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FILED PURSUANT RULE 424(B)(4)
REGISTRATION NO. 333-64565
Prospectus
$889,550,535
NISSAN AUTO RECEIVABLES 1998-A GRANTOR TRUST
5.45% ASSET BACKED CERTIFICATES, CLASS A
NISSAN AUTO RECEIVABLES CORPORATION
Seller
NISSAN MOTOR ACCEPTANCE CORPORATION
Servicer
The 5.45% Asset Backed Certificates (the "Certificates") will consist of two
Classes of Certificates, the Class A Certificates and the Class B Certificates.
Only the Class A Certificates are being offered hereby. The Class A Certificates
will evidence in the aggregate an undivided ownership interest of 89% of a trust
(the "Trust") to be formed pursuant to a Pooling and Servicing Agreement to be
entered into among Nissan Auto Receivables Corporation, as Seller (the
"Seller"), Nissan Motor Acceptance Corporation, as Servicer (the "Servicer") and
in its individual capacity, and Norwest Bank Minnesota, National Association, as
Trustee (the "Trustee"). The Class B Certificates, which initially will be
retained by the Seller, will evidence in the aggregate an undivided ownership
interest of 11% of the Trust. The rights of the Class B Certificateholders to
receive distributions with respect to the Receivables (as defined below) are
subordinated to the rights of the Class A Certificateholders, to the extent
described herein.
Principal, and interest to the extent of the Pass-Through Rate of 5.45% per
annum, will be distributed on or about the 15th day of each month beginning
January 15, 1999 (the "Distribution Date"). The Final Scheduled Distribution
Date on the Certificates will be the April 2004 Distribution Date. The Trust
property will consist of a pool of retail installment sale contracts originated
on or after October 6, 1993, secured by new, near-new and used automobiles and
light trucks (the "Receivables"), certain monies due or paid thereunder on or
after November 1, 1998, security interests in the vehicles financed thereby, any
proceeds from claims on any insurance policies covering such vehicles or the
obligors thereunder, the rights of the Seller under certain agreements
(described herein), the rights of the Seller to seek recourse, if any, against
the dealers that originated the Receivables and the proceeds of any and all of
the foregoing.
There currently is no secondary market for the Class A Certificates and there is
no assurance that one will develop. The Underwriters expect, but are not
obligated, to make a market in the Class A Certificates. There is no assurance
that any such market, if one develops, will continue.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN THE CLASS A CERTIFICATES, SEE "RISK FACTORS" BEGINNING ON PAGE
11.
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THE CLASS A CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT
REPRESENT INTERESTS IN OR OBLIGATIONS OF THE SELLER, THE SERVICER OR ANY OF
THEIR RESPECTIVE AFFILIATES.
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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.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT SELLER(1)(2)
PER CLASS A CERTIFICATE 99.901848% 0.200% 99.701848%
TOTAL $888,677,423.36 $1,779,101.07 $886,898,322.29
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(1) Plus accrued interest at the Pass-Through Rate calculated from December 15,
1998.
(2) Before deducting expenses payable by the Seller estimated to be $693,312.
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The Class A Certificates are offered by the Underwriters when, as, and if issued
and accepted by the Underwriters and subject to their right to reject orders in
whole or in part. It is expected that the Class A Certificates will be delivered
in book-entry form on or about December 15, 1998.
JOINT BOOKRUNNERS
CHASE SECURITIES INC. J.P. MORGAN & CO.
CO-MANAGERS
MERRILL LYNCH & CO. SALOMON SMITH BARNEY
The date of this Prospectus is December 9, 1998.
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS A
CERTIFICATES OFFERED HEREBY. SUCH TRANSACTIONS MAY INCLUDE OVERALLOTMENTS, THE
PURCHASE OF THE CLASS A CERTIFICATES TO COVER SYNDICATE SHORT POSITIONS AND TO
STABLIZE THE CLASS A CERTIFICATES AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
FORWARD-LOOKING STATEMENTS
IF AND WHEN INCLUDED IN THIS PROSPECTUS THE WORDS "EXPECTS," "INTENDS,"
"ANTICIPATES," "ESTIMATES" AND ANALOGOUS EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. ANY SUCH STATEMENTS, WHICH MAY INCLUDE STATEMENTS
CONTAINED IN "RISK FACTORS", ARE INHERENTLY SUBJECT TO A VARIETY OF RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
PROJECTED. SUCH RISKS AND UNCERTAINTIES INCLUDE, AMONG OTHERS, GENERAL ECONOMIC
AND BUSINESS CONDITIONS, COMPETITION, CHANGES IN POLITICAL, SOCIAL AND ECONOMIC
CONDITIONS, REGULATORY INITIATIVES AND COMPLIANCE WITH GOVERNMENTAL REGULATIONS,
CUSTOMER PREFERENCES AND VARIOUS OTHER MATTERS, MANY OF WHICH ARE BEYOND THE
SELLER'S AND SERVICER'S CONTROL. THESE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS
OF THE DATE OF THIS PROSPECTUS. THE SELLER EXPRESSLY DISCLAIMS ANY OBLIGATION OR
UNDERTAKING TO RELEASE PUBLICLY ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING
STATEMENT CONTAINED HEREIN TO REFLECT ANY CHANGE IN THE SELLER'S OR THE
SERVICER'S EXPECTATIONS WITH REGARD THERETO OR ANY CHANGE IN EVENTS, CONDITIONS
OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS BASED.
AVAILABLE INFORMATION
Nissan Auto Receivables Corporation (the "Seller"), as originator and on
behalf of the Trust, has filed a Registration Statement on Form S-1 under the
Securities Act of 1933, as amended (the "Securities Act"), with the Securities
and Exchange Commission (the "Commission") with respect to the Class A
Certificates offered pursuant to this Prospectus. For further information,
reference is made to the Registration Statement and amendments thereof and to
the exhibits thereto, which are available for inspection without charge at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549; Seven World Trade Center, Suite 1300, New York,
New York 10048; and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of the Registration Statement and amendments
thereof and exhibits thereto may be obtained from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission also maintains a site on the World Wide Web at
"http://www.sec.gov" at which users can view and download copies of reports,
proxy, information statements and other information filed electronically through
the Electronic Data Gathering, Analysis and Retrieval system.
REPORTS TO CLASS A CERTIFICATEHOLDERS BY THE TRUSTEE
Norwest Bank Minnesota, National Association, as Trustee (the "Trustee") for
the Class A Certificateholders and Class B Certificateholders (collectively, the
"Certificateholders") under the Pooling and Servicing Agreement to be dated as
of December 1, 1998, by and among the Seller, the Servicer, Nissan Motor
Acceptance Corporation and the Trustee, will provide to Class A
Certificateholders (which shall be Cede & Co. as the nominee of DTC unless
Definitive Certificates (as defined herein) are issued under the limited
circumstances described herein) monthly and annual reports concerning the
Receivables. Copies of such reports may be obtained by beneficial owners of
Class A Certificates by delivering a request in writing to the Trustee at
Norwest Bank Minnesota, National Association, Norwest Center, Sixth and
Marquette, Mail Station 0070, Minneapolis, Minnesota 55479-0070, Attention:
Corporate Trust. See "The Certificates--Statements to Class A
Certificateholders," "--General," and "--Book-Entry Registration." The Seller,
as originator of the Trust, will be subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, will file reports and other information with the
Commission. Copies of reports and other information may be inspected and copied
at the public reference facilities of the Commission identified above in
"Available Information". The Seller intends to discontinue filing such reports
upon completion of the reporting period required by Section 15(d) of the
Exchange Act. The Trustee, however, will continue to provide the Class A
Certificateholders with the monthly and annual reports concerning the
Receivables as described above.
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SUMMARY
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus. Certain capitalized terms
used in the Summary are defined elsewhere in this Prospectus. A listing of the
pages on which some of such terms are defined is found in the "Index of Terms."
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ISSUER................... Nissan Auto Receivables 1998-A Grantor Trust (the
"Trust"), to be formed by the Seller pursuant to a
Pooling and Servicing Agreement to be dated as of
December 1, 1998 (the "Agreement"), among the
Seller, Nissan Motor Acceptance Corporation
("NMAC"), as Servicer (in such capacity, the
"Servicer") and in its individual capacity, and
Norwest Bank Minnesota, National Association, as
trustee (the "Trustee").
SELLER................... Nissan Auto Receivables Corporation, a Delaware
corporation and a wholly-owned subsidiary of NMAC.
SERVICER................. NMAC, a wholly-owned subsidiary of Nissan Motor
Corporation in the U.S.A. ("NMC"). NMC, the
primary distributor of Nissan and Infiniti
vehicles in the continental United States, is an
indirect wholly-owned subsidiary of Nissan Motor
Co., Ltd., a Japanese corporation.
SECURITIES OFFERED....... The Certificates consist of two classes, entitled
5.45% Asset Backed Certificates, Class A (the
"Class A Certificates"), and 5.45% Asset Backed
Certificates, Class B (the "Class B Certificates,"
and collectively with the Class A Certificates,
the "Certificates"). Only the Class A Certificates
are being offered hereby. Each Certificate will
represent a fractional undivided interest in the
Trust. The Trust property will consist of a pool
of retail installment sale contracts originated on
or after October 6, 1993, secured by new, near-
new and used automobiles and light trucks (the
"Receivables"), certain monies paid thereunder on
or after November 1, 1998 (the "Cutoff Date"),
security interests in the vehicles securing the
Receivables ("Financed Vehicles"), any proceeds
from claims on any physical damage, credit life,
credit disability or other insurance policies
covering such vehicles or the obligors thereunder,
the rights of the Seller under the Purchase
Agreement, the Custody and Pledge Agreement and
the Yield Supplement Agreement (each as defined
herein), the rights of the Seller to seek
recourse, if any, against the dealers that
originated the Receivables, the rights of the
Seller in certain rebates of premiums and other
amounts relating to insurance policies and other
items financed under the Receivables and the
proceeds of any and all of the foregoing. The
Class A Certificates shall be issued in fully
registered form in denominations of $1,000 and
integral multiples thereof (except that one
Certificate may be issued in an amount not an
integral multiple of $1,000). The Receivables will
be purchased by the Seller from NMAC pursuant to a
Purchase Agreement (the "Purchase Agreement")
between the Seller and NMAC providing for such
purchase on or before the date of issuance of the
Certificates.
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The Class A Certificates will evidence in the
aggregate an undivided ownership interest of 89%
(the "Class A Percentage") of the Trust (initially
representing $889,550,535) and the Class B
Certificates will evidence in the aggregate an
undivided ownership interest of 11% (the "Class B
Percentage") of the Trust (initially representing
$109,944,448.89). The Class B Certificates are
subordinated to the Class A Certificates to the
extent described herein. The Class B Certificates
are not being offered hereby and initially will be
retained by the Seller. The Class B Certificates
may be transferred in accordance with the terms of
the Agreement.
REGISTRATION OF THE CLASS
A CERTIFICATES......... The Class A Certificates initially will be
represented by one or more Class A Certificates
registered in the name of Cede & Co. ("Cede"), as
the nominee of The Depository Trust Company
("DTC"). No person acquiring an interest in the
Class A Certificates (a "Class A Certificate
Owner") will be entitled to receive a definitive
certificate representing such person's interest,
except in the event that Definitive Certificates
(as defined herein) are issued under the limited
circumstances described herein. All references
herein to Class A Certificateholders shall reflect
the rights of Class A Certificate Owners, as such
rights may be exercised through DTC and its
Participants (as defined herein), except as
otherwise specified herein. See "The
Certificates--Definitive Certificates."
PASS-THROUGH RATE........ 5.45% per annum.
INTEREST................. On each Distribution Date, the Trustee shall pass
through and distribute pro rata to the holders of
record of Class A Certificates (the "Class A
Certificateholders") as of the fourteenth day of
the current calendar month or, if Definitive
Certificates are issued, the last day of the
related Collection Period (the "Record Date"),
interest at one-twelfth of the Pass-Through Rate,
calculated on the basis of a 360-day year
consisting of twelve 30-day months, on the Class A
Certificate Balance (as defined herein) as of the
last day of the related Collection Period (as
defined herein) generally to the extent of funds
available from (i) Available Interest (as
Available Interest has been reduced by reimbursing
the Servicer for any outstanding Advances, paying
the Servicing Fee and, to the extent not paid by
the Servicer, paying any accrued and unpaid fees
and expenses (not to exceed $10,000 in the
aggregate amount) due to the Trustee, the
Custodian and the Class A Agent); (ii) the Subor-
dination Spread Account; and (iii) the Class B
Percentage of Available Principal. The "Class A
Certificate Balance" shall equal, initially, the
Class A Percentage of the Pool Balance as of the
Cutoff Date and thereafter shall equal the initial
Class A Certificate Balance reduced by all
principal distributions on the Class A
Certificates.
PRINCIPAL................ On each Distribution Date, the Trustee shall pass
through and distribute pro rata to Class A
Certificateholders as of the related Record Date
the Class A Percentage of all collections on the
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Receivables allocable to principal. Such
principal, generally to the extent of funds
available from (i) Available Principal (as
Available Principal has been reduced as described
above with respect to interest distributions to
the Class A Certificateholders); (ii) the
Subordination Spread Account; and (iii) Available
Interest (as Available Interest has been reduced
by reimbursing the Servicer for any outstanding
Advances, paying the Servicing Fee and, to the
extent not paid by the Servicer, paying any
accrued and unpaid fees and expenses (not to
exceed $10,000 in the aggregate amount) due to the
Trustee, the Custodian and the Class A Agent and
from making interest distributions to the Class A
Certificateholders), will be passed through on
each Distribution Date to the Class A
Certificateholders in an amount equal to the Class
A Percentage of: (a) the principal portion of all
payments received during the related Collection
Period, including prepayments of principal; (b)
the principal balance of each Receivable that was
purchased by the Servicer or repurchased by the
Seller, in each case, under an obligation that
arose during the related Collection Period; and
(c) the principal balance of each Receivable
liquidated by the Servicer during the related
Collection Period. A "Collection Period" with
respect to a Distribution Date will be the
calendar month preceding the month in which such
Distribution Date occurs, or, in the case of the
initial Distribution Date, the period from the
Cutoff Date through the last day of the calendar
month preceding the month in which the initial
Distribution Date occurs.
SUBORDINATION............ The rights of the holders of record of the Class B
Certificates (the "Class B Certificateholders"
and, together with the Class A Certifi-
cateholders, the "Certificateholders") to receive
distributions to which they would otherwise be
entitled with respect to the Receivables will be
subordinated to the rights of the Class A
Certificateholders, as more fully described under
"The Certificates--Subordination of the Class B
Certificates; Subordination Spread Account." The
Class B Certificateholders will not receive any
distributions of interest or principal with
respect to a Distribution Date until the full
amount of interest and principal on the Class A
Certificates relating to such Distribution Date
has been distributed to the Class A
Certificateholders. This subordination is intended
to enhance the likelihood of timely receipt by
Class A Certificateholders of the full amount of
interest and principal required to be distributed
to them, and to afford such Class A
Certificateholders limited protection against
losses in respect of the Receivables.
The protection afforded to the Class A
Certificateholders by the subordination feature
described above will be effected by the pref-
erential right of the Class A Certificateholders
to receive current distributions from collections
on or in respect of the Receivables to the extent
described herein. In addition, the Class A
Certificateholders will have the benefit of a
segregated trust account held by the Trustee for
their exclusive benefit (the "Subordination Spread
Account"), as described below.
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SUBORDINATION SPREAD
ACCOUNT................ The Subordination Spread Account will be created
pursuant to a Custody and Pledge Agreement dated
as of December 1, 1998 (the "Custody and Pledge
Agreement") between the Seller and Norwest Bank
Minnesota, National Association, as custodian for
the benefit of the Class A Certificateholders, and
will be funded with an initial deposit by the
Seller of cash or Eligible Investments maturing on
or prior to the initial Distribution Date and
having a value of $9,994,949.84 (the
"Subordination Initial Deposit"). The Subordi-
nation Initial Deposit thereafter will be
augmented by the deposit in the Subordination
Spread Account of all amounts otherwise
distributable to the Class B Certificateholders
and all Excess Amounts otherwise distributable to
the Seller until the amount in the Subordination
Spread Account reaches an amount equal to the
Specified Subordination Spread Account Balance.
"Excess Amounts" in respect of a Distribution Date
will be all interest collections on or in respect
of the Receivables on deposit in the Certificate
Account in respect of such Distribution Date,
after the Servicer has been reimbursed for any
outstanding Advances and has been paid the
Servicing Fee (including any unpaid Servicing Fees
with respect to one or more prior Collection
Periods) and, if applicable, after each of the
Trustee, the Custodian and the Class A Agent have
been reimbursed for any fees and expenses not paid
by the Servicer (including any such fees unpaid
with respect to one or more prior Collection
Periods), but not to exceed $10,000 in the
aggregate amount, and after giving effect to all
distributions of interest and principal required
to be made to the Class A and Class B
Certificateholders on such Distribution Date.
Thereafter, amounts otherwise distributable to the
Class B Certificateholders and Excess Amounts
otherwise distributable to the Seller will be
deposited in the Subordination Spread Account to
the extent necessary to maintain the amount in the
Subordination Spread Account at an amount equal to
the Specified Subordination Spread Account
Balance. On each Distribution Date, funds will be
withdrawn from the Subordination Spread Account as
described herein for distribution to the Class A
Certificateholders to cover any shortfalls in the
amount of interest and principal required to be
distributed to them. The "Specified Subordination
Spread Account Balance" with respect to any
Distribution Date will be equal to $14,992,424.76
except that in the event that on any Distribution
Date (i) the annualized average for the preceding
three Collection Periods of the percentage
equivalents of the ratios of net losses (i.e., the
net balances of all Receivables which are
determined to be uncollectible in the Collection
Period, less any Liquidation Proceeds with respect
to such net balances from that or prior Collec-
tion Periods) to the Pool Balance as of the first
day of each such Collection Period exceeds 3.5% or
(ii) the average for the preceding three
Collection Periods of the percentage equivalents
of the ratios of the number of Receivables that
are delinquent 60 days or more to the outstanding
number of Receivables exceeds 2.0%, then the
Specified Subordination Spread Account Balance for
such Distribution Date (and for each succeeding
Distribution Date until
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the relevant averages have not exceeded the
specified percentages in clauses (i) and (ii)
above for three successive Distribution Dates)
shall be a dollar amount equal to (x) 21% of the
Pool Balance as of the first day of the related
Collection Period minus (y) the excess of the Pool
Balance over the Class A Certificate Balance both
as of the first day of such Collection Period, but
in no event shall the Specified Subordination
Spread Account Balance be more than
$99,949,498.39, or less than $14,992,424.76. On
any Distribution Date on which the aggregate
balance of the Class A Certificates is
$133,432,580.25 or less, after giving effect to
the distributions on such Distribution Date, the
Specified Subordination Spread Account Balance
shall be the greater of the balance described
above or $24,987,374.60. The Subordination Spread
Account will be maintained as a segregated account
with Norwest Bank Minnesota, National Association
and will not be part of the Trust.
The Seller may, from time to time after the date
of this Prospectus, request each rating agency
then rating the Class A Certificates to approve a
different formula for determining the Specified
Subordination Spread Account Balance or a change
in the manner by which the Subordination Spread
Account is funded, if such new formula or manner
would not affect the then-current rating of the
Class A Certificates. See "The
Certificates--Subordination of the Class B
Certificates; Subordination Spread Account."
On each Distribution Date, after giving effect to
all distributions made on such Distribution Date,
any amounts in the Subordination Spread Account in
excess of the Specified Subordination Spread
Account Balance will be distributed as described
under "The Certificates--Subordination of the
Class B Certificates; Subordination Spread
Account" and, upon such distribution, the Class A
Certificateholders will have no further rights in,
or claims to, such amounts.
YIELD SUPPLEMENT RESERVE
ACCOUNT AND YIELD
SUPPLEMENT AGREE-
MENT................... In order to maintain the rating of the Class A
Certificates at the initial level, a segregated
trust account will be established by the Seller
and pledged to and maintained by the Class A Agent
for the benefit of the Class A Certificateholders
(the "Yield Supplement Reserve Account"). Pursuant
to the Agreement, on each Distribution Date, to
the extent funds are available, the Class A Agent
will withdraw from the Yield Supplement Reserve
Account and deposit in the Certificate Account an
amount equal to the Yield Supplement Amount. The
"Yield Supplement Amount" is an amount (if
positive) calculated by the Servicer, which is the
amount with respect to each Receivable (other than
a Liquidated Receivable, after the Collection
Period in which such Receivable became a
Liquidated Receivable), for any Collection Period,
equal to one-twelfth times (i) interest calculated
at a rate equal to the sum of the Pass-Through
Rate and 1.00% (the "Servicing Rate"), minus
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(ii) interest at such Receivable's APR, in each
case on such Receivable's principal balance as of
the first day of the Collection Period.
The initial amount of the Yield Supplement Reserve
Account will be $4,107,391.76 (the "Initial Yield
Supplement Reserve Amount"). The amount required
to be on deposit in the Yield Supplement Reserve
Account (the "Required Yield Supplement Reserve
Amount") will be equal to the lesser of (i) the
maximum aggregate Yield Supplement Amounts that
will become due under the Yield Supplement
Agreement, assuming that payments on the
Receivables are made on their scheduled due dates
and that no Receivable becomes a Prepaid
Receivable, or (ii) the Initial Yield Supplement
Reserve Amount. To the extent that amounts on
deposit in the Yield Supplement Reserve Account
exceed the Required Yield Supplement Reserve
Amount, the excess will be released to the Seller.
The Yield Supplement Reserve Account will be
maintained by the Class A Agent for the benefit of
the Class A Certificateholders and will not be
part of the Trust. See "The Certificates--Yield
Supplement Reserve Account and Yield Supplement
Agreement." A "Prepaid Receivable" is a Receivable
which during a Collection Period is prepaid in
full or accelerated under certain circumstances,
or with respect to which the related Financed
Vehicle is repossessed or becomes a total loss.
The Seller will enter into a yield supplement
agreement (the "Yield Supplement Agreement") with
the Class A Agent and the Servicer, and the Seller
will assign the Yield Supplement Agreement to the
Trust. The Seller has no obligation to further
fund the Yield Supplement Reserve Account after
the deposit of the Initial Yield Supplement
Reserve Amount. See "The Certificates--Yield Sup-
plement Reserve Account and Yield Supplement
Agreement."
DISTRIBUTION DATE........ The 15th day of each month (or if such 15th day is
not a business day, the next following business
day).
ADVANCES................. The Servicer will advance each month to the Trust,
in respect of each Receivable, an amount equal to
the product of the principal balance of the
Receivable as of the first day of the related
Collection Period and one-twelfth of its APR minus
the amount of interest actually received on the
Receivable with respect to such Collection Period
(an "Advance"). The Servicer will not be required
to make any Advance (other than an Advance of an
interest shortfall arising from a Prepaid
Receivable) to the extent that it does not expect
to recover the Advance from subsequent collections
or recoveries. No advances of principal will be
made with respect to the Receivables. See "The
Certificates--Advances." The Servicer will be
reimbursed for Advances from collections of
interest on the Receivables prior to distribution
of any Available Interest to Certificateholders.
Any successor servicer would not be required to
make any Advances of interest or principal. See
"The Certificates--Distributions on Certificates."
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REPURCHASES OF CERTAIN
RECEIVABLES............ The Seller will be obligated to repurchase any
Receivable if the interest of the Trust therein is
materially adversely affected by a breach of any
representation or warranty made by the Seller with
respect to such Receivable if the breach has not
been cured by the last day of the second month
following the discovery by or notice to the Seller
of the breach. NMAC will be obligated to
repurchase such Receivable from the Seller
pursuant to the Purchase Agreement
contemporaneously with the Seller's repurchase
from the Trust. See "The Certificates--Sale and
Assignment of Receivables."
SERVICER FEE............. The Servicer will receive each month a fee for
servicing the Receivables (the "Servicing Fee").
The monthly Servicing Fee shall be one-twelfth of
1.00% of the Pool Balance as of the first day of
the related Collection Period. The Servicer shall
also receive any late, prepayment and other
administrative fees and expenses collected during
such month plus reinvestment proceeds on any
payments received in respect of the Receivables
(the "Supplemental Servicing Fee" and together
with the Servicing Fee, the "Servicer Fee"). See
"The Certificates--Servicing Compensation."
OPTIONAL PURCHASE........ The Servicer may purchase all of the Receivables
as of the last day of any month on or after which
the aggregate principal balance of the Receivables
(after giving effect to the current calendar
month's collections) declines below 10% of the
aggregate face amount of the original Pool
Balance. The purchase price will be equal to the
aggregate Purchase Amounts, and will be
distributed to Certificateholders on the next
following Distribution Date. See "The Certifi-
cates--Termination."
TRUSTEE.................. Norwest Bank Minnesota, National Association
CLASS A AGENT............ Norwest Bank Minnesota, National Association
TAX STATUS............... The Seller and the Trust intend to treat the Trust
as a grantor trust for federal income tax purposes
that is not subject to federal income tax. Class A
Certificate Owners must report their respective
allocable shares of all income earned on the Trust
assets, and, corporations, as well as, subject to
certain limitations, individuals, estates and
trusts may deduct their respective allocable
shares of reasonable servicing and other fees. See
"Federal Income Tax Consequences--Classification
of the Trust." Individuals should consult their
own tax advisors to determine the federal, state,
local and other tax consequences of the purchase,
ownership and disposition of the Class A
Certificates. Prospective investors should note
that no rulings have been or will be sought from
the Internal Revenue Service (the "Service") with
respect to any of the federal income tax
consequences discussed herein, and no assurance
can be given that the Service will not take
contrary positions. See "Federal Income Tax
Consequences."
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
The exact characterization for federal income tax
purposes of the payments received with respect to
the Yield Supplement Agreement is not clear.
Arguably, the arrangement set forth in the Yield
Supplement Agreement should be treated as a loan
made by the Class A Certificate Owners to the
Seller in an amount equal to the discounted
present value of the Yield Supplement Amounts, if
any, which are expected to be received, resulting
in original issue discount to the Class A
Certificate Owners for the amount of the discount.
Alternatively, it is possible that the entire
amount of Yield Supplement Amounts should be
included in income as accrued or received and not
treated as interest and that the Class A
Certificate Owners should also be entitled to
amortize the portion of the purchase price
allocable to their right to receive Yield
Supplement Amounts, possibly on a straight-line
basis over the term of the Class A Certificates.
See "Federal Income Tax Consequences-Payments
Under the Yield Supplement Agreement." In such
latter case, such payments may not constitute
"portfolio interest." See "Federal Income Tax
Consequences--Foreign Class A Certificate Owners."
ERISA CONSIDERATIONS..... As described herein, the Class A Certificates may,
in general, be purchased by employee benefit plans
that are subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"),
subject to certain conditions. See "ERISA
Considerations."
RATING................... As a condition of issuance, the Class A
Certificates will be rated in the highest rating
category by at least one nationally recognized
rating agency (each such agency, a "Rating
Agency"). There is no assurance that a rating will
not be lowered or withdrawn by a Rating Agency
based on a change in circumstances deemed by such
Rating Agency to adversely affect the Class A
Certificates. See "Rating of the Class A
Certificates."
</TABLE>
10
<PAGE>
RISK FACTORS
Prospective investors in the Class A Certificates should consider the
following risk factors in connection with the purchase of the Class A
Certificates.
LIMITED ASSETS
The Trust will not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables and the
Subordination Spread Account. The Certificates represent interests solely in the
Trust and are not obligations of, and will not be insured or guaranteed by, the
Seller, NMAC, the Servicer or any of their respective affiliates, or the Trustee
or any other person or entity. Holders of the Class A Certificates must rely for
repayment upon payments on the Receivables and, if and to the extent available,
amounts on deposit in the Subordination Spread Account. Similarly, although
funds in the Subordination Spread Account will be available on each Distribution
Date to cover shortfalls in distributions of interest and principal on the Class
A Certificates, amounts to be deposited in the Subordination Spread Account are
limited in amount, and if the Subordination Spread Account is exhausted, the
Trust will depend solely on current distributions on the Receivables to make
payments on the Certificates. On any Distribution Date when the amount on
deposit in the Subordination Spread Account exceeds the Specified Subordination
Spread Account Balance, the amount of such excess will not be available to the
Class A Certificateholders on any subsequent Distribution Date. See "The
Certificates--Subordination of the Class B Certificates; Subordination Spread
Account." In limited circumstances, the Trust will also have access to funds in
the Yield Supplement Reserve Account. See "The Certificates--Yield Supplement
Reserve Account and Yield Supplement Agreement."
PREPAYMENT CONSIDERATIONS
The weighted average lives of the Class A Certificates will be reduced by
full or partial prepayments on the Receivables. The Receivables are prepayable
at any time without penalty. Prepayments may result from payments by or on
behalf of the related Obligors, the receipt of proceeds from physical damage or
credit life and/or credit disability insurance, repurchases by NMAC or the
Seller as a result of certain uncured breaches of representations and warranties
made with respect to the Receivables and purchases by the Servicer as a result
of certain uncured breaches of the covenants made by it with respect to the
servicing of the Receivables. See "The Receivables--Maturity and Prepayment
Considerations." Prepayments can also result from the liquidation of vehicles
and the Receivables. NMAC's retail loss experience with respect to its total
portfolio of receivables serviced for itself and third parties in the year ended
March 31, 1997 was higher than in previous years due to an effort to finance a
broader credit range of customers to support the sale of Nissan and Infiniti
vehicles and a general increase in personal bankruptcy filings. NMAC's
management reacted to this negative trend by initiating changes to its credit
policy that tightened the range of available credit in order to originate an
improved mix of business. If the Trust experiences high levels of losses on the
Receivables, correspondingly high levels of liquidations and prepayments may
result. Such prepayments could shorten the weighted average life of the Class A
Certificates.
The Seller maintains only limited records regarding prepayment rates and is
not aware of publicly available industry statistics that set forth principal
prepayment experience for retail installment sales contracts similar to the
Receivables. The Seller can make no prediction as to the actual prepayment rates
that will be experienced on the Receivables. The Seller, however, believes that
the actual rate of prepayments will result in the weighted average life of the
Receivables, and therefore of the Class A Certificates, being shorter than the
period from the Closing Date to the Final Scheduled Maturity Date.
Substantially all reinvestment risks (which will vary from investor to
investor, but which may include the risk that principal payments will have to be
reinvested at a lower yield) resulting from a faster or slower incidence of
prepayment of Receivables will be borne by the Certificateholders.
11
<PAGE>
SECURITY INTEREST IN FINANCED VEHICLES
Because of the administrative burden and expense that would be entailed in
doing so, the certificates of title for the Financed Vehicles, which will name
NMAC as secured party, will not be amended or reissued to reflect the assignment
of the security interests in the Financed Vehicles by NMAC to the Seller or by
the Seller to the Trust. In most states, as against creditors of the related
obligor, such assignment is an effective conveyance of such security interest.
In the absence of fraud or forgery by the related Obligor (as herein defined) or
administrative error by state or local recording officials, the notation of the
lien of NMAC on the certificates of title and NMAC's possession of the
certificates of title (for purposes of servicing the Receivables) should be
sufficient to protect the Trust against the rights of subsequent purchasers of
the related Financed Vehicles and subsequent lenders who take security interests
in the related Financed Vehicles. If there are any Financed Vehicles as to which
NMAC failed to obtain perfected security interests, such security interests
would be subordinate to, among others, subsequent purchasers of such Financed
Vehicles and holders of perfected security interests in such Financed Vehicles.
In addition, because neither the Trust nor the Trustee will be listed as legal
owner on the certificates of title to the Financed Vehicles, the security
interests in the Financed Vehicles could be defeated through fraud, forgery or
negligence. See "Certain Legal Aspects of the Receivables--Security Interests in
the Financed Vehicles."
CONSUMER PROTECTION LAWS
The Receivables are subject to federal and state consumer protection laws
which impose requirements with respect to the making, transfer, acquisition,
enforcement and collection of consumer loans. Such laws, as well as any new laws
or rules which may be adopted, may adversely affect the Servicer's ability to
collect on the Receivables. In addition, failure by the Seller to have complied,
or the Servicer to comply, with such requirements could adversely affect the
enforceability of the Receivables. Each of NMAC and the Seller will make
representations and warranties relating to the validity and enforceability of
the Receivables and their compliance with applicable law in connection with
their performance of the transactions contemplated by the Purchase Agreement and
the Agreement. Pursuant to the Purchase Agreement and the Agreement, if the
Trust's interest in a Receivable is materially and adversely affected by the
failure of such Receivable to comply with applicable requirements of consumer
protection law, such representation or warranty is not complied with and such
noncompliance continues beyond the applicable cure period, the Receivables
affected thereby will be repurchased by NMAC or the Seller under the Purchase
Agreement and Agreement, respectively. See "Certain Legal Aspects of the
Receivables--Consumer Protection Laws."
CREDIT ENHANCEMENT
Credit enhancement with respect to the Class A Certificates will be provided
by the subordination of the Class B Certificates and the funds in the
Subordination Spread Account. These funds consist of the amounts (both principal
and interest) otherwise distributable to holders of the Class B Certificates
that are required under the Agreement to be deposited in the Subordination
Spread Account. The amount available for distribution to the Certificateholders
on any Distribution Date and the time necessary for the Subordination Spread
Account to reach the specified Subordination Spread Account Balance after the
Closing Date will be affected by the delinquency, net loss, repossession and
prepayment experience of the Receivables and, therefore, cannot be accurately
predicted. In addition, the amount required to be on deposit in the
Subordination Spread Account with respect to any Distribution Date will be
limited to the Specified Subordination Spread Account Balance for such
Distribution Date.
CERTAIN LEGAL ASPECTS--BANKRUPTCY CONSIDERATIONS
The Seller will warrant to the Trust in the Agreement that the sale of the
Receivables by the Seller to the Trust is a valid sale of the Receivables to the
Trust. Notwithstanding the foregoing, if the Seller were to
12
<PAGE>
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 Trust should instead be treated as a pledge of such
Receivables to secure a borrowing of such debtor, delays in payments of
collections of Receivables to the related security holders could occur or
(should the court rule in favor of any such trustee, debtor or creditor)
reductions in the amounts of such payments could result. If the transfer of
Receivables to the Trust is treated as a pledge instead of a sale, a tax or
government lien on the property of the Seller arising before the transfer of a
Receivable to the Trust may have priority over the Trust's interest in such
Receivable. If the transactions contemplated herein are treated as a sale, the
Receivables would not be part of the Seller's bankruptcy estate and would not be
available to the Seller's creditors. See "Certain Legal Aspects of the
Receivables--Certain Bankruptcy Considerations."
The Agreement will provide that the Servicer may retain all payments on or
in respect of the Receivables received from Obligors and all proceeds of
Receivables collected during each Collection Period without segregation in its
own accounts until deposited in the Collection Account (as defined below) on the
business day prior to the related Distribution Date unless and until (i) an
Event of Default exists and is continuing or (ii) the Servicer's short-term
unsecured debt ceases to be rated at least P-1 by Moody's and A-1 by S&P, and
alternative arrangements acceptable to the Rating Agencies are not made. The
Servicer does not currently have the rating referred to in clause (ii). As a
result, following execution of the Agreement, the Servicer will be required to
deposit all such payments and proceeds into the Collection Account not later
than one business day after receipt. Pending deposit into the Collection
Account, collections on the related Receivables will not be segregated from
funds of the Servicer. If the Servicer were to become a debtor in a bankruptcy
case or were otherwise unable to remit such funds, the Class A
Certificateholders might incur a delay in the distribution or a loss of funds.
LIMITED LIQUIDITY
There is currently no secondary market for the Class A Certificates. The
Underwriters currently intend to make a market in the Class A Certificates, but
they are under no obligation to do so. There can be no assurance that a
secondary market will develop or, if a secondary market does develop with
respect to the Class A Certificates, that it will provide the Class A
Certificateholders with liquidity of investment or that it will continue for the
life of the Class A Certificates.
UNCERTAINTY OF FEDERAL INCOME TAX CONSEQUENCES OF YIELD SUPPLEMENT AGREEMENT
Tax counsel is unable to opine as to the Federal income tax consequences of
the Yield Supplement Agreement. See "Federal Income Tax Consequences--Payments
Under the Yield Supplement Agreement."
YEAR 2000
Many existing computer programs use two digits rather than four to define
the applicable year. These programs could fail or produce erroneous results
during the transition into the Year 2000.
NMAC has developed a comprehensive plan to address issues relating to Year
2000. However, due to the general uncertainty inherent with respect to Year 2000
issues, there can be no assurance that no material disruption to NMAC's business
operations will occur.
Despite NMAC's significant efforts to make its software applications and
systems Year 2000 compliant, the ability of third parties, including utility
companies, to be Year 2000 compliant is beyond NMAC's control. Thus, there can
be no assurances that the software applications and systems of other companies
on which NMAC relies will be timely converted or compatible with NMAC's systems.
The failure of these entities to comply on a timely basis could have a material
adverse effect on NMAC and the Trust.
13
<PAGE>
TRUST'S RELATIONSHIP TO THE SELLER AND NMAC; FINANCIAL CONDITION OF NISSAN MOTOR
CO., LTD.
Neither the Seller nor NMAC, as Servicer, is generally obligated to make any
payments in respect of the Certificates or the Receivables. The Servicer,
however, will service and administer the Receivables pursuant to the Agreement,
which includes the collection of payments due with respect to the Receivables
and the repossession and disposition of Financed Vehicles. See "The
Certificates--Sale and Assignment of Receivables", "--Servicing Procedures",
"--Collections" and "--Advances."
In addition, in connection with the transfer of Receivables by NMAC to the
Seller and the transfer of the Receivables by the Seller to the Trust, each of
NMAC and the Seller make representations and warranties with respect to the
characteristics of such Receivables. NMAC 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 "The
Certificates--Sale and Assignment of Receivables."
If NMAC 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 Certificateholders. In addition, the ability of NMAC to
perform in the event of a breach of the representations and warranties discussed
above may be adversely affected by a deterioration of the financial condition of
the Nissan group of companies.
NMAC is an indirect wholly-owned subsidiary of Nissan Motor Co., Ltd.
("Nissan"). Nissan's non-consolidated net sales for the first half of the fiscal
year ending March 31, 1999 were 1,638.5 billion yen, down from 1,776.1 billion
yen for the first half of the previous fiscal year and Nissan's non-consolidated
operating income was 20.6 billion yen for the first half of the fiscal year
ending March 31, 1999, compared to 50.5 billion yen in the same period the
previous fiscal year. The declines in non-consolidated net sales and operating
income reflect decreases in Japanese domestic vehicle demand and exports to the
United States. Nissan reported a non-consolidated net loss of 32.5 billion yen
for the first half of the fiscal year ending March 31, 1999, compared to net
income of 38.5 billion yen for the same period the previous fiscal year. The
decline in net income reflected an evaluation loss of 76.0 billion yen on
securities and other investments held by Nissan.
For the fiscal year ended March 31, 1998, Nissan's consolidated net sales
were 6,564.6 billion yen, compared to 6,658.9 billion yen for the previous
fiscal year. Nissan's consolidated operating income declined to 86.4 billion yen
in the fiscal year ended March 31, 1998 from 199.9 billion yen in the fiscal
year ended March 31, 1997. For the fiscal year ended March 31, 1998, Nissan
reported a consolidated net loss of 14.0 billion yen compared to net income of
77.7 billion yen for the previous fiscal year. The decline in net sales and
operating income reflected reduced unit vehicle sales on a consolidated basis,
while net income was additionally affected by losses related to the lease
vehicle portfolio in the United States.
On September 29, 1998, Standard & Poor's, citing pressures building in the
Japanese economy and financial system, placed the ratings of 22 Japanese
corporations, including Nissan's BBB- long term rating and A-3 short term
rating, on Credit Watch with negative implications. On November 16, 1998,
Moody's Investors Service ("Moody's") placed Nissan's Baa3 long term and P-3
short term ratings on review for a possible downgrade. Moody's cited the
potential impact from the continued deterioration of economic conditions in
Asia, particularly in Japan, on Nissan's operating position and financial
strength as well as Nissan's high financial leverage.
In May 1998, Nissan announced a "Global Business Reform Plan." The plan
includes strengthening Nissan's financial position by reducing the manufacturing
and sales portion of interest bearing debt (which excludes financial services
debt) by approximately one trillion yen by March, 2001. Other measures of the
plan include selling assets, reducing inventory, reducing production costs and
reducing the costs of sales and distribution.
14
<PAGE>
FORMATION OF THE TRUST
The Seller will establish the Trust by selling and assigning the Trust
property, as described below, to the Trustee in exchange for the Certificates.
The Servicer will service the Receivables pursuant to the Agreement and will be
compensated for acting as the Servicer. See "The Certificates--Servicing
Compensation." To facilitate servicing and to minimize administrative burden and
expense, the Servicer will retain physical possession of the Receivables and
documents relating thereto as custodian for the Trustee. Due to the
administrative burden and expense, the certificates of title to the Financed
Vehicles will not be amended to reflect the assignment of the security interest
in the Financed Vehicles to the Trustee. In the absence of such amendment, the
Trustee may not have a perfected security interest in the Financed Vehicles in
all states. See "Certain Legal Aspects of the Receivables--Security Interests in
the Financed Vehicles." The Trustee will not be responsible for the legality,
validity or enforceability of any security interest in any Financed Vehicle.
If the protection provided to the Class A Certificateholders by the
subordination of the Class B Certificates and by the Subordination Spread
Account is insufficient, the Class A Certificateholders would have to look
solely to the Obligors (as defined below) on the Receivables, the proceeds from
the repossession and sale of Financed Vehicles which secure defaulted
Receivables and the proceeds from Dealer Recourse (as defined below). In such
event, certain factors, such as the Trustee's not having perfected security
interests in the Financed Vehicles in all states, may affect the Trust's ability
to repossess and sell the collateral securing the Receivables, and thus may
reduce the proceeds to be distributed to Certificateholders. See "The
Certificates--Subordination of the Class B Certificates; Subordination Spread
Account" and "Certain Legal Aspects of the Receivables."
PROPERTY OF THE TRUST
Each Certificate represents a fractional undivided interest in the Trust.
The property of the Trust will consist of a pool of retail installment sale
contracts originated on or after October 6, 1993, between Nissan and Infiniti
dealers (the "Dealers") and retail purchasers (the "Obligors") secured by new,
near-new and used automobiles and light trucks and all principal and interest
payments made on or after the Cutoff Date and certain other property. In some
states, a "demonstration" vehicle is not titled so that vehicles used as
demonstration vehicles in such states may be classified as new vehicles.
"Near-new" automobiles and light trucks are pre-owned Nissan and Infiniti
vehicles which are not greater than three model-years old as of the contract
origination year. The Receivables were originated by Dealers in accordance with
NMAC's requirements under agreements with Dealers governing the assignment of
the Receivables to NMAC. The Receivables have been so assigned and evidence the
indirect financing made available by NMAC to the Obligors. On or prior to the
issuance of the Certificates, the Receivables will be sold to the Seller by
NMAC, but will be serviced by NMAC. The property of the Trust also will include
(i) such amounts as from time to time may be held in separate trust accounts
(the "Collection Account" and the "Certificate Account") established and
maintained pursuant to the Agreement; (ii) security interests in the Financed
Vehicles and any accessions thereto; (iii) any Dealer Recourse; (iv) the right
to proceeds of credit life and credit disability insurance covering the Financed
Vehicles or Obligors; (v) the rights of the Seller under the Purchase Agreement,
the Custody and Pledge Agreement and the Yield Supplement Agreement; (vi)
certain rebates of premiums and other amounts relating to certain insurance
policies and other items financed under the Receivables in effect as of the
Cutoff Date; and (vii) any and all proceeds of the foregoing. The property of
the Trust does not include amounts on deposit from time to time in the Yield
Supplement Reserve Account or the Subordination Spread Account.
Additionally, pursuant to agreements between NMAC and the Dealers, the
Dealers are obligated to repurchase Receivables from NMAC which do not meet
certain representations made by the Dealers ("Dealer Recourse"). Such Dealer
Recourse is limited to breaches of representations and warranties and is not
related to credit losses on the Receivables. See "The Receivables."
15
<PAGE>
THE RECEIVABLES
The Receivables were purchased by NMAC from Dealers in the ordinary course
of business in accordance with NMAC's underwriting standards. The Receivables
were selected from NMAC's portfolio by several criteria, including the
following: each Receivable (i) was originated in the United States, (ii) has a
contractual Annual Percentage Rate ("APR") that equals or exceeds 3.0%, (iii)
provides for level monthly payments which provide interest at the APR on a
simple interest basis and fully amortize the amount financed over an original
term to maturity no greater than 60 months, (iv) has a remaining term to
maturity, as of the Cutoff Date, of not less than three months and not greater
than 59 months, (v) had an original balance of not more than $49,977.65 and a
remaining principal balance as of the Cutoff Date of not less than $258.66 nor
more than $49,299.21, (vi) is not more than 29 days past due as of the Cutoff
Date, (vii) is attributable to the purchase of a new, near-new or used
automobile or light truck and is secured thereby, (viii) was originated on or
after October 6, 1993, (ix) has been entered into by an Obligor that was not in
bankruptcy proceedings (according to the records of NMAC) as of the Cutoff Date,
(x) is secured by a Financed Vehicle that as of the Cutoff Date has not been
repossessed (according to the records of NMAC), (xi) has not had forced-placed
insurance premiums added to the amount financed, and (xii) has not been extended
by more than two months. The Receivables are secured by Nissan, Infiniti and
other vehicles. No selection procedures believed to be adverse to the
Certificateholders were utilized in selecting the Receivables from qualifying
retail installment sale contracts. Except as described in item (ii) above, the
Receivables were not selected on the basis of their APRs.
The composition, geographical distribution and distribution by annual
percentage rate of the Receivables as of the Cutoff Date are as set forth in the
following tables.
COMPOSITION OF THE RECEIVABLES
<TABLE>
<S> <C>
Aggregate Principal Balance................................. $999,494,983.89
Number of Receivables....................................... 93,300
Average Principal Balance................................... $10,712.70
Average Original Amount Financed............................ $15,140.43
(Range)................................................... $1,164.42 to 49,977.65
Weighted Average APR........................................ 8.49%
(Range)................................................... 3.0% to 21.0%
Approximate Weighted Average Original Term to Maturity...... 56.65 months
(Range)................................................... 12 to 60 months
Weighted Average Remaining Term to Maturity................. 42.58 months
(Range)................................................... 3 to 59 months
Percentage by Principal Balance of Receivables of New,
Near-New and Used Vehicles................................ 42.51%(New), 42.92%(Near-New)
and 14.57%(Used)
Percentage by Principal Balance of Receivables Financed
Through Nissan and Infiniti Dealers....................... 77.76%(Nissan) and 22.24%
(Infiniti)
</TABLE>
16
<PAGE>
GEOGRAPHIC DISTRIBUTION OF THE
RECEIVABLES
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE PRINCIPAL
STATE(1)(2) BALANCE
- ---------------------------------------------------------------------------------------------- -------------------
<S> <C>
Alaska........................................................................................ 0.06%
Arizona....................................................................................... 3.59
Arkansas...................................................................................... 1.29
California.................................................................................... 15.84
Colorado...................................................................................... 1.36
Connecticut................................................................................... 1.89
Delaware...................................................................................... 0.29
Florida....................................................................................... 6.33
Georgia....................................................................................... 4.22
Idaho......................................................................................... 0.05
Illinois...................................................................................... 4.66
Indiana....................................................................................... 0.75
Iowa.......................................................................................... 0.41
Kansas........................................................................................ 1.08
Kentucky...................................................................................... 0.00
Louisiana..................................................................................... 2.27
Maine......................................................................................... 0.11
Maryland...................................................................................... 1.79
Massachusetts................................................................................. 2.41
Michigan...................................................................................... 0.81
Minnesota..................................................................................... 0.81
Mississippi................................................................................... 1.44
Missouri...................................................................................... 1.62
Montana....................................................................................... 0.05
Nebraska...................................................................................... 0.24
Nevada........................................................................................ 0.93
New Hampshire................................................................................. 0.59
New Jersey.................................................................................... 3.54
New Mexico.................................................................................... 0.57
New York...................................................................................... 6.20
North Carolina................................................................................ 3.93
North Dakota.................................................................................. 0.05
Ohio.......................................................................................... 1.67
Oklahoma...................................................................................... 1.18
Oregon........................................................................................ 0.70
Pennsylvania.................................................................................. 4.46
Rhode Island.................................................................................. 0.59
South Carolina................................................................................ 2.12
South Dakota.................................................................................. 0.04
Tennessee..................................................................................... 3.27
Texas......................................................................................... 10.51
Utah.......................................................................................... 0.41
Vermont....................................................................................... 0.24
Virginia...................................................................................... 2.63
Washington.................................................................................... 1.64
West Virginia................................................................................. 0.22
Wisconsin..................................................................................... 1.11
Wyoming....................................................................................... 0.02
------
Total(3)................................................................................ 100.00%
------
------
</TABLE>
- ------------------------
(1) Based on the addresses of the originating Dealers.
(2) Retail installment sale contracts originated in Alabama have been excluded
for administrative reasons.
(3) Percentages do not add to 100.00% due to rounding.
17
<PAGE>
DISTRIBUTION BY APR OF THE RECEIVABLES
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF PRINCIPAL OF AGGREGATE
APR RANGE (%) RECEIVABLES BALANCE PRINCIPAL BALANCE
- --------------------------------------------------------------- ----------- ----------------- -----------------
<S> <C> <C> <C>
3.0 to 3.99.................................................... 7,545 $ 51,129,616.40 5.12%
4.0 to 4.99.................................................... 5,036 47,389,736.34 4.74%
5.0 to 5.99.................................................... 11,451 166,837,101.75 16.69%
6.0 to 6.99.................................................... 14,559 158,305,839.56 15.84%
7.0 to 7.99.................................................... 7,768 88,172,213.29 8.82%
8.0 to 8.99.................................................... 11,543 132,349,134.71 13.24%
9.0 to 9.99.................................................... 10,987 117,831,176.39 11.79%
10.0 to 10.99.................................................. 6,827 70,251,890.99 7.03%
11.0 to 11.99.................................................. 5,259 52,605,179.36 5.26%
12.0 to 12.99.................................................. 3,542 31,929,153.37 3.19%
13.0 to 13.99.................................................. 2,348 23,663,861.01 2.37%
14.0 to 14.99.................................................. 2,833 27,719,492.54 2.77%
15.0 to 15.99.................................................. 1,052 8,467,953.73 0.85%
16.0 to 16.99.................................................. 987 9,028,698.54 0.90%
17.0 to 17.99.................................................. 887 8,869,829.45 0.89%
18.0 to 18.99.................................................. 410 2,859,323.84 0.29%
19.0 and above................................................. 266 2,084,782.62 0.20%
----------- ----------------- ------
Totals(1)...................................................... 93,300 $ 999,494,983.89 100.00%
----------- ----------------- ------
----------- ----------------- ------
</TABLE>
- ------------------------
(1) Percentages do not add to 100.00% due to rounding.
MATURITY AND PREPAYMENT CONSIDERATIONS
All the Receivables are prepayable at any time. If prepayments are received
on the Receivables, the actual weighted average life of the Receivables will be
shorter than would otherwise be the case. (For this purpose the term
"prepayments" includes prepayments in full, partial prepayments and liquidations
due to default, as well as receipt of proceeds from credit life, credit
disability and casualty insurance policies and certain other Receivables
repurchased by the Seller or the Servicer.) Weighted average life means the
average amount of time during which each dollar of principal on a receivable is
outstanding.
The rate of prepayments on the Receivables may be influenced by a variety of
economic, social and other factors, including the fact that an Obligor generally
may not sell or transfer a Financed Vehicle securing a Receivable without the
consent of NMAC. NMAC believes that the actual rate of prepayments will result
in a shorter weighted average life than would be the case in the absence of such
prepayments. Increases in the rate of prepayment will shorten the weighted
average life of the Class A Certificates and decreases in the rate of prepayment
will lengthen the weighted average life of the Class A Certificates.
Substantially all reinvestment risks (which will vary from investor to investor,
but which may include the risk that principal payments will have to be
reinvested at a lower yield) resulting from a faster or slower incidence of
prepayment of Receivables will be borne by the Certificateholders. See also "The
Certificates--Termination" regarding the Servicer's option to purchase the
Receivables when the aggregate principal balance of the Receivables (the "Pool
Balance") is less than 10% of the Pool Balance as of the Cutoff Date.
Interest on the Receivables will be passed through to Class A
Certificateholders on each Distribution Date to the extent of the Pass-Through
Rate, applied to the Class A Certificate Balance on the last day of the related
Collection Period from funds available from Available Interest (reduced by the
amounts distributed to reimburse the Servicer for outstanding Advances and
payment of Servicing Fees and, if applicable, to reimburse the Trustee, the
Custodian or the Class A Agent for any of their fees and expenses
18
<PAGE>
not paid by the Servicer, not to exceed $10,000 in the aggregate amount). In the
event of prepayments on Receivables, Class A Certificateholders will receive an
amount equal to thirty (30) days' interest on such Class A Certificate Balance
to the extent that amounts, including amounts otherwise allocable to the Class B
Certificates or the Seller, are available from Available Interest after payment
of the Servicing Fee and reimbursement of outstanding Advances (and to the
extent not paid by the Servicer, after payment of any outstanding fees and
expenses (not to exceed $10,000 in the aggregate amount) of the Trustee, the
Custodian and the Class A Agent), and if such amounts are insufficient, the
Class A Certificateholders will receive such excess first, from amounts on
deposit in the Subordination Spread Account, and second, from the Class B
Percentage of Available Principal. If such amounts are insufficient, the amount
of interest distributed to the Class A Certificateholders may be less than that
described above. See "The Certificates--Distributions on Certificates." Although
the Receivables have different APRs, disproportionate rates of prepayments
between Receivables with APRs greater than or less than a rate equal to the sum
of the Pass-Through Rate and the Servicing Rate will generally not affect the
yield to Class A Certificateholders because the Seller has assigned to the Trust
the Seller's rights under the Yield Supplement Agreement and rights to receive
payments from the Yield Supplement Reserve Account. However, higher rates of
prepayments of Receivables with higher APRs will decrease the amount available
to cover delinquencies and defaults on the Receivables and may decrease the
amount available to be deposited in the Subordination Spread Account.
No prediction can be made as to the rate of prepayments on the Receivables
in either stable or changing interest rate environments. NMAC maintains limited
records of the historical prepayment experience of the retail installment sale
contracts included in its portfolio and its experience with respect to the
retail installment sale contracts now included in its portfolio is insufficient
to draw any specific conclusions with respect to the expected rates of
prepayments in full on the Receivables. NMAC is not aware of any publicly
available statistics for the entire auto finance industry on an aggregate basis
that set forth principal prepayment experience for retail installment sale
contracts similar to the Receivables over an extended period of time.
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES
Set forth below is certain information concerning NMAC's experience with
respect to its total portfolio of U.S. retail installment sale contracts for
new, near-new and used automobiles and light trucks. The portfolio consists of
retail installment sale contracts in all fifty states, the District of Columbia
and Guam. 89% of NMAC's total portfolio of U.S. retail installment sales
contracts (excluding those with original maturities of 64 months or more)
consists of new, near-new and used automobiles and light trucks financed through
Nissan dealers, with the remaining 11% financed through Infiniti dealers.
There can be no assurance that the behavior of the Receivables will be
comparable to NMAC's experience shown in the following tables.
DELINQUENCY EXPERIENCE(1)
<TABLE>
<CAPTION>
AT
SEPTEMBER 30, AT MARCH 31,
------------- ---------------------------------------------------------------
1998 1998 1997 1996 1995 1994
------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Number of Contracts Outstanding....... 328,989 330,662 317,238 274,807 226,684 239,592
Delinquencies as a Percent of
Contracts Outstanding (2)
30-59 Days.......................... 2.74% 2.55% 3.10% 2.40% 2.10% 2.50%
60-89 Days.......................... 0.51% 0.36% 0.49% 0.25% 0.15% 0.24%
90 Days or More..................... 0.09% 0.06% 0.17% 0.05% 0.02% 0.24%
</TABLE>
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<PAGE>
NET CREDIT LOSS AND REPOSSESSION EXPERIENCE(1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT OR FOR SIX
MONTHS ENDED
SEPTEMBER 30, AT OR FOR TWELVE MONTHS ENDED MARCH 31,
------------- -----------------------------------------------------
1998 1998 1997 1996 1995 1994
------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Principal Amount Outstanding................ $ 3,474,037 $3,497,123 $3,276,423 $2,659,232 $1,921,100 $1,794,943
Average Principal Amount Outstanding........ $ 3,600,971 $3,248,193 $3,181,569 $2,308,058 $1,822,669 $2,029,439
Number of Contracts Outstanding............. 328,989 330,662 317,238 274,807 226,684 239,592
Average Number of Contracts Outstanding..... 335,864 316,769 309,257 250,040 229,248 266,020
Charge-offs(3).............................. $ 43,662 $ 134,671 $ 158,969 $ 72,838 $ 46,201 $ 55,051
Recoveries(4)............................... $ 21,864 $ 39,997 $ 31,874 $ 20,489 $ 16,465 $ 21,785
Net Losses.................................. $ 21,798 $ 94,674 $ 127,095 $ 52,349 $ 29,736 $ 33,266
Net Losses as a Percent of Principal Amount
Outstanding............................... 1.25%(6) 2.71% 3.88% 1.97% 1.55% 1.85%
Number of Repossessions(5).................. 4,965 14,164 17,569 9,841 8,530 12,834
Number of Repossessions as a Percent of the
Average Number of Contracts Outstanding... 2.96%(6) 4.47% 5.68% 3.94% 3.72% 4.82%
</TABLE>
- ------------------------------
(1) The information in the Delinquency Experience and Net Credit Loss and
Repossession Experience tables includes retail installment sale contracts
for new, near-new and used automobiles and light trucks and includes
contracts which NMAC has sold to third parties but continues to service; it
does not include retail installment sale contracts purchased by NMAC under
certain special financing programs. The information in the tables relates
only to retail installment sales contracts with original terms of 64 months
or less. The Trust does not include Receivables with original maturities in
excess of 60 months. In general, NMAC has experienced higher overall levels
of losses with respect to contracts with original maturities of 64 to 72
months than with respect to contracts with shorter original maturities. All
amounts and percentages, except as indicated, are based on the principal
balances of the contracts including unearned interest. Averages are computed
by taking a simple average of month end outstandings for each period
presented.
(2) An account is considered delinquent if 20% or more of the scheduled payment
is past due.
(3) Charge-offs represent the total aggregate net principal balance of contracts
determined to be uncollectible in the period less proceeds from disposition
of related vehicles, other than recoveries described in Note (4).
Charge-offs do not include expenses associated with collection, repossession
or disposition of the vehicle.
(4) Recoveries generally include amounts received on contracts following the
time at which the contract is charged off. Recoveries are net of expenses
associated with collection.
(5) The number of repossessions excludes accounts that have been subsequently
reinstated.
(6) Annualized Rate. The six-month period ending September 30, 1998 is not
necessarily indicative of a full year's actual results.
NMAC's retail loss experience is dependent upon receivables levels, the
number of repossessions, the amount outstanding at the time of repossession and
the resale value of repossessed vehicles. The losses in the year ended March 31,
1997 were higher than in previous years due to an effort to finance a broader
credit range of customers to support the sale of Nissan and Infiniti vehicles
and a general increase in personal bankruptcy filings. NMAC's management reacted
to this negative trend by initiating changes to its credit policy that tightened
the range of available credit in order to originate an improved mix of business.
All of the Receivables are simple interest contracts. In general, as
payments are received under a simple interest contract, interest accrued to date
is paid first, the remaining amount of the payment is applied to principal until
the principal balance is brought current and then the remaining payment is
applied to reduce any unpaid late charges or associated fees as provided in the
Receivable and any excess then remaining will further reduce remaining
principal. Accordingly, if an Obligor pays the fixed monthly installment in
advance of the due date, the portion of the payment allocable to interest for
the period since the preceding payment will be less than it would be if the
payment were made on the due date, and the
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<PAGE>
portion of the payment allocable to reduce the principal balance will be
correspondingly greater. Conversely, if the Obligor pays the fixed monthly
installment after its due date, the portion of the payment allocable to interest
for the period since the last payment will be greater than it would be if the
payment were made on the due date, and the portion of the payment allocable to
reduce the principal balance will be correspondingly smaller. Accordingly, the
scheduled final monthly payment will be smaller or larger depending on the
timing of prior payments.
UNDERWRITING OF MOTOR VEHICLE LOANS
NMAC purchases automobile and/or light duty truck retail installment sales
contracts from approximately 1,230 Nissan and Infiniti Dealers located
throughout the United States, including the District of Columbia, and in Guam.
Underwriting of such retail installment sales contracts is performed by using
standard underwriting procedures. The Receivables are originated by Dealers in
accordance with NMAC's requirements under existing agreements with such Dealers
and will be purchased in accordance with NMAC's underwriting procedures which
emphasize, among other factors, the applicant's willingness and ability to pay
and the value of the vehicle to be financed.
Applications received from Dealers must be signed by the applicant and must
contain, among other information, the applicant's name, address, social security
number, residential status, source and amount of monthly income and amount of
monthly rent or mortgage payment. Upon receipt of the above information, NMAC
obtains a credit report from an independent credit bureau reporting agency.
The credit decision is influenced by the applicant's credit score as
obtained from a statistically derived empirical credit scoring process and other
considerations. The credit scoring process considers credit bureau, application
and contract information. Other considerations include ratios such as car
payment to income and total debt payments to total income, residential status,
monthly mortgage or rent payment, bank accounts and other personal information.
The final credit decision is made based upon the degree of credit risk perceived
and the amount of credit requested.
NMAC uses risk-based pricing which includes a tiered system of interest
rates and loan-to-value ratios representing the varying degrees of risk assigned
to different ranges of credit risk. The less credit worthy (and the greater
degree of risk assigned to) an Obligor, the higher will be the interest rate
(and the lower will be the permissible loan-to-value ratio) assigned to such
Obligor.
NMAC's retail contract requires that Obligors maintain specific levels and
types of insurance coverage to protect the Financed Vehicle against loss. NMAC
requires evidence of insurance coverage by Obligors at the time of origination
of the Receivable, but performs no verification of continued coverage
thereafter. NMAC will not be obligated to make payments to the Trust with
respect to any loss as to which third party insurance has not been maintained,
except to the extent of its obligations under the Purchase Agreement.
SERVICING OF THE RECEIVABLES
NMAC considers a receivable to be past due when the Obligor fails to make a
payment by the due date and delinquent when a payment is 15 days past due. Mail
notices and telephone contacts requesting payment are initiated shortly
thereafter. If the delinquent receivable cannot be brought current or completely
collected within 60 to 90 days, NMAC generally attempts to take action to
repossess the vehicle. Repossessed vehicles are held in inventory to comply with
any applicable statutory requirements for reinstatement and then are sold. Any
deficiencies remaining after repossession and sale of the vehicle or after the
full charge-off of the receivable are pursued by or on behalf of NMAC to the
extent practicable and legally permitted. See "Certain Legal Aspects of the
Receivables--Deficiency Judgments and Excess Proceeds." Obligors are contacted
and repayment schedules are established and monitored until the deficiencies are
either paid in full or become impractical to pursue.
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<PAGE>
CLASS A CERTIFICATE AND POOL FACTORS
The "Class A Certificate Factor" is a seven-digit decimal which the Servicer
will compute each month indicating the Class A Certificate Balance as of the
close of business on the Distribution Date in that month as a fraction of the
original Class A Certificate Balance. The Class A Certificate Factor will be
1.0000000 as of the Cutoff Date; thereafter, the Class A Certificate Factor will
decline to reflect reductions in the Class A Certificate Balance. The amount of
a Class A Certificateholder's pro rata share of the Class A Certificate Balance
can be determined by multiplying the original denomination of the holder's
Certificate by the Class A Certificate Factor as of the close of business on the
most recent Distribution Date. The Class A Certificate Factor will be made
available through the Trustee.
The "Class A Pool Factor" is a seven-digit decimal figure which the Servicer
will compute each month and will be calculated by dividing the Class A
Certificate Balance as of the close of business on the Distribution Date in that
month by the Pool Balance as of the Cutoff Date.
Pursuant to the Agreement, the Servicer provides the Trustee with monthly
reports concerning the payments received on the Receivables, the Class A
Certificate Balance, the Class A Certificate Factor, the Class A Pool Factor and
various other items of information. Class A Certificate Owners may obtain copies
of such monthly reports from the Trustee upon delivery of a written request to
the Trustee. Class A Certificateholders of record during any calendar year will
be furnished information by the Trustee for tax reporting purposes not later
than the latest date permitted by law. See "The Certificates--Statements to
Class A Certificateholders."
USE OF PROCEEDS
The net proceeds to be received by the Seller from the sale of the Class A
Certificates (i.e., the proceeds of sale minus expenses related to the offering)
will be applied to the purchase of the Receivables from NMAC.
THE SELLER
The Seller, a wholly owned subsidiary of NMAC, was incorporated in the State
of Delaware on August 5, 1991. The Seller was organized for limited purposes,
which include purchasing receivables from NMAC and transferring such receivables
to third parties and any activities incidental to and necessary or convenient
for the accomplishment of such purposes. The Seller's certificate of
incorporation limits the activities of the Seller to the foregoing purposes. The
Seller has no substantial assets other than those related to this and similar
transactions. The principal executive offices of the Seller are located at 990
W. 190th Street, Torrance, California 90502. The telephone number of such
offices is (310) 719-8013.
THE SERVICER
NMAC was incorporated in California in November 1981 and began operations in
February 1982. It is a wholly owned subsidiary of NMC, the primary distributor
of Nissan vehicles in the continental United States. NMC is an indirect wholly
owned subsidiary of Nissan Motor Co., Ltd., a Japanese corporation ("Nissan"),
which is a worldwide manufacturer and distributor of motor vehicles, industrial
equipment and aerospace products. See "Risk Factors--Trust's Relationship to the
Seller and NMAC; Financial Condition of Nissan Motor Co., Ltd."
NMAC offers indirect automotive consumer loan and lease financing and direct
dealer financing, through (and to) approximately 1,080 Nissan and 150 Infiniti
dealers in the United States. NMAC's underwriting, servicing and collection
activities are conducted principally at a processing center in Dallas, Texas.
The mailing address of NMAC's executive offices is 990 W. 190th Street,
Torrance, California 90502. The telephone number of such offices is (310)
719-8000.
22
<PAGE>
YEAR 2000
Many existing computer programs use only two digits to define a year in the
date field. These programs may recognize a date using "00" as the Year 1900
rather than the Year 2000, which could result in the program shutting down,
performing incorrect computations or performing inconsistently. In response to
this issue, NMAC has developed a comprehensive plan to ensure that its software
applications and systems are Year 2000 compliant. The plan includes the
assessment of "at risk" applications and systems, an assessment of the
interdependencies of various systems and the relative importance of each system
to NMAC's business to verify Year 2000 compliance. In addition, the plan
requires testing with all of NMAC's outside vendors and banking institutions.
NMAC expects to complete substantially all Year 2000 system upgrades and testing
by August 1999.
Costs associated with the Year 2000 systems and software modification are
expensed as incurred. NMAC has budgeted a total of $3.0 million to complete the
necessary upgrades. The total estimated costs are not expected to have a
material impact on NMAC's operations, liquidity or capital reserves. The Trust
will not bear any of the expenses incurred in connection with NMAC's plan.
Despite NMAC's significant efforts to make its systems Year 2000 compliant,
the ability of third parties, including utility companies, to be Year 2000
compliant is beyond NMAC's control. Accordingly, there can be no assurances that
the systems of other companies on which NMAC relies will be timely converted or
compatible with NMAC's systems. The failure of these entities to comply on a
timely basis could have a material adverse effect on NMAC and the Trust.
The foregoing statements relating to NMAC's expectations as to its Year 2000
efforts are based on its best estimates which may be updated as additional
information becomes available. NMAC's forward looking statements are based on
assumptions about many important factors, including the technical skills of
employees and independent contractors, representations and preparedness of third
parties and the effects of the Year 2000 issues on business partners and
customers. While NMAC believes its assumptions are reasonable, it cautions that
it is impossible to predict the impact of certain factors that could cause
actual timetables to differ materially from the expected results. See "Risk
Factors--Year 2000."
23
<PAGE>
THE CERTIFICATES
The Class A Certificates offered hereby will be issued pursuant to the
Agreement. Copies of the Agreement (without exhibits) may be obtained by the
Class A Certificateholders upon request in writing to the Servicer, at its
address set forth above. Citations to the relevant sections of the Agreement
appear below in parentheses. The following summary does not purport to be
complete and is subject to and qualified in its entirety by reference to the
Agreement.
GENERAL
The Class A Certificates will be offered for purchase in denominations of
$1,000 and integral multiples thereof (except that one Certificate may be issued
in an amount not an integral multiple of $1,000) and will be represented
initially by physical certificates registered in the name of Cede as the nominee
of DTC, except that, as described below under "The Certificates--Book-Entry
Registration," one Class A Certificate may be issued to the Seller in a
denomination that includes any residual portion of the Class A Percentage of the
original Pool Balance. No Class A Certificate Owner will be entitled to receive
a certificate representing such person's interest in the Class A Certificates,
except as set forth below under "The Certificates--Definitive Certificates."
Unless and until Definitive Certificates are issued under the limited
circumstances described herein, all references to actions by Class A
Certificateholders shall refer to actions taken by DTC upon instructions from
its Participants (as defined below), and all references herein to distributions,
notices, reports and statements to Class A Certificateholders shall refer to
distributions, notices, reports and statements to DTC or Cede, as the registered
holder of the Class A Certificates, as the case may be, for distribution to
Class A Certificate Owners in accordance with DTC procedures. See "The
Certificates--Book-Entry Registration."
In general, it is intended that Class A Certificateholders receive, on each
Distribution Date, the Class A Percentage of all payments of principal received
on the Receivables made during or with respect to the preceding calendar month
or, in the case of the first Distribution Date, the preceding two calendar
months (the "Collection Period"), plus interest at the Pass-Through Rate on the
Class A Certificate Balance as of the last day of the related Collection Period,
calculated on the basis of a 360-day year consisting of twelve 30-day months,
plus the Class A Percentage of the outstanding amount of each Receivable that
became a Liquidated Receivable during such Collection Period. (Section 5.06.)
See "The Certificates--Distributions on Certificates." If a scheduled payment is
not made by or on behalf of the Obligor, the portion of interest included in
such scheduled payment will be paid to the Class A Certificateholders out of
amounts otherwise payable to the Class B Certificateholders. A prepayment of a
Receivable may be made by or on behalf of an Obligor, by application of certain
insurance proceeds, as a result of a purchase of a Receivable made by the Seller
or the Servicer or upon the repossession and liquidation of the respective
Financed Vehicle or other enforcement measures taken with respect to a defaulted
Receivable. See "The Certificates--Sale and Assignment of Receivables," and
"--Servicing Procedures."
The Certificates will evidence interests in the Trust created pursuant to
the Agreement. The Class A Certificates will evidence in the aggregate an
undivided ownership interest of 89% (the "Class A Percentage") of the principal
amount of Receivables held by the Trust and the Class B Certificates will
evidence in the aggregate an undivided ownership interest of 11% (the "Class B
Percentage") thereof. The Class B Certificates, which are not being offered
hereby, will be held initially by the Seller. The Class B Certificates may be
transferred in accordance with the terms of the Agreement. (Sections 7.01, 7.02
and 7.03.)
BOOK-ENTRY REGISTRATION
DTC is a limited purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York
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<PAGE>
UCC and a "clearing agency" registered pursuant to Section 17A of the Securities
Exchange Act of 1934, as amended. DTC was created to hold securities for its
participating organizations ("Participants") and to facilitate the clearance and
settlement of securities transactions between Participants through electronic
book-entries, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations. Indirect access to the DTC system also is
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly ("Indirect Participants").
Class A Certificate Owners that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, Class A Certificates may do so only through Participants and
Indirect Participants. In addition, Class A Certificate Owners will receive all
distributions of principal and interest from the Trustee through DTC
Participants. Under a book-entry format, Class A Certificate Owners may
experience some delay in their receipt of payments, since such payments will be
forwarded by the Trustee to Cede, as nominee for DTC. DTC will forward such
payments to its Participants, which thereafter will forward them to Indirect
Participants or Class A Certificate Owners. It is anticipated that the only
"Class A Certificateholder" will be Cede, as nominee of DTC. Class A Certificate
Owners will not be recognized by the Trustee as Class A Certificateholders, as
such term is used in the Agreement, and Class A Certificate Owners will be
permitted to exercise the rights of Class A Certificateholders only indirectly
through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Class A Certificates among Participants on whose behalf it acts with respect to
the Class A Certificates and to receive and transmit distributions of principal
of, and interest on, the Class A Certificates. Participants and Indirect
Participants with which Class A Certificate Owners have accounts with respect to
the Class A Certificates similarly are required to make book-entry transfers and
receive and transmit such payments on behalf of their respective Class A
Certificate Owners. Accordingly, although Class A Certificate Owners will not
possess Class A Certificates, the Rules provide a mechanism by which
Participants will receive payments and will be able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Class A
Certificate Owner to pledge Class A Certificates to persons or entities that do
not participate in the DTC system, or to otherwise act with respect to such
Class A Certificates, may be limited due to the lack of a physical certificate
for such Class A Certificates.
DTC has advised the Seller that it will take any action permitted to be
taken by a Class A Certificateholder under the Agreement only at the direction
of one or more Participants to whose accounts with DTC the Class A Certificates
are credited. Additionally, DTC has advised the Seller that it will take such
actions with respect to specified percentages of the Class A Certificates only
at the direction of and on behalf of Participants whose holdings include
undivided interests that satisfy such specified percentages. DTC may take
conflicting actions with respect to other undivided interests to the extent that
such actions are taken on behalf of Participants whose holdings include such
other undivided interests.
Neither the Seller nor the Trustee will have any liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests of the Class A Certificates held by Cede, as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
DTC management has stated that it is aware that some computer applications,
systems, and the like for processing data ("Systems") that are dependent upon
calendar dates, including dates before, on, and after January 1, 2000, may
encounter "Year 2000 problems." DTC has informed its Participants and other
members of the financial community (the "Industry") that it has developed and is
implementing a program so that its Systems, as the same relate to the timely
payment of distributions (including principal and
25
<PAGE>
income payments) to securityholders, book-entry deliveries, and settlement of
trades within DTC ("DTC Services"), continue to function appropriately. This
program includes a technical assessment and a remediation plan, each of which is
complete. Additionally, DTC's plan includes a testing phase, which is expected
to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as third-party vendors from whom DTC licenses software and hardware, and
third party vendors on whom DTC relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed the Industry that it is contacting (and will
continue to contact) third party vendors from whom DTC acquires services to: (i)
impress upon them the importance of such services being Year 2000 compliant, and
(ii) determine the extent of their efforts for Year 2000 remediation (and, as
appropriate, testing) of their servicers. In addition, DTC is in the process of
developing such contingency plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the Industry for informational purposes only and is not intended to
serve as a representation, warranty, or contract modification of any kind.
DEFINITIVE CERTIFICATES
The Class A Certificates will be issued in fully registered, certificated
form ("Definitive Certificates") to Class A Certificate Owners or their
nominees, rather than to DTC or its nominee, only if (i) the Seller advises the
Trustee in writing that DTC is no longer willing or able to discharge properly
its responsibilities as depository with respect to the Class A Certificates and
the Seller is unable to locate a qualified successor, (ii) the Seller, at its
option, elects to terminate the book-entry system through DTC or (iii) after the
occurrence of an Event of Default (as defined herein), Class A Certificate
Owners representing not less than 51% of the Class A Certificate Balance advise
the Trustee through DTC in writing that the continuation of a book-entry system
through DTC (or a successor thereto) is no longer in the Class A Certificate
Owners' best interest. (Section 7.10.)
Upon the occurrence of any event described in the immediately preceding
paragraph, the Trustee will be required to notify all Class A Certificate Owners
through Participants of the availability of Definitive Certificates. Upon
surrender by DTC of the definitive certificates representing the Class A
Certificates and receipt of instructions for re-registration, the Trustee will
reissue the Class A Certificates as Definitive Certificates to Class A
Certificate Owners.
Distributions of principal of, and interest on, the Class A Certificates
will thereafter be made by the Trustee directly to holders of Definitive
Certificates in whose names the Definitive Certificates were registered at the
close of business on the Record Date in accordance with the procedures set forth
in the Agreement. Such distributions will be made by check mailed to the address
of such holder as it appears on the register maintained by the Trustee.
The final payment on any Class A Certificate, however (whether Definitive
Certificates or the Class A Certificates registered in the name of Cede or
otherwise), will be made only upon presentation and surrender of such Class A
Certificate at the office or agency specified in the notice of final
distribution to Certificateholders.
Definitive Certificates will be transferable and exchangeable at the offices
of the Trustee or of a certificate registrar named in a notice delivered to
holders of Definitive Certificates. No service charge will be imposed for any
registration of transfer or exchange, but the Trustee may require payment of a
sum sufficient to cover any tax or other governmental charge imposed in
connection therewith.
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<PAGE>
SALE AND ASSIGNMENT OF RECEIVABLES
Prior to or at the time of issuance of the Class A Certificates, pursuant to
a Purchase Agreement (the "Purchase Agreement"), NMAC will sell and assign to
the Seller, without recourse, its entire interest in the Receivables, including
its security interests in the Financed Vehicles. At the time of issuance of the
Class A Certificates, the Seller will sell and assign to the Trustee, without
recourse, the Seller's entire interest in the Receivables, including the
security interests in the Financed Vehicles. Each Receivable will be identified
in a schedule to the Agreement, but the existence and characteristics thereof
will not be verified by the Trustee. The Trustee will, concurrently with such
sale and assignment, execute, authenticate and deliver the Certificates to the
Seller in exchange for the Receivables. (Section 7.02.) The Seller will sell the
Class A Certificates to the Underwriters and will initially retain the Class B
Certificates. See "Underwriting."
In the Purchase Agreement, NMAC will represent and warrant to the Seller,
and in the Agreement, the Seller will represent and warrant to the Trustee,
among other things, that (i) the information provided with respect to the
Receivables is correct in all material respects; (ii) the Obligor on each
Receivable is required to maintain physical damage insurance in accordance with
NMAC's normal requirements; (iii) at the date of issuance of the Certificates,
the Receivables are free and clear of all security interests, liens, charges and
encumbrances and no offsets, defenses or counterclaims against it have been
asserted or threatened; (iv) at the date of issuance of the Certificates, each
of the Receivables is or will be secured by a first priority perfected security
interest in the Financed Vehicle in favor of NMAC; and (v) each Receivable, at
the time it was originated, complied, and at the date of issuance of the
Certificates, complies in all material respects with applicable federal and
state laws, including consumer credit, truth in lending, equal credit
opportunity and disclosure laws. As of the last day of the second (or, if the
Seller elects, the first) month following the discovery by or notice to the
Seller of a breach of any representation or warranty of the Seller which
materially and adversely affects the interests of the Certificateholders in a
Receivable (the initial determination of a material adverse effect generally
being made by the Servicer), the Seller, unless it cures the breach, will
purchase such Receivable from the Trustee, and NMAC will purchase such
Receivable from the Seller, at a price equal to the amount required to be paid
by the related Obligor to prepay the Receivable (including interest accrued
thereon, through the due date for the Obligor's payment in such Collection
Period, at the APR), after giving effect to the receipt of any monies collected
(from whatever source) on such Receivable, if any (such price, the "Purchase
Amount"). The obligation of the Seller to repurchase a Receivable is not
conditioned on performance by NMAC of its obligation to repurchase a Receivable.
The purchase obligation will constitute the sole remedy available to the
Certificateholders or the Trustee for any such uncured breach (other than
remedies that may be available under federal securities laws or other laws).
Pursuant to the Agreement, the Servicer will service and administer the
Receivables. The Agreement will also designate the Servicer as custodian to
maintain possession as the Trustee's agent of the retail installment sale
contracts and any other documents relating to the Receivables. (Section 3.03.)
To assure uniform quality in servicing both the Receivables and the Servicer's
own portfolio of receivables, as well as to facilitate servicing and save
administrative costs, the documents will not be physically segregated from other
similar documents that are in the Servicer's possession or otherwise stamped or
marked to reflect the transfer to the Trust so long as NMAC is servicing the
Receivables. However, Uniform Commercial Code financing statements reflecting
the sale and assignment of the Receivables by NMAC to the Seller and by the
Seller to the Trustee will be filed, and the Servicer's accounting records and
computer systems will reflect such sale and assignment. Because the Receivables
will remain in the Servicer's possession and will not be stamped or otherwise
marked to reflect the assignment to the Trustee, if a subsequent purchaser were
able to take physical possession of the Receivables without knowledge of the
assignment, the Trustee's interest in the Receivables could be defeated. In such
event, distributions to Certificateholders may be adversely affected. In
addition, under certain circumstances the Trustee's security interest in
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collections that have been received by the Servicer but not yet remitted to the
Collection Account could be defeated. See "Certain Legal Aspects of the
Receivables--Security Interests in the Financed Vehicles."
ACCOUNTS
The Servicer will establish two segregated trust accounts in the name of the
Trustee on behalf of the Certificateholders, the first into which certain
payments made on or with respect to the Receivables will be deposited (the
"Collection Account"), and the second from which all distributions with respect
to the Receivables and the Certificates will be made (the "Certificate
Account"). The Collection Account and the Certificate Account each shall be
maintained with the Trustee so long as (i) the Trustee's short-term unsecured
debt obligations have a rating of P-1 by Moody's Investors Service, Inc. and a
rating of A-1+ by Standard & Poor's Ratings Services (the "Required Deposit
Rating") or (ii) such account is maintained in a segregated trust account in the
trust department of the Trustee. If the short-term unsecured debt obligations of
the Trustee do not have the Required Deposit Rating, the Servicer shall, with
the Trustee's assistance as necessary, cause the Collection Account and the
Certificate Account to be moved to a bank whose short-term unsecured debt
obligations have such a rating or moved to the trust department of the Trustee.
The Collection Account and the Certificate Account shall initially be maintained
in the trust department of the Trustee. (Section 5.01.)
ELIGIBLE INVESTMENTS
Funds in the Collection Account and the Certificate Account will be invested
in Eligible Investments at the direction of or by the Servicer and funds in the
Yield Supplement Reserve Account and the Subordination Spread Account
(collectively with the Collection Account and the Certificate Account, the
"Accounts") will be invested in Eligible Investments at the direction of NMAC,
each as provided in the Agreement. "Eligible Investments" are limited to
investments acceptable to the rating agencies then rating the Class A
Certificates as being consistent with the then-current rating of the Class A
Certificates (including obligations of the Servicer and its affiliates, to the
extent consistent with such rating). Examples of Eligible Investments as of the
consummation of this offering include obligations which are guaranteed as to
timely payment of principal and interest by the United States, certificates of
deposit of federal or state banks and commercial paper and money market funds,
that at the date of investment, have the highest rating issuable by the rating
agencies then rating the Class A Certificates. Eligible Investments with respect
to monies in the Collection Account and the Certificate Account are limited to
obligations or securities that mature not later than the next Distribution Date.
If permitted by the rating agencies then rating the Class A Certificates,
however, monies on deposit in the Yield Supplement Reserve Account and the
Subordination Spread Account may be invested in obligations or securities that
mature later than the next Distribution Date. Any earnings (net of losses and
investment expenses) on amounts on deposit in the Accounts will be paid to the
Seller or NMAC as provided in the Agreement and will not be available to the
Class A Certificateholders.
SERVICING PROCEDURES
The Servicer will make reasonable efforts to collect all payments due with
respect to the Receivables and will continue such collection procedures as it
follows with respect to its own automotive retail installment sale contracts, in
a manner consistent with the Agreement. (Section 4.01.) Consistent with its
normal procedures, the Servicer may, in its discretion, grant credit-related
extensions but shall not otherwise change the terms of a Receivable (except that
the Servicer may change the number or amount of an Obligor's monthly payments in
the event of a prepayment resulting from refunds of credit life and disability
insurance premiums and service contracts and make similar adjustments to payment
terms to the extent required by law). If the Servicer determines that eventual
payment in full of a Receivable is unlikely, the Servicer will follow its normal
practices and procedures to realize upon the Receivable, including the
repossession and disposition of the Financed Vehicle securing the Receivable at
a public or dealer sale, or
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the taking of any other action permitted by applicable law. (Section 4.03.) See
"The Receivables-- Servicing of the Receivables."
COLLECTIONS
The Servicer will deposit all payments on Receivables received from Obligors
and all proceeds of Receivables collected during each Collection Period into the
Collection Account not later than the business day after receipt. However, and
provided that (i) there exists no Event of Default and (ii) the rating of the
Servicer's short-term unsecured debt obligations is at least P-1 by Moody's
Investor's Service, Inc. and the rating of the Servicer's (or, if NMAC is the
Servicer and the Servicer then has no short-term rating from Standard & Poor's
Ratings Services, Nissan Capital of America's, Inc.'s) short-term unsecured debt
obligations is at least A-1 by Standard & Poor's Rating Services, the Servicer
may retain such amounts until the related Distribution Date. Notwithstanding the
foregoing, if clause (i) or (ii) above is not satisfied, the Servicer may
utilize an alternative remittance schedule if the Servicer provides to the
Trustee written confirmation from each rating agency which has an outstanding
rating on the Class A Certificates that such alternative remittance schedule
will not result in a qualification, reduction or withdrawal of each such rating
agency's then current rating of the Certificates. The Servicer or the Seller, as
the case may be, will remit the aggregate Purchase Amount of Receivables to be
purchased from the Trust to the Collection Account on the business day
immediately preceding the Distribution Date. The Servicer will be entitled to
withhold, or to be reimbursed from amounts otherwise payable into or on deposit
in the Collection Account, amounts previously deposited in the Collection
Account but later determined to have resulted from mistaken deposits or
postings. Except in certain circumstances described in the Agreement, pending
deposit into the Collection Account, collections may be employed by the Servicer
at its own risk and for its own benefit and will not be segregated from its own
funds. (Section 5.02.)
For purposes of the Agreement, collections on a Receivable made during a
Collection Period shall be applied first to interest accrued to date, second to
principal until the principal balance is brought current, third to reduce the
unpaid late charges as provided in the Receivable and finally to prepay
principal on the Receivable. (Sections 5.03 and 5.06.)
ADVANCES
On or before the business day prior to each Distribution Date, the Servicer
will make a payment into the Collection Account for each Receivable of an amount
equal to the product of the principal balance of the Receivable as of the first
day of the related Collection Period and one-twelfth of its APR minus the amount
of interest actually received on the Receivable during the Collection Period
(such amount, an "Advance"). If such a calculation results in a negative number,
an amount equal to such negative amount shall be paid to the Servicer in
reimbursement of outstanding Advances. In addition, in the event that a
Receivable becomes a Liquidated Receivable, the amount of accrued and unpaid
interest thereon (but not including interest for the current Collection Period)
shall, up to the amount of outstanding Advances in respect thereof, be withdrawn
from the Collection Account and paid to the Servicer in reimbursement of such
outstanding Advances. The amount of any such Advance made in respect of the
related Collection Period and the outstanding amount of unreimbursed Advances on
such Distribution Date will be reflected on the Trustee's report to the Class A
Certificateholders. See "--Statements to Class A Certificateholders." The
Servicer will not be required to make any Advance (other than the Advance of an
interest shortfall arising from a Prepaid Receivable) to the extent that it does
not expect to recover the Advance from subsequent collections or recoveries.
Notwithstanding the foregoing, any person appointed successor servicer
(including the Trustee) will not be required to make any Advance. No advances of
principal will be made with respect to the Receivables.
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SERVICING COMPENSATION
The Servicer is entitled under the Agreement to receive a servicing fee (the
"Servicing Fee") for each Collection Period equal to one-twelfth of 1.00%
multiplied by the Pool Balance as of the first day of such Collection Period.
The Servicer is also entitled to receive a supplemental servicing fee (the
"Supplemental Servicing Fee") for each Collection Period equal to any late,
prepayment and other administrative fees and expenses collected during the
Collection Period, plus any interest earned during the Collection Period on
deposits made in the Collection Account and the Certificate Account and earned
on funds held by the Servicer pending deposit into such accounts with respect to
the Receivables. The Servicer is not entitled to any other compensation for
servicing the Receivables. The Servicer will be paid the Servicing Fee and the
Supplemental Servicing Fee (collectively, the "Servicer Fee") for each
Collection Period on the following Distribution Date. However, if it is
acceptable to each Rating Agency without a reduction in the rating of the Class
A Certificates (or, if applicable, the Class B Certificates), the Servicing Fee
in respect of a Collection Period (together with any portion of the Servicing
Fee that remains unpaid from prior Distribution Dates) will be paid at the
beginning of such Collection Period out of collections of interest on the
Receivables for such Collection Period. The Servicing Fee (and to the extent not
paid by the Servicer, any accrued and unpaid fees and expenses (not to exceed
$10,000 in the aggregate amount) due to the Trustee, the Custodian and the Class
A Agent) shall be paid from Available Interest prior to the payment of the Class
A Interest Distributable Amount to the Class A Certificateholders.
The Servicer Fee is intended to compensate the Servicer for performing the
functions of a third party servicer of the Receivables as an agent for the
Certificateholders, including collecting and posting all payments, responding to
inquiries of Obligors on the Receivables, investigating delinquencies, sending
payment statements to Obligors, reporting tax information to Obligors, paying
costs of collections and policing the collateral. The Servicer Fee will also
compensate the Servicer for administering the Receivables, including making
Advances, accounting for collections and furnishing monthly statements to the
Trustee with respect to distributions. The Servicer Fee also will reimburse the
Servicer for certain taxes, the Trustee's fees, accounting fees, outside auditor
fees, data processing costs and other costs incurred in connection with
administering the Receivables. (Sections 4.08 and 4.13.)
YIELD SUPPLEMENT RESERVE ACCOUNT AND YIELD SUPPLEMENT AGREEMENT
Payments of the Yield Supplement Amounts will be made from funds on deposit
in a segregated trust account to be established by the Seller and pledged to and
maintained with the Class A Agent for the benefit of the holders of the Class A
Certificates (the "Yield Supplement Reserve Account"). The initial amount of the
Yield Supplement Reserve Account will be $4,107,391.76 (the "Initial Yield
Supplement Reserve Amount"). If the Yield Supplement Amounts with respect to any
Distribution Date exceed the amount available for withdrawal from the Yield
Supplement Reserve Account on such Distribution Date, the Seller will not have
any further obligation under the Yield Supplement Agreement to deposit any
further amounts into the Yield Supplement Reserve Account. The amount required
to be on deposit in the Yield Supplement Reserve Account (the "Required Yield
Supplement Reserve Amount") will be equal to the lesser of (i) maximum aggregate
Yield Supplement Amounts that will become due under the Yield Supplement
Agreement, assuming that payments on the Receivables are made on their scheduled
due dates and that no Receivable becomes a Prepaid Receivable, or (ii) the
Initial Yield Supplement Reserve Amount. The maximum aggregate Yield Supplement
Amounts may decline as a result of prepayments or repayments in full of the
Receivables. To the extent that on any Distribution Date the amount on deposit
in the Yield Supplement Reserve Account exceeds the Required Yield Supplement
Reserve Amount on such Distribution Date, the excess shall be paid to the
Seller. The Yield Supplement Reserve Account will be maintained by the Class A
Agent for the benefit of the Class A Certificateholders and will not be part of
the Trust.
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Simultaneously with the sale and assignment of the Receivables by NMAC to
the Seller, the Seller will enter into the Yield Supplement Agreement with the
Class A Agent and the Servicer. The Seller will assign the Yield Supplement
Agreement to the Trust.
DISTRIBUTIONS ON CERTIFICATES
On or before the tenth calendar day of each month (or, if such tenth day is
not a business day, the next succeeding business day, unless the Trustee
requests otherwise, in which case the preceding business day), the Servicer will
inform the Trustee of the amount of aggregate collections on the Receivables,
the aggregate Advances to be made by the Servicer and the aggregate Purchase
Amount of Receivables to be purchased by the Seller or the Servicer, all with
respect to the related Collection Period. (Section 4.09.)
The Servicer shall determine prior to each Distribution Date the Total
Available Amount, the Available Interest, the Available Principal, the Class A
Distributable Amount and the Class B Distributable Amount and, based on the
Total Available Amount and the other distributions to be made on such
Distribution Date, as described below, determine the amount to be distributed to
Certificateholders of each Class. (Section 5.06(b).)
DETERMINATION OF AVAILABLE AMOUNTS. The "Total Available Amount" for a
Distribution Date (being the funds available for distribution to
Certificateholders of each Class with respect to such Distribution Date in
accordance with the priorities described below) shall be the sum of the
Available Interest and the Available Principal.
The "Available Interest" for a Distribution Date shall be the sum of the
following amounts with respect to the related Collection Period: (i) that
portion of all collections on the Receivables allocable to interest; (ii) all
proceeds, including recoveries, of the liquidation of defaulted Receivables
("Liquidated Receivables"), net of expenses incurred by the Servicer and any
amounts required by law to be remitted to the Obligors on such Liquidated
Receivables, received in connection with such liquidation ("Liquidation
Proceeds"), to the extent attributable to interest due thereon in accordance
with the Servicer's customary servicing procedures; (iii) all Advances made by
the Servicer; (iv) the Purchase Amount received with respect to each Receivable
purchased by the Seller or Servicer under an obligation which arose during such
Collection Period, to the extent attributable to interest thereon; and (v) the
Yield Supplement Amount received by the Trustee.
The "Available Principal" for a Distribution Date shall be the sum of the
following amounts with respect to the related Collection Period: (i) that
portion of all collections on the Receivables allocable to principal; (ii) all
Liquidation Proceeds, to the extent attributable to principal due thereon, in
accordance with the Servicer's customary servicing procedures; and (iii) the
Purchase Amount received with respect to each Receivable purchased by the Seller
or the Servicer under an obligation which arose during such Collection Period,
to the extent attributable to principal thereon.
The Available Interest on any Distribution Date shall exclude amounts paid
to the Servicer as reimbursement for Advances.
CALCULATION OF DISTRIBUTABLE AMOUNTS. The "Class A Distributable Amount"
with respect to a Distribution Date shall be an amount equal to the sum of:
(a) the "Class A Principal Distributable Amount," consisting of the Class A
Percentage of:
(i) all payments of principal received during the related Collection
Period, including prepayments of principal;
(ii) the principal balance of each Receivable that was purchased by the
Seller or the Servicer under an obligation that arose during the
related Collection Period (except to the extent included in (i)
above); and
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(iii) the principal balance of each Receivable that became a Liquidated
Receivable during the related Collection Period (except to the
extent included in (i) or (ii) above); plus
(b) the "Class A Interest Distributable Amount," consisting of thirty (30)
days' interest at the Pass-Through Rate on the Class A Certificate
Balance as of the close of business on the last day of the related
Collection Period.
The "Class A Certificate Balance" shall equal, initially, the Class A
Percentage of the Pool Balance as of the Cutoff Date and, thereafter shall equal
the initial Class A Certificate Balance, reduced by all amounts previously
distributed to Class A Certificateholders that were allocable to principal.
The "Class B Distributable Amount" with respect to a Distribution Date shall
be an amount equal to the sum of:
(a) the "Class B Principal Distributable Amount," consisting of the Class B
Percentage of the amounts set forth under (a)(i) through (a)(iii) above
with respect to the Class A Principal Distributable Amount, plus
(b) the "Class B Interest Distributable Amount," consisting of thirty (30)
days' interest at the Pass-Through Rate on the Class B Certificate
Balance as of the close of business on the last day of the related
Collection Period.
The "Class B Certificate Balance" shall equal, initially, the Class B
Percentage of the Pool Balance as of the Cutoff Date and, thereafter shall equal
the amount by which the Pool Balance on the last day of the related Collection
Period exceeds the Class A Certificate Balance on such Distribution Date.
CALCULATION OF AMOUNTS TO BE DISTRIBUTED. Prior to each Distribution Date,
the Servicer will calculate the amount to be distributed to the
Certificateholders. On each Distribution Date, the Trustee will distribute to
the Certificateholders the following amounts in the following order of priority,
to the extent of funds available for distribution on such Distribution Date:
(i) to the Class A Certificateholders, an amount equal to the Class A
Interest Distributable Amount and any unpaid Class A Interest Carryover
Shortfall, such amount to be paid from Available Interest (as Available
Interest has been reduced by reimbursing the Servicer for any
outstanding Advances, paying the Servicer the Servicing Fee (including
any unpaid Servicing Fees with respect to one or more prior Collection
Periods) and, to the extent not paid by the Servicer, paying any accrued
and unpaid fees and expenses (not to exceed $10,000 in the aggregate
amount) due to the Trustee, the Custodian or the Class A Agent); and if
such Available Interest is insufficient, the Class A Certificateholders
will receive such excess first, from monies on deposit in the
Subordination Spread Account and second, if such amounts are
insufficient, from the Class B Percentage of Available Principal;
(ii) to the Class A Certificateholders, an amount equal to the Class A
Principal Distributable Amount and any unpaid Class A Principal
Carryover Shortfall, such amount to be paid from Available Principal
(as Available Principal has been reduced as described in clause (i)
above); and if such Available Principal is insufficient, the Class A
Certificateholders will be entitled to receive such excess first, from
amounts on deposit in the Subordination Spread Account and second, if
such amounts are insufficient, from Available Interest (as Available
Interest has been reduced as described in clause (i) above);
(iii) to the Class B Certificateholders, an amount equal to the Class B
Interest Distributable Amount and any unpaid Class B Interest Carryover
Shortfall, such amount to be paid from Available Interest (after giving
effect to the reduction in Available Interest described in clauses (i)
and (ii) above);
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(iv) to the Class B Certificateholders, an amount equal to the Class B
Principal Distributable Amount and any unpaid Class B Principal
Carryover Shortfall, such amount to be paid from Available Principal
(after giving effect to the reduction in Available Principal described
in clauses (i) and (ii) above); and if such Available Principal is
insufficient, from Available Interest (after giving effect to the
reduction in Available Interest described in clauses (i), (ii) and
(iii) above); and
(v) to the Seller, any Excess Amounts, except as required to be deposited in
the Subordination Spread Account (Section 5.06);
PROVIDED, HOWEVER, that amounts otherwise distributable to the Class B
Certificateholders will be deposited by the Trustee in the Subordination Spread
Account to cover any deficiency in the Specified Subordination Spread Account
Balance. Any outstanding Trustee, Custodian and Class A Agent fees and expenses
in excess of $10,000, to the extent not paid by the Servicer, will be paid from
collections after the distribution of amounts in item (iv) above and prior to
distribution of amounts in item (v) above.
Notwithstanding anything herein to the contrary, no amount shall be paid to
the Class A Certificateholders in respect of any Yield Supplement Amount with
respect to a Receivable, except to the extent of amounts withdrawn from the
Yield Supplement Reserve Account and deposited in the Certificate Account,
except that if the Yield Supplement Amounts exceed funds available in the Yield
Supplement Reserve Account, such excess shall be withdrawn from the
Subordination Spread Account.
The "Class A Interest Carryover Shortfall" with respect to any Distribution
Date will equal the excess, if any, of (x) the Class A Interest Distributable
Amount for such Distribution Date and any outstanding unpaid interest owed to
holders of Class A Certificates from the immediately preceding Distribution Date
plus interest on such outstanding unpaid interest amount, to the extent
permitted by law, at the Pass-Through Rate from such immediately preceding
Distribution Date through the current Distribution Date, over (y) the amount of
interest distributed to the Class A Certificateholders on such Distribution
Date. The "Class A Principal Carryover Shortfall" with respect to any
Distribution Date will equal the excess of the Class A Principal Distributable
Amount for such Distribution Date plus any outstanding unpaid principal owed to
holders of Class A Certificates with respect to one or more prior Distribution
Dates over the amount of principal that the holders of the Class A Certificates
actually received on such Distribution Date. The "Class B Interest Carryover
Shortfall" and the "Class B Principal Carryover Shortfall" with respect to any
Distribution Date will be calculated in the same manner as the Class A Interest
Carryover Shortfall and the Class A Principal Carryover Shortfall, as the case
may be, appropriately modified to relate to the Class B Certificates.
Any excess amounts in the Certificate Account with respect to any
Distribution Date, after giving effect to the distributions described in clauses
(i) through (iv) of the third preceding paragraph ("Excess Amounts"), will be
distributed to the Seller, except in the case of deficits in the Subordination
Spread Account, in which case such amounts will be distributed in the following
amounts and in the following order of priority: (i) to the Subordination Spread
Account until the amount on deposit therein equals the Specified Subordination
Spread Account Balance and (ii) to the Seller.
Notwithstanding the foregoing distribution priorities, if the Servicer shall
fail to make an Advance, the portion of any such shortfall attributable thereto
shall be paid only from amounts available in the Subordination Spread Account.
(Section 5.06(c).)
SUBORDINATION OF THE CLASS B CERTIFICATES; SUBORDINATION SPREAD ACCOUNT
The rights of the Class B Certificateholders to receive distributions with
respect to the Receivables will be subordinated to the rights of the Class A
Certificateholders in the event of defaults or delinquencies on the Receivables
as provided in the Agreement. The Class B Certificateholders will not receive
any distributions of interest or principal with respect to a Distribution Date
until the full amount of interest and principal relating to such Distribution
Date has been distributed to the Class A Certificateholders.
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This subordination is intended to enhance the likelihood of timely receipt by
Class A Certificateholders of the full amount of interest and principal required
to be paid to them, and to afford such Class A Certificateholders limited
protection against losses in respect of the Receivables.
The protection afforded to the Class A Certificateholders will be effected
both by the preferential right, as described above, of the Class A
Certificateholders to receive current distributions with respect to the
Receivables and by the establishment of the Subordination Spread Account. The
Subordination Spread Account will be created with an initial deposit by the
Seller of the Subordination Initial Deposit in the amount set forth in the
"Summary--Subordination Spread Account" and will be augmented by deposit therein
of all amounts otherwise distributable to the Class B Certificateholders and all
Excess Amounts otherwise distributable to the Seller until the amount in the
Subordination Spread Account reaches the amount set forth in the
"Summary--Subordination Spread Account" as the Specified Subordination Spread
Account Balance. Thereafter, amounts otherwise distributable to the Class B
Certificateholders and Excess Amounts otherwise distributable to the Seller will
be deposited in the Subordination Spread Account to the extent necessary to
maintain the amount in the Subordination Spread Account at the Specified
Subordination Spread Account Balance.
Amounts held from time to time in the Subordination Spread Account will
continue to be held for the benefit of holders of the Class A Certificates.
Funds in the Subordination Spread Account shall be invested in Eligible
Investments. Investment income on amounts in the Subordination Spread Account
will not be available for distribution to the holders of the Class A
Certificates or otherwise subject to any claims or rights of the holders of the
Class A Certificates.
The time necessary for the Subordination Spread Account to reach and
maintain the Specified Subordination Spread Account Balance at any time after
the date of issuance of the Certificates will be affected by the delinquency,
credit loss and repossession and prepayment experience of the Receivables and,
therefore, cannot be accurately predicted.
If on any Distribution Date the holders of the Class A Certificates do not
receive the sum of the Class A Distributable Amount, the Class A Interest
Carryover Shortfall and the Class A Principal Carryover Shortfall for such
Distribution Date (after giving effect to any amounts withdrawn from the
Subordination Spread Account and the Class B Distributable Amount and applied to
such deficiency, as described above), the holders of the Class B Certificates
will not receive any portion of the Total Available Amount.
The subordination of the Class B Certificates and the establishment of the
Subordination Spread Account described above are intended to enhance the
likelihood of receipt by Class A Certificateholders of the full amount of
principal and interest on the Receivables due them and to decrease the
likelihood that the Class A Certificateholders will experience losses. However,
in certain circumstances, the Subordination Spread Account could be depleted and
shortfalls on the Class A Certificates could result.
The Seller may, from time to time after the date of this Prospectus, request
each rating agency then rating the Class A Certificates to approve a formula for
determining the Specified Subordination Spread Account Balance that is different
from the one described above and would result in a decrease in the amount of the
Specified Subordination Spread Account Balance or a change in the manner by
which the Subordination Spread Account is funded. If each rating agency then
rating the Class A Certificates delivers a letter to the Trustee to the effect
that the use of any such new formulation will not result in a qualification,
reduction or withdrawal of its then-current rating of the Class A Certificates,
then the Specified Subordination Spread Account Balance will be determined in
accordance with such new formula. The Agreement will accordingly be amended,
without the consent of any Certificateholder, to reflect such new calculation.
On each Distribution Date, the Trustee will remit all Excess Amounts to the
Seller, except in the case of deficits in the Subordination Spread Account, in
which case the Trustee will deposit all Excess Amounts
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into the Subordination Spread Account until the amount on deposit therein equals
the Specified Subordination Spread Account Balance, prior to remitting such
amounts to the Seller. If the amount on deposit in the Subordination Spread
Account on such Distribution Date (after giving effect to all deposits or
withdrawals therefrom on such Distribution Date) is greater than the Specified
Subordination Spread Account Balance, the Trustee will release and distribute
such excess, together with any Excess Amounts not required to be deposited into
the Subordination Spread Account, first, to the Class B Certificateholders, an
amount equal to the sum of outstanding Class B Interest Carryover Shortfall and
Class B Principal Carryover Shortfall and, to the extent available, any excess
shall be distributed to the Seller. Upon any such release of amounts from the
Subordination Spread Account, the Class A Certificateholders will have no
further rights in, or claims to, such amounts. (Section 5.06).
Neither the Class B Certificateholders, the Seller nor the Servicer will be
required to refund any amounts properly distributed or paid to them, whether or
not there are sufficient funds on any subsequent Distribution Date to make full
distributions to the Class A Certificateholders.
NET DEPOSITS
As an administrative convenience and for so long as certain conditions are
satisfied, the Servicer will be permitted to make the deposit of collections and
aggregate Advances and Purchase Amounts for or with respect to the Collection
Period net of distributions to the Servicer as reimbursement of Advances or
payment of the Servicer Fee with respect to the Collection Period. The Servicer,
however, will account to the Trustee and to the Certificateholders as if all
deposits, distributions and transfers were made individually. (Section 5.08.)
The following chart sets forth an example of the application of the
foregoing provisions to the first monthly distribution:
<TABLE>
<S> <C>
November 1 Cutoff Date. The original Pool Balance equals the aggregate principal
balance of the Receivables.
November 1- Collection Period. The Servicer receives monthly payments, prepayments and
December 31 other proceeds in respect of the Receivables.
January 11 Determination Date. On or before the tenth calendar day of the month (or, if
such tenth day is not a business day, the next succeeding business day,
unless the Trustee requests otherwise, in which case the preceding business
day). On this date the Servicer notifies the Trustee of, among other things,
the amounts to be distributed on the Distribution Date.
January 14 Record Date. Distributions on the Distribution Date are made to
Certificateholders of record at the close of business on this date.
January 15 Distribution Date. On or before this date, the Seller and the Servicer (or
the Trustee) make the required remittances and transfers to the Collection
Account and the Certificate Account in immediately available funds, and the
Trustee distributes to holders of the Class A Certificates and the Class B
Certificates amounts payable in respect of the Certificates and pays the
Servicer Fee (and to the extent not paid by the Servicer, pays any Trustee,
Custodian or Class A Agent fees and expenses, not to exceed $10,000 in the
aggregate amount) and remits amounts to the Subordination Spread Account (if
required).
</TABLE>
STATEMENTS TO CLASS A CERTIFICATEHOLDERS
On each Distribution Date, the Trustee will include with each distribution
to each record owner of a Class A Certificate (which, except as described
herein, shall be Cede as the nominee for DTC unless
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Definitive Certificates are issued under the limited circumstances described
herein) as of the close of business on the related Record Date a statement,
setting forth the following information with respect to the related Collection
Period as to each Class of Certificates, to the extent applicable:
(i) the amount of the distribution allocable to principal on the
Certificates;
(ii) the amount of the distribution allocable to interest on the
Certificates;
(iii) the amount of the distribution allocable to the Yield Supplement
Amount;
(iv) the amount on deposit in the Yield Supplement Reserve Account;
(v) the Pool Balance as of the close of business on the last day of the
related Collection Period;
(vi) the amount of the Servicing Fee paid to the Servicer with respect to
the related Collection Period and the Class A Percentage of the
Servicing Fee, the amount of any unpaid Servicing Fees and the change
in such amount from that of the prior Distribution Date and the amount
of any additional servicing compensation paid to the Servicer with
respect to the related Collection Period;
(vii) the amount of the Class A Interest Carryover Shortfall and Class A
Principal Carryover Shortfall, if any, as of the close of such
Distribution Date and the change in such amounts from those of the
prior Distribution Date;
(viii) the Class A Certificate Balance, the Class A Certificate Factor, the
Class A Pool Factor and Class B Certificate Balance as of such
Distribution Date;
(ix) the amount, if any, otherwise distributable to the Class B
Certificateholders that is distributed to Class A Certificateholders or
deposited in the Subordination Spread Account on such Distribution
Date;
(x) the balance of the Subordination Spread Account on such Distribution
Date, after giving effect to distributions made on such Distribution
Date and the change in such balance from that of the prior Distribution
Date;
(xi) the amount of Advances made in respect of the related Collection Period
and the amount of unreimbursed Advances on such Distribution Date; and
(xii) if applicable, any fees and expenses paid to the Trustee, the Custodian
or the Class A Agent with respect to the related Collection Period, to
the extent such fees and expenses have not been paid by the Servicer.
Each amount set forth pursuant to subclauses (i), (ii), (vi) and (vii) above
shall be expressed in the aggregate and as a dollar amount per $1,000 of
original principal balance of a Class A Certificate.
Copies of such statements may be obtained by Class A Certificate Owners by
delivering a request in writing addressed to the Trustee at its address set
forth above in "Reports To Class A Certificateholders By The Trustee."
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of the Agreement, the Trustee shall
mail to each person who at any time during such calendar year shall have been a
Class A Certificateholder and received any payment thereon a statement
containing the sum of the amounts or the amount as of the end of each calendar
year, as the case may be, described in (i), (ii), (iii), (v), (vi) and (vii)
above for the purposes of such Class A Certificateholder's preparation of
federal income tax returns. (Section 5.09.) See "Federal Income Tax
Consequences."
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EVIDENCE AS TO COMPLIANCE
The Agreement will provide that a firm of independent public accountants
will furnish to the Trustee on or before June 30th of each year, beginning June
30, 1999, a report as to compliance by the Servicer during the preceding twelve
months ended March 31 (or for the initial report, for such shorter period as
shall have elapsed from the date of issuance of the Certificates) with certain
standards relating to the servicing of the Receivables and certain other
matters. (Section 4.11.)
The Agreement will also provide for delivery to the Trustee, on or before
June 30th of each year, commencing June 30, 1999, of a certificate signed by an
officer of the Servicer stating that the Servicer has fulfilled its obligations
under the Agreement throughout the preceding twelve months ended March 31 (or
for the initial report, for such shorter period as shall have elapsed from the
date of issuance of the Certificates) or, if there has been a default in the
fulfillment of any such obligation, describing each such default. (Section
4.10.)
Copies of such reports and certificates may be obtained by Class A
Certificate Owners by a request in writing addressed to the Trustee.
CERTAIN MATTERS REGARDING THE SERVICER
The Agreement will provide that NMAC may not resign from its obligations and
duties as servicer thereunder, except upon determination that NMAC's performance
of such duties is no longer permissible under applicable law. No such
resignation will become effective until the Trustee or a successor servicer has
assumed NMAC's servicing obligations and duties under the Agreement (other than
NMAC's obligation to make Advances). (Section 9.06.) See "Risk Factors--Trust's
Relationship to the Seller and NMAC; Financial Condition of Nissan Motor Co.,
Ltd."
The Agreement will further provide that neither the Servicer, nor any of its
directors, officers, employees or agents will be under any liability to the
Trust or the Certificateholders for taking any action or for refraining from
taking any action pursuant to the Agreement, or for errors in judgment;
provided, however, that neither the Servicer nor any such person will be
protected against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence (except for errors in judgment) in
the performance of duties, or by reason of reckless disregard of obligations and
duties thereunder. In addition, the Agreement will provide that the Servicer is
under no obligation to appear in, prosecute or defend any legal action that is
not incidental to the Servicer's servicing responsibilities under the Agreement
and that, in its opinion, may cause it to incur any expense or liability. The
Servicer may, however, undertake any reasonable action that it may deem
necessary or desirable in respect of the Agreement, the rights and duties of the
parties thereto and the interests of the Certificateholders thereunder. In such
event, the legal expenses and costs of such action and any liability resulting
therefrom will be expenses, costs and liabilities of the Servicer, and the
Servicer will not be entitled to be reimbursed therefor. (Section 9.04.)
The Agreement will provide that the Seller shall not consolidate or merge
with any other entity unless certain conditions and covenants set forth in the
Agreement are satisfied. (Section 8.06.) The Agreement will further provide that
any entity into which the Servicer or the Seller, as applicable, may be merged
or consolidated, or any entity resulting from any merger, conversion or
consolidation to which the Servicer or the Seller, as applicable, is a party, or
any entity succeeding to the business of the Servicer or the Seller, as
applicable, or any corporation, more than 50% of the voting stock of which is
owned, directly or indirectly, by Nissan, which assumes the obligations of the
Servicer or the Seller, as applicable, will be the successor of the Servicer or
the Seller, as applicable, under the Agreement. (Sections 8.03 and 9.03.) For as
long as NMAC is the Servicer, it may at any time subcontract substantially all
of its duties as servicer under the Agreement to any corporation more than 50%
of the voting stock of which is owned, directly or indirectly, by Nissan, and
the Servicer may at any time perform certain specific duties as servicer through
other subcontractors. (Section 9.05.)
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EVENTS OF DEFAULT
"Events of Default" under the Agreement will consist of (i) any failure by
the Servicer or the Seller, as applicable, to deliver to the Trustee for
distribution to the Certificateholders or deposit in the Subordination Spread
Account any required payment, which failure continues unremedied for three
business days after written notice from the Trustee is received by the Servicer
or the Seller, as applicable, or after discovery by an officer of the Servicer
or the Seller, as applicable; (ii) any failure by the Seller or the Servicer
duly to observe or perform in any material respect any other covenant or
agreement in the Agreement which failure materially and adversely affects the
rights of Certificateholders and which continues unremedied for 90 days after
the giving of written notice of such failure (1) to the Seller or the Servicer,
as applicable, by the Trustee or (2) to the Seller or the Servicer, as
applicable, and to the Trustee by holders of Class A Certificates evidencing not
less than 25% of the Class A Certificate Balance; and (iii) certain events of
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings with respect to the Servicer indicating its insolvency,
reorganization pursuant to bankruptcy proceedings or inability to pay its
obligations. (Section 10.01.)
RIGHTS UPON EVENT OF DEFAULT
As long as an Event of Default under the Agreement remains unremedied, the
Trustee or holders of Class A Certificates evidencing not less than 25% of the
Class A Certificate Balance may terminate all the rights and obligations of the
Servicer under the Agreement, whereupon the Trustee (or a successor servicer
appointed by the Trustee, as described below) will succeed to all the
responsibilities, duties and liabilities of the Servicer under the Agreement and
will be entitled to similar compensation arrangements. If, however, a bankruptcy
trustee or similar official has been appointed for the Servicer, and no Event of
Default other than such appointment has occurred, such trustee or official may
have the power to prevent the Trustee or the Class A Certificateholders from
effecting a transfer of servicing. In the event that the Trustee is unwilling or
unable to so act, it may appoint, or petition a court of competent jurisdiction
for the appointment of, a successor with a net worth of at least $100,000,000
and whose regular business includes the servicing of automotive receivables. The
Trustee, or any person appointed as successor servicer, shall be the successor
in all respects to the predecessor servicer under the Agreement (other than the
Servicer's obligation to make Advances) and all references therein to the
Servicer shall apply to such successor servicer. The Trustee may make
arrangements for compensation to be paid to the successor servicer, which in no
event may be greater than the Servicer Fee. (Sections 10.01 and 10.02.)
WAIVER OF PAST DEFAULTS
The holders of Class A Certificates evidencing not less than 51% of the
Class A Certificate Balance may, on behalf of all Certificateholders, waive any
default by the Servicer in the performance of its obligations under the
Agreement and its consequences, except a default in making any required deposits
to the Collection Account or the Certificate Account in accordance with the
Agreement. No such waiver shall impair the Certificateholders' rights with
respect to subsequent defaults. (Section 10.05.)
AMENDMENT
The Agreement may be amended by the Seller, the Servicer, NMAC (so long as
NMAC has rights or obligations thereunder) and the Trustee, without the consent
of the Certificateholders, (i) to cure any ambiguity, correct or supplement any
provision therein which may be inconsistent with any other provision therein, or
make any other provisions with respect to matters or questions arising under the
Agreement which are not inconsistent with the provisions of the Agreement;
provided that such action will not materially and adversely affect the interest
of any Certificateholder not consenting thereto, and (ii) to change the formula
for determining the Specified Subordination Spread Account Balance upon certain
confirmation from the Rating Agencies as described above in "The
Certificates--Subordination of the Class B Certificates; Subordination Spread
Account." An amendment shall be deemed to not materially
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<PAGE>
and adversely affect the interests of the Class A Certificateholders if (i) such
amendment does not adversely affect the Trust's status as a grantor trust for
federal income tax purposes and (ii) each rating agency then rating the Class A
Certificates confirms in writing that such amendment will not result in a
qualification, reduction or withdrawal of each such rating agency's then current
rating of the Certificates. The Agreement may also be amended by the Seller, the
Servicer, NMAC (so long as NMAC has rights or obligations thereunder) and the
Trustee with the consent of the holders of Class A Certificates and Class B
Certificates, each voting as a class, evidencing not less than 51% of the Class
A Certificate Balance and Class B Certificate Balance, respectively, for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of the Agreement or modifying in any manner the rights of
Certificateholders; provided, however, that no such amendment may (i) increase
or reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments on Receivables or distributions that are required to be
made on any Certificate or change the Pass-Through Rate or the Specified
Subordination Spread Account Balance (except as described above under clause
(ii) of the immediately preceding sentence) without the consent of each
"adversely affected" Certificateholder or (ii) reduce the aforesaid percentage
of the Class A Certificate Balance or Class B Certificate Balance which is
required to consent to any such amendment, without the consent of the holders of
all Certificates of such Class. (Section 13.01.) An amendment referred to in
clause (i) of the immediately preceding sentence will be deemed not to
"adversely affect" a Certificateholder of any Class only if each Rating Agency
then rating the Certificates confirms that such amendment will not result in a
reduction or withdrawal of its rating on the Certificates of such Class.
LIST OF CERTIFICATEHOLDERS
Upon written request of the Servicer, the Trustee will provide to the
Servicer within 15 days after receipt of such request a list of the names and
addresses of all Certificateholders of record as of the most recent Record Date.
Upon written request by three or more Class A Certificateholders or by holders
of Class A Certificates evidencing not less than 25% of the Class A Certificate
Balance, and upon compliance by such Certificateholders with certain other
provisions of the Agreement, the Trustee will afford such Class A
Certificateholders access during business hours to the current list of
Certificateholders for purposes of communicating with other Class A
Certificateholders with respect to their rights under the Agreement. (Section
7.06.)
The Agreement will not provide for the holding of any annual or other
meetings of Certificateholders.
TERMINATION
The respective obligations of the Seller, the Servicer, NMAC (so long as
NMAC has rights or obligations thereunder) and the Trustee pursuant to the
Agreement will terminate upon (i) the maturity or other liquidation of the last
Receivable and the disposition of any amounts received upon liquidation of any
remaining Receivables and (ii) the payment to Certificateholders of all amounts
required to be paid to them pursuant to the Agreement. In order to avoid
excessive administrative expense, the Servicer, or its successor, is permitted
at its option to purchase from the Trust, as of the last day of any month as of
which the then outstanding Pool Balance (after giving effect to such calendar
month's collections) is less than 10% of the original Pool Balance, all
remaining Receivables at a price equal to the aggregate of the Purchase Amounts
thereof as of such last day. Exercise of such right will effect early retirement
of the Certificates. The Trustee will give written notice of termination to each
Certificateholder of record. The final distribution to any Certificateholder
will be made only upon surrender and cancellation of such holder's Certificate
at any office or agency of the Trustee specified in the notice of termination.
Any funds remaining in the Trust, after the Trustee has taken certain measures
to locate a Certificateholder and such measures have failed, will be
distributed, subject to applicable law, to the Childrens Hospital, Los Angeles.
(Sections 12.01 and 12.02.)
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<PAGE>
DUTIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or sufficiency
of the Agreement, the Certificates (other than the authentication of the
Certificates), or any Receivables or related documents, and is not accountable
for the use or application by the Servicer of any funds paid to the Seller or
the Servicer in respect of the Certificates or the Receivables, or the
investment of any monies by the Servicer before such monies are deposited into
the Certificate Account. The Trustee will not independently verify the
Receivables. If no Event of Default has occurred, the Trustee is required to
perform only those duties specifically required of it under the Agreement. In
addition to making distributions to the Certificateholders, those duties
generally are limited to the receipt of the various certificates, reports or
other instruments required to be furnished to the Trustee under the Agreement,
in which case it will only be required to examine them to determine whether they
conform to the requirements of the Agreement. The Trustee shall not be charged
with knowledge of a failure by the Servicer to perform its duties under the
Agreement which failure constitutes an Event of Default unless the Trustee
obtains actual knowledge of such failure as specified in the Agreement.
(Sections 11.01 and 11.05.)
The Trustee will be under no obligation to exercise any of the rights or
powers vested in it by the Agreement or to make any investigation of matters
arising thereunder or to institute, conduct or defend any litigation thereunder
or in relation thereto at the request, order or direction of any of the
Certificateholders, unless such Certificateholders have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that may be incurred therein or thereby. (Section 11.04.) No Class A
Certificateholder will have any right under the Agreement to institute any
proceeding with respect to the Agreement, other than with respect to the failure
by the Seller or Servicer, as applicable, to remit payments, unless such holder
previously has given to the Trustee written notice of default and unless the
holders of Class A Certificates evidencing not less than 25% of the Class A
Certificate Balance have made written request upon the Trustee to institute such
proceeding in its own name as Trustee thereunder and have offered to the Trustee
reasonable indemnity and the Trustee for 30 days has neglected or refused to
institute any such proceeding. (Section 13.03.)
THE TRUSTEE
Norwest Bank Minnesota, National Association is the Trustee under the
Agreement. The Trustee, in its individual capacity or otherwise, may hold
Certificates in its own name or as pledgee. (Section 11.06.) For the purpose of
meeting the legal requirements of certain jurisdictions, the Servicer and the
Trustee acting jointly (or in some instances, the Trustee acting alone) shall
have the power to appoint co-trustees or separate trustees of all or any part of
the Trust. In the event of such appointment, all rights, powers, duties and
obligations conferred or imposed upon the Trustee by the Agreement shall be
conferred or imposed upon the Trustee and such separate trustee or co-trustee
jointly, or, in any jurisdiction in which the Trustee shall be incompetent or
unqualified to perform certain acts, singly upon such separate trustee or
co-trustee who shall exercise and perform such rights, powers, duties and
obligations solely at the direction of the Trustee. (Section 11.13.)
The Trustee may resign at any time, in which event the Servicer will be
obligated to appoint a successor trustee. The Servicer may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Agreement, becomes legally unable to act, or becomes insolvent. In such
circumstances, the Servicer will be obligated to appoint a successor trustee.
Any resignation or removal of the Trustee and appointment of a successor trustee
does not become effective until acceptance of the appointment by the successor
trustee. (Section 11.10.)
The Agreement will provide that the Servicer will pay the Trustee's fees.
(Section 11.07.) The Agreement will further provide that the Trustee will be
entitled to indemnification by the Seller and the Servicer for, and will be held
harmless against, any loss, liability, fee, disbursement or expense incurred by
the Trustee not resulting from the Trustee's own willful misfeasance, bad faith
or negligence (other than by reason of a breach of any of its representations or
warranties set forth in the Agreement). The Agreement will further provide that
the Seller and the Servicer will indemnify the Trustee for certain taxes that
may be asserted in connection with the transaction.
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<PAGE>
RATING OF THE CLASS A CERTIFICATES
It is a condition to issuance of the Class A Certificates that they be rated
in the highest rating category by at least one nationally recognized Rating
Agency. The rating is not a recommendation to purchase, hold or sell Class A
Certificates, inasmuch as such rating does not comment as to market price or
suitability for a particular investor. There is no assurance that the rating
will remain for any given period of time or that the rating will not be lowered
or withdrawn entirely by any Rating Agency if in its judgment circumstances in
the future so warrant.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
SECURITY INTERESTS IN THE FINANCED VEHICLES
In all states in which the Receivables have been originated, retail
installment sale contracts such as the Receivables evidence the credit sale of
vehicles by dealers to obligors; the contracts also constitute personal property
security agreements and include grants of security interests in the vehicles
under the Uniform Commercial Code (the "UCC") and pursuant to Motor Vehicle
Retail Installment Sales Acts (the "MVRISA") and applicable Retail Installment
Sales Acts (the "RISA") or the Consumer Credit Codes (generally pursuant to the
Uniform Consumer Credit Code (the "UCCC")) of the various states. Perfection of
security interests in the vehicles is generally governed by the motor vehicle
registration laws of the state in which the vehicle is located. In most states
in which the Receivables have been originated, a security interest in a vehicle
is perfected by notation of the secured party's lien on the vehicle's
certificate of title. Each Receivable prohibits the sale or transfer of the
Financed Vehicle without NMAC's consent.
Pursuant to the Purchase Agreement, NMAC will assign its security interests
in the Financed Vehicles securing the Receivables to the Seller and, pursuant to
the Agreement, the Seller will assign its security interests in the Financed
Vehicles securing the Receivables to the Trustee. However, because of the
administrative burden and expense, the Servicer, the Seller and the Trustee will
not amend any certificate of title to identify the Trust as the new secured
party on the certificates of title relating to the Financed Vehicles. Also, the
Servicer will continue to hold any certificates of title relating to the
Financed Vehicles in its possession as custodian for the Trustee pursuant to the
Agreement. See "The Certificates--Sale and Assignment of Receivables."
In most states, assignments such as those under the Purchase Agreement and
the Agreement are an effective conveyance of a security interest without
amendment of any lien noted on a vehicle's certificate of title, and the
assignee succeeds thereby to the assignor's rights as secured party. In such
states, in the absence of fraud or forgery by the vehicle owner or the Servicer
or administrative error by state or local agencies, the notation of NMAC's lien
on the certificates of title will be sufficient to protect the Trust against the
rights of subsequent purchasers of a Financed Vehicle or subsequent lenders who
take a security interest in a Financed Vehicle. If there are any Financed
Vehicles as to which NMAC failed to obtain a perfected security interest, its
security interest would be subordinate to, among others, subsequent purchasers
of the Financed Vehicles and holders of perfected security interests. Such a
failure, however, would constitute a breach of NMAC's warranties under the
Purchase Agreement and of the Seller's warranties under the Agreement and would
create an obligation of NMAC under the Purchase Agreement and of the Seller
under the Agreement to purchase the related Receivable unless the breach is
cured. See "The Certificates--Sale and Assignment of Receivables." By not
identifying the Trust as the secured party on the certificate of title, the
security interest of the Trust in the Financed Vehicle could be defeated through
fraud or negligence. The Seller will assign its rights under the Purchase
Agreement to the Trust.
Under the laws of most states, the perfected security interest in a vehicle
would continue for four months after a vehicle is moved to a state other than
the state in which it is initially registered and thereafter until the vehicle
owner re-registers the vehicle in the new state. Most states require surrender
of a certificate of title to re-register a vehicle; accordingly, to re-register
a vehicle in any such state, a secured party must surrender possession if it
holds the certificate of title to the vehicle, or, in the case of vehicles
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<PAGE>
registered in states providing for the notation of a lien on the certificate of
title but not possession by the secured party, the secured party would receive
notice of surrender if the security interest is noted on the certificate of
title. Thus, the secured party would have the opportunity to re-perfect its
security interest in the vehicle in the state of relocation. In states that do
not require a certificate of title for registration of a motor vehicle,
re-registration could defeat perfection. In the ordinary course of servicing
receivables, NMAC takes steps to effect re-perfection upon receipt of notice of
re-registration or information from the obligor as to relocation. Similarly,
when an obligor sells a vehicle, NMAC must surrender possession of the
certificate of title or will receive notice as a result of its lien noted
thereon and accordingly will have an opportunity to require satisfaction of the
related Receivable before release of the lien. Under the Agreement, the Servicer
is obligated to take appropriate steps, at the Servicer's expense, to maintain
perfection of security interests in the Financed Vehicles.
Under the laws of most states, liens for repairs performed on a motor
vehicle and liens for certain unpaid taxes take priority over even a perfected
security interest in a Financed Vehicle. The Internal Revenue Code of 1986 also
grants priority to certain federal tax liens over the lien of a secured party.
The laws of certain states and federal law permit the confiscation of motor
vehicles under certain circumstances if used in unlawful activities, which may
result in the loss of a secured party's perfected security interest in the
confiscated motor vehicle. NMAC will represent to the Seller and the Seller will
represent to the Trust that each security interest in a Financed Vehicle is or
will be prior to all other present liens (other than tax liens and liens that
arise by operation of law) upon, and security interests in, such Financed
Vehicle. However, liens for repairs or taxes, or the confiscation of a Financed
Vehicle, could arise or occur at any time during the term of a Receivable. No
notice will be given to the Trustee or Certificateholders in the event such a
lien arises or confiscation occurs.
SECURITY INTERESTS IN THE RECEIVABLES
The Receivables are "chattel paper" as defined in the Uniform Commercial
Code in effect in the State of California (the "UCC"). In order to protect the
Trust's ownership or security interest in the Receivables, the Seller will file
UCC-1 financing statements with the appropriate governmental authorities in the
State of California to give notice of the Trust's ownership of and security
interest in the Receivables and their proceeds. Under the Pooling and Servicing
Agreement, the Servicer will be obligated to maintain the perfection of the
Trust's interest in the Receivables. It should be noted, however, that a
purchaser of chattel paper who gives new value and takes possession of it in the
ordinary course of such purchaser's business has priority over a security
interest or ownership interest in the chattel paper that is perfected by filing
UCC-1 financing statements, and not by possession of such chattel paper. Any
such purchaser would not be deemed to have such knowledge because there are UCC
filings and would not learn of the sale of or security interest in the
Receivables from a review of the Receivables since they would not be marked to
show such sale, although the Servicer's computer records will indicate such
sale.
REPOSSESSION
In the event of default by an obligor under a retail installment sales
contract, the holder of such sale contract has all the remedies of a secured
party under the UCC, except where specifically limited by other state laws (such
as MVRISA, RISA or UCCC). The UCC remedies of a secured party in most states
include the right to repossession by self-help means, unless such means would
constitute a breach of the peace. Unless a vehicle is voluntarily surrendered,
self-help repossession is the method employed by NMAC in the majority of
instances in which a default occurs and is accomplished simply by retaking
possession of the financed vehicle. In cases where the obligor objects or raises
a defense to repossession, or if otherwise required by applicable state law, a
court order must be obtained from the appropriate state court, and the vehicle
must then be repossessed in accordance with that order.
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NOTICE OF SALE; REDEMPTION RIGHTS
In the event of default by an obligor, some jurisdictions require that such
obligor be notified of the default and be given a time period within which the
obligor may cure the default prior to repossession. Generally, this cure right
may be exercised on a limited number of occasions in any one-year period.
The UCC and other state laws require the secured party to provide the
obligor with reasonable notice of the date, time and place of any public sale
and/or the date after which any private sale of the collateral may be held. The
obligor generally has the right to redeem the collateral prior to actual sale by
paying the secured party the unpaid accelerated balance of the obligation plus
reasonable expenses for repossessing, holding and preparing the collateral for
disposition and arranging for the sale, plus, in some jurisdictions, reasonable
attorneys' fees, or, in some states, by payment of delinquent installments or
the unpaid balance.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of the repossessed vehicles generally will be applied
to the expenses of resale and repossession and then to the satisfaction of the
indebtedness of the obligor on the receivable. While some states impose
prohibitions or limitations on the pursuit of deficiencies if the unpaid balance
at the time of such default does not exceed a certain threshold amount, a
deficiency judgment can be sought in those states that do not prohibit or limit
such pursuits. However, the deficiency judgment would be a personal judgment
against the obligor for the shortfall, and a defaulting obligor can be expected
to have very little capital or sources of income available following
repossession. Therefore, in many cases, it may not be useful to seek a
deficiency judgment or, if one is obtained, it may be settled at a significant
discount.
Occasionally, after resale of a vehicle and payment of all expenses and
indebtedness, there is a surplus of funds. In that case, the UCC requires the
lender to remit the surplus to any holder of any lien with respect to the
vehicle or if no such lien holder exists or there are remaining funds, the UCC
requires the lender to remit the surplus to the former obligor.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon lenders and servicers involved in consumer
finance. These laws include the Truth-in-Lending Act, the Equal Credit
Opportunity Act, the Federal Trade Commission Act, the Fair Credit Reporting
Act, the Fair Debt Collection Practices Act, the Magnuson-Moss Warranty Act, the
Soldiers and Sailors Civil Relief Act of 1940, the Federal Reserve Board's
Regulations B and Z, state adaptations of the National Consumer Credit
Protection Act and of the UCCC, state "Lemon Laws" designed to prevent fraud in
the sale of used vehicles and state motor vehicle retail installment sales acts,
retail installment sales acts and other similar laws. Also, state laws impose
finance charge ceilings and other restrictions on consumer transactions and
require contract disclosures in addition to those required under federal law.
These requirements impose specific statutory liabilities upon creditors who fail
to comply with their provisions. In some cases, this liability could attach to
an assignee or affect an assignee's ability to enforce consumer finance
contracts such as the Receivables.
The Federal Trade Commission's Trade Regulation Rule on Preservation of
Consumer's Claims and Defenses (the "FTC Rule"), the provisions of which are
generally duplicated by the UCCC, other state statutes, or the common law in
certain states, has the effect of subjecting a seller (and certain related
lenders and their assignees) in a consumer credit transaction and any assignee
of the seller to all claims and defenses which the obligor in the transaction
could assert against the seller of the goods. Liability under the FTC Rule is
limited to the amounts paid by the obligor under the contract, and the holder of
the contract may also be unable to collect any balance remaining due thereunder
from the obligor.
The Receivables are subject to the requirements of the FTC Rule.
Accordingly, the Trustee, as holder of the Receivables, will be subject to any
claims or defenses that the purchaser of the Financed Vehicle
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may assert against the seller of the Financed Vehicle. Such claims are limited
to a maximum liability equal to the amounts paid by the obligor on the
Receivable. Under most state motor vehicle dealer licensing laws, sellers of
motor vehicles are required to be licensed to sell motor vehicles at retail
sale. Furthermore, Federal Odometer Regulations promulgated under the Motor
Vehicle Information and Cost Savings Act require that all sellers of new,
near-new and used vehicles furnish a written statement signed by the seller
certifying the accuracy of the odometer reading. If a seller is not properly
licensed or if an Odometer Disclosure Statement was not provided to the
purchaser of the related financed vehicle, the obligor may be able to assert a
defense against the seller of the vehicle. If an obligor were successful in
asserting any such claim or defense, such claim or defense would constitute a
breach of NMAC's and the Seller's representations and warranties under the
Purchase Agreement and the Agreement, respectively, and would create an
obligation of NMAC and the Seller to repurchase the Receivable unless the breach
is cured. See "The Certificates--Sale and Assignment of the Receivables."
Courts have imposed general equitable principles on secured parties pursuing
repossession of collateral or litigation involving deficiency balances. These
equitable principles may have the effect of relieving an obligor from some or
all of the legal consequences of a default.
NMAC and the Seller will warrant under the Purchase Agreement and the
Agreement, respectively, that each Receivable complies with all requirements of
law in all material respects. Accordingly, if an Obligor has a claim against the
Trust for violation of any law and such claim materially and adversely affects
the Trust's interest in a Receivable (the initial determination of a material
adverse effect generally being made by the Servicer), such violation would
constitute a breach of warranty under the Purchase Agreement and the Agreement
and would create an obligation of NMAC and the Seller to repurchase the
Receivable unless the breach is cured. See "The Certificates--Sale and
Assignment of the Receivables."
CERTAIN BANKRUPTCY CONSIDERATIONS
The Seller has taken steps in structuring the transactions contemplated
hereby that are intended to ensure that the voluntary or involuntary application
for relief by NMAC or its parent, NMC, under the United States Bankruptcy Code
or similar applicable state laws ("Insolvency Laws") will not result in
consolidation of the assets and liabilities of the Seller with those of NMAC or
NMC. These steps include the creation of the Seller as a separate,
limited-purpose subsidiary pursuant to a certificate of incorporation containing
certain limitations (including restrictions on the nature of the Seller's
business and a restriction on the Seller's ability to commence a voluntary case
or proceeding under any Insolvency Law without the unanimous affirmative vote of
all of its directors).
The Seller has received the advice of counsel to the effect, based on a
reasoned analysis of analogous case law (although there is no precedent based on
directly similar facts), that, subject to certain facts, assumptions and
qualifications specified therein, it would not be a proper exercise by a court
of its equitable discretion to disregard the separate corporate existence of the
Seller and to require the consolidation of the assets and liabilities of the
Seller with the assets and liabilities of NMAC or NMC in the event of the
application of the federal bankruptcy laws to NMAC or NMC. Among other things,
counsel in rendering such advice assumed that the Seller will follow certain
procedures in the conduct of its affairs, including maintaining records and
books of account separate from those of NMAC, refraining from commingling its
assets with those of NMAC and refraining from holding itself out as having
agreed to pay, or being liable for, the debts of NMAC. The Seller intends to
follow and has represented to such counsel that it will follow these and other
procedures related to maintaining its separate corporate identity. However, in
the event that the Seller did not follow these procedures, there can be no
assurance that a court would not conclude that the assets and liabilities of the
Seller should be consolidated with those of NMAC. Such court also might conclude
that the holding by NMAC (as a result of consolidation) of a subordinated
interest in the Receivables requires that the transfer of the Receivables be
deemed a pledge to secure a borrowing by NMAC rather than a sale of the
Receivables. If a court were to reach such conclusions, or a filing were made
under any Insolvency Law by or against the Seller, or if an attempt were
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made to litigate any of the foregoing issues, delays in distributions on the
Certificates (and possible reductions in the amount of such distributions) could
occur.
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a lender to
realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
lender from repossessing a motor vehicle, and, as part of the rehabilitation
plan, reduce the amount of the secured indebtedness to the market value of the
motor vehicle at the time of bankruptcy (as determined by the court), leaving
the party providing financing as a general unsecured creditor for the remainder
of the indebtedness. A bankruptcy court may also reduce the monthly payments due
under a contract or change the rate of interest and time of repayment of the
indebtedness.
TRANSFERS OF VEHICLES
The Receivables prohibit the sale or transfer of the vehicle securing a
Receivable without NMAC's consent and permit NMAC to accelerate the maturity of
the Receivable upon a sale or transfer without its consent. If the Servicer
consents to such a sale or transfer, the Servicer may enter into a transfer of
equity agreement with the secondary purchaser for the purpose of effecting the
transfer of the Financed Vehicle.
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FEDERAL INCOME TAX CONSEQUENCES
The following discussion, insofar as it constitutes statements of law or
legal conclusions, represents the opinion of Weil, Gotshal & Manges LLP, special
counsel to the Seller ("Tax Counsel"), and is subject to the qualifications set
forth herein. The discussion summarizes the material U.S. federal income tax
consequences of the acquisition, ownership and disposition of the Class A
Certificates. This discussion is a summary of the material U.S. federal income
tax consequences only and is not a complete analysis of the tax considerations
that may be applicable to every prospective investor. The following discussion
does not consider all aspects of U.S. federal income tax law that may be
relevant to the purchase, ownership and disposition of the Class A Certificates
by such holder in light of its circumstances. This discussion also does not
address the federal income tax consequences of ownership of Class A Certificates
not held as capital assets within the meaning of Section 1221 of the U.S.
Internal Revenue Code of 1986 (the "Code"), the consequences to investors
subject to special treatment under the federal income tax laws, such as dealers
in securities or foreign currency, tax-exempt entities, except to the limited
extent below, foreign investors, financial institutions, insurance companies or
persons that either hold the Class A Certificates as part of a "straddle",
"hedge" or a "conversion transaction" or have a "functional currency" other than
the U.S. dollar, or the indirect consequences to an equity owner of an entity
acquiring a Class A Certificate. Finally, any U.S. federal gift or estate tax
consequences or any tax consequences arising out of the tax laws of any state,
local or foreign jurisdiction are also not described.
This summary is based upon the Code, existing and proposed regulations
thereunder, and current administrative rulings and court decisions, all of which
are subject to change, possibly on a retroactive basis. Prospective investors
should note that no rulings have been or will be sought from the Internal
Revenue Service (the "Service") with respect to any of the federal tax
consequences discussed below, and no assurance can be given that the Service
will not take contrary positions. PERSONS CONSIDERING THE PURCHASE OF CLASS A
CERTIFICATES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE APPLICATION OF
FEDERAL INCOME TAX LAWS, AS WELL AS THE LAWS OF ANY STATE, LOCAL OR FOREIGN
TAXING JURISDICTION, TO THEIR SPECIFIC SITUATIONS. IN PARTICULAR, SUCH PERSONS
SHOULD CONSULT THEIR TAX ADVISORS AS TO WHETHER STATE OR LOCAL TAXING
JURISDICTIONS WHERE SERVICING AND OTHER ACTIVITIES OF THE TRUST OCCUR MAY ASSERT
THAT A CERTIFICATE HOLDER IS SUBJECT TO TAX SOLELY AS A RESULT OF SUCH
CERTIFICATE HOLDER'S BENEFICIAL OWNERSHIP IN THE TRUST.
Unless the context otherwise requires, for the balance of this discussion,
the term "Class A Certificateholder" means the holder of a Class A Certificate
and a "holder" or a "Class A Certificate holder" means the beneficial owner of a
Class A Certificate.
CLASSIFICATION OF THE TRUST
The proper tax characterization of the Trust, the Certificates and the
relationship created under the Agreement, the Custody and Pledge Agreement and
the Yield Supplement Agreement (the "Operating Agreements") is unclear. The
Seller and the Trust intend to take what they believe to be the most appropriate
position, and the following discussion is based thereon, namely that, assuming
execution of, and compliance with, the Operating Agreements, the Trust will be
classified for federal income tax purposes as a grantor trust and not as an
association taxable as a corporation. Alternative characterizations are
possible. In any event, however, the Trust will not be treated as an association
(or publicly traded partnership) taxable as a corporation, and such
characterizations should not materially affect the federal income tax
consequences to a holder described herein.
For federal income tax purposes, each holder will be considered to own an
undivided interest in the Trust's assets, be required to include in its gross
income, for federal income tax purposes, its share of the gross income of the
Trust and be entitled to deduct (subject both to possible recharacterization of
certain fees paid by the Trust to the Servicer and to any limitations generally
applicable to such holder) its share of the expenses of the Trust allocable to
it.
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Although each Class A Certificate holder will be considered, for federal
income tax purposes, to own its pro rata share of the principal of the
Receivables in the Trust and of the Yield Supplement Amounts, each holder's
share of the right to interest on the Receivables, however, is not entirely
certain. Each Class A Certificate holder's right to interest with respect to a
particular Receivable should be limited to its pro rata share of the lesser of
(i) the interest that accrues on the principal of that Receivable at the
Pass-Through Rate plus its pro rata share of the Servicing and Trustee fees
allocable to it (which fees will be deemed to be paid over, on behalf of the
holder, to the Servicer and the Trustee, respectively) and (ii) the total
interest payable on that Receivable.
For administrative convenience, however, the Trustee may report information
with respect to a Class A Certificate holder's investment in a Class A
Certificate on an aggregate basis as though such Class A Certificate holder's
investment in the Receivables and other assets were equal to such Class A
Certificate holder's share of the initial Class A Principal Balance and on which
interest and Yield Supplement Amounts are payable at a combined rate equal to
the sum of the Pass-Through Rate and the Servicing Rate. If the Service were to
require reporting on an asset-by-asset basis, the amount of income reportable
for a period could differ from the amount reportable on an aggregate basis. In
particular, as described more fully below, High Yield Receivables (as defined
below) are subject to the "stripped bond" rules of the Code which could result
in such Receivables having original issue discount ("OID"), and Low Yield
Receivables (as defined below) may be subject to the market discount or imputed
interest rules.
PAYMENTS UNDER THE YIELD SUPPLEMENT AGREEMENT
A Class A Certificate holder should allocate a portion of its purchase price
or other tax basis in the Class A Certificate to its right to receive Yield
Supplement Amounts. See "--Original Issue Discount, Imputed Interest and Market
Discount."
Tax Counsel is unable to opine as to the federal income tax characterization
of the right to receive Yield Supplement Amounts. Arguably, the arrangement is
economically analogous to a loan made by the Class A Certificate holder to the
Seller in an amount equal to the discounted present value of the Yield
Supplement Amounts, if any, which are expected to be received, resulting in OID
to the Class A Certificate holders for the amount of the discount. In that case,
each Class A Certificate holder will accrue income in respect of its interest in
such discounted present value under the rules relating to OID under a method
that takes account of the compounding of interest and the holder's expected
yield to maturity. Alternatively, it is possible that the entire amount of Yield
Supplement Amounts should be included in income as accrued or received and not
treated as interest and that the Class A Certificate holder should also be
entitled to amortize the portion of its purchase price allocable to its right to
receive Yield Supplement Amounts, possibly on a straight-line basis over the
term of the Class A Certificates. In that case, the Yield Supplement Amounts
also might be unrelated taxable income for a tax-exempt investor. Although the
Seller believes that these two characterizations of the Yield Supplement
Agreement are the most likely characterizations, no assurance can be given,
however, that either of these two characterizations will be accepted by the
Service.
ORIGINAL ISSUE DISCOUNT, IMPUTED INTEREST AND MARKET DISCOUNT
ORIGINAL ISSUE DISCOUNT; GENERAL. The Receivables bear interest at varying
rates. Because a Class A Certificate holder will be viewed as owning an interest
in each of the Trust's assets, a portion of the Class A Certificate holder's
purchase price of a Class A Certificate (whether on initial sale or in a
subsequent transaction) may be required to be allocated among each of the
Trust's assets based on their respective fair market values. See discussion
below under "--Effect of Allocation of Basis."
Because the Seller will retain the right to receive interest at a rate equal
to the excess of the APR of each Receivable over the sum of the Pass-Through
Rate and the Servicing Rate, the issuance of a Class A Certificate will result
in the separation of ownership ("stripping") of a portion of the rights to
interest
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payments on those Receivables (the "High Yield Receivables") that bear an
interest rate which is greater than the sum of the Pass-Through Rate and the
Servicing Rate from the principal of such Receivables. Those Receivables (the
"Low Yield Receivables") that bear an interest rate which is less than or equal
to the sum of the Pass-Through Rate and the Servicing Rate do not provide rights
to receive interest in excess of the sum of the Pass-Through Rate and the
Servicing Rate and, therefore, will not be treated as stripped instruments.
Instead, yield supplement amounts will be paid to eliminate the difference
between the actual yield on each Low Yield Receivable and the yield which would
have resulted on such Receivable if its interest rate had equaled the sum of the
Pass-Through Rate and the Servicing Rate.
The Trust intends to take the position that, under the Code, the stripping
of the High Yield Receivables will result in OID. Accordingly, each Class A
Certificate holder will accrue income in respect of its interest in such
Receivables under the rules relating to OID under a method that takes account of
the compounding of interest, based on the particular Class A Certificate
holder's expected yield to maturity.
A Class A Certificate holder that purchases a Class A Certificate for an
amount greater than its outstanding principal balance will be required to make
an election under Section 171 of the Code to amortize premium in respect of the
Receivables in order to accrue income based on the Class A Certificate holder's
yield rather than at the Pass-Through Rate. Such an election would apply to all
of the taxable debt instruments held at or acquired after the first day of the
holder's first taxable year to which such election applies, and may be revoked
only with the consent of the Service.
IMPUTED INTEREST AND MARKET DISCOUNT. For the reasons discussed above, the
Low Yield Receivables will not be treated as stripped bonds.
Some or all of the Low Yield Receivables may have imputed interest and/or
market discount. If a Low Yield Receivable did not have "adequate stated
interest" (as the term is defined in Section 483 of the Code) when originated,
then such Receivable would be treated as having "imputed interest." Under the
imputed interest rules of the Code, a portion of the Receivable's stated
principal amount equal to such total unstated interest would be recharacterized
as interest and the Receivable's principal amount would be correspondingly
reduced. If the imputed interest rules applied, the total unstated interest
would be included in the Class A Certificate holder's gross income over the term
of the Receivable using a constant yield-to-maturity method.
It is uncertain whether the imputed interest rules would apply to a Class A
Certificate holder. If these rules do not apply, or with respect to Low Yield
Receivables which had adequate stated interest when issued, the market discount
rules instead may be applicable.
In general, under the market discount provisions of the Code, principal
payments received by the Trust, and all or a portion of the gain recognized upon
a sale or other disposition of a Receivable or upon the sale or other
disposition of a Class A Certificate by a Class A Certificate holder, will be
treated as ordinary income to the extent of accrued market discount. Any
payments received by a Class A Certificate holder upon a sale or other
disposition of a Class A Certificate in an amount in excess of accrued market
discount will be treated as capital gain. The character of any gain from the
sale of a Class A Certificate allocable to rights pursuant to the Yield
Supplement Agreement as ordinary or capital gain, however, is uncertain. In
addition, a portion of the interest deductions of the Class A Certificate holder
attributable to any indebtedness treated as incurred or continued to purchase or
carry a Receivable may have to be deferred, unless a Class A Certificate holder
makes an election to include market discount in income currently as it accrues
(in lieu of including accrued market discount in income at the time of
disposition). Such election would apply to all debt instruments acquired by the
taxpayer on or after the first day of the first taxable year to which such
election applies, and may be revoked only with consent of the Service. Taxpayers
may, in general, elect to accrue market discount either (i) under a constant
yield-to-maturity method or (ii) in the proportion that the stated interest paid
on the obligation for the current period bears to the total remaining interest
on the obligation.
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EFFECT OF ALLOCATION OF BASIS. In determining whether a Class A Certificate
holder has purchased its interest in the Receivables (or any Receivable) at a
discount or whether such Receivables (or any Receivable) have OID or, in the
case of Low Yield Receivables, have market discount, a portion of the purchase
price of a Class A Certificate should be allocated to the Class A Certificate
holder's undivided interest in accrued but unpaid interest (which, upon receipt,
will constitute a return of basis and not interest income), amounts collected as
of the time of purchase but not yet distributed, rights to receive Yield
Supplement Amounts pursuant to the Yield Supplement Agreement and, possibly, to
contingent rights to receivable Shortfall Amounts pursuant to the Yield
Supplement Agreement. As a result, the portion of the purchase price allocable
to a Class A Certificate holder's undivided interest in the Receivables (or any
Receivable) could be decreased and the potential OID and/or market discount on
the Receivables (or any Receivable) could be increased. Although the matter is
not entirely certain, it appears that, as a technical matter, each holder should
calculate income separately for its interest in each Receivable (by first
allocating to each Receivable and to each other asset in the Trust a portion of
the holder's basis in the Class A Certificate). Further, in the case of any
"affected investor" (as defined below), in computing yield to maturity, all
interest on the Receivables allocable to the Class A Certificates, including
interest effectively paid over to the Servicer and the Trustee (and, if either
of the credit support arrangements is treated as a separate asset, as discussed
below, the Class B Certificate holder or the Seller, as the case may be), is
taken into account. For this purpose "affected investors" are individuals,
persons, including estates and trusts, that compute taxable income in the same
manner as an individual and certain "pass-through entities". If required to
report income in respect of the Class A Certificates to the Service and Class A
Certificate holders, however, the Servicer and Trustee currently intend to
accrue income on an aggregate basis, based on an assumed initial offering price
of the Class A Certificates and based on the net amounts distributable on the
Class A Certificates. This method of reporting on a net basis may not be
permitted. Furthermore, subsequent purchasers of Class A Certificates will have
to adjust the amounts reported to them based upon their basis in the Class A
Certificates.
POSSIBLE ALTERNATIVE CHARACTERIZATION. Prospective investors should be
aware that the Service could take the position that, in accruing OID and,
possibly, market discount, a Receivable-by-Receivable or pool-wide prepayment
assumption should be used to determine yield and time to maturity. If the holder
purchased its Class A Certificate at a yield higher than the Pass-Through Rate
on the Class A Certificates (that is, for an amount less than the principal
amount of Receivables allocable to the Class A Certificate), such an assumption
could accelerate income on the Class A Certificate.
Prospective investors should also be aware that, although the Seller
believes that neither the Class A Certificate holders' right to be paid prior to
payment being made on the Class B Certificates nor the Class A Certificate
holders' right to be paid out of the Subordination Spread Account should be
treated as an asset separate from the Class A Certificate holders' rights in the
Receivables, the Service could take a contrary view. If either of those rights
were characterized as a separate asset, a portion of such holder's basis in its
Class A Certificate could be required to be allocated to those rights or a Class
A Certificate holder might be considered to own a greater percentage of the
right to interest on the Receivables (and be deemed to pay over that additional
interest as a guarantee or other fee as it is paid or accrued).
SALE OR PREPAYMENT
Upon the sale, exchange or retirement of a Class A Certificate, a Class A
Certificate holder will recognize taxable gain or loss in respect of its
undivided interest in each asset held by the Trust. Gain or loss with respect to
each undivided interest in a Trust asset is equal to the difference between the
allocable portion of the amount realized and the Class A Certificate holder's
adjusted basis in such asset. A Class A Certificate holder's initial basis in
each Receivable (see "--Original Issue Discount, Imputed Interest and Market
Discount--Effect of Allocation of Basis" above) generally would be increased by
any OID, imputed interest or market discount amortization and decreased by any
premium amortization attributable
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to such Receivable and taken into account in determining the Class A Certificate
holder's taxable income and any distributions (other than "qualified stated
interest") received.
As a consequence of the foregoing, a disposition or retirement of a Class A
Certificate for no net gain or loss may for tax purposes consist of a sale of
one asset (e.g., an interest in some Receivables) for a gain and the disposition
of another asset at a loss (e.g., an interest in other Receivables). Although
such gains or losses generally should be treated as offsetting capital gains and
losses (unless earned by a dealer), absent the making of an election to include
market discount currently in income (as discussed above), gain realized on an
interest in Receivables acquired with market discount may yield ordinary gain to
the extent of accrued market discount, which (i) for a corporate taxpayer could
not be offset by, and (ii) for an individual taxpayer could only be offset by up
to $3,000 of, any capital loss attributable to an interest in any other
Receivables or Trust assets. See "--Original Issue Discount, Imputed Interest
and Market Discount--Effect of Allocation of Basis" above. The character of any
gain realized allocable to the Class A Certificate holder's rights under the
Yield Supplement Agreement as ordinary or capital also is uncertain. Any loss
realized would be treated as a capital loss.
In general, gain or loss on any sale, exchange or retirement of a Class A
Certificate would be capital gain or loss. However, it is possible that the
Service will take the position that, under the rules for accruing OID, gain on
any prepayment of the Receivables will be ordinary income.
DEDUCTIONS
Each holder of a Class A Certificate will generally be allowed to deduct,
consistent with its method of accounting, any fees paid or deemed paid by the
Trust allocable to that Class A Certificate. The Service could take the position
that some or all of the fees paid to the Servicer are not deductible by the
Trust as compensation for servicing but rather represent some sort of retained
interest in the Receivables. Except to the extent described in the following
paragraph, the overall tax consequences should be substantially the same in
either event.
Prospective investors also should be aware, however, that individuals,
estates and trusts that own Class A Certificates (directly or indirectly through
pass-through entities) will be allowed to deduct such fees for regular income
tax purposes only to the extent such fees and all of the investor's other
miscellaneous itemized deductions exceed two percent of the holder's adjusted
gross income. (Further, certain itemized deductions otherwise allowable to
individuals are further reduced to the extent the Class A Certificate holder's
adjusted gross income exceeds a statutory threshold.) Additionally, no deduction
will be allowed in respect of fees for such persons for alternative minimum tax
purposes.
FOREIGN CLASS A CERTIFICATE OWNERS
Interest attributable to Receivables which is received by a Class A
Certificate holder that is not a "United States person" and has no connection
with the United States other than owning the Class A Certificate should
generally constitute "portfolio interest" and, accordingly, not be subject to
the normal 30% withholding tax imposed with respect to such payments, provided
that such Class A Certificate holder fulfills certain certification
requirements. Under such requirements, the holder must certify, under penalties
of perjury, that it is not a "United States person" and provide its name and
address. For this purpose, "United States person" means a citizen or resident of
the United States, a corporation, partnership, or other entity created or
organized in or under the laws of the United States or any political subdivision
thereof, an estate the income of which is includible in gross income for United
States federal income tax purposes regardless of its source or a trust with
respect to which a court within the United States is able to exercise primary
supervision over its administration and one or more United States fiduciaries
have the authority to control all of its substantial decisions.
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PAYMENTS RECEIVED OUT OF THE YIELD SUPPLEMENT RESERVE ACCOUNT OR IN RESPECT
OF THE YIELD SUPPLEMENT AGREEMENT MAY NOT QUALIFY FOR EXEMPTION FROM THE 30%
WITHHOLDING TAX AND THE TRUST INTENDS TO WITHHOLD WITH RESPECT TO SUCH PAYMENTS.
NONE OF THE TRUST, THE SELLER, THE SERVICER OR THE TRUSTEE IS REQUIRED TO
"GROSS-UP" A HOLDER FOR ANY AMOUNTS WITHHELD FROM PAYMENTS TO CLASS A
CERTIFICATE HOLDERS.
BACKUP WITHHOLDING
Payments made on the Class A Certificates and proceeds from the sale of the
Class A Certificates will not be subject to a "backup" withholding tax of 31%
unless, in general, the Class A Certificate holder fails to comply with certain
reporting procedures and is not an exempt recipient under applicable provisions
of the Code.
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain responsibilities on fiduciaries of employee benefit plans
subject to ERISA ("ERISA Plans"). A fiduciary of an ERISA Plan should consider,
among other matters, whether an investment in the Certificates is prudent, is
permitted by the documents governing the ERISA Plan, and is appropriate in view
of the ERISA Plan's investment policy and portfolio.
ERISA Section 406 prohibits a fiduciary of an ERISA Plan from causing such
plan to directly or indirectly engage in a broad range of transactions involving
the assets of such plan and a person who is "party in interest" (as defined in
ERISA) to such plan unless a statutory or administrative exemption applies to
the transaction. Code Section 4975 prohibits similar transactions involving a
plan subject to such Section (including individual retirement accounts) and a
person who is a "disqualified person" (as defined in the Code) with respect to
such plan. These transactions (referred to as "prohibited transactions")
involving an ERISA Plan or other plan subject to Code Section 4975
(collectively, "Plans") include sales, exchanges, loans, extensions of credit,
leases and certain other transactions. A party in interest or disqualified
person is hereinafter referred to as a "Party in Interest."
Code Section 4975 and ERISA Sections 502(i) and 502(l) of ERISA impose
certain excise taxes and civil penalties on a Party in Interest (and possibly
other persons) that engages or participates in a prohibited transaction.
Under regulations issued by the United States Department of Labor (the "Plan
Asset Regulations"), the assets of an entity in which a Plan owns an equity
interest may be treated as if they were "plan assets" of such Plan. The
Certificates may be treated as equity interests under the Plan Asset
Regulations, and the assets of the Trust may constitute "plan assets" of Plans
owning Certificates unless an exception applies (such as the exception for
certain publicly offered securities). There are no assurances that the assets of
the Trust would not be treated as "plan assets" of Plans owning Certificates.
Therefore, prospective Plan investors should consider the applicability of an
exemption from the prohibited transaction provisions of ERISA and the Code to
their purchase, holding or sale of Certificates, and to the operations of the
Trust.
The purchase and holding of Class A Certificates by Plans may be exempt from
the prohibited transaction restrictions under an administrative exemption
granted to J.P. Morgan Securities Inc., Prohibited Transaction Exemption 90-23,
as amended, and to Chase Securities Inc., Prohibited Transaction Exemption 90-33
(together, the "Exemptions"). The Exemptions apply to certain prohibited
transaction restrictions of ERISA and related excise tax provisions of the Code
with respect to (i) the initial purchase, the holding and the subsequent resale
by Plans of certificates in an asset-backed pass-through trust that holds
certain receivables, loans and other obligations that meet the conditions and
requirements of the Exemptions, and (ii) the servicing, management and operation
of such trust. The obligations that such a trust might hold include secured
motor vehicle installment obligations, such as the Receivables. The United
States Department of Labor has clarified in Prohibited Transaction Exemption
97-34 that the rights of a trustee under a yield supplement arrangement of the
type described under "Description of the Certificates--Yield Supplement Reserve
Account and Yield Supplement Agreement" above may be held as assets of a trust
without jeopardizing the availability of the Exemption.
The Exemptions do not apply to Plans sponsored by the Seller, any
Underwriter, the Trustee, the Servicer, any obligor with respect to Receivables
included in the Trust and constituting more than 5% of the aggregate unamortized
principal balance of the assets in the Trust, or any affiliate of such persons
(the "Restricted Group").
Among the conditions that must be satisfied for the Exemptions to apply are
the following:
1. the acquisition of the certificates by a Plan is on terms (including the
price for the certificates) that are at least as favorable to the Plan as
they would be in an arm's-length transaction with an unrelated party;
52
<PAGE>
2. the rights and interests evidenced by the certificates acquired by the
Plan are not subordinated to the rights and interests evidenced by other
certificates of the trust (such as the Class B Certificates which are not
eligible for the Exemptions);
3. the certificates acquired by the Plan have received a rating at the time
of such acquisition that is one of the three highest generic rating
categories from either Standard & Poor's Ratings Services ("S&P"),
Moody's Investors Service, Inc. ("Moody's") or Duff & Phelps, Inc.
("D&P");
4. the Trustee must not be an affiliate of any other member of the
Restricted Group;
5. the sum of all payments made to and retained by the Underwriter in
connection with the distribution of the certificates represents not more
than reasonable compensation for underwriting the certificates; the sum
of all payments made to and retained by the sponsor of the trust pursuant
to the transfer of the obligations to the trust represents not more than
the fair market value of such obligations; and the sum of all payments
made to and retained by the servicers of the obligations represents not
more than reasonable compensation for such persons' services and
reimbursement of such persons' reasonable expenses in connection
therewith; and
6. the Plan investing in the certificates is an "accredited investor" as
defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933.
The Trust must also meet the following requirements:
1. the corpus of the Trust must consist solely of assets of the type that
have been included in other investment pools;
2. certificates in such other investment pools must have been rated in one
of the three highest rating categories of S&P, Moody's or D&P for at
least one year prior to the Plan's acquisition of Certificates; and
3. certificates evidencing interests in such other investment pools must
have been purchased by investors other than Plans for at least one year
prior to the Plan's acquisition of Certificates.
Moreover, the Exemptions provide relief from certain prohibited transactions
that may occur when a fiduciary causes a Plan to acquire certificates in a trust
in which the fiduciary (or its affiliate) is an obligor on the obligations held
in the trust; provided that, among other requirements, (i) in the case of an
acquisition in connection with the initial issuance of certificates, at least
fifty percent of each class of certificates in which Plans have invested is
acquired by persons independent of the Restricted Group and at least fifty
percent of the aggregate interest in the trust is acquired by persons
independent of the Restricted Group; (ii) such fiduciary (or its affiliate) is
an obligor with respect to five percent or less of the fair market value of the
obligations contained in the trust; (iii) the Plan's investment in certificates
of any class does not exceed twenty-five percent of all of the certificates of
that class outstanding at the time of the acquisition; and (iv) immediately
after the acquisition, no more than twenty-five percent of the assets of the
Plan with respect to which such person is a fiduciary are invested in
certificates representing an interest in one or more trusts containing assets
sold or serviced by the same entity.
None of the Receivables of any one Obligor shall exceed 5% of the principal
of the Trust at the outset, and the Trustee will try to dispose of assets of the
Trust to avoid violating such limit.
The Seller believes that the Exemptions could apply to the acquisition and
holding of Class A Certificates (but not Class B Certificates) by Plans.
However, no assurances can be provided that the conditions for the application
of such exemption have or will be satisfied, and each fiduciary with respect to
a Plan should review the applicability of the Exemptions with its counsel prior
to acquiring Class A Certificates. Class B Certificates should not be acquired
by a Plan in the absence of a determination that another exemption applies.
53
<PAGE>
Certain employee benefit plans, such as governmental plans and church plans
(if no election has been made under Code Section 410(d)), are not subject to the
requirements of ERISA, and assets of such plans may be invested in Certificates
without regard to the ERISA considerations described herein, subject to the
provisions of other applicable federal and state law. Any such plan which is
exempt from taxation under Code Section 501(a) may, however, forfeit its
tax-exempt status if it engages in a prohibited transaction in violation of Code
Section 503.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of the
Exemptions, and the potential consequences of their specific circumstances,
prior to making an investment in the Class A Certificates.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
between the Seller, Chase Securities Inc. and J.P. Morgan Securities Inc.,
acting for themselves and as representatives of the other Underwriters named
below (the "Underwriting Agreement"), the Seller has agreed to sell to the
Underwriters, and each of the Underwriters has agreed to purchase, the principal
amount of the Class A Certificates set forth opposite its name below.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF
CLASS A
UNDERWRITERS CERTIFICATES
- -------------------------------------------------------------------------- ------------------
<S> <C>
Chase Securities Inc...................................................... $ 355,820,267.50
J.P. Morgan Securities Inc................................................ $ 355,820,267.50
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................................... $ 88,955,000.00
Salomon Smith Barney Inc.................................................. $ 88,955,000.00
------------------
Total..................................................................... $ 889,550,535.00
------------------
------------------
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all of the Class A
Certificates offered hereby if any of the Class A Certificates are purchased.
The Seller has been advised by the Underwriters that they propose initially to
offer the Class A Certificates to the public at the price set forth herein, and
to certain dealers at such price less a concession not in excess of 0.120% of
the Class A Certificate amounts. The Underwriters may allow and such dealers may
reallow a concession not in excess of 0.0625% of the Class A Certificate amounts
to certain other dealers. After the initial public offering, the public offering
price and such concessions may be changed.
In connection with the offering of the Class A Certificates, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Class A Certificates. Specifically, the Underwriters may
overallot in connection with the offering, creating a syndicate short position.
In addition, the Underwriters may bid for and purchase Class A Certificates in
the open market to cover syndicate short positions or to stabilize the price of
the Class A Certificates. Finally, the underwriting syndicate may impose
"penalty bids" by reclaiming selling concessions allowed for distributing the
Class A Certificates in the offering of the Class A Certificates if the
syndicate repurchases previously distributed Class A Certificates in syndicate
covering transactions, stabilization transactions or otherwise. Any of these
activities may stabilize the price of the Class A Certificates or cause the
price of the Class A Certificates to be higher than it otherwise would be in the
absence of such transactions. The Underwriters are not required to engage in
these activities, and may discontinue any of them at any time.
The Seller and NMAC have agreed to indemnify the Underwriters against
certain liabilities, including civil liabilities under the Securities Act, or to
contribute to payments which the Underwriters may be required to make in respect
thereof. In the opinion of the Commission, certain indemnification provisions
54
<PAGE>
for liability arising under the federal securities law are contrary to public
policy and therefore unenforceable.
In the ordinary course of their respective businesses, the Underwriters and
their respective affiliates have engaged and may engage in investment banking
and/or commercial banking transactions with Nissan and its affiliates.
LEGAL OPINIONS
Certain legal matters relating to the Certificates will be passed upon for
the Seller and the Servicer by Joy Crose, Esq., and by Weil, Gotshal & Manges
LLP, New York, New York, and for the Underwriters by Cravath, Swaine & Moore,
New York, New York.
Certain federal income tax and other matters will be passed upon for the
Seller by Weil, Gotshal & Manges LLP.
55
<PAGE>
INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus and
the pages on which the definitions of such terms may be found herein.
<TABLE>
<S> <C>
Accounts............................................................................ 28
Advance............................................................................. 8, 29
Agreement........................................................................... 3
APR................................................................................. 16
Available Interest.................................................................. 31
Available Principal................................................................. 31
Cede................................................................................ 4
Certificate Account................................................................. 15, 28
Certificateholders.................................................................. 2, 5
Certificates........................................................................ 1, 3
Class A Agent....................................................................... 9
Class A Certificate Balance......................................................... 4, 32
Class A Certificateholders.......................................................... 4
Class A Certificate holder.......................................................... 46
Class A Certificate Factor.......................................................... 22
Class A Certificate Owner........................................................... 4
Class A Certificates................................................................ 3
Class A Distributable Amount........................................................ 31
Class A Interest Carryover Shortfall................................................ 33
Class A Interest Distributable Amount............................................... 32
Class A Percentage.................................................................. 4, 24
Class A Pool Factor................................................................. 22
Class A Principal Carryover Shortfall............................................... 33
Class A Principal Distributable Amount.............................................. 31
Class B Certificate Balance......................................................... 32
Class B Certificateholders.......................................................... 5
Class B Certificates................................................................ 3
Class B Distributable Amount........................................................ 32
Class B Interest Carryover Shortfall................................................ 33
Class B Interest Distributable Amount............................................... 32
Class B Percentage.................................................................. 4, 24
Class B Principal Carryover Shortfall............................................... 33
Class B Principal Distributable Amount.............................................. 32
Code................................................................................ 46
Collection Account.................................................................. 15, 28
Collection Period................................................................... 5, 24
Commission.......................................................................... 2
Custody and Pledge Agreement........................................................ 6
Cutoff Date......................................................................... 3
D&P................................................................................. 53
Dealer Recourse..................................................................... 15
Dealers............................................................................. 15
Definitive Certificates............................................................. 26
Determination Date.................................................................. 35
Distribution Date................................................................... 1, 8
DTC................................................................................. 4
</TABLE>
56
<PAGE>
<TABLE>
<S> <C>
DTC Services........................................................................ 26
Eligible Investments................................................................ 28
ERISA............................................................................... 10, 52
ERISA Plans......................................................................... 52
Events of Default................................................................... 38
Excess Amounts...................................................................... 6, 33
Exchange Act........................................................................ 2
Exemptions.......................................................................... 52
Final Scheduled Distribution Date................................................... 1
Financed Vehicles................................................................... 3
FTC Rule............................................................................ 43
High Yield Receivables.............................................................. 48
holder.............................................................................. 46
Indirect Participants............................................................... 25
Industry............................................................................ 25
Initial Yield Supplement Reserve Amount............................................. 8, 30
Insolvency Laws..................................................................... 44
Liquidated Receivables.............................................................. 31
Liquidation Proceeds................................................................ 31
Low Yield Receivables............................................................... 48
Moody's............................................................................. 53
MVRISA.............................................................................. 41
Nissan.............................................................................. 14, 22
NMAC................................................................................ 3
NMC................................................................................. 3
Obligors............................................................................ 15
OID................................................................................. 46
Operating Agreements................................................................ 46
Participants........................................................................ 25
party in interest................................................................... 52
Pass-Through Rate................................................................... 4
Plan Asset Regulations.............................................................. 52
Plans............................................................................... 52
Pool Balance........................................................................ 18
Prepaid Receivable.................................................................. 8
prohibited transactions............................................................. 52
Purchase Agreement.................................................................. 3, 27
Purchase Amount..................................................................... 27
Rating Agency....................................................................... 10
Receivables......................................................................... 1, 3
Record Date......................................................................... 4
Required Deposit Rating............................................................. 28
Required Yield Supplement Reserve Amount............................................ 8, 30
Restricted Group.................................................................... 52
RISA................................................................................ 41
Rules............................................................................... 25
S&P................................................................................. 53
Securities Act...................................................................... 2
Seller.............................................................................. 1, 2, 3
Service............................................................................. 9, 46
Servicer............................................................................ 1, 3
</TABLE>
57
<PAGE>
<TABLE>
<S> <C>
Servicer Fee........................................................................ 9, 30
Servicing Fee....................................................................... 9, 30
Servicing Rate...................................................................... 7
Specified Subordination Spread Account Balance...................................... 6
Subordination Initial Deposit....................................................... 6
Subordination Spread Account........................................................ 5
Supplemental Servicing Fee.......................................................... 9, 30
Systems............................................................................. 25
Tax Counsel......................................................................... 46
Total Available Amount.............................................................. 31
Trust............................................................................... 1, 3
Trustee............................................................................. 1, 3
UCC................................................................................. 41, 42
UCCC................................................................................ 41
Underwriters........................................................................ 54
Underwriting Agreement.............................................................. 54
United States person................................................................ 50
Yield Supplement Agreement.......................................................... 8
Yield Supplement Amount............................................................. 7
Yield Supplement Reserve Account.................................................... 7, 30
</TABLE>
58
<PAGE>
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE SELLER, THE SERVICER OR THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
- ------------------------------------------------------
Table of Contents
<TABLE>
<CAPTION>
PAGE
<S> <C>
Forward-Looking Statements 2
Available Information 2
Reports to Class A Certificateholders by the
Trustee 2
Summary 3
Risk Factors 11
Formation of the Trust 15
Property of the Trust 15
The Receivables 16
Class A Certificate and Pool Factors 22
Use of Proceeds 22
The Seller 22
The Servicer 22
The Certificates 24
Rating of the Class A Certificates 41
Certain Legal Aspects of the Receivables 41
Federal Income Tax Consequences 46
ERISA Considerations 52
Underwriting 54
Legal Opinions 55
Index of Terms 56
</TABLE>
- ------------------------------------------------------
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS, ALL DEALERS EFFECTING
TRANSACTIONS IN THE CLASS A CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
$889,550,535
Nissan Auto Receivables
1998-A Grantor Trust
5.45% ASSET BACKED
CERTIFICATES, CLASS A
Nissan Auto
Receivables Corporation
Seller
Nissan Motor
Acceptance Corporation
Servicer
- ---------------------
PROSPECTUS
- ---------------------
Chase Securities Inc.
J.P. Morgan & Co.
Merrill Lynch & Co.
Salomon Smith Barney
Dated December 9, 1998
