<PAGE> 1
Filed Pursuant to Rule 424(b)(5)
Registration Statement No. 333-32960
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED JUNE 30, 2000
NAVISTAR FINANCIAL DEALER NOTE MASTER TRUST
$ 200,000,000 CLASS A FLOATING RATE DEALER NOTE ASSET BACKED CERTIFICATES,
SERIES 2000-1
$ 12,000,000 CLASS B FLOATING RATE DEALER NOTE ASSET BACKED CERTIFICATES,
SERIES 2000-1
NAVISTAR FINANCIAL SECURITIES CORPORATION
SELLER
NAVISTAR FINANCIAL CORPORATION
SERVICER
BEFORE YOU PURCHASE
ANY OF THE
CERTIFICATES, YOU
SHOULD CONSIDER
CAREFULLY THE RISK
FACTORS BEGINNING ON
PAGE S-4 IN THIS
PROSPECTUS SUPPLEMENT
AND PAGE 4 IN THE
PROSPECTUS.
The sole source of
payments of the
certificates is the
assets of the trust.
The certificates are
not interests in,
obligations of or
insured or guaranteed
by Navistar Financial
Securities
Corporation, Navistar
Financial Corporation,
or any other person or
entity.
This prospectus
supplement may be used
to offer and sell the
certificates only if
accompanied by the
prospectus.
The trust will issue the following classes of certificates:
<TABLE>
<CAPTION>
SERIES 2000-1 CERTIFICATES
------------------------------
CLASS A CLASS B
------------- -------------
<S> <C> <C>
Initial Invested Amount.................... $200,000,000 $12,000,000
Certificate Rate........................... LIBOR + 0.25% LIBOR + 0.55%
Distribution Dates......................... Monthly Monthly
First Distribution Date.................... August 25, August 25,
2000 2000
Expected Principal Payment Date............ June 27, 2005 June 27, 2005
Series Termination Date.................... June 25, 2008 June 25, 2008
Price to Public............................ 100.00% 100.00%
Underwriting Discount...................... 0.25% 0.30%
Proceeds to Seller(1)...................... 99.75% 99.70%
</TABLE>
-------------------------------------------
(1) Before deducting expenses payable by the Seller, which are estimated to be
$500,000. Total price to public is $212,000,000, total underwriting discount
is $536,000, and total proceeds to the Seller are $211,464,000.
CREDIT ENHANCEMENT
- The certificates issued by the trust to the Seller are subordinated to the
Series 2000-1 Certificates to the extent of the available subordinated
amount, which is initially $19,080,000.
- A spread account, with an initial balance of $2,650,000.
- The Class B Certificates are subordinated to the Class A Certificates.
Subordination of the Class B Certificates provides additional credit
enhancement for the Class A Certificates.
We expect that delivery of the Series 2000-1 Certificates will be made, in
book-entry form only, through the facilities of The Depository Trust Company,
Clearstream Banking, S.A. or the Euroclear System on or about July 13, 2000.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
BANC OF AMERICA SECURITIES LLC
The date of this prospectus supplement is June 30, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................ S-1
The Parties.......................... S-1
The Certificates..................... S-1
Priority of Payments................. S-2
Credit Enhancement................... S-2
Trust Property....................... S-3
Servicing Fees....................... S-3
Tax Status........................... S-3
ERISA Considerations................. S-3
Ratings.............................. S-3
Mailing Address and Telephone Number
of Principal Executive Offices.... S-3
Risk Factors........................... S-4
Class B Certificates are subject to
greater credit risk because the
Class B Certificates are
subordinated to the Class A
Certificates...................... S-4
Dependence on other series' allocated
principal collections may result
in late payment of Series 2000-1
Certificate principal............. S-4
Changes in the relationship between
LIBOR and the prime rate may
adversely affect the trust........ S-4
Limited ability to resell
certificates...................... S-5
Use of Proceeds........................ S-6
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Dealer Notes....................... S-6
General.............................. S-6
Loss Experience...................... S-7
Delinquencies........................ S-9
Aging Experience..................... S-9
Cyclicality.......................... S-10
Geographic Distribution.............. S-10
Seasonality.......................... S-11
Liquidations......................... S-11
Monthly Payment Rates................ S-12
Description of the Series 2000-1
Certificates......................... S-13
General.............................. S-13
Interest............................. S-13
Principal............................ S-14
Trustee.............................. S-15
Allocation of Collections............ S-15
Certificateholder Charge-Offs........ S-19
Distributions to Series 2000-1
Certificateholders................ S-20
Ratings of the Certificates.......... S-20
Early Amortization Events............ S-21
Reports to Series 2000-1
Certificateholders................ S-22
Other Series Issued by the Trust....... S-24
Plan of Distribution................... S-25
Legal Matters.......................... S-25
Glossary............................... S-26
</TABLE>
<PAGE> 3
WHERE TO FIND INFORMATION IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
We provide information to you about the certificates in two separate
documents that provide varying levels of detail:
(1) the prospectus, which provides general information, some of which
may not apply to your series; and
(2) this prospectus supplement, which provides information regarding
the pool of receivables held by the trust and specifies the terms of your
series.
IF THE TERMS OF YOUR SERIES VARY BETWEEN THE PROSPECTUS AND THIS PROSPECTUS
SUPPLEMENT, YOU SHOULD RELY ON THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT.
You should rely only on the information provided in the prospectus and this
prospectus supplement. We have not authorized anyone to provide you with other
or different information. You should not assume that the information in the
prospectus and this prospectus supplement is accurate on any date other than the
dates stated on their respective covers.
We are not offering the certificates in any state where the offer is not
permitted.
Capitalized terms used in this prospectus supplement are defined either in
this prospectus supplement or in the prospectus. You can find definitions of
frequently used terms and a listing of pages where terms are defined under the
caption "Glossary" which appears at the end of this prospectus supplement.
---------------------------
<PAGE> 4
SUMMARY
This summary highlights selected information from this prospectus
supplement and provides an overview to aid in your understanding of the Series
2000-1 Certificates. It does not contain all of the information that you need to
consider in making your investment decision. To understand the terms of this
offering of the Series 2000-1 Certificates, carefully read this entire
prospectus supplement and the accompanying prospectus.
THE PARTIES
ISSUER
Navistar Financial Dealer Note Master Trust
SELLER
Navistar Financial Securities Corporation, a wholly-owned subsidiary of
Navistar Financial Corporation
SERVICER
Navistar Financial Corporation
TRUSTEE
The Bank of New York
THE CERTIFICATES
The trust will issue the following classes of Series 2000-1 Certificates:
<TABLE>
<CAPTION>
INITIAL CERTIFICATE
CLASS INVESTED AMOUNT RATE
----- --------------- -------------
<S> <C> <C>
Class A.............. $200,000,000 LIBOR + 0.25%
Class B.............. $ 12,000,000 LIBOR + 0.55%
</TABLE>
The sole source of payments on the Series 2000-1 Certificates is the assets
of the trust. The Series 2000-1 Certificates are not interests in, obligations
of or insured or guaranteed by Navistar Financial Corporation, Navistar
Financial Securities Corporation or any other person or entity.
CLOSING DATE
July 13, 2000
DISTRIBUTION DATES
Distributions on the Series 2000-1 Certificates will generally be made
monthly on the 25th day of each month, starting August 25, 2000. If the 25th day
is not a business day, the distribution will be made on the next business day.
INTEREST PAYMENTS
The interest rate for each class of certificates is specified above.
Interest on the Series 2000-1 Certificates will be calculated on the basis
of the actual number of days in the applicable interest period divided by 360.
The payment of interest on the Class B Certificates is subordinate to the
payment of interest on the Class A Certificates to the extent described in this
prospectus supplement. No interest will be paid on the Class B Certificates on
any distribution date unless all interest due and payable on the Class A
Certificates has been paid.
PRINCIPAL PAYMENTS
The entire principal balance of the Class A Certificates and of the Class B
Certificates is expected to be paid on June 27, 2005. However, special
circumstances could cause principal to be paid earlier or later or in reduced
amounts. See "Risk Factors" in this prospectus supplement and the prospectus.
If not previously paid, the outstanding principal amount of the Class A
Certificates and Class B Certificates will be payable in full on the series
termination date, which is June 25, 2008.
The payment of principal on the Class B Certificates is subordinate to
payment of principal on the Class A Certificates to the extent described in this
prospectus supplement. No principal will be paid on the Class B Certificates
until all principal on the Class A Certificates has been paid.
REVOLVING PERIOD
The Series 2000-1 Certificates will have a revolving period that will begin
at the close of business on the closing date and end when the accumulation
period for the Series 2000-1 Certificates begins. The revolving period will also
end if an early amortization period begins. No principal
S-1
<PAGE> 5
payments will be made on the Series 2000-1 Certificates during the revolving
period.
ACCUMULATION PERIOD
The Series 2000-1 Certificates will have an accumulation period, unless an
early amortization period begins before the start of the accumulation period.
The accumulation period will be a period of one to nine months long to be
determined by the servicer as described in this prospectus supplement. No
principal payments will be made on the Series 2000-1 Certificates during the
accumulation period.
EARLY AMORTIZATION PERIOD
The Series 2000-1 Certificates may have an early amortization period if an
early amortization event occurs and is not cured. See "Description of the
Investor Certificates -- Early Amortization Events" in the prospectus and
"Description of the Series 2000-1 Certificates -- Early Amortization Events" in
this prospectus supplement for a description of the events that might cause an
early amortization period to begin. During an early amortization period,
principal payments will be made on the Series 2000-1 Certificates to the extent
of funds available for that purpose.
PRIORITY OF PAYMENTS
On each distribution date, the share of finance charge collections on the
dealer notes received during the prior calendar month and payments from
International Truck and Engine Corporation with respect to prepaid interest on
the dealer notes allocated to the Series 2000-1 Certificates, together with
available funds from the spread account and other specified amounts, will
generally be distributed in the following order of priority:
- servicing fees to the servicer
- interest on the Class A Certificates
- interest on the Class B Certificates
- amounts to reimburse losses on the dealer notes
- amounts to reimburse prior charge-offs on the Series 2000-1 Certificates
- to the spread account, the amount, if any, necessary to fund the spread
account up to its required amount
- to pay any shortfalls in interest due to certificateholders of other series
- the remainder to the Seller
CREDIT ENHANCEMENT
Credit enhancement provides protection for the Series 2000-1 Certificates
against losses and delays in payments on the dealer notes.
SUBORDINATION OF SELLER'S INTEREST
The certificates issued by the trust and held by the Seller are subordinate
to the rights of the holders of the Series 2000-1 Certificates to the extent
described in this prospectus supplement. A portion of the collections on the
dealer notes otherwise allocable to the Seller's Certificates may be used to pay
interest and principal on the Series 2000-1 Certificates, but only to the extent
of the available subordinated amount. The available subordinated amount will
initially be $19,080,000, but is subject to reduction from time to time.
SPREAD ACCOUNT
On the closing date an amount of cash or eligible investments equal to
$2,650,000 will be deposited into a spread account.
Subject to the availability of funds, the amount in the spread account will
be adjusted to a specified amount on each distribution date. Amounts in the
spread account on any distribution date in excess of the specified amount for
that distribution date will be paid to the Seller. The amount required to be on
deposit in the spread account on any distribution date is generally the sum of
1.25% of the invested amount of the Series 2000-1 Certificates and the excess,
if any, of the amount of interest and servicing fees with respect to the Series
2000-1 Certificates over the amount the trust earns on the portion of the dealer
notes allocable to the Series 2000-1 Certificates.
The trustee will withdraw funds from the spread account on the day
preceding each distribution date to the extent that the funds of the trust
otherwise available to pay interest on the
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<PAGE> 6
Series 2000-1 Certificates (after payment of the servicing fees) are less than
amount of interest payable on the Series 2000-1 Certificates. The trustee will
then disburse these funds according to the priority of distributions described
under the caption "Priority of Payments" above.
SUBORDINATION OF CLASS B CERTIFICATES
The Class B Certificates are subordinated to the Class A Certificates to
the extent described in this prospectus supplement.
TRUST PROPERTY
The primary assets of the trust will be a pool of wholesale loans evidenced
by dealer notes. The dealer notes are secured by new and used medium or heavy
duty trucks, buses or trailers. The dealer notes held by the trust had an
aggregate principal balance of $1,190,862,092.79 as of April 30, 2000.
The assets of the trust will also include:
- security interests in the vehicles financed by the dealer notes and the
proceeds of repossessed vehicles
- amounts held on deposit in specified bank accounts, including the spread
account
- any proceeds from claims on vehicle insurance policies, and
- specified rights of the Seller under the purchase agreement under which the
Seller acquired the dealer notes.
SERVICING FEES
Navistar Financial will service the dealer notes. The trust will pay the
servicer a monthly servicing fee of one-twelfth of 1% of the principal balance
of the dealer notes as compensation for servicing the dealer notes. A portion of
this fee will be paid out of amounts allocated to the Series 2000-1
Certificates. The servicer will also be entitled to retain any late fees,
prepayment charges and other similar fees and charges collected during the prior
month.
TAX STATUS
Kirkland & Ellis, special tax counsel, is of the opinion that for federal
income tax purposes, the Series 2000-1 Certificates will be characterized as
indebtedness and the trust will not be characterized as an association (or
publicly traded partnership) taxable as a corporation.
By accepting a certificate, you will agree to treat the Series 2000-1
Certificates as indebtedness for federal, state and local income and franchise
tax purposes.
See "Material Federal Income Tax Matters" and "State and Local Tax Matters"
in the prospectus concerning the application of federal, state and local tax
laws.
ERISA CONSIDERATIONS
An employee benefit plan subject to the Employee Retirement Income Security
Act of 1974 might be prohibited from investing in the Series 2000-1
Certificates. See "ERISA Considerations" in the prospectus for a description of
the limitations on purchases of the Series 2000-1 Certificates by employee
benefit plans.
RATINGS
The certificates will be issued only if:
- the Class A Certificates are rated in the highest rating category for
long-term debt obligations by Moody's Investors Service, Inc. and
Standard & Poor's Ratings Services; and
- the Class B Certificates are rated "A2" by Moody's Investors Service,
Inc. and "A-" by Standard & Poor's Ratings Services.
If circumstances change, a rating agency may change its rating of a class
of certificates. If a rating agency lowers its rating of a class of
certificates, no one is obligated to provide additional credit enhancement or to
restore the original rating.
MAILING ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES
The mailing address of Navistar Financial Corporation is 2850 West Golf
Road, Rolling Meadows, Illinois, 60008, telephone (847) 734-4000. The mailing
address of Navistar Financial Securities Corporation is 2850 West Golf Road,
Rolling Meadows, Illinois, 60008, telephone (847) 734-4000. The principal office
of the trust is in New York, in care of Bank of New York, as trustee, 101
Barclay Street Floor 12-E, New York, New York, 10286.
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<PAGE> 7
RISK FACTORS
In addition to the risk factors on page 4 of the prospectus, you should
consider the following risk factors in deciding whether to purchase the Series
2000-1 Certificates.
CLASS B CERTIFICATES ARE
SUBJECT
TO GREATER CREDIT RISK
BECAUSE THE
CLASS B CERTIFICATES ARE
SUBORDINATED TO THE CLASS A
CERTIFICATES The Class B Certificates bear greater credit risk
than the Class A Certificates because payments of
interest on the Class B Certificates are
subordinated in priority to the payment of interest
due on the Class A Certificates. Payments of
principal on the Class B Certificates will not be
made until the Class A Certificates have been paid
in full.
This subordination could result in delays or
reductions in the payment of principal and interest
on the Class B Certificates.
DEPENDENCE ON OTHER SERIES'
ALLOCATED PRINCIPAL
COLLECTIONS
MAY RESULT IN LATE PAYMENT
OF
SERIES 2000-1 CERTIFICATE
PRINCIPAL The shorter the accumulation period for the Series
2000-1 Certificates, the greater the chance that
payment in full of the Class A Certificates or the
Class B Certificates on the expected principal
payment date will depend on principal collections
initially allocated to another series of
certificates being available to make principal
payments on the Series 2000-1 Certificates.
A series of certificates from which principal
collections were expected to be available to make
payments on the Series 2000-1 Certificates may
enter an early amortization period or investment
period after the beginning of the accumulation
period for the Series 2000-1 Certificates. If that
were to occur, excess principal collections from
that series that otherwise would have been
available to the Series 2000-1 Certificates would
not be available. As a result, the final payment of
principal of the Class A Certificates or the Class
B Certificates may be later than the expected
principal payment date. On written request, the
Seller will give Series 2000-1 Certificateholders
disclosure documents relating to any other
outstanding series of certificates that was offered
to the public. Those documents describe the events
which could result in the start of an early
amortization period or investment period for those
series.
See "The Navistar Financial Dealer Floor Plan
Financing Business" in the prospectus and
"Description of the Series 2000-1 Certificates --
Early Amortization Events" in this prospectus
supplement for more information about the timing of
payments on the Series 2000-1 Certificates.
CHANGES IN THE RELATIONSHIP
BETWEEN LIBOR AND THE PRIME
RATE MAY ADVERSELY AFFECT
THE
TRUST The interest rate on dealer notes is presently
based on the prime rate, while the interest rate
payable on the Series 2000-1 Certificates will be
based on one-month LIBOR. The prime rate, which is
an "administered rate," tends to lag behind
one-month LIBOR, which is a "market rate."
Therefore, the spread between the prime rate and
LIBOR could narrow or disappear during periods of
rising interest rates.
During the past ten years, the prime rate has
exceeded one-month LIBOR at all times. However, we
cannot assure you that the prime rate will continue
to exceed LIBOR in the future. In addition, the
approximate five week lag between the date on which
the interest rate on dealer notes is established by
Navistar Financial and the date on which the
interest rates on the certificates are reset each
month could create a distortion during periods of
rapidly rising or volatile interest rates. This
could occur even though the relative prime
rate-LIBOR
S-4
<PAGE> 8
relationship remained constant during that period.
See "Description of the Investor
Certificates -- Due Periods; Distribution Periods"
in the prospectus.
If the positive spread between the dealer note
interest rate and the interest rates payable on the
certificates declines or disappears in the future,
an early amortization event could occur. If all
sources of credit enhancement were exhausted, you
could experience delays or reductions in payments
on your certificates.
LIMITED ABILITY TO RESELL
CERTIFICATES The underwriter for the Class A Certificates and
the Class B Certificates may assist in the resale
of those certificates, but is not required to do
so. A trading market for either class of the
certificates may not develop. If a trading market
does develop for your class of certificates, it
might not be sufficiently liquid to allow you to
resell any of your certificates.
S-5
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USE OF PROCEEDS
All or a portion of the net proceeds of the sale of the Series 2000-1
Certificates may be used to repay a portion of the outstanding certificate
balance of the Series 2000-VFC Certificate issued by the trust. See "Other
Series Issued by the Trust" for a description of the principal characteristics
of the Series 2000-VFC Certificate, which is currently held by a special purpose
entity that is administered by an affiliate of the Underwriter. The proceeds
from the sale of the Series 2000-VFC Certificate were used for the purposes
described in "Use of Proceeds" in the prospectus. The remaining net proceeds of
the sale of the Series 2000-1 Certificates will be used for the purposes
described in "Use of Proceeds" in the prospectus.
THE DEALER NOTES
GENERAL
Dealer notes that are conveyed to the trust consist of all wholesale notes
issued by dealers that are identified by the servicer as meeting the eligibility
criteria for dealer notes. In order to be eligible, each dealer note must be
issued pursuant to Navistar Financial's credit guidelines and meet other
criteria provided in the purchase agreement. See "Description of the Investor
Certificates -- Eligible Dealer Notes" and "-- Certain Representations and
Warranties; Ineligible Dealer Notes; Purchase of Certificateholders' Interest"
in the prospectus. The aggregate principal amount of eligible dealer notes as of
the closing date is expected to be in excess of $1.1 billion.
The following tables provide general statistics regarding the total
portfolio of wholesale notes serviced by Navistar Financial for the periods
ended on the dates specified. We call this portfolio the "Wholesale Portfolio."
As of the closing date, the dealer notes which are expected to be held in the
trust will represent approximately 95% of the Wholesale Portfolio. However, we
cannot assure you that the dealer notes which are held in the trust will
continue to constitute such a significant portion of the Wholesale Portfolio. We
cannot assure you that the experience of the dealer notes in the future will be
similar to the historical experience described in the tables below.
Fluctuations in net losses and delinquencies in the Wholesale Portfolio
generally follow cycles in the overall business environment and, we believe, are
particularly sensitive to the industrial sector, which generates a significant
portion of freight tonnage hauled. Truck demand and Wholesale Portfolio
performance also depend on general economic conditions, interest rates and fuel
costs.
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<PAGE> 10
LOSS EXPERIENCE
The following table provides the loss experience on the Wholesale Portfolio
for the periods indicated:
LOSS EXPERIENCE FOR THE WHOLESALE PORTFOLIO
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
ANNUALIZED
NET LOSSES AVERAGE
(RECOVERIES)/ MATURITY
AVERAGE AVERAGE (DAYS IN
NET DEALER NOTE LIQUIDATIONS NET LOSSES DEALER NOTE DEALER NOTES YEAR/
FISCAL YEAR-TO-DATE PERIOD LOSSES OF DEALER (RECOVERIES)/ PRINCIPAL PRINCIPAL ANNUALIZED ANNUALIZED
ENDING LAST DAY OF (RECOVERIES) NOTES LIQUIDATIONS BALANCE BALANCE TURNOVER TURNOVER)
-------------------------- --------------- ------------ ------------- ----------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Fiscal Year 2000
January................ $ 0.0 $1,062.6 0.00% $1,246.8 0.00% 3.41x 107.1
April.................. 0.0 2,127.9 0.00 1,290.0 0.00 3.30x 110.6
Fiscal Year 1999
January................ (0.1) 934.0 (0.01) 1,103.4 (0.04) 3.39x 107.8
April.................. (0.1) 1,940.6 (0.01) 1,116.9 (0.03) 3.47x 105.0
July................... (0.2) 2,961.1 (0.01) 1,125.7 (0.02) 3.51x 104.1
October................ (0.2) 4,002.6 0.00 1,111.2 (0.02) 3.60x 101.3
Fiscal Year 1998
January................ (0.1) 725.3 (0.01) 716.7 (0.06) 4.05x 90.1
April.................. (0.3) 1,557.0 (0.02) 775.4 (0.08) 4.02x 90.8
July................... (0.3) 2,486.3 (0.01) 818.3 (0.05) 4.05x 90.1
October................ (0.3) 3,464.8 (0.01) 837.9 (0.04) 4.14x 88.3
Fiscal Year 1997
January................ 0.0 599.7 0.00 690.2 0.00 3.48x 105.2
April.................. (0.1) 1,232.1 (0.01) 683.2 (0.03) 3.61x 101.4
July................... (0.1) 1,945.5 (0.01) 682.3 (0.02) 3.80x 96.1
October................ (0.2) 2,767.8 (0.01) 674.9 (0.03) 4.10x 89.0
Fiscal Year 1996
January................ 0.1 721.6 0.01 913.0 0.04 3.16x 115.5
April.................. 0.0 1,436.2 0.00 920.3 0.00 3.12x 117.0
July................... 0.0 2,139.8 0.00 906.5 0.00 3.15x 116.2
October................ (0.2) 2,874.4 (0.01) 859.7 (0.02) 3.34x 109.3
Fiscal Year 1995
January................ (0.1) 618.6 (0.01) 597.5 (0.07) 4.14x 88.2
April.................. (0.1) 1,237.5 (0.01) 643.9 (0.03) 3.84x 95.1
July................... (0.3) 1,963.3 (0.02) 689.7 (0.06) 3.80x 96.3
October................ (0.9) 2,712.4 (0.03) 706.0 (0.13) 3.84x 95.1
</TABLE>
Note that "Net Dealer Note Losses (Recoveries)" and "Liquidations of Dealer
Notes" are cumulative within each fiscal year. Thus, figures as of January 31 of
each fiscal year represent the Net Dealer Note Losses or Liquidations of Dealer
Notes for the first quarter of that fiscal year. Figures as of April 30 of each
fiscal year represent the cumulative Net Dealer Note Losses or Liquidations of
Dealer Notes for the first six months of that fiscal year; and so on.
The "Average Dealer Note Principal Balance" is calculated as the fiscal
year-to-date average of the daily outstanding Dealer Note Principal Balance.
The "Net Losses (Recoveries)" for a fiscal quarter used in the numerator of
the column headed "Net Losses (Recoveries)/Liquidations" are cumulative within a
fiscal year and have been annualized. Thus, the numerator for the figure shown
as of the fiscal quarter ended January 31 of each fiscal year equals the Net
Dealer Note Losses (Recoveries) for that fiscal quarter multiplied by four; for
April 30 equals the cumulative Net Dealer Note Losses (Recoveries) for the six
months ended on that date multiplied by two; for July 31 equals the cumulative
Net Dealer Note Losses (Recoveries) for the nine months ended on that date
multiplied by 4/3; and for October 31 equals the cumulative Net Dealer Note
Losses (Recoveries).
"Annualized Turnover" is calculated as the annualized Liquidations of
Dealer Notes for each fiscal period, annualized in the same manner described
above for Net Losses (Recoveries) and divided by Average Dealer Note Principal
Balance.
Losses occur on wholesale notes when a dealer has been terminated under
circumstances in which the dealer has sold one or more financed vehicles to a
retail customer and has failed to remit the appropriate
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<PAGE> 11
proceeds of that sale to Navistar Financial. Losses also occur when used trucks
financed at wholesale and repossessed by Navistar Financial from a terminated
dealer cannot be sold for the balance due on the underlying wholesale note. By
contrast, losses generally have not occurred when new trucks financed by
Navistar Financial are repossessed from terminated dealers because these new
trucks are repurchased by the manufacturer, International, or by an OEM Supplier
for an amount equal to the remaining principal balance on the underlying
wholesale note. Navistar Financial recognizes losses on wholesale notes at the
time it deems these wholesale notes to be uncollectible. This is generally at
the time Navistar Financial has exhausted all non-legal remedies.
The characteristics of the dealer notes held by the trust have not been and
are not expected to be significantly different from the characteristics of the
Wholesale Portfolio at any given time, except to the extent that the eligibility
requirements in the pooling and servicing agreement for dealer notes serve to
screen out specified types of wholesale notes at their inception. For example,
wholesale notes from dealers who are on cash on delivery terms or who are
insolvent are ineligible, although dealer notes which have been or are
transferred to the trust will not become ineligible if the dealer is later put
on cash on delivery status or later becomes insolvent. We do not expect these
differences to affect adversely the performance of the dealer notes held by the
trust in comparison to the Wholesale Portfolio at that time.
S-8
<PAGE> 12
DELINQUENCIES
The following table presents the aggregate amount of delinquent principal
payments -- those payments past due over 30 days -- for the Wholesale Portfolio
as a percentage of the total principal amount outstanding as of the end of the
fiscal quarters specified:
DELINQUENCIES AS A PERCENTAGE OF THE WHOLESALE PORTFOLIO
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
TOTAL PRINCIPAL AGGREGATE AMOUNT OF
AMOUNT OF DELINQUENT PRINCIPAL
DEALER NOTES PAYMENTS ON DEALER NOTES
LAST DAY OF OUTSTANDING (PAST DUE OVER 30 DAYS)
----------- --------------- ------------------------
<S> <C> <C> <C>
Fiscal Year 2000
January............................................... $1,267.2 $3.6 0.28%
April................................................. 1,343.9 3.6 0.27
Fiscal Year 1999
January............................................... 1,099.9 1.0 0.09
April................................................. 1,150.1 1.1 0.10
July.................................................. 1,036.0 1.4 0.14
October............................................... 1,225.5 1.3 0.11
Fiscal Year 1998
January............................................... 758.2 2.1 0.28
April................................................. 892.0 1.1 0.13
July.................................................. 854.2 0.9 0.11
October............................................... 1,039.4 0.7 0.07
Fiscal Year 1997
January............................................... 651.3 1.4 0.22
April................................................. 670.2 2.1 0.31
July.................................................. 649.1 2.4 0.38
October............................................... 691.1 2.0 0.28
Fiscal Year 1996
January............................................... 927.6 0.6 0.06
April................................................. 909.7 0.8 0.09
July.................................................. 803.2 1.2 0.15
October............................................... 685.9 1.3 0.19
Fiscal Year 1995
January............................................... 611.3 0.6 0.11
April................................................. 766.0 0.3 0.04
July.................................................. 723.2 0.4 0.06
October............................................... 854.4 0.4 0.05
</TABLE>
AGING EXPERIENCE
The following table provides the age distribution of the Wholesale
Portfolio by principal amount outstanding as of the dates indicated:
AGE DISTRIBUTION OF THE WHOLESALE PORTFOLIO
<TABLE>
<CAPTION>
APRIL 30 OCTOBER 31
------------ ------------------------------------
2000 1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Days
1-180...................................... 79% 82% 85% 90% 90% 70% 84%
181-360.................................... 17 15 11 9 7 21 14
Over 360................................... 4 3 4 1 3 9 2
--- --- --- --- --- --- ---
Total.................................... 100% 100% 100% 100% 100% 100% 100%
=== === === === === === ===
</TABLE>
S-9
<PAGE> 13
CYCLICALITY
The average outstanding principal amount of the Wholesale Portfolio has
varied historically according to business cycles in the truck manufacturing
industry. The following table provides the highest, lowest and average principal
amounts outstanding based on month-end balances during the fiscal years
indicated:
OUTSTANDING PRINCIPAL AMOUNT OF THE WHOLESALE PORTFOLIO
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
HIGHEST LOWEST AVERAGE OF
MONTH-END MONTH-END MONTH-END
FISCAL YEAR AMOUNT AMOUNT AMOUNTS
----------- --------- --------- ----------
<S> <C> <C> <C>
1999..................................................... $1,225 $1,034 $1,109
1998..................................................... 1,039 709 838
1997..................................................... 694 635 669
1996..................................................... 933 686 850
1995..................................................... 854 588 709
</TABLE>
GEOGRAPHIC DISTRIBUTION
The following table provides the geographic distribution of the principal
amount of the Wholesale Portfolio as of April 30, 2000:
GEOGRAPHIC DISTRIBUTION OF THE WHOLESALE PORTFOLIO
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PERCENTAGE OF
AMOUNT WHOLESALE
STATE OUTSTANDING PORTFOLIO
----- ----------- -------------
<S> <C> <C>
Texas................ $ 115.6 8.60%
Illinois............. 110.3 8.21
Pennsylvania......... 91.7 6.82
Minnesota............ 67.8 5.05
California........... 66.1 4.92
Ohio................. 64.5 4.80
New York............. 63.0 4.69
Florida.............. 52.7 3.92
Indiana.............. 50.0 3.72
Georgia.............. 49.8 3.71
Wisconsin............ 46.6 3.47
Maryland............. 42.1 3.14
Alabama.............. 37.4 2.79
Missouri............. 35.7 2.65
Tennessee............ 35.2 2.62
Virginia............. 32.4 2.41
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF
AMOUNT WHOLESALE
STATE OUTSTANDING PORTFOLIO
----- ----------- -------------
<S> <C> <C>
Michigan............. $ 27.5 2.05%
Iowa................. 26.9 2.00
Arkansas............. 26.3 1.96
North Carolina....... 22.2 1.66
Oklahoma............. 20.5 1.53
New Jersey........... 18.8 1.40
Mississippi.......... 18.3 1.36
Nebraska............. 17.7 1.32
Connecticut.......... 16.8 1.25
Kentucky............. 15.6 1.16
Utah................. 14.6 1.08
Louisiana............ 14.4 1.07
-------- ------
Subtotal........... 1,200.5 89.33
All others........... 143.4 10.67
-------- ------
Total.............. 1,343.9 100.00%
</TABLE>
The row "All others" includes the remaining 22 states, each of which
represents less than 1% of the Wholesale Portfolio.
S-10
<PAGE> 14
SEASONALITY
The aggregate principal amount of the Wholesale Portfolio generally varies
during the year. The following table provides the average principal amount of
the Wholesale Portfolio during the months specified:
SEASONAL FLUCTUATION IN THE WHOLESALE PORTFOLIO
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------------------------
MONTH 2000 1999 1998 1997 1996 1995
----- ------ ------ ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
November................................... $1,242 $1,081 $689 $694 $876 $604
December................................... 1,269 1,113 732 706 938 593
January.................................... 1,224 1,080 726 656 923 597
February................................... 1,309 1,126 794 658 925 633
March...................................... 1,356 1,125 836 674 927 683
April...................................... 1,329 1,136 869 677 928 749
May........................................ 1,165 899 676 903 776
June....................................... 1,155 926 686 898 814
July....................................... 1,105 884 675 831 752
August..................................... 1,032 854 648 759 705
September.................................. 1,040 863 645 703 745
October.................................... 1,125 969 666 690 811
</TABLE>
Declines in the principal amount of dealer notes outstanding due to
seasonality, cyclicality, competitive conditions or other factors may cause
principal collections to be invested in Eligible Investments rather than to be
used for acquisitions or assignments of dealer notes. See "Description of the
Investor Certificates -- Allocation of Collections" in the prospectus.
LIQUIDATIONS
The following table provides the liquidation history with respect to
Navistar Financial month-end balances outstanding and one-month liquidations of
dealer notes in the Wholesale Portfolio for the months indicated:
LIQUIDATION HISTORY OF WHOLESALE PORTFOLIO
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fiscal Year 2000
Balances........... $1,259 $1,215 $1,267 $1,339 $1,341 $1,344
Liquidations....... 345 405 312 324 386 354
Fiscal Year 1999
Balances........... 1,125 1,092 1,100 1,146 1,116 1,150 $1,170 $1,138 $1,036 $1,034 $1,051 $1,226
Liquidations....... 281 349 304 293 358 356 333 356 331 325 374 343
Fiscal Year 1998
Balances........... 713 709 758 819 852 892 915 920 854 835 902 1,039
Liquidations....... 216 250 260 240 299 293 285 325 319 332 312 334
Fiscal Year 1997
Balances........... 694 655 651 668 675 670 681 688 649 635 649 691
Liquidations....... 184 209 207 193 208 230 216 238 259 264 263 296
Fiscal Year 1996
Balances........... 904 913 928 926 933 910 896 892 803 709 694 686
Liquidations....... 236 236 250 222 243 249 237 216 251 267 219 249
Fiscal Year 1995
Balances........... 599 588 611 656 737 766 809 806 723 707 778 854
Liquidations....... 213 199 206 183 231 205 225 246 254 256 219 273
</TABLE>
S-11
<PAGE> 15
MONTHLY PAYMENT RATES
The following table describes the highest and lowest monthly payment rates
for the Wholesale Portfolio in the periods shown and the average of the monthly
payment rates for all months during the periods shown. In each case, these
figures are calculated as the percentage equivalent of a fraction, the numerator
of which is the aggregate of all collections of principal during the specified
period and the denominator of which is the aggregate ending principal balance of
the Wholesale Portfolio for that period.
HISTORICAL MONTHLY PAYMENT RATES
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
APRIL 30 FISCAL YEAR
------------ ------------------------------------
2000 1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Highest Month............................ 33.3% 32.0% 35.6% 39.8% 42.8% 37.7% 36.2%
Lowest Month............................. 24.2 25.0 25.0 29.3 26.5 24.0 26.8
Average for the Months in the Period..... 27.4 28.9 29.9 33.9 34.6 28.2 31.4
</TABLE>
S-12
<PAGE> 16
DESCRIPTION OF THE SERIES 2000-1 CERTIFICATES
GENERAL
The Series 2000-1 Certificates will be issued pursuant to the pooling and
servicing agreement and a series supplement to the pooling and servicing
agreement for the Series 2000-1 Certificates (the "Series 2000-1 Supplement").
The Seller will provide a copy of the pooling and servicing agreement and the
Series 2000-1 Supplement (each without exhibits) upon request of a
certificateholder. The following summary does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all of the
provisions of the Series 2000-1 Certificates, the pooling and servicing
agreement and the Series 2000-1 Supplement. Where particular provisions or terms
used in the pooling and servicing agreement or the Series 2000-1 Supplement are
referred to, the actual provisions, including definitions of terms, are
incorporated by reference as part of this summary. You should see the prospectus
for additional information about the Series 2000-1 Certificates and the pooling
and servicing agreement.
The Series 2000-1 Certificates will consist of two classes, the Class A
Certificates and the Class B Certificates. The Series 2000-1 Certificates will
be offered in minimum denominations of $1,000 and integral multiples of $1,000.
The principal terms of the Series 2000-1 Certificates are as follows:
<TABLE>
<CAPTION>
SERIES 2000-1 CERTIFICATES
------------------------------
CLASS A CLASS B
------------- -------------
<S> <C> <C>
Initial Invested Amount..................................... $200,000,000 $12,000,000
Certificate Rate............................................ LIBOR + 0.25% LIBOR + 0.55%
Distribution Dates.......................................... Monthly Monthly
First Distribution Date..................................... August 25, August 25,
2000 2000
Expected Principal Payment Date............................. June 27, 2005 June 27, 2005
Series Termination Date..................................... June 25, 2008 June 25, 2008
</TABLE>
INTEREST
Interest on the outstanding principal amount of the Class A Certificates
and the Class B Certificates will accrue at the Class A Certificate Rate and the
Class B Certificate Rate, respectively, and will be payable to the holders of
the Class A Certificates (the "Class A Certificateholders") and to the holders
of the Class B Certificates (the "Class B Certificateholders" and, together with
the Class A Certificateholders, the "Series 2000-1 Certificateholders") on each
distribution date, commencing August 25, 2000. The "Class A Certificate Rate"
will be equal to LIBOR plus 0.25%. The "Class B Certificate Rate" will be equal
to LIBOR plus 0.55%. Interest payable on any distribution date will accrue for
the preceding distribution period. The Class A Certificate Rate and the Class B
Certificate Rate for each distribution period will be determined on the LIBOR
Determination Date preceding that distribution period. Interest will be
calculated on the basis of the actual number of days in each distribution
period, divided by 360. Each distribution period will run from and including the
prior distribution date to but excluding the current distribution date, except
that the first distribution period will be the period from and including the
closing date to but excluding the first distribution date. Interest due for any
distribution date but not paid on that distribution date will be due on the next
distribution date, together with interest on that amount at the Class A
Certificate Rate or the Class B Certificate Rate, as applicable, to the extent
permitted by applicable law.
Investor Finance Charge Collections, Investment Income and specified other
amounts, to the extent described in this prospectus supplement, will be used to
make payments of monthly interest to the Series 2000-1 Certificateholders. Under
specified circumstances, monthly interest will be funded from Available Seller's
Finance Charge Collections, withdrawals from the Spread Account and withdrawals
from the Liquidity Reserve Account to the extent described in this prospectus
supplement.
The payment of interest on the Class B Certificates is subordinate to the
payment of interest on the Class A Certificates. No interest will be paid on the
Class B Certificates on any distribution date unless all interest due and
payable on the Class A Certificates has been paid.
S-13
<PAGE> 17
PRINCIPAL
The Series 2000-1 Certificates will have a revolving period (the "Revolving
Period") during which no payments of principal will be made on the Series 2000-1
Certificates. The Revolving Period begins on the closing date and ends when the
Accumulation Period or Early Amortization Period begins. During the Revolving
Period, Investor Principal Collections will be:
(a) allocated to one or more other series of certificates which are in
amortization, early amortization or accumulation periods to cover
principal payments due to the certificateholders of any such series;
(b) deposited into the Excess Funding Account;
(c) used to make payments on the principal balance of any variable funding
certificate, or
(d) paid to the Seller as holder of the Seller's Certificates.
Unless an Early Amortization Period shall have commenced, the Series 2000-1
Certificates will have an accumulation period (the "Accumulation Period"). The
Accumulation Period allows for the accumulation of principal in the Series
Principal Account in anticipation of a lump sum payment to the Series 2000-1
Certificateholders on the Expected Principal Payment Date. On or prior to the
distribution date which is ten months prior to the Expected Principal Payment
Date, the servicer will determine the Accumulation Period Length and the
Accumulation Period Commencement Date. The Accumulation Period will begin on the
Accumulation Period Commencement Date and will continue until the earlier of the
beginning of an Early Amortization Period and payment of the Invested Amount of
the Series 2000-1 Certificates in full.
Unless and until an Early Amortization Period shall have occurred and until
the Invested Amount of the Series 2000-1 Certificates is paid in full, on each
transfer date related to a due period occurring during the Accumulation Period,
Investor Principal Collections will no longer be paid to another series or to
the Seller as described above. Instead, a portion of Investor Principal
Collections, up to the Series 2000-1 Controlled Deposit Amount for that due
period, will be deposited into the Series Principal Account and will be used to
pay the Invested Amount of the Series 2000-1 Certificates on the Expected
Principal Payment Date. As described in "-- Allocations of
Collections -- Investor Principal Collections," Shared Principal Collections and
Shared Seller Principal Collections may also be available for deposit into the
Series Principal Account in respect of the Invested Amount.
On the Expected Principal Payment Date, amounts on deposit in the Series
Principal Account will be distributed, first, to the Class A Certificateholders
until the Class A Invested Amount has been paid in full and, second, to the
Class B Certificateholders until the Class B Invested Amount has been paid in
full. Even if the amount on deposit in the Series Principal Account on the
Expected Principal Payment Date is insufficient to pay the Invested Amount in
full, the available amount will be distributed to the Series 2000-1
Certificateholders in the priority described above at that time. If the Expected
Principal Payment Date occurs after the Fully Funded Date, the Series 2000-1
Certificateholders will only be entitled to receive the amounts on deposit in
the Series Principal Account. See "Description of Investor
Certificates -- Termination; Fully Funded Date" in the prospectus.
If on the Expected Principal Payment Date the amount on deposit in the
Series Principal Account is less than the Invested Amount of the Series 2000-1
Certificates, the Early Amortization Period will begin. In addition, an Early
Amortization Period will begin upon the occurrence of an Early Amortization
Event. For a description of the events that could trigger an Early Amortization
Period, see "-- Early Amortization Events." Upon the commencement of an Early
Amortization Period, the Revolving Period or Accumulation Period, as applicable,
will terminate and Investor Principal Collections and other specified amounts
allocable to the Series 2000-1 Certificateholders will no longer be paid to the
Seller or to the holders of any other outstanding series of investor
certificates. Instead, generally on each distribution date subsequent to the
month in which an Early Amortization Period commences, the available amounts
will be distributed, first, to the Class A Certificateholders until the Class A
Invested Amount has been paid in full
S-14
<PAGE> 18
or the Series Termination Date occurs and, second, to the Class B
Certificateholders until the Class B Invested Amount has been paid in full or
the Series Termination Date occurs. Even if the amount on deposit in the Series
Principal Account on any such distribution date is insufficient to pay the
Invested Amount in full, the available amount will be distributed to the Series
2000-1 Certificateholders in the priority described above at that time. Although
we expect that the final payment of the Invested Amount will be made on the
Expected Principal Payment Date, all or a portion of the Invested Amount may be
paid earlier as a result of the commencement of the Early Amortization Period
or, depending on the actual payment rate on the dealer notes, later than the
Expected Principal Payment Date.
TRUSTEE
The Bank of New York is the trustee. Navistar Financial and its
affiliates -- other than the Seller -- may enter into normal banking and trustee
relationships with The Bank of New York or any other bank that may become a
successor trustee. As of the date of this prospectus supplement, the Corporate
Trust Office is located at 101 Barclay Street, New York, New York 10286,
Attention: Corporate Trust Administration.
ALLOCATION OF COLLECTIONS
Allocation of Principal Collections Between the Series 2000-1
Certificateholders and the Seller. On each business day, the servicer will
allocate to the Series 2000-1 Certificateholders the Floating Allocation
Percentage of Series Allocable Principal Collections for that business day
during the Revolving Period or the Principal Allocation Percentage of Series
Allocable Principal Collections for that business day during the Accumulation
Period and any Early Amortization Period (these amounts on each business day,
together with any Available Certificateholder Interest Collections treated as
Investor Principal Collections on that business day as described in clauses (4),
(5) and (6) of "-- Available Certificateholder Interest Collections" below,
being "Investor Principal Collections").
Amounts allocated to the series but not allocated to the Series 2000-1
Certificateholders as described above will be allocated to the Seller, as holder
of the Seller's Certificates. As described below, a portion of the amount
allocated to the Seller is subordinated to the Series 2000-1 Certificates and is
generally drawn from Available Seller's Principal Collections.
Allocation of Finance Charge Collections and Dealer Note Losses Between the
Series 2000-1 Certificateholders and the Seller. On each transfer date related
to a due period, the servicer will allocate to the Series 2000-1
Certificateholders the following amounts:
-- the Floating Allocation Percentage of Series Allocable Finance Charge
Collections for that due period (the "Investor Finance Charge
Collections"); and
-- the Floating Allocation Percentage of Series Allocable Dealer Note
Losses for that due period (the "Investor Dealer Note Losses").
Amounts allocated to the series but not allocated to the Series 2000-1
Certificateholders as described above will be allocated to the Seller, as holder
of the Seller's Certificates. As described below, a portion of the amount
allocated to the Seller is subordinated to the Series 2000-1 Certificates and is
generally drawn from Available Seller's Finance Charge Collections.
Available Certificateholder Interest Collections. On each transfer date
related to a due period ending prior to the Series Termination Date, Investor
Finance Charge Collections for that due period together with other amounts
comprising Investment Income for the related distribution period (collectively,
"Available Certificateholder Interest Collections") will be applied in the
following amounts and in the following order of priority:
(1) An amount equal to the Investor Servicing Fee for that due period
(unless that amount has been netted against deposits to the Collections
Account or waived) will be allocated and paid to the servicer.
S-15
<PAGE> 19
(2) An amount equal to (A) Class A Monthly Interest for that distribution
period, plus (B) Class A Monthly Interest for any prior distribution
period to the extent that the amount has not previously been
distributed to the Class A Certificateholders on a prior distribution
date, plus (C) to the extent permitted by law, additional interest at
the Class A Certificate Rate for that distribution period that has
accrued on the aggregate of any Class A Monthly Interest previously due
but not distributed will be deposited into the Distribution Account.
(3) An amount equal to (A) Class B Monthly Interest for that distribution
period, plus (B) Class B Monthly Interest for any prior distribution
period to the extent that the amount has not previously been
distributed to the Class B Certificateholders on a prior distribution
date, plus (C) to the extent permitted by law, additional interest at
the Class B Certificate Rate for that distribution period that has
accrued on the aggregate of any Class B Monthly Interest previously due
but not distributed will be deposited into the Distribution Account.
(4) An amount equal to any Investor Dealer Note Losses for that due period
will be treated as Investor Principal Collections for that transfer
date and will reimburse an equal amount of Investor Dealer Note Losses.
(5) An amount equal to the aggregate amount of unreimbursed Class A
Certificateholder Charge-Offs, if any, for that due period will be
treated as Investor Principal Collections for that transfer date and
will reimburse Class A Certificateholder Charge-Offs.
(6) An amount equal to the aggregate amount of unreimbursed Class B
Certificateholder Charge-Offs, if any, for that due period will be
treated as Investor Principal Collections for that transfer date and
will reimburse Class B Certificateholder Charge-Offs.
(7) An amount equal to any Spread Account Deposit Amount for that due
period will be deposited into the Spread Account.
(8) An amount equal to the aggregate outstanding amounts of the Investor
Servicing Fee which have been previously waived (unless that amount has
been waived again) will be allocated and paid to the servicer.
(9) An amount equal to the excess, if any, of the Maximum Subordinated
Amount as of the end of the preceding transfer date over the Available
Subordinated Amount as of the end of the preceding transfer date shall
be (i) during the Revolving Period or the Accumulation Period,
allocated and paid to the Seller or (ii) during an Early Amortization
Period, deposited in the Liquidity Reserve Account, and in either case
(i) or (ii) the Available Subordinated Amount shall be reinstated by
the amount of that payment or deposit.
Any Available Certificateholder Interest Collections not used as described
above will constitute "Excess Interest Collections" and will be available for
allocation to other series to the extent of shortfalls and otherwise will be
allocated to the Seller. By contrast, if Available Certificateholder Interest
Collections are not sufficient to satisfy each of the applications described
above on any transfer date, then excess interest collections from other series
allocable to this Series will be applied as Available Certificateholder Interest
Collections in the priority and the manner described in clauses (1) through (9)
of the interest waterfall above. If excess interest collections for all series
are less than the shortfalls for all series that provide for allocations of
excess interest collections from other series, such excess interest collections
from other series will be allocable to shortfalls for this series and any other
series that so provides pro rata based on the relative amounts of each series'
shortfall.
If Available Certificateholder Interest Collections and excess interest
collections from other series allocated to this Series are insufficient to make
all of the applications described in clauses (1) through (6) of the interest
waterfall above, there will be a "Deficiency Amount" equal to the aggregate
amount of the insufficiency. Funds from, but only to the extent of, Available
Draw Funds will be applied in the same fashion as Available Certificateholder
Interest Collections in the priorities described above, to reduce the
S-16
<PAGE> 20
Deficiency Amount. The Available Subordinated Amount will be reduced by the
amount of any Available Draw Funds so applied.
"Available Draw Funds" for any transfer date means funds which shall be
drawn from the following sources in the following order of priority:
(1) Available Seller's Finance Charge Collections;
(2) the Spread Account; and
(3) for any transfer date occurring during any Early Amortization Period,
the Liquidity Reserve Account.
If all of the amounts applied above are insufficient to make the entire
application described in clause (4) of the interest waterfall above, the
Available Subordinated Amount shall be reduced (but not below zero) by the
amount of the insufficiency and the Investor Dealer Note Losses will be deemed
reimbursed by the amount of the reduction.
On each transfer date related to a due period occurring during an Early
Amortization Period, any remaining Available Seller's Finance Charge Collections
not used as Available Draw Funds will be deposited in the Liquidity Reserve
Account to the extent that the Available Subordinated Amount as of the end of
the preceding transfer date exceeds the aggregate amount of funds on deposit in
the Liquidity Reserve Account and the Spread Account. Available Seller's Finance
Charge Collections remaining after the applications described in the preceding
sentence shall, first, to the extent of any remaining shortfall in the
application described in clause (7) of the interest waterfall (or, if less, the
amount of remaining Available Seller's Finance Charge Collections), be applied
in accordance with clause (7) of the interest waterfall above and then, be
allocated and paid to the Seller.
Investor Principal Collections. On each business day, Investor Principal
Collections will be applied in the following priority:
(1) Investor Principal Collections will first be deposited in the Series
Principal Account to the extent required to be available to make
principal distributions to the Series 2000-1 Certificates, first, to
the Class A Certificateholders up to the Class A Invested Amount, and
second, to the Class B Certificateholders up to the Class B Invested
Amount. No amount is required to be set aside for this purpose during
the Revolving Period. On each business day during any Early
Amortization Period, Investor Principal Collections will be allocated,
first, to the Class A Certificateholders, and, second, to the Class B
Certificateholders and deposited in the Series Principal Account to
the extent the Invested Amount as of the preceding distribution date
exceeds the amount of funds on deposit in the Series Principal Account
for that purpose on that business day. On each business day during the
Accumulation Period (but not during any Early Amortization Period),
Investor Principal Collections will be allocated and deposited in the
Series Principal Account in an amount which, when added to the amount
of Investor Principal Collections previously deposited in the Series
Principal Account for that purpose during the due period in which such
business day occurs, shall not exceed the Series 2000-1 Controlled
Deposit Amount for that due period.
(2) Shared Principal Collections, if any, will be determined and allocated
to other series that so provide to the extent of any principal
shortfalls for those other series and otherwise will be deposited in
the Excess Funding Account to the extent necessary to maintain the
Seller's Interest at an amount equal to (or, in the discretion of the
Seller, greater than) the Minimum Seller's Interest or allocated to
the Seller. Shared principal collections for all other series will be
determined on each business day and allocated to the Series 2000-1
Certificates to the extent of any Principal Shortfall. If shared
principal collections for all series are less than the principal
shortfalls for all series that provide for allocations of shared
principal collections from other series, shared principal collections
from other series will be allocable to shortfalls for the
S-17
<PAGE> 21
Series 2000-1 Certificates and any other series that so provides pro
rata based on the relative amounts of each series' principal shortfall.
The portion of Investor Principal Collections in excess of the amount
required to be allocated to the Series Principal Account to be available for
required principal distributions on the Series 2000-1 Certificates as described
in this prospectus supplement is referred to as "Shared Principal Collections."
Thus, Shared Principal Collections for any business day during the Revolving
Period will equal Investor Principal Collections (because no amounts are then
required to be set aside for distributions of principal on the Series 2000-1
Certificates), and for any due period during the Accumulation Period or any
Early Amortization Period, will equal the excess, if any, of Investor Principal
Collections over the amount required to be deposited in the Series Principal
Account pursuant to paragraph (1) of the principal waterfall above.
The extent to which Investor Principal Collections for a business day are
insufficient to make the required allocations to the Series Principal Account is
referred to as the "Principal Shortfall." Thus, the Principal Shortfall for any
business day during the Accumulation Period (an "Accumulation Period Principal
Shortfall") will equal the excess, if any, of the Series 2000-1 Controlled
Deposit Amount over the amount of Investor Principal Collections deposited in
the Series Principal Account on that business day when added to the amount of
Investor Principal Collections previously deposited in the Series Principal
Account during that due period, or during any Early Amortization Period will
equal the excess, if any, of the Invested Amount (reduced by amounts on deposit
in the Series Principal Account and the aggregate amount of Series Principal
Account Losses for the distribution period in which that business day occurs)
over Investor Principal Collections.
On each business day during an Early Amortization Period, Available
Seller's Principal Collections will be deposited in the Liquidity Reserve
Account to the extent the Available Subordinated Amount as of the end of the
immediately preceding transfer date exceeds the amount of funds on deposit in
the Liquidity Reserve Account. The amounts required to be deposited pursuant to
the preceding sentence shall be reduced by the amount of Available Seller's
Finance Charge Collections deposited in the Liquidity Reserve Account on that
business day. Any remaining Available Seller's Principal Collections shall be
deemed "Remaining Available Seller's Principal Collections" and included in
Shared Seller Principal Collections as provided below.
On each business day during the Revolving Period or the Accumulation
Period, Shared Seller Principal Collections, if any, and shared principal
collections for any other series that provides for shared seller principal
collections shall be determined on each business day and allocated to the
following priority:
(1) to Series 2000-1 Certificates to the extent of any Accumulation Period
Principal Shortfall and to any other series to the extent that series
provides for the use of shared seller principal collections for
principal shortfalls;
(2) to the Excess Funding Account to the extent necessary to maintain the
Seller's Interest at an amount equal to (or, in the discretion of the
Seller, greater than) the Minimum Seller's Interest;
(3) in the discretion of the Seller, to make payments on the principal
balance of any variable funding certificates; and
(4) to the Seller as holder of the Seller's Certificates.
If shared seller principal collections for all series, including Shared
Seller Principal Collections, are less than the shortfalls for which shared
seller principal collections may be used, including any Accumulation Period
Principal Shortfall, then those shared seller principal collections will be
allocated to all shortfalls, including any Accumulation Period Principal
Shortfall, pro rata based on the relative amounts of each shortfall.
On each business day during any Early Amortization Period, all Excess
Seller's Principal Collections, all Remaining Available Seller's Principal
Collections and all shared principal collections not allocated to
S-18
<PAGE> 22
principal shortfalls shall be allocated and paid to the Seller or deposited in
the Excess Funding Account to the extent necessary to maintain the Seller's
Interest at an amount equal to (or, in the Seller's discretion, greater than)
the Minimum Seller's Interest.
If on any distribution date during an Early Amortization Period after the
application of all funds to be allocated or distributed on that date the amount
equal to the excess, if any, of (x) the Invested Amount over (y) the amount in
the Series Principal Account (the "Early Amortization Period Shortfall Amount")
is less than or equal to the aggregate amount of funds contained in the
Liquidity Reserve Account, then funds shall be withdrawn from the Liquidity
Reserve Account in an amount equal to the Early Amortization Period Shortfall
Amount and shall be deposited in the Series Principal Account for payment of
principal to the certificateholders.
Limited Subordination of Seller's Interest; Spread Account; Liquidity
Reserve Account. The right of the holder of the Seller's Certificates to
receive payments in respect of the Seller's Interest is subordinated to the
interests of the Series 2000-1 Certificates to the extent of the Available
Subordinated Amount. The Available Subordinated Amount will initially be 9.00%
of the Invested Amount. The Available Subordinated Amount will decrease as funds
otherwise allocable to the Seller's Interest are used to pay interest, servicing
fees and absorb dealer note losses with respect to the Series 2000-1
Certificates. If the Available Subordinated Amount falls below the Required
Subordinated Amount for any transfer date, an Early Amortization Event will
occur.
The trustee will establish and maintain an Eligible Deposit Account (the
"Spread Account") in the name of the trustee for the benefit of the Series
2000-1 Certificateholders. As described above, the Spread Account is available
to supplement Available Certificateholder Interest Collections, excess interest
collections from other series allocable to the Series 2000-1 Certificates and
Available Seller's Finance Charge Collections. Monies in the Spread Account will
be invested in Eligible Investments. After the earliest of (1) the payment in
full of the Invested Amount, and (2) the commencement of an Early Amortization
Period, any funds remaining on deposit in the Spread Account will be distributed
to the Seller. On any transfer date prior to the earlier of (1) the payment in
full of the Invested Amount and (2) the Series Termination Date, if the amount
in the Spread Account is less than the Projected Spread, the trustee will
deposit the amount of such deficiency (the "Spread Account Deposit Amount"), to
the extent available from Available Certificateholder Interest Collections,
excess interest collections from other series and Available Seller's Finance
Charge Collections, in the Spread Account as described above in "Available
Certificateholder Interest Collections." See "The Seller and the Trust -- The
Trust" in the prospectus. During an Early Amortization Period, the trustee will
deposit all funds in the Spread Account into the Liquidity Reserve Account.
Upon the occurrence of an Early Amortization Event, the trustee will
establish and maintain an Eligible Deposit Account (the "Liquidity Reserve
Account") in the name of the trust. After the commencement of an Early
Amortization Period, Available Seller's Principal Collections that would
otherwise be paid to the Seller will be deposited in the Liquidity Reserve
Account, until the amount on deposit is equal to the Available Subordinated
Amount, in order to assure a source of Available Draw Funds. The Seller will
possess all right, title and interest in all funds on deposit in the Liquidity
Reserve Account, except that no funds in that account will be paid to the Seller
during an Early Amortization Period if the payment would reduce the funds in the
Liquidity Reserve Account below an amount equal to the Available Subordinated
Amount.
CERTIFICATEHOLDER CHARGE-OFFS
If, for any transfer date, the Available Subordinated Amount equals or is
reduced to zero (after giving effect to the allocations, distributions,
withdrawals and deposits to be made on that transfer date) and the Deficiency
Amount is greater than zero (as reduced by all the allocations, distributions,
withdrawals and deposits to be made on that transfer date), the Invested Amount
will be reduced by the Deficiency Amount, but not by more than the Investor
Dealer Note Losses for the related due period remaining unreimbursed after all
applications of funds or reductions of the Available Subordinated Amount
described in this prospectus supplement (a "Certificateholder Charge-Off"). Any
such reduction shall be applied
S-19
<PAGE> 23
first to reduce the Class B Invested Amount (a "Class B Certificateholder
Charge-Off") but not below zero, and then to reduce the Class A Invested Amount
(a "Class A Certificateholder Charge-Off") but not below zero. As of any
transfer date, Certificateholder Charge-Offs for all prior transfer dates will
be considered unreimbursed unless those amounts are reimbursed. Unreimbursed
Certificateholder Charge-Offs will be reimbursed on any subsequent transfer date
out of Available Certificateholder Interest Collections, excess interest
collections from other series allocable to the Series 2000-1 Certificates and,
to the extent available therefor, Available Draw Funds. To the extent so
reimbursed, Certificateholder Charge-Offs will no longer be considered
unreimbursed, and the Invested Amount will be reinstated to the extent any
Certificateholder Charge-Offs are reimbursed. Any such reimbursement shall be
applied first to the Class A Invested Amount until all previously unreimbursed
Class A Certificateholder Charge-Offs have been reimbursed and then to the Class
B Invested Amount until all previously unreimbursed Class B Certificateholder
Charge-Offs have been reimbursed. See "-- Allocation of Collections -- Available
Certificateholder Interest Collections."
DISTRIBUTIONS TO SERIES 2000-1 CERTIFICATEHOLDERS
On the business day immediately preceding each distribution date (the
"transfer date"), the servicer will instruct the trustee to transfer to the
Distribution Account specified funds on deposit in the Series Principal Account
and, to the extent provided in this prospectus supplement, the Collections
Account. The servicer will instruct the trustee to make, without duplication,
the following distributions from the Distribution Account. All of these
transfers and distributions will be made after allocations, if any, to the
Series Principal Account for that distribution date have been made.
(1) Interest Distributions. On each distribution date (including the
Expected Principal Payment Date), monthly interest will be distributed
first, to the Class A Certificateholders and second, to the Class B
Certificateholders as accrued interest on the Series 2000-1
Certificates. To the extent any interest is due but not distributed on
any distribution date, that amount will be distributed on the
following distribution date, along with, to the extent permitted by
law, interest at the Class A Certificate Rate or Class B Certificate
Rate, as applicable, on that amount.
(2) Expected Principal Payment Date. On the Expected Principal Payment
Date, in addition to the amount described in (1) above, amounts on
deposit in the Series Principal Account will be distributed as
principal, first to the holders of the Class A Certificates up to a
maximum of the Class A Invested Amount on that distribution date and,
second, to the holders of the Class B Certificates up to a maximum of
the Class B Invested Amount on that distribution date.
(3) Early Amortization Period. Except as otherwise provided in this
prospectus supplement, on each distribution date related to a due
period occurring during an Early Amortization Period, in addition to
the amount described in (1) above, amounts on deposit in the Series
Principal Account will be distributed as principal, first to the
holders of the Class A Certificates up to a maximum of the Class A
Invested Amount on that distribution date and, second, to the holders
of the Class B Certificates up to a maximum of the Class B Invested
Amount on that distribution date.
RATINGS OF THE CERTIFICATES
We will not issue the Series 2000-1 Certificates unless the Class A
Certificates are rated in the highest long-term rating category by each of
Moody's Investors Service, Inc. and Standard & Poor's Ratings Services and the
Class B Certificates are rated "A2" by Moody's Investors Service, Inc. and "A-"
by Standard & Poor's Ratings Services. The rating of a class of the Series
2000-1 Certificates addresses the likelihood of the timely payment of interest
at the Class A Certificate Rate or Class B Certificate Rate, as applicable, and
the ultimate payment of principal by the Series Termination Date on that class
of certificates. However, a rating agency does not evaluate, and the rating of a
class of certificates does not address, the likelihood that the outstanding
principal amount of that class of certificates will be paid on the Expected
Principal Payment Date or the likelihood of the payment of any additional
interest. A rating is not a recommendation to buy, sell or hold securities,
because the rating
S-20
<PAGE> 24
does not comment as to the market price or the suitability for a particular
investor. We cannot assure that a rating will remain for any given period of
time or that a rating will not be lowered or withdrawn entirely by a rating
agency if, in its judgment, future circumstances warrant a rating change.
EARLY AMORTIZATION EVENTS
An "Early Amortization Event" for Series 2000-1 Certificates refers to any
of the following events:
(1) the trust becomes an "investment company" within the meaning of
the Investment Company Act of 1940, as amended, and is not exempt from
compliance with that Act;
(2) the Invested Amount is not reduced to zero by the Expected
Principal Payment Date;
(3) the United States government or any government agency or
instrumentality files a notice of a lien under Internal Revenue Code sec.
6323 or any similar statutory provision (including, but not limited to,
302(f) or sec. 4068 of ERISA) on the assets of Navistar Financial or the
Seller which is or may in the future be prior to the lien of the trustee on
the assets of the trust (including without limitation proceeds of the
dealer notes);
(4) failure on the part of the Seller (a) to make any payment,
distribution or deposit required under the pooling and servicing agreement
on the date due or within five business days after the due date or (b) to
observe or perform in any material respect any other material covenants or
agreements of the Seller, which continues unremedied for a period of 60
days after written notice of that failure shall have been given to the
Seller;
(5) any representation or warranty made by the Seller in the pooling
and servicing agreement or any information contained in the schedule of
dealer notes delivered to the trust shall prove to have been incorrect in
any material respect when made or when delivered, which representation,
warranty or schedule, or the circumstances or condition that caused that
representation, warranty or schedule to be incorrect, continues to be
incorrect or uncured in any material respect for a period of 60 days after
written notice of that incorrectness shall have been given to the Seller
and as a result of which the interests of the Series 2000-1
Certificateholders are materially and adversely affected. However, an early
amortization event shall not be deemed to occur if the Seller has
repurchased the related dealer notes or all dealer notes, if applicable,
during that period in accordance with the provisions of the pooling and
servicing agreement;
(6) the Seller shall become legally unable for any reason to transfer
dealer notes to the trust in accordance with the provisions of the pooling
and servicing agreement;
(7) on any transfer date, the Available Subordinated Amount for that
transfer date will be reduced to an amount less than the Required
Subordinated Amount;
(8) any Servicer Termination Event shall occur which would have a
material adverse effect on the Series 2000-1 Certificateholders and the
servicer has received a notice of termination;
(9) the delivery by the Seller to the trustee of a notice stating that
the Seller will no longer continue to sell dealer notes to the trust
beginning on the date specified in that notice;
(10) on three consecutive determination dates, the "Average Coverage
Differential" (which is the average of the highest three of the four most
recent Coverage Differentials) shall be equal to or less than negative two
percent (-2.00%);
(11) at the end of any due period, the Seller's Interest is reduced to
an amount less than the Minimum Seller's Interest and the Seller has failed
to assign additional dealer notes or cash to the trust in the amount of
that deficiency within ten business days following the end of that due
period;
(12) on any determination date, the Turnover is less than 1.7;
(13) on any determination date, the quotient of (a) the sum of Dealer
Note Losses for each of the related due periods and the five immediately
preceding due periods and (b) the sum of principal
S-21
<PAGE> 25
collections for each of the related due periods and the five immediately
preceding due periods, is greater than or equal to 1.0%;
(14) the occurrence of specified events of bankruptcy, insolvency or
receivership relating to the Seller, Navistar Financial Corporation,
International Truck and Engine Corporation or Navistar International
Corporation;
(15) failure on the part of International to make a deposit in the
Interest Deposit Account required by the terms of the Interest Deposit
Agreement on or before the date occurring five business days after the date
that deposit is required by the Interest Deposit Agreement to be made; and
(16) on any distribution date, as of the last day of the related due
period, the aggregate principal balance of dealer notes owned by the trust
which were advanced against financed vehicles which are used vehicles
exceeds 25% of the aggregate principal balance of all dealer notes owned by
the trust.
Upon the occurrence of an Early Amortization Event described in clause (3),
distributions on the Invested Amount will begin on the first distribution date
occurring after the occurrence of such Early Amortization Event. Upon the
occurrence of any other Early Amortization Event, distributions on the Invested
Amount will begin on the first distribution date occurring after the end of the
due period in which such Early Amortization Event occurred.
REPORTS TO SERIES 2000-1 CERTIFICATEHOLDERS
On each distribution date, the paying agent will forward to each Series
2000-1 Certificateholder (which is expected to be Cede as nominee for DTC unless
definitive certificates are issued) a statement prepared by the servicer and
delivered to the trustee based on information provided by the servicer setting
forth, among other things, the following information (which, in the case of
(3),(4), (5), (8), (9), and (11) below, will be stated on the basis of an
original principal amount of $1,000 per Series 2000-1 Certificate):
(1) the aggregate amount of collections, including the aggregate
amount of finance charge collections and the aggregate amount of principal
collections for the related due period;
(2) the Series Allocation Percentage, the Floating Allocation
Percentage and the Principal Allocation Percentage (if applicable) for the
related due period;
(3) the total amount, if any, to be distributed on the Class A
Certificates and the Class B Certificates on that distribution date;
(4) the amount, if any, of the distribution allocable to the Invested
Amount, the Class A Invested Amount and the Class B Invested Amount;
(5) the amount, if any, of the distribution allocable to interest on
the Class A Certificates and the Class B Certificates;
(6) Dealer Note Losses and Investor Dealer Note Losses for the related
due period;
(7) the Draw Amount as of the related transfer date, if any;
(8) the amount of the Certificateholder Charge-Offs, Class A
Certificateholder Charge-Offs, Class B Certificateholder Charge-Offs and
the amount of reimbursements on each as of the related transfer date;
(9) the amount of the Investor Servicing Fee to be paid on that
distribution date;
(10) the Series 2000-1 Controlled Deposit Amount for the related due
period;
(11) the Invested Amount, the Class A Invested Amount and the Class B
Invested Amount (after giving effect to all distributions that will occur
on that distribution date);
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<PAGE> 26
(12) the aggregate amount of dealer notes and funds on deposit in the
Excess Funding Account as of the end of the last day of the related due
period (after giving effect to payments and adjustments made pursuant to
the pooling and servicing agreement);
(13) the Available Subordinated Amount (after giving effect to draws
thereon on that distribution date);
(14) with respect to Eligible Investments in the Series Principal
Account, the Excess Funding Account and the Liquidity Reserve Account, a
listing of all of these investments as of the last day of the related due
period, including specified information with respect thereto;
(15) the dealers with the five largest aggregate outstanding principal
amounts of dealer notes in the trust as of the end of the related due
period;
(16) the aggregate outstanding principal amount of dealer notes issued
to finance each of OEM vehicles and used vehicles as of the end of the
related due period;
(17) the percentages and other information necessary to determine
whether an Early Amortization Event has occurred;
(18) the amount of Excess Interest Collections and Investor Principal
Collections treated as Shared Principal Collections, each for the related
due period, and the amount of such Excess Interest Collections and Shared
Principal Collections allocated to other series; and
(19) the amount of Remaining Available Seller's Principal Collections,
the amount of Excess Seller's Principal Collections and Remaining Available
Seller's Principal Collections treated as Shared Seller Principal
Collections, the aggregate amount of shared seller principal collections
from other series, and the amount of shared seller principal collections
allocated to the Series 2000-1 Certificates and to other series.
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<PAGE> 27
OTHER SERIES ISSUED BY THE TRUST
The table below describes the principal characteristics of the other series
of investor certificates issued by the trust which are outstanding on the date
of this prospectus supplement.
<TABLE>
<S> <C>
SERIES 1995-1
Certificate Rate............................................ LIBOR + 0.30%
Closing Date................................................ June 8, 1995
Expected Payment Date....................................... August 25, 2004
Initial Invested Amount..................................... $200,000,000
Number of classes within Series............................. One
Ordinary means of principal repayment....................... Accumulation Period
Primary source of credit enhancement........................ Subordination
Series Termination Date..................................... August 25, 2007
Servicing Fee Percentage.................................... 1%
Subordinated Percentage..................................... 15.5%
SERIES 1997-1
Certificate Rate............................................ LIBOR + 0.15%
Closing Date................................................ August 19, 1997
Expected Payment Date....................................... August 25, 2003
Initial Invested Amount..................................... $200,000,000
Number of classes within Series............................. One
Ordinary means of principal repayment....................... Accumulation Period
Primary source of credit enhancement........................ Subordination
Series Termination Date..................................... August 25, 2006
Servicing Fee Percentage.................................... 1%
Specified Accumulation Period Commencement Date............. November 1, 2002
Subordinated Percentage..................................... 15.5%
SERIES 1998-1
Certificate Rate............................................ LIBOR + 0.16%
Closing Date................................................ July 17, 1998
Expected Payment Date....................................... July 25, 2008
Initial Invested Amount..................................... $200,000,000
Number of classes within Series............................. One
Ordinary means of principal repayment....................... Accumulation Period
Primary source of credit enhancement........................ Subordination
Series Termination Date..................................... July 25, 2011
Specified Accumulation Period Commencement Date............. October 1, 2007
Servicing Fee Percentage.................................... 1%
Subordinated Percentage..................................... 15.5%
SERIES 2000-VFC
Certificate Rate............................................ Floating, cost of
funds
plus a margin
Closing Date................................................ January 28, 2000
Expected Payment Date....................................... January 26, 2001, if
not extended by
agreement
Maximum Invested Amount..................................... $300,000,000
Current Invested Amount..................................... $300,000,000
Number of classes within Series............................. One
Ordinary means of principal repayment....................... Amortization Period
Primary source of credit enhancement........................ Subordination
Series Termination Date..................................... 36 months after
Expected Payment
Date
Servicing Fee Percentage.................................... 1%
Subordinated Percentage..................................... 15.5%
</TABLE>
The Seller expects that after the closing date for the Series 2000-1
Certificates, the maximum invested amount of the Series 2000-VFC may be reduced
and the invested amount of the Series 2000-VFC may be reduced. The invested
amount may thereafter be increased up to the maximum or be further reduced.
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<PAGE> 28
PLAN OF DISTRIBUTION
Subject to the terms and conditions contained in an underwriting agreement,
the Seller has agreed to sell to Banc of America Securities LLC, as the
underwriter (the "Underwriter"), and the underwriter has agreed to purchase from
the Seller, all of the Series 2000-1 Certificates.
The Seller has been advised that the underwriter proposes initially to
offer the Series 2000-1 Certificates to the public at the public offering prices
set forth on the cover page of this prospectus supplement, and to certain
dealers at such prices less a selling concession not in excess of the percentage
set forth below for each class of certificates. The underwriter may allow, and
such dealers may reallow to certain other dealers, a subsequent concession not
in excess of the percentage set forth below for each class of certificates.
After the initial public offering, the public offering price and such
concessions may be changed.
<TABLE>
<CAPTION>
SELLING UNDERWRITING
CONCESSION REALLOWANCE DISCOUNT
---------- ----------- ------------
<S> <C> <C> <C>
Class A Certificates............................... 0.150% 0.120% 0.250%
Class B Certificates............................... 0.180% 0.144% 0.300%
</TABLE>
In order to facilitate the offering of the Series 2000-1 Certificates, the
underwriter may engage in transactions that stabilize, maintain or otherwise
affect the price of the Series 2000-1 Certificates. Specifically, the
underwriter may overallot in connection with the offering, creating a short
position in the Series 2000-1 Certificates, the underwriter may bid for, and
purchase, the Series 2000-1 Certificates in the open market. Any of these
activities may stabilize or maintain the market price of the Series 2000-1
Certificates above independent market levels. The underwriter is not required to
engage in these activities, and may end any of these activities at any time.
The Seller does not intend to apply for listing of the Series 2000-1
Certificates on a national securities exchange. The underwriter intends to make
a secondary market in the Series 2000-1 Certificates but has no obligation to do
so. No one can assure that a secondary market for the Series 2000-1 Certificates
will develop or, if it does develop, that it will continue or that it will
provide holders of the Series 2000-1 Certificates with a sufficient level of
liquidity of, or trading markets for, the Series 2000-1 Certificates.
In the ordinary course of its business, the underwriter and its affiliates
have engaged and may in the future engage in commercial banking or investment
banking transactions with affiliates of the Seller, including the Seller's
parent, Navistar Financial Corporation.
The Seller and Navistar Financial Corporation have agreed to indemnify the
underwriter against specified liabilities including liabilities under the
Securities Act of 1933 and to contribute to payments the underwriter may be
required to make under the Securities Act of 1933.
As discussed under "Use of Proceeds," the Seller intends to use all or a
portion of the net proceeds of the sale of the Series 2000-1 Certificates to
repay amounts outstanding on the Series 2000-VFC Certificate issued by the trust
and held by a special purpose entity administered by an affiliate of the
Underwriter.
LEGAL MATTERS
In addition to the legal opinions described in the prospectus, specified
legal matters relating to the Series 2000-1 Certificates will be passed upon for
the underwriter by Mayer, Brown & Platt.
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<PAGE> 29
GLOSSARY
"Accumulation Period" is defined on page S-14.
"Accumulation Period Commencement Date" means the first day of the nth full
due period prior to the Expected Principal Payment Date where n is the number of
due periods in the Accumulation Period Length; provided, however, that the
Accumulation Period Commencement Date shall be the Specified Accumulation Period
Commencement Date if, on the Specified Accumulation Period Commencement Date,
any other outstanding series shall have entered into an investment period or an
early amortization period; and provided further that, if the Accumulation Period
Length and the Accumulation Period Commencement Date have been determined
previously but the Accumulation Period has not commenced and any other
outstanding series shall enter into an investment period or any early
amortization period, the Accumulation Period Commencement Date shall be the date
that the outstanding series shall have entered into an investment period or an
early amortization period.
"Accumulation Period Length" means a period which is between one and nine
due periods and which is determined by the servicer in its sole discretion on or
prior to the first day of the due period which is ten months prior to the due
period related to the distribution date which is the expected principal payment
date.
"Accumulation Period Principal Shortfall" is defined on page S-18.
"Available Certificateholder Interest Collections" is defined on page S-15.
"Available Draw Funds" is defined on page S-17.
"Available Seller's Finance Charge Collections" for any due period means an
amount equal to the product of:
(1) the excess of (a) the Seller's Percentage for that due period over (b)
the result (if positive) of the Excess Seller's Percentage for that due
period minus the Required Excess Seller Interest Percentage; and
(2) Series Allocable Finance Charge Collections for that due period,
except that Available Seller's Finance Charge Collections shall be zero
for any due period to the extent the Available Subordinated Amount
equals or is reduced to zero on the transfer date related to that due
period.
"Available Seller's Principal Collections" for any business day means an
amount equal to the product of:
(1) the excess of (a) the Seller's Percentage for the due period in which
such business day occurs over (b) the Excess Seller's Percentage for
that due period; and
(2) Series Allocable Principal Collections for that due period, except
that Available Seller's Principal Collections shall be zero for any
business day to the extent the Available Subordinated Amount equals or
is reduced to zero on the transfer date immediately preceding that
business day.
"Available Subordinated Amount" is defined in the glossary of the
prospectus.
"Average Coverage Differential" is defined on page S-21.
"Certificateholder Charge-Off" is defined on page S-19.
"Class A Certificate Rate" is defined on page S-13.
"Class A Certificateholder Charge-Off" is defined on page S-20.
"Class A Certificateholders" is defined on page S-13.
"Class A Initial Invested Amount" means $200,000,000.
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<PAGE> 30
"Class A Invested Amount" means, with respect to any distribution date, the
Class A Initial Invested Amount minus the sum of:
(1) the aggregate amount of payments of principal in respect of the Class
A Certificates paid to the Class A Certificateholders on or prior to
that distribution date,
(2) the aggregate amount of Class A Certificateholder Charge-Offs and not
reimbursed on or prior to that distribution date, and
(3) the aggregate amount of Class A Principal Account Losses allocated to
the Class A Certificates on or prior to that distribution date.
"Class A Monthly Interest" means the product of (1) the Class A Certificate
Rate, (2) the Class A Invested Amount (calculated without giving effect to any
decrease as a result of clauses (2) or (3) of the definition thereof) and (3)
the actual number of days in the distribution period divided by 360.
"Class A Principal Account Losses" means, with respect to any distribution
date, the amount of Series Principal Account Losses since the prior distribution
date that are not Class B Principal Account Losses, but not more than the amount
that would reduce the Class A Invested Amount to zero.
"Class B Certificate Rate" is defined on page S-13.
"Class B Certificateholder Charge-Off" is defined on page S-20.
"Class B Certificateholders" is defined on page S-13.
"Class B Principal Account Losses" means, with respect to any distribution
date, the amount of Series Principal Account Losses since the prior distribution
date, but not more than the amount that would reduce the Class B Invested Amount
to zero.
"Class B Initial Invested Amount" means $12,000,000.
"Class B Invested Amount" means, with respect to any distribution date, the
Class B Initial Invested Amount minus the sum of:
(1) the aggregate amount of payments of principal in respect of the Class
B Certificates paid to the Class B Certificateholders on or prior to
that distribution date,
(2) the aggregate amount of Class B Certificateholder Charge-Offs and not
reimbursed on or prior to that distribution date, and
(3) the aggregate amount of Class B Principal Account Losses allocated to
the Class B Certificates on or prior to that distribution date.
"Class B Monthly Interest" means the product of (1) the Class B Certificate
Rate, (2) the Class B Invested Amount (calculated without giving effect to any
decrease as a result of clauses (2) or (3) of the definition thereof) and (3)
the actual number of days in the distribution period divided by 360.
"Collections Account" is defined on page 35 of the prospectus.
"Coverage Differential" means, with respect to any due period, the result
of (a) the annualized percentage yield on the dealer notes for such due period
minus (b) the sum of (1) the Weighted Average Certificate Rate for the related
distribution period and (2) one percent (1.0%). Coverage Differential shall be
expressed as a percentage, and shall be rounded to the nearest one-hundredth of
a percentage point.
"Dealer Note Collections" is defined in the glossary of the prospectus.
"Dealer Note Losses" is defined in the glossary of the prospectus.
"Deficiency Amount" is defined on page S-16.
"Distribution Account" is defined on page 35 of the prospectus.
S-27
<PAGE> 31
"Draw Amount" means the least of (a) the Deficiency Amount, (b) the
Available Subordinated Amount as of the end of the preceding transfer date and
(c) Available Draw Funds for that transfer date.
"Early Amortization Event" is defined on page S-21.
"Early Amortization Period" is defined in the glossary of the prospectus.
"Early Amortization Period Shortfall Amount" is defined on page S-19.
"Eligible Deposit Account" is defined in the glossary of the prospectus.
"Eligible Investments" is defined in the glossary of the prospectus.
"Excess Funding Account" is defined on page 35 of the prospectus.
"Excess Interest Collections" is defined on page S-16.
"Excess Seller's Percentage" for any due period means a percentage (not
less than 0% nor more than 100%) equal to the Seller's Percentage minus the
percentage equivalent (not less than 0% nor more than 100%) of a fraction,
(1) the numerator of which is the Available Subordinated Amount as of the
end of the related transfer date; and
(2) the denominator of which is the product of
(x) the sum of the aggregate principal amount of dealer notes and
aggregate principal amount of funds on deposit in the Excess
Funding Account as of the end of the immediately preceding due
period and
(y) the Series Allocation Percentage for the due period for which the
Excess Seller's Percentage is being calculated.
"Excess Seller's Principal Collections" for any business day during a due
period means the product of:
(1) Series Allocable Principal Collections for that business day; and
(2) the Excess Seller's Percentage for that due period.
"Expected Principal Payment Date" means June 27, 2005.
"Finance Charge Collections" is defined in the glossary of the prospectus.
"Floating Allocation Percentage" for Series 2000-1 for any due period is
equal to the percentage equivalent (which shall not exceed 100%) of a fraction,
the numerator of which is the Invested Amount as of the immediately preceding
distribution date and the denominator of which is the product of
(1) the sum of the aggregate principal amount of dealer notes in the trust
and the aggregate principal amount of funds in the Excess Funding
Account as of the end of the preceding due period and
(2) the Series Allocation Percentage for the due period for which the
Floating Allocation Percentage is being calculated.
"Fully Funded Date" is defined on page 21 of the prospectus.
"Initial Invested Amount" means the sum of the Class A Initial Invested
Amount and the Class B Initial Invested Amount.
"Interest Deposit Account" is defined on page 15 of the prospectus.
"Interest Deposit Agreement" is defined on page 15 of the prospectus.
"International" means International Truck & Engine Corporation.
S-28
<PAGE> 32
"Invested Amount" means, for any distribution date, the sum of the Class A
Invested Amount and the Class B Invested Amount.
"Investment Income" means, for any due period, the sum of:
(1) income (net of investment expenses and losses) from the investment of
funds on deposit in the Series Principal Account, the Spread Account
and the Distribution Account, and
(2) the Series Allocation Percentage of income (net of investment expenses
and losses) from the investment of funds on deposit in the Collections
Account and the Excess Funding Account.
"Investor Dealer Note Losses" is defined on page S-15.
"Investor Finance Charge Collections" is defined on page S-15.
"Investor Principal Collections" is defined on page S-15.
"Investor Servicing Fee" means, for any due period, the Floating Allocation
Percentage of the Series Allocable Servicing Fee for that due period.
"LIBOR" means the interest rate determined by the trustee in accordance
with the following provisions:
(1) On each LIBOR Determination Date, LIBOR will be determined on the
basis of the offered rates for deposits in United States Dollars
having a one month maturity, which appear on the Reuters Screen LIBO
Page as of 11:00 A.M., London time, on that LIBOR Determination Date.
These posted offered rates are for value on the second business day
after which dealings in deposits in United States Dollars are
transacted in the London interbank market. If at least two of these
offered rates appear on the Reuters Screen LIBO Page, the rate for
that LIBOR Determination Date will be the arithmetic mean (rounded, if
necessary, to the nearest one hundred-thousandth of a percent) of
these offered rates as determined by the trustee. If fewer than two
offered rates appear, LIBOR for that LIBOR Determination Date will be
determined as if the parties had specified the rate described in (2)
below.
(2) On any LIBOR Determination Date on which fewer than two offered rates
appear on the Reuters Screen LIBO Page as specified in (1) above,
LIBOR will be determined on the basis of the rates at which deposits
in United States Dollars are offered by the Reference Banks at
approximately 11:00 A.M., London time, on that LIBOR Determination
Date to prime banks in the London interbank market, having a one month
maturity, those deposits commencing on the second London business day
immediately following that LIBOR Determination Date and in a principal
amount of not less than U.S. $1,000,000 that is representative for a
single transaction in that market at that time. The trustee will
request the principal London office of each of those Reference Banks
to provide a quotation of its rate. If at least two of those
quotations are provided, LIBOR for that LIBOR Determination Date will
be the arithmetic mean (rounded, if necessary, to the nearest one
hundred-thousandth of a percent) of those quotations. If fewer than
two quotations are provided, LIBOR for that LIBOR Determination Date
will be the arithmetic mean (rounded, if necessary, to the nearest one
hundred-thousandth of a percent) of the rates quoted by three major
banks in The City of New York selected by the trustee at approximately
11:00 A.M., New York City time, on that LIBOR Determination Date for
loans in United States Dollars to leading European banks, having a one
month maturity, those loans commencing on the second London business
day immediately following that LIBOR Determination Date and in a
principal amount of not less than U.S. $1,000,000 that is
representative for a single transaction in that market at that time,
provided, however, that if the banks in The City of New York selected
as aforesaid by the Trustee are not quoting as mentioned in this
sentence, LIBOR with respect to that LIBOR Determination Date will be
LIBOR in effect immediately prior to that LIBOR Determination Date.
S-29
<PAGE> 33
"LIBOR Determination Date" means, for any distribution period, the date
which is two London business days prior to the start of that distribution
period, which for the initial distribution period is July 11, 2000.
"Liquidity Reserve Account" is defined on page S-19.
"Maximum Subordinated Amount" for the Series 2000-1 Certificates means the
product of:
(1) the Invested Amount; and
(2) the Subordinated Percentage,
except that upon the occurrence of an Early Amortization Event, the Maximum
Subordinated Amount shall not decline until the Invested Amount equals the
Maximum Subordinated Amount, and thereafter the Maximum Subordinated Amount will
equal the Invested Amount.
"Minimum Seller's Interest" is defined in the glossary of the prospectus.
"Minimum Series Seller's Interest" means, with respect to any business day,
the sum of (a) the Available Subordinated Amount as of the end of the preceding
transfer date and (b) the Required Excess Seller Interest as of the end of the
preceding distribution date.
"New Vehicle Monthly Interest Rate" means, for any due period, the product
of:
(1) the per annum rate of interest and finance charges billed by Navistar
Financial during that due period on dealer notes financing new
vehicles; and
(2) the quotient of:
(a) the number of days during that due period, and
(b) the actual number of days in the related calendar year.
"OEM Supplier" is defined on page 28 of the prospectus.
"OEM vehicle" is defined on page 10 of the prospectus.
"Principal Allocation Percentage" for the Series 2000-1 Certificates for
any due period occurring during the Accumulation Period or any Early
Amortization Period is equal to the percentage equivalent of a fraction, the
numerator of which is the Invested Amount at the end of the last day of the
Revolving Period and the denominator of which is equal to the product of:
(1) the sum of the aggregate amount of dealer notes in the trust and the
aggregate principal amount of funds in the Excess Funding Account as of
the end of the last day of the Revolving Period, and
(2) the Series Allocation Percentage for the due period for which the
Principal Allocation Percentage is being calculated.
"Principal Shortfall" is defined on page S-18.
"Projected Dealer Note Income" means, on any transfer date, an amount equal
to the sum of:
(1) the product of:
(a) the principal amount of dealer notes financing new vehicles
outstanding on that transfer date,
(b) the New Vehicle Monthly Interest Rate for the due period in which
that transfer date occurs, and
(c) the Series Allocation Percentage for that due period;
and
S-30
<PAGE> 34
(2) the product of:
(a) the principal amount of dealer notes financing used vehicles
outstanding on that transfer date,
(b) the Used Vehicle Monthly Interest Rate for that due period, and
(c) the Series Allocation Percentage for that due period.
"Projected Monthly Interest" means, on any transfer date with respect to
the distribution period immediately following that transfer date, an amount
equal to the sum of:
(1) the product of:
(A) the Class A Certificate Rate for the distribution period immediately
following that transfer date,
(B) the Class A Invested Amount (calculated without giving effect to
clauses (b) and (c) of the definition thereof) as of that transfer
date, and
(C) the result of (i) the actual number of days in the immediately
following distribution period divided by (ii) 360, and
(2) the product of:
(A) the Class B Certificate Rate for the distribution period
immediately following that transfer date,
(B) the Class B Invested Amount (calculated without giving effect to
clauses (b) and (c) of the definition thereof) as of that transfer
date, and
(C) the result of (i) the actual number of days in the immediately
following distribution period divided by (ii) 360.
"Projected Monthly Servicing Fee" means, on any transfer date with respect
to the due period in which that transfer date occurs, an amount equal to
one-twelfth of the product of (1) 1%, (2) the aggregate principal amount of
dealer notes as of that transfer date, (3) the Series Allocation Percentage for
the due period related to that transfer date and (4) the Floating Allocation
Percentage for the due period related to that transfer date.
"Projected Spread" means, on any transfer date with respect to the
distribution period next following the distribution period to which that
transfer date relates, the sum of:
(1) the positive amount, if any, by which
(a) the sum of Projected Monthly Interest for that distribution period
and the Projected Monthly Servicing Fee for the due period in which
that transfer date occurs;
exceeds
(b) the Projected Dealer Note Income as of that transfer date; and
(2) 1.25% of the Invested Amount as of the preceding distribution date.
"Reference Banks" means the principal London offices of Morgan Guaranty
Trust Company of New York, Swiss Bank Corporation and Barclays Bank PLC.
"Remaining Available Seller's Principal Collections" is defined on page
S-18.
"Required Excess Seller Interest" means, for any business day, 3.0% of the
Invested Amount as of the end of the preceding distribution date.
"Required Excess Seller Interest Percentage" means 3.0%.
S-31
<PAGE> 35
"Required Subordinated Amount" means, for any transfer date, an amount
equal to 79.0% of the Maximum Subordinated Amount as of that transfer date.
"Revolving Period" is defined on page S-14.
"Seller's Certificates" is defined on page 26 of the prospectus.
"Seller's Interest" is defined in the glossary of the prospectus.
"Seller's Percentage" for any due period means 100% minus:
(1) the Floating Allocation Percentage for such due period, when used with
respect to Finance Charge Collections and Dealer Note Losses at all
times and principal collections during the Revolving Period; or
(2) the Principal Allocation Percentage for such due period, when used with
respect to principal collections during the Accumulation Period or any
Early Amortization Period.
"Series 2000-1 Certificateholders" is defined on page S-13.
"Series 2000-1 Certificateholders' Interest" means all allocations to the
Series 2000-1 Certificateholders.
"Series 2000-1 Controlled Amortization Amount" means an amount equal to the
Invested Amount as of the distribution date preceding the Specified Accumulation
Period Commencement Date divided by the Accumulation Period Length.
"Series 2000-1 Controlled Deposit Amount" for any due period occurring
during the Accumulation Period means the excess, if any, of:
(1) the product of the Series 2000-1 Controlled Amortization Amount and the
number of due periods that have occurred with respect to the
Accumulation Period through and including that due period (but not in
excess of the Accumulation Period Length) over
(2) the amount on deposit in the Series Principal Account at the end of the
preceding due period, except that, notwithstanding the foregoing, the
Seller may, in its sole discretion, increase the Series 2000-1
Controlled Deposit Amount at any time and from time to time.
"Series 2000-1 Supplement" is defined on page S-13.
"Series Allocable Dealer Note Losses" is defined on page 36 of the
prospectus.
"Series Allocable Finance Charge Collections" is defined on page 36 of the
prospectus.
"Series Allocable Principal Collections" means, with respect to any
business day, the sum of (a) the product of (1) the Series Allocation Percentage
for the related due period and (2) the amount of principal collections deposited
in the Collections Account on that business day and (b) if the Accumulation
Period Commencement Date occurs on that business day, the product of (1) the
Series Allocation Percentage for that due period and (2) the amount of funds on
deposit in the Excess Funding Account on the Accumulation Period Commencement
Date.
"Series Allocable Servicing Fee" equals, for each due period occurring
prior to the earlier of the first distribution date following the Series
Termination Date and the first distribution date on which the Invested Amount is
zero, an amount equal to one-twelfth of the product of (1) 1%, (2) the aggregate
principal amount of dealer notes outstanding as of the last day of that due
period, and (3) the Series Allocation Percentage for that due period.
"Series Allocation Percentage" is defined in the glossary of the
prospectus.
"Series Principal Account" is defined on page 20 of the prospectus.
"Series Principal Account Losses" means losses of principal on investment
funds in the Series Principal Account.
S-32
<PAGE> 36
"Series Termination Date" means June 25, 2008.
"Servicer Termination Event" is defined on page 34 of the prospectus.
"Shared Principal Collections" is defined on page S-18.
"Shared Seller Principal Collections" means on each business day:
(1) during the Revolving Period, all Available Seller's Principal
Collections and all Excess Seller's Principal Collections and
(2) during an Accumulation Period, all Remaining Available Seller's
Principal Collections and all Excess Seller's Principal Collections.
There shall be no Shared Seller Principal Collections during an Early
Amortization Period.
"Specified Accumulation Period Commencement Date" means September 1, 2004.
"Spread Account" is defined on page S-19.
"Spread Account Deposit Amount" is defined on page S-19.
"Subordinated Percentage" means 9.0%.
"transfer date" is defined on page S-20.
"Turnover" means, on any determination date, the quotient of (1) the
product of (a) the sum of Dealer Note Collections for each of the related due
period and the two immediately preceding due periods and (b) four divided by (2)
the daily average principal amount of dealer notes outstanding during such due
periods.
"Underwriter" is defined on page S-25.
"Used Vehicle Monthly Interest Rate" means, for any due period, the product
of:
(1) the per annum rate of interest and finance charges billed by Navistar
Financial during that due period on dealer notes financing used
vehicles;
and
(2) the quotient of:
(a) the number of days during that due period,
and
(b) the actual number of days in the related calendar year.
"Weighted Average Certificate Rate" means, for any distribution date, the
sum of:
(1) the Class A Certificate Rate, multiplied by a fraction, the numerator
of which is the Class A Invested Amount and the denominator of which
is the Invested Amount;
and
(2) the Class B Certificate Rate, multiplied by a fraction, the numerator
of which is the Class B Invested Amount and the denominator of which
is the Invested Amount.
"Wholesale Portfolio" is defined on page S-6.
S-33
<PAGE> 37
PROSPECTUS
NAVISTAR FINANCIAL DEALER NOTE MASTER TRUST
DEALER NOTE ASSET BACKED CERTIFICATES
---------------------------
NAVISTAR FINANCIAL SECURITIES CORPORATION
SELLER
---------------------------
NAVISTAR FINANCIAL CORPORATION
SERVICER
---------------------------
<TABLE>
<S> <C>
BEFORE YOU PURCHASE ANY OF THE TRUST--
THE CERTIFICATES, YOU - may periodically issue asset backed certificates in one
SHOULD CONSIDER CAREFULLY or more series
THE RISK FACTORS BEGINNING
ON PAGE 4 IN THIS - will own--
PROSPECTUS.
- dealer notes arising from a portfolio of revolving floor
The sole source of plan financing agreements with retail truck, bus and trailer
payments on the dealers
certificates is the assets
of the trust. The - payments due on those dealer notes
certificates are not
interests in or - other property described in this prospectus and in the
obligations of Navistar prospectus supplement
Financial Securities
Corporation, Navistar - will not own the dealer accounts from which the dealer
Financial Corporation, or notes arise
any other person or
entity. THE CERTIFICATES
- will represent beneficial interests in the trust
This prospectus may be
used to offer and sell any - will be paid only from the assets of the trust
series of certificates
only if accompanied by the - will represent the right to payments in the amounts and
prospectus supplement for at the times described in the prospectus supplement for that
that series. series
- offered by this prospectus will be rated investment grade
by at least one nationally recognized rating agency
- may benefit from one or more forms of credit enhancement
- may be issued as part of a designated series which may
include one or more classes
</TABLE>
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is June 30, 2000
<PAGE> 38
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WHERE TO FIND INFORMATION IN THIS
PROSPECTUS AND THE PROSPECTUS
SUPPLEMENT......................... iii
SUMMARY.............................. 1
The Parties........................ 1
The Certificates................... 1
Assets of the Trust................ 2
Servicing Fees..................... 2
Tax Status......................... 3
ERISA Considerations............... 3
Ratings of the Certificates........ 3
RISK FACTORS......................... 4
THE SELLER AND THE TRUST............. 9
The Seller......................... 9
The Trust.......................... 9
USE OF PROCEEDS...................... 9
THE NAVISTAR FINANCIAL DEALER FLOOR
PLAN FINANCING BUSINESS............ 10
Creation of Dealer Notes........... 10
Credit Approval Process and Credit
Guidelines...................... 10
Payment Terms...................... 12
Billing and Collection
Procedures...................... 13
Dealer Monitoring; Write-Offs...... 13
RELATIONSHIP WITH INTERNATIONAL TRUCK
AND ENGINE CORPORATION............. 15
Interest Deposit Agreements and
Interest Deposit Accounts....... 15
Master Intercompany Agreement...... 16
No Guarantee by International...... 16
Special Price Allowances at
Retail.......................... 16
Floor Plan Financing Assistance.... 17
Open Account....................... 18
DESCRIPTION OF THE INVESTOR
CERTIFICATES....................... 19
General............................ 19
Interest........................... 19
Principal.......................... 20
Book-Entry Registration............ 22
Definitive Certificates............ 25
The Seller's Certificates.......... 26
New Issuances...................... 26
Transfer of Dealer Notes to the
Trust........................... 28
Eligible Dealer Notes.............. 28
Certain Representations and
Warranties; Ineligible Dealer
Notes; Purchase of
Certificateholders' Interest.... 30
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Due Periods; Distribution
Periods......................... 32
Advances........................... 32
The Servicer....................... 32
Trust Accounts; Series Accounts.... 35
Excess Funding Account............. 35
Allocation of Collections.......... 35
Distributions...................... 38
Early Amortization Events.......... 38
Termination; Fully Funded Date..... 38
Reports to Investor
Certificateholders.............. 39
Evidence as to Compliance.......... 40
Indemnification of Trust and
Trustee; Limitation on Liability
of Certain Persons.............. 41
The Trustee........................ 41
Amendments......................... 42
List of Investor
Certificateholders.............. 42
Seller Authorized to File Reports
Pursuant to the Securities Act
and the Securities Exchange
Act............................. 42
Certain Limitations on Rights of
Investor Certificateholders..... 43
Governing Law...................... 43
DESCRIPTION OF THE PURCHASE
AGREEMENT.......................... 44
Daily Sales of Dealer Notes........ 44
Representations and Warranties..... 44
Repurchase Obligations............. 45
Certain Covenants.................. 45
Termination........................ 45
CERTAIN MATTERS RELATING TO
BANKRUPTCY......................... 45
CERTAIN MATTERS RELATING TO THE
DEALER NOTES....................... 46
MATERIAL FEDERAL INCOME TAX
MATTERS............................ 47
General............................ 47
Characterization of the Investor
Certificates as Indebtedness.... 47
Stated Interest on Investor
Certificates.................... 48
Original Issue Discount............ 48
Treatment of Market Discount and
Acquisition Premium............. 49
Disposition of Investor
Certificates.................... 49
Information Reporting and Backup
Withholding..................... 50
Tax Consequences to Foreign
Holders......................... 50
Tax Characterization of the
Trust........................... 51
</TABLE>
i
<PAGE> 39
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
STATE TAX MATTERS.................... 52
General............................ 52
Illinois and New York.............. 52
ERISA CONSIDERATIONS................. 53
PLAN OF DISTRIBUTION................. 55
LEGAL MATTERS........................ 55
GLOSSARY............................. 56
ANNEX I.............................. 63
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GLOBAL CLEARANCE, SETTLEMENT AND TAX
DOCUMENTATION
PROCEDURES......................... 63
Initial Settlement................. 63
Secondary Market Trading........... 63
Certain U.S. Federal Income Tax
Documentation Requirements...... 64
</TABLE>
ii
<PAGE> 40
WHERE TO FIND INFORMATION IN THIS PROSPECTUS
AND THE PROSPECTUS SUPPLEMENT
We provide information to you about the certificates in two separate
documents that provide varying levels of detail:
(1) this prospectus, which provides general information, some of which may
not apply to a particular series of certificates, including your series;
and
(2) the prospectus supplement for a series of certificates, which will
provide financial and other information regarding the pool of
receivables held by the trust and will specify the terms of a particular
series of certificates, including:
- which classes of the series are being offered;
- the timing of interest and principal payments for each class of the
series;
- the priority of interest and principal payments for each class of the
series;
- information about credit enhancement for each class of the series, if
any;
- the ratings for each class of the series; and
- the method for selling each class of the series.
IF THE TERMS OF YOUR SERIES OF CERTIFICATES VARY BETWEEN THIS PROSPECTUS
AND THE PROSPECTUS SUPPLEMENT FOR THAT SERIES, YOU SHOULD RELY ON THE
INFORMATION IN THE PROSPECTUS SUPPLEMENT.
You should rely only on the information provided in this prospectus and the
prospectus supplement for your series of certificates. We have not authorized
anyone to provide you with other or different information. You should not assume
that the information in this prospectus and any prospectus supplement is
accurate on any date other than the dates stated on their respective covers.
We are not offering the certificates in any state where the offer is not
permitted.
You can find definitions of terms frequently used in this prospectus and
references to pages where terms are defined under the caption "Glossary" which
appears at the end of this prospectus.
We include cross-references in this prospectus to captions in this
prospectus where you can find further related discussions.
iii
<PAGE> 41
SUMMARY
This summary highlights selected information from this prospectus and
provides an overview to aid in your understanding of the certificates. It does
not contain all of the information that you need to consider in making your
investment decision. To understand all of the terms of a series of certificates,
carefully read this entire prospectus and the prospectus supplement.
THE PARTIES
Issuer
Navistar Financial Dealer Note Master Trust
Seller
Navistar Financial Securities Corporation, a wholly-owned special purpose
financing subsidiary of Navistar Financial Corporation
Servicer
Navistar Financial Corporation, a wholly-owned subsidiary of International
Truck and Engine Corporation (formerly known as Navistar International
Transportation Corp.)
Trustee
The Bank of New York
THE CERTIFICATES
The trust will issue one or more series of certificates which will be sold
to investors. Each series of investor certificates will contain one or more
classes. The investor certificates offered under this prospectus may include all
or only selected classes from a newly issued series of investor certificates and
may include new or existing classes from a previously issued series of investor
certificates.
The investor certificates represent an undivided beneficial interest in the
trust and the right to receive payments of interest on and the payment of the
principal amount of the certificates to the extent specified in this prospectus
and the prospectus supplement. The offered certificates do not represent
interests in or obligations of and are not insured or guaranteed by Navistar
Financial Corporation, Navistar Financial Securities Corporation or any other
person or entity.
The trust has also issued a certificate, which is currently held by
Navistar Financial Securities Corporation, and may in the future issue
additional certificates that represent the interest in the trust not represented
by the investor certificates. These certificates are subordinate to the investor
certificates to the extent described in this prospectus and are not being
offered under this prospectus.
Interest
Each series or class of investor certificates will have its own interest
rate, which may be fixed, variable, contingent, adjustable or any combination of
these characteristics. The interest rate or the method for determining the
interest rate for a series or class of investor certificates will be specified
in the prospectus supplement for that series.
The trust will pay interest on each series or class of investor
certificates at the times and in the priorities specified in the prospectus
supplement. The sources of funds the trust will use to pay interest to investor
certificateholders will be specified in the prospectus supplement for that
series. These sources will generally include the portion allocated to the series
of:
- finance charge collections on the dealer notes held by the trust;
- income from the investment of specified trust funds;
- any net payments from interest rate swaps, if any; and
- any other amounts described in this prospectus or the prospectus
supplement.
Principal
Each series or class of investor certificates will have a stated principal
amount. The timing, priority of payment, seniority and amount and method of
determining payments of principal on each series or class of investor
certificates will be described in the prospectus supplement. The sources of
funds the trust will use to pay principal will be specified in the prospectus
supplement.
1
<PAGE> 42
These sources will generally include the portion allocated to the series of:
- principal collections on the dealer notes held by the trust;
- all or a portion of the finance charge collections remaining after the
payment of interest;
- available credit enhancement; and
- any other amounts described in this prospectus or the prospectus
supplement.
Generally, each series of investor certificates will have a revolving
period during which no payments of principal are made. During the revolving
period, the trust will generally transfer the collections of principal on the
assets of the trust allocable to that series of investor certificates to the
holders of other series of investor certificates or to Navistar Financial
Securities Corporation as holder of the seller certificate. However, if the
assets of the trust fall below a specified level, the trust will retain these
principal collections and invest them in eligible assets.
The manner in which the trust will apply available funds to the payment of
principal of a series or class of investor certificates after the end of the
revolving period will be specified in the prospectus supplement. Payments of
principal on the investor certificates or any class of investor certificates may
be made:
- in a lump sum on a single date; or
- in installments on specified dates in specified amounts or according to
a specified formula until all outstanding principal has been paid.
Upon the occurrence of specified events, payments of principal of a series
or class of investor certificates may begin earlier than the date specified in
the prospectus supplement. Upon the occurrence of the early amortization events
specified for a series of investor certificates, the trust will apply all funds
allocated to that series available to pay principal to the repayment of the
outstanding principal of the investor certificates of that series. An early
amortization event will likely result in the commencement of the repayment of
principal on the certificates occurring earlier than the date specified in the
prospectus supplement for that series, and may result in delays in the final
payment or reductions in the amount ultimately paid on the investor
certificates.
In addition, the prospectus supplement may specify events upon which the
trust will retain the funds allocated to a series of investor certificates and
invest those funds in eligible investments for payment to the investor
certificateholders on a later date. An investment event may result in delays in
the final payment or reductions in the amount ultimately paid on the investor
certificates.
ASSETS OF THE TRUST
The primary assets of the trust consist of a revolving pool of dealer notes
arising under floor plan financing agreements between Navistar Financial
Corporation and retail dealers to finance their inventories of new and used
trucks, buses and trailers manufactured by International Truck and Engine
Corporation and others. The trust assets also include:
- the interest of Navistar Financial Securities Corporation in any
insurance proceeds from the vehicles securing the dealer notes;
- any interest rate swap, interest rate cap, or other interest rate hedge
that the trust may enter into or obtain for the benefit of any series or
class of investor certificates; and
- amounts on deposit in specified trust accounts maintained for the trust
or for a series or a class of investor certificates.
As new dealer notes arise, Navistar Financial Securities Corporation will
purchase from Navistar Financial Corporation those meeting predetermined
eligibility criteria and transfer them to the trust. Accordingly, the aggregate
amount of dealer notes in the trust will fluctuate from day to day as new dealer
notes are generated and existing dealer notes are paid, charged off as
uncollectible or otherwise adjusted or removed from the trust.
SERVICING FEES
For each series of certificates, the trust will pay the servicer with
respect to that series of investor certificates a monthly fee specified in the
prospectus supplement for servicing the dealer notes.
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<PAGE> 43
TAX STATUS
Kirkland & Ellis, special tax counsel, is of the opinion that for federal
and New York and Illinois state income tax purposes, the investor certificates
will be characterized as indebtedness and the trust will not be characterized as
an association (or publicly traded partnership) taxable as a corporation. Each
investor certificateholder, by the acceptance of a certificate, agrees to treat
the certificates as indebtedness for federal, state and local income and
franchise tax purposes. See "Material Federal Income Tax Matters" and "State Tax
Matters."
ERISA CONSIDERATIONS
If a purchaser of investor certificates is an employee benefit plan and the
assets of the trust were deemed to be "plan assets" of that purchaser, a
prohibited transaction may result under the Employee Retirement Income Security
Act of 1974 and the Internal Revenue Code. Unless certain conditions are
satisfied, we cannot assure you that the assets of the trust will not be deemed
to be "plan assets."
Prior to purchasing any investor certificates on behalf of an employee
benefit plan, the plan fiduciary should determine whether an investment in the
investor certificates is permitted under the documents and instruments governing
the plan. The plan fiduciary should also consult with counsel with respect to
the potential consequences under the Employee Retirement Income Security Act of
1974 and the Internal Revenue Code of the plan's acquisition and ownership of
investor certificates. See "ERISA Considerations."
RATINGS OF THE CERTIFICATES
All of the investor certificates offered by this prospectus will be rated
investment grade by at least one nationally recognized statistical rating
organization. Additional ratings, if any, for a series or class of offered
investor certificates will be set forth in the prospectus supplement.
3
<PAGE> 44
RISK FACTORS
A BANKRUPTCY OF NAVISTAR
FINANCIAL OR THE SELLER MAY
DELAY
OR REDUCE PAYMENTS ON THE
INVESTOR CERTIFICATES Navistar Financial Corporation ("Navistar
Financial") will sell dealer notes to Navistar
Financial Securities Corporation (the "Seller"),
and the Seller will transfer the dealer notes to
the trust. Navistar Financial and the Seller have
taken steps, such as the creation of the Seller as
a special purpose entity, to ensure that the
transactions described in this prospectus are
respected and to reduce the likelihood that the
Seller would voluntarily file for bankruptcy.
However, if Navistar Financial or the Seller were
to become a debtor in bankruptcy, a court could
conclude that the dealer notes transferred to the
trust are not owned by the trust, but rather are
part of the estate of the debtor in bankruptcy. The
court may conclude that the transfer of the dealer
notes from the party in bankruptcy was not really a
sale, but rather a secured financing. The court may
also conclude that the party in bankruptcy and the
owner of the dealer notes should be treated as a
single entity rather than separate entities. If
either of these were to occur, you could experience
delays or reductions in payments on your
certificates as a result of:
- the "automatic stay" provisions of the U.S.
Bankruptcy Code, which prevent creditors from
exercising remedies against a debtor in
bankruptcy, and provisions of the U.S.
Bankruptcy Code that permit substitution of
collateral in specified circumstances;
- any tax or government liens on Navistar
Financial's or the Seller's property that arose
prior to the transfer of dealer notes to the
trust having a right to be paid from collections
on the dealer notes before those collections are
used to make payments on your certificates; and
- the fact that the trust or the trustee may not
have a perfected security interest in the
financed vehicles or cash collections on the
dealer notes held by Navistar Financial at the
time a bankruptcy proceeding begins.
If Navistar Financial or the Seller were to become
a debtor in bankruptcy, the Seller may be able to
recover payments made by it to the trust to
repurchase dealer notes prior to the date of the
bankruptcy petition. This could result in delays or
reductions in payments on your certificates.
In addition, if Navistar Financial, International
Truck and Engine Corporation ("International"), any
of their affiliates, or any of the manufacturers of
the underlying vehicles filed for bankruptcy, the
dealers might respond by delaying or withholding
payments on the dealer notes, even without legal or
contractual justification. This could result in
delays or reductions in payments on your
certificates.
FAILURE OF NAVISTAR
FINANCIAL OR
THE SELLER TO FULFILL ITS
REPURCHASE
OBLIGATIONS MAY ADVERSELY
AFFECT
THE TRUST Navistar Financial, the Seller and their respective
affiliates generally are not obligated to make
payments to you on your certificates and do not
insure or guarantee the payment of the dealer notes
or your certificates. However, Navistar Financial
will make representations and warranties to the
Seller regarding the characteristics of the dealer
notes. The Seller will assign these representations
and warranties to the trust, and the Seller will
make its own representations and
4
<PAGE> 45
warranties to the trust in connection with the
transfer of the dealer notes to the trust. If
Navistar Financial or the Seller breaches its
representations and warranties, and the breach
materially and adversely affects a dealer note or
the interests of the investor certificateholders in
that dealer note, the Seller will be obligated to
repurchase that dealer note from the trust. In that
event, Navistar Financial would be required to
purchase that dealer note from the Seller. If
Navistar Financial fails to repurchase that dealer
note from the Seller, the Seller may not have
adequate funds to repurchase the affected dealer
note from the trust and you may experience delays
or reductions in payments on your certificates. See
"Description of the Investor
Certificates -- Certain Representations and
Warranties; Ineligible Dealer Notes; Purchase of
Investor Certificateholders' Interest."
The trustee has not made, and we do not anticipate
that the trustee will make, any examination of the
dealer notes or the records relating to the dealer
notes for the purpose of establishing compliance
with eligibility requirements, representations and
warranties or any other purpose.
THE TRUST ASSETS ARE
LIMITED TO
THE DEALER NOTES AND
LIMITED
AMOUNTS OF CREDIT
ENHANCEMENT The certificates represent obligations of the trust
only. The sole source of payments on the
certificates are the assets of the trust. The trust
will not have any significant assets or sources of
funds other than the dealer notes, its limited
rights in accounts, and other rights or credit
enhancements as specified in the prospectus
supplement. The certificates are not obligations of
and are not insured or guaranteed by Navistar
Financial, the Seller or any other entity or person
(including any affiliate of Navistar Financial,
International, or the Seller). See "Description of
the Investor Certificates -- Allocation of
Collections."
You must rely primarily on payments on the trust's
dealer notes, funds in the specified accounts and
any other credit enhancements for repayment of your
certificates. In addition, you may have to look to
the proceeds from the repossession and sale of the
collateral that secures defaulted dealer notes and
the proceeds from any recourse against dealers
under the financing agreements. If these sources
are insufficient, you might experience delays or
reductions in payments on your certificates.
THE TRUST DEPENDS ON
NAVISTAR
FINANCIAL AND INTERNATIONAL The trust completely depends on Navistar Financial
as its exclusive source for new dealer notes.
Navistar Financial depends on the ability of
International to sell International vehicles to
dealers in exchange for new dealer notes.
We cannot assure that International will continue
to sell International vehicles at the same rate as
in prior years. Decreased sales could result from
the possibility of declining sales in the trucking
industry generally, strikes, fires or other
unforeseeable events. A significant decline in
International's sales of International vehicles may
cause delays or reductions in payments on your
certificates.
International currently purchases all new
International vehicles that Navistar Financial has
repossessed from terminated dealers. International
pays cash for these vehicles equal to the balance
due on the underlying dealer notes. If
International were to stop purchasing these
repossessed vehicles, the amount of dealer notes
written off as
5
<PAGE> 46
uncollectible could increase. An increase in the
amount of dealer notes written off could result in
losses on your certificates if all sources of
credit enhancement for your certificates were
exhausted. International currently plans to
continue these purchases.
International provides a substantial amount of
floor plan and other financial assistance to
dealers through a number of formal and informal
programs. See "The Navistar Financial Dealer Floor
Plan Financing Business" and "Relationship with
International Truck and Engine Corporation." This
financial assistance often accounts for more than
half of all outstanding interest obligations on the
dealer notes. International deposits the amount of
this assistance in the interest deposit account at
approximately the same time that it gives a dealer
financial assistance. However, sales of
International vehicles could decrease if
International were to discontinue providing
financial assistance to dealers. A reduction in
sales of International vehicles could cause delays
or reductions in payment on your certificates.
Navistar Financial currently services the dealer
notes. If Navistar Financial were to stop acting as
servicer, you could experience delays in payments
on your certificates. Navistar Financial plans to
continue servicing the dealer notes.
THE FAILURE OF DEALERS TO
MAKE
PAYMENTS ON THE DEALER
NOTES
COULD DELAY OR REDUCE
PAYMENTS
ON THE INVESTOR
CERTIFICATES The trust's ability to make payments on the
investor certificates generally depends on
collections from dealers on the dealer notes. The
prospectus supplement will describe past patterns
of dealer payments on similar dealer notes.
The timing of the sale of vehicles is uncertain. It
depends on many economic and social factors that
are beyond the control of Navistar Financial, the
Seller and the trust. Navistar Financial does not
guarantee that dealers will pay on the dealer notes
at the same rate as in the past or in any
particular pattern. If the dealers' ability to pay
on the dealer notes declines for whatever reason,
you might experience delays or reductions in
payments on your certificates.
DEALER NOTES MAY BE
UNSECURED
DUE TO SALES OUT OF TRUST Dealers give Navistar Financial a security interest
in the vehicles they purchase to secure their
obligations under the dealer notes. When the
financed vehicle is sold, Navistar Financial's
security interest in the vehicle generally will
terminate. If the dealer who sold the vehicle fails
to pay Navistar Financial the amount owed on the
dealer notes, the dealer notes will become
unsecured because the buyer generally takes the
vehicle free of the security interest. If the
financed vehicle is sold "out of trust," that is,
sold without the dealer applying the proceeds of
the sale to repay the dealer notes, the trust will
not be able to foreclose on the financed vehicle.
This may result in delays or reductions in payments
on your certificates.
FAILURE OF NAVISTAR
FINANCIAL TO
GENERATE SUFFICIENT NEW
DEALER
NOTES MAY RESULT IN THE
TRUST
HOLDING ASSETS WITH A LOWER
YIELD The trust depends upon Navistar Financial to
generate new dealer notes to replace the dealer
notes that are repaid. In the event that Navistar
Financial is unable to generate sufficient new
dealer notes, or is unable to transfer the dealer
notes it generates because of restrictions in its
financing arrangements or otherwise, the trust may
be required to hold cash or investment securities
rather than dealer notes. The yield on cash or
investment securities may be lower than the yield
on dealer notes. Because the trust's assets are the
sole source of payments on the certificates, this
could result in delays or
6
<PAGE> 47
reductions in payments on your certificates.
Navistar Financial does not guarantee that it will
continue to generate dealer notes at historical
rates. The following events could negatively impact
Navistar Financial's ability to generate new dealer
notes:
- A decline in the manufacture and sale of trucks
and trailers due to an economic downturn, a
labor disruption, competitive pressure, or other
factors
- A change in vehicle distribution practices
- A change in dealer inventory management
practices
- A change in the interest rates charged by
Navistar Financial to dealers
- A change in the amounts of the credit lines or
other terms offered by Navistar Financial to
dealers
- Defaults on accounts by dealers
- Termination of dealer franchises
- Dealers becoming insolvent or filing for
bankruptcy
- Seasonal fluctuations in the sale of vehicles
DEALER CONCENTRATION MAY
RESULT
IN LARGER LOSSES FROM A
SINGLE
DEALER DEFAULT As of April 30, 2000, Navistar Financial provided
wholesale financing to 327 of International's
domestic dealers. Of these dealers, 100 are
expected to account for approximately 75% of the
dealer notes. As a result of this level of dealer
concentration, the financial failure of any single
dealer could adversely affect the
certificateholders. In order to reduce the
potential impact of the financial failure of any
single large dealer on the trust, each dealer is
subject to a concentration limit (the
"Concentration Limit"). The concentration limit
prohibits the trust from holding dealer notes from
a single dealer in excess of the greater of the
following:
(1) $4,000,000; or
(2) 2.0% of the sum of the aggregate principal
balance of dealer notes and the aggregate
principal amount of funds on deposit in the
excess funding account in the trust.
THE ISSUANCE OF ADDITIONAL
SERIES
OF INVESTOR CERTIFICATES
COULD
ADVERSELY IMPACT THE TRUST We expect the trust to issue additional series of
investor certificates in the future. We will
deliver a supplement to the trustee in connection
with the issuance of other series which will
describe the principal terms of the series. The
principal terms may include:
- methods for determining applicable allocation
percentages and allocating collections;
- provisions creating different or additional
security or other credit enhancement;
- provisions creating different classes of
certificates, including subordinated classes of
certificates; and
- any other amendment or supplement to the pooling
and servicing agreement which is applicable only
to that series.
A new supplement will not change the terms of your
certificates or the terms of the pooling and
servicing agreement as applied to your certificates
except to the extent that such change would be
permitted
7
<PAGE> 48
as an amendment accomplished without the consent of
certificateholders. See "Description of the
Investor Certificates -- New Issuances" and
"-- Amendments." As long as any investor
certificates are outstanding, the applicable rating
agencies must confirm that they will not lower or
withdraw the rating on any series of investor
certificates before we can execute a supplement and
issue the new series. We call this requirement the
rating agency condition.
The rating agency condition is intended to protect
against an adverse effect on the investor
certificates. However, the terms of any other
series might have an impact on the timing or amount
of payments on certificates. The issuance of
additional series could reduce excess interest
collections which would otherwise be available to
your series. For example, the additional series
might have a higher interest rate or swap floating
rate than your series of certificates.
An additional series could also create a longer
accumulation period or early amortization period
for your series. For example, an additional series
could have an expected payment date that would
require it to be in an accumulation period at the
same time as your series, or an additional series
could enter an early amortization period at the
same time as your series. Further, the issuance of
an additional series will reduce the Seller's
interest in the trust. A lower Seller's interest
could increase the possibility that a shortfall in
the amount of available dealer notes in the trust
would require funds to be retained in the trust and
invested in short-term eligible investments in
order to maintain the required minimum Seller's
interest in the trust. Increased holdings of
eligible investments in the trust will reduce the
overall portfolio yield of the trust, which could
cause delays or reductions in payments on your
certificates.
Upon written request, the Seller will provide to
you the prospectus or other document describing or
summarizing the salient terms of any subsequently
issued series. This document will describe the
events which could result in the commencement of an
early amortization event or investment period with
respect to that series.
INTERNATIONAL'S ABILITY TO
CHANGE
TERMS OF DEALER NOTES COULD
ADVERSELY IMPACT THE TRUST International may change the terms governing new
dealer notes at any time so long as any change is
made on a non-discriminatory basis. The trust is
obligated to acquire only eligible dealer notes,
which include those dealer notes with an interest
rate:
- based on the prime rate or another benchmark
floating interest rate; and
- subject to adjustment at least monthly.
We cannot assure that the interest rate on dealer
notes will always exceed the interest rate on the
certificates. Failing to maintain an appropriate
spread between the interest rate on dealer notes
and the interest rate on the certificates may cause
delays or reductions in payments on your
certificates.
8
<PAGE> 49
THE SELLER AND THE TRUST
THE SELLER
Navistar Financial Securities Corporation, or the Seller, was incorporated
in the State of Delaware on September 13, 1990. The Seller was organized for the
limited purpose of purchasing dealer notes from Navistar Financial and
transferring those dealer notes to third parties. The Seller's executive offices
are located at 2850 W. Golf Road, Rolling Meadows, IL, telephone (847) 734-4000.
THE TRUST
The trust was formed in accordance with the laws of the State of Illinois
pursuant to the "pooling and servicing agreement." The assets of the trust
include:
- the outstanding dealer notes that have been transferred to the trust,
all monies due or to become due and all proceeds of the dealer notes;
- the interest of the Seller in the security interests in the financed
vehicles related to the dealer notes and all proceeds of those security
interests;
- the interest of the Seller in any amounts recovered by the servicer from
any casualty insurance policies covering any dealer with respect to
financed vehicles (the "Insurance Proceeds");
- any interest rate swap, interest rate cap or other interest rate hedge
entered into or obtained by the trustee for the benefit of any series;
and
- all funds on deposit in specified accounts of the trust, including funds
on deposit in the Series Principal Account, the Distribution Account,
any spread account, the Excess Funding Account, the Interest Deposit
Account and any other Series Account created under a supplement to the
pooling and servicing agreement associated with the investor
certificates of a series.
On each business day during the term of the trust, Navistar Financial
generally sells dealer notes to the Seller and the Seller transfers those dealer
notes to the trust based on criteria provided in the pooling and servicing
agreement. Accordingly, the aggregate amount of dealer notes in the trust
fluctuates from day to day as new dealer notes are generated and as existing
dealer notes are collected, charged off as uncollectible or otherwise adjusted
or removed from the trust.
The trust was formed pursuant to the pooling and servicing agreement for
these and similar transactions. Prior to formation, the trust had no assets or
obligations. The trust has not engaged and will not engage in any business
activity other than:
- acquiring and holding the dealer notes and the other assets of the trust
described in this prospectus and proceeds from those assets,
- issuing investor certificates of any series or class, and
- issuing the Seller's Certificate.
USE OF PROCEEDS
Except as provided in the prospectus supplement, the net proceeds from the
sale of the offered investor certificates will be paid to the Seller. The Seller
will use those proceeds (net of any amounts retained in the Excess Funding
Account to maintain the Seller's Interest at least equal to the Minimum Seller's
Interest) to repay indebtedness to Navistar Financial incurred by the Seller in
connection with the Seller's purchase of dealer notes from Navistar Financial
prior to the related closing date. The Seller incurs this indebtedness under a
Master Revolving Credit Agreement between Navistar Financial and the Seller (the
"Master Revolving Credit Agreement"). Interest accrues on the outstanding
principal amount of the note representing this indebtedness (the "Master
Revolving Note") at a rate per annum equal to the prime rate of interest
announced from time to time by Morgan Guaranty Trust Company of New
9
<PAGE> 50
York. The principal amount of the Master Revolving Note is due and payable on
the date on which the purchase agreement terminates in accordance with its
terms. Navistar Financial will use the proceeds received from the Seller to
repay outstanding short term indebtedness.
THE NAVISTAR FINANCIAL DEALER FLOOR PLAN FINANCING BUSINESS
Wholesale promissory notes issued by dealers to International or Navistar
Financial are conveyed to the trust by the Seller under the pooling and
servicing agreement. When used in this prospectus, unless the context otherwise
requires, "dealer notes" refers to those dealer notes which are held by the
trust. The dealer notes are issued by dealers to purchase new vehicles or
trailers manufactured or distributed by International or its affiliates (we call
these "International vehicles") or other manufacturers (we call these "OEM
vehicles") or to finance new trailers, used vehicles and used trailers accepted
in trade by dealers or purchased by them (we call these "financed vehicles").
As of April 30, 2000, Navistar Financial was the principal source of
"wholesale" or "floor plan" financing for approximately 327 dealers in the
United States. The percentage of new International vehicles sold directly to
dealers in the United States for which Navistar Financial provided financing was
approximately 96% for the first six months of fiscal years 1999 and 2000, and
96%, 95%, 94%, 94% and 93% for fiscal years 1999, 1998, 1997, 1996 and 1995,
respectively. Dealers financed by Navistar Financial include medium duty truck,
heavy duty truck and/or bus dealers and a small number of allied equipment
manufacturers (such as school bus distributors and manufacturers or its
affiliates and distributors of cement mixers) who purchase chassis or other
truck components from International or its affiliates. Navistar Financial
services the dealers through its home office located in Rolling Meadows,
Illinois and through five district finance offices located throughout the United
States.
CREATION OF DEALER NOTES
Navistar Financial finances 100% of the wholesale invoice price of new
financed vehicles, including destination charges. In the case of International
vehicles, International creates a wholesale note upon shipment of each new truck
to a dealer and executes that wholesale note under the signature authority of
the dealer granted to International. Navistar Financial purchases all wholesale
notes relating to new International vehicles from dealers financed by Navistar
Financial on a daily basis from International, as described in "Relationship
With International Truck and Engine Corporation."
Navistar Financial creates wholesale notes with respect to OEM vehicles
upon Navistar Financial's receipt of an invoice from the vehicle manufacturer
and executes those wholesale notes under the signature authority of the dealer
granted to Navistar Financial. Navistar Financial finances 75% of the as-is
appraised retail value of used vehicles taken in trade by a dealer or purchased
by a dealer from outside sources, and 100% of the purchase price for used
vehicles purchased by a dealer from an International Used Truck Center and at
100% of the Navistar Financial appraised value for repossessed vehicles
purchased from Navistar Financial. Used vehicles represented approximately 6% of
the aggregate amount of wholesale notes serviced by Navistar Financial as of
April 30, 2000 and 1999, and 6%, 7%, 8%, 8% and 7% of the aggregate amount of
wholesale notes serviced by Navistar Financial as of October 31, 1999, 1998,
1997, 1996 and 1995, respectively. Navistar Financial will continue to purchase
from International wholesale notes issued by a dealer for new International
vehicles and to provide floor plan financing to a dealer for OEM vehicles and
used vehicles so long as the dealer agreement of that dealer is in effect and
that dealer satisfies Navistar Financial's credit guidelines. See "-- Credit
Approval Process and Credit Guidelines" and "-- Dealer Monitoring; Write-Offs."
CREDIT APPROVAL PROCESS AND CREDIT GUIDELINES
Navistar Financial provides floor plan financing to dealers based upon
pre-established credit guidelines ("Credit Guidelines"). Navistar Financial must
approve each prospective dealer before that dealer receives a dealer agreement.
10
<PAGE> 51
Navistar Financial bases its approval upon a credit evaluation of the
principal owners of a prospective dealer and that dealer's capital structure. In
conducting a credit evaluation, representatives of Navistar Financial's district
finance office will conduct interviews with prospective dealer principal(s),
obtain credit applications and personal financial statements, review "letters of
intent" provided by management of the prospective dealership and review existing
business plans and proposed funding sources for the purchase and/or financing of
the prospective dealership (which proposals generally include pro forma
financials for the following three to five years). In addition, Navistar
Financial will obtain both personal and business credit references and will
evaluate any available credit bureau reports.
If a prospective dealer is approved by Navistar Financial, the dealer and
International enter into a dealer agreement and International offers the dealer
wholesale floor plan terms approved by Navistar Financial. The principal owner
of the dealer is generally required by Navistar Financial to guarantee the
dealer's obligations to International and Navistar Financial. Pursuant to the
dealer agreement, in order to secure all indebtedness of the dealer to Navistar
Financial or International, the dealer grants to Navistar Financial and
International a first priority security interest in its inventory of new and
used vehicles. Generally, the dealer also grants Navistar Financial a security
interest in its service parts inventory. Navistar Financial maintains a master
physical damage insurance policy providing coverage for each financed vehicle
with Harco National Insurance Company ("Harco"), a wholly owned subsidiary of
Navistar Financial. The policy provides coverage to Navistar Financial and the
related dealer on all financed vehicles for the actual cash value of each
financed vehicle up to an aggregate amount of $17 million per contiguous dealer
location for each loss occurrence. Harco maintains reinsurance with financially
strong, non-affiliated reinsurers for any loss in excess of $250,000 per
occurrence. The policy has been endorsed to provide that the seller and the
trustee are loss payees as their interests may appear.
Navistar Financial establishes a base inventory guideline to provide floor
plan financing adequate for a dealer's normal vehicle sales. The inventory
guidelines are based upon the dealer's financial strength, its current credit
and collection history and the dealer's historical or projected sales volume.
Navistar Financial reviews a dealer's guideline at least annually.
Each month, the Navistar Financial corporate office staff and the
appropriate district finance office compare each dealer's prescribed inventory
guideline with the aggregate principal amount of wholesale notes actually issued
by that dealer and outstanding. If the amount of notes outstanding exceeds the
dealer's guideline by a certain percentage (the percentage is based upon the
dealer's financial strength rating), the Navistar Financial district credit
manager may place the dealer on inventory control. In addition, a dealer may
also be placed on inventory control if
- the dealer fails to remit proceeds as agreed,
- if the dealer's new or used vehicle inventory is over-aged,
- if the dealer's open account is past due, or
- if a dealer's check is returned unpaid.
Once any dealer is placed on inventory control, the district finance office
will report monthly to Navistar Financial's home office management any progress
made to resolve the deficiency. Upon its review, Navistar Financial's corporate
office management will take appropriate actions with respect to that dealer. For
example, International may be requested to sell and transfer specified truck
inventory to another dealer. In extreme cases, Navistar Financial may foreclose
on all outstanding wholesale notes, place the dealer on cash-on-delivery terms
or terminate the dealer.
Dealers that are placed on inventory control will not receive Navistar
Financial financing for shipments unless specifically approved by Navistar
Financial. Accordingly, if International generates a wholesale note to finance
the purchase of an International vehicle by a dealer on inventory control
without the prior approval of Navistar Financial, Navistar Financial will charge
International for the amount of that wholesale note. Navistar Financial may
approve shipments to a dealer on inventory control to fill orders for trucks
that have already been sold to a retail purchaser or to permit the dealer to
stock a
11
<PAGE> 52
particular model vehicle. A dealer will remain on inventory control until the
circumstances that caused it to be placed on inventory control are remedied to
the satisfaction of the district finance office credit manager. Navistar
Financial will not purchase the invoice or set up a floor plan note for OEM
vehicles if a dealer is in default or shipment is otherwise not approved by
Navistar Financial.
The following table shows the percentage of dealers on inventory control
and the percentage of the total wholesale note balances of those dealers as of
the end of the fiscal quarters specified:
<TABLE>
<CAPTION>
PERCENTAGE OF NOTES
FISCAL QUARTER PERCENTAGE OF DEALERS FROM DEALERS ON
ENDING LAST DAY OF ON INVENTORY CONTROL INVENTORY CONTROL
------------------ --------------------- -------------------
<S> <C> <C>
Fiscal Year 2000
January.............................................. 1.5% 0.2%
April................................................ 2.1 0.3
Fiscal Year 1999
January.............................................. 0.6 0.1
April................................................ 0.9 0.3
July................................................. 1.2 0.3
October.............................................. 2.1 0.5
Fiscal Year 1998
January.............................................. 0.9 1.2
April................................................ 0.6 1.7
July................................................. 0.6 0.2
October.............................................. 0.6 0.2
Fiscal Year 1997
January.............................................. 0.8 1.6
April................................................ 0.8 1.6
July................................................. 0.9 1.3
October.............................................. 0.9 1.5
Fiscal Year 1996
January.............................................. 2.1 1.1
April................................................ 1.6 2.0
July................................................. 1.9 2.6
October.............................................. 1.6 2.1
Fiscal Year 1995
January.............................................. 2.9 4.9
April................................................ 2.2 0.9
July................................................. 2.6 1.6
October.............................................. 2.3 1.4
</TABLE>
A key component in Navistar Financial's credit approval system is the
dealer's equity position. In the event that a dealer is put on inventory control
due to low equity, then its removal from inventory control is dependent upon
increasing its sales and profits over the period of time necessary to rebuild
its equity.
PAYMENT TERMS
A wholesale note issued by a dealer for a new financed vehicle is due on
the earlier of the sale of the truck or a specified date generally within 12
months from the first day of the calendar month following the date of shipment
of the truck to the dealer. If the note is not paid at the end of the 12-month
period, the dealer may extend the term of the note for 90 days in exchange for a
quarterly curtailment payment equal to 10% of the original balance of the note.
These curtailment payments and 90-day extensions are permitted until the balance
of the note is paid in full or until the unit is sold, as long as the dealer
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<PAGE> 53
maintains its floor plan financing arrangements with Navistar Financial and the
underlying financed vehicle has not been sold and delivered to the customer.
Navistar Financial may, in its discretion, waive any curtailment payment.
A wholesale note secured by a used vehicle is due on the earlier of the
sale of the financed vehicle or a specified date generally no later than 180
days from the date of financing. A dealer is allowed to extend quarterly the
term of a used vehicle wholesale note for 90-day periods upon payment of a
curtailment amount equal to 10% of the original principal balance of the
wholesale note, as long as the vehicle is in dealer inventory. These extensions
may continue until the note is paid in full. Navistar Financial may, in its
discretion, waive any curtailment payment.
Currently, Navistar Financial charges interest on wholesale notes
outstanding during any month at a rate equal to the prime rate plus a designated
spread. The prime rate is currently reset monthly by Navistar Financial based
upon the reference banks' prime rate as of the third Monday of the preceding
month and is applied to all balances outstanding during the applicable period.
Wholesale notes secured by new vehicles generally bear interest at a spread
equal to 1% over the prime rate, while used vehicle wholesale notes generally
bear interest at a spread equal to 1 1/2% over the prime rate.
The competitive rate environment is changing the pricing of dealer floor
plan financing. Upon giving notice to the dealers, International or Navistar
Financial may change the reference rate mechanism in any manner -- for example,
by changing the reference banks, the intervals between which the reference rate
is reset or the reference rate itself -- or the applicable spread(s).
In addition, Navistar Financial may offer special pricing programs to
dealers who enroll in those programs. Navistar Financial is currently offering
the Advantage program which allows an enrolled dealer to obtain discounts based
on the volume and finance market share of retail finance and lease business
generated by that dealer. A dealer can earn rebates that effectively reduce its
base floor plan financing charges by up to 100 basis points. Additional pricing
actions may be taken by Navistar Financial to meet competition in their market
area.
Navistar Financial also currently charges each dealer a monthly charge,
called the flat charge, equal to 0.065% of the dealer's aggregate outstanding
wholesale note balance as of the end of each month, subject to specified monthly
minimum charges. Under some rebate programs a dealer may reduce its flat charges
by up to 50%. Upon giving notice to the dealers, International or Navistar
Financial may change the flat charge percentage.
BILLING AND COLLECTION PROCEDURES
An open account statement, which describes interest and flat charges and
other billing and account information, is prepared by Navistar Financial and
distributed on a monthly basis to each dealer. Each dealer's open account
statement is generated on approximately the second business day of the month,
and payments are due on the fifteenth day of the month in which they are billed.
Interest and flat charges are billed in arrears. Dealers remit interest payments
by check or electronic funds transfer to a lockbox owned by Navistar Financial.
See "Relationship with International Truck and Engine Corporation -- Open
Account."
Each dealer's monthly open account statement also contains a "Wholesale
Note and Inventory Statement" prepared by Navistar Financial, listing each
outstanding note issued by the dealer and detailing all credits and debits
applied to each wholesale note during the period. Dealers are required to remit
principal payments on wholesale notes when due by check or electronic funds
transfer to Navistar Financial's lockbox.
DEALER MONITORING; WRITE-OFFS
Navistar Financial finance sales representatives or agents of Navistar
Financial conduct physical inventories of each dealer's inventory on a regular
basis to verify that the dealer is paying its wholesale notes upon receiving
payment for the related financed vehicles from retail customers. Navistar
Financial
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<PAGE> 54
performs these inventories monthly for most dealers, although some dealers with
satisfactory financial strength and good payment histories or with small
dealerships in remote areas are inventoried only every sixty to ninety days. The
timing of each visit is varied and no advance notice is given to the dealer.
Representatives conduct a physical inventory by comparing the serial numbers of
the vehicles on the dealers' premises to a current listing of vehicles being
financed by Navistar Financial. Representatives also confirm with outside
sources such as body shops that they hold units of a dealer's inventory.
Navistar Financial district finance offices perform approximately five test
checks per month to ensure that each finance sales representative's inventory
procedures are proper. Test check procedures are more stringent than inventories
and involve a review of a dealer's remittance habits and financial records and
an evaluation of that dealer's financial strength.
When Navistar Financial discovers that a dealer is suffering financial
difficulties, Navistar Financial's district finance office closely monitors the
dealer while working with the dealer to improve its financial condition. In
these circumstances, Navistar Financial field management personnel may perform a
more detailed audit to verify a dealer's inventory, cash and sales records.
These detailed audits also take place when
- the routine inventory reveals a shortage in a dealer's inventory,
- when Navistar Financial receives from a dealer a check for which the
dealer does not have sufficient funds, or
- when Navistar Financial deems itself insecure.
The dealer is required to make a payment in certified funds of all amounts
owing to Navistar Financial before the Navistar Financial representative leaves
the dealer's premises. If the dealer cannot pay the amount owing to Navistar
Financial, Navistar Financial may place the dealer on cash-on-delivery status
for parts orders, and prohibit future shipment of vehicle orders to the dealer
unless those orders are "sold orders" and specific arrangements are made to
assure prompt receipt of the proceeds by Navistar Financial.
If Navistar Financial's review reveals that a dealer has used proceeds from
vehicle sales due to Navistar Financial for other purposes, the Navistar
Financial district finance office may place the dealer on cash-on-delivery
terms. Navistar Financial causes International to hold all shipments to the
dealer and sends letters to the dealer's guarantors and bank advising them of
Navistar Financial's interest in the dealer's funds. In addition, Navistar
Financial's district finance office management takes certain actions at the
dealership, including obtaining the manufacturer's statement of origin or the
certificate of title for each vehicle in the dealer's inventory.
If a dealer is unable to pay amounts owing to Navistar Financial,
International may terminate that dealer's dealer agreement in accordance with
the terms of the dealer agreement and applicable state law. Generally, in these
circumstances the dealer will return all new trucks and parts inventory to
International in accordance with the terms of the dealer agreement and will
receive credit against the dealer's outstanding wholesale notes. If the dealer
resists termination, however, Navistar Financial will declare the dealer in
default of its obligations, accelerate its wholesale notes and foreclose on its
collateral by taking possession of the dealer's vehicle and parts inventory. If
necessary, Navistar Financial will obtain a court order requiring foreclosure.
The dealer's new vehicle inventory purchased from International is returned to
International in exchange for International's cash payment in full of the
dealer's wholesale notes and the fulfillment of any other obligations owing to
Navistar Financial subject to the terms of the dealer agreement and applicable
state law. Similar arrangements are in effect with other OEM suppliers with
respect to OEM notes. Used vehicles are sold to the highest bidder; the proceeds
are paid to Navistar Financial to satisfy amounts owing to it. Navistar
Financial will seek to collect any remaining amounts it is owed from any other
collateral that it may hold and from the dealer's guarantors.
Once Navistar Financial has commenced liquidating a dealer's inventory, it
writes off any amounts that it identifies as uncollectible. During the course of
a liquidation, Navistar Financial may recognize
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<PAGE> 55
additional losses or recoveries. Collections under a parts security agreement, a
guarantee or other security arrangement are generally allocated to the following
items in the following order:
(1) open account balances, new wholesale note balances, parts note
balances, deficiency balances on used floor plan notes;
(2) dealer retail note deficiencies, retail note recourse obligations, and
finally;
(3) obligations owed to International by the dealer.
Dealer notes secured by new OEM vehicles also are generally foreclosed by
return of these vehicles to the manufacturer in the event of dealer termination.
RELATIONSHIP WITH INTERNATIONAL TRUCK AND ENGINE CORPORATION
International Truck and Engine Corporation manufactures and markets medium
and heavy duty trucks, including school buses, mid-range diesel engines and
replacement parts primarily for sale in the United States and Canada, as well as
selected export markets. International has been manufacturing trucks for
approximately 90 years. It is now the industry market share leader in the North
American combined medium and heavy duty truck market, offering a full line of
diesel-powered products in the common carrier, private carrier,
government/service, leasing, construction, energy/petroleum and student
transportation markets. International also produces mid-range diesel engines for
use in its medium duty trucks, school buses and selected heavy duty truck models
and for sale to original equipment manufacturers. As Navistar Financial is a
wholly owned finance subsidiary of International, the level of Navistar
Financial's floor plan financing activity is substantially dependent on the
level of sales of International and its dealers so that any continuing material
change in International and its dealers may have a corresponding effect on
Navistar Financial's floor plan financing business.
International provides floor plan assistance to dealers through several
formal and informal programs, which are specifically discussed in "-- Special
Price Allowances at Retail" and "-- Floor Plan Financing Assistance." Much of
this assistance is provided at the option of International, which may terminate
any of these optional programs in whole or in part at any time.
INTEREST DEPOSIT AGREEMENTS AND INTEREST DEPOSIT ACCOUNTS
In order to promote the sale of International vehicles, International
periodically grants interest credits to dealers and implements programs pursuant
to which International undertakes to pay, on behalf of the dealers, interest
owing on some of the dealer notes. We refer to these dealer notes as
"non-interest bearing dealer notes." In order to insure that the amount of the
interest owed to the trust will be available, International, the servicer and
the trust have entered into an Interest Deposit Agreement. Pursuant to the
Interest Deposit agreement, International makes weekly deposits into the
Interest Deposit Account in an amount equal to the amount of interest
International has undertaken during that week to pay on behalf of the dealers.
Pursuant to the terms of an interest deposit agreement (the "Interest Deposit
Agreement"), International and the servicer will calculate the ITEC Interest
Amount as of the close of business on Friday (or the immediately preceding
business day if that Friday is not a business day) of each week and as of the
close of business on the last business day of each due period (each, a
"Calculation Day").
If on any Calculation Day the amount on deposit in the Interest Deposit
Account which the trustee has established and maintains for the benefit of the
certificateholders (the "Interest Deposit Account"), including any interest
earned on that account (collectively, the "Deposit Amount"), is less than the
ITEC Interest Amount, International will deposit the amount of the deficiency in
the Interest Deposit Account. However, if on any Calculation Day the Deposit
Amount exceeds the ITEC Interest Amount, the servicer will direct the trustee to
withdraw the excess from the Interest Deposit Account on the business day
following that Calculation Day (the "ITEC Payment Date") and refund that amount
to International.
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<PAGE> 56
MASTER INTERCOMPANY AGREEMENT
The operating relationship between Navistar Financial and International is
governed by a Master Intercompany Agreement dated as of April 26, 1993 and
amended from time to time (the "Master Intercompany Agreement").
Purchase of Notes and Accounts Receivable. The Master Intercompany
Agreement requires that International, with limited exceptions, offer Navistar
Financial all wholesale and retail notes and installment sales contracts which
International acquires in the regular course of its business from sales of
trucks and related equipment to dealers and customers. These offers must be on
terms which will (together with charges made to others for financing services)
afford reasonable compensation for the financing services rendered by Navistar
Financial to International and the dealers with respect to the sale of
International products and used goods. Navistar Financial in turn has agreed, to
the extent that it is able to finance these purchases, that it will purchase all
of these receivables without recourse except those, if any, as to which the risk
of loss is unacceptable to Navistar Financial.
Pursuant to the Master Intercompany Agreement, Navistar Financial also
purchases International wholesale accounts receivable from the dealers arising
out of International's sales of goods (primarily parts) and services to those
dealers. Navistar Financial receives compensation from International in the form
of a floating rate service charge for financing these accounts.
Payments to International for Administrative and Other Services. The
Master Intercompany Agreement provides for payment by Navistar Financial to
International of service fees for data processing and other administrative
services provided by International to Navistar Financial. The amounts of these
service fees are agreed upon periodically, taking into consideration the nature
and costs of those services. Navistar Financial paid International service fees
of $2.6 million, $2.6 million, $2.1 million, $2.4 million and $2.4 million, for
fiscal years 1999, 1998, 1997, 1996, and 1995, respectively.
NO GUARANTEE BY INTERNATIONAL
None of the operating agreements are guarantees by International of the
interest on or principal of the notes, the account balances or any other
obligation of the obligors under the agreements.
SPECIAL PRICE ALLOWANCES AT RETAIL
International may agree with a dealer to pay a portion of the principal
amount of a wholesale note issued by the dealer when the dealer sells the
vehicle financed by that note to a retail customer. These "retail special price
allowances" (in addition to wholesale special price allowances) are intended to
respond to competitive pressures by allowing a dealer to offer a lower price to
a potential customer.
Generally, International will approve a retail special price allowance for
a vehicle held in inventory only when the dealer has identified a potential
buyer. A representative of the dealer applies for the retail special price
allowance over the telephone, at which time a representative of International
asks for certain pertinent information. International will quote the dealer the
retail special price allowance on the telephone and later confirm it on a
computer printout sent to the dealer. Once approved, a retail special price
allowance is only effective for a 60-day period. If the dealer does not sell the
vehicle to the identified customer during that time, the dealer must reapply
for, or seek an extension of, the retail special price allowance.
International is required to remit the amount of a retail special price
allowance to Navistar Financial upon the sale by the dealer of the vehicle
financed by the wholesale note. However, Navistar Financial does not reduce the
principal balance of the wholesale note until it actually receives payment of
the retail special price allowance from International. Although International
has never failed to make such a payment, it is the policy of Navistar Financial
and International that the dealer is obligated to the holder of the wholesale
note for the entire principal amount of the wholesale note until Navistar
Financial receives payment from International. If International becomes
financially unable to continue providing this assistance or otherwise refuses to
follow through with its payment obligations, delays in the payment of
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<PAGE> 57
dealer notes could occur as a result of dealer disputes with Navistar Financial.
In a dispute, a dealer could assert that the outstanding balance of the disputed
dealer note should be reduced by the amount of any credit or deduction
previously approved by International with respect to that dealer note.
The amount of retail special price allowances paid by International in each
month during the period October, 1996 through April, 2000, ranged between a low
of approximately 0.27% and a high of approximately 2.72% of the outstanding
dealer notes during that month.
The amount of retail special price allowances paid by International during
each of the consecutive 12-month periods ending on the last day of each month
from October, 1996 through April, 2000 as a percentage of sales during that
period ranged between a low of approximately 2.31% and a high of approximately
6.55%.
In addition to providing retail special price allowances, International may
also provide wholesale special price allowances to dealers ordering trucks for
inventory. Unlike a retail special price allowance, a wholesale special price
allowance will reduce the invoice price of the truck and the original principal
amount of the wholesale note. Therefore, in contrast to a retail special price
allowance, International has no subsequent principal payment obligation for that
wholesale note.
FLOOR PLAN FINANCING ASSISTANCE
General. International currently has a number of formal and informal floor
plan assistance programs for dealers. International implements these programs in
two ways:
(1) by issuing dealers interest credits to be applied to their monthly
statements, or
(2) by paying wholesale note interest to Navistar Financial on the
dealers' behalf for a specified period of time. In each case, these
programs are agreements between International and the dealers and do
not affect the dealers' obligations on the wholesale notes until
Navistar Financial receives payment of amounts owing to it on the
wholesale notes. International may choose to discontinue or alter
these programs in the future.
Interest Credits. International's floor plan assistance terms currently
provide that, upon issuance of a wholesale note by a dealer, International will
issue a credit (an "Interest Credit") to a dealer's floor plan statement and
then transfer the Interest Credit to the dealer's open account balance in order
to provide the dealer with a specified free interest period for the underlying
financed vehicle. International presently provides a free interest period of 15
days for financed vehicles that the dealer has sold to retail customers, 45 days
for financed vehicles that the dealer intends to hold as inventory and 105 days
for school bus chassis. The Interest Credit is issued when International issues
an invoice for the financed vehicle and is computed at the interest rate in
effect as of that date, taking into account the principal amount of the
wholesale note and the number of days covered by the Interest Credit.
The aggregate amount of Interest Credits is transferred from the dealer's
floor plan statement to its open account balance on a monthly basis. If the
aggregate amount of these credits exceeds the interest charges for the month,
the dealer is entitled to apply the excess to any of its outstanding obligations
to Navistar Financial and International that appear on its open account
statement. The dealer remains obligated to pay interest on the wholesale note to
which the Interest Credit relates.
Pursuant to the Interest Deposit Agreement, International deposits in the
Interest Deposit Account on a weekly basis an amount equal to all Interest
Credits granted by it to dealers during that week. See "-- Interest Deposit
Agreements and Interest Deposit Accounts."
Payment of Interest by International. International's current floor plan
assistance terms also include an agreement by International to pay interest on
behalf of the dealers for the period during which the financed vehicles are in
transit to the dealers. In addition, International periodically implements
special sales programs in which it agrees to pay interest on behalf of the
dealers for extended periods. Pursuant to the Master Intercompany Agreement,
International pays the amount of interest owing on the wholesale notes directly
to Navistar Financial. The dealers are not billed for interest owing on the
wholesale notes for
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<PAGE> 58
the specified period. International will continue to pay interest on a wholesale
note on behalf of a dealer until the first to occur of the end of the specified
time period or the sale of the underlying financed vehicle.
The Interest Deposit Agreement requires International to deposit in the
Interest Deposit Account on a weekly basis an amount equal to the aggregate
amount of interest that International has agreed during that week to pay on
behalf of the dealers, regardless of whether that interest has been earned on
the wholesale notes or if that interest is to be earned in the future.
The following table describes the average monthly amount of Interest
Credits and International interest payments (in millions of dollars) for the
periods ended on the date specified:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
APRIL 30, FISCAL YEAR ENDED OCTOBER 31
----------- --------------------------------
2000 1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Average monthly amount of Interest Credits.... $1.6 $1.3 $1.5 $1.7 $1.4 $1.6 $1.7
Average monthly amount of International
interest payments........................... 3.7 2.9 2.9 2.6 1.6 1.4 1.5
</TABLE>
OPEN ACCOUNT
International sells parts, accessories and other miscellaneous items, and
charges for services provided, to dealers through their open accounts. Dealers
are billed monthly on their open account balances. International also issues
credits to the open account, which include Interest Credits, warranty work
reimbursements, other sales and interest adjustments and miscellaneous credits.
A dealer's monthly open account statement includes Navistar Financial's charge
to the dealer for accrued wholesale note interest. This charge appears as a net
item (which is calculated in the Wholesale Note and Inventory Statement that
accompanies the open account statement), and includes the application of any
Interest Credits issued to the dealer by International. The open account
statement also contains the flat charge billed to the dealer.
The open account billing period is for a calendar month, from the first day
of the month through the last day of the month (we call the calendar month a
"due period"). Navistar Financial issues open account statements on
approximately the second business day following the end of the due period. If a
dealer fails to pay its open account balance by the fifteenth day of the month
following the end of the due period, interest on the balance of the account is
charged retroactively from the beginning of that month until the balance is
paid. The dealer's open account statement is accompanied by Navistar Financial's
Wholesale Note and Inventory Statement, which lists each truck in the dealer's
inventory being financed during the month. The Wholesale Note and Inventory
Statement shows by unit, the amount of interest charged by Navistar Financial
during that month and the amount of interest credits or other adjustments issued
by International. The net interest owed by the dealer after application of
interest credits is shown at the bottom of the Wholesale Note and Inventory
Statement and is also reflected on the dealer's open account statement.
Navistar Financial purchases the aggregate open account balances of all
dealers from International on a non-recourse basis. Navistar Financial's
purchase of open account items occurs during the month as part of the daily,
weekly, or monthly settlements between International and Navistar Financial
pursuant to the Master Intercompany Agreement. Credits due the dealer for
warranty work, floor plan interest reimbursement and other items are netted
against the price paid by Navistar Financial for the aggregate dealer open
account balance.
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<PAGE> 59
DESCRIPTION OF THE INVESTOR CERTIFICATES
GENERAL
The investor certificates will be issued pursuant to the pooling and
servicing agreement dated as of June 8, 1995, among the Seller, Navistar
Financial and the trustee, which has been filed as an exhibit to the
registration statement of which this prospectus is a part. The trustee will make
available for inspection a copy of the pooling and servicing agreement (without
exhibits or schedules) and any supplement to the pooling and servicing agreement
related to a public offering of securities to investor certificateholders
without charge upon written request. The following summary describes certain
terms of the pooling and servicing agreement, but does not purport to be
complete.
The investor certificates will be issued in one or more series. Each series
of investor certificates may contain one or more classes. The investor
certificates offered under this prospectus may include all or only selected
classes from a newly issued series of investor certificates or new or existing
classes from a previously issued series. The investor certificates represent an
undivided beneficial interest in the assets of the trust and the right to
receive payments of interest on and the payment of the principal amount of the
certificates to the extent specified in this prospectus and the prospectus
supplement. The offered certificates do not represent interests in or
obligations of and are not insured or guaranteed by Navistar Financial
Corporation, Navistar Financial Securities Corporation or any other person or
entity.
The offered investor certificates will be available for purchase in the
denominations specified in the prospectus supplement. The Seller will keep or
cause to be kept by a transfer agent (initially the trustee) a register for the
certificates, the certificate register. Unless otherwise designated by the
Seller in writing to the trustee, the certificate register will be maintained at
the corporate trust office of the trustee. The trustee, the paying agent, the
transfer agent, and any agent of any of them may treat the person in whose name
any certificate is registered as the owner of that certificate for all purposes,
including receiving distributions. None of the trustee, the paying agent, the
transfer agent, or any agent of any of them will be affected by any notice to
the contrary.
Distributions on the investor certificates will be made on each
distribution date to the holders of investor certificates in whose names the
investor certificates were registered (expected to be Cede, as nominee of DTC)
at the close of business on the day preceding that distribution date or on such
other dates specified in the prospectus supplement (each, a "Record Date").
However, the final distribution on the investor certificates will be made only
upon presentation and surrender of the investor certificates. Distributions to
DTC will be made in immediately available funds.
INTEREST
Each series or class of investor certificates will have its own interest
rate, which may be fixed, variable, contingent, adjustable or any combination of
these characteristics (the "Certificate Rate"). The Certificate Rate or the
method for determining the Certificate Rate for a series or class of investor
certificates will be specified in the prospectus supplement for that series.
The trust will pay interest on each series or class of investor
certificates at the times and in the priorities specified in the prospectus
supplement. The sources of funds the trust will use to pay interest to investor
certificateholders will be specified in the prospectus supplement for that
series. These sources will generally include the portion allocated to the series
of:
- finance charge collections on the dealer notes held by the trust;
- income from the investment of specified trust funds;
- any net payments from interest rate swaps, if any; and
- any other amounts described in this prospectus or the prospectus
supplement.
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<PAGE> 60
PRINCIPAL
Each series or class of investor certificates will have a stated principal
amount. The timing priority of payment, seniority and amount and method of
determining payments of principal on each series or class of investor
certificates will be described in the prospectus supplement for that series. The
sources of funds the trust will use to pay principal will be specified in the
prospectus supplement. These sources will generally include the portion
allocated to the investor certificates of:
- principal collections on the dealer notes held by the trust;
- all or a portion of the finance charge collections remaining after the
payment of interest;
- available credit enhancement; and
- any other amounts described in this prospectus or the prospectus
supplement.
Revolving Period
Generally, each series of investor certificates will have a revolving
period during which no payments of principal are made (the "Revolving Period").
The Revolving Period begins on the closing date and ends when an Accumulation
Period, Amortization Period, Investment Period, or Early Amortization Period
begins. See "-- Early Amortization Events" and the prospectus supplement for a
discussion of events that might lead to the termination of the Revolving Period
before the beginning of the Accumulation Period or Amortization Period. During
the Revolving Period, principal collections are effectively reinvested in the
trust. This reinvestment enables investor certificateholders to invest in the
trust for a period that is expected to exceed substantially the average maturity
of the dealer notes. During the Revolving Period for any series, the trust will
generally transfer the collections of principal on the assets of the trust
allocable to that series of investor certificates to the holders of other series
of investor certificates or to Navistar Financial Securities Corporation as
holder of the Seller Certificate. However, if the assets of the trust fall below
a specified level, the trust will retain these principal collections and invest
them in eligible assets.
Accumulation Period
If the principal of a series or class of investor certificates is scheduled
to be paid in full on a date specified in the prospectus supplement (for any
series or class, its "Expected Principal Payment Date"), the investor
certificates will have an accumulation period (the "Accumulation Period"). An
Accumulation Period allows for the accumulation of principal in anticipation of
a lump sum payment on the Expected Principal Payment Date. The Accumulation
Period will begin on the date specified in or determined in the manner specified
in the prospectus supplement (the "Accumulation Period Commencement Date") and
will continue until the earliest of:
(1) the beginning of an Early Amortization Period;
(2) the beginning of an Investment Period; and
(3) payment of the Invested Amount of the investor certificates in full.
During the Accumulation Period, Series Principal Collections and other
specified amounts allocable to the investor certificates will be deposited into
a designated trust account (the "Series Principal Account"). The trustee will
use the funds in the Series Principal Account to pay principal to the investor
certificateholders when due. The cumulative amount to be deposited in the Series
Principal Account for any due period during the Accumulation Period may be
limited to an amount specified in the prospectus supplement (the "Controlled
Deposit Amount"). If a series of investor certificates has more than one class,
each class may have a different Accumulation Period, Controlled Deposit Amount
and Expected Principal Payment Date, and the prospectus supplement will describe
any priorities among the various classes for deposits and distributions from the
Series Principal Account.
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<PAGE> 61
Amortization Period
If the principal of a series or class of investor certificates is scheduled
to be paid in installments commencing on a date specified in the prospectus
supplement (the "Principal Commencement Date"), the investor certificates will
have an amortization period (the "Amortization Period"). In this case, the
investor certificateholders will receive payments of principal in installments,
which begin on the Principal Commencement Date. The Amortization Period will
begin on the date specified in or determined in the manner specified in the
prospectus supplement (the "Amortization Period Commencement Date") and will
continue until the earliest of:
(1) the beginning of an Early Amortization Period;
(2) the beginning of an Investment Period; and
(3) payment of the Invested Amount of the investor certificates in full.
The amount payable to investor certificateholders with respect to any
distribution date during the Amortization Period may be limited to a controlled
amortization amount (the "Controlled Amortization Amount"). If a series of
investor certificates has more than one class, each class may have a different
Amortization Period and Controlled Amortization Amount, and the prospectus
supplement will describe any priorities among the various classes for deposits
and distributions of amounts for each class.
Other series of investor certificates issued by the trust may have either
an Accumulation Period or an Amortization Period. These other Accumulation
Periods or Amortization Periods may have different lengths and begin on
different dates. Thus, some series may be in their Revolving Periods, while
others are in periods during which aggregate principal collections are
distributed to, or reserved for, those series having an Accumulation Period or
Amortization Period. In addition, the trust has and may in the future issue
series of variable funding certificates, which may provide for principal
payments during the Revolving Period for these series at the option of the
Seller.
Investment Period
The prospectus supplement for a series of investor certificates will
specify whether the series may have an investment period (an "Investment
Period") and the events which will cause Investment Period to commence
("Investment Events"). If a series of investor certificates has an Investment
Period, unless an Early Amortization Period has commenced and is continuing, the
Investment Period will commence on the date on which an Investment Event occurs
(the "Investment Period Commencement Date") and will continue until the earlier
of:
(1) the beginning of an Early Amortization Period; and
(2) payment of the Invested Amount of the investor certificates in full.
During the Investment Period, the trustee will deposit Series Principal
Collections and other amounts allocable to the investor certificateholders into
the Series Principal Account on the dates specified in the prospectus
supplement. The trust will use funds in the Series Principal Account to pay
principal to the investor certificateholders of a series or class on its
Expected Principal Payment Date. The prospectus supplement may provide for
distributions of principal to investor certificateholders earlier than an
Expected Principal Payment Date (an "Early Distribution Date"). During an
Investment Period, the trust will invest funds held in the Series Principal
Account in Eligible Investments to avoid accelerating the repayment of the
Invested Amount to the investor certificateholders. The amount to be deposited
in the Series Principal Account on any date during an Investment Period will not
be limited to any controlled deposit amount.
On and after the date on which the amount on deposit in the Series
Principal Account for a series of investor certificates is sufficient to pay the
Invested Amount of and interest on the investor certificates of that series and
the satisfaction of any other conditions specified in the prospectus supplement
(the "Fully Funded Date"), the investor certificateholders of that series will
no longer have any interest in the dealer notes. In addition, all of the
representations and covenants of the Seller and the servicer relating to the
dealer notes, as well as certain other provisions of the pooling and servicing
agreement and all remedies for breaches of that agreement, will no longer accrue
to the benefit of those investor certificateholders.
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On and after the Fully Funded Date, the investor certificateholders will
instead have an interest in the funds on deposit in the Series Principal Account
and the other trust accounts and trust assets specified in the prospectus
supplement. In addition, on and after the Fully Funded Date, no finance charge
collections, principal collections or dealer note losses will be allocated to
that series of investor certificates. If the final distribution has been made
for other series or the fully funded date has occurred for each other series of
investor certificates, the trustee will convey and transfer all right, title and
interest in and to the dealer notes to the Seller. See "Description of the
Investor Certificates -- Termination; Fully Funded Date."
Early Amortization Period
The investor certificates may have an early amortization period (an "Early
Amortization Period") if any of the events specified as such in this prospectus
and the prospectus supplement ("Early Amortization Events") occurs. The Early
Amortization Period will commence on the date on which an Early Amortization
Event occurs (the "Early Amortization Period Commencement Date") and will
continue until the earlier of:
(1) the Series Termination Date; and
(2) payment of the Invested Amount of the investor certificates in full.
Upon the commencement of an Early Amortization Period, the Revolving
Period, Accumulation Period, Amortization Period or Investment Period, as
applicable, will terminate. The Series Principal Collections and other specified
amounts allocable to the investor certificateholders of any series will no
longer be paid to the Seller or to the holders of any other outstanding series.
Instead, these funds will be distributed to the investor certificateholders on
each distribution date beginning on the distribution date following the due
period in which an Early Amortization Period begins or, to the extent specified
in the prospectus supplement, on the first distribution date occurring after the
Early Amortization Period begins.
An Early Amortization Period could result in payments of principal to the
investor certificateholders earlier than scheduled. During an Early Amortization
Period, distributions of principal on the investor certificates will not be
subject to any controlled deposit amount, and any amounts in the Series
Principal Account and other specified trust accounts that are allocable to the
investor certificates will be paid to the investor certificateholders up to the
Invested Amount. An Investment Period will not begin during an Early
Amortization Period. The occurrence of an Early Amortization Event may result in
delays in or reductions in the amount of principal ultimately paid to the
investor certificateholders.
BOOK-ENTRY REGISTRATION
Investor certificateholders may hold their investor certificates through
DTC (in the United States) or Clearstream Banking or Euroclear (in Europe) if
they are participants in those systems, or indirectly through organizations
which are participants in those systems.
Cede, as nominee for DTC, will be the registered holder of the global
investor certificates. Except as described in this prospectus, no investor
certificateholder will be entitled to receive a certificate representing that
person's interest in the investor certificates. Unless and until definitive
certificates are issued under the limited circumstances described below, all
references in this prospectus to actions by investor certificateholders shall
refer to actions taken by DTC upon instructions from its Participants, and all
references in this prospectus to distributions, notices, reports and statements
to investor certificateholders shall refer to distributions, notices, reports
and statements to Cede, as the registered holder of the investor certificates,
for distribution to the investor certificateholders in accordance with DTC
procedures.
Clearstream Banking and Euroclear will hold omnibus positions on behalf of
their participants through customers' securities accounts in Clearstream
Banking's and Euroclear's names on the books of their respective depositaries
which in turn will hold those positions in customers' securities accounts in the
depositaries' names on the books of DTC. Citibank, N.A. will act as depositary
for Clearstream Banking and Morgan Guaranty Trust Company of New York will act
as depositary for Euroclear (in these capacities, the "Foreign Agency
Depositaries").
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Transfers between DTC Participants will occur in the ordinary way in
accordance with DTC rules. Transfers between Clearstream Banking Participants
and Euroclear Participants will occur in the ordinary way in accordance with
their 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
Banking or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its Foreign Agency 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 (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to its
Foreign Agency 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 Banking Participants and Euroclear Participants
may not deliver instructions directly to the Foreign Agency Depositaries.
Because of time-zone differences, credits of securities received in
Clearstream Banking or Euroclear as a result of a transaction with a DTC
Participant will be made during subsequent securities settlement processing and
dated the business day following the DTC settlement date. These credits or any
transactions in these securities settled during processing will be reported to
the relevant Euroclear or Clearstream Banking Participant on that business day.
Cash received in Clearstream Banking or Euroclear as a result of sales of
securities by or through a Clearstream Banking Participant or a Euroclear
Participant to a DTC Participant will be received with value on the DTC
settlement date but will be available in the relevant Clearstream Banking or
Euroclear cash account only as of the business day following settlement in DTC.
For additional information regarding clearance and settlement procedures for the
investor certificates, see Annex I to this prospectus. For information with
respect to tax documentation procedures relating to the investor certificates,
see Annex I to this prospectus and "Material Federal Income Tax Matters -- Tax
Consequences to Foreign Holders."
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, 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 the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participating organizations ("Participants") and facilitate
the clearance and settlement of securities transactions between Participants
through electronic book-entry changes in their accounts, thereby eliminating the
need for physical movement of certificates. Participants include securities
brokers and dealers, banks, trust companies and clearing corporations and may
include certain other organizations (including underwriters involved in the
distribution of the investor certificates). DTC is owned by a number of its
Participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc. Indirect
access to the DTC system also is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
Investor certificateholders that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, investor certificates may do so only through Participants
and Indirect Participants. In addition, investor certificateholders will receive
all distributions of principal of and interest on the investor certificates from
the trustee through DTC and its Participants. Under a book-entry format,
investor certificateholders will receive payments after the related distribution
date because, while payments are required to be forwarded to Cede, as nominee
for DTC, on each date, DTC will forward these payments to its Participants which
will then be required to forward them to Indirect Participants or investor
certificateholders. We anticipate that the only "investor certificateholder" (as
this term is used in the pooling and servicing agreement) will be Cede, as
nominee of DTC, and that investor certificateholders will not be recognized by
the trustee as investor certificateholders under the pooling and servicing
agreement. Investor certificateholders will only be permitted to exercise the
rights of
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investor certificateholders under the pooling and servicing agreement indirectly
through DTC and its Participants who in turn will exercise their rights through
DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among Participants
on whose behalf it acts with respect to the investor certificates and is
required to receive and transmit distributions of principal of and interest on
the investor certificates. Participants and Indirect Participants with which
investor certificateholders have accounts with respect to the investor
certificates similarly are required to make book-entry transfers and receive and
transmit these payments on behalf of their respective investor
certificateholders. Because DTC can only act on behalf of Participants, who in
turn act on behalf of Indirect Participants and certain banks, the ability of an
investor certificateholder to pledge investor certificates to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect of the investor certificates, may be limited due to the lack of a
physical certificate for the investor certificates.
DTC has advised the Seller that it will take any action permitted to be
taken by an investor certificateholder under the pooling and servicing agreement
only at the direction of one or more Participants to whose account with DTC the
investor certificates are credited. DTC may take conflicting actions with
respect to an undivided interest held by a Participant to the extent that it is
directed to do so by such Participant based on such Participant's instructions
from various beneficial owners.
Clearstream Banking, societe anonyme ("Clearstream Banking"), (formerly
known as "Cedel International"), 67 Bd Grande-Duchesse Charlotte, L-1331,
Luxembourg, was incorporated in 1970 as a limited company under Luxembourg law.
Clearstream Banking is owned by a parent corporation, Clearstream Banking
International, societe anonyme, the shareholders of which are banks, securities
dealers and financial institutions. Clearstream Banking International currently
has about 100 shareholders, including U.S. financial institutions or their
subsidiaries. No single entity may own more than five percent of Clearstream
Banking's stock. Clearstream Banking is registered as a bank in Luxembourg, and
as such is subject to regulation by the Institut Monetaire Luxembourgeous, the
Luxembourg Monetary Authority, which supervises Luxembourg banks. Clearstream
Banking provides clearance and settlement services for its customers and
currently accepts over 70,000 securities issues for clearance, settlement, and
custody. Clearstream Banking's customers consist of broker-dealers, financial
institutions, and other securities professionals involved in the movement and/or
custody of securities. Clearstream Banking's U.S. customers are limited to
brokers, dealers, and banks. Currently, Clearstream Banking has approximately
3000 customers located in over 60 countries, including all major European
countries, Canada and the United States.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System ("Euroclear Participants") and to clear and
settle transactions between Euroclear Participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating the need or
physical movement of certificates and any risk from lack of simultaneous
transfers of securities and cash. Transactions may now be settled in any of 30
currencies, including United States dollars. The Euroclear System includes
various other services, including securities lending and borrowing, and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. The Euroclear
System is operated by Morgan Guaranty Trust Company of New York, Brussels,
Belgium office (the "Euroclear Operator" or "Euroclear"), under contract with
Euroclear S.C., a Belgian cooperative corporation (the "Cooperative"). All
operations are conducted by the Euroclear Operator, and all Euroclear securities
clearance accounts and Euroclear Clearance System cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for the Euroclear System on behalf of Euroclear Participants. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include any
underwriters, agents or dealers involved in the distribution of the investor
certificates. Indirect access to the Euroclear System is also available to other
firms that clear through or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
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The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. 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 Operative Procedures of the Euroclear System, and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawals of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants, and has no record
of or relationship with persons holding through Euroclear Participants.
Distributions with respect to investor certificates held through
Clearstream Banking or Euroclear will be credited to the cash accounts of
Clearstream Banking Participants or Euroclear Participants in accordance with
the relevant system's rules and procedures, to the extent received by its
Foreign Agency Depositary. Such distributions will be subject to tax reporting
in accordance with relevant United States tax laws and regulations. See
"Material Federal Income Tax Matters." Clearstream Banking or the Euroclear
Operator, as the case may be, will take any other action permitted to be taken
by an investor certificateholder under the pooling and servicing agreement or
the supplement related to the investor certificates on behalf of a Clearstream
Banking Participant or Euroclear Participant only in accordance with its
relevant rules and procedures and subject to its Foreign Agency Depositary's
ability to effect these actions on its behalf through DTC.
Although DTC, Clearstream Banking and Euroclear have agreed to the above
procedures in order to facilitate transfers of investor certificates among
participants of DTC, Clearstream Banking 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 CERTIFICATES
The investor certificates of a series or class will be issued in fully
registered, certificated form to investor certificateholders or their nominees
("Definitive Certificates"), rather than to DTC or its nominee, only if:
(1) the Seller advises the trustee in writing that DTC is no longer
willing or able to properly discharge its responsibilities under the
depository agreement with respect to the investor certificates, and
the trustee or the Seller is unable to locate a qualified successor;
(2) the Seller, at its option, elects to terminate the book-entry system
through DTC; or
(3) after the occurrence of a Servicer Termination Event, investor
certificateholders representing beneficial interests aggregating not
less a majority of the Invested Amount of such series or class advise
the trustee and DTC through Participants in writing that the
continuation of a book-entry system through DTC (or a successor of
DTC) is no longer in the best interests of the investor
certificateholders.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of definitive certificates for the investor
certificates. Upon surrender by DTC of the certificate or certificates
representing the investor certificates, accompanied by instructions for
re-registration, the trustee will issue the investor certificates in the form of
definitive certificates, and thereafter the trustee will recognize each holder
of a definitive certificate as an investor certificateholder under the pooling
and servicing agreement. In the event that definitive certificates are issued or
DTC ceases to be the clearing agency for the investor certificates, the pooling
and servicing agreement provides that the investor certificateholders will be
notified of this event.
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Upon the issuance of definitive certificates, distributions of principal
and monthly interest will be made by the trustee directly to the holders of
definitive certificates in accordance with the procedures described in this
prospectus and in the pooling and servicing agreement. Payments of principal, if
any, and monthly interest on each distribution date will be made to holders in
whose names the definitive certificates were registered at the close of business
on the related record date. Distributions will be made by check mailed to the
address of that holder as it appears on the register maintained by the trustee.
The final payment on any investor certificate (whether definitive certificates
or book-entry certificates), however, will be made only upon presentation and
surrender of the investor certificate at the office or agency specified in the
notice of final distribution to investor certificateholders. The trustee will
provide this notice to registered investor certificateholders not later than the
determination date of the month of the final payment.
Definitive certificates will be transferable and exchangeable at the
offices of the trustee, or at any other office as the seller shall designate
(initially the corporate trust office). No service charge will be imposed for
any registration of transfer or exchange, but the transfer agent may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection with any registration.
THE SELLER'S CERTIFICATES
The pooling and servicing agreement provides that the Seller may exchange
one or more portions of the certificate evidencing the Seller's Interest (the
"Navistar Financial Securities Corporation Certificate") for one or more
certificates (each, a "Supplemental Certificate" and, together with the Navistar
Financial Securities Corporation Certificate, the "Seller's Certificates") for
transfer or assignment upon the execution and delivery of a supplement to the
pooling and servicing agreement (which supplement shall be subject to the
amendment section of the pooling and servicing agreement to the extent that it
amends any of the terms of the pooling and servicing agreement) so long as:
(1) the Seller shall have delivered to the trustee and any Enhancement
Provider a Tax Opinion with respect to that exchange; and
(2) the Rating Agency Condition shall have been satisfied.
Any subsequent transfer or assignment of a Supplemental Certificate is also
subject to the conditions described in the preceding sentence. Upon satisfaction
of the above conditions, the Seller may exchange the Navistar Financial
Securities Corporation Certificate for one or more Supplemental Certificates in
order to transfer a portion of the Seller's Interest, to facilitate the issuance
of a new series, or for any other reason. If any Supplemental Certificates are
issued, allocations to the Seller's Interest as described in this prospectus
will include amounts later allocated between the holder of the Navistar
Financial Securities Corporation Certificate and the holders of any Supplemental
Certificates.
NEW ISSUANCES
The pooling and servicing agreement provides that the trustee will issue
two types of certificates:
(1) one or more series of investor certificates (including the offered
investor certificates) which are transferable and have the
characteristics described below; and
(2) the Seller's Certificates.
The pooling and servicing agreement also provides that, pursuant to one or
more supplements, the Seller may cause the trustee to issue one or more new
series. Under the pooling and servicing agreement, the Seller may specify, among
other things, the principal terms with respect to any series. The Seller may
offer any series to the public under a disclosure document in transactions
either registered or exempt from registration under the Securities Act, directly
or through one or more underwriters or placement agents. There is no limit to
the number of series that may be issued under the pooling and servicing
agreement.
The pooling and servicing agreement provides that the Seller may specify
principal terms of a new series such that each series has an amortization period
or accumulation period which may have a different
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length and begin on a different date than the amortization period or
accumulation period for any other series. Further, one or more series may be in
their early amortization periods or accumulation periods while other series are
not. Thus, one or more series may be amortizing or accumulating principal, while
other series are not. Moreover, different series may have the benefits of
letters of credit, surety bonds, cash collateral accounts, collateral invested
amounts, spread accounts, guaranteed rate agreements, liquidity facilities, tax
protection agreements, interest rate swap agreements or other similar
arrangements (each, an "Enhancement") which may be issued by different entities.
Under the pooling and servicing agreement, the trustee will hold each form of
Enhancement only on behalf of the series (or a particular class within a series)
with respect to which it relates. The pooling and servicing agreement also
provides that the Seller may specify different Certificate Rates and monthly
servicing fees with respect to each series (or a particular class within a
series). In addition, the Seller has the option under the pooling and servicing
agreement to vary among series (or classes within a series) the terms upon which
a series (or classes within a series) may be repurchased by the Seller.
Under the pooling and servicing agreement and pursuant to a supplement, a
new series may be issued only upon the satisfaction of specified conditions. The
Seller may cause the issuance of a new series by notifying the trustee at least
five business days in advance of the date on which the series will be issued
(with respect to any series, the "Series Issuance Date"). The notice shall state
the designation of the series (and classes within a series, if any). The pooling
and servicing agreement provides that the trustee will issue any series only
upon delivery to it of the following:
- a supplement in form satisfactory to the trustee signed by the Seller
and the servicer and specifying the Principal Terms of that series;
- the form of any Enhancement and any related agreement;
- an opinion of counsel to the effect that, for federal income tax
purposes;
(1) the issuance will not adversely affect the characterization of any
outstanding series or class of investor certificates, including the
offered investor certificates, either as debt or as a partnership
interest,
(2) the issuance will not cause a taxable event to any
certificateholder, including the offered investor
certificateholders, or cause the trust to be treated as an
association (or publicly traded partnership) taxable as a
corporation (an opinion of counsel to the effect referred to in
clauses (1) and (2) with respect to any action is referred to in
this prospectus as a "Tax Opinion"), and
(3) the new series will be characterized as debt or as a partnership
interest (other than an interest in a publicly traded partnership)
in the hands of any person other than the Seller, any affiliate of
the Seller or any trust in which the Seller or any affiliate of the
Seller holds an interest,
- evidence of satisfaction of the Rating Agency Condition; and
- evidence that the amount of the Seller's Interest as of that date (after
giving effect to that issuance and the deposit, if any, of proceeds from
that issuance in the Excess Funding Account) will not be less than the
Minimum Seller's Interest.
The proceeds will be deposited in the Excess Funding Account if the
principal balance of dealer notes at the time of the new issuance is less than
the sum of the Trust Invested Amount and the Minimum Seller's Interest and would
constitute, in effect, a "pre-funding" pending an increase in the available
amount of dealer notes. The issuance is also subject to the condition that the
Seller shall have represented and warranted that the issuance shall not, in the
reasonable belief of the Seller, cause an Early Amortization Event or Investment
Event to occur. Upon satisfaction of all these conditions, the trustee will
issue the series.
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TRANSFER OF DEALER NOTES TO THE TRUST
The servicer assigns eligible dealer notes ("Assignments") on each business
day to the Seller on behalf of the trust and is obligated to continue to do so
except upon the occurrence of specified bankruptcy events involving the Seller,
Navistar Financial, International or Navistar International Corporation.
Additionally, the servicer delivers to the trustee on each business day a
computer file, hard copy or microfiche list which shall contain a true and
complete list of all dealer notes acquired on that business day. This delivery
shall be deemed to be an amendment as of that business day to the computer file,
hard copy or microfiche list delivered to the trustee containing a true and
complete list of outstanding dealer notes conveyed to the trust on or about the
date of the pooling and servicing agreement.
ELIGIBLE DEALER NOTES
The Seller obtains from Navistar Financial only those dealer notes that are
identified by the servicer as eligible dealer notes. The Seller in turn conveys
the eligible dealer notes to the trust. See "Description of Investor
Certificates -- Transfer of Dealer Notes to the Trust." In specified
circumstances, the Seller may be required to repurchase:
(1) those dealer notes previously transferred to the trust which are
ineligible dealer notes from the trust; and
(2) in the event that a material amount of dealer notes are ineligible
dealer notes, the interests in the trust of the certificateholders of
all outstanding series (the "Certificateholders' Interest"), from the
holders of those series. See "Description of Investor
Certificates -- Certain Representations and Warranties; Ineligible
Dealer Notes; Purchase of Certificateholders' Interest."
An "eligible dealer note" is any dealer note which meets the following
criteria:
- it is payable in United States dollars;
- it was created in compliance with all requirements of law the failure
with which to comply would have a material adverse effect on
certificateholders;
- all consents or authorizations of, or registrations with, any
governmental authority required to be obtained have been duly obtained,
and are in full force and effect as of the date of creation which relate
to either;
(1) the creation of the dealer note or the related dealer agreement, or
(2) the execution, delivery and performance by any person who sells OEM
vehicles to a dealer and who has entered into an agreement for the
benefit of Navistar Financial to repurchase new vehicle inventory
from Navistar Financial upon Navistar Financial's foreclosure upon
that inventory owned by that dealer (subject to those customary
conditions and limitations as are acceptable to Navistar Financial)
(an "OEM Supplier") or by International of the dealer agreement
pursuant to which dealer note was created,
- at all times following the transfer of the dealer note to the trust, the
trust will have good and marketable title to the dealer note, free and
clear of all liens arising prior to the transfer or arising at any time
under or through any member of Navistar International Corporation,
International, Navistar Financial, the Seller and any other direct or
indirect subsidiaries of Navistar International Corporation (the
"Navistar Group");
- it will at all times be the legal, valid and binding payment obligation
of the dealer, enforceable against that dealer in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy
or other similar laws, and except as enforceability may be limited by
general principles of equity;
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- it constitutes either an "account," "chattel paper" or a "general
intangible" under and as defined in Article 9 of the Uniform Commercial
Code;
- it is not subject to any right of rescission, setoff, counterclaim or
any other defense (including defenses arising out of violations of usury
laws) of the dealer, other than defenses arising out of applicable
bankruptcy or other similar laws, and except as enforceability may be
limited by general principles of equity;
- at the time of transfer of the dealer note to the trust, the servicer
has satisfied its obligations with respect to that dealer note;
- at the time of transfer of the dealer note to the trust, the servicer
has not taken nor failed to take any action which would impair the
rights of the trust or the holders of interests in the trust;
- at the time of transfer of the dealer note to the trust, the dealer note
has not been issued by a dealer that is insolvent;
- at the time of transfer by the Seller of the dealer note to the trust,
the dealer note has not been issued by a dealer that has been placed on
cash-on-delivery terms by the servicer;
- at the time of transfer by the Seller of the dealer note to the trust,
the dealer note is not past due over thirty days;
- it has not been issued by a dealer in connection with the dealer's
purchase of parts from International or an OEM Supplier;
- when the principal amount of the dealer note is added to the principal
amount of the other outstanding dealer notes issued by the same dealer
previously or concurrently transferred to the trust, the dealer note
shall not cause the sum of the principal amounts of all dealer notes to
exceed the applicable Concentration Limit as of the close of business on
the business day preceding the date on which the dealer note is to be
transferred;
- in the case of a dealer note financing an OEM vehicle (an "OEM Note"),
when the principal amount of that OEM Note is added to the principal
amount of the other outstanding OEM Notes previously transferred to the
trust, it shall not cause the sum of these principal amounts to exceed
10% (or any larger percentage as to which the Rating Agency Condition
has been satisfied) of the sum of the aggregate principal balance of
dealer notes and the aggregate principal amount of funds on deposit in
the Excess Funding Account in the trust;
- a valid first priority security interest in the financed vehicle has
been transferred to the trust;
- the Navistar Group has assigned to the trust designation as loss payee
on the insurance policies insuring the financed vehicle against casualty
and theft losses;
- the principal amount of the dealer note is due upon the sale of the
underlying financed vehicle;
- the interest rate of the dealer note is based on the prime rate or
another benchmark floating interest rate and is subject to adjustment at
least monthly;
- the principal amount of the dealer note:
(1) in the case of a financed vehicle which is a new vehicle, is equal
to not more than 100% of the invoice price of the financed vehicle,
(2) in the case of a financed vehicle which is a used vehicle purchased
by a dealer from an International Used Truck Center or a repossessed
vehicle purchased from Navistar Financial, is equal to not more than
100% of the agreed upon purchase price, and
(3) in the case of a financed vehicle which is a used vehicle taken in
trade by a dealer or purchased by a dealer from outside sources, is
equal to not more than 75% of the "as is" value of the financed
vehicle as determined by Navistar Financial's appraisal;
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- it was created in accordance with the standard practice of the Navistar
Group; and
- it finances a new medium or heavy-duty truck, bus or trailer produced by
or for a member of the Navistar Group or an OEM Supplier or a used
medium or heavy-duty truck, bus or trailer.
CERTAIN REPRESENTATIONS AND WARRANTIES; INELIGIBLE DEALER NOTES; PURCHASE OF
CERTIFICATEHOLDERS' INTEREST
The Seller has made and will make certain representations and warranties to
the trust (as of the date of the pooling and servicing agreement, as of the
closing date, and as of the date of any assignment of a dealer note) relating to
the pooling and servicing agreement and the dealer notes to the effect, among
other things, that
(1) each dealer note existing on the date of any Assignment was or will
have been conveyed to the trust free and clear of any lien (excluding
permitted liens);
(2) all appropriate consents and governmental authorizations required to
be obtained by the Seller in connection with the transfer of the
dealer notes to the trust have been obtained;
(3) the pooling and servicing agreement or the Assignment, as the case may
be, constitutes either a valid transfer and assignment of the Seller's
right, title, and interest in the dealer notes and the proceeds of the
dealer note, or a grant of a first priority perfected "security
interest" (as that term is defined in the Uniform Commercial Code) in
the property to the trust; and
(4) as of the date of any Assignment, the Seller is not insolvent.
These representations and warranties survive the transfer of the dealer
notes to the trust. In the event of a breach with respect to a dealer note of
any representations and warranties set forth in clause (1) above or in the event
that any dealer note is not an eligible dealer note as a result of the failure
to satisfy the eligibility requirements (as specified in the pooling and
servicing agreement), each ineligible dealer note will be automatically removed
from the trust on the terms and conditions described in the following paragraph.
In the event of a breach of any representations and warranties described in
clauses (2), (3) or (4) in the preceding paragraph or in the event that any
dealer note is not an eligible dealer note as a result of the failure to satisfy
certain other eligibility requirements (as specified in the pooling and
servicing agreement), and as a result of that breach or event the trust's rights
to the ineligible dealer notes are impaired, then in the event that breach or
event is not cured within a specified period, each ineligible dealer note will
be removed from the trust on the terms and conditions described in the following
paragraph.
When removal of a dealer note is required pursuant to the terms described
in the preceding paragraph (any of these dealer notes being an "Ineligible
Dealer Note"), the ineligible dealer note will be automatically removed from the
trust and the principal balance of the ineligible dealer note will be deducted
from the prior principal balance of dealer notes in the trust. The Seller will
deposit in the Collections Account within two business days of its removal an
amount equal to the principal amount of that ineligible dealer note plus accrued
but unpaid finance charges on the dealer note. This deposit will be considered a
payment in full of the ineligible dealer note and will be applied as principal
collections. Upon each removal of an ineligible dealer note from the trust, the
trustee will be deemed to transfer to the Seller, without recourse,
representation or warranty (except for the warranty that since the date of
transfer by the Seller under the pooling and servicing agreement the trustee has
not sold, transferred, or encumbered that ineligible dealer note), all right,
title, and interest of the trust in and to the ineligible dealer note and all
proceeds on the dealer note. The provisions described in this paragraph and the
immediately preceding paragraph will constitute the sole remedy for any breach
of the representations and warranties described above.
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The Seller also has made and will make representations and warranties to
the trust to the effect, among other things, that as of the date of the pooling
and servicing agreement and any supplement (including the date of the supplement
for the offered series), and the date of any Assignment:
- the pooling and servicing agreement and any supplement (including the
supplement with respect to the offered investor certificates)
constitutes a legal, valid and binding obligation of the Seller;
- each Assignment constitutes a legal, valid and binding obligation of the
Seller; and
- Schedule 1 or any update to Schedule 1, as the case may be, is and will
be an accurate and complete listing in all material respects of all
dealer notes as of the closing date, each Series Issuance Date, and the
date of any Assignment, as the case may be.
Each representation and warranty survives the transfer of the dealer notes to
the trust.
In the event of any breach of any of the representations and warranties
described in the immediately preceding paragraph or if a material amount of
dealer notes are ineligible dealer notes, and this event has a material adverse
effect on the investor certificateholders, either the trustee or investor
certificateholders evidencing not less than a majority of the series invested
amount for all outstanding series, by written notice to the Seller (and to the
trustee and the servicer if given by the investor certificateholders), may
direct the Seller to purchase the Certificateholders' Interest within 60 days of
that notice, or within a longer period as may be specified in the notice in each
case. The Seller will be obligated to make the purchase on a distribution date
occurring within that period on the terms and conditions described below.
In the event of any breach, an Investment Event or Early Amortization Event
will occur and, upon receipt of the notice described above, the Seller will
deposit in the Collections Account on a transfer date occurring within that
period the purchase price for each outstanding series of investor certificates,
which, with respect to the offered series, will equal the Invested Amount plus
all accrued interest on the Invested Amount. The purchase price payable with
respect to the investor certificates will be allocated to the offered series and
deposited in and held in the Series Principal Account until the expected payment
date in the case of an Investment Event or distributed to the investor
certificateholders on the following distribution date in the case of an Early
Amortization Event. See "-- Early Amortization Events" and the prospectus
supplement.
Notwithstanding the foregoing, no purchase pursuant to the provisions
described above will be required, and no Investment Event or Early Amortization
Event will occur under the trust, if during that period the representations and
warranties described above shall be satisfied in all material respects or there
shall no longer be a material amount of ineligible dealer notes, as the case may
be, and any material adverse effect on the investor certificateholders caused by
the breach shall have been cured.
If an insolvency event occurs with respect to the Seller, International,
Navistar International Corporation or Navistar Financial, on the day of the
insolvency event, the Seller will (subject to the actions of the
certificateholders) immediately cease to transfer dealer notes to the trust and
promptly give notice to the trustee of the insolvency event. Under the terms of
the pooling and servicing agreement, if an insolvency event occurs with respect
to the Seller prior to the date on which the Series 1995-1 investor certificates
issued by the trust have been paid in full, then within 15 days the trustee will
publish a notice of the insolvency event stating that the trustee intends to
sell, liquidate or otherwise dispose of the dealer notes in a commercially
reasonable manner and on commercially reasonable terms, unless within a
specified period of time investor certificateholders representing more than 50%
of the aggregate series invested amount of the senior most outstanding class of
investor certificates of each series and each person holding a Supplemental
Certificate, instruct the trustee not to sell, dispose of or otherwise liquidate
the dealer notes and to continue transferring dealer notes as before that
insolvency event. If the portion of those proceeds allocated to the investor
certificates of a series and the proceeds of any collections on the dealer notes
in the Collection Account allocable to the investor certificates of a series are
not sufficient to pay the unpaid Invested Amount in full plus accrued and unpaid
interest on the Invested Amount, investor certificateholders will incur a loss.
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The trustee has not made, nor is it required or anticipated that the
trustee will make, any initial or periodic general examination of the dealer
notes or any records relating to the dealer notes for the purpose of
establishing the presence or absence of defects, compliance with representations
and warranties of the Seller or for any other purpose. In addition, the trustee
has not made, nor is it anticipated or required that the trustee will make, any
initial or periodic general examination of the servicer for the purpose of
establishing the compliance by the servicer with its representations or
warranties, the observation of its obligations under the pooling and servicing
agreement, or for any other purpose.
DUE PERIODS; DISTRIBUTION PERIODS
The pooling and servicing agreement uses the related concepts of "due
periods" and "distribution periods" as units of time. Each "due period" is a
calendar month, beginning on the first day of that month and ending on the last
day of that month. Each due period has a related distribution date and
distribution period. The "distribution date" related to a due period is the
twenty-fifth day of the calendar month (or, if that day is not a business day,
the next business day) next following the end of that due period. The
"distribution period" related to a due period is generally the approximate
one-month period which begins on the preceding distribution date and ends on and
includes the day immediately preceding the distribution date for that due
period. Thus, for example, the due period running from July 1, 2000 through July
31, 2000 will have a related distribution date of August 25, 2000 and a related
distribution period running from July 25, 2000 through but excluding August 25,
2000. The length of the initial distribution period may be longer or shorter
than a normal distribution period and will be set forth in the prospectus
supplement.
Finance charges accrue and are collected with respect to due periods.
Monthly interest, by contrast, accrues and is paid with respect to the related
distribution period. Navistar Financial establishes the interest rate on dealer
notes for a due period on the third Monday of the preceding month. The rate
payable by the trust to the swap counterparty if any, or the Certificate Rate,
if variable, with respect to a series or class of investor certificateholders
will be established as specified in the prospectus supplement, but is expected
to be established as of the day which is two London business days prior to the
start of the distribution period related to such that period. As the
distribution period does not begin until the twenty-fifth day of the related due
period, if the swap rate or Certificate Rate is calculated as described in the
previous sentence, the interest rate for dealer notes is established more than
five weeks prior to the determination of the swap rate or Certificate Rate.
ADVANCES
For any due period, the servicer will make an advance (an "Advance") to the
Collections Account of an amount equal to all Dealer Finance Charges for that
due period other than Uncollectible Finance Charges which have not been paid by
the transfer date ("Unpaid Dealer Finance Charges"). Once any previously Unpaid
Dealer Finance Charges are paid on the dealer notes to which any portion of an
Advance relates, or when the servicer determines that it will be unable to
recover that Unpaid Dealer Finance Charges on the dealer notes to which the
portion of the Advance relates, the servicer will be reimbursed in an amount
equal to that portion of the Advance.
The reimbursement by the trust to the servicer of an Advance is referred to
in this prospectus as an "Advance Reimbursement." Advance Reimbursements are
funded on each transfer date from Dealer Finance Charge Collections and ITEC
Finance Charges before Finance Charge Collections have been allocated among the
outstanding series.
THE SERVICER
Pursuant to the terms of the pooling and servicing agreement, the servicer
is authorized to service and administer the dealer notes and collect payments
due under the dealer notes in accordance with its customary and usual servicing
procedures. See "The Navistar Financial Dealer Floor Plan Financing Business"
for a description of Navistar Financial's customary and usual servicing
procedures. In addition,
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under the pooling and servicing agreement, the servicer is also authorized to
make withdrawals and payments from the various trust accounts under the trust.
Servicing activities performed by the servicer include collecting and recording
payments, communicating with dealers, monitoring dealer inventory, investigating
payment delinquencies and maintaining internal records with respect to each
dealer note. Managerial and custodial services performed by the servicer include
providing assistance in any inspections of the documents and records relating to
the dealer notes, maintaining the agreements, documents, and files relating to
the dealer notes as custodian for the trust, and providing related data
processing and reporting services for the offered certificateholders and on
behalf of the trustee.
Servicing Compensation and Payment of Expenses. As compensation for its
servicing activities and reimbursement for its expenses under the pooling and
servicing agreement, the servicer will be entitled to receive a servicing fee
for each day prior to the termination of the trust, payable in arrears, on the
related distribution date. The "Servicing Fee" shall be the aggregate of the
fees allocable to all outstanding series, including the offered series. The
portion of the servicing fee allocable to a series will be set forth in the
prospectus supplement (the "Series Allocable Servicing Fee"). Unless otherwise
specified in the prospectus supplement, the Series Allocable Servicing Fee will
be allocated to the investor certificateholders based on the Floating Allocation
Percentage. We call this portion the "Investor Series Servicing Fee"). The
remainder of the Series Allocable Servicing Fee will be allocated to the holders
of the Seller's Certificates. See "Description of Investor
Certificates -- Allocation of Collections."
The servicer is obligated to pay specified expenses incurred in connection
with servicing the dealer notes, including expenses related to the payment of
fees and disbursements of the trustee, the Special Servicer Agent and
independent accountants and all other fees and expenses of the trust not
expressly stated in the pooling and servicing agreement to be for the account of
the holders of certificates issued by the trust. The servicer will not pay
federal, state, or local income or franchise taxes, if any, of the trust, the
trustee, or the certificateholders. The servicer will be required to pay these
expenses for its own account and will not be entitled to any payment for these
expenses other than the servicing fee.
Servicer Covenants. Under the terms of the pooling and servicing
agreement, the servicer covenants, among other things, that:
- it will not change the credit guidelines, nor will it change its current
practices with respect to the recognition of estimated or actual loss on
dealer notes (subject in each case to specified materiality standards);
- so long as any series is outstanding, it will maintain casualty loss
insurance on the financed vehicles substantially similar to that
maintained by the servicer on the closing date for the investor
certificates; and
- if required to select any dealer notes from the dealer notes issued by a
particular dealer in order to satisfy the Concentration Limit, it will
select those dealer notes in a manner that will not be adverse to the
rights of the holders of investor certificates issued by the trust.
Certain Matters Regarding the Servicer. Navistar Financial may not resign
from its obligations and duties as servicer under the pooling and servicing
agreement, except upon a determination that its duties are no longer permissible
under applicable law. Any resignation will become effective only after the
trustee or a successor servicer has assumed the servicer's responsibilities and
obligations under the pooling and servicing agreement.
Any person into which, in accordance with the pooling and servicing
agreement, Navistar Financial may be merged or consolidated or any person
resulting from any merger or consolidation to which Navistar Financial is a
party, or any person succeeding to the business of Navistar Financial, upon
execution of a supplement to the pooling and servicing agreement (pursuant to
which that person will assume the rights and obligations of the servicer under
the pooling and servicing agreement) will be the successor to Navistar Financial
as the servicer under the pooling and servicing agreement.
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In the event of any Servicer Termination Event and for so long as the
Servicer Termination Event shall not have been remedied, the trustee, by written
notice to the servicer, may terminate all of the rights and obligations of
Navistar Financial as servicer under the pooling and servicing agreement.
Upon the occurrence of any Servicer Termination Event, the trustee will as
promptly as possible appoint a successor servicer, to whom all authority and
power of the servicer under each of the pooling and servicing agreement will
pass and be vested in. If no successor servicer has been appointed by the
trustee and accepted its appointment by the time Navistar Financial ceases to
act as servicer, all authority, power, and obligations of Navistar Financial as
servicer under the pooling and servicing agreement will pass to and be vested in
the trustee with respect to the trust.
A "Servicer Termination Event" refers to any of the following events:
(1) failure by Navistar Financial as servicer to make any payment,
transfer or deposit, or failure to give instructions to the trustee
regarding the same, on the date it is required to do so under the
pooling and servicing agreement (or within five business days later);
(2) failure on the part of Navistar Financial as servicer duly to observe
or perform in any material respect any other covenants or material
agreements of the servicer set forth in the pooling and servicing
agreement which continues unremedied for a period of 60 days after
written notice is received by the servicer from the trustee;
(3) any representation, warranty or certification made by Navistar
Financial as servicer in the pooling and servicing agreement or in any
certificate delivered pursuant to the pooling and servicing agreement
proves to have been incorrect when made, which has a material adverse
effect on the rights of the holders of investor certificates, and
which representation, warranty or certification, or the circumstances
or condition which caused that representation, warranty or
certification to be incorrect, continues to be incorrect or uncured in
any material respect for a period of 60 days after written notice is
received by the servicer from the trustee; or
(4) the occurrence of specified events of bankruptcy, insolvency or
receivership of Navistar Financial while acting as servicer under the
pooling and servicing agreement.
Upon the occurrence of a Servicer Termination Event, the servicer will give
prompt written notice of the event to the trustee, and the trustee will give
notice to the certificateholders and to any Enhancement Provider. Upon any
termination or appointment of a successor servicer under the trust, the trustee
will give prompt written notice to the rating agencies, the certificateholders,
and any Enhancement Provider. In addition, under the pooling and servicing
agreement, delays in performance for 10 business days with respect to clause (1)
above or 60 business days with respect to clauses (2) and (3) above will not
constitute a Servicer Termination Event with respect to the trust if the delay
or failure could not be prevented by the exercise of reasonable diligence by the
servicer and the delay or failure was caused by an act of God or the public
enemy, acts of declared or undeclared war, public disorder, rebellion or
sabotage, epidemics, landslides, lightning, fire, hurricanes, earthquakes,
floods or similar causes. Under the pooling and servicing agreement, the holders
of investor certificates evidencing fractional undivided interests in the trust
aggregating not less than 51% of the Trust Invested Amount may, on behalf of all
holders of investor certificates, waive the effect of any Servicer Termination
Event occurring during that period, except for the failure to make any required
deposits or payments in accordance with the pooling and servicing agreement.
Special Servicer Agent. During any Investment Period, funds on deposit in
the Series Principal Account, the Distribution Account, the Liquidity Reserve
Account, any negative carry reserve fund and any spread account will be invested
at the direction of an agent selected by the servicer, which initially will be
the trustee (the "Special Servicer Agent"), in Eligible Investments selected by
the Special Servicer Agent. The Special Servicer Agent will be compensated by
the servicer.
The Special Servicer Agent may be removed at any time by the servicer;
provided that no removal of the Special Servicer Agent shall be effective until
a successor person meeting the criteria and approved as
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described above shall have been appointed as the Special Servicer Agent and
shall have accepted its appointment as such and the Rating Agency Condition for
the offered series shall have been satisfied.
TRUST ACCOUNTS; SERIES ACCOUNTS
The trustee will establish and will maintain two Eligible Deposit Accounts
in the name of the trustee for the benefit of the certificateholders, including
the investor certificateholders. One of these accounts will be the "Collections
Account" and the other will be the "Excess Funding Account". The trustee will
also establish and maintain in the name of the trustee for the benefit of the
investor certificateholders the Series Principal Account and an Eligible Deposit
Account known as the "Distribution Account" from which distributions to the
investor certificateholders will be made and the other accounts, if any,
specified in the prospectus supplement. The Distribution Account, the Series
Principal Account and the other accounts, if any, specified in the prospectus
supplement are referred to in this prospectus as the "Series Accounts." Funds in
the Collections Account, the Excess Funding Account, the Distribution Account
and the Series Accounts generally will be invested in Eligible Investments.
Any earnings (net of losses and investment expenses) on funds in the
Collections Account or the Excess Funding Account will be credited to the
Collections Account or the Excess Funding Account, respectively.
The servicer will have the power to designate specific investments as well
as the revocable power to instruct the trustee to:
(1) make withdrawals and payments from the Collections Account and the
Excess Funding Account, and
(2) make withdrawals from the Series Accounts (and, in accordance with
instructions from the servicer, make deposits of funds so withdrawn
into the Distribution Account or otherwise apply those funds in
accordance with those instructions).
The servicer may select an appropriate agent as representative of the
servicer for the purpose of designating those investments. The servicer is not
required to reimburse the trust for any losses occurring on Eligible
Investments.
EXCESS FUNDING ACCOUNT
On each business day prior to the Fully Funded Date, principal collections
not used for other purposes will be retained in the Excess Funding Account to
the extent necessary to maintain the Seller's Interest at an amount equal to
(or, in the discretion of the Seller, greater than) the Minimum Seller's
Interest. Funds on deposit in the Excess Funding Account will be invested in
Eligible Investments. Upon the maturity of Eligible Investments, the proceeds of
the Eligible Investments in the Excess Funding Account shall be treated as
principal collections.
ALLOCATION OF COLLECTIONS
Collections. The servicer deposits all principal collections into the
Collections Account within two business days of receipt of collections. For each
due period, on a business day no earlier than the second business day following
the end of that due period but no later than the fifth business day following
the end of that due period (each an "ITEC Interest Transfer Date"), the servicer
directs the trustee to withdraw from the Interest Deposit Account and deposit in
the Collections Account an amount equal to the ITEC Finance Charges for the
immediately preceding due period. See "Relationship with International Truck and
Engine Corporation -- Interest Deposit Agreements and Interest Deposit
Accounts." In addition, the servicer deposits all Dealer Finance Charge
Collections in the Collections Account within two business days of receipt
thereof, net of any Dealer Finance Charge Collections that represent Advance
Reimbursements. Finally, the servicer deposits any Advance for the due period in
the Collections Account on or before the transfer date. See "-- Advances."
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Notwithstanding the foregoing, if Navistar Financial achieves and maintains
an acceptable short term rating from the rating agencies then rating each
outstanding series or if the Rating Agency Condition with respect to each
outstanding series has been satisfied, the servicer may make a single deposit in
the Collections Account in same-day or next-day funds not later than 12:00 noon,
New York City time, on the transfer date in a net amount equal to the amount
which would have been on deposit with respect to the immediately preceding due
period in the Collections Account. In addition, the servicer will only be
required to deposit collections into the Collections Account up to the aggregate
amount of collections required to be deposited into each Series Account or,
without duplication, distributed on the related distribution date to
certificateholders or to any swap counterparty or any person providing any other
Enhancement (other than the certificateholders or the holders of any Seller's
Certificates) (an "Enhancement Provider") pursuant to the terms of any
supplement or enhancement agreement (an "Enhancement Agreement"). If at any time
prior to that distribution date the amount of collections deposited in the
Collections Account exceeds the amount required to be deposited the servicer
will be permitted to withdraw the excess from the Collections Account.
Allocations Among Series -- Principal Collections. On each business day
prior to the Fully Funded Date, the servicer will allocate to each outstanding
series, including the offered series of investor certificates, its share of
principal collections. Allocations to the offered series of investor
certificates will be made in amounts equal to the product of the Series
Allocation Percentage for the due period in which that business day occurs and
the amount of principal collections for that business day together with any
other amounts specified in the prospectus supplement ("Series Allocable
Principal Collections").
Allocations Among Series -- Finance Charge Collections and Dealer Note
Losses. Pursuant to the pooling and servicing agreement, on each transfer date
occurring prior to the Fully Funded Date, the servicer will allocate to each
outstanding series, including the offered series of investor certificates, its
share of Finance Charge Collections and Dealer Note Losses for the related due
period. Allocations to the offered series of investor certificates will be made
in amounts equal to the product of the Series Allocation Percentage and the
amount of Finance Charge Collections and Dealer Note Losses for that due period
(the "Series Allocable Finance Charge Collections" and "Series Allocable Dealer
Note Losses," respectively).
Allocations Among the Investor Certificateholders, the Holders of the
Seller's Certificates and the Seller. On each business day prior to the Fully
Funded Date, the servicer will allocate to the investor certificateholders, the
holders of the Seller's Certificates and the Seller, Series Allocable Principal
Collections, Series Allocable Finance Charge Collections and Series Allocable
Dealer Note Losses as described in the prospectus supplement. If a series of
investor certificates consists of more than one class, the amounts allocated to
the investor certificates will be further allocated among the classes of
investor certificates of that series as described in the prospectus supplement.
Shared Principal Collections. The portion of Series Allocable Principal
Collections allocated to the investor certificates of a series in excess of the
amount required to be deposited in the Series Principal Account to be available
for required distributions on the investor certificates of that series as
described in the prospectus supplement, together with certain portions of the
Series Allocable Principal Collections allocated to the Seller's Interest, are
referred to as "Shared Principal Collections." During a Revolving Period, all
Series Allocable Principal Collections allocated to the investor certificates
would be Shared Principal Collections because no amounts are then required to be
set aside for distributions of principal on the investor certificates of that
series. The extent to which the portion of Series Allocable Principal
Collections allocated to the investor certificates of a series and other
available funds are insufficient to make all required allocations to the Series
Principal Account for that series of investor certificates is referred to as a
"Principal Shortfall." In the event any series of investor certificates has a
Principal Shortfall, the servicer will allocate Shared Principal Collections
from other series to cover the Principal Shortfall. If Principal Shortfalls of
all outstanding series exceed all available Shared Principal Collections, Shared
Principal Collections generally will be allocated by the servicer pro rata among
the series with Principal Shortfalls based on the relative amounts of the
Principal Shortfalls. To the extent that Shared Principal Collections exceed
Principal Shortfalls, the excess will be allocated, first, to the Excess Funding
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Account to the extent necessary to maintain the Seller's Interest at an amount
equal to or, in the discretion of the Seller, greater than the Minimum Seller's
Interest, and, second, either to make payments on the principal balance of any
variable funding certificates (at the Seller's option) or to the Seller or the
holders of the Seller's Certificates.
Limited Subordination of Seller's Interest. The Seller's Interest will be
subordinated to the rights of the investor certificateholders of each series to
the extent described in the prospectus supplement. The amount of the
subordination for any series of investor certificates is referred to as the
"Available Subordinated Amount" for that series. The Available Subordinated
Amount for a series will be subject to decrease and increase if and to the
extent described in the prospectus supplement. The prospectus supplement will
describe the manner in which collections attributable to the Available
Subordinated Amount may be allocated to make payments to or for the benefit of
the investor certificateholders.
Enhancement. In addition to the subordination of the Seller's Interest
described above, other forms of credit enhancement may be provided for one or
more series or classes of a series of investor certificates. Enhancement may
include a letter of credit, surety bond, cash collateral account, spread
account, guaranteed rate agreement, swap or other interest protection agreement,
repurchase obligation, cash deposit or another form of credit enhancement
described in the prospectus supplement or any combination of the foregoing.
Enhancement may also be provided by subordination provisions which require that
distributions of principal or interest be made with respect to investor
certificates of one or more series or classes before distributions are made to
one or more other series or classes. Subordination provisions with respect to
any series or class of investor certificates will be described in the prospectus
supplement.
If Enhancement is provided for a series or class of investor certificates,
the prospectus supplement will include a description of:
- the amount payable under the Enhancement,
- any conditions to payment of the Enhancement not described in this
prospectus,
- the conditions under which the amount payable under the Enhancement may
be reduced, terminated or replaced, and
- any material provisions of any agreement applicable to the Enhancement.
The prospectus supplement may also set forth information for the applicable
Enhancement Provider, including:
- a brief description of it principal business activities,
- its principal place of business, place of organization and the
jurisdiction under which it is organized or licensed to do business,
- the identity of regulatory agencies that exercise primary jurisdiction
over the conduct of its business, if any, and
- its total assets and stockholders' equity or policyholders' surplus as
of a date specified in the prospectus supplement.
Limitations on Subordination and Enhancements. The presence of an
Available Subordinated Amount or Enhancement for a series or class of investor
certificates is intended to enhance the likelihood of receipt by the investor
certificateholders of the full amount of principal of and interest on the
investor certificates of that series or class. However, neither subordination of
the Seller's Interest nor any Enhancement will provide protections against all
risks of loss or guarantee repayment of the entire principal of and interest on
the investor certificates. If losses occur which are not covered by or exceed
the amount provided by the subordination or Enhancement, investor
certificateholders will bear their allocable share of deficiencies. In addition,
if specific Enhancement is provided for the benefit of more than one series or
class of investor certificates, investor certificateholders of that series or
class will be subject to the risk that the Enhancement will be used or exhausted
by the claims of the other series or classes.
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DISTRIBUTIONS
Payments to the investor certificateholders of a series or class will be
made as described in the prospectus supplement.
EARLY AMORTIZATION EVENTS
Unless the prospectus supplement for a series of investor certificates
otherwise specifies, an "Early Amortization Event" refers to any of the
following events:
(1) the trust becomes an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, and is not exempt from
compliance with that Act;
(2) the Invested Amount is not reduced to zero by the expected payment
date (other than after the Fully Funded Date);
(3) the United States government or any government agency or
instrumentality files a notice of a lien on the assets of Navistar
Financial or the Seller under Internal Revenue Code sec. 6323 or any
similar statutory provision (including, but not limited to, sec.
302(f) or sec. 4068 of ERISA) which is or may in the future be prior
to the lien of the trustee on the assets of the trust (including
without limitation proceeds of the dealer notes); and
(4) any other event specified in the prospectus supplement with respect to
that series.
Upon the occurrence of any event described above, an Early Amortization
Event will be deemed to have occurred without any notice or other action on the
part of any other party immediately upon the occurrence of that event. The Early
Amortization Period will begin on the Early Amortization Period Commencement
Date. Except as otherwise provided in the prospectus supplement, monthly
distributions in respect of the Invested Amount will begin on the first
distribution date following the due period in which an Early Amortization Period
has commenced.
TERMINATION; FULLY FUNDED DATE
Termination. The trust will terminate on the first to occur of:
(1) the day following the distribution date on which the aggregate series
invested amounts for all series is zero and no series of variable
funding certificates is outstanding or, if later, the date on which
the final distribution has been made or provided for with respect to
the investor certificates and each other series of investor
certificates (it being understood that no distribution on any variable
funding certificate shall be final while the variable funding
certificate remains outstanding);
(2) the date on which proceeds from the sale, disposal or other
liquidation of the dealer notes are distributed to the
certificateholders following an insolvency event of the Seller, as
provided in the pooling and servicing agreement; and
(3) a day which is 21 years less one day after the death of the officers
and the last survivor of all the lineal descendants of every officer
of the trustee who are living on the date hereof except that if at any
time any of the obligations and responsibilities of the Seller, the
servicer and the trustee under the pooling and servicing agreement
shall be or become valid under applicable law for a period subsequent
to the 21st anniversary of the death of such last survivor (or,
without limiting the generality of the foregoing, if legislation shall
become effective providing for the validity or permitting the
effective grant of responsibilities and obligations for a period in
gross, exceeding the period for which such responsibilities and
obligations are hereinabove stated to extend and be valid), then such
responsibilities and obligations shall not terminate but shall extend
to and continue in effect, but only if such nontermination and
extension shall then be valid under applicable law, until one day
prior to such time as the same shall, under applicable law, cease to
be valid.
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Upon termination of the trust, all right, title and interest in the dealer
notes held by the trust, and other funds of the trust (other than amounts in the
Collections Account, the Excess Funding Account, any Series Principal Account or
distribution account for the final distribution of principal and interest to
certificateholders, swap counterparties and other Enhancement Providers) will be
conveyed and transferred to the Seller.
In any event, the last payment of principal and interest on the investor
certificates will be due and payable no later than the "Series Termination Date"
which will be set forth in the prospectus supplement. In the event that the
Invested Amount is greater than zero on the Series Termination Date (after
giving effect to deposits and distributions otherwise to be made on the Series
Termination Date), the trustee will sell or cause to be sold (and apply the
proceeds to the extent necessary to pay the remaining amounts to all investor
certificateholders) an interest in the dealer notes in an amount equal to 110%
of the Invested Amount on the Series Termination Date after giving effect to
those deposits and distributions except that in no event shall that amount
exceed the Series Allocation Percentage for the due period in which the Series
Termination Date occurs of dealer notes and amounts on deposit in the Excess
Funding Account held by the trust on the Series Termination Date. The net
proceeds of that sale and any collections on the dealer notes will be paid pro
rata to investor certificateholders, subject to any applicable subordination
provisions, on the Series Termination Date as the final payment on the investor
certificates.
Fully Funded Date. Following the occurrence of the Fully Funded Date,
investor certificateholders will no longer have any interest in the dealer
notes, and all the representations and covenants of the Seller and the servicer
relating to the dealer notes as well as certain other provisions of the pooling
and servicing agreement and all remedies for breach of those representations and
covenants, will no longer accrue to the benefit of the investor
certificateholders. In addition, upon the occurrence of the Fully Funded Date:
- no finance charge collections, principal collections or Dealer Note
Losses will be allocated to that series; and
- if the final distribution has been made on each other series of investor
certificates or the Fully Funded Date has occurred, all right, title and
interest in the dealer notes (and related assets held by the trust) will
be conveyed and transferred to the Seller.
REPORTS TO INVESTOR CERTIFICATEHOLDERS
On each distribution date, the paying agent will forward to each investor
certificateholder (which is expected to be Cede as nominee for DTC unless
definitive certificates are issued) a statement prepared by the servicer and
delivered to the trustee based on information provided by the servicer setting
forth, among other things, the following information (which, in the case of (a),
(b), (c), (h) and (i) below, will be stated on the basis of an original
principal amount of $1,000 per offered certificate):
(a) the aggregate amount of collections, including the aggregate amount of
finance charge collections and the aggregate amount of principal
collections for the related due period;
(b) the Series Allocation Percentage for the related due period;
(c) the total amount, if any, to be distributed on the investor
certificates on that distribution date;
(d) the amount, if any, of the distribution allocable to the Invested
Amount;
(e) the amount, if any, of the distribution allocable to interest on the
investor certificates;
(f) Dealer Note Losses for the related due period;
(g) the amount of the Investor Series Servicing Fee to be paid on that
distribution date;
(h) any controlled deposit amount for the related due period (if
applicable);
(i) the Invested Amount (after giving effect to all distributions that
will occur on that distribution date);
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(j) the aggregate amount of dealer notes and funds on deposit in the
Excess Funding Account as of the end of the last day of the related
due period (after giving effect to payments and adjustments made
pursuant to the pooling and servicing agreement);
(k) the Available Subordinated Amount (after giving effect to draws thereon
on that distribution date);
(l) with respect to Eligible Investments in the Series Principal Account
and the Excess Funding Account, a listing of all of these investments
as of the last day of the due period, including specified information
with respect thereto;
(m) the aggregate amount of shared seller principal collections from that
series and other series, and the amount of shared seller principal
collections allocated to the investor certificates of that series and
to other series; and
(n) any other item specified in the prospectus supplement.
In addition, on or about January 31 of each calendar year (beginning in
2001 with respect to the investor certificateholders), the trustee will furnish
to the servicer and the paying agent a list of each person who at any time
during the preceding calendar year was an investor certificateholder and
received any payment on an investor certificate and the dates that person held
an investor certificate, and the paying agent will furnish to each investor
certificateholder a statement prepared by the paying agent containing the
information required to be provided by an issuer of indebtedness under the Code
for that preceding calendar year or the applicable portion thereof during which
that person was an investor certificateholder, together with any other customary
information as is necessary or desirable to enable the investor
certificateholders to prepare their tax returns. As long as the holder of record
of the investor certificates is Cede, as nominee of DTC, beneficial owners of
investor certificates will receive tax and other information from Participants
and Indirect Participants rather than from the trustee or the servicer.
EVIDENCE AS TO COMPLIANCE
Pursuant to the pooling and servicing agreement, on or about April 15 of
each calendar year, the servicer will cause a firm of nationally recognized
independent public accountants (who may also render other services to the
servicer or the Seller) to furnish a report to the trustee to the effect that
they have compared the mathematical calculations of each amount set forth in
each of the monthly certificates forwarded by the servicer to the Seller, the
trustee and the paying agent (as required under the pooling and servicing
agreement) during the preceding calendar year with the computer reports of the
servicer and those accountants are of the opinion that those amounts are in
agreement, except for those exceptions as shall be set forth in that report. In
addition, a firm has furnished and will continue to furnish a report to the
trustee and the servicer to the effect that the firm is of the opinion that the
system of internal accounting controls in effect on the date of the statement
relating to the servicing procedures performed by the servicer under the pooling
and servicing agreement, taken as a whole, was sufficient for the prevention and
detection of errors and irregularities which would be material to the assets of
the trust and that nothing has come to their attention that would cause them to
believe that the servicing has not been conducted in compliance with the pooling
and servicing agreement, except for those exceptions as shall be set forth in
that report. The procedures to be followed by those accountants will not
constitute an audit conducted in accordance with generally accepted auditing
standards.
The pooling and servicing agreement also requires the servicer to have
delivered to the trustee, the Seller and the rating agencies, on or about April
15 of each calendar year, and within ten business days of the servicer's
discovery of a Servicer Termination Event, an officer's certificate stating that
(1) in the course of that officer's duties as an officer of the servicer
that officer would normally obtain knowledge of any Servicer Termination
Event; and
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(2) whether that officer has obtained knowledge of any that Servicer
Termination Event, and, if so, specifying each Servicer Termination
Event of which the signing officer has knowledge and the nature of the
Servicer Termination Event.
The pooling and servicing agreement requires the Seller to have delivered
to the trustee, the servicer and the rating agencies, on or about April 15 of
each calendar year, and within ten business days after the Seller has knowledge
of any event discussed below, an officer's certificate stating that
(1) in the course of that officer's duties as an officer of the Seller
that officer would normally obtain knowledge of any Investment Event or
an Early Amortization Event or any breach of the Seller's covenants in
the pooling and servicing agreement; and
(2) whether that officer has obtained knowledge of any that Investment
Event or Early Amortization Event or breach of covenant, and, if so,
specifying that Investment Event or Early Amortization Event or breach
of covenant of which the signing officer has knowledge and the nature of
the event.
The servicer will give the trustee copies of all statements, certificates
and reports, and copies of these documents may be obtained by a request in
writing to the trustee addressed to the corporate trust office.
INDEMNIFICATION OF TRUST AND TRUSTEE; LIMITATION ON LIABILITY OF CERTAIN PERSONS
Pursuant to the terms of the pooling and servicing agreement, the Seller
and Navistar Financial will indemnify and hold harmless the trust and the
trustee from and against any loss, liability, expense, damage or injury suffered
arising out of the activities of the trust or the trustee, except that:
(1) the Seller and Navistar Financial will not indemnify the trust or the
investor certificateholders for liabilities arising from actions taken
by the trustee at the request of investor certificateholders;
(2) the Seller and Navistar Financial will not indemnify the trust or the
trustee for any liability, costs, or expenses of the trust or the
trustee resulting from the trustee's own negligent action, its own
negligent failure to act, or its own misconduct; and
(3) the Seller and Navistar Financial will not indemnify the trust or the
investor certificateholders with respect to any federal, state, or local
income or franchise taxes (or any interest or penalties with respect
thereto) required to be paid by the investor certificateholders.
The pooling and servicing agreement provides that no recourse under any
obligation or covenant of the pooling and servicing agreement, or for any claim
based thereon, may be had against any incorporator, director, officer, or
stockholder of the Seller or the servicer. The servicer will be under no
obligation to appear in, prosecute, or defend any legal action which is not
incidental to its duties under the pooling and servicing agreement which in the
servicer's reasonable opinion may involve it in any expense or liability.
THE TRUSTEE
The prospectus supplement with respect to each series of investor
certificates will specify the entity that will act as the trustee under the
pooling and servicing agreement, including the location of its principal office
for the conduct of its corporate trust business (the "corporate trust office")
as of the date of this prospectus. Navistar Financial and its affiliates (other
than the Seller) may enter into normal banking and trustee relationships with
the trustee. The trustee may not hold certificates issued under the trust in its
own name (but may do so in a fiduciary capacity). In addition, for purposes of
meeting the legal requirements of certain local jurisdictions, the trustee will
have the power to appoint a co-trustee or separate trustees of all or any part
of the trust. In the event of an appointment, all rights, powers, duties and
obligations conferred or imposed upon the trustee by the pooling and servicing
agreement will be conferred or imposed upon the trustee and the separate trustee
or co-trustee jointly, or, in any jurisdiction in which the trustee shall be
incompetent or unqualified to perform certain acts, singly upon the separate
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trustee or co-trustee who will exercise and perform those rights, powers, duties
and obligations solely at the direction of the trustee.
The trustee may resign at any time upon written notice to the Seller and
the appointment of a successor trustee. In addition, the Seller may remove the
trustee if the trustee ceases to be eligible to continue as to be ineligible
under the pooling and servicing agreement or if the trustee becomes insolvent.
In these circumstances, the Seller will be obligated to appoint a successor
trustee. Any resignation or removal of the trustee and appointment of a
successor trustee does not become effective until acceptance of the appointment
by the successor trustee.
AMENDMENTS
The pooling and servicing agreement or any supplement may be amended by the
Seller, the servicer and the trustee without the consent of the investor
certificateholders of any series, provided the amendment will not, as evidenced
by an officer's certificate of the servicer, have a material adverse effect on
the interests of the investor certificateholders of that series.
The pooling and servicing agreement or supplement may also be amended by
the Seller, the servicer and the trustee with the consent of the holders of
certificates evidencing not less than 66 2/3% of the aggregate series invested
amounts of the senior most outstanding class of investor certificates of each
adversely affected series for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the pooling and
servicing agreement or of modifying in any manner the rights of investor
certificateholders. No amendment, however, may:
(1) reduce in any manner the stated amount of, or delay the stated timing
of, distributions required to be made on any investor certificate or the
stated amount available under any Enhancement without the consent of the
holder of the investor certificate;
(2) change the manner of calculating the Certificateholder's Interest of
any series without the consent of all investor certificateholders of the
adversely affected series;
(3) adversely affect the rating of any series or class of any rating
agency without the consent of two-thirds of the voting interests of that
series or class; or
(4) reduce the percentages of the voting interests in clause (3) required
to consent to the amendment without the consent of each investor
certificateholder.
Promptly following the execution of an amendment described in this
paragraph, the trustee will furnish written notice of the substance of the
amendment to each certificateholder.
LIST OF INVESTOR CERTIFICATEHOLDERS
In the event that definitive certificates are issued, upon written request
of three or more investor certificateholders of record, and after having been
adequately indemnified by those investor certificateholders for its costs and
expenses, the trustee will afford those investor certificateholders access,
during normal business hours, to the current list of investor certificateholders
for purposes of communicating with other investor certificateholders about their
rights under the pooling and servicing agreement.
SELLER AUTHORIZED TO FILE REPORTS PURSUANT TO THE SECURITIES ACT AND THE
SECURITIES EXCHANGE ACT
The Seller is authorized to file on behalf of the trust all reports
required to be filed with the Commission or any exchange or association of
securities dealers pursuant to the Securities Act and the Exchange Act, or any
rules or regulations thereunder. The Seller does not intend to maintain
registration of the investor certificates under the Exchange Act if it becomes
unnecessary to do so.
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CERTAIN LIMITATIONS ON RIGHTS OF INVESTOR CERTIFICATEHOLDERS
Except as otherwise described in "Amendments," no investor
certificateholder will have any right to vote or control in any manner the
operation and management of the trust, or the obligations of the parties to the
trust. The pooling and servicing agreement does not provide for any annual or
other meeting of the investor certificateholders.
GOVERNING LAW
The trust will be administered by the trustee in accordance with the
internal laws of the State of Illinois, without reference to its conflict of law
provisions.
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DESCRIPTION OF THE PURCHASE AGREEMENT
The dealer notes are transferred to the trust by the Seller and are
acquired by the Seller from Navistar Financial pursuant to the purchase
agreement dated as of June 8, 1995 between Navistar Financial and the Seller
(the "purchase agreement"). The following summary describes specified terms of
the purchase agreement, but this summary is not a complete description of the
purchase agreement.
DAILY SALES OF DEALER NOTES
The purchase agreement provides that on each business day during the term
of the trust (except upon the occurrence of a bankruptcy event involving the
Seller, Navistar Financial, International or Navistar International
Corporation), Navistar Financial will sell to the Seller (each such transaction,
a "Daily Note Sale") all eligible dealer notes existing and owned by Navistar
Financial as of that business day, all monies due or to become due with respect
thereto and all proceeds (including Insurance Proceeds) thereon, and the
interest of Navistar Financial in the security interests in the financed
vehicles related to the dealer notes. The purchase agreement permits Navistar
Financial to adjust the principal amount of dealer notes that are considered
eligible dealer notes. See "Description of the Investor Certificates -- Eligible
Dealer Notes."
The purchase price to be paid by the Seller for those dealer notes will
equal the principal amount of those dealer notes plus accrued finance charges on
the dealer notes, and will be paid to Navistar Financial in the form of cash or
a master loan under the Master Revolving Credit Agreement. However, if the
amount specified above does not, in the opinion of the Seller, approximate the
fair market value of the dealer notes being purchased, then the Daily Note Sale
shall be on terms between Navistar Financial and the Seller that reasonably
approximate the fair market value.
In connection with each Daily Note Sale, Navistar Financial will update its
computer files to indicate that the dealer notes have been sold or transferred
to the Seller pursuant to a Daily Note Sale. In addition, Navistar Financial
will provide to the Seller, a computer file, hard copy, or microfiche list
containing a true and complete list of all dealer notes sold to the Seller
pursuant to that Daily Note Sale, identified by dealer note number. The records
and agreements relating to the dealer notes have not been and will not be
segregated by Navistar Financial from other documents and agreements relating to
other wholesale notes and have not been and will not be stamped or marked to
reflect the sale or transfer of the dealer notes to the Seller, but the computer
records of Navistar Financial are marked to evidence the sale or transfer.
Navistar Financial has filed Uniform Commercial Code financing statements with
respect to the dealer notes meeting the requirements of Illinois, New York and
Delaware state law. See "Risk Factors -- A bankruptcy of Navistar Financial or
the Seller may delay or reduce payments on the investor certificates" and
"Certain Matters Relating to the Dealer Notes."
REPRESENTATIONS AND WARRANTIES
Navistar Financial has made representations and warranties to the Seller to
the effect that, among other things:
(1) it is duly incorporated and in good standing and that it has the
authority to consummate the transactions contemplated by the purchase
agreement;
(2) the purchase agreement is the valid, binding and enforceable
obligation of Navistar Financial;
(3) that all information furnished to the Seller is accurate in all
material respects; and
(4) that there are no proceedings pending or threatened against Navistar
Financial that would have a material adverse effect on the performance
by Navistar Financial of its obligations under the purchase agreement.
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REPURCHASE OBLIGATIONS
Navistar Financial has agreed in the purchase agreement that if the Seller
is required to repurchase the Investor Certificateholders' Interest pursuant to
the pooling and servicing agreement, Navistar Financial will in turn repurchase
the Investor Certificateholders' Interest from the Seller. The purchase price
paid by Navistar Financial will be equal to the purchase price required to be
paid by the Seller pursuant to the pooling and servicing agreement, and shall be
paid prior to or concurrently with any corresponding payments required to be
made by the Seller pursuant to the pooling and servicing agreement.
Navistar Financial also has agreed in the purchase agreement to repurchase
any dealer note from the Seller if
(1) that dealer note has not been sold to the Seller free and clear of any
encumbrances or is not in compliance with all legal requirements
applicable to Navistar Financial;
(2) Navistar Financial has not obtained all necessary governmental
consents or approvals required to be obtained in connection with the
sale of that dealer note to the Seller; or
(3) the Seller has otherwise been required to repurchase the dealer note
pursuant to the pooling and servicing agreement.
The purchase price to be paid for the repurchased dealer note will equal
the principal amount of the dealer note plus accrued finance charges on the
dealer note. Navistar Financial must pay for the dealer note no later than the
date upon which the Seller is obligated to make a corresponding payment to the
trust pursuant to the pooling and servicing agreement.
CERTAIN COVENANTS
In the purchase agreement, Navistar Financial has covenanted that it will
perform its obligations under the agreements relating to the dealer notes in
conformity with the Credit Guidelines. Navistar Financial has further covenanted
that, except for the sale and conveyances under the purchase agreement or the
pooling and servicing agreement, Navistar Financial will not sell, pledge,
assign or transfer any interest in the dealer notes to any other person.
Navistar Financial has also covenanted that it will file all necessary documents
covering the Seller's right, title and interest in the dealer notes.
TERMINATION
The purchase agreement will terminate immediately after the trust
terminates.
CERTAIN MATTERS RELATING TO BANKRUPTCY
The certificate of incorporation of the Seller includes a provision that,
under certain circumstances, requires the Seller to designate two directors who
qualify under the certificate of incorporation as "independent directors." The
certificate of incorporation of the Seller also provides that the Seller will
not file a voluntary petition for relief under the Bankruptcy Code without the
unanimous affirmative vote of its directors. Pursuant to the pooling and
servicing agreement, the servicer, the trustee and each investor
certificateholder covenant that they will not institute against the Seller or
the trust any bankruptcy, reorganization or other proceedings under any federal
or state bankruptcy law until one year and one day after all investor
certificateholders have been paid in full.
The transfers of dealer notes from International to Navistar Financial,
from Navistar Financial to the Seller and from the Seller to the trust have been
structured as sales and will be treated by the parties as sales. In 1993, the
U.S. Court of Appeals for the Tenth Circuit ruled that accounts sold prior to a
bankruptcy should be treated as property of the bankruptcy estate. In the event
that International, Navistar Financial or the Seller were to become a debtor in
a bankruptcy case and a creditor or trustee in bankruptcy of that debtor or that
debtor itself were to apply this analysis or otherwise take the position
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that the transfer of the dealer notes from that debtor to the Seller or the
trust, as the case may be, should be recharacterized as a pledge of the dealer
notes to secure a borrowing by that debtor, then delays in receipt of
collections on the dealer notes to the trust and payments on the investor
certificates could result. Should the court rule in favor of any creditor,
trustee in bankruptcy or debtor, reductions in the amount of those payments
could also result.
In addition, if Navistar Financial or the Seller were to become a debtor in
a bankruptcy case and a creditor or trustee in bankruptcy of that debtor or that
debtor itself were to request a court to order that Navistar Financial should be
substantively consolidated with the Seller, delays in payments on the investor
certificates could result. Should the bankruptcy court rule in favor of any that
creditor, trustee in bankruptcy or debtor, reductions in the amount of those
payments could result.
If Navistar International Corporation, International, Navistar Financial or
the Seller were to become a debtor in a bankruptcy case, an Early Amortization
Event would occur. In this event, all Series Allocable Principal Collections
would be applied to principal payments on the investor certificates and dealer
notes thereafter would no longer be sold to the Seller and transferred to the
trust. The occurrence of specified events of bankruptcy, insolvency or
receivership with respect to the servicer will also result in a Servicer
Termination Event. A trustee in bankruptcy of the servicer (including the
servicer as debtor in possession) may have the power to prevent either the
trustee or the holders of investor certificates issued by the trust from
appointing a successor servicer.
In addition, if the pooling and servicing agreement is deemed an executory
contract under bankruptcy laws, a trustee in bankruptcy of any party to the
agreement (including a debtor in possession) may have the power to assume (that
is, reaffirm) or reject that agreement. A party deciding whether to assume or
reject any agreement would be given a reasonable period of time to make a
decision, perhaps even until the time of confirmation of the plan of
reorganization, which could result in delays in payments or distributions on the
investor certificates.
Transfers made in some isolated transactions contemplated by the pooling
and servicing agreement (including payments made by Navistar Financial or the
Seller with respect to repurchases of dealer notes) may be recoverable by
Navistar Financial or the Seller, as debtor in possession, or by a trustee in
bankruptcy of Navistar Financial or the Seller, as a preferential transfer from
Navistar Financial or the Seller if the transfers are made within specified
periods prior to the filing of a bankruptcy case in respect of Navistar
Financial or the Seller and specified other conditions are met.
In addition, application of federal bankruptcy and state debtor relief laws
to any dealer could affect the interests of the trust and the trustee in the
dealer notes of that dealer if the enforcement of those laws result in any
dealer notes conveyed to the trust being written off as uncollectible by the
servicer. Whether or not any dealer notes are written off as uncollectible,
delays in payments due on the dealer notes could result.
CERTAIN MATTERS RELATING TO THE DEALER NOTES
The Seller has warranted in the pooling and servicing agreement that the
transfer of the dealer notes to the trust is either:
(1) a valid transfer and assignment of the dealer notes to the trust; or
(2) a grant to the trust of a security interest in the dealer notes.
The Seller has taken all required actions under Illinois, New York and
Delaware state law to perfect the trust's interests in the trust assets. In
addition, the Seller has warranted that, if the transfer of dealer notes by the
Seller to the trust is a grant to the trust of a security interest in the dealer
notes, the trust will at all times have a first priority perfected security or
ownership interest in all dealer notes transferred to the trust and all proceeds
thereof, except that if a transfer is deemed to create a security interest under
the Uniform Commercial Code, certain prospective liens on the property of the
Seller may have priority over the trust's interests in the dealer notes. If the
Seller were to become a debtor in a bankruptcy case,
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and a bankruptcy trustee or the Seller as debtor in possession or a creditor of
the Seller were to take the position that the transfer of the dealer notes from
the Seller to the trust should be recharacterized as a pledge of the dealer
notes, delays in distributions on the investor certificates could result. Should
the bankruptcy court rule in favor of any such trustee, debtor in possession or
creditor, reductions in the distributions could result. There is a substantial
possibility that the trust may not have a perfected security interest in any of
the dealer notes created after the filing of a petition for relief under the
Bankruptcy Code. Nevertheless, we anticipate that the trust will either own or
have a perfected security interest in dealer notes existing on the date of
filing a petition under the Bankruptcy Code and will be able to make payments in
respect of principal and interest on the investor certificates. We cannot assure
that all of these payments would be timely.
MATERIAL FEDERAL INCOME TAX MATTERS
GENERAL
We describe below the material U.S. federal income tax consequences of the
purchase, ownership and disposition of investor certificates. The discussion is
based upon current provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), existing and proposed Treasury Regulations under the Code, current
administrative rulings, judicial decisions and other applicable authorities.
There are no cases or Internal Revenue Service ("IRS") rulings on similar
transactions involving instruments issued by a trust with terms similar to the
investor certificates. As a result, we cannot assure that the IRS will not
challenge the conclusions reached in this discussion. Also, we have not sought
and will not seek a ruling from the IRS. Furthermore, legislative, judicial or
administrative changes may occur, perhaps with retroactive effect, that could
affect the accuracy of the statements and conclusions in this discussion as well
as the tax consequences to investor certificateholders.
This discussion does not deal with all aspects of federal income taxation
that may be relevant to investor certificateholders in light of their personal
investment circumstances, nor, except for certain limited discussions of
particular topics, to certain types of holders subject to special treatment
under the federal income tax laws. Examples include financial institutions,
broker-dealers, life insurance companies, tax-exempt organizations, nonresident
alien individuals and foreign corporations. This information is directed to
prospective purchasers of investor certificates who purchase investor
certificates in the primary offering, who are citizens or residents of the
United States, including domestic corporations and partnerships, and who hold
the investor certificates as "capital assets" within the meaning of Section 1221
of the Code. WE SUGGEST THAT YOU CONSULT WITH YOUR OWN TAX ADVISORS AND TAX
RETURN PREPARERS REGARDING THE PREPARATION OF ANY ITEM ON A TAX RETURN, EVEN
WHEN THE ANTICIPATED TAX TREATMENT HAS BEEN DISCUSSED IN THIS PROSPECTUS. WE
SUGGEST THAT YOU CONSULT WITH YOUR OWN TAX ADVISORS AS TO THE FEDERAL, STATE,
LOCAL, FOREIGN AND ANY OTHER TAX CONSEQUENCES TO YOU OF THE PURCHASE, OWNERSHIP
AND DISPOSITION OF INVESTOR CERTIFICATES.
CHARACTERIZATION OF THE INVESTOR CERTIFICATES AS INDEBTEDNESS
The Seller, Navistar Financial and the investor certificateholders express
in the pooling and servicing agreement and in the investor certificates their
intent that, for federal, state and local income and franchise tax purposes, the
investor certificates will be indebtedness secured by the dealer notes. The
Seller and each investor certificateholder, by acquiring an interest in an
investor certificate, will agree to treat the investor certificates as
indebtedness for federal, state and local income and franchise tax purposes.
With respect to the issuance of the investor certificates, Kirkland & Ellis,
special tax counsel to the Seller and Navistar Financial ("Tax Counsel"), will
deliver its opinion to the effect that, although no specific authority exists
with respect to the characterization for federal income tax purposes of
securities having the same terms as the investor certificates, based on the
terms of the investor certificates and the transactions regarding the dealer
notes set forth in this prospectus, the investor certificates will be
characterized as indebtedness for federal income tax purposes. See "-- Tax
Characterization of the Trust -- Risks of Alternative Characterization" below
for a discussion of the potential federal income tax consequences to investor
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certificateholders if the IRS were successful in challenging the
characterization of the investor certificates for federal income tax purposes.
The discussion of federal income tax consequences set forth below assumes that
the investor certificates are treated as debt for federal income tax purposes.
STATED INTEREST ON INVESTOR CERTIFICATES
Based on the above opinion, and assuming the investor certificates are not
issued with original issue discount ("OID"), the stated interest on investor
certificates will be taxable to an investor certificateholder as ordinary income
when received by investor certificateholders utilizing the cash method of
accounting and when accrued by investor certificateholders utilizing the accrual
method of accounting. As discussed below, the investor certificates will be
subject to the rules applicable to bond premium and market discount. Interest
received on the investor certificates may constitute "investment income" for
purposes of certain limitations of the Code concerning the deductibility of
investment interest expense.
ORIGINAL ISSUE DISCOUNT
In general, OID is the excess of the "stated redemption price at maturity"
of a debt instrument over its "issue price," unless that excess falls within a
statutorily defined de minimis exception. An investor certificate's "stated
redemption price at maturity" is the aggregate of all payments required to be
made under the investor certificate through maturity except "qualified stated
interest." "Qualified stated interest" is generally interest that is
unconditionally payable in cash or property (other than debt instruments of the
issuer) at fixed intervals of one year or less during the entire term of the
instrument at certain specified rates. The "issue price" will generally be the
first price at which a substantial amount of the investor certificates are sold,
excluding sales to bond holders, brokers or similar persons acting as
underwriters, placement agents or wholesalers.
Although we do not anticipate that any of the investor certificates will be
issued at a greater than de minimis discount and therefore should not have OID,
a class of investor certificates may nevertheless be deemed to be issued with
OID. If an investor certificate were treated as being issued with OID, the
investor certificateholder would generally be required to include OID in income
as interest over the term of the investor certificate on a constant yield basis,
resulting in the inclusion in income in advance of the receipt of cash
attributable to that income. Thus, each cash payment would be treated as an
amount already included in income (to the extent OID has accrued as of the date
of the interest distribution and is not allocated to prior distributions), or as
a repayment of principal. This treatment should not have a significant effect on
investor certificateholders using the accrual method of accounting. However,
investor certificateholders utilizing the cash method of accounting may be
required to report income with respect to the investor certificates in advance
of the receipt of cash representing that income. Even if an investor certificate
has OID falling within the de minimis exception, an investor certificateholder
must include such OID in income proportionately as principal payments are made
on that investor certificate.
A holder of an investor certificate which has a fixed maturity date not
more than one year from the issue date of that investor certificate (a
"Short-Term Certificate") will generally not be required to include OID on the
investor certificate in income as it accrues, provided that the holder
- is not an accrual method taxpayer,
- is not a bank,
- is not a broker or dealer that holds the investor certificate as
inventory,
- is not a regulated investment company or common trust fund,
- is not the beneficial owner of certain pass-through entities specified
in the Code,
- does not hold the instrument as part of a hedging transaction, or
- does not hold the instrument as a stripped bond or stripped coupon.
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Instead, the holder of a Short-Term Certificate would include the OID
accrued on the investor certificate in gross income upon a sale or exchange of
the investor certificate or at maturity, or if that investor certificate is
payable in installments, as principal is paid on the investor certificate. Such
a holder would be required to defer deductions for any interest expense on an
obligation incurred to purchase or carry the Short-Term Certificate to the
extent it exceeds the sum of any interest income and OID accrued on that
investor certificate. However, that holder may elect to include OID in income as
it accrues on all obligations having a maturity of one year or less held by the
holder in that taxable year or thereafter, in which case the deferral rule of
the preceding sentence will not apply. For purposes of this paragraph, OID
accrues on a Short-Term Certificate on a ratable (straight-line) basis, unless
the holder irrevocably elects (under regulations to be issued by the United
States Treasury Department) with respect to that obligation to apply a constant
interest method, using the holder's yield to maturity and daily compounding.
TREATMENT OF MARKET DISCOUNT AND ACQUISITION PREMIUM
A holder who purchases an investor certificate after the initial
distribution of the investor certificate at a "market discount" that exceeds a
statutorily defined de minimis amount will be subject to the "market discount"
rules of the Code. A holder who purchases an investor certificate at a premium
will be subject to the bond premium amortization rules of the Code.
In general, "market discount" is the excess of stated redemption price at
maturity or its adjusted issue price if it was issued with OID over its purchase
price. If an investor certificate were purchased after the initial distribution
of the investor certificate at a "market discount," any gain on sale of that
investor certificate attributable to the holder's unrecognized accrued market
discount would generally be treated as ordinary income to the holder. In
addition, a holder who acquires a debt instrument at a market discount may be
required to defer a portion of any interest expense that otherwise may be
deductible on any indebtedness incurred or maintained to purchase or carry the
debt instrument until the holder disposes of the debt instrument in a taxable
transaction. Instead of recognizing any market discount upon a disposition of an
investor certificate and being required to defer any applicable interest
expense, a holder may elect to include market discount in income currently as
the discount accrues. The current income inclusion election, once made, applies
to all market discount obligations acquired on or after the first day of the
first taxable year in which the election applies, and may not be revoked without
the consent of the IRS.
In the event that an investor certificate is treated as purchased at a
premium, that premium will be amortizable by an investor certificateholder as an
offset to interest income (with a corresponding reduction in that investor
certificateholder's tax basis) on a constant yield basis if that investor
certificateholder elects to do so. This election will also apply to all other
debt instruments held by the investor certificateholder during the year in which
the election is made and to all debt instruments acquired after that year.
DISPOSITION OF INVESTOR CERTIFICATES
If an investor certificateholder sells an investor certificate, the holder
will recognize gain or loss in an amount equal to the difference between the
amount realized on the sale and the holder's adjusted tax basis in the investor
certificate. The adjusted tax basis of the investor certificate to a particular
investor certificateholder will generally equal the holder's cost for the
investor certificate, increased by any OID and market discount previously
included by such investor certificateholder in income with respect to the
investor certificate and decreased by any bond premium previously amortized and
any principal payments previously received by that investor certificateholder
with respect to that investor certificate. This gain or loss will be capital
gain or loss if the investor certificate was held as a capital asset, except for
gain representing accrued interest or accrued market discount not previously
included in income. Capital gain or loss will be long-term if the investor
certificate was held by the holder for more than one year and otherwise will be
short-term. Any capital losses realized generally may be used by a corporate
taxpayer only to offset capital gains, and by an individual taxpayer only to the
extent of capital gains plus $3,000 of other income.
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INFORMATION REPORTING AND BACKUP WITHHOLDING
The trustee will be required to report annually to the IRS, and to each
related investor certificateholder of record, the amount of interest paid on the
investor certificates and the amount of any interest withheld for federal income
taxes for each calendar year, except as to exempt holders. Exempt holders are
generally corporations, tax-exempt organizations, qualified pension and
profit-sharing trusts, individual retirement accounts, or nonresident aliens who
provide certification as to their status. Each non-exempt holder will be
required to provide to the trustee, under penalties of perjury, a certificate
containing the holder's name, address, correct federal taxpayer identification
number and a statement that the holder is not subject to backup withholding.
Should a nonexempt investor certificateholder fail to provide the required
certification, the trustee will be required to withhold, from interest otherwise
payable to the holder, 31% of that interest and remit the withheld amount to the
IRS as a credit against the holder's federal income tax liability.
The IRS has issued new regulations governing the backup withholding and
information reporting requirements. The new regulations are generally effective
for payments made after December 31, 2000. Investor certificateholders should
consult their tax advisors with respect to any effect of the new regulations.
Because the Seller will, for federal income tax purposes, treat all
investor certificates as indebtedness issued by a trust characterized as either
a partnership or a division of whichever entity owns all of the Seller's
Certificates, the Seller will not comply with the tax reporting requirements
that would apply under any alternative characterization of the investor
certificates or the trust described below.
TAX CONSEQUENCES TO FOREIGN HOLDERS
Based on the above opinion that the investor certificates will be treated
as indebtedness for federal income tax purposes, if interest paid (or accrued)
and/or OID accrued to an investor certificateholder who is a nonresident alien,
foreign corporation or other non-U.S. person (a "foreign person") is not
effectively connected with the conduct of a trade or business within the United
States by the foreign person, the interest and or OID (if any) generally will be
considered "portfolio interest," and generally will not be subject to federal
income tax and withholding tax, provided that the foreign person
- is not actually or constructively a "10 percent shareholder" of the
trust or the Seller (including a holder of 10% of the outstanding
Seller's Certificates) or a "controlled foreign corporation" with
respect to which the trust or the Seller is a "related person" within
the meaning of the Code or a bank whose receipt of interest is described
in Section 871(h)(3) of the Code, and
- provides an appropriate statement, signed under penalties of perjury,
certifying that the beneficial owner of the investor certificate is a
foreign person and providing that foreign person's name and address.
If the information provided in this statement changes, the investor
certificateholder must so inform the trustee within 30 days of such change. If
that interest was not portfolio interest, then it would be subject to federal
income tax withholding at a rate of 30 percent, unless that tax was reduced or
eliminated pursuant to an applicable tax treaty. The IRS has issued new
regulations governing withholding, backup withholding and information reporting
requirements. The new regulations are generally effective for payments made
after December 31, 2000. Foreign persons should consult their tax advisors with
respect to any effect of the new regulations.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of an investor certificate by a foreign person will be
exempt from federal income and withholding tax, provided that
- the gain is not effectively connected with the conduct of a trade or
business in the United States by the foreign person, and
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- in the case of an individual, the foreign person is not present in the
United States for 183 days or more in the taxable year.
If the interest, gain or income on an investor certificate held by the
foreign person is effectively connected with the conduct of a trade or business
in the United States by the foreign person, the holder (although exempt from the
income withholding tax previously discussed if an appropriate statement is
furnished) generally will be subject to federal income tax on the interest, gain
or income at regular federal income tax rates. In addition, if the foreign
person is a foreign corporation, it may be subject to a branch profits tax equal
to 30 percent of its "effectively connected earnings and profits" within the
meaning of the Code for the taxable year, as adjusted for certain items, unless
it qualifies for a lower rate under an applicable tax treaty.
Under current Treasury regulations, backup withholding (imposed at a rate
of 31%) will not apply to payments made in respect of an investor certificate
held by a foreign person if the certifications described above are received,
provided in each case that the trust or the paying agent, as the case may be,
does not have actual knowledge that the payee is a U.S. person. The IRS has
issued new regulations governing the backup withholding and information
reporting requirements. The new regulations are generally effective for payments
made after December 31, 2000. Investor certificateholders who are foreign
persons should consult their tax advisors with respect to the any effect of the
new regulations. Because the Seller will, for federal income tax purposes, treat
all investor certificates as indebtedness issued by a trust characterized as
either a partnership or a division of whichever entity owns all of the Seller's
Certificates, the Seller will not comply with the tax reporting requirements
that would apply under any alternative characterization of the investor
certificates or trust described below.
TAX CHARACTERIZATION OF THE TRUST
Depending upon whether the equity of the trust is owned by one or more
persons, the trust will be treated as a partnership or a division of the Seller
for federal income tax purposes. Although, as described above, it is the opinion
of Tax Counsel that the investor certificates will properly be characterized as
indebtedness for federal income tax purposes, this opinion is not binding on the
IRS or the courts and we cannot assure that this characterization will prevail.
If the IRS were to contend successfully that any class of any series of investor
certificates is not debt for federal income tax purposes or if Seller's
Certificates are sold or issued in any manner which results in there being more
than one holder of Seller's Certificates, the arrangement among the Seller, the
servicer and the holders of that class of investor certificates or Seller's
Certificates, as applicable, would be classified as a partnership for federal
income tax purposes.
If the IRS treats the investor certificates as indebtedness and if all of
the Seller's Certificates are owned by the Seller, the equity of the trust will
be wholly-owned by the Seller. In that case, under the "check-the-box" Treasury
Regulations, the trust will be treated as a division of the Seller, and hence a
disregarded entity for federal income tax purposes. In other words, for federal
income tax purposes, the Seller will be treated as the owner of all the assets
of the trust and the obligor of all the liabilities of the trust. Accordingly,
the trust would not be liable for any federal income taxes as it would be deemed
not to exist for federal income tax purposes. Under the "check-the-box" Treasury
regulations, unless it is treated as a trust for federal income tax purposes, an
unincorporated domestic entity with more than one equity owner is automatically
classified as a partnership for federal income tax purposes. Because it is a
business trust, the trust will not qualify as a trust for federal income tax
purposes. Accordingly, if the IRS were to contend successfully that any class of
any series of investor certificates is not debt for federal income tax purposes
or if the Seller's Certificates are sold or issued in any manner which results
in there being more than one holder of Seller's Certificates, the trust will be
treated as a partnership.
If the Seller's Certificates are issued to more than one person, the Seller
and the servicer will agree, and the applicable holders of the Seller's
Certificates will agree by their purchase or acquisition of those Seller's
Certificates, to treat the trust as a partnership for purposes of all applicable
income and franchise tax purposes. In this case, the partners of that
partnership would be the holders of the Seller's Certificates (including the
Seller) and the investor certificates would be debt of that partnership.
However, the proper
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characterization of the arrangement involving the Seller's Certificates, the
Seller and the servicer is not clear because there is no authority on
transactions closely comparable to those transactions contemplated in this
prospectus.
Risks of Alternative Characterization. If the trust were an association
taxable as a corporation for federal income tax purposes, it would be subject to
corporate income tax. Any such corporate income tax could materially reduce or
eliminate cash that would otherwise be distributable with respect to the
applicable investor certificates (and investor certificateholders could be
liable for any that tax that is unpaid by the trust). However, upon the issuance
of each series of investor certificates, Tax Counsel will deliver its opinion
that the trust will not be classified as an association taxable as a corporation
and under certain Code and Treasury Regulations (the "PTP Regulations") will not
be classified as a publicly traded partnership ("PTP") taxable as a corporation.
Under the PTP Regulations, a partnership may be classified as a PTP if
equity interests in the partnership are traded on an "established securities
market" or are "readily tradeable" on a "secondary market" or its "substantial
equivalent." For federal income tax purposes, a PTP is taxable as a corporation
in the manner described above. However, in cases in which Seller's Certificates
are issued to more than one person, the trust will comply with certain safe
harbors available under the PTP Regulations to avoid PTP characterization. In
cases in which IRS successfully contended that any class of any series of
investor certificates is not debt for federal income tax purposes, the trust
would in all likelihood be treated as a PTP. But even if the trust were
classified as a PTP, it would avoid taxation as a corporation if 90% or more of
its annual income constituted "qualifying income" not derived in the conduct of
a "financial business." It is unclear, however, whether the trust's income would
be so classified.
If the trust were classified as a PTP but one not taxable as a corporation,
the trust would not be subject to federal income tax, but each partner would be
required to take into account such partner's allocable share of income, gains,
losses, deductions and credits of the trust. The amount and timing of income
reportable by any investor certificateholder as a partner in a partnership could
differ materially from the income reportable by the investor certificateholder
if the investor certificates are characterized as debt.
Because the Seller will treat all of the investor certificates as
indebtedness issued by a trust characterized as a partnership or as a division
of whichever entity owns all of the Seller's Certificates, the Seller will not
comply with any tax reporting requirements that would apply under any
alternative characterization of the investor certificates or the trust.
STATE TAX MATTERS
GENERAL
Investor certificateholders may also become liable for state income taxes
in one or more taxing jurisdictions. State income tax consequences (including
local income tax consequences) to each investor certificateholder depend upon
the provisions of the state tax laws to which the investor certificateholder is
subject. Because each state's income tax laws are different, it is impossible to
predict the income tax consequences to the investor certificateholders in all of
the state taxing jurisdictions in which they are already subject to tax.
ILLINOIS AND NEW YORK
Most of the activities to be undertaken by the servicer and the trustee
will take place in Illinois and New York. If the investor certificates are
characterized as indebtedness for federal income tax purposes, in the opinion of
Tax Counsel, as to Illinois and New York state tax consequences, although the
matter is not free from doubt, this treatment would also apply for purposes of
the Illinois income tax, and the New York income and corporate franchise taxes.
If the investor certificates are characterized as debt in Illinois and New York,
the investor certificateholders not otherwise subject to taxation in those
states will not, although the matter is not free from doubt, become subject to
these taxes solely because of their
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ownership of investor certificates. Investor certificateholders already subject
to taxation in those states, however, could be required to pay tax on or
measured by interest income (including OID, if any) generated by, and on gain
from the disposition of, the investor certificates.
The above discussion of state tax consequences assumes the investor
certificates will be characterized as debt for federal income tax purposes.
However, if the arrangement created by the pooling and servicing agreement were
treated as a partnership or as a publicly traded partnership taxable as a
corporation, the state income tax consequences to the investor
certificateholders could be materially different.
If the arrangement created by the pooling and servicing agreement were
treated as a partnership for Illinois and New York state tax purposes, it is
possible that each state could view the partnership as doing business in its
state and, unless investor certificateholders were treated as holding debt of
such partnership, could treat each investor certificateholder as deriving income
from activities in the state. As a result, the state might, under applicable
income apportionment and sourcing rules, treat some part of the partnership's
income as allocable to that state and then tax an investor certificateholder on
its share of that income. Moreover, classification of the arrangement as a
"partnership" might cause an investor certificateholder not otherwise subject to
tax in these states to pay state tax on income beyond that derived from the
investor certificates. In addition, that partnership could be subject to the
Illinois personal property replacement tax, which tax would reduce the amounts
available for distribution to investor certificateholders.
If the investor certificateholders were treated as owning interests in a
corporation for state tax purposes, then the hypothetical corporation could be
subject to Illinois income and New York income and corporate franchise taxes.
These taxes could result in reduced distributions to investor
certificateholders. An investor certificateholder not otherwise subject to
Illinois or New York state tax law should not become subject to these tax laws
solely as a result of its ownership of investor certificates in the hypothetical
corporation.
We cannot assure that no other state will claim that activities with
respect to the pooling and servicing agreement have taken place in that state
and therefore subject investor certificateholders to taxation in that state. If
any state taxing authority were to assert such a claim successfully, the
treatment of the investor certificates for purposes of that state's income tax
laws would be determined under those income tax laws, and we cannot assure that
the investor certificates would be treated as indebtedness for purposes of
taxation in that state.
The above description of the potential state tax consequences is
necessarily incomplete. We suggest you consult with your own tax advisor with
respect to the applicability of state and local income and franchise taxes to
your investment in the investor certificates.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain restrictions on employee benefit plans and other
retirement accounts and arrangements to which they apply, and on entities deemed
to hold "plan assets" of the foregoing by reason of a plan's investment in such
entities ("Plans") and on persons who have certain specified relationships to
Plans ("parties in interest" within the meaning of ERISA and "disqualified
persons" within the meaning of the Code, referred to herein as "Parties in
Interest"). ERISA also imposes certain duties on persons who are fiduciaries of
Plans and prohibits a Plan from engaging in a broad range of transactions
involving "plan assets" with Parties in Interest with respect to the Plan,
unless a statutory or administrative exemption applies. Accordingly, Plans with
respect to which the Seller, the servicer or the trustee are Parties in Interest
may be prohibited from purchasing investor certificates unless such an exemption
applies. Prohibited transactions may generate excise taxes and other
liabilities.
If the assets of the trust were deemed to be assets of Plans that are
investor certificateholders, a transaction involving the trust's assets might
give rise to a prohibited transaction under ERISA and the Code, unless an
exemption applies. The U.S. Department of Labor ("DOL") has issued a regulation
(the
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"Plan Assets Regulation") concerning whether the assets of a Plan will be deemed
to include the underlying assets of an entity (such as a trust) when the Plan
acquires an "equity" interest in the entity. An equity interest is defined in
the Plan Assets Regulation as an interest in an entity other than an instrument
which is treated as debt under applicable local law and which has no substantial
equity features. The Seller has been advised that investor certificateholders
will be taxed as if the investor certificates are debt for federal income tax
purposes. If under ERISA the investor certificates are deemed to be debt, the
trust's assets will not be treated as Plan assets solely as a result of the
purchase of an investor certificate by a Plan. However, the tax characterization
of the investor certificates is not determinative of the characterization of
these securities for ERISA purposes.
Assuming that the investor certificates are equity interests under
applicable local law or have substantial equity features, the Plan Assets
Regulation provides that the issuer of a security is not deemed to hold "plan
assets" if the security:
(1) is freely transferable;
(2) is held by 100 or more investors who are independent of both the
issuer and one another; and
(3) satisfies certain registration requirements under the federal
securities laws.
There can be no advance assurance that the investor certificates will meet
the criteria for this exemption. There will be no restrictions imposed on the
transfer of the investor certificates, and if the 100-investor threshold is met,
the Seller intends to cause the registration requirements to be satisfied.
However, it cannot be known in advance whether the 100-investor threshold will
be met by the investor certificates, and the underwriter of the offered
certificates intends not to sell investor certificates to Plans unless and until
it believes the investor certificates will meet the 100-investor threshold. A
class of securities will not fail to be widely held solely because subsequent to
the initial offering the number of independent investors falls below 100 as a
result of events beyond the control of the issuer.
The Plan Assets Regulation also provides an exemption from "plan assets"
treatment for securities issued by an entity if, immediately after the most
recent acquisition of any equity interest in the entity, less than 25% of the
value of each class of equity interests in the entity is held by "benefit plan
investors" (e.g., Plans, governmental plans, other benefit plans not subject to
ERISA and certain entities whose underlying assets include plan assets by reason
of a Plan's investment in the entity). Because the availability of this
exemption depends upon the identity of the certificateholders at any time, there
can be no assurance that the investor certificates will qualify for this
exemption.
Employee benefit plans that are governmental plans (as defined in section
3(32) of ERISA) and certain church plans (as defined in section 3(33) of ERISA)
are not subject to ERISA requirements. Accordingly, assets of such plans may be
invested in the investor certificates without regard to the ERISA restrictions
described above, subject to applicable provisions of other federal and state
laws.
In accordance with ERISA's fiduciary standards, if the underwriter offers
to sell investor certificates to Plans, the Plan fiduciary should determine
whether an investment in the investor certificates is permitted under the
documents and instruments governing the Plan, consistent with the Plan's overall
investment policy and appropriate in view of the composition of its investment
portfolio. Any Plan fiduciary who proposes to cause a Plan to purchase investor
certificates should consult with its own counsel with respect to the potential
consequences under ERISA and the Code of the Plan's acquisition and ownership of
investor certificates. Assets of a Plan or individual retirement account should
not be invested in the investor certificates unless the Plan fiduciary has
determined that the assets of the trust will not be plan assets and that the
investment by the Plan will not be a prohibited transaction for which no
statutory or administrative exemption applies.
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PLAN OF DISTRIBUTION
Under the terms and subject to the conditions contained in an underwriting
agreement (the "Underwriting Agreement"), with respect to the trust, the Seller
will agree to sell to each of the underwriters named in the related prospectus
supplement, and each of the underwriters will severally agree to purchase from
the Seller, the principal amount of the investor certificates to be offered by
this prospectus and the prospectus supplement set forth in the underwriting
agreement and in the prospectus supplement.
In the underwriting agreement, the underwriter(s) will agree, subject to
the terms and conditions set forth in that agreement, to purchase all the
investor certificates to be offered by this prospectus and by the prospectus
supplement if any of the investor certificates are purchased. In the event of a
default by any underwriter, the Underwriting Agreement will provide that, in
certain circumstances, any purchase commitments of the nondefaulting
underwriters may be increased or the Underwriting Agreement may be terminated.
The prospectus supplement will either:
(1) set forth the price at which investor certificates will be offered to
the public and any concessions that may be offered to dealers
participating in the offering of those investor certificates; or
(2) specify that the investor certificates are to be resold by the
underwriter(s) in negotiated transactions at varying prices to be
determined at the time of the sale.
After the initial public offering of any offered investor certificates, the
public offering price and the concessions may be changed.
The underwriter(s), may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act. 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 investor certificates in the open market
after the distribution has been completed in order to cover syndicate short
positions. Penalty bids permit the underwriter(s) to reclaim a selling
concession from a syndicate member when the investor certificates originally
sold by the syndicate member are purchased in a syndicate covering transactions
and penalty bids may cause the prices of the investor certificates to be higher
than they would otherwise be in the absence of these transactions. These
transactions, if commenced, may be discontinued at any time.
The underwriting agreement will provide that Navistar Financial and the
Seller will indemnify the underwriter(s) against specified liabilities,
including liabilities under the Securities Act.
The trustee may, from time to time, invest the funds acquired from the
underwriters in the Excess Funding Account in Eligible Investments.
The place and time of delivery for the investor certificates in respect of
which this prospectus is delivered will be set forth in the prospectus
supplement.
LEGAL MATTERS
The legality of the investor certificates and certain legal matters
regarding tax consequences of the issuance of the investor certificates and
creditors rights will be passed upon for Navistar Financial and the Seller by
Kirkland & Ellis, Chicago, Illinois.
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GLOSSARY
"Accumulation Period" is defined on page 20.
"Accumulation Period Commencement Date" is defined on page 20.
"Adjusted Invested Amount" means, with respect to any distribution date and
any series, (a) the Initial Invested Amount, plus the Available Subordinated
Amount as of the end of the related transfer date, plus the negative carry
subordinated amount for that series, (if any) as of the end of that transfer
date, (b) minus the product of (i) the amount, if any, of funds on deposit in
any negative carry reserve fund for that series at the end of that transfer date
and (ii) 1.00 plus the Subordinated Percentage, (c) minus the aggregate amount
of Certificateholder Charge-Offs not reimbursed on or prior to that distribution
date, minus the aggregate Early Distribution Amounts for that series, (if any)
made on or prior to that distribution date.
"Advance" is defined on page 32.
"Advance Reimbursement" is defined on page 32.
"Aggregate ITEC Earned Interest" means, with respect to any due period, the
aggregate amount of ITEC Earned Interest on all non-interest bearing dealer
notes accrued during that due period.
"Amortization Period" is defined on page 21.
"Amortization Period Commencement Date" is defined on page 21.
"Assignments" is defined on page 28.
"Available Subordinated Amount" for any series of investor certificates
will equal the product of the Subordinated Percentage and the Invested Amount,
and for each subsequent transfer date thereafter equal the lesser of: (1) the
Maximum Subordinated Amount for the series of investor certificates and (2) the
Available Subordinated Amount for the series of investor certificates as of the
end of the preceding transfer date (after giving effect to all adjustments
thereto on that transfer date).
"Calculation Day" is defined on page 15.
"Certificate Rate" is defined on page 19.
"Certificateholders' Interest" is defined on page 28.
"Code" is defined on page 47.
"Collections Account" is defined on page 35.
"Concentration Limit" as defined on page 7.
"Controlled Amortization Amount" is defined on page 21.
"Controlled Deposit Amount" is defined on page 20.
"Cooperative" is defined on page 24.
"corporate trust office" is defined on page 41.
"Credit Guidelines" is defined on page 10.
"Daily Note Sale" is defined on page 44.
"Dealer" means:
(1) a person with whom International or an affiliate has a valid dealer
agreement to sell International vehicles;
(2) a truck equipment manufacturer to whom International or an affiliate
sells vehicles pursuant to a valid agreement;
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(3) a person with whom Navistar Financial has a valid agreement to extend
used truck floor plan terms; or
(4) a person for whom Navistar Financial provides financing for OEM
vehicles.
"Dealer Finance Charge Collections" means with respect to any due period
the amount of Dealer Finance Charges received from dealers plus Advances for the
current due period and any Unpaid Dealer Finance Charges or Uncollectible
Finance Charges from prior due periods actually collected by the transfer date
related to that due period.
"Dealer Finance Charges" means, with respect to any due period, the
interest and other finance charges accrued with respect to the dealer notes
during that due period and billed by the servicer on a monthly basis to dealers.
Dealer Finance Charges do not include ITEC Finance Charges.
"Dealer Note Collections" means, with respect to each business day:
(1) all payments including insurance proceeds, if any, received by the
servicer from persons other than Navistar Financial in respect of
repayment of principal of the dealer notes at one of its administrative
units charged with processing funds and recording them in the servicer's
records, in the form of cash, checks, wire transfers or other forms of
payment in accordance with the dealer agreement in effect from time to
time;
(2) all cash payments made by Navistar Financial or International in
respect of non-cash proceeds received from dealers or credits granted to
dealers by International with respect to the repayment of principal of
the dealer notes; and
(3) recoveries made by the servicer allocable to the dealer notes, in each
case as deposited in the Collections Account on that business day.
"Dealer Note Losses" means, with respect to any due period the aggregate
face amount of dealer notes written off as uncollectible by the servicer during
that due period minus any recoveries made during that due period on dealer notes
previously written off as uncollectible.
"Definitive Certificates" is defined on page 25.
"Deposit Amount" is defined on page 15.
"Determination Date" means, with respect to any due period, the twelfth day
of each calendar month next following the end of that due period, or if the
twelfth day is not a business day, the next business day.
"Distribution Account" is defined on page 35.
"distribution date" is defined on page 32.
"distribution period" is defined on page 32.
"DOL" is defined on page 53.
"Due Period" is defined on page 18.
"Early Amortization Event" is defined on pages 22 and 38.
"Early Amortization Period" means the period beginning on the Early
Amortization Period Commencement Date and ending upon the first to occur of (1)
the payment in full to the investor certificateholders of the Invested Amount
and (2) the Series Termination Date.
"Early Amortization Period Commencement Date" is defined on page 22.
"Early Distribution Date" is defined on page 21.
"eligible dealer note" is defined on page 28.
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"Eligible Deposit Account" means either:
(1) a segregated account with an Eligible Institution or
(2) a segregated trust account with the corporate trust department of a
depository institution organized under the laws of the United States
or any one of the states thereof (or any domestic branch of a foreign
bank), having corporate trust powers and acting as trustee for funds
deposited in such account, so long as any of the securities of such
depository institution has a credit rating from each rating agency in
one of its generic rating categories which signifies investment grade.
"Eligible Institution" means:
(1) the corporate trust department of the trustee; or
(2) a depository institution organized under the laws of the United States
or any one of the states thereof, or the District of Columbia (or a
domestic branch of a foreign bank), which at all times (a) has either
(A) a long-term unsecured debt rating acceptable to the rating
agencies or (B) a short-term unsecured debt rating or certificate of
deposit rating acceptable to the rating agencies and (b) whose
deposits are insured by the FDIC.
"Eligible Investments" will be specified in the pooling and servicing
agreement and will be limited to investments that meet the criteria of the
Rating Agencies from time to time as consistent with the then-current rating of
the investor certificates.
"Enhancement" is defined on page 27.
"Enhancement Agreement" is defined on page 36.
"Enhancement Provider" is defined on page 36.
"ERISA" is defined on page 53.
"Euroclear" is defined on page 24.
"Euroclear Operator" is defined on page 24.
"Euroclear Participants" is defined on page 24.
"Excess Funding Account" is defined on page 35.
"Expected Principal Payment Date" is defined on page 20.
"Finance Charge Collections" means, with respect to any due period, the
positive amount, if any, by which the sum of Dealer Finance Charge Collections
and ITEC Finance Charges exceeds Advance Reimbursements during that due period.
"Finance Charges" means, with respect to any due period, Dealer Finance
Charges and ITEC Finance Charges for that due period.
"financed vehicles" is defined on page 10.
"Floating Allocation Percentage" for any series of investor certificates
shall be specified in the prospectus supplement for that series.
"Foreign Agency Depositaries" is defined on page 22.
"Fully Funded Date" is defined on page 21.
"Global Securities" is defined in Annex I.
"Harco" is defined on page 11.
"Indirect Participants" is defined on page 23.
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<PAGE> 99
"Ineligible Dealer Note" is defined on page 30.
"Insurance Proceeds" is defined on page 9.
"Interest Credit" is defined on page 17.
"Interest Deposit Account" is defined on page 15.
"Interest Deposit Agreement" is defined on page 15.
"International" is defined on page 4.
"International vehicle" is defined on page 10.
"Invested Amount" means, with respect to series or class of investor
certificates for any distribution date, the amount specified in the prospectus
supplement.
"Investment Events," if any, with respect to a series of investor
certificates will be specified in the prospectus supplement.
"Investment Period" is defined on page 21.
"Investment Period Commencement Date" is defined on page 21.
"Investor Certificateholders' Interest" means all allocations to the
Investor Certificateholders.
"Investor Series Servicing Fee" is defined on page 33.
"ITEC Earned Interest" means, on any Calculation Day or ITEC Interest
Transfer Date with respect to any dealer note that was a non-interest bearing
dealer note during the related due period or any portion thereof, an amount
equal to the product of
(1) the product of (a) the principal amount of such non-interest bearing
dealer note and (b) the interest rate on such dealer note billed by
Navistar Financial during that due period (the "Current Interest
Rate") and
(2) the quotient of (a) a number equal to the number of days elapsed
during the due period for which the dealer note is outstanding and is
a non-interest bearing dealer note and (b) the actual number of days
in the related calendar year.
"ITEC Finance Charges" means, with respect to any due period, the sum of:
(1) the amount of Up-Front Interest Credit granted by International during
that due period; and
(2) the amount of Aggregate ITEC Earned Interest accrued during that due
period.
"ITEC Future Due Interest" means, with respect to any non-interest bearing
dealer note on any Calculation Day, an amount equal to the product of
(1) the product of (a) the principal amount of the non-interest bearing
dealer note and (b) the Current Interest Rate and
(2) the quotient of (a) a number equal to the number of days from and
including the Calculation Day to, but not including, the date on which
the obligor on that dealer note is requested to start paying interest
and (b) the actual number of days in the related calendar year.
"ITEC Interest Amount" equals the sum of:
(1) the amount of the aggregate amount of interest credits ("Up-Front
Interest Credit") granted to dealers by International during the
current due period;
(2) the aggregate amount of ITEC Earned Interest on all non-interest
bearing dealer notes accrued during the current due period; and
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<PAGE> 100
(3) the amount of the aggregate amount of ITEC Future Due Interest on all
non-interest bearing dealer notes as of such Calculation Day.
"ITEC Interest Transfer Date" is defined on page 35.
"ITEC Payment Date" is defined on page 15.
"Liquidity Reserve Account" means an account established to cash
collateralize the Available Subordinated Amount during an Investment Period or
an Early Amortization Period.
"Master Intercompany Agreement" is defined on page 16.
"Master Revolving Credit Agreement" is defined on page 9.
"Master Revolving Note" is defined on page 9.
"Maximum Subordinated Amount" for any series of investor certificates shall
be set forth in the prospectus supplement for that series.
"Minimum Seller's Interest" with respect to any business day will equal the
aggregate of the Minimum Series Seller's Interest for each outstanding series of
investor certificates.
"Minimum Series Seller's Interest" for any series of investor certificates
will be set forth in the prospectus supplement for that series.
"Navistar Financial Securities Corporation Certificate" is defined on page
26.
"Navistar Group" is defined on page 28.
"non-interest bearing dealer notes" is defined on page 15.
"OEM Note" is defined on page 29.
"OEM Supplier" is defined on page 28.
"OEM vehicle" is defined on page 10.
"OID" is defined on page 48.
"Participants" is defined on page 23.
"Parties in Interest" is defined on page 53.
"Plan Assets Regulation" is defined on page 54.
"Plans" is defined on page 53.
"pooling and servicing agreement" is defined on page 9.
"Principal Collections" means, with respect to any business day the sum of:
(1) Dealer Note Collections for such business day,
(2) amounts deposited by the Seller on such business day in respect of
ineligible dealer notes as described in "-- Certain Representations
and Warranties; Ineligible Dealer Notes; Purchase of
Certificateholders' Interest."
"Principal Commencement Date" is defined on page 21.
"Principal Shortfall" is defined on page 36.
"Principal Terms" means, with respect to any series of investor
certificates, the principal terms of such series of investor certificates, which
may include without limitation:
- the name or designation;
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<PAGE> 101
- the initial principal amount (or method for calculating such amount or,
with respect to any variable funding certificate, variations in
principal amount);
- the rate of interest thereon (or method for the determination thereof);
- the payment date or dates and the date or dates from which interest
shall accrue;
- the method of allocating collections to the investor certificateholders;
- the designation of any series accounts and the terms governing the
operation of any such series accounts;
- the amount of the servicing fee allocable to the series and the investor
certificateholders' portion of the servicing fee;
- the issuer and terms of any form of Enhancement;
- the terms of which the investor certificates of the series may be
exchanged for investor certificates of another series, repurchased by
the Seller or remarketed to other investors;
- the series termination date for the series;
- the number of classes of investor certificates of the series and, if
more than one class, the rights and priorities of each class;
- the extent to which the investor certificates of the series will be
issuable in temporary or permanent global form (and, in that case, the
depositary for the global certificate or certificates, the terms and
conditions, if any, upon which the global certificate may be exchanged,
in whole or in part, for definitive certificates, and the manner in
which any interest payable on a temporary or global certificate will be
paid);
- whether the investor certificates of the series may be issued in bearer
form and any limitations imposed on the bearer form;
- the priority of the series with respect to any other series;
- whether the series will be prefunded; and
- any other terms of the series.
"purchase agreement" is defined on page 44.
"Rating Agencies" means, with respect to any outstanding series, any
nationally recognized statistical rating organization then maintaining a rating
of that series at the request of the Seller.
"Rating Agency Condition" means, with respect to any proposed action and
any outstanding series, that the rating agencies have been informed of the
proposed action and have notified the Seller and the trustee that such action
will not result in a reduction or withdrawal of their then existing rating of
that series.
"Record Date" is defined on page 19.
"Required Excess Seller Interest Percentage" shall be set forth in the
prospectus supplement for the related series of investor certificates.
"retail special price allowance" is defined on page 16.
"Revolving Period" is defined on page 20.
"Seller's Certificates" is defined on page 26.
"Seller's Interest" with respect to any business day will equal the
aggregate principal amount of dealer notes plus the aggregate amount of funds in
the Excess Funding Account, plus the aggregate amount of funds in all series
principal accounts (and funds being held for deposit in those accounts),
including the
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<PAGE> 102
Series Principal Account, each as of such day, minus the Trust Invested Amount
on such day (or as of the distribution date on or immediately preceding that
business day).
"Series Accounts" is defined on page 35.
"Series Allocable Dealer Note Losses" is defined on page 36.
"Series Allocable Finance Charge Collections" is defined on page 36.
"Series Allocable Principal Collections" is defined on page 36.
"Series Allocable Servicing Fee" is defined on page 33.
"Series Allocation Percentage" for any series of investor certificates is
equal to the percentage equivalent of a fraction, the numerator of which is the
Adjusted Invested Amount and the denominator of which is the Trust Adjusted
Invested Amount, in each case as of the end of the distribution date preceding
that due period (after giving effect to all payments made on that distribution
date).
"Series Issuance Date" is defined on page 27.
"Series Principal Account" is defined on page 20.
"Series Principal Collections" for any series of investor certificates
shall be specified in the prospectus supplement.
"Series Termination Date" with respect to any series of investor
certificates shall be set forth in the prospectus supplement.
"Servicer Termination Event" is defined on page 34.
"Servicing Fee" is defined on page 33.
"Shared Principal Collections" is defined on page 36.
"Special Servicer Agent" is defined on page 34.
"Subordinated Percentage" with respect to any series of investor
certificates will be set forth in the prospectus supplement.
"Supplemental Certificate" is defined on page 26.
"Tax Counsel" is defined on page 47.
"Tax Opinion" is defined on page 27.
"Terms and Conditions" is defined on page 25.
"TIN" is defined on page 64.
"transfer date" means the business date immediately preceding each
distribution date.
"Trust Adjusted Investment Amount" is equal to the sum of the adjusted
invested amounts for all outstanding series.
"Trust Invested Amount" is equal to the sum of the invested amounts for all
outstanding series.
"Uncollectible Finance Charges" means, with respect to any due period, the
amount of Dealer Finance Charges that the servicer, on or before the related
determination date, determines in its sole discretion will be uncollectible.
"Underwriting Agreement" is defined on page 55.
"Unpaid Dealer Finance Charges" is defined on page 32.
"Up-Front Interest Credit" is defined in the glossary under "ITEC Interest
Amount."
"Wholesale Note and Inventory Statement" is defined on page 13.
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT
AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered investor
certificates (the "Global Securities") will be available only in book-entry
form. Investors in the Global Securities may hold such Global Securities through
any of DTC, Clearstream Banking or Euroclear. The Global Securities will be
tradeable 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 holding Global Securities
through Clearstream Banking and Euroclear will be conducted in the ordinary way
in accordance with their normal rules and operating procedures and in accordance
with conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-marketing trading between Clearstream Banking or Euroclear
and DTC participants holding Global Securities will be effected on a
delivery-against-payment basis through Citibank, N.A. ("Citibank") and Morgan
Guaranty Trust Company of New York ("Morgan") as the respective depositaries of
Clearstream Banking and Euroclear and as participants in DTC.
Non-U.S. holders of Global Securities will be exempt from U.S. withholding
taxes, provided that such holders meet certain requirements and deliver
appropriate U.S. tax documents to the securities clearing organizations or their
participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect participants in DTC. As a result, Clearstream Banking and Euroclear
will hold positions on behalf of their participants through their respective
depositaries, Citibank and Morgan, which in turn will hold such positions in
accounts as participants of DTC.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to securities previously issued by the
trust. 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 Global Securities through Clearstream
Banking or Euroclear accounts will follow the settlement procedures applicable
to conventional eurobonds, except that there will be no temporary global
security and no "lock-up" or restricted period. Global Securities will be
credited to the securities custody accounts on the settlement date against
payment in same-day funds.
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 securities
previously issued by the trust in same-day funds.
Trading between Clearstream Banking and/or participants. Secondary market
trading between Clearstream Banking participants and/or Euroclear participants
will be settled using the procedures applicable to conventional eurobonds in
same-day funds.
Finally, day traders that use Clearstream Banking or Euroclear and that
purchase Global Securities from DTC participants for delivery to Clearstream
Banking participants or Euroclear participants should
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note that these trades would automatically fail on the sale side unless
affirmative action were taken. At least three techniques should be readily
available to eliminate this potential problem:
(1) borrowing through Clearstream Banking or Euroclear for one day (until
the purchase side of the day trade is reflected in their Clearstream
Banking or Euroclear accounts) in accordance with the clearing
system's customary procedures;
(2) borrowing the Global Securities in the U.S. from a DTC participant no
later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Clearstream
Banking or Euroclear account in order to settle the sale side of the
trade; or
(3) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC participants is at
least one day prior to the value date for the sale to the Clearstream
Banking participant or Euroclear participants.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A holder of Global Securities holding securities through Clearstream
Banking 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 such holder takes one of the following steps to
obtain an exemption or reduced tax rate:
Exemption for non-U.S. persons with effectively connected income (Form 4224
or new Form W-8EC1). 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).
Exemption or reduced rate for non-U.S. persons resident in treaty countries
(Form 1001 or new Form W-8EC1). Non-U.S. persons that are beneficial owners
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. Form 1001 may be filed by the beneficial
owner or his agent.
Exemption for U.S. persons (Form W-9). U.S. persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Request for Taxpayer
Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The holder of Global
Security, or in the case of a Form 1001 or a Form 4224 filer, his agent, files
by submitting the appropriate form to the person through whom he holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar years
and Form 4224 is effective for one calendar year.
A new Form W-8BEN, if furnished with a taxpayer identification number
("TIN"), will remain in effect until the status of the beneficial owner changes,
or a change in circumstances makes any information on the form incorrect. A new
Form W-8BEN, if furnished without a TIN, and a new Form W-8ECI will remain in
effect for a period starting on the date the form is signed and ending on the
last day of the third succeeding calender year, unless a change in circumstances
makes any information on the form incorrect.
This summary does not deal with all aspects of federal income tax
withholding that may be relevant to foreign holders of these Global Securities.
Investors are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of the Global Securities.
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$212,000,000
NAVISTAR FINANCIAL DEALER NOTE MASTER TRUST
$200,000,000
FLOATING RATE DEALER NOTE ASSET BACKED CERTIFICATES, CLASS A, SERIES 2000-1
$12,000,000
FLOATING RATE DEALER NOTE ASSET BACKED CERTIFICATES, CLASS B, SERIES 2000-1
------------------------------
PROSPECTUS SUPPLEMENT
JUNE 30, 2000
------------------------------
BANC OF AMERICA SECURITIES LLC
You should rely only on the information contained in 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 certificates in any state where the offer of such
securities is not permitted.
We do not claim the accuracy of the information in this prospectus
supplement or in the prospectus as of any date other than the date stated on
their respective covers.
Until September 28, 2000, all dealers that buy, sell or trade the notes may
be required to deliver a prospectus and prospectus supplement regardless of
whether they are participating in the offer. This is in addition to the
obligation of dealers to deliver a prospectus and prospectus supplement when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
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