<PAGE> 1
FILED PURSUANT TO RULE 424(b)(1)
REGISTRATION NO. 33-54125
PROSPECTUS
$1,098,627,554.60
Ford Credit 1994-B Grantor Trust
7.30% Asset Backed Certificates, Class A
Ford Credit Auto Receivables Corporation
Seller
Ford Motor Credit Company
Servicer
The 7.30% Asset Backed Certificates (the "Certificates") will consist of two
Classes of Certificates, the Class A Certificates and the Class B Certificates.
Only the Class A Certificates are being offered hereby. The Class A Certificates
will evidence in the aggregate an undivided ownership interest of 93.5% in a
trust (the "Trust") to be formed pursuant to a Pooling and Servicing Agreement
to be entered into among Ford Credit Auto Receivables Corporation, as Seller
(the "Seller"), Ford Motor Credit Company, as Servicer (the "Servicer"), and
Chemical Bank, as Trustee. The Class B Certificates, which initially will be
retained by the Seller, will evidence in the aggregate an undivided ownership
interest of 6.5% in the Trust. The rights of the Class B Certificateholders to
receive distributions with respect to the Receivables are subordinated to the
rights of the Class A Certificateholders, to the extent described herein.
Principal, and interest to the extent of the Pass-Through Rate of 7.30% per
annum, will be distributed on the 15th day of each month (or the next following
business day) beginning December 15, 1994 (the "Distribution Date"). The Final
Scheduled Distribution Date on the Certificates will be October 15, 1999. The
Trust property will include a pool of retail installment sale contracts
originated on or after November 1, 1993 secured by new and used automobiles and
light trucks (the "Receivables"), certain monies due thereunder on or after
November 1, 1994, security interests in the vehicles financed thereby and
certain other property.
There currently is no secondary market for the Class A Certificates and there is
no assurance that one will develop. The Underwriters expect, but are not
obligated, to make a market in the Class A Certificates. There is no assurance
that any such market will continue.
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST AND DO NOT REPRESENT INTERESTS
IN OR OBLIGATIONS OF THE SELLER, THE SERVICER OR ANY OF THEIR RESPECTIVE
AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
- --------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO THE
PUBLIC(1) DISCOUNT SELLER(1)( 2)
- -------------------------------------------------- ----------------- ------------- -----------------
<S> <C> <C> <C>
Per Certificate 99.9140625% .175% 99.7390625%
- --------------------------------------------------
Total $1,097,683,421.54 $1,922,598.22 $1,095,760,823.32
- --------------------------------------------------
</TABLE>
(1) Plus accrued interest at the Pass-Through Rate calculated from November 15,
1994.
(2) Before deducting expenses payable by the Seller estimated at $670,000.
The Class A Certificates are offered by the Underwriters when, as, and if issued
and accepted by the Underwriters and subject to their right to reject orders in
whole or in part. It is expected that the Class A Certificates will be delivered
in book-entry form on or about November 16, 1994.
J.P. MORGAN SECURITIES INC.
CS FIRST BOSTON
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
November 8, 1994
<PAGE> 2
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A
CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE SELLER, THE SERVICER OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROSPECTUS, NOR ANY SALE MADE HEREUNDER, SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
UNTIL FEBRUARY 6, 1995, ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information........................................................................... 2
Reports to Class A Certificateholders by the Trustee............................................ 2
Summary......................................................................................... 3
Formation of the Trust.......................................................................... 7
Property of the Trust........................................................................... 7
The Receivables................................................................................. 7
Class A Certificate Factors and Trading Information............................................. 11
Use of Proceeds................................................................................. 12
The Seller...................................................................................... 12
The Servicer.................................................................................... 13
The Certificates................................................................................ 13
Rating of the Class A Certificates.............................................................. 26
Certain Legal Aspects of the Receivables........................................................ 26
Certain Federal Income Tax Consequences......................................................... 30
ERISA Considerations............................................................................ 33
Underwriting.................................................................................... 35
Legal Opinions.................................................................................. 36
Index of Terms.................................................................................. 37
</TABLE>
AVAILABLE INFORMATION
Ford Credit Auto Receivables Corporation, as originator of the Trust, has
filed a Registration Statement under the Securities Act of 1933, as amended,
with the Securities and Exchange Commission (the "Commission") on behalf of the
Trust with respect to the Class A Certificates offered pursuant to this
Prospectus. For further information, reference is made to the Registration
Statement and amendments thereof and to the exhibits thereto, which are
available for inspection without charge at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549;
7 World Trade Center, 13th Floor, New York, New York 10048; and Northwest Atrium
Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of the
Registration Statement and amendments thereof and exhibits thereto may be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates.
REPORTS TO CLASS A CERTIFICATEHOLDERS BY THE TRUSTEE
Chemical Bank (the "Trustee"), as Trustee for the Class A
Certificateholders and Class B Certificateholders (collectively, the
"Certificateholders") under the Pooling and Servicing Agreement, to be dated as
of November 1, 1994, by and among the Seller, the Servicer and the Trustee, will
provide to Class A Certificateholders (which shall be Cede & Co. as the nominee
of The Depository Trust Company ("DTC") unless Definitive Certificates are
issued under the limited circumstances described herein) monthly and annual
reports concerning the Receivables. See "The Certificates -- Statements to Class
A Certificateholders; -- General; -- Book-Entry Registration."
2
<PAGE> 3
SUMMARY
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus. Certain capitalized terms
used in the Summary are defined elsewhere in this Prospectus. A listing of the
pages on which some of such terms are defined is found in the "Index of Terms."
ISSUER........................ Ford Credit 1994-B Grantor Trust (the "Trust"),
to be formed by the Seller pursuant to a
Pooling and Servicing Agreement to be dated
as of November 1, 1994 (the "Agreement"),
among the Seller, the Servicer and Chemical
Bank, as trustee (the "Trustee").
SELLER........................ Ford Credit Auto Receivables Corporation, a
wholly owned subsidiary of Ford Motor Credit
Company ("Ford Credit").
SERVICER...................... Ford Credit, a wholly owned subsidiary of Ford
Motor Company.
SECURITIES OFFERED............ The Certificates consist of two classes,
entitled 7.30% Asset Backed Certificates,
Class A (the "Class A Certificates") and
7.30% Asset Backed Certificates, Class B (the
"Class B Certificates"). Only the Class A
Certificates are being offered hereby. Each
Certificate will represent a fractional
undivided interest in the Trust. The Trust
property will include retail installment sale
contracts originated on or after November 1,
1993 secured by new and used automobiles and
light trucks (the "Receivables"), certain
monies due thereunder on or after November 1,
1994 (the "Cutoff Date"), security interests
in the vehicles securing the Receivables
("Financed Vehicles"), certain bank accounts
and the proceeds thereof, any proceeds from
claims on certain insurance policies, and
certain rights under the Agreement. The Class
A Certificates shall be issued in fully
registered form in denominations of $1,000
and integral multiples thereof. The
Receivables will be purchased by the Seller
from Ford Credit pursuant to a Purchase
Agreement (the "Purchase Agreement") between
the Seller and Ford Credit providing for such
purchase on or before the date of issuance of
the Certificates.
The Class A Certificates will evidence in the
aggregate an undivided ownership interest
(the "Class A Percentage") of 93.5% of the
Trust (initially representing
$1,098,627,554.60) and the Class B
Certificates will evidence in the aggregate
an undivided ownership interest (the "Class B
Percentage") of 6.5% of the Trust (initially
representing $76,375,177.59). The Class B
Certificates are subordinated to the Class A
Certificates, to the extent described herein.
The Class B Certificates are not being
offered hereby and initially will be retained
by the Seller.
REGISTRATION OF THE CLASS A
CERTIFICATES.................. The Class A Certificates initially will be
represented by one or more Class A
Certificates registered in the name of Cede &
Co. ("Cede"), as the nominee of DTC. No
person acquiring an interest in the Class A
Certificates (a "Class A Certificate Owner"
or "Certificate Owner") will be entitled to
receive a definitive certificate representing
such person's interest, except in the event
that Definitive Certificates (as defined
herein) are issued under the limited
circumstances described herein. All
references herein to Class A
Certificateholders shall reflect the rights
of Class A Certificate Owners, as such rights
may be exercised through DTC and its
Participants, except as otherwise
3
<PAGE> 4
specified herein. See "The Certificates --
Definitive Certificates."
PASS-THROUGH RATE............. 7.30% per annum.
INTEREST...................... On each Distribution Date, the Trustee shall
pass through and distribute pro rata to the
holders of record of Class A Certificates
(the "Class A Certificateholders") as of the
fourteenth day of the current calendar month
(or, if Definitive Certificates are issued,
the last day of the preceding calendar month)
(the "Record Date") interest at one-twelfth
of the Pass-Through Rate, calculated on the
basis of a 360-day year consisting of twelve
30-day months, on the Class A Certificate
Balance as of the last day of the preceding
calendar month to the extent of funds
available from (i) the Class A Percentage of
the Available Interest, (ii) the
Subordination Spread Account, and (iii) the
Class B Percentage of the Total Available
Amount. The "Class A Certificate Balance"
shall equal, initially, the Class A
Percentage of the Pool Balance as of the
Cutoff Date and thereafter shall equal the
initial Class A Certificate Balance reduced
by all principal distributions on the Class A
Certificates.
PRINCIPAL..................... On each Distribution Date, the Trustee shall
pass through and distribute pro rata to
Certificateholders as of the Record Date all
scheduled payments of principal and the
principal portion of all prepayments in full
(and certain partial prepayments) collected
during the preceding calendar month. Such
principal, to the extent of funds available
from (i) the Class A Percentage of the
Available Principal, (ii) the Subordination
Spread Account, and (iii) the Class B
Percentage of the Total Available Amount will
be passed through on each Distribution Date
to the Class A Certificateholders in an
amount equal to the Class A Percentage of:
(a) the principal portion of all scheduled
payments due during the preceding Collection
Period; (b) the principal portion of all
prepayments in full received during the
preceding Collection Period (and certain
partial prepayments); (c) the principal
balance of each Receivable that was purchased
by the Servicer or repurchased by the Seller,
in each case, under an obligation that arose
during the preceding Collection Period; and
(d) the principal balance of each Receivable
liquidated by the Servicer, during the
preceding Collection Period. A "Collection
Period" with respect to a Distribution Date
will be the calendar month preceding the
month in which such Distribution Date occurs,
or, in the case of the initial Distribution
Date, the period from the Cutoff Date through
the last day of the calendar month preceding
the month in which the initial Distribution
Date occurs.
SUBORDINATION................. The rights of the holders of the Class B
Certificates (the "Class B
Certificateholders") to receive distributions
to which they would otherwise be entitled
with respect to the Receivables are
subordinated to the rights of the Class A
Certificateholders, as described more fully
herein.
SUBORDINATION SPREAD
ACCOUNT....................... The Subordination Spread Account will be
created with an initial deposit by the Seller
of cash or Eligible Investments maturing on
or prior to the initial Distribution Date and
having a value of $1,762,504 (the
"Subordination Initial Deposit"). The
Subordination Initial Deposit will be
augmented by the deposit in the Subordination
Spread Account of amounts otherwise
distributable to Class B Certificateholders
until the amount in
4
<PAGE> 5
the Subordination Spread Account reaches an
amount equal to the Specified Subordination
Spread Account Balance. Thereafter, amounts
otherwise distributable to the Class B
Certificateholders will be deposited in the
Subordination Spread Account to the extent
necessary to maintain the amount in the
Subordination Spread Account at an amount
equal to the Specified Subordination Spread
Account Balance. Amounts in the Subordination
Spread Account on any Distribution Date
(after giving effect to all distributions
made on such Distribution Date) in excess of
the Specified Subordination Spread Account
Balance for such Distribution Date generally
will be released to the Class B
Certificateholders. The "Specified
Subordination Spread Account Balance" with
respect to any Distribution Date will be
equal to $8,812,520, except that in the event
that on any Distribution Date (i) the
annualized average for the preceding three
Collection Periods of the ratios of net
losses (i.e., the balances of all Receivables
which are determined to be uncollectible in
the Collection Period, less any Liquidation
Proceeds) to the Pool Balance as of the first
day of each such Collection Period exceeds
2.25% or (ii) the average for the preceding
three Collection Periods of the ratios of the
number of Receivables that have been
repossessed but not yet sold or are
delinquent 60 days or more to the outstanding
number of Receivables exceeds 1.50%, then the
Specified Subordination Spread Account
Balance for such Distribution Date shall be
an amount equal to the percentage of the Pool
Balance as of the first day of such
Collection Period determined by deducting
from eleven percent the following fraction,
expressed as a percentage: (x) 1 minus (y) a
fraction, the numerator of which is the Class
A Certificate Balance and the denominator of
which is the Pool Balance both as of the
first day of such Collection Period, but in
no event shall the Specified Subordination
Spread Account Balance be more than
$52,875,123, or less than $8,812,520. On any
Distribution Date on which the aggregate
balance of the Class A Certificates is
$117,500,000 or less after giving effect to
distributions on such Distribution Date, the
Specified Subordination Spread Account
Balance shall be the greater of the balance
described above or $20,562,548. The
Subordination Spread Account will be
maintained with Chemical Bank, as agent for
the Class A Certificateholders as a
segregated trust account, and will not be
part of the Trust.
DISTRIBUTION DATE............. The 15th day of each month (or if such 15th day
is not a business day, the next following
business day).
ADVANCES...................... The Servicer each month will advance to the
Trust, in respect of each Receivable, that
portion of scheduled payments that was not
timely made (an "Advance"). The Servicer
shall be entitled to reimbursement of
Advances from subsequent payments on or with
respect to the Receivables. The Servicer will
not be required to make any Advance to the
extent that it does not expect to recoup the
Advance from subsequent collections or
recoveries. See "The Certificates --
Advances."
REPURCHASES AND PURCHASES
OF CERTAIN RECEIVABLES........ The Seller will be obligated to repurchase any
Receivable if the interest of the Trust
therein is materially adversely affected by a
breach of any representation or warranty made
by the Seller with respect to the Receivable
and if the breach has not been cured
5
<PAGE> 6
by the last day of the second month following
the discovery by or notice to the Seller of
the breach. Ford Credit will be obligated to
repurchase the Receivable from the Seller
pursuant to the Purchase Agreement
contemporaneously with the Seller's
repurchase from the Trust.
The Servicer will be obligated to purchase any
Receivable if, among other things, it changes
the APR or the amount or the number of the
scheduled payments of such Receivable or
fails to maintain a perfected security
interest in the Financed Vehicle. See "The
Certificates -- Servicing Procedures."
SERVICER FEE.................. The Servicer will receive each month a fee for
servicing the Receivables equal to (a) the
product of one-twelfth of 1.00% (the
"Servicing Fee Rate") and the Pool Balance
outstanding at the beginning of the previous
month, plus (b) any late, prepayment, and
other administrative fees and expenses
collected during such month plus reinvestment
proceeds on any payments received in respect
of the Receivables. See "The Certificates --
Servicing Compensation."
OPTIONAL PURCHASE............. The Servicer may purchase all of the
Receivables as of the last day of any month
on or after which the aggregate principal
balance of the Receivables (after giving
effect to the current calendar month's
collections and Advances) declines below 10%
of the original Pool Balance. The purchase
price will be equal to the aggregate Purchase
Amounts, and will be distributed to
Certificateholders on the next following
Distribution Date. See "The
Certificates -- Termination."
TRUSTEE....................... Chemical Bank.
TAX STATUS.................... In the opinion of special tax counsel to the
Seller, the Trust will be treated as a
grantor trust for federal income tax
purposes, and will not be subject to federal
income tax. Certificate Owners will report
their pro rata shares of all income earned on
the Receivables (other than amounts, if any,
treated as "stripped coupons") and, subject
to certain limitations in the case of
Certificate Owners who are individuals,
trusts, or estates, may deduct their pro rata
shares of reasonable servicing and other
fees. See "Certain Federal Income Tax
Consequences."
ERISA CONSIDERATIONS.......... As described herein, the Class A Certificates
may be purchased by employee benefit plans
that are subject to the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"). See "ERISA Considerations."
RATING........................ As a condition of issuance, the Class A
Certificates will be rated in the highest
rating category by at least one nationally
recognized rating agency. There is no
assurance that a rating will not be lowered
or withdrawn by a rating agency based on a
change in circumstances deemed by such rating
agency to adversely affect the Class A
Certificates. See "Rating of the Class A
Certificates."
6
<PAGE> 7
FORMATION OF THE TRUST
The Seller will establish the Trust by selling and assigning the Trust
property, as described below, to the Trustee in exchange for the Certificates.
The Servicer will service the Receivables pursuant to the Agreement, and will be
compensated for acting as the Servicer. See "The Certificates -- Servicing
Compensation." To facilitate servicing and to minimize administrative burden and
expense the Servicer will retain physical possession of the Receivables and
documents relating thereto as custodian for the Trustee. Due to the
administrative burden and expense, the certificates of title to the Financed
Vehicles will not be amended to reflect the assignment of the security interest
in the Financed Vehicles to the Trustee. In the absence of such amendment, the
Trustee may not have a perfected security interest in the Financed Vehicles in
all states. See "Certain Legal Aspects of the Receivables -- Security Interests
in Vehicles." The Trustee will not be responsible for the legality, validity, or
enforceability of any security interest in any Financed Vehicle.
If the protection provided to the Class A Certificateholders by the
subordination of the Class B Certificates and by the Subordination Spread
Account is insufficient, the Class A Certificateholders would have to look to
the Obligors on the Receivables, the proceeds from the repossession and sale of
Financed Vehicles which secure defaulted Receivables and the proceeds from
Dealer Recourse. In such event, certain factors, such as the Trustee's not
having perfected security interests in the Financed Vehicles in all states, may
affect the Trust's ability to repossess and sell the collateral securing the
Receivables, and thus may reduce the proceeds to be distributed to
Certificateholders. See "The Certificates -- Subordination of the Class B
Certificates; Subordination Spread Account" and "Certain Legal Aspects of the
Receivables."
PROPERTY OF THE TRUST
Each Certificate represents a fractional undivided interest in the Trust.
The property of the Trust will include retail installment sale contracts
originated on or after November 1, 1993 between dealers (the "Dealers") and
retail purchasers (the "Obligors") secured by new and used automobiles and light
trucks and all payments due thereunder on or after the Cutoff Date. The
Receivables were originated by Dealers in accordance with Ford Credit's
requirements under agreements with Dealers, for assignment to Ford Credit, have
been so assigned, will, on or prior to the issuance of the Certificates, be sold
to the Seller by Ford Credit, are serviced by Ford Credit, and evidence the
indirect financing made available by Ford Credit to the Obligors. The property
of the Trust also will include (i) such amounts as from time to time may be held
in separate trust accounts (the "Collection Account," the "Certificate Account,"
and the "Payahead Account") established and maintained pursuant to the
Agreement, and the proceeds of such accounts; (ii) security interests in the
Financed Vehicles and any accessions thereto; (iii) any Dealer Recourse; (iv)
the right to proceeds of credit life, credit disability, and physical damage
insurance policies covering the Financed Vehicles; (vi) the rights of the Seller
under the Purchase Agreement; (vii) certain rebates of premiums and other
amounts relating to certain insurance policies and other items financed under
the Receivables in effect as of the Cutoff Date and (viii) any and all proceeds
of the foregoing. The property of the Trust does not include the Subordination
Spread Account.
Additionally, pursuant to agreements between Ford Credit and the Dealers,
the Dealers are obligated to repurchase from Ford Credit Receivables which do
not meet certain representations made by the Dealers, as well as those covered
by recourse plans ("Dealer Recourse"). See "The Receivables."
THE RECEIVABLES
The Receivables were purchased by Ford Credit in the ordinary course of
business in accordance with Ford Credit's underwriting standards, which
emphasize the Obligor's ability to pay and creditworthiness, as well as the
asset value of the Financed Vehicle. The Receivables were selected from Ford
Credit's portfolio by several criteria, including the following: each Receivable
(i) was originated in the United States, (ii) has a contractual Annual
Percentage Rate ("APR") that equals or exceeds 8.80%, (iii) provides for level
monthly payments which provide interest at the APR and fully amortize the amount
financed over an original term no greater than 60 months, (iv) is not more than
30 days past due as of the Cutoff Date and has never been extended and (v) was
originated on or after November 1, 1993. The Receivables were selected at random
7
<PAGE> 8
from Ford Credit's portfolio of retail installment sale contracts for new
vehicles and Ford Credit's portfolio of retail installment sale contracts for
used vehicles, in each case, meeting the criteria described above. Contracts for
financing of new vehicles comprise a greater proportion of the Receivables than
of Ford Credit's total portfolio of retail contracts. No selection procedures
believed to be adverse to the Certificateholders were utilized in selecting the
Receivables from qualifying retail installment sale contracts.
Approximately 97.9% of the aggregate principal balance of the Receivables,
constituting 97.1% of the number of Receivables, as of the Cutoff Date,
represent vehicles financed at new vehicle rates, and the remainder of the
Receivables represent vehicles financed at used vehicle rates.
Based on principal balance, less than 1.0% of the Receivables provide
recourse to the Dealer which originated the Receivable. Dealers are generally
obligated under these recourse plans for payment of the unpaid principal balance
of a defaulted contract, unless Ford Credit fails to repossess the vehicle and
deliver it to the Dealer within 90 days after default. The Dealer's obligation
generally terminates after the first 24 monthly payments are made under the
related contract.
The geographical distribution, composition, and distribution by annual
percentage rate of the Receivables are as set forth in the following tables.
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES POOL
<TABLE>
<CAPTION>
<S> <C>
PERCENTAGE
OF
AGGREGATE
PRINCIPAL
STATE(1) BALANCE(2)
- ----------------------------------- ----------
Alabama............................ 1.7%
Alaska............................. 0.3
Arizona............................ 0.0
Arkansas........................... 1.2
California......................... 14.7
Colorado........................... 1.5
Connecticut........................ 3.4
Delaware........................... 0.1
District of Columbia............... 0.1
Florida............................ 4.1
Georgia............................ 5.1
Hawaii............................. 0.0
Idaho.............................. 0.0
Illinois........................... 7.4
Indiana............................ 0.4
Iowa............................... 0.3
Kansas............................. 0.1
Kentucky........................... 0.5
Louisiana.......................... 1.2
Maine.............................. 0.0
Maryland........................... 6.9
Massachusetts...................... 4.3
Michigan........................... 0.6
Minnesota.......................... 0.0
Mississippi........................ 1.6
Missouri........................... 5.0
Montana............................ 0.3%
Nebraska........................... 0.2
Nevada............................. 0.1
New Hampshire...................... 0.1
New Jersey......................... 5.5
New Mexico......................... 0.7
New York........................... 5.8
North Carolina..................... 2.8
North Dakota....................... 0.0
Ohio............................... 0.0
Oklahoma........................... 1.4
Oregon............................. 0.0
Pennsylvania(3).................... 0.0
Rhode Island....................... 0.4
South Carolina..................... 1.1
South Dakota....................... 0.0
Tennessee.......................... 1.8
Texas.............................. 12.2
Utah............................... 0.0
Vermont............................ 0.0
Virginia........................... 4.2
Washington......................... 1.2
West Virginia...................... 1.2
Wisconsin.......................... 0.0
Wyoming............................ 0.2
</TABLE>
- ---------------
(1) Based on the current billing addresses of the Obligors on the Receivables.
(2) Percentages do not add to 100.00% due to rounding. States showing 0.0% each
represent less than 0.05%.
(3) Pennsylvania was excluded for administrative reasons.
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COMPOSITION OF THE RECEIVABLES
<TABLE>
<S> <C>
Aggregate Principal Balance............................................ $1,175,002,732.19
Number of Receivables.................................................. 83,300
Average Principal Balance.............................................. $14,106
Average Original Amount Financed....................................... $14,971
(Range)........................................................... $538.89 to $52,900
Weighted Average APR................................................... 11.73%
(Range)........................................................... 8.8% to 20.00%
Weighted Average Original Term......................................... 57.1 months
(Range)........................................................... 6 to 60 months
Weighted Average Remaining Term........................................ 52.9 months
(Range)........................................................... 1 to 59 months
Scheduled Weighted Average Life(1)..................................... 29.2 months
</TABLE>
- ---------------
(1) Based on Scheduled Payments as of the Cutoff Date, assuming no prepayments
on the Receivables are made after the Cutoff Date.
DISTRIBUTION BY APR OF THE RECEIVABLES
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
APR RANGE RECEIVABLES BALANCE BALANCE(1)
- ----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C>
8.80% to 9.00% 11,427 $ 164,786,810.23 14.02%
9.01 to 9.50 7,364 107,121,299.09 9.11
9.51 to 10.00 13,440 193,039,475.20 16.42
10.01 to 10.50 5,072 74,019,745.11 6.29
10.51 to 11.00 7,962 114,615,421.46 9.75
11.01 to 11.50 3,227 46,267,441.24 3.93
11.51 to 12.00 5,399 76,315,580.15 6.49
12.01 to 12.50 2,786 37,788,701.14 3.21
12.51 to 13.00 4,767 65,876,169.85 5.60
13.01 to 13.50 1,943 26,815,188.59 2.28
13.51 to 14.00 3,522 49,038,367.27 4.17
14.01 to 14.50 1,983 27,228,673.20 2.31
14.51 to 15.00 3,051 41,495,168.18 3.53
15.01 to 15.50 1,182 15,919,082.13 1.35
15.51 to 16.00 2,047 27,661,158.92 2.35
16.01 to 16.50 969 12,942,636.24 1.10
16.51 to 17.00 1,851 25,105,683.97 2.13
17.01 to 17.50 1,059 14,456,611.61 1.23
17.51 to 18.00 2,388 31,009,654.22 2.63
18.01 to 18.50 262 3,431,151.24 0.29
18.51 to 19.00 717 9,254,197.53 0.78
19.01 to 19.50 185 2,268,225.40 0.19
19.51 to 20.00 697 8,546,290.22 0.72
------- ----------------- -------
Totals 83,300 $1,175,002,732.19 100.00%
====== =============== ======
</TABLE>
- ---------------
(1) Percentages do not add to 100.00% because of rounding.
9
<PAGE> 10
MATURITY AND PREPAYMENT ASSUMPTIONS
All the Receivables are prepayable at any time. If prepayments are received
on the Receivables, the actual weighted average life of the Receivables will be
shorter than the scheduled weighted average life, which is based on the
assumptions that payments will be made as scheduled, and that no prepayments
will be made. (For this purpose the term "prepayments" includes liquidations due
to default, as well as receipt of proceeds from credit life, credit disability,
and casualty insurance policies.) Weighted average life means the average amount
of time during which each dollar of principal on a receivable is outstanding.
The rate of prepayments on the Receivables may be influenced by a variety
of economic, social, and other factors, including the fact that an Obligor may
not sell or transfer a Financed Vehicle without the consent of the Servicer.
Ford Credit believes that the actual rate of prepayments will result in a
substantially shorter weighted average life than the scheduled weighted average
life shown above. Ford Credit estimates that the actual weighted average life of
its portfolio of U.S. retail installment contracts for new and used automobiles
and light trucks in recent history is between 60% and 70% of their scheduled
weighted average life. Substantially all reinvestment risks resulting from a
faster or slower incidence of prepayment of Receivables will be borne by the
Certificateholders. See also "The Certificates -- Termination" regarding the
Servicer's option to purchase the Receivables when the aggregate principal
balance of the Receivables (the "Pool Balance") is less than 10% of the Pool
Balance as of the Cutoff Date.
DELINQUENCIES, REPOSSESSIONS, AND NET LOSSES
Set forth below is certain information concerning Ford Credit's experience
with respect to its portfolio of U.S. retail installment sale contracts for new
and used automobiles and light trucks (including previously sold contracts which
Ford Credit continues to service, but not including retail installment sale
contracts purchased by Ford Credit under certain special financing programs).
There is no assurance that the behavior of the Receivables will be comparable to
Ford Credit's experience shown in the following tables.
DELINQUENCY EXPERIENCE(1)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Average Number of
Contracts Outstanding
During the Period............. 3,433,517 3,386,405 3,398,797 3,388,214 3,398,048 3,616,862 3,909,811
Average Daily Delinquencies
as a Percent of Average
Contracts Outstanding
31-60 Days(2)............... 2.01% 2.04% 2.02% 2.35% 2.72% 2.71% 3.23%
61-90 Days(2)............... 0.15% 0.15% 0.15% 0.20% 0.29% 0.31% 0.43%
Over 90 Days(3)............. 0.03% 0.03% 0.03% 0.04% 0.07% 0.08% 0.12%
</TABLE>
- ---------------
(1) The information in the table includes U.S. retail installment sale contracts
for new and used automobiles and light trucks and includes previously sold
contracts which Ford Credit continues to service; it does not include retail
installment sale contracts purchased by Ford Credit under certain special
financing programs.
(2) Delinquencies represent the daily average number of contracts
delinquent.
(3) Delinquencies represent the average monthly end-of-period number of
contracts delinquent.
10
<PAGE> 11
CREDIT LOSS AND REPOSSESSION EXPERIENCE(1)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- ---------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Average Portfolio Outstanding
During the Period
(Millions)................... $33,457.2 $30,738.5 $31,204.9 $29,505.1 $28,977.1 $30,789.7 $32,065.8
Percent of Average Receivables
Outstanding During the Period
without Recourse to Dealer... 98.5% 97.5% 97.7% 96.4% 94.4% 92.2% 89.9%
Repossessions as a Percent of
Average Number of Contracts
Outstanding.................. 2.11%(2) 2.27%(2) 2.27% 2.74% 3.27% 3.17% 3.57%
Net Losses as a Percent of
Gross Liquidations(3)........ 0.95% 1.11% 1.16% 1.52% 2.29% 2.40% 2.84%
Net Losses as a Percent of
Average Portfolio
Outstanding(3)............... 0.55%(2) 0.66%(2) 0.69% 0.90% 1.29% 1.31% 1.57%
</TABLE>
- ---------------
(1) Except as indicated, all amounts and percentages are based on the gross
amount scheduled to be paid on each contract, including unearned finance and
other charges. The information in the table includes U.S. retail installment
sale contracts for new and used automobiles and light trucks and includes
previously sold contracts which Ford Credit continues to service; it does
not include retail installment sale contracts purchased by Ford Credit under
certain special financing programs.
(2) Annualized rate.
(3) "Net Losses" are equal to the aggregate balance of all contracts which are
determined to be uncollectible in the period less any recoveries on
contracts charged-off in the period or any prior periods. Effective January
1, 1993 net losses include expenses associated with outside collection
agencies. Other expenses associated with collection, repossession, and
disposition of the vehicle continue to be excluded.
The reduction in credit losses since 1989 primarily has been due to actions
taken by Ford Credit to improve purchase and collection practices, as well as
higher vehicle resale values. The actions taken by Ford Credit include
establishment of a risk-based pricing policy, improved training, retention of
experienced collection personnel, faster direct customer contact on problem
accounts, and implementation of new risk-rating guides. Ford Credit's retail
loss experience also depends upon the availability of recourse from dealers, the
number of repossessions, the amount outstanding at the time of repossession, and
the resale value of repossessed vehicles.
CLASS A CERTIFICATE FACTORS AND TRADING INFORMATION
The "Class A Certificate Factor" is a seven-digit decimal which the
Servicer will compute each month indicating the Class A Certificate Balance as
of the close of business on the Distribution Date in that month as a fraction of
the original Class A Certificate Balance. The Class A Certificate Factor will be
1.0000000 as of the Cutoff Date; thereafter, the Class A Certificate Factor will
decline to reflect reductions in the Class A Certificate Balance. The amount of
a Class A Certificateholder's pro rata share of the Class A Certificate Balance
can be determined by multiplying the original denomination of the holder's
Certificate by the Class A Certificate Factor as of the close of business on the
most recent Distribution Date. The Class A Certificate Factor will be made
available through the Underwriters.
Pursuant to the Agreement, the Certificateholders will receive monthly
reports concerning the payments received on the Receivables, the Class A
Certificate Balance, the Class A Certificate Factor, and various other items of
information. Class A Certificateholders of record during any calendar year will
be furnished information for tax reporting purposes not later than the latest
date permitted by law. See "The Certificates -- Statements to Class A
Certificateholders."
11
<PAGE> 12
USE OF PROCEEDS
The net proceeds to be received by the Seller from the sale of the Class A
Certificates will be applied to the purchase of the Receivables from Ford
Credit.
THE SELLER
The Seller, a wholly owned subsidiary of Ford Credit, was incorporated in
the State of Delaware on February 13, 1991. The Seller was organized for limited
purposes, which include purchasing receivables from Ford Credit and transferring
such receivables to third parties and any activities incidental to and necessary
or convenient for the accomplishment of such purposes. The principal executive
offices of the Seller are located at The American Road, Dearborn, Michigan
48121. The telephone number of such offices is (313) 322-1989.
The Seller has taken steps in structuring the transactions contemplated
hereby that are intended to ensure that the voluntary or involuntary application
for relief by Ford Credit under the United States Bankruptcy Code or similar
applicable state laws ("Insolvency Laws") will not result in consolidation of
the assets and liabilities of the Seller with those of Ford Credit. These steps
include the creation of the Seller as a separate, limited-purpose subsidiary
pursuant to a certificate of incorporation containing certain limitations
(including restrictions on the nature of the Seller's business and a restriction
on the Seller's ability to commence a voluntary case or proceeding under any
Insolvency Law without the unanimous affirmative vote of all of its directors).
The Seller's Certificate of Incorporation includes a provision that, under
certain circumstances, requires the Seller to have two directors who qualify
under the Certificate of Incorporation as "Independent Directors." However,
there can be no assurance that the activities of the Seller would not result in
a court concluding that the assets and liabilities of the Seller should be
consolidated with those of Ford Credit in a proceeding under any Insolvency Law.
The Seller has received the advice of counsel to the effect that, subject
to certain facts, assumptions and qualifications, it would not be a proper
exercise by a court of its equitable discretion to disregard the separate
corporate existence of the Seller and to require the consolidation of the assets
and liabilities of the Seller with the assets and liabilities of Ford Credit in
the event of the application of the federal bankruptcy laws to Ford Credit.
Among other things, it is assumed by counsel that the Seller will follow certain
procedures in the conduct of its affairs, including maintaining records and
books of account separate from those of Ford Credit, refraining from commingling
its assets with those of Ford Credit, doing business from an office separate
from that of Ford Credit and refraining from holding itself out as having agreed
to pay, or being liable for, the debts of Ford Credit. The Seller intends to
follow and has represented to such counsel that it will follow these and other
procedures related to maintaining its separate corporate identity. However, in
the event that the Seller did not follow these procedures, there can be no
assurance that a court would not conclude that the assets and liabilities of the
Seller should be consolidated with those of Ford Credit. If a court were to
reach such a conclusion, or a filing were made under any Insolvency Law by or
against the Seller, or if an attempt were made to litigate any of the foregoing
issues, delays in distributions on the Certificates (and possible reductions in
the amount of such distributions) could occur.
It is intended by Ford Credit and the Seller that the transfer of the
Receivables by Ford Credit to the Seller under the Purchase Agreement constitute
a "true sale" of the Receivables to the Seller. If the transfer constitutes such
a "true sale," the Receivables and the proceeds thereof would not be part of
Ford Credit's bankruptcy estate under Section 541 of the Bankruptcy Code should
Ford Credit become the subject of a bankruptcy case subsequent to the transfer
of the Receivables to the Seller. The Seller has received the advice of counsel
to the effect that, subject to certain facts, assumptions and qualifications, in
the event Ford Credit were to become the subject of a voluntary or involuntary
case under the Bankruptcy Code subsequent to the transfer of the Receivables to
the Seller, the transfer of the Receivables by Ford Credit to the Seller
pursuant to the Purchase Agreement would be characterized as a "true sale" of
the Receivables from Ford Credit to the Seller and the Receivables and the
proceeds thereof would not form part of Ford Credit's bankruptcy estate pursuant
to Section 541 of the Bankruptcy Code.
12
<PAGE> 13
In a 1993 decision, Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th
Cir. 1993), cert. denied 114 S.Ct 554 (1993), the United States Court of Appeals
for the 10th Circuit suggested that even where a transfer of accounts from a
seller to a buyer constitutes a "true sale," the accounts would nevertheless
constitute property of the seller's bankruptcy estate in a bankruptcy of the
seller. If Ford Credit or the Seller were to become subject to a bankruptcy
proceeding and a court were to follow the Octagon court's reasoning,
Certificateholders might experience delays in payment or possibly losses on
their investment in the Certificates. As part of the advice of counsel described
above, counsel has advised the Seller that the reasoning of the Octagon case
appears to be inconsistent with precedent and the Uniform Commercial Code.
THE SERVICER
Ford Credit was incorporated in Delaware in 1959 and is a wholly owned
subsidiary of Ford Motor Company ("Ford").
Ford Credit provides wholesale financing and capital loans to franchised
Ford Motor Company vehicle dealers and other dealers associated with such
dealers and purchases retail installment sale contracts and retail leases from
them. Ford Credit also makes loans to vehicle leasing companies, the majority of
which are affiliated with such dealers. In addition, a wholly-owned subsidiary
of Ford Credit provides these financing services in the U.S. to other vehicle
dealers. More than 85% of all new vehicles financed by Ford Credit are
manufactured by Ford or its affiliates. Ford Credit also provides retail
financing for used vehicles built by Ford and other manufacturers. In addition
to vehicle financing, Ford Credit makes loans to affiliates of Ford, finances
certain receivables of Ford and its subsidiaries, and offers diversified
financing services which are managed by USL Capital Corporation, a wholly owned
subsidiary of Ford Holdings, Inc. ("Ford Holdings"). Ford Credit also manages
the insurance businesses of The American Road Insurance Company, a wholly owned
subsidiary of Ford Holdings. Ford Credit also is a significant equity
participant in Ford Holdings whose primary activities are consumer and
commercial financing operations, insurance underwriting and equipment leasing.
The mailing address of Ford Credit's executive offices is The American
Road, Dearborn, Michigan 48121. The telephone number of such offices is (313)
322-3000.
THE CERTIFICATES
The Class A Certificates offered hereby will be issued pursuant to the
Agreement. Copies of the Agreement (without exhibits) may be obtained by the
Class A Certificateholders upon request in writing to Servicer, at its address
set forth above. Citations to the relevant sections of the Agreement appear
below in parentheses. The following summary does not purport to be complete and
is subject to and qualified in its entirety by reference to the Agreement.
GENERAL
The Class A Certificates will be offered for purchase in denominations of
$1,000 and integral multiples thereof, and will be represented initially by
physical certificates registered in the name of Cede as the nominee of DTC
except that one Class A Certificate may be issued in a denomination that
includes any residual portion of the Class A Percentage of the original Pool
Balance. No Certificate Owner will be entitled to receive a certificate
representing such person's interest in the Class A Certificates, except as set
forth below under "Definitive Certificates." Unless and until Definitive
Certificates are issued under the limited circumstances described herein, all
references to actions by Class A Certificateholders shall refer to actions taken
by DTC upon instructions from its Participants (as defined below), and all
references herein to distributions, notices, reports and statements to Class A
Certificateholders shall refer to distributions, notices, reports and statements
to DTC or Cede, as the registered holder of the Class A Certificates, as the
case may be, for distribution to Certificate Owners in accordance with DTC
procedures. See "The Certificates -- Book-Entry Registration."
In general, it is intended that Class A Certificateholders receive, on each
Distribution Date, the Class A Percentage of the scheduled payments of principal
due and the aggregate full prepayments and certain partial
13
<PAGE> 14
prepayments on the Receivables made during or with respect to the preceding
calendar month (the "Collection Period"), plus interest at the Pass-Through Rate
on the Class A Certificate Balance. (Section 14.06.) See "The
Certificates -- Distributions on Certificates." A scheduled payment on a
Receivable may be made by or on behalf of the respective Obligor, or advanced by
the Servicer. See "The Certificates -- Advances." A prepayment of a Receivable
may be made by or on behalf of the respective Obligor, by application of certain
insurance proceeds, as a result of a repurchase made by the Seller or the
Servicer, or upon the repossession and liquidation of the respective Financed
Vehicle or other enforcement measure taken with respect to a defaulted
Receivable. See "The Certificates -- Sale and Assignment of Receivables," and
" -- Servicing Procedures."
The Certificates will evidence interests in the Trust created pursuant to
the Agreement. The Class A Certificates will evidence in the aggregate an
undivided ownership interest (the "Class A Percentage") of 93.5% of the Trust
and the Class B Certificates will evidence in the aggregate an undivided
ownership interest (the "Class B Percentage") of 6.5% of the Trust. The Class B
Certificates, which are not being offered hereby, will be held initially by the
Seller. (Sections 16.01, 16.02 and 16.04.)
BOOK-ENTRY REGISTRATION
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC and a "clearing agency"
registered pursuant to Section 17A of the Securities Exchange Act of 1934, as
amended. DTC was created to hold securities for its participating organizations
("Participants") and to facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entries, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing
corporations. Indirect access to the DTC system also is available to others such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
("Indirect Participants").
Certificate Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, Class A Certificates may do so only through Participants and Indirect
Participants. In addition, Certificate Owners will receive all distributions of
principal and interest from the Trustee through DTC Participants. Under a
book-entry format, Certificate Owners may experience some delay in their receipt
of payments, since such payments will be forwarded by the Trustee to Cede, as
nominee for DTC. DTC will forward such payments to its Participants, which
thereafter will forward them to Indirect Participants or Certificate Owners. It
is anticipated that the only "Class A Certificateholder" will be Cede, as
nominee of DTC. Certificate Owners will not be recognized by the Trustee as
Class A Certificateholders, as such term is used in the Agreement, and
Certificate Owners will be permitted to exercise the rights of Class A
Certificateholders only indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Class A Certificates among Participants on whose behalf it acts with respect to
the Class A Certificates and to receive and transmit distributions of principal
of, and interest on, the Class A Certificates. Participants and Indirect
Participants with which Certificate Owners have accounts with respect to the
Class A Certificates similarly are required to make book-entry transfers and
receive and transmit such payments on behalf of their respective Certificate
Owners. Accordingly, although Class A Certificate Owners will not possess Class
A Certificates, the Rules provide a mechanism by which Participants will receive
payments and will be able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Class A
Certificate Owner to pledge Class A Certificates to persons or entities that do
not participate in the DTC system, or to otherwise act with respect to such
Certificates, may be limited due to the unavailability of physical certificates
evidencing interests in the Class A Certificates.
DTC has advised the Seller that it will take any action permitted to be
taken by a Class A Certificateholder under the Agreement only at the direction
of one or more Participants to whose accounts with DTC the Class A Certificates
are credited. Additionally, DTC has advised the Seller that it will take
14
<PAGE> 15
such actions with respect to specified percentages of the Class A Certificates
only at the direction of and on behalf of Participants whose holdings include
undivided interests that satisfy such specified percentages. DTC may take
conflicting actions with respect to other undivided interests to the extent that
such actions are taken on behalf of Participants whose holdings include such
undivided interests.
Neither the Seller nor the Trustee will have any liability for any aspect
of the records relating to or payments made on account of beneficial ownership
interests of the Class A Certificates held by Cede, as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
DEFINITIVE CERTIFICATES
The Class A Certificates will be issued in fully registered, certificated
form ("Definitive Certificates") to Certificate Owners or their nominees, rather
than to DTC or its nominee, only if (i) the Seller advises the Trustee in
writing that DTC is no longer willing or able to discharge properly its
responsibilities as depository with respect to the Class A Certificates and the
Trustee or the Seller is unable to locate a qualified successor, (ii) the Seller
at its option, elects to terminate the book-entry system through DTC or (iii)
after the occurrence of an Event of Default, Class A Certificate Owners
representing not less than 51% of the Class A Certificate Balance advise the
Trustee through DTC in writing that the continuation of a book-entry system
through DTC (or a successor thereto) is no longer in the Certificate Owners'
best interest. (Section 16.10.)
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee will be required to notify all Certificate Owners through
Participants of the availability of Definitive Certificates and that the Record
Date will thereafter be the last day of each calendar month. Upon surrender by
DTC of the definitive certificates representing the Class A Certificates and
receipt of instructions for re-registration, the Trustee will reissue the Class
A Certificates as Definitive Certificates to Certificate Owners.
Distributions of principal of, and interest on, the Class A Certificates
will thereafter be made by the Trustee directly to holders of Definitive
Certificates in accordance with the procedures set forth in the Agreement, to
holders in whose names the Definitive Certificates were registered at the close
of business on the last day of the preceding calendar month. Such distributions
will be made by check mailed to the address of such holder as it appears on the
register maintained by the Trustee. The final payment on any Class A
Certificate, however, will be made only upon presentation and surrender of such
Class A Certificate at the office or agency specified in the notice of final
distribution to Certificateholders.
Definitive Certificates will be transferable and exchangeable at the
offices of the Trustee or of a certificate registrar named in a notice delivered
to holders of Definitive Certificates. No service charge will be imposed for any
registration of transfer or exchange, but the Trustee may require payment of a
sum sufficient to cover any tax or other governmental charge imposed in
connection therewith.
SALE AND ASSIGNMENT OF RECEIVABLES
Prior to the time of issuance of the Class A Certificates, pursuant to a
Purchase Agreement (the "Purchase Agreement"), Ford Credit will sell and assign
to the Seller, without recourse, its entire interest in the Receivables
(exclusive of any amount allocable to the premium for physical damage insurance
force-placed by Ford Credit), including its security interests in the Financed
Vehicles. At the time of issuance of the Class A Certificates the Seller will
sell and assign to the Trustee, without recourse, the Seller's entire interest
in the Receivables, including its security interests in the Financed Vehicles.
Each Receivable will be identified in a schedule to the Agreement. The Trustee
will, concurrently with such sale and assignment, execute, authenticate, and
deliver the Certificates to the Seller in exchange for the Receivables. (Section
16.02.) The Seller will sell the Class A Certificates to the Underwriters. See
"Underwriting."
In the Purchase Agreement, Ford Credit will represent and warrant to the
Seller, and in the Agreement the Seller will represent and warrant to the
Trustee, among other things, that (i) the information provided with respect to
the Receivables is correct in all material respects; (ii) the Obligor on each
Receivable has obtained or agreed to obtain physical damage insurance in
accordance with Ford Credit's normal
15
<PAGE> 16
requirements; (iii) at the date of issuance of the Certificates, the Receivables
are free and clear of all security interests, liens, charges, and encumbrances
(such representation and warranty will be made to the best of its knowledge with
respect to mechanic's liens and the like relating to a Financed Vehicle) and no
setoffs, defenses, or counterclaims against it have been asserted or threatened;
(iv) at the date of issuance of the Certificates, each of the Receivables is or
will be secured by a first perfected security interest in the Financed Vehicle
in favor of Ford Credit; and (v) each Receivable, at the time it was originated,
complied, and at the date of issuance of the Certificates, complies in all
material respects with applicable federal and state laws, including consumer
credit, truth in lending, equal credit opportunity, and disclosure laws. As of
the last day of the second (or, if the Seller elects, the first) month following
the discovery by or notice to the Seller of a breach of any representation or
warranty of the Seller which materially and adversely affects the interests of
the Certificateholders in a Receivable, the Seller, unless it cures the breach,
will purchase the Receivable from the Trustee, and Ford Credit will purchase the
Receivable from the Seller, at a price equal to the amount required to be paid
by the related Obligor to prepay the Receivable (including one month's interest
thereon, in the month of payment, at the APR), after giving effect to the
receipt of any moneys collected (from whatever source) on such Receivable, if
any (such price, the "Purchase Amount"). The purchase obligation will constitute
the sole remedy available to the Certificateholders or the Trustee for any such
uncured breach. (Sections 12.01 and 12.02.)
Pursuant to the Agreement, the Servicer will service and administer the
Receivables. The Agreement will also designate the Servicer as custodian to
maintain possession as the Trustee's agent of the retail installment sale
contracts and any other documents relating to the Receivables. (Section 12.03.)
To assure uniform quality in servicing both the Receivables and the Servicer's
own portfolio of receivables, as well as to facilitate servicing and save
administrative costs, the documents will not be physically segregated from other
similar documents that are in the Servicer's possession or otherwise stamped or
marked to reflect the transfer to the Trust so long as Ford Credit is servicing
the Receivables. However, Uniform Commercial Code financing statements
reflecting the sale and assignment of the Receivables by Ford Credit to the
Seller and by the Seller to the Trustee will be filed, and the Servicer's
accounting records and computer systems will be marked to reflect such sale and
assignment. Because the Receivables will remain in the Servicer's possession and
will not be stamped or otherwise marked to reflect the assignment to the
Trustee, if a subsequent purchaser were able to take physical possession of the
Receivables without knowledge of the assignment, the Trustee's interest in the
Receivables could be defeated. See "Certain Legal Aspects of the
Receivables -- Security Interests in Vehicles."
ACCOUNTS
The Servicer will establish two accounts in the name of the Trustee on
behalf of the Certificateholders, the first into which certain payments made on
or with respect to the Receivables will be deposited (the "Collection Account"),
and the second from which all distributions with respect to the Receivables and
the Certificates will be made (the "Certificate Account"). The Collection
Account shall be maintained with the Trustee so long as (i) the Trustee's
short-term unsecured debt obligations have a rating of P-1 by Moody's Investors
Service, Inc. and a rating of A-1+ by Standard & Poor's Corporation (the
"Required Deposit Rating") or (ii) such Account is maintained in the trust
department of the Trustee. If the short-term unsecured debt obligations of the
Trustee do not have the Required Deposit Rating, the Servicer shall, with the
Trustee's assistance as necessary, cause the Collection Account to be moved to a
bank whose short-term unsecured debt obligations have such a rating or moved to
the trust department of the Trustee. The Collection Account and the Certificate
Account shall initially be maintained in the trust department of the Trustee.
(Section 14.01.)
The Servicer will also establish an additional account (the "Payahead
Account") in the name of the Trustee, into which early payments by or on behalf
of the Obligors which constitute neither scheduled payments, full prepayments,
nor certain partial prepayments that result in a reduction of the Obligor's
periodic payment below the scheduled payment as of the Cutoff Date ("Payaheads")
will be deposited until such time as the payment falls due. The Payahead Account
will be established initially and maintained with the Trustee for so long as (i)
the short-term unsecured debt obligations of the Trustee have the Required
Deposit Rating or (ii) such Account is maintained in the trust department of the
Trustee. (Section 14.01.)
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<PAGE> 17
Notwithstanding the foregoing, so long as Ford Credit is the servicer and
provided that (i) there exists no Event of Default and (ii) each other condition
to holding Payaheads as may be required by the Agreement is satisfied, Payaheads
may be retained by the Servicer until the related Distribution Date. (Section
14.01.)
SERVICING PROCEDURES
The Servicer will make reasonable efforts to collect all payments due with
respect to the Receivables and will continue such collection procedures as it
follows with respect to its own automotive retail installment sale contracts, in
a manner consistent with the Agreement. (Section 13.01.) Consistent with its
normal procedures, the Servicer may, in its discretion, arrange with the Obligor
on a Receivable to defer or modify the payment schedule. (Section 13.02.) Some
of such arrangements may cause the Servicer to purchase the Receivable while
others may result in the Servicer making Advances with respect to the
Receivable. (Sections 13.07 and 14.04.) If the Servicer determines that eventual
payment in full of a Receivable is unlikely, the Servicer will follow its normal
practices and procedures to realize upon the Receivable, including the
repossession and disposition of the Financed Vehicle securing the Receivable at
a public or private sale, or the taking of any other action permitted by
applicable law. (Section 13.03.)
COLLECTIONS
The Servicer will deposit all payments on Receivables received from
Obligors and all proceeds of Receivables collected during each Collection Period
into the Collection Account not later than the business day after receipt.
However, so long as Ford Credit is the servicer and provided that (i) there
exists no Event of Default and (ii) each other condition to making monthly
deposits as may be required by the Agreement is satisfied, the Servicer may
retain such amounts until the related Distribution Date. The Servicer or the
Seller, as the case may be, will remit the aggregate Purchase Amount of
Receivables to be purchased from the Trust to the Collection Account on the
Distribution Date. Pending deposit into the Collection Account, collections may
be employed by the Servicer at its own risk and for its own benefit and will not
be segregated from its own funds. (Section 14.02.)
For purposes of the Agreement, collections on a Receivable made during a
Collection Period which are not late fees, prepayment charges, or certain other
similar fees or charges shall be applied first to any outstanding Advances made
by the Servicer with respect to such Receivable and then to the scheduled
payment. To the extent that such collections on a Receivable during a Collection
Period exceed the outstanding Advances and the scheduled payment on such
Receivable, the collections shall be applied to prepay the Receivable in full.
If the collections are insufficient to prepay the Receivable in full, they
generally shall be treated as Payaheads until such later Collection Period as
such Payaheads may be transferred to the Collection Account and applied either
to the scheduled payment or to prepay the Receivable in full. (Sections 14.03,
14.04, and 14.06.)
ADVANCES
To the extent the collections on a Receivable for a Collection Period are
less than the scheduled payment, the amount of Payaheads made on such Receivable
not previously applied (the "Payahead Balance"), if any, with respect to such
Receivable shall be applied by the Servicer to the extent of the shortfall. To
the extent of any remaining shortfall, the Servicer will make an Advance of the
deficiency. The Servicer will be obligated to make an Advance in respect of a
Receivable only to the extent that the Servicer, in its sole discretion, expects
to recoup the Advance from the Obligor, the Purchase Amount, Liquidation
Proceeds or collections from other Receivables. (Section 14.04.) The Servicer
will deposit Advances in the Collection Account on the following Distribution
Date. The Servicer will be entitled to recoup its Advances from subsequent
payments by or on behalf of the Obligor, collections of Liquidation Proceeds and
payment of the Purchase Amount; or, upon the determination that reimbursement
from the preceding sources is unlikely, will be entitled to recoup its Advances
from collections from other Receivables. (Section 14.04.)
In the event that an Obligor shall prepay a Receivable in full, if the
related contract did not require such Obligor to pay a full month's interest for
the month of prepayment, at the APR, the Servicer shall advance the amount of
such interest. The Servicer will not be entitled to recoup any such advance.
(Section 14.04.)
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SERVICING COMPENSATION
The Servicer is entitled under the Agreement to receive a servicing fee
(the "Servicing Fee") for each Collection Period equal to one-twelfth of 1.00%
(the "Servicing Fee Rate") multiplied by the Pool Balance as of the first day of
such Collection Period. The Servicer is also entitled to receive a supplemental
servicing fee (the "Supplemental Servicing Fee") for each Collection Period
equal to any late, prepayment, and other administrative fees and expenses
collected during the Collection Period, plus any interest earned during the
Collection Period on deposits made with respect to the Receivables. The Servicer
will be paid the Servicing Fee and the Supplemental Servicing Fee for each
Collection Period on the following Distribution Date.
The Servicing Fee and the Supplemental Servicing Fee (collectively, the
"Servicer Fee") are intended to compensate the Servicer for performing the
functions of a third party servicer of the Receivables as an agent for the
Certificateholders, including collecting and posting all payments, responding to
inquiries of Obligors on the Receivables, investigating delinquencies, sending
payment coupons to Obligors, reporting tax information to Obligors, paying costs
of collections, and policing the collateral. The Servicer Fee will also
compensate the Servicer for administering the Receivables, including making
Advances, accounting for collections, furnishing monthly and annual statements
to the Trustee with respect to distributions, and generating federal income tax
information for the Trust. The Servicer Fee also will reimburse the Servicer for
certain taxes, the Trustee's fees, accounting fees, outside auditor fees, data
processing costs, and other costs incurred in connection with administering the
Receivables. (Sections 13.13 and 20.07.)
DISTRIBUTIONS ON CERTIFICATES
On or about the tenth calendar day of each month, the Servicer will inform
the Trustee of the amount of aggregate collections on the Receivables; the
aggregate Advances to be made by the Servicer, the aggregate Purchase Amount of
Receivables to be purchased by the Seller or the Servicer, all with respect to
the preceding Collection Period. (Section 13.09.)
On each Distribution Date, the Servicer, or the Trustee, as the case may
be, shall transfer the portion of Payaheads constituting all or a portion of
scheduled payments for that Collection Period or, which together with that
month's payment by an Obligor constitute prepayments in full on the Receivables
to the Certificate Account. On the Distribution Date, the Trustee shall cause
collections made during the Collection Period which constitute Payaheads to be
transferred from the Certificate Account to the Servicer, or to the Payahead
Account if required. (Sections 14.01 and 14.06.)
The Servicer shall determine prior to each Distribution Date the Total
Available Amount, the Available Interest, the Available Principal, the Class A
Distributable Amount and the Class B Distributable Amount and, based on the
Total Available Amount and the other distributions to be made on such
Distribution Date, as described below, determine the amount to be distributed to
Certificateholders of each Class. (Sections 13.09 and 14.06(b).)
Determination of Available Amounts. The "Total Available Amount" for a
Distribution Date (being the funds available for distribution to
Certificateholders of each Class with respect to such Distribution Date in
accordance with the priorities described below) shall be the sum of the
Available Interest and the Available Principal.
The "Available Interest" for a Distribution Date shall be the sum of the
following amounts with respect to the preceding Collection Period: (i) that
portion of all collections on the Receivables allocable to interest (including
amounts withdrawn from the Payahead Account but excluding amounts deposited into
the Payahead Account); (ii) all proceeds of the liquidation of defaulted
Receivables ("Liquidated Receivables"), net of expenses incurred by the
Servicer, received in connection with such liquidation and any amounts required
by law to be remitted to the Obligor on such Liquidated Receivable ("Liquidation
Proceeds") to the extent attributable to interest due thereon in accordance with
the Servicer's customary servicing procedures; (iii) all Advances made by the
Servicer, of interest due on Receivables; (iv) all advances, if any, of interest
made by the Servicer in respect of Receivables which were prepaid in full; and
(v) the Purchase Amount of each Receivable that was purchased by the Seller or
Servicer under an obligation which arose during the related Collection Period,
to the extent attributable to accrued interest thereon.
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The "Available Principal" for a Distribution Date shall be the sum of the
following amounts with respect to the preceding Collection Period: (i) that
portion of all collections on the Receivables allocable to principal (including
amounts withdrawn from the Payahead Account but excluding amounts deposited into
the Payahead Account); (ii) all Liquidation Proceeds attributable to principal
in accordance with the Servicer's customary servicing procedures; (iii) all
Advances made by the Servicer, of principal due on the Receivables; (iv) to the
extent attributable to principal, the Purchase Amount received with respect to
each Receivable purchased by the Seller or the Servicer under an obligation
which arose during such Collection Period; and (v) partial prepayments of any
refunded item included in the principal balance of a Receivable, such as
extended warranty protection plan costs, or physical damage, credit life,
disability insurance premiums, or any partial prepayment which causes a
reduction in the Obligor's periodic payment to an amount below the scheduled
payment as of the Cutoff Date.
The Available Interest and the Available Principal on any Distribution Date
shall exclude the following:
(i) amounts received on Receivables to the extent that the Servicer
has previously made an unreimbursed Advance; and
(ii) Liquidation Proceeds with respect to a particular Receivable to
the extent of any unreimbursed Advances, and amounts representing
reimbursement for certain costs and expenses incurred by the Servicer as
provided in the Agreement.
Calculation of Distributable Amounts. The "Class A Distributable Amount"
with respect to a Distribution Date shall be an amount equal to the sum of:
(i) the "Class A Principal Distributable Amount," consisting of the
Class A Percentage of:
(a) the principal portion of all scheduled payments due during the
preceding Collection Period;
(b) the principal portion of all prepayments in full received
during the preceding Collection Period (and certain partial prepayments)
(except to the extent included in (a) above);
(c) the principal balance of each Receivable that was purchased by
the Seller or the Servicer under an obligation that arose during the
preceding Collection Period (except to the extent included in (a) or (b)
above); and
(d) the principal balance of each Receivable liquidated by the
Servicer during the preceding Collection Period; plus
(ii) the "Class A Interest Distributable Amount," consisting of thirty
(30) days' interest at the Pass-Through Rate on the Class A Certificate
Balance as of the last day of the preceding Collection Period.
The "Class A Certificate Balance" shall equal, initially, the Class A
Percentage of the Pool Balance as of the Cutoff Date and, thereafter shall equal
the initial Class A Certificate Balance, reduced by all amounts previously
distributed to Class A Certificateholders and allocable to principal.
The "Class B Distributable Amount" with respect to a Distribution Date
shall be an amount equal to the sum of:
(i) the "Class B Principal Distributable Amount," consisting of the
Class B Percentage of the amounts set forth under (i)(a) through (i)(d)
above with respect to the Class A Principal Distributable Amount; plus
(ii) the "Class B Interest Distributable Amount," consisting of thirty
(30) days' interest at the Pass-Through Rate on the Class B Certificate
Balance as of the last day of the preceding Collection Period plus the
excess, for each Receivable having an APR greater than the sum of the
Pass-Through Rate and the Servicing Fee Rate, of the interest portion of
the scheduled payment over the portion of such interest equal to interest
at the sum of the Pass-Through Rate and the Servicing Fee Rate.
The "Class B Certificate Balance" shall equal, initially, the Class B
Percentage of the Pool Balance as of the Cutoff Date and, thereafter shall equal
the initial Class B Certificate Balance, reduced by all amounts previously
distributed to Class B Certificateholders (or deposited in the Subordination
Spread Account not including the Subordination Initial Deposit) and allocable to
principal and by the Class A Principal Carryover Shortfall and the Class B
Principal Carryover Shortfall.
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Calculation of Amounts to be Distributed. Prior to each Distribution Date,
the Servicer will calculate the amount to be distributed to the
Certificateholders.
The holders of the Class A Certificates will receive on any Distribution
Date, to the extent of available funds, an amount equal to the sum of the Class
A Distributable Amount and any outstanding Class A Interest Carryover Shortfall
and Class A Principal Carryover Shortfall (as defined below). (Section
14.06(c).) On each Distribution Date on which the sum of the Class A Interest
Distributable Amount and any outstanding Class A Interest Carryover Shortfall
(plus interest on such Class A Interest Carryover Shortfall at the Pass-Through
Rate from such preceding Distribution Date to the current Distribution Date, to
the extent permitted by law) exceeds the Class A Percentage of the Available
Interest (after payment of the Servicer Fee including any unpaid Servicer Fees
with respect to prior Collection Periods) on such Distribution Date, the Class A
Certificateholders shall be entitled to receive such shortfall first, from the
Class B Percentage of the Available Interest; second, if such amounts are
insufficient, from amounts available in the Subordination Spread Account; and
third, if such amounts are insufficient, from the Class B Percentage of the
Available Principal; provided, however, that if the Servicer shall fail to make
an advance of interest in respect of a Receivable prepaid in full, the portion
of such shortfall attributable thereto shall be paid only from amounts available
in the Subordination Spread Account. (Section 14.06(d).) The "Class A Interest
Carryover Shortfall" as of the close of any Distribution Date means the excess
of the Class A Interest Distributable Amount for such Distribution Date plus any
outstanding Class A Interest Carryover Shortfall from the preceding Distribution
Date, plus interest on such outstanding Class A Interest Carryover Shortfall, to
the extent permitted by law, at the Pass-Through Rate from such preceding
Distribution Date through the current Distribution Date, over the amount of
interest that the holders of the Class A Certificates actually received on such
current Distribution Date.
On each Distribution Date on which the sum of the Class A Principal
Distributable Amount and any outstanding Class A Principal Carryover Shortfall
from the preceding Distribution Date exceeds the Class A Percentage of the
Available Principal on such Distribution Date, the Class A Certificateholders
shall be entitled to receive such shortfall first, from the Class B Percentage
of the Available Principal; second, if such amounts are insufficient, from
amounts available in the Subordination Spread Account and third, if such amounts
are insufficient, from the Class B Percentage of the Available Interest.
(Section 14.06(d).) The "Class A Principal Carryover Shortfall" as of the close
of any Distribution Date means the excess of the Class A Principal Distributable
Amount plus any outstanding Class A Principal Carryover Shortfall from the
preceding Distribution Date over the amount of principal that the holders of the
Class A Certificates actually received on such current Distribution Date.
The holders of the Class B Certificates are entitled to receive on any
Distribution Date an amount equal to the sum of the Class B Interest
Distributable Amount, the Class B Principal Distributable Amount (and any
shortfalls from prior Distribution Dates in payments to the Class B
Certificateholders), after giving effect to (A) any amounts required to be
distributed to the holders of Class A Certificates pursuant to the subordination
of the rights of the holders of Class B Certificates, and (B) amounts required
to pay the Servicer Fee (including any unpaid Servicer Fees with respect to
prior Collection Periods) payable to the Servicer on such Distribution Date.
(Section 14.06(c).)
SUBORDINATION OF THE CLASS B CERTIFICATES; SUBORDINATION SPREAD ACCOUNT
The rights of the Class B Certificateholders to receive distributions with
respect to the Receivables will be subordinated to the rights of the Class A
Certificateholders in the event of defaults and delinquencies on the Receivables
as provided in the Agreement. The protection afforded to the Class A
Certificateholders will be effected both by the preferential right of the Class
A Certificateholders to receive current distributions with respect to the
Receivables and by the establishment of the Subordination Spread Account. The
Subordination Spread Account will be created with an initial deposit by the
Seller of the Subordination Initial Deposit and will be augmented by deposit
therein of amounts otherwise distributable to Class B Certificateholders until
the amount in the Subordination Spread Account reaches an amount equal to the
Specified Subordination Spread Account Balance. Thereafter, amounts otherwise
distributable to the Class B Certificateholders will be deposited in the
Subordination Spread Account to the extent necessary to maintain the amount in
the Subordination Spread Account at the Specified Subordination Spread Account
Balance.
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The Subordination Spread Account will not be a part of or otherwise
includible in the Trust and will be a segregated trust account held by Chemical
Bank as agent for the Class A Certificateholders (the "Class A Agent"). On each
Distribution Date, (i) if the amounts on deposit in the Subordination Spread
Account are less than the Specified Subordination Spread Account Balance, the
Trustee will, after payment of any amounts required to be distributed to holders
of the Class A Certificates and the payment of the Servicer Fee due with respect
to the related Collection Period (including any unpaid Servicer Fees with
respect to prior Collection Periods), withdraw from the Collection Account and
deposit in the Subordination Spread Account the amount remaining in the
Collection Account that would otherwise be distributed to the holders of the
Class B Certificates, or such lesser portion thereof as is sufficient to restore
the amount in the Subordination Spread Account to such Specified Subordination
Spread Account Balance and (ii) if the amount on deposit in the Subordination
Spread Account on such Distribution Date (after giving effect to all deposits or
withdrawals therefrom on such Distribution Date) is greater than the Specified
Subordination Spread Account Balance for such Distribution Date, the Class A
Agent will release and distribute any such excess to the holders of the Class B
Certificates. Upon any such distribution, the Class A Certificateholders will
have no rights in, or claims to, such amounts. (Section 14.07.)
Amounts held from time to time in the Subordination Spread Account will
continue to be held for the benefit of holders of the Class A Certificates and
holders of the Class B Certificates in order to effectuate the subordination of
the rights of the holders of the Class B Certificates to the rights of the
holders of the Class A Certificates. Funds in the Subordination Spread Account
shall be invested as provided in the Agreement in Eligible Investments. The
holders of the Class B Certificates shall be entitled to receive all investment
earnings on amounts in the Subordination Spread Account. Investment income on
amounts in the Subordination Spread Account will not be available for
distribution to the holders of the Class A Certificates or otherwise subject to
any claims or rights of the holders of the Class A Certificates. (Section
14.07(c).)
"Eligible Investments" for monies deposited in the Subordination Spread
Account are limited to investments acceptable to the rating agency or agencies
then rating the Class A Certificates as being consistent with the then-current
rating of the Class A Certificates. Eligible Investments are limited to
obligations or securities that mature not later than the Distribution Date next
succeeding the day of investment. (Section 14.01.)
The time necessary for the Subordination Spread Account to reach and
maintain the Specified Subordination Spread Account Balance at any time after
the date of issuance of the Certificates will be affected by the delinquency,
credit loss and repossession and prepayment experience of the Receivables and,
therefore, cannot be accurately predicted.
If on any Distribution Date the holders of the Class A Certificates do not
receive the sum of the Class A Distributable Amount, the Class A Interest
Carryover Shortfall and the Class A Principal Carryover Shortfall for such
Distribution Date (after giving effect to any amounts withdrawn from the
Subordination Spread Account and the Class B Distributable Amount and applied to
such deficiency, as described above), the holders of the Class B Certificates
will not receive any portion of the Total Available Amount.
The subordination of the Class B Certificates and the Subordination Spread
Account described above are intended to enhance the likelihood of receipt by
Class A Certificateholders of the full amount of principal and interest on the
Receivables due them and to decrease the likelihood that the Class A
Certificateholders will experience losses. However, in certain circumstances,
the Subordination Spread Account could be depleted and shortfalls could result.
NET DEPOSITS
As an administrative convenience and for so long as certain conditions are
satisfied, the Servicer will be permitted to make the deposit of collections and
aggregate Advances and Purchase Amounts for or with respect to the Collection
Period, net of distributions to the Servicer as reimbursement of Advances or
payment of the Servicer Fee with respect to the Collection Period. Similarly,
the Servicer may cause to be made a single, net transfer from the Certificate
Account to the Payahead Account, or vice versa. The Servicer, however, will
account to the Trustee and to the Certificateholders as if all deposits,
distributions, and transfers were made individually. (Section 14.08.)
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The following chart sets forth an example of the application of the
foregoing provisions to a monthly distribution:
<TABLE>
<S> <C>
November 1 --
November 30.......... Collection Period. The Servicer receives monthly payments,
prepayments, and other proceeds in respect of the
Receivables.
December 10............ The tenth calendar day of the month. On or about this date
the Servicer notifies the Trustee of, among other things,
the amounts to be distributed on the Distribution Date.
December 14............ Record Date. Distributions on the Distribution Date are
made to Certificateholders of record at the close of
business on this date (or, if Definitive Certificates are
issued, the Record Date will be November 30).
December 15............ Distribution Date. On or before this date, the Seller and
the Servicer (or the Trustee), make the required
remittances and transfers to the Collection Account and the
Certificate Account in immediately available funds, and the
Trustee distributes to holders of the Class A Certificates
and of the Class B Certificates amounts payable in respect
of the Certificates and pays the Servicer Fee and remits
amounts to the Subordination Spread Account (if required).
</TABLE>
STATEMENTS TO CLASS A CERTIFICATEHOLDERS
On each Distribution Date, the Trustee will include with each distribution
to each Class A Certificateholder (which shall be Cede as the nominee for DTC
unless Definitive Certificates are issued under the limited circumstances
described herein) as of the close of business on the last day of the preceding
Collection Period a statement, setting forth the following information with
respect to the preceding Collection Period:
(i) the amount of the distribution allocable to principal;
(ii) the amount of the distribution allocable to interest;
(iii) the Pool Balance as of the close of business on the last day of
the preceding Collection Period;
(iv) the amount of the Servicing Fee paid to the Servicer with
respect to the related Collection Period and the Certificateholder's Class
A Percentage of the Servicing Fee and the amount of any unpaid Servicing
Fees and the change in such amount from that of the prior Distribution
Date;
(v) the amount of the Class A Interest Carryover Shortfall and Class
A Principal Carryover Shortfall, if any, on such Distribution Date and the
change in such amounts from those of the prior Distribution Date;
(vi) the Class A Certificate Factor and Class B Certificate Balance
as of such Distribution Date;
(vii) the amount otherwise distributable to the Class B
Certificateholders that is distributed to Class A Certificateholders on
such Distribution Date;
(viii) the balance of the Subordination Spread Account on such
Distribution Date, after giving effect to distributions made on such
Distribution Date and the change in such balance from that of the prior
Distribution Date;
(ix) the aggregate amount in the Payahead Account and the change in
such amount from that of the prior Distribution Date; and
(x) the amount of Advances on such Distribution Date.
Each amount set forth pursuant to subclauses (i), (ii), (iv) and (v) above
shall be expressed in the aggregate and as a dollar amount per $1,000 of
original principal balance of a Class A Certificate.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of the Agreement, the Trustee shall
mail to each person who at any time during such calendar year shall have been a
Class A Certificateholder and received any payment thereon, a statement
containing the sum
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of the amounts described in (i), (ii), (iv), and (v) above for the purposes of
such Class A Certificateholder's preparation of federal income tax returns.
(Section 14.09.) See "Certain Federal Income Tax Consequences."
EVIDENCE AS TO COMPLIANCE
The Agreement will provide that a firm of independent public accountants
will furnish to the Trustee on or before April 30 of each year, beginning April
30, 1995, a statement as to compliance by the Servicer during the preceding
calendar year, or part thereof in the case of calendar year 1994, ended December
31 with certain standards relating to the servicing of the Receivables, the
Servicer's accounting and computer systems with respect thereto, and certain
other matters. (Section 13.11.)
The Agreement will also provide for delivery to the Trustee, on or before
April 30 of each year, commencing April 30, 1995, of a certificate signed by an
officer of the Servicer stating that the Servicer has fulfilled its obligations
under the Agreement throughout the preceding calendar year, or part thereof in
the case of calendar year 1994, ended December 31 or, if there has been a
default in the fulfillment of any such obligation, describing each such default.
(Section 13.10.)
Copies of such statements and certificates may be obtained by Class A
Certificateholders by a request in writing addressed to the Trustee.
CERTAIN MATTERS REGARDING THE SERVICER
The Agreement will provide that Ford Credit may not resign from its
obligations and duties as servicer thereunder, except upon determination that
Ford Credit's performance of such duties is no longer permissible under
applicable law. No such resignation will become effective until the Trustee or a
successor servicer has assumed Ford Credit's servicing obligations and duties
under the Agreement. (Section 8.01.)
The Agreement will further provide that neither the Servicer, nor any of
its directors, officers, employees, and agents will be under any liability to
the Trust or the Certificateholders for taking any action or for refraining from
taking any action pursuant to the Agreement, or for errors in judgment;
provided, however, that neither the Servicer nor any such person will be
protected against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith, or negligence (except for errors in judgment) in
the performance of duties, or by reason of reckless disregard of obligations and
duties thereunder. In addition, the Agreement will provide that the Servicer is
under no obligation to appear in, prosecute, or defend any legal action that is
not incidental to the Servicer's servicing responsibilities under the Agreement
and that, in its opinion, may cause it to incur any expense or liability. The
Servicer may, however, undertake any reasonable action that it may deem
necessary or desirable in respect of the Agreement, the rights and duties of the
parties thereto, and the interests of the Certificateholders thereunder. In such
event, the legal expenses and costs of such action and any liability resulting
therefrom will be expenses, costs, and liabilities of the Servicer, and the
Servicer will not be entitled to be reimbursed therefor out of the Certificate
Account. (Section 18.04.)
Any entity into which the Servicer or the Seller, as the case may be, may
be merged or consolidated, or any entity resulting from any merger, conversion,
or consolidation to which the Servicer or the Seller, as the case may be, is a
party, or any entity succeeding to the business of the Servicer or the Seller,
as the case may be, or any corporation, more than 50% of the voting stock of
which is owned, directly or indirectly, by Ford Motor Company, which assumes the
obligations of the Servicer or the Seller, as the case may be, will be the
successor of the Servicer or the Seller, as the case may be, under the
Agreement. (Sections 17.03 and 18.03.) For as long as Ford Credit is the
Servicer, it may at any time subcontract substantially all of its duties as
servicer under the Agreement to any corporation more than 50% of the voting
stock of which is owned, directly or indirectly, by Ford Motor Company and the
Servicer may at any time perform certain specific duties as servicer through
other subcontractors. (Section 18.05.)
EVENTS OF DEFAULT
"Events of Default" under the Agreement will consist of (i) any failure by
the Servicer to deliver to the Trustee for distribution to the
Certificateholders or deposit in the Subordination Spread Account any required
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payment, which failure continues unremedied for three Business Days after
written notice from the Trustee is received by the Servicer or after discovery
by an officer of the Servicer; (ii) any failure by the Seller or the Servicer
duly to observe or perform in any material respect any other covenant or
agreement in the Agreement which failure materially and adversely affects the
rights of Certificateholders and which continues unremedied for 90 days after
the giving of written notice of such failure (1) to the Seller or the Servicer,
as applicable, by the Trustee or (2) to the Seller or the Servicer, as
applicable, and to the Trustee by holders of Class A Certificates evidencing not
less than 25% of the Class A Certificate Balance; and (iii) certain events of
insolvency, readjustment of debt, marshalling of assets and liabilities, or
similar proceedings with respect to the Servicer indicating its insolvency,
reorganization pursuant to bankruptcy proceedings, or inability to pay its
obligations. (Section 19.01.)
RIGHTS UPON EVENT OF DEFAULT
As long as an Event of Default under the Agreement remains unremedied, the
Trustee or holders of Class A Certificates evidencing not less than 51% of the
Class A Certificate Balance may terminate all the rights and obligations of the
Servicer under the Agreement, whereupon the Trustee will succeed to all the
responsibilities, duties, and liabilities of the Servicer under such Agreement
and will be entitled to similar compensation arrangements. If, however, a
bankruptcy trustee or similar official has been appointed for the Servicer, and
no Event of Default other than such appointment has occurred, such trustee or
official may have the power to prevent the Trustee or the Class A
Certificateholders from effecting a transfer of servicing. In the event that the
Trustee is unwilling or unable to so act, it may appoint, or petition a court of
competent jurisdiction for the appointment of, a successor with a net worth of
at least $100,000,000 and whose regular business includes the servicing of
automotive receivables. The Trustee, or any person appointed as successor
Servicer, shall be the successor in all respects to the predecessor Servicer
under the Agreement and all references therein to the Servicer shall apply to
such successor Servicer. The Trustee may make such arrangements for compensation
to be paid, which in no event may be greater than the servicing compensation to
Ford Credit, as Servicer, under the Agreement. (Sections 19.01 and 19.02.)
WAIVER OF PAST DEFAULTS
The holders of Class A Certificates evidencing not less than 51% of the
Class A Certificate Balance may waive any default by the Servicer in the
performance of its obligations under the Agreement and its consequences, except
a default in making any required deposits to or payments from the Collection
Account or the Certificate Account in accordance with the Agreement. No such
waiver shall impair the Certificateholders' rights with respect to subsequent
defaults. (Section 19.05.)
AMENDMENT
The Agreement may be amended by the Seller, the Servicer, and the Trustee,
without the consent of the Certificateholders, (i) to cure any ambiguity,
correct or supplement any provision therein which may be inconsistent with any
other provision therein, or make any other provisions with respect to matters or
questions arising under such Agreement which are not inconsistent with the
provisions of the Agreement; provided that such action will not, in the opinion
of counsel satisfactory to the Trustee, materially and adversely affect the
interest of any Certificateholder, and (ii) to provide for the transfer of the
Class B Certificates; provided that certain conditions specified in the
Agreement are satisfied prior to such transfer, including written confirmation
from any rating agency rating the Class A Certificates that such transfer will
not result in the qualification, downgrading or withdrawal of the then current
rating assigned to the Class A Certificates by such rating agency, and that such
amendment will not change the timing of, or the amount of, any distributions
that the holders of the Class A Certificates are entitled to receive under the
Agreement. The Agreement may also be amended by the Seller, the Servicer, and
the Trustee with the consent of the holders of Class A Certificates and Class B
Certificates, each voting as a Class, evidencing not less than 51% of the Class
A Certificate Balance and Class B Certificate Balance, respectively, for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of the Agreement or of modifying in any manner the rights of
Certificateholders; provided, however, that no such amendment may (i) increase
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or reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments on Receivables or distributions that are required to be
made on any Certificate or change the Pass-Through Rate or the Specified
Subordinated Spread Account Balance or (ii) reduce the aforesaid percentage of
the Class A Certificate Balance or Class B Certificate Balance, which is
required to consent to any such amendment, without the consent of the holders of
all Certificates of such Class. (Section 22.01.)
LIST OF CERTIFICATEHOLDERS
Upon written request of the Servicer, the Trustee will provide to the
Servicer within 15 days after receipt of such request a list of the names and
addresses of all Certificateholders of record as of the most recent Record Date.
Upon written request by three or more Certificateholders or by one or more
holders of Class A Certificates evidencing not less than 25% of the Class A
Certificate Balance, and upon compliance by such Certificateholders with certain
other provisions of the Agreement, the Trustee will afford such
Certificateholders access during business hours to the current list of
Certificateholders for purposes of communicating with other Certificateholders
with respect to their rights under the Agreement. (Section 16.06.)
The Agreement will not provide for the holding of any annual or other
meetings of Certificateholders.
TERMINATION
The respective obligations of the Seller, the Servicer and the Trustee
pursuant to the Agreement will terminate upon (i) the maturity or other
liquidation of the last Receivable and the disposition of any amounts received
upon liquidation of any remaining Receivables and (ii) the payment to
Certificateholders of all amounts required to be paid to them pursuant to the
Agreement. In order to avoid excessive administrative expense, the Servicer, or
its successor, is permitted at its option to purchase from the Trust, as of the
last day of any month as of which the then outstanding Pool Balance is less than
10% of the original Pool Balance, all remaining Receivables at a price equal to
the aggregate of the Purchase Amounts thereof as of such last day. Exercise of
such right will effect early retirement of the Certificates. The Trustee will
give written notice of termination to each Certificateholder of record. The
final distribution to any Certificateholder will be made only upon surrender and
cancellation of such holder's Certificate at any office or agency of the Trustee
specified in the notice of termination. Any funds remaining in the Trust, after
the Trustee has taken certain measures to locate a Certificateholder and such
measures have failed, will be distributed to the Edison Institute, Dearborn,
Michigan. (Sections 21.01 and 21.02.)
DUTIES OF THE TRUSTEE
The Trustee makes no representations as to the validity or sufficiency of
the Agreement, the Certificates (other than the authentication of the
Certificates), or any Receivables or related documents, and is not accountable
for the use or application by the Servicer of any funds paid to the Seller or
the Servicer in respect of the Certificates or the Receivables, or the
investment of any monies by the Servicer before such monies are deposited into
the Certificate Account. The Trustee has not independently verified the
Receivables. If no Event of Default has occurred, the Trustee is required to
perform only those duties specifically required of it under the Agreement.
Generally, those duties are limited to the receipt of the various certificates,
reports, or other instruments required to be furnished to the Trustee under the
Agreement, in which case it is only required to examine them to determine
whether they conform to the requirements of the Agreement. The Trustee shall not
be charged with knowledge of a failure by the Servicer to perform its duties
under the Agreement which failure constitutes an Event of Default unless the
Trustee obtains actual knowledge of such failure as specified in the Agreement.
(Sections 20.01 and 20.05.)
The Trustee is under no obligation to exercise any of the rights or powers
vested in it by the Agreement or to make any investigation of matters arising
thereunder or to institute, conduct, or defend any litigation thereunder or in
relation thereto at the request, order, or direction of any of the
Certificateholders, unless such Certificateholders have offered to the Trustee
reasonable security or indemnity against the costs, expenses, and liabilities
that may be incurred therein or thereby. (Section 20.04.) No Class A
Certificateholder will have any right under the Agreement to institute any
proceeding with respect to the Agreement, unless such holder
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previously has given to the Trustee written notice of default and unless (i) the
default arises from the Seller's or the Servicer's failure to remit payments
when due under the Agreement or (ii) the holders of Class A Certificates
evidencing not less than 25% of the Class A Certificate Balance have made
written request upon the Trustee to institute such proceeding in its own name as
Trustee thereunder and have offered to the Trustee reasonable indemnity and the
Trustee for 30 days has neglected or refused to institute any such proceeding.
(Section 22.03.)
THE TRUSTEE
Chemical Bank is the Trustee under the Agreement. The Trustee, in its
individual capacity or otherwise, may hold Certificates in its own name or as
pledgee. (Section 20.06.) For the purpose of meeting the legal requirements of
certain jurisdictions, the Servicer and the Trustee acting jointly (or in some
instances, the Trustee acting alone) shall have the power to appoint co-trustees
or separate trustees of all or any part of the Trust. In the event of such
appointment, all rights, powers, duties, and obligations conferred or imposed
upon the Trustee by the Agreement shall be conferred or imposed upon the Trustee
and such 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 such separate trustee or co-trustee who shall exercise and perform
such rights, powers, duties, and obligations solely at the direction of the
Trustee. (Section 20.13.)
The Trustee may resign at any time, in which event the Servicer will be
obligated to appoint a successor trustee. The Servicer may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Agreement, becomes legally unable to act, or becomes insolvent. In such
circumstances, the Servicer 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. (Section 20.10.)
The Agreement will provide that the Servicer will pay the Trustee's fees.
(Section 20.07.) The Agreement will further provide that the Trustee will be
entitled to indemnification by the Seller and the Servicer for, and will be held
harmless against, any loss, liability, fee, disbursement, or expense incurred by
the Trustee not resulting from the Trustee's own willful misfeasance, bad faith,
or negligence (other than by reason of a breach of any of its representations or
warranties set forth in the Agreement). The Agreement will further provide that
the Seller and the Servicer will indemnify the Trustee for certain taxes that
may be asserted in connection with the transaction.
RATING OF THE CLASS A CERTIFICATES
It is a condition to issuance of the Class A Certificates that they be
rated in the highest rating category by at least one nationally recognized
rating agency. The rating is not a recommendation to purchase, hold or sell
Class A Certificates, inasmuch as such rating does not comment as to market
price or suitability for a particular investor. There is no assurance that the
rating will remain for any given period of time or that the rating will not be
lowered or withdrawn entirely by such rating agency if in its judgment
circumstances in the future so warrant.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
SECURITY INTERESTS IN VEHICLES
In all states in which the Receivables have been originated, retail
installment sale contracts such as the Receivables evidence the credit sale of
automobiles and light trucks by dealers to obligors; the contracts also
constitute personal property security agreements and include grants of security
interests in the vehicles under the Uniform Commercial Code (the "UCC").
Perfection of security interests in the vehicles is generally governed by the
motor vehicle registration laws of the state in which the vehicle is located. In
most states in which the Receivables have been originated, a security interest
in a vehicle is perfected by notation of the
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secured party's lien on the vehicle's certificate of title. Each Receivable
prohibits the sale or transfer of the Financed Vehicle without Ford Credit's
consent.
Pursuant to the Purchase Agreement, Ford Credit will assign its security
interests in the Financed Vehicles securing the Receivables to the Seller and,
pursuant to the Agreement, the Seller will assign its security interests in the
Financed Vehicles securing the Receivables to the Trustee. However, because of
the administrative burden and expense, the Servicer, the Seller and the Trustee
will not amend any certificate of title to identify the Trust as the new secured
party on the certificates of title relating to the Financed Vehicles. Also, the
Servicer will continue to hold any certificates of title relating to the
Financed Vehicles in its possession as custodian for the Trustee pursuant to the
Agreement. See "The Certificates -- Sale and Assignment of Receivables."
In most states, assignments such as those under the Purchase Agreement and
the Agreement are an effective conveyance of a security interest without
amendment of any lien noted on a vehicle's certificate of title, and the
assignee succeeds thereby to the assignor's rights as secured party. In the
absence of fraud or forgery by the vehicle owner or the Servicer or
administrative error by state or local agencies, the notation of Ford Credit's
lien on the certificates of title will be sufficient to protect the Trust
against the rights of subsequent purchasers of a Financed Vehicle or subsequent
lenders who take a security interest in a Financed Vehicle. If there are any
Financed Vehicles as to which Ford Credit failed to obtain a perfected security
interest, its security interest would be subordinate to, among others,
subsequent purchasers of the Financed Vehicles and holders of perfected security
interests. Such a failure, however, would constitute a breach of Ford Credit's
warranties under the Purchase Agreement and of the Seller's warranties under the
Agreement and would create an obligation of Ford Credit under the Purchase
Agreement and of the Seller under the Agreement to purchase the related
Receivable unless the breach is cured. See "The Certificates -- Sale and
Assignment of Receivables." By not identifying the Trust as the secured party on
the certificate of title, the security interest of the Trust in the Financed
Vehicle could be defeated through fraud or negligence. The Seller will assign
its rights under the Purchase Agreement to the Trust.
Under the laws of most states, the perfected security interest in a vehicle
would continue for four months after a vehicle is moved to a state other than
the state in which it is initially registered and thereafter until the vehicle
owner re-registers the vehicle in the new state. A majority of states generally
require surrender of a certificate of title to re-register a vehicle;
accordingly, a secured party must surrender possession if it holds the
certificate of title to the vehicle, or, in the case of vehicles registered in
states providing for the notation of a lien on the certificate of title but not
possession by the secured party, the secured party would receive notice of
surrender if the security interest is noted on the certificate of title. Thus,
the secured party would have the opportunity to re-perfect its security interest
in the vehicle in the state of relocation. In states that do not require a
certificate of title for registration of a motor vehicle, re-registration could
defeat perfection. In the ordinary course of servicing receivables, Ford Credit
takes steps to effect re-perfection upon receipt of notice of re-registration or
information from the obligor as to relocation. Similarly, when an obligor sells
a vehicle, Ford Credit must surrender possession of the certificate of title or
will receive notice as a result of its lien noted thereon and accordingly will
have an opportunity to require satisfaction of the related Receivable before
release of the lien. Under the Agreement, the Servicer is obligated to take
appropriate steps, at the Servicer's expense, to maintain perfection of security
interests in the Financed Vehicles.
Under the laws of most states, liens for repairs performed on a motor
vehicle and liens for certain unpaid taxes take priority over even a perfected
security interest in a Financed Vehicle. The Internal Revenue Code of 1986 also
grants priority to certain federal tax liens over the lien of a secured party.
The laws of certain states and federal law permit the confiscation of motor
vehicles under certain circumstances if used in unlawful activities, which may
result in the loss of a secured party's perfected security interest in the
confiscated motor vehicle. Ford Credit will represent to the Seller and the
Seller will represent to the Trust that each security interest in a Financed
Vehicle is or will be prior to all other present liens (other than tax liens and
liens that arise by operation of law) upon and security interests in such
Financed Vehicle. However, liens for repairs or taxes, or the confiscation of a
Financed Vehicle, could arise or occur at any time during the term of a
Receivable. No notice will be given to the Trustee or Certificateholders in the
event such a lien arises or confiscation occurs.
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REPOSSESSION
In the event of default by vehicle purchasers, the holder of the retail
installment sale contract has all the remedies of a secured party under the UCC,
except where specifically limited by other state laws. The UCC remedies of a
secured party include the right to repossession by self-help means, unless such
means would constitute a breach of the peace. Unless a vehicle is voluntarily
surrendered, self-help repossession is the method employed by Ford Credit in the
majority of instances in which a default occurs and is accomplished simply by
retaking possession of the financed vehicle. In cases where the obligor objects
or raises a defense to repossession, or if otherwise required by applicable
state law, a court order must be obtained from the appropriate state court, and
the vehicle must then be repossessed in accordance with that order.
NOTICE OF SALE; REDEMPTION RIGHTS
In the event of default by the obligor, some jurisdictions require that the
obligor be notified of the default and be given a time period within which the
obligor may cure the default prior to repossession. Generally, this right of
reinstatement may be exercised on a limited number of occasions in any one-year
period.
The UCC and other state laws require the secured party to provide the
obligor with reasonable notice of the date, time, and place of any public sale
and/or the date after which any private sale of the collateral may be held. The
obligor has the right to redeem the collateral prior to actual sale by paying
the secured party the unpaid principal balance of the obligation plus reasonable
expenses for repossessing, holding, and preparing the collateral for disposition
and arranging for this sale, plus, in some jurisdictions, reasonable attorneys'
fees, or, in some states, by payment of delinquent installments or the unpaid
balance. Repossessed vehicles are generally resold by Ford Credit through
automobile auctions which are attended principally by dealers.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of the repossessed vehicles generally will be
applied to the expenses of resale and repossession and then to the satisfaction
of the indebtedness of the obligor on the receivable. While some states impose
prohibitions or limitations on deficiency judgments if the net proceeds from
resale do not cover the full amount of the indebtedness, a deficiency judgment
can be sought in those states that do not prohibit or limit such judgments.
However, the deficiency judgment would be a personal judgment against the
obligor for the shortfall, and a defaulting obligor can be expected to have very
little capital or sources of income available following repossession. Therefore,
in many cases, it may not be useful to seek a deficiency judgment or, if one is
obtained, it may be settled at a significant discount.
Occasionally, after resale of a vehicle and payment of all expenses and
indebtedness, there is a surplus of funds. In that case, the UCC requires the
lender to remit the surplus to any holder of any lien with respect to the
vehicle or if no such lienholder exists or there are remaining funds, the UCC
requires the lender to remit the surplus to the former obligor.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon lenders and servicers involved in consumer
finance. These laws include the Truth-in-Lending Act, the Equal Credit
Opportunity Act, the Federal Trade Commission Act, the Fair Credit Reporting
Act, the Fair Debt Collection Practices Act, the Magnuson-Moss Warranty Act, the
Federal Reserve Board's Regulations B and Z, state adaptations of the National
Consumer Act and of the Uniform Consumer Credit Code, and state motor vehicle
retail installment sales acts, retail installment sales acts, and other similar
laws. Also, state laws impose finance charge ceilings and other restrictions on
consumer transactions and require contract disclosures in addition to those
required under federal law. These requirements impose specific statutory
liabilities upon creditors who fail to comply with their provisions. In some
cases, this liability could affect an assignee's ability to enforce consumer
finance contracts such as the Receivables.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade Commission
(the "FTC Rule"), the provisions of which are generally duplicated by the
Uniform Consumer Credit Code, other state statutes, or
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the common law in certain states, has the effect of subjecting a seller (and
certain related lenders and their assignees) in a consumer credit transaction
and any assignee of the seller to all claims and defenses which the obligor in
the transaction could assert against the seller of the goods. Liability under
the FTC Rule is limited to the amounts paid by the obligor under the contract,
and the holder of the contract may also be unable to collect any balance
remaining due thereunder from the obligor.
Most of the Receivables will be subject to the requirements of the FTC
Rule. Accordingly, the Trustee, as holder of the Receivables, will be subject to
any claims or defenses that the purchaser of the Financed Vehicle may assert
against the seller of the Financed Vehicle. Such claims are limited to a maximum
liability equal to the amounts paid by the obligor on the Receivable. Under most
state motor vehicle dealer licensing laws, sellers of motor vehicles are
required to be licensed to sell motor vehicles at retail sale. Furthermore,
Federal Odometer Regulations promulgated under the Motor Vehicle Information and
Cost Savings Act require that all sellers of new and used vehicles furnish a
written statement signed by the seller certifying the accuracy of the odometer
reading. If a seller is not properly licensed or if an Odometer Disclosure
Statement was not provided to the purchaser of the related financed vehicle, the
obligor may be able to assert a defense against the seller of the vehicle. If an
obligor were successful in asserting any such claim or defense, such claim or
defense would constitute a breach of Ford Credit's and the Seller's
representations and warranties under the Purchase Agreement and the Agreement,
respectively, and would create an obligation of Ford Credit and the Seller to
repurchase the Receivable unless the breach is cured. See "The
Certificates -- Sale and Assignment of the Receivables."
Courts have imposed general equitable principles on secured parties
pursuing repossession of collateral or litigation involving deficiency balances.
These equitable principles may have the effect of relieving an obligor from some
or all of the legal consequences of a default.
In several cases, obligors have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. Courts have generally upheld the notice provisions of the UCC and
related laws as reasonable or have found that the repossession and resale by the
creditor do not involve sufficient state action to afford constitutional
protection to consumers.
Ford Credit and the Seller will warrant under the Purchase Agreement and
the Agreement, respectively, that each Receivable complies with all requirements
of law in all material respects. Accordingly, if an obligor has a claim against
the Trust for violation of any law and such claim materially and adversely
affects the Trust's interest in a Receivable, such violation would constitute a
breach of warranty under the Purchase Agreement and the Agreement and would
create an obligation of Ford Credit and the Seller to repurchase the Receivable
unless the breach is cured. See "The Certificates -- Sale and Assignment of the
Receivables."
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a lender to
realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
lender from repossessing a motor vehicle, and, as part of the rehabilitation
plan, reduce the amount of the secured indebtedness to the market value of the
motor vehicle at the time of bankruptcy (as determined by the court), leaving
the party providing financing as a general unsecured creditor for the remainder
of the indebtedness. A bankruptcy court may also reduce the monthly payments due
under a contract or change the rate of interest and time of repayment of the
indebtedness.
TRANSFERS OF VEHICLES
The Receivables prohibit the sale or transfer of the vehicle securing a
Receivable without Ford Credit's consent and, except those originated in Ohio
and Wisconsin, permit Ford Credit to accelerate the maturity of the Receivable
upon a sale or transfer without its consent. The Servicer will not consent to a
sale or transfer and will require prepayment of the Receivable. The Servicer may
enter into a transfer of equity agreement with the secondary purchaser for the
purpose of effecting the transfer of the Financed Vehicle.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain federal income tax
consequences of the purchase, ownership, and disposition of Class A
Certificates. This summary is based upon laws, regulations, rulings, and
decisions currently in effect, all of which are subject to change. The
discussion does not deal with all federal tax consequences applicable to all
categories of investors, some of which may be subject to special rules. In
addition, this summary is generally limited to investors who will hold the Class
A Certificates as "capital assets" (generally, property held for investment)
within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code"). Investors should consult their own tax advisors to
determine the federal, state, local, and other tax consequences of the purchase,
ownership, and disposition of the Class A Certificates. Prospective investors
should note that no rulings have been or will be sought from the Internal
Revenue Service (the "Service") with respect to any of the federal income tax
consequences discussed below, and no assurance can be given that the Service
will not take contrary positions.
TAX STATUS OF THE TRUST
In the opinion of Skadden, Arps, Slate, Meagher & Flom, special tax counsel
to the Seller, the Trust will be classified as a grantor trust and not as an
association taxable as a corporation for federal income tax purposes. Subject to
the discussion of stripped coupons below under "Characterization of Fees," each
Class A Certificate Owner will be treated as the owner of a pro rata undivided
interest in the Class A Percentage of the ordinary income and corpus portions of
the Trust.
Income on the Receivables. If the Receivables are not characterized as
"stripped bonds" or otherwise recharacterized, each Class A Certificate Owner
will be required to report on its federal income tax return its pro rata share
of the Class A Percentage of the entire income of the Trust for the period
during which it owns a Class A Certificate, including interest or finance
charges earned on the Receivables, and any gain or loss upon collection or
disposition of the Receivables. Because the Receivables, when originally issued
by the Obligors to the Dealers from whom Ford Credit acquired the Receivables,
are believed to have had adequate stated interest, the original issue discount
rules and imputed interest rules should not apply to the Receivables except to
the extent that a Receivable is treated as a "stripped bond," as discussed
below. The portion of each monthly payment to a Class A Certificate Owner that
is allocable to principal on the Receivables will represent a recovery of
capital, which will reduce the tax basis of such Class A Certificate Owner's
undivided interest in the Receivables. In computing its federal income tax
liability, a Class A Certificate Owner will be entitled to deduct, consistent
with its method of accounting, its pro rata share of reasonable servicing fees,
and other fees paid or incurred by the Trust as provided in Section 162 or 212
of the Code. If a Class A Certificate Owner is an individual, estate or trust
the deduction for his pro rata share of such fees will be allowed only to the
extent that all of his miscellaneous itemized deductions, including his share of
such fees, exceed 2% of his adjusted gross income. In addition, in the case of
Certificate Owners who are individuals, otherwise allowable itemized deductions
will be reduced, but not by more than 80%, by an amount equal to 3% of the
Certificate Owner's adjusted gross income in excess of a statutorily defined
threshold ($111,800 in the case of a married couple filing jointly for taxable
years beginning in 1994, which amount will be adjusted for inflation). Because
the Servicer will not report to Class A Certificate Owners the amount of income
or deductions attributable to the Supplemental Servicing Fee, such a Class A
Certificate Owner may effectively underreport his net taxable income. To the
extent that the Receivables are characterized as "stripped bonds," as discussed
below, the portion of the interest treated as retained by the Class B
Certificateholder, the Seller, or the Servicer would not be included in the
income of Class A Certificateholders. See "Characterization of Fees" below.
To the extent that the purchase price of a Class A Certificate allocated to
a Class A Certificate Owner's undivided interest in a Receivable is greater than
or less than the portion of the principal balance of the Receivable allocable to
the Class A Certificate, such interest in the Receivable will have been acquired
at a premium or discount, as the case may be. In determining whether a Class A
Certificate Owner has purchased its interest in the Receivables (or any
Receivable) at a discount, a portion of the purchase price for a Class A
Certificate may be allocated to accrued interest on each Receivable and to
amounts held in the Collection Account pending distribution to
Certificateholders at the time of purchase as though such accrued interest and
collections on the Receivables were separate assets purchased by the Class A
Certificate Owner, thus reducing
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the portion of the purchase price allocable to a Class A Certificate Owner's
undivided interest in each Receivable (the "Purchase Price") and increasing the
potential discount on the Receivables.
Characterization of Fees. The Servicer intends to report income to
Certificate Owners on the assumption that the Certificate Owners own a 93.5%
interest in all of the principal and interest derived from the Receivables.
However, to the extent that the amounts paid to the Servicer, the Seller, or the
Class B Certificateholder exceed reasonable fees for services rendered, by
reason of the extent to which either the weighted average APR of the
Receivables, or the individual stated APRs of some of the Receivables, exceed
the Pass-Through Rate, such amounts will be treated as an interest in the
Receivables retained by the Seller, the Servicer, or the Class B
Certificateholder. There are no authoritative pronouncements for federal income
tax purposes as to either the maximum amount of compensation that may be
considered reasonable for servicing Receivables, providing the Subordination
Spread Account, or performing other services in the context of transactions
involving receivables such as the Receivables, although the Service has issued
such guidelines in the context of mortgage loans. To the extent that amounts
paid to the Servicer, the Seller, or the Class B Certificateholder exceed
reasonable compensation for services provided, they would be viewed as having
retained for federal income tax purposes an ownership interest in a portion of
each interest payment with respect to the certain Receivables (each such
payment, a "stripped coupon"). As a result, such Receivables would be treated as
"stripped bonds" within the meaning of the Code.
To the extent that the Receivables are characterized as "stripped bonds,"
the income and deductions of the Trust allocable to Class A Certificate Owners
will not include the portion of the interest on the Receivables treated as
having been retained by the Seller or the Class B Certificateholder, as the case
may be, and the Trust's deductions will be limited to reasonable servicing and
other fees. In addition, a Class A Certificate Owner will not be subject to the
market discount rules discussed below with respect to the stripped Receivables,
but instead will be subject to the original issue discount rules contained in
the Code. However, if the price at which a Certificate Owner were deemed to have
acquired a stripped Receivable is less than the remaining principal balance of
such Receivable by an amount which is less than a statutorily defined de minimis
amount, such Receivable would not be treated as having OID. In general, the
amount of OID on a Receivable treated as a "stripped bond" will be de minimis if
it is less than 1/4 of one percent for each remaining full year of weighted
average life of the Receivable (probably based on a prepayment assumption)
remaining after the purchase date until the final maturity of the Receivable. If
the amount of OID is de minimis under this rule, the actual amount of discount
on such a Receivable would be includible in income proportionately as principal
payments are received on the Receivable in the proportion that the amount of the
principal payment made bears to the total principal amount of the Receivable.
If the OID on a Receivable, which may differ for each Receivable, based on
the Class A Certificateholder's Purchase Price, is not treated as being de
minimis, a Certificate Owner will be required to include any original issue
discount on a Receivable in income as it accrues, regardless of when cash
payments are received, using a method reflecting a constant yield to maturity on
the Receivable. It is possible that the Service could require use of a
prepayment assumption in computing the yield of a stripped Receivable. If a
stripped Receivable is deemed to be acquired by a Class A Certificateholder at a
greater than de minimis discount, such treatment would accelerate the accrual of
income by a Class A Certificate Owner. Prospective investors are advised to
consult their own tax advisors regarding the extent to which a portion of the
amounts paid to the Servicer or the Class B Certificateholder could be
characterized other than as compensation for services rendered for federal
income tax purposes and the calculation of OID on the Receivables.
It is also possible that any fees deemed to be excessive could be
recharacterized as deferred purchase price payable to the Seller by Class A
Certificate Owners in exchange for the Receivables. The likely effect of such
recharacterization would be to accelerate realization of taxable income by a
Class A Certificate Owner.
Rule of 78s Receivables. The annual statement regularly furnished to
Certificateholders for federal income tax purposes will include information
based on the actuarial method of accounting for interest and principal on the
Receivables, and the amount of the fees paid to the Servicer and others. Class A
Certificate Owners should generally be permitted to account for interest on the
Receivables using the actuarial method (the method used to compute the Class A
Certificate Factor and the Pass-Through Rate). However, some of
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<PAGE> 32
the Receivables provide that, upon a prepayment in full, the amount payable by
the Obligor will be determined under the Rule of 78s (the "Rule of 78s
Receivables"). Prospective investors should consult their tax advisors as to
whether they may be required or permitted to use the Rule of 78s method to
account for interest on the Rule of 78s Receivables. A Class A Certificateholder
will be furnished information for federal income tax purposes enabling him to
report interest on the Receivables under the Rule of 78s method of accounting
only upon written request to the Trustee, and payment of the actual costs of
producing the same.
If a Rule of 78s Receivable is prepaid, any amount received by the Trust
upon prepayment in excess of the account balance using the actuarial method
would constitute income to a Class A Certificate Owner who had reported income
with respect to such Rule of 78s Receivable on the actuarial method, and an
amount equal to such excess will be paid to the Servicer as part of its
Supplemental Servicing Fee and be deductible to the extent described above.
MARKET DISCOUNT
If the Receivables are not treated as "stripped bonds," a Class A
Certificate Owner's interest in each Receivable the Purchase Price of which is
less than the original issue price (plus original issue discount, if any,
previously includible in the income of any holder) of the Receivable will be
treated as having been purchased at a "market discount". The market discount on
a Receivable will be considered to be zero if it is less than a statutorily
defined de minimis amount.
In general, under the market discount provisions of the Code, principal
payments received by the Trust, and all or a portion of the gain recognized upon
a sale or other disposition of a Receivable or upon the sale or other
disposition of a Class A Certificate by a Class A Certificate Owner, will be
taxable as ordinary income to the extent of accrued market discount, and a
portion of the interest deductions attributable to indebtedness treated as
incurred or continued to purchase or carry a Receivable or a Class A Certificate
must be deferred. The ordinary income treatment on dispositions and deferral of
interest deductions described in the preceding sentence will not apply if a
Class A Certificate Owner elects to include market discount in income currently
as it accrues for each taxable year during which it holds the Class A
Certificate. Market discount will accrue in the manner to be provided in
Treasury regulations, but the Conference Report accompanying the Tax Reform Act
of 1986 states that, until such regulations are issued, it is intended that
taxpayers may elect to accrue market discount either (i) under a constant yield
(economic accrual) method or (ii) at the election of the taxpayer, in the
proportion that the stated interest paid on the obligation for the current
period bears to total remaining interest on the obligation. As described above,
if the Class A Certificates are characterized as "stripped bonds", any discount
would be treated as original issue discount, the amount and timing of which
should be comparable to the amount and timing of market discount if an election
is made to include market discount in income currently on the constant yield
method. See "Characterization of Fees" above. Due to the complexity of the
market discount rules, the Class A Certificate Owners are urged to consult their
own tax advisors as to whether market discount will result from the acquisition
of Class A Certificates, and as to the tax treatment of any such discount.
PREMIUM
In the event that a Receivable is treated as purchased at a premium (i.e.,
the Purchase Price exceeds the sum of principal payments to be made thereon),
such premium will be amortizable by a Class A Certificate Owner as an offset to
interest income (with a corresponding reduction in the Class A
Certificateholder's basis) under a constant yield method over the term of the
Receivable if an election under Section 171 of the Code is made (or previously
in effect in accordance with the provisions of the Tax Reform Act of 1986) with
respect to the Class A Certificates. Any such election will also apply to debt
instruments held by the taxpayer during the year in the election is made and all
debt instruments acquired thereafter.
SALE OF A CLASS A CERTIFICATE OR A RECEIVABLE
If a Class A Certificate is sold, gain or loss will be recognized equal to
the difference between the amount realized on the sale and the Class A
Certificate Owner's adjusted basis in the Receivables and any other assets
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<PAGE> 33
held by the Trust. A Class A Certificate Owner's adjusted basis will equal the
Class A Certificate Owner's cost for the Class A Certificate, increased by any
discount previously included in income, and decreased by any deduction
previously allowed for accrued premium and by the amount of principal payments
previously received on the Receivables. Any gain or loss will be capital gain or
loss if the Class A Certificate was held as a capital asset, except that gain
will be treated in whole or in part as ordinary interest income to the extent of
the seller's interest in accrued market discount not previously taken into
income on Receivables having a fixed maturity date of more than one year from
the date of origination.
Under proposed Treasury regulations, the grant of an extension of the
maturity of a Receivable to the Obligor thereon could be treated as an exchange
if it changes the yield on the Receivable by more than a de minimis amount,
potentially resulting in taxable gain or loss to Certificate Owners. Reports to
Certificate Owners will not include information sufficient to calculate any such
gain or loss and accordingly, in the event that an extension were to result in a
deemed exchange, a Certificate Owner could underreport its taxable income. No
assurance can be given as to whether the proposed regulations will be adopted as
final regulations in their present form or whether, if adopted, they will apply
to the Receivables.
FOREIGN CLASS A CERTIFICATE OWNERS
Interest attributable to Receivables which is received by a foreign Class A
Certificate Owner will generally not be subject to the 30% withholding tax
imposed with respect to payments of interest, provided that such Class A
Certificate Owner is not engaged in a trade or business in the United States and
that such Class A Certificate Owner fulfills certain certification requirements.
Under such requirements, the holder must certify, under penalties of perjury,
that it is not a "United States person" and provide its name and address. For
this purpose, "United States person" means a citizen or resident of the U.S., a
corporation, partnership, or other entity created or organized in or under the
laws of the U.S. or any political subdivision thereof, or an estate or trust the
income of which is includible in gross income for U.S. federal income tax
purposes, regardless of its source.
BACKUP WITHHOLDING
Payments made on the Class A Certificates and proceeds from the sale of the
Class A Certificates will not be subject to a "backup" withholding tax of 31%
unless, in general, the Class A Certificate Owner fails to comply with certain
reporting procedures and is not an exempt recipient under applicable provisions
of the Code.
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Code prohibit a pension,
profit sharing, or other employee benefit plan from engaging in certain
transactions involving "plan assets" with persons that are "parties in interest"
under ERISA or "disqualified persons" under the Code with respect to the plan.
ERISA also imposes certain duties on persons who are fiduciaries of plans
subject to ERISA and prohibits certain transactions between a plan and parties
in interest with respect to such plans. Under ERISA, any person who exercises
any authority or control respecting the management or disposition of the assets
of a plan is considered to be a fiduciary of such plan (subject to certain
exceptions not here relevant). A violation of these "prohibited transaction"
rules may generate excise tax and other liabilities under ERISA and the Code for
such persons.
Pursuant to a final regulation (the "Final Regulation") issued by the
Department of Labor ("DOL") concerning the definition of what constitutes the
"plan assets" of an employee benefit plan subject to ERISA or the Code, or an
individual retirement account (an "IRA") (collectively referred to as "Benefit
Plans"), the assets and properties of certain entities in which a Benefit Plan
makes an equity investment could be deemed to be assets of the Benefit Plan in
certain circumstances. Accordingly, if Benefit Plans purchase Class A
Certificates, the Trust could be deemed to hold plan assets unless one of the
exceptions under the Final Regulation is applicable to the Trust.
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<PAGE> 34
The Final Regulation only applies to the purchase by a Benefit Plan of an
"equity interest" in an entity. Assuming that interests in Class A Certificates
are equity interests, the Final Regulation contains an exception that provides
that if a Benefit Plan acquires a "publicly-offered security," the issuer of the
security is not deemed to hold plan assets. A publicly-offered security is a
security that is (i) freely transferable, (ii) part of a class of securities
that is owned by 100 or more investors independent of the issuer and of one
another, and (iii) either is (A) part of a class of securities registered under
section 12(b) or 12(g) of the Exchange Act or (B) sold to the plan as part of an
offering of securities to the public pursuant to an effective registration
statement under the Act and the class of securities of which such security is a
part is registered under the Exchange Act within 120 days (or such later time as
may be allowed by the Commission) after the end of the fiscal year of the issuer
during which the offering of such securities to the public occurred. The Final
Regulation provides that if at all times more than 75% of the value of all
classes of equity interests in certificates are held by investors other than
benefit plan investors (which is defined as including plans subject to ERISA,
government plans, and IRAs), the investing plan's assets will not include any of
the underlying assets of the trust.
It is anticipated that interests in the Class A Certificates will meet the
criteria of publicly-offered securities as set forth above. The Underwriters
expect (although no assurances can be given) that interests in the Class A
Certificates will be held by at least 100 independent investors at the
conclusion of the offering; there are no restrictions imposed on the transfer of
interests in the Class A Certificates; and interests in the Class A Certificates
will be sold as part of an offering pursuant to an effective registration
statement under the Act and then will be timely registered under the Exchange
Act.
There can be no assurance that any of the exceptions set forth in the Final
Regulation will apply to the purchase of Certificates offered hereby. Under the
terms of the Final Regulation, if the Trust were deemed to hold "plan assets" by
reason of a Benefit Plan's investment in a Certificate, such "plan assets" would
include an undivided interest in the assets of the Trust. In addition, the
persons providing services with respect to the assets of the Trust, including
the Servicer and the Trustee, may be subject to the fiduciary responsibility
provisions of Title I of ERISA and be subject to the prohibited transaction
provisions of ERISA and Section 4975 of the Code with respect to transactions
involving such assets. Certain exemptions from the prohibited transaction rules
may be applicable, however.
In this regard, the DOL granted to each of J.P. Morgan Securities Inc., CS
First Boston Corporation, Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Salomon Brothers Inc an administrative exemption
(Prohibited Transaction Exemption 90-23, 89-90, 89-88, 90-29 and 89-89,
respectively) (such exemptions collectively, the "Exemption") from certain of
the prohibited transaction rules of ERISA with respect to the initial purchase,
the holding, and the subsequent resale by Benefit Plans of certificates in asset
backed pass-through trusts that consist of certain receivables, loans, and other
obligations that meet the conditions and requirements of the Exemption. The
receivables covered by the Exemption include motor vehicle installment
obligations such as the Receivables. The Exemption will apply to the
acquisition, holding, and resale of the Class A Certificates by a Benefit Plan,
provided that specified conditions (certain of which are described below) are
met. The Seller believes that the Exemption will apply to the acquisition and
holding of Class A Certificates by Benefit Plans and that all conditions of the
Exemption other than those within the control of the investors have been or will
be met.
Among the conditions which must be satisfied for the Exemption to apply to
the acquisition by a Benefit Plan of the Class A Certificates are the following
(each of which the Seller believes has been or will be met in connection with
the Class A Certificates):
(1) The acquisition of the Class A Certificates by a Benefit Plan is on
terms (including the price for the Class A Certificates) that are at least as
favorable to the Benefit Plan as they would be in an arm's-length transaction
with an unrelated party;
(2) The rights and interests evidenced by the Class A Certificates acquired
by the Benefit Plan are not subordinated to the rights and interests evidenced
by other certificates of the Trust;
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(3) The Class A Certificates acquired by the Benefit Plan have received a
rating at the time of such acquisition that is in one of the three highest
generic rating categories from either Standard & Poor's Corporation, Moody's
Investors Service, Inc., Duff & Phelps Inc. or Fitch Investors Service, Inc.;
and
(4) The sum of all payments made to the Underwriters in connection with the
distribution of the Class A Certificates represents not more than reasonable
compensation for underwriting the Class A Certificates. The sum of all payments
made to and retained by the Seller pursuant to the sale of the Receivables to
the Trust represents not more than the fair market value of such Receivables.
The sum of all payments made to and retained by the Servicer represents not more
than reasonable compensation for the Servicer's services under the Agreement and
reimbursement of the Servicer's reasonable expenses in connection therewith.
In addition, it is a condition that the Benefit Plan investing in the Class
A Certificates be an "accredited investor" as defined in Rule 501(a)(1) of
Regulation D of the Commission under the Securities Act.
The Exemption does not apply to the acquisition and holding of Class A
Certificates by Benefit Plans sponsored by the Seller, the Underwriters, the
Trustee, the Servicer, any obligor with respect to Receivables included in the
Trust constituting more than 5% of the aggregate unamortized principal balance
of the assets in the Trust, or any affiliate of such parties (the "Restricted
Group"). As of the date hereof, no obligor with respect to Receivables included
in the Trust constitutes more than 5% of the aggregate unamortized principal
balance of the Trust. Moreover, the Exemption provides relief from certain
self-dealing/conflict of interest prohibited transactions, only if, among other
requirements (i) a Benefit Plan's investment in Class A Certificates does not
exceed 25% of all of the Class A Certificates outstanding at the time of the
acquisition and (ii) immediately after the acquisition, no more than 25% of the
assets of a Benefit Plan are invested in certificates representing an interest
in one or more trusts containing assets sold or serviced by the same entity.
Any Benefit Plan fiduciary that proposes to cause a Benefit Plan to
purchase Certificates should consult with its counsel with respect to the
potential applicability of ERISA and the Code to such investments and whether
the Final Regulation or the Exemption or any statutory or administrative
exemption would be applicable and determine on its own whether all conditions
have been satisfied.
Moreover, each Benefit Plan fiduciary should determine whether, under the
general fiduciary standards of investment prudence and diversification, an
investment in the Certificates is appropriate for the Benefit Plan, taking into
account the overall investment policy of the Benefit Plan and the composition of
the Benefit Plan's investment portfolio.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement"), the Seller has agreed to sell to each of the
underwriters named below (the "Underwriters") and each of the Underwriters has
severally agreed to purchase the principal amount of Class A Certificates set
forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
CLASS A
UNDERWRITERS CERTIFICATES
------------------------------------------------------------------ -----------------
<S> <C>
J.P. Morgan Securities Inc. ...................................... $ 220,227,554.60
CS First Boston Corporation....................................... 219,600,000.00
Goldman, Sachs & Co. ............................................. 219,600,000.00
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................................... 219,600,000.00
Salomon Brothers Inc.............................................. 219,600,000.00
-----------------
Total............................................................. $1,098,627,554.60
===============
</TABLE>
The Seller has been advised by the Underwriters that they propose initially
to offer the Class A Certificates to the public at the price set forth on the
cover page of this Prospectus, and to certain dealers at such price less a
concession not in excess of .125% of the principal amount of the Class A
Certificates. The
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<PAGE> 36
Underwriters may allow and such dealers may reallow to other dealers a discount
not in excess of .100% of such principal amount. After the initial public
offering, such public offering price, concession and reallowance may be changed.
The Seller has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act of 1933, or to
contribute to payments which the Underwriters may be required to make in respect
thereof.
LEGAL OPINIONS
Certain legal matters relating to the Certificates will be passed upon for
the Seller and the Servicer by J. D. Bringard, Esq., Vice President -- General
Counsel of the Servicer, and for the Underwriters by Skadden, Arps, Slate,
Meagher & Flom, New York, New York. Certain federal income tax and other matters
will be passed upon for the Seller by Skadden, Arps, Slate, Meagher & Flom. Mr.
Bringard is a full-time employee of Ford Credit and owns and holds options to
purchase shares of Common Stock of Ford. Skadden, Arps, Slate, Meagher & Flom
have from time to time represented Ford and Ford Credit in connection with
certain transactions.
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INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus and
the pages on which the definitions of such terms may be found herein.
<TABLE>
<S> <C>
Advance.......................................................................... 5
Agreement........................................................................ 3
APR.............................................................................. 7
Available Interest............................................................... 18
Available Principal.............................................................. 19
Benefit Plans.................................................................... 33
Cede............................................................................. 3
Certificate Account.............................................................. 7, 16
Certificate Owner................................................................ 3
Certificateholders............................................................... 2
Certificates..................................................................... 1
Class A Agent.................................................................... 21
Class A Certificate Balance...................................................... 4, 19
Class A Certificateholders....................................................... 4
Class A Certificate Factor....................................................... 11
Class A Certificate Owner........................................................ 3
Class A Certificates............................................................. 3
Class A Distributable Amount..................................................... 19
Class A Interest Carryover Shortfall............................................. 20
Class A Interest Distributable Amount............................................ 19
Class A Percentage............................................................... 3, 13
Class A Principal Carryover Shortfall............................................ 20
Class A Principal Distributable Amount........................................... 19
Class B Certificate Balance...................................................... 19
Class B Certificateholders....................................................... 4
Class B Certificates............................................................. 3
Class B Distributable Amount..................................................... 19
Class B Interest Distributable Amount............................................ 19
Class B Principal Distributable Amount........................................... 19
Class B Percentage............................................................... 3, 14
Code............................................................................. 30
Collection Account............................................................... 7, 16
Collection Period................................................................ 14
Commission....................................................................... 2
Cutoff Date...................................................................... 3
Dealer Recourse.................................................................. 7
Dealers.......................................................................... 7
Definitive Certificates.......................................................... 15
Distribution Date................................................................ 1
DOL.............................................................................. 33
DTC.............................................................................. 2
Eligible Investments............................................................. 21
ERISA............................................................................ 6
Events of Default................................................................ 23
Exemption........................................................................ 34
Final Regulation................................................................. 33
Final Scheduled Distribution Date................................................ 1
Financed Vehicles................................................................ 3
Ford............................................................................. 13
</TABLE>
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<TABLE>
<S> <C>
Ford Credit...................................................................... 3
Ford Holdings.................................................................... 13
FTC Rule......................................................................... 28
Indirect Participants............................................................ 14
Insolvency Laws.................................................................. 12
IRA.............................................................................. 33
Liquidated Receivables........................................................... 18
Liquidation Proceeds............................................................. 18
Obligors......................................................................... 7
Participants..................................................................... 14
Pass-Through Rate................................................................ 1
Payahead Account................................................................. 7, 16
Payahead Balance................................................................. 17
Payaheads........................................................................ 16
Pool Balance..................................................................... 10
Purchase Agreement............................................................... 3, 15
Purchase Amount.................................................................. 16
Purchase Price................................................................... 31
Receivables...................................................................... 1, 3
Record Date...................................................................... 4
Required Deposit Rating.......................................................... 16
Restricted Group................................................................. 35
Rule of 78s Receivables.......................................................... 32
Rules............................................................................ 14
Seller........................................................................... 1
Service.......................................................................... 30
Servicer......................................................................... 1
Servicer Fee..................................................................... 18
Servicing Fee.................................................................... 18
Servicing Fee Rate............................................................... 6, 18
Specified Subordination Spread Account Balance................................... 5
Subordination Initial Deposit.................................................... 4
Subordination Spread Account..................................................... 4
Supplemental Servicing Fee....................................................... 18
Total Available Amount........................................................... 18
Trust............................................................................ 1, 3
Trustee.......................................................................... 2, 3
UCC.............................................................................. 26
Underwriters..................................................................... 35
Underwriting Agreement........................................................... 35
</TABLE>
38
