteholders will have
against the bank for breach of any of the representations and warranties made
with respect to the auto loans in the sale and servicing agreement will be to
require the bank to repurchase the auto loan. See "--Mandatory Repurchase of
Auto Loans" in this preliminary prospectus supplement.
To assure uniform quality in servicing the auto loans and to
reduce administrative costs, the bank, as servicer, shall be appointed as
initial custodian of the auto loans. The servicer, in its capacity as custodian,
will hold the auto loans and all electronic entries, documents, instruments and
writings related to the auto loans, or the auto loan file, directly or through
sub-servicers, on behalf of the indenture trustee for the benefit of
noteholders. The auto loans will not be stamped or otherwise marked to reflect
the sale and assignment of the auto loans to the trust and the pledge thereof to
the indenture trustee and will not be segregated from other receivables held by
the servicer. However, UCC financing statements reflecting the sale and
assignment of the auto loans by the bank to the trust will be filed, and the
bank's accounting
S-27
<PAGE>
records and computer systems will be marked to reflect such sale and assignment
and subsequent pledge to the indenture trustee. See "Certain Legal Aspects of
the Receivables" in the prospectus. The sale and servicing agreement will
require the servicer to file continuation statements relating to such UCC
financing statements in order to maintain the perfected security interest of the
trust in the auto loans. The servicer may designate a third-party document
retention company to act as custodian with respect to auto loan files.
Servicing Procedures
The servicer will service the auto loans pursuant to the sale
and servicing agreement. The sale and servicing agreement requires the servicer
to carry out the servicing of the auto loans generally in the same manner in
which it services receivables and vehicles held for its own account. In
performing its servicing duties, the servicer will act on behalf and for the
benefit of the trust and the noteholders, subject at all times to the provisions
of the sale and servicing agreement, without regard to any relationship which
the servicer or any affiliate of the servicer may otherwise have with an
obligor.
The servicer, as an independent contractor on behalf of the
trust and for the benefit of the noteholders, will be responsible for managing,
servicing and administering the auto loans and enforcing and making collections
on the auto loans and any insurance policies relating to the financed vehicles
and for enforcing any security interest in any of the financed vehicles, all as
set forth in the sale and servicing agreement. The servicer's responsibilities
will include collecting and posting of all payments, responding to inquiries of
obligors, investigating delinquencies, accounting for collections, furnishing
monthly and annual statements to the indenture trustee with respect to
distributions, providing appropriate federal income tax information for use in
providing information to noteholders and attempting to maintain the perfected
security interest of the bank in the financed vehicles.
Servicer's Certificate
The sale and servicing agreement requires that on or before
December 31 of each year, beginning December 31, 2001, the servicer deliver an
officer's certificate to the indenture trustee and the rating agencies which
states that:
. the officer has reviewed the servicer's activities and
performance of its duties under the sale and servicing agreement
during the preceding 12-month period ended December 31 of that
year (or the period since the date of the sale and servicing
agreement);
. the review has been made under that officer's supervision; and
. to the best of the officer's knowledge, based on the review, the
servicer has fulfilled all of its obligations under the sale and
servicing agreement throughout the period in question, or, if
there has been a default in the fulfillment of any such
obligation, specifying each default known to the officers, its
nature and status.
S-28
<PAGE>
Review by Independent Certified Public Accountants
The sale and servicing agreement requires the servicer to have a
firm of independent certified public accountants, who may also render other
services to the servicer, deliver a written statement to the indenture trustee.
The independent certified public accountants must deliver this report within 90
days following the end of each fiscal year of the servicer, beginning with the
servicer's fiscal year ending September 30, 2001 and send a copy to the rating
agencies. This report must confirm that:
. the firm of independent certified public accountants has read the
monthly servicer's certificates delivered pursuant to the sale and
servicing agreement with respect to each collection period during such
one-year period, or such longer or shorter period since the date of
the sale and servicing agreement;
. the firm of independent certified public accountants has reviewed the
servicing of the auto loans by the servicer;
. its review included tests relating to automobile, light duty truck and
van loans serviced for others in accordance with the requirements of
the Uniform Single Attestation Program for Mortgage Bankers, to the
extent the procedures in such program are applicable to the servicing
obligations set forth in the sale and servicing agreement; and
. except as described in the report, the review disclosed no exceptions
or errors in the records relating to automobile, light duty truck and
van loans serviced for others that, in the firm's opinion, paragraph
four of such program requires such firm to report.
Servicer Default; Waiver of Past Defaults
A servicer default under the sale and servicing agreement will
consist of the occurrence and continuance of any of the following:
. the servicer's failure to deliver the servicer's certificate to the
indenture trustee on or before the determination date, which failure
continues unremedied for more than three business days after written
notice from the indenture trustee or the holders of notes evidencing
not less than 25% of the principal balance of the notes as of that
date of determination;
. the servicer's failure to deliver to the indenture trustee for
distribution to the noteholders any proceeds or payment which the sale
and servicing agreement requires it to deliver, which failure
continues unremedied for more than three business days after written
notice from the indenture trustee or the holders of notes evidencing
not less than 25% of the principal balance of the notes as of that
date of determination;
. the servicer's failure to observe or perform in any material respect
any other covenant or agreement of the servicer, in the sale and
servicing agreement, which failure materially and adversely affects
the rights of the noteholders and which continues
S-29
<PAGE>
unremedied for more than 30 days after the giving of written notice of
such failure to the servicer, by the indenture trustee or to the
indenture trustee by noteholders evidencing not less than 25% of the
principal balance of the notes as of that date of determination; and
. any insolvency event.
An insolvency event means financial insolvency, readjustment of
debt, marshalling of assets and liabilities, or similar proceedings with respect
to the servicer and certain actions by the servicer indicating its insolvency or
inability to pay its obligations, as described in "Description of the Trust
Agreements--Removal of the Servicer" in the prospectus. Upon the occurrence of a
servicer default, the servicer may be removed by the indenture trustee or by the
majority noteholders. The majority noteholders may waive some defaults by the
servicer in the performance of its obligations under the sale and servicing
agreement, as described in "Description of the Securities--Waiver of Past
Defaults" in the accompanying prospectus.
The majority noteholders means, as of any date of determination,
holders of notes representing a majority of the aggregate principal balance of
all classes of notes as of that date of determination.
Servicing Compensation, Payment of Expenses and Trustees' Fees
For its servicing of the auto loans, the servicer will be
entitled to receive a monthly servicing fee on each payment date which equals
one-twelfth times 1.00% of the pool balance as of the first day of the
immediately preceding collection period. The servicer will deposit all late fees
into the collection account and those fees will be included in available funds.
All costs of servicing each auto loan in the manner required by
the sale and servicing agreement will be borne by the servicer, but the servicer
shall be entitled to retain, out of any amounts actually recovered with respect
to any defaulted auto loan or the financed vehicles subject to a defaulted auto
loan, the servicer's actual out-of-pocket expenses reasonably incurred with
respect to such defaulted auto loan or financed vehicle.
On each payment date, the indenture trustee and the owner trustee
are each entitled to receive a fee (payable from available funds) for their
services as indenture trustee and owner trustee, during the prior collection
period in an amount agreed upon by the bank and the indenture trustee and the
owner trustee, respectively.
Mandatory Repurchase of Auto Loans
In the event of a breach of any representation or warranty with
respect to the auto loans described in "--Conveyance of Auto Loans" in this
preliminary prospectus supplement, which breach materially and adversely affects
an auto loan or the interest of the trust or the noteholders in such auto loan,
the bank will be required to repurchase the auto loan from the trust for the
purchase amount. This repurchase requirement will not apply if the breach has
been
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cured by the last day of the collection period following the collection period
during which the bank becomes aware of, or receives written notice from the
indenture trustee, or the servicer of the breach. The purchase amount is payable
on the determination date following such subsequent collection period. The
repurchase obligation will constitute the sole remedy available to the
noteholders or the indenture trustee against the bank for any such uncured
breach. See "Description of the Trust Agreements--Mandatory Repurchase of
Receivables" in the accompanying prospectus.
In the event of a breach of certain covenants of the servicer in
the sale and servicing agreement, the servicer will be required to purchase the
affected auto loans from the trust. The purchase obligation will constitute the
sole remedy available to the noteholders or the indenture trustee against the
servicer for any such uncured breach. See "Description of the Trust Agreements--
Servicing Procedures" in the accompanying prospectus.
The purchase amount of any auto loan, with respect to any payment
date equals the sum of:
. the outstanding principal balance of the auto loan as of the last day
of the preceding collection period, and
. the amount of unpaid interest on the auto loan's principal balance at
the related APR through the date the auto loan is purchased, after
giving effect to the receipt of monies collected on the auto loan in
that preceding collection period.
DESCRIPTION OF THE NOTES
General
The trust will issue the notes under an indenture, a form of
which has been filed as an exhibit to the registration statement. The following
summary describes material terms of the notes and the indenture. The summary
does not purport to be complete and is subject to all the provisions of the
notes and the indenture. The following summary supplements the description of
the general terms and provisions of the notes of any given series and the
related indenture as described in the accompanying prospectus, and to the extent
that those descriptions differs from the descriptions provided in this
preliminary prospectus supplement, the descriptions provided in this preliminary
prospectus supplement replace those descriptions. You can obtain a copy of the
indenture without charge on written request addressed to the indenture trustee
at its Corporate Trust Department at 180 East 5th Street, St. Paul, Minnesota
55101, Att: Structured Finance/Chevy Chase 2000-2.
The trust will offer the notes in minimum denominations of $1,000
and integral multiples of $1 in book-entry form only. Persons acquiring
beneficial interests in the notes will hold their interests through The
Depository Trust Company in the United States or Clearstream, Luxembourg or in
the Euroclear System in Europe. See "Description of the Securities -- Book-Entry
Registration" and Annex I in the prospectus.
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In addition to the notes, the trust will also issue the trust
certificate which will not be offered by this preliminary prospectus supplement.
Distributions to the Noteholders of the Subordinate Notes
Payments of interest on the Subordinate Notes will only be made
on each payment date if available funds remain after paying all fees to the
servicer, the indenture trustee and the owner trustee and after making all
payments of interest on the Class A Notes and certain payments of principal on
that date. No principal will be paid to the holders of the Subordinate Notes
until the entire outstanding principal balance of all Class A Notes has been
paid to zero.
Payment Dates
The notes will pay interest and principal on the fifteenth day of
each month, or, if the fifteenth day is not a business day, on the next
following business day. The first payment date will be October 16, 2000. Only
holders of record as of the close of business on the day immediately preceding a
payment date, commonly known as a record date, will receive payments on that
payment date.
A business day means any day other than a Saturday, a Sunday or a
day on which banking institutions in New York City, Chevy Chase, Maryland or in
the city in which the Corporate Trust Office of the indenture trustee under the
trust agreement is located are authorized or obligated by law or executive order
to close.
Each month the trust will distribute the amounts received on the
auto loans and any other collections available as property of the trust during
the calendar month, before the month in which the payment date occurs. This
period is referred to as a collection period.
The final scheduled payment dates are set forth on the cover to
this preliminary prospectus supplement.
Accounts
On the closing date the indenture trustee will establish the
following accounts, for the benefit of the noteholders:
. the collection account, into which all payments, made on or
with respect to the auto loans will be deposited,
. the note account, and
. the reserve account.
Delivery of the Servicer's Certificate
On or before the earlier of the 8th business day or the 11th
calendar day of each month, or the determination date, the servicer will deliver
a servicer's certificate to the
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indenture trustee and the rating agencies. The servicer's certificate will
provide the information needed to make payments and other distributions and
transfers on the upcoming payment date.
Flow of Funds
On each payment date, the servicer will, in the servicer's
certificate, instruct the indenture trustee as to the application of the
available funds for that payment date. The available funds for a payment date
are the collections on the auto loan pool received by the servicer during the
prior month, minus servicer compensation (other than the monthly servicing fee)
and reimbursable amounts owed to the servicer; this amount will be transferred
from the collection account to the note account. The available funds, together
with amounts transferred from the reserve account to the note account to fund
noteholder payments, will, on each payment date, be allocated in the following
order of priority:
(1) to the servicer, the monthly servicing fee;
(2) to the owner trustee and the indenture trustee, the
fees then due to each of them;
(3) to the Class A Noteholders, ratably, the interest then
due to them, including carryover shortfall interest;
(4) to fund a payment of principal to the extent as may be
necessary to reduce the Class A Note principal balance
to the pool balance; i.e., to maintain parity between
the Class A Note principal balance and the pool
balance, which amount will be paid out as described
below under "Principal";
(5) to the Class B Noteholders, the interest then due to
them, including carryover shortfall interest,
(6) to fund a payment of principal to the extent as may be
necessary to reduce the combined Class A and Class B
Note principal balance to the pool balance i.e., to
maintain parity between the combined Class A and Class
B Note balance and the pool balance, which amount will
be paid out as described below under "Principal";
(7) to the Class C Noteholders, the interest then due to
them, including any carryover shortfall interest;
(8) to fund a payment of principal to the extent as may be
necessary to reduce the combined Class A, Class B, and
Class C Note principal balance to the pool balance,
i.e., to maintain parity between the aggregate note
principal balance and the pool balance, which amount
will be paid out as described below under "Principal";
(9) to fund a payment of principal in an amount generally
equal to the decrease in the pool balance during the
prior month, reduced by the amount of any principal
allocated as provided above, and further reduced
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by the amount of any excess level of
overcollateralization, which amount will be paid out as
described below under "Principal";
(10) to fund a payment of principal to the extent as may be
necessary to reduce to zero the principal balance of any
class which remains outstanding on or after its final
scheduled payment date, which amount will be paid out as
described below under "Principal";
(11) to the reserve account, any deficiency in the reserve
account required amount;
(12) to fund, using excess cashflow, as well as excess amounts
released from the reserve account, an additional payment
of principal to the extent as may be necessary to increase
the overcollateralization to its required target level,
which amount will be paid out as described below under
"Principal"; and
(13) the remainder, if any, of the available funds, to the
holder of the trust certificate.
Interest Payments
Interest on each class of notes will accrue during each interest
accrual period at the applicable interest rate listed below from and including
the most recent payment date that interest was paid -- or, in the case of the
first payment date, from and including the closing date to but excluding the
following payment date. The interest accruing during an interest period will
accrue on each class's outstanding principal amount as of the end of the prior
payment date -- or, in the case of the first payment date, on each class's
initial note principal balance.
For any payment date, interest due but not paid on that payment
date will be due on the next payment date together with, to the extent permitted
by law, interest at the applicable interest rate on that unpaid amount. Interest
on the Class A-1 Notes will be calculated on the basis of a 360-day year and the
actual number of days elapsed in the applicable interest accrual period.
Interest on all other classes of notes will be calculated on the basis of a 360-
day year consisting of twelve 30-day months.
The interest rate for each class of notes is as follows:
. Class A-1 Interest Rate: _____% per annum;
. Class A-2 Interest Rate: _____% per annum;
. Class A-3 Interest Rate: _____% per annum;
. Class A-4 Interest Rate: _____% per annum;
. Class B Interest Rate: _____% per annum and
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. Class C Interest Rate: _____% per annum.
Principal Payments. On each payment date, all amounts allocated
to the payment of principal as described in "Flow of Funds" above will be
aggregated and will be paid out in the following order of priority:
(1) to the Class A-1 Noteholders in reduction of principal until
the principal balance of the Class A-1 Notes has been
reduced to zero;
(2) to the Class A-2 Noteholders in reduction of principal until
the principal balance of the Class A-2 Notes has been
reduced to zero;
(3) to the Class A-3 Noteholders in reduction of principal until
the principal balance of the Class A-3 Notes has been
reduced to zero;
(4) to the Class A-4 Noteholders in reduction of principal until
the principal balance of the Class A-4 Notes has been
reduced to zero;
(5) to the Class B Noteholders in reduction of principal until
the principal balance of the Class B Notes has been reduced
to zero; and
(6) to the Class C Noteholders in reduction of principal until
the principal balance of the Class C Notes has been reduced
to zero.
If an event of default occurs, the Class A Notes then outstanding
will receive principal payments pro rata, although the Class A Notes as a group
will still be entitled to payment in full before any principal is paid on the
Class B Notes and the Class C Notes.
Credit Enhancement
Subordination of the Subordinate Notes. Payments on the
Subordinate Notes are subordinated to payments on the Class A Notes. This
subordination of distributions on the Subordinate Notes is intended to increase
the likelihood that the trust will not default in making payments due on the
Class A Notes.
Payments on the Class C Notes are subordinated to payments on the
Class A Notes and Class B Notes. This subordination of payments on the Class C
Notes is intended to increase the likelihood that the trust will not default in
making payments due on the Class A Notes and the Class B Notes.
Reserve Account. On the closing date, the amount in the
reserve account will be $_____ which is _____% of the original pool balance and
which is the full required funding of the reserve account. The amount on deposit
in the reserve account is required to be maintained at this level for so long as
the notes are outstanding, except that the amount on deposit need never be
greater than the aggregate outstanding note principal balance.
On each payment date, the amount on deposit in the reserve
account will be available to pay:
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. interest on the notes for that payment date,
. if that payment date is the final scheduled payment date of any
class of notes, the amount necessary to reduce the principal
balance of such class of notes to zero, and
. the excess, if any, by which the aggregate outstanding principal
amount of all classes of notes, after taking into account all
other payments of principal on that payment date, exceeds the
pool balance as of the end of the prior month, i.e., the amount
necessary to maintain parity between the aggregate note balance
and the pool balance.
Amounts on deposit in the reserve account on a payment date, after
taking into account all deposits to and withdrawals from the reserve account,
which are in excess of the required amount will be released from the reserve
account and applied:
. as part of excess cashflow, to fund an additional payment of
principal on the notes to the extent needed to increase or
maintain the overcollateralization, and
. to make a payment to the holders of the trust certificate.
Overcollateralization
On the closing date, the original pool balance will exceed the initial principal
amount of the notes of all classes by approximately $_____, which is
approximately ____% of the original pool balance. This excess represents
overcollateralization. The level of overcollateralization is required to
increase to, and thereafter be maintained at, a target level equal to the
greater of (1) ____% of the pool balance less the amount in the reserve account
and (2) the aggregate principal balance of the auto loans that are delinquent 90
days or more, including repossessions, and have not been charged off and less
the amount in the reserve account. The level of overcollateralization is
increased and maintained through the application of excess cashflow available to
the trust, primarily in the form of the excess of interest collections on the
auto loan pool over the interest paid out on the notes as well as releases of
excess amounts from the reserve account. In general, the target amount of
overcollateralization will decrease as the pool balance decreases. However, the
required amount of overcollateralization on any payment date will never be less
than ____% of the original pool balance. The overcollateralization will be
available to absorb losses on the auto loan pool prior to any withdrawals from
the reserve account used to fund principal.
Withholding
The indenture trustee is required to comply with all federal income
tax withholding requirements respecting payments to noteholders of interest or
original issue discount with respect to the notes that the indenture trustee
reasonably believes are applicable
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under the Code. Foreign Beneficial Owners will be subject to U.S. income and
withholding tax unless they provide certain certifications as described under
"Material Federal Income Tax Consequences--Tax Consequences to Holders of the
Notes--Foreign Investors" in this preliminary prospectus supplement. The consent
of neither the noteholders nor the Beneficial Owners will be required for such
withholding. In the event that the indenture trustee does withhold or causes to
be withheld any amount from interest or original issue discount payments or
advances thereof to any noteholders pursuant to federal income tax withholding
requirements, the indenture trustee is required to indicate the amount withheld
in its monthly report to such noteholders. If any withholding or other tax is
imposed by any jurisdiction, neither the noteholders nor the Beneficial Owners
have any right to receive additional interest or other amounts in consequence
thereof.
Reports to Noteholders
On each payment date, the indenture trustee will furnish or cause to
be furnished with each payment to noteholders, a monthly report, based on
information in the servicer's certificate, setting forth the following
information for that payment date:
. the amount of the principal payment for each class of notes
including any overdue principal;
. the amount of the interest payment for each class of notes
including any overdue interest;
. the aggregate amount of fees received by the servicer, the owner
trustee and the indenture trustee for the collection period;
. the amount, if any, withdrawn from the reserve account with
respect to such payment date;
. the aggregate net losses on the auto loans for the related
collection period;
. the pool balance and the pool factor as of the end of the related
collection period;
. the aggregate principal balance of all auto loans which were
delinquent (1) 30 days or more and (2) 90 days or more, in each
case, as of the last day of the related collection period; and
. the principal balance for each class of notes on such payment
date (after giving effect to the distributions on such payment
date).
Optional Termination
The indenture and the sale and servicing agreement will provide that
on any payment date following the record date on which the total principal
balance of the notes is 5% or
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less of the aggregate original note principal balance, the bank will have the
option to acquire all right, title and interest in all, but not less than all,
auto loans held in the trust by paying into the trust for retirement of the
notes an amount equal to the aggregate of the purchase amounts of the auto
loans.
Events of Default
The notes are subject to the following events of default:
. default in the payment of interest on any Note, when the same
becomes due and payable, and the default shall continue for a
period of five days; or
. default in the payment of the outstanding principal balance of
any note on its final scheduled payment date, and the default
shall continue for a period of five days;
. default in the observance or performance of any other covenant or
agreement of the trust made in the indenture, or any
representation or warranty of the trust made in the indenture
proving to have been incorrect in any material respect as of the
time when the same shall have been made, subject to the giving of
notice and a grace period; or
. bankruptcy events concerning the trust.
Rights upon an Event of Default
If there is an event of default, interest will continue to accrue on
the principal and the overdue interest at the applicable interest rate on the
note until any overdue principal and interest is paid. The indenture trustee's
remedies following an event of default will include the institution of
proceedings to collect amounts due, foreclosure of the property comprising the
trust assets and the exercise of other standard secured creditor remedies. The
indenture trustee may also elect to maintain possession of the trust assets, and
continue to apply collections on the auto loans as if there had been no
declaration of acceleration. The indenture trustee's remedies also include the
right to retain an independent public accounting firm to produce a verification
report as to whether or not the trust assets would be sufficient, on an ongoing
basis, to make all payments on the notes, assuming that the notes remain
outstanding through maturity.
. If the event of default results from the bankruptcy of the trust
or the failure of the trust to pay timely interest on any class
of notes or principal on the final scheduled payment date of any
note, the notes of all classes may be accelerated, and the
indenture trustee may exercise the above remedies, but only if so
directed by the controlling class.
. If the event of default results from a covenant default by the
trust, then the notes will only be accelerated and remedies
exercised, if the holders of a majority of the principal balance
of each class, voting on a class-by-class basis, so direct.
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The noteholders may base their directions to the indenture trustee on
the results of the verification report, as well as a valuation of the projected
sale proceeds of the trust assets. The costs of any verification report or
valuation will not be borne by the indenture trustee or by the owner trustee,
but by the trust, or, if the noteholders so elect, by the noteholders.
Controlling class means the holders of notes representing a majority of the
principal balance of the Class A Notes then outstanding, or if the Class A Notes
are not outstanding, the Class B Notes then outstanding, or if neither the Class
A Notes nor the Class B Notes are outstanding, the Class C Notes then
outstanding.
If an event of default occurs and has not been remedied, the indenture
trustee will be under no obligation to exercise any of the rights or powers
under the trust documents at the request or direction of any of the holders of
the notes, if the indenture trustee reasonably believes it will not be
adequately indemnified against the costs, expenses and liabilities which might
be incurred by it in complying with the request. Subject to the provisions for
indemnification and limitations contained in the trust documents and except in
the case of a default in respect of a covenant, the controlling class will have
the right to direct the time, method and place of conducting any proceeding or
any remedy available to the indenture trustee. The controlling class may, in
some cases, waive any default, except a default in the payment of principal or
interest or a default in respect of a covenant or provision of the trust
documents that cannot be modified without the waiver or consent of all the
holders of the outstanding notes. No holder of a note will have the right to
institute any proceeding under the trust documents, unless:
. the holder previously has given the indenture trustee written
notice of a continuing event of default;
. the holders of not less than 25% of the aggregate principal
balance of all outstanding notes have made written request to the
indenture trustee to institute the proceeding in its own name as
indenture trustee;
. the holder or holders have offered the indenture trustee
reasonable indemnity against costs, expenses and liabilities to
be incurred in complying with the request;
. the indenture trustee has for 60 days failed to institute the
proceeding; and
. no direction inconsistent with the written request has been given
to the indenture trustee during the 60-day period by the holders
of a majority of the aggregate principal balance of all
outstanding notes. In addition, the indenture trustee and the
note owners, by accepting a beneficial interest in the notes,
will covenant that they will not at any time institute against
the trust or the bank, or join in any institution against the
trust or the bank of, any bankruptcy, reorganization or other
proceeding under any federal or state bankruptcy or similar law.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the material federal income
tax considerations to investors of the purchase, ownership and disposition of
the notes. The discussion is based upon laws, regulations, rulings and decisions
now in effect, all of which are subject to change. The discussion below does not
purport to deal with all federal tax considerations applicable to all categories
of investors. Some holders, including insurance companies, tax-exempt
organizations, financial institutions or broker dealers, taxpayers subject to
the alternative minimum tax, and holders that will hold the notes as other than
capital assets, may be subject to special rules that are not discussed below. It
is recommended that investors consult their own tax advisors in determining the
federal, state, local and any other tax consequences to them of the purchase,
ownership and disposition of the notes.
Tax Characterization of the Trust
Dewey Ballantine LLP is our tax counsel, and is of the opinion that,
assuming the parties will comply with the terms of the governing agreements, the
trust will not be an association, or publicly traded partnership, taxable as a
corporation for federal income tax purposes.
Tax Consequences to Holders of the Notes
Treatment of the Notes as Indebtedness. The seller agrees, and the
noteholders will agree by their purchase of notes, to treat the notes as debt
for all federal, state and local income tax purposes. There are no regulations,
published rulings or judicial decisions involving the characterization for
federal income tax purposes of securities with terms substantially the same as
the notes. In general, whether instruments such as the notes constitute
indebtedness for federal income tax purposes is a question of fact, the
resolution of which is based primarily upon the economic substance of the
instruments and the transaction under which they are issued rather than merely
upon the form of the transaction or the manner in which the instruments are
labeled.
The Internal Revenue Service and the courts have stated various
factors to be taken into account in determining, for federal income tax
purposes, whether or not an instrument constitutes indebtedness and whether a
transfer of property is a sale because the transferor has relinquished
substantial incidents of ownership in the property or whether the transfer is a
borrowing secured by the property.
On the basis of its analysis of the above factors as applied to the
facts and its analysis of the economic substance of the contemplated
transaction, tax counsel is of the opinion that, for federal income tax
purposes, the notes will be treated as indebtedness, and not as an ownership
interest in the auto loans, nor as an equity interest in the trust or in a
separate association taxable as a corporation or other taxable entity.
If the notes are characterized as indebtedness, interest paid or
accrued on a note will be treated as ordinary income to the noteholders and
principal payments on a note will be treated as a return of capital to the
extent of the noteholder's basis in the note allocable thereto.
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An accrual method taxpayer will be required to include in income interest on the
notes when earned, even if not paid, unless it is determined to be
uncollectible. The trust will report to noteholders of record and the IRS
regarding the interest paid and original issue discount, if any, accrued on the
notes to the extent required by law.
Although, as described above, it is the opinion of tax counsel that,
for federal income tax purposes, the notes will be characterized as debt, this
opinion is not binding on the IRS and thus no assurance can be given that this
characterization will prevail. If the IRS successfully asserted that one or more
of the notes did not represent debt for federal income tax purposes, the
noteholders would likely be treated as owning an interest in a partnership and
not an interest in an association or publicly traded partnership, taxable as a
corporation. If the noteholders were treated as owning an equitable interest in
a partnership, the partnership itself would not be subject to federal income
tax; rather each partner would be taxed individually on their respective
distributive share of the partnership's income, gain, loss, deductions and
credits. The amount, timing and characterization of types of income and
deductions for a noteholder would differ if the notes were held to constitute
partnership interests, rather than indebtedness. Since the seller and the trust
will treat the notes as indebtedness for federal income tax purposes, the
servicer will not attempt to satisfy the tax reporting requirements that would
apply under this alternative characterization of the notes. Investors that are
foreign persons should consult their own tax advisors in determining the
federal, state, local and other tax consequences to them of the purchase,
ownership and disposition of the notes. See "Taxation of Certain Foreign
Investors" below.
Original Issue Discount. It is anticipated that the notes will not
have any original issue discount or OID, other than possibly OID within a de
minimis exception and that accordingly the provisions of sections 1271 through
1273 and 1275 of the Internal Revenue Code, generally will not apply to the
notes. OID will be considered de minimis if it is less than 0.25% of the
principal amount of a note multiplied by its expected weighted average life.
Market Discount. A subsequent purchaser who buys a note for less than
its principal amount may be subject to the market discount rules of section 1276
through 1278 of the Code. If a subsequent purchaser of a note disposes of the
note, including some nontaxable dispositions such as a gift, any gain upon the
sale or other disposition will be recognized as ordinary income to the extent of
any accrued for the period that the purchaser holds the note. Similarly, if a
subsequent purchase receives a principal payment, the amount of that principal
payment will be treated as ordinary income to the extent of any market discount
accrued for the period that the purchaser holds the note. The holder may instead
elect to include market discount in income as it accrues on all debt instruments
acquired in the year of acquisition of the notes and thereafter. Market discount
generally will equal the excess, if any, of the then current unpaid principal
balance of the note over the purchaser's basis in the note offered immediately
after the purchaser acquired the note. In general, market discount on a note
will be treated as accruing over the term of the note in the ratio of interest
for the current period over the sum of the current interest and the expected
amount of all remaining interest payments, or at the election of the
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holder, under a constant yield method. At the request of a holder of a note,
information will be made available that will allow the holder to compute the
accrual of market discount under the first method described in the preceding
sentence.
The market discount rules also provide that a holder who incurs or
continues indebtedness to acquire a note at a market discount may be required to
defer the deduction of all or a portion of the interest on the indebtedness
until the corresponding amount of market discount is included in income.
However, market discount on a note will be considered to be zero if it
is less than a de minimis amount, which is 0.25% of the remaining principal
balance of the note multiplied by its expected weighted average remaining life.
If OID or market discount is de minimis, the actual amount of discount must be
allocated to the remaining principal distributions on the notes and, when each
distribution is received, capital gain equal to the discount allocated to the
distribution will be recognized.
Market Premium. A subsequent purchaser who buys a note for more than
its principal amount generally will be considered to have purchased the note at
a premium. The holder may amortize the premium, using a constant yield method,
over the remaining term of the note and, except as future regulations may
otherwise provide, may apply the amortized amounts to reduce the amount of
interest reportable for the note over the period from the purchase date to the
date of maturity of the note. The amortization of the premium on an obligation
that provides for partial principal payments prior to maturity should be
governed by the methods described above for accrual of market discount on such
an obligation. A holder that elects to amortize premium must reduce his tax
basis in the obligation by the amount of the aggregate deductions, or interest
offsets, allowable for amortization of premium. If a debt instrument purchased
at a premium is redeemed in full prior to its maturity, a purchaser who has
elected to amortize premium should be entitled to a deduction for any remaining
unamortized premium in the taxable year of redemption.
Sale or Redemption of Notes. If a note is sold or retired, the seller
will recognize gain or loss equal to the difference between the amount realized
on the sale and the holder's adjusted basis in the note. The adjusted basis
generally will equal the cost of the note to the seller, increased by any
original issue discount included in the seller's gross income in respect of the
note, and by any market discount which the taxpayer elected to include in income
or was required to include in income, and reduced by payments other than
payments of qualified stated interest in respect of the note received by the
seller and by any amortized premium. Similarly, a holder who receives a payment
other than a payment of qualified stated interest in respect of a note, either
on the date on which the payment is scheduled to be made or as a prepayment,
will recognize gain equal to any excess, of the amount of the payment over his
adjusted basis in the note allocable thereto. A noteholder who receives a final
payment which is less than his adjusted basis in the note will generally
recognize a loss in the amount of the shortfall on the last day of his taxable
year. Generally, this gain or loss realized by an investor who holds a note as a
capital asset within the meaning of Internal Revenue Code Section 1221 should be
capital gain or loss,
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except as described above in respect of market discount and except that a loss
attributable to accrued but unpaid interest may be an ordinary loss.
Taxation of Foreign Investors. Interest payments including OID, if
any, on the notes made to a foreign person, which is a nonresident alien
individual, foreign corporation or other non-United States person generally will
be portfolio interest. This interest is not subject to United States tax if the
payments are not effectively connected with the conduct of a trade or business
in the United States by the foreign person and if the trust or other person who
would otherwise be required to withhold tax from these payments is provided with
an appropriate statement that the beneficial owner of the note identified on the
statement is a foreign person.
Backup Withholding. Distributions of interest and principal as well as
distributions of proceeds from the sale of the notes may be subject to the
backup withholding tax under Section 3406 of the Internal Revenue Code at a rate
of 31% if recipients of the distributions fail to furnish to the payor their
taxpayer identification numbers and other required information, or otherwise
fail to establish an exemption from tax. Any amounts deducted and withheld from
a distribution to a recipient would be allowed as a credit against the
recipient's federal income tax. Furthermore, penalties may be imposed by the IRS
on a recipient of distributions that is required to supply information but that
does not do so in the proper manner.
State and Local Tax Considerations
Potential noteholders should consider the state and local income tax
consequences of the purchase, ownership and disposition of the notes. State and
local income tax laws may differ substantially from the corresponding federal
law, and this discussion does not purport to describe any aspect of the income
tax laws of any state or locality. Therefore, potential noteholders should
consult their own tax advisors as to the various state and local tax
consequences of an investment in the notes.
ERISA Considerations
The notes may be purchased by ERISA plans as described in the
prospectus under "ERISA Considerations - ERISA Considerations regarding
Securities which are Notes." The notes should be treated as indebtedness without
substantial equity features for purposes of the plan assets regulation. This
determination is based in part on the traditional debt features of the notes,
including the reasonable expectation of purchasers of notes that the notes will
be repaid when due, as well as the absence of conversion rights, warrants and
other typical equity features. The debt treatment of the notes for ERISA
purposes could change if the trust incurred losses. As described in the
prospectus, the acquisition or holding of the notes by or on behalf of an
employee benefit plan could still result in a prohibited transaction if the
acquisition or holding of the notes by or on behalf of the plan were deemed to
be a prohibited loan to a party in interest with respect to the plan.
Accordingly, each purchaser and each transferee using the assets of a plan
subject to ERISA or Section 4975 of the Internal Revenue Code to acquire the
notes will be
S-43
<PAGE>
deemed to have represented that the acquisition and continued holding of the
notes will be covered by a Department of Labor class exemption.
Any plan fiduciary considering the purchase of a note may wish to
consult with its counsel as to the potential applicability of ERISA and the
Internal Revenue Code to the investment. Moreover, each plan fiduciary may wish
to determine whether, under the general fiduciary standards of investment
prudence and diversification, an investment in the notes is appropriate for the
plan, taking into account the overall investment policy of the benefit plan and
the composition of the plan's investment portfolio.
The sale of notes to a plan is in no respect a representation by us or
the underwriters that this investment meets all relevant legal requirements for
investments by plans generally or any particular plan or that this investment is
appropriate for plans generally or any particular plan.
RATINGS
As a condition to issuance, the notes must receive at least the
following ratings from Moody's Investors Service, Inc. , Standard & Poor's, a
division of the McGraw-Hill Companies, Inc. and Fitch IBCA, Inc. in order to be
issued:
<TABLE>
<CAPTION>
Class Ratings
----- ---------------------------------------------------
S&P Moody's Fitch IBCA
--- ------- ----------
<S> <C> <C> <C>
A-1 A-1+ Prime -1 F1+
A-2 AAA Aaa AAA
A-3 AAA Aaa AAA
A-4 AAA Aaa AAA
B A A2 A
C [BBB+] [Baa2] [BBB+]
</TABLE>
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time. The ratings
assigned to the notes address the likelihood of the receipt by the noteholders
of all distributions to which the noteholders are entitled by their respective
final scheduled payment dates. The ratings assigned to the notes do not
represent any assessment of the likelihood that principal prepayments might
differ from those originally anticipated or address the possibility that
noteholders might suffer a lower than anticipated yield.
UNDERWRITING
Under the terms and subject to the conditions set forth in an
underwriting agreement, dated September __, 2000, the underwriters named below
have agreed to purchase from the bank the following respective principal amounts
of the notes:
S-44
<PAGE>
Class A-1 Notes
------------------------------
Principal
Amount of
Underwriter Notes
------------------------------ ---------
$-----
$-----
J. P. Morgan Securities Inc. $-----
Total......................... $-----
Class A-2 Notes
------------------------------
Principal
Amount of
Underwriter Notes
------------------------------ ---------
$-----
$-----
J. P. Morgan Securities Inc. $-----
Total......................... $-----
Class A-3 Notes
------------------------------
Principal
Amount of
Underwriter Notes
------------------------------ ---------
$-----
$-----
J. P. Morgan Securities Inc. $-----
Total......................... $-----
S-45
<PAGE>
Class A-4 Notes
------------------------------
Principal
Amount of
Underwriter Notes
------------------------------ ---------
$-----
$-----
J. P. Morgan Securities Inc. $-----
Total......................... $-----
Class B Notes
------------------------------
Principal
Amount of
Underwriter Notes
------------------------------ ---------
$-----
$-----
J. P. Morgan Securities Inc. $-----
Total......................... $-----
Class C Notes
------------------------------
Principal
Amount of
Underwriter Notes
------------------------------ ---------
$-----
$-----
J. P. Morgan Securities Inc. $-----
Total......................... $-----
The underwriting agreement provides that the obligations of the
underwriters are subject to certain conditions precedent and that the will be
obligated to purchase all the notes, if any are purchased.
The bank has been advised by the underwriters that they propose
initially to offer the notes to the public at the prices set forth on the cover
page of this preliminary prospectus supplement and to dealers at prices less the
initial selling concession, but not in excess of the percentages listed in the
table below. The underwriters may allow, and the dealers may reallow, a
concession to other dealers, but not in the excess of the reallowance
concessions listed below. After the initial public offering of the notes, the
public offering prices and the concessions, may be changed.
S-46
<PAGE>
Selling
Concessions Reallowance
----------- -----------
Class A-1 Notes................................
Class A-2 Notes................................
Class A-3 Notes................................
Class A-4 Notes................................
Class B Notes..................................
Class C Notes..................................
The underwriters may engage in over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids in accordance
with Regulation M under the Securities Act of 1934. 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 so long as the stabilizing bids do not exceed a specified maximum.
Syndicate covering transactions involve purchases of the notes 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 originally sold by such
syndicate member are purchased in a syndicate covering transaction to cover
syndicate short positions. Such stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the notes to be higher than
it would otherwise be in the absence of such transactions.
The bank has agreed to indemnify the underwriters against certain
liabilities, including civil liabilities under the Securities Act, or contribute
to payments which the underwriters may be required to make in respect thereof.
Each underwriter has represented and agreed that:
. it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 and the Public Offers of Securities
Regulations 1995 (the regulations) with respect to anything done by it
in relation to the notes in, from or otherwise involving the United
Kingdom;
. it has only issued or passed on and will only issue or pass on to any
person in the United Kingdom any document received by it in connection
with the issue of the notes if that person is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 (as amended) or is a person to
whom such document may otherwise lawfully be issued or passed on; and
S-47
<PAGE>
. it has not offered or sold and, during the period of six months from the
date hereof, will not offer or sell any notes to persons in the United
Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing, or disposing of investments (as principal
or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to
the public in the United Kingdom within the meaning of the Regulations.
In the ordinary course of its business, each underwriter and its
respective affiliates have engaged and may in the future engage in commercial
banking and investment banking transactions with the bank and its affiliates.
LEGAL MATTERS
Certain legal matters relating to the issuance of the notes will be
passed upon for the bank by Shaw Pittman, New York, New York and Washington,
D.C. and for the underwriters by Dewey Ballantine LLP, New York, New York.
George M. Rogers, Jr., who is associated with Shaw Pittman, is a director of the
bank and a trustee of the parent of the bank.
S-48
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Certificateholder of Chevy Chase Auto Receivables Trust 2000-2:
We have audited the accompanying balance sheet of Chevy Chase Auto
Receivables Trust 2000-2 (the "Trust") as of September __, 2000. This financial
statement is the responsibility of the Trust's management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the balance sheet is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly,
in all material respects, the financial position of the Trust as of September
__, 2000, in conformity with accounting principles generally accepted in the
United States.
Arthur Andersen LLP
Vienna, Virginia
September __, 2000
S-49
<PAGE>
CHEVY CHASE AUTO RECEIVABLES TRUST 2000-2
BALANCE SHEET
September __, 2000
ASSETS
Cash............................................................ $1,000
------
Total Assets.................................................... $1,000
======
LIABILITIES AND TRUST PRINCIPAL
Interest in trust............................................... $1,000
------
Total liabilities and trust principal........................... $1,000
======
The accompanying notes are an integral part of this financial statement.
S-50
<PAGE>
CHEVY CHASE AUTO RECEIVABLES TRUST 2000-2
NOTES TO FINANCIAL STATEMENT
_________________
1. Nature of Operations:
Chevy Chase Auto Receivables Trust 2000-2 (the "Trust"), was formed in
the State of Delaware on September __, 2000. The Trust has been inactive since
that date.
The Trust was organized to engage exclusively in the following
business and financial activities: to acquire motor vehicle retail installment
sale contracts from the bank to issue and sell notes collateralized by its
assets; and to engage in any lawful act or activity and to exercise any power
that is incidental and is necessary or convenient to the foregoing.
2. Capital Contribution:
Chevy Chase Bank F.S.B. purchased, for $1,000, a 100% beneficial
ownership interest in the Trust.
S-51
<PAGE>
$__________
Chevy Chase Auto Receivables Trust 2000-2
Chevy Chase Bank, F.S.B.
Seller and Servicer
Auto Receivables Backed Notes, Series 2000-2
_____________________-
PROSPECTUS SUPPLEMENT
_____________________
You should rely on the information contained or incorporated by reference in
this preliminary prospectus supplement and the accompanying prospectus. We have
not authorized anyone to provide you with different information.
We are not offering the securities offered hereby in any state where the offer
is not permitted.
J. P. Morgan & Co.
September __, 2000
<PAGE>
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following is an itemized list of the estimated expenses to be incurred
in connection with the offering of the notes being offered hereunder other than
underwriting discounts and commissions.
Registration Fee $ 319,127
Printing and Engraving Expenses $ 240,000
Indenture Trustee's Fees $ 60,000
Legal Fees and Expenses $ 270,000
Blue Sky Fees and Expenses $ 30,000
Accountants' Fees and Expenses $ 200,000
Rating Agency Fees $1,000,000
Miscellaneous Fees $ 60,873
Total $2,180,000
Item 15. Indemnification of Directors, Officers, Employees and Agents.
12 C.F.R. 545.121 of the rules and regulations of the OTS prescribe the
conditions under which indemnification may be obtained by a present or former
director, officer or employee of the Bank against whom an action has been
brought or is threatened, for any amount for which that person is liable under a
judgment and for reasonable costs and expenses, including reasonable attorney's
fees, actually paid or incurred by that person defending or settling such
action.
Subject to prior OTS review, the OTS rules and regulations require the Bank
to indemnify the director, officer or employee if (a) a final judgment on the
merits is in his favor, or (b) in the case of (i) settlement, (ii) final
judgment against him or (iii) final judgment in his favor, other than on the
merits, if a majority of the disinterested directors of the Bank determines that
he was acting in good faith within the scope of his employment or authority as
he could reasonably have perceived it under the circumstances, and for a purpose
he could reasonably have believed under the circumstances was in the best
interests of the Bank or its shareholders.
The officers and directors of the Bank are covered by directors' and
officers' insurance insuring them against any liability they may incur in their
capacities as such, subject to 12 C.F.R. 545.121 of the rules and regulations of
the OTS.
Pursuant to agreements which the registrant may enter into with
underwriters or agents (forms of which will be included as exhibits to this
registration statement), officers and directors of the registrant, and
affiliates thereof, may be entitled to indemnification by such underwriters or
agents against certain liabilities, including liabilities under the Securities
Act of 1933, as amended (the "Act"), arising from information which has been or
will be furnished to the registrant by such underwriters or agents that appear
in the registration statement or any prospectus.
II-1
<PAGE>
Items 16. Exhibits And Financial Statements.
(a) Exhibits
1.1* Form of Underwriting Agreement.
3.1* Charter of Chevy Chase Bank, F.S.B.
3.2* Bylaws of Chevy Chase Bank, F.S.B.
4.1* Form of Indenture between the Trust and the Indenture
Trustee.
4.2* Form of Indenture between the Registrant and the
Indenture Trustee.
4.3* Form of Pooling and Servicing Agreement.
4.4* Form of Trust Agreement.
5.1** Opinion of Dewey Ballantine LLP with respect to
legality.
8.1** Opinion of Dewey Ballantine LLP as to tax matters.
10.1* Form of Bond Insurance Policy.
23.1** Consent of Dewey Ballantine LLP (included in Exhibits
5.1 and 8.1).
24.1** Power of Attorney.
* Incorporated by reference to Registration Statement No.
333-21707.
** Previously filed.
(b) All financial statements, schedules and historical financial
information have been omitted as they are not applicable.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(a) 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 Act;
(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)
II-2
<PAGE>
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 in such information in the registration statement;
provided that paragraph (a)(i) and (a)(ii) do not apply if such information is
contained in periodic reports filed with or furnished to the Securities and
Exchange Commission (the "Commission") by the registrant pursuant to Section 13
or Section 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") that are incorporated by reference in the registration
statement.
(b) That, for the purpose of determining any liability under the Act, 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.
(c) 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.
(d) That insofar as indemnification for liabilities arising under the Act
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 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 financial
adjudication of such issue.
(e) That, for the purpose of determining any liability under the Act, 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 initial bona
fide offering thereof.
(f) The undersigned registrant hereby undertake that, for purposes of
determining any liability under the Act, each filing of the registrant's annual
reports pursuant to section 13(a) or section 15(d) of the Exchange Act ) that is
incorporated by reference in the registration statement shall be deemed to be
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.
(g)(i) That, for purposes of determining any liability under Act, 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 registrants pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(ii) That for the purpose of determining any liability under the Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new
II-3
<PAGE>
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.
(h) 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 (the "TIA") in
accordance with the rules and regulations prescribed by the Commission under
Section 305(b) (2) of the TIA.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, 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 on Form S-3 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Chevy Chase, State of Maryland, on September 1,
2000.
The registrant reasonably believes that the security rating requirement
pursuant to Transaction Requirement B.5 will be met by the time of sale.
By: /s/ Joel A. Friedman
-------------------------------------
Name: Joel A. Friedman
Title: Attorney-in-Fact
II-5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-3 has been signed by the following persons
in the capacities as of September 1, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
By: * Vice Chairman of the Board
-------------------------------
Alexander R.M. Boyle
By: * Director
-------------------------------
Vincent C. Burke, Jr.
By: *
-------------------------------- Director
Donald G. Conrad
By: *
------------------------------- Director
Gavin Malloy Farr
By: * Senior Vice President and
------------------------------- Controller (Principal
Joel A. Friedman Accounting Officer)
Attorney-in-Fact
By: *
------------------------------- Director
Jack S. Griswold
By: *
-------------------------------- Director
Gilbert M. Grosvenor
By: * Executive Vice President
------------------------------- (Principal Financial Officer)
Stephen R. Halpin, Jr.
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
By: *
------------------------------- Director
Penne Percy Korth
By: * Director
-------------------------------
Lasalle D. Leffall, Jr., M.D.
By: *
-------------------------------- Director
William F. McSweeny
By: * Director
-------------------------------
Garland P. Moore, Jr.
By: * Director
-------------------------------
George M. Rogers, Jr., Esq.
By: * Chairman of the Board
------------------------------- (Principal Executive Officer)
B. Francis Saul II
By: * Director
-------------------------------
B. Francis Saul III
By: * Director
-------------------------------
Leonard L. Silverstein, Esq.
By: *
------------------------------- Director
John R. Whitmore
</TABLE>
* by Joel A. Friedman, as his true
and lawful attorney-in-fact and agent.
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
<S> <C> <C>
1.1* Form of Underwriting Agreement.........................................
3.1* Charter of Chevy Chase Bank, F.S.B.....................................
3.2* Bylaws of Chevy Chase Bank, F.S.B......................................
4.1* Form of Indenture between the Trust and the Indenture Trustee..........
4.2* Form of Indenture between the Registrant and the Indenture Trustee.....
4.3* Form of Pooling and Servicing Agreement................................
4.4* Form of Trust Agreement................................................
5.1** Opinion of Dewey Ballantine LLP with respect to legality...............
8.1** Opinion of Dewey Ballantine LLP as to tax matters......................
10.1* Form of Bond Insurance Policy..........................................
23.1** Consent of Dewey Ballantine LLP (included in Exhibits 5.1 and 8.1).....
24.1** Power of Attorney......................................................
</TABLE>
* Incorporated by reference to Registration Statement No. 333-21707.
** Previously filed.
II-8
