PROSPECTUS SUPPLEMENT
(To Prospectus Dated October 25, 1996)
$700,000,000
CARCO Auto Loan Master Trust
6.689% Auto Loan Asset Backed Certificates, Series 1997-1
[LOGOTYPE] US. AUTO RECEIVABLES COMPANY, Seller
[LOGOTYPE] CHRYSLER FINANCIAL CORPORATION, Servicer
The 6.689% Auto Loan Asset Backed Certificates, Series 1997-1 (the
"Series 1997-1 Certificates"), offered hereby evidence undivided interests in
certain assets of the CARCO Auto Loan Master Trust (the "Trust") created
pursuant to a Pooling and Servicing Agreement among U.S. Auto Receivables
Company ("USA" or the "Seller"), Chrysler Financial Corporation, as servicer
("CFC" or the "Servicer"), and The Bank of New York, as trustee. The Trust
assets include wholesale receivables (the "Receivables") generated from time
to time in a portfolio of revolving financing arrangements (the "Accounts")
with automobile dealers to finance their automobile and light duty truck
inventory and collections on the Receivables. Certain assets of the Trust
will be allocated to Series 1997-1 Certificateholders, including the right to
receive a varying percentage of each month's collections with respect to the
Receivables at the times and in the manner described herein. The Seller will
own the remaining interest in the Trust not represented by the Series 1997-1
Certificates or the Certificates of any other Series issued by the Trust (the
"Seller's Interest"). The Trust previously has issued fourteen other Series
of Certificates that are currently outstanding (each, a "Series"). From time
to time, subject to certain conditions, the Seller may offer other Series of
Certificates, which may have terms significantly different from the terms of
the Series 1997-1 Certificates. The issuance of additional Series of
Certificates may impact the timing of payments received by Series 1997-1
Certificateholders.
Interest will accrue on the Series 1997-1 Certificates at the rate of
6.689% per annum, subject to certain exceptions described herein (the
"Certificate Rate"), and will be payable on the fifteenth day of each month
(or, if such day is not a business day, on the next succeeding business day)
(each, a "Distribution Date"), commencing on September 15, 1997.
Distributions of principal are scheduled to commence on the August 1999
Distribution Date, but may commence earlier under certain circumstances
described herein. The final principal payment of the Series 1997-1
Certificates is expected to occur on the August 2004 Distribution Date, but
the final principal payment may occur earlier or later under certain
circumstances described herein.
The Seller's Interest will be subordinated to the rights of the Series
1997-1 Certificateholders to the limited extent of the Available Subordinated
Amount as described herein.
Prospective investors should consider the factors set forth under "Risk
Factors" commencing on page S-13 herein and on page 15 in the Prospectus.
THE SERIES 1997-1 CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST
ONLY AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE SELLER, THE
SERVICER OR ANY AFFILIATE THEREOF. NEITHER THE SERIES 1997-1
CERTIFICATES NOR THE RECEIVABLES ARE INSURED OR
GUARANTEED BY ANY GOVERNMENTAL AGENCY.
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.
<PAGE>
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public(1) Discount(2) the Seller(1)(3)
--------- ------------ ----------------
<S> <C> <C> <C>
Per Certificate...................................... 100.00000000% 0.12142857% 99.87857143%
Total................................................ $700,000,000.00 $ 850,000.00 $699,150,000.00
<FN>
(1) Plus accrued interest, if any, from August 18, 1997.
(2) The underwriting discount, which is calculated on a present value basis,
will be paid over time pursuant to an interest rate swap as described under
"Underwriting".
(3) Before deducting expenses, which have been estimated on a present value
basis to be $541,000, which will be paid over time pursuant to an
interest rate swap as described under "Underwriting".
</TABLE>
The Series 1997-1 Certificates are offered subject to prior sale, and
subject to the Underwriter's right to reject orders in whole or in part. It
is expected that delivery of the Series 1997-1 Certificates will be made in
book-entry form only through the Same Day Funds Settlement System of The
Depository Trust Company on or about August 18, 1997.
Morgan Stanley Dean Witter
The date of this Prospectus Supplement is July 24, 1997.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SERIES 1997-1
CERTIFICATES. SPECIFICALLY, THE UNDERWRITER MAY OVERALLOT IN CONNECTION WITH
THE OFFERING, AND MAY BID FOR, AND PURCHASE, THE SERIES 1997-1 CERTIFICATES
IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING".
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION WITH RESPECT
TO THE OFFERING OF THE SERIES 1997-1 CERTIFICATES. ADDITIONAL INFORMATION IS
CONTAINED IN THE PROSPECTUS AND PURCHASERS ARE URGED TO READ BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE SERIES 1997-1
CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
<PAGE>
SUMMARY OF SERIES TERMS
This summary of Series Terms sets forth and defines specific terms of
the Series 1997-1 Certificates offered in this Prospectus Supplement and the
Prospectus, but is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and in the
Prospectus. Reference is made to the Index of Principal Terms in each of this
Prospectus Supplement and the Prospectus for the location herein and therein
of the definitions of certain capitalized terms used herein. Certain
capitalized terms used but not defined herein have the meanings assigned to
such terms in the Prospectus.
Title of Securities ..... 6.689% Auto Loan Asset Backed Certificates, Series
1997-1 (the "Series 1997-1 Certificates").
The Series 1997-1
Invested Amount ...... The Series 1997-1 Invested Amount is expected to be
$700,000,000 on the Series Issuance Date (based on
information as of June 30, 1997) and represents the
principal amount of the Series 1997-1 Certificates
invested in Receivables as of the Series Issuance
Date. The Invested Amount is subject to decrease to
the extent funds are deposited in the Excess
Funding Account and, subsequently, to increase to
the extent amounts are withdrawn from the Excess
Funding Account and paid to the Seller. The
Invested Amount is also subject to reduction during
the Controlled Amortization Period, any
Reinvestment Period and any Early Amortization
Period and at such other times as deposits are made
to the Excess Funding Account in connection with
the payment of Receivables.
Interest ............... Interest on the principal balance of the Series
1997-1 Certificates will accrue at 6.689% per
annum and will be payable to Series 1997-1
Certificateholders on the fifteenth day of each
month (or, if such day is not a business
day, on the next succeeding business day)
(each, a "Distribution Date"),commencing
September 15, 1997. Interest will accrue for the
period from and including the most recent
Distribution Date to but excluding the next
succeeding Distribution Date (each an "Interest
Period"), except that the first Interest Period will
be the period from and including the Series Issuance
Date to but excluding the September 1997 Distribution
Date. Interest for any Distribution Date due but not
paid on such Distribution Date will be due on the
next Distribution Date, together with, to the extent
permitted by applicable law, interest on such amount
at the Certificate Rate. Interest will be calculated
on a basis of a 360-day year of twelve 30-day months.
Interest payments on the Series 1997-1 Certificates
will be generally derived from Interest Collections
allocable to Series 1997-1 Certificateholders and
payments from the Swap Counterparty pursuant to the
Interest Rate Swap. See "Series Provision -- Interest
Rate Swap". Notwithstanding the above, if the Series
1997-1 Certificates are still outstanding following
the Expected Payment Date, the Certificate Rate will
be 0.25% per annum above one-month LIBOR prevailing
on the related LIBOR Determination Date (as defined
herein), calculated on a basis of the actual number
of days in an Interest Period divided by 360. See
"Series Provisions -- Interest".
S-3
<PAGE>
Interest Rate Swap ...... On the Closing Date, the Trust will enter into one
or more agreements which cover (a) an interest rate
swap agreement (the "Interest Rate Swap") with AIG
Financial Products Corp. (the "Swap Counterparty")
and (b) a triparty contingent assignment with the
Swap Counterparty and Morgan Stanley Capital
Services Inc. (the "Contingent Swap Counterparty").
Also on the Closing Date, American International
Group, Inc. (the "Swap Guarantor") will enter into
a guarantee (the "Swap Guarantee") whereby the Swap
Guarantor will guarantee amounts payable by the
Swap Counterparty under the Interest Rate Swap and
Morgan Stanley, Dean Witter, Discover & Co. (the
"Contingent Swap Guarantor") will enter into a
guarantee (the "Contingent Swap Guarantee") whereby
the Contingent Swap Guarantor will guarantee
amounts payable, if any, by the Contingent Swap
Counterparty under the Interest Rate Swap.
The Interest Rate Swap will have a notional amount
(the "Notional Amount") as of any Distribution Date
equal to the outstanding principal amount of the
Series 1997-1 Certificates as of the preceding
Distribution Date (or, in the case of the September
1997 Distribution Date, as of the Series Issuance
Date) after giving effect to all distributions on
such date. In accordance with the terms of the
Interest Rate Swap, the Swap Counterparty will pay
to the Trust, on each Distribution Date, interest
at the Certificate Rate on the Notional Amount. In
exchange for such payments, the Trust will pay to
the Swap Counterparty, a LIBOR-based floating rate
not to exceed the Assets Receivables Rate (as
defined herein) on the Notional Amount.
With respect to each Distribution Date, any
difference between the monthly payment by the Swap
Counterparty to the Trust and the monthly payment
by the Trust to the Swap Counterparty,including, in
each case, with respect to interest on overdue
amounts, if any, will be referred to herein as the
"Net Trust Swap Receipt", if an amount is owed by
the Swap Counterparty to the Trust, or as the "Net
Trust Swap Payment", if an amount is owed by the
Trust to the Swap Counterparty. If the Interest Rate
Swap is terminated following a payment default by
the Trust or the Swap Counterparty, the defaulting
party may be obligated to pay the non-defaulting
party a Make-Whole Payment as part of a Net Trust
Swap Payment or Net Trust Swap Receipt, as
applicable. Additionally, if any other early
termination event occurs under the Interest Rate
Swap, a Make-Whole Payment may be due from one party
to the other. See "Series Provisions -- Interest
Rate Swap". Net Trust Swap Receipts, including any
Make-Whole Payment due from the Swap Counterparty,
will be used to make interest payments to the Series
1997-1 Certificateholders and Net Trust Swap
Payments, including any Make-Whole Payment due from
the Trust, will be paid out of Certificateholder
Interest Collections, Investment Proceeds, the
Reserve Fund, the Yield Supplement Account and
Available Seller's Collections to the extent of the
Available Subordinated Amount on each Distribution
Date and, in certain limited cases, Principal
Collections allocated to the Series 1997-1
Certificateholders.
Reserve Fund ............ On the Series Issuance Date, the Seller will
deposit $2,450,000 (0.35% of the principal balance
of the Series 1997-1 Certificates) into the Reserve
Fund. The "Reserve Fund Required Amount" for any
Distribution Date will equal 0.35% of the
outstanding principal balance
S-4
<PAGE>
of the Series 1997-1 Certificates for such
Distribution Date (after giving effect to any
change therein on such Distribution Date). The
"Reserve Fund Deposit Amount" is the amount, if
any, by which the Reserve Fund Required Amount
exceeds the amount on deposit in the Reserve Fund.
Funds in the Reserve Fund will be invested in
Eligible Investments that will mature on or prior
to the next Distribution Date. On each
Determination Date, the Servicer will apply any
investment earnings (net of losses and investment
expenses) with respect to the Reserve Fund as set
forth under "Series Provisions -- Distributions
from the Collection Account; Reserve Fund; Yield
Supplement Account -- Interest Collections".
If, after giving effect to the allocations,
distributions and deposits in the Reserve Fund
described under "Series Provisions -- Distributions
from the Collection Account; Reserve Fund; Yield
Supplement Account -- Interest Collections" with
respect to any Distribution Date relating to a
Collection Period that ends prior to the Fully
Reinvested Date, the amount in the Reserve Fund is
less than the Reserve Fund Required Amount for the
next following Distribution Date, the Trustee shall
deposit any remaining Available Seller's
Collections for the related Collection Period into
the Reserve Fund until the amount in the Reserve
Fund is equal to such Reserve Fund Required Amount.
If, for any Distribution Date with respect to an
Early Amortization Period or any Distribution Date
with respect to a Reinvestment Period that occurs
prior to the Fully Reinvested Date, after giving
effect to the allocations, distributions and
deposits described in the preceding paragraph, the
amount in the Reserve Fund is less than the Excess
Reserve Fund Required Amount for such Distribution
Date, the Trustee shall deposit the remaining
Available Seller's Collections for the related
Collection Period into the Reserve Fund until the
amount in the Reserve Fund is equal to such Excess
Reserve Fund Required Amount. The "Excess Reserve
Fund Required Amount" for any such Distribution
Date means an amount equal to the greater of (a) 5%
of the initial principal balance of the Series
1997-1 Certificates and (b) the excess of (i) the
sum of (x) the Available Subordinated Amount on the
preceding Determination Date (after giving effect
to the allocations, distributions, withdrawals and
deposits to be made on such Distribution Date) and
(y) an amount equal to (A) the excess of the
Required Participation Percentage over 100%,
multiplied by (B) the outstanding principal balance
of the Series 1997-1 Certificates on such
Distribution Date (after giving effect to any
changes therein on such Distribution Date) over
(ii) the excess of (x) the Series Allocation
Percentage of the Pool Balance on the last day of
the immediately preceding Collection Period over
(y) the Invested Amount on such Distribution Date
(after giving effect to changes therein on such
Distribution Date); provided that the Excess
Reserve Fund Required Amount shall not exceed such
Available Subordinated Amount.
Principal Commencement
Date ................. August 16, 1999.
Expected Final Payment
Date ................. August 16, 2004.
Excess Funding Account .. Except during any Reinvestment Period, any Early
Amortization Period or after the April 2004
Distribution Date, the Excess Funded
S-5
<PAGE>
Amount will be maintained in the Excess Funding
Account. Upon the earliest of (a) the commencement
of any Reinvestment Period or any Early
Amortization Period, (b) the April 2004
Distribution Date and (c) the Mandatory Purchase
Date, funds on deposit in the Excess Funding
Account will be distributed to the Series 1997-1
Certificateholders as described herein or deposited
in the Principal Funding Account as described
herein.
Controlled Amortization
Period ............... Unless an Early Amortization Event or Reinvestment
Event that has not been cured as described herein
shall have occurred, during the period commencing
with the close of business on the last day of the
June 1999 Collection Period and ending on the
earliest of (i) the payment in full of the Invested
Amount, (ii) the commencement of a Reinvestment
Period, (iii) the commencement of an Early
Amortization Period and (iv) the Termination Date
(the "Controlled Amortization Period"), the Series
1997-1 Certificateholders will receive principal
payments monthly on each Distribution Date relating
to the Controlled Amortization Period, commencing on
the Principal Commencement Date, in an amount equal
to the lesser of (a) the Controlled Amortization
Amount for such Distribution Date plus the Controlled
Amortization Amounts (or portion thereof) for all
prior Distribution Dates which have not been paid to
the Series 1997-1 Certificateholders (together, the
"Controlled Distribution Amount") and (b) the
portion allocated to the Series 1997-1
Certificateholders of Principal Collections and
certain other amounts for such Distribution Date.
See "Series Provisions -- Distributions from the
Collection Account; Reserve Fund; Yield Supplement
Account -- Principal Collections".
The Controlled Amortization Amount for a
Distribution Date will be the product of (a) the
percentage (which will range from 0.027% to
22.402%) that corresponds on the Prepayment
Calculation Table herein with the PSA Index Rate
for such Distribution Date and (b) the outstanding
principal balance of the Series 1997-1 Certificates
as of the prior Distribution Date (after giving
effect to any distribution of principal to Series
1997-1 Certificateholders on such prior
Distribution Date). The PSA Index Rate for a
Distribution (as more fully described herein) is
the rate that appears on page "FMAC A013" of
Bloomberg and titled "Reference Collateral 30-year
Gold 8.00, Issued in 1995", which is the 30-year
FHLMC Gold 8.00% mortgage participation
certificates issued in calendar year 1995 (the
"Reference Collateral Pool"), under the column
heading "1 MO" opposite the row "PSA", ten business
days prior to such Distribution Date. See "Series
Provisions -- Principal".
If the Series 1997-1 Certificates are still
outstanding as of the close of business on the last
day of the February 2004 Collection Period, then on
each Distribution Date, commencing with the April
2004 Distribution Date, an amount equal to
one-fifth of the Invested Amount of the Series
1997-1 Certificates as of the last day of such
Collection Period less the Controlled Distribution
Amount for such Distribution Date (the "Additional
Accumulation Amount") will, to the extent that
Principal Collections and certain other amounts
allocated to the Series 1997-1 Certificateholders
are available
S-6
<PAGE>
thereafter, be deposited in the Principal Funding
Account to be distributed to Series 1997-1 on the
Expected Payment Date. See "Series Provisions --
Distributions from the Collection Account; Reserve
Fund; Yield Supplement Account -- Principal
Collections".
Reinvestment Period ..... Unless and until an Early Amortization Event shall
have occurred, the Series 1997-1 Certificates will
have a Reinvestment Period following the occurrence
of a Reinvestment Event. During the Reinvestment
Period, Principal Collections and certain other
amounts allocable to the Series 1997-1
Certificateholders will be deposited in the
Principal Funding Account and amounts therein will
be used to pay the Controlled Distribution Amount
on each Distribution Date commencing on the
Principal Commencement Date. See "Description of
the Certificates -- Reinvestment Events and Early
Amortization Events" in the Prospectus and "Series
Provisions -- Reinvestment Events" herein for a
description of the events that might result in the
commencement of a Reinvestment Period. See also
"Series Provisions -- Distributions from the
Collection Account; Reserve Fund; Yield Supplement
Account -- Principal Collections".
The Seller is required to add Receivables to the
Trust under certain circumstances described under
"Description of the Certificates -- Addition of
Accounts" in the Prospectus. The failure of the
Seller to add Receivables when required will result
in the occurrence of a Reinvestment Event. However,
if no other Reinvestment Event has occurred and the
scheduled termination of the Revolving Period has
not occurred, the Reinvestment Period resulting
from such failure will terminate and the Revolving
Period may recommence when the Seller would no
longer be required to add Receivables to the Trust.
Notwithstanding the foregoing, in the event of the
occurrence of certain Reinvestment Events prior to
the scheduled termination of the Revolving Period,
the Revolving Period may recommence following
receipt of (i) written confirmation from each
Rating Agency (other than Moody's) that such Rating
Agency's rating of the Series 1997-1 Certificates
will not be withdrawn or lowered as a result of
such recommencement and (ii) the consent of Series
1997-1 Certificateholders holding Series 1997-1
Certificates evidencing more than 50% of the
aggregate unpaid principal amount of the Series
1997-1 Certificates to such recommencement. See
"Series Provisions -- Reinvestment Events".
After the date on which the amount on deposit in
the Principal Funding Account equals the
outstanding principal amount of the Series 1997-1
Certificates (the "Fully Reinvested Date"), Series
1997-1 Certificateholders will no longer have any
interest in the Receivables and all the
representations and covenants of the Seller and the
Servicer relating to the Receivables, as well as
certain other provisions of the Pooling and
Servicing Agreement and all remedies for breaches
thereof, will no longer accrue to the benefit of
the Series 1997-1 Certificateholders. In addition,
upon the occurrence of the Fully Reinvested Date,
no Interest Collections, Principal Collections,
Defaulted Receivables or Miscellaneous Payments
will be allocated to Series 1997-1; and, provided
that the final distribution has been
S-7
<PAGE>
made with respect to each other Series of
certificates or the fully reinvested date has
occurred with respect thereto, all right, title and
interest in the Receivables will be conveyed and
transferred to USA. See "Description of the
Certificates -- Termination; Fully Reinvested Date"
in the Prospectus.
Early Amortization
Period ............... The Series 1997-1 Certificates will have an Early
Amortization Period if any Early Amortization Event
occurs. See "Description of the Certificates --
Reinvestment Events and Early Amortization Events" in
the Prospectus and "Series Provisions -- Early
Amortization Events" herein for a description of the
events that might result in the commencement of an
Early Amortization Period. See also "Series
Provisions -- Distributions from the Collection
Account; Reserve Fund; Yield Supplement Account --
Principal Collections".
Subordination of the
Seller's Interest .... If the Interest Collections, Investment Proceeds,
Net Trust Swap Receipts, including any Make-Whole
Payment due from the Swap Counterparty, if any,
certain amounts in the Reserve Fund, certain
amounts in the Yield Supplement Account and certain
other amounts allocable to the Series 1997-1
Certificateholders for any Collection Period that
ends prior to the Fully Reinvested Date are not
sufficient to cover Net Trust Swap Payments,
including any Make-Whole Payment due from the
Trust, if any, on the next Distribution Date, the
interest payable with respect to the Series 1997-1
Certificates on such Distribution Date (plus any
overdue interest and interest thereon), the Monthly
Servicing Fee for such Distribution Date, any
Investor Default Amount for such Distribution Date
and certain other amounts, the Available
Subordinated Amount will be applied to make up such
deficiency. Available Seller's Collections (a) on
any Distribution Date, to the extent that the
Available Subordinated Amount exceeds the Required
Subordinated Amount on such Distribution Date
following all required distributions and (b) on the
Final Payment Date, to the extent of the Available
Subordinated Amount, will also be applied to pay
any Carry-over Amount due the Swap Counterparty.
The "Available Subordinated Amount" for a
Determination Date is equal to (a) the lesser of
(i) the Available Subordinated Amount for the
preceding Determination Date, minus, with certain
limitations, the Draw Amount for such preceding
Determination Date, minus funds from the Reserve
Fund applied to cover any portion of the Investor
Default Amount, plus the excess, if any, of the
Required Subordinated Amount for such Determination
Date over the Required Subordinated Amount for the
immediately preceding Determination Date due to an
increase in the Subordination Factor, plus the
amount of Excess Servicing available to be paid to
the Seller as described under "Series Provisions --
Distributions from the Collection Account; Reserve
Fund Account; Yield Supplement Account -- Excess
Servicing", and (ii) the product of the fractional
equivalent of the Subordinated Percentage and the
Invested Amount minus (b) in the case of clause (a)
(i), the Incremental Subordinated Amount for such
preceding Determination Date, plus (c) the
Incremental Subordinated Amount for the current
Determination Date, plus (d) the Subordinated
S-8
<PAGE>
Percentage of funds to be withdrawn from the Excess
Funding Account on the succeeding Distribution Date
and paid to the Seller or allocated to one or more
Series; provided, however, that, from and after the
commencement of any Reinvestment Period or any
Early Amortization Period, the Available
Subordinated Amount shall be calculated based on
the Invested Amount as of the close of business on
the day preceding such Reinvestment Period that is
not terminated as described herein, or Early
Amortization Period and provided, further, that
once the Invested Amount is zero, the Available
Subordinated Amount shall be zero. The Available
Subordinated Amount for the first Determination
Date is equal to the Required Subordinated Amount.
The "Required Subordinated Amount" shall mean, as
of any date of determination, the sum of (a) the
product of the initial Subordinated Percentage, as
adjusted from time to time as described herein
other than as a result of an increase therein at
the option of the Seller, and the Invested Amount
and (b) the Incremental Subordinated Amount.
The "Incremental Subordinated Amount" on any
Determination Date will equal the result obtained
by multiplying (a) a fraction, the numerator of
which is the sum of the Invested Amount on the last
day of the immediately preceding Collection Period
and the Available Subordinated Amount for such
Determination Date (calculated without adding the
Incremental Subordinated Amount for such
Determination Date as described in clause (c)
above), and the denominator of which is the Pool
Balance on such last day by (b) the excess, if any,
of (x) the sum of the Overconcentration Amount, the
Installment Balance Amount and the aggregate amount
of Ineligible Receivables on such Determination
Date over (y) the aggregate amount of Ineligible
Receivables, Receivables in Accounts containing
Dealer Overconcentrations and Receivables in
Installment Balances, in each case that became
Defaulted Receivables during the preceding
Collection Period and are not subject to
reassignment from the Trust, unless certain
insolvency events relating to the Seller or CFC
have occurred, as further described in the Pooling
and Servicing Agreement.
The "Subordinated Percentage" will initially equal
the percentage equivalent of a fraction, the
numerator of which is the Subordination Factor and
the denominator of which will be the excess of 100%
over the Subordination Factor. The Subordination
Factor will initially be 10%, but will be subject
to increase to 11% in the event that the rating of
CFC's long-term unsecured debt is lowered below
BBB- by Standard & Poor's or withdrawn by Standard
& Poor's, unless the Seller receives written
confirmation from Standard & Poor's that the
failure to so increase the Subordination Factor
would not result in such Rating Agency lowering or
withdrawing its rating of the Series 1997-1
Certificates. The Seller may, in its sole
discretion, increase at any time the Available
Subordinated Amount for so long as the cumulative
amount of such discretionary increases does not
exceed the lesser of (i) $7,777,777 or (ii)
1.111111% of the Invested Amount on such date. The
Seller is not under any obligation to increase the
Available Subordinated Amount at any time, except
as described herein. If the Available Subordinated
Amount were reduced to less than the Required
Subordinated Amount, a Reinvestment Event would
occur.
S-9
<PAGE>
The Seller could elect to increase the Available
Subordinated Amount at the time such a Reinvestment
Event would otherwise occur, thus preventing or
delaying the occurrence of the Reinvestment Event.
Required Participation
Percentage ........... "Required Participation Percentage" shall mean, with
respect to Series 1997-1, 103%; provided, however,
that if the aggregate amount of Principal
Receivables due from any Dealer or group of
affiliated Dealers at the close of business on the
last day of any Collection Period with respect to
which such determination is being made is greater
than 1.5% of the Pool Balance on such last day, the
Required Participation Percentage shall mean, as of
such last day and with respect to such Collection
Period and the immediately following Collection
Period only, 104%; provided, further, that the
Seller may, upon ten days' prior notice to the
Trustee and the Rating Agencies reduce the Required
Participation Percentage to not less than 100%, so
long as the Rating Agencies shall not have notified
the Seller or the Servicer that any such reduction
will result in a reduction or withdrawal of the
rating of the Series 1997-1 Certificates or any
other outstanding Series or Class of Certificates.
Other Series Issuances .. As of the date hereof, fourteen other Series issued
by the Trust are outstanding. On the Series
Issuance Date, it is expected that thirteen other
Series issued by the Trust will be outstanding. See
"Annex I -- Other Series of Investor Certificates"
for a summary of the terms of such outstanding
Series.
Allocations ............. Interest Collections, Principal Collections and
Defaulted Receivables allocated to Series 1997-1 as
described under "Description of the Certificates --
Allocation Percentages -- Allocation among Series" in
the Prospectus will be further allocated between the
Series 1997-1 Certificateholders' Interest and the
Seller's Interest as described below.
Interest Collections and Defaulted Receivables
allocated to Series 1997-1 will be allocated at all
times to the Series 1997-1 Certificateholders'
Interest based on the Floating Allocation
Percentage applicable during the related Collection
Period. The Floating Allocation Percentage for any
Collection Period is the percentage obtained by
dividing the Invested Amount on the last day of the
immediately preceding Collection Period by the
product of (x) the Pool Balance on the last day of
the immediately preceding Collection Period and (y)
the Series Allocation Percentage for the Collection
Period in respect of which the Floating Allocation
Percentage is being calculated. Principal
Collections allocated to Series 1997-1 will be
allocated to the Series 1997-1 Certificateholders'
Interest based on the Floating Allocation
Percentage during the Revolving Period or the
Controlled Amortization Period (through and
including the February 2004 Collection Period) and
based on the Fixed Allocation Percentage during the
Controlled Amortization Period (from and including
the March 2004 Collection Period), any Reinvestment
Period or any Early Amortization Period. The Fixed
Allocation Percentage for a Collection Period
during the Controlled
S-10
<PAGE>
Amortization Period (from and including the March
2004 Collection Period), any Reinvestment Period or
any Early Amortization Period is the percentage
equivalent of a fraction, the numerator of which is
the Invested Amount on the last day of the period
in which the Floating Allocation Percentage was
last used in allocating Principal Collections and
the denominator of which is the product of (x) the
Pool Balance on the last day of the immediately
preceding Collection Period and (y) the Series
Allocation Percentage for the Collection Period in
respect of which the Fixed Allocation Percentage is
being calculated.
Excess Principal
Collections .......... Principal Collections otherwise allocable to other
Series, to the extent such collections are not
needed to make payments to or deposits for the
benefit of the Certificateholders of such other
Series, will be applied to cover principal payments
due to or for the benefit of the holders of the
Series 1997-1 Certificates and of other Series of
Certificates entitled thereto. See "Description of
the Certificates -- Allocation Percentages --
Principal Collection for all Series" in the
Prospectus and "Series Provisions -- Allocation
Percentages -- Principal Collections for all
Series" herein.
Registration of Series
1997-1 Certificates .. The Series 1997-1 Certificates will initially be
represented by one or more Certificates registered
in the name of Cede, as the nominee of DTC. No
person acquiring an interest in the Series 1997-1
Certificates will be entitled to receive a
definitive certificate representing such person's
interest except under certain limited circumstances.
Series 1997-1 Certificateholders may only hold
their Series 1997-1 Certificates through DTC.
Series 1997-1 Certificates may not be held through
CEDEL or Euroclear. See "Description of the
Certificates -- Definitive Certificates" in the
Prospectus.
Servicing Fee Rate ..... 1.0% or, if the Monthly Servicing Fee has been
waived as discussed under "Description of the
Certificates -- Servicing Compensation and Payment
of Expenses" in the Prospectus, 0% for the
Distribution Date in respect of which the Monthly
Servicing Fee has been waived.
Mandatory Purchase ..... On the Distribution Date with respect to the
Controlled Amortization Period or a Reinvestment
Period on which the outstanding principal amount of
the Series 1997-1 Certificates is reduced to an
amount less than or equal to $70,000,000 (10% of
the initial outstanding principal amount of the
Series 1997-1 Certificates) (the "Mandatory
Purchase Date"), the Series 1997-1
Certificateholders' Interest will be repaid using
funds on deposit in the Principal Funding Account
and the Excess Funding Account and amounts on
deposit in the Collection Account as are payable to
the Series 1997-1 Certificateholders or the Swap
Counterparty or, to the extent of any insufficiency
of such funds, purchased by CFC (collectively, the
"Mandatory Purchase"). The price for the Series
1997-1 Certificateholders' Interest will equal the
sum of (i) the Invested Amount on the Determination
Date preceding the Distribution Date on which the
purchase is scheduled to be made, (ii) accrued and
unpaid interest on the Series 1997-1 Certificates
at the Certificate Rate (together with interest on
overdue
S-11
<PAGE>
interest), (iii) accrued and unpaid Net Trust Swap
Payments and (iv) any outstanding Carry-over
Amount.
Deposits in Collection
Account ............. Notwithstanding the requirement described in the
Prospectus under the heading "Description of the
Certificates -- Allocation of Collections; Deposits
in Collection Account" requiring, subject to certain
exceptions, daily deposits in the Collection Account
of collections received with respect to the
Receivables to the extent needed to make
distributions or deposits with respect to the
Certificates, during the Controlled Amortization
Period (through and including the February 2004
Collection Period), CFC need not deposit Principal
Collections allocable to the Series 1997-1
Certificateholders in the Collection Account until
the related Distribution Date, provided that the
Required Participation Amount requirement is
satisfied. Pending such deposit CFC may use such
Collections for its own benefit. Any shortfall in
Principal Collections resulting from the foregoing
will delay scheduled payments to Series 1997-1
Certificateholders (but not to holders of any other
Series of Certificates).
Series 1997-1
Termination Date .... August 15, 2006. See "Series Provisions -- Series
Termination".
Tax Consequences ....... See "Certain Tax Matters" in the Prospectus. In
addition, because the Certificate Rate changes if the
Series 1997-1 Certificates are still outstanding
following the Expected Payment Date, the Series
1997-1 Certificates will be considered to be
initially issued with OID unless the likelihood that
the Series 1997-1 Certificates will so remain
outstanding is a "remote contingency" under the
applicable Treasury regulations. The Seller intends
to take the position that the exception for remote
contingencies applies and that the Series 1997-1
Certificates are not issued with OID.
ERISA Considerations ... Series 1997-1 Certificates may be eligible for
purchase by employee benefit plans. See "ERISA
Considerations" in the Prospectus.
Certificate Ratings .... It is a condition to the issuance of the Series
1997-1 Certificates that they be rated in the
highest long-term rating category by at least one
nationally recognized rating agency. The rating of
the Series 1997-1 Certificates is based in part on
the credit ratings of the Swap Counterparty, the
Swap Guarantor, the Contingent Swap Counterparty,
and the Contingent Swap Guarantor as well as the
terms of the Interest Rate Swap and the guarantees
relating thereto and the anticipated performance of
the Receivables. A security rating is not a
recommendation to buy, sell or hold securities and
is subject to revision or withdrawal in the future
by the assigning rating agency. See "Risk Factors
-- Ratings of the Certificates" in the Prospectus.
Series Issuance Date .... August 18, 1997.
Series Cut-Off Date .... July 31, 1997.
S-12
<PAGE>
RISK FACTORS
Maturity Assumptions and Early Payment Risk. The timing of repayment of
principal of the Series 1997-1 Certificates is dependent on, among other
things, the rate of principal prepayments of the mortgage loans underlying
the Reference Collateral Pool (the "Base Mortgage Loans"). In deciding
whether to purchase the Series 1997-1 Certificates, investors should satisfy
themselves that they understand the prepayment risk associated with mortgage
securities. In addition, an investor should purchase Series 1997-1
Certificates only after performing an analysis of the Reference Collateral
Pool based upon the investor's own assumptions as to future rates of
prepayment and the effect of the Prepayment Calculation Table.
Unless an Early Amortization Event occurs, principal will be payable to
Series 1997-1 Certificateholders on each Distribution Date beginning with the
Principal Commencement Date on the basis of the related Monthly Amortization
Rate. The amount of principal paid on the Series 1997-1 Certificates in any
month will depend on the rate of prepayment of the Base Mortgage Loans, the
effect of the Prepayment Calculation Table and on other factors described
herein, including the Mandatory Purchase. The formula for calculating
prepayments on the Reference Collateral Pool may result in a rate of
prepayment on the Series 1997-1 Certificates for any Distribution Date that
differs significantly from the prepayment rate on the Reference Collateral
Pool. See "Series Terms -- Principal".
The larger the unpaid principal amount of the Series 1997-1
Certificates as of the close of business on the last day of the February 2004
Collection Period, the greater the likelihood that payment of the Series
1997-1 Certificates in full by the Expected Payment Date will be dependent on
the reallocation of Principal Collections which are initially allocated to
other Series. If one or more other Series from which Principal Collections
are expected to be available to be reallocated to the payment of the Series
1997-1 Certificates enters into an early amortization period or reinvestment
period after the February 2004 Collection Period, Principal Collections
allocated to such Series generally will not be available to be reallocated to
make payments of principal of the Series 1997-1 Certificates and the final
payment of principal of the Series 1997-1 Certificates may be later than the
Expected Payment Date. See "Maturity and Principal Payment Considerations".
Effect of Prepayment Calculation Table. The PSA Index Rate and the
Prepayment Calculation Table will determine the rate of prepayment of the
Series 1997-1 Certificates. As illustrated in the Prepayment Calculation
Table, if the PSA Index Rate for any month is equal to or less than 100%, the
Monthly Amortization Rate for such month will be 0.027%. At PSA Index Rates
above 100%, the corresponding Monthly Amortization Rates will increase. If
the PSA Index Rate for any month is equal to or greater than 575%, the
Monthly Amortization Rate for such month will be 22.402%.
Yield Considerations. The yield to maturity for each of the Series
1997-1 Certificates will depend upon the purchase price thereof, the rate of
principal prepayments on the Base Mortgage Loans, the effect of the
Prepayment Calculation Table, the Mandatory Purchase and the actual
characteristics of the Base Mortgage Loans. Generally, if the actual rate of
prepayments on the Base Mortgage Loans is slower than the rate anticipated by
an investor who purchased Series 1997-1 Certificates at a discount, the
actual yield to such investor may be lower than such investor's anticipated
yield. If the actual rate of prepayments on the Base Mortgage Loans is faster
than the rate anticipated by an investor who purchased Series 1997-1
Certificates at a premium, the actual yield to such investor also may be
lower than such investor's anticipated yield. As described above, variations
in the rate of prepayment of the Series 1997-1 Certificates may be
significant.
The timing of changes in the rate of principal prepayments on the Base
Mortgage Loans (and, thus, the rate of prepayment of the Series 1997-1
Certificates) also may significantly affect the yield to an investor, even if
the average rate of principal prepayments is consistent with such investor's
expectations. In general, the earlier the payment of principal, the greater
the effect on an investor's yield to maturity. Investors must make their own
decisions as to the appropriate assumptions, including payment assumptions,
to be used in deciding whether to purchase the Series 1997-1 Certificates.
See "Risk Factors -- Effect of Prepayment Calculation Table" above.
S-13
<PAGE>
Prepayment Considerations and Risks Relating to the Reference
Collateral Pool. The rate of principal prepayments on the Reference
Collateral Pool (as reflected in the PSA Index Rate) will include prepayments
and liquidations resulting from default, casualty or condemnation and
payments made pursuant to any guaranty of payment by, or option to repurchase
of, the Federal Home Loan Mortgage Corporation ("FHLMC"). In general, when
the level of prevailing interest rates declines sufficiently relative to the
interest rates on fixed rate mortgage loans, the rate of prepayment is likely
to increase, although the prepayment rate is influenced by a number of other
factors, including general economic conditions and homeowner mobility. Based
upon published information, the rate of prepayments on 30-year single-family
mortgage loans has fluctuated significantly in recent years.
Acceleration of mortgage payments as a result of transfers of the
mortgaged property is another factor affecting prepayment rates. The FHLMC
Participation Certificates Offering Circular indicates under "Mortgage
Purchase and Servicing Standards -- Mortgage Servicing -- Assumption and
Due-on-Transfer Policies" therein that most of the mortgage loans that FHLMC
purchases contain "due-on-transfer" clauses permitting automatic acceleration
upon a transfer of the mortgaged property or an interest therein regardless
of the creditworthiness of the transferee. The FHLMC Participation
Certificates Offering Circular also indicates that, except in the case of
certain types of transfers described therein, FHLMC generally requires its
servicers to enforce such due-on-transfer clauses and to demand full payment
of the remaining principal balance of the related mortgage to the extent
permitted under the securities instrument and state and federal law.
Reinvestment Risk. As described herein, the rate of prepayment of the
Series 1997-1 Certificates depends on a number of factors, including the PSA
Index Rate (which in turn reflects the rate of prepayments on the Reference
Collateral Pool), the effect of the Prepayment Calculation Table and the
Mandatory Purchase. Accordingly, it is not possible to predict the rate at
which principal of the Series 1997-1 Certificates will be paid. Moreover,
since prevailing interest rates are subject to fluctuation, there can be no
assurance that investors in the Series 1997-1 Certificates will be able to
reinvest the payments thereon at yields equaling or exceeding the yield on
such Series 1997-1 Certificates. It is possible that yields on such
reinvestments will be lower, and may be significantly lower, than the yield
on the Series 1997-1 Certificates. Investors in the Series 1997-1
Certificates should consider the related reinvestment risk in light of other
investments that may be available to such investors.
Effect of Certain Insolvency Events. If an insolvency event relating to
the Seller or the Trust were to occur, then an Early Amortization Event would
occur and if an insolvency event relating to CFC or Chrysler were to occur,
then a Reinvestment Event would occur. In any such case, additional
Receivables would not be transferred to the Trust and distributions or
deposits of principal in respect of the Series 1997-1 Certificates would not
be subject to the Controlled Distribution Amount. See "Series Provisions --
Early Amortization Events" and "Reinvestment Events" for a discussion of
other events which might lead to the occurrence of an Early Amortization
Period or a Reinvestment Period.
Potential Conflicts of Interests. The Principal Calculation Agent is
the Swap Counterparty and, accordingly, potential conflicts of interest may
exist between the Swap Counterparty and the holders of Series 1997-1
Certificates. The Swap Counterparty is obligated to carry out its duties and
functions as Principal Calculation Agent in good faith and using its
reasonable judgment.
Trust's Relationship to Chrysler and CFC; Financial Condition of
Chrysler. Certain aspects of the Trust's relationship to Chrysler Corporation
and CFC are described in the Prospectus under "Risk Factors -- Trust's
Relationship to Chrysler and CFC". Set forth below is certain financial and
other information with respect to Chrysler and CFC.
Chrysler Corporation and its consolidated subsidiaries ("Chrysler")
reported earnings before income taxes of $811 million for the second quarter
of 1997, compared with $1,720 million for the second quarter of 1996. For the
first six months of 1997, Chrysler reported earnings before income taxes of
S-14
<PAGE>
$2,515 million, compared with $3,390 million for the first six months of
1996. Net earnings for the second quarter of 1997 were $483 million, or $0.70
per common share, compared with $1,037 million, or $1.39 per common share,
for the second quarter of 1996. Net earnings for the first six months of 1997
were $1,512 million, or $2.17 per common share, compared with $2,042 million,
or $2.70 per common share, for the first six months of 1996.
Earnings for the second quarter and first six months of 1997 included
an estimated unfavorable impact of approximately $730 million ($438 million
after taxes) related to a 29-day strike at an engine plant in Detroit,
Michigan that temporarily shut down seven of Chrysler's assembly plants and
certain automotive component operations. The strike resulted in an estimated
loss of vehicle production and shipments of approximately 89,000 units, net
of second-quarter recoveries. The strike estimate does not take into account
the effect of possible recoveries, if any, that may occur during the
remainder of 1997. The estimate of the strike impact was based on Chrysler's
second-quarter production as planned at the time of the strike.
Earnings for the second quarter and first six months of 1996 included a
gain of $101 million ($87 million after taxes) from the sale of Electrospace
Systems, Inc. ("ESI") and Chrysler Technologies Airborne Systems, Inc.
("CTAS"), and a charge of $65 million ($100 million after taxes) related to a
write-down of Thrifty Rent-A-Car System, Inc. ("Thrifty").
In addition to the effect of the strike, pretax earnings in the second
quarter and first six months of 1997 as compared with the second quarter and
first six months of 1996 reflect an increase in average sales incentives per
vehicle and increased warranty costs, partially offset by vehicle pricing
actions and lower profit-based employee compensation costs. The increase in
average sales incentives per vehicle was attributable to an increasingly
competitive market environment. The increase in warranty costs was primarily
related to several voluntary customer service actions and recalls initiated
in the second quarter of 1997, partially offset by the effect of lower
average warranty conditions on current model year vehicles.
Chrysler reported earnings before income taxes, extraordinary item, and
the cumulative effect of a change in accounting principle of $6.1 billion in
1996, compared with $3.4 billion in 1995. Net earnings for 1996 were $3.5
billion, or $4.77 per common share, compared with $2.0 billion, or $2.65 per
common share, in 1995.
Chrysler also reported earnings before income taxes and extraordinary
item of $1,591 million in the fourth quarter of 1996, compared with $1,659
million in the fourth quarter of 1995. Net earnings for the fourth quarter of
1996 were $807 million, or $1.12 per common share, compared with $1,040
million, or $1.35 per common share, in the fourth quarter of 1995.
Earnings before income taxes, extraordinary item, and the cumulative
effect of a change in accounting principle for 1996 included a charge of $97
million ($61 million after taxes) for costs associated with a voluntary early
retirement program for certain salaried employees, a charge of $77 million
($51 million after taxes) related to a write-down of Pentastar Electronics,
Inc. ("PEI"), a charge of $65 million ($100 million after taxes) related to a
write-down of Thrifty , a charge of $50 million ($31 million after taxes) for
lump sum retiree pension costs related to the new UAW collective bargaining
agreement, and a gain of $101 million ($87 million after taxes) from the sale
of ESI and CTAS. Earnings before income taxes, extraordinary item, and the
cumulative effect of a change in accounting principle for 1995 included a
charge of $263 million ($162 million after taxes) for costs associated with
production changes at Chrysler's Newark assembly plant and a charge of $115
million ($71 million after taxes) for a voluntary minivan owner service
action.
S-15
<PAGE>
The following table summarizes this information:
<TABLE>
<CAPTION>
Fourth Quarter Calendar Year
-------------- -------------
(In millions of dollars) 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Earnings before income taxes, extraordinary item, and
cumulative effect of a change in accounting
principle ......................................... $1,591 $1,659 $6,092 $3,449
Voluntary early retirement program .................. 9 -- 97 --
PEI write-down ...................................... 77 -- 77 --
Thrifty write-down .................................. -- -- 65 --
Lump sum retiree pension costs ...................... 50 -- 50 --
Gain on sale of ESI and CTAS ........................ -- -- (101) --
Newark production changes ........................... -- -- -- 263
Voluntary minivan owner service action .............. -- -- -- 115
------ ------ ------ ------
Pretax earnings excluding items above ............. $1,727 $1,659 $6,280 $3,827
====== ====== ====== ======
</TABLE>
Pretax earnings excluding the items summarized above increased for
calendar-year 1996 as compared with calendar-year 1995 primarily as a result
of an increase in vehicle shipments and improved vehicle margins due to
pricing actions and a reduction in average sales incentives per vehicle,
partially offset by increased profit-based employee compensation costs. The
increase in shipments for calendar-year 1996 was primarily due to increased
shipments of minivans and Dodge Ram pickup trucks. Minivan shipments for
calendar-year 1995 were adversely affected by the changeover and launch of
Chrysler's all-new minivans. The increase in shipments of Dodge Ram pickup
trucks primarily reflects a full year of production in 1996 at two additional
assembly plants.
In December 1996, Chrysler extinguished $550 million, or 50 percent, of
the outstanding principal amount of its Auburn Hills Trust Guaranteed
Exchangeable Certificates Due 2020 at a cost of $859 million. The
extinguishment of those certificates resulted in an extraordinary after-tax
loss of $191 million (net of income tax benefit of $118 million), or $0.26
per common share.
Effective January 1, 1995, Chrysler changed its accounting treatment
for certain vehicle sales (principally to non-affiliated rental car
companies) in accordance with Emerging Issues Task Force ("EITF") Issue 95-1,
"Revenue Recognition on Sales with a Guaranteed Minimum Resale Value." This
change in accounting principle resulted in the recognition of an after-tax
charge of $96 million (net of income tax benefit of $59 million), or $0.13
per common share in 1995. The ongoing effect of this accounting change was
not material to 1996 and 1995 earnings.
Chrysler Financial Corporation and its consolidated subsidiaries' net
earnings were $103 million and $196 million for the three and six months
ended June 30, 1997, compared to $101 million and $199 million for the three
and six months ended June 30, 1996.
Chrysler Financial Corporation and its consolidated subsidiaries
achieved record net earnings of $376 million in 1996 compared to $339 million
and $195 million in 1995 and 1994, respectively. The increase in net earnings
for 1996 compared to 1995 primarily reflects net margin improvements
partially offset by an increase in the provision for credit losses. The
increase in net earnings for 1995 compared to 1994 primarily reflects higher
levels of automotive financing, lower operating expenses and lower costs of
bank facilities.
Enhancement. Enhancement of the Series 1997-1 Certificates will be
provided by the Interest Rate Swap, the subordination of the Seller's
Interest to the extent of the Available Subordinated Amount as described
herein and amounts in the Reserve Fund. The amount of such credit enhancement
is limited and will be reduced from time to time as described herein. See
"Series Provisions -- Allocation of Collections; Limited Subordination of
Seller's Interest". Additionally, if the Interest Rate Swap terminates due to
a failure by the Trust to make a payment due thereunder which continues for
30 days, a Make-Whole Payment may be due to the Swap Counterparty from the
Trust. A Make-Whole Payment
S-16
<PAGE>
also may be due to the Swap Counterparty from the Trust upon the occurrence
of another early termination event thereunder. Any such payment, which could,
if certain factors have changed materially, be substantial, will be made
before any interest and, in certain limited cases, principal is paid in
respect of the Series 1997-1 Certificates.
Certain Legal Aspects. A case decided by the United States Court of
Appeals for the Tenth Circuit contains language to the effect that accounts
sold by an entity that subsequently became bankrupt remained property of the
debtor's bankruptcy estate because the sale of accounts is treated as a
"security interest" that must be perfected under the Uniform Commercial Code.
Although the Receivables are likely to be viewed as chattel paper rather than
accounts under the Uniform Commercial Code, sales of chattel paper, like
sales of accounts, must be perfected under Article 9 of the Uniform
Commercial Code. If CFC were to become a debtor under any insolvency law and
a court were to follow the reasoning of the Tenth Circuit Court of Appeals
and apply such reasoning to chattel paper, the Seller (and thus the Trust)
could experience a delay in or reduction of collections on the Receivables,
and the Series 1997-1 Certificateholders could incur a loss on their
investment as a result. For a description of other risk factors relating to
legal aspects of the Receivables, see "Risk Factors -- Certain Legal Aspects"
in the Prospectus.
USE OF PROCEEDS
The net proceeds from the sale of the Series 1997-1 Certificates will
be paid to USA. USA will use such proceeds (together with the subordinated
loan from CFC described under "U.S. Auto Receivables Company and the Trust --
U.S. Auto Receivables Company" in the Prospectus) to purchase Receivables
from CFC or to repay certain amounts previously borrowed to purchase
Receivables. CFC will use the portion of the proceeds paid to it for general
corporate purposes.
THE DEALER FLOORPLAN FINANCING BUSINESS
Information regarding the dealer floorplan financing business is set
forth under "The Dealer Floorplan Financing Business" in the Prospectus. In
addition, the Receivables sold to the Trust by the Seller pursuant to the
Pooling and Servicing Agreement were or will be selected from extensions of
credit and advances made by Chrysler and CFC, directly or as successor to
CCC, to approximately 3,300 domestic motor vehicle dealers. CFC, directly or
as successor to CCC, financed 57.2% of the total number of all Chrysler
franchised dealers as of June 30, 1997. Furthermore, CFC, directly or as
successor to CCC, has extended credit lines to 1,202 Chrysler-franchised
dealers that also operate non-Chrysler franchises (representing approximately
41.3% of the aggregate credit lines of dealers in the U.S. Wholesale
Portfolio as of June 30, 1997) and 422 non-Chrysler dealers (representing
approximately 15.3% of such aggregate credit lines). As of June 30, 1997, the
balance of Principal Receivables in the U.S. Wholesale Portfolio was
approximately $8.9 billion. CFC currently services the U.S. Wholesale
Portfolio through its Southfield Support office and through a network of 25
zone offices located throughout the United States.
As of June 30, 1997, the average credit lines per dealer in the U.S.
Wholesale Portfolio for new and used vehicles (which includes Auction
Vehicles) were $2.96 million and $0.39 million, respectively, and the average
balance of principal receivables per dealer was $2.69 million. As of June 30,
1997, the aggregate total receivables balance as a percentage of the
aggregate total credit line was approximately 80.2%.
The following table sets forth the percentages of dealer account
balances by year of credit line origination for the U.S. Wholesale Portfolio
as of June 30, 1997.
Portfolio Percentages by Year of Credit Line Origination
<TABLE>
<CAPTION>
Prior to
1997 1996 1995 1994 1993 1992 1991 1991
- ---- ---- ---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
3.6% 6.7% 9.1% 4.9% 8.3% 7.4% 8.7% 51.3%
</TABLE>
As of June 30, 1997, the weighted average spread over the Prime Rate
charged to dealers in the U.S. Wholesale Portfolio was approximately 0.8%.
S-17
<PAGE>
As of June 30, 1997, approximately 99.9% of all dealers participating
in the installment payment plan were remitting 100% of the Installment
Balance following the sale of the related vehicle. Currently CFC has elected
to have Chrysler absorb credit losses on Installment Balances in an amount
equal to 15% of the aggregate Installment Balances created in each calendar
month (rather than sell Installment Balances to Chrysler) and Chrysler
supports such agreement by maintaining a deposit with CFC in an amount equal
to 15% of the aggregate amount of Installment Balances outstanding at the end
of each calendar month.
Used Vehicles (which excludes Auction Vehicles) represented
approximately 4.3% of the aggregate principal amount of receivables in the
U.S. Wholesale Portfolio as of June 30, 1997. As of June 30, 1997, Used
Vehicles represented approximately 4.4% of the aggregate principal amount of
Receivables in the Trust (including Excluded Receivables).
The following table provides the percentage of dealers in the U.S.
Wholesale Portfolio that were subject to finance hold as of the dates
indicated.
Finance Hold Experience
<TABLE>
<CAPTION>
As of As of
June 30, December 31,
-------- -----------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Percentage of Dealers .... 1.9% 1.1% 1.8% 1.6% 3.2% 6.8% 9.4% 6.8% 4.6%
</TABLE>
The following table provides the number and percentage of dealers in
Dealer Trouble Status in the U.S. Wholesale Portfolio as of the dates
indicated.
Dealer Trouble Experience
<TABLE>
<CAPTION>
As of As of
June 30, December 31,
----------- ----------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Number of Dealers ........ 29 20 6 12 21 56 100 129 106
Percentage of Dealers .... 0.9% 0.6% 0.2% 0.3% 0.6% 1.8% 3.1% 4.2% 3.5%
</TABLE>
THE ACCOUNTS
As of June 30, 1997, with respect to the Accounts in the Trust: (a)
there were 3,312 Accounts and the Principal Receivables balance was
approximately $8.1 billion; (b) the average credit lines per Dealer for new
and used vehicles (which include Auction Vehicles) were approximately $2.72
million and $0.39 million, respectively, and the average balance of Principal
Receivables per Dealer was approximately $2.46 million; and (c) the aggregate
total Receivables balance as a percentage of the aggregate total credit line
was approximately 79.1%. Unless otherwise indicated, the statistics included
in this paragraph, in the table below and under " -- Geographic Distribution"
with respect to the Accounts and the Receivables in the Trust give effect to
approximately $23.6 million of principal receivables balances with respect to
certain Dealers (the "Excluded Receivables" and the "Excluded Dealers",
respectively) that are in voluntary or involuntary bankruptcy proceedings or
voluntary or involuntary liquidation or that, subject to certain limitations,
are being voluntarily removed by the Seller (or the Servicer on its behalf)
from the Trust. A portion of such principal receivables was created after
such Dealers entered into such status or were designated by the Seller (or
the Servicer on its behalf) for removal from the Trust and, as a result
thereof, are owned by CFC and not the Trust. Principal receivables balances
created prior to such Dealers entering into such status or being designated
for removal from the Trust are included in the Principal Receivables balance.
See "Description of the Certificates -- Removal of Accounts" in the
Prospectus for a description of the manner in which an Account can be removed
from the Trust.
S-18
<PAGE>
The following table sets forth the percentages of dealer account
balances by year of credit line origination for the accounts in the Trust as
of June 30, 1997.
Portfolio Percentages by Year of Credit Line Origination
<TABLE>
<CAPTION>
Prior to
1997 1996 1995 1994 1993 1992 1991 1991
- ---- ---- ---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1.21% 6.54% 7.69% 5.31% 8.65% 8.08% 8.93% 53.59%
</TABLE>
As of June 30, 1997, the weighted average spread over the Prime Rate
charged to Dealers was approximately 0.8%.
Loss Experience
The following tables set forth the average Principal Receivables
balance and loss experience for each of the periods shown on the U.S.
Wholesale Portfolio. Because the Eligible Accounts will be only a portion of
the entire U.S. Wholesale Portfolio, actual loss experience with respect to
the Eligible Accounts may be different. There can be no assurance that the
loss experience for the Receivables in the future will be similar to the
historical experience set forth below with respect to the U.S. Wholesale
Portfolio. In addition, the historical experience set forth below reflects
financial assistance provided by Chrysler to Chrysler-franchised dealers as
described under "The Dealer Floorplan Financing Business -- Relationship with
Chrysler" in the Prospectus. If Chrysler is not able to or elects not to
provide such assistance, the loss experience in respect of the U.S. Wholesale
Portfolio may be adversely affected. See "Risk Factors -- Trust's
Relationship to Chrysler and CFC" in the Prospectus and "Risk Factors --
Trust's Relationship to Chrysler and CFC; Financial Condition of Chrysler" in
this Prospectus Supplement.
Loss Experience for the U.S. Wholesale Portfolio
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Year Ended December 31,
------------- ----------------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average Principal
Receivables Balance(1) . $9,484 $ 9,281 $ 8,825 $ 8,256 $ 6,754 $6,271 $5,344 $4,826 $4,726 $4,933
Net Losses (Recoveries)(2) $ 2.1 $ (0) $ (0) $ (1) $ (1) $ 12 $ 26 $ 36 $ 23 $ 13
Net Losses (Recoveries)/
Liquidations ........... 0.008% (0.001)% (0.000)% (0.002)% (0.003)% 0.035% 0.098% 0.163% 0.117% 0.060%
Net Losses (Recoveries)/
Average Principal
Receivables Balance(3) . 0.02% 0.00% (0.00)% (0.01)% (0.01)% 0.19% 0.49% 0.75% 0.49% 0.26%
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------------
1988 1987 1986 1985 1984 1983 1982 1981 1980 1979
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average Principal
Receivables
Balance(1) ............. $4,129 $3,787 $2,991 $2,532 $ 2,098 $1,461 $1,451 $1,390 $1,622 $1,837
Net Losses (Recoveries)(2) $ 3 $ 2 $ 3 $ 1 $ (2) $ 2 $ 14 $ 12 $ 18 $ 11
Net Losses (Recoveries)/
Liquidations ........... 0.015% 0.015% 0.023% 0.004% (0.019)% 0.023% 0.239% 0.225% 0.338% 0.163%
Net Losses (Recoveries)/
Average Principal
Receivables Balance(3) . 0.07% 0.06% 0.10% 0.02% (0.09)% 0.12% 0.95% 0.85% 1.12% 0.58%
<FN>
- ----------------
(1) Average Principal Receivables Balance is the average of the month-end
principal balances for the thirteen months ending on the last day of the
period, except for the six months ended June 30, 1997 and 1996 which are
based on a seven-month average.
(2) Net losses in any period are gross losses less recoveries for such
period.
(3) Percentages for the six months ended June 30, 1997 and 1996 are expressed
on an annualized basis.
</TABLE>
S-19
<PAGE>
Aging Experience
The following table provides the age distribution of vehicle inventory
for all dealers in the U.S. Wholesale Portfolio, as a percentage of total
principal outstanding at the date indicated. Because the Eligible Accounts
will only be a portion of the entire U.S. Wholesale Portfolio, actual age
distribution with respect to the Eligible Accounts may be different.
Age Distribution for the U.S. Wholesale Portfolio
<TABLE>
<CAPTION>
As of As of
June 30, December 31,
----------- --------------------------------------------------------------------------
Days 1997 1996 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1-120 .................... 73.1% 77.0% 80.4% 82.2% 82.5% 82.4% 77.2% 75.9% 72.2% 71.3% 78.8% 73.0% 81.5%
121-180 .................. 11.1 9.0 10.0 9.3 10.1 9.6 13.8 12.9 13.7 14.5 11.0 13.9 9.2
181-270 .................. 9.5 8.3 5.0 3.8 4.0 4.6 4.8 4.8 7.1 6.4 4.7 6.8 4.4
Over 270 ................. 6.3 5.7 4.6 4.7 3.4 3.4 4.2 6.4 7.0 7.8 5.5 6.3 4.9
</TABLE>
Geographic Distribution
The following table provides the geographic distribution of the vehicle
inventory for all dealers in the Trust on the basis of receivables
outstanding and the number of dealers generating such portfolio.
Geographic Distribution of Accounts in the Trust
As of June 30, 1997
<TABLE>
<CAPTION>
Percentage
Percentage of Total of
Receivables Receivables Number Number of
Outstanding Outstanding of Dealers
(2) (2)(4) Dealers(3) (3)(4)
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
California ............... $ 735,916,383.28 9.04% 222 6.70%
Texas .................... 591,641,209.26 7.27 222 6.70
New York ................. 582,863,336.55 7.16 219 6.61
New Jersey ............... 465,666,832.82 5.72 146 4.41
Illinois ................. 456,151,914.95 5.61 161 4.86
Pennsylvania ............. 441,691,323.16 5.43 168 5.07
Michigan ................. 431,275,637.45 5.30 143 4.32
Other(1) ................. 4,432,093,182.14 54.47 2,031 61.32
----------------- ------ ----- ------
Total .................... $8,137,299,819.61 100.00% 3,312 100.00%
================= ====== ===== ======
<FN>
- ----------------
(1) No other state includes more than 5% of the outstanding Receivables.
(2) Includes Excluded Receivables.
(3) Includes Excluded Dealers.
(4) May not add to 100.0% due to rounding.
</TABLE>
CHRYSLER FINANCIAL CORPORATION
Certain information regarding Chrysler Financial Corporation is set
forth under "Chrysler Financial Corporation" in the Prospectus. In addition,
as of June 30, 1997, CFC had nearly 3,100 employees and was managing $39.6
billion in finance receivables. During the first six months of 1997, CFC
financed or leased approximately 458,000 vehicles at retail, including
approximately 323,000 new Chrysler passenger cars and light duty trucks
representing 27% of Chrysler's U.S. retail and fleet deliveries. CFC also
financed at wholesale approximately 856,000 new Chrysler passenger cars and
light duty trucks representing 70% of Chrysler's U.S. factory unit sales for
the six months ended June 30, 1997. Wholesale vehicle financing accounted for
63% of the total automotive financing volume of CFC in the first six months
of 1997 and represented 26% of net automotive finance receivables outstanding
at June 30, 1997.
S-20
<PAGE>
MATURITY AND PRINCIPAL PAYMENT CONSIDERATIONS
Principal with respect to the Series 1997-1 Certificates will be
payable monthly on and after the Principal Commencement Date or earlier, if
any Early Amortization Event occurs. Full amortization of the Series 1997-1
Certificates by the August 2004 Distribution Date (the "Expected Payment
Date") depends on, among other things, repayment by Dealers of the
Receivables and the PSA Index Rate. Such full amortization by the Expected
Payment Date may not occur if Dealer payments are insufficient therefor.
Because the Receivables generally are paid upon retail sale of the underlying
Vehicle, the timing of such payments is uncertain. In addition, there is no
assurance that CFC will generate additional Receivables under the Accounts or
that any particular pattern of Dealer payments will occur. See "Series
Provisions -- Interest" and " -- Principal" herein and "The Dealer Floorplan
Financing Business" in the Prospectus and herein.
Additionally, the final distribution of principal will be made prior to
the Expected Payment Date if the Mandatory Purchase occurs or if the PSA
Index Rate results in a high rate of prepayment on the Series 1997-1
Certificates. However, if the PSA Index Rate is such that it results in a low
rate of prepayment on the Series 1997-1 Certificates, it is nevertheless
expected that the final payment on the Series 1997-1 Certificates will be
made on the Expected Payment Date, due to provisions requiring, in certain
circumstances, the accumulation of a portion of Principal Collections and
certain other amounts allocated to the Series 1997-1 Certificateholders that
are not needed to pay the Controlled Distribution Amount. See "Series
Provisions -- Principal". Notwithstanding the above, the final payment of
principal to Series 1997-1 Certificateholders may be made after the Expected
Payment Date because of the failure of CFC to generate additional Receivables
to the Accounts, a low rate of repayment by Dealers of the Receivables or the
unavailability of Principal Collections allocable to other Series to make
payments to the Series 1997-1 Certificateholders.
The amount of new Receivables generated in any month and monthly
payment rates on the Receivables may vary because of seasonal variations in
Vehicle sales and inventory levels, retail incentive programs provided by
Vehicle manufacturers and various economic factors affecting Vehicle sales
generally. The following table sets forth the highest and lowest monthly
payment rates for the U.S. Wholesale Portfolio during any month in the
periods shown and the average of the monthly payment rates for all months
during the periods shown, in each case calculated as the percentage
equivalent of a fraction, the numerator of which is the aggregate of all
collections of principal during the period and the denominator of which is
the average aggregate principal balance for such period. Monthly payment
rates reflected in the table include principal credit adjustments. The
monthly payment rates presented for 1979 through 1985 are calculated using
quarterly data while monthly payment rates for 1986 through June of 1997
reflect actual monthly data. There can be no assurance that the rate of
Principal Collections will be similar to the historical experience set forth
below. Because the Eligible Accounts will be only a portion of the entire
U.S. Wholesale Portfolio, historical monthly payment rates with respect to
the Eligible Accounts may be different than those shown below.
Monthly Payment Rates for the U.S. Wholesale Portfolio
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Year Ended December 31,
----------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Highest Month ............ 51.8% 52.1% 58.3% 59.1% 59.7% 54.7% 50.6% 49.0% 42.1% 41.5%
Lowest Month ............. 41.1 43.2 43.2 36.5 34.2 35.9 34.4 30.2 25.3 29.5
Average of the Months in
the Period ............. 46.2 47.7 49.0 45.6 50.3 46.6 41.3 38.4 35.7 35.6
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------
1988 1987 1986 1985 1984 1983 1982 1981 1980 1979
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Highest Month ............ 48.7% 40.3% 56.7% 45.9% 43.7% 45.9% 35.5% 34.3% 28.9% 36.5%
Lowest Month ............. 29.5 26.8 27.7 35.8 35.7 37.7 29.0 27.4 26.7 26.0
Average of the Months in
the Period ............. 41.2 34.2 37.7 40.1 39.9 42.2 32.9 32.2 28.1 30.0
</TABLE>
S-21
<PAGE>
The larger the unpaid principal amount of the Series 1997-1
Certificates as of the close of business on the last day of the February 2004
Collection Period, the greater the likelihood that payment of the Series
1997-1 Certificates in full by the Expected Payment Date will be dependent on
the reallocation of Principal Collections which are initially allocated to
other Series. If one or more other Series from which Principal Collections
are expected to be available to be reallocated to the payment of the Series
1997-1 Certificates enters into an early amortization period or reinvestment
period after the February 2004 Collection Period, Principal Collections
allocated to such Series generally will not be available to be reallocated to
make payments of principal of the Series 1997-1 Certificates and the final
payment of principal of the Series 1997-1 Certificates may be later than the
Expected Payment Date.
If an Early Amortization Event with respect to the Series 1997-1
Certificates occurs which would initiate an Early Amortization Period, the
final distribution of principal on the Series 1997-1 Certificates may be made
prior to the Expected Payment Date. See "Series Provisions -- Early
Amortization Events".
SERIES PROVISIONS
General
The Series 1997-1 Certificates will be issued pursuant to the Pooling
and Servicing Agreement and a Series Supplement relating to the Series 1997-1
Certificates (the "Series Supplement"). The Series 1997-1 Certificates will
consist of a single Class. The Trustee will make available for inspection a
copy of the Pooling and Servicing Agreement (without exhibits or schedules)
on request. Reference should be made to the Prospectus for additional
information concerning the Series 1997-1 Certificates and the Pooling and
Servicing Agreement.
Interest
Interest on the principal balance of the Series 1997-1 Certificates
will accrue at the Certificate Rate and will be payable to the Series 1997-1
Certificateholders on each Distribution Date, commencing September 15, 1997.
Interest payable on any Distribution Date will accrue from and including the
preceding Distribution Date to but excluding such Distribution Date (or, in
the case of the September 1997 Distribution Date, from and including the
Series Issuance Date to but excluding the September 1997 Distribution Date).
Interest due for any Distribution Date but not paid on such Distribution Date
will be due on the next Distribution Date, together with interest on such
amount at the Certificate Rate to the extent permitted by applicable law.
Interest payments on the Series 1997-1 Certificates will generally be derived
from Certificateholder Interest Collections for a Collection Period, Net
Trust Swap Receipts, if any, any withdrawals from the Reserve Fund,
Investment Proceeds and, under certain circumstances, Available Seller's
Collections to the extent of the Available Subordinated Amount.
The "Certificate Rate" for the Series 1997-1 Certificates is 6.689% per
annum, calculated on a basis of a 360-day year of twelve 30-day months;
provided, however, in the event that the Series 1997-1 Certificates are still
outstanding following the Expected Payment Date, then the "Certificate Rate"
for each Interest Period thereafter will be 0.25% per annum above one-month
LIBOR prevailing on the LIBOR Determination Date, calculated on a basis of
the actual number of days in such Interest Period divided by 360.
"LIBOR" with respect to any Interest Period will be established by the
Interest Calculation Agent and will equal the offered rate for United States
dollar deposits for one month that appears on Telerate Page 3750 as of 11:00
A.M., London time, on the second LIBOR Business Day prior to such Interest
Period (a "LIBOR Determination Date"). "Telerate Page 3750" means the display
page so designated on the Dow Jones Telerate Service (or such other page as
may replace that page on that service, or such other service as may be
nominated as the information vendor, for the purpose of displaying London
interbank offered rates of major banks). If such rate appears on Telerate
Page 3750, LIBOR will be such rate. "LIBOR Business Day" as used herein means
a day that is both a business day and a day on which
S-22
<PAGE>
banking institutions in the City of London, England are not required or
authorized by law to be closed. If on any LIBOR Determination Date the
offered rate does not appear on Telerate Page 3750, the Interest Calculation
Agent will request each of the reference banks (which shall be major banks
that are engaged in transactions in the London interbank market selected by
the Interest Calculation Agent) to provide the Interest Calculation Agent
with its offered quotation for United States dollar deposits for one month to
prime banks in the London interbank market as of 11:00 A.M., London time, on
such date. If at least two reference banks provide the Interest Calculation
Agent with such offered quotations, LIBOR on such date will be the arithmetic
mean, rounded upwards, if necessary, to the nearest 1/100,000 of 1%
(.0000001), with five one-millionths of a percentage point rounded upward, of
all such quotations. If on such date fewer than two of the reference banks
provide the Interest Calculation Agent with such offered quotations, LIBOR on
such date will be the arithmetic mean, rounded upwards, if necessary, to the
nearest 1/100,000 of 1% (.0000001), with five one-millionths of a percentage
point rounded upward, of the offered per annum rates that one or more leading
banks in The City of New York selected by the Interest Calculation Agent are
quoting as of 11:00 A.M., New York City time, on such date to leading
European banks for United States dollar deposits for one month; provided,
however, that if such banks are not quoting as described above, LIBOR for
such date will be LIBOR applicable to the Interest Period immediately
preceding such Interest Period. The "Interest Calculation Agent" will be the
Trustee.
"Monthly Interest" for any Distribution Date means the amount of
interest accrued in respect of the Series 1997-1 Certificates as described
above for such Distribution Date.
Principal
In general, no principal payments will be made to the Series 1997-1
Certificateholders until the Principal Commencement Date (except that if an
Early Amortization Event occurs, principal payments will begin to be made to
the Series 1997-1 Certificateholders on the first Distribution Date following
the Collection Period in which the Early Amortization Event occurs). On each
Distribution Date with respect to the Revolving Period, collections of
Principal Receivables allocable to the Series 1997-1 Certificateholders'
Interest that are not required to be deposited to the Excess Funding Account,
subject to certain limitations, will either be (a) allocated to one or more
Series which are in amortization, early amortization or accumulation periods
to cover principal payments due to the Certificateholders of any such Series
or which provides for excess funding accounts or similar arrangements or (b)
if no such Series is then amortizing or accumulating principal or otherwise
does not provide for excess funding accounts or similar arrangements, paid to
the Seller to maintain the Series 1997-1 Certificateholders' Interest or held
as Unallocated Principal Collections. See "Allocation Percentages --
Principal Collections for all Series" and "Distributions from the Collection
Account; Reserve Fund; Yield Supplement Account -- Principal Collections".
Unless and until an Early Amortization Period or Reinvestment Period
that is not terminated as described herein shall have commenced and until the
outstanding principal balance of the Series 1997-1 Certificates is paid in
full, on each Distribution Date with respect to the Controlled Amortization
Period, collections of Principal Receivables allocable to the Series 1997-1
Certificateholders' Interest plus certain other amounts comprising Monthly
Principal will no longer be paid for the benefit of another Series or to the
Seller as described above but instead an amount thereof up to the Controlled
Distribution Amount for each such Distribution Date will be paid to the
Series 1997-1 Certificateholders. If the Series 1997-1 Certificates are still
outstanding as of the close of business on the last day of the February 2004
Collection Period, then on each Distribution Date thereafter an amount equal
to one-fifth of the Invested Amount of the Series 1997-1 Certificates as of
the last day of such Collection Period less the Controlled Distribution
Amount for such Distribution Date (the "Additional Accumulation Amount")
will, to the extent that Principal Collections and certain other amounts
allocated to the Series 1997-1 Certificateholders are available therefor, be
deposited in the Principal Funding Account to be distributed to Series 1997-1
Certificateholders on the Expected Payment Date or in connection with the
Mandatory Purchase. See "Description of the Certificates -- Distributions
from the Collection Account; Reserve Fund; Yield Supplement Account --
Principal Collections".
S-23
<PAGE>
Unless and until an Early Amortization Event shall have occurred, the
Series 1997-1 Certificates will have a Reinvestment Period following the
occurrence of a Reinvestment Event. During the Reinvestment Period, Principal
Collections allocable to the Series 1997-1 Certificateholders and certain
other amounts will be deposited in the Principal Funding Account and amounts
therein will be used to pay the Controlled Distribution Amount due on each
Distribution Date following the Principal Commencement Date. See "Series
Provisions -- Reinvestment Events" and see also "Description of the
Certificates -- Distributions from the Collection Account; Reserve Fund;
Yield Supplement Account -- Principal Collections".
Upon the occurrence of an Early Amortization Event, the Early
Amortization Period will commence and on each Special Payment Date the Series
1997-1 Certificateholders will receive distributions of Monthly Principal and
Monthly Interest until the outstanding principal balance of the Series 1997-1
Certificates has been paid in full or the Series Termination Date has
occurred. Even if the sum of the Principal Funding Account Balance and any
amounts in the Excess Funding Account on the Expected Payment Date or the
first Special Payment Date is insufficient to pay the outstanding principal
balance of the Series 1997-1 Certificates in full, such balances will be
distributed to the Series 1997-1 Certificateholders at such time.
The "Controlled Distribution Amount" for a Distribution Date will be
the sum of the Controlled Amortization Amount for such Distribution Date and
the Controlled Amortization Amounts (or portion thereof) for all prior
Distribution Dates which have not been paid to the Series 1997-1
Certificateholders. The "Controlled Amortization Amount" for a Distribution
Date will be the product of (a) the percentage (the "Monthly Amortization
Rate") that corresponds on the table below with the PSA Index Rate for such
Distribution Date and (b) the outstanding principal balance of the Series
1997-1 Certificates as of the prior Distribution Date (after giving effect to
any distributions of principal to Series 1997-1 Certificateholders on such
prior Distribution Date). The Monthly Amortization Rate will range from
0.027% to 22.402%.
Prepayment Calculation Table
<TABLE>
<CAPTION>
Monthly Monthly Monthly
PSA Index Amortization PSA Index Amortization PSA Index Amortization
Rate (%) Rate (%) Rate (%) Rate (%) Rate (%) Rate (%)
- --------- ------------ --------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C>
0-100 0.027 122 0.148 144 2.297
101 0.032 123 0.153 145 2.415
102 0.038 124 0.159 146 2.533
103 0.043 125 0.164 147 2.651
104 0.049 126 0.271 148 2.770
105 0.054 127 0.378 149 2.888
106 0.060 128 0.485 150 3.006
107 0.065 129 0.592 151 3.013
108 0.071 130 0.699 152 3.020
109 0.076 131 0.805 153 3.027
110 0.082 132 0.912 154 3.035
111 0.087 133 1.019 155 3.042
112 0.093 134 1.126 156 3.049
113 0.098 135 1.233 157 3.056
114 0.104 136 1.351 158 3.063
115 0.109 137 1.469 159 3.070
116 0.115 138 1.588 160 3.078
117 0.120 139 1.706 161 3.085
118 0.126 140 1.824 162 3.092
119 0.131 141 1.942 163 3.099
120 0.137 142 2.060 164 3.106
121 0.142 143 2.179 165 3.113
S-24
<PAGE>
<CAPTION>
Monthly Monthly Monthly
PSA Index Amortization PSA Index Amortization PSA Index Amortization
Rate (%) Rate (%) Rate (%) Rate (%) Rate (%) Rate (%)
- --------- ------------ --------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C>
166 3.121 217 3.486 368 6.463
167 3.128 218 3.493 369 6.531
168 3.135 219 3.500 370 6.599
169 3.142 220 3.507 371 6.666
170 3.149 221 3.514 372 6.734
171 3.156 222 3.522 373 6.802
172 3.164 223 3.529 374 6.870
173 3.171 224 3.536 375 6.938
174 3.178 225-325 3.543 376 7.015
175 3.185 326 3.611 377 7.091
176 3.192 327 3.679 378 7.168
177 3.199 328 3.747 379 7.244
178 3.206 329 3.815 380 7.321
179 3.214 330 3.883 381 7.397
180 3.221 331 3.950 382 7.474
181 3.228 332 4.018 383 7.550
182 3.235 333 4.086 384 7.627
183 3.242 334 4.154 385 7.703
184 3.249 335 4.222 386 7.780
185 3.257 336 4.290 387 7.856
186 3.264 337 4.358 388 7.933
187 3.271 338 4.426 389 8.009
188 3.278 339 4.494 390 8.086
189 3.285 340 4.562 391 8.163
190 3.292 341 4.629 392 8.239
191 3.300 342 4.697 393 8.316
192 3.307 343 4.765 394 8.392
193 3.314 344 4.833 395 8.469
194 3.321 345 4.901 396 8.545
195 3.328 346 4.969 397 8.622
196 3.335 347 5.037 398 8.698
197 3.343 348 5.105 399 8.775
198 3.350 349 5.173 400 8.851
199 3.357 350 5.241 401 8.928
200 3.364 351 5.308 402 9.004
201 3.371 352 5.376 403 9.081
202 3.378 353 5.444 404 9.157
203 3.385 354 5.512 405 9.234
204 3.393 355 5.580 406 9.311
205 3.400 356 5.648 407 9.387
206 3.407 357 5.716 408 9.464
207 3.414 358 5.784 409 9.540
208 3.421 359 5.852 410 9.617
209 3.428 360 5.920 411 9.693
210 3.436 361 5.987 412 9.770
211 3.443 362 6.055 413 9.846
212 3.450 363 6.123 414 9.923
213 3.457 364 6.191 415 9.999
214 3.464 365 6.259 416 10.076
215 3.471 366 6.327 417 10.152
216 3.479 367 6.395 418 10.229
S-25
<PAGE>
<CAPTION>
Monthly Monthly Monthly
PSA Index Amortization PSA Index Amortization PSA Index Amortization
Rate (%) Rate (%) Rate (%) Rate (%) Rate (%) Rate (%)
- --------- ------------ --------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C>
419 10.305 470 14.234 521 18.201
420 10.382 471 14.312 522 18.279
421 10.459 472 14.389 523 18.357
422 10.535 473 14.467 524 18.435
423 10.612 474 14.545 525 18.512
424 10.688 475 14.623 526 18.590
425 10.765 476 14.701 527 18.668
426 10.841 477 14.778 528 18.746
427 10.918 478 14.856 529 18.824
428 10.994 479 14.934 530 18.901
429 11.071 480 15.012 531 18.979
430 11.147 481 15.090 532 19.057
431 11.224 482 15.167 533 19.135
432 11.300 483 15.245 534 19.213
433 11.377 484 15.323 535 19.290
434 11.453 485 15.401 536 19.368
435 11.530 486 15.479 537 19.446
436 11.607 487 15.556 538 19.524
437 11.683 488 15.634 539 19.601
438 11.760 489 15.712 540 19.679
439 11.836 490 15.790 541 19.757
440 11.913 491 15.867 542 19.835
441 11.989 492 15.945 543 19.913
442 12.066 493 16.023 544 19.990
443 12.142 494 16.101 545 20.068
444 12.219 495 16.179 546 20.146
445 12.295 496 16.256 547 20.224
446 12.372 497 16.334 548 20.302
447 12.448 498 16.412 549 20.379
448 12.525 499 16.490 550 20.457
449 12.601 500 16.568 551 20.535
450 12.678 501 16.645 552 20.613
451 12.756 502 16.723 553 20.691
452 12.834 503 16.801 554 20.768
453 12.911 504 16.879 555 20.846
454 12.989 505 16.957 556 20.924
455 13.067 506 17.034 557 21.002
456 13.145 507 17.112 558 21.080
457 13.223 508 17.190 559 21.157
458 13.300 509 17.268 560 21.235
459 13.378 510 17.346 561 21.313
460 13.456 511 17.423 562 21.391
461 13.534 512 17.501 563 21.468
462 13.612 513 17.579 564 21.546
463 13.689 514 17.657 565 21.624
464 13.767 515 17.734 566 21.702
465 13.845 516 17.812 567 21.780
466 13.923 517 17.890 568 21.857
467 14.000 518 17.968 569 21.935
468 14.078 519 18.046 570 22.013
469 14.156 520 18.123 571 22.091
S-26
<PAGE>
<CAPTION>
Monthly Monthly
PSA Index Amortization PSA Index Amortization
Rate (%) Rate (%) Rate (%) Rate (%)
- --------- ------------ --------- ------------
<S> <C> <C> <C>
572 22.169 574 22.324
573 22.246 575 and up 22.402
</TABLE>
The "PSA Index Rate" means, with respect to any Distribution Date (in
the following order of priority):
(i) the rate that appears as of 3:00 p.m. (New York City time) on the
related Prepayment Determination Date (as defined below) on the Reference
Bloomberg Page (as defined below) under the column heading "1 MO" opposite
the row "PSA";
(ii) if such rate does not appear on the Reference Bloomberg Page as of
3:00 p.m. (New York City time) on such Prepayment Determination Date, the
Principal Calculation Agent (as defined below) will request FHMLC to provide
a quotation of the monthly prepayment speed (calculated according to the PSA
Standard Prepayment Model (as defined below)) for the Reference Collateral
Pool for the applicable month. If FHMLC provides such quotation, the PSA
Index Rate will be the quotation provided by FHMLC;
(iii) if the Principal Calculation Agent determines that FHMLC has not
provided such quotation by 5:00 p.m. on the second Business Day following
such Prepayment Determination Date, the Principal Calculation Agent will
request five major securities dealers selected by the Principal Calculation
Agent to provide a quotation of the monthly prepayment speed (calculated
according to the PSA Standard Prepayment Model) for the Reference Collateral
Pool for the applicable month. If only one quotation is so provided, the PSA
Index Rate will be the quotation so provided. If two or three such quotations
are so provided, then the PSA Index Rate will be the arithmetic mean of such
quotations (rounded to the nearest whole integer) as determined by the
Principal Calculation Agent. If four or five such quotations are provided,
the highest quotation (or, in the event of equality, one of the highest) and
lowest quotation (or, in the event of equality, one of the lowest) will be
eliminated and the PSA Index Rate will be the arithmetic mean (rounded to the
nearest whole integer) of the remaining quotations as determined by the
Principal Calculation Agent; and
(iv) if no such quotation is provided as requested in clause (iii)
above, then the PSA Index Rate will be the PSA Index Rate determined with
respect to the Distribution Date preceding the applicable Distribution Date
(or, in the case of the first Distribution Date, the monthly prepayment speed
(calculated according to the PSA Standard Prepayment Model) for the Reference
Collateral Pool obtained from the sources specified in clauses (i)-(iii)
above, in that order, with respect to the most recent month for which such
information is available.
"Reference Bloomberg Page" means the display designated as page "FMAC
A013" and titled "Reference Collateral 30-year Gold 8.00, Issued in 1995" (or
such other page selected by the Principal Calculation Agent as may replace
page FMAC A013 for the purpose of displaying the monthly prepayment speed
(calculated based on the PSA Standard Prepayment Model) for the Reference
Collateral Pool) on the Bloomberg Financial Markets Service (or such other
service selected by the Principal Calculation Agent as may replace such
service).
"PSA Standard Prepayment Model" or "PSA" means the methodology set
forth under "Mortgage Prepayment Models -- The PSA Standard Prepayment Model"
in the "Uniform Practices for the Clearance and Settlement of Mortgage-Backed
Securities and Other Related Securities of the Public Securities
Association".
The "Prepayment Determination Date" for any Distribution Date on which
a payment of principal on the Series 1997-1 Certificates is due will be the
first business day of the month in which such Distribution Date occurs. The
Principal Calculation Agent will notify the Servicer of the PSA Index Rate
for each Distribution Date promptly after its determination thereof.
S-27
<PAGE>
The calculation of the PSA Index Rate, which involves numerous mortgage
pools, may differ among dealers and other market participants, which
differences may be significant. The Seller reserves the right, exercisable by
the Servicer in its sole discretion on behalf of the Seller, to determine
whether any modification in PSA methodology or in the timing or procedures
affecting publication or dissemination of the PSA prepayment rate for the
Reference Collateral Pool warrants an adjustment to the foregoing calculation
procedures, whereupon such procedures will be deemed to be amended as so
determined by the Servicer; provided that no change in such procedures will
be effective without the written consent of the Swap Counterparty.
The "Principal Calculation Agent" shall mean the Swap Counterparty under
the Interest Rate Swap.
Historical PSA Index Rates
The table below sets forth historical values of the PSA Index Rate for
the Reference Collateral Pool (the 30-year FHLMC Gold 8.00% mortgage
participation certificates issued in calendar year 1995) since January, 1995
as calculated by the Underwriter.
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
January ............................................. 75 900 318
February ............................................ 47 1,340 242
March ............................................... 154 1,389 225
April ............................................... 172 947 264
May ................................................. 106 550 233
June ................................................ 614 362 222
July ................................................ 1,619 287 --
August .............................................. 1,657 262 --
September ........................................... 980 218 --
October ............................................. 683 240 --
November ............................................ 908 229 --
December ............................................ 980 236 --
</TABLE>
The text and table above are included solely for information purposes.
It is not intended to reflect the likely or anticipated prepayment experience
of the Reference Collateral Pool during any future periods. Investors must
make their own assumptions regarding the future prepayment experience of the
Reference Collateral Pool and the effect thereof on the rate of prepayment
and yield on the Series 1997-1 Certificates.
Certain Additional Information About the PSA Standard Prepayment Model.
Prepayments of mortgage loans commonly are measured relative to a prepayment
standard or model. The model used herein with respect to the Base Mortgage
Loans is the PSA Standard Prepayment Model. 100% PSA assumes prepayment rates
of 0.2% per annum of the then unpaid principal balance of such pool of
mortgage loans in the first month of the life of such mortgage loans and an
additional 0.2% per annum in each month thereafter until the 30th month.
Beginning in the 30th month and in each month thereafter during the life of
such mortgage loans, 100% PSA assumes a constant prepayment rate of 6% per
annum. Multiples may be calculated from this prepayment rate sequence. For
example, 150% PSA assumes prepayment rates will be 0.3% per annum in month
one, 0.6% per annum in month two, and increasing by 0.3% in each succeeding
month until reaching a rate of 9% per annum in month 30 and remaining
constant at 9% per annum thereafter. Similarly, 200% PSA assumes prepayment
rates will be 0.4% per annum in month one, 0.8% per annum in month two and
increasing by 0.4% in each succeeding month until reaching a rate of 12% per
annum in month 30 and remaining constant at 12% per annum thereafter. 0% PSA
assumes no prepayments. Having the PSA Standard Prepayment Model as an
industry standard allows actual prepayment experiences of pools of mortgage
loans to be expressed by reference to such model.
S-28
<PAGE>
The PSA Standard Prepayment Model does not purport to be an historical
description of the prepayment experience of any pool of mortgage loans or a
prediction of the anticipated rate of prepayment of any pool of mortgage
loans including the Base Mortgage Loans. It is highly unlikely that the Base
Mortgage Loans will prepay at any constant percentage of PSA or at any other
constant rate.
PREPAYMENT AND ADDITIONAL STRUCTURING ASSUMPTIONS
AND DECREMENT TABLE
The following table indicates the percentage of original principal
amount of the Series 1997-1 Certificates that would be outstanding after each
of the dates shown at various PSA Index Rates after application of the
Prepayment Table and the corresponding weighted average life of the Series
1997-1 Certificates. The tables have been prepared on the basis of the
Additional Structuring Assumptions (as defined below). However, the Base
Mortgage Loans will not necessarily have the characteristics assumed; nor are
the Base Mortgage Loans likely to prepay at a constant percentage of PSA.
Moreover, diverse remaining terms to maturity of the Base Mortgage Loans
could produce slower or faster principal payments than indicated in the table
at the specified PSA Index Rates, even if the weighted average maturity of
the Base Mortgage Loans is identical to the weighted average maturity
specified in the Additional Structuring Assumptions.
Unless otherwise specified, the information in the following tables has
been prepared on the basis of the following assumptions (such assumptions,
the "Additional Structuring Assumptions"):
* the Base Mortgage Loans prepay at the PSA Index Rates specified in the
related table;
* the issue date for the Series 1997-1 Certificates is August 18, 1997;
* the first distribution of principal on the Series 1997-1 Certificates
occurs on August 16, 1999; and
* the Mandatory Purchase occurs.
Percent of Original Principal Amount of Series 1997-1 Certificates Outstanding
<TABLE>
<CAPTION>
PSA Index Average
Rate(%) 08/15/97 08/15/98 08/15/99 08/15/00 08/15/01 08/15/02 08/15/03 08/15/04 Life
--------- -------- -------- -------- -------- -------- -------- -------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0-100 ........... 100.00% 100.00% 99.97% 99.65% 99.33% 99.01% 98.69% 0.00% 6.95
125 ............. 100.00% 100.00% 99.84% 97.89% 95.98% 94.11% 92.27% 0.00% 6.75
135 ............. 100.00% 100.00% 98.77% 85.10% 73.33% 63.19% 54.45% 0.00% 5.50
150 ............. 100.00% 100.00% 96.99% 67.25% 46.63% 32.33% 22.41% 0.00% 4.25
225-325 ......... 100.00% 100.00% 96.46% 62.57% 40.58% 26.32% 17.07% 0.00% 4.00
375 ............. 100.00% 100.00% 93.06% 39.27% 16.57% 0.00% 0.00% 0.00% 3.00
450 ............. 100.00% 100.00% 87.32% 17.16% 0.00% 0.00% 0.00% 0.00% 2.50
575 and up ...... 100.00% 100.00% 77.60% 0.00% 0.00% 0.00% 0.00% 0.00% 2.25
</TABLE>
Excess Funding Account
Unless and until a Reinvestment Event, an Early Amortization Event, the
April 2004 Distribution Date or the Mandatory Purchase Date shall have
occurred, the Excess Funded Amount will be maintained in the Excess Funding
Account established with the Trustee. The Excess Funded Amount will initially
equal the excess, if any, of the initial principal balance of the Series
1997-1 Certificates over the Initial Invested Amount. Funds on deposit in the
Excess Funding Account will be invested by the Trustee at the direction of
the Servicer in Eligible Investments. Such investments must mature on or
prior to the next Distribution Date.
Funds on deposit in the Excess Funding Account will be withdrawn and
paid to the Seller or allocated to one or more Series which are in
amortization, early amortization or accumulation periods to the extent of any
increases in the Invested Amount as a result of the addition of Receivables
to the
S-29
<PAGE>
Trust, a reduction in the Seller's Interest, or a reduction in the
initial invested amount of any other Series. Additional amounts will be
deposited in the Excess Funding Account on a Distribution Date to the extent
that the sum of the Series 1997-1 Certificateholders' Interest in Principal
Receivables (determined for this purpose by reducing such interest by the
amount, if any, by which the Required Participation Amount exceeds the Pool
Balance due to an increase in the Subordination Factor) and the amount on
deposit in the Excess Funding Account prior to the deposit on such
Distribution Date is less than the outstanding principal balance of the
Series 1997-1 Certificates, but only to the extent that funds are available
therefor as described herein. In the event that other Series issued by the
Trust provide for excess funding accounts or other arrangements similar to
the Excess Funding Account involving fluctuating levels of investment in the
Receivables, the allocation of additional Receivables to increase the
Invested Amount will generally be based on the proportion that the amount on
deposit in the Excess Funding Account bears to the amounts on deposit in the
excess funding accounts of all Series providing for excess funding accounts
or such similar arrangements or to amounts otherwise similarly available; and
the deposit of amounts in the Excess Funding Account will be based on the
proportion that the Adjusted Invested Amount bears to the adjusted invested
amounts of all Series providing for excess funding accounts or such similar
arrangements.
On each Distribution Date, all investment income earned on amounts in
the Excess Funding Account since the preceding Distribution Date will be
withdrawn from the Excess Funding Account and applied as described herein.
Any funds on deposit in the Excess Funding Account on the earliest of
(i) the April 2004 Distribution Date, (ii) the commencement of a Reinvestment
Event or an Early Amortization Period and (iii) the Mandatory Purchase Date
will be deposited in the Principal Funding Account or paid to Series 1997-1
Certificateholders on such date. No funds will be deposited in the Excess
Funding Account during any Reinvestment Period, any Early Amortization Period
or with respect to any Collection Period following the February 2004
Collection Period.
Allocation Percentages
Allocation between the Series 1997-1 Certificateholders and the Seller.
The Servicer will allocate amounts initially allocated to Series 1997-1 as
described under "Description of the Certificates -- Allocation Percentages --
Allocations among Series" in the Prospectus between the Series 1997-1
Certificateholders' Interest and the Seller's Interest for each Collection
Period as follows:
(i) Series Allocable Interest Collections and the Series Allocable
Defaulted Amount will be allocated to Series 1997-1 Certificateholders
based on the Floating Allocation Percentage;
(ii) during the Revolving Period and the Controlled Amortization
Period (through and including the February 2004 Collection Period),
Series Allocable Principal Collections will be allocated to Series
1997-1 Certificateholders based on the Floating Allocation Percentage;
(iii) during the Controlled Amortization Period (from and
including the March 2004 Collection Period) any Reinvestment Period or
any Early Amortization Period, Series Allocable Principal Collections
will be allocated to Series 1997-1 Certificateholders based on the
Fixed Allocation Percentage; and
(iv) Series Allocable Miscellaneous Payments will at all times be
allocated to Series 1997-1 Certificateholders.
Amounts not allocated to the Series 1997-1 Certificateholders as
described above will be allocated to the Seller.
"Floating Allocation Percentage" for any Collection Period means the
percentage equivalent (which shall never exceed 100%) of a fraction, the
numerator of which is the Invested Amount as of the last day of the
immediately preceding Collection Period and the denominator of which is the
product of (x) the Pool Balance as of such last day and (y) the Series
Allocation Percentage for the Collection
S-30
<PAGE>
Period in respect of which the Floating Allocation Percentage is being
calculated; provided, however, that with respect to the August 1997
Collection Period, the Floating Allocation Percentage shall mean the
percentage equivalent of a fraction, the numerator of which is the Initial
Invested Amount as of the Series Issuance Date and the denominator of which
is the Series Allocation Percentage of the Pool Balance as of the Series
Cut-Off Date.
"Fixed Allocation Percentage" for any Collection Period generally means
the percentage equivalent (which shall never exceed 100%) of a fraction, the
numerator of which is the Invested Amount as of the last day of the Revolving
Period or, with respect to any Collection Period with respect to the
Controlled Amortization Period from and including the March 2004 Collection
Period, the last day of the February 2004 Collection Period, and the
denominator of which is the product of (x) the Pool Balance as of the last
day of the immediately preceding Collection Period and (y) the Series
Allocation Percentage for the Collection Period in respect of which the Fixed
Allocation Percentage is being calculated.
"Invested Amount" means for any date an amount equal to the Initial
Invested Amount, minus the amount, without duplication, of all principal
payments (except principal payments made from the Excess Funding Account)
made to Series 1997-1 Certificateholders or deposited to the Principal
Funding Account prior to such date since the Series Issuance Date, minus the
excess, if any, of the aggregate amount of Investor Charge-Offs for all
Distribution Dates preceding such date, over the aggregate amount of any
reimbursements of Investor Charge-Offs for all Distribution Dates preceding
such date.
"Initial Invested Amount" means the portion of the initial principal
amount of the Series 1997-1 Certificates which is invested in Principal
Receivables on the Series Issuance Date, which is expected to equal
$700,000,000 (based on information as of June 30, 1997), plus (x) the amount
of any withdrawals from the Excess Funding Account in connection with the
purchase of an additional interest in Principal Receivables since the Series
Issuance Date, minus (y) the amount of any additions to the Excess Funding
Account in connection with a reduction in the Principal Receivables in the
Trust or an increase in the Subordination Factor since the Series Issuance
Date; provided, however, that for purposes of calculating the Required
Participation Amount during the Controlled Amortization Period (through and
including the February 2004 Collection Period), the Initial Invested Amount
will be reduced by the amount, without duplication, of all principal payments
made to Series 1997-1 Certificateholders and thereafter, for such purposes,
the Initial Invested Amount will be the Initial Invested Amount as of the
last day of the February 2004 Collection Period; provided, further, that,
upon the occurrence of the Fully Reinvested Date and after all allocations,
distributions, withdrawals and deposits required to be made on such date have
been made, the Initial Invested
Amount will be zero.
The Floating Allocation Percentage and the Fixed Allocation Percentage
will be adjusted for any Collection Period in which Additional Accounts are
designated to reflect the additional Receivables added to the Trust.
Principal Collections for all Series. Principal Collections allocated
to the Series 1997-1 Certificateholders' Interest for any Collection Period
will be allocated to make required deposits to the Excess Funding Account
during the Revolving Period and the Controlled Amortization Period (through
and including the February 2004 Collection Period) and to make required
payments of principal to (x) the Principal Funding Account and to the Series
1997-1 Certificateholders during the Controlled Amortization Period and any
Reinvestment Period and (y) subject to certain limited exceptions, to make
the required payments of principal to the Series 1997-1 Certificateholders
during any Early Amortization Period. See "Distributions from the Collection
Account; Reserve Fund; Yield Supplement Account -- Principal Collections".
The Servicer will determine the amount of Available Certificateholder
Principal Collections for any Collection Period remaining after such required
deposits and payments, if any, and the amount of any similar excess for any
other Series ("Excess Principal Collections"). The Servicer will allocate
Excess Principal Collections to cover any principal distributions to
Certificateholders for any Series which are either scheduled or permitted and
which have not been covered out of Principal Collections and certain other
amounts allocated to such Series ("Principal Shortfalls"). See "Maturity and
Principal Payment Considerations". Excess Principal Collections will
generally not be used to cover
S-31
<PAGE>
investor charge-offs for any Series. If Principal Shortfalls exceed Excess
Principal Collections for any Collection Period, Excess Principal Collections
will be allocated pro rata among the applicable Series based on the relative
amounts of Principal Shortfalls.
Allocation of Collections; Limited Subordination of Seller's Interest
On any date on which collections are deposited in the Collection
Account, the Servicer will distribute directly to the Seller an amount equal
to (a) the Excess Seller's Percentage for the related Collection Period of
Series Allocable Interest Collections for such date and (b) the Excess
Seller's Percentage for the related Collection Period of Series Allocable
Principal Collections for such date, if the Seller's Participation Amount
(determined after giving effect to any Principal Receivables transferred to
the Trust on such date) exceeds the Trust Available Subordinated Amount for
the immediately preceding Determination Date (after giving effect to the
allocations, distributions, withdrawals and deposits to be made on the
Distribution Date immediately following such Determination Date). In
addition, during the Revolving Period, subject to certain limitations, the
Servicer will distribute directly to the Seller on each such date of deposit
an amount equal to the Available Seller's Principal Collections for such
date, if the Seller's Participation Amount (determined after giving effect to
any Principal Receivables transferred to the Trust on such date) exceeds the
Trust Available Subordinated Amount for the immediately preceding
Determination Date (after giving effect to the allocations, distributions,
withdrawals and deposits to be made on the Distribution Date immediately
following such Determination Date).
"Available Seller's Collections" for any date means the sum of
(a) the Available Seller's Interest Collections for such date and (b)
the Available Seller's Principal Collections for such date; provided,
however, that the Available Seller's Collections will be zero for any
Collection Period with respect to which the Available Subordinated
Amount is zero on the Determination Date immediately following the end
of such Collection Period.
"Available Seller's Interest Collections" for any date means an
amount equal to the result obtained by multiplying (a) the excess of
(i) the Seller's Percentage for the related Collection Period over (ii)
the Excess Seller's Percentage for such Collection Period by (b) Series
Allocable Interest Collections for such date.
"Available Seller's Principal Collections" for any date means an
amount equal to the product of (a) the excess of (i) the Seller's
Percentage for the related Collection Period over (ii) the Excess
Seller's Percentage for such Collection Period and (b) Series Allocable
Principal Collections for such date.
"Seller's Percentage" means 100% minus (a) the Floating
Allocation Percentage, when used with respect to Interest Collections,
Defaulted Receivables and Principal Collections during the Revolving
Period or the Controlled Amortization Period (through and including the
February 2004 Collection Period), and (b) the Fixed Allocation
Percentage, when used with respect to Principal Collections during the
Controlled Amortization Period (from and including the March 2004
Collection Period), the Reinvestment Period and any Early Amortization
Period.
"Excess Seller's Percentage" for any Collection Period means a
percentage (which percentage shall never be less than 0% nor more than 100%)
equal to (a) 100% minus, when used with respect to Interest Collections and
Principal Collections during the Revolving Period or the Controlled
Amortization Period (through and including the February 2004 Collection
Period), the sum of (i) the Floating Allocation Percentage with respect to
such Collection Period and (ii) the percentage equivalent of a fraction, the
numerator of which is the Available Subordinated Amount as of the
Determination Date occurring in such Collection Period (after giving effect
to the allocations, distributions, withdrawals and deposits to be made on the
Distribution Date immediately following such Determination Date), and the
denominator of which is the product of (x) the Pool Balance as of the last
day of such immediately preceding Collection Period and (y) the Series
Allocation Percentage for the Collection Period in respect of which the
Excess Seller's Percentage is being calculated or (b) 100% minus, when used
with respect to Principal Collections during the Controlled Amortization
Period (from and including the March 2004
S-32
<PAGE>
Collection Period), any Reinvestment Period or any Early Amortization Period,
the sum of (i) the Fixed Allocation Percentage with respect to such
Collection Period and (ii) the percentage described in clause (a)(ii) above
for such Collection Period.
"Seller's Participation Amount" for any date means an amount equal to
the Pool Balance on such date minus the aggregate invested amounts for all
outstanding Series on such date.
Deficiency Amount. On each Determination Date with respect to a
Collection Period that ends prior to the Fully Reinvested Date, the Servicer
will determine for the Series 1997-1 Certificates the amount (the "Deficiency
Amount"), if any, by which (a) the sum of (i) Monthly Interest for the
following Distribution Date, (ii) Monthly Interest accrued but not paid with
respect to prior Distribution Dates (and interest thereon), (iii) Net Trust
Swap Payments, including any Make-Whole Payment due from the Trust, if any,
for such Distribution Date, (iv) the Monthly Servicing Fee for such
Distribution Date, (v) the Investor Default Amount for such Distribution
Date, (vi) the amount of any Adjustment Payment allocated to the Series
1997-1 Certificates for such Distribution Date that has not been deposited in
the Collection Account as required under the Pooling and Servicing Agreement,
and (vii) if such Distribution Date is the Final Payment Date, any Carry-over
Amount on such Distribution Date that will not be satisfied on such date by
the application of amounts on deposit in the Yield Supplement Account as
described under "Distributions from the Collection Account; Reserve Fund;
Yield Supplement Account -- Yield Supplement Account" or Available Seller's
Collections to the extent the Available Subordinated Amount exceeds the
Required Subordination Amount exceeds (b) the sum of (i) Certificateholder
Interest Collections and Investment Proceeds for such Distribution Date, (ii)
Net Trust Swap Receipts, including any Make-Whole Payment due from the Swap
Counterparty, if any, for such Distribution Date and (iii) the amount of
funds in the Reserve Fund on such Determination Date available to fund any
portion of the Deficiency Amount as described under "Distributions from the
Collection Account; Reserve Fund; Yield Supplement Account -- Interest
Collections". The lesser of the Deficiency Amount and the Available
Subordinated Amount is the "Draw Amount".
"Final Payment Date" means the first Distribution Date on which, after
giving effect to all payments to be made on such Distribution Date, the
outstanding principal balance of the Series 1997-1 Certificates will be paid
in full.
Available Subordinated Amount. The "Required Subordinated Amount" shall
mean, as of any date of determination, the sum of (i) the product of the
initial Subordinated Percentage, as adjusted from time to time as described
herein other than as a result of an increase therein at the option of the
Seller, and the Invested Amount and (ii) the Incremental Subordinated Amount.
Assuming that the Initial Invested Amount of the Series 1997-1 Certificates
is equal to the initial principal amount of the Series 1997-1 Certificates
and that the Incremental Subordinated Amount is zero, such amount would
initially be $77,777,777.
The Available Subordinated Amount for a Determination Date is equal to
(a) the lesser of (i) the Available Subordinated Amount for the preceding
Determination Date, minus, with certain limitations, the Draw Amount for such
preceding Determination Date, minus funds from the Reserve Fund applied to
cover any portion of the Investor Default Amount, plus the excess, if any, of
the Required Subordinated Amount for such Determination Date over the
Required Subordinated Amount for the immediately preceding Determination Date
due to an increase in the Subordination Factor, plus the amount of Excess
Servicing available to be paid to the Seller as described under
"Distributions from the Collection Account; Reserve Fund; Yield Supplement
Account -- Excess Servicing", and (ii) the product of the fractional
equivalent of the Subordinated Percentage and the Invested Amount, minus (b)
in the case of clause (a) (i) the Incremental Subordinated Amount for such
preceding Determination Date, plus (c) the Incremental Subordinated Amount
for the current Determination Date, plus (d) the Subordinated Percentage of
funds to be withdrawn from the Excess Funding Account on the succeeding
Distribution Date and paid to the Seller or allocated to one or more Series;
provided, however, that, once any Reinvestment Period that is not terminated
as described herein or any Early Amortization Period shall have commenced,
the Available Subordinated Amount shall be calculated based on the Invested
Amount as of the close of business on the day preceding such Controlled
Amortization Period,
S-33
<PAGE>
Reinvestment Period or Early Amortization Period and provided, further, that
once the Invested Amount is reduced to zero, the Available Subordinated
Amount shall be zero. The Available Subordinated Amount for the first
Determination Date is equal to the Required Subordinated Amount. The
"Incremental Subordinated Amount" on any Determination Date will equal the
result obtained by multiplying (a) a fraction, the numerator of which is the
sum of the Invested Amount on the last day of the immediately preceding
Collection Period and the Available Subordinated Amount for such
Determination Date (calculated without adding the Incremental Subordinated
Amount for such Determination Date as described in clause (c) above), and the
denominator of which is the Pool Balance on such last day by (b) the excess,
if any, of (x) the sum of the Overconcentration Amount, the Installment
Balance Amount and the aggregate amount of Ineligible Receivables on such
Determination Date over (y) the aggregate amount of Ineligible Receivables,
Receivables in Accounts containing Dealer Overconcentrations and Receivables
in Installment Balances, in each case that became Defaulted Receivables
during the preceding Collection Period and are not subject to reassignment
from the Trust, unless certain insolvency events relating to the Seller or
CFC have occurred, as further described in the Pooling and Servicing
Agreement.
The "Subordinated Percentage" will initially equal the percentage
equivalent of a fraction, the numerator of which is the Subordination Factor
and the denominator of which will be the excess of 100% over the
Subordination Factor. The Seller may, in its sole discretion, at any time
increase the Available Subordinated Amount for so long as the cumulative
amount of such discretionary increases does not exceed the lesser of (i)
$7,777,777 or (ii) 1.111111% of the Invested Amount. The Seller is not under
any obligation to increase the Available Subordinated Amount at any time
except as described herein. If the Available Subordinated Amount were reduced
to less than the Required Subordinated Amount, a Reinvestment Event would
occur. The Seller could elect to increase the Available Subordinated Amount
at the time such Reinvestment Event would otherwise occur, thus preventing or
delaying the occurrence of the Reinvestment Event. The Subordination Factor
will initially be 10%, but will be subject to increase to 11% in the event
that the rating of CFC's long-term unsecured debt is lowered below BBB- by
Standard & Poor's or withdrawn by Standard & Poor's, unless the Seller
receives written confirmation from Standard & Poor's that the failure to so
increase the Subordination Factor would not result in such Rating Agency
lowering or withdrawing its rating of the Series 1997-1 Certificates.
Distributions from the Collection Account; Reserve Fund; Yield Supplement
Account
Interest Collections. On each Distribution Date, commencing with the
initial Distribution Date, the Servicer shall instruct the Trustee to apply
Certificateholder Interest Collections and Investment Proceeds, if any, and
Net Trust Swap Receipts, including any Make-Whole Payment due from the Swap
Counterparty, if any, in respect of the related Collection Period to make the
following distributions in the following priority:
(i) first, provided that the Swap Counterparty shall not be in
default under the Interest Rate Swap, the Net Trust Swap Payment,
including any Make-Whole Payment due from the Trust, if any, for such
Distribution Date shall be paid to the Swap Counterparty; and then an
amount equal to Monthly Interest for such Distribution Date, plus the
amount of Monthly Interest previously due but not distributed on a
prior Distribution Date (plus, but only to the extent permitted under
applicable law, interest at the Certificate Rate calculated on the
basis of the Fixed Rate on Monthly Interest previously due but not so
distributed), shall be distributed to the Series 1997-1
Certificateholders;
(ii) second, (a) if such Distribution Date relates to a
Collection Period that ends prior to the Fully Reinvested Date an
amount equal to the Monthly Servicing Fee for such Distribution Date
shall be distributed to the Servicer (unless such amount has been
netted against deposits to the Collection Account as described in the
Prospectus under "Description of the Certificates -- Allocation of
Collections; Deposits in Collection Account" or waived by the
Servicer); and (b) then, any remaining Net Swap Payment shall be paid
to the Swap Counterparty;
(iii) third, an amount equal to the Reserve Fund Deposit Amount,
if any, for such Distribution Date shall be deposited in the Reserve
Fund;
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(iv) fourth, if such Distribution Date relates to a Collection
Period that ends prior to the Fully Reinvested Date, an amount equal to
the Investor Default Amount, if any, for such Distribution Date shall
be treated as a portion of Available Certificateholder Principal
Collections for such Distribution Date;
(v) fifth, an amount equal to any outstanding Carry-over Amount
(after giving effect to any withdrawals from the Yield Supplement
Account) shall be distributed to the Swap Counterparty;
(vi) sixth, an amount equal to the Yield Supplement Account
Deposit Amount, if any, for such Distribution Date shall be deposited
in the Yield Supplement Account; and
(vii) seventh, if such Distribution Date relates to a Collection
Period that ends prior to the Fully Reinvested Date, the balance shall
constitute Excess Servicing, or, if such Distribution Date relates to a
Collection Period that ends after the Fully Reinvested Date, the
balance, if any, shall be distributed to the Seller.
If such Certificateholder Interest Collections, Investment Proceeds and
Net Trust Swap Receipts, if any, are not sufficient to make the entire
distributions required by clauses (i), (ii) and (iv) and, in the case of the
Final Payment Date only, clause (v), the Trustee shall withdraw funds from
the Reserve Fund and apply such funds to complete the distributions pursuant
to such clauses; provided, however, that during any Reinvestment Period or
Early Amortization Period funds shall not be withdrawn from the Reserve Fund
to make distributions required by clause (iv) to the extent that, after
giving effect to such withdrawal, the amount on deposit in the Reserve Fund
shall be less than $1,000,000.
If there is a Draw Amount for such Distribution Date and such
Distribution Date is not the Final Payment Date, the Trustee shall apply the
amount of Available Seller's Collections for the related Collection Period on
deposit in the Collection Account on such Distribution Date, but only up to
the Draw Amount, to make the distributions required by clauses (i), (ii) and
(iv) above that have not been made through the application of funds from the
Reserve Fund as described in the preceding paragraph. If there is a Draw
Amount for such Distribution Date and such Distribution Date is the Final
Payment Date, the Trustee shall apply the amount of Available Seller's
Collections for the related Collection Period on deposit in the Collection
Account on such Distribution Date, but only up to the Draw Amount, to make
the distributions required by clauses (i), (ii), (iv) and (v) above that have
not been made through the application of funds from the Reserve Fund as
described in the preceding paragraph. Additionally, Available Seller's
Collections will be applied to any unpaid Adjustment Payments. The Available
Subordinated Amount will be reduced by the amount of Available Seller's
Collections so applied. If the Draw Amount exceeds such Available Seller's
Collections, the Available Subordinated Amount will be reduced by the amount
of such excess, but not by more than the sum of the Investor Default Amount
and the portion of Adjustment Payments not paid by the Seller, in order to
maintain the Invested Amount, but not generally by more than the Investor
Default Amount for such Distribution Date.
"Certificateholder Interest Collections" for any Distribution
Date means the portion of Series Allocable Interest Collections for the
related Collection Period allocated to the Series 1997-1
Certificateholders' Interest as described under "Allocation Percentages
-- Allocation Between the Series 1997-1 Certificateholders and the
Seller".
"Investment Proceeds" for any Distribution Date means an amount
equal to the sum of (a) the investment earnings on the related
Determination Date with respect to funds held in the Reserve Fund, (b)
the Series Allocation Percentage of investment earnings on the related
Determination Date with respect to funds held in the Collection Account
and (c) all investment income on amounts in the Excess Funding Account,
the Principal Funding Account and the Yield Supplement Account since
the preceding Distribution Date.
Available Seller's Collections, to the extent that the Available
Subordinated Amount exceeds the Required Subordinated Amount, will also be
applied to pay any Carry-Over Amount due to the Swap Counterparty.
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Reserve Fund. The "Reserve Fund" will be an Eligible Deposit Account
established and maintained in the name of the Trustee for the benefit of the
Series 1997-1 Certificateholders. On the Series Issuance Date, the Seller
will deposit $2,450,000 (0.35% of the principal balance of the Series 1997-1
Certificates) into the Reserve Fund. The "Reserve Fund Required Amount" for
any Distribution Date will equal 0.35% of the outstanding principal balance
of the Series 1997-1 Certificates for such Distribution Date (after giving
effect to any change therein on such Distribution Date). The "Reserve Fund
Deposit Amount" is the amount, if any, by which the Reserve Fund Required
Amount exceeds the amount on deposit in the Reserve Fund. Funds in the
Reserve Fund will be invested in Eligible Investments that will mature on or
prior to the next Distribution Date. On each Determination Date, the Servicer
will apply any investment earnings (net of losses and investment expenses)
with respect to the Reserve Fund as set forth under "Distributions from the
Collection Account; Reserve Fund; Yield Supplement Account -- Interest
Collections".
After the earlier of the payment in full of the outstanding principal
balance of the Series 1997-1 Certificates and the Series Termination Date,
any funds remaining on deposit in the Reserve Fund will be paid to the Seller
after satisfying any outstanding Carry-over Amount.
If, after giving effect to the allocations, distributions and deposits
in the Reserve Fund described above under "Interest Collections" with respect
to any Distribution Date related to a Collection Period that ends prior to
the Fully Reinvested Date, the amount in the Reserve Fund is less than the
Reserve Fund Required Amount for the next following Distribution Date, the
Trustee shall deposit any remaining Available Seller's Collections for the
related Collection Period into the Reserve Fund until the amount in the
Reserve Fund is equal to such Reserve Fund Required Amount.
If, for any Distribution Date with respect to an Early Amortization
Period or any Distribution Date with respect to a Reinvestment Period that
occurs prior to the Fully Reinvested Date, after giving effect to the
allocations, distributions and deposits described in the preceding paragraph,
the amount in the Reserve Fund is less than the Excess Reserve Fund Required
Amount for such Distribution Date, the Trustee shall deposit the remaining
Available Seller's Collections for the related Collection Period into the
Reserve Fund until the amount in the Reserve Fund is equal to such Excess
Reserve Fund Required Amount. The "Excess Reserve Fund Required Amount" for
any such Distribution Date means an amount equal to the greater of (a) 5% of
the initial principal balance of the Series 1997-1 Certificates and (b) the
excess of (i) the sum of (x) the Available Subordinated Amount on the
preceding Determination Date (after giving effect to the allocations,
distributions, withdrawals and deposits to be made on such Distribution Date)
and (y) an amount equal to (A) the excess of the Required Participation
Percentage over 100%, multiplied by (B) the outstanding principal balance of
the Series 1997-1 Certificates on such Distribution Date (after giving effect
to any changes therein on such Distribution Date) over (ii) the excess of (x)
the Series Allocation Percentage of the Pool Balance on the last day of the
immediately preceding Collection Period over (y) the Invested Amount on such
Distribution Date (after giving effect to changes therein on such
Distribution Date); provided that the Excess Reserve Fund Required Amount
shall not exceed such Available Subordinated Amount.
Yield Supplement Account. The Seller will establish and maintain an
Eligible Deposit Account in the name of the Trustee for the benefit of the
Swap Counterparty (the "Yield Supplement Account"). On the Series Issuance
Date, the Seller will deposit $1,750,000 (0.25% of the principal balance of
the Series 1997-1 Certificates) into the Yield Supplement Account. The "Yield
Supplement Account Required Amount" for any Distribution Date will equal the
product of (i) 0.25%, (ii) the ratio of (a) 84 less the number of full
Collection Periods elapsed following the last day of the August 1997
Collection Period and (b) 84 and (iii) the outstanding principal balance of
the Series 1997-1 Certificates for such Distribution Date (after giving
effect to any change therein on such Distribution Date). On any Distribution
Date on which there is a Carry-over Amount, the amount on deposit in the
Yield Supplement Account on such Distribution Date shall be applied by the
Trustee up to the amount of such Carry-over Amount to satisfy such Carry-over
Amount. The "Yield Supplement Account Deposit Amount" is the amount, if any,
by which the Yield Supplement Account Required Amount exceeds the amount on
deposit in the Yield Supplement Account. Funds in the Yield Supplement
Account will be
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invested at the direction of the Servicer or, during any Reinvestment Period
or Early Amortization Period, at the direction of the Swap Counterparty in
any investments consisting of financial assets that by their terms convert to
cash within a finite period of time. On each Determination Date, the Servicer
will apply any investment earnings (net of losses and investment expenses)
with respect to the Yield Supplement Account as set forth under
"Distributions from the Collection Account; Reserve Fund; Yield Supplement
Account -- Interest Collections". Any amounts on deposit in the Yield
Supplement Account on any Distribution Date (after giving effect to the
deposits and distributions to be made on such Distribution Date) in excess of
the Yield Supplement Account Required Amount will be paid to the Seller.
After the earlier of the payment in full of the outstanding principal balance
of the Series 1997-1 Certificates and the Series Termination Date, any funds
remaining on deposit in the Yield Supplement Account will be paid to the
Seller.
Excess Servicing. On each Distribution Date with respect to a
Collection Period that ends prior to the Fully Reinvested Date, the Servicer
will allocate Excess Servicing with respect to the Collection Period
immediately preceding such Distribution Date, in the following priority:
(a) first, an amount equal to the aggregate amount of Investor
Charge-Offs which have not been previously reimbursed (after giving
effect to the allocation on such Distribution Date of Series Allocable
Miscellaneous Payments with respect to such Distribution Date) will be
allocated in the same manner as Available Certificateholder Principal
Collections for such Distribution Date;
(b) second, an amount equal to the aggregate outstanding amounts
of the Monthly Servicing Fee which have been previously waived as
described under "Servicing Compensation and Payment of Expenses" in the
Prospectus will be distributed to the Servicer; and
(c) third, the balance, if any, shall increase the Available
Subordinated Amount as described in the definition thereof and be
distributed to the Seller.
Principal Collections. On each Distribution Date, the Servicer will
allocate Available Certificateholder Principal Collections as follows:
(a) for each Distribution Date with respect to the Revolving
Period, all Available Certificateholder Principal Collections will be
allocated first, to make a deposit to the Excess Funding Account if the
sum of (i) the Series 1997-1 Certificateholders' Interest in Principal
Receivables (determined for this purpose by reducing such interest by
the amount, if any, by which the Required Participation Amount exceeds
the Pool Balance due to an increase in the Subordination Factor) and
(ii) the amount on deposit in the Excess Funding Account prior to the
allocation on such Distribution Date is less than the outstanding
principal balance of the Series 1997-1 Certificates and second to
Excess Principal Collections as described under "Allocation Percentages
-- Principal Collections for all Series";
(b) for each Distribution Date with respect to the Controlled
Amortization Period:
(i) an amount equal to the Controlled Distribution Amount for
such Distribution Date will be distributed to Series 1997-1
Certificateholders;
(ii) for each Distribution Date following the last day of
the February 2004 Collection Period, an amount equal to the
Additional Accumulation Amount for such Distribution Date will be
deposited in the Principal Funding Account;
(iii) the balance, if any, will be allocated first, if such
Distribution Date is on or prior to the March 2004 Distribution
Date, to make a deposit to the Excess Funding Account if the sum
of (x) the Series 1997-1 Certificateholders' Interest in
Principal Receivables (determined as described in clause (a)
above) and (y) the amount on deposit in the Excess Funding
Account prior to the allocation on such Distribution Date is less
than the outstanding principal balance of the Series 1997-1
Certificates and second to Excess Principal Collections;
(c) for each Distribution Date with respect to any Reinvestment
Period, an amount equal to Monthly Principal will be deposited in the
Principal Funding Account; and
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(d) for each Distribution Date with respect to any Early
Amortization Period:
(i) first, any Make-Whole Payment due to the Swap
Counterparty that has not been paid as described above under
"Interest Collections" will be paid to the Swap Counterparty; and
(ii) second, the balance, if any, up to an amount equal to
Monthly Principal, will be distributed to Series 1997-1
Certificateholders.
In the event that the aggregate Invested Amount is greater than zero on
the Series Termination Date, any funds remaining in the Reserve Fund (after
the application of funds in the Reserve Fund as described above under
"Interest Collections") will be treated as a portion of Available
Certificateholder Principal Collections for the Distribution Date occurring
on the Series Termination Date.
"Available Certificateholder Principal Collections" for any
Distribution Date means the sum of (a) the product of (i) the Floating
Allocation Percentage, with respect to the Revolving Period or the
Controlled Amortization Period (through and including the February 2004
Collection Period), or the Fixed Allocation Percentage, with respect to
the Controlled Amortization Period (from and including the March 2004
Collection Period), any Reinvestment Period or any Early Amortization
Period, for the related Collection Period and (ii) Series Allocable
Principal Collections deposited in the Collection Account for the
related Collection Period, (b) the amount, if any, of Interest
Collections, funds in the Reserve Fund, Available Seller's Collections
and Excess Servicing allocated to cover the Investor Default Amount or
reimburse Investor Charge-Offs, (c) Series Allocable Miscellaneous
Payments on deposit in the Collection Account for such Distribution
Date and (d) Excess Principal Collections, if any, from other Series
allocated to Series 1997-1.
"Monthly Principal" with respect to any Distribution Date
relating to the Controlled Amortization Period, any Reinvestment Period
or any Early Amortization Period will equal Available Certificateholder
Principal Collections for such Distribution Date; provided, however,
that for each Distribution Date with respect to the Controlled
Amortization Period, Monthly Principal may not exceed the Controlled
Distribution Amount for such Distribution Date; and provided, further,
that Monthly Principal shall not exceed the Invested Amount of the
Series 1997-1 Certificates.
Interest Rate Swap
On the Closing Date, the Trust will enter into one or more agreements
which cover (a) an interest rate swap (the "Interest Rate Swap") with AIG
Financial Products Corp. (the "Swap Counterparty") and (b) a triparty
contingent assignment with the Swap Counterparty and Morgan Stanley Capital
Services Inc. (the "Contingent Swap Counterparty"). Also on the Closing Date,
American International Group, Inc. (the "Swap Guarantor") will enter into a
guarantee (the "Swap Guarantee") whereby the Swap Guarantor will guarantee
amounts payable by the Swap Counterparty under the Interest Rate Swap and
Morgan Stanley, Dean Witter, Discover & Co. (the "Contingent Swap Guarantor")
will enter into a guarantee (the "Contingent Swap Guarantee") whereby the
Contingent Swap Guarantor will guarantee amounts payable, if any, by the
Contingent Swap Counterparty under the Interest Rate Swap. The Interest Rate
Swap will have a notional amount (the "Notional Amount") as of any
Distribution Date equal to the outstanding principal amount of the Series
1997-1 Certificates as of the preceding Distribution Date (or, in the case of
the September 1997 Distribution Date, as of the Series Issuance Date) after
giving effect to all distributions on such date. In accordance with the terms
of the Interest Rate Swap, the Swap Counterparty will pay to the Trust, on
each Distribution Date, interest at the Certificate Rate on the Notional
Amount. In exchange for such payments, the Trust will pay to the Swap
Counterparty, the Swap Rate (as defined herein) on the Notional Amount. With
respect to each Distribution Date, any difference between the monthly payment
by the Swap Counterparty to the Trust and the monthly payment by the Trust to
the Swap Counterparty, including, in each case with respect to interest on
overdue amounts, if any, will be referred to herein as the "Net Trust Swap
Receipt", if an amount is owed by the Swap Counterparty to the Trust,
including in respect of a Make-Whole Payment, or as the "Net Trust Swap
Payment", if an amount is owed by the Trust to the Swap Counterparty,
including in respect of a Make-Whole Payment.
The Swap Rate for each Interest Period will be determined on the LIBOR
Determination Date preceding such Interest Period. The "Swap Rate" will be a
LIBOR-based floating rate not to exceed the Assets Receivables Rate for the
related Distribution Date, calculated on a basis of the actual number of days
in such Interest Period divided by 360.
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The "Assets Receivables Rate" for any Interest Period shall equal the
product of (a) the quotient obtained by dividing (i) 360 by (ii) the actual
number of days elapsed in such period and (b) a percentage, expressed as a
fraction, (i) the numerator of which is the sum of (A) Certificateholder
Interest Collections for the Collection Period immediately preceding the last
day of such period less, if CFC is not the Servicer, the Monthly Servicing
Fee with respect to such immediately preceding Collection Period and (B) the
Investment Proceeds to be applied on the Distribution Date related to such
period and (ii) the denominator of which is the sum of (A) the product of (I)
the Floating Allocation Percentage, (II) the Series Allocation Percentage and
(III) the average Pool Balance (after giving effect to any charge-offs) for
such immediately preceding Collection Period, (B) the principal balance on
deposit in the Excess Funding Account on the first day of such period (after
giving effect to all deposits to and withdrawals therefrom on such first day)
and (C) the principal balance on deposit in the Principal Funding Account on
the first day of such period (after giving effect to all deposits to and
withdrawals therefrom on such first day).
If the Swap Rate for any Distribution Date is based on the Assets
Receivables Rate, the excess of (a) the amount that would have been due the
Swap Counterparty for the related Interest Period had the Swap Rate been
based on LIBOR over (b) the amount actually due in respect of such period
based on the Assets Receivables Rate (such excess, together with the unpaid
portion of any such excess from prior Distribution Dates (and interest
accrued thereon at the Swap Rate calculated on the basis of the LIBOR-based
floating rate), is referred to as the "Carry-over Amount") will be paid on
such Distribution Date from amounts on deposit in the Yield Supplement
Account and, if such amounts are depleted, to the extent funds are allocated
and available therefor after making all required distributions and deposits
with respect to the Series 1997-1 Certificates, including payments with
respect to principal (including payments to the Excess Funding Account), the
Net Trust Swap Payment, if any, Monthly Interest, the Monthly Servicing Fee,
the Reserve Fund Deposit Amount and the Investor Default Amount as described
above under "Distributions from the Collection Account; Reserve Fund; Yield
Supplement Account". In addition, any Carry-over Amount outstanding on the
Final Payment Date, after making the distributions described in the preceding
sentence, will be paid on such date from (i) amounts on deposit in the
Reserve Fund and (ii) Available Seller's Collections on deposit in the
Collection Account on such date as described under "Distributions from the
Collection Account; Reserve Fund; Yield Supplement Account". Available
Seller's Collections will also be used to pay any Carry-over Amount prior
thereto, but only to the extent the Available Subordinated Amount exceeds the
Required Subordinated Amount.
Termination. The Interest Rate Swap will terminate on the occurrence of
the earliest of the following (a) the Series Termination Date, (b) the
Distribution Date on which the Invested Amount and the Principal Funding
Account Balance are each reduced to zero, (c) the date that is 3 business days
after a payment default under the Interest Rate Swap by the Swap Counterparty
(including the Swap Guarantor, the Contingent Swap Counterparty and the
Contingent Swap Guarantor) occurs, (d) the date that is 30 days after a payment
default by the Trust under the Interest Rate Swap, (e) the Trust or the Swap
Counterparty being required to withhold or deduct for or on account of tax
and the Swap Counterparty, having used its best efforts to do so (which will
not require it to incur any loss or cost, excluding immaterial incidental
expenses), is unable to arrange the substitution of another entity approved
by the Trustee and as to which certain other conditions are satisfied as the
new Swap Counterparty such that no such withholding or deduction exists and
(f) certain other customary early termination events. A payment default by
the Trust would occur only if the Net Trust Swap Payment for any Distribution
Date was lower than it would be if such payment was based on the lower of the
LIBOR-based floating rate and the Assets Receivables Rate. In the event a
termination described in clause (c), (d), (e) or (f) above occurs a
Make-Whole Payment may be due to the Swap Counterparty by the Trust or to the
Trust by the Swap Counterparty. The amount of any such "Make-Whole Payment"
will be based on the market value of the Interest Rate Swap computed on the
basis of market quotations obtained by the Trustee of the cost of entering
into swap transactions with the same terms and conditions that would have the
effect of preserving the respective full payment obligations of the parties,
in accordance with the procedures set forth in the Interest Rate Swap. Any
such termination payment could, if certain factors have changed materially,
be substantial. The foregoing notwithstanding, where the Swap Counterparty is
in default
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under the Interest Rate Swap, the Trust will not be obliged to make a
Make-Whole Payment to the Swap Counterparty; similarly, if the Trust is in
default under the Interest Rate Swap, the Swap Counterparty will not be
obliged to make a Make-Whole Payment to the Trust.
Replacement of the Swap Counterparty. Upon the occurrence of a payment
default by the Swap Counterparty or another early termination event related
to the Swap Counterparty, the Contingent Swap Counterparty will assume all
the rights and obligations of the Swap Counterparty and will be the Swap
Counterparty for all purposes of the Interest Rate Swap and such payment
default or other early termination event will be deemed not to have occurred.
In addition, in the event the Swap Guarantor's long-term unsecured and
unsubordinated debt rating is withdrawn or reduced below "A" by Standard &
Poor's or "A2" by Moody's, the Contingent Swap Counterparty will continue as
the Contingent Swap Counterparty and find a replacement for the Swap
Counterparty rated "A+" by Standard & Poor's or "A1" by Moody's if the effect
of such replacement would be to increase the rating on the Series 1997-1
Certificates. Furthermore, if the Contingent Swap Counterparty has assumed
the role of Swap Counterparty, such new Swap Counterparty will continue as
the Swap Counterparty and will find a new Contingent Swap Counterparty rated
"A+" by Standard & Poor's or "A1" by Moody's.
The Swap Counterparty may transfer the Interest Rate Swap to another of
the Swap Counterparty's affiliates, offices or branches on ten business days'
prior written notice; provided that (i) if such transfer is to an entity
other than the Swap Guarantor, such notice shall be accompanied by a
guarantee of the Swap Guarantor of such transferee's obligations or by a
written confirmation from the Swap Guarantor, in either case in form and
substance reasonably satisfactory to the Trustee, that the Swap Guarantee
will apply to the obligations of such transferee under the Interest Rate
Swap, (ii) the Swap Counterparty delivers an opinion of independent counsel
of recognized standing, in form and substance satisfactory to the Trustee,
confirming that as at such transfer the transferee will not, as a result of
such transfer, be required to withhold or deduct on account of tax under the
Interest Rate Swap, (iii) a termination event or event of default does not
occur under the Interest Rate Swap as a result of such transfer and (iv)
certain other conditions are satisfied in connection with such transfer.
In the event that the Contingent Swap Counterparty has assumed the role
of Swap Counterparty, the original Swap Counterparty will have no further
liabilities, obligations or duties under the Interest Rate Swap and the
guarantee of the Swap Guarantor will cease to have effect.
The Swap Counterparty. AIG Financial Products Corp. ("AIGFPC") is a
wholly owned subsidiary of American International Group, Inc. ("AIG"). AIGFPC
and its subsidiaries (the "AIGFPC Group") conduct, primarily as principal, an
interest rate, currency and equity derivative products business. The AIGFPC
Group also enters into long-dated forward foreign exchange contracts, option
transactions, liquidity facilities, investment contracts and other structured
transactions and invests in a diversified portfolio of securities. In the
course of conducting its business, the AIGFPC Group also engages in a variety
of other related transactions.
The Swap Guarantor. AIG, a Delaware corporation, is a holding company
which through its subsidiaries is primarily engaged in a broad range of
insurance and insurance-related activities in the United States and abroad.
AIG's principal activities include both general and life insurance
operations. Other significant activities are financial services and agency
and service fee operations. Reports, proxy statements and other information
filed by AIG with the Commission pursuant to the informational requirements
of the Exchange Act can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington
D.C., 20549, and at the following regional offices of the Commission: New
York Regional Office, Suite 1300, 7 World Trade Center, New York, New York
10048; Los Angeles Regional Office, 5670 Wilshire Boulevard, 11th Floor, Los
Angeles, California 90036; and Chicago Regional Office, Suite 1400, 500 West
Madison Street, Chicago, Illinois 60661. Copies of such material can be
obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington D.C. 20549, at prescribed rates. In addition, the
Commission maintains a Website that contains reports, proxy statements and
other information regarding reporting companies under the Exchange Act,
including AIG, at http://www.sec.gov. Such reports, proxy statements
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and other information can also be inspected at the Information Center of the
New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005. As
of December 31, 1996, the total assets of AIG (on a consolidated basis) were
$148.4 billion and the total capital funds of AIG (on a consolidated basis)
were $22.0 billion.
The Contingent Swap Counterparty. Morgan Stanley Capital Services, Inc.
("MSCS"), a subsidiary of Morgan Stanley, Dean Witter, Discover & Co.
("MSDWD"), commenced operation in August 1985. MSCS was established to conduct,
primarily as principal, an interest rate, currency and equity derivatives
products business. In the course of conducting its business, MSCS also engages
in a variety of other related transactions.
The Contingent Swap Guarantor. MSDWD is a global financial services
firm that has three primary businesses -- securities, asset management and
credit services. MSDWD is a combination of Dean Witter, Discover & Co. ("Dean
Witter Discover") and Morgan Stanley Group Inc. ("Morgan Stanley") pursuant
to a merger (the "Merger") that was effected on May 31, 1997 in which Morgan
Stanley was merged with and into Dean Witter Discover. MSDWD conducts its
business from its head office in New York City, regional offices and branches
throughout the United States, and through 28 principal offices in 19
countries outside the United States. Dean Witter Discover was incorporated
under the laws of the State of Delaware in 1981 and its predecessor companies
date back to 1924. Morgan Stanley was incorporated under the laws of the
State of Delaware in 1975 and its predecessor companies date back to 1935.
MSDWD's principal executive offices are at 1585 Broadway, New York, New York
10036, and its telephone number is (212) 761-4000. Reports, proxy statements
and other information filed by MSDWD with the Commission pursuant to the
informational requirements of the Exchange Act can be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W. Washington, D.C. 20549, and at the following regional offices of
the Commission; New York Regional Office, Suite 1300, 7 World Trade Center,
New York, New York 10048; Los Angeles Regional Office, 5670 Wilshire
Boulevard, 11th Floor, Los Angeles, California 90036; and Chicago Regional
Office, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Copies
of such material can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington D.C. 20549, at prescribed
rates. In addition, the Commission maintains a Website that contains reports,
proxy statements and other information regarding reporting companies under
the Exchange Act, including MSDWD. The address of the Commission's Website is
http://www.sec.gov. Such reports, proxy statements and other information can
also be inspected at the Information Center of the New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005. As of May 31, 1997, the
total assets of MSDWD (on a consolidated basis) were $270.0 billion and total
capital funds of MSDWD (on a consolidated basis) were $33.6 billion.
The descriptions of the Swap Counterparty, the Swap Guarantor, the
Contingent Swap Counterparty and the Contingent Swap Guarantor set out above
have been provided by the Swap Counterparty, the Swap Guarantor, the
Contingent Swap Counterparty and the Contingent Swap Guarantor respectively;
neither the Swap Counterparty, the Swap Guarantor, the Contingent Swap
Counterparty nor the Contingent Swap Guarantor has, however, been involved in
the preparation of and none of them accepts responsibility for, this
Prospectus as a whole.
Principal Funding Account
The Servicer will establish and maintain in the name of the Trustee, on
behalf of the Trust, an Eligible Deposit Account for the benefit of the
Series 1997-1 Certificateholders (the "Principal Funding Account"). On each
Distribution Date with respect to the Controlled Amortization Period or any
Reinvestment Period, Monthly Principal and, if applicable, the Additional
Accumulation Amount will be deposited in the Principal Funding Account to the
extent provided above under "Distributions from the Collection Account;
Reserve Fund; Yield Supplement Account -- Principal Collections"; provided,
that, if an Early Amortization Period commences during the Controlled
Amortization Period or any Reinvestment Period or the Mandatory Purchase Date
occurs, the Principal Funding Account Balance shall be paid to the Series
1997-1 Certificateholders on the first Special Payment Date or on the
Mandatory Purchase Date, as applicable. During any Reinvestment Period, on
each related Distribution
S-41
<PAGE>
Date, the Controlled Deposit Amount will, to the extent of the Principal
Funding Account Balance, be withdrawn from the Principal Funding Account and
paid to the Series 1997-1 Certificateholders.
All amounts on deposit in the Principal Funding Account on any
Distribution Date (after giving effect to distributions to be made on such
Distribution Date) (the "Principal Funding Account Balance") will be invested
by the Trustee at the direction of the Servicer or, during any Reinvestment
Period, at the direction of the Swap Counterparty in Eligible Investments
that will mature on or prior to the following Distribution Date. On each
Distribution Date, the interest and other investment income on the Principal
Funding Account Balance will be applied as provided above under
"Distributions from the Collection Account; Reserve Fund; Yield Supplement
Account".
Distributions
Payments to Series 1997-1 Certificateholders and the Swap Counterparty
will be made from the Collection Account (including deposits thereto of Net
Trust Swap Receipts, if any), the Reserve Fund, the Principal Funding
Account, the Yield Supplement Account and the Excess Funding Account.
(a) The Servicer shall instruct the Trustee to apply funds on
deposit in the Collection Account and the Reserve Fund and shall
instruct the Trustee to make the following distributions at the
following times:
(i) on each Distribution Date all amounts on deposit in the
Collection Account and the Reserve Fund as are payable to the
Series 1997-1 Certificateholders with respect to accrued interest
will be distributed to the Series 1997-1 Certificateholders;
(b) The Servicer shall instruct the Trustee to apply the funds on
deposit in the Principal Funding Account, the Collection Account and
the Excess Funding Account and shall instruct the Trustee to make,
without duplication, the following distributions at the following
times:
(i) on each Distribution Date relating to the Controlled
Amortization Period, other than the Mandatory Purchase Date, the
amount on deposit in the Excess Funding Account and all amounts
on deposit in the Collection Account as are payable to the Series
1997-1 Certificateholders with respect to principal shall be
distributed to Series 1997-1 Certificateholders up to a maximum
amount of the Controlled Distribution Amount for such Distribution
Date;
(ii) on each Distribution Date relating to any Reinvestment
Period (unless such Distribution Date is the Expected Payment
Date or the Mandatory Purchase Date), the Principal Funding
Account Balance (after transfer to the Principal Funding Account
of any amount on deposit in the Excess Funding Account) and all
amounts on deposit in the Collection Account as are payable to
Series 1997-1 Certificateholders with respect to principal shall
be distributed to Series 1997-1 Certificateholders up to a
maximum amount of the Controlled Distribution Amount for such
Distribution Date; and
(iii) on each Special Payment Date, on the Mandatory
Purchase Date and on the Expected Payment Date, the Principal
Funding Account Balance, the amount on deposit in the Excess
Funding Account and all amounts on deposit in the Collection
Account as are payable to Series 1997-1 Certificateholders with
respect to principal shall be distributed to the Series 1997-1
Certificateholders up to a maximum amount on any such date equal
to the excess of the outstanding principal amount of the Series
1997-1 Certificates over unreimbursed Investor Charge-Offs, each
on such date.
(c) On each Distribution Date on which there is an unpaid
Carry-over Amount, the Servicer shall instruct the Trustee to
distribute to the Swap Counterparty such Carry-over Amount to the
extent funds are available therefor first from amounts on deposit in
the Yield Supplement Account and second to the extent funds are
available therefor after making all required distributions and deposits
with respect to the Series 1997-1 Certificates as provided above under
"Distributions from the Collection Account; Reserve Fund; Yield
Supplement Account -- Interest Collections".
S-42
<PAGE>
(d) If, on the Final Payment Date, there is any Carry-over Amount
(after giving effect to any distributions on such date pursuant to (a)
through (c) above), the Trustee shall distribute to the Swap
Counterparty (i) the amount on deposit in the Reserve Fund and (ii)
Available Seller's Collections on deposit in the Collection Account
which are available to satisfy such Carry-over Amount as described
above under "Distributions from the Collection Account; Reserve Fund;
Yield Supplement Account -- Interest Collections".
All distributions shall be made to the Series 1997-1 Certificateholders
of record at the close of business on the day immediately preceding the
related Distribution Date (each such day a "Record Date"), except that the
final distribution with respect to any Series 1997-1 Certificate will be made
only upon surrender of such Series 1997-1 Certificate.
Investor Charge-Offs
If the Available Subordinated Amount is reduced to zero and on any
Distribution Date the Deficiency Amount is greater than zero, the outstanding
principal balance of the Series 1997-1 Certificates will be reduced by the
Deficiency Amount, but not by more than the Investor Default Amount for such
Distribution Date (an "Investor Charge-Off"). Any reduction in the
outstanding principal balance of the Series 1997-1 Certificates will have the
effect of slowing or reducing the return of principal to the Series 1997-1
Certificateholders. If the outstanding principal balance of the Series 1997-1
Certificates has been reduced by any Investor Charge-Offs, it will thereafter
be increased on any Distribution Date (but not by an amount in excess of the
aggregate unreimbursed Investor Charge-Offs) by the sum of (a) Series
Allocable Miscellaneous Payments for such Distribution Date and (b) the
amount of Excess Servicing allocated and available for such purpose as
described above.
Reinvestment Events
The Reinvestment Events with respect to the Series 1997-1 Certificates
will include each of the following:
1. failure on the part of USA, the Servicer or CFC, as
applicable, (i) to make any payment or deposit required by the Pooling
and Servicing Agreement or the Receivables Purchase Agreement,
including but not limited to any Transfer Deposit Amount or Adjustment
Payment, on or before the date occurring two business days after the
date such payment or deposit is required to be made therein; (ii) to
deliver a Distribution Date Statement on the date required under the
Pooling and Servicing Agreement (or within the applicable grace period
which will not exceed five business days); (iii) to comply with its
covenant not to create any lien on a Receivable; or (iv) to observe or
perform in any material respect any other covenants or agreements set
forth in the Pooling and Servicing Agreement or the Receivables
Purchase Agreement, which failure continues unremedied for a period of
45 days after written notice of such failure;
2. any representation or warranty made by the RPA Seller in the
Receivables Purchase Agreement or by USA in the Pooling and Servicing
Agreement or any information required to be given by USA to the Trustee
to identify the Accounts proves to have been incorrect in any material
respect when made and continues to be incorrect in any material respect
for a period of 60 days after written notice and as a result the
interests of the Certificateholders are materially and adversely
affected; provided, however, that a Reinvestment Event shall not be
deemed to occur thereunder if USA has repurchased the related
Receivables or all such Receivables, if applicable, during such period
in accordance with the provisions of the Pooling and Servicing
Agreement;
3. the occurrence of certain events of bankruptcy, insolvency or
receivership relating to CFC or Chrysler;
4. a failure by USA to convey Receivables in Additional Accounts
to the Trust within five business days after the day on which it is
required to convey such Receivables pursuant to the Pooling and
Servicing Agreement;
S-43
<PAGE>
5. on any Determination Date, the Available Subordinated Amount
for the next Distribution Date will be reduced to an amount less than
the Required Subordinated Amount on such Determination Date after
giving effect to the distributions to be made on the next Distribution
Date;
6. any Service Default with respect to the Series 1997-1
Certificates occurs;
7. on any Determination Date, as of the last day of the preceding
Collection Period, the aggregate amount of Principal Receivables
relating to Used Vehicles exceeds 20% of the Pool Balance on such last
day;
8. on any Determination Date, the average of the Monthly Payment
Rates for the three preceding Collection Periods is less than 20%; and
9. any Carry-over Amount is outstanding on six consecutive
Distribution Dates.
In the case of any event described in clause 1, 2 or 6 above, a
Reinvestment Event with respect to Series 1997-1 will be deemed to have
occurred only if, after the applicable grace period described in such
clauses, if any, either the Trustee or Series 1997-1 Certificateholders
holding Series 1997-1 Certificates evidencing more than 50% of the aggregate
unpaid principal amount of the Series 1997-1 Certificates by written notice
to the Seller and the Servicer (and the Trustee, if given by
Certificateholders) declare that a Reinvestment Event has occurred as of the
date of such notice. In the case of any event described in clause 3, 4, 5, 7,
8 or 9 above, a Reinvestment Event with respect to Series 1997-1 will be
deemed to have occurred without any notice or other action on the part of the
Trustee or the Series 1997-1 Certificateholders immediately upon the
occurrence of such event.
Under certain limited circumstances, a Reinvestment Period which
commences prior to the scheduled end of the Revolving Period may terminate
and the Revolving Period recommence. If a Reinvestment Period results from
the failure by USA to convey Receivables in Additional Accounts to the Trust,
as described in paragraph 4 above, during the Revolving Period and no other
Reinvestment Event that has not been cured or waived as described herein or
any Early Amortization Event has occurred, the Reinvestment Period resulting
from such failure will terminate and the Revolving Period will recommence
(unless the scheduled termination date of the Revolving Period has occurred)
as of the end of the first Collection Period during which the Seller would no
longer be required to convey Receivables to the Trust. The Seller may no
longer be required to convey Receivables as described above as a result of a
reduction in the Invested Amount occurring due to principal payments made in
respect of the Series 1997-1 Certificates and the Certificates of other
outstanding Series during the Reinvestment Period or as a result of the
subsequent addition of Receivables to the Trust. Notwithstanding the
foregoing, if any Reinvestment Event (other than a Reinvestment Event
described in clause 3 above) occurs, the Revolving Period will recommence
following receipt of (i) written confirmation by each Rating Agency (other
than Moody's) that its rating of the Series 1997-1 Certificates will not be
withdrawn or lowered as a result of such recommencement and (ii) the consent
of Series 1997-1 Certificateholders holding Series 1997-1 Certificates
evidencing more than 50% of the aggregate unpaid principal amount of the
Series 1997-1 Certificates to such recommencement; provided that no other
Reinvestment Event that has not been cured or waived as described herein or
any Early Amortization Event has occurred and the scheduled termination of
the Revolving Period has not occurred.
Early Amortization Events
The Early Amortization Events with respect to the Series 1997-1
Certificates will include each of the events so defined or described in the
Prospectus, including failure to pay in full the outstanding principal amount
of the Series 1997-1 Certificates by the Expected Payment Date, plus the
early termination of the Interest Rate Swap.
Upon the occurrence of any of the foregoing events or any of the Early
Amortization Events described in the Prospectus, an Early Amortization Event
with respect to Series 1997-1 will be deemed to have occurred without any
notice or other action on the part of the Trustee or the Series 1997-1
Certificateholders immediately upon the occurrence of such event.
S-44
<PAGE>
Series Termination
The last payment of principal and interest on the Series 1997-1
Certificates will be due and payable no later than the August 2006
Distribution Date (the "Series Termination Date"). In the event that the
aggregate Invested Amount is greater than zero on the Series Termination Date
(after giving effect to deposits and distributions otherwise to be made on
such Series Termination Date), the Trustee will sell or cause to be sold (and
apply the proceeds to the extent necessary to pay such remaining amounts to
all Series 1997-1 Certificateholders) an interest in the Receivables or
certain Receivables, as specified in the Pooling and Servicing Agreement, in
an amount equal to (a) 110% of the aggregate Invested Amount on such Series
Termination Date (after giving effect to such deposits and distributions) and
(b) the Available Subordinated Amount on the preceding Determination Date
(after giving effect to the allocations, distributions, withdrawals and
deposits to be made on the Distribution Date following such Determination
Date); provided, however, that in no event shall such amount exceed the
Series Allocation Percentage (for the Collection Period in which such Series
Termination Date occurs) of Receivables on such Series Termination Date. The
net proceeds of such sale and any collections on the Receivables will be paid
pro rata to Series 1997-1 Certificateholders on the Series Termination Date
as the final payment of the Series 1997-1 Certificates.
Reports
On each Distribution Date (including each Distribution Date that
corresponds to the Expected Payment Date or any Special Payment Date),
commencing with the initial Distribution Date, the Trustee will forward to
each Series 1997-1 Certificateholder of record a statement (the "Distribution
Date Statement") prepared by the Servicer setting forth the following
information (which, in the case of (c), (d) and (e) below, will be stated on
the basis of an original principal amount of $1,000 per Series 1997-1
Certificate if the Controlled Amortization Period, a Reinvestment Period or
an Early Amortization Period has commenced): (a) the aggregate amount of
collections, the aggregate amount of Interest Collections and the aggregate
amount of Principal Collections processed during the immediately preceding
Collection Period; (b) the Series Allocation Percentage, the Floating
Allocation Percentage and the Fixed Allocation Percentage for such Collection
Period; (c) the total amount, if any, distributed on the Series 1997-1
Certificates; (d) the amount of such distribution allocable to principal on
the Series 1997-1 Certificates; (e) the amount of such distribution allocable
to interest on the Series 1997-1 Certificates; (f) the Investor Default
Amount, if any, for such Distribution Date; (g) the Draw Amount, if any, for
such Collection Period; (h) the amount of the Investor Charge-Offs, if any,
and the amounts of reimbursements thereof for such Collection Period; (i) the
amount of the Monthly Servicing Fee for such Collection Period; (j) the
Controlled Distribution Amount for the following Distribution Date; (k) the
Invested Amount, the Excess Funding Amount and the outstanding principal
balance of the Series 1997-1 Certificates for such Distribution Date (after
giving effect to all distributions which will occur on such Distribution
Date); (1) the "pool factor" for the Series 1997-1 Certificates as of the
Determination Date with respect to such Distribution Date (consisting of an
eleven-digit decimal expressing the Invested Amount as of such Determination
Date (determined after taking into account any reduction in the Invested
Amount which will occur on such Distribution Date) as a proportion of the
Initial Invested Amount); (m) the Available Subordinated Amount for such
Determination Date; (n) the Reserve Fund balance for such date; and (o) the
Principal Funding Account Balance and the Yield Supplement Account balance
with respect to such date; provided, however, that after the Fully Reinvested
Date, Distribution Date Statements will not contain information with respect
to the Receivables or related items.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement (the "Underwriting Agreement"), the Seller has agreed to sell to
Morgan Stanley & Co. Incorporated (the "Underwriter"), and the Underwriter
has agreed to purchase from the Seller, all of the Series 1997-1
Certificates.
The Seller has been advised by the Underwriter that the Underwriter
proposes to initially offer the Series 1997-1 Certificates to the public at
the price set forth on the cover page of this Prospectus Supplement. After
the initial public offering, the public offering price may be changed.
S-45
<PAGE>
The underwriting discount referred to on the cover will be paid over
time as part of the Net Trust Swap Payments paid by the Trust to the Swap
Counterparty, or as part of the calculation of the Net Trust Swap Receipts
paid by the Swap Counterparty to the Trust. These amounts will be paid by the
Swap Counterparty to the Contingent Swap Counterparty pursuant to an interest
rate swap agreement between those parties. The amount of such discount
actually paid will vary depending on the average life of the Series 1997-1
Certificates. The Contingent Swap Counterparty and the Contingent Swap
Guarantor are both affiliates of the Underwriter.
The Underwriting Agreement provides that USA and CFC will indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act, or contribute to payments which the Underwriter may be
required to make in respect thereof. The Underwriter has agreed to advance to
the Seller all or a portion of the Seller's expenses in connection with the
issuance of the Series 1997-1 Certificates. Those expenses will be reimbursed
over time in the same manner as the underwriting discount will be paid as
described above.
The Underwriting Agreement provides that USA and CFC will indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act, or contribute to payments which the Underwriter may be
required to make in respect thereof. The Underwriter has agreed to pay all or
a portion of the Seller's expenses in connection with the issuance of the
Series 1997-1 Certificates.
The Contingent Swap Counterparty and the Contingent Swap Guarantor are
both affiliates of the Underwriter.
The Underwriter intends to make a secondary market in the Series 1997-1
Certificates, but has no obligation to do so. There can be no assurance that
a secondary market for the Series 1997-1 Certificates will develop or, if it
does develop, that it will continue or that it will provide holders of the
Series 1997-1 Certificates with a sufficient level of liquidity of, or
trading markets for, the Series 1997-1 Certificates.
In order to facilitate the offering of the Series 1997-1 Certificates,
the Underwriter may engage in transactions that stabilize, maintain or
otherwise affect the price of the Series 1997-1 Certificates. Specifically,
the Underwriter may overallot in connection with the offering, creating a
short position in the Series 1997-1 Certificates for its own account. In
addition, to cover overallotments or to stabilize the price of the Series
1997-1 Certificates, the Underwriter may bid for, and purchase, the Series
1997-1 Certificates in the open market. Any of these activities may stabilize
or maintain the market price of the Series 1997-1 Certificates above
independent market levels. The Underwriter is not required to engage in these
activities, and may end any of these activities at any time.
LEGAL MATTERS
Certain legal matters relating to the Series 1997-1 Certificates will
be passed upon for USA by Christopher A. Taravella, Esq., Vice President and
General Counsel of Chrysler Financial Corporation, and for the Underwriter by
Cravath, Swaine & Moore, New York, New York. Certain federal income tax and
ERISA matters will be passed upon for USA and the Trust by Cravath, Swaine &
Moore. In addition to representing the Underwriter, Cravath, Swaine & Moore
from time to time represents Chrysler Financial Corporation and its
affiliates. See "Legal Matters" in the Prospectus.
S-46
<PAGE>
INDEX OF PRINCIPAL TERMS
<TABLE>
<CAPTION>
Term Page
---- ----
<S> <C>
Accounts .......................................................... S-1
Additional Accumulation Amount .................................... S-6
Additional Structuring Assumptions ................................ S-29
AIGFPC ............................................................ S-40
AIG ............................................................... S-40
Assets Receivables Rate ........................................... S-39
Available Certificateholder Principal Collections ................. S-38
Available Seller's Collections .................................... S-32
Available Seller's Interest Collections ........................... S-32
Available Seller's Principal Collections .......................... S-32
Available Subordinated Amount ..................................... S-8
Base Mortgage Loans ............................................... S-13
Carry-over Amount ................................................. S-39
Certificate Rate .................................................. S-1
Certificateholder Interest Collections ............................ S-35
CFC ............................................................... S-1
Chrysler .......................................................... S-14
Contingent Swap Counterparty ...................................... S-4
Contingent Swap Guarantor ......................................... S-4
Contingent Swap Guarantee ......................................... S-4
Controlled Amortization Amount .................................... S-6
Controlled Amortization Period .................................... S-6
Controlled Distribution Amount .................................... S-6
CTAS .............................................................. S-15
Dean Witter Discover .............................................. S-41
Deficiency Amount ................................................. S-33
Distribution Date ................................................. S-1
Distribution Date Statement ....................................... S-45
Draw Amount ....................................................... S-33
EITF .............................................................. S-16
ESI ............................................................... S-15
Excess Principal Collections ...................................... S-31
Excess Reserve Fund Required Amount ............................... S-5
Excess Seller's Percentage ........................................ S-32
Excluded Dealers .................................................. S-18
Excluded Receivables .............................................. S-18
Expected Payment Date ............................................. S-21
FHLMC ............................................................. S-14
Final Payment Date ................................................ S-33
Fixed Allocation Percentage ....................................... S-31
Floating Allocation Percentage .................................... S-30
Fully Reinvested Date ............................................. S-7
Incremental Subordinated Amount ................................... S-9
Initial Invested Amount ........................................... S-31
Interest Calculation Agent ........................................ S-23
Interest Period ................................................... S-3
Interest Rate Swap ................................................ S-4
Invested Amount ................................................... S-31
Investment Proceeds ............................................... S-35
Investor Charge-Off ............................................... S-43
S-47
<PAGE>
<CAPTION>
Term Page
---- ----
<S> <C>
LIBOR ............................................................. S-22
LIBOR Business Day ................................................ S-22
LIBOR Determination Date .......................................... S-22
Make-Whole Payment ................................................ S-39
Mandatory Purchase ................................................ S-11
Mandatory Purchase Date ........................................... S-11
Merger ............................................................ S-41
Monthly Amortization Rate ......................................... S-24
Monthly Interest .................................................. S-23
Monthly Principal ................................................. S-38
Morgan Stanley .................................................... S-41
MSCS .............................................................. S-41
MSDWD ............................................................. S-41
Net Trust Swap Payment ............................................ S-4
Net Trust Swap Receipt ............................................ S-4
Notional Amount ................................................... S-4
PEI ............................................................... S-15
Prepayment Determination Date ..................................... S-27
Principal Calculation Agent ....................................... S-28
Principal Funding Account ......................................... S-41
Principal Funding Account Balance ................................. S-42
Principal Shortfalls .............................................. S-31
PSA ............................................................... S-27
PSA Index Rate .................................................... S-27
PSA Standard Prepayment Model ..................................... S-27
Receivables ....................................................... S-1
Record Date ....................................................... S-43
Reference Bloomberg Page .......................................... S-27
Reference Collateral Pool ......................................... S-6
Reinvestment Events ............................................... S-43
Required Participation Percentage ................................. S-10
Required Subordinated Amount ...................................... S-9
Reserve Fund ...................................................... S-36
Reserve Fund Deposit Amount ....................................... S-5
Reserve Fund Required Amount ...................................... S-4
Seller ............................................................ S-1
Seller's Interest ................................................. S-1
Seller's Participation Amount ..................................... S-33
Seller's Percentage ............................................... S-32
Series ............................................................ S-1
Series 1997-1 Certificates ........................................ S-1
Series Supplement ................................................. S-22
Series Termination Date ........................................... S-45
Servicer .......................................................... S-1
Subordinated Percentage ........................................... S-9
Swap Counterparty ................................................. S-3
Swap Guarantor .................................................... S-4
Swap Guarantee .................................................... S-4
Swap Rate ......................................................... S-38
Telerate Page 3750 ................................................ S-22
Thrifty ........................................................... S-15
Trust ............................................................. S-1
S-48
<PAGE>
<CAPTION>
Term Page
---- ----
<S> <C>
Underwriter ....................................................... S-45
Underwriting Agreement ............................................ S-45
USA ............................................................... S-1
Yield Supplement Account .......................................... S-36
Yield Supplement Account Deposit Amount ........................... S-36
Yield Supplement Account Required Amount .......................... S-36
</TABLE>
S-49
<PAGE>
ANNEX I
OTHER SERIES OF INVESTOR CERTIFICATES
This Annex I sets forth the principal characteristics of (i) the
Floating Rate Auto Loan Asset Backed Certificates, Series 1992-2, (ii) the
Floating Rate Auto Loan Asset Backed Certificates, Series 1993-1, (iii) the
Floating Rate Auto Loan Asset Backed Certificates, Series 1993-2, (iv) the
Floating Rate Auto Asset Backed Certificates, Series 1994-1, (v) the 7-7/8%
Auto Loan Asset Backed Certificates Series 1994-2, (vi) the 8-1/8% Auto Loan
Asset Backed Certificates, Series 1994-3, (vii) the Floating Rate Auto Loan
Asset Backed Certificates, Series 1995-1, (viii) the Floating Rate Auto Loan
Asset Backed Certificates, Series 1995-2, (ix) the Floating Rate Auto Loan
Asset Backed Certificates, Series 1995-3, (x) the Floating Rate Auto Loan
Asset Backed Certificates, Series 1995-4, (xi) the Floating Rate Auto Loan
Asset Backed Certificates, Series 1995-4A, (xii) the Floating Rate Auto Loan
Asset Backed Certificates, Series 1995-5, (xiii) the Floating Rate Auto Loan
Asset Backed Certificates, Series 1996-1, the Floating Rate Auto Loan Asset
Backed Certificates, Series 1996-2 ("Series 1992-2", "Series 1993-1", "Series
1993-2", "Series 1994-1", "Series 1994-2", "Series 1994-3", "Series 1995-1",
"Series 1995-2", "Series 1995-3", "Series 1995-4", "Series 1995-4A", "Series
1995-5", "Series 1996-1" and "Series 1996-2", respectively). For more
specific information with respect to any Series, any prospective investor
should contact USA at (248) 948-3031. USA will provide, without charge, to
any prospective purchaser, a copy of the Disclosure Document with respect to
such Series.
<TABLE>
<S> <C>
1. Series 1992-2
Initial Principal Amount ............................ $400,000,000
Scheduled Interest Payment Date ..................... Monthly, on or about the fifteenth day of each month
Current Principal Amount ............................ $400,000,000
Required Participation Percentage ................... 103%
Initial Subordinated Amount ......................... Approximately 13.6% of the Invested Amount
Revolving Period .................................... September 30, 1992 to the earlier of May 1, 1997 (or
later in certain circumstances) or an Early
Amortization Event
Expected Payment Date ............................... October 1997 Distribution Date
Termination Date .................................... September 1999 Distribution Date
2. Series 1993-1
Initial Principal Amount ............................ $250,000,000
Scheduled Interest Payment Date ..................... Monthly, on or about the fifteenth day of each month
Current Principal Amount ............................ $250,000,000
Required Participation Percentage ................... 103%
Initial Subordinated Amount ......................... Approximately 13.6% of the Invested Amount
Revolving Period .................................... January 31, 1993 to the earlier of September 1, 1997
(or later in certain circumstances) or an Early
Amortization Event
Expected Payment Date ............................... February 1998 Distribution Date
Termination Date .................................... January 2000 Distribution Date
3. Series 1993-2
Initial Principal Amount ............................ $500,000,000
Scheduled Interest Payment Date ..................... Monthly, on or about the fifteenth day of each month
Current Principal Amount ............................ $500,000,000
Required Participation Percentage ................... 103%
Initial Subordinated Amount ......................... Approximately 13.6% of the Invested Amount
A-1
<PAGE>
Revolving Period .................................... September 30, 1993 to the earlier of June 1, 1998 (or
later in certain circumstances) or an Early
Amortization Event
Expected Payment Date ............................... November 1998 Distribution Date
Termination Date .................................... October 2000 Distribution Date
4. Series 1994-1
Initial Principal Amount ............................ $500,000,000
Scheduled Interest Payment Date ..................... Monthly, on or about the fifteenth day of each month
Current Principal Amount ............................ $500,000,000
Required Participation Percentage ................... 103%
Initial Subordinated Amount ......................... Approximately 11.1% of the Invested Amount
Revolving Period .................................... September 30, 1994 to the earlier of May 1, 1999 (or
later in certain circumstances) or an Early
Amortization Event
Expected Payment Date ............................... October 1999 Distribution Date
Termination Date .................................... September 2001 Distribution Date
5. Series 1994-2
Initial Principal Amount ............................ $500,000,000
Scheduled Interest Payment Date ..................... Semi-annually, on or about the fifteenth day of
February and August
Current Principal Amount ............................ $500,000,000
Required Participation Percentage ................... 103%
Initial Subordinated Amount ......................... Approximately 11.1% of the Invested Amount
Revolving Period .................................... October 31, 1994 to the earlier of March 1, 1997 (or
later in certain circumstances) or an Early
Amortization Event
Expected Payment Date ............................... August 1997 Distribution Date
Termination Date .................................... July 1999 Distribution Date
6. Series 1994-3
Initial Principal Amount ............................ $350,000,000
Scheduled Interest Payment Date ..................... Annually, on or about the fifteenth day of November
Current Principal Amount ............................ $350,000,000
Required Participation Percentage ................... 103%
Initial Subordinated Amount ......................... Approximately 11.1% of the Invested Amount
Revolving Period .................................... November 30, 1994 to the earlier of June 1, 1997 (or
later in certain circumstances) or an Early
Amortization Event
Expected Payment Date ............................... November 1997 Distribution Date
Termination Date .................................... October 1999 Distribution Date
7. Series 1995-1
Initial Principal Amount ............................ $600,000,000
Scheduled Interest Payment Date ..................... Monthly, on or about the fifteenth day of each month
Current Principal Amount ............................ $600,000,000
Required Participation Percentage ................... 103%
Initial Subordinated Amount ......................... Approximately 11.1% of the Invested Amount
Revolving Period .................................... December 31, 1994 to the earlier of February 1, 1998
(or later in certain circumstances) or an Early
Amortization Event
Expected Payment Date ............................... July 1998 Distribution Date
A-2
<PAGE>
Termination Date .................................... June 2000 Distribution Date
8. Series 1995-2
Initial Principal Amount ............................ $600,000,000
Scheduled Interest Payment Date ..................... Monthly, on or about the fifteenth day of each month
Current Principal Amount ............................ $600,000,000
Required Participation Percentage ................... 103%
Initial Subordinated Amount ......................... Approximately 11.1% of the Invested Amount
Revolving Period .................................... February 28, 1995 to the earlier of October 1, 1999
(or later in certain circumstances) or an Early
Amortization Event
Expected Payment Date ............................... March 2000 Distribution Date
Termination Date .................................... February 2002 Distribution Date
9. Series 1995-3
Initial Principal Amount ............................ $500,000,000
Scheduled Interest Payment Date ..................... Monthly, on or about the fifteenth day of each month
Current Principal Amount ............................ $500,000,000
Required Participation Percentage ................... 103%
Initial Subordinated Amount ......................... Approximately 11.1% of the Invested Amount
Revolving Period .................................... April 30, 1995 to the earlier of January 1, 1998 (or
later in certain circumstances) or an Early
Amortization Event
Expected Payment Date ............................... June 1998 Distribution Date
Termination Date .................................... May 2000 Distribution Date
10. Series 1995-4
Initial Principal Amount ............................ $500,000,000
Scheduled Interest Payment Date ..................... Monthly, on or about the fifteenth day of each month
Current Principal Amount ............................ $500,000,000
Required Participation Percentage ................... 103%
Initial Subordinated Amount ......................... Approximately 11.1% of the Invested Amount
Revolving Period .................................... April 30, 1995 to the earlier of December 1, 1997 (or
later in certain circumstances) or an Early
Amortization Event
Expected Payment Date ............................... May 1998 Distribution Date
Termination Date .................................... April 2000 Distribution Date
11. Series 1995-4A
Initial Principal Amount ............................ $500,000,000
Scheduled Interest Payment Date ..................... Monthly, on or about the fifteenth day of each month
Current Principal Amount ............................ $500,000,000
Required Participation Percentage ................... 103%
Initial Subordinated Amount ......................... Approximately 11.1% of the Invested Amount
Revolving Period .................................... April 30, 1995 to the earlier of February 1, 1998 (or
later in certain circumstances) or an Early
Amortization Event
Expected Payment Date ............................... July 2, 1998
Termination Date .................................... June 2000 Distribution Date
A-3
<PAGE>
12. Series 1995-5
Initial Principal Amount ............................ $250,000,000
Scheduled Interest Payment Date ..................... Monthly, on or about the fifteenth day of each month
Current Principal Amount ............................ $250,000,000
Required Participation Percentage ................... 103%
Initial Subordinated Amount ......................... Approximately 11.1% of the Invested Amount
Revolving Period .................................... November 30, 1995 to the earlier of September 1, 1999
(or later in certain circumstances) or an Early
Amortization Event
Expected Payment Date ............................... February 2000 Distribution Date
Termination Date .................................... January 2002 Distribution Date
13. Series 1996-1
Initial Principal Amount ............................ $500,000,000
Scheduled Interest Payment Date ..................... Monthly, on or about the fifteenth day of each month
Current Principal Amount ............................ $500,000,000
Required Participation Percentage ................... 103%
Initial Subordinated Amount ......................... Approximately 11.1% of the Invested Amount
Revolving Period .................................... October 31, 1996 to the earlier of June 1, 2003 (or
later in certain circumstances) or an Early
Amortization Event
Expected Payment Date ............................... November 2003 Distribution Date
Termination Date .................................... October 2005 Distribution Date
14. Series 1996-2
Initial Principal Amount ............................ $500,000,000
Scheduled Interest Payment Date ..................... Monthly, on or about the fifteenth day of each month
Current Principal Amount ............................ $500,000,000
Required Participation Percentage ................... 103%
Initial Subordinated Amount ......................... Approximately 11.1% of the Invested Amount
Revolving Period .................................... November 30, 1996 to the earlier of May 1, 2001 (or
later in certain circumstances) or an Early
Amortization Event
Expected Payment Date ............................... December 2001 Distribution Date
Termination Date .................................... November 2003 Distribution Date
</TABLE>
A-4
<PAGE>
PROSPECTUS
CARCO Auto Loan Master Trust
Auto Loan Asset Backed Certificates
[LOGOTYPE ] U.S. AUTO RECEIVABLES COMPANY, Seller
[LOGOTYPE] CHRYSLER FINANCIAL CORPORATION, Servicer
U.S. Auto Receivables Company ("USA" or the "Seller") has previously
sold and may sell from time to time one or more series (each a "Series") of
auto loan asset backed certificates (the "Certificates") evidencing undivided
interests in certain assets of Carco Auto Loan Master Trust (the "Trust")
created pursuant to a Pooling and Servicing Agreement among USA, Chrysler
Financial Corporation, as servicer ("CFC" or the "Servicer"), and The Bank of
New York, as trustee. The Trust assets include wholesale receivables (the
"Receivables") generated from time to time in a portfolio of revolving
financing arrangements (the "Accounts") with automobile dealers to finance
their automobile and light duty truck inventory and collections on the
Receivables, as more fully described herein and, with respect to any Series,
in an accompanying prospectus supplement (a "Prospectus Supplement") relating
to such Series.
Certificates have previously been sold by the Trust and additional
Certificates will be sold from time to time under this Prospectus on terms
determined for each Series or Class at the time of the sale and described in
the related Prospectus Supplement. Each Series will consist of one or more
classes of Certificates (each a "Class"). Certain assets of the Trust will be
allocated to the Certificateholders of each Series or Class including the
right to receive a varying percentage of each month's collections with respect
to the Receivables at the times and in the manner described herein and, with
respect to any Series offered hereby, in the related Prospectus Supplement.
The Seller will own the remaining interest in the Trust not represented by the
Certificates (the "Seller's Interest"). The Seller's Interest will be
subordinated to the rights of the Certificateholders of each Series to the
limited extent described, with respect to any Series offered hereby, in the
related Prospectus Supplement. In addition, each Series offered hereby may be
entitled to the benefits of a letter of credit, surety bond, cash collateral
account or other form of enhancement as specified in the Prospectus Supplement
relating to such Series.
While the specific terms of any Series in respect of which this
Prospectus is being delivered will be described in the related Prospectus
Supplement, the terms of such Series will not be subject to prior review by,
or consent of, the holders of the Certificates of any previously issued
Series.
Prospective investors should consider, among other things, the
information set forth in "Risk Factors" commencing on page 15 and in the
related Prospectus Supplement.
THE CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY AND DO NOT
REPRESENT INTERESTS IN OR OBLIGATIONS OF THE SELLER, THE SERVICER OR ANY
AFFILIATE THEREOF. NEITHER THE CERTIFICATES NOR THE RECEIVABLES ARE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY.
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.
Certificates may be sold by the Seller directly to purchasers, through
agents designated from time to time, through underwriting syndicates led by
one or more managing underwriters or through one or more underwriters acting
alone. If underwriters or agents are involved in the offering of the
Certificates of any Series offered hereby, the name of the managing
underwriter or underwriters or agents will be set forth in the related
Prospectus Supplement. If an underwriter, agent or dealer is involved in the
offering of the Certificates of any Series offered hereby, the underwriter's
discount, agent's commission or dealer's purchase price will be set forth in,
or may be calculated from, the related Prospectus Supplement, and the net
proceeds to the Seller from such offering will be the public offering price of
such Certificates less such discount in the case of an underwriter, the
purchase price of such Certificates less such commissions in the case of an
agent or the purchase price of such Certificates in the case of a dealer, and
less, in each case, the other expenses of the Seller associated with the
issuance and distribution of such Certificates. See "Plan of Distribution".
This Prospectus may not be used to consummate sales of Certificates of any
Series unless accompanied by the related Prospectus Supplement.
The date of this Prospectus is October 25, 1996.
<PAGE>
AVAILABLE INFORMATION
The Seller has filed a Registration Statement (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with the Securities and Exchange Commission (the "Commission") with
respect to the Certificates offered pursuant to this Prospectus. This
Prospectus, which forms part of the Registration Statement, does not contain
all of the information contained in the Registration Statement and the
exhibits thereto. For further information, reference is made to the
Registration Statement and amendments thereof and 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; 75 Park Place, New York, New York 10007; and Northwestern 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 at 450 Fifth
Street, N.W., Washington, D.C.
20549, at prescribed rates.
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued, monthly and annual
unaudited reports, containing information concerning the Trust and prepared by
the Servicer, will be sent on behalf of the Trust to Cede & Co. ("Cede"), as
nominee of The Depository Trust Company ("DTC") and registered holder of the
Certificates, pursuant to the Pooling and Servicing Agreement. Such reports
may be available to holders of interests in the Certificates (the
"Certificateholders") upon request to their respective Participants. See
"Description of the Certificates -- Reports" and " -- Evidence as to
Compliance". The Trust will file with the Commission such periodic reports
with respect to the Trust as are required under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and regulations of the
Commission thereunder.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Servicer, on
behalf of the Trust, are incorporated in this Prospectus by reference: the
Trust's Annual Report on Form 10-K for the year ended December 31, 1995; and
the Trust's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1996 and June 30, 1996. All reports and other documents filed by the Seller,
as originator of any Trust, pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this Prospectus and prior to the
termination of the offering of the Certificates offered hereby shall be deemed
to be incorporated by reference in this Prospectus and to be part hereof. Any
statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Seller will provide without charge to each person, including any
beneficial owner of Certificates, to whom a copy of this Prospectus is
delivered, on the written or oral request of any such person, a copy of any or
all of the documents incorporated herein or in any related Prospectus
Supplement by reference, except the exhibits to such documents (unless such
exhibits are specifically incorporated by reference in such documents).
Requests for such copies should be directed to Secretary, Chrysler Financial
Corporation, 27777 Franklin Road, Southfield, Michigan 48034-8286 (telephone:
810-948-3058).
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference
to the information with respect to the Certificates of any Series or Class
offered hereby contained in the related Prospectus Supplement to be prepared
and delivered in connection with the offering of such Certificates. Reference
is made to the Index of Principal Terms for the location herein of the
definitions of certain capitalized terms used herein.
Title of Securities...... Auto Loan Asset Backed Certificates (the
"Certificates").
Issuer................... CARCO Auto Loan Master Trust (the "Trust").
Seller................... The "Seller" is U.S. Auto Receivables Company
("USA"), a special- purpose wholly-owned subsidiary
of Chrysler Financial Corporation ("CFC").
Servicer................. CFC, a wholly-owned subsidiary of Chrysler
Corporation ("Chrysler").
Trustee.................. The Bank of New York (the "Trustee").
The Trust................ The Trust was formed pursuant to a Pooling and
Servicing Agreement dated as of May 31, 1991, among
Chrysler Auto Receivables Company ("CARCO"), as
seller, Chrysler Credit Corporation ("CCC"), as
servicer, and Manufacturers and Traders Trust
Company, as trustee (as supplemented and amended from
time to time, the "Pooling and Servicing Agreement").
The assets of the Trust include (a) certain
Receivables existing under the Accounts at the close
of business on May 31, 1991 (the "Initial Cut-Off
Date"), certain Receivables generated under the
Accounts from time to time thereafter during the term
of the Trust as well as certain Receivables generated
under any Accounts added to the Trust from time to
time (but excluding Receivables generated in any
Accounts removed from the Trust from time to time
after the Initial Cut-Off Date), (b) all funds
collected or to be collected in respect of such
Receivables, (c) all funds on deposit in certain
accounts of the Trust, (d) any other Enhancement
issued with respect to any particular Series or Class
and (e) a security interest in certain motor vehicles
(the "Vehicles") and certain parts inventory,
equipment, fixtures, service accounts and, in some
cases, realty and/or a personal guarantee
(collectively, the "Collateral Security") securing
the Receivables. The term "Enhancement" shall mean,
with respect to any Series or Class, any letter of
credit, surety bond, cash collateral account, spread
account, guaranteed rate agreement, swap or other
interest rate protection agreement, maturity
liquidity facility, tax protection agreement, or
other arrangement for the benefit of
Certificateholders of such Series or Class.
CARCO Transfer........... On August 8, 1991, CARCO, in accordance with the
terms of the Pooling and Servicing Agreement and the
Receivables Purchase Agreement, transferred the
Seller's Interest and all its rights and obligations
under (a) the Pooling and Servicing Agreement
(including rights and obligations as seller
thereunder) and (b) the Receivables Purchase
Agreement (including rights and obligations as buyer
thereunder) to USA, such transfer being the "CARCO
Transfer". See "U.S. Auto Receivables Company and the
Trust".
3
<PAGE>
CCC Merger into CFC...... On December 31, 1995, CCC, a wholly owned subsidiary
of CFC, merged into CFC. CFC, in accordance with the
terms of the Pooling and Servicing Agreement and the
Receivables Purchase Agreement, assumed all the
rights and obligations of CCC under (a) the Pooling
and Servicing (including rights and obligations as
servicer thereunder) and (b) the Receivables Purchase
Agreement (including rights and obligations of the
seller thereunder). See "Chrysler Financial
Corporation and Chrysler Credit Corporation".
Trustee Assignment....... On August 23, 1996, The Bank of New York, a New York
banking corporation, succeeded Manufacturers and
Traders Trust Company, as Trustee in accordance with
the terms of the Pooling and Servicing Agreement and
pursuant to an Agreement of Resignation, Appointment
and Acceptance dated as of August 23, 1996 between
USA, CFC, Manufacturers and Traders Trust Company, as
resigning trustee, and The Bank of New York, as
successor trustee. See "Description of the
Certificates -- The Trustee".
The Accounts............. The Accounts pursuant to which the Receivables have
been or will be generated are revolving credit
agreements entered into with CFC, directly or as
successor to CCC, by dealers to finance the purchase
of their automobile and light duty truck inventory.
The Accounts are selected from all such credit
agreements of CFC which meet the criteria provided in
the Pooling and Servicing Agreement (the "Eligible
Accounts"). Under certain circumstances Accounts may
be added to, or removed from, the Trust. See "The
Accounts", "Description of the Certificates --
Eligible Accounts and Eligible Receivables", " --
Addition of Accounts" and " -- Removal of Accounts".
The Receivables.......... The Receivables have arisen or will arise in the
Accounts. The Receivables consist of advances made
directly or indirectly by CFC, directly or as
successor to CCC, to domestic automobile dealers
franchised by Chrysler and/or other automobile
manufacturers (the "Dealers"). Such advances are used
by the Dealers to purchase the Vehicles, which
consist primarily of new automobiles, light duty
trucks and certain other vehicles manufactured or
distributed by such automobile manufacturers.
Generally, the principal amount of an advance in
respect of a Vehicle is equal to the wholesale
purchase price of the Vehicle plus destination
charges and, subject to certain exceptions, is due
upon the retail sale of the Vehicle. See "The Dealer
Floorplan Financing Business -- Creation of
Receivables" and " -- Payment Terms". Collections of
principal under the Receivables are herein referred
to as "Principal Collections", and collections of
interest and other nonprincipal charges (including
insurance service fees, amounts recovered with
respect to Defaulted Receivables and insurance
proceeds) are referred to herein as "Interest
Collections". The Receivables bear interest at a
floating rate generally based on the prime rates of
certain United States banks plus a spread generally
based on the amount of the related Dealer's credit
line. See "The Dealer Floorplan Financing Business --
Revenue Experience".
USA, as assignee of CARCO, has entered into a
Receivables Purchase Agreement (the "Receivables
Purchase Agreement"), dated as of the date of the
Pooling and Servicing Agreement, between USA, as
purchaser, and CFC, as successor to CCC, as seller
(the "RPA
4
<PAGE>
Seller"). Pursuant to the Receivables Purchase
Agreement, the RPA Seller has (a) sold to USA all
of its right, title and interest in and to all
Receivables meeting certain eligibility criteria
contained in the Receivables Purchase Agreement and
the Pooling and Servicing Agreement ("Eligible
Receivables") and (b) assigned its interests in the
Vehicles and the Collateral Security to USA. USA in
turn transferred such Receivables and Collateral
Security to the Trust pursuant to the Pooling and
Servicing Agreement. USA has also assigned to the
Trust its rights with respect to the Receivables
under the Receivables Purchase Agreement. See
"Description of the Receivables Purchase
Agreement". All new Receivables arising under the
Accounts during the term of the Trust will be sold
by the RPA Seller to USA and transferred by USA to
the Trust. Accordingly, the aggregate amount of
Receivables in the Trust will fluctuate from day to
day as new Receivables are generated and as existing
Receivables are collected, charged off as uncollecti-
ble or otherwise adjusted.
The Certificates......... The Certificates will be issued in Series, each of
which will consist of one or more Classes. While the
specific terms of any Series or Class offered hereby
will be described in the related Prospectus
Supplement, the terms of such Series or Class will
not be subject to prior review by, or consent of, the
holders of the Certificates of any previously issued
Series. There can be no assurance that the terms of
any Series issued from time to time hereafter might
not have an impact on the timing or amount of
payments received by a Certificateholder. See
"Description of the Certificates -- New Issuances".
Unless otherwise specified in the related Prospectus
Supplement, the Certificates of a Series offered
hereby will be available for purchase in minimum
denominations of $1,000 and in integral multiples
thereof and will only be available in book-entry
form except in certain limited circumstances as
described herein under "Description of the
Certificates -- Definitive Certificates". The
Trust's assets will be allocated in part to the
Certificateholders of each Series (with respect to
any particular Series or all Series, the
"Certificateholders' Interest"), with the remainder
allocated to the Seller (the "Seller's Interest"). A
portion of the Seller's Interest will be
subordinated to the Certificateholders' Interest of
each Series to the extent described, with respect to
any Series offered hereby, in the related Prospectus
Supplement. The Certificates of each Series will
evidence an undivided beneficial interest in the
assets of the Trust allocated to the
Certificateholders' Interest of such Series and will
represent the right to receive from such assets
funds up to (but not in excess of) the amounts
required to make payments of interest on and
principal of such Series as described, with respect
to any Series offered hereby, in the related
Prospectus Supplement.
The principal amount of the Seller's Interest may
fluctuate as the aggregate amount of the Receivables
balance changes from time to time, as new Series are
issued and as outstanding Series amortize.
The Certificates will represent beneficial interests
in the Trust only and will not represent interests
in or obligations of CFC or USA or any affiliate
thereof. Neither the Certificates nor the
Receivables are insured or guaranteed by CFC or USA
or any affiliate thereof or any governmental agency.
5
<PAGE>
Registration of
Certificates.......... Unless otherwise specified in the related Prospectus
Supplement, the Certificates of a Series offered
hereby will initially be represented by one or more
Certificates registered in the name of Cede & Co., as
the nominee of DTC. Unless otherwise specified in the
related Prospectus Supplement, Certificateholders may
elect to hold their Certificates through DTC (in the
United States) or CEDEL or Euroclear (in Europe) and
no person acquiring an interest in the Certificates
will be entitled to receive a definitive certificate
representing such person's interest except in the
event that Definitive Certificates are issued under
certain limited circumstances. See "Description of
the Certificates -- Definitive Certificates".
Issuances of
New Series.............. The Pooling and Servicing Agreement provides that,
pursuant to any one or more supplements thereto
(each, a "Series Supplement"), the Seller may cause
the Trustee to issue one or more new Series of
Certificates (a "New Issuance"). However, at all
times, the interest in the balance of principal
Receivables ("Principal Receivables") represented by
the Seller's Interest must equal or exceed a
specified amount. The Pooling and Servicing
Agreement also provides that the Seller may specify,
with respect to any Series, the Principal Terms of
the Series. The Seller may offer any Series to the
public or other investors under a prospectus or
other disclosure document in transactions either
registered under the Securities Act or exempt from
registration thereunder, directly or through one or
more underwriters or placement agents.
Under the Pooling and Servicing Agreement and
pursuant to a Series Supplement, a New Issuance may
only occur upon delivery to the Trustee of, among
other things, the following: (a) a Series Supplement
specifying the Principal Terms of such Series, (b)
an opinion of counsel to the effect that, for
federal income and Michigan income and single
business tax purposes, (x) such issuance will not
adversely affect the characterization of the
Certificates of any outstanding Series or Class as
debt of the Seller, (y) such issuance will not cause
or constitute a taxable event to any
Certificateholders and (z) such new Series will be
characterized as debt of the Seller and (c) letters
from the Rating Agencies confirming that the
issuance of the new Series will not result in the
reduction or withdrawal of the rating of any other
Series or Class of Certificates then outstanding.
See "Description of the Certificates -- New
Issuances".
Allocations.............. The Certificateholders' Interest of each Series will
include the right to receive (but only to the extent
needed to make required payments under the Pooling
and Servicing Agreement) varying percentages of
Interest Collections and Principal Collections
allocated to such Certificates during each calendar
month (a "Collection Period"). Interest Collections,
Principal Collections and Defaulted Receivables for
any Collection Period will be allocated to each
Series based on that Series' Series Allocation
Percentage. The Series Allocation Percentage for any
Collection Period and any Series is the percentage
obtained by dividing (x) the Adjusted Invested Amount
for that Series as of the last day of the immediately
preceding Collection Period by (y) the sum of the
aggregate Adjusted Invested Amounts for all
outstanding Series as of such last day. The Adjusted
Invested Amount for any Collection Period and any
Series is the sum of (x)
6
<PAGE>
the Initial Invested Amount of such Series, minus
unreimbursed investor charge-offs allocated to that
Series as of the last day of the immediately
preceding Collection Period and (y) the Available
Subordinated Amount with respect to such Series on
the Determination Date occurring in such Collection
Period (after giving effect to the allocations,
distributions, withdrawals and deposits to be made
on the Distribution Date following such
Determination Date). Interest Collections, Principal
Collections and Defaulted Receivables allocated to a
Series will be further allocated between the
Certificateholders' Interest of that Series (and, if
applicable, of each Class thereof) and the Seller's
Interest as provided in the related Series
Supplement and, with respect to any Series offered
hereby, described in the related Prospectus
Supplement.
Interest................. Interest on the principal balance of Certificates of
a Series or Class offered hereby will accrue at the
per annum rate either specified in or determined in
the manner specified in the related Prospectus
Supplement and will be payable to Certificateholders
of such Series or Class as and on the dates
("Interest Payment Dates") specified in the related
Prospectus Supplement. If the Prospectus Supplement
for a Series or Class of Certificates offered hereby
so specifies, the interest rate and Interest Payment
Dates applicable to each Certificate of that Series
or Class may be subject to adjustment from time to
time, including as a result of a decline in the
interest rate borne by the Receivables. Except as
otherwise provided herein or in the related
Prospectus Supplement, Interest Collections and
certain other amounts allocable to the
Certificateholders' Interest of a Series offered
hereby will be used to make interest payments to
Certificateholders of such Series on each Interest
Payment Date with respect thereto, provided that
during any Early Amortization Period with respect to
such Series, interest will be distributed to such
Certificateholders monthly on each Special Payment
Date.
If the Interest Payment Dates for a Series or Class
occur less frequently than monthly, such collections
or other amounts (or the portion thereof allocable
to such Class) will be deposited in one or more
trust accounts (each an "Interest Funding Account")
and used to make interest payments to
Certificateholders of such Series or Class on the
following Interest Payment Date with respect
thereto. If a Series has more than one Class of
Certificates, each such Class may have a separate
Interest Funding Account.
Principal................ The principal of the Certificates of each Series
offered hereby will be scheduled to be paid either in
full on an expected date specified in the related
Prospectus Supplement (the "Expected Payment Date"),
in which case such Series will have an Accumulation
Period as described below under "Accumulation
Period", or in installments commencing on a date
specified in the related Prospectus Supplement (the
"Principal Commencement Date"), in which case such
Series will have a Controlled Amortization Period as
described below under "Controlled Amortization
Period". If a Series has more than one Class of
Certificates, a different method of paying principal,
Expected Payment Date and/or Principal Commencement
Date may be assigned to each Class. The payment of
principal with respect to the Certificates of a
7
<PAGE>
Series or Class offered hereby may commence earlier
than the applicable Expected Payment Date or
Principal Commencement Date, and the final principal
payment with respect to the Certificates of a Series
or Class may be made later than the applicable
Expected Payment Date or other expected date if an
Early Amortization Event occurs with respect to such
Series or Class or under certain other circumstances
described herein or in the related Prospectus
Supplement.
Certificates of a Series or Class offered hereby may
also be subject to purchase from time to time,
generally at their respective principal amounts, in
connection with a remarketing thereof if so
specified in the related Prospectus Supplement. A
purchase of Certificates of such a Series or Class
may result in a decrease in the outstanding
principal amount of such Series or Class prior to
the commencement of the Controlled Amortization
Period or Early Amortization Period with respect
thereto or the Expected Payment Date therefor. The
Prospectus Supplement for any Series subject to
purchase as described above will describe the
conditions to and procedures for any such purchase.
The proceeds of any such purchase would be paid to
the holders of the Certificates so purchased.
Excess Funding Account... If and to the extent described in the Prospectus
Supplement relating to a Series offered hereby, and,
except to the extent so described, during any Early
Amortization Period, Reinvestment Period,
Accumulation Period or Controlled Amortization Period
with respect to such Series or any Class thereof,
proceeds of the issuance of the Certificates of such
Series not invested in Receivables (the "Excess
Funded Amount"), if any, will be maintained in a
trust account to be established with the Trustee for
the benefit of such Series (an "Excess Funding
Account"). The Excess Funded Amount for a Series
will initially equal the excess, if any, of the
initial principal amount of such Series over the
Initial Invested Amount of such Series on the Series
Issuance Date therefor.
Except as provided below, any funds on deposit in
the Excess Funding Account for a Series will be
withdrawn and paid to the Seller or allocated to one
or more other Series which are in amortization,
early amortization, reinvestment or accumulation
periods to the extent of any increases in the
Invested Amount of the Series in question generally
as a result of the addition of Receivables to the
Trust. Under certain circumstances, a portion of
Principal Collections allocable to a Series will be
deposited into the Excess Funding Account therefor.
Upon the earliest of (a) the commencement of a
Reinvestment Period with respect to a Series, (b)
the commencement of an Early Amortization Period
with respect to a Series and (c) the Distribution
Date or Distribution Dates, if any, specified in or
determined in the manner provided in the Series
Supplement for such Series, funds on deposit in the
Excess Funding Account for such Series will be
distributed to the Certificateholders of such Series
or a Class thereof or deposited into the Principal
Funding Account for such Series or a Class thereof,
if and to the extent the Series Supplement for such
Series so provides.
Revolving Period ....... The Certificates of each Series offered hereby will
have a revolving
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period (the "Revolving Period"). During the
Revolving Period with respect to a Series, Principal
Collections and certain other amounts otherwise
allocable to the Certificateholders' Interest of
such Series generally will be paid to the Seller,
deposited to the Excess Funding Account, if any, for
such Series or allocated to another Series (in
effect, in exchange for the allocation to the
Certificateholders' Interest of the Series in
question of an equal interest in the Receivables
balances that are new or that would otherwise be
part of the Seller's Interest or the interest of the
Certificateholders of such other Series) in order to
maintain the sum of the Invested Amount of such
Series and the Excess Funded Amount, if any, with
respect to such Series at a constant level. The
"Revolving Period" with respect to a Series offered
hereby shall be the period beginning on the date
specified in the related Prospectus Supplement (the
"Series Cut-off Date") and ending on the earlier of
(a) the day immediately preceding the Accumulation
Period Commencement Date or the Principal
Commencement Date for such Series and (b) the
business day immediately preceding the day on which
an Early Amortization Event or a Reinvestment Event
occurs with respect to such Series. See "Description
of the Certificates -- Reinvestment Events and Early
Amortization Events" for a discussion of certain
events which might lead to the early termination of
the Revolving Period and, in certain circumstances,
the recommencement of the Revolving Period. If a
Series has more than one Class of Certificates, each
such Class may have a different Revolving Period.
Accumulation Period...... If the related Prospectus Supplement so specifies,
unless an Early Amortization Period or Reinvestment
Period that is not terminated in accordance with the
provisions of the related Series Supplement commences
with respect to a Series offered hereby, the
Certificates of such Series will have an accumulation
period (the "Accumulation Period"), which will
commence at the close of business on the date
specified in or determined in the manner specified in
such Prospectus Supplement and continue until the
earliest of (a) the commencement of a Reinvestment
Period with respect to such Series, (b) the
commencement of an Early Amortization Period with
respect to such Series and (c) payment in full of
the outstanding principal amount of the Certificates
of such Series.
During the Accumulation Period with respect to a
Series, Principal Collections and certain other
amounts allocable to the Certificateholders'
Interest of such Series will be deposited on each
Distribution Date in a trust account established for
the benefit of the Certificateholders of such Series
(a "Principal Funding Account") and, together, to
the extent provided in the related Series
Supplement, with any amounts in the Excess Funding
Account, if any, for such Series, used to make
principal distributions to the Certificateholders of
such Series when due. The amount to be deposited in
the Principal Funding Account for any Series offered
hereby on any Distribution Date during the
Accumulation Period for such Series may, but will
not necessarily, be limited to an amount (the
"Controlled Deposit Amount") equal to an amount
specified in the related Prospectus Supplement plus,
in the case of the Distribution Date or Distribution
Dates specified in or determined in the manner
provided in the
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<PAGE>
related Series Supplement, amounts in the Excess
Funding Account, if any, for such Series (after
giving effect to any changes therein on such date),
if and to the extent so provided in the related
Series Supplement. If a Series has more than one
Class of Certificates, each Class may have a
different Accumulation Period and a separate
Principal Funding Account and Controlled Deposit
Amount. In addition, the related Prospectus
Supplement may describe certain priorities among
such Classes with respect to deposits of principal
into such Principal Funding Accounts.
Controlled Amortization
Period................ If the related Prospectus Supplement so specifies,
unless an Early Amortization Period or Reinvestment
Period that is not terminated in accordance with the
provisions of the related Series Supplement
commences with respect to a Series offered hereby,
the Certificates of such Series will have an
amortization period (the "Controlled Amortization
Period"), which will commence at the close of
business on the date specified in or determined in
the manner specified in such Prospectus Supplement
and continue until the earliest of (a) the
commencement of a Reinvestment Period with respect
to such Series, (b) the commencement of an Early
Amortization Period with respect to such Series and
(c) payment in full of the outstanding principal
amount of the Certificates of such Series. During
the Controlled Amortization Period with respect to a
Series, Principal Collections and certain other
amounts allocable to the Certificateholders'
Interest of such Series, together with, to the
extent provided in the related Series Supplement,
amounts in the Excess Funding Account, if any, for
such Series, will be used on each Distribution Date
to make principal distributions to
Certificateholders of such Series or any Class of
such Series then scheduled to receive such
distributions. The amount to be distributed to
Certificateholders of any Series offered hereby on
any Distribution Date may, but will not necessarily,
be limited to an amount (the "Controlled
Amortization Amount") equal to an amount specified
in the related Prospectus Supplement. If a Series
has more than one Class of Certificates, each Class
may have a different Controlled Amortization Period
and a separate Controlled Amortization Amount. In
addition, the related Prospectus Supplement may
describe certain priorities among such Classes with
respect to such distributions.
Reinvestment Period...... If the related Prospectus Supplement so specifies,
unless an Early Amortization Period that is not
terminated in accordance with the provisions of the
related Series Supplement commences with respect to
a Series, if a Reinvestment Event occurs with
respect to such Series, the Certificates of that
Series will have a reinvestment period (the
"Reinvestment Period") which will commence on the
day (the "Reinvestment Period Commencement Date") on
which such event has occurred and continue until the
earliest of (a) the commencement of an Early
Amortization Period with respect to such Series, (b)
the recommencement of the Revolving Period with
respect to such Series in accordance with the
related Series Supplement and (c) payment of the
outstanding principal amount of the Certificates of
such Series in full. Unless otherwise provided in
the related Series Supplement, during the
Reinvestment Period with respect to a Series,
Principal Collections and certain other amounts
allocable to the
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Certificateholders' Interest of that Series will be
deposited on each Distribution Date in the Principal
Funding Account for such Series and, together with,
to the extent provided in the related Series
Supplement, amounts in the Excess Funding Account,
if any, for such Series, will be used to make
principal distributions to Certificateholders of
that Series when due. The amount to be deposited in
the Principal Funding Account for any Series on any
Distribution Date during the Reinvestment Period for
such Series will not be limited to any Controlled
Deposit Amount. If a Series has more than one Class
of Certificates, the related Prospectus Supplement
may describe certain priorities among such Classes
with respect to deposits of principal into the
Principal Funding Accounts therefor.
After the date on which the amount on deposit in the
Principal Funding Account with respect to a Series
equals the outstanding principal amount of the
Certificates of such Series (the "Fully Reinvested
Date"), Certificateholders of such Series will no
longer have any interest in the Receivables and all
the representations and covenants of the Seller and
the Servicer relating to the Receivables, as well as
certain other provisions of the Pooling and
Servicing Agreement and all remedies for breaches
thereof, will no longer accrue to the benefit of the
Certificateholders of such Series, in each case
unless the Revolving Period with respect to such
Series recommences as provided in the related Series
Supplement. In addition, upon the occurrence of the
Fully Reinvested Date with respect to a Series, no
Interest Collections, Principal Collections,
Defaulted Receivables or Miscellaneous Payments will
be allocated to that Series unless the Revolving
Period with respect thereto recommences as described
above. Notwithstanding the foregoing, when the final
distribution has been made with respect to each
Series of Certificates or the Fully Reinvested Date
has occurred with respect thereto, all right, title
and interest in the Receivables will be conveyed and
transferred to USA. See "Description of the
Certificates -- Termination; Fully Reinvested Date".
Early Amortization
Period................ During the period beginning on the day on which an
Early Amortization Event has occurred with respect to
a Series offered hereby and ending on the earliest of
the payment in full of the outstanding principal
balance of the Certificates of such Series, the
recommencement of the Revolving Period with respect
to such Series in accordance with the related Series
Supplement and the Termination Date for such Series
(the "Early Amortization Period"), the Revolving
Period, the Reinvestment Period, the Controlled
Amortization Period or the Accumulation Period, as
the case may be, with respect to such Series, will
terminate and Principal Collections and certain other
amounts allocable to the Certificateholders' Interest
of that Series will no longer be paid to the Seller
or the holders of any other outstanding Series or
deposited in a Principal Funding Account as described
above but instead will be distributed to the
Certificateholders of such Series monthly on each
Distribution Date beginning with the Distribution
Date following the Collection Period in which an
Early Amortization Period commences with respect to
such Series. See "Description of the Certificates --
Reinvestment Events and Early Amortization Events"
for a description of events that might result in
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<PAGE>
the commencement of an Early Amortization Period
with respect to a Series of Certificates. During an
Early Amortization Period with respect to a Series,
distributions of principal on the Certificates of
that Series will not be subject to a Controlled
Distribution Amount. In addition, on the first
Special Payment Date with respect to a Series
amounts on deposit in the Excess Funding Account, if
any, to the extent provided in the related Series
Supplement, and the Principal Funding Account with
respect to such Series or a Class thereof will be
paid to the Certificateholders of such Series or
Class up to the outstanding principal balance of the
Certificates of such Series or Class. Each
Distribution Date with respect to any Early
Amortization Period is defined as a "Special Payment
Date".
Subordination of the
Seller's Interest;
Enhancements.......... The Seller's Interest will be subordinated to the
rights of the Certificateholders of each Series
offered hereby to the limited extent described in the
related Prospectus Supplement. If and to the extent
specified in the related Series Supplement,
additional credit enhancement with respect to a
Series or Class of Certificates may include any one
or more of the following: letters of credit, surety
bonds, cash collateral accounts, spread accounts,
guaranteed rate agreements, swaps or other interest
rate protection agreements, repurchase obligations,
other agreements with respect to third party payments
or other support, cash deposits or other
arrangements. Enhancement may also be provided to a
Series or Class of a Series by subordination
provisions which require that distributions of
principal and/or interest be made with respect to the
Certificates of that Series or Class before
distributions are made to another Series or Class.
Unless otherwise specified in the related Prospectus
Supplement, any form of Enhancement will have certain
limitations and exclusions from coverage thereunder,
which will be described in the related Prospectus
Supplement.
Excluded Series.......... A Series of Certificates may be designated as an
excluded series (an "Excluded Series") with respect
to a Series of Certificates previously issued by the
Trust as to which the Accumulation Period or
Controlled Amortization Period has commenced (a
"Paired Series").
Each Excluded Series will be prefunded with an
initial deposit to a prefunding account in an amount
equal to the initial principal balance of such
Excluded Series and primarily from the proceeds of
the offering of such Excluded Series. Any such
prefunding account will be held for the benefit of
such Excluded Series and not for the benefit of the
Paired Series. As funds are accumulated in the
Principal Funding Account for such Paired Series or
distributed to holders of Certificates of such
Paired Series, an equal amount of funds on deposit
in any prefunding account for such prefunded
Excluded Series will be released (which funds will
be distributed to the Seller). Until payment in full
of the Paired Series, no Interest Collections,
Principal Collections, Defaulted Amounts or
Miscellaneous Payments will be allocated to the
related Excluded Series. In addition, it is expected
that any Excluded Series will be excluded from the
calculation of the Required Participation Amount as
described under "Description of the Certificates --
Addition of
Accounts".
Servicing................ The Servicer is responsible for servicing, managing
and making
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<PAGE>
collections on the Receivables and will, in most
circumstances, deposit such collections in the
Collection Account within two business days
following the receipt thereof, generally up to the
amount of such collections required to be
distributed to Certificateholders with respect to
the related Collection Period. In certain limited
circumstances, the Servicer will be permitted to use
for its own benefit and not segregate collections on
the Receivables received by it during each
Collection Period until no later than the business
day prior to the related Distribution Date or,
provided that no Series issued prior to the date of
this Prospectus is outstanding, no later than such
Distribution Date. See "Description of the
Certificates -- Allocation of Collections; Deposits
in Collection Account".
On the second business day preceding each
Distribution Date (each a "Determination Date"), the
Servicer will calculate the amounts to be allocated
in respect of collections on Receivables received
with respect to the related Collection Period to the
Certificateholders of each outstanding Series or
Class or to the Seller in accordance with the Series
Supplements. See "Description of the Certificates --
Allocation of Collections; Deposits in Collection
Account" and "Special Considerations -- Certain
Legal Aspects".
In certain limited circumstances CFC may resign or
be removed as Servicer, in which event either the
Trustee or, so long as it meets certain eligibility
standards set forth in the Pooling and Servicing
Agreement, a third-party servicer may be appointed
as successor servicer (CFC or any such successor
Servicer is referred to herein as the "Servicer").
CFC is permitted to delegate any of its duties as
Servicer to any of its affiliates, but any such
delegation will not relieve the Servicer of its
obligations under the Pooling and Servicing
Agreement. The Servicer will receive a monthly
servicing fee and certain other amounts as described
herein as servicing compensation from the Trust. See
"Description of the Certificates -- Servicing
Compensation and Payment of Expenses".
Mandatory Reassignment
and Transfer of
Certain Receivables... The Seller has made certain representations and
warranties in the Pooling and Servicing Agreement
with respect to the Receivables in its capacity as
Seller and CFC has made certain representations and
warranties in the Pooling and Servicing Agreement in
its capacity as Servicer. Such representations and
warranties will be reaffirmed as of each Series
Cut-Off Date. If the Seller breaches certain of its
representations and warranties with respect to any
Receivables and such breach remains uncured for a
specified period and has a materially adverse effect
on the Certificateholders' Interest, the
Certificateholders' Interest in such Receivables
will, subject to certain conditions specified herein,
be reassigned to the Seller. If CFC, as Servicer,
fails to comply in all material respects with certain
covenants or warranties with respect to any
Receivables and such noncompliance is not cured
within a specified period after CFC becomes aware or
receives notice thereof from the Trustee and such
noncompliance has a materially adverse effect on the
Certificateholders' Interest therein, the
Certificateholders' Interest in all Receivables
affected will be purchased by CFC. In the event of a
transfer of servicing obligations to a successor
Servicer, such successor Servicer, rather than CFC,
would
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<PAGE>
be responsible for any failure to comply with the
Servicer's covenants and warranties arising
thereafter.
Tax Matters.............. In the opinion of special tax counsel for the Seller
and the Trust, the Certificates of each Series
offered hereby will be characterized as debt of the
Seller for federal income tax purposes and, in the
opinion of Michigan counsel for the Seller and the
Trust, the Certificates will be characterized as debt
of the Seller for Michigan income and single business
tax purposes. Each Certificateholder, by the
acceptance of a Certificate offered hereby, will
agree to treat such Certificates as indebtedness of
the Seller for federal, state and local income and
single business tax purposes. The Certificates might
be issued with original issue discount. See "Certain
Tax Matters" for additional information concerning
the application of federal and Michigan tax laws.
ERISA Considerations..... Under a regulation issued by the Department of Labor,
and unless otherwise specified in the related
Prospectus Supplement, the Trust's assets would not
be deemed "plan assets" of any employee benefit plan
holding interests in the Certificates of any Series
offered hereby or, if such Series has more than one
Class, any such Class if certain conditions are met,
including that interests in the Certificates of such
Series or, in the case of a Series with more than one
Class, such Class be held by at least 100 independent
persons upon completion of the public offering of
such Certificates being made hereby. Based on
information provided by the underwriter or placement
agent for a Series, the Seller will notify the
Trustee as to whether or not Certificates of that
Series or, in the case of a Series with more than one
Class, each such Class will be held by at least 100
separately named persons at the conclusion of the
offering thereof. The Seller will not, however,
determine whether the 100-investor requirement of the
exception for publicly offered securities is
satisfied as to the Certificates of any Series or
Class. If the Trust's assets were deemed to be "plan
assets" of such a plan, there is uncertainty as to
whether existing exemptions from the "prohibited
transaction" rules of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), would
apply to all transactions involving the Trust's
assets. Accordingly, employee benefit plans
contemplating purchasing interests in the
Certificates of any Series or Class should consult
their counsel before making a purchase. See "ERISA
Considerations".
Certificate Ratings...... Unless otherwise specified in the related Prospectus
Supplement, it will be a condition to the issuance of
the Certificates of each Series offered hereby that
they be rated in the highest long-term rating
category by at least one nationally recognized rating
agency. A security rating is not a recommendation to
buy, sell or hold securities and is subject to
revision or withdrawal in the future by the assigning
rating agency. See "Risk Factors -- Ratings of the
Certificates".
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<PAGE>
RISK FACTORS
Limited Liquidity. It is anticipated that, to the extent permitted, the
underwriters of any Series of Certificates offered hereby will make a market
in such Certificates, but will not be under any obligation to do so. There can
be no assurance that a secondary market will develop with respect to the
Certificates of any Series offered hereby or, if such a secondary market does
develop, that it will provide the holders of such Certificates with liquidity
of investment or that it will continue for the life of such Certificates.
Certain Legal Aspects. There are certain limited circumstances under the
Uniform Commercial Code (the "UCC") and applicable federal law in which prior
or subsequent transferees of Receivables could have an interest in such
Receivables with priority over the Trust's interest. See "Certain Legal
Aspects of the Receivables -- Transfer of Receivables". Under the Receivables
Purchase Agreement, the RPA Seller has warranted to the Seller and, under the
Pooling and Servicing Agreement, the Seller has warranted to the Trust that
the Receivables have been or will be transferred free and clear of the lien of
any third party. Each of the RPA Seller and the Seller has also covenanted
that it will not sell, pledge, assign, transfer or grant any lien on any
Receivable or, except as described under "Description of the Certificates --
The Seller's Certificate", the Seller's Certificate (or any interest therein)
other than to the Trust.
The RPA Seller has warranted to the Seller in the Receivables Purchase
Agreement that the sale of the Receivables by it to the Seller is a valid sale
of the Receivables to the Seller. In addition, the RPA Seller and the Seller
have and will treat the transactions described herein as a sale of the
Receivables to the Seller and the RPA Seller has and will take all actions
that are required under Michigan law to perfect the Seller's ownership
interest in the Receivables. See "Certain Legal Aspects of the Receivables --
Transfer of Receivables". Notwithstanding the foregoing, if the RPA Seller
were to become a debtor in a bankruptcy case and a creditor or
trustee-in-bankruptcy of such debtor or such debtor itself were to take the
position that the sale of Receivables to the Seller should be recharacterized
as a pledge of such Receivables to secure a borrowing of such debtor, then
delays in payments of collections of Receivables to the Seller could occur or
(should the court rule in favor of any such trustee, debtor or creditor)
reductions in the amount of such payments could result. If the transfer of
Receivables to the Seller is recharacterized as a pledge, a tax or government
lien on the property of the RPA Seller arising before any Receivables come
into existence may have priority over the Seller's interest in such
Receivables. See "Certain Legal Aspects of the Receivables -- Certain Matters
Relating to Bankruptcy". If the transactions contemplated herein are treated
as a sale, except in certain limited circumstances, the Receivables would not
be part of the RPA Seller's bankruptcy estate and would not be available to
the RPA Seller's creditors.
In addition, if the RPA Seller were to become a debtor in a bankruptcy
case and a creditor or trustee-in-bankruptcy of such debtor or such debtor
itself were to request a bankruptcy court to order that the RPA Seller be
substantively consolidated with the Seller, delays in and reductions in the
amount of distributions on the Certificates could occur.
The Seller has warranted in the Pooling and Servicing Agreement that the
transfer of the Receivables to the Trust is a sale of the Receivables to the
Trust. The Seller has and will take all actions that are required under
Michigan law to perfect the Trust's interest in the Receivables and the Seller
has warranted that the Trust will at all times have a first priority perfected
ownership interest therein and, with certain exceptions, in the proceeds
thereof. However, the transfer of the Receivables to the Trust could be deemed
to create a security interest therein. If the transfer of the Receivables to
the Trust were deemed to create a security interest therein under the UCC as
in effect in Michigan, a tax or statutory lien on property of the RPA Seller
or the Seller arising before a Receivable is transferred to the Trust may have
priority over the Trust's interest in such Receivables. If the Seller were to
become a debtor in a bankruptcy case and a bankruptcy trustee or the Seller as
debtor in possession or a creditor of the Seller were to take the position
that the transfer of the Receivables from the Seller to the Trust should be
recharacterized as a pledge of such Receivables, then delays in distributions
on the Certificates or, should the bankruptcy court rule in favor of any such
trustee, debtor in possession or creditor, reductions in such distributions
could result.
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<PAGE>
In a 1993 case decided by the U.S. Court of Appeals for the Tenth
Circuit, Octagon Gas System, Inc. v. Rimmer, the court determined that
"accounts", as defined under the Uniform Commercial Code, would be included in
the bankruptcy estate of a transferor regardless of whether the transfer is
treated as a sale or a secured loan. Although the Receivables are likely to be
viewed as "chattel paper", as defined under the Uniform Commercial
Code, rather than as accounts, the rationale behind the Octagon holding is
equally applicable to chattel paper. The circumstances under which the Octagon
ruling would apply are not fully known and the extent to which the Octagon
decision will be followed in other courts or outside of the Tenth Circuit is
not certain. If the holding in the Octagon case were applied in an RPA
Seller bankruptcy, however, even if the transfer of Receivables to the Seller
and the Trust were treated as a sale, the Receivables would be part of the RPA
Seller's bankruptcy estate and would be subject to claims of certain
creditors, and delays and reductions in payments to the Seller and
Certificateholders could result. See "Certain Legal Aspects of the Receivables
- -- Certain Matters Relating to Bankruptcy".
If certain events relating to the bankruptcy of Chrysler, the RPA Seller
or the Seller were to occur, then a Reinvestment Event or Early Amortization
Event would occur with respect to each Series and, pursuant to the terms of
the Pooling and Servicing Agreement, additional Receivables would not be
transferred to the Trust. See "Certain Legal Aspects of the Receivables --
Transfer of Receivables" and " -- Certain Matters Relating to Bankruptcy".
Payments made in respect of repurchases of Receivables by the RPA Seller
or the Seller pursuant to the Pooling and Servicing Agreement may be
recoverable by the RPA Seller or the Seller as debtor in possession or by a
creditor or a trustee-in-bankruptcy of the RPA Seller or the Seller as a
preferential transfer from the RPA Seller or the Seller if such payments are
made within one year prior to the filing of a bankruptcy case in respect of
the RPA Seller or the Seller.
Application of federal and state bankruptcy and debtor relief laws could
affect the interests of the Certificateholders in the Receivables if such laws
result in any Receivables being written off as uncollectible or result in
delays in payments due on such Receivables. See "Description of the
Certificates -- Defaulted Receivables and Recoveries".
The Seller has represented and warranted in the Pooling and Servicing
Agreement that each Receivable is at the time of creation secured by a first
priority perfected security interest in the related Vehicle. Generally, under
applicable state laws, a security interest in an automobile or light duty
truck which secures wholesale financing obligations may be perfected by the
filing of UCC financing statements. The RPA Seller takes all actions necessary
under applicable state laws to perfect the RPA Seller's security interest in
the Vehicles. However, at the time a Vehicle is sold, the RPA Seller's
security interest in the Vehicle will terminate. Therefore, if a Dealer fails
to remit to the RPA Seller amounts owed with respect to Vehicles that have
been sold, the related Receivables will no longer be secured by Vehicles.
Payments. Receivables are generally paid by Dealers upon retail sale of
the underlying Vehicle. The timing of such sales is uncertain. In addition,
there is no assurance that there will be additional Receivables created under
the Accounts or that any particular pattern of Dealer repayments will occur.
The payment of principal on the Certificates is dependent on Dealer
repayments. As a result the Certificates of any Series or Class may not be
fully amortized by the Expected Payment Date, if any, with respect to such
Series or Class and the payment to Certificateholders or deposit in a
Principal Funding Account of principal during the Controlled Amortization
Period or Accumulation Period, if any, with respect to a Series of
Certificates or a Class thereof may not equal the Controlled Amortization
Amount or Controlled Deposit Amount, if any, with respect to such Series or
Class.
Social, Economic and Other Factors. Payment of the Receivables is
largely dependent upon the retail sale of the related Vehicles. The level of
retail sales of cars and light duty trucks may change as the result of a
variety of social and economic factors. Economic factors include interest
rates, unemployment levels, the rate of inflation and consumer perception of
economic conditions generally. The use of incentive programs (e.g.,
manufacturers' rebate programs) may affect retail sales. However, the Seller
is unable to determine and has no basis to predict whether or to what extent
economic or social factors will affect the level of Vehicle sales.
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<PAGE>
Trust's Relationship to Chrysler and CFC. Neither CFC nor Chrysler is
obligated to make any payments in respect of the Certificates of any Series or
the Receivables (other than the obligation of CFC to purchase certain
Receivables from the Trust due to the failure to comply with certain
covenants, as described under "Description of the Certificates -- Servicer
Covenants"). However, the Trust is completely dependent upon CFC for the
generation of new Receivables. The ability of CFC to generate Receivables is
in turn dependent to a large extent on the sales of automobiles and light duty
trucks manufactured or distributed by Chrysler. There can, therefore, be no
assurance that CFC will continue to generate Receivables at the same rate as
Receivables were generated in prior years. In addition, if CFC were to cease
acting as Servicer, delays in processing payments on the Receivables
and information in respect thereof could occur and result in delays in
payments to the Certificateholders.
In connection with the transfer of Receivables by the RPA Seller to the
Seller and the transfer of such Receivables by the Seller to the Trust, each
of the RPA Seller and the Seller make representations and warranties with
respect to the characteristics of such Receivables. The RPA Seller and the
Seller are required to determine the accuracy of such representations and
warranties and, in certain circumstances, they are required to purchase
Receivables with respect to which such representations and warranties have
been breached. See "Description of the Certificates -- Representations and
Warranties" and "Description of the Receivables Purchase Agreement --
Representations and Warranties". In addition, subject to certain limitations,
CFC has the ability to change the terms of the Accounts, including the rate
and the credit line, as well as change its underwriting procedures.
Under franchise agreements between Chrysler and Chrysler-franchised
dealers, Chrysler is committed to purchase unmiled vehicles from such dealers
upon dealership termination. In addition, Chrysler has historically provided
certain financial assistance to Chrysler-franchised dealers, but has no
obligation to do so. If Chrysler is unable, or elects not, to provide any such
financial assistance to Dealers or is unable to fulfill the terms of the
franchise agreements with Dealers, losses with respect to the Receivables may
increase. See "The Dealer Floorplan Financing Business -- Relationship with
Chrysler". In addition, because a substantial number of the Vehicles to be
sold by the Dealers are manufactured or distributed by Chrysler, if Chrysler
were temporarily or permanently no longer manufacturing or distributing
vehicles, the rate of sales of Chrysler-manufactured Vehicles owned by the
Dealers would decrease, adversely affecting payment rates with respect to the
Receivables, and the loss experience with respect to the Receivables will be
adversely affected. See "The Dealer Floorplan Financing Business".
The Prospectus Supplement for any Series offered hereby may set forth
certain additional information regarding CFC and Chrysler. In addition,
Chrysler and CFC are subject to the informational requirements of the Exchange
Act and in accordance therewith file reports and other information with the
Commission. For further information regarding Chrysler and CFC reference is
made to such reports and other information which are available as described
under "Available Information".
Credit Enhancement. Credit enhancement of each Series of Certificates
offered hereby will be provided by the subordination of the Seller's Interest
to the extent of the Available Subordinated Amount for such Series as
described in the related Prospectus Supplement. The amount of such credit
enhancement is limited and will be reduced from time to time as described in
the related Prospectus Supplement. In addition, any Enhancement provided with
respect to a Series or Class of Certificates is expected to be limited. See
"Limited Subordination of Seller's Interest; Enhancements".
Control. Under certain circumstances, the consent or approval of the
holders of a specified percentage of the aggregate unpaid principal amount of
all outstanding Certificates of all outstanding Series will be required to
direct certain actions, including amending the Pooling and Servicing Agreement
in certain circumstances and directing a reassignment of the entire portfolio
of Receivables. In addition, following the occurrence of an insolvency event
with respect to the Seller, the holders of Certificates evidencing more than
50% of the aggregate unpaid principal amount of each Series or each Class of
each Series (and any holder of a Supplemental Certificate) will be required to
direct the Trustee not to sell or otherwise liquidate the Receivables.
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Additional Series. The Trust, as a master trust, previously issued
Series and is expected to issue additional Series (which may be represented by
different Classes within a Series) from time to time. A Series Supplement
delivered in connection with the issuance of other Series will specify certain
Principal Terms applicable to such Series. Such Principal Terms may include
methods for determining applicable allocation percentages and allocating
collections, provisions creating different or additional security or other
credit enhancement, different Classes of Certificates (including subordinated
Classes of Certificates) and any other amendment or supplement to the Pooling
and Servicing Agreement which is made applicable only to such Series. No
Series Supplement, however, may change the terms of the Certificates of
another Series or the terms of the Pooling and Servicing Agreement as applied
to the Certificate of another Series. See "Description of the Certificates --
New Issuances". As long as the Certificates of any Series are outstanding, a
condition to the execution of any Series Supplement will be that the Rating
Agencies shall have advised the Trustee that the issuance of such Additional
Series will not result in the reduction or withdrawal of their rating of the
Certificates of any outstanding Series or Class of Certificates. There can be
no assurance, however, that the terms of any one Series might not have an
impact on the timing or amount of payments received by a Certificateholder of
any other Series. The issuance of an additional Series does not require
the consent of any Certificateholders.
Ratings of the Certificates. Unless otherwise specified in the related
Prospectus Supplement, it will be a condition to the issuance of the
Certificates of each Series offered hereby that they be rated in the highest
long-term rating category by at least one nationally recognized rating agency
(such rating agency and each other rating agency designated by the Seller in
the related Series Supplement in respect of any outstanding Series or Class, a
"Rating Agency"). Any rating assigned to the Certificates of a Series or a
Class by a Rating Agency will reflect such Rating Agency's assessment of the
likelihood that Certificateholders of such Series or Class will receive the
payments of interest and principal required to be made under the Pooling and
Servicing Agreement and will be based primarily on the value of the
Receivables in the Trust, the level of subordination of the Seller's Interest
and the availability of any Enhancement with respect to such Series or Class.
However, any such rating will not, unless otherwise specified in the related
Prospectus Supplement with respect to any Series or Class offered hereby,
address the likelihood that the principal of, or interest on, any Certificates
of such Series or Class will be paid on a scheduled date. The rating will not
be a recommendation to buy, hold or sell Certificates of such Series or Class,
inasmuch as such rating will not comment as to the market price or suitability
for a particular investor. There is no assurance that a rating will remain for
any given period of time or that a rating will not be lowered or withdrawn by
a Rating Agency if in its judgment circumstances in the future so warrant.
Book-Entry Registration. Unless otherwise specified in the Prospectus
Supplement relating to a Series of Certificates offered hereby, the
Certificates of each such Series will be initially represented by one or more
certificates registered in the name of Cede, the nominee for DTC, and will not
be registered in the names of the Certificateholders or their nominees.
Accordingly, unless and until Definitive Certificates are issued
Certificateholders will not be recognized by the Trustee as
"Certificateholders" (as that term is used in the Pooling and Servicing
Agreement) and will only be able to exercise the rights of Certificateholders
indirectly through DTC and its participating organizations, and unless the
Prospectus Supplement for a Series offered hereby provides otherwise, through
Euroclear or CEDEL and their respective participating organizations. See
"Description of the Certificates -- General", " -- Book-Entry Registration"
and " -- Definitive Certificates".
U.S. AUTO RECEIVABLES COMPANY AND THE TRUST
U.S. Auto Receivables Company
USA was incorporated in the State of Delaware on June 18, 1991, as a
wholly owned subsidiary of CFC, for the limited purpose of purchasing
wholesale, retail and other receivables from either CFC, CCC or CARCO and
transferring such receivables to third parties or issuing indebtedness secured
by receivables to third parties. Similarly, CARCO was incorporated in the
State of Delaware on May 30, 1986, for the limited purpose of purchasing
wholesale and retail receivables from either CFC or CCC and
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transferring such receivables to third parties. On August 8, 1991, CARCO
transferred the Seller's Interest and all its rights and obligations under the
Pooling and Servicing Agreement and the Receivables Purchase Agreement to USA.
Such transfer (the "CARCO Transfer") was made in accordance with the terms of
the Pooling and Servicing Agreement and the Receivables Purchase Agreement and
was subject to certain conditions, including, among others that (a) CARCO, USA
and the Trustee execute and deliver an assignment and assumption agreement;
(b) CARCO deliver certain required opinions of counsel (including an opinion
of counsel that the CARCO Transfer would not adversely affect the
characterization of any outstanding Series or Class of Certificates as debt of
USA); (c) the CARCO Transfer would not result in a reduction or withdrawal of
the rating of any outstanding Series or Class of Certificates; and (d) all
filings required to continue the perfected interest of the Trustee in the
Receivables and the Collateral Security be made.
On August 8, 1991, USA was deemed to have made all representations and
warranties of the Seller in the Pooling and Servicing Agreement and any Series
Supplement with respect to any Series or Class of Certificates outstanding at
such time. In addition, upon such transfer, USA assumed the obligations of
CARCO under the Certificates with respect to any outstanding Series, the
Pooling and Servicing Agreement and the Receivables Purchase Agreement and
agreed to hold CARCO harmless from any liability related to such obligations.
Obligations transferred to and assumed by USA include CARCO's obligation with
respect to the subordinated note issued to CFC (the owner of all the common
stock of CARCO), the proceeds of which note were used to fund a portion of the
purchase price of Receivables from CCC on the Initial Closing Date. CFC has
made additional subordinated loans to USA to fund a portion of the purchase
price of the Receivables arising in the Additional Accounts added to
the Trust on Addition Dates subsequent to the Initial Closing Date and may
make additional subordinated loans to USA in the future.
In addition to purchasing the Receivables in connection with the
offering of the Certificates, the Seller has also purchased other receivables
from CFC and CCC in connection with other financings.
The Seller has taken steps in structuring the transactions contemplated
hereby that are intended to insure that the voluntary or involuntary
application for relief by CFC under the United States Bankruptcy Code or
similar applicable state laws ("Insolvency Laws") will not result in the
consolidation of the assets and liabilities of the Seller with those of CFC.
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, as
described above, and restrictions on the Seller's ability to commence a
voluntary case or proceeding under any Insolvency Law without the unanimous
affirmative vote of all its 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
CFC in a proceeding under any Insolvency Law. See "Risk Factors -- Certain
Legal Aspects" and "Certain Legal Aspects of the Receivables -- Certain
Matters Relating to Bankruptcy".
In addition, tax and certain other statutory liabilities, such as
liabilities to the Pension Benefit Guaranty Corporation relating to the
underfunding of pension plans, of Chrysler or CFC can be asserted against the
Seller. To the extent that any such liabilities arise after the transfer of
Receivables to the Trust, the Trust's interest in the Receivables would be
prior to the interest of the claimant with respect to any such liabilities.
However, the existence of a claim against the Seller could permit the claimant
to subject the Seller to an involuntary proceeding under the Bankruptcy Code
or other Insolvency Law. See "Special Considerations -- Certain Legal Aspects"
and "Certain Legal Aspects of the Receivables -- Certain Matters Relating to
Bankruptcy" and "Risk Factors -- Trust's Relationship to Chrysler and CFC".
USA's executive offices are located at 27777 Franklin Road, Southfield,
Michigan 48034-8286, and its telephone number is (810) 948-3031.
The Trust
The Trust was formed in accordance with the laws of the State of New
York pursuant to the Pooling and Servicing Agreement. CARCO, as the initial
Seller, and USA, as CARCO's assignee, have conveyed to the Trust, without
recourse, the Receivables arising under the Accounts. The property of the
Trust
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consists of the Receivables existing in the Accounts on the Initial Cut-Off
Date, all Receivables generated in the Accounts from time to time thereafter
during the term of the Trust as well as Receivables generated in any Accounts
added to the Trust from time to time (but excluding Receivables in any
Accounts that are removed from the Trust from time to time after the Initial
Cut-Off Date), an assignment of all the Seller's rights and remedies under the
Receivables Purchase Agreement, all funds collected or to be collected in
respect of the Receivables, all funds on deposit in certain accounts of the
Trust, any Enhancement issued with respect to any particular Series or Class
of Certificates and a security interest in the Vehicles and any other
Collateral Security. See "Description of the Certificates -- Addition of
Accounts". See "Description of the Receivables Purchase Agreement" for a
summary of certain terms of the Receivables Purchase Agreement.
CFC will generally not convey to the Trust receivables ("Fleet
Receivables") originated in connection with multiple new vehicle orders of at
least five vehicles by certain specified Dealers. The terms Receivables and
Principal Receivables as used herein will not refer to Fleet Receivables.
The property of the Trust may also include Enhancements for the benefit
of Certificateholders of a particular Series or Class. The Certificateholders
of a particular Series or Class will not have any interest in any Enhancements
provided for the benefit of the Certificateholders of another Series or Class,
unless so provided in the related Series Supplement or Series Supplements.
Pursuant to the Pooling and Servicing Agreement, the Seller will be allowed
(subject to certain limitations and conditions), and in some circumstances
will be obligated, to designate from time to time Additional Accounts to be
included as Accounts and to convey to the Trust the Receivables of such
Additional Accounts, and to designate from time to time certain Accounts to be
removed and to require the Trustee to convey receivables in such Removed
Accounts to the Seller.
The Trust was formed for this and like transactions pursuant to the
Pooling and Servicing Agreement and prior to formation had no assets or
obligations. The Trust will not engage in any business activity other than
acquiring and holding the Receivables and the other assets of the Trust and
proceeds therefrom, issuing the Certificates and the Seller's Certificate (and
any Supplemental Certificates) and making payments thereon and related
activities. As a consequence, the Trust is not expected to have any need for,
or source of, capital resources other than the assets of the Trust.
USE OF PROCEEDS
Unless otherwise provided in the related Prospectus Supplement: (i) the
net proceeds from the sale of the Certificates of a given Series offered
hereby will be paid to USA and used to make the deposit of the Excess Funded
Amount, if any, for such Series, to the Excess Funding Account for such
Series; (ii) USA will use the portion of such proceeds paid to it (together
with the subordinated loan from CFC described under "U.S. Auto Receivables
Company and the Trust -- U.S. Auto Receivables Company") to purchase
Receivables from CFC or to repay certain amounts previously borrowed to
purchase Receivables; and (iii) CFC will use the portion of the proceeds paid
to it for general corporate purposes.
THE DEALER FLOORPLAN FINANCING BUSINESS
General
The Receivables sold to the Trust by the Seller pursuant to the Pooling
and Servicing Agreement were or will be selected from extensions of credit and
advances (known generally as "wholesale" or "floorplan" financing) made by
Chrysler and CFC, directly or as successor to CCC, to domestic motor "vehicle
dealers". Funds so advanced are used by dealers to purchase new and used
vehicles manufactured or distributed by Chrysler and other manufacturers
pending sale to retail buyers. As described herein, receivables sold to the
Trust are secured by the Vehicles and, in many cases, certain parts inventory,
equipment, fixtures and service accounts of the vehicle dealers. In some
cases, the Receivables are also secured by realty owned by, and/or a personal
guarantee of, a vehicle dealer.
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CFC, as successor to CCC, is the primary wholesale financing source for
Chrysler-franchised dealers in the United States. Chrysler vehicles for which
CFC provides wholesale financing include vehicles manufactured under the
CHRYSLER, PLYMOUTH, DODGE, JEEP and EAGLE trademarks. CFC, directly or as
successor to CCC, has extended credit lines to Chrysler-franchised dealers
that also operate non-Chrysler franchises and non-Chrysler dealers. CFC
services the accounts of domestic dealers financed by it (the "U.S. Wholesale
Portfolio") through its Southfield Support office located in Southfield,
Michigan and through a network of zone offices located throughout the United
States.
Vehicles financed by any dealer under the floor plan program are
categorized by CFC, under its policies and procedures, as New Vehicles or Used
Vehicles based on whether such vehicles qualify for the new or used wholesale
and retail interest rate chargeable to such dealer in connection with the
vehicles financed. Currently, (a) "New Vehicles" consist of (i) current and
prior model year unmiled vehicles and (ii) current model year miled vehicles
purchased at a closed auction conducted by Chrysler and (b) "Used Vehicles"
consist of previously owned vehicles (other than current model year miled
vehicles purchased at a closed auction conducted by Chrysler). Vehicles
purchased by a dealer at a closed auction conducted by Chrysler are referred
to, collectively, as "Auction Vehicles". The categorization of New Vehicles
and Used Vehicles may change in the future based on CFC's practices and
policies.
Creation of Receivables
CFC finances 100% of the wholesale invoice price of new vehicles,
including destination charges. Receivables in respect of Chrysler-manufactured
or distributed vehicles are originated by Chrysler concurrently with the
shipment of such vehicles to the financed dealer. Such receivables are sold by
Chrysler to CFC on a daily basis. In the case of new vehicles not manufactured
by Chrysler, CFC advances funds directly to the manufacturer on behalf of the
dealer.
Once a dealer has commenced the floorplanning of a manufacturer's
vehicles through CFC, CFC will finance all purchases of vehicles by such
dealer from such manufacturer. CFC will cancel this arrangement, however, if a
dealer's inventory is considered by CFC to be seriously overstocked, if a
dealer is experiencing financial difficulties or if a dealer requests
controlled vehicle releases. In such circumstances (known as "finance hold"),
the zone or Southfield Support office of CFC assumes control of vehicle
releases to the dealer. Special arrangements are made by CFC to finance
inter-dealer sales of vehicles.
Credit Underling Process
CFC extends credit to dealers from time to time based upon established
credit lines. Lines of credit may be established by dealers to finance
purchases of new, used and auction vehicles. All Chrysler- franchised dealers
that have a new vehicle line of credit in place are also eligible for a used
vehicle and an auction vehicle credit line. A new vehicle credit line relates
to New Vehicles (other than current model year miled vehicles purchased at a
closed auction conducted by Chrysler); a used vehicle credit line relates to
Used Vehicles; and an auction vehicle credit line relates to Auction Vehicles.
A newly franchised dealer requesting the establishment of a new vehicle
credit line must submit an application to a CFC zone office. After receipt of
such application, the local zone office investigates the prospective dealer by
reviewing the prospective dealer's credit reports and bank references and
evaluating the dealer's marketing capabilities and start-up financial
resources and credit requirements. When an existing dealer requests the
establishment of a wholesale new vehicle credit line, the local zone office
reviews the dealer's credit reports (including the experience of the dealer's
current financing source) and bank references and investigates the dealer's
current state of operations and management (including evaluating a factory
reference) and marketing capabilities. The local zone office prepares a
written recommendation either approving or disapproving the dealer's request
and transmits such recommendation with the requisite documentation to the
Southfield Support Dealer Credit Department for final approval or
disapproval. CFC applies the same underwriting standards for dealers
franchised by other manufacturers.
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Upon approval, dealers execute a series of financing agreements with CFC
and, in the case of Chrysler-franchised dealers, Chrysler. Such agreements
provide CFC a first priority security interest in the vehicles and certain
other collateral and a demand master promissory note in favor of CFC. Pursuant
to such agreements, all dealers are required by CFC to maintain insurance
coverage for each vehicle for which it provided floorplan financing, with CFC
designated as loss payee.
The size of a credit line initially offered to a dealer is based upon
the dealer's sales record (or, in the case of a prospective dealer, expected
annual sales) and the dealer's effective net worth. The amount of a dealer's
credit line for new vehicles is adjusted quarterly by CFC based upon such
dealer's average new vehicle sales during the prior 180 days and is,
generally, in an amount sufficient to finance a 75-day supply of vehicles. The
amount of a dealer's credit line for used vehicles is also adjusted
periodically based upon such dealer's average used vehicle sales for the prior
180 days and is, generally, in an amount sufficient to finance 50% of a 30 to
45-day supply of vehicles. The size of a dealer's auction vehicle credit line
is determined on a case by case basis and is adjusted periodically based on
CFC's practices and procedures.
The aggregate amount advanced for each Used Vehicle is equal to the
National Automotive Dealers Association's Official Wholesale Used Car Trade-in
Guide wholesale book value for such vehicle. However, the aggregate amount of
the credit line for such used vehicles may not exceed 50% of the value of such
dealer's total inventory of used vehicles. The amount advanced for New
Vehicles and all Auction Vehicles is equal to the amount invoiced with respect
to such vehicles and the auction purchase price (including auction fees) of
such Auction Vehicles, respectively.
Payment Terms
Upon the sale of a vehicle for which it has provided floorplan
financing, CFC generally is entitled to receive payment in full of the related
advance. Under an available installment payment plan for new Chrysler vehicles,
eligible Chrysler-franchised dealers are obligated to remit to CFC only 90% of
the amount of the related advance upon retail sale of the related vehicle.
Payment of the remaining 10% balance (the "Installment Balance") is due in the
second month following the date of sale of such related vehicles. The security
interest in the vehicle is terminated at the time of its sale. A dealer has
the option to pay the Installment Balance to CFC at the time of sale of the
related vehicle. In such case, CFC credits such amount to a cash management
account maintained for such dealer and automatically applies such credit to
the payment of the Installment Balance on the due date thereof. Pursuant to an
agreement with Chrysler, CFC has two options with respect to the Installment
Balances. CFC may elect to sell to Chrysler, without recourse, the Installment
Balance of each such receivable when the related vehicle is sold at retail.
Alternatively, CFC may elect not to sell the Installment Balances to Chrysler
and to retain a portion of the credit risk associated therewith. In the latter
case, Chrysler has agreed to absorb the credit losses on Installment Balances
in each month in an amount equal to 15% of the aggregate Installment Balances
created in such calendar month. Billing and Collection Procedures
Billing and Collection Procedures
A statement setting forth billing and related account information is
prepared by CFC and distributed on a monthly basis to each dealer. Each
dealer's bills are generated and mailed on the sixth or seventh calendar day
of the month. Interest and other nonprincipal charges are required to be paid
by the end of the month in which they are billed. Interest and handling fees
are billed by CFC in arrears, while insurance costs are billed in advance.
Dealers remit payments by check directly to CFC's local zone offices.
Revenue Experience
CFC charges dealers interest at a floating rate based on the rate (the
"Prime Rate") designated as the "prime rate" from time to time by certain
financial institutions selected by CFC, plus a designated spread ranging from
0.25% to 1.25% on New Vehicles. The Prime Rate is reset by CFC on the first
and sixteenth days of every month and is applied to all balances outstanding
during the applicable period.
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The actual spread for each dealer is determined according to the total amount
of such dealer's credit lines. CFC generally increases the spreads charged on
Used Vehicle balances by an additional 0.75%; however, previously owned
vehicles purchased at a Chrysler closed auction are financed at the applicable
New Vehicle rate. In the case of a few larger dealers, CFC charges such
dealers interest at a floating rate based on LIBOR plus 2.75% up to the
Prime Rate plus 0.50%.
Relationship with Chrysler
Chrysler provides to certain Chrysler-franchised dealers financial
assistance in the form of working capital loans and other loans. In addition,
Chrysler provides floorplan assistance to all Chrysler-franchised dealers
through a number of formal and informal programs. On all new vehicle
financings, Chrysler reimburses dealers directly for the finance costs for a
specified period from the date of shipment. Chrysler also has a supplemental
floorplan assistance program, whereby dealers are reimbursed, at the time of
retail sale, for a specified amount depending upon the vehicle model.
Under an agreement between Chrysler and each Chrysler-franchised dealer,
Chrysler commits to repurchase unsold new vehicles in inventory upon
dealership termination, at such vehicles' wholesale prices less a specified
margin. Chrysler only repurchases current model year vehicles that are new,
undamaged and unused. Chrysler also agrees to repurchase from dealers, at the
time of franchise termination, parts inventory at specified percentages of the
invoice price. If CFC takes possession of a dealer's parts inventory, Chrysler
is only obligated to pay CFC 55% of the invoice price of such inventory. All
of such assistance, however, is provided by Chrysler for the benefit of its
dealers, and does not relieve such dealers of any of their obligations to CFC.
Much of such assistance is provided at the option of Chrysler, which may
terminate any of such optional programs in whole or in part at any time. If
Chrysler is unable to or elects not to provide such assistance, the loss
experience of CFC in respect of the U.S. Wholesale Portfolio may be adversely
affected. In addition, because a substantial number of the vehicles sold by
the dealers are manufactured or distributed by Chrysler, if Chrysler were
temporarily or permanently no longer in such business, the rate of sales of
Chrysler-manufactured vehicles would decrease, adversely affecting payment
rates and the loss experience of the U.S. Wholesale Portfolio. See "Payment
Terms" for a discussion of an instalment payment plan made available to
dealers. See also "Risk Factors -- Trust's Relationship to Chrysler and CFC".
Dealer Monitoring
The level of each dealer's wholesale credit line is monitored on a
periodic basis by CFC's local zone offices. Dealers are permitted to exceed
such lines on a temporary basis. For example, a dealer may, immediately prior
to a seasonal sales peak, purchase more vehicles than it is otherwise
permitted to finance under its existing credit lines. As another example,
because of slow inventory turnover, a dealer's credit lines may be reduced
prior to its liquidating a sufficient portion of its vehicle inventory. If at
any time CFC learns that a dealer's balance exceeds its approved credit lines,
CFC will evaluate such dealer's financial position and may temporarily
increase such dealer's credit lines or place such dealer in a disciplinary
category known as "finance hold". See "Creation of Receivables".
Audits of dealer vehicle inventories are conducted on a regular basis by
zone office personnel. The timing of each visit is varied and no advance
notice is given to the audited dealer. Auditors review dealers' financial
records and conduct a physical inventory of the vehicles on the dealers'
premises. Through the audit process, CFC reconciles each dealer's physical
inventory with its records of financed vehicles. Audits are intended to
identify instances where a dealer sold vehicles but did not immediately
repay the related advances. The audit process also aids CFC in determining in
such instance whether a dealer received sale proceeds but diverted such
proceeds to uses other than the repayment of the obligations to CFC.
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"Dealer Trouble" Status and CFC's Write-Off Policy
Under certain circumstances, CFC will classify a dealer under "Dealer
Trouble" status. Such circumstances include failure to remit any principal or
interest payment when due, any notifications of liens, levies or attachments
and a general deterioration of its financial condition. Once a dealer is
assigned to Dealer Trouble status, any further extension of credit is
determined by CFC on a case-by-case basis.
CFC attempts to work with dealers to resolve instances of Dealer Trouble
status. If, however, a dealer remains on such status, it can result in one of
the following: (a) an orderly liquidation in which the dealer voluntarily
liquidates its inventory through normal sales to retail customers, (b) a
forced liquidation in which the dealer's inventory is repossessed and, in the
case of Chrysler-franchised dealers, the franchise is closed, (c) a voluntary
surrender of the dealer's inventory and, in the case of Chrysler-franchised
dealers, franchise closure, or (d) a forced sale of the dealership. Generally,
CFC works with franchised dealers to find third parties to purchase a troubled
dealership. The proceeds of such sales are used to repay amounts due to CFC.
Once liquidation has commenced, CFC performs an analysis of its position,
writes off any amounts identified at such time as uncollectible and attempts
to liquidate all possible collateral remaining. During the course of a
liquidation, CFC may recognize additional losses or recoveries.
Additional Information
The Prospectus Supplement for each Series offered hereby will set forth
additional information with respect to the Dealer Floorplan Financing
Business.
THE ACCOUNTS
General
The Receivables arise in the Accounts. The Accounts were selected from
all the wholesale accounts in the U.S. Wholesale Portfolio that are Eligible
Accounts (the "Eligible Portfolio"). In order to be included in the Eligible
Portfolio, each Account must be an account established by CFC, directly or as
successor to CCC, in the ordinary course of business and meet certain other
criteria provided in the Pooling and Servicing Agreement. See "Description of
the Certificates -- Representations and Warranties". CFC and the Seller have
represented that each believes that the Accounts will be representative of the
accounts in the Eligible Portfolio and that the inclusion of the Accounts, as
a whole, will not represent an adverse selection from the Eligible Portfolio.
From time to time, Dealers deposit funds with CFC in cash management
accounts, limited in amount to the amount of the wholesale accounts. Funds
deposited by a Dealer in its cash management account are applied to reduce the
Dealer's outstanding Principal Receivables balance and may, under certain
circumstances, be reborrowed by the Dealer.
Pursuant to the Pooling and Servicing Agreement, the Seller, and
pursuant to the Receivables Purchase Agreement, the RPA Seller has the right
(subject to certain limitations and conditions), and in some circumstances is
obligated, to designate from time to time additional qualifying wholesale
accounts to be included as Accounts and to convey to the Trust certain of the
Receivables of such Additional Accounts, including Receivables thereafter
created. These accounts must meet the eligibility criteria set forth above as
of the date such accounts are designated as Additional Accounts. The RPA
Seller will convey the Receivables then existing, with certain exceptions, or
thereafter created under such Additional Accounts to the Seller, which will in
turn convey them to the Trust. See "Description of the Certificates --
Addition of Accounts". In addition, as of any Additional Cut-off Date in
respect of Additional Accounts and the date any new Receivables are generated,
the RPA Seller will represent and warrant to the Seller, and the Seller will
represent and warrant to the Trust, that the Receivables meet the eligibility
requirements set forth in the Pooling and Servicing Agreement. See
"Description of the Certificates -- Conveyance of Receivables". Under certain
circumstances specified in the Pooling and
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Servicing Agreement, the Seller has the right to remove Accounts, and the
Receivables arising therefrom, from the Trust. See "Description of the
Certificates -- Removal of Accounts". Throughout the term of the Trust, the
Accounts from which the Receivables arise will be the same Accounts designated
by the Seller on the Initial Cut-Off Date plus any Additional Accounts, minus
any Accounts removed from the Trust.
Information with respect to the Accounts will be set forth in each
Prospectus Supplement.
CHRYSLER FINANCIAL CORPORATION AND
CHRYSLER CREDIT CORPORATION
CFC is a financial services organization, all of the common stock of
which is owned by Chrysler. CFC, a Michigan corporation, is the continuing
corporation resulting from a merger on June 1, 1967, of a financial services
subsidiary of Chrysler into a newly acquired, previously nonaffiliated finance
company incorporated in 1926. CFC is engaged in automotive retail, wholesale
and fleet financing, servicing commercial leases and loans, property,
casualty and other insurance and automotive dealership facility development
and management. CFC's business is substantially dependent upon the operations
of Chrysler. In particular, lower levels of production and sale of Chrysler's
automotive products could result in a reduction in the level of finance and
insurance operations of CFC. See "Risk Factors -- Trust's Relationship to
Chrysler and CFC". CFC's executive offices are located at 27777 Franklin Road,
Southfield, Michigan 48034-8286 and its telephone number is (810) 948-3060.
CCC, a wholly owned subsidiary of CFC, provided retail, wholesale and
lease financing services to automobile dealers and their customers throughout
the United States. On December 31, 1995, CCC merged into CFC. CFC, in
accordance with the terms of the Pooling and Servicing Agreement and the
Receivables Purchase Agreement, assumed all the rights and obligations of CCC
under (a) the Pooling and Servicing (including rights and obligations as
servicer thereunder) and (b) the Receivables Purchase Agreement (including
rights and obligations of the seller thereunder).
The Prospectus Supplement for each Series offered hereby will set forth
certain additional information with respect to CFC.
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DESCRIPTION OF THE CERTIFICATES
General
The Certificates of a Series will be issued pursuant to a Pooling and
Servicing Agreement (as supplemented and amended from time to time, the
"Pooling and Servicing Agreement"), among USA, as seller of the Receivables,
CFC, as servicer of the Receivables, and the Trustee, substantially in the
form filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The Trustee will make available for inspection a copy of
the Pooling and Servicing Agreement (without exhibits or schedules) to
Certificateholders of a Series offered hereby on written request. The
following summary describes certain terms generally applicable to the
Certificates of each Series, does not purport to be complete and is qualified
in its entirety by reference to the Pooling and Servicing Agreement and the
applicable Series Supplement.
The Certificates of each Series offered hereby will evidence undivided
beneficial interests in certain assets of the Trust allocated to the
Certificateholders' Interest of such Series, representing the right to receive
from such Trust assets funds up to (but not in excess of) the amounts required
to make payments of interest on and principal of the Certificates of such
Series pursuant to the Pooling and Servicing Agreement as described in the
related Prospectus Supplement.
The Certificates of each Series offered hereby will initially be
represented by Certificates registered in the name of the nominee of DTC
(together with any successor depository selected by the Seller, the
"Depository"), except as set forth below. Unless otherwise specified in the
related Prospectus Supplement, the Certificates of each Series offered hereby
will be available for purchase in minimum denominations of $1,000 and integral
multiples thereof in book-entry form only. The Seller has been informed by DTC
that DTC's nominee will be Cede. Accordingly, Cede is expected to be the
holder of record of the Certificates. Unless and until Definitive Certificates
are issued under the limited circumstances described herein, no
Certificateholder will be entitled to receive a physical certificate
representing a Certificate. All references herein to actions by
Certificateholders shall refer to actions taken by DTC upon instructions from
Participants and all references herein to distributions, notices, reports and
statements to Certificateholders shall refer to distributions, notices,
reports and statements to DTC or Cede, as the registered holder of the
Certificates, as the case may be. See "Book-Entry Registration" and
"Definitive Certificates".
Interest
Interest on the principal balance of the Certificates of a Series or
Class offered hereby will accrue at the per annum rate either specified in or
determined in the manner specified in the related Prospectus Supplement and
will be payable to the Certificateholders of such Series or Class as and on
the Interest Payment Dates specified in the related Prospectus Supplement. If
the Prospectus Supplement for a Series or Class of Certificates so provides,
the interest rate and the Interest Payment Dates applicable to each
Certificate of that Series or Class may be subject to adjustment from time to
time, including as a result of a decline in the interest rate borne by the
Receivables.
Except as otherwise provided herein or in the related Prospectus
Supplement, Interest Collections and certain other amounts allocable to the
Certificateholders' Interest of a Series offered hereby will be used to make
interest payments to Certificateholders of such Series on each Interest
Payment Date with respect thereto, provided that during any Early Amortization
Period with respect to such Series, interest will be distributed to such
Certificateholders monthly on each Special Payment Date.
If the Interest Payment Dates for a Series or Class occur less
frequently than monthly, such collections or other amounts (or the portion
thereof allocable to such Class) will be deposited in one or more trust
accounts (each an "Interest Funding Account") and used to make interest
payments to Certificateholders of such Series or Class on the following
Interest Payment Date with respect thereto. If a Series has more than one
Class of Certificates, each such Class may have a separate Interest Funding
Account.
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Principal
The Certificates of each Series and Class will have a Revolving Period
during which Principal Collections and certain other amounts otherwise
allocable to the Certificateholders' Interest of such Series or Class will be
paid to the Seller, deposited to the Excess Funding Account, if any, for such
Series or distributed to, or for the benefit of, the Certificateholders of
other Classes or Series. Unless a Reinvestment Period or an Early Amortization
Period, in each case that is not terminated in accordance with the
provisions of the related Series Supplement, commences with respect to a
Series, following the Revolving Period with respect to such Series or a Class
thereof, such Series or Class will have either an Accumulation Period or a
Controlled Amortization Period.
During the Accumulation Period, if any, with respect to a Series,
Principal Collections and certain other amounts allocable to the
Certificateholders' Interest of such Series (including, if and to the extent
the Series Supplement therefor so provides, Excess Principal Collections, if
any, allocable to such Series) will be deposited on each Distribution Date in
a Principal Funding Account and, together, to the extent provided in the
related Series Supplement, with any amounts in the Excess Funding Account, if
any, for such Series, used to make principal distributions to the
Certificateholders of such Series when due. The amount to be deposited in a
Principal Funding Account for any Series offered hereby on any Distribution
Date may, but will not necessarily, be limited to the Controlled Deposit
Amount specified in the related Prospectus Supplement. If a Series has more
than one Class of Certificates, each Class may have a different Accumulation
Period and a separate Principal Funding Account and Controlled Deposit Amount.
In addition, the related Prospectus Supplement may describe certain priorities
among such Classes with respect to deposits of principal into such Principal
Funding Accounts.
During the Controlled Amortization Period, if any, with respect to a
Series, Principal Collections and certain other amounts allocable to the
Certificateholders' Interest of such Series (including, if and to the extent
the Supplement for such Series so provides, Excess Principal Collections, if
any, allocable to such Series) will be used, together, to the extent provided
in the related Series Supplement, with any amounts in the Excess Funding
Account, if any, for such Series, on each Distribution Date to make principal
distributions to any Class of Certificateholders of such Series then scheduled
to receive such distributions. The amount to be distributed to
Certificateholders of any Series offered hereby on any Distribution Date may,
but will not necessarily, be limited to the Controlled Amortization Amount for
such Series specified in the related Prospectus Supplement. If a Series has
more than one Class of Certificates, each Class may have a different
Controlled Amortization Period and a separate Controlled Amortization Amount.
In addition, the related Prospectus Supplement may describe certain priorities
among such Classes with respect to such distributions.
During the Reinvestment Period, if any, with respect to a Series,
Principal Collections and certain other amounts allocable to the
Certificateholders' Interest of such Series (including, if and to the extent
the Series Supplement for such Series so provides, Excess Principal
Collections, if any, allocable to such Series) will be deposited on each
Distribution Date in a Principal Funding Account and, together, to the extent
provided in the related Series Supplement, with any amounts in the Excess
Funding Account, if any, for such Series, used to make principal distributions
to the Certificateholders of such Series when due, in each case unless the
related Series Supplement provides otherwise. The amount to be deposited in a
Principal Funding Account for any Series offered hereby on any Distribution
Date will not be limited to any Controlled Deposit Amount or Controlled
Amortization Amount. If a Series has more than one Class of Certificates, each
Class may have a separate Principal Funding Account and the related Prospectus
Supplement may describe certain priorities among such Classes with respect to
deposits of principal into such Principal Funding Accounts.
During the Early Amortization Period, if any, with respect to a Series,
Principal Collections and certain other amounts allocable to the
Certificateholders' Interest of such Series (including, if and to the extent
the Series Supplement for such Series so provides, Excess Principal
Collections, if any, allocable to such Series) will be distributed as
principal payments to the applicable Certificateholders monthly on each
Distribution Date beginning with the first Special Payment Date. During the
Early Amortization Period with respect to a Series, distributions of principal
to Certificateholders of such Series will not be
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limited to any Controlled Deposit Amount or Controlled Amortization Amount. In
addition, with respect to any Series, to the extent provided in the related
Series Supplement, any funds on deposit in the Excess Funding Account, if any,
with respect to such Series and any funds on deposit in the Principal Funding
Account with respect to such Series will be paid to the Certificateholders of
the relevant Class or Series. See "Reinvestment Events and Early Amortization
Events" for a discussion of the events which might lead to the commencement of
the Early Amortization Period with respect to a Series.
Funds on deposit in any Principal Funding Account established with
respect to a Class or Series offered hereby will be invested in Eligible
Investments, and may be subject to a guarantee or guaranteed investment
contract or other mechanism specified in the related Prospectus Supplement
intended to assure a minimum rate of return on the investment of such
funds. In order to enhance the likelihood of the payment in full of the
principal amount of a Series or Class of Certificates offered hereby at the
end of an Accumulation Period with respect thereto, such Series or Class may
be subject to a maturity liquidity facility or other similar mechanism
specified in the relevant Prospectus Supplement. A maturity liquidity facility
is a financial contract that generally provides that sufficient principal will
be available to retire the Certificates at a certain date.
Certificates of a Series or Class offered hereby may also be subject to
purchase from time to time, generally at their respective principal amounts,
in connection with a remarketing thereof if so specified in the related
Prospectus Supplement. A purchase of Certificates of such a Series or Class
may result in a decrease in the outstanding principal amount of such Series or
Class prior to the commencement of any Controlled Amortization Period or Early
Amortization Period with respect thereto. The Prospectus Supplement for any
Series offered hereby subject to purchase as described in this paragraph will
describe the conditions to and procedures for any such purchase. The proceeds
of any such purchase would be paid to the holders of the Certificates so
purchased.
Book-Entry Registration
Unless otherwise specified in the related Prospectus Supplement,
Certificateholders may hold Certificates of a Series offered hereby through
DTC (in the United States) or CEDEL or Euroclear (in Europe) if they are
participants of such systems, or indirectly through organizations which are
participants in such systems.
Cede, as nominee for DTC, will be the registered holder of the global
Certificates. Except as described herein, no Certificateholder will be
entitled to receive a certificate representing such person's interest in the
Certificates. Unless and until Definitive Certificates are issued under the
limited circumstances described below, all references herein to actions by
Certificateholders shall refer to actions taken by DTC upon instructions from
its Participants, and all references herein to distributions, notices, reports
and statements to Certificateholders shall refer to distributions, notices,
reports and statements to Cede, as the registered holder of the Certificates,
for distribution to the Certificateholders in accordance with DTC procedures.
CEDEL and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in CEDEL's and Euroclear's
names on the books of their respective depositaries which in turn will hold
such positions in customers' securities accounts in the depositaries' names on
the books of DTC. Citibank, N.A. ("Citibank") will act as depositary for CEDEL
and Morgan Guaranty Trust Company of New York ("Morgan") will act as
depositary for Euroclear (in such capacities, the "Foreign Agency
Depositaries").
Transfers between DTC participants will occur in the ordinary way in
accordance with DTC rules. Transfers between CEDEL Participants and Euroclear
Participants will occur in the ordinary way in accordance with their
applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL or
Euroclear participants, on the other, will be effected in DTC in accordance
with DTC rules on behalf of the relevant European international clearing
system by its Foreign Agency Depositary; however, such cross-market
transactions will require delivery of
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instructions to the relevant European international clearing system by the
counterparty in such system in accordance with its rules and procedures and
within its established deadlines (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its Foreign Agency Depositary to take
action to effect final settlement on its behalf by delivering or receiving
securities in DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. CEDEL Participants
and Euroclear Participants may not deliver instructions directly to the
Foreign Agency Depositaries.
Because of time-zone difference, credits of securities received in CEDEL
or Euroclear as a result of a transaction with a DTC participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or CEDEL participant on such business day. Cash received in CEDEL or
Euroclear as a result of sales of securities by or through a CEDEL Participant
or a Euroclear Participant to a DTC participant will be received with value on
the DTC settlement date but will be available in the relevant CEDEL or
Euroclear cash account only as of the business day following settlement in
DTC. For additional information regarding clearance and settlement procedures
for the Certificates, see Annex I hereto and for information with respect to
tax documentation procedures relating to the Certificates, see Annex I
hereto and "Tax Matters -- Certain Federal Income Tax Consequences -- Foreign
Investors".
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 UCC and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its participating organizations ("Participants") and
facilitate the clearance and settlement of securities transactions between
Participants through electronic book-entry changes in their accounts, thereby
eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. 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").
Certificateholders that are not Participants or Indirect Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Certificates may do so only through Participants and Indirect
Participants. In addition, Certificateholders will receive all distributions
of principal of and interest on the Certificates from the Trustee through DTC
and its Participants. Under a book-entry format, Certificateholders will
receive payments after the related Distribution Date because, while payments
are required to be forwarded to Cede, as nominee for DTC, on each such date,
DTC will forward such payments to its Participants which thereafter will be
required to forward them to Indirect Participants or Certificateholders. It is
anticipated that the only "Certificateholder" (as such term is used in the
Pooling and Servicing Agreement) will be Cede, as nominee of DTC, and that
Certificateholders will not be recognized by the Trustee as Certificateholders
under the Pooling and Servicing Agreement. Certificateholders will only be
permitted to exercise the rights of Certificateholders under the Pooling and
Servicing Agreement indirectly through DTC and its Participants who in turn
will exercise their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Certificates and is
required to receive and transmit distributions of principal of and interest on
the Certificates. Participants and Indirect Participants with which
Certificateholders have accounts with respect to the Certificates similarly
are required to make book-entry transfers and receive and transmit such
payments on behalf of their respective Certificateholders.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Certificateholder to pledge Certificates to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
Certificates, may be limited due to the lack of a physical certificate for
such Certificates.
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DTC has advised the Seller that it will take any action permitted to be
taken by a Certificateholder under the Pooling and Servicing Agreement only at
the direction of one or more Participants to whose account with DTC the
Certificates are credited.
CEDEL, societe anonyme ("CEDEL"), 67 Bd Grande-Duchesse Charlotte,
L-1420, Luxembourg (R.C. Luxembourg B9248) was incorporated in 1970 as a
limited company under Luxembourg law. CEDEL is owned by banks, securities
dealers, and financial institutions and currently has over 100 shareholders,
including U.S. financial institutions or their subsidiaries. No single entity
may own more than five percent of CEDEL's stock.
CEDEL is registered as a "Depositaire professional de titre" in
Luxembourg, and as such is subject to regulation by the Luxembourg Monetary
Authority ("IML"), which also supervises Luxembourg's banks.
CEDEL provides clearance and settlement services for its customers and
currently accepts over 40,000 securities issues for clearance, settlement, and
custody. CEDEL's customers consist of broker- dealers, financial institutions,
and other securities professionals involved in the movement and/or custody of
securities. CEDEL's U.S. customers are limited to brokers, dealers, and banks.
Currently, CEDEL has approximately 3,000 customers located in over 60
countries, including all major European countries, Canada, and the United
States.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System ("Euroclear Participants") and to clear
and settle transactions between Euroclear Participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating the need
for physical movement of certificates and any risk from lack of
simultaneous transfers of securities and cash. Transactions may now be settled
in any of 27 currencies, including United States dollars. The Euroclear System
includes various other services, including securities lending and borrowing,
and interfaces with domestic markets in several countries generally similar to
the arrangements for cross-market transfers with DTC described above. The
Euroclear System is operated by Morgan Guaranty Trust Company of New York,
Brussels, Belgium office (the "Euroclear Operator" or "Euroclear"), under
contract with Euroclear S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and
all Euroclear securities clearance accounts and Euroclear Clearance System
cash accounts are accounts with the Euroclear Operator, not the Cooperative.
The Cooperative establishes policy for the Euroclear System on behalf of
Euroclear Participants. Euroclear Participants include banks (including
central banks), securities brokers and dealers and other professional
financial intermediaries and may include any underwriters, agents or dealers
involved in the distribution of the Certificates. Indirect access to the
Euroclear System is also available to other firms that clear through or
maintain a custodial relationship with a Euroclear Participant, either
directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear
and the related Operative Procedures of the Euroclear System, and applicable
Belgian law (collectively, the "Terms and Conditions"). The Terms and
Conditions govern transfers of securities and cash within the Euroclear
System, withdrawals of securities and cash from the Euroclear System, and
receipts of payments with respect to securities in the Euroclear System. All
securities in the Euroclear System are held on a fungible basis without
attribution of specific certificates to specific securities clearance
accounts. The Euroclear Operator acts under the Terms and Conditions only on
behalf of Euroclear Participants, and has no record of or relationship with
persons holding through Euroclear Participants.
Distributions with respect to Certificates held through CEDEL or
Euroclear will be credited to the cash accounts of CEDEL Participants or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by its Foreign Agency Depositary. Such
distributions will be
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subject to tax reporting in accordance with relevant United States tax laws
and regulations. See "Certain Tax Matters". CEDEL or the Euroclear Operator,
as the case may be, will take any other action permitted to be taken by a
Certificateholder under the Pooling and Servicing Agreement or the applicable
Series Supplement on behalf of a CEDEL Participant or Euroclear Participant
only in accordance with its relevant rules and procedures and subject to its
Foreign Agency Depositary's ability to effect such actions on its behalf
through DTC.
Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Certificates among participants
of DTC, CEDEL and Euroclear, they are under no obligation to perform or
continue to perform such procedures and such procedures may be discontinued at
any time.
Definitive Certificates
Unless otherwise stated in the related Prospectus Supplement, the
Certificates of a Series or Class offered hereby will be issued in fully
registered, certificated form to Certificateholders or their nominees
("Definitive Certificates"), 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
properly discharge its responsibilities as Depository with respect to the
Certificates of such Series or Class and the Seller is unable to locate a
qualified successor, (ii) the Seller, at its option, elects to terminate the
book-entry system through DTC with respect to such Series or Class or (iii)
after the occurrence of a Service Default, Certificateholders representing not
less than 50% of the aggregate unpaid principal amount of the Certificates of
such Series or Class advise the Trustee and DTC through Participants in
writing that the continuation of a book-entry system through DTC (or a
successor thereto) is no longer in the best interests of such
Certificateholders.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates for such Certificates.
Upon surrender by DTC of the certificate or certificates representing such
Certificates and instructions for re-registration, the Trustee will issue such
Certificates in the form of Definitive Certificates, and thereafter the
Trustee will recognize the holders of such Definitive Certificates as
Certificateholders under the Pooling and Servicing Agreement ("Holders"). In
the event that Definitive Certificates are issued or DTC ceases to be the
clearing agency for any Series or Class of Certificates, the Pooling and
Servicing Agreement provides that the applicable Certificateholders will be
notified of such event.
Distributions of principal of and interest on the Certificates will be
made by the Trustee directly to Holders in accordance with the procedures set
forth herein and in the Pooling and Servicing Agreement. Distributions on each
Distribution Date will be made to Holders in whose names the Definitive
Certificates were registered at the close of business on the related record
date. Distributions will be made by check mailed to the address of such Holder
as it appears on the register maintained by the Trustee. The final
distribution on any Certificate (whether Definitive Certificates or the
certificate or certificates registered in the name of Cede representing the
Certificates), however, will be made only upon presentation and surrender of
such Certificate on the final payment date at such office or agency as is
specified in the notice of final distribution to Certificateholders. The
Trustee will provide such notice to registered Certificateholders not later
than the fifth day of the month of the final distribution.
Definitive Certificates will be transferable and exchangeable at the
offices of the Trustee, which shall initially be 101 Barclay Street, New York,
New York 10286. 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.
The Seller's Certificate
The Pooling and Servicing Agreement provides that the Seller may
exchange a portion of the certificate evidencing the Seller's Interest (the
"Seller's Certificate") for another certificate (a "Supplemental Certificate")
for transfer or assignment to a person designated by the Seller upon the
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execution and delivery of a supplement to the Pooling and Servicing Agreement
(which supplement shall be subject to the amendment section of the Pooling and
Servicing Agreement to the extent that it amends any of the terms of the
Pooling and Servicing Agreement); provided that (a) the Seller shall at the
time of such exchange and after giving effect thereto have an interest in the
Pool Balance of not less than 2% of the aggregate amount of the principal
balances of the Receivables (the "Pool Balance"), (b) the Seller shall have
delivered to the Trustee, the Rating Agencies and any Enhancement Provider a
Tax Opinion with respect to such exchange and (c) the Seller shall have
delivered to the Trustee written confirmation from the applicable Rating
Agencies that such exchange will not result in a reduction or withdrawal of
the rating of any outstanding Series or Class of Certificates. Any subsequent
transfer or assignment of a Supplemental Certificate is also subject to the
conditions described in clauses (b) and (c) in the preceding sentence.
New Issuances
The Pooling and Servicing Agreement provides that pursuant to any one or
more Supplements, the Trustee may issue two types of certificates: (i) one or
more Series of Certificates which are transferable and have the
characteristics described below and (ii) the Seller's Certificate (and any
Supplemental Certificate) which will evidence the Seller's Interest and will
be transferable only upon the satisfaction of certain conditions described
under "The Seller's Certificate". The Pooling and Servicing Agreement also
provides that, pursuant to one or more Supplements, the Seller may cause the
Trustee to issue one or more new Series. Under the Pooling and Servicing
Agreement, the Seller may specify, among other things, with respect to any
Series: (a) its name or designation, (b) its initial principal amount (or
method for calculating such amount), (c) its certificate rate (or the method
for determining its certificate rate), (d) a date on which it will begin its
Accumulation Period or Controlled Amortization Period, if any, (e) the method
for allocating principal and interest to Certificateholders of such Series,
(f) the percentage used to calculate monthly servicing fees, (g) the issuer
and terms of any Enhancement with respect thereto or the level of
subordination provided by the Seller's Interest, (h) the terms on which the
Certificates of such Series may be exchanged for Certificates of another
Series, be subject to repurchase, optional redemption or mandatory redemption
by the Seller or be remarketed by any remarketing agent, (i) the Series
Termination Date and (j) any other terms permitted by the Pooling and
Servicing Agreement (all such terms, the "Principal Terms" of such Series).
The Seller may offer any Series to the public under a prospectus or other
disclosure document (a "Disclosure Document") in transactions either
registered under the Securities Act or exempt from registration thereunder,
directly or through one or more underwriters or placement agents. There is no
limit to the number of Series that may be issued under the Pooling and
Servicing Agreement.
The Pooling and Servicing Agreement provides that the Seller may specify
Principal Terms of a new Series such that each Series has a Controlled
Amortization Period or Accumulation Period which may have a different length
and begin on a different date than the Controlled Amortization Period or
Accumulation Period for any other Series. Further, one or more Series may be
in their Reinvestment Periods, Early Amortization Periods, Controlled
Amortization Periods or Accumulation Periods while other Series are not. Thus,
certain Series may be amortizing or accumulating principal, while other Series
are not. Moreover, different Series may have the benefits of different forms
of Enhancement issued by different entities. Under the Pooling and Servicing
Agreement, the Trustee will hold each form of Enhancement only on behalf of
the Series (or a particular Class within a Series) with respect to which it
relates, unless otherwise provided in the related Series Supplement or Series
Supplements. The Pooling and Servicing Agreement also provides that the Seller
may specify different certificate rates and Monthly Servicing Fees with
respect to each Series (or a particular Class within a Series). In addition,
the Seller has the option under the Pooling and Servicing Agreement to vary
among Series (or Classes within a Series) the terms upon which a Series (or
Classes within a Series) may be repurchased by the Seller.
Under the Pooling and Servicing Agreement and pursuant to a Series
Supplement, a new Series may be issued only upon the satisfaction of certain
specified conditions. The Seller may cause the issuance of a new Series by
notifying the Trustee at least five business days in advance of the applicable
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Series Issuance Date. The notice shall state the designation of any Series
(and Classes within a Series, if any). The Pooling and Servicing Agreement
provides that the Trustee will issue any such Series only upon delivery to it
of the following: (i) a Series Supplement in form satisfactory to the Trustee
signed by the Seller and the Servicer and specifying the Principal Terms of
such Series, (ii) the form of any Enhancement and any related agreement, (iii)
an opinion of counsel to the effect that, for federal income and Michigan
income and single business tax purposes, (x) such issuance will not adversely
affect the characterization of the Certificates of any outstanding Series or
Class as debt of the Seller, (y) such issuance will not cause a taxable event
to any Certificateholders (an opinion of counsel to the effect referred to in
clauses (x) and (y) with respect to any action is referred to herein as a "Tax
Opinion") and (z) such new Series will be characterized as debt of the Seller,
and (iv) written confirmation from the applicable Rating Agencies that such
issuance will not result in a reduction or withdrawal of the rating of any
outstanding Series or Class of Certificates. Such issuance is also subject to
the conditions that (a) the Seller shall have represented and warranted that
such issuance shall not, in the reasonable belief of the Seller, cause an
Early Amortization Event or Reinvestment Event to occur with respect to any
outstanding Series and (b) after giving effect to such issuance, the Seller's
interest in the Pool Balance shall not be less than 2% of the Pool Balance.
Upon satisfaction of all such conditions, the Trustee will issue such Series.
Conveyance of Receivables and Collateral Security
On the date on which the Certificates related to the Series 1991-1 were
originally issued (the "Initial Closing Date"), CARCO sold and assigned to the
Trust all of its right, title and interest in and to the Receivables and the
related Collateral Security as of the Initial Cut-Off Date, all Receivables
thereafter created in the Accounts and its interests in the related Collateral
Security and the Receivables Purchase Agreement, and the proceeds of all of
the foregoing. On August 8, 1991, CARCO, in accordance with the terms of the
Pooling and Servicing Agreement and the Receivables Purchase Agreement,
transferred the Seller's Interest and all its rights and obligations under the
Pooling and Servicing Agreement and the Receivables Purchase Agreement to USA.
See "U.S. Auto Receivables Company and the Trust". In addition, the Seller has
previously designated Additional Accounts to be added to the Accounts and has
previously conveyed to the Trust the Receivables in such Additional Accounts
(together with the related Collateral Security) as of the applicable
Additional Cut-Off Date and all Receivables (and related Collateral Security)
created thereafter.
In connection with the sale of the Receivables to the Seller by the RPA
Seller and the transfer of the Receivables to the Trust, USA and CFC are
required to indicate in their computer records that the Receivables in the
Accounts and the related Collateral Security have been conveyed to the Trust.
In addition, the Seller is required to provide to the Trustee a computer file
or microfiche or written list containing a true and complete list showing for
each Account, as of the Initial Cut-Off Date and the applicable Additional
Cut-Off Date, (i) its account number, (ii) the outstanding balance of the
Receivables in such Account and (iii) the outstanding balance of Principal
Receivables in such Account. CFC will retain and will not deliver to the
Trustee any other records or agreements relating to the Receivables. Except as
set forth above, the records and agreements relating to the Receivables have
not and will not be segregated from those relating to other accounts of CFC,
and the physical documentation relating to the Receivables has not and will
not be stamped or marked to reflect the transfer of the Receivables to
the Trust. The Seller will file one or more financing statements in accordance
with applicable state law to perfect the Trust's interest in the Receivables,
the Collateral Security, the Receivables Purchase Agreement and the proceeds
thereof. See "Risk Factors" and "Certain Legal Aspects of the Receivables".
As contemplated above and as described below under "Addition of
Accounts", the Seller has the right (subject to certain limitations and
conditions), and in some circumstances is obligated, to designate from time to
time additional accounts to be included as Additional Accounts, to purchase
from the RPA Seller the Receivables then existing or thereafter created in
such Additional Accounts and to convey such Receivables to the Trust. Each
such Additional Account must be an Eligible Account. In respect of any
conveyance of Receivables in Additional Accounts, the Seller will follow the
procedures set forth
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in the preceding paragraph, except the list will show information for such
Additional Accounts as of the date such Additional Accounts are identified
and selected (the "Additional Cut-Off Date").
Representations and Warranties
The Seller will make representations and warranties to the Trust
relating to the Accounts, the Receivables and the Collateral Security to the
effect, among other things, that (a) as of each Series Cut-Off Date, and the
date of issuance of any Series (a "Series Issuance Date") (or, in the case of
the Additional Accounts, as of the Additional Cut-Off Date and the date the
related Receivables are transferred to the Trust (an "Addition Date")), each
Account or Additional Account was an Eligible Account, (b) as of the Series
Cut-Off Date (or as of the Additional Cut-Off Date, in the case of any
Additional Accounts) or as of the date any future Receivable is generated (a
"Transfer Date"), each Receivable is an Eligible Receivable or, if such
Receivable is not an Eligible Receivable, such Receivable is conveyed to the
Trust as described below under "Ineligible Receivables, the Instalment Balance
Amount and the Overconcentration Amount", (c) each Receivable and all
Collateral Security conveyed to the Trust on the Transfer Date or, in the case
of Additional Accounts, on the Addition Date, and all of the Seller's right,
title and interest in the Receivables Purchase Agreement, have been conveyed
to the Trust free and clear of any liens and (d) all appropriate consents and
governmental authorizations required to be obtained by the Seller in
connection with the conveyance of each such Receivable or Collateral Security
have been duly obtained. If the Seller breaches any representation and
warranty described in this paragraph and such breach remains uncured for 30
days or such longer period as may be agreed to by the Trustee, after the
earlier to occur of the discovery of such breach by the Seller or the Servicer
or receipt of written notice of such breach by the Seller or the Servicer, and
such breach has a materially adverse effect on the Certificateholders'
Interest in any Receivable or Account, the Certificateholders' Interest in
such Receivable or, in the case of a breach relating to an Account, all
Receivables in the related Account ("Ineligible Receivables") will be
reassigned to the Seller on the terms and conditions set forth below and such
Account shall no longer be included as an Account.
Each such Receivable shall be reassigned to the Seller on or before the
end of the Collection Period in which such reassignment obligation arises by
the Seller directing the Servicer to deduct the principal balance of such
Receivable from the Pool Balance. In the event that such deduction would cause
the Seller's Participation Amount, which is an amount equal to the Pool
Balance minus the aggregate Invested Amounts for all outstanding Series, to be
less than the aggregate Available Subordinated Amounts for all Outstanding
Series (the "Trust Available Subordinated Amount") on the preceding
Determination Date (after giving effect to the allocations, distributions,
withdrawals and deposits to be made on such Distribution Date), on the date on
which such reassignment is to occur the Seller will be obligated to make a
deposit into the Collection Account in immediately available funds in an
amount equal to the amount by which the Seller's Participation Amount would be
less than the Trust Available Subordinated Amount (the amount of any such
deposit being referred to herein as a "Transfer Deposit Amount"), provided
that if the Transfer Deposit Amount is not so deposited, the principal balance
of the related Receivables will be deducted from the Pool Balance only to the
extent the Seller's Participation Amount is not reduced below the Trust
Available Subordinated Amount and any principal balance not so deducted will
not be reassigned and will remain part of the Trust. The reassignment of any
such Receivable to the Seller and the payment of any related Transfer Deposit
Amount will be the sole remedy respecting any breach of the representations
and warranties described in the preceding paragraph with respect to such
Receivable available to Certificateholders or the Trustee on behalf of
Certificateholders.
The Seller will also make representations and warranties to the Trust to
the effect, among other things, that as of each Series Issuance Date (a) it is
duly incorporated and in good standing, it has the authority to consummate the
transactions contemplated by the Pooling and Servicing Agreement and the
Pooling and Servicing Agreement constitutes a valid, binding and
enforceable agreement of the Seller and (b) the Pooling and Servicing
Agreement constitutes a valid sale, transfer and assignment to the Trust of
all right, title and interest of the Seller in the Receivables and the
Collateral Security, whether then existing or thereafter created, the
Receivables Purchase Agreement, and the proceeds thereof
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(including proceeds in any of the accounts established for the benefit of the
Certificateholders of any Series), subject to the rights of the Purchasers
with respect to certain of the Collateral Security, under the UCC as then in
effect in the State of Michigan, which is effective as to each Receivable
existing on the Initial Closing Date (or as of the Addition Date, if
applicable) or, as to each Receivable arising thereafter, upon the creation
thereof and until termination of the Trust. In the event that the breach of
any of the representations and warranties described in this paragraph has a
materially adverse effect on the Certificateholders' Interest in the
Receivables, either the Trustee or the holders of Certificates of all
outstanding Series evidencing not less than a majority of the aggregate unpaid
principal amount of all outstanding Series, by written notice to the Seller
and the Servicer (and to the Trustee and the issuer or provider of any
Enhancement (an "Enhancement Provider") if given by Certificateholders), may
direct the Seller to accept the reassignment of the Certificateholders'
Interest of all Series within 60 days of such notice, or within such longer
period specified in such notice. The Seller will be obligated to accept the
reassignment of the Certificateholders' Interest on a Distribution Date
occurring within such 60-day period. Such reassignment will not be required to
be made, however, if at the end of such applicable period, the representations
and warranties shall then be true and correct in all material respects and any
materially adverse effect caused by such breach shall have been cured. The
price for such reassignment will generally be equal to the aggregate "Invested
Amounts" (as specified in the related Series Supplements) of all Series on the
Determination Date preceding the Distribution Date on which the purchase is
scheduled to be made plus accrued and unpaid interest on the unpaid principal
amount of the Certificates at the applicable certificate rate (together with
interest on overdue interest) plus, with respect to any particular Series, any
other amounts specified in the Series Supplement therefor. The payment of the
reassignment price for all outstanding Series, in immediately available funds,
will be considered a payment in full of the Certificateholders' Interest. Such
funds will be distributed to the Certificateholders entitled thereto upon
presentation and surrender of the Certificates. If the Trustee or the
Certificateholders give a notice as provided above, the obligation of the
Seller to make any such deposit will constitute the sole remedy respecting a
breach of the representations and warranties available to Certificateholders
or the Trustee on behalf of the Certificateholders.
As of the effective date of the CARCO Transfer, USA was deemed to have
made all the representations and warranties of the Seller (including the
Seller's representations and warranties set forth above) in the Pooling and
Servicing Agreement and in any Series Supplement with respect to any Series or
Class of Certificates.
Eligible Accounts and Eligible Receivables
An "Eligible Account" is defined to mean each wholesale financing line
of credit extended by CFC, directly or as successor to CCC, to a Dealer, which
line of credit, as of the date of determination thereof: (a) is established by
CFC, directly or as successor to CCC, in the ordinary course of business
pursuant to a floorplan financing agreement, (b) is in favor of an Eligible
Dealer, (c) is in existence and maintained and serviced by CFC, directly or as
successor to CCC, and (d) in respect of which no amounts have been charged off
as uncollectible or are classified as past due or delinquent. An "Eligible
Dealer" is a Dealer: (a) which is located in the United States of America
(including its territories and possessions), (b) which has not been identified
by the Servicer as being the subject of any voluntary or involuntary
bankruptcy proceeding or in voluntary or involuntary liquidation, (c) in which
Chrysler or any affiliate thereof does not have an equity investment and (d)
which has not been classified by the Servicer as being under Dealer Trouble
status.
An "Eligible Receivable" is defined to mean each Receivable: (a) which
was originated or acquired by CFC, directly or as successor to CCC, in the
ordinary course of business, (b) which has arisen under an Eligible Account
and is payable in United States dollars, (c) which is owned by CFC or CCC at
the time of sale to the Seller, (d) which represents the obligation of a
Dealer to repay an advance made to such Dealer to finance the acquisition of
Vehicles, (e) which at the time of creation and at the time of transfer to the
Trust is secured by a perfected first priority security interest in the Vehicle
relating thereto, (f) which was created in compliance in all respects with all
requirements of law applicable thereto and pursuant to a floorplan financing
agreement which complies in all respects
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with all requirements of law applicable to any party thereto, (g) with respect
to which all consents and governmental authorizations required to be obtained
by Chrysler, CCC, CFC or the Seller in connection with the creation of such
Receivable or the transfer thereof to the Trust or the performance by CCC or
CFC of the floorplan financing agreement pursuant to which such Receivable was
created, have been duly obtained, (h) as to which at all times following the
transfer of such Receivable to the Trust, the Trust will have good and
marketable title thereto free and clear of all liens arising prior to the
transfer or arising at any time, other than liens permitted pursuant to the
Pooling and Servicing Agreement, (i) which has been the subject of a valid
transfer and assignment from the Seller to the Trust of all the Seller's
interest therein (including any proceeds thereof), (j) which will at all times
be the legal and assignable payment obligation of the Dealer relating thereto,
enforceable against such Dealer in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy or other similar laws,
(k) which at the time of transfer to the Trust is not subject to any right of
rescission, setoff, or any other defense (including defenses arising out of
violations of usury laws) of the Dealer, (1) as to which, at the time of
transfer of such Receivable to the Trust, Chrysler, CCC, CFC and the Seller
have satisfied all their respective obligations with respect to such
Receivable required to be satisfied at such time, (m) as to which, at the time
of transfer of such Receivable to the Trust, neither Chrysler, CCC or CFC nor
the Seller has taken or failed to take any action which would impair the
rights of the Trust or the Certificateholders therein, (n) which constitutes
"chattel paper" as defined in Article 9 of the UCC as then in effect in the
State of Michigan and (o) which was transferred to the Trust with all
applicable governmental authorization.
The Trustee did not and it is not required or anticipated that the
Trustee will make any initial or periodic general examination of the
Receivables or any records relating to the Receivables for the purpose of
establishing the presence or absence of defects, compliance with
representations and warranties of the Seller or for any other purpose. In
addition, it is not anticipated or required that the Trustee will make any
initial or periodic general examination of the Servicer for the purpose of
establishing the compliance by the Servicer with its representations or
warranties, the observation of its obligations under the Pooling and Servicing
Agreement or for any other purpose. The Servicer, however, will deliver to the
Trustee on or before March 31 of each calendar year, an opinion of counsel
with respect to the validity of the interest of the Trust in and to the
Receivables and certain other components of the Trust.
Ineligible Receivables, the Installment Balance Amount and the
Overconcentration Amount
For the purpose of facilitating the administration and reporting
requirements of the Servicer under the Pooling and Servicing Agreement, all
Ineligible Receivables arising in an Eligible Account shall be transferred to
the Trust, provided that, if the Series Supplement for a Series so provides,
the Incremental Subordinated Amount for such Series will be adjusted by the
portion of the aggregate principal amount of Receivables included therein
allocable to the Certificateholders' Interest of such Series. In addition, if
the Series Supplement for a Series so provides, the Incremental Subordinated
Amount for such Series shall be adjusted to reflect, on each Distribution
Date, the aggregate principal amount of Receivables in the Trust on such
Distribution Date which are Dealer Overconcentrations (the "Overconcentration
Amount") allocable to the Certificateholders' Interest of such Series and the
portion of the aggregate amount of Installment Balances in respect of which CFC
has not received an offsetting payment from the related Dealer on such
Distribution Date (the "Installment Balance Amount") allocable to the
Certificateholders' Interest of such Series. As used herein, "Dealer
Overconcentrations" on any Distribution Date means, with respect to any Dealer
or group of affiliated Dealers, the excess of (x) the aggregate principal
amount of Receivables due from such Dealer or group of affiliated Dealers on
the last day of the Collection Period immediately preceding such Distribution
Date over (y) 2% of the Pool Balance on the last day of such immediately
preceding Collection Period.
Addition of Accounts
Subject to the conditions described below, the Seller has the right to
designate from time to time additional accounts to be included as Accounts
(the "Additional Accounts"). In addition, the Seller is required to add the
Receivables of Additional Accounts if the Pool Balance on the last day of any
Collection Period is less than the Required Participation Amount as of the
following Distribution Date
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(after giving effect to the allocations, distributions, withdrawals and
deposits to be made on such Distribution Date). In that case, unless certain
insolvency events have occurred with respect to the Seller, CFC or Chrysler,
CFC under the Receivables Purchase Agreement will be required to sell to the
Seller, and the Seller under the Pooling and Servicing Agreement will be
required to transfer and assign to the Trust, within 10 business days after
the end of such Collection Period, interests in all Receivables arising in
such Additional Accounts, whether such Receivables are then existing or
thereafter created. Any designation of Additional Accounts is subject to the
following conditions, among others: (i) each such Additional Account must be
an Eligible Account; (ii) the Seller shall represent and warrant that the
addition of such Additional Accounts shall not, in the reasonable belief of
the Seller, cause an Early Amortization Event or Reinvestment Event to occur
with respect to any Series; (iii) the Seller shall not select such Additional
Accounts in a manner that it believes is adverse to the interests of the
Certificateholders or any Enhancement Provider; (iv) the Seller shall deliver
a Tax Opinion, other than in the case of a required addition, and certain
other opinions of counsel with respect to the addition of such Additional
Accounts to the Trustee, the Rating Agencies and any Enhancement Provider; and
(v) the applicable Rating Agencies shall have provided written confirmation
that such addition will not result in a reduction or withdrawal of the rating
of any outstanding Series or Class of Certificates.
Notwithstanding the foregoing, from and after the date on which no
Series issued prior to October 20, 1994 is outstanding the Seller may from
time to time, at its discretion, and subject only to the limitations specified
in this paragraph, designate Additional Accounts. (Additional Accounts
designated in accordance with the provisions described in this paragraph are
referred to herein as "Automatic Additional Accounts".) Unless each Rating
Agency otherwise consents, the number of Automatic Additional Accounts
designated with respect to any of the three consecutive Collection Periods
beginning in January, April, July and October of each calendar year shall not
exceed 8% of the number of Accounts as of the first day of the calendar year
during which such Collection Periods commence and the number of Automatic
Additional Accounts designated during any such calendar year shall not exceed
20% of the number of Accounts as of the first day of such calendar year. On or
before the first business day of each Collection Period beginning in January,
April, July and October of each calendar year, the Seller shall have requested
and obtained notification from each Rating Agency of any limitations to the
right of the Seller to designate Eligible Accounts as Automatic Additional
Accounts during any period which includes such Collection Period. On or before
January 31, April 30, July 31, October 31 of each calendar year, the Trustee
shall have received confirmation from each Rating Agency that the addition of
all Automatic Additional Accounts included as Accounts during the three
consecutive Collection Periods ending in the calendar month prior to such date
shall not have resulted in any applicable Rating Agency reducing or
withdrawing its rating of any outstanding Series or Class of Certificates. On
or before January 31 and July 31 of each calendar year (or on or before the
last day of each month in certain circumstances), the Seller shall have
delivered to the Trustee, each Rating Agency and any Enhancement Provider an
opinion of counsel with respect to the Automatic Additional Accounts included
as Accounts during the preceding calendar year confirming the validity and
perfection of each transfer of such Automatic Additional Accounts. If such
Rating Agency confirmation or opinion of counsel with respect to any Automatic
Additional Accounts is not so received, such Automatic Additional Accounts
will be removed from the Trust.
Each Additional Account (including each Automatic Additional Account)
must be an Eligible Account at the time of its addition. However, since
Additional Accounts may not have been a part of the initial portfolio of CCC
or CFC, they may not be of the same credit quality as the initial Accounts.
Additional Accounts may have been originated by CCC or CFC at a later date
using credit criteria different from those which were applied to the initial
Accounts or may have been acquired by CCC or CFC from another wholesale lender
that had different credit criteria. In addition, the Seller will be permitted
to designate as Additional Accounts accounts which contain receivables that
have been sold or pledged to third parties; however, following the applicable
Additional Cut-Off Date, no Receivables thereafter arising in any such
accounts shall be sold or pledged to any third parties.
"Required Participation Amount" for any date means an amount equal
to (a) the sum of the amounts for each Series (other than any Series or
portion thereof which is designated in the
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relevant Series Supplement as being an Excluded Series until the
Invested Amount of the Series relating to such Excluded Series is
reduced to $0) obtained by multiplying the Required Participation
Percentage for such Series by the Initial Invested Amount for such
Series at such time, plus (b) the Trust Available Subordinated Amount on
the immediately preceding Determination Date (after giving effect to the
allocations, distributions, withdrawals and deposits to be made on the
Distribution Date following such Determination Date).
"Required Participation Percentage" shall mean, with respect to a
particular Series, the percentage provided in the related Series
Supplement.
Removal of Accounts
The Seller shall have the right at any time to require the removal from
the Trust of Eligible Accounts. To remove any Eligible Account, the
Seller (or the Servicer on its behalf) shall, among other things, (a) furnish
to the Trustee, any Enhancement Provider and the Rating Agencies a written
notice (the "Removal Notice") specifying the Determination Date on which
removal of one or more Accounts will commence (a "Removal Commencement Date")
and the Accounts to be removed from the Trust (the "Designated Accounts"), (b)
determine on the Removal Commencement Date the aggregate principal balance of
Receivables in respect of each such Designated Account (the "Designated
Balance"), (c) from and after such Removal Commencement Date, cease to
transfer to the Trust all Receivables arising in the Designated Accounts, (d)
from and after such Removal Commencement Date, allocate all Principal
Collections in respect of each Designated Account, first to the oldest
outstanding principal balance of such Designated Account, until the
Determination Date on which the Designated Balance in such Designated Account
is reduced to zero (the "Removal Date"), (e) on each business day from and
after such Removal Commencement Date to and until the related Removal Date,
allocate (i) to the Trust (to be further allocated pursuant to the Pooling and
Servicing Agreement), Interest Collections in respect of each Designated
Account with respect to Receivables in all Designated Accounts sold to the
Trust and (ii) to the Seller the remainder of the Interest Collections in all
such Designated Accounts, (f) represent and warrant that the removal of any
such Eligible Account on any Removal Date shall not, in the reasonable belief
of the Seller, cause an Early Amortization Event or Reinvestment Event to
occur with respect to any Series or cause the Pool Balance to be less than the
Required Participation Amount, (g) represent and warrant that no selection
procedures believed by the Seller to be adverse to the interests of the
Certificateholders were utilized in selecting the Designated Accounts, (h)
represent and warrant that such removal will not result in a reduction or
withdrawal of the rating of any outstanding Series or Class of Certificates
and (i) on or before the related Removal Date, deliver to the Trustee and any
Enhancement Provider an officers' certificate confirming the items set forth
in clauses (f), (g) and (h) above and a Tax Opinion with respect to such
removal. No Designated Accounts shall be removed if such removal will result
in a reduction or withdrawal of the rating of any outstanding Series or Class
of Certificates.
On any date on which an Account becomes an Ineligible Account (which
date will be deemed the Removal Commencement Date for such Account), the
Seller will commence the removal of such Account from the Trust by taking each
of the actions specified in clauses (a) through (e) of the preceding paragraph
with respect to such Ineligible Account.
Upon satisfaction of the above conditions, on the Removal Date with
respect to any such Designated Account, the Seller will cease such allocation
of collections of Receivables therefrom and such Designated Account shall be
deemed removed from the Trust for all purposes (a "Removed Account").
In addition to the removal rights described above, the Seller shall have
the right at any time to remove Accounts from the Trust and, in connection
therewith, repurchase the then existing Receivables in such Accounts. To
remove Accounts and repurchase the then existing Receivables in such Accounts,
the Seller (or the Servicer on its behalf) shall, among other things: (a)
furnish to the Trust, each Enhancement Provider and the Rating Agencies a
Removal Notice specifying the Designated Accounts which are to be removed, and
the then existing Receivables in such Designated Accounts (the
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"Designated Receivables") which are to be repurchased from the Trust and the
Determination Date on which the removal of such Designated Accounts and the
purchase of such Designated Receivables will occur (a "Removal and Repurchase
Date"), (b) deliver to the Trustee on the Removal and Repurchase Date a
computer file or microfiche or written list containing a true and complete
list of the Removed Accounts specifying for each such Account its account
number and the aggregate amount of Receivables outstanding in such Account,
(c) if any Series issued prior to October 20, 1994 is then outstanding, deposit
into the Collection Account on the Removal and Repurchase Date funds in an
amount equal to the aggregate outstanding balance of the Designated
Receivables on such date (the "Repurchased Receivables Purchase Price"), (d)
represent and warrant that the removal of any such Eligible Account and the
repurchase of the Receivables then existing in such Account on any Removal and
Repurchase Date shall not, in the reasonable belief of the Seller, cause an
Early Amortization Event or Reinvestment Event to occur with respect to any
Series or cause the Pool Balance to be less than the Required Participation
Amount, (e) represent and warrant that no selection procedures believed by the
Seller to be adverse to the interests of the Certificateholders were utilized
in selecting the Designated Accounts, (f) represent and warrant as of the
Removal and Repurchase Date that the list of Removed Accounts delivered
pursuant to clause (b) above, as of the Removal and Repurchase Date, is true
and complete in all material respects, (g) represent and warrant that such
removal and repurchase will not result in a reduction or withdrawal of the
rating of any outstanding Series or Class of Certificates by the applicable
Rating Agency, (h) deliver to the Trustee, each Rating Agency and any
Enhancement Providers a Tax Opinion, dated the Removal and Repurchase Date,
with respect to such removal and repurchase, and (i) deliver to the Trustee
and any Enhancement Providers an officers' certificate confirming the items
set forth in clauses (d) through (g) above. No Designated Accounts shall be
removed and no Designated Receivables shall be repurchased unless each Rating
Agency shall have notified the Seller, the Servicer and the Trustee in writing
that such removal and repurchase will not result in a reduction or withdrawal
of such Rating Agency's rating of any outstanding Series or Class of
Certificates.
Upon satisfaction of the above conditions, on the Removal and Repurchase
Date with respect to any such Designated Account and Designated Receivables,
such Designated Account shall be deemed removed, and such Designated
Receivables ("Repurchased Receivables") shall be deemed repurchased, from the
Trust for all purposes.
On each Distribution Date, any amounts on deposit in the Collection
Account on such Distribution Date resulting from payment by the Seller of the
Repurchased Receivables Purchase Price will be applied first, to fund any
unpaid Miscellaneous Payment due on or prior to such Distribution Date and
second, an amount equal to the product of (i) the amount of any Repurchased
Receivables Purchase Price initially deposited by the Seller in the Collection
Account pursuant to such repurchase and (ii) the Monthly Payment Rate for the
immediately preceding Collection Period, which is the percentage obtained by
dividing Principal Collections for such Collection Period by the daily average
Pool Balance for such Collection Period, shall be treated as Principal
Collections collected in the immediately preceding Collection Period.
Notwithstanding the provisions described above, from and after the date
on which no Series issued prior to October 20, 1994 is outstanding, the Seller
shall have the right to require the reassignment to it of all the Trust's
right, title and interest in, to and under the Receivables then existing and
thereafter created, all monies due or to become due and all amounts received
with respect thereto and all proceeds thereof in or with respect to the
Accounts ("Automatic Removed Accounts") designated by the Seller, upon
satisfaction of the following conditions: (a) on or before the fifth business
day immediately preceding the date upon which such Accounts are to be removed,
the Seller shall have given the Trust, each Enhancement Provider and the
Rating Agencies a Removal Notice specifying the date for removal of the
Automatic Removed Accounts (the "Automatic Removal Date"); (b) on or prior to
the date that is five business days after the Automatic Removal Date, the
Seller shall have delivered to the Trustee a computer file or microfiche or
written list containing a true and complete list of the Automatic Removed
Accounts specifying for each such Account, as of the removal notice date, its
account number and the aggregate amount of Receivables outstanding in such
Account; (c) the Seller shall have represented and warranted as of each
Automatic Removal Date that the list of Automatic Removed
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Accounts delivered pursuant to clause (b) above, as of the Automatic Removal
Date, is true and complete in all material respects; (d) the Trustee shall
have received confirmation from each Rating Agency that such removal will not
result in a reduction or withdrawal of such Ratings Agency's rating of any
outstanding Series or Class of Certificates; (e) the Seller shall have
delivered to the Trustee, each Rating Agency and any Enhancement Providers an
officers' certificate, dated the Automatic Removal Date, to the effect that
the Seller reasonably believes that such removal will not cause an Early
Amortization Event or Reinvestment Event to occur with respect to any Series;
and (f) the Seller shall have delivered to the Trustee, each Rating Agency and
any Enhancement Providers a Tax Opinion, dated the Automatic Removal Date,
with respect to such removal.
Upon satisfaction of the above conditions, on the Automatic Removal Date
all the right, title and interest of the Trust in and to the Receivables
arising in the Automatic Removed Accounts, all monies due and to become due
and all amounts received with respect thereto and all proceeds thereof shall
be deemed removed from the Trust for all purposes.
Excluded Series
A Series of Certificates may be designated as an excluded series (an
"Excluded Series") with respect to a Series of Certificates previously issued
by the Trust as to which the Accumulation Period or Controlled Amortization
Period has commenced (a "Paired Series").
Each Excluded Series will be prefunded with an initial deposit to a
prefunding account in an amount equal to the initial principal balance of such
Excluded Series and primarily from the proceeds of the offering of such
Excluded Series. Any such prefunding account will be held for the benefit of
such Excluded Series and not for the benefit of the Paired Series. As funds
are accumulated in the Principal Funding Account for such Paired Series or
distributed to holders of Certificates of such Paired Series, an equal amount
of funds on deposit in any prefunding account for such prefunded Excluded
Series will be released (which funds will be distributed to the Seller). Until
payment in full of the Paired Series, no Interest Collections, Principal
Collections, Defaulted Amounts or Miscellaneous Payments will be
allocated to the related Excluded Series. In addition, it is expected that any
Excluded Series will be excluded from the calculation of the Required
Participation Amount as described under " -- Addition of Accounts".
Collection Account
The Servicer has established and will maintain an Eligible Deposit
Account for the benefit of the Certificateholders in the name of the Trustee,
on behalf of the Trust (the "Collection Account"). "Eligible Deposit Account"
means either (a) a segregated account with an Eligible Institution or (b) a
segregated trust account with the corporate trust department of a depository
institution organized under the laws of the United States or any one of the
states thereof (or any domestic branch of a foreign bank), having corporate
trust powers and acting as trustee for funds deposited in such account, so
long as any of the securities of such depository institution has a credit
rating from each Rating Agency in one of its generic rating categories which
signifies investment grade. "Eligible Institution" means (a) the corporate
trust department of the Trustee or (b) a depository institution organized
under the laws of the United States or any one of the states thereof, or the
District of Columbia (or a domestic branch of a foreign bank), which at all
times (i) has either (x) a long-term unsecured debt rating of A2 or better by
Moody's Investors Service, Inc. ("Moody's") and of AAA or better by Standard &
Poor's Ratings Group ("Standard & Poor's") or (y) a certificate of deposit
rating of P-1 by Moody's or A-1+ by Standard & Poor's and (ii) is a member of
the FDIC. Funds in the Collection Account generally will be invested in
Eligible Investments. "Eligible Investments" are:
(a) book-entry securities, negotiable instruments or securities
represented by instruments in bearer or registered form having original
or remaining maturities of 30 days or less, but in no event occurring
later than the Distribution Date next succeeding the Trustee's
acquisition thereof, except as otherwise provided, with respect to any
Series offered hereby, in the related Series Supplement, which evidence:
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(i) direct obligations of, and obligations fully guaranteed as
to timely payment by, the United States of America;
(ii) demand deposits, time deposits or certificates of deposit
of any depositary institution or trust company incorporated under the
laws of the United States of America or any state thereof (or any
domestic branch of a foreign bank) and subject to supervision and
examination by Federal or state banking or depository institution
authorities; provided, however, that at the time of the Trust's
investment or contractual commitment to invest therein, the commercial
paper or other short-term unsecured debt obligations (other than such
obligations the rating of which is based on the credit of a person or
entity other than such depository institution or trust company) thereof
shall have a credit rating from each of the Rating Agencies in the
highest investment category granted thereby;
(iii) commercial paper having, at the time of the Trust's
investment or contractual commitment to invest therein, a rating from
each of the Rating Agencies in the highest investment category granted
thereby;
(iv) except during a Reinvestment Period with respect to any
Series, investments in money market funds having a rating from each of
the Rating Agencies in the highest investment category granted thereby
or otherwise approved in writing thereby;
(v) bankers' acceptances issued by any depository institution or
trust company referred to in clause (ii) above; and
(vi) certain repurchase obligations, including those of
appropriately rated broker-dealers and financial institutions; and
(b) any other investment consisting of a financial asset that by
its terms converts to cash within a finite period of time, provided that
each Rating Agency shall have notified the Seller, the Servicer and the
Trustee that the Trust's investment therein will not result in a
reduction or withdrawal of the rating of any outstanding Class or Series
with respect to which it is a Rating Agency.
The foregoing notwithstanding, so long as any Series issued by the Trust
prior to October 20, 1994 remains outstanding, funds in the Collection Account
will be invested only in (i) obligations fully guaranteed by the United
States, (ii) demand deposits, time deposits or certificates of deposit of
depository institutions or trust companies, the commercial paper of which has
the highest rating from the applicable Rating Agency, (iii) commercial paper
having at the time of the Trust's investment, a rating in the highest
rating category from the applicable Rating Agency, (iv) demand deposits, time
deposits and certificates of deposit which are fully insured by the FDIC, (v)
bankers' acceptances issued by any depository institution or trust company
described in (ii) above, (vi) except during a Reinvestment Period with respect
to any Series, investments in money market funds which have the highest rating
from, or have otherwise been approved in writing by, each Rating Agency and
(vii) certain repurchase obligations (collectively, "Eligible Investments").
Any earnings (net of losses and investment expenses) on funds in the
Collection Account will be credited to the Collection Account. The Servicer
will have the revocable power to instruct the Trustee to make withdrawals and
payments from the Collection Account for the purpose of carrying out its
duties under the Pooling and Servicing Agreement. The Servicer may select an
appropriate agent as representative of the Servicer for the purpose of
designating such investments.
Excess Funding Account
Except, to the extent provided in the related Series Supplement, during
an Early Amortization Period or Reinvestment Period with respect to a Series,
the Excess Funded Amount, if any, for such Series will be maintained in the
Excess Funding Account established with the Trustee with respect to such
Series. The Excess Funded Amount with respect to a Series will initially equal
the excess, if any, of the initial principal balance of the Certificates of
such Series over the Initial Invested Amount thereof. Funds on deposit in the
Excess Funding Account for a Series will be invested by the Trustee at the
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direction of the Servicer generally in Eligible Investments. Such investments
must mature on or prior to the next Distribution Date. The Servicer may select
an appropriate agent as representative of the Servicer for the purpose of
designating such investments.
Funds on deposit in the Excess Funding Account for a Series will be
withdrawn and paid to the Seller or allocated to one or more other Series
which are in Controlled Amortization, Early Amortization, Reinvestment or
Accumulation Periods to the extent of any increases in the Invested Amount of
the Series in question as a result of the addition of Receivables to the
Trust, a reduction in the Seller's Interest, or a reduction in the Initial
Invested Amount of any other Series. Additional amounts will be deposited in
the Excess Funding Account for a Series on a Distribution Date to the extent
that the sum of the Certificateholders' Interest of such Series in Principal
Receivables and the amount on deposit in the Excess Funding Account, if any,
for such Series prior to the deposit on such Distribution Date is less than
the outstanding principal balance of the Certificates of such Series, but only
to the extent that funds are available therefor as provided in the related
Series Supplement. The allocation of additional Receivables to increase the
Invested Amount of each Series that provides for an Excess Funding Account or
similar arrangement involving fluctuating levels of investment in the
Receivables will generally be based on the proportion that the amount on
deposit in the Excess Funding Account for that Series bears to the amounts on
deposit in the Excess Funding Accounts of all Series providing for Excess
Funding Accounts or such similar arrangements or to amounts otherwise
similarly available; and the deposit of amounts in the Excess Funding Accounts
for each such Series will be based on the proportion that the Adjusted
Invested Amount of that Series bears to the Adjusted Invested Amounts of all
Series providing for Excess Funding Accounts or such similar arrangements.
On each Distribution Date, all investment income earned on amounts in
the Excess Funding Account for any Series since the preceding Distribution
Date will be withdrawn from such Excess Funding Account and applied as
described herein and in the related Prospectus Supplement.
Funds on deposit in the Excess Funding Account for a Series on the
earliest of (i) the commencement of a Reinvestment Period with respect to such
Series, (ii) the commencement of an Early Amortization Period with respect to
such Series and (iii) the Distribution Date or Distribution Dates specified in
or determined in the manner provided in the Series Supplement for such Series
will be distributed to the Certificateholders of such Series or a Class
thereof or deposited in the Principal Funding Account for such Series or a
Class thereof, in each case if and to the extent the related Series Supplement
so provides. In addition, except as otherwise provided in the related Series
Supplement, no funds will be deposited in the Excess Funding Account for a
Series during any Early Amortization Period or Reinvestment Period with
respect to such Series or with respect to any Collection Period following the
Collection Period specified in or determined in the manner provided in the
Series Supplement for such Series.
Allocation Percentages
Allocations among Series. Pursuant to the Pooling and Servicing
Agreement, during each Collection Period the Servicer will allocate to each
outstanding Series its share of Interest Collections, Principal
Collections, Defaulted Receivables and Miscellaneous Payments based on the
applicable Series Allocable Interest Collections, Series Allocable Principal
Collections, Series Allocable Defaulted Amount and Series Allocable
Miscellaneous Payments.
"Series Allocable Interest Collections", "Series Allocable
Principal Collections", "Series Allocable Defaulted Amount" and "Series
Allocable Miscellaneous Payments" mean, with respect to any Series of
Certificates for any Collection Period, the product of the Series
Allocation Percentage for such Series and the amount of Interest
Collections and Principal Collections, the Defaulted Amount and
Miscellaneous Payments, respectively, with respect to such Collection
Period.
"Miscellaneous Payments" for any Collection Period means the sum
of (a) Adjustment Payments and Transfer Deposit Amounts received with
respect to such Collection Period and (b) Unallocated Principal
Collections on such Distribution Date available to be treated as
Miscellaneous Payments as described below under "Principal Collections
for all Series".
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"Series Allocation Percentage" means, with respect to a Series of
Certificates for any Collection Period, the percentage equivalent of a
fraction, the numerator of which is the Adjusted Invested Amount of such
Series as of the last day of the immediately preceding Collection Period
and the denominator of which is the Trust Adjusted Invested Amount as of
such last day.
"Adjusted Invested Amount" means, with respect to a Series for any
date, an amount equal to the sum of (a) the Initial Invested Amount of
such Series, minus unreimbursed Investor Charge-Offs for such Series and
(b) the Available Subordinated Amount with respect to such Series (after
giving effect to the allocations, distributions, withdrawals and
deposits to be made on the Distribution Date during the Collection
Period in which such date occurs).
"Trust Adjusted Invested Amount" means, with respect to any
Collection Period, the sum of the Adjusted Invested Amounts for all
outstanding Series.
"Initial Invested Amount" means, with respect to any Series and
for any date, the amount specified in the related Series Supplement. The
Initial Invested Amount for any Series may be increased or decreased
from time to time as specified in the related Series Supplement,
including as a result of deposits to or withdrawals from the Excess
Funding Account, if any, for such Series.
Allocation Between the Certificateholders and the Seller. The Servicer
will allocate amounts initially allocated to each Series between the
Certificateholders' Interest and the Seller's Interest for each Collection
Period as provided in the related Series Supplement and, with respect to a
Series offered hereby, described in the related Prospectus Supplement. If a
Series consists of more than one Class, such amounts allocated to the
Certificateholders' Interest of such Series will be further allocated between
such Classes as provided in the related Series Supplement and, with respect to
a Series offered hereby, as described in the related Prospectus Supplement.
Principal Collections for all Series. Principal Collections allocated to
the Certificateholders' Interest of any Series, for any Collection Period with
respect to any Accumulation Period, Controlled Amortization Period,
Reinvestment Period or Early Amortization Period with respect to such Series
or a Class thereof, will first be allocated to make required payments of
principal to the Principal Funding Account or to the Certificateholders of
such Series or a Class thereof, in each case if and to the extent specified in
the Series Supplement for such Series. The Servicer will determine the amount
of available certificateholder principal collections for each Series and any
Collection Period remaining after such required payments, if any ("Excess
Principal Collections"). The Servicer will allocate Excess Principal
Collections to cover any principal distributions to Certificateholders of any
Series which are either scheduled or permitted and which have not been covered
out of Principal Collections and certain other amounts allocated to such
Series ("Principal Shortfalls"). Excess Principal Collections will generally
not be used to cover Investor Charge-Offs for any Series. If Principal
Shortfalls exceed Excess Principal Collections for any Collection Period,
Excess Principal Collections will be allocated pro rata among the applicable
Series based on the relative amounts of Principal Shortfalls, unless otherwise
provided in the applicable Series Supplements. To the extent that Excess
Principal Collections exceed Principal Shortfalls, the balance will be paid to
the Seller if the Seller's Participation Amount (determined after giving
effect to any Principal Receivables transferred to the Trust on such date)
exceeds the Trust Available Subordinated Amount for the immediately
preceding Determination Date (after giving effect to the allocations,
distributions, withdrawals and deposits to be made on the Distribution Date
immediately following such Determination Date). Any amount not allocated to
the Seller because the Seller's Participation Amount does not exceed the Trust
Available Subordinated Amount will be held unallocated ("Unallocated Principal
Collections") until the Seller's Participation Amount exceeds the Trust
Available Subordinated Amount, at which time such amount will be allocated to
the Seller, or until an Early Amortization Period, Accumulation Period,
Controlled Amortization Period or Reinvestment Period commences for any
Series, after which such amount will be treated as a Series Allocable
Miscellaneous Payment.
Allocation of Collections; Deposits in Collection Account
The Servicer, no later than two business days after the processing date,
will deposit all collections received with respect to the Receivables
(excluding, with certain exceptions, certain portions thereof allocable to the
Seller) in each Collection Period into the Collection Account. Notwithstanding
the
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foregoing requirement for daily deposits, for so long as (i) CFC,
remains the Servicer under the Pooling and Servicing Agreement, (ii)
no Service Default has occurred and is continuing and (iii) (x) CFC has and
maintains a short-term debt rating of at least A-1 by Standard & Poor's and
P-1 by Moody's, (y) CFC arranges for and maintains a letter of credit or other
form of Enhancement in respect of the Servicer's obligation to make deposits
of collections on the Receivables in the Collection Account that is acceptable
in form and substance to each Rating Agency or (z) CFC otherwise obtains the
Rating Agency confirmations described below, then, subject to any limitations
in the confirmations referred to below, CFC need not deposit collections into
the Collection Account on the day indicated in the preceding sentence but may
use for its own benefit all such collections until the business day
immediately preceding the related Distribution Date or, provided that no
Series issued prior to October 20, 1994 is outstanding, until such
Distribution Date, at which time CFC will make such deposits in an amount
equal to the net amount of such deposits and withdrawals which would have been
made had the conditions of this sentence not applied; provided, however, that
prior to ceasing daily deposits as described above the Seller shall have
delivered to the Trustee written confirmation from the applicable Rating
Agencies that the failure by CFC to make daily deposits will not result in a
reduction or withdrawal of the rating of any outstanding Series or Class of
Certificates. In addition, during any Collection Period the Servicer will
generally be required to deposit Interest Collections and Principal
Collections into the Collection Account only to the extent of the
distributions required to be made to Certificateholders, the amounts required
to be deposited into any deposit, trust, reserve or similar account maintained
for the benefit of Certificateholders of any Series and certain other parties
and the amounts required to be paid to any Enhancement Provider on the
Distribution Date relating to such Collection Period and if, at any time prior
to such Distribution Date, the amount of collections deposited in the
Collection Account exceeds the amount required to be deposited, the Servicer
will be permitted to withdraw such excess from the Collection Account.
On any date on which collections are deposited in the Collection
Account, the Servicer will distribute directly to the Seller the amount of
such Interest Collections allocable to each Series specified in the related
Series Supplement and, with respect to a Series offered hereby, described in
the related Prospectus Supplement if the Seller's Participation Amount
(determined after giving effect to any Principal Receivables transferred to
the Trust on such date) exceeds the Trust Available Subordinated Amount for
the immediately preceding Determination Date (after giving effect to the
allocations, distributions, withdrawals and deposits to be made on the
Distribution Date immediately following such Determination Date). In addition,
during the Revolving Period for any Series, subject to certain limitations,
the Servicer will distribute directly to the Seller on each such date of
deposit the amount of Principal Collections allocable to each Series specified
in the related Series Supplement and, with respect to a Series offered hereby,
described in the related Prospectus Supplement if the Seller's Participation
Amount (determined after giving effect to any Principal Receivables
transferred to the Trust on such date) exceeds the Trust Available
Subordinated Amount for the immediately preceding Determination Date (after
giving effect to the allocations, distributions, withdrawals and deposits to
be made on the Distribution Date immediately following such Determination
Date).
Limited Subordination of Seller's Interest; Enhancements.
Subordination of Seller's Interest. Credit enhancement with respect to
any Series of Certificates offered hereby will be provided by subordination of
the Seller's Interest to the rights of Certificateholders of such Series to
the extent described in the related Prospectus Supplement. The amount of such
subordination with respect to any Series is referred to herein as the
Available Subordinated Amount for such Series. The Available Subordinated
Amount for any Series offered hereby will be subject to decrease and
increase from time to time if and to the extent described in the related
Prospectus Supplement. The Prospectus Supplement for each Series offered
hereby will describe the manner in which collections attributable to the
Available Subordinated Amount for such Series may be drawn upon to make
payments to or for the benefit of the holders of Certificates of such Series.
If so provided in the related Series Supplements, the Available Subordinated
Amount for a Series may be structured so as to be available to more than one
Series of Certificates.
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Enhancements. In addition to the subordination described above, for any
Series, Enhancements may be provided with respect to one or more Classes
thereof. Enhancements with respect to one or more Classes of a Series offered
hereby may include a letter of credit, surety bond, cash collateral account,
spread account, guaranteed rate agreement, swap or other interest protection
agreement, repurchase obligation, cash deposit or another form of credit
enhancement described in the related Prospectus Supplement or any combination
of the foregoing. Enhancements may also be provided to a Series or Class or
Classes of a Series by subordination provisions which require that
distributions of principal and/or interest be made with respect to the
Certificates of such Series or such Class or Classes before distributions are
made to one or more Series or one or more Classes of such Series, if the
Series Supplements with respect thereto so provide. If so specified in the
related Prospectus Supplement, any form of Enhancement may be structured so as
to be available to more than one Class or Series to the extent described
therein.
If Enhancement is provided with respect to a Series offered hereby, the
related Prospectus Supplement will include a description of (a) the amount
payable under such Enhancement, (b) any conditions to payment thereunder not
otherwise described herein, (c) the conditions (if any) under which the amount
payable under such Enhancement may be reduced and under which such Enhancement
may be terminated or replaced and (d) any material provisions of any agreement
applicable relating to such Credit Enhancement. Additionally, in certain
cases, the related Prospectus Supplement may set forth certain information
with respect to the applicable Enhancement Provider, including (i) a brief
description of its principal business activities, (ii) its principal place of
business, place of incorporation and the jurisdiction under which it is
chartered or licensed to do business, (iii) if applicable, the identity of
regulatory agencies which exercise primary jurisdiction over the conduct of
its business and (iv) its total assets, and its stockholders' equity or
policyholders' surplus, if applicable, as of a date specified in the
Prospectus Supplement.
Limitations on Subordination and Enhancements. The presence of an
Available Subordinated Amount and/or Enhancement with respect to a Series or
Class is intended to enhance the likelihood of receipt by Certificateholders
of such Series or Class of the full amount of principal and interest with
respect thereto and to decrease the likelihood that such Certificateholders
will experience losses. However, unless otherwise specified in the Prospectus
Supplement for a Series offered hereby, neither subordination of the Seller's
Interest nor the Enhancement, if any, with respect thereto will provide
protection against all risks of loss or will guarantee repayment of the entire
principal balance of the Certificates and interest thereon. If losses occur
which exceed the amount covered by such subordination or Enhancement or which
are not covered by such subordination or Enhancement, Certificateholders will
bear their allocable share of deficiencies. In addition, if specific
Enhancement is provided for the benefit of more than one Class or Series,
Certificateholders of any such Class or Series will be subject to the risk
that such Enhancement will be exhausted by the claims of Certificateholders of
other Classes or Series.
Distributions
Payments to Certificateholders of a Series offered hereby or a Class
thereof will be made from the Collection Account and any accounts established
for the benefit of such Certificateholders as described in the related
Prospectus Supplement.
Defaulted Receivables and Recoveries
"Defaulted Receivables" on any Determination Date are (i) all
Receivables which were charged off as uncollectible in respect of the
immediately preceding Collection Period and (ii) all Receivables which were
Eligible Receivables when transferred to the Trust, which arose in an Account
which became an Ineligible Account after the date of transfer of such
Receivables to the Trust and which were not Eligible Receivables for any six
consecutive Determination Dates thereafter. The "Defaulted Amount" for any
Collection Period will be an amount (which shall not be less than zero) equal
to (a) the principal amount of Receivables that became Defaulted Receivables
during the preceding Collection Period minus (b) the sum of (i) the full
amount of any Defaulted Receivables subject to reassignment to the Seller or
purchase
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by the Servicer for such Collection Period unless certain events of
bankruptcy, insolvency or receivership have occurred with respect to either of
the Seller or the Servicer, in which event the Defaulted Amount will not be
reduced for those Defaulted Receivables and (ii) the excess, if any, for the
immediately preceding Determination Date of the amount determined pursuant to
this clause (b) for such Determination Date over the amount determined
pursuant to clause (a) for such Determination Date. Receivables will be
charged off as uncollectible in accordance with the Servicer's customary and
usual policies and procedures for servicing its own comparable revolving
dealer wholesale loan accounts. A portion of the Series Allocable Defaulted
Amount for each Series and Collection Period will be allocated between the
Certificateholders of such Series and the Seller as provided in the related
Series Supplement. The portion of the Defaulted Amount allocated to the
Certificateholders of a Series is referred to as the "Investor Default Amount"
for such Series. The Investor Default Amount for any Series that consists of
more than one Class will be further allocated between such Classes as provided
in the related Series Supplement.
If the Servicer adjusts the amount of any Receivable because of a
rebate, billing error or certain other noncash items to a Dealer, or because
such Receivable was created in respect of inventory which was refused or
returned by a Dealer, the principal amount of each of the Seller's Interest
and the Pool Balance will be reduced by the amount of the adjustment or
charge-off. Furthermore, to the extent that the reduction in the Seller's
Interest would reduce the Seller's Participation Amount below the Trust
Available Subordinated Amount for the immediately preceding Determination Date
(after giving effect to the allocations, distributions, withdrawals and
deposits to be made on the Distribution Date immediately following such
Determination Date), the Seller will deposit a cash amount equal to such
deficiency into the Collection Account in immediately available funds (an
"Adjustment Payment") on the day on which such adjustment occurs.
Optional Repurchase
If so provided in a Prospectus Supplement relating to a Series of
Certificates offered hereby, on any Distribution Date occurring after the
Invested Amount of the Certificates of such Series is reduced to the
percentage of the initial outstanding principal amount of the Certificates of
such Series specified therein, the Seller will have the option, subject to
certain conditions, to repurchase the Certificateholders' Interest of such
Series. The purchase price will generally be equal to the Invested Amount of
such Series on the Determination Date preceding the Distribution Date on which
such repurchase will be made plus accrued and unpaid interest on the unpaid
principal amount of the Certificates of such Series at the applicable
certificate rate (together with interest on overdue interest), plus any other
amounts specified in the related Series Supplement. The purchase price will be
deposited in the Collection Account in immediately available funds on the
Distribution Date on which the Seller exercises such option. Following any
such purchase, the Certificateholders of such Series will have no further
rights with respect to the Certificateholders' Interest of such Series, other
than the right to receive the final distribution on the Certificates of that
Series. In the event that the Seller fails for any reason to deposit such
purchase price, payments will continue to be made to the Certificateholders of
such Series as described in the related Prospectus Supplement.
Reinvestment Events and Early Amortization Events
Commencing on the first Distribution Date following the Collection
Period in which a Reinvestment Event has occurred with respect to any Series,
Principal Collections allocable to the Certificateholders' Interest of such
Series will no longer be paid to USA or allocated to any other Series but
instead will be deposited to the Principal Funding Account for such Series
monthly on each Distribution Date, and the Controlled Deposit Amount or
Controlled Amortization Amount, if any, will no longer apply to distributions
of principal in respect of the Certificates of such Series, in each case
except as described below or provided in the related Series Supplement. A
"Reinvestment Event" refers to, for any Series, any of the events so defined
in the Series Supplement relating to that Series and, with respect to any
Series offered hereby, described in the related Prospectus Supplement.
Upon the occurrence of any event so defined, a Reinvestment Event will
be deemed to have occurred with respect to such Series without any notice or
other action on the part of any other party
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immediately upon the occurrence of such event. The Reinvestment Period with
respect to such Series will commence as of the close of business on the
business day immediately preceding the day on which the Reinvestment Event is
deemed to have occurred. Monthly deposits of principal to the Principal
Funding Account for such Series will, except as described below or provided in
the related Series Supplement, begin on the first Distribution Date following
the Collection Period in which a Reinvestment Period has commenced with
respect to such Series.
Commencing on the first Distribution Date following the Collection
Period in which an Early Amortization Event has occurred with respect to any
Series, Principal Collections allocable to the Certificateholders' Interest of
such Series will no longer be paid to USA, allocated to any other Series or
retained in the Principal Funding Account for such Series but instead will be
distributed to Certificateholders of such Series monthly on each Distribution
Date and the Controlled Deposit Amount or Controlled Amortization Amount, if
any, will no longer apply to distributions of principal on the Certificates of
such Series, in each case except as described below or provided in the related
Series Supplement. An "Early Amortization Event" refers to, for any Series,
any of the events so defined in the Series Supplement relating to the Series
and, with respect to any Series offered hereby, described in the related
Prospectus Supplement, as well as either of the following events:
1. the occurrence of certain events of bankruptcy, insolvency or
receivership relating to the Trust or the Seller; and
2. the Trust or USA becomes an investment company within the
meaning of the Investment Company Act of 1940, as amended.
Upon the occurrence of any event described above or in the Prospectus
Supplement for a Series offered hereby, an Early Amortization Event will be
deemed to have occurred with respect to such Series without any notice or
other action on the part of any other party immediately upon the occurrence of
such event. The Early Amortization Period with respect to such Series will
commence as of the close of business on the business day immediately preceding
the day on which the Early Amortization Event is deemed to have occurred.
Monthly distributions of principal to the Certificateholders of such Series
will begin on the first Distribution Date following the Collection Period in
which an Early Amortization Period has commenced with respect to such Series,
except as described below. The failure of the Trust to pay the outstanding
principal amount of the Certificates of any Series or Class by the Expected
Payment Date therefor will have the same consequences as the occurrence of an
Early Amortization Event with respect to such Series or Class; and all
references herein to Early Amortization Events shall be deemed to include such
a failure.
Notwithstanding the commencement of a Reinvestment Period or an Early
Amortization Period with respect to a Series of Certificates, such period may
terminate and the Revolving Period with respect to such Series and any Class
thereof may commence when the event giving rise to the commencement of such
Reinvestment Period or Early Amortization Period no longer exists, whether as
a result of the distribution of principal to Certificateholders of such Series
or otherwise, in each case if and to the extent provided in the Series
Supplement for such Series.
In addition to the consequences of a Reinvestment Event or an Early
Amortization Event with respect to any Series discussed above, if an
insolvency event occurs with respect to USA, or USA violates its covenant not
to create any lien on any Receivable, in each case as provided in the Pooling
and Servicing Agreement, on the day of such insolvency event or such
violation, as applicable, USA will (subject to the actions of the
Certificateholders) immediately cease to transfer Receivables to the Trust and
promptly give notice to the Trustee of such insolvency event or violation, as
applicable. Under the terms of the Pooling and Servicing Agreement, within 15
days the Trustee will publish a notice of such insolvency event or violation
stating that the Trustee intends to sell, liquidate or otherwise dispose of
the Receivables in a commercially reasonable manner and on commercially
reasonable terms, unless within a specified period of time holders of
Certificates of each outstanding Series representing more than 50% of the
aggregate unpaid principal amount of the Certificates of each such Series (or,
with respect to any Series with two or more Classes, the Certificates of each
such Class) and each person holding a
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Supplemental Certificate, instruct the Trustee not to sell, dispose of or
otherwise liquidate the Receivables and to continue transferring Receivables
as before such insolvency event or violation, as applicable. If the portion of
such proceeds allocated to the Certificateholders' Interest and the proceeds
of any collections on the Receivables in the Collection Account allocable to
the Certificateholders' Interest are not sufficient to pay the aggregate
unpaid principal balance of the Certificates in full plus accrued and unpaid
interest thereon, Certificateholders will incur a loss.
Termination; Fully Reinvested Date
Termination. The Trust will terminate on the earlier to occur of (a) the
day following the Distribution Date on which the aggregate Invested Amounts
for all Series is zero, (b) May 31, 2012 and (c) the date on which proceeds
from the sale, disposal or other liquidation of the Receivables are
distributed to the Certificateholders following an insolvency event with
respect to USA or any violation by USA of its covenant not to create any lien
on any Receivable, in each case as provided in the Pooling and Servicing
Agreement and as described above under "Reinvestment Events and Early
Amortization Events". Upon termination of the Trust, all right, title and
interest in the Receivables and other funds of the Trust (other than amounts
in the Collection Account, any Principal Funding Account, Interest Funding
Account, Excess Funding Account or other account for the final distribution of
principal and interest to Certificateholders) will be conveyed and transferred
to USA.
In any event, the last payment of principal and interest on any Series
of Certificates will be due and payable no later than the date specified in
the related Prospectus Supplement (the "Series Termination Date").
Fully Reinvested Date. Following the occurrence of the Fully Reinvested
Date with respect to any Series, Certificateholders of that Series will no
longer have any interest in the Receivables and all the representations and
covenants of the Seller and the Servicer relating to the Receivables, as well
as certain other provisions of the Pooling and Servicing Agreement and all
remedies for breaches thereof, will no longer accrue to the benefit of the
Certificateholders of that Series, in each case unless the Revolving Period
with respect to such Series recommences as provided in the related Series
Supplement. Those representations, covenants and other provisions include the
conditions to the exchange of the Seller's Certificate described under "The
Seller's Certificate", the conditions to the issuance of a new Series
described under "New Issuances", the representations described under
"Representations and Warranties" to the extent they relate to the Receivables
and the Collateral Security, the limitations on additions and removals of
Accounts described under "Addition of Accounts" and "Removal of Accounts",
respectively, and the obligations of the Servicer with respect to servicing
the Receivables described under "Collection and Other Servicing Procedures"
and "Servicer Covenants". In addition, upon the occurrence of the Fully
Reinvested Date with respect to any Series, no Interest Collections, Principal
Collections, Defaulted Receivables or Miscellaneous Payments will be allocated
to that Series, unless the Revolving Period with respect thereto recommences
as described above. Notwithstanding the foregoing, when the final distribution
has been made with respect to each Series of Certificates or the Fully
Reinvested Date has occurred with respect thereto, all right, title and
interest in the Receivables will be conveyed and transferred to USA.
Indemnification
The Pooling and Servicing Agreement provides that the Servicer will
indemnify the Trust and the Trustee from and against any loss, liability,
expense, damage or injury suffered or sustained arising out of any acts,
omissions or alleged acts or omissions arising out of activities of the Trust,
the Trustee or the Servicer pursuant to the Pooling and Servicing Agreement;
provided, that, the Trust or the Trustee will not be so indemnified if such
acts, omissions or alleged acts or omissions constitute fraud, gross
negligence, breach of fiduciary duty or willful misconduct by the Trustee.
However, the Servicer will not indemnify the Trust, the Trustee or the
Certificateholders for any act taken by the Trustee at the request of the
Certificateholders or for any tax required to be paid by the Trust or the
Certificateholders.
The Pooling and Servicing Agreement provides that, except as described
above and with certain other exceptions, neither the Seller, the Servicer nor
any of their directors, officers, employees or agents
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will be under any liability to the Trust, the Trustee, the Certificateholders
or any other person for taking any action, or for refraining from taking any
action, pursuant to the Pooling and Servicing Agreement. However, neither the
Seller, the Servicer nor any of their directors, officers, employees or agents
will be protected against any liability which would otherwise be imposed by
reason of willful misfeasance, bad faith or gross negligence of any such
person in the performance of their duties or by reason of reckless disregard
of their obligations and duties thereunder.
In addition, the Pooling and Servicing Agreement provides that the
Servicer is not under any obligation to appear in, prosecute or defend any
legal action which is not incidental to its servicing responsibilities under
the Pooling and Servicing Agreement. The Servicer may, in its sole discretion,
undertake any such legal action which it may deem necessary or desirable for
the benefit of the Certificateholders with respect to the Pooling and
Servicing Agreement and the rights and duties of the parties thereto and the
interest of the Certificateholders thereunder.
Collection and Other Servicing Procedures
Pursuant to the Pooling and Servicing Agreement, the Servicer is
responsible for servicing, collecting, enforcing and administering the
Receivables in accordance with customary and usual procedures for servicing
its own revolving credit line dealer wholesale loans, except where the failure
to so act would not materially and adversely affect the rights of the Trust.
CFC covenants that it may only change the terms relating to the Accounts
if (i) in the Servicer's reasonable judgment, no Early Amortization Event or
Reinvestment Event will occur with respect to any Series as a result of the
change and (ii) the change is made applicable to the comparable segment of the
portfolio of revolving credit line dealer wholesale loan accounts with similar
characteristics owned or serviced by CFC and not only to the Accounts.
Servicing activities to be performed by the Servicer include collecting
and recording payments, communicating with dealers, investigating payment
delinquencies, evaluating the increase of credit limits, and maintaining
internal records with respect to each Account. Managerial and custodial
services performed by the Servicer on behalf of the Trust include providing
assistance in any inspections of the documents and records relating to the
Accounts and Receivables by the Trustee pursuant to the Pooling and Servicing
Agreement, maintaining the agreements, documents and files relating to the
Accounts and Receivables as custodian for the Trust and providing related data
processing and reporting services for Certificateholders and on behalf of the
Trustee.
Servicer Covenants
In the Pooling and Servicing Agreement the Servicer covenants that: (a)
it will duly satisfy all obligations on its part to be fulfilled under or in
connection with the Receivables and the Accounts, will maintain in effect all
qualifications required in order to service the Receivables and the Accounts
and will comply in all material respects with all requirements of law in
connection with servicing the Receivables and the Accounts, the failure to
comply with which would have a materially adverse effect on the
Certificateholders of any outstanding Series; (b) it will not permit any
rescission or cancellation of a Receivable except as ordered by a court of
competent jurisdiction or other government authority; (c) it will do nothing
to impair the rights of the Certificateholders in the Receivables or the
Accounts; and (d) it will not reschedule, revise or defer payments due on any
Receivable except in accordance with its guidelines for servicing revolving
credit line dealer wholesale loans.
Under the terms of the Pooling and Servicing Agreement, if the Seller or
the Servicer discovers, or receives written notice, that any covenant of the
Servicer set forth above has not been complied with in all material respects
and such noncompliance has not been cured within 30 days thereafter (or such
longer period as the Trustee may agree to) and has a materially adverse effect
on the interests of all Certificateholders in any Receivable or Account, CFC,
as Servicer, will purchase such Receivable or all Receivables in such Account,
as applicable. If CFC is the Servicer, such purchase will be made on the
Determination Date following the expiration of the 30-day cure period and the
Servicer will be obligated
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to deposit into the Collection Account an amount equal to the amount of such
Receivable plus accrued and unpaid interest thereon. The amount of such
deposit shall be deemed a Transfer Deposit Amount. The purchase by the
Servicer constitutes the sole remedy available to the Certificateholders if
such covenant or warranty of the Servicer is not satisfied and the Trust's
interest in any such purchased Receivables shall be automatically assigned to
the Servicer.
Servicing Compensation and Payment of Expenses
Unless otherwise provided in the related Series Supplement and, with
respect to a Series offered hereby, described in the related Prospectus
Supplement, the Servicer's compensation with respect to the Certificates of a
Series for its servicing activities and reimbursement for its expenses will be
a monthly servicing fee (the "Servicing Fee") in an amount payable in arrears
on each Distribution Date on or before the Series Termination Date of that
Series and the Fully Reinvested Date, if any, of that Series (and thereafter
during the Revolving Period with respect to such Series, if such Revolving
Period recommences) generally equal to one-twelfth of the product of (a) the
"Servicing Fee Rate" set forth in such Series Supplement, (b) the Pool Balance
as of the last day of the second preceding Collection Period and (c) the
Series Allocation Percentage for such Series for the immediately preceding
Collection Period. Unless otherwise specified in a related Series Supplement
and, with respect to a Series offered hereby, described in the related
Prospectus Supplement, the share of the Servicing Fee allocable to
Certificateholders of any Series with respect to any Distribution Date (the
"Monthly Servicing Fee") shall generally be equal to one-twelfth of the
product of (a) the Servicing Fee Rate and (b) the Invested Amount of such
Series as of the last day of the second preceding Collection Period. The
remainder of the Servicing Fee with respect to any Series shall be paid by the
Seller. The Monthly Servicing Fee with respect to any Series shall be payable
to the Servicer solely to the extent amounts are available for distribution
therefor in accordance with the terms of the Pooling and Servicing Agreement.
The Servicer will be permitted to waive its right to receive the
Servicing Fee with respect to any Series on any Distribution Date, so long as
it believes that sufficient Interest Collections will be available on a future
Distribution Date to pay the Monthly Servicing Fee relating to such waived
Servicing Fee, in which case the Servicing Fee and the Monthly Servicing Fee
for such Series and such Distribution Date shall be deemed to be zero.
The Servicer will pay from its servicing compensation certain expenses
incurred in connection with servicing the Accounts and the Receivables
including, without limitation, payment of fees and disbursements of the
Trustee and independent accountants and all other fees and expenses which are
not expressly stated in the Pooling and Servicing Agreement to be payable by
the Trust or the Certificateholders other than federal, state and local income
and franchise taxes, if any, of the Trust or the Certificateholders.
Certain Matters Regarding the Servicer
The Servicer may not resign from its obligations and duties under the
Pooling and Servicing Agreement, except upon determination that such duties
are no longer permissible under applicable law. No such resignation will
become effective until the Trustee or a successor to the Servicer has assumed
the Servicer's responsibilities and obligations under the Pooling and
Servicing Agreement.
Any person into which, in accordance with the Pooling and Servicing
Agreement, the Servicer may be merged or consolidated or any person resulting
from any merger or consolidation to which the Servicer is a party, or any
person succeeding to the business of the Servicer, will be the successor to
the Servicer under the Pooling and Servicing Agreement.
Service Default
In the event of any Service Default (as defined below), the Trustee, by
written notice to the Servicer, may terminate all of the rights and
obligations of the Servicer, as servicer, under the Pooling and Servicing
Agreement and in and to the Receivables and the proceeds thereof and appoint a
new Servicer (a "Service Transfer"). The rights and interest of the Seller
under the Pooling and Servicing Agreement
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in the Seller's Interest will not be affected by any Service Transfer. The
Trustee shall as promptly as possible appoint a successor Servicer and if no
successor Servicer has been appointed by the Trustee and has accepted such
appointment by the time the Servicer ceases to act as Servicer, all rights,
authority, power and obligations of the Servicer under the Pooling and
Servicing Agreement shall pass to and be vested in the Trustee. Prior to any
Service Transfer, the Trustee will review any bids obtained from potential
servicers meeting certain eligibility requirements set forth in the Pooling
and Servicing Agreement to serve as successor Servicer for servicing
compensation not in excess of the Servicing Fee, plus certain excess amounts
payable to the Seller.
A "Service Default" refers to any of the following events:
1. failure by the Servicer to make any payment, transfer or
deposit, or to give instructions to the Trustee to make any payment,
transfer or deposit, on the date the Servicer is required to do so under
the Pooling and Servicing Agreement, which is not cured within a five
business day grace period;
2. failure on the part of the Servicer duly to observe or perform
any other covenants or agreements of the Servicer in the Pooling and
Servicing Agreement which failure has a materially adverse effect on the
Certificateholders of any outstanding Series and which continues
unremedied for a period of 30 days after the date written notice of such
failure shall have been given to the Servicer by the Trustee, or the
Servicer delegates its duties under the Pooling and Servicing Agreement,
except as specifically permitted thereunder;
3. any representation, warranty or certification made by the
Servicer in the Pooling and Servicing Agreement or in any certificate
delivered pursuant to the Pooling and Servicing Agreement proves to have
been incorrect in any material respect when made, has a materially
adverse effect on the rights of the Certificateholders of any
outstanding Series, and which materially adverse effect continues for a
period of 60 days after written notice thereof shall have been given to
the Servicer by the Trustee; or
4. the occurrence of certain events of bankruptcy, insolvency or
receivership with respect to the Servicer.
Notwithstanding the foregoing, a delay in or failure of performance
referred to under clause (1) above for a period of ten business days or
referred to under clauses (2) or (3) for a period of 60 business days, shall
not constitute a Service Default if such delay or failure was caused by an act
of God or other similar occurrence. Upon the occurrence of any such event, the
Servicer shall not be relieved from using its best efforts to perform its
obligations in a timely manner in accordance with the terms of the Pooling and
Servicing Agreement and the Servicer shall provide the Trustee, any
Enhancement Provider, the Seller and the Certificateholders prompt notice of
such failure or delay by it, together with a description of its efforts to so
perform its obligations. The Servicer shall immediately notify the Trustee in
writing of any Service Default.
Reports
On each Distribution Date (including each Distribution Date that
corresponds to an Interest Payment Date or any Special Payment Date), the
Trustee will forward to each Certificateholder of record of any Series a
statement (the "Distribution Date Statement") prepared by the Servicer setting
forth certain information with respect to the Trust and the Certificates of
such Series, as specified in the related Series Supplement and, with respect
to any Series offered hereby, described in the related Prospectus Supplement.
With respect to each Interest Payment Date or Special Payment Date, the
Distribution Date Statement with respect to any Series will include the
following information with respect to the Certificates of such Series: (a) the
total amount distributed on the Certificates of such Series; (b) the amount of
such distribution allocable to principal on the Certificates of such Series;
and (c) the amount of such distribution allocable to interest on the
Certificates of such Series.
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On or before January 31 of each calendar year, the Trustee will furnish
(or cause to be furnished) to each person who at any time during the preceding
calendar year was a Certificateholder of record a statement containing the
information required to be provided by an issuer of indebtedness under the
Code for such preceding calendar year or the applicable portion thereof during
which such person was a Certificateholder, together with such other customary
information as is required to be provided by an issuer of indebtedness under
the Code and such other customary information as is necessary to enable the
Certificateholders to prepare their tax returns. See "Certain Tax Matters".
Evidence as to Compliance
The Pooling and Servicing Agreement provides that on or before March 31
of each calendar year, the Servicer will cause a firm of nationally recognized
independent public accountants (who will also render other services to the
Servicer or the Seller) to furnish a report relating to certain matters in
connection with the servicing of CFC's portfolio of wholesale receivables.
The Pooling and Servicing Agreement provides for delivery to the Trustee
on or before March 31 of each calendar year, of a statement signed by an
officer of the Servicer to the effect that the Servicer has fully performed,
or caused to be fully performed its obligations in all material respects under
the Pooling and Servicing Agreement throughout the preceding year or, if there
has been a default in the performance of any such obligation, specifying the
nature and status of the default.
Copies of all statements, certificates and reports furnished to the
Trustee may be obtained by a request in writing delivered to the Trustee.
Amendments
The Pooling and Servicing Agreement and any Series Supplement may be
amended by the Seller, the Servicer and the Trustee, without Certificateholder
consent, so long as any such action shall not, as evidenced by an opinion of
counsel, adversely affect in any material respect the interests of the
Certificateholders.
The Pooling and Servicing Agreement and any Series Supplement may be
amended by the Seller, the Servicer and the Trustee with the consent of the
holders of Certificates evidencing not less than 66-2/3% of the aggregate
unpaid principal amount of the Certificates of all adversely affected Series
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Pooling and Servicing Agreement or of
modifying in any manner the rights of Certificateholders. No such amendment,
however, may (a) reduce in any manner the amount of or delay the timing of
distributions required to be made to Certificateholders or deposits of amounts
to be so distributed without the consent of each affected Certificateholder,
(b) change the definition or the manner of calculating any Certificateholders'
Interest without the consent of each affected Certificateholder, (c) reduce
the amount available under any Enhancement without the consent of each
affected Certificateholder, (d) adversely affect the rating of any Series or
Class by each Rating Agency without the consent of the holders of
Certificates of such Series or Class evidencing not less than 66-2/3% of the
aggregate unpaid principal amount of the Certificates of such Series or Class
or (e) reduce the aforesaid percentage of the unpaid principal amount of
Certificates the holders of which are required to consent to any such
amendment without the consent of each Certificateholder. Promptly following
the execution of any amendment to the Pooling and Servicing Agreement (other
than an amendment described in the preceding paragraph), the Trustee will
furnish written notice of the substance of such amendment to each
Certificateholder.
The foregoing notwithstanding, each holder of a Certificate offered
hereby, by its acceptance thereof, will be deemed to have consented to an
amendment to the Pooling and Servicing Agreement that (i) provides that funds
in the Collection Account may be invested in any Eligible Investments, (ii)
provides that the Seller need not make any deposit to the Collection Account
in respect of the Repurchased Receivables Price of any Designated Receivables
repurchased from the Trust, (iii) otherwise changes the procedures for
removing Receivables from the Trust as described under "Removal
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of Accounts", (iv) provides that, subject to the limitations described herein,
CFC need not deposit collections with respect to any Collection Period in the
Collection Account until the related Distribution Date and (v) permits the
designation of Automatic Additional Accounts as described herein.
The Pooling and Servicing Agreement may not be amended in any manner
which materially adversely affects the interests of any Enhancement Provider
without its prior consent.
List of Certificateholders
Upon written request of any three or more Certificateholders of record
the Trustee will afford such Certificateholders access during business hours
to the current list of Certificateholders of a Series or all outstanding
Series, as applicable, for purposes of communicating with other
Certificateholders of such Series or all outstanding Series, as applicable,
with respect to their rights under the Pooling and Servicing Agreement. See
"Book-Entry Registration" and "Definitive Certificates".
The Pooling and Servicing Agreement will not provide for any annual or
other meetings of Certificateholders.
The Trustee
The Bank of New York, a New York banking corporation, will act as
Trustee under the Pooling and Servicing Agreement. On August 23, 1996, The
Bank of New York, a New York banking corporation, succeeded Manufacturers and
Traders Trust Company, as Trustee, in accordance with the terms of the Pooling
and Servicing Agreement and pursuant to an Agreement of Resignation,
Appointment and Acceptance dated as of August 23, 1996 between USA, CFC,
Manufacturers and Traders Trust Company, as resigning trustee, and The Bank of
New York, as successor trustee. The Corporate Trust Office of the Bank of New
York is located at 101 Barclay Street, New York, New York 10286. The Seller,
the Servicer and their respective affiliates may from time to time enter into
normal banking and trustee relationships with the Trustee and its affiliates.
The Trustee may hold Certificates in its own name with the same rights it
would have if it were not the Trustee. In addition, for purposes of meeting
the legal requirements of certain local jurisdictions, the Trustee shall have
the power to appoint a co-trustee or separate trustees of all or a part of the
Trust. In the event of such appointments, all rights, powers, duties and
obligations 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.
The Trustee may resign at any time, in which event the Seller 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
Pooling and Servicing Agreement or if the Trustee becomes insolvent. In such
circumstances, the Servicer may appoint a successor Trustee. Any resignation
or removal of the Trustee and appointment of a successor Trustee does not
become effective until the acceptance of the appointment by the successor
Trustee.
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DESCRIPTION OF THE RECEIVABLES PURCHASE AGREEMENT
The Receivables initially transferred to the Trust by CARCO were
acquired by CARCO, and subsequent to the CARCO Transfer, were acquired by USA,
from CCC pursuant to the Receivables Purchase Agreement. Upon the merger of
CCC, (a wholly owned subsidiary of CFC) into CFC, CFC in accordance with the
terms of the Receivables Purchase Agreement assumed CCC's obligations under
the Receivables Purchase Agreement as the RPA Seller. The following summary
describes certain terms of the Receivables Purchase Agreement and is qualified
in its entirety by reference to the Receivables Purchase Agreement.
Sale or Transfer of Receivables
Pursuant to the Receivables Purchase Agreement, the RPA Seller sold or
transferred to the Seller all of its right, title and interest in and to all
of the Receivables and the Collateral Security as of the Initial Cut-Off Date
and all of the Receivables thereafter created. In addition, the RPA Seller has
previously designated Additional Accounts, and has previously conveyed to the
Seller the Principal Receivables in such Additional Accounts (together with
the related Collateral Security) as of the applicable Additional Cut-Off Date
and all Receivables (and related Collateral Security) created thereafter. As
described herein, pursuant to the Pooling and Servicing Agreement, the Seller
has transferred to the Trust all of its right, title and interest in and to
the Receivables Purchase Agreement.
In connection with the sale or transfer of the Receivables to the
Seller, the RPA Seller is required to indicate in its computer files that the
Receivables have been sold or transferred to the Seller, and that such
Receivables have been transferred by the Seller to the Trust. In addition, the
RPA Seller is required to provide to the Seller a computer file or microfiche
or written list containing a true and complete list of all such Receivables.
The records and agreements relating to the Accounts and Receivables have not
and will not be segregated by the RPA Seller from other documents and
agreements relating to other accounts and receivables and are not and will not
be stamped or marked to reflect the sale or transfer of the Receivables to the
Seller, but the computer records of the RPA Seller have been and will be
marked to evidence such sale or transfer. The RPA Seller has filed UCC
financing statements with respect to the Receivables meeting the requirements
of Michigan state law. See "Risk Factors -- Certain Legal Aspects" and
"Certain Legal Aspects of the Receivables -- Transfer of Receivables".
Representations and Warranties
The RPA Seller has or will make certain representations and warranties
to the Seller to the effect, among other things, that as of the Initial
Closing Date and each Series Issuance Date, it was duly incorporated and in
good standing and that it has the authority to consummate the transactions
contemplated by the Receivables Purchase Agreement.
The RPA Seller has or will also make representations and warranties to
the Seller relating to the Receivables to the effect, among other things, that
(a) as of the Initial Closing Date and each Series Issuance Date, each of the
Accounts is an Eligible Account and (b) as of the date any new Receivable is
created, such Receivable is an Eligible Receivable. In the event of a breach
of any representation and warranty set forth in this paragraph which results
in an Ineligible Receivable and the requirement that the Seller accept
retransfer of such Ineligible Receivable pursuant to the Pooling and Servicing
Agreement, the RPA Seller shall repurchase such Ineligible Receivable from the
Seller on the date of such retransfer. The purchase price for such Ineligible
Receivable shall be the face amount thereof, of which at least the amount of
any cash deposit required to be made by the Seller under the Pooling and
Servicing Agreement in respect of the retransfer of such Ineligible Receivable
shall be paid in cash.
The RPA Seller has or will also make representations and warranties to
the Seller to the effect, among other things, that as of the Initial Closing
Date and each Series Issuance Date (a) the Receivables Purchase Agreement
constitutes a legal, valid and binding obligation of the RPA Seller and (b)
the Receivables Purchase Agreement constitutes a valid sale or transfer to the
Seller of all right, title and interest of the RPA Seller in and to the
Receivables, whether then existing or thereafter created in the Accounts,
the Collateral Security and the proceeds thereof which is effective as to
each Receivable upon
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the creation thereof. If the breach of any of the representations and
warranties described in this paragraph results in the obligation of the
Seller under the Pooling and Servicing Agreement to accept retransfer of the
Receivables, the RPA Seller will repurchase the Receivables retransferred to
the RPA Seller for an amount of cash equal to the amount of cash the Seller
is required to deposit under the Pooling and Servicing Agreement in connection
with such retransfer.
The RPA Seller has agreed to indemnify the Seller and to hold the Seller
harmless from and against any and all losses, damages and expenses (including
reasonable attorneys' fees) suffered or incurred by the Seller if the
foregoing representations and warranties are materially false.
Certain Covenants
In the Receivables Purchase Agreement, the RPA Seller has covenanted
that it will perform its obligations under the agreements relating to the
Receivables and the Accounts in conformity with its current policies and
procedures relating to the Receivables and the Accounts.
The RPA Seller has covenanted further that, except for the sale and
conveyances under the Receivables Purchase Agreement and the interests created
under the Pooling and Servicing Agreement, the RPA Seller will not sell,
pledge, assign or transfer any interest in the Receivables to any other
person. The RPA Seller also has covenanted to defend and indemnify the Seller
for any loss, liability or expense incurred by the Seller in connection with a
breach by the RPA Seller of any of its representations, warranties or
covenants contained in the Receivables Purchase Agreement.
In addition, the RPA Seller has expressly acknowledged and consented to
the Seller's assignment of its rights relating to the Receivables under the
Receivables Purchase Agreement to the Trustee.
Termination
The Receivables Purchase Agreement will terminate immediately after the
Trust terminates. In addition, if pursuant to certain provisions of federal
law the RPA Seller becomes party to any bankruptcy or similar proceeding
(other than as a claimant) and, if such proceeding is not voluntary and is not
dismissed within 60 days of its institution, the RPA Seller will immediately
cease to sell or transfer Receivables to the Seller and will promptly give
notice of such event to the Seller and to the Trustee.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
Transfer of Receivables
On the Initial Closing Date, the RPA Seller sold and assigned the
Receivables to the Seller, which Receivables were immediately sold and
assigned to the Trust. The Seller has represented and warranted and will
represent and warranty on the Series Issuance Date with respect to each Series
that such sale to the Trust constituted a valid transfer and assignment to the
Trust of all right, title and interest of the Seller in and to the Receivables
and that, under the UCC (as in effect in Michigan), there exists a valid,
subsisting and enforceable first-priority perfected ownership interest in the
Receivables, in existence at the time of the formation of the Trust or at the
date of addition of any Additional Accounts, in favor of the Trust and a
valid, subsisting and enforceable first-priority perfected ownership interest
in the Receivables created thereafter in favor of the Trust on and after their
creation. However, the transfer of Receivables by the Seller to the Trust
could be deemed to create a security interest under the UCC. For a discussion
of the Trust's rights arising from these representations and warranties not
being satisfied, see "Description of the Certificates -- Representations and
Warranties".
Each of the RPA Seller and the Seller has represented that the
Receivables are "chattel paper" for purposes of the UCC as in effect in
Michigan. If the Receivables are deemed to be chattel paper and the transfer
thereof by either the RPA Seller to the Seller or by the Seller to the Trust
is deemed either to be a sale or to create a security interest, the UCC as in
effect in Michigan applies and the transferee must either take possession of
the chattel paper or file an appropriate financing statement or statements in
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order to perfect its interest therein. Financing statements covering the
Receivables have been filed under the UCC as in effect in Michigan by both
the Seller and the Trust to perfect their respective interests in the
Receivables and continuation statements will be filed as required to continue
the perfection of such interests. The Receivables have not and will not be
stamped to indicate the interest of the Seller or the Trustee.
There are certain limited circumstances under the UCC and applicable
federal law in which prior or subsequent transferees of Receivables could have
an interest in such Receivables with priority over the Trust's interest. A
purchaser of the Receivables who gives new value and takes possession of the
instruments which evidence the Receivables (i.e., the chattel paper) in the
ordinary course of such purchaser's business may, under certain circumstances,
have priority over the interest of the Trust in the Receivables. A tax or
other government lien on property of the RPA Seller or the Seller
arising prior to the time a Receivable is conveyed to the Trust may also have
priority over the interest of the Trust in such Receivable. Under the
Receivables Purchase Agreement, the RPA Seller will warrant to the Seller, and
under the Pooling and Servicing Agreement, the Seller has warranted to the
Trust, that the Receivables have been transferred free and clear of the lien
of any third party. Each of the RPA Seller and the Seller has also covenanted
that it will not sell, pledge, assign, transfer or grant any lien on any
Receivable or, except as described under "Description of the Certificates --
The Seller's Certificate", the Seller's Certificate (or any interest therein)
other than to the Trust. In addition, while CFC is the Servicer, cash
collections on the Receivables may, under certain circumstances, be commingled
with the funds of CFC prior to each Distribution Date and, in the event of the
bankruptcy of CFC, the Trust may not have a perfected interest in such
collections.
Certain Matters Relating to Bankruptcy
The RPA Seller has warranted to the Seller in the Receivables Purchase
Agreement that the sale of the Receivables by it to the Seller is a valid sale
of the Receivables to the Seller. In addition, the RPA Seller and the Seller
have agreed to treat the transactions described herein as a sale of the
Receivables to the Seller, and the RPA Seller has or will take all actions
that are required under Michigan law to perfect the Seller's ownership
interest in the Receivables. Notwithstanding the foregoing, if the RPA Seller
were to become a debtor in a bankruptcy case and a creditor or
trustee-in-bankruptcy of such debtor or such debtor itself were to take the
position that the sale of Receivables from such debtor to the Seller should be
recharacterized as a pledge of such Receivables to secure a borrowing from
such debtor, then delays in payments of collections of Receivables to the
Seller could occur or (should the court rule in favor of any such trustee,
debtor in possession or creditor) reductions in the amount of such payments
could result. See "Special Considerations -- Certain Legal Aspects".
In a 1993 case decided by the U.S. Court of Appeals for the Tenth
Circuit, Octagon Gas System, Inc. v. Rimmer, the court determined that
"accounts", a defined under the Uniform Commercial Code, would be included in
the bankruptcy estate of a transferor regardless of whether the transfer is
treated as a sale or a secured loan. Although the Receivables are likely to be
viewed as "chattel paper", as defined under the Uniform Commercial Code,
rather than as accounts, the Octagon holding is equally applicable to chattel
paper. The circumstances under which the Octagon ruling would apply are not
fully known and the extent to which the Octagon decision will be followed in
other courts or outside of the Tenth Circuit is not certain. If the holding in
the Octagon case were applied in a CFC bankruptcy, however, even if the
transfer of Receivables to the Seller and the Trust were treated as a sale,
the Receivables would be part of CFC's bankruptcy estate and would be subject
to claims of certain creditors, and delays and reductions in payments to the
Seller and Certificateholders could result.
In addition, if the RPA Seller were to become a debtor in a bankruptcy
case and a creditor or trustee-in-bankruptcy of such debtor or such debtor
itself were to request a court to order that CFC should be substantively
consolidated with the Seller, delays in payments on the Certificates could
result. Should the bankruptcy court rule in favor of any such creditor,
trustee-in-bankruptcy or such debtor, reductions in such payments could
result.
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The Seller has warranted to the Trust that the transfer of the
Receivables to the Trust is a sale of the Receivables to the Trust. The Seller
has or will take all actions that are required under Michigan law to perfect
the Trust's ownership interest in the Receivables and the Seller has warranted
to the Trust that the Trust will at all times have a first priority perfected
ownership interest therein and, with certain exceptions, in proceeds thereof.
Nevertheless, a tax or government lien on property of CFC or the Seller
arising prior to the time a Receivable is conveyed to the Trust may have
priority over the interest of the Trust in such Receivable. Each of CARCO's
and USA's certificate of incorporation provides that it shall not file a
voluntary application for relief under Title 11 of the United States Code (the
"Bankruptcy Code") without the affirmative vote of its two independent
directors. Pursuant to the Pooling and Servicing Agreement, the Trustee, all
Certificateholders and any Enhancement Provider will covenant that they will
not at any time institute against the Seller any bankruptcy, reorganization or
other proceedings under any federal or state bankruptcy or similar law. In
addition, certain other steps will be taken to avoid the Seller's becoming a
debtor in a bankruptcy case. Notwithstanding such steps, if the Seller were to
become a debtor in a bankruptcy case, and a bankruptcy trustee for the Seller
or the Seller as debtor in possession or a creditor of the Seller were to take
the position that the transfer of the Receivables from the Seller to the Trust
should be recharacterized as a pledge of such Receivables, then delays in
payments on the Certificates or (should the court rule in favor of any such
trustee, debtor in possession or creditor) reductions in the amount of such
payments could result.
The Seller does not intend to file, and CFC has agreed that it will not
cause the Seller to file, a voluntary application for relief under the
Bankruptcy Code or any similar applicable state law with respect to the Seller
so long as the Seller is solvent and does not foresee becoming insolvent.
If the RPA Seller or the Seller were to become a debtor in a bankruptcy
case causing a Reinvestment Event or an Early Amortization Event to occur with
respect to the Certificates of each Series, then, pursuant to the Receivables
Purchase Agreement, new Receivables would no longer be transferred to the
Seller and, pursuant to the Pooling and Servicing Agreement, only collections
on Receivables theretofore sold to the Seller and transferred to the Trust
would be available to be applied to pay interest accruing on the Certificates
and to pay the principal amount of the Certificates. Under such circumstances,
the Servicer is obligated to allocate all collections on Principal Receivables
to the oldest principal balance first. If such allocation method were to be
altered by the bankruptcy court, the rate of payment on the Certificates might
be adversely affected. In addition, distributions in respect of principal on
each Certificate would not be subject to any applicable Controlled
Distribution Amount.
The occurrence of certain events of bankruptcy, insolvency or
receivership with respect to the Servicer will result in a Service Default,
which Service Default, in turn, may result in a Reinvestment Event or an Early
Amortization Event with respect to a Series. If no other Service Default other
than the commencement of such bankruptcy or similar event exists, a
trustee-in-bankruptcy of the Servicer may have the power to prevent either the
Trustee or the Certificateholders from appointing a successor Servicer.
Payments made in respect of repurchases of Receivables by CFC or the
Seller pursuant to the Pooling and Servicing Agreement may be recoverable by
CFC or the Seller, as debtor in possession, or by a creditor or a
trustee-in-bankruptcy of CFC or the Seller as a preferential transfer from CFC
or the Seller if such payments are made within one year prior to the filing of
a bankruptcy case in respect of CFC.
CARCO does not intend to file, and CFC has agreed that it will not cause
CARCO to file, a voluntary application for relief under the Bankruptcy Code or
any similar applicable state law with respect to CARCO so long as CARCO is
solvent and does not foresee becoming insolvent.
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CERTAIN TAX MATTERS
Federal Income Tax Consequences
Set forth below is a discussion of federal income tax consequences to
holders of the Certificates. This discussion does not purport to deal with all
aspects of federal income taxation that may be relevant to holders of the
Certificates in light of their personal investment circumstances, nor to
certain types of holders subject to special treatment under the federal income
tax laws (for example, banks, life insurance companies and tax-exempt
organizations). Prospective investors are advised to consult their own tax
advisors with regard to the federal income tax consequences of holding and
disposing of the Certificates, as well as the tax consequences arising under
the laws of any state, foreign country or other jurisdiction. This discussion
is based upon present provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), the regulations promulgated thereunder, and judicial or
ruling authority, all of which are subject to change, which change may be
retroactive. No ruling on any of the issues discussed below will be sought
from the Internal Revenue Service (the "IRS").
The discussion assumes that a Certificate is issued in registered form,
has all payments denominated in U.S. dollars, has a term that exceeds one
year, and does not bear "contingent interest" as defined in Section 871(h)(4)
of the Code. Moreover, except as provided below, the discussion assumes that
the interest on the Certificate meets the requirements for "qualified stated
interest" under Treasury regulations (the "OID regulations") relating to
original issue discount ("OID"), and that any OID on the Certificate (i.e.,
any excess of the principal amount of the Certificate over its issue price)
does not exceed a de minimis amount (i.e., 1/4% of its principal amount
multiplied by the number of full years until its maturity date), all within
the meaning of the OID regulations. If those conditions are not satisfied,
additional tax considerations will be disclosed in the applicable Prospectus
Supplement.
Treatment of the Certificates as Indebtedness of the Seller. The Seller
and the holders of Certificates offered hereby will express in the Pooling and
Servicing Agreement the intent that, for federal, state and local income and
franchise tax purposes and Michigan single business tax purposes, the
Certificates will be indebtedness of the Seller secured by the Receivables and
any other Trust assets allocable to the Certificates. USA, by the acceptance
of the assignment of the Pooling and Servicing Agreement agreed, and each
Certificateholder, by the acceptance of a Certificate will agree, to treat the
Certificates as indebtedness of the Seller for federal, state and local income
and franchise tax purposes and Michigan single business tax purposes. However,
the Pooling and Servicing Agreement generally refers to the transfer of the
Receivables as a "sale", and because different criteria are used in
determining the nontax accounting treatment of the transaction, the Seller
will treat the Pooling and Servicing Agreement, for certain nontax purposes,
as effecting a transfer of an ownership interest in the Receivables and not as
creating a debt obligation of the Seller.
A basic premise of federal income tax law is that the economic substance
of a transaction generally determines the tax consequences. The form of a
transaction, while a relevant factor, is not conclusive evidence of its
economic substance. In appropriate circumstances, the courts have allowed
taxpayers, as well as the IRS, to treat a transaction in accordance with its
economic substance, as determined under federal income tax law, even though
the participants in the transaction have characterized it differently for
nontax purposes.
The determination of whether the economic substance of a property
transfer is a sale or a loan secured by the transferred property has been made
by the IRS and the courts on the basis of numerous factors designed to
determine whether the transferor has relinquished (and the transferee has
obtained) substantial incidents of ownership in the property. Among those
factors, the primary factors examined are whether the transferee has the
opportunity to gain if the property increases in value, and has the risk of
loss if the property decreases in value. Based upon its analysis of such
factors, Cravath, Swaine & Moore, special tax counsel to the Seller and the
Trust ("Tax Counsel"), is of the opinion that for federal income tax purposes
the Seller will properly be treated as the owner of the Receivables and any
other Trust assets allocable to the Certificates and, accordingly, the
Certificates will properly be characterized as indebtedness of the Seller that
is secured by the Receivables and such other assets.
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Interest Income to Certificateholders. Assuming the Certificates are
debt obligations for federal income tax purposes, they will not be considered
issued with OID (except as discussed below or in the applicable Prospectus
Supplement). Interest thereon will be taxable as ordinary interest income when
received by Certificateholders utilizing the cash-basis method of accounting
and when accrued by Certificateholders utilizing the accrual method of
accounting. Under the OID regulations, a holder of a Certificate issued with
a de minimis amount of OID must include such OID in income, on a pro rata
basis, as principal payments are made on the Certificate. It is believed that
any Asset Composition Premium paid as a result of an Asset Composition Event
will be taxable as contingent interest when it becomes fixed and
unconditionally payable. A Certificateholder who buys a Certificate for less
than its principal amount will be subject to the "market discount" rules of
the Code, and a Certificateholder who buys a Certificate for more than its
principal amount will be subject to the premium amortization rules of the
Code.
However, if any interest due on a Series or Class of Certificates is not
paid in full on its scheduled payment date, or if the amount of interest
payable currently on a Series or Class is reduced because of a limitation
based on the average interest rate currently payable on the Receivables,
Certificates of that Series or Class will thereafter be considered to be
issued with OID. Moreover, even before such an event, the Certificates of a
Series or Class would be considered to have OID from their date of issuance
unless, at the time of issuance, the likelihood of a late payment or
nonpayment of interest (or reduction in the amount of interest payable based
on the interest rate currently payable on the Receivables) on such Series or
Class was considered a "remote contingency" under applicable Treasury
regulations.
The Seller intends to take the position, based on the exception for
remote contingencies, that OID does not arise on a Series or Class of
Certificates unless and until an event described in the first sentence of the
preceding paragraph occurs. However, if the Investor Certificates of a Series
or Class were considered to have OID, either initially or subsequently, all
holders of Certificates of that Series or Class would thereafter be required
to accrue OID into income at a rate equal to the full interest rate payable on
the Certificates (probably determined without regard to any limitation based
upon the interest payable on the Receivables), whether or not all or part of
the interest on the Certificates was paid currently. Moreover, the holders
of would be required to accrue any de minimis discount into income over the
life the Certificates rather than when principal is paid. As a result, holders
might be required to report taxable income prior to the receipt of cash
attributable to such income.
The Trustee will be required to report annually to the IRS, and to each
Certificateholder of record, the amount of interest paid on the Certificates
(and the amount of interest withheld for federal income taxes, if any) for
each calendar year, except as to exempt holders (generally, holders that are
corporations, tax-exempt organizations, qualified pension and profit-sharing
trusts, individual retirement accounts, or nonresident aliens who provide
certification as to their status as nonresidents). Accordingly, each nonexempt
Certificateholder will be required to provide, under penalties of perjury, a
certificate on IRS Form W-9 containing such holder's name, address, federal
taxpayer identification number and a statement that such holder is not subject
to backup withholding. Should a nonexempt Certificateholder fail to provide
the required certification, the Trustee (or the Participants or Indirect
Participants) will be required to withhold (or cause to be withheld) 31% of
the interest (and principal) otherwise payable to the holder, and remit the
withheld amounts to the IRS as a credit against the holder's federal income
tax liability.
Possible Classification of the Trust as a Partnership or Association. As
described above, it is the opinion of Tax Counsel that the Certificates
offered hereby will properly be characterized as debt of the Seller for
federal income tax purposes. However, such opinion is not binding on the IRS
and thus no assurance can be given that such a characterization will prevail.
For example, if the IRS were to contend successfully that the
Certificates offered hereby were not debt of the Seller for federal income tax
purposes, the Trust might be classified for federal income tax purposes as a
partnership, an association taxable as a corporation or a "publicly traded
partnership" taxable as a corporation. If the Certificates are treated as
interests in such a partnership, the partnership would in all likelihood be
treated as a "publicly traded partnership". A publicly traded partnership is,
in
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general, taxable as a corporation. If the partnership were nevertheless not
taxable as a corporation (because of an exception for an entity whose income
is interest income that is not derived in the conduct of a financial business)
it would not be subject to federal income tax. Rather, each item of income,
gain, loss, deduction and credit generated through the ownership of the
Receivables by the partnership would be passed through to the partners in the
partnership (including the Certificateholders) according to their respective
interests therein.
The income reportable by the Certificateholders as partners in such a
partnership could differ from the income reportable by the Certificateholders
as holders of debt. However, except as provided below, it is not expected that
such differences would be material. If the Certificateholders were treated as
partners, a cash basis Certificateholder might be required to report income
when it accrues to the partnership rather than when it is received by the
Certificateholder. Moreover, if the Certificates are interests in a
partnership, an individual's share of expenses of the partnership would be
miscellaneous itemized deductions that in the aggregate are allowed only to the
extent they exceed two percent of the individual's adjusted gross income
(and are subject to certain other limitations), meaning that the individual
might be taxed on a greater amount of income than the stated interest on the
Certificates. Finally, if any Certificates are treated as equity interests in
a partnership in which other Certificates are debt, all or part of a tax-exempt
investor's share of income from the Certificates that are treated as equity
would be treated as unrelated debt-financed income under the Code taxable to
the investor.
If, alternatively, the Trust were treated as either an association
taxable as a corporation or a "publicly traded partnership" taxable as a
corporation, the resulting entity would be subject to federal income taxes at
corporate tax rates on its taxable income generated by ownership of the
Receivables. Moreover, distributions by the entity would probably not be
deductible in computing the entity's taxable income and all or part of
distributions to Certificateholders would probably be treated as dividend
income to the Certificateholders. Such an entity-level tax could result in
reduced distributions to Certificateholders and the Certificateholders could
be liable for a share of such a tax.
Because the Seller will treat the Certificates offered hereby as
indebtedness for federal income tax purposes, the Trustee (and Participants
and Indirect Participants) will not comply with the tax reporting requirements
that would apply under these alternative characterizations of the
Certificates.
Foreign Investors. Tax Counsel has given its opinion that the
Certificates will properly be classified as debt of the Seller for federal
income tax purposes. If the Certificates are so treated:
(a) interest paid or accrued to a nonresident alien or foreign
corporation or partnership would be exempt from U.S. withholding taxes
(including backup withholding taxes); provided that the holder complies
with applicable identification requirements (and does not actually or
constructively own 10% or more of the voting stock of the Seller and is
not a controlled foreign corporation with respect to the Seller).
Applicable identification requirements will be satisfied if there is
delivered to a securities clearing organization (or bank or other
financial institution that holds the Certificates on behalf of the
customer in the ordinary course of its trade or business) (i) IRS Form
W-8 signed under penalties of perjury by the beneficial owner of such
Certificates stating that the holder is not a U.S. person and providing
such holder's name and address, (ii) IRS Form 1001 signed by the
beneficial owner of such Certificates or such owner's agent claiming
exemption from withholding under an applicable tax treaty, or (iii) IRS
Form 4224 signed by the beneficial owner of such Certificates or such
owner's agent claiming exemption from withholding of tax on income
connected with the conduct of a trade or business in the United States;
provided that in any such case (x) the applicable form is delivered
pursuant to applicable procedures and is properly transmitted to the
United States entity otherwise required to withhold tax and (y) none of
the entities receiving the form has actual knowledge that the holder is
a U.S. person or that any certification on the form is false;
(b) a holder of a Certificate who is a nonresident alien or
foreign corporation will not be subject to United States federal income
tax on gain realized on the sale, exchange or redemption of such
Certificate, provided that (i) such gain is not effectively connected to
a trade or business
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carried on by the holder in the United States, (ii) in the case of a
holder that is an individual, such holder is not present in the United
States for 183 days or more during the taxable year in which such sale,
exchange or redemption occurs and (iii) in the case of gain representing
accrued interest, the conditions described in clause (a) are satisfied;
and
(c) a Certificate held by an individual who at the time of death
is a nonresident alien will not be subject to United States federal
estate tax as a result of such individual's death if, immediately before
his death, (i) the individual did not actually or constructively own 10%
or more of the voting stock of the Seller and (ii) the holding of such
Certificate was not effectively connected with the conduct by the
decedent of a trade or business in the United States.
If the IRS were to contend successfully that the Certificates are
interests in a partnership (not taxable as a corporation), a Certificateholder
that is a nonresident alien or foreign corporation might be required to file a
U.S. individual or corporate income tax return and pay tax on its share of
partnership income at regular U.S. rates, including, in the case of a
corporation, the branch profits tax (and would be subject to withholding tax
on its share of partnership income). If the Certificates are recharacterized
as interests in an association taxable as a corporation or a "publicly traded
partnership" taxable as a corporation, to the extent distributions on the
Certificates were treated as dividends, a nonresident alien individual or
foreign corporation would generally be taxed on the gross amount of such
dividends (and subject to withholding) at a rate of 30% unless such rate were
reduced by an applicable treaty.
State and Local Tax Consequences
The activities to be undertaken by the Servicer in servicing and
collecting the Receivables will take place in Michigan. The State of Michigan
imposes a state individual income tax and a single business tax which is based
partially upon the net income of corporations, partnerships and other entities
doing business in the State of Michigan. This discussion is based upon present
provisions of Michigan statutes and the regulations promulgated thereunder,
and applicable judicial or ruling authority, all of which are subject to
change, which change may be retroactive. No ruling on any of the issues
discussed below will be sought from the Michigan Department of Treasury.
If the Certificates are treated as debt of the Seller for federal income
tax purposes, in the opinion of Allan L. Ronquillo, Esq., Vice President and
General Counsel of the Seller, Michigan tax counsel to the Seller and the
Trust ("Michigan Tax Counsel"), this treatment will also apply for Michigan
tax purposes. Pursuant to this treatment, the Trust will not be subject to the
Michigan single business tax and Certificateholders not otherwise subject to
Michigan tax would not become subject to such tax solely because of their
ownership of the Certificates. Certificateholders already subject to taxation
in Michigan, however, could be required to pay tax on the income generated
from ownership of these Certificates.
In the alternative, if the Trust is treated as a partnership (not
taxable as a corporation) for federal income tax purposes, in the opinion of
Michigan Tax Counsel, the same treatment should also apply for Michigan tax
purposes. In such case, the resulting constructive partnership should not be
treated as doing business in Michigan but rather should be treated as a
passive holder of investments and, as a result, should not be subject to the
Michigan single business tax (which, if applicable, could result in reduced
distributions to Certificateholders). The Certificateholders also should not
be subject to Michigan single business tax on the income received through the
partnership.
Under current law, Certificateholders that are nonresidents of Michigan
and that are not otherwise subject to Michigan income tax should not be
subject to Michigan income tax on the income from the constructive
partnership. Under current law corporate Certificateholders are not subject to
Michigan income tax. In any event, classification of the arrangement as a
"partnership" would not cause a Certificateholder not otherwise subject to
taxation in Michigan to pay Michigan tax on income beyond that derived from
the Certificates.
If the Certificates are instead treated as ownership interests in an
association or "publicly traded partnership", the hypothetical entity should
not be subject to the Michigan single business tax (which, if
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applicable,could result in reduced distributions to Certificateholders). A
Certificateholder not otherwise subject to tax in Michigan would not become
subject to Michigan tax as a result of its mere ownership of such an interest.
Because each state's income tax laws vary, it is impossible to predict
the income tax consequences to the Certificateholders in all of the state
taxing jurisdictions in which they are already subject to tax.
Certificateholders are urged to consult their own tax advisors with respect to
state income and franchise taxes.
ERISA CONSIDERATIONS
General
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. A violation of these "prohibited transaction" rules may generate
excise tax and other liabilities under ERISA and the Code for such person. For
example, a prohibited transaction would arise, unless an exemption were
available, if the Certificates of a Series or Class were viewed as debt of the
Seller and the Seller were a disqualified person or party in interest
with respect to a plan that acquired Certificates of such Series or Class.
Moreover, additional prohibited transactions could arise if the assets
of the Trust were deemed to constitute assets of any plan that owned
Certificates. The Department of Labor ("DOL") has issued a final regulation
(the "Plan Assets Regulation") concerning the definition of what constitutes
the "plan assets" of an employee benefit plan subject to ERISA, the Code or an
individual retirement account ("IRA") (collectively referred to as "Benefit
Plans"). Under the Plan Assets Regulation the assets and properties of certain
corporations, partnerships and certain other entities in which a Benefit Plan
acquires an "equity interest" could be deemed to be assets of the Benefit Plan
in certain circumstances. Accordingly, if Benefit Plans purchase Certificates,
the Trust could be deemed to hold plan assets of such Benefit Plan unless one
of the exceptions under the Plan Assets Regulation is applicable to the Trust.
The Plan Assets Regulation only applies to the purchase by a Benefit
Plan of an "equity interest" in an entity. Assuming that the Certificates of a
Series or Class are equity interests, the Plan Assets 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 Securities 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
Securities and Exchange Commission) after the end of the fiscal year of the
issuer during which the offering of such securities to the public occurred.
The Certificates of each Series and Class must be separately tested
under, and may each meet, the criteria of publicly-offered securities as
described above. There are no restrictions imposed on the transfer of the
Certificates offered hereby; and such Certificates will be sold as part of an
offering pursuant to an effective registration statement under the Securities
Act, and may or may not be timely registered under the Exchange Act. Based on
information provided by the underwriter or placement agent for Certificates of
any Series or Class offered hereby that will be registered under the Exchange
Act, the Seller will notify the Trustee as to whether or not Certificates of
such Series or, if such Series consists of more than one Class, each such Class
will be held by at least 100 separately named persons at the conclusion of the
offering, unless the related Prospectus Supplement otherwise provides.
The Seller will not determine whether the 100-investor requirement of the
exception for publicly offered securities is satisfied as to the Certificates
of any Series or Class. Prospective purchasers may obtain a copy of the
notification described in the third preceding sentence from the Trustee at
101 Barclay Street, New York, New York 10286.
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If the Certificates of any Series or Class offered hereby fail to meet
the criteria of publicly-offered securities and the Trust's assets are deemed
to include assets of Benefit Plans that are holders of such Certificates,
transactions involving the Trust and "parties in interest" or "disqualified
persons" with respect to such plans might be prohibited under Section 406 of
ERISA and Section 4975 of the Code unless an exemption is applicable. Thus,
for example, if a participant in any Benefit Plan is an obligor or guarantor
of one of the Receivables, under DOL interpretations the purchase of such
Certificates by such plan could constitute a prohibited transaction. There are
a number of class exemptions issued by the DOL that may apply in such event.
However,even if all of the conditions specified in the exemptions are
satisfied,they would probably not apply to all transactions involving the
Trust's assets.
In light of the foregoing, fiduciaries of a Benefit Plan considering the
purchase of Certificates of any Series or Class offered hereby should consult
their own counsel as to whether the assets of the Trust which are represented
by such Certificates would be considered plan assets, and the consequences
that would apply if the Trust's assets were considered plan assets.
In addition, based on the reasoning of the United States Supreme Court's
recent decision in John Hancock Life Ins. Co. v. Harris Trust and Sav. Bank,
144 S.Ct. 517 (1993), under certain circumstances assets in the general account
of an insurance company may be deemed to be plan assets for certain purposes,
and under such reasoning a purchase of Certificates with assets of an insurance
company's general account might be subject to the prohibited transaction rules
described above.
Unless otherwise provided in the applicable Prospectus Supplement, if
the Certificates will not be timely registered under the Exchange Act or if
the Seller does not notify the Trustee, as described above, that the Certifi-
cates of any particular Series or Class will be expected to be held by at
least 100 persons, the Certificates of such Series or Class, as the case may
be, may not be acquired by any Benefit Plan or by any entity investing assets
that are treated as assets of a Benefit Plan. Furthermore, in that case, the
Pooling and Servicing Agreement, the Series Supplement and each such Certifi-
cate will provide that each holder of such Certificate shall be deemed to have
represented and warranted that it is not a Benefit Plan and is not purchasing
such Certificate on behalf of a Benefit Plan or with assets that are treated
as assets of a Benefit Plan.
EXPERTS
The financial statements of the Trust as of December 31, 1995 and 1994
and for each of the three years in the period ended December 31, 1995
incorporated in this Prospectus by reference from the Trust's Annual Report on
Form 10-K for the year ended December 31, 1995, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance
upon the report of such firm given upon their authority as experts in
accounting and auditing.
PLAN OF DISTRIBUTION
The Seller may sell Certificates offered hereby in any of three ways:
(i) through underwriters or dealers; (ii) directly to one or more purchasers;
or (iii) through agents. The related Prospectus Supplement will set forth the
terms of the offering of any Series Certificates offered hereby, including,
without limitation, the names of any underwriters, the purchase price of such
Certificates and the proceeds to the Seller from such sale, any underwriting
discounts and other items constituting underwriter's compensation, any initial
public offering price and any discounts or concessions allowed or reallowed or
paid to dealers.
If underwriters are used in a sale of any Certificates of a Series
offered hereby, such Certificates will be acquired by the underwriters for
their own account and may be resold from time to time in one or more
transactions, including negotiated transactions, at a fixed public offering
price or at varying prices to be determined at the time of sale or at the time
of commitment therefor. Such Certificates may be offered to the public either
through underwriting syndicates represented by managing underwriters or by
underwriters without a syndicate. Unless otherwise set forth in the related
Prospectus Supplement, the obligations of the underwriters to purchase such
Certificates will be subject to certain conditions precedent, and the
underwriters will be obligated to purchase all of such Certificates if any of
such Certificates are purchased. Any initial public offering price and any
discounts or concessions allowed or reallowed or paid to dealers may be
changed from time to time.
63
<PAGE>
Certificates of a Series offered hereby may also be offered and sold, if
so indicated in the related Prospectus Supplement, in connection with a
remarketing upon their purchase, in accordance with a redemption or repayment
pursuant to their terms, by one or more firms ("remarketing firms") acting as
principals for their own accounts or as agents for the seller. Any remarketing
firm will be identified and the terms of its agreement, if any, with the
Seller and its compensation will be described in the related Prospectus
Supplement. Remarketing firms may be deemed to be underwriters in connection
with the Certificates remarketed thereby.
Certificates may also be sold directly by the Seller or through agents
designated by the Seller from time to time. Any agent involved in the offer or
sale of Certificates will be named, and any commissions payable by the Seller
to such agent will be set forth, in the related Prospectus Supplement. Unless
otherwise indicated in the related Prospectus Supplement, any such agent will
act on a best efforts basis for the period of its appointment.
Any underwriters, agents or dealers participating in the distribution of
Certificates may be deemed to be underwriters, and any discounts or
commissions received by them on the sale or resale of Certificates may be
deemed to be underwriting discounts and commissions, under the Securities Act.
Agents and underwriters may be entitled under agreements entered into with the
Seller and CFC to indemnification by the Seller and CFC against certain civil
liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments that the agents or underwriters may be
required to make in respect thereof. Agents and underwriters may be customers
of, engage in transactions with, or perform services for, the Seller or its
affiliates in the ordinary course of business.
LEGAL MATTERS
Certain legal matters relating to the Certificates offered hereby will
be passed upon for USA by Allan L. Ronquillo, Esq., Vice President and General
Counsel of Chrysler Financial Corporation, and for any underwriters, agents or
dealers by the counsel named in the applicable Prospectus Supplement. Certain
federal income tax and ERISA matters will be passed upon for USA and the Trust
by the counsel named in the applicable Prospectus Supplement.
64
<PAGE>
INDEX OF PRINCIPAL TERMS
Term
----
Page
-----
Accounts .......................................................... 1
Accumulation Period ............................................... 6
Addition Date ..................................................... 34
Additional Accounts ............................................... 36
Additional Cut-Off Date ........................................... 34
Adjusted Invested Amount .......................................... 43
Adjustment Payment ................................................ 46
Auction Vehicles .................................................. 21
Automatic Additional Accounts ..................................... 37
Automatic Removal Date ............................................ 39
Automatic Removed Accounts ........................................ 39
Bankruptcy Code ................................................... 57
Benefit Plans ..................................................... 62
CARCO ............................................................. 3
CARCO Transfer .................................................... 3
CCC ............................................................... 3
Cede .............................................................. 2
CEDEL ............................................................. 30
Certificateholder ................................................. 29
Certificateholders ................................................ 2
Certificateholders' Interest ...................................... 5
Certificates ...................................................... 1
CFC ............................................................... 1
Chrysler .......................................................... 3
Citibank .......................................................... 28
Class ............................................................. 1
Code .............................................................. 58
Collateral Security ............................................... 3
Collection Account ................................................ 40
Collection Period ................................................. 6
Commission ........................................................ 2
Controlled Amortization Amount .................................... 10
Controlled Amortization Period .................................... 10
Controlled Deposit Amount ......................................... 9
Cooperative ....................................................... 30
Dealer Overconcentrations ......................................... 36
Dealer Trouble .................................................... 24
Dealers ........................................................... 4
Defaulted Amount .................................................. 45
Defaulted Receivables ............................................. 45
Definitive Certificates ........................................... 31
Depository ........................................................ 26
Designated Accounts ............................................... 38
Designated Balance ................................................ 38
Designated Receivables ............................................ 39
Determination Date ................................................ 13
Disclosure Document ............................................... 32
Distribution Date Statement ....................................... 51
DOL ............................................................... 62
DTC ............................................................... 2
Early Amortization Event .......................................... 47
65
<PAGE>
Term
----
Page
-----
Early Amortization Period ......................................... 11
Eligible Account .................................................. 35
Eligible Accounts ................................................. 4
Eligible Dealer ................................................... 35
Eligible Deposit Account .......................................... 40
Eligible Institution .............................................. 40
Eligible Investments .............................................. 40
Eligible Portfolio ................................................ 24
Eligible Receivable ............................................... 35
Eligible Receivables .............................................. 4
Enhancement ....................................................... 3
Enhancement Provider .............................................. 35
ERISA ............................................................. 14
Euroclear ......................................................... 30
Euroclear Operator ................................................ 30
Euroclear Participants ............................................ 30
Excess Funded Amount .............................................. 8
Excess Funding Account ............................................ 8
Excess Principal Collections ...................................... 43
Exchange Act ...................................................... 2
Excluded Series ................................................... 12
Expected Payment Date ............................................. 7
finance hold ...................................................... 21
Fleet Receivables ................................................. 20
Foreign Agency Depositaries ....................................... 28
Fully Reinvested Date ............................................. 11
Holders ........................................................... 31
IML ............................................................... 30
Indirect Participants ............................................. 29
Ineligible Receivables ............................................ 34
Initial Closing Date .............................................. 33
Initial Cut-Off Date .............................................. 3
Initial Invested Amount ........................................... 43
Insolvency Laws ................................................... 19
Installment Balance ............................................... 22
Installment Balance Amount ........................................ 36
Interest Collections .............................................. 4
Interest Funding Account .......................................... 7
Interest Payment Dates ............................................ 7
Invested Amounts .................................................. 35
Investor Default Amount ........................................... 46
IRA ............................................................... 62
IRS ............................................................... 58
Michigan Tax Counsel .............................................. 61
Miscellaneous Payments ............................................ 42
Monthly Servicing Fee ............................................. 50
Moody's ........................................................... 40
Morgan ............................................................ 28
New Issuance ...................................................... 6
New Vehicles ...................................................... 21
OID ............................................................... 58
OID Regulations ................................................... 58
66
<PAGE>
Term Page
---- ----
Overconcentration Amount .......................................... 36
Paired Series ..................................................... 12
Participants ...................................................... 29
Plan Assets Regulation ............................................ 62
Pool Balance ...................................................... 32
Pooling and Servicing Agreement ................................... 3
Prime Rate ........................................................ 22
Principal Shortfalls .............................................. 43
Principal Collections ............................................. 4
Principal Commencement Date ....................................... 7
Principal Funding Account ......................................... 9
Principal Receivables ............................................. 6
Principal Terms ................................................... 32
Prospectus Supplement ............................................. 1
Rating Agency ..................................................... 18
Receivables ....................................................... 1
Receivables Purchase Agreement .................................... 4
Registration Statement ............................................ 2
Reinvestment Event ................................................ 46
Reinvestment Period ............................................... 10
Reinvestment Period Commencement Date ............................. 10
remarketing firms ................................................. 64
Removal and Repurchase Date ....................................... 39
Removal Commencement Date ......................................... 38
Removal Date ...................................................... 38
Removal Notice .................................................... 38
Removed Account ................................................... 38
Repurchased Receivables ........................................... 39
Repurchased Receivables Purchase Price ............................ 39
Required Participation Amount ..................................... 37
Required Participation Percentage ................................. 38
Revolving Period .................................................. 9
RPA Seller ........................................................ 4
Securities Act .................................................... 2
Seller ............................................................ 1
Seller's Certificate .............................................. 31
Seller's Interest ................................................. 1
Series ............................................................ 1
Series Allocable Defaulted Amount ................................. 42
Series Allocable Interest Collections ............................. 42
Series Allocable Miscellaneous Payments ........................... 42
Series Allocable Principal Collections ............................ 42
Series Allocation Percentage ...................................... 43
Series Cut-off Date ............................................... 9
Series Issuance Date .............................................. 34
Series Supplement ................................................. 6
Series Termination Date ........................................... 48
Service Default ................................................... 51
Service Transfer .................................................. 50
Servicer .......................................................... 1
Servicing Fee ..................................................... 50
Servicing Fee Rate ................................................ 50
Special Payment Date .............................................. 12
67
<PAGE>
Term Page
---- ----
Standard & Poor's ................................................. 40
Supplemental Certificate .......................................... 31
Tax Counsel ....................................................... 58
Tax Opinion ....................................................... 33
Terms and Conditions .............................................. 30
Transfer Date ..................................................... 34
Transfer Deposit Amount ........................................... 34
Trust ............................................................. 1
Trust Adjusted Invested Amount .................................... 43
Trust Available Subordinated Amount ............................... 34
Trustee ........................................................... 3
U.S. Wholesale Portfolio .......................................... 21
UCC ............................................................... 15
Unallocated Principal Collections ................................. 43
USA ............................................................... 1
Used Vehicles ..................................................... 21
Vehicles .......................................................... 3
68
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT
AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered
Certificates (the "Global Securities") will be available only in book-entry
form. Unless otherwise specified in a Prospectus Supplement for a Series,
investors in the Global Securities may hold such Global Securities through any
of The Depository Trust Company ("DTC"), CEDEL or Euroclear. The Global
Securities will be tradeable as home market instruments in both the European
and U.S. domestic markets. Initial settlement and all secondary trades will
settle in same-day funds.
Secondary market trading between investors holding Global Securities
through CEDEL and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in accordance
with conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
participants holding Global Securities will be effected on a
delivery-against-payment basis through Citibank, N.A. ("Citibank") and Morgan
Guaranty Trust Company of New York ("Morgan") as the respective depositaries
of CEDEL and Euroclear and as participants in DTC.
Non-U.S. holders of Global Securities will be exempt from U.S.
withholding taxes, provided that such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the name
of Cede Co. as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect participants in DTC. As a result, CEDEL and Euroclear will
hold positions on behalf of their participants through their respective
depositaries, Citibank and Morgan, which in turn will hold such positions in
accounts as participants of DTC.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to securities previously issued by
the Trust. Investor securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to
the securities custody accounts on the settlement date against payment in
same-day funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired
value date.
Trading between DTC participants. Secondary market trading between DTC
participants will be settled using the procedures applicable to securities
previously issued by the Trust in same-day funds.
Trading between CEDEL and/or participants. Secondary market trading
between CEDEL participants and/or Euroclear participants will be settled using
the procedures applicable to conventional eurobonds in same-day funds.
A-1
<PAGE>
Trading between DTC seller and CEDEL or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC participant to the
account of a CEDEL participant or a Euroclear participant the purchaser will
send instructions to CEDEL or Euroclear through a participant at least one
business day prior to settlement. CEDEL or Euroclear will instruct Citibank or
Morgan, respectively, as the case may be, to receive the Global Securities
against payment. Payment will include interest accrued on the Global
Securities from and including the last coupon payment date to and excluding
the settlement date. For transactions settling on the 31st day of the month,
payment will include interest accrued to and excluding the first day of the
following month. Payment will then be made by Citibank or Morgan to the DTC
participant's account against delivery of the Global Securities. After
settlement has been completed, the Global Securities will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the CEDEL participant's or Euroclear participant's
account. The Global Securities credit will appear the next day (European time)
and the cash debit will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the CEDEL or Euroclear cash debit
will be valued instead as of the actual settlement date.
CEDEL participants and Euroclear participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within CEDEL or Euroclear. Under this
approach, they may take on credit exposure to CEDEL or Euroclear until the
Global Securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit
to them, participants can elect not to preposition funds and allow that credit
line to be drawn upon to finance settlement. Under this procedure, CEDEL
participants or Euroclear participants purchasing Global Securities would
incur overdraft charges for one day, assuming they cleared the overdraft when
the Global Securities were credited to their accounts. However, interest on
the Global Securities would accrue from the value date. Therefore, in many
cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each participant's particular
cost of funds.
Since the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending Global Securities
to Citibank or Morgan for the benefit of CEDEL participants or Euroclear
participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC participant a cross-market transaction will
settle no differently than a trade between two DTC participants.
Trading between CEDEL or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, CEDEL and Euroclear participants may employ
their customary procedures for transactions in which Global Securities are to
be transferred by the respective clearing system, through Citibank or Morgan,
to a DTC participant. The seller will send instructions to CEDEL or Euroclear
through a participant at least one business day prior to settlement. In these
cases, CEDEL or Euroclear will instruct Citibank or Morgan, as appropriate, to
deliver the bonds to the DTC participant's account against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment date to and excluding the settlement date. For
transactions settling on the 31st day of the month, payment will include
interest accrued to and excluding the first day of the following month. The
payment will then be reflected in the account of the CEDEL participant or
Euroclear participant the following day, and receipt of the cash proceeds in
the CEDEL or Euroclear participant's account would be back-valued to the value
date (which would be the preceding day, when settlement occurred in New York).
Should the CEDEL or Euroclear participant have a line of credit with its
respective clearing system and elect to be in debit in anticipation of receipt
of the sale proceeds in its account, the back-valuation will extinguish any
overdraft charges incurred over that one-day period. If settlement is not
completed on the intended value date (i.e., the trade fails), receipt of the
cash proceeds in the CEDEL or Euroclear participant's account would instead be
valued as of the actual settlement date.
A-2
<PAGE>
Finally, day traders that use CEDEL or Euroclear and that purchase
Global Securities from DTC participants for delivery to CEDEL participants or
Euroclear participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three
techniques should be readily available to eliminate this potential problem:
(1) borrowing through CEDEL or Euroclear for one day (until the
purchase side of the day trade is reflected in their CEDEL or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(2) borrowing the Global Securities in the U.S. from a DTC
participant no later than one day prior to settlement, which would give
the Global Securities sufficient time to be reflected in their CEDEL or
Euroclear account in order to settle the sale side of the trade; or
(3) staggering the value dates for the buy and sell sides of the
trade so that the value date for the purchase from the DTC participant
is at least one day prior to the value date for the sale to the CEDEL
participant or Euroclear participant.
Certain U.S. Federal Income Tax Documentation Requirements
A holder of Global Securities holding securities through CEDEL or
Euroclear (or through DTC if the holder has an address outside the U.S.) will
be subject to the 30% U.S. withholding tax that generally applies to payments
of interest (including original issue discount) on registered debt issued by
U.S. persons, unless such holder takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. persons (Form W-8). Non-U.S. persons that are
beneficial owners can obtain a complete exemption from the withholding tax by
filing a signed Form W-8 (Certificate of Foreign Status).
Exemption for non-U.S. persons with effectively connected income (Form
4224). A non-U.S. person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its
conduct of a trade or business in the United States, can obtain an exemption
from the withholding tax by filing Form 4224 (Exemption from Withholding of
Tax on Income Effectively Connected with the Conduct of a Trade or Business in
the United States).
Exemption or reduced rate for non-U.S. persons resident in treaty
countries (Form 1001). Non-U.S. persons that are beneficial owners residing in
a country that has a tax treaty with the United States can obtain an exemption
or reduced tax rate (depending on the treaty terms) by filing Form 1001
(Ownership, Exemption or Reduced Rate Certificate). If the treaty provides
only for a reduced rate, withholding tax will be imposed at that rate unless
the filer alternatively files Form W-8. Form 1001 may be filed by the
beneficial owner or his agent.
Exemption for U.S. persons (Form W-9). U.S. persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Request for Taxpayer
Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Global Security holder,
or in the case of a Form 1001 or a Form 4224 filer, his agent, files by
submitting the appropriate form to the person through whom he holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
This summary does not deal with all aspects of federal income tax
withholding that may be relevant to foreign holders of these Global
Securities. Investors are advised to consult their own tax advisors for
specific tax advice concerning their holding and disposing of these Global
Securities.
A-3
<PAGE>
[ back cover, column 1 ]
No dealer, salesman or other person has been authorized to give any
information or to make any representations not contained or incorporated by
reference in this Prospectus Supplement or the accompanying Prospectus and,
if given or made, such information or representations must not be relied upon
as having been authorized by the Seller or the Underwriter. Neither this
Prospectus Supplement nor the accompanying Prospectus constitutes an offer or
solicitation by anyone in any state in which such offer or solicitation is
not authorized or in which the person making such offer or solicitation is
not qualified to do so or to anyone to whom it is unlawful to make such offer
or solicitation. Neither the delivery of this Prospectus Supplement or the
accompanying Prospectus, nor any sale made hereunder or thereunder shall,
under any circumstances, create any implication that there has been no change
in the affairs of the Seller since the date hereof or thereof or that the
information contained or incorporated by reference herein or therein is
correct as of any time subsequent to its date.
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Supplement
Summary of Series Terms ............................. S-3
Risk Factors ........................................ S-13
Use of Proceeds ..................................... S-17
The Dealer Floorplan Financing Business ............. S-17
The Accounts ........................................ S-18
Chrysler Financial Corporation ...................... S-20
Maturity and Principal Payment Considerations ....... S-21
Series Provisions ................................... S-22
Underwriting ........................................ S-45
Legal Matters ....................................... S-46
Index of Principal Terms ............................ S-47
Annex I ............................................. A-1
<CAPTION>
Prospectus
<S> <C>
Available Information ............................... 2
Reports to Certificateholders ....................... 2
Incorporation of Certain Documents by Reference ..... 2
Prospectus Summary .................................. 3
Risk Factors ........................................ 15
U.S. Auto Receivables Company and the Trust ......... 18
Use of Proceeds ..................................... 20
The Dealer Floorplan Financing Business ............. 20
The Accounts ........................................ 24
Chrysler Financial Corporation and Chrysler Credit
Corporation ....................................... 25
Description of the Certificates ..................... 26
Description of the Receivables Purchase Agreement ... 54
Certain Legal Aspects of the Receivables ............ 55
Certain Tax Matters ................................. 58
ERISA Considerations ................................ 62
Experts ............................................. 63
Plan of Distribution ................................ 63
Legal Matters ....................................... 64
Index of Principal Terms ............................ 65
Annex I ............................................. A-1
</TABLE>
Until October 22, 1997 (90 days after the date of this Prospectus
Supplement), all dealers effecting transactions in the Series 1997-1
Certificates, whether or not participating in this distribution, may be
required to deliver a Prospectus and a Prospectus Supplement. This is in
addition to the obligation of dealers to deliver a Prospectus and a
Prospectus Supplement when acting as underwriters and with respect to
their unsold allotments or subscriptions.
<PAGE>
[ back cover, column 2 ]
$700,000,000
CARCO
Auto Loan
Master Trust
[LOGOTYPE] U.S. AUTO RECEIVABLES COMPANY
Seller
[LOGOTYPE] CHRYSLER FINANCIAL CORPORATION
Servicer
6.689% Auto Loan
Asset Backed Certificates,
Series 1997-1
---------------------
PROSPECTUS SUPPLEMENT
---------------------
Morgan Stanley Dean Witter
Dated July 24, 1997
