<PAGE>
Filed Pursuant to Rule No. 424(B)(5)
Registration No. 033-64249
PROSPECTUS SUPPLEMENT
(To Prospectus dated October 21, 1996)
$500,864,370.04
NAVISTAR FINANCIAL 1998-A OWNER TRUST
$483,334,000.00 CLASS A 5.94% ASSET BACKED NOTES
$ 17,530,370.04 CLASS B 6.10% ASSET BACKED NOTES
NAVISTAR FINANCIAL RETAIL RECEIVABLES CORPORATION
SELLER
NAVISTAR FINANCIAL CORPORATION
SERVICER
The Navistar Financial 1998-A Owner Trust (the "TRUST" or the "ISSUER") will
be formed pursuant to a Trust Agreement, to be dated as of June 4, 1998 (the
"CLOSING DATE"), between the Seller and Chase Manhattan Bank Delaware, as
Owner Trustee, and will issue two classes of Asset Backed Notes (collectively,
the "NOTES") in the respective aggregate principal amounts set forth below
pursuant to an Indenture, to be dated as of the Closing Date, between the
Issuer and The Bank of New York, as Indenture Trustee. The Trust will also
issue Certificates (the "CERTIFICATES," and together with the Notes, the
"SECURITIES"), but the Certificates are not offered hereby.
(continued on following page)
---------------------------------------------------------
PROCEEDS OF THE ASSETS OF THE TRUST AND AMOUNTS ON DEPOSIT IN THE RESERVE
ACCOUNT ARE THE SOLE SOURCES OF PAYMENTS ON THE NOTES. NONE OF THE NOTES
REPRESENTS AN INTEREST IN OR OBLIGATION OF, OR IS INSURED OR GUARANTEED BY,
NAVISTAR FINANCIAL CORPORATION, NAVISTAR FINANCIAL RETAIL RECEIVABLES
CORPORATION OR ANY OF THEIR RESPECTIVE AFFILIATES.
THESE NOTES 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 SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------------------------------------------
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Aggregate
Principal Interest Final Scheduled Price Underwriting Proceeds to
Amount Rate Distribution Date to Public Discount Seller(1)
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A Notes $483,334,000.00 5.94% November 15, 2004 99.9988% 0.205% 99.7938%
- - -------------------------------------------------------------------------------------------------------------------
Class B Notes $ 17,530,370.04 6.10% November 15, 2004 99.9902% 0.500% 99.4902%
- - -------------------------------------------------------------------------------------------------------------------
Total $500,864,370.04 $500,856,852.06 $1,078,486.55 $499,778,365.51
</TABLE>
(1) Before deducting expenses, estimated to be $450,000.
---------------------------------------------------------
The Notes are being offered by the Underwriters, subject to prior sale, when,
as and if issued to and accepted by the Underwriters, subject to approval of
certain legal matters by counsel for the Underwriters. The Underwriters
reserve the right to withdraw, cancel or modify such offer and to reject
orders in whole or in part. It is expected that the Notes will be delivered in
book-entry form on or about the Closing Date through the facilities of The
Depository Trust Company ("DTC"), against payment therefor in immediately
available funds.
Underwriters of the Class A Notes
CHASE SECURITIES INC.
BANCAMERICA ROBERTSON STEPHENS
FIRST CHICAGO CAPITAL MARKETS, INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
Underwriter of the Class B Notes
CHASE SECURITIES INC.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS MAY 20, 1998
<PAGE>
(continued from previous page)
Interest on the Notes will accrue at the fixed interest rates specified above
and will generally be payable monthly on the fifteenth day of each month, or,
if any such day is not a Business Day, on the next succeeding Business Day,
commencing on June 15, 1998 (each, a "DISTRIBUTION DATE"). Principal on the
Notes will generally be payable 96.5% to the Class A Notes and 3.5% to the
Class B Notes on each Distribution Date. Payments of principal and interest on
the Class B Notes will be subordinated in priority to payments due on the
Class A Notes to the extent described herein. The Notes will be payable in
full on the Final Scheduled Distribution Date. However, the actual payment in
full of the Notes could occur sooner.
The Trust Property will include a pool of Retail Notes, certain monies due
thereunder on and after May 1, 1998, security interests in the vehicles
financed thereby and certain other property. The Initial Aggregate Receivables
Balance is $500,864,370.04.
There is currently no secondary market for the Notes. There can be no
assurance that a secondary market for the Notes will develop or, if it does
develop, that it will continue. The Notes will not be listed on any securities
exchange.
The Notes initially will be represented by notes registered in the name of
Cede & Co., the nominee of DTC. The interests of beneficial owners of the
Notes will be represented by book entries on the records of DTC and
participating members thereof. Definitive Notes will be available only under
limited circumstances.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING
OVER-ALLOTMENT TRANSACTIONS, STABILIZING TRANSACTIONS, SYNDICATE COVERING
TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
S-2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus. Certain
capitalized terms used in this summary but not otherwise defined in this
summary have the meanings assigned such terms elsewhere herein or in the
Prospectus. Listings of the pages on which such terms are defined are found in
the "Index of Terms" in each of this Prospectus Supplement and the Prospectus.
Issuer.............................. Navistar Financial 1998-A Owner Trust, a
Delaware business trust to be formed by
the Seller and the Owner Trustee pursu-
ant to the Owner Trust Agreement.
Seller.............................. Navistar Financial Retail Receivables
Corporation.
Servicer............................ Navistar Financial Corporation.
Indenture Trustee................... The Bank of New York, as trustee under
the Indenture.
Owner Trustee....................... Chase Manhattan Bank Delaware, as owner
trustee under the Owner Trust Agreement.
The Notes........................... The Trust will issue Notes as follows:
Class A 5.94% Asset Backed Notes in the
aggregate principal amount of
$483,334,000.00 (the "CLASS A NOTES").
Class B 6.10% Asset Backed Notes in the
aggregate principal amount of
$17,530,370.04 (the "CLASS B NOTES").
The Class B Notes will be subordinated
to the Class A Notes to the extent de-
scribed herein.
The Trust Property.................. The Trust Property will include a pool of
Retail Notes, certain monies due or re-
ceived thereunder on and after May 1,
1998 (the "CUTOFF DATE"), security in-
terests in the vehicles financed there-
by, certain accounts, including the Re-
serve Account, and the proceeds thereof,
the proceeds, if any, of Dealer Liabili-
ty, NITC Purchase Obligations and any
Guaranties, any proceeds from claims on
certain insurance policies, the benefits
of any lease assignments and certain
rights of the Seller under the related
Purchase Agreement and the related Cus-
todian Agreement. The Initial Aggregate
Receivables Balance is $500,864,370.04.
Terms of the Notes.................. The principal terms of the Notes will be
as described below:
A. Distribution Dates............. Payments of interest and principal on the
Notes will be made on each Distribution
Date to Noteholders of record as of the
day immediately preceding such Distribu-
tion Date (or, if Definitive Notes are
issued, the last day of the preceding
Monthly Period).
S-3
<PAGE>
B. Interest....................... Interest on the outstanding principal
amount of the Notes will accrue at the
applicable Interest Rate from the Clos-
ing Date or from the most recent Distri-
bution Date on which interest has been
paid to but excluding the following Dis-
tribution Date.
The Interest Rate for each class of Notes
is as specified on the cover page of
this Prospectus Supplement. Interest on
the Notes will be calculated on the ba-
sis of a 360-day year consisting of
twelve 30-day months. Interest on the
Class B Notes will not be paid on any
Distribution Date until all accrued in-
terest due and payable on the Class A
Notes on such Distribution Date has been
paid in full. After an Event of Default
resulting from the failure to make a
payment on the Notes or the insolvency
of the Issuer and acceleration of the
Notes, no interest will be payable on
the Class B Notes until all principal of
and interest on the Class A Notes has
been paid in full. See "The Notes--Pay-
ments of Interest."
C. Principal...................... Subject to the subordination provisions
described in the following two para-
graphs, principal of the Class A Notes
and the Class B Notes will be payable on
each Distribution Date in an amount
equal to 96.5% and 3.5%, respectively,
of the Principal Payment Amount for such
Distribution Date.
If the amount on deposit in the Reserve
Account on any Distribution Date would
be, after giving effect to distribution
of the Principal Payment Amount on such
Distribution Date, less than 1.0% of the
Initial Aggregate Receivables Balance,
then the principal of the Class A Notes
will be payable in an amount equal to
100% of the Principal Payment Amount un-
til either the Class A Notes are paid in
full or the amount on deposit in the Re-
serve Account equals or exceeds the
Specified Reserve Account Balance.
After an Event of Default and accelera-
tion of the Notes, the principal of the
Class A Notes will be payable in an
amount equal to 100% of the Principal
Payment Amount on each Distribution Date
until the Class A Notes have been paid
in full. Thereafter, the principal of
the Class B Notes will be payable in an
amount equal to 100% of the Principal
Payment Amount on each Distribution Date
until paid in full. See "The Transfer
and Servicing Agreements--Distribu-
tions."
The unpaid principal balance of the Notes
will be payable on the Final Scheduled
Distribution Date specified on the cover
page of this Prospectus Supplement.
S-4
<PAGE>
D. Redemption..................... If the Servicer exercises its option to
purchase the Receivables on any Distri-
bution Date on or after the date on
which the Aggregate Receivables Balance
declines to 10% or less of the Initial
Aggregate Receivables Balance, the Notes
will be redeemed in whole, but not in
part, at a redemption price equal to the
unpaid principal amount of the Notes,
plus accrued and unpaid interest there-
on. See "The Notes--Redemption."
E. Voting Rights.................. To the extent the Prospectus specifies
certain circumstances under which the
consent, approval, direction, or request
of a specified percentage in principal
amount of the outstanding Notes must be
obtained, given or made, or under which
such a specified percentage are permit-
ted to take an action or give a notice,
then such consent, approval, direction,
request, action or notice shall be valid
only if the holders of such specified
percentage in principal amount of (a)
all the outstanding Class A Notes and
Class B Notes voting together as a sin-
gle class and (b) the outstanding Class
A Notes voting as a single class have
voted to give such consent, approval,
direction, request or notice, or take
such action.
Priority of Distributions........... Distributions of the Total Available
Amount to the Noteholders and the
Servicer will generally be distributed
in the following order of priority on
each Distribution Date: (i) the Total
Servicing Fee; (ii) interest on the
Class A Notes; (iii) interest on the
Class B Notes; and (iv) principal on the
Notes. See "The Transfer and Servicing
Agreements--Distributions" and "--Re-
serve Account." Upon the occurrence of
an Event of Default resulting from the
failure to make a payment on the Notes
or the insolvency of the Issuer and the
acceleration of the Notes, all principal
of and interest on the Class A Notes
will be paid in full prior to making any
further payments on or with respect to
the Class B Notes.
Reserve Account..................... On the Closing Date an amount of cash or
eligible investments equal to 3.50% of
the Initial Aggregate Receivables Bal-
ance will be deposited into the Reserve
Account. The Reserve Account will be in-
creased on each Distribution Date by the
deposit in the Reserve Account of
amounts remaining after payment to the
Servicer of the Total Servicing Fee and
deposits to the Distribution Account of
amounts to be distributed to Notehold-
ers.
Amounts in the Reserve Account on any
Distribution Date (after giving effect
to all distributions to be made
S-5
<PAGE>
to the Servicer and the Noteholders on
such Distribution Date) in excess of the
Specified Reserve Account Balance for
such Distribution Date will be paid to
the holders of the Certificates. The
Specified Reserve Account Balance on
each Distribution Date will equal the
lesser of (i) the aggregate outstanding
principal balance of the Notes and (ii)
the greater of (x) 5.25% (or 10.0% under
certain circumstances described herein)
of the Aggregate Receivables Balance as
of the close of business on the last day
of the related Monthly Period, and (y)
2.0% of the Initial Aggregate Receiv-
ables Balance.
Funds will be withdrawn from cash in the
Reserve Account on the day preceding
each Distribution Date to pay the Total
Servicing Fee and to make required dis-
tributions on the Notes to the extent
funds are not otherwise available, as
described herein. See "The Transfer and
Servicing Agreements--Distributions" and
"--Reserve Account."
Tax Status.......................... In the opinion of Tax Counsel, for fed-
eral income tax purposes, the Notes will
be characterized as indebtedness and the
Trust will not be characterized as an
association (or publicly traded partner-
ship) taxable as a corporation. Each
Noteholder, by the acceptance of a Note,
will agree to treat the Notes as indebt-
edness. See "Certain Federal Income Tax
Consequences" herein and in the Prospec-
tus and "Certain State Tax Matters" in
the Prospectus for additional informa-
tion concerning the application of fed-
eral and state tax laws.
ERISA Considerations................ Subject to the considerations discussed
under "ERISA Considerations" herein and
"ERISA Considerations" in the Prospec-
tus, the Notes are eligible for purchase
by a Benefit Plan. See "ERISA Considera-
tions" herein and "ERISA Considerations"
in the Prospectus.
Ratings............................. As a condition of issuance, the Class A
Notes will be rated in the highest rat-
ing category for long-term debt obliga-
tions, and the Class B Notes will be
rated in the "A' category or its equiva-
lent, in each case, by at least one na-
tionally recognized rating agency. There
is no assurance that a rating will not
be lowered or withdrawn by a rating
agency if circumstances so warrant. In
the event that the rating initially as-
signed to any Note is subsequently low-
ered for any reason, no person or entity
will be obligated to provide any addi-
tional credit enhancement with respect
to such Note.
S-6
<PAGE>
THE TRUST
The Issuer, Navistar Financial 1998-A Owner Trust, is a business trust
formed under the laws of the State of Delaware pursuant to a Trust Agreement
dated as of the Closing Date between the Seller and the Owner Trustee, acting
thereunder not in its individual capacity but solely as trustee of the Trust
(as amended and supplemented from time to time, the "OWNER TRUST AGREEMENT").
After its formation, the Trust will not engage in any activity other than (i)
acquiring, holding and managing the Receivables and the other assets of the
Trust and proceeds therefrom, (ii) issuing the Securities, (iii) making
payments or distributions on the Securities and (iv) engaging in other
activities that are necessary, suitable, desirable or convenient to accomplish
the foregoing or are incidental thereto or connected therewith. The Trust will
deliver the Securities to the Seller in exchange for the Receivables and the
Reserve Account Initial Deposit pursuant to the Pooling and Servicing
Agreement.
The Trust's principal offices are in Wilmington, Delaware, in care of Chase
Manhattan Bank Delaware, as Owner Trustee, at the address listed in "--The
Owner Trustee" below.
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the Trust as of the
Cutoff Date, as if the issuance and sale of the Notes offered hereby had taken
place on such date:
<TABLE>
<S> <C>
Class A 5.94% Asset Backed Notes......................... $483,334,000.00
Class B 6.10% Asset Backed Notes......................... $ 17,530,370.04
---------------
Total................................................ $500,864,370.04
</TABLE>
The Certificates represent the equity of the Trust and will be issued
pursuant to the Trust Agreement. The Certificates will initially be held by
one or more of the Seller, the Servicer or one of their affiliates.
In addition, the Trust will hold the Reserve Account.
THE OWNER TRUSTEE
Chase Manhattan Bank Delaware is the Owner Trustee under the Owner Trust
Agreement. Chase Manhattan Bank Delaware is a Delaware banking corporation and
a wholly-owned, indirect subsidiary of The Chase Manhattan Corporation, a
Delaware corporation, and its principal offices are located at 1201 Market
Street, Wilmington, Delaware 19801.
THE RECEIVABLES POOL
The Receivables transferred to the Trust were originally acquired by
Navistar Financial Corporation ("NFC") from (i) NITC dealers, (ii) other
dealers, including those selling other manufacturers' vehicles and equipment
and (iii) retail customers. Certain of the Receivables were sold by NFC to
Truck Retail Instalment Paper Corp. ("TRIP"), a special purpose, wholly-owned
subsidiary of NFC, and will be repurchased by NFC from TRIP as of the Closing
Date for resale to the Seller. The Receivables were selected randomly for
inclusion in the Receivables Pool from those Retail Notes in NFC's portfolio
of owned Retail Notes which satisfied several criteria, including that each
Receivable (i) has a first payment due date on or before May 31, 1998, (ii)
has an original term to maturity of 12 to 84 months and a remaining term to
maturity of 12 to 73 months, (iii) provides for finance charges at an APR of
no less than 7.00%, (iv) as of the Cutoff Date, was not more than 60 days past
due and (v) satisfies the other criteria set forth in the Prospectus under the
caption "The Receivables Pools."
S-7
<PAGE>
The composition, distribution by annual percentage rate, distribution by
remaining maturity, distribution by payment terms and geographic distribution
of the Receivables are as set forth in the following tables. Due to rounding,
the percentages shown in these tables may not add to 100.00%.
COMPOSITION OF THE RECEIVABLES
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE ANNUAL INITIAL AGGREGATE AVERAGE AVERAGE AVERAGE
PERCENTAGE RATE AGGREGATE ORIGINAL INITIAL ORIGINAL REMAINING
OF RECEIVABLES RECEIVABLES PRINCIPAL NUMBER OF RECEIVABLE MATURITY MATURITY
(RANGE) BALANCE BALANCE RECEIVABLES BALANCE (RANGE) (RANGE)
- - --------------- ----------- --------- ----------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
9.581% $500,864,370.04 $543,788,034.45 11,591 $43,211.49 54.13 50.39
(7.00%- months months
22.50%) (1) (12 to 84 (12 to 73
months) months)
</TABLE>
- - --------
(1) Excludes two Receivables with APRs above 22.50%.
DISTRIBUTION BY ANNUAL PERCENTAGE RATE OF THE RECEIVABLES
<TABLE>
<CAPTION>
ANNUAL PERCENTAGE OF
PERCENTAGE NUMBER OF INITIAL INITIAL AGGREGATE
RATE RANGE RECEIVABLES RECEIVABLES BALANCE RECEIVABLES BALANCE
---------- ----------- ------------------- -------------------
<S> <C> <C> <C>
7.00-8.49%................ 3,769 $180,527,263.09 36.04%
8.50-9.49%................ 2,480 112,630,140.49 22.49%
9.50-10.49%............... 1,787 84,162,157.43 16.80%
10.50-11.49%............... 1,082 49,317,843.91 9.85%
11.50-12.49%............... 749 28,764,480.79 5.74%
12.50-13.49%............... 574 19,034,386.28 3.80%
13.50-14.49%............... 442 11,261,902.74 2.25%
14.50-15.49%............... 296 6,888,913.43 1.38%
15.50-16.49%............... 217 4,516,385.49 0.90%
16.50-17.49%............... 62 1,233,425.63 0.25%
17.50 & Over............... 133 2,527,470.76 0.50%
Total.................... 11,591 $500,864,370.04 100.00%
</TABLE>
DISTRIBUTION BY REMAINING MATURITY OF THE RECEIVABLES
<TABLE>
<CAPTION>
REMAINING PERCENTAGE OF
MATURITY NUMBER OF INITIAL INITIAL AGGREGATE
(MONTHS) RECEIVABLES RECEIVABLES BALANCE RECEIVABLES BALANCE
--------- ----------- ------------------- -------------------
<S> <C> <C> <C>
1-12...................... 229 $ 3,598,662.81 0.72%
13-24...................... 1,139 20,141,718.95 4.02%
25-36...................... 2,286 65,895,371.84 13.16%
37-48...................... 2,639 118,946,415.24 23.75%
49-60...................... 4,215 239,836,007.85 47.88%
61-66...................... 86 4,833,303.07 0.96%
67 & Over.................. 997 47,612,890.28 9.51%
Total.................. 11,591 $500,864,370.04 100.00%
</TABLE>
DISTRIBUTION BY PAYMENT TERMS OF RECEIVABLES
<TABLE>
<CAPTION>
PERCENTAGE OF INITIAL AGGREGATE
TYPE OF RECEIVABLE RECEIVABLES BALANCE
------------------ -------------------------------
<S> <C>
Equal Payment Fully Amortizing............ 61.52%
Equal Payment Balloon..................... 13.46%
Equal Payment Skip........................ 2.84%
Level Principal Fully Amortizing.......... 5.62%
Level Principal Balloon................... 10.28%
Level Principal Skip...................... 0.22%
Other..................................... 6.06%
Total................................. 100.00%
</TABLE>
S-8
<PAGE>
The Receivables Pool includes Receivables originated in 48 states and The
District of Columbia. The following table sets forth the percentage of the
Initial Aggregate Receivables Balance of the Receivables in the states with
the largest concentration of Receivables. No other state accounts for more
than 2.80% of the Initial Aggregate Receivables Balance. None of the
Receivables were originated in Alaska or Hawaii.
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES
<TABLE>
<CAPTION>
PERCENTAGE OF
INITIAL AGGREGATE
RECEIVABLES
STATE(1) BALANCE
-------- ------------------
<S> <C>
Texas.................................................. 8.43%
Ohio................................................... 8.27%
New York............................................... 6.00%
Arkansas............................................... 5.80%
California............................................. 5.66%
Illinois............................................... 5.55%
Florida................................................ 4.68%
Tennessee.............................................. 3.89%
Indiana................................................ 3.41%
Minnesota.............................................. 3.20%
Other.................................................. 45.11%
Total.............................................. 100.00%
</TABLE>
- - --------
(1) Based on billing addresses of the obligors on the Receivables.
No single obligor accounts for more than 2.00% of the Initial Aggregate
Receivables Balance. As of the Cutoff Date, approximately 75.10% of the
Initial Aggregate Receivables Balance, constituting 62.42% of the aggregate
number of Receivables, represent Receivables secured by new vehicles. The
remainder are secured by used vehicles.
USE OF PROCEEDS
The net proceeds to be received by the Seller from the sale of the Notes
(after making the Reserve Account Initial Deposit) will be applied to the
purchase of the Receivables from NFC. NFC will use the proceeds from its sale
of the Receivables to the Seller (a) to finance the purchase of Receivables
from TRIP, (b) for general working capital purposes, (c) to repay amounts
owing to NITC, and (d) to repay amounts owing to a group of lenders, including
each Underwriter or an affiliate thereof, under one or more credit agreements.
S-9
<PAGE>
THE SERVICER
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES
Set forth below is certain information concerning NFC's experience in the
United States pertaining to delinquencies, repossessions and net losses on its
entire portfolio of Retail Notes (including Retail Notes previously sold which
NFC continues to service). Fluctuations in retail delinquencies, repossessions
and losses generally follow cycles in the overall business environment.
Although NFC believes retail delinquencies, repossessions and net losses are
particularly sensitive to the industrial sector, which generates a significant
portion of the freight tonnage hauled, NFC does not track such data and is
unable to ascertain the specific causes of such fluctuations. Due to the
bankruptcy of one of NFC's largest obligors, net losses for 1996 were higher
than those reported for the other years shown. Due to economic conditions
affecting the trucking industry generally, delinquencies and repossessions for
1996, 1997 and the first six months of 1998 were higher than reported for 1994
and 1995. Also, NFC's recent experience is that competitive conditions are
causing it increasingly to waive Dealer Liability when acquiring Retail Notes,
and the extent and terms of Dealer Liability will continue to be subject to
change as market conditions require. As of April 30, 1998, approximately 26%
of the aggregate principal amount of Retail Notes serviced by NFC had the
benefit of Dealer Liability. The Prospectus sets forth an explanation of the
extent, terms and effect of Dealer Liability and the basis on which the
delinquency, repossession and net loss numbers set forth below have been
calculated. See "The Servicer--Delinquencies, Repossessions and Net Losses" in
the Prospectus. There can be no assurance that the delinquency, repossession
and net loss experience on the Receivables Pool will be comparable to that set
forth below. Due to rounding, the amounts shown for NFC and NITC separately in
this table may not add to the amount shown for NFC and NITC combined.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED APRIL
NFC RETAIL NOTES YEAR ENDED OCTOBER 31, 30,
- - ---------------- ---------------------------------------- --------------
1993 1994 1995 1996(1) 1997 1997 1998
------ ------ ------ ------- ------ ------ ------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Gross Balance
Outstanding at end of
Period................. $1,437 $1,653 $2,073 $2,282 $2,282 $2,216 $2,319
Gross Balance Past Due
as a Percentage of
Gross Balance
Outstanding at end of
Period
31-60 days............ 0.67% 0.41% 2.43% 1.99% 2.42% 3.33% 2.67%
over 60 days.......... 0.09% 0.06% 0.09% 0.30% 0.60% 0.73% 0.67%
Average Gross Balance of
Retail Notes
(13 month average) $1,341 $1,515 $1,809 $2,204 $2,245 $2,242 $2,268
Net Losses (recoveries):
NFC................... $ (0.1) $ 0.6 $ 0.3 $ 5.0 $ 2.1 $ 0.8 $ 1.3
NITC.................. 4.8 0.6 0.6 9.5 3.9 2.3 2.3
------ ------ ------ ------ ------ ------ ------
Combined.............. $ 4.7 $ 1.2 $ 0.9 $ 14.5 $ 6.0 $ 3.1 $ 3.6
Liquidations minus Net
Losses................. $ 713 $ 790 $ 833 $1,002 $1,083 $ 539 $ 591
Net Losses (recoveries)
as a Percentage of
Liquidations minus Net
Losses:
NFC................... (0.01)% 0.08% 0.04% 0.50% 0.19% 0.14% 0.22%
NITC.................. 0.67% 0.07% 0.07% 0.95% 0.36% 0.43% 0.39%
------ ------ ------ ------ ------ ------ ------
Combined.............. 0.66% 0.15% 0.11% 1.45% 0.55% 0.57% 0.61%
Net Losses (recoveries)
as a Percentage of
Average Gross
Balance(2):
NFC................... 0.00% 0.04% 0.02% 0.23% 0.09% 0.07% 0.11%
NITC.................. 0.35% 0.04% 0.03% 0.43% 0.18% 0.21% 0.20%
------ ------ ------ ------ ------ ------ ------
Combined.............. 0.35% 0.08% 0.05% 0.66% 0.27% 0.28% 0.31%
Repossessions as a
Percentage of Average
Gross Balance(2)....... 1.95% 0.97% 0.92% 3.15% 2.01% 2.01% 2.19%
</TABLE>
- - --------
(1) The information presented herein for the year ended October 31, 1996
includes the effect of the bankruptcy of one of NFC's largest obligors,
with obligations under Retail Notes covering approximately 720 vehicles.
As adjusted to eliminate the impact of that obligor's bankruptcy, the
Combined Net Losses, Combined Net Losses as a Percentage of Liquidations
minus Net Losses, Combined Net Losses as a Percentage of Average Gross
Balance and Repossessions as a Percentage of Average Gross Balance for the
year ended October 31, 1996 would have been $4.0 million, 0.39%, 0.18% and
1.64%, respectively.
(2) April 30 figures have been annualized.
S-10
<PAGE>
THE NOTES
GENERAL
The Notes will be issued pursuant to the terms of an Indenture to be dated
as of the Closing Date between the Trust and the Indenture Trustee (as amended
and supplemented from time to time, the "INDENTURE"), a form of which has been
filed as an exhibit to the Registration Statement of which this Prospectus
Supplement and the Prospectus form a part. A copy of the Indenture will be
available from the Seller upon request to holders of Notes and will be filed
with the Commission following the issuance of the Notes. The following summary
describes certain terms of the Notes and the Indenture. The summary does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all of the provisions of the Notes, the Indenture and the
Prospectus. Where particular provisions or terms used in the Indenture are
referred to, the actual provisions (including definitions of terms) are
incorporated by reference as part of such summary. The Bank of New York, a New
York banking association, will be the Indenture Trustee.
For each class of Notes, the "INTEREST RATE" and the "FINAL SCHEDULED
DISTRIBUTION DATE" will be as set forth below.
<TABLE>
<CAPTION>
INTEREST RATE FINAL SCHEDULED
(PER ANNUM) DISTRIBUTION DATE
------------- -----------------
<S> <C> <C>
Class A Notes........................... 5.94% November 15, 2004
Class B Notes........................... 6.10% November 15, 2004
</TABLE>
PAYMENTS OF INTEREST
Interest on the unpaid principal balance of each class of Notes will accrue
at the applicable Interest Rate and will be payable monthly on each
Distribution Date commencing June 15, 1998; provided, however, that interest
on the Class B Notes will not be paid on any Distribution Date until all
accrued interest due and payable on the Class A Notes on such Distribution
Date has been paid in full. After an Event of Default resulting from the
failure to make a payment on the Notes or the insolvency of the Issuer and
acceleration of the Notes, no interest will be payable on the Class B Notes
until all principal of and interest on the Class A Notes has been paid in
full. Interest on the Notes will be calculated on the basis of a 360-day year
consisting of twelve 30-day months. All references in the Prospectus to
"Payment Date" or "Payment Dates" shall be deemed references to "Distribution
Date" or "Distribution Dates," as applicable, for purposes of this Prospectus
Supplement.
PAYMENTS OF PRINCIPAL
Subject to the subordination provisions described in the following two
paragraphs, principal of the Class A Notes and the Class B Notes will be
payable on each Distribution Date in an amount equal to 96.5% and 3.5%,
respectively, of the Principal Payment Amount for such Distribution Date. The
"PRINCIPAL PAYMENT AMOUNT" for each Distribution Date will equal the lesser of
(x) the Noteholders' Principal Distributable Amount for such Distribution Date
and (y) the excess, if any, of the Total Available Amount for such
Distribution Date over the sum of the Total Servicing Fee, the Aggregate Class
A Noteholders' Interest Distributable Amount and the Class B Noteholders'
Interest Distributable Amount for each Distribution Date.
If the amount on deposit in the Reserve Account on any Distribution Date
would be, after giving effect to the distribution of the Principal Payment
Amount, less than 1.0% of the Initial Aggregate Receivables Balance, then the
principal of the Class A Notes will be payable in an amount equal to 100% of
the Principal Payment Amount and no principal of the Class B Notes will be
paid on any Distribution Date thereafter until either the Class A Notes are
paid in full or the amount on deposit in the Reserve Account equals or exceeds
the Specified Reserve Account Balance.
S-11
<PAGE>
Also, if an Event of Default occurs and the Notes are declared immediately
due and payable, the principal of the Class A Notes will be payable in an
amount equal to 100% of the Principal Payment Amount and no principal of the
Class B Notes will be paid on any Distribution Date thereafter until the Class
A Notes are paid in full. Thereafter, the principal of the Class B Notes will
be payable in an amount equal to 100% of the Principal Payment Amount on each
Distribution Date until the Class B Notes are paid in full.
REDEMPTION
If the Servicer exercises its option to purchase the Receivables on any
Distribution Date on or after the date on which the Aggregate Receivables
Balance declines to 10% or less of the sum of the Initial Aggregate
Receivables Balance, the Notes will be redeemed in whole, but not in part, at
a redemption price equal to the unpaid principal amount of the Notes, plus
accrued and unpaid interest thereon.
PARITY AND PRIORITY OF NOTES
Distribution of principal and interest payments on the Notes will be made in
accordance with the priorities described in "--Payments of Interest" and
"Payments of Principal" above.
VOTING RIGHTS
To the extent the Prospectus specifies certain circumstances under which the
consent, approval, direction, or request of a specified percentage in
principal amount of the outstanding Notes must be obtained, given or made, or
under which such a specified percentage are permitted to take an action or
give a notice, then such consent, approval, direction, request, action or
notice shall be valid only if the holders of such specified percentage in
principal amount of (a) all the outstanding Class A Notes and Class B Notes
voting together as a single class and (b) the outstanding Class A Notes voting
as a single class have voted to give such consent, approval, direction,
request or notice, or take such action.
THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of the Transfer and Servicing
Agreements. Forms of the Transfer and Servicing Agreements have been filed as
exhibits to the Registration Statement of which this Prospectus Supplement and
the Prospectus form a part. A copy of the Transfer and Servicing Agreements
will be available from the Seller upon request to Noteholders. The summary
does not purport to be complete and is subject to, and qualified in its
entirety by reference to, all of the provisions of the Transfer and Servicing
Agreements and the Prospectus. Where particular provisions or terms used in
the Transfer and Servicing Agreements are referred to, the actual provisions
(including definitions of terms) are incorporated by reference as part of such
summary.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
On each Distribution Date, the Servicer will be entitled to receive the
Total Servicing Fee, which consists of the Basic Servicing Fee for the related
Monthly Period and any unpaid Basic Servicing Fees from prior Distribution
Dates. In addition, the Servicer will receive any Supplemental Servicing Fees.
The Basic Servicing Fee Rate will be 1% per annum.
DISTRIBUTIONS
Unless the Servicer satisfies the conditions for monthly remittances
described in "The Transfer and Servicing Agreements--Collections" in the
Prospectus, it will transfer all collections on the Receivables (including all
Prepayments) to the Collection Account within two Business Days of receipt
thereof. The
S-12
<PAGE>
Indenture Trustee will make distributions to the Note Distribution Account out
of the amounts on deposit in the Collection Account. The amount to be
distributed to the Note Distribution Account will be determined in the manner
described below.
Determination of Available Amounts. The "TOTAL AVAILABLE AMOUNT" for a
Distribution Date will be the sum of the Available Amount and all cash or
other immediately available funds on deposit in the Reserve Account
immediately prior to such Distribution Date. See "The Transfer and Servicing
Agreements--Distributions; Determination of Available Amount" in the
Prospectus.
Monthly Withdrawals and Deposits. On or before the day that is two Business
Days prior to each Distribution Date, the Servicer will calculate, with
respect to the preceding Monthly Period and the related Distribution Date, the
Total Available Amount, Collected Interest, Collected Principal, the Total
Servicing Fee, the Aggregate Class A Noteholders' Interest Distributable
Amount, the Class B Noteholders' Interest Distributable Amount, the
Noteholders' Principal Distributable Amount and certain other items. Based on
such calculations, the Servicer will deliver to the Indenture Trustee a
certificate specifying such amounts and instructing the Indenture Trustee to
make withdrawals, deposits and payments of the following amounts on the day
preceding such Distribution Date:
(i) the amount, if any, to be withdrawn from the Reserve Account and
deposited in the Collection Account;
(ii) the amounts to be withdrawn from the Collection Account and paid to
the Servicer in respect of reimbursement of Outstanding Monthly Advances
and payments in respect of Liquidation Expenses with respect to Receivables
which became Liquidating Receivables during the related Monthly Period (and
any unpaid Liquidation Expenses from prior periods);
(iii) the amount to be withdrawn from the Collection Account and paid to
the Servicer in respect of the Total Servicing Fee for such Distribution
Date;
(iv) the amounts to be withdrawn from the Collection Account in respect
of the Aggregate Class A Noteholders' Interest Distributable Amount, the
Class B Noteholders' Interest Distributable Amount and the Noteholders'
Principal Distributable Amount and deposited in the Note Distribution
Account for payment to Noteholders on such Distribution Date;
(v) the amount, if any, to be withdrawn from the Collection Account and
deposited in the Reserve Account; and
(vi) the amount, if any, to be withdrawn from the Reserve Account and
paid to the Certificateholders.
The amount, if any, to be withdrawn from the Reserve Account and deposited
to the Collection Account on the day preceding any Distribution Date as
specified in clause (i) above will be the lesser of (i) the amount of cash or
other immediately available funds therein on the day preceding such
Distribution Date and (ii) the amount, if any, by which (a) the sum of the
Total Servicing Fee, the Aggregate Class A Noteholders' Interest Distributable
Amount, the Class B Noteholders' Interest Distributable Amount and the
Noteholders' Principal Distributable Amount exceeds (b) the Available Amount
for such Distribution Date. The amount, if any, to be withdrawn from the
Reserve Account and paid to the Certificateholders as specified in clause (vi)
above will equal the amount, if any, by which the amount on deposit in the
Reserve Account after all other deposits and withdrawals on the day preceding
such Distribution Date exceeds the Specified Reserve Account Balance for such
Distribution Date.
Priorities for Withdrawals from Collection Account. Withdrawals of funds
from the Collection Account on the day preceding a Distribution Date will be
made first for reimbursements of Outstanding Monthly Advances and payments in
respect of Liquidation Expenses. Thereafter, withdrawals of funds from the
Collection Account will be made for application as described in clauses (iii)
and (iv) under "Distributions--Monthly Withdrawals and Deposits" above, but
only to the extent of the Total Available Amount allocated to such application
for such Distribution Date. In calculating the amounts which can be withdrawn
from the Collection Account and
S-13
<PAGE>
applied as specified in such clauses (iii) and (iv), the Indenture Trustee, at
the direction of the Servicer, will allocate the Total Available Amount in the
following order of priority:
(i) the Total Servicing Fee;
(ii) the Aggregate Class A Noteholders' Interest Distributable Amount;
(iii) the Class B Noteholders' Interest Distributable Amount; and
(iv) the Noteholders' Principal Distributable Amount.
Notwithstanding the foregoing, at any time that the Class A Notes have not
been paid in full and the principal balance of the Notes has been declared due
and payable following the occurrence of an Event of Default resulting from the
failure to make a payment on the Notes or the insolvency of the Issuer, until
such time as the Class A Notes have been paid in full, no payments will be
made on the Class B Notes. Any such amounts otherwise payable on the Class B
Notes will be distributed instead as payments of principal on the Class A
Notes.
"AGGREGATE CLASS A NOTEHOLDERS' INTEREST DISTRIBUTABLE AMOUNT" means, with
respect to any Distribution Date, the sum of the Class A Noteholders' Interest
Distributable Amount and the Class A Noteholders' Interest Carryover Shortfall
as of the preceding Distribution Date.
"CLASS A NOTEHOLDERS' INTEREST CARRYOVER SHORTFALL" means, as of the close
of any Distribution Date, the excess of the Aggregate Class A Noteholders'
Interest Distributable Amount for such Distribution Date over the amount that
was actually deposited in the Note Distribution Account on the day preceding
such current Distribution Date in respect of interest on the Class A Notes.
"CLASS A NOTEHOLDERS' INTEREST DISTRIBUTABLE AMOUNT" means, with respect to
any Distribution Date, the product of (i) the outstanding principal balance of
the Class A Notes on the preceding Distribution Date after giving effect to
all payments of principal in respect of the Class A Notes on such preceding
Distribution Date (or, in the case of the first Distribution Date, the
outstanding principal balance on the Closing Date) and (ii) the product of the
Interest Rate for the Class A Notes and a fraction, the numerator of which is
30, and the denominator of which is 360 (but, in the case of the first
Distribution Date, pro-rated for the number of days from the Closing Date to
but excluding such Distribution Date).
"CLASS B NOTEHOLDERS' INTEREST CARRYOVER SHORTFALL" means, as of the close
of any Distribution Date, the excess of the Class B Noteholders' Interest
Distributable Amount for such Distribution Date over the amount that was
actually deposited in the Note Distribution Account on the day preceding such
current Distribution Date in respect of interest on the Class B Notes.
"CLASS B NOTEHOLDERS' INTEREST DISTRIBUTABLE AMOUNT" means, with respect to
any Distribution Date, the sum of (i) the Class B Noteholders' Monthly
Interest Distributable Amount for such Distribution Date and (ii) the Class B
Noteholders' Interest Carryover Shortfall as of the preceding Distribution
Date.
"CLASS B NOTEHOLDERS' MONTHLY INTEREST DISTRIBUTABLE AMOUNT" means, with
respect to any Distribution Date, the product of (i) the outstanding principal
balance of the Class B Notes on the preceding Distribution Date after giving
effect to all payments of principal in respect of the Class B Notes on such
preceding Distribution Date (or, in the case of the first Distribution Date,
the outstanding principal balance on the Closing Date) and (ii) the product of
the Interest Rate for the Class B Notes and a fraction, the numerator of which
is 30, and the denominator of which is 360 (but, in the case of the first
Distribution Date, pro-rated for the number of days from the Closing Date to
but excluding such Distribution Date).
"NOTEHOLDERS' PRINCIPAL CARRYOVER SHORTFALL" means, for any Distribution
Date, the excess, if any, of the Noteholders' Principal Distributable Amount
for such Distribution Date over the amount actually deposited in the Note
Distribution Account for such Distribution Date in respect of principal.
S-14
<PAGE>
"NOTEHOLDERS' PRINCIPAL DISTRIBUTABLE AMOUNT" means, for any Distribution
Date, the sum of (i) the Principal Distributable Amount for such Distribution
Date, (ii) the Noteholders' Principal Carryover Shortfall for the immediately
preceding Distribution Date and (iii) on the Final Scheduled Distribution
Date, the amount necessary to reduce the outstanding principal balance of the
Notes to zero.
"PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect to any Distribution
Date, the sum of the following items: (a) the principal portion of all
Scheduled Payments due with respect to the related Monthly Period on
Receivables held by the Trust (other than Liquidating Receivables), (b) the
principal portion of all Prepayments received during the related Monthly
Period (except to the extent included in (a) above) and (c) the Receivable
Balance of each Receivable that the Servicer purchased, the Seller repurchased
or that became a Liquidating Receivable during the related Monthly Period
(except to the extent included in (a) or (b) above).
On each Distribution Date, all amounts on deposit in the Note Distribution
Account will be distributed to the Noteholders.
RESERVE ACCOUNT
Pursuant to the Pooling and Servicing Agreement, the Seller will establish
the Reserve Account with the Indenture Trustee. The Reserve Account will be
funded on the Closing Date by a deposit by the Seller of $17,530,252.95 of
cash or eligible investments, which amount is equal to 3.50% of the Initial
Aggregate Receivables Balance (the "RESERVE ACCOUNT INITIAL DEPOSIT"). If on
the day preceding any Distribution Date the amount on deposit in the Reserve
Account is less than the Specified Reserve Account Balance, an amount equal to
the lesser of such insufficiency and the Available Amount remaining with
respect to such Distribution Date after the payment of the Total Servicing Fee
and the deposit of the Aggregate Class A Noteholders' Interest Distributable
Amount, the Class B Noteholders' Interest Distributable Amount and the
Noteholders' Principal Distributable Amount in the Note Distribution Account
(see "Distributions--Monthly Withdrawals and Deposits") shall be deposited in
the Reserve Account.
"SPECIFIED RESERVE ACCOUNT BALANCE" with respect to any Distribution Date
means the lesser of (i) the aggregate Note Principal Balance for all classes
of Notes as of such Distribution Date, and (ii) the greater of:
(a) 5.25% of the Aggregate Receivables Balance as of the close of
business on the last day of the related Monthly Period, except that if on
any Distribution Date (i) the product (expressed as a percentage) of (A)
twelve and (B) a fraction, the numerator of which is equal to the sum of
the Aggregate Losses plus Liquidation Proceeds for each of the Monthly
Periods which are the fifth, fourth and third Monthly Periods preceding the
Monthly Period related to such Distribution Date, minus the sum of the
Liquidation Proceeds for the Monthly Periods which are the first, second
and third Monthly Periods preceding the Monthly Period related to such
Distribution Date, and the denominator of which is the sum of the Remaining
Gross Balances of all outstanding Receivables as of the last day of each of
the sixth, fifth and fourth Monthly Periods preceding the Monthly Period
related to such Distribution Date, exceeds 1.5% or (ii) the average of the
Delinquency Percentages for the preceding three months exceeds 2.0%, then
the percentage of the Aggregate Receivables Balance referred to in this
clause (a) shall be equal to 10%; and
(b) 2.0% of the Initial Aggregate Receivables Balance.
If the amount on deposit in the Reserve Account on any Distribution Date
(after giving effect to all deposits or withdrawals therefrom on the day
preceding such Distribution Date) is greater than the Specified Reserve
Account Balance for such Distribution Date, subject to certain limitations,
the Servicer will instruct the Indenture Trustee to distribute the amount of
the excess to the Certificateholders. Upon any distribution to the
Certificateholders of amounts from the Reserve Account, the Noteholders will
not have any rights in, or claims to, such amounts. The initial
Certificateholders may at any time, without consent of the Noteholders, sell,
transfer, convey or assign in any manner its rights to and interests in
distributions from the Reserve Account, including interest earnings thereon,
provided that certain conditions are satisfied, including: (i) such action
will not result in a reduction or withdrawal of the rating of any class of the
Notes, (ii) the Certificateholders provide to the Owner Trustee and the
Indenture Trustee an opinion of independent counsel that such action will not
cause
S-15
<PAGE>
the Trust to be treated as an association (or publicly traded partnership)
taxable as a corporation for Federal income tax purposes, and (iii) such
transferee or assignee agrees to take positions for tax purposes consistent
with the tax positions agreed to be taken by the Certificateholders.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Tax Counsel, for federal income tax purposes, the Notes
will be characterized as debt. Each Noteholder, by acceptance of a Note,
agrees to treat the Notes as indebtedness.
The Trust will be a Tax Partnership. A Tax Partnership is described in the
Prospectus as a trust which issues Certificates (including Strip Certificates)
and Strip Notes, representing interests in a trust fund which the Seller, the
Servicer and the applicable holders will agree to treat as equity interests in
partnership. The term Tax Partnership is hereby modified to include a trust
which has its equity interests owned solely by the Seller and is treated as a
division or branch of the Seller for federal income tax purposes. As such a
division or branch, the Trust's assets will be part of the Seller, which is a
taxable entity. However, the Indenture Trustee, on behalf of the Noteholders,
holds a perfected, first priority security interest in the Receivables. Such
priority should protect the Noteholders against claims made against the Trust
or the Seller by taxing authorities.
Under recently issued Treasury regulations, which are effective as of
January 1, 1997, an unincorporated entity generally will be classified for
U.S. federal income tax purposes as a partnership rather than as an
association taxable as a corporation without regard to the traditional "four
factor" test previously used to distinguish partnerships and corporations
(unless such unincorporated entity elects to be classified as a corporation
for such purposes). As a result, the Transfer and Servicing Agreements and the
Indenture will not contain certain provisions described in the Prospectus that
were previously required in order for the Trust to be so classified as a
partnership. Therefore, notwithstanding anything to the contrary set forth in
the Prospectus: (i) the Receivables will not be liquidated, and the Trust will
not be terminated, upon the occurrence of an Insolvency Event with respect to
the Seller and (ii) the Seller will not agree to be liable to certain injured
parties as described in "The Transfer and Servicing Agreements--Owner Trust:
Seller Liability" in the Prospectus. For a discussion of the anticipated
material federal income tax consequences of the purchase, ownership and
disposition of the Notes, see "Certain Federal Income Tax Consequences,"
particularly the sections entitled "The Notes" and "Certain State Tax Matters"
in the Prospectus.
ERISA CONSIDERATIONS
Although there is little guidance on the subject, the Seller believes the
Notes should be treated as indebtedness without substantial equity features
for purposes of the Plan Assets Regulation. Therefore, the Notes are available
for investment by a Benefit Plan, subject to a determination by such Benefit
Plan's fiduciary that the Notes are suitable investments for such Benefit Plan
under ERISA and the Code. For additional information regarding treatment of
the Notes under ERISA, see "ERISA Considerations" in the Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Seller has agreed to sell to each of the Underwriters named below, and
each of the Underwriters has severally agreed to purchase from the Seller, the
principal amount of Notes set forth opposite its name below:
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL AMOUNT
TO BE PURCHASED
------------------------------
CLASS A NOTES CLASS B NOTES
--------------- --------------
<S> <C> <C>
Chase Securities Inc................ $120,833,500.00 $17,530,370.04
BancAmerica Robertson Stephens...... 120,833,500.00 --
First Chicago Capital Markets, Inc.. 120,833,500.00 --
NationsBanc Montgomery Securities
LLC................................ 120,833,500.00 --
--------------- --------------
Total........................... $483,334,000.00 $17,530,370.04
=============== ==============
</TABLE>
S-16
<PAGE>
The Seller has been advised by the Underwriters that they propose initially
to offer the Notes to the public at the prices set forth on the cover page
hereof, and to certain dealers at such prices less a selling concession not in
excess of the percentage set forth below for each class of Notes. The
Underwriters may allow, and such dealers may reallow to certain other dealers,
a subsequent concession not in excess of the percentage set forth below for
each class of securities. After the initial public offering, the public
offering price and such concessions may be changed.
<TABLE>
<CAPTION>
SELLING
CONCESSION REALLOWANCE
---------- -----------
<S> <C> <C>
Class A Notes...................................... .125% .075%
Class B Notes...................................... .300% .250%
</TABLE>
The Seller has agreed not to offer for sale, sell, contract to sell or
otherwise dispose of, directly or indirectly, or file a registration statement
for, or announce any offering of, any securities collateralized by, or
evidencing an ownership interest in, a pool of Retail Notes (other than the
Securities) for a period of 30 days from the date of this Prospectus
Supplement, without the prior written consent of the Underwriters.
Chase Securities Inc. ("CHASE"), on behalf of the Underwriters, may engage
in over-allotment transactions, stabilizing transactions, syndicate covering
transactions and penalty bids with respect to the Notes in accordance with
Regulation M under the Exchange Act. Over-allotment transactions involve
syndicate sales in excess of the offering size which creates a syndicate short
position. Stabilizing transactions permit bids to purchase the Notes so long
as the stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Notes in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit Chase to reclaim a selling concession from a syndicate
member when the Notes originally sold by such syndicate member are purchased
in a syndicate covering transaction. Such over-allotment transactions,
stabilizing transactions, syndicate covering transactions and penalty bids may
cause prices of the Notes to be higher than they would otherwise be in the
absence of such transactions. Neither the Trust nor any of the Underwriters
represent that Chase will engage in any such transactions nor that such
transactions, once commenced, will not be discontinued without notice.
In the ordinary course of their respective businesses, the Underwriters and
their respective affiliates have engaged and may in the future engage in
commercial banking and investment banking transactions with affiliates of the
Seller, including the Seller's parent, NFC.
As discussed under "Use of Proceeds," NFC intends to use a portion of the
proceeds of its sale of the Receivables to the Seller to repay amounts owing
to a group of lenders, including each Underwriter or an affiliate thereof,
under one or more credit agreements. Accordingly, because more than 10% of the
net offering proceeds may be paid to an affiliate of a member of the National
Association of Securities Dealers, Inc. (the "NASD") which is participating in
the distribution of the Notes, the offering of the Notes is being made
pursuant to the provisions of Article III, Section 2710(c)(8) of the Conduct
Rules of the NASD.
LEGAL OPINIONS
In addition to the legal opinions described in the Prospectus, certain legal
matters relating to the Notes will be passed upon for the Underwriters by
Simpson Thacher & Bartlett.
S-17
<PAGE>
INDEX OF TERMS
Set forth below is a list of the capitalized terms defined in this
Prospectus Supplement and the pages on which the definitions of such terms may
be found herein. Certain capitalized terms used but not otherwise defined
herein shall have the meanings assigned such terms in the Prospectus.
<TABLE>
<S> <C>
Aggregate Class A Noteholders' Interest Distributable Amount............... S-14
Certificates............................................................... S-1
Chase...................................................................... S-17
Class A Noteholders' Interest Carryover Shortfall.......................... S-14
Class A Noteholders' Interest Distributable Amount......................... S-14
Class A Notes.............................................................. S-3
Class B Noteholders' Interest Carryover Shortfall.......................... S-14
Class B Noteholders' Interest Distributable Amount......................... S-14
Class B Noteholders' Monthly Interest Distributable Amount................. S-14
Class B Notes.............................................................. S-3
Closing Date............................................................... S-1
Cutoff Date................................................................ S-3
Distribution Date.......................................................... S-2
DTC........................................................................ S-1
Final Scheduled Distribution Date.......................................... S-11
Indenture.................................................................. S-11
Interest Rate.............................................................. S-11
Issuer..................................................................... S-1
NFC........................................................................ S-7
Noteholders' Principal Carryover Shortfall................................. S-14
Noteholders' Principal Distributable Amount................................ S-15
Notes...................................................................... S-1
Owner Trust Agreement...................................................... S-7
Principal Distributable Amount............................................. S-15
Principal Payment Amount................................................... S-11
Reserve Account Initial Deposit............................................ S-15
Securities................................................................. S-1
Specified Reserve Account Balance.......................................... S-15
Total Available Amount..................................................... S-13
TRIP....................................................................... S-7
Trust...................................................................... S-1
</TABLE>
S-18
<PAGE>
PROSPECTUS
NAVISTAR FINANCIAL RETAIL RECEIVABLES ASSET TRUSTS
ASSET BACKED NOTES
ASSET BACKED CERTIFICATES
---------------
NAVISTAR FINANCIAL RETAIL RECEIVABLES CORPORATION
SELLER
---------------
NAVISTAR FINANCIAL CORPORATION
SERVICER
---------------
The Asset Backed Notes (the "NOTES") and the Asset Backed Certificates (the
"CERTIFICATES" and, collectively with the Notes, the "SECURITIES") described
herein may be sold from time to time in one or more series, in amounts, at
prices and on terms to be determined at the time of sale and to be set forth
in a supplement to this Prospectus (a "PROSPECTUS SUPPLEMENT"). The Securities
of each series will be issued by a trust formed under the Delaware business
trust law (an "OWNER TRUST" or a "TRUST") or by a common law trust (a "GRANTOR
TRUST" or a "TRUST"), as set forth in the related Prospectus Supplement. Each
series of Securities issued by an Owner Trust will include one or more classes
of Notes and one or more classes of Certificates ("OWNER CERTIFICATES" and,
collectively with the Notes, the "OWNER SECURITIES"). Each series of
Certificates issued by a Grantor Trust will consist of two classes of
Certificates, the Class A Certificates (the "CLASS A CERTIFICATES") and the
Class B Certificates (the "CLASS B CERTIFICATES" and, collectively with the
Class A Certificates, the "GRANTOR CERTIFICATES"). With respect to any Grantor
Trust, only the Class A Certificates will be offered hereby and by the related
Prospectus Supplements.
The property of each Trust will include a pool of retail instalment sale
contracts for, and retail loans evidenced by notes secured by, medium and
heavy duty trucks, buses and trailers (the "RECEIVABLES"), certain monies due
or received thereunder on and after the Cutoff Date set forth in the related
Prospectus Supplement, security interests in the vehicles financed thereby and
certain other property. In addition, if so specified in the related Prospectus
Supplement, the property of the Owner Trust will include monies on deposit in
a trust account (the "PRE-FUNDING ACCOUNT") to be established with the
Indenture Trustee, which will be used to purchase additional retail
installment sale contracts for, and retail loans evidenced by notes, secured
by, medium and heavy duty trucks, buses and trailers
(continued on next page)
---------------
EXCEPT AS OTHERWISE PROVIDED IN THE RELATED PROSPECTUS SUPPLEMENT, PROCEEDS
OF THE ASSETS OF THE TRUST FOR ANY SERIES AND AMOUNTS ON DEPOSIT IN THE
RESERVE ACCOUNT OR THE SUBORDINATION SPREAD ACCOUNT, AS APPLICABLE, ARE
THE ONLY SOURCES OF PAYMENTS ON SECURITIES FOR SUCH SERIES. THE
SECURITIES WILL NOT REPRESENT AN INTEREST IN OR OBLIGATION OF, AND ARE
NOT INSURED OR GUARANTEED BY, NAVISTAR FINANCIAL CORPORATION,
NAVISTAR FINANCIAL RETAIL RECEIVABLES CORPORATION, ANY OTHER TRUST
OR ANY OF THEIR RESPECTIVE AFFILIATES, EXCEPT AS SET FORTH IN
THE RELATED PROSPECTUS SUPPLEMENT.
---------------
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.
Retain this Prospectus for future reference. This Prospectus may not be used
to consummate sales of securities offered hereby unless accompanied by a
Prospectus Supplement.
The date of this Prospectus is October 21, 1996.
<PAGE>
(continued from previous page)
(the "SUBSEQUENT RECEIVABLES") and related property from Navistar Financial
Retail Receivables Corporation (the "SELLER") from time to time during a
period specified in the related Prospectus Supplement (the "FUNDING PERIOD").
References herein to Receivables in respect of any Owner Trust, the property
of which will include a Pre-Funding Account, shall include the Subsequent
Receivables acquired with funds on deposit therein. Each Owner Trust will be
formed pursuant to a Trust Agreement (an "OWNER TRUST AGREEMENT") to be
entered into between Navistar Financial Retail Receivables Corporation, as
Seller (the "SELLER"), and the Owner Trustee specified in the related
Prospectus Supplement (the "OWNER TRUSTEE"). Each Grantor Trust will be formed
pursuant to a Pooling and Servicing Agreement which incorporates the Navistar
Financial Grantor Trust Standard Terms and Conditions of Agreement (together,
a "GRANTOR TRUST POOLING AND SERVICING AGREEMENT" or a "POOLING AND SERVICING
AGREEMENT") to be entered into among the Seller, Navistar Financial
Corporation, as Servicer (the "SERVICER"), and the Grantor Trustee specified
in the related Prospectus Supplement (the "GRANTOR TRUSTEE"; the Owner Trustee
and the Grantor Trustee are each sometimes referred to as a "TRUSTEE"). In the
case of an Owner Trust, the Notes of each series will be issued and secured
pursuant to an Indenture (the "INDENTURE") between the Owner Trust and the
Indenture Trustee specified in the related Prospectus Supplement (the
"INDENTURE TRUSTEE").
With respect to each Owner Trust, the right of each class of Owner
Securities to receive payments may be senior or subordinate to the rights of
one or more of the other classes of such series. A series of Owner Securities
may include two or more classes of Notes or Owner Certificates which differ as
to the timing and priority of payment, interest rate or amount of
distributions in respect of principal or Certificate Balance, as applicable,
or interest or both. A series of Owner Securities may include one or more
classes of Notes or Owner Certificates entitled to (i) principal payments or
distributions in respect of Certificate Balance, with disproportionate,
nominal or no interest distributions, or (ii) interest distributions, with
disproportionate, nominal or no principal payments or distributions in respect
of Certificate Balance. Distributions on Owner Certificates of a series will
be subordinated in priority to payments due on the related Notes to the extent
described herein and in the related Prospectus Supplement. The Owner
Certificates of any series will represent fractional undivided ownership
interests in the related Owner Trust.
With respect to each Grantor Trust, the rights of Class B Certificateholders
to receive distributions will be subordinated to the rights of the related
Class A Certificateholders to the extent described herein and in the related
Prospectus Supplement. The Class A Certificates of any series will represent
fractional undivided ownership interests equal in the aggregate to the Class A
Percentage (as defined in the related Prospectus Supplement) of the related
Grantor Trust.
EXCEPT AS OTHERWISE PROVIDED IN THE RELATED PROSPECTUS SUPPLEMENT, THE ONLY
OBLIGATIONS OF THE SELLER OR OF NAVISTAR FINANCIAL CORPORATION AS ORIGINATOR
OF RECEIVABLES WITH RESPECT TO A SERIES OF SECURITIES WILL BE PURSUANT TO
CERTAIN REPRESENTATIONS AND WARRANTIES MADE BY SUCH PARTY. NAVISTAR FINANCIAL
CORPORATION WILL BE THE SERVICER FOR EACH SERIES. THE OBLIGATIONS OF THE
SERVICER WILL BE LIMITED TO ITS CONTRACTUAL SERVICING OBLIGATIONS (WHICH
INCLUDE ITS LIMITED OBLIGATION TO MAKE ADVANCES IN THE EVENT OF CERTAIN
DELINQUENCIES AND EXTENSIONS IN PAYMENTS ON RECEIVABLES).
Except as otherwise provided in the related Prospectus Supplement, each
class of Securities of any series will represent the right to receive a
specified amount of payments of principal and interest on the related
Receivables at the rates, on the dates and in the manner described herein and
in the related Prospectus Supplement. The rate of payment in respect of
principal on Notes and distributions in respect of Certificate Balance on
Certificates of any class will depend on the priority of payment of such class
and the rate and timing of payments (including prepayments, defaults,
liquidations and repurchases of Receivables) on the related Receivables. A
rate of payment lower or higher than that anticipated may affect the weighted
average life of each class of Securities in the manner described herein and in
the related Prospectus Supplement.
There will be no secondary market for any class of Securities prior to the
offering thereof. There can be no assurance that a secondary market for any
class of Securities will develop or, if it does develop, that it will
continue. No class of Securities will be listed on any securities exchange.
Unless otherwise provided in the related Prospectus Supplement, each class
of Securities initially will be represented by Securities registered in the
name of Cede & Co. ("CEDE"), the nominee of The Depository
2
<PAGE>
Trust Company ("DTC"). The interests of beneficial owners of each class of
Securities will be represented by book entries on the records of DTC and
participating members thereof. Definitive Securities will be available only
under limited circumstances.
AVAILABLE INFORMATION
Navistar Financial Retail Receivables Corporation, as originator of each
Trust, has filed with the Securities and Exchange Commission (the
"COMMISSION") a Registration Statement (together with all amendments and
exhibits thereto, referred to herein as the "REGISTRATION STATEMENT") under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), with respect to
the Securities offered pursuant to this Prospectus. For further information,
reference is made to the Registration Statement which may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549; and at the Commission's regional
offices at 500 West Madison Street, 14th Floor, Chicago, Illinois 60661 and
Seven World Trade Center, New York, New York 10048. Copies of the Registration
Statement may be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission also maintains a World Wide Web site which provides on-line access
to reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission at the address
"http://www.sec.gov".
REPORTS TO SECURITYHOLDERS
Unless otherwise provided in the related Prospectus Supplement, unless and
until Definitive Securities are issued, monthly, quarterly and annual
unaudited reports containing information concerning the Receivables will be
prepared by the Servicer and sent on behalf of each Trust only to Cede, as
nominee of DTC and registered holder of the Securities. See "Certain
Information Regarding The Securities--Book-Entry Registration", "Definitive
Securities" and "--Reports to Securityholders". Such reports will not
constitute financial statements prepared in accordance with generally accepted
accounting principles. Each Trust will file with the Commission such periodic
reports as are required under the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), and the rules and regulations of the Commission
thereunder.
OWNER TRUSTS/GRANTOR TRUSTS
This Prospectus provides for the issuance and sale of Securities by both
Owner Trusts and Grantor Trusts pursuant to various Prospectus Supplements.
Each Prospectus Supplement will provide for the issuance and sale of either
(i) Owner Securities issued pursuant to an Owner Trust or (ii) Class A
Certificates issued pursuant to a Grantor Trust. Where appropriate, this
Prospectus distinguishes the terms, conditions and other information which
would be applicable to Owner Securities and Owner Trusts only or to Class A
Certificates and Grantor Trusts only. No Prospectus Supplement will contain
information which represents a fundamental change from the information
contained in this Prospectus.
3
<PAGE>
PROSPECTUS SUMMARY
This Prospectus Summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to the Securities contained in the related
Prospectus Supplement to be prepared and delivered in connection with the
offering of such Securities. Certain capitalized terms used in this Prospectus
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."
GENERALLY APPLICABLE TERMS
Seller.................... Navistar Financial Retail Receivables Corporation
("NFRRC"), a wholly-owned subsidiary of Navistar
Financial Corporation.
Servicer.................. Navistar Financial Corporation ("NFC"), a wholly-
owned subsidiary of Navistar International Trans-
portation Corp. ("NITC").
The Trust Property........ The property of each Trust will include a pool of
retail instalment sale contracts for, and retail
loans evidenced by notes and secured by, new and
used medium and heavy duty trucks, buses and trail-
ers, certain monies due or received thereunder on
and after the Cutoff Date specified in the related
Prospectus Supplement (a "CUTOFF DATE"), security
interests in the vehicles financed thereby, the
proceeds, if any, of Dealer Liability, NITC Pur-
chase Obligations and any Guaranties, the proceeds
from claims on certain insurance policies, the ben-
efit of any lease assignments and certain rights of
the Seller under the related Purchase Agreement and
the related Custodian Agreement (such monies and
other assets, the "RELATED PROPERTY"). For each
Trust, the Aggregate Receivables Balance as of the
related Cutoff Date (the "INITIAL AGGREGATE RECEIV-
ABLES BALANCE") will be specified in the related
Prospectus Supplement. To the extent provided in
the related Prospectus Supplement, the Seller will
be obligated (subject only to the availability
thereof) to sell, and the related Owner Trust will
be obligated to purchase (subject to the satisfac-
tion of certain conditions described in the appli-
cable Transfer and Servicing Agreement), Subsequent
Receivables and the Related Property. During the
Funding Period, Subsequent Receivables having an
aggregate principal balance approximately equal to
the amount on deposit in the Pre-Funding Account
(the "PRE-FUNDED AMOUNT") will be sold and pur-
chased from time to time (as frequently as daily).
All of the Receivables will be prepayable at any
time without penalty to the Obligor. See "The Re-
ceivables Pools." Information with respect to each
Receivables Pool (excluding any Subsequent Receiv-
ables), including the weighted average APR of the
Receivables and the weighted average remaining ma-
turity of the Receivables, will be set forth in the
related Prospectus Supplement.
TERMS APPLICABLE TO EACH OWNER TRUST
Issuer.................... With respect to each series of Owner Securities, an
Owner Trust to be formed by the Seller and the
Owner Trustee pursuant to the Owner Trust Agreement
to be dated the Closing Date (as defined in the re-
lated Prospectus Supplement).
4
<PAGE>
Indenture Trustee......... The Indenture Trustee specified in the related Pro-
spectus Supplement.
Owner Trustee............. The Owner Trustee specified in the related Prospec-
tus Supplement.
The Notes................. Each series of Owner Securities will include one or
more classes of Notes to be issued pursuant to an
Indenture between the Owner Trust and the Indenture
Trustee.
Unless otherwise specified in the related Prospec-
tus Supplement, Notes will be available for pur-
chase in denominations of $1,000 and integral mul-
tiples thereof, and will be available in book-entry
form only. Unless otherwise specified in the re-
lated Prospectus Supplement, Noteholders will be
able to receive Definitive Notes only in the lim-
ited circumstances described herein or in the re-
lated Prospectus Supplement. See "Certain Informa-
tion Regarding the Securities--Definitive Securi-
ties."
Unless otherwise specified in the related Prospec-
tus Supplement, each class of Notes will have a
stated principal amount and will bear interest at a
specified rate or rates (with respect to each class
of Notes, the "INTEREST RATE"). Each class of Notes
may have a different Interest Rate, which may be a
fixed, variable or adjustable Interest Rate, or any
combination of the foregoing. The related Prospec-
tus Supplement will specify the Interest Rate for
each class of Notes, or the initial Interest Rate
and the method for determining subsequent changes
to the Interest Rate.
A series of Owner Securities may include two or
more classes of Notes which differ as to the timing
and priority of payment, seniority, allocations of
loss, Interest Rate or amount of payments of prin-
cipal or interest, or as to which payments of prin-
cipal or interest may or may not be made upon the
occurrence of specified events or on the basis of
collections from designated portions of the Receiv-
ables Pool. In addition, a series may include one
or more classes of Notes ("STRIP NOTES") entitled
to (i) principal payments with disproportionate,
nominal or no interest payments, or (ii) interest
payments with disproportionate, nominal or no prin-
cipal payments.
If the Servicer exercises its option to purchase
the Receivables of an Owner Trust on the terms and
conditions described below under "The Transfer and
Servicing Agreements--Termination," the outstanding
Notes will be redeemed as set forth in the related
Prospectus Supplement. In addition, if the related
Prospectus Statement provides that the property of
an Owner Trust will include a Pre-Funding Account,
the outstanding Notes will be subject to partial
redemption on or immediately following the end of
the Funding Period in an amount and manner speci-
fied in the related Prospectus Supplement. In the
event of such partial redemption, the Noteholders
may be entitled to receive a prepayment premium
from the Owner Trust, in the amount and to the ex-
tent provided in the related Prospectus Supplement.
5
<PAGE>
The Owner Certificates.... Each series of Owner Securities will include one or
more classes of Owner Certificates to be issued
pursuant to an Owner Trust Agreement between the
Seller and the Owner Trustee.
Unless otherwise specified in the related Prospec-
tus Supplement, Owner Certificates will be avail-
able for purchase in minimum denominations of
$20,000 and in integral multiples of $1,000 in ex-
cess thereof and will be available in book-entry
form only. Unless otherwise specified in the re-
lated Prospectus Supplement, holders of Owner Cer-
tificates (the "OWNER CERTIFICATEHOLDERS") will be
able to receive Definitive Certificates only in the
limited circumstances described herein or in the
related Prospectus Supplement. See "Certain Infor-
mation Regarding the Securities--Definitive Securi-
ties."
Unless otherwise specified in the related Prospec-
tus Supplement, each class of Owner Certificates
will have a stated Certificate Balance (as defined
in the related Prospectus Supplement) and will ac-
crue interest on such Certificate Balance at a
specified rate (with respect to each class of Owner
Certificates, the "PASS THROUGH RATE"), which may
be a fixed, variable or adjustable Pass Through
Rate. Each class of Owner Certificates may have a
different Pass Through Rate. The related Prospectus
Supplement will specify the Pass Through Rate for
each class of Owner Certificates, or the initial
Pass Through Rate and the method for determining
subsequent changes to the Pass Through Rate.
A series of Owner Certificates may include two or
more classes of Owner Certificates which differ as
to timing of distributions, sequential order, pri-
ority of payment, seniority, allocation of loss,
Pass Through Rate or amount of distributions in re-
spect of Certificate Balance or interest, or as to
which distributions in respect of Certificate Bal-
ance or interest on any class may or may not be
made upon the occurrence of specified events or on
the basis of collections from designated portions
of the Receivables Pool. In addition, a series may
include one or more classes of Owner Certificates
("STRIP CERTIFICATES") entitled to (i) distribu-
tions in respect of Certificate Balance with dis-
proportionate, nominal or no interest distribu-
tions, or (ii) interest distributions, with dispro-
portionate, nominal or no distributions in respect
of Certificate Balance.
To the extent specified in the related Prospectus
Supplement, distributions in respect of the Owner
Certificates will be subordinated in priority of
payment to payments on the Notes.
If the Servicer exercises its option to purchase
the Receivables of an Owner Trust on the terms and
conditions described below under "The Transfer and
Servicing Agreements--Termination," Owner
Certificateholders will receive an amount in re-
spect of the Owner Certificates as specified in the
related Prospectus Supplement. In addition, if the
related Prospectus Supplement provides that the
property of an Owner Trust will include a Pre-Fund-
ing Account, Certificateholders may receive a par-
tial prepayment of principal on or immediately fol-
6
<PAGE>
lowing the end of the Funding Period in an amount
and manner specified in the related Prospectus Sup-
plement. In the event of such partial prepayment,
the Certificateholders may be entitled to receive a
prepayment premium from the Owner Trust, in the
amount and to the extent provided in the related
Prospectus Supplement.
Credit Enhancement........ If and to the extent specified in the related Pro-
spectus Supplement, credit enhancement with respect
to an Owner Trust or any class of Owner Securities
may include any one or more of the following: sub-
ordination of one or more other classes of Securi-
ties, a Reserve Account, over collateralization,
letters of credit, credit or liquidity facilities,
repurchase obligations, third party payments or
other support, cash deposits or other arrangements.
Unless otherwise specified in the related Prospec-
tus Supplement, any form of credit enhancement will
have certain limitations and exclusions from cover-
age thereunder, which will be described in the re-
lated Prospectus Supplement.
Reserve Account........... Unless otherwise specified in the related Prospec-
tus Supplement, a Reserve Account will be created
for each Owner Trust with an initial deposit by the
Seller of cash or certain investments having a
value equal to the Reserve Account Initial Deposit
(as defined in the related Prospectus Supplement).
To the extent specified in the related Prospectus
Supplement, the funds in the Reserve Account will
thereafter be supplemented by the deposit of
amounts remaining after payment to the Servicer of
the Total Servicing Fee and providing for amounts
to be distributed to the Noteholders and the Owner
Certificateholders (collectively, the "OWNER
SECURITYHOLDERS") and any amounts deposited from
time to time from the Pre-Funding Account (if any)
in connection with the purchase of Subsequent Re-
ceivables. Unless otherwise provided in the related
Prospectus Supplement, amounts in the Reserve Ac-
count (after giving effect to all distributions to
be made to the Servicer and the Owner Security-
holders) in excess of the Specified Reserve Account
Balance (as defined in the related Prospectus Sup-
plement) will be paid to the Seller.
Transfer and Servicing With respect to each series of Owner Securities,
Agreements................ the Seller will purchase the Receivables from NFC
pursuant to a Purchase Agreement and the Seller
will transfer such Receivables to the related Owner
Trust pursuant to a Pooling and Servicing Agreement
to be entered into among the Seller, the Servicer
and the Owner Trust (an "OWNER TRUST POOLING AND
SERVICING AGREEMENT" or a "POOLING AND SERVICING
AGREEMENT"). With respect to each series of Notes,
the rights and benefits of the Seller under the
Purchase Agreement and of the Owner Trust under the
Pooling and Servicing Agreement will be assigned to
the Indenture Trustee as collateral for the related
Notes. With respect to each series of Owner Securi-
ties, the Servicer will agree to be responsible for
servicing, managing, maintaining custody of and
making collections on Receivables. Each Owner Trust
will be created pursuant to an Owner Trust Agree-
ment and the Servicer will undertake certain admin-
istrative duties with respect to each Owner Trust
under an Administration Agreement.
7
<PAGE>
TERMS APPLICABLE TO EACH GRANTOR TRUST
Issuer.................... With respect to each series of Grantor Certifi-
cates, a Grantor Trust to be formed by the Seller
pursuant to a Grantor Trust Pooling and Servicing
Agreement to be dated the Closing Date (as defined
in the related Prospectus Supplement).
Grantor Trustee........... The Grantor Trustee specified in the related Pro-
spectus Supplement.
The Certificates.......... Each series of Grantor Certificates will consist of
two classes, the Class A Certificates and the Class
B Certificates, in each case as designated in the
related Prospectus Supplement. Each Grantor Certif-
icate will represent an undivided ownership inter-
est in the related Grantor Trust. Only the Class A
Certificates will be offered hereby and by the re-
lated Prospectus Supplements. Unless otherwise
specified in the related Prospectus Supplement, the
Class A Certificates will be issued in minimum de-
nominations of $1,000 or integral multiples there-
of.
For any series of Grantor Certificates, the Class A
Certificates will evidence in the aggregate an un-
divided ownership interest equal to the Class A
Percentage (as defined in the related Prospectus
Supplement) of the related Grantor Trust, and the
Class B Certificates will evidence in the aggregate
an undivided ownership interest equal to the Class
B Percentage (as defined in the related Prospectus
Supplement) of the related Grantor Trust.
Unless otherwise specified in the related Prospec-
tus Supplement, Class A Certificates will be avail-
able in book-entry form only and Class A
Certificateholders will be able to receive Defini-
tive Certificates only in the limited circumstances
described herein or in the related Prospectus Sup-
plement. See "Certain Information Regarding the Se-
curities--Definitive Securities."
If the Servicer exercises its option to purchase
the Receivables of a Grantor Trust on the terms and
conditions described below under "The Transfer and
Servicing Agreements--Termination," Class A
Certificateholders will receive an amount in re-
spect of the Class A Certificates as specified in
the related Prospectus Supplement.
Interest.................. With respect to each series of Class A Certifi-
cates, on each Distribution Date, interest will be
passed through to the holders of record of Class A
Certificates (the "CLASS A CERTIFICATEHOLDERS") as
of the day immediately preceding such Distribution
Date (or, if Definitive Certificates are issued,
the last day of the preceding Monthly Period) (the
"RECORD DATE") at the Pass Through Rate (as defined
in the related Prospectus Supplement) on the Class
A Certificate Balance. Interest on the Class A Cer-
tificates will accrue from the most recent Distri-
bution Date on which interest has been paid to but
excluding the current Distribution Date, to the ex-
tent of funds available from (i) the Class A Per-
centage of the Collected Interest, (ii) the Subor-
dination Spread Account and (iii) the Class B Dis-
tributable Amount. See "Class A Certificates."
8
<PAGE>
Principal................. With respect to each series of Class A Certifi-
cates, on each Distribution Date, the Grantor
Trustee will pass through and distribute pro rata
to Class A Certificateholders as of the Record
Date, all Scheduled Payments of principal, the
principal portion of all Full Prepayments and Par-
tial Prepayments received during the related
Monthly Period in each case to the extent funds
available from (i) the Class A Percentage of the
Collected Principal, (ii) the Subordination Spread
Account and (iii) the remainder of the Available
Amount. See "Class A Certificates" and "The Receiv-
ables Pools."
Credit Enhancement........ Unless otherwise specified in the related Prospec-
tus Supplement, credit enhancements with respect to
Class A Certificates will include subordination of
the Class B Certificates and a Subordination Spread
Account. If and to the extent specified in the re-
lated Prospectus Supplement, credit enhancement
with respect to a Grantor Trust or a class of
Grantor Certificates may also include any one or
more of the following: over collateralization, let-
ters of credit, credit or liquidity facilities, re-
purchase obligations, third party payments or other
support, cash deposits or other arrangements. Un-
less otherwise specified in the related Prospectus
Supplement, any form of credit enhancement will
have certain limitations and exclusions from cover-
age thereunder, which will be described in the re-
lated Prospectus Supplement.
Subordination............. The rights of the holders of Class B Certificates
(the "CLASS B CERTIFICATEHOLDERS") to receive dis-
tributions to which they would otherwise be enti-
tled with respect to the Receivables held by the
related Grantor Trust will be subordinated to the
rights of the Class A Certificateholders (together
with the Class B Certificateholders, collectively,
the "GRANTOR CERTIFICATEHOLDERS"), as described
more fully herein.
Subordination Spread Unless otherwise specified in the related Prospec-
Account................... tus Supplement, a Subordination Spread Account will
be created for each series of Grantor Certificates
with an initial deposit by the Seller of cash or
certain investments maturing on or prior to the re-
lated initial Distribution Date and having a value
equal to the Subordination Initial Deposit (as de-
fined in the related Prospectus Supplement). The
funds in each Subordination Spread Account will
thereafter be supplemented by the deposit of
amounts otherwise distributable to the related
Class B Certificateholders until the amount of
funds in such Subordination Spread Account reaches
an amount equal to the applicable Specified Subor-
dination Spread Account Balance. Thereafter,
amounts otherwise distributable to the Class B
Certificateholders will be deposited in the Subor-
dination Spread Account to the extent necessary to
maintain the amount of funds in such Subordination
Spread Account at an amount equal to the Specified
Subordination Spread Account Balance. Amounts in
each Subordination Spread Account on any Distribu-
tion Date (after giving effect to all distributions
made on such Distribution Date) in excess of the
Specified Subordination Spread Account Balance for
such Distribution Date generally will be released
to the Class B
9
<PAGE>
Certificateholders of the related Grantor Trust.
The "SPECIFIED SUBORDINATION SPREAD ACCOUNT BAL-
ANCE" with respect to any Distribution Date will be
equal to the Minimum Subordination Spread Amount
(as defined in the related Prospectus Supplement),
subject to adjustment in the manner described more
fully herein and in the related Prospectus Supple-
ment. See "The Transfer and Servicing Agreements--
Credit Enhancement--Grantor Trust: Subordination of
the Class B Certificates; Subordination Spread Ac-
count." In no event will the Specified Subordina-
tion Spread Account Balance be more than the Maxi-
mum Subordination Spread Amount or less than the
Minimum Subordination Spread Amount (each as de-
fined in the related Prospectus Supplement). As of
any Distribution Date, the amount of funds actually
on deposit in the Subordination Spread Account may,
in certain circumstances, be less than the Speci-
fied Subordination Spread Account Balance.
Each Subordination Spread Account will be main-
tained with the Grantor Trustee as a segregated
trust account, but will not be part of the related
Grantor Trust.
Transfer and Servicing With respect to each series of Grantor Certifi-
Agreements................ cates, the Seller will purchase the Receivables
from NFC pursuant to a Purchase Agreement and the
Seller will transfer such Receivables to the re-
lated Grantor Trust pursuant to a Grantor Trust
Pooling and Servicing Agreement. With respect to
each series of Grantor Certificates, the Servicer
will agree to be responsible for servicing, manag-
ing, maintaining custody of and making collections
on the Receivables. Each Grantor Trust will be cre-
ated pursuant to a Grantor Trust Pooling and Ser-
vicing Agreement.
ADDITIONAL GENERALLY APPLICABLE TERMS
Monthly Advances.......... Unless otherwise specified in the related Prospec-
tus Supplement, the Servicer will be obligated to
make Monthly Advances to the Trust. With respect to
each Receivable, the Servicer will make a Monthly
Advance of that portion of Scheduled Payments due
on such Receivable and not received by the end of
the month in which it is due. The Servicer will be
entitled to reimbursement of all Monthly Advances
from subsequent payments and collections on or with
respect to the Receivables. The Servicer will not
be obligated to make any Monthly Advance in respect
of a Receivable to the extent that it does not ex-
pect to recover such advance from subsequent col-
lections or recoveries on such Receivable. See "The
Transfer and Servicing Agreements--Monthly Advanc-
es."
Total Servicing Fee....... Unless otherwise specified in the related Prospec-
tus Supplement, the Servicer will be entitled to
receive a monthly fee for servicing the Receivables
of each Trust equal to the product of (a) one-
twelfth of the Basic Servicing Fee Rate specified
in the related Prospectus Supplement and (b) the
Aggregate Receivables Balance of such Receivables
as of the first day of each Monthly Period. In ad-
dition, the Servicer will be entitled each month to
Supplemental Servicing Fees to the extent
10
<PAGE>
specified herein or in the related Prospectus Sup-
plement. See "The Transfer and Servicing Agree-
ments--Servicing Compensation and Payment of Ex-
penses."
Optional Purchase......... With respect to each series of Securities, the
Servicer may purchase all of the property of the
related Trust as of the last day of the related
Monthly Period on or after which the Aggregate Re-
ceivables Balance declines to or below 10% of the
Initial Aggregate Receivables Balance. In each such
case, the purchase price will be equal to the
amount specified in "The Transfer and Servicing
Agreements--Termination."
Certain Federal Income
Tax Consequences.........
Upon the issuance of each series of Securities, ex-
cept as otherwise provided in the related Prospec-
tus Supplement, Kirkland & Ellis, special tax coun-
sel to the Seller, will deliver an opinion to the
effect that, for federal income tax purposes: (i)
the Notes will constitute indebtedness; and (ii)
with respect to each series of Certificates, that
(a) such Certificates will constitute interests in
a trust fund which will not be treated as an asso-
ciation taxable as a corporation or publicly traded
partnership taxable as a corporation; (b) if iden-
tified as Partnership Certificates, such Certifi-
cates will constitute interests in a partnership;
and (c) if identified as Trust Certificates, such
Certificates should constitute interests in a
grantor trust. By acquiring a Security, a
Securityholder will be deemed to agree to the
treatment thereof for purposes of federal, state
and local income and franchise taxes. See "Certain
Federal Income Tax Consequences" and "Certain State
Tax Matters" for additional information concerning
the application of federal and state laws.
ERISA Considerations...... Subject to the considerations discussed under
"ERISA Considerations," herein and in the related
Prospectus Supplement, and unless otherwise speci-
fied in the Prospectus Supplement, the Notes and
the Class A Certificates issued by a Grantor Trust
will be eligible for purchase by Benefit Plans.
Unless otherwise specified in the related Prospec-
tus Supplement, the Owner Certificates may not be
acquired by (i) any Benefit Plan subject to ERISA,
(ii) an individual retirement account, or (iii) any
entity who is deemed to hold assets of any Benefit
Plan described in clauses (i) or (ii) above. See
"ERISA Considerations" herein and in the related
Prospectus Supplement.
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THE TRUSTS
With respect to each series of Securities, the Seller will establish a Trust
by selling and assigning the Trust Property to the Owner Trust or the Grantor
Trustee, as applicable, in exchange for the related Securities. The property
of each Trust (the "TRUST PROPERTY") will include (i) a pool (a "RECEIVABLES
POOL") of Receivables and all payments paid thereon and due thereunder on and
after the Cutoff Date, (ii) such amounts as from time to time may be held in
certain separate trust accounts established and maintained pursuant to the
related Pooling and Servicing Agreement and the proceeds of such accounts,
(iii) security interests in the vehicles financed by the Receivables and, to
the extent permitted by law, any accessions thereto which are financed by NFC
(the "FINANCED VEHICLES"), (iv) the proceeds of Dealer Liability with respect
to the Receivables, (v) the proceeds, if any, of NITC Purchase Obligations
with respect to the Receivables (subject to certain limitations set forth in
the related Transfer and Servicing Agreements), (vi) the proceeds of credit
life, credit disability, physical damage or other insurance policies covering
the Financed Vehicles, (vii) the proceeds of any personal or commercial
guaranties of an Obligor's performance with respect to the Receivables (the
"GUARANTIES"), (viii) the benefit of any lease assignments with respect to the
Financed Vehicles and (ix) certain rights of the Seller under the related
Purchase Agreement and the related Custodian Agreement between the Seller and
the Servicer (the "CUSTODIAN AGREEMENT"). To the extent so provided in the
related Prospectus Supplement, Subsequent Receivables will be conveyed to an
Owner Trust as frequently as daily during the Funding Period. Any Subsequent
Receivables so conveyed, together with the Related Property with respect to
such Subsequent Receivables, will also be assets of the applicable Owner
Trust. References herein to Receivables in respect of any Owner Trust shall
include any such Subsequent Receivables. The Reserve Account and Pre-Funding
Account (if any) for a series of Owner Securities will, unless otherwise
specified in the Prospectus Supplement, also be included in the property of
the related Owner Trust and will be a segregated trust account held by the
Indenture Trustee for the benefit of the related Owner Securityholders. The
Subordination Spread Account (if any) for a series of Grantor Certificates
issued will not be included in the property of the related Grantor Trust and
will be a segregated trust account held by the Grantor Trustee for the benefit
of the holders of the related Grantor Certificates.
The Servicer will continue to service the Receivables held by each Trust and
will receive fees for such services. See "The Transfer and Servicing
Agreements--Servicing Compensation and Payment of Expenses." To facilitate the
servicing of the Receivables, each Custodian Agreement will authorize the
Servicer to retain physical possession of the related Receivables and other
documents relating thereto as custodian. Due to the administrative burden and
expense, the certificates of title to the Financed Vehicles will not be
amended to reflect the sale and assignment of the security interest in the
Financed Vehicles to the Trust. In the absence of such an amendment, the
applicable Trust may not have a perfected security interest in the Financed
Vehicles in all states, which could impair the Trust's ability to repossess
and sell the collateral securing defaulted Receivables. The applicable Trust
will not be responsible for the legality, validity or enforceability of any
security interest in any Financed Vehicles. See "Certain Legal Aspects of the
Receivables," "The Transfer and Servicing Agreements--Sale and Assignment of
Receivables" and "--The Trustees" below.
If (a) the protection provided to Noteholders by the subordination of the
related Owner Certificates and by the related Reserve Account or other credit
enhancement for such series, (b) the protection provided to Owner
Certificateholders by such Reserve Account or other credit enhancement, or (c)
the protection provided to Class A Certificateholders by the subordination of
the related Class B Certificates and by the related Subordination Spread
Account or other credit enhancement is insufficient, such Securityholders
would have to look principally to the Obligors on the related Receivables, the
proceeds from the repossession and sale of Financed Vehicles which secure
defaulted Receivables, the proceeds of Dealer Liability with respect to such
Receivables and the proceeds, if any, of NITC Purchase Obligations with
respect to such Receivables. In such event, certain factors, such as the
unavailability of proceeds from Dealer Liability or NITC Purchase Obligations,
and the applicable Trust's not having perfected security interests in the
Financed Vehicles in all states, may affect the ability to repossess and sell
the collateral securing the Receivables, and thus may reduce the proceeds to
be distributed to the holders of the Securities. See "The Transfer and
Servicing Agreements-- Distributions" and "--Credit Enhancement" and "Certain
Legal Aspects of the Receivables."
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<PAGE>
The principal offices of each Trust will be specified in the related
Prospectus Supplement.
THE TRUSTEES
The Trustee for each Trust will be specified in the related Prospectus
Supplement. The Trustee's liability in connection with the issuance and sale
of the Securities issued pursuant to the related Trust is limited solely to
the express obligations of such Trustee set forth in the related Owner Trust
Agreement or Grantor Trust Pooling and Servicing Agreement, as applicable.
The Trustee will make no representations as to the validity or sufficiency
of any Owner Trust Agreement, Owner Trust Pooling and Servicing Agreement or
Grantor Trust Pooling and Servicing Agreement, as applicable, the Securities
or any Receivables or related documents, and will not be accountable for the
use or application by the Seller or the Servicer of any funds paid to the
Seller or the Servicer in respect of the Securities or the Receivables, or the
investment of any monies by the Servicer before such monies are deposited into
the related Certificate Distribution Account or (in the case of an Owner
Trust) the related Note Distribution Account. The Trustee will not
independently verify any Receivables. If no Servicer Default has occurred, the
Trustee will be required to perform only those duties specifically required of
it under the related Owner Trust Agreement, Owner Trust Pooling and Servicing
Agreement or Grantor Trust Pooling and Servicing Agreement, as applicable.
Generally, those duties will be limited to the receipt of the various
certificates, reports or other instruments required to be furnished to the
Trustee, in which case it will only be required to examine them to determine
whether they conform to the requirements of the related Owner Trust Agreement,
Owner Trust Pooling and Servicing Agreement or Grantor Trust or Pooling and
Servicing Agreement, as applicable.
The Trustee will be under no obligation to exercise any of the trusts or
powers vested in it by an Owner Trust Agreement and the related Owner Trust
Pooling and Servicing Agreement or a Grantor Trust Pooling and Servicing
Agreement, as applicable, 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 Noteholders
or Certificateholders (collectively, the "SECURITYHOLDERS"), unless such
Securityholders have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which may be incurred therein or
thereby. No Securityholder will have any right under the applicable Pooling
and Servicing Agreement to institute any proceeding with respect to such
Agreement, unless such holder previously has given to the Trustee written
notice of default and unless, in the case of an Owner Trust, the holders of
Notes evidencing not less than 25% of the outstanding principal amount and
Owner Certificates evidencing not less than 25% of the voting interests of
such series or, in the case of a Grantor Trust, the holders of Class A
Certificates evidencing not less than 25% of the voting interest thereof 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 60 days has neglected or refused to institute
any such proceedings.
Each Owner Trust Agreement and related Owner Trust Pooling and Servicing
Agreement and each Grantor Trust Pooling and Servicing Agreement will provide
that the Servicer will pay the Trustee's fees. Each Owner Trust Agreement and
related Owner Trust Pooling and Servicing Agreement and each Grantor Trust
Pooling and Servicing Agreement will further provide that the Trustee will be
entitled to indemnification by the Servicer for, and will be held harmless
against, any loss, liability or expense incurred by the Trustee (other than
through its own wilful misfeasance, bad faith or negligence (other than errors
in judgment) or by reason of a breach of any of its representations or
warranties set forth in such Owner Trust Agreement and related Owner Trust
Pooling and Servicing Agreement and each Grantor Trust Pooling and Servicing
Agreement, as applicable).
The Trustee and any of its affiliates may hold Securities in their own
names. In addition, for the purpose of meeting the legal requirements of
certain local jurisdictions, the Trustee, with the consent of the Servicer,
will have the power to appoint co-trustees or separate trustees of all or any
part of each Trust. In the event of such appointment, all rights, powers,
duties and obligations conferred or imposed upon the Trustee by an Owner Trust
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<PAGE>
Agreement or a Grantor Trust Pooling and Servicing Agreement, as applicable,
will be conferred or imposed upon the Trustee and such separate trustee or co-
trustee jointly, or, in any jurisdiction in which the Trustee will be
incompetent or unqualified to perform certain acts, singly upon such separate
trustee or co-trustee who will exercise and perform such rights, powers,
duties and obligations solely at the direction of the Trustee.
A Trustee may give notice of its intent to resign at any time, in which
event the Servicer, or its successor, will be obligated to appoint a successor
trustee. The Administrator (in the case of an Owner Trust) or the Servicer (in
the case of a Grantor Trust) may also remove the Trustee if the Trustee ceases
to be eligible to continue as Trustee under the related Owner Trust Agreement
or Grantor Trust Pooling and Servicing Agreement, as applicable, or if the
Trustee becomes insolvent. In such circumstances, the Administrator (in the
case of an Owner Trust) or the Servicer (in the case of a Grantor Trust) will
be obligated to appoint a successor trustee. Any resignation or removal of a
Trustee and appointment of a successor trustee will not become effective and
no such resignation shall be deemed to have occurred until acceptance of the
appointment by the successor trustee.
THE RECEIVABLES POOLS
The Receivables in each Receivables Pool have been or will be acquired by
NFC from (i) NITC dealers, (ii) other dealers, including those selling other
manufacturers' vehicles and equipment, and (iii) retail customers. NFC also
finances receivables which were originated by NITC for sales to fleet
purchasers and for sales of used vehicles, but none of such NITC-originated
receivables are or will be included in the Receivables Pool. See "The Seller"
and "The Servicer."
The Receivables have been or will be acquired by NFC in the ordinary course
of business and in accordance with NFC's underwriting standards, which
emphasize the prospective purchasers' ability to pay and creditworthiness, as
well as the asset value of the vehicle to be financed. NFC's standards also
require physical damage insurance to be maintained on each Financed Vehicle,
except in the case of certain fleet customers which are permitted to be self-
insured in accordance with NFC's customary procedures.
The Receivables to be held by each Trust will be selected from those retail
instalment sale contracts and retail loans evidenced by notes (collectively,
the "RETAIL NOTES") owned by NFC by applying several criteria, including
(except as otherwise provided in the Prospectus Supplement) that each
Receivable (i) is secured by one or more new or used medium or heavy duty
trucks, buses or trailers, (ii) was originated in the United States, (iii) is
not more than 60 days past due as of the related Cutoff Date, (iv) was
originated by a NITC dealer, a non-NITC dealer or NFC, and (v) satisfies the
other criteria set forth in the related Prospectus Supplement. The related
Prospectus Supplement will specify whether the Receivables in the Receivables
Pool will be selected from all Retail Notes satisfying the selection criteria
(i) on a random basis, (ii) in reverse order of acquisition by NFC, or (iii)
by another method. No selection criteria believed by NFC to be adverse to the
Securityholders will be utilized in selecting the Receivables.
The Receivables in each Receivables Pool will come from one or more of the
following categories, which group the Receivables according to their
provisions for the payment of principal and interest: Equal Payment Fully
Amortizing Receivables, Equal Payment Skip Receivables, Equal Payment Balloon
Receivables, Level Principal Fully Amortizing Receivables, Level Principal
Skip Receivables, Level Principal Balloon Receivables, and Other Receivables.
"EQUAL PAYMENT FULLY AMORTIZING RECEIVABLES" are Receivables that provide for
equal monthly payments that fully amortize the amount financed over its
original term to maturity. "EQUAL PAYMENT SKIP RECEIVABLES" are Receivables
that provide for equal monthly payments in eleven or fewer months of each
twelve-month period that fully amortize the amount financed over its original
term to maturity. "EQUAL PAYMENT BALLOON RECEIVABLES" are Receivables that
provide for equal monthly payments except that a larger payment becomes due on
the final maturity date for such Receivables. "LEVEL PRINCIPAL FULLY
AMORTIZING RECEIVABLES" are Receivables that provide for monthly payments
consisting of level principal amounts together with accrued and unpaid
interest on the unpaid Receivable Balances. "LEVEL
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<PAGE>
PRINCIPAL SKIP RECEIVABLES" are Receivables that provide for monthly payments
in eleven or fewer months of each twelve-month period consisting of level
principal amounts together with accrued and unpaid interest on the unpaid
Receivable Balances. "LEVEL PRINCIPAL BALLOON RECEIVABLES" are Receivables
that provide for monthly payments consisting of level principal amounts
together with accrued and unpaid interest on the unpaid Receivable Balances,
exept that a larger principal payment becomes due on the final maturity date
for such Receivables. "OTHER RECEIVABLES" are Receivables not described above,
including Receivables that provide for level monthly payments in eleven or
fewer months of each twelve-month period that amortize a portion of the amount
financed over its original term to maturity with a larger payment that becomes
due on the final maturity date for such Receivables.
"SCHEDULED PAYMENT" means a payment which (i) is the amount required under
the terms of a Receivable in effect as of the Cutoff Date, except, in the case
of any Receivable secured by more than one Financed Vehicle, including any
changes in the terms of such Receivable resulting from a Full Prepayment with
respect to fewer than all of the Financed Vehicles related thereto, (ii) is
payable by the purchaser or any co-purchaser of the Financed Vehicle or
Financed Vehicles securing such Receivable or by any other Person who owes
payments under such Receivable (all such parties with respect to a Receivable
other than a guarantor being the "OBLIGOR"), and (iii) includes finance
charges which accrue at the APR. When Scheduled Payment is used with reference
to a Distribution Date or Payment Date, it means the payment which is due in
the related Monthly Period; provided, however, that in the case of the first
Monthly Period, the Scheduled Payment shall include all such payments due from
the Obligor on or after the Cutoff Date.
"INITIAL RECEIVABLE BALANCE" means, with respect to a Receivable, the
aggregate amount advanced toward the purchase price of all Financed Vehicles
related to such Receivable, including insurance premiums, service and warranty
contracts, federal excise taxes, sales taxes and other items customarily
financed as part of Retail Notes and related costs, less payments received
from the Obligor prior to the related Cutoff Date allocable (on the basis of
the actuarial method) to principal.
"INITIAL GROSS RECEIVABLE BALANCE" means, with respect to a Receivable as of
the Cutoff Date, the Initial Receivable Balance plus, in the case of a
Receivable classified by the Servicer as a "finance charge--included
contract," the finance charges included in the Scheduled Payments due on or
after the Cutoff Date.
"RECEIVABLE BALANCE" means, as of the last day of the related Monthly
Period, with respect to any Receivable, the Initial Receivable Balance minus
the sum, in each case computed in accordance with the actuarial method, of (i)
that portion of all Scheduled Payments due on or after the Cutoff Date and on
or prior to the last day of the related Monthly Period allocated to principal,
(ii) that portion of all Warranty Payments or Administrative Purchase Payments
with respect to the Receivable allocated to principal, (iii) any Prepayments
applied by the Servicer to reduce the Receivable Balance of the Receivable and
(iv) that portion of the following received and allocated to principal by the
Servicer: benefits of any lease assignments, proceeds from any insurance
policies covering the Financed Vehicle or Financed Vehicles, Liquidation
Proceeds, proceeds from any Dealer Liability, proceeds from any NITC Purchase
Obligations and proceeds from any Guaranties. The Obligor on a Receivable
secured by multiple Financed Vehicles may prepay an amount corresponding to
the outstanding principal balance for one or more of such Financed Vehicles
and the security interests in such vehicles will generally be released.
"AGGREGATE RECEIVABLES BALANCE" means, as of any date, the sum of the
Receivable Balances of all outstanding Receivables (other than Liquidating
Receivables) held by the Trust on such date.
All of the Receivables will be prepayable at any time without penalty to the
Obligor and will contain due on sale provisions. If an Obligor elects to make
a Full Prepayment on a Receivable, the Obligor is entitled to a rebate of the
portion, if any, of the Scheduled Payments attributable to unearned finance
charges. The amount of the rebate is generally determined by one of two
methods, the actuarial method or the "Rule of 78s" method, in accordance with
applicable state law. With minor variations based on state law, the actuarial
method requires the rebate to be calculated on the basis of a constant
interest rate. Under the "Rule of 78s" method, the rebate is
15
<PAGE>
calculated on a sum-of-the-digits basis generally and is always smaller than
the corresponding rebate under the actuarial method. A portion of the
Receivables provide for "Rule of 78s" rebates. Distributions to
Securityholders will not be affected by "Rule of 78s" rebates under any of the
Receivables because such distributions are determined using the actuarial
method.
Information with respect to each Receivables Pool (excluding any Subsequent
Receivables) will be set forth in the related Prospectus Supplement,
including, to the extent appropriate, the composition, distribution by type of
payment terms, distribution by annual percentage rate ("APR"), distribution by
remaining maturity, geographic distribution and portion of such Receivables
Pool secured by new vehicles and by used vehicles.
WEIGHTED AVERAGE LIFE OF THE SECURITIES
The weighted average life of the Securities will generally be influenced by
the rate at which the principal balances of the related Receivables are paid,
which payment may be in the form of scheduled amortization or prepayments.
(For this purpose, the term "prepayments" includes, in addition to voluntary
prepayments, liquidations due to defaults and repurchases by the Seller or the
Servicer pursuant to the applicable Pooling and Servicing Agreement, as well
as receipt of proceeds from credit life, credit disability and casualty
insurance policies.) Any reinvestment risk resulting from the rate of
prepayments of the Receivables and the distribution of such prepayments to
Securityholders will be borne entirely by the Securityholders. If the related
Prospectus Supplement provides that the property of an Owner Trust will
include a Pre-Funding Account, the outstanding Owner Securities will be
subject to partial redemption on or immediately following the end of the
Funding Period in an amount and in the manner specified in the related
Prospectus Supplement. In addition, early retirement of certain classes of
Securities with respect to a Trust may be effected by the exercise by the
Servicer of its option to purchase all of the Receivables remaining in such
Trust when the Aggregate Receivables Balance is 10% or less of the Initial
Aggregate Receivables Balance for such Trust. See "The Transfer and Servicing
Agreements--Termination."
It is generally recognized by the industry that the average actual maturity
of a receivable similar to a Retail Note tends to be less than the average
stated contractual maturity. However, the rate of prepayments on the
Receivables may be influenced by a variety of economic, social and other
factors. Also, NFC maintains limited records of the historical prepayment
experience of the Retail Notes included in its portfolio and is not aware of
any publicly available statistics that set forth principal prepayment
experience for receivables similar to the Receivables over an extended period
of time. Due to the limitations of the data maintained by NFC, no meaningful
and accurate historical information regarding prepayments is available.
Therefore, no prediction can be made as to the rate of prepayments on the
Receivables. See also "The Receivables Pools" and "The Transfer and Servicing
Agreements--Collections."
POOL FACTORS AND TRADING INFORMATION
The "NOTE POOL FACTOR" for each class of Notes will be a seven-digit decimal
which the Servicer will compute prior to each distribution with respect to
such Notes indicating the remaining outstanding principal balance of such
Notes, as of the close of such date, as a fraction of the initial outstanding
principal balance of such Notes. The "OWNER TRUST CERTIFICATE POOL FACTOR" for
each class of Owner Certificates will be a seven-digit decimal which the
Servicer will compute prior to each distribution with respect to such Owner
Certificates indicating the remaining Certificate Balance as of the close of
such date, as a fraction of the initial Certificate Balance. The "CLASS A
CERTIFICATE POOL FACTOR" for each series of Class A Certificates will be a
seven-digit decimal which the Servicer will compute prior to each distribution
with respect to such Class A Certificates indicating the remaining Class A
Certificate Balance as of the close of such date, as a fraction of the initial
Class A Certificate Balance. Each Note Pool Factor, each Owner Trust
Certificate Pool Factor and each Class A
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<PAGE>
Certificate Pool Factor will initially be 1.0000000; thereafter the Note Pool
Factor, the Owner Trust Certificate Pool Factor and the Class A Certificate
Pool Factor will decline to reflect reductions in the outstanding principal
balance of the Notes, reductions of the Certificate Balance of the Owner
Certificates, or reductions of the Class A Certificate Balance, as the case
may be. A Noteholder's portion of the aggregate outstanding principal balance
of the related class of Notes is the product of (i) the original denomination
of such Noteholder's Note and (ii) the Note Pool Factor. An Owner
Certificateholder's portion of the aggregate outstanding Certificate Balance
for the related class of Owner Certificates is the product of (a) the original
denomination of the Owner Certificateholder's Owner Certificate and (b) the
Owner Trust Certificate Pool Factor. A Class A Certificateholder's portion of
the aggregate outstanding Class A Certificate Balance is the product of (a)
the original denomination of the Class A Certificateholder's Certificate and
(b) the Class A Certificate Pool Factor.
With respect to each Owner Trust, the holder or holders of record of the
Notes (the "NOTEHOLDERS") will receive reports on or about each Payment Date
concerning payments received on the Receivables, the Aggregate Receivables
Balance, each Note Pool Factor, and various other items of information. Unless
otherwise provided in the related Prospectus Supplement, with respect to each
Trust, the holder or holders of record of the Certificates (the
"CERTIFICATEHOLDERS") will receive reports on or about each Distribution Date
concerning payments received on the Receivables, the Aggregate Receivables
Balance, each Owner Trust Certificate Pool Factor or Class A Certificate Pool
Factor, as applicable, and various other items of information. Securityholders
of record during any calendar year will be furnished information for tax
reporting purposes not later than the latest date permitted by law. See
"Certain Information Regarding the Securities--Reports to Securityholders."
USE OF PROCEEDS
Unless otherwise provided in the related Prospectus Supplement, the net
proceeds to be received by the Seller from the sale of the Securities (after
any necessary deposit of funds into a Reserve Account or Subordination Spread
Account) will be applied (i) to the purchase of the Receivables from NFC and
(ii) to the extent provided in the related Prospectus Supplement, to make the
deposit of the Pre-Funded Amount into the Pre-Funding Account. The related
Prospectus Supplement will specify the purpose for which NFC will use the
proceeds of each sale of Receivables to the Seller.
THE SELLER
The Seller, a wholly-owned subsidiary of NFC, was incorporated in the State
of Delaware on November 12, 1991. The Seller is organized for the limited
purposes of purchasing receivables from NFC and transferring such receivables
to third parties, and conducting any activities incidental to and necessary or
convenient for the accomplishment of such purposes. The principal executive
offices of the Seller are located at Corporation Trust Center, 1209 Orange
Street, Wilmington, Delaware 19801, telephone (302) 658-7581.
The Seller has taken steps in structuring the transactions contemplated
hereby that are intended to make it unlikely that the voluntary or involuntary
application for relief by NFC under the United States Bankruptcy Code or
similar applicable state laws (collectively, "INSOLVENCY LAWS") will result in
consolidation of the assets and liabilities of the Seller with those of NFC.
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) and a provision that requires the Seller to have two
directors who qualify under the Seller's certificate of incorporation and
bylaws as "Independent Directors."
If, notwithstanding the foregoing measures, a court concluded that the
assets and liabilities of the Seller should be consolidated with the assets
and liabilities of NFC in the event of a bankruptcy of NFC, or a filing were
made under any Insolvency Laws by or against the Seller, or an attempt were
made to litigate the consolidation issue, then delays in distributions on
Securities (and possible reductions in the amount of such distributions) could
occur.
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It is intended by NFC and the Seller that each transfer of Receivables by
NFC to the Seller constitute a "true sale" of such Receivables to the Seller.
If such transfer constitutes a "true sale," such Receivables and the proceeds
thereof would not be part of NFC's bankruptcy estate under Section 541 of the
United States Bankruptcy Code should NFC become the subject of a bankruptcy
case subsequent to such transfer.
In a recent decision, Octagon Gas Systems, Inc., v. Rimmer, 995 F.2d 948
(10th Cir. 1993), the United States Court of Appeals for the Tenth Circuit
held that, under the Uniform Commercial Code, accounts sold by a debtor remain
property of the debtor's estate under Section 541. In the event of a
bankruptcy of NFC and a determination by a court that the sale of the
Receivables to the Seller should be recharacterized as a pledge of such
Receivables to secure a borrowing, not as a "true sale," including as a result
of the application by a court of the Octagon court's reasoning to NFC's sale
of Receivables to the Seller, delays in distributions on Securities (and
possible reductions in the amount of distributions) could occur.
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THE SERVICER
NFC, a Delaware corporation, is a wholly-owned subsidiary of NITC. NFC
provides (i) retail and lease financing for sales of new and used trucks,
buses and trailers sold by NITC dealers, non-NITC dealers and third parties,
(ii) wholesale financing for NITC dealers, (iii) retail financing for sales of
new and used trucks and buses by NITC and (iv) selected accounts receivable
financing for NITC. Harco National Insurance Company, NFC's wholly-owned
consolidated insurance subsidiary, provides commercial physical damage and
liability insurance coverage to NITC dealers and retail customers, and to the
public through the independent insurance agency system.
NFC conducts its financing operations through six district offices located
throughout the United States and through its executive and administrative
office located at 2850 West Golf Road, Rolling Meadows, Illinois 60008,
telephone (847) 734-4000.
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES
Set forth below is certain information concerning NFC's experience in the
United States pertaining to delinquencies, repossessions and net losses on its
entire portfolio of Retail Notes (including Retail Notes previously sold which
NFC continues to service). Fluctuations in retail delinquencies, repossessions
and losses generally follow cycles in the overall business environment.
Although NFC believes that retail delinquencies, repossessions and net losses
are particularly sensitive to the industrial sector, which generates a
significant portion of the freight tonnage hauled, NFC does not track such
data and is unable to ascertain the specific causes of such fluctuations.
Higher net losses for 1990 and 1991 reflect the weakness of the U.S. economy
during that time. There can be no assurance that the delinquency, repossession
and net loss experience on any Receivables Pool will be comparable to that set
forth below or to any similar information contained in the related Prospectus
Supplement.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
---------------------------------------
NFC RETAIL NOTES 1990 1991 1992 1993 1994
---------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Gross Balance Outstanding at end of
Period (in millions)................ $1,432 $1,414 $1,330 $1,437 $1,653
Gross Balance Past Due as a
Percentage of Gross Balance
Outstanding at end of Period
31-60 Days......................... 1.49% 1.25% 1.03% 0.67% 0.41%
Over 60 Days....................... 0.43 0.21 0.19 0.09 0.06
------ ------ ------ ------ ------
Average Gross Balance (in millions).. $1,439 $1,397 $1,320 $1,341 $1,515
------ ------ ------ ------ ------
Net Losses (in millions)
NFC................................ $ 1.9 $ 3.0 $ 2.3 $ (0.1) $ 0.6
NITC............................... 14.5 14.4 10.5 4.8 0.6
Combined........................... 16.4 17.4 12.8 4.7 1.2
------ ------ ------ ------ ------
Liquidations minus Net Losses (in
millions)........................... $ 724 $ 719 $ 794 $ 713 $ 790
------ ------ ------ ------ ------
Net Losses as a Percentage of
Liquidations minus Net Losses
NFC................................ 0.26% 0.40% 0.29% (0.01)% 0.08%
NITC............................... 2.00 2.01 1.32 0.67 0.07
Combined........................... 2.26 2.41 1.61 0.66 0.15
------ ------ ------ ------ ------
Net Losses as a Percentage of Average
Gross Balance
NFC................................ 0.13% 0.21% 0.18% 0.00% 0.04%
NITC............................... 1.00 1.03 0.79 0.35 0.04
Combined........................... 1.13 1.24 0.97 0.35 0.08
------ ------ ------ ------ ------
Repossessions as a Percentage of
Average Gross Balance............... 5.61% 4.54% 3.70% 1.95% 0.97%
</TABLE>
For purposes of the table set forth above and the following discussion,
"GROSS BALANCE" means, with respect to a Retail Note as of a specified date,
the sum of the unpaid principal balance as of such date and, for Retail Notes
classified by the Servicer as "finance charge-included contracts," the finance
charges included
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in the payments due on or after such date; "GROSS BALANCE PAST DUE" means the
Gross Balance for all Retail Notes that have instalments past due by the
indicated number of days; "LIQUIDATIONS" means, with respect to the related
period, the Gross Balance of Retail Notes outstanding at the beginning of the
period plus the Gross Balance of Retail Notes acquired during the period,
minus the Gross Balance of Retail Notes outstanding at the end of the period;
and "NET LOSSES" means, with respect to all Retail Notes written off during
the period, the sum of unpaid principal plus accrued and unpaid interest at
the time of repossession of the truck(s), bus(es) or trailer(s) securing all
such written-off Retail Notes, net of all recoveries with respect to such
Retail Notes.
Dealer Liability. Retail Notes financing new vehicles originated by NITC
dealers generally contain an obligation of the dealer to pay NFC an amount
equal to a percentage of the unpaid principal balance of a defaulted Retail
Note if NFC repossesses the vehicle within a specified time. The extent of a
particular dealer's obligation is adjusted based on several factors, including
the amount of Retail Notes originated by the dealer which are significantly
past due, a limitation of the dealer's liability for any single customer,
whether the Financed Vehicle was new or used, and participation by the dealer
in a limited liability program with NFC. After NFC repossesses a vehicle, the
dealer who originally sold the vehicle may elect either to repurchase the
vehicle for the unpaid principal balance of the Retail Note, or to pay the
applicable amount. For purposes hereof, all of the NITC dealers' obligations
described in this paragraph are referred to as "DEALER LIABILITY." The extent
and terms of Dealer Liability are subject to change as market conditions may
require. In the event of a dealer's bankruptcy, a bankruptcy trustee might
attempt to characterize such dealer's sales of Retail Notes to NFC subject to
the related Dealer Liability as loans to the dealer secured by the Retail
Notes. Such an attempt, if successful, could result in payment delays or
losses on the affected Receivables.
NITC Purchase Obligations. If NFC repossesses a vehicle within 180 days of
default (or longer in certain limited circumstances) an agreement between NFC
and NITC obligates NITC to purchase (i) new vehicles which were originally
sold by NITC dealers and financed by Retail Notes, (ii) certain used vehicles
sold by dealers under programs announced by NITC from time to time and
financed by Retail Notes and (iii) new and used vehicles which were originally
sold by NITC and which secure Retail Notes, in each case for the unpaid
principal balance of the related defaulted Receivable net of Dealer Liability,
if any ("NITC PURCHASE OBLIGATIONS"). NITC resells such vehicles in accordance
with its customary procedures. The foregoing NITC Purchase Obligations in any
fiscal year are limited to the extent that NITC's aggregate losses upon resale
of such repossessed Financed Vehicles in such year equal either (a) 10.0
percent of liquidations by NFC of all outstanding Retail Notes which NFC, the
Seller or certain of NFC's affiliates own or in which they have an economic
interest during such fiscal year, or (b) if the Gross Balance minus unearned
interest of Retail Notes acquired by NFC during such fiscal year is less than
$50,000,000, then 10.0 percent of the Gross Balance at the beginning of such
fiscal year of all Retail Notes which NFC, the Seller or such affiliates own
or in which they have an economic interest. See "The Transfer and Servicing
Agreements--Credit Enhancement--Owner Trust: Reserve Account" and "--Credit
Enhancement--Grantor Trust: Subordination of the Class B Certificates;
Subordination Spread Account." The agreement between NFC and NITC providing
for NITC Purchase Obligations may be amended from time to time. Such an
amendment could, among other things, (i) modify the NITC Purchase Obligations
relating to Receivables then outstanding or (ii) otherwise modify, limit or
eliminate the NITC Purchase Obligations. The rights under the agreement
providing for the NITC Purchase Obligations are personal to NFC, and only the
proceeds of such rights will be assigned to the Seller and the Trust pursuant
to the related Transfer and Servicing Agreements. The Seller and the Trust
will not be third-party beneficiaries of such rights and, accordingly, such
rights will not be exercisable by, enforceable by or for the benefit of, or
preserved for the benefit of, the Seller or the Trust.
The NFC net loss figures set forth above reflect the fact that NFC had the
benefit of Dealer Liability or NITC Purchase Obligations, or both ("LOSS
PROTECTION") on a substantial portion of its Retail Notes. NFC applies the
same underwriting standards to the acquisition of Retail Notes without regard
to whether Loss Protection is provided. Based on its experience, NFC believes
that there is no material difference between the rates of delinquency and
repossession on Retail Notes with Loss Protection as compared to Retail Notes
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<PAGE>
without Loss Protection. However, NFC's net loss experience on Retail Notes
without Loss Protection is higher than that on Retail Notes with Loss
Protection because of the payments made to NFC by the Dealers and NITC.
THE NOTES
GENERAL
With respect to each Owner Trust, one or more classes of Notes will be
issued pursuant to the terms of an Indenture, a form of which has been filed
as an exhibit to the Registration Statement of which this Prospectus forms a
part. The following summary does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, all of the provisions of the
Notes and the Indenture. Where particular provisions or terms used in the
Indenture are referred to, the actual provisions (including definitions of
terms) are incorporated by reference as part of this summary.
PRINCIPAL AND INTEREST ON THE NOTES
The timing and priority of payment, seniority, allocations of loss, Interest
Rate and amount of or method of determining payments of principal and interest
on the Notes will be described in the related Prospectus Supplement. The right
of holders of any class of Notes to receive payments of principal and interest
may be senior or subordinate to the rights of holders of any other class or
classes of Notes in the series, as described in the related Prospectus
Supplement. Unless otherwise provided in the related Prospectus Supplement,
payments of interest on the Notes will be made prior to payments of principal
thereon. A series may include one or more classes of Strip Notes entitled to
(i) principal payments with disproportionate, nominal or no interest payments,
or (ii) interest payments with disproportionate, nominal or no principal
payments. Each class of Notes may have a different Interest Rate, which may be
a fixed, variable or adjustable Interest Rate (and which may be zero for
certain classes of Strip Notes), or any combination of the foregoing. The
related Prospectus Supplement will specify the Interest Rate for each class of
Notes, or the initial Interest Rate and the method for determining the
Interest Rate. One or more classes of Notes of a series may be redeemable
under the circumstances specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, payments to
Noteholders of all classes within a series in respect of interest will have
the same priority. Under certain circumstances, the amount available for such
payments could be less than the amount of interest payable on the Notes on any
of the dates specified for payments in the related Prospectus Supplement
(each, a "PAYMENT DATE"), in which case each class of Noteholders will receive
their ratable share (based upon the aggregate amount of interest due to such
class of Noteholders) of the aggregate amount available to be distributed in
respect of interest on the Notes. See "The Transfer and Servicing Agreements--
Distributions" and "--Credit Enhancement."
In the case of a series of Notes which includes two or more classes of
Notes, the sequential order and priority of payment in respect of principal
and interest, and any schedule or formula or other provisions applicable to
the determination thereof, of each such class will be set forth in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, payments in respect of principal and interest of any class of
Notes will be made on a pro rata basis among all of the Notes of such class.
THE INDENTURE
A form of Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The Seller will provide a
copy of the applicable Indenture (without exhibits) upon request to a holder
of Notes issued thereunder.
Modification of Indenture Without Noteholder Consent. Each Owner Trust and
related Indenture Trustee (on behalf of such Owner Trust) may, without consent
of the related Noteholders, enter into one or more
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<PAGE>
supplemental indentures for any of the following purposes: (i) to correct or
amplify the description of the collateral or add additional collateral; (ii)
to provide for the assumption of the Notes and the Indenture obligations by a
permitted successor to the Owner Trust; (iii) to add additional covenants for
the benefit of the related Securityholders, or to surrender any rights or
power conferred upon the Owner Trust; (iv) to convey, transfer, assign,
mortgage or pledge any property to or with the Indenture Trustee; (v) to cure
any ambiguity or correct or supplement any provision in the Indenture or in
any supplemental indenture which may be inconsistent with any other provision
in the Indenture, any supplemental indenture or any of the Transfer and
Servicing Agreements or certain other agreements; (vi) to provide for the
acceptance of the appointment of a successor Indenture Trustee or to add to or
change any of the provisions of the Indenture as shall be necessary and
permitted to facilitate the administration by more than one trustee; (vii) to
modify, eliminate or add to the provisions of the Indenture in order to comply
with the Trust Indenture Act of 1939, as amended; and (viii) to add any
provisions to, change in any manner, or eliminate any of the provisions of,
the Indenture or modify in any manner the rights of Noteholders under such
Indenture; provided that any action specified in clause (viii) shall not, as
evidenced by an opinion of counsel, adversely affect in any material respect
the interests of any related Noteholder unless Noteholder consent is otherwise
obtained as described below.
Modification of Indenture With Noteholder Consent. With respect to each
Owner Trust, with the consent of the holders of a majority of the outstanding
related Notes, the Owner Trust and the Indenture Trustee may execute a
supplemental indenture to add provisions to, change in any manner or eliminate
any provisions of, the related Indenture, or modify in any manner the rights
of the related Noteholders.
Without the consent of the holder of each outstanding related Note affected
thereby, however, no supplemental indenture will: (i) change the due date of
any instalment of principal of or interest on any Note or reduce the principal
amount thereof, the interest rate specified thereon or the redemption price
with respect thereto or change any place of payment where or the coin or
currency in which any Note or any interest thereon is payable; (ii) impair the
right to institute suit for the enforcement of certain provisions of the
Indenture regarding payment; (iii) reduce the percentage of the aggregate
amount of the outstanding Notes the consent of the holders of which is
required for (a) any such supplemental indenture, (b) any waiver of compliance
with certain provisions of the Indenture or of certain defaults thereunder and
their consequences as provided for in the Indenture or (c) certain other
actions described in the Indenture; (iv) modify any of the provisions of the
Indenture in such manner as to affect the calculation of the amount of any
payment of interest or principal due on any Note on any Payment Date
(including the calculation of any of the individual components of such
calculation); (v) modify or alter the provisions of the Indenture regarding
the voting of Notes held by the related Owner Trust, any other obligor on the
Notes, the Seller or an affiliate of any of them; (vi) modify or alter in
certain aspects the definition of the term "Outstanding" as defined in the
related Transfer and Servicing Agreements or reduce the percentage of the
aggregate outstanding amount of the Notes the consent of the holders of which
is required to direct the Indenture Trustee to sell or liquidate the
Receivables if the proceeds of such sale would be insufficient to pay the
principal amount and accrued but unpaid interest on the outstanding Notes; or
(vii) permit the creation of any lien ranking prior to or on a parity with the
lien of the Indenture with respect to any of the collateral for the Notes or,
except as otherwise permitted or contemplated in the Indenture, terminate the
lien of the Indenture on any such collateral or deprive the holder of any Note
of the security afforded by the lien of the Indenture.
Events of Default; Rights Upon Event of Default. With respect to each Owner
Trust, unless otherwise specified in the related Prospectus Supplement,
"EVENTS OF DEFAULT" under the Indenture will consist of: (i) any failure to
pay interest on the related Notes as and when the same becomes due and
payable, which failure continues unremedied for five days; (ii) any failure
(a) to make any required payment of principal on the Notes or (b) to observe
or perform in any material respect any other covenants or agreements in the
Indenture, which failure in the case of a default under clause (ii)(b)
materially and adversely affects the rights of related Noteholders, and which
failure in either case continues for 30 days after the giving of written
notice of such failure to the Owner Trust and Seller or the Servicer, as
applicable, by the Indenture Trustee or to the Seller or the Servicer, as
applicable, and the Indenture Trustee by the holders of not less than 25% of
the
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<PAGE>
principal amount of the related Notes; (iii) failure to pay the unpaid
principal balance of any related class of Notes by the respective final
scheduled Payment Date for such class; and (iv) certain events of insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings and certain actions by the Owner Trust indicating its insolvency,
reorganization pursuant to bankruptcy proceedings or inability to pay its
obligations. The amount of principal required to be paid to Noteholders on any
Payment Date under the related Indenture will generally be limited to amounts
available to be deposited in the Note Distribution Account. Therefore, unless
otherwise specified in the related Prospectus Supplement, the failure to pay
principal on a class of Notes on any Payment Date generally will not result in
the occurrence of an Event of Default unless such class of Notes has a final
scheduled Payment Date, and then not until such final scheduled Payment Date
for such class of Notes.
If an Event of Default should occur and be continuing with respect to the
Notes of any series, the related Indenture Trustee or holders of a majority in
principal amount of such Notes then outstanding may declare the principal of
the Notes to be immediately due and payable. Such declaration may, under
certain circumstances, be rescinded by the holders of a majority in principal
amount of the Notes then outstanding.
If the Notes of any series are declared to be due and payable following an
Event of Default with respect thereto, the related Indenture Trustee may
institute proceedings to collect amounts due or foreclose on Trust Property,
exercise remedies as a secured party, sell the Trust Property or elect to have
the Owner Trust maintain possession of the related Receivables and continue to
apply collections on such Receivables as if there had been no declaration of
acceleration. The Indenture Trustee, however, is prohibited from selling the
Trust Property following an Event of Default, unless (i) the holders of all
the outstanding related Notes consent to such sale, (ii) the proceeds of such
sale are sufficient to pay in full the principal of and the accrued interest
on such outstanding Notes and the Certificate Balance of and accrued interest
on the Certificates, in each case at the date of such sale, or (iii) there has
been an Event of Default arising from a failure to make a required payment of
principal or interest on any Notes, and the Indenture Trustee determines that
the Trust Property would not be sufficient on an ongoing basis to make all
payments on the Notes as such payments would have become due if such
obligations had not been declared due and payable, and the Indenture Trustee
obtains the consent of the holders of a majority of the aggregate outstanding
amount of the Notes. Following a declaration of acceleration upon an Event of
Default, (i) Noteholders will be entitled to ratable repayment of principal on
the basis of their respective unpaid principal balances and (ii) repayment in
full of the accrued interest on and unpaid principal balances of the Notes
will be made prior to any further payment of interest on the Owner
Certificates or in respect of the Certificate Balance.
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee, if an Event of Default occurs and is continuing with
respect to a series of Notes, the Indenture Trustee will be under no
obligation to exercise any of the rights or powers under the Indenture at the
request or direction of any of the holders of such Notes, if the Indenture
Trustee reasonably believes it will not be adequately indemnified against the
costs, expenses and liabilities which might be incurred by it in complying
with such request. Subject to the provisions for indemnification and certain
limitations contained in the Indenture, the holders of a majority in principal
amount of the outstanding Notes in a series will have the right to direct the
time, method and place of conducting any proceeding or any remedy available to
the Indenture Trustee and the holders of a majority in principal amount of
such Notes then outstanding may, in certain cases, waive any default with
respect thereto, except a default in the payment of principal or interest or a
default in respect of a covenant or provision of the Indenture that cannot be
modified without the waiver or consent of all of the holders of such
outstanding Notes.
No holder of a Note of any series will have the right to institute any
proceeding with respect to the related Indenture, unless (i) such holder
previously has given to the Indenture Trustee written notice of a continuing
Event of Default, (ii) the holders of not less than 25% in principal amount of
the outstanding Notes of such series have made written request of the
Indenture Trustee to institute such proceeding in its own name as Indenture
Trustee, (iii) such holder or holders have offered the Indenture Trustee
reasonable indemnity, (iv) the Indenture Trustee has for 60 days failed to
institute such proceeding and (v) no direction inconsistent with such written
request has been given to the Indenture Trustee during such 60-day period by
the holders of a majority in principal amount of such outstanding Notes.
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<PAGE>
If the Indenture Trustee knows that an Event of Default has occurred and is
continuing, the Indenture Trustee will mail to each Noteholder notice of the
Event of Default within 30 days after obtaining knowledge of such Event of
Default. Except in the case of a failure to pay principal of or interest on
any Note, the Indenture Trustee may withhold the notice if and so long as it
determines in good faith that withholding the notice is in the interests of
Noteholders.
In addition, each Indenture Trustee and the related Noteholders, by
accepting the related Notes, will covenant that they will not, for a period of
one year after the termination of the Indenture, institute against the related
Owner Trust any bankruptcy, reorganization or other proceeding under any
federal or state bankruptcy or similar law.
Neither the Indenture Trustee nor the Owner Trustee in its individual
capacity, nor any holder of an Owner Certificate including, without
limitation, the Seller, nor any of their respective owners, beneficiaries,
agents, officers, directors, employees, affiliates, successors or assigns
will, in the absence of an express agreement to the contrary, be personally
liable for the payment of the principal of or interest on the related Notes or
for the agreements and covenants of the related Owner Trust contained in the
Indenture.
Certain Covenants. Each Indenture provides that the related Owner Trust may
not consolidate with or merge into any other entity, unless (i) the entity
formed by or surviving such consolidation or merger is organized under the
laws of the United States, any state or the District of Columbia, (ii) such
entity expressly assumes the Owner Trust's obligation to make due and punctual
payments upon the Notes and the performance or observance of every agreement
and covenant of the Owner Trust under the Indenture, (iii) no Event of Default
shall have occurred and be continuing immediately after such merger or
consolidation, (iv) any action as is necessary to maintain the lien and
security interest created by the Indenture shall have been completed, (v) the
Owner Trust has been advised that the rating of the related Notes or Owner
Certificates then in effect would not be reduced or withdrawn by the Rating
Agencies as a result of such merger or consolidation and (vi) the Owner Trust
has received an opinion of counsel to the effect that, among other things,
such consolidation or merger would have no material adverse tax consequence to
the Owner Trust or to any related Securityholder.
Each Owner Trust will not, among other things, (i) except as expressly
permitted by the Indenture, the Transfer and Servicing Agreements or certain
related documents for such Owner Trust (collectively, the "RELATED
DOCUMENTS"), sell, convey, transfer, exchange or otherwise dispose of any of
the assets of the Owner Trust, (ii) claim any credit on or make any deduction
from the principal and interest payable in respect of the related Notes (other
than amounts withheld under the Code or applicable state law) or assert any
claim against any present or former holder of such Notes because of the
payment of taxes levied or assessed upon any part of the Trust Property, (iii)
dissolve or liquidate in whole or in part (to the extent the Owner Trust may
lawfully make such covenant), (iv) permit the validity or effectiveness of the
related Indenture to be impaired or permit any person to be released from any
covenants or obligations with respect to the related Notes under such
Indenture except as may be expressly permitted thereby, (v) permit any lien,
charge, excise, claim, security interest, mortgage or other encumbrance to be
created on or extend to or otherwise arise upon or burden the assets of the
Owner Trust or any part thereof, or any interest therein or the proceeds
thereof or (vi) permit the lien of the related Indenture not to constitute a
valid first priority security interest in the Trust Property.
No Owner Trust may engage in any activity other than as specified under this
Prospectus and the related Prospectus Supplement. No Owner Trust will incur,
assume or guarantee any indebtedness other than indebtedness incurred pursuant
to the related Notes and the related Indenture or otherwise in accordance with
the Related Documents.
Annual Compliance Statement. Each Owner Trust will be required to file
annually with the related Indenture Trustee a written statement as to the
fulfillment of its obligations under the Indenture.
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Indenture Trustee's Annual Report. The Indenture Trustee will be required,
if and as required by Sections 313(a) and (c) of the Trust Indenture Act of
1939 as in force on the date of the related Pooling and Servicing Agreement
(the "TIA"), to mail to all related Noteholders within sixty days after each
February 1, beginning with February 1, 1994 a brief report relating to its
eligibility and qualification to continue as Indenture Trustee under the
related Indenture, any amounts advanced by it under the Indenture, the amount,
interest rate and maturity date of certain indebtedness owing by the Owner
Trust to the Indenture Trustee in its individual capacity, the property and
funds physically held by the Indenture Trustee as such and any action taken by
it that materially affects the Notes and that has not been previously
reported. The Indenture Trustee shall also comply with Section 313(b) of the
TIA.
Satisfaction and Discharge of Indenture. The Indenture will be discharged
with respect to the related Notes (but not with respect to the
Certificateholders) upon the delivery to the related Indenture Trustee for
cancellation of all such Notes or, with certain limitations, upon deposit with
the Indenture Trustee of funds sufficient for the payment in full of all of
such Notes.
THE INDENTURE TRUSTEE
The Indenture Trustee for a series of Notes will be specified in the related
Prospectus Supplement. The Indenture Trustee may give notice of its intent to
resign at any time, in which event the Servicer, or its successor, will be
obligated to appoint a successor trustee. The Servicer may also remove the
Indenture Trustee if the Indenture Trustee ceases to be eligible to continue
as such under the Indenture or if the Indenture Trustee becomes insolvent. In
such circumstances, the Servicer will be obligated to appoint a successor
trustee. Any resignation or removal of the Indenture Trustee and appointment
of a successor trustee does not become effective until acceptance of the
appointment by the successor trustee.
OWNER CERTIFICATES
GENERAL
The Owner Certificates will be issued pursuant to the terms of an Owner
Trust Agreement, a form of which has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. The following
summary does not purport to be complete and is subject to, and qualified in
its entirety by reference to, all of the provisions of the Owner Certificates
and the Owner Trust Agreement. Where particular provisions or terms used in
the Owner Trust Agreement are referred to, the actual provisions (including
definitions of terms) are incorporated by reference as part of this summary.
Owner Certificates owned by the Seller or its affiliates will be entitled to
equal and proportionate benefits under the Owner Trust Agreement except that
such Owner Certificates will be deemed not to be outstanding for the purpose
of determining whether the requisite percentage of Owner Certificateholders
have given, made or taken any request, demand, authorization, direction,
notice, consent or other action under the Related Documents (other than the
commencement by the Owner Trust of a voluntary proceeding in bankruptcy as
described in "The Transfer and Servicing Agreements--Owner Trust: Insolvency
Event").
DISTRIBUTIONS OF INTEREST AND CERTIFICATE BALANCE
The timing and priority of distributions, seniority, allocations of loss,
Pass Through Rate and amount of or method of determining distributions with
respect to Certificate Balance and interest (or, where applicable, with
respect to Certificate Balance only or interest only) on the Owner
Certificates of any series will be described in the related Prospectus
Supplement. Distributions of interest on the Owner Certificates will be made
on the dates specified in the related Prospectus Supplement (each, a
"DISTRIBUTION DATE") and will be made prior to distributions with respect to
Certificate Balance. A series may include one or more classes of Strip
Certificates entitled to (i) distributions in respect of Certificate Balance
with disproportionate, nominal or no interest distributions, or (ii) interest
distributions, with disproportionate, nominal or no distributions in respect
of
25
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Certificate Balance. Each class of Owner Certificates may have a different
Pass Through Rate, which may be a fixed, variable or adjustable Pass Through
Rate (and which may be zero for certain classes of Strip Certificates), or any
combination of the foregoing. The related Prospectus Supplement will specify
the Pass Through Rate for each class of Owner Certificates, or the initial
Pass Through Rate and the method for determining the Pass Through Rate. Unless
otherwise specified in the related Prospectus Supplement, interest on the
Owner Certificates will be calculated on the basis of a 360-day year
consisting of twelve 30-day months. Distributions in respect of any class of
Owner Certificates will be subordinate to payments in respect of the Notes as
more fully described in the related Prospectus Supplement. Distributions in
respect of Certificate Balance of any class of Owner Certificates will be made
on a pro rata basis among all of the Owner Certificateholders of such class.
In the case of a series of Owner Certificates which includes two or more
classes of Owner Certificates, the timing, sequential order, priority of
payment or amount of distributions in respect of principal, and any schedule
or formula or other provisions applicable to the determination thereof, of
each such class shall be as set forth in the related Prospectus Supplement.
CLASS A CERTIFICATES
GENERAL
The Class A Certificates will be issued pursuant to a Pooling and Servicing
Agreement. The following summary does not purport to be complete and is
subject to, and qualified in its entirety by reference to, all of the
provisions of the Class A Certificates and the related Pooling and Servicing
Agreement. Where particular provisions or terms used in the related Pooling
and Servicing Agreement are referred to, the actual provisions (including
definitions of terms) are incorporated by reference as part of this summary.
The Grantor Certificates will evidence interests in the Grantor Trust
created pursuant to the related Pooling and Servicing Agreement. The Class A
Certificates will evidence in the aggregate an undivided ownership interest of
the Class A Percentage of the related Grantor Trust and the Class B
Certificates will evidence in the aggregate an undivided ownership interest of
the Class B Percentage of the related Grantor Trust. The "VOTING INTERESTS" of
the Class A Certificates will be allocated among the Class A
Certificateholders in accordance with the Class A Certificate Balance
represented thereby, except that in certain circumstances any Class A
Certificates held by the Seller, the Servicer or any of their respective
affiliates shall be excluded from such determination.
Grantor Certificates owned by the Seller or its affiliates will be entitled
to equal and proportionate benefits under the related Pooling and Servicing
Agreement except that such Grantor Certificates will be deemed not to be
outstanding for the purpose of determining whether the requisite percentage of
Grantor Certificateholders have given, made or taken any request, demand,
authorization, direction, notice, consent or other action under the Related
Documents.
DISTRIBUTIONS OF INTEREST AND CERTIFICATE BALANCE
The timing and priority of distributions, Pass Through Rate and amount of or
method of determining distributions with respect to Certificate Balance and
interest on the Class A Certificates of any series will be described in the
related Prospectus Supplement. Interest will be passed through to the holders
of the Class A Certificates on the Distribution Dates specified in the related
Prospectus Supplement and will be made prior to distributions with respect to
Certificate Balance. Each class of Grantor Certificates may have a different
Pass Through Rate. The related Prospectus Supplement will specify the Pass
Through Rate for the Class A Certificates, or the initial Pass Through Rate
and the method for determining changes to the Pass Through Rate. Unless
otherwise specified in the related Prospectus Supplement, interest on the
Class A Certificates will be calculated on the basis of a 360-day year
consisting of twelve 30-day months. Distributions in respect of Certificate
Balance of the Class A Certificates of any series will be made on a pro rata
basis among all of the related Class A Certificateholders.
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CERTAIN INFORMATION REGARDING THE SECURITIES
BOOK-ENTRY REGISTRATION
DTC is a limited purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "CLEARING CORPORATION"
within the meaning of the New York UCC and a "CLEARING AGENCY" registered
pursuant to Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and to facilitate the clearance and settlement
of securities transactions between Participants through electronic book-
entries, thereby eliminating the need for physical movement of certificates.
"PARTICIPANTS" include securities brokers and dealers, banks, trust companies,
clearing corporations or other Persons for whom from time to time DTC effects
book entry transfers and pledges of Securities deposited with DTC. 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").
Unless otherwise specified in the related Prospectus Supplement, each class
of Notes will initially be represented by one or more Notes, in each case
registered in the name of the nominee of DTC (together with any successor
depository selected by the Owner Trust, the "DEPOSITORY") except as provided
in this Prospectus or any Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, Notes will be available for purchase in
denominations of $1,000 and integral multiples thereof in book-entry form
only. Each class or series of Certificates to be sold by the Certificate
Underwriters (as defined in the related Prospectus Supplement) will initially
be represented by a single Certificate registered in the name of the
Depository, except as provided in this Prospectus or any Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement,
the Owner Certificates will be available for purchase in minimum denominations
of $20,000 and integral multiples of $1,000 in excess thereof in book-entry
form only and resales or other transfers will not be permitted in amounts of
less than $20,000, and Class A Certificates will be available for purchase in
minimum denominators of $1,000 and integral multiples thereof in book-entry
form only and resales or other transfers will not be permitted in amounts less
than $1,000. Unless and until Definitive Securities are issued under the
limited circumstances described herein or in the related Prospectus
Supplement, no person acquiring a beneficial interest in a Security (a
"SECURITY OWNER") (other than the Seller) will be entitled to receive a
physical certificate representing a Security.
Unless otherwise specified in the related Prospectus Supplement, Security
Owners (other than the Seller) that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of,
or other interests in, Securities may do so only through Participants and
Indirect Participants. In addition, Security Owners having a beneficial
interest in Notes will receive all distributions of principal and interest and
Security Owners having a beneficial interest in Certificates will receive all
distributions in respect of interest and Certificate Balance through
Participants and Indirect Participants. The Seller has been informed by DTC
that DTC's nominee will be Cede. Accordingly, Cede is expected to be the
holder of record of the Securities that are not retained by the Seller. Under
a book-entry format, Security Owners may experience some delay in their
receipt of payments, since such payments will be forwarded by the trustees to
Cede, as nominee for DTC. DTC will forward such payments to its Participants,
which thereafter will forward them to Indirect Participants or Security
Owners. Except for the Seller, it is anticipated that the only "Noteholder"
and "Certificateholder" will be Cede, as nominee of DTC. Security Owners
having a beneficial interest in Notes will not be recognized by the Indenture
Trustee as Noteholders, as such term is used in the Indenture, and such
Security Owners will be permitted to exercise the rights of Noteholders only
indirectly through DTC and its Participants. Likewise, Security Owners having
a beneficial interest in Certificates will not be recognized by the related
Trustee as Certificateholders as such term is used in each related Owner Trust
Agreement or Grantor Trust Pooling and Servicing Agreement, as the case may
be, and such Security Owners will be permitted to exercise the rights of
Certificateholders only indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (collectively, the "RULES"), DTC is required to make book-entry
transfers of Securities among Participants on whose behalf
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it acts with respect to the Securities and to receive and transmit
distributions of principal of, and interest on, the Notes and distributions in
respect of interest and Certificate Balance on the Certificates. Participants
and Indirect Participants with which Security Owners have accounts with
respect to the Securities similarly are required to make book-entry transfers
and receive and transmit such payments on behalf of their respective Security
Owners. Accordingly, although Security Owners will not possess Securities, the
Rules provide a mechanism by which Participants will receive payments and will
be able to transfer Security Owners' 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 Security
Owners to pledge Securities to persons or entities that do not participate in
the DTC system, or to otherwise act with respect to such Securities, may be
limited due to the lack of a physical certificate for such Securities.
DTC has advised the Seller that it will take any action permitted to be
taken by a Noteholder under the related Indenture or a Certificateholder under
the related Owner Trust Agreement or Grantor Trust Pooling and Servicing
Agreement, as applicable, only at the direction of one or more Participants to
whose accounts with DTC the Notes or Certificates are credited. DTC may take
conflicting actions with respect to other undivided interests to the extent
that such actions are taken on behalf of Participants whose holdings include
such undivided interests.
All references herein to actions by Securityholders refer to actions taken
by DTC upon instructions from the Participants and all references herein to
distributions, notices, reports and statements to Securityholders refer to
distributions, notices, reports and statements to DTC or Cede, as the case may
be, for distribution to Security Owners in accordance with DTC's procedures
with respect thereto. See "Definitive Securities" below. Except as required by
law, neither the Administrator, the Seller, the Trustee nor the Indenture
Trustee (as applicable) will have any liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests of
the Securities of any series held by Cede, as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
DEFINITIVE SECURITIES
Unless otherwise specified in the related Prospectus Supplement, Securities
(other than Securities held by the Seller) will be issued in fully registered,
certificated form ("DEFINITIVE NOTES" or "DEFINITIVE CERTIFICATES," as the
case may be, and, collectively, the "DEFINITIVE SECURITIES") to Security
Owners, or their respective nominees, rather than to DTC or its nominee, only
if (i) the related Administrator, in the case of an Owner Trust, or the
Seller, in the case of a Grantor Trust, advises the appropriate Trustee in
writing that DTC is no longer willing or able to discharge properly its
responsibilities as depository with respect to such Securities and the
Administrator or the Seller, as applicable, is unable to locate a qualified
successor, (ii) the Administrator or the Seller, as applicable, at its option,
advises the appropriate Trustee in writing that it elects to terminate the
book-entry system through DTC or (iii) after the occurrence of an Event of
Default or a Servicer Default, holders representing at least a majority of the
outstanding principal amount of such Securities (or, in the case of the Class
A Certificates, holders representing in the aggregate not less than 51% of the
voting interest of the Class A Certificates of such series) advise the
appropriate Trustee and DTC through Participants in writing that the
continuation of a book-entry system through DTC (or a successor thereto) is no
longer in the best interest of the holders of such Securities. The "voting
interests" of the Class A Certificates will be allocated among the holders of
Class A Certificates in accordance with the Class A Certificate Balance
represented thereby, except that in certain circumstances any Class A
Certificates held by the Seller, the Servicer or any of their respective
affiliates shall be excluded from such determination.
Upon the occurrence of any event described in the immediately preceding
paragraph, the appropriate trustee will be required to notify DTC of the
availability of Definitive Securities. Upon surrender by DTC of the definitive
certificates representing the securities and receipt of instructions for re-
registration, the appropriate trustee will reissue such securities as
Definitive Securities to holders thereof.
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Distributions on or in respect of the Definitive Securities will be made in
accordance with the procedures set forth in the related Indenture, the related
Owner Trust Agreement or the related Grantor Trust Pooling and Servicing
Agreement, as applicable, directly to holders of Definitive Securities in
whose names the Definitive Securities were registered at the close of business
on the day before the related Payment Date or Distribution Date, as
applicable. Such distributions will be made by check mailed to the address of
such holder as it appears on the register maintained by the Indenture Trustee
or Trustee, as applicable. The final payment on any Definitive Security,
however, will be made only upon presentation and surrender of such Definitive
Security at the office or agency specified in the notice of final distribution
to the holders of such class.
Definitive Securities will be transferable and exchangeable at the offices
of the appropriate trustee or of a registrar named in a notice delivered to
holders of Definitive Securities. No service charge will be imposed for any
registration of transfer or exchange, but the appropriate trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
REPORTS TO SECURITYHOLDERS
On or prior to each Payment Date, the Servicer will prepare and provide to
the Indenture Trustee a statement to be delivered to the related Noteholders
on such Payment Date and on or prior to each Distribution Date, the Servicer
will prepare and provide to the Trustee a statement to be delivered to the
related Certificateholders (other than Class B Certificateholders). With
respect to each series (to the extent applicable) each such statement to be
delivered to Noteholders will include the following information as to the
Notes with respect to such Payment Date or the period since the previous
Payment Date, as applicable, and each such statement to be delivered to
Certificateholders will include the following information as to the
Certificates with respect to such Distribution Date or the period since the
previous Distribution Date, as applicable:
(i) Information Applicable to all Trusts:
(a) the amount of the distribution allocable to interest on or with
respect to each class of Securities;
(b) the Aggregate Receivables Balance as of the close of business on the
last day of such Monthly Period;
(c) the amount of Monthly Advances on such date;
(d) the amount of the Total Servicing Fee paid to the Servicer with
respect to the related Monthly Period;
(e) the amount of Aggregate Losses for the related Monthly Period;
(f) the Delinquency Percentage for the related Monthly Period; and
(g) the sum of all Administrative Purchase Payments and all Warranty
Payments made for the related Monthly Period.
(ii) Information Applicable to Owner Trusts:
(a) the amount of the distribution allocable to principal of each class
of the Notes and to the Certificate Balance of each class of Owner
Certificates;
(b) the aggregate outstanding principal balance and the Note Pool Factor
for each class of Notes, and the Certificate Balance and the Owner Trust
Certificate Pool Factor for each class of Owner Certificates, each after
giving effect to all payments reported under (ii)(a) above on such date;
(c) the amount, if any, paid to the Servicer or distributed to
Noteholders and Owner Certificateholders from amounts on deposit in the
Reserve Account or from other forms of credit enhancement;
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(d) the Noteholders' Interest Carryover Shortfall, the Noteholders'
Principal Carryover Shortfall, the Certificateholders' Interest Carryover
Shortfall and the Certificateholders' Principal Carryover Shortfall (each
as defined in the related Prospectus Supplement), if any, and the change in
such amounts from the preceding statement;
(e) the Interest Rate or Pass Through Rate for the next period for any
class of Notes or Owner Certificates with variable or adjustable rates;
(f) the balance (if any) of the Reserve Account on such date, after
giving effect to distributions or deposits made on such date, and the
change in such balance from that of the prior Payment Date or Distribution
Date, as the case may be;
(g) for each such date during the Funding Period (if any), the remaining
Pre-Funded Amount; and
(h) for the first such date that is on or immediately following the end
of the Funding Period (if any), the amount of any remaining Pre-Funded
Amount that has not been used to fund the purchase of Subsequent
Receivables and is being passed through as payments of principal on the
Securities.
(iii) Information Applicable to Grantor Trusts:
(a) the amount of the distribution allocable to the Certificate Balance;
(b) the Class A Certificate Balance and the Class A Certificate Pool
Factor for the Class A Certificates, each after giving effect to all
payments reported under (iii)(a) above on such date;
(c) the amount of the Class A Interest Carryover Shortfall and Class A
Principal Carryover Shortfall, if any, on such Distribution Date and the
change in such amounts from those of the prior Distribution Date;
(d) the Class A Percentage of the Total Servicing Fee;
(e) the balance (if any) of the Subordination Spread Account on such
Distribution Date, after giving effect to distributions or deposits made on
such date, and the change in such balance from that of the prior
Distribution Date; and
(f) the amount otherwise distributable to the Class B Certificateholders
that is distributed to Class A Certificateholders on such Distribution
Date.
Each amount set forth pursuant to subclauses (i)(a), (i)(d), (ii)(a),
(ii)(d), (iii)(a), (iii)(c) and (iii)(d) with respect to Securities will be
expressed as a dollar amount per $1,000 of the initial principal balance of
the Notes or the initial Certificate Balance, as applicable.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of each Trust, the Trustees will
mail to each holder of a class of Securities who at any time during such
calendar year has been a Securityholder, and received any payment thereon, a
statement containing certain information for the purposes of such
Securityholder's preparation of federal income tax returns. See "Certain
Federal Income Tax Consequences."
The "AGGREGATE LOSSES" with respect to a Monthly Period and the related
Distribution Date will equal the sum of (i) the aggregate of the Receivable
Balances of all Receivables in such Trust newly designated during such Monthly
Period as Liquidating Receivables and (ii) the aggregate principal portion of
Scheduled Payments due but not received with respect to all such Receivables
prior to the date any such Receivable was designated a Liquidating Receivable
minus Liquidation Proceeds collected during such Monthly Period with respect
to all Liquidating Receivables. The "DELINQUENCY PERCENTAGE" with respect to a
Monthly Period will equal the aggregate Remaining Gross Balance of all
outstanding Receivables which have installments past due 61 days or more as of
the last day of such Monthly Period, determined in accordance with the
Servicer's normal practices, expressed as a percentage of the aggregate
Remaining Gross Balance of outstanding Receivables on the last day of such
Monthly Period. With respect to any Trust, the "REMAINING GROSS BALANCE" as of
the last day of any Monthly Period, with respect to any Receivable in such
Trust (other than a Liquidating Receivable), will be equal
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to the Initial Gross Receivable Balance thereof minus the sum of the
following: (i) all payments received by the Servicer from or for the account
of the Obligor which are not late fees, prepayment charges or certain other
similar fees or charges, (ii) any Warranty Payment or Administrative Purchase
Payment with respect to such Receivable, (iii) any Prepayments applied to
reduce the Initial Gross Receivable Balance of any such Receivable, (iv)
proceeds received by the Servicer from any insurance policies with respect to
such Receivable and (v) for any Receivable not classified by the Servicer as a
"finance charge-included contract," the portion of the payments specified in
the preceding clauses (i), (ii), (iii) or (iv) above allocable in accordance
with the actuarial method to finance charges; provided, however, that the
Remaining Gross Balance of any Receivable that has been designated a
Liquidating Receivable during the related Monthly Period shall equal zero.
"LIQUIDATION PROCEEDS" shall mean all proceeds of the liquidation of any
Receivable (a "LIQUIDATING RECEIVABLE") as to which (i) the Servicer (a) has
reasonably determined in accordance with its customary servicing procedures
that eventual payment of amounts owing on such Receivable is unlikely, or (b)
has repossessed the Financed Vehicle or Financed Vehicles securing such
Receivable or (ii) any related Scheduled Payment is at least 210 days past
due.
THE TRANSFER AND SERVICING AGREEMENTS
GENERAL
Except as otherwise specified in the related Prospectus Supplement, the
following summary describes certain terms of (i) the Purchase Agreement
applicable to each Trust pursuant to which the Seller will purchase
Receivables from the Servicer, (ii) the Owner Trust Pooling and Servicing
Agreement pursuant to which each Owner Trust will acquire the Receivables
purchased by the Seller under the related Purchase Agreement and the Servicer
will agree to service such Receivables, (iii) the Owner Trust Agreement
pursuant to which each Owner Trust will be created and Owner Certificates will
be issued, (iv) the Grantor Trust Pooling and Servicing Agreement pursuant to
which (a) each Grantor Trust will be created, (b) such Grantor Trust will
acquire the Receivables purchased by the Seller under the related Purchase
Agreement, (c) the Servicer will agree to service such Receivables and (d)
Grantor Certificates will be issued and (v) with respect to each Owner Trust,
the Administration Agreement pursuant to which NFC will undertake certain
administrative duties with respect to such Owner Trust.
The term "TRANSFER AND SERVICING AGREEMENTS" means (i) with respect to any
Owner Trust, the related Purchase Agreement, Pooling and Servicing Agreement,
Owner Trust Agreement, Indenture and Administration Agreement and (ii) with
respect to any Grantor Trust, the related Purchase Agreement and Pooling and
Servicing Agreement. Forms of the Transfer and Servicing Agreements have been
filed as exhibits to the Registration Statement of which this Prospectus forms
a part. The Seller will provide a copy of the Transfer and Servicing
Agreements (without exhibits) upon request to a holder of Securities described
therein. This summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all of the provisions of the
Transfer and Servicing Agreements. Where particular provisions or terms used
in the Transfer and Servicing Agreements are referred to, the actual
provisions (including definitions of terms) are incorporated by reference as
part of such summary.
SALE AND ASSIGNMENT OF RECEIVABLES
On the closing date specified in the related Prospectus Supplement (the
"CLOSING DATE"), pursuant to a Purchase Agreement between NFC and the Seller
(a "PURCHASE AGREEMENT"), NFC will sell and assign to the Seller, without
recourse, its entire interest in the related Receivables, including its
security interests in the Financed Vehicles, the proceeds of certain insurance
policies, the proceeds of Dealer Liability with respect to the Receivables,
the proceeds of NITC Purchase Obligations with respect to the Receivables, the
proceeds of any Guaranties and the benefit of any lease assignments with
respect to the Financed Vehicles. On the Closing Date, pursuant to the
applicable Pooling and Servicing Agreement, the Seller will transfer and
assign to the
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Owner Trust or the Grantor Trustee, as applicable, without recourse, its
entire interest in the related Receivables, including its security interests
in the Financed Vehicles, the proceeds of certain insurance policies, the
proceeds of Dealer Liability with respect to the Receivables, any proceeds of
NITC Purchase Obligations with respect to the Receivables, the proceeds of any
Guaranties, the benefit of any lease assignments with respect to the Financed
Vehicles, the related Purchase Agreement and the related Custodian Agreement.
Each Receivable with respect to a Trust will be identified in a schedule
which will be on file at the locations set forth in an exhibit to the
applicable Pooling and Servicing Agreement (a "SCHEDULE OF RECEIVABLES"). The
applicable Trustee will, concurrently with such transfer and assignment,
execute, authenticate (if necessary) and deliver the related Securities to the
Seller in exchange for such Receivables. The Seller will sell the Certificates
(other than those Certificates it is retaining) and (if applicable) the Notes
to the respective underwriters set forth in the related Prospectus Supplement.
See "Plan of Distribution." Unless otherwise provided in the related
Prospectus Supplement, the Seller will apply the net proceeds received from
the sale of the Securities to fund the Reserve Account or Subordination Spread
Account and, to the extent specified in the related Prospectus Supplement, to
the deposit of the Pre-Funded Amount into the Pre-Funding Account, and then to
the purchase of the related Receivables from NFC. The remainder of the
purchase price for the Receivables will be funded by an intercompany loan from
NFC. The related Prospectus Supplement for a given Owner Trust will specify
whether, and the terms, conditions and manner under which, Subsequent
Receivables and Related Property will be acquired by the Seller from NFC and
transferred by the Seller to the Owner Trust from time to time during the
Funding Period on the dates specified as transfer dates in the related
Prospectus Supplement (each, a "SUBSEQUENT TRANSFER DATE").
In each Purchase Agreement, NFC will represent and warrant to the Seller,
among other things, that: (i) the information provided in the related Schedule
of Receivables is correct in all material respects; (ii) the Obligor on each
Receivable is required to maintain physical damage insurance covering the
Financed Vehicle in accordance with NFC's normal requirements, except for
certain fleet customers which NFC, in accordance with its customary
procedures, permits to be self-insured; (iii) as of the related Closing Date
or the applicable Subsequent Transfer Date, if any, the related Receivables
are free and clear of all security interests, liens, charges and encumbrances
(except from security interests, liens, charges or encumbrances which may
arise from accessions to the Financed Vehicles not financed by NFC) and no
offsets, defenses or counterclaims have been asserted or threatened; (iv) as
of the Closing Date or the applicable Subsequent Transfer Date, if any, each
of such Receivables is or will be secured by a first perfected security
interest in favor of NFC in the Financed Vehicle or Financed Vehicles related
thereto; and (v) each related Receivable, at the time it was originated
complied, and as of the related Closing Date or the applicable Subsequent
Transfer Date, if any, complies, in all material respects with applicable
federal and state laws. In each applicable Pooling and Servicing Agreement,
the Seller will assign the representations and warranties of NFC, as set forth
above, to the Owner Trust or the Grantor Trustee, as applicable, and will
represent and warrant to the Owner Trust or the Grantor Trustee, as
applicable, that the Seller has taken no action which would cause such
representations and warranties of NFC to be false in any material respect as
of the Closing Date or the applicable Subsequent Transfer Date, if any.
As of the last day of the second (or, if the Seller elects, the first) month
following the discovery by the Seller, the Servicer, the Trustee or (if
applicable) the Indenture Trustee of a breach of any representation or
warranty of the Seller or NFC that materially and adversely affects the
interests of the related Trust or Securityholders in any Receivable, the
Seller, unless the breach is cured, will repurchase such Receivable (a
"WARRANTY RECEIVABLE") from the Trust at a price equal to the sum of all
remaining Scheduled Payments on such Receivable, plus all past due Scheduled
Payments with respect to which a Monthly Advance has not been made, plus all
outstanding Monthly Advances on such Receivable, plus an amount equal to any
reimbursements of outstanding Monthly Advances made to the Servicer with
respect to such Receivable from the proceeds of other Receivables, minus (i)
the rebate, calculated in accordance with the actuarial method, that would be
payable to the Obligor on such Receivable were the Obligor to prepay such
Receivable in full on such day and (ii) any proceeds of the liquidation of
such Receivable previously received (to the extent applied to reduce the
Receivable
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Balance of such Receivable) (the "WARRANTY PAYMENT"). The Seller or NFC, as
applicable, will be entitled to receive any amounts held by the Servicer with
respect to such Warranty Receivable. The repurchase obligation constitutes the
sole remedy available to the Securityholders, the Trustee, and, as applicable,
the Indenture Trustee for any such uncured breach.
In each applicable Pooling and Servicing Agreement, the Servicer will
covenant that (i) except as contemplated in such Agreement, the Servicer will
not release any Financed Vehicle from the security interest, (ii) the Servicer
will do nothing to impair the rights of the Securityholders, the Trustee, or,
as applicable, the Indenture Trustee in the related Receivables and (iii) the
Servicer will not amend any such Receivable such that the Initial Receivable
Balance, the APR or the total number of Scheduled Payments is altered or such
that the final scheduled payment on such Receivable will be due later than the
last day of the Monthly Period preceding the latest final scheduled
distribution date on any Securities or such other date as is set forth in the
Prospectus Supplement. As of the last day of the second (or, if the Servicer
so elects, the first) month following the discovery by the Servicer, the
Trustee or (if applicable) the Indenture Trustee of a breach of any covenant
that materially and adversely affects any Receivable and unless such breach is
cured in all material respects, the Servicer will, with respect to such
Receivable (an "ADMINISTRATIVE RECEIVABLE"): (i) release all claims for
reimbursement of Monthly Advances made on such Administrative Receivable, and
(ii) purchase such Administrative Receivable from the Owner Trust or Grantor
Trustee, as applicable, at a price equal to the sum of all remaining Scheduled
Payments on such Administrative Receivable, plus an amount equal to any
reimbursements of outstanding Monthly Advances made to the Servicer with
respect to such Administrative Receivable from the proceeds of other
Receivables, plus all past due Scheduled Payments with respect to which a
Monthly Advance has not been made, minus the rebate, calculated in accordance
with the actuarial method, that would be payable to the Obligor on such
Administrative Receivable were the Obligor to prepay such Administrative
Receivable in full on such day (the "ADMINISTRATIVE PURCHASE PAYMENT"). In
addition, the Servicer will be entitled to retain any amounts held by the
Servicer with respect to such Administrative Receivable. This repurchase
obligation constitutes the sole remedy available to the Securityholders, the
Trustee and, as applicable, the Indenture Trustee for any such uncured breach.
Pursuant to each applicable Pooling and Servicing Agreement, the related
Trust or Trustee will designate the Servicer as custodian to maintain
possession, as the Owner Trust's or Grantor Trustee's agent, as applicable, of
the related Retail Notes and any other documents relating to the Receivables
held by the related Trust. 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
related Trust so long as the Servicer is the custodian of such documents.
However, Uniform Commercial Code ("UCC") financing statements reflecting the
sale and assignment of such Receivables to the Owner Trust or Grantor Trustee,
as applicable, will be filed, and the Servicer's accounting records and
computer files will reflect such sale and assignment. Because such Receivables
will remain in the Servicer's possession and will not be stamped or otherwise
marked to reflect the assignment to the Owner Trust or Grantor Trustee, as
applicable, if a subsequent purchaser were able to take physical possession of
the Receivables without knowledge of the assignment, the Owner Trust's or
Grantor Trustee's interests in such Receivables could be defeated.
ACCOUNTS
With respect to each Trust, the Servicer will establish and maintain with
the Indenture Trustee or the Grantor Trustee, as applicable, one or more
accounts, (i) in the name of the Indenture Trustee on behalf of the related
Securityholders in the case of an Owner Trust, and (ii) in the name of the
Grantor Trustee on behalf of the Grantor Certificateholders in the case of a
Grantor Trust, into which all payments made on or with respect to the related
Receivables will be deposited (a "COLLECTION ACCOUNT"). With respect to each
Owner Trust, the Servicer will also establish and maintain for each series (i)
an account, in the name of the Indenture Trustee on
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behalf of the related Noteholders, in which amounts released from the
Collection Account and any Pre-Funding Account or Reserve Account or other
credit enhancement for payment to such Noteholders will be deposited and from
which all distributions to such Noteholders will be made (the "NOTE
DISTRIBUTION ACCOUNT"), and (ii) an account, in the name of the Owner Trustee
on behalf of the related Owner Certificateholders, in which amounts released
from the Collection Account and any Pre-Funding Account or Reserve Account or
other credit enhancement for distribution to such Owner Certificateholders
will be deposited and from which all distributions to such Certificateholders
will be made (a "CERTIFICATE DISTRIBUTION ACCOUNT"). With respect to each
Grantor Trust, the Servicer will also establish in the name of the Grantor
Trustee on behalf of the Grantor Certificateholders an account, in the name of
the Grantor Trustee on behalf of the related Grantor Certificateholders, in
which amounts released from the Collection Account and any Subordinated Spread
Account or other credit enhancement for payment to such Grantor
Certificateholders will be deposited and from which all distributions to such
Certificateholders will be made (also, a "CERTIFICATE DISTRIBUTION ACCOUNT").
For any series of Securities, funds in the Collection Account, the Note
Distribution Account, any Pre-Funding Account, Reserve Account and any
Subordination Spread Account and other accounts identified as such in the
related Prospectus Supplement (collectively, the "DESIGNATED ACCOUNTS") will
be invested as provided in the applicable Pooling and Servicing Agreement in
Eligible Investments. "ELIGIBLE INVESTMENTS" are generally limited to
investments acceptable to the rating agencies rating the related Securities at
the request of the Seller (the "RATING AGENCIES") as being consistent with the
rating of such Securities. Except as described below or in the related
Prospectus Supplement, Eligible Investments are limited to obligations or
securities that mature prior to the next Distribution Date or, in the case of
the Note Distribution Account, the next Payment Date. To the extent permitted
by the Rating Agencies, funds in any Reserve Account may be invested in
related Notes that will not mature prior to the date of the next distribution
with respect to the Notes. Except as otherwise specified in the related
Prospectus Supplement, such Notes will not be sold to meet any shortfalls
unless they are sold at a price equal to or greater than the unpaid principal
balance thereof if, following such sale, the amount on deposit in any Reserve
Account would be less than the Specified Reserve Account Balance. Thus, the
amount of cash in any Reserve Account at any time may be less than the balance
of the Reserve Account. If the amount required to be withdrawn from any
Reserve Account to cover shortfalls in collections on the Receivables (as
provided in the related Prospectus Supplement) exceeds the amount of cash in
the Reserve Account, a temporary shortfall in the amounts distributed to the
Noteholders and Owner Certificateholders could result, which could, in turn,
increase the average life of the Owner Securities. Except as otherwise
specified in the related Prospectus Supplement, investment earnings on funds
deposited in the Designated Accounts, net of losses and investment expenses
(collectively, "INVESTMENT EARNINGS"), will be payable to the Seller.
The Designated Accounts will be maintained as Eligible Deposit Accounts;
provided, however, that (i) each Collection Account will be maintained with
the Indenture Trustee or the Grantor Trustee, as applicable, so long as (a)
the Indenture Trustee's or Grantor Trustee's (as applicable) short-term
unsecured debt obligations have a rating of P-1 by Moody's Investors Service,
Inc. and a rating of A-1+ by Standard & Poor's Corporation (the "REQUIRED
DEPOSIT RATING") or (b) such accounts are maintained in the trust department
of the Indenture Trustee or Grantor Trustee and (ii) unless otherwise provided
in the related Prospectus Supplement, each Collection Account, each Note
Distribution Account and each Certificate Distribution Account, as applicable,
will initially be maintained in the trust department of the related Indenture
Trustee or Grantor Trustee, as applicable. If the conditions set forth in
clause (i) of the immediately preceding sentence are not satisfied, the
Servicer will, with the Indenture Trustee or Grantor Trustee's assistance as
necessary, cause the applicable Collection Account to be moved to a bank whose
short-term unsecured debt obligations have the Required Deposit Rating.
"ELIGIBLE DEPOSIT ACCOUNT" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate
trust department of a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), having corporate trust
powers and acting as trustee for funds deposited in such account, so long as
any of the securities of such depository institution have a credit rating from
each Rating Agency in one of its generic rating categories which signifies
investment grade. "ELIGIBLE INSTITUTION" means,
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with respect to a Trust, (a) the corporate trust department of the related
Indenture Trustee or the Grantor Trustee, as applicable, or (b) a depository
institution organized under the laws of the United States of America or any
one of the states thereof or the District of Columbia (or any domestic branch
of a foreign bank), (i) which has either (A) a long-term unsecured debt rating
acceptable to the Rating Agencies or (B) a short-term unsecured debt rating or
certificate of deposit rating acceptable to the Rating Agencies and (ii) whose
deposits are insured by the FDIC.
Any other accounts to be established with respect to a Trust will be
described in the related Prospectus Supplement.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
With respect to each Trust, unless otherwise provided in the related
Prospectus Supplement, on each Distribution Date, the Servicer will receive a
servicing fee (the "BASIC SERVICING FEE") for the preceding Monthly Period
equal to one-twelfth of the Basic Servicing Fee Rate specified in the related
Prospectus Supplement multiplied by the Aggregate Receivables Balance of all
Receivables held by such Trust as of the first day of such Monthly Period. On
each Distribution Date, the Servicer will be paid the Basic Servicing Fee and
any unpaid Basic Servicing Fees from all prior Distribution Dates
(collectively, the "TOTAL SERVICING FEE") to the extent of funds available
therefor. In addition, unless otherwise provided in the related Prospectus
Supplement, with respect to each Trust, the Servicer will be entitled to
receive any late fees, prepayment charges or certain similar fees and charges
collected during a Monthly Period (the "SUPPLEMENTAL SERVICING FEE"). A
"MONTHLY PERIOD" with respect to a Distribution Date will be the calendar
month preceding the month in which such Distribution Date occurs.
The foregoing amounts with respect to each Trust are intended to compensate
the Servicer for performing the functions of a third party servicer of truck,
bus and trailer receivables as an agent for their beneficial owner, including
collecting and posting all payments, responding to inquiries of Obligors on
the Receivables, investigating delinquencies, sending payment coupons to
Obligors, reporting tax information to Obligors, paying costs of collections
and policing the collateral. Such amounts will also compensate the Servicer
for its services as the Receivables Pool administrator, including making
Monthly Advances, accounting for collections, furnishing monthly and annual
statements to the Trustee and the Indenture Trustee with respect to
distributions and generating federal income tax information for the Trust, and
the Securityholders. Such amounts also will reimburse the Servicer for certain
taxes, the fees of the Trustee and (if applicable) the Indenture Trustee,
accounting fees, outside auditor fees, data processing costs and other costs
incurred in connection with administering the related Receivables Pool. The
Servicer will not be required to pay Federal, state and local income and
franchise taxes, if any, of the Owner Trust or any Securityholder.
SERVICING PROCEDURES
The Servicer will make reasonable efforts to collect all payments due with
respect to the Receivables held by any Trust and will, consistent with the
related Pooling and Servicing Agreement, follow such collection procedures as
it follows with respect to its own Retail Notes. See "Certain Legal Aspects of
the Receivables." The Servicer is authorized to grant certain rebates,
adjustments or extensions with respect to a Receivable. However, if any such
modification of a Receivable alters the Initial Receivable Balance, the APR or
the total number of Scheduled Payments, the Servicer will be obligated to
purchase such Receivable.
If the Servicer determines that eventual payment in full of a Receivable is
unlikely, the Servicer will follow its normal practices and procedures to
realize upon the Receivable, including the repossession and disposition of the
Financed Vehicle securing the Receivable at a public or private sale, or the
taking of any other action permitted by applicable law. The Servicer will be
entitled to receive an amount specified in the applicable Pooling and
Servicing Agreement as an allowance for amounts charged to the account of the
Obligor, in keeping
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with the Servicer's customary procedures, for repossession, refurbishing and
disposition of any Financed Vehicle and other out-of-pocket costs related to
the liquidation (collectively, "LIQUIDATION EXPENSES").
COLLECTIONS
The Servicer will deposit all payments received from Obligors, all proceeds
of insurance policies, Guaranties, Dealer Liability and NITC Purchase
Obligations, and all Liquidation Proceeds collected during each Monthly Period
with respect to the Receivables held by any Trust into the appropriate
Collection Account not later than two business days after receipt. However, in
the event that (i) the Servicer satisfies the requirements for monthly
remittances of such collections established by the rating agencies initially
rating the Securities, and upon satisfaction of such requirements, the rating
agencies that initially rated the Securities reaffirm the rating of the
Securities at the level at which they would be rated if collections were
remitted within two Business Days, (ii) the short-term unsecured debt of the
Servicer is rated at least A-1+ by Standard & Poor's Corporation and P-1 by
Moody's Investors Service, Inc. or (iii) a standby letter of credit has been
issued by an Eligible Institution which, as of each date during the period
that the Servicer is making monthly remittances of collections, has an undrawn
amount at least equal to 150% of all Scheduled Payments due for the latest
Monthly Period ended prior to the next succeeding Distribution Date (and the
aggregate amount of unremitted collections does not at any time exceed 90% of
the undrawn amount of such letter of credit), then, so long as NFC is the
Servicer and provided that there exists no Event of Default, the Servicer will
not be required to deposit such amounts into the appropriate Collection
Account until on or before the business day preceding the Distribution Date
with respect to the Certificates or the Payment Date with respect to the
Notes. 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.
Collections on a Receivable held by any Trust made during a Monthly Period
(including Warranty Payments and Administrative Purchase Payments) which are
not late fees, prepayment charges or certain other similar fees or charges
will be applied first to any outstanding Monthly Advances made by the Servicer
with respect to such Receivable, and then to the Scheduled Payment.
Collections on a Receivable remaining after such applications will be deemed a
"PREPAYMENT." A "FULL PREPAYMENT" is a Prepayment of the entire Receivable or
of the entire principal balance outstanding with respect to any Financed
Vehicle related thereto. Upon a Full Prepayment, the Obligor is entitled to a
"rebate" of the unearned finance charges contained in the remaining Scheduled
Payments, which will not accrue due to the prepayment. A "PARTIAL PREPAYMENT"
is a Prepayment other than a Full Prepayment the amount of which is equal to
one or more Scheduled Payments and which results in a rebate to the Obligor of
unearned finance charges in accordance with the Servicer's customary
procedures. A Partial Prepayment is applied to reduce the remaining Scheduled
Payments of the related Receivable in inverse order of maturity, beginning
with the final Scheduled Payment. The Servicer's general practice with respect
to a Full Prepayment is to require payment by the Obligor of accrued and
unpaid finance charges through the date on which such Full Prepayment is
received and to rebate the remaining finance charges. The Servicer will not
reimburse any Trust for the difference between such accrued and unpaid finance
charges and the amount of finance charges that would have been payable under
the actuarial method if such Full Prepayment were made at the end of the
billing month under the related Receivable.
MONTHLY ADVANCES
Unless otherwise provided in the related Prospectus Supplement, if the full
Scheduled Payment due on any Receivable is not received by the end of the
month in which it is due, whether as the result of any extension granted to
the Obligor or otherwise, the Servicer will be obligated to make an advance (a
"MONTHLY ADVANCE") to the related Trust equal to the amount of such shortfall
to the extent that the Servicer, in its sole discretion, expects to recoup
such Monthly Advance from subsequent collections or recoveries on such
Receivable. The Servicer will be reimbursed for any Monthly Advances from
subsequent payments or collections relating to such Receivables. Upon the
determination that reimbursement from the preceding sources is unlikely, the
Servicer will be entitled to recoup its Monthly Advances from collections on
other Receivables in the Trust.
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DISTRIBUTIONS
General. With respect to each Trust, beginning on the Payment Date or
Distribution Date, as applicable, specified in the related Prospectus
Supplement, distributions of principal and interest (or, where applicable, in
respect of principal or interest only) with respect to the Notes and
distributions in respect of Certificate Balance and interest (or, where
applicable, of Certificate Balance or interest only) with respect to the
Certificates on each class of Securities entitled thereto will be made by the
Indenture Trustee or the Trustee, as applicable, to the Securityholders. The
timing, calculation, allocation, order, source, priorities of and requirements
(i) for all payments and distributions to each class of Owner Securityholders
and (ii) for all distributions on the Class A Certificates will be made as set
forth herein, in the related Prospectus Supplement and in the related Pooling
and Servicing Agreement.
Distributions on Owner Securities. With respect to each Owner Trust, on the
day preceding each Distribution Date, collections on the Receivables will be
transferred from the Collection Account to the Note Distribution Account and
the Certificate Distribution Account for distribution to Owner Securityholders
on the dates set forth herein or in the Prospectus Supplement. Credit
enhancement, such as a Reserve Account, will be available to cover any
shortfalls in the amount available for distribution on such date to the extent
specified in the related Prospectus Supplement. Distributions in respect of
principal and Certificate Balance (as such term is defined in the related
Prospectus Supplement) of Owner Certificates will be subordinate to
distributions in respect of interest, and distributions in respect of the
Owner Certificates will be subordinate to payments in respect of the Notes, as
more fully described in the related Prospectus Supplement.
Distributions on Grantor Certificates. With respect to each series of
Grantor Certificates, on or before each Distribution Date, the Servicer or the
Grantor Trustee, as the case may be, will transfer the portion of collections
on the related Receivables which constitute all or a portion of Scheduled
Payments for the related Monthly Period and all Prepayments to the related
Certificate Distribution Account. The Grantor Trustee shall make distributions
to the Grantor Certificateholders out of the amounts on deposit in the
Certificate Distribution Account. The amount to be distributed to the Grantor
Certificateholders shall be determined in the manner described below.
Calculation of Distributable Amounts. With respect to any series of
Grantor Certificates, the "CLASS A DISTRIBUTABLE AMOUNT" with respect to a
Distribution Date will equal the sum of (i) the "CLASS A PRINCIPAL
DISTRIBUTABLE AMOUNT," consisting of the Class A Percentage of the following
items, each computed in accordance with the actuarial method: (a) the
principal portion of all Scheduled Payments due during the related Monthly
Period on Receivables held by the related Grantor Trust (other than
Liquidating Receivables), (b) the principal portion of all Prepayments
received during the related Monthly Period (except to the extent included in
(a) above) and (c) the Receivable Balance of each Receivable that the Servicer
elected or became obligated to purchase, the Seller became obligated to
repurchase or that became a Liquidating Receivable during the related Monthly
Period (except to the extent included in (a) or (b) above), and (ii) the
"CLASS A INTEREST DISTRIBUTABLE AMOUNT," consisting of one month's interest at
the Pass-Through Rate on the Class A Certificate Balance as of the last day of
the related Monthly Period.
The "CLASS A CERTIFICATE BALANCE" with respect to any series of Grantor
Certificates will equal, initially, the Class A Percentage of the Initial
Aggregate Receivables Balance and, thereafter, except as provided in the
related Pooling and Servicing Agreement, will equal such initial Class A
Certificate Balance reduced by all distributions of Class A Principal
Distributable Amounts actually made to the Class A Certificateholders.
With respect to any series of Grantor Certificates, the "CLASS B
DISTRIBUTABLE AMOUNT" with respect to a Distribution Date will be an amount
equal to the sum of (i) the "CLASS B PRINCIPAL DISTRIBUTABLE AMOUNT,"
consisting of the Class B Percentage of the amounts set forth under (i) above
with respect to the Class A Principal Distributable Amount, and (ii) the
"CLASS B INTEREST DISTRIBUTABLE AMOUNT," consisting of (a) one month's
interest at the Pass-Through Rate on the Class B Certificate Balance as of the
last day of the related Monthly Period and (b) all Prepayment Surplus with
respect to the Receivables.
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The "CLASS B CERTIFICATE BALANCE" with respect to any series of Grantor
Certificates will equal, initially, the Class B Percentage of the Initial
Aggregate Receivables Balance and, thereafter, will equal the initial Class B
Certificate Balance, reduced by (i) all distributions of Class B Principal
Distributable Amounts actually made on or prior to such date to Class B
Certificateholders (or deposited on or prior to such date in the Subordination
Spread Account, not including the Subordination Initial Deposit), (ii) the
current Class A Principal Carryover Shortfall and (iii) any shortfalls from
prior Distribution Dates in principal distributions to the Class B
Certificateholders. The term "CERTIFICATE BALANCE" means, with respect to any
Grantor Trust, the Class A Certificate Balance and the Class B Certificate
Balance.
Calculation of Amounts to be Distributed. Prior to each Distribution Date,
the Servicer will calculate the amount to be distributed to the Class A
Certificateholders. The Class A Certificateholders will receive on each
Distribution Date, to the extent of available funds, an amount equal to the
sum of the Class A Distributable Amount and any outstanding Class A Interest
Carryover Shortfall (plus, to the extent permitted by law, one month's
interest on such Class A Interest Carryover Shortfall at the applicable Pass-
Through Rate from such preceding Distribution Date to the current Distribution
Date) and Class A Principal Carryover Shortfall (each as defined below). Such
sum shall be paid from the Class A Percentage of the Collected Interest
(available after payment of the Total Servicing Fee and any unpaid Total
Servicing Fees with respect to prior Monthly Periods) and the Class A
Percentage of the Collected Principal. On each Distribution Date on which such
sum exceeds the related Class A Percentage of the Collected Interest (after
payment of the Total Servicing Fee and any unpaid Total Servicing Fees with
respect to prior Monthly Periods), the Class A Certificateholders will be
entitled to receive such excess: first, from the related Class B Percentage of
the Collected Interest, second, if such amounts are insufficient, from amounts
on deposit in the related Subordination Spread Account, and third, if such
amounts are insufficient, from the Class B Percentage of the Collected
Principal.
With respect to any series of Grantor Certificates, the "CLASS A INTEREST
CARRYOVER SHORTFALL" as of the close of any Distribution Date means the excess
of (a) the Class A Interest Distributable Amount for such Distribution Date
plus any outstanding Class A Interest Carryover Shortfall from the preceding
Distribution Date, plus one month's interest on such outstanding Class A
Interest Carryover Shortfall, to the extent permitted by law, at the
applicable Pass-Through Rate from such preceding Distribution Date through the
current Distribution Date, over (b) the amount of interest that was actually
deposited in the Certificate Distribution Account on such current Distribution
Date in respect of interest on the Class A Certificates.
With respect to any series of Grantor Certificates, on each Distribution
Date, the sum of the Class A Principal Distributable Amount and any
outstanding Class A Principal Carryover Shortfall shall be paid from the Class
A Percentage of the Collected Principal to the extent remaining after
application as described in the preceding paragraph. On each Distribution Date
on which the sum of the Class A Principal Distributable Amount and any
outstanding Class A Principal Carryover Shortfall from the preceding
Distribution Date exceeds the Class A Percentage of the Collected Principal
remaining after application as described in the preceding paragraph on such
Distribution Date, the Class A Certificateholders will be entitled to receive
such excess: first, to the extent remaining after application as described in
the preceding paragraph, from the related Class B Percentage of the Collected
Principal, second, if such amounts are insufficient, from amounts on deposit
in the related Subordination Spread Account, and third, if such amounts are
insufficient, from any Collected Interest remaining after application as
described in the preceding paragraph. With respect to any series of Grantor
Certificates, the "CLASS A PRINCIPAL CARRYOVER SHORTFALL" as of the close of
any Distribution Date means the excess of (a) the Class A Principal
Distributable Amount plus any outstanding Class A Principal Carryover
Shortfall from the preceding Distribution Date over (b) the amount of
principal that was actually deposited in the Certificate Distribution Account
on such current Distribution Date in respect of Certificate Balance.
The holders of the Class B Certificates will be entitled to receive on any
Distribution Date an amount equal to the sum of the Class B Interest
Distributable Amount and the Class B Principal Distributable Amount (and any
shortfalls from prior Distribution Dates in payments to the Class B
Certificateholders), after giving effect to
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(i) amounts required to pay the Total Servicing Fee payable to the Servicer on
such Distribution Date, and (ii) any amounts required to be distributed to the
holders of Class A Certificates pursuant to the subordination of the rights of
the holders of Class B Certificates.
Determination of Available Amount. The "AVAILABLE AMOUNT" for each
Distribution Date will be the sum of the Collected Interest and the Collected
Principal.
The "COLLECTED INTEREST" with respect to each series of Certificates for
each Distribution Date will be the sum, with respect to the related Monthly
Period and in each case computed in accordance with the actuarial method, of:
(i) that portion of all collections on the Receivables held by the related
Trust (other than Liquidating Receivables) allocable to interest or to
Prepayment Surplus, (ii) all Liquidation Proceeds to the extent attributable
to interest in accordance with the Servicer's customary procedures, (iii) that
portion of all Monthly Advances made by the Servicer allocable to interest due
on the Receivables and (iv) the Warranty Payment, the Administrative Purchase
Payment or the Optional Purchase Proceeds of each Receivable that the Seller
repurchased or the Servicer purchased during such related Monthly Period, to
the extent attributable to accrued interest or Prepayment Surplus thereon.
The "COLLECTED PRINCIPAL" with respect to each series of Certificates for
each Distribution Date will be the sum, with respect to the related Monthly
Period and in each case computed in accordance with the actuarial method, of:
(i) that portion of all collections on the Receivables held by the related
Trust (other than Liquidating Receivables) allocable to principal, (ii) all
Liquidation Proceeds to the extent attributable to principal in accordance
with the Servicer's customary procedures, (iii) that portion of all Monthly
Advances made by the Servicer allocable to principal on the Receivables, (iv)
the Warranty Payment, the Administrative Purchase Payment or the Optional
Purchase Proceeds received with respect to each Receivable that the Seller
repurchased or the Servicer purchased during such related Monthly Period to
the extent attributable to principal and (v) the principal portion of all
Prepayments.
The Collected Interest and the Collected Principal with respect to each
series of Certificates on any Distribution Date will exclude: (i) amounts
received on any Receivable to the extent that the Servicer has previously made
an unreimbursed Monthly Advance and (ii) Liquidation Proceeds with respect to
a particular Receivable to the extent of any unreimbursed Monthly Advances and
Liquidation Expenses.
With respect to any series of Securities, the "PREPAYMENT SURPLUS" with
respect to any Distribution Date on which a Prepayment is to be applied with
respect to a Receivable, will equal that portion of such Prepayment, net of
any rebate to the Obligor of the portion of the Scheduled Payments
attributable to unearned finance charges, which is not attributable to
principal in accordance with the actuarial method.
CREDIT ENHANCEMENT
The amounts and types of credit enhancement arrangements and the provider
thereof, if applicable, with respect to each class of Securities will be set
forth in the related Prospectus Supplement. If and to the extent provided in
the related Prospectus Supplement, credit enhancement may be in the form of
subordination of one or more classes of Securities, Reserve Accounts,
Subordination Spread Accounts, overcollateralization, letters of credit,
credit or liquidity facilities, repurchase obligations, third party payments
or other support, cash deposits or such other arrangements as may be described
in the related Prospectus Supplement or any combination of two or more of the
foregoing. If specified in the applicable Prospectus Supplement, credit
enhancement for a series of Securities may cover one or more other series of
Securities.
The presence of a Reserve Account, Subordination Spread Account and other
forms of credit enhancement is intended to enhance the likelihood of receipt
by the Securityholders of the full amount of principal or Certificate Balance,
as the case may be, and interest due thereon and to decrease the likelihood
that the Securityholders will experience losses. Unless otherwise specified in
the related Prospectus Supplement, the credit enhancement for a class of
Securities will not provide protection against all risks of loss and will not
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guarantee repayment of the entire principal balance or Certificate Balance, as
the case may be, and interest thereon. If losses occur which exceed the amount
covered by any credit enhancement or which are not covered by any credit
enhancement, Securityholders will bear their allocable share of deficiencies.
In addition, if a form of credit enhancement covers more than one series of
Securities, Securityholders of any such series will be subject to the risk
that such credit enhancement will be exhausted by the prior claims of
Securityholders of other series.
Owner Trust: Reserve Account. If so provided in the related Prospectus
Supplement, with respect to each Owner Trust, pursuant to the Owner Trust
Pooling and Servicing Agreement, the Seller will establish for a series an
account, as specified in the related Prospectus Supplement (the "RESERVE
ACCOUNT"), which will be maintained with the Indenture Trustee. Unless
otherwise provided in the related Prospectus Supplement, the Reserve Account
will be included in the property of the related Owner Trust and will be a
segregated trust account held by the Indenture Trustee for the benefit of
Securityholders. Unless otherwise provided in the related Prospectus
Supplement, the Reserve Account will be funded by an initial deposit by the
Seller on the Closing Date of the Reserve Account Initial Deposit (in the
amount set forth in the related Prospectus Supplement). As further described
in the related Prospectus Supplement, the amount on deposit in the Reserve
Account will be increased on each Distribution Date thereafter up to the
Specified Reserve Account Balance (as defined in the related Prospectus
Supplement) by the deposit therein of the amount of collections on the related
Receivables remaining on each such Distribution Date after the payment of the
Total Servicing Fee and the distributions to the Securityholders required on
such date. Unless otherwise provided in the related Prospectus Supplement,
amounts on deposit in the Reserve Account after payments to Securityholders
and the Servicer will be paid to the Seller to the extent that such amounts
exceed the Specified Reserve Account Balance. Upon any distribution to the
Seller of amounts from the Reserve Account, the Securityholders will not have
any rights in, or claims to, such amounts.
Grantor Trust: Subordination of the Class B Certificates; Subordination
Spread Account. In the case of a Grantor Trust, the rights of the Class B
Certificateholders to receive distributions with respect to the Receivables
will be subordinated to the rights of the Class A Certificateholders in the
event of defaults and delinquencies on the Receivables as provided in the
related Grantor Trust Pooling and Servicing Agreement. The protection afforded
to the Class A Certificateholders will be effected both by the preferential
right of the Class A Certificateholders to receive current distributions with
respect to the Receivables and by the establishment of the Subordination
Spread Account. The Subordination Spread Account will be created with an
initial deposit by the Seller of the Subordination Initial Deposit (in the
amount set forth in the related Prospectus Supplement) and will thereafter be
increased by deposit therein of amounts otherwise distributable to Class B
Certificateholders until the amount in the Subordination Spread Account
reaches an amount equal to the Specified Subordination Spread Account Balance
(in the amount set forth in the related Prospectus Supplement). Thereafter,
amounts otherwise distributable to the Class B Certificateholders will be
deposited in the Subordination Spread Account to the extent necessary to
restore the amount in the Subordination Spread Account to the Specified
Subordination Spread Account Balance. See "The Servicer--Delinquencies,
Repossessions and Net Losses."
With respect to any series of Grantor Certificates and unless otherwise
specified in the related Prospectus Supplement, the "SPECIFIED SUBORDINATION
SPREAD ACCOUNT BALANCE" with respect to any Distribution Date will be the
Minimum Subordination Spread Amount, except that, unless otherwise provided in
the related Prospectus Supplement, if on any Distribution Date (i) the product
(expressed as a percentage) of (a) twelve and (b) a fraction, the numerator of
which is equal to the sum of the Aggregate Losses plus Liquidation Proceeds
for each of the Monthly Periods which are the fifth, fourth and third Monthly
Periods preceding the Monthly Period related to such Distribution Date, minus
the sum of the Liquidation Proceeds for the Monthly Periods which are the
first, second and third Monthly Periods preceding the Monthly Period related
to such Distribution Date, and the denominator of which is the sum of the
Remaining Gross Balance as of the last day of each of the sixth, fifth and
fourth Monthly Periods related to such Distribution date, which product
exceeds 1.5% (or such other percentage as is specified in the related
Prospectus Supplement) or (ii) the average of the Delinquency
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Percentages for the preceding three months exceeds 2% (or such other
percentage as is specified in the related Prospectus Supplement), then the
Specified Subordination Spread Account Balance for such Distribution Date will
be an amount equal to a specified percentage of the aggregate Remaining Gross
Balance. Such specified percentage shall be determined by deducting from the
Specified Subordination Percentage (as defined in the related Prospectus
Supplement) the following fraction, expressed as a percentage: (x) 1 minus (y)
a fraction, the numerator of which is the Class A Certificate Balance and the
denominator of which is the Aggregate Receivables Balance. Notwithstanding the
foregoing, in no event will the Specified Subordination Spread Account Balance
be more than the Maximum Subordination Spread Amount or less than the Minimum
Subordination Spread Amount (each as specified in the related Prospectus
Supplement). As of any Distribution Date, the amount of funds actually on
deposit in the Subordination Spread Account may, in certain circumstances, be
less than the Specified Subordination Spread Account Balance.
Unless otherwise specified in the related Prospectus Supplement, a
Subordination Spread Account will not be included in the related Grantor Trust
and will be a segregated trust account held by the Grantor Trustee. With
respect to any series of Grantor Certificates, on each Distribution Date, (i)
if the amount on deposit in the Subordination Spread Account is less than the
Specified Subordination Spread Account Balance for such Distribution Date, the
Grantor Trustee will, after payment of any amounts required to be distributed
to holders of the Class A Certificates and the payment of the Total Servicing
Fee due with respect to the related Monthly Period (including any unpaid Total
Servicing Fees with respect to prior Monthly Periods), withdraw from the
Certificate Distribution Account and deposit in the Subordination Spread
Account the amount remaining in the Certificate Distribution Account that
would otherwise be distributed to the holders of the Class B Certificates, or
such lesser portion thereof as is sufficient to bring the amount in the
Subordination Spread Account up to such Specified Subordination Spread Account
Balance and (ii) if the amount on deposit in the Subordination Spread Account
on such Distribution Date (after giving effect to all deposits or withdrawals
therefrom on such Distribution Date) is greater than the Specified
Subordination Spread Account Balance for such Distribution Date, the Grantor
Trustee will release and distribute any such excess to the holders of the
Class B Certificates. Upon any such distribution to the Class B
Certificateholders, the Class A Certificateholders will have no further rights
in, or claims to, such amounts.
Amounts held from time to time in the Subordination Spread Account will
continue to be held for the benefit of holders of the Grantor Certificates.
Funds in the Subordination Spread Account will be invested as provided in the
related Grantor Trust Pooling and Servicing Agreement. The Seller will be
entitled to receive all investment earnings on amounts in the Subordination
Spread Account. Investment income on amounts in the Subordination Spread
Account will not be available for distribution to the holders of the
Certificates or otherwise subject to any claims or rights of the holders of
the Certificates.
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 (including interest thereon) and the Class A Principal
Carryover Shortfall for such Distribution Date (after giving effect to any
amounts applied to such deficiency which were withdrawn from the Subordination
Spread Account and the Class B Distributable Amount), the holders of the Class
B Certificates will not receive any portion of the Available Amount.
The subordination of the Class B Certificates and the Subordination Spread
Account is intended to enhance the likelihood of receipt by the Class A
Certificateholders of the full amount of principal and interest on the
Receivables due them and to decrease the likelihood that the Class A
Certificateholders will experience losses. However, in certain circumstances,
the Subordination Spread Account could be depleted and shortfalls could
result.
The amounts available for distribution to Grantor Certificateholders as
described above could be reduced if certain indemnification or reimbursement
payments were required to be made from the Certificate Distribution Account as
described under "The Transfer and Servicing Agreements--Monthly Advances," and
"--Certain Matters Regarding the Servicer" and "The Trusts--The Trustees."
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NET DEPOSITS
Owner Trusts. For so long as the conditions described above under "--
Collections" are satisfied and the Servicer is not required to remit
collections within two Business Days of receipt thereof, then (i) as an
administrative convenience the Servicer will be permitted to make the deposit
of collections, aggregate Monthly Advances, Warranty Purchase Payments and
Administrative Purchase Payments net of distributions to be made to the
Servicer with respect to the related Monthly Period, provided, however, that
the Servicer will account to the Indenture Trustee, the Owner Trustee and the
Owner Securityholders as if all deposits, distributions and other remittances
were made individually, and (ii) the Servicer may retain collections allocable
to the Notes or the Note Distribution Account until the day preceding the
related Payment Date, and pending deposit into the Collection Account, such
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. On or before each
Payment Date, the Servicer, the Seller, the Indenture Trustee and the Owner
Trustee will make all distributions, deposits and other remittances with
respect to the Notes or the Note Distribution Account of an Owner Trust for
the periods since the previous distribution was to have been made. If Payment
Dates do not coincide with Distribution Dates, all distributions, deposits or
other remittances made on a Payment Date will be treated as having been
distributed, deposited or remitted on the Distribution Date for the applicable
Monthly Period for purposes of determining other amounts required to be
distributed, deposited or otherwise remitted on such Distribution Date.
Grantor Trusts. For so long as the conditions described above under "--
Collections" are satisfied and the Servicer is not required to remit
collections within two Business Days of receipt thereof, as an administrative
convenience the Servicer will be permitted to make the deposit of collections,
aggregate Monthly Advances, Warranty Purchase Payments and Administrative
Purchase Payments, net of distributions to be made to the Servicer with
respect to the related Monthly Period. Similarly, the Seller is entitled to
net its payment obligations to the Grantor Trustee against any amounts
distributable on the Class B Certificates on any Distribution Date. The
Servicer, however, will account to the Grantor Trustee and the Grantor
Certificateholders as if all deposits, distributions and other remittances
were made individually.
STATEMENTS TO TRUSTEES AND TRUST
Prior to each Distribution Date with respect to each Trust, the Servicer
will provide to the applicable Trustee and (if applicable) the Indenture
Trustee as of the close of business on the last day of the preceding Monthly
Period a statement setting forth substantially the same information as is
required to be provided in the periodic reports provided to securityholders
described under "Certain Information Regarding the Securities--Reports to
Securityholders."
EVIDENCE AS TO COMPLIANCE
Each related Pooling and Servicing Agreement will provide that a firm of
independent public accountants will furnish to the Owner Trust and the
Indenture Trustee or the Grantor Trustee, as applicable, on or before February
1 of each year, beginning the first February 1 which is at least twelve months
after the related Closing Date, a statement as to compliance by the Servicer
during the twelve months ended the preceding October 31 (or in the case of the
first such certificate, the period from the Closing Date to October 31 of such
year) with certain standards relating to the servicing of the Receivables, the
Servicer's accounting records and computer files with respect thereto and
certain other matters.
Each related Pooling and Servicing Agreement will also provide for delivery
to the Owner Trust and the Indenture Trustee or the Grantor Trustee, as
applicable, on or before February 1 of each year, beginning the first February
1 which is at least twelve months after the related Closing Date, of a
certificate signed by an officer of the Servicer stating that the Servicer has
fulfilled its obligations under such Pooling and Servicing Agreement
throughout the twelve months ended the preceding October 31 (or in the case of
the first such certificate, the
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period from the Closing Date to October 31 of such year) or, if there has been
a default in the fulfillment of any such obligation, describing each such
default. The Servicer has agreed to give the Indenture Trustee and the related
Trustee notice of certain Servicer Defaults under the applicable Pooling and
Servicing Agreement.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the Indenture Trustee or
the Trustee, as applicable.
CERTAIN MATTERS REGARDING THE SERVICER
Each Pooling and Servicing Agreement will provide that NFC may not resign
from its obligations and duties as Servicer thereunder except upon
determination that NFC's performance of such duties is no longer permissible
under applicable law. No such resignation will become effective until the
related Indenture Trustee, Grantor Trustee or a successor servicer has assumed
NFC's servicing obligations and duties under the related Transfer and
Servicing Agreements.
Each Pooling and Servicing Agreement will further provide that neither the
Servicer nor any of its directors, officers, employees and agents will be
under any liability to the related Trust or the related Securityholders for
taking any action or for refraining from taking any action pursuant to the
related Transfer and Servicing Agreements or for errors in judgment; except
that neither the Servicer nor any such person will be protected against any
liability that would otherwise be imposed by reason of wilful misfeasance, bad
faith or negligence (except errors in judgment) in the performance of the
Servicer's duties thereunder or by reason of reckless disregard of its
obligations and duties thereunder. In addition, each Pooling and Servicing
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 related Transfer and Servicing Agreements
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 related Transfer and Servicing
Agreements and the rights and duties of the parties thereto and the interests
of the Securityholders 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 related Trust, and the Servicer will be entitled to be
reimbursed therefor out of the related Collection Account in the case of an
Owner Trust or the related Certificate Distribution Amount in the case of a
Grantor Trust. Any such indemnification or reimbursement will reduce the
amount otherwise available for distribution to the Securityholders.
Under the circumstances specified in each Pooling and Servicing Agreement,
any entity into which the Servicer or the Seller, as the case may be, may be
merged or consolidated, or any entity resulting from any merger or
consolidation to which the Servicer or the Seller, as the case may be, is a
party, or any entity succeeding to the business of the Servicer or, with
respect to its obligations as Servicer, any corporation 50% or more of the
voting stock of which is owned, directly or indirectly, by Navistar
International Corporation, a Delaware corporation ("NIC"), which corporation
or other entity in each of the foregoing cases assumes the obligations of the
Servicer or the Seller, as the case may be, will be the successor of the
Servicer or the Seller, as the case may be, under such Pooling and Servicing
Agreement. The Servicer may at any time subcontract any duties as Servicer
under any Pooling and Servicing Agreement to any corporation in which more
than 50% of the voting stock is owned, directly or indirectly, by NIC. In the
event of any such subcontract, the Servicer will remain responsible for the
subcontractor's performance in accordance with such Pooling and Servicing
Agreement.
SERVICER DEFAULT
Except as otherwise provided in the related Prospectus Supplement, "SERVICER
DEFAULT" under each Pooling and Servicing Agreement will consist of (i) any
failure by the Servicer to deliver to the Indenture Trustee for deposit in any
of the Designated Accounts or to the Owner Trustee for deposit in the
Certificate Distribution Account any required payment or to direct the
Indenture Trustee to make any required distributions therefrom, or any failure
by the Servicer to deliver to the Grantor Trustee for distribution to the
Grantor Certificateholders
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any required payment, in each case which failure continues unremedied for five
Business Days after written notice from the Indenture Trustee or the Trustee,
as applicable, is received by the Servicer or after discovery of such failure
by an officer of the Servicer; (ii) any failure by the Servicer or the Seller,
as the case may be, duly to observe or perform in any material respect any
other covenant or agreement in such Pooling and Servicing Agreement or the
related Purchase Agreement, Trust Agreement or Indenture, as applicable, which
failure materially and adversely affects the rights of the Noteholders or the
Certificateholders and which continues unremedied for 60 days after the giving
of written notice of such failure (A) to the Servicer or the Seller, as the
case may be, by the Indenture Trustee or the Trustee, as applicable, or (B) to
the Servicer or the Seller, as the case may be, and to the Indenture Trustee
and the Trustee, as applicable, by, in the case of an Owner Trust, the holders
of Notes evidencing not less than 25% of the outstanding principal amount
thereof (or, if the Notes have been paid in full, by the holders of Owner
Certificates evidencing not less than 25% of the voting interests of such
series) and, in the case of a Grantor Trust, the holders of Class A
Certificates evidencing not less than 25% of the voting interest thereof; and
(iii) certain events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings with respect to the Servicer or
the Seller and certain actions by the Servicer or the Seller indicating its
insolvency, reorganization pursuant to bankruptcy proceedings, or inability to
pay its obligations (each, an "INSOLVENCY EVENT"). A "BUSINESS DAY" is any day
other than a Saturday, Sunday or any other day on which banks in New York, New
York or Chicago, Illinois may, or are required to, remain closed.
RIGHTS UPON SERVICER DEFAULT
As long as a Servicer Default under a Pooling and Servicing Agreement
remains unremedied, either (i) in the case of an Owner Trust, the related
Indenture Trustee or holders of related Notes evidencing not less than a
majority in principal amount of such then outstanding Notes (or, if the Notes
have been paid in full and the Indenture has been discharged in accordance
with its terms, by the Owner Trustee or holders of Owner Certificates
evidencing not less than a majority of the voting interests thereof) or (ii)
in the case of a Grantor Trust, the related Grantor Trustee or holders of
Class A Certificates evidencing a majority of the voting interests thereof, as
applicable, may, in addition to other rights and remedies available in a court
of law or equity to damages, injunctive relief and specific performance,
terminate all the rights and obligations of the Servicer under such Pooling
and Servicing Agreement, whereupon such Indenture Trustee or Grantor Trustee,
as applicable, will succeed to all the responsibilities, duties and
liabilities of the Servicer under such agreements and will be entitled to
similar compensation arrangements. If, however, a bankruptcy trustee or
similar official has been appointed for the Servicer, and no Servicer Default
other than such appointment has occurred, such trustee or official may have
the power to prevent the Indenture Trustee or the Noteholders, or the Grantor
Trustee or Class A Certificateholders, as applicable, from effecting a
transfer of servicing. In the event that the Indenture Trustee or the Grantor
Trustee, as applicable, 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 medium and heavy duty truck receivables. The Indenture
Trustee or the Grantor Trustee, as applicable, may make such arrangements for
compensation to be paid, which in no event may be greater than the servicing
compensation to the Servicer under such related Pooling and Servicing
Agreement.
WAIVER OF PAST DEFAULTS
In the case of (a) each Owner Trust, the holders of related Notes evidencing
at least a majority of the outstanding principal amount thereof (or, if all of
the Notes have been paid in full and the Indenture has been discharged in
accordance with its terms, the holders of related Owner Certificates
evidencing not less than a majority of the voting interests thereof), or (b)
each Grantor Trust, holders of Class A Certificates evidencing not less than a
majority of the voting interest thereof may, on behalf of all such
Securityholders, waive any default by the Servicer in the performance of its
obligations under the applicable Pooling and Servicing Agreement and its
consequences, except a Servicer Default in making any required deposits to or
payments from the related Collection Account, Note Distribution Account or
Certificate Distribution Account in accordance with the applicable Pooling and
Servicing Agreement. No such waiver will impair such Securityholders' rights
with respect to subsequent defaults.
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AMENDMENT
Each of the Transfer and Servicing Agreements may be amended by the parties
thereto without the consent of the related Securityholders (i) to cure any
ambiguity, (ii) to correct or supplement any provision therein that may be
defective or inconsistent with any other provision therein or in any of the
Transfer and Servicing Agreements or certain other agreements, (iii) to add or
supplement any credit enhancement for the benefit of Securityholders (provided
that if any such addition affects any class of Securityholders differently
than any other class of Securityholders, then such addition will not, as
evidenced by an opinion of counsel, adversely affect in any material respect
the interests of any class of Securityholders), (iv) to add to the covenants,
restrictions or obligations of the Seller, the Servicer, the related Trustee
or the Indenture Trustee, or (v) to add, change or eliminate any other
provisions of such agreement in any manner that will not, as evidenced by an
opinion of counsel, adversely affect in any material respect the interests of
the Securityholders. Each such Agreement may also be amended by the parties
thereto with the consent of the holders of at least a majority in principal
amount of such then outstanding Notes and the holders of such Certificates
evidencing at least a majority of the Certificate Balance in the case of an
Owner Trust or a majority of the voting interests thereof in the case of a
Grantor Trust for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of such agreement or of modifying
in any manner the rights of such Securityholders; except that no such
amendment may (i) increase or reduce in any manner the amount of, or
accelerate or delay the timing of, collection of payments on Receivables or
distributions that are required to be made on any Note or Certificate, any
Interest Rate, any Pass Through Rate, the Specified Reserve Account Balance or
the Specified Subordination Spread Account Balance, as applicable or (ii)
reduce the aforesaid percentage required of holders of a class or series of
Securities to consent to any such amendment without the consent of all of the
holders of such class or series of Securities.
OWNER TRUST: INSOLVENCY EVENT
With respect to any Owner Trust, if an Insolvency Event occurs with respect
to the Seller, the Owner Trust shall terminate, subject to the liquidation,
winding-up and dissolution procedures described below, and provided that the
rights and obligations of the parties to the related Owner Trust Agreement
shall not terminate during such procedures. Promptly after the occurrence of
any Insolvency Event with respect to the Seller, notice thereof is required to
be given to holders of Owner Securities; except that any failure to give such
required notice will not prevent or delay termination of any Owner Trust.
Ninety days after the Seller gives the notice described in the preceding
sentence, unless the Owner Trustee shall have received written instructions
from (i) holders (other than the Seller) of such Owner Certificates evidencing
at least a majority of the Certificate Balance, and (ii) holders of at least a
majority in principal amount of such then outstanding Notes to the effect that
each such party disapproves of the liquidation of such Receivables and
termination of such Owner Trust and wishes to reconstitute such Owner Trust
pursuant to terms corresponding to the terms of the related Owner Trust
Agreement, the Owner Trustee shall direct the Indenture Trustee promptly to
sell the assets of such Owner Trust (other than the Designated Accounts and
the Certificate Distribution Account) in a commercially reasonable manner and
on commercially reasonable terms (which may include continuing to hold the
Receivables and receiving collections thereon). The proceeds from any such
sale, disposition or liquidation of the Receivables will be treated as
collections on the Receivables and deposited in the related Collection Account
and thereupon such Owner Trust Agreement and the respective obligations and
responsibilities of the Seller, the Servicer, the Owner Trustee and the
Indenture Trustee shall terminate (except as otherwise expressly provided in
such Owner Trust Agreement). With respect to any series, if the proceeds from
the liquidation of the Receivables and any amounts on deposit in the Reserve
Account, the Note Distribution Account and the Certificate Distribution
Account are not sufficient to pay the Notes in full, the amount of principal
returned to holders of Owner Securities will be reduced and the
Securityholders will incur a loss.
With respect to each Owner Trust, each Owner Trust Agreement will provide
that the Owner Trustee shall not have the power to commence a voluntary
proceeding in bankruptcy relating to the related Owner Trust without the
unanimous prior approval of all Owner Certificateholders (including the
Seller) unless the Owner Trustee reasonably believes that such Owner Trust is
insolvent.
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OWNER TRUST: SELLER LIABILITY
Under each Owner Trust Agreement, the Seller will agree to be liable
directly to an injured party for the entire amount of any losses, claims,
damages or liabilities (other than those incurred by a holder of Owner
Securities in the capacity of an investor) arising out of or based on the
arrangement created by such Owner Trust Agreement as though such arrangement
created a partnership under the Delaware Revised Uniform Limited Partnership
Act in which the Seller were a general partner.
TERMINATION
With respect to each Trust, the respective obligations and responsibilities
of the Servicer, the Seller, the related Trustee and (if applicable) the
Indenture Trustee pursuant to the Transfer and Servicing Agreements will
terminate (a) in the case of an Owner Trust, upon the earlier of (i) the
maturity or other liquidation of the last related Receivable and the
disposition of any amounts received upon liquidation of any such remaining
Receivables or (ii) the payment to related Securityholders of all amounts
required to be paid to them pursuant to the Transfer and Servicing Agreements
and (b) in the case of a Grantor Trust, upon the distribution to the Grantor
Certificateholders of all amounts required to be distributed to them pursuant
to the related Grantor Trust Pooling and Servicing Agreement. Unless otherwise
provided in the related Prospectus Supplement, in order to avoid excessive
administrative expense, the Servicer, or its successor, will be permitted at
its option to purchase from each Trust, as of the last day of any Monthly
Period, if the then outstanding Aggregate Receivables Balance of the
Receivables held by such Trust is 10% or less of the Initial Aggregate
Receivables Balance, all remaining related Receivables at a price equal to (x)
if the Servicer's long term unsecured debt rating from Moody's Investors
Service, Inc. is less than Baa3 at the time that it seeks to exercise such
option, at a price equal to the appraised value for such Receivables, plus the
appraised value of any other property held by the Trust less Liquidation
Expenses, so long as such amount is sufficient to redeem the outstanding Notes
and pay the Certificate Balance and the Certificateholders' Interest
Distributable Amount for the Distribution Date related to the Monthly Period
in which such option is exercised, or (y) if the Servicer's long term
unsecured debt rating from Moody's Investors Service, Inc. is equal to or
higher than Baa3 at the time that it seeks to exercise such option, the
aggregate Administrative Purchase Payments for such Receivables plus the
appraised value of any other property held as part of the Trust less
Liquidation Expenses (collectively, "OPTIONAL PURCHASE PROCEEDS"), all as of
the end of such Monthly Period. As more fully described in the related
Prospectus Supplement with respect to an Owner Trust, any related outstanding
Notes will be redeemed concurrently therewith and the subsequent distribution
to related Owner Certificateholders of all amounts required to be distributed
to them pursuant to the Owner Trust Agreement will effect early retirement of
the Owner Certificates. Proceeds from the Servicer's purchase will be treated
as Collected Principal and Collected Interest with respect to the Receivables
and will be distributed to the Securityholders on the related Payment Date or
Distribution Date, as applicable. With respect to each Owner Trust, the
Indenture Trustee will give written notice of redemption to each related
Noteholder of record and the Owner Trustee will give written notice of
termination to each related Owner Certificateholder of record. With respect to
each Grantor Trust, the Grantor Trustee will give written notice of
termination to each related Class A Certificateholder of record. The final
distribution to any Owner Securityholder will be made only upon surrender and
cancellation of such Noteholder's Note at an office or agency of the Indenture
Trustee specified in the notice of redemption or such Certificateholder's
Certificate at an office or agency of the Trustee specified in the notice of
termination.
With respect to each Owner Trust, after payment to the Indenture Trustee,
the Owner Trustee, the Owner Securityholders and the Servicer of all amounts
required to be paid under each of the related Pooling and Servicing Agreement,
Indenture and Owner Trust Agreement, any amounts on deposit in the related
Reserve Account and the related Collection Account (after all other
distributions required to be made from such accounts have been made) shall be
paid to the Seller and any other assets remaining in such Owner Trust shall be
distributed to the Seller.
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OWNER TRUST: ADMINISTRATION AGREEMENT
NFC, in its capacity as administrator (the "ADMINISTRATOR"), will enter into
an agreement (an "ADMINISTRATION AGREEMENT") with each Owner Trust and the
related Indenture Trustee pursuant to which the Administrator will agree, to
the extent provided in such Administration Agreement, to provide the notices
and to perform other administrative obligations required by the related
Indenture. With respect to each Owner Trust, as compensation for the
performance of the Administrator's obligations under the Administration
Agreement, and as reimbursement for its expenses related thereto, the
Administrator will be entitled to a monthly administration fee in an amount
equal to $1,500 per month, which fee will be paid by the Servicer out of the
Total Servicing Fee.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
SECURITY INTEREST IN VEHICLES
In all states in which the Receivables have been originated, Retail Notes
such as the Receivables evidence the credit sale of medium and heavy duty
trucks, buses and/or trailers by dealers to purchasers. The Retail Notes also
constitute personal property security agreements and include grants of
security interests in the vehicles under the UCC. Perfection of security
interests in the vehicles is generally governed by the motor vehicle
registration laws of the state in which the vehicle is located. In most states
in which the Receivables have been originated, a security interest in a
vehicle is perfected by a notation of the secured party's lien on the
vehicle's certificate of title. In a minority of other states, a security
interest in a vehicle is perfected by a filing of the secured party's lien
with the secretary of state, and no notation is made on the vehicle's
certificate of title.
With respect to each Trust, pursuant to the applicable Purchase Agreement,
NFC will assign its security interest in the Financed Vehicles securing the
related Receivables to the Seller, and pursuant to the applicable Pooling and
Servicing Agreement, the Seller will assign its security interest in the
Financed Vehicles securing such Receivables to the Owner Trust or the Grantor
Trustee, as applicable. However, because of the administrative burden and
expense, neither the Servicer nor the Trustee will amend any certificate of
title to identify the Trust as the new secured party on such certificate of
title relating to a Financed Vehicle. Also, the Servicer will continue to hold
any certificates of title relating to the vehicles in its possession as
custodian for the Seller and the applicable Trustee pursuant to a custodian
agreement entered into pursuant to the applicable Purchase Agreement and
Pooling and Servicing Agreement. See "The Transfer and Servicing Agreements--
Sale and Assignment of Receivables."
In most states, an assignment such as that under both the related Purchase
Agreement and the related Pooling and Servicing Agreement is an effective
conveyance of a security interest without amendment of any lien noted on a
vehicle's certificate of title, and the assignee succeeds thereby to the
assignor's rights as secured party. In the absence of fraud or forgery by the
vehicle owner or the Servicer or administrative error by state or local
agencies, the notation of the Servicer's lien on the certificates of title
will be sufficient to protect the related Trust against the rights of
subsequent purchasers of a Financed Vehicle from an Obligor or subsequent
lenders to an Obligor who take a security interest in a Financed Vehicle. If
there are any Financed Vehicles as to which the Servicer 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 the warranties of the Servicer under the applicable Pooling and
Servicing Agreement and would create an obligation of the Servicer to
repurchase the related Receivable unless the breach is cured. The Seller will
have no obligation to repurchase a Receivable with respect to which the
Trust's security interest, or the priority of NFC's security interest, in the
related Financed Vehicle or Financed Vehicles is lost because of fraud or
liens for taxes unpaid by the Obligor or repairs to the related Financed
Vehicle or Financed Vehicles. See "The Transfer and Servicing Agreements--Sale
and Assignment of Receivables." Similarly, the security interest of the
related Trust in the vehicle could be defeated through fraud or negligence
and, because the Trust is not identified as the secured party on the
certificate of title, by the bankruptcy petition of the Obligor.
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Under the laws of most states, the perfected security interest in a vehicle
would continue for four months after a vehicle is moved to a state other than
the state in which it is initially registered and thereafter until the vehicle
owner re-registers the vehicle in the new state. A majority of states
generally require surrender of a certificate of title to re-register a
vehicle. Accordingly, a secured party must surrender possession if it holds
the certificate of title to the vehicle or, in the case of vehicles registered
in states providing for the notation of a lien on the certificate of title but
not possession by the secured party, the secured party would receive notice of
surrender if the security interest is noted on the certificate of title. Thus,
the secured party would have the opportunity to re-perfect its security
interest in the vehicles in the state of relocation. In states that do not
require surrender of a certificate of title for registration of a motor
vehicle, re-registration could defeat perfection. In the ordinary course of
servicing receivables, the Servicer takes steps to effect re-perfection upon
receipt of notice of re-registration or information from the Obligors as to
relocation. Similarly, when an Obligor sells a vehicle, the Servicer 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 Receivables before release of the lien.
Under each applicable Pooling and Servicing 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 unpaid taxes take priority over even a perfected
security interest in a financed vehicle. The Code 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 by
governmental authorities 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. Under each Purchase
Agreement, NFC will have represented to the Seller that, as of the date of
issuance of the related Securities, each security interest in a Financed
Vehicle is or will be prior to all other present liens (other than tax liens
and other liens that arise by operation of law) upon and security interests in
such Financed Vehicle. The Seller will have assigned such representation,
among others, to the applicable Trustee pursuant to the related Pooling and
Servicing Agreement. However, liens for repairs or taxes, or the confiscation
of a Financed Vehicle, could arise at any time during the term of a
Receivable. No notice will be given to the applicable Trustee or, as
applicable, the Indenture Trustee or the Securityholder if such a lien or
confiscation arises.
REPOSSESSION
In the event of default by vehicle purchasers, the holder of the Retail Note
sale contract has all the remedies of a secured party under the UCC, except
where specifically limited by other state laws. Among the UCC remedies, the
secured party has the right to perform self-help repossession unless such act
would constitute a breach of the peace. Self-help is the method employed by
the Servicer in most cases and is accomplished simply by retaking possession
of the Financed Vehicle. In the event of default by the Obligor, some
jurisdictions require that the Obligor be notified of the default and be given
a time period to cure the default prior to repossession. Generally, the right
of reinstatement may be exercised on a limited number of occasions in any one-
year period. 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. A secured party may be held
responsible for damages caused by a wrongful repossession of a vehicle.
NOTICE OF SALE; REDEMPTION RIGHTS
The UCC and other state laws require the secured party to provide the
Obligor with reasonable notice of the date, time and place of any public sale
and/or the date after which any private sale of the collateral may be held.
The Obligor has the right to redeem the collateral prior to actual sale by
paying the secured party the unpaid principal balance of the obligation plus
reasonable expenses for repossessing, holding and preparing the collateral for
disposition and arranging for its sale, plus, in some jurisdictions,
reasonable attorneys' fees, or, in some states, by payment of past due
installments or the unpaid balance.
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DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of the vehicles generally will be applied first to
the expenses of resale and repossession and then to the satisfaction of the
indebtedness. In many instances, the remaining principal amount of such
indebtedness will exceed such proceeds. While some states impose prohibitions
or limitations on deficiency judgments if the net proceeds from resale do not
cover the full amount of the indebtedness, a deficiency judgment can be sought
in those states that do not prohibit or limit such judgments. However, the
deficiency judgment would be a personal judgment against the Obligor for the
shortfall, and a defaulting Obligor can be expected to have very little
capital or sources of income available following repossession. Therefore, in
many cases, it may not be useful to seek a deficiency judgment or, if one is
obtained, it may be settled at a significant discount.
Occasionally, after resale of a vehicle and payment of all expenses and all
indebtedness, there is a surplus of funds. In that case, the UCC requires the
creditor to remit the surplus to any holder of a lien with respect to the
vehicle or if no such lienholder exists or there are remaining funds, the UCC
requires the creditor to remit the surplus to the former owner of the vehicle.
LAWS GOVERNING CREDIT TRANSACTIONS
Numerous federal and state laws and regulations impose substantial
requirements upon creditors and servicers involved in credit transactions.
These laws include the Equal Credit Opportunity Act, the Federal Reserve
Board's Regulation B, the Soldiers' and Sailors' Civil Relief Act of 1940, and
state sales finance and other similar laws. Also, state laws impose finance
charge ceilings and other restrictions on credit transactions and require
contract disclosures not required under federal law. These requirements impose
specific statutory liabilities upon creditors who fail to comply with their
provisions. In some cases, this liability could affect an assignee's ability
to enforce Retail Notes such as the Receivables (or, if the Seller with
respect to a Receivable is not liable for indemnifying the Trust as assignee
of the Receivables from the Seller, failure to comply could impose liability
on the Trust in excess of the amount of the Receivable).
Courts have imposed general equitable principles upon secured parties
pursuing repossession and litigation involving deficiency balances. These
equitable principles may have the effect of relieving an Obligor from some or
all of the legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the
United States. Courts have generally upheld the notice provisions of the UCC
and related laws as reasonable or have found that the repossession and resale
by the creditor do not involve sufficient state action to afford
constitutional protection to consumers.
Under each Purchase Agreement, NFC will represent to the Seller that each
Receivable complies with all requirements of law in all material respects. The
Seller will have assigned such representation, among others, to the related
Owner Trust or Grantor Trustee, as applicable. Accordingly, if an Obligor has
a claim against the related Trust for violation of any law and such claim
materially and adversely affects such Trust's interest in a Receivable, such
violation would constitute a breach of representation and would create an
obligation to repurchase the Receivable unless the breach is cured. See "The
Transfer and Servicing Agreements--Sale and Assignment of Receivables."
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a secured
party to realize upon collateral or to enforce a deficiency judgment. For
example, in a Chapter 13 proceeding under the federal bankruptcy law, a court
may prevent a creditor from repossessing the Financed Vehicle, and,
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as part of the rehabilitation plan, reduce the amount of the secured
indebtedness to the market value of the Financed Vehicle at the time of
bankruptcy, leaving the creditor as a general unsecured creditor for the
remainder of the indebtedness. A bankruptcy court may also reduce the monthly
payments due under a Retail Note or change the rate of finance charge and time
of repayment of the indebtedness.
TRANSFER OF VEHICLES
The Receivables prohibit the sale or transfer of a Financed Vehicle without
the Servicer's consent and permit the Servicer to accelerate the maturity of
the Receivable upon a sale or transfer without the Servicer's consent. The
Servicer will not consent to a sale or transfer and will require prepayment of
the Receivable. Although the Servicer, as agent of the Trustee, may enter into
a transfer of equity agreement with the secondary purchaser for the purpose of
effecting the transfer of the vehicle, the new obligation will not be included
in the related Receivables Pool.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
Set forth below is a discussion of the anticipated material United States
federal income tax consequences of the purchase, ownership and disposition of
the Notes and Certificates offered hereunder. This discussion is based upon
current provisions of the Internal Revenue Code of 1986, as amended (the
"CODE"), existing and proposed Treasury regulations thereunder, current
administrative rulings, judicial decisions and other applicable authorities.
There are no cases or Internal Revenue Service ("IRS") rulings on similar
transactions involving both debt and equity interests issued by a trust with
terms similar to those of the Owner Securities. As a result, there can be no
assurance that the IRS will not challenge the conclusions reached herein, and
no ruling from the IRS has been or will be sought on any of the issues
discussed below. Furthermore, legislative, judicial or administrative changes
may occur, perhaps with retroactive effect, which could affect the accuracy of
the statements and conclusions set forth herein as well as the tax
consequences to Securityholders.
This discussion does not purport to deal with all aspects of federal income
taxation that may be relevant to the Securityholders in light of their
personal investment circumstances nor, except for certain limited discussions
of particular topics, to certain types of holders subject to special treatment
under the federal income tax laws (e.g., financial institutions, broker-
dealers, life insurance companies and tax-exempt organizations). This
information is directed to prospective purchasers who purchase Securities in
the initial distribution thereof, who are citizens or residents of the United
States, including domestic corporations and partnerships, and who hold the
Securities as "capital assets" within the meaning of Section 1221 of the Code.
Taxpayers and preparers of tax returns (including those filed by any
partnership or other issuer) should be aware that under applicable Treasury
regulations a provider of advice on specific issues of law is not considered
an income tax return preparer unless the advice is (i) given with respect to
events that have occurred at the time the advice is rendered and is not given
with respect to the consequences of contemplated actions, and (ii) is directly
relevant to the determination of an entry on a tax return. ACCORDINGLY,
TAXPAYERS SHOULD CONSULT THEIR OWN TAX ADVISORS AND TAX RETURN PREPARERS
REGARDING THE PREPARATION OF ANY ITEM ON A TAX RETURN, EVEN WHERE THE
ANTICIPATED TAX TREATMENT HAS BEEN DISCUSSED HEREIN. PROSPECTIVE INVESTORS
SHOULD CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE FEDERAL, STATE, LOCAL,
FOREIGN AND ANY OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF SECURITIES.
The following discussion addresses Securities falling into three general
categories: (i) Notes (other than Strip Notes or any other series of Notes
specifically identified as receiving different tax treatment in the related
Prospectus Supplement) which the Seller, the Servicer and the Noteholders will
agree to treat as indebtedness secured by the related Receivables, (ii)
Certificates representing interests in a trust fund which the Seller, the
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Servicer and the applicable Certificateholders will agree to treat as equity
interests in a grantor trust (a "TAX TRUST"), and (iii) Certificates
(including Strip Certificates) and Strip Notes, representing interests in a
trust fund which the Seller, the Servicer and the applicable holders will
agree to treat as equity interests in a partnership (a "TAX PARTNERSHIP"), in
each case for purposes of federal, state and local income and franchise taxes.
Certificates issued by a Tax Trust are referred to herein as "TRUST
CERTIFICATES", and Certificates (including Strip Certificates) and Strip Notes
issued by a Tax Partnership are referred to herein as "PARTNERSHIP
CERTIFICATES." The Prospectus Supplement for each series of Certificates will
indicate whether the related trust fund is a Tax Trust or a Tax Partnership.
For purposes of this discussion, references to a "CERTIFICATEHOLDER" or a
"HOLDER" are to the beneficial owner of a Trust Certificate, Partnership
Certificate, or both, as the context may require.
The following discussion takes into consideration the rules governing
original issue discount ("OID") that are set forth in Sections 1271-1275 of
the Code and in Treasury regulations issued under the OID provisions of the
Code.
THE NOTES
Characterization as Debt. With respect to each series of Notes (except for
Strip Notes and any series which is specifically identified as receiving
different tax treatment in the applicable Prospectus Supplement), regardless
of whether such Notes are issued by a Tax Trust or a Tax Partnership, Kirkland
& Ellis, special tax counsel to the Seller ("TAX COUNSEL"), will deliver its
opinion to the effect that, although no specific authority exists with respect
to the characterization for federal income tax purposes of securities having
the same terms as the Notes, based on the terms of the Notes, the transactions
relating to the Receivables as set forth herein, and the discussions of Trust
Certificates and Partnership Certificates below, the Notes will be treated as
debt for federal income tax purposes. The Seller, the Servicer and each
Noteholder, by acquiring an interest in a Note, will agree to treat the Notes
as indebtedness for federal, state and local income and franchise tax
purposes. See "Trust Certificates--Classification of Trusts and Trust
Certificates" or "Partnership Certificates--Classification of Partnerships and
Partnership Certificates" below for a discussion of the potential federal
income tax consequences to Noteholders if the IRS were successful in
challenging the characterization of a Tax Trust or a Tax Partnership for
federal income tax purposes.
Interest Income to Noteholders. Based on the foregoing opinion, interest on
the Notes will be taxable as ordinary income for Federal income tax purposes
when received by Noteholders utilizing the cash method of accounting and when
accrued by Noteholders utilizing the accrual method of accounting. Interest
received on the Notes may constitute "investment income" for purposes of
certain limitations of the Code concerning the deductibility of investment
interest expense.
Original Issue Discount.Although it is not anticipated that any series of
Notes will be issued at a greater than de minimis discount, a series of Notes
may nevertheless be deemed to have been issued with OID. First, under Treasury
regulations, interest payments on Notes may not be deemed payments of
"qualified stated interest" because (i) Noteholders do not have default
remedies ordinarily available to holders of debt instruments and (ii) no
penalties are imposed on the Seller or the applicable Trust as a result of any
failure to make timely interest payments. If a series of Notes does not pay
qualified stated interest, all of the taxable income thereon would be
includible in income as OID. Second, the IRS could take the position (under
regulations that have not yet been issued pursuant to section 1272(a)(6) of
the Code) that a series of Notes has OID. The holder of a Note that was
treated as having OID (including a cash method holder) would be required to
include OID on that Note in income for Federal income tax purposes on a
constant yield basis, resulting in the inclusion of income somewhat in advance
of the receipt of cash attributable to that income. These treatments would not
significantly affect an accrual method holder of Notes, although such
treatments would somewhat accelerate taxable income to a cash method holder by
in effect requiring such holder to report interest income on the accrual
method. Finally, even if a Note has OID falling within the de minimis
exception, the holder must include such OID in income proportionately as
principal payments are made on such Note. A holder who purchases a Note after
the initial distribution thereof at a discount that exceeds a statutorily
defined de minimis amount will be subject to the "market discount" rules of
the Code, and a holder who purchases a Note at a premium will be subject to
the bond premium amortization rules of the Code.
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A holder of a Note which has a fixed maturity date not more than one year
from the issue date of such Note (a "SHORT-TERM NOTE") will generally not be
required to include market discount on the Note in income as it accrues,
provided such holder is not an accrual method taxpayer, a bank, a broker or
dealer that holds the Note as inventory, a regulated investment company or
common trust fund, or the beneficial owner of certain pass-through entities
specified in the Code, or provided such holder does not hold the instrument as
part of a hedging transaction, or as a stripped bond or stripped coupon.
Instead, the holder of a Short-Term Note would include the market discount
accrued on the Note in gross income upon sale or exchange or at maturity, or
if such Note is payable in installments, as principal is paid thereon. Such a
holder would be required to defer deductions for any interest expense on an
obligation incurred to purchase or carry the Short-Term Note to the extent it
exceeds the sum of the interest income, if any, and market discount accrued on
such Note. However, a holder may elect to include market discount in income as
it accrues on all obligations having a maturity of one year or less held by
the holder in that taxable year or thereafter, in which case the deferral rule
of the preceding sentence will not apply. For purposes of this paragraph,
market discount accrues on a Short-Term Note on a ratable (straight-line)
basis, unless the holder irrevocably elects (under regulations to be issued by
the Treasury Department) with respect to such obligation to apply a constant
interest method, using the holder's yield to maturity and daily compounding.
Disposition of Notes. If a Noteholder sells a Note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of the Note to a particular Noteholder will equal the
holder's cost for the Note, increased by any OID, market discount and gain
previously included by such Noteholder in income with respect to the Note and
decreased by any bond premium previously amortized and any principal payments
previously received by such Noteholder with respect to such Note. Subject to
the market discount rules of the Code, any such gain or loss will be capital
gain or loss if the Note was held as a capital asset. Capital gain or loss
will be long-term if the Note was held by the holder for more than one year
and otherwise will be short-term. Any capital losses realized generally may be
used by a corporate taxpayer only to offset capital gains, and by an
individual taxpayer only to the extent of capital gains plus $3,000 of other
income.
Information Reporting and Backup Withholding. Each Tax Trust or Tax
Partnership will be required to report annually to the IRS, and to each
related Noteholder of record, the amount of interest paid on the Notes (and
the amount of interest withheld for federal income taxes, if any) for each
calendar year, except as to exempt holders (generally, corporations, tax-
exempt organizations, qualified pension and profit-sharing trusts, individual
retirement accounts, or nonresident aliens who provide certification as to
their status). Each holder (other than holders who are not subject to the
reporting requirements) will be required to provide to the related Tax Trust
or Tax Partnership, under penalties of perjury, a certificate containing the
holder's name, address, correct federal taxpayer identification number and a
statement that the holder is not subject to backup withholding. Should a
nonexempt Noteholder fail to provide the required certification, the Tax Trust
or Tax Partnership will be required to withhold, from interest otherwise
payable to the holder, 31% of such interest and remit the withheld amount to
the IRS as a credit against the holder's federal income tax liability.
Because the Seller will treat each Tax Trust as a grantor trust, each Tax
Partnership as a partnership and all Notes (except Strip Notes and others as
specifically identified in the related Prospectus Supplement) as indebtedness
for federal income tax purposes, the Seller will not comply with the tax
reporting requirements that would apply under any alternative
characterizations of a Tax Trust or Tax Partnership.
Tax Consequences to Foreign Noteholders. If interest paid (or accrued) to a
Noteholder who is a nonresident alien, foreign corporation or other non-United
States person (a "FOREIGN PERSON") is not effectively connected with the
conduct of a trade or business within the United States by the foreign person,
the interest generally will be considered "portfolio interest," and generally
will not be subject to United States federal income tax and withholding tax,
as long as the foreign person (i) is not actually or constructively a "10
percent shareholder" of the related Tax Trust, Tax Partnership, or the Seller
(including a holder of 10% of the applicable outstanding
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Certificates) or a "controlled foreign corporation" with respect to which the
related Tax Trust, Tax Partnership or the Seller is a "related person" within
the meaning of the Code, and (ii) provides an appropriate statement, signed
under penalties of perjury, certifying that the beneficial owner of the Note
is a foreign person and providing that foreign person's name and address. If
the information provided in this statement changes, the foreign person must so
inform the related Tax Trust or Tax Partnership within 30 days of such change.
The statement generally must be provided in the year a payment occurs or in
either of the two preceding years. If such interest were not portfolio
interest, then it would be subject to United States federal income and
withholding tax at a rate of 30 percent unless reduced or eliminated pursuant
to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) the gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person, and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year.
If the interest, gain or income on a Note held by a foreign person is
effectively connected with the conduct of a trade or business in the United
States by the foreign person, the holder (although exempt from the withholding
tax previously discussed if an appropriate statement is furnished) generally
will be subject to United States federal income tax on the interest, gain or
income at regular federal income tax rates. In addition, if the foreign person
is a foreign corporation, it may be subject to a branch profits tax equal to
30 percent of its "effectively connected earnings and profits" within the
meaning of the Code for the taxable year, as adjusted for certain items,
unless it qualifies for a lower rate under an applicable tax treaty.
TRUST CERTIFICATES
Classification of Trusts and Trust Certificates. With respect to each series
of Certificates identified in the related Prospectus Supplement as Trust
Certificates, Tax Counsel will deliver its opinion to the effect that the
related Tax Trust will not be taxable as an association or publicly traded
partnership taxable as a corporation, but should be classified as a grantor
trust under Sections 671 through 679 of the Code. For each such series, the
Seller, the Servicer and the Certificateholders will express in the Indenture
and the Pooling and Servicing Agreement and on the Trust Certificates their
intent that, for federal, state and local income and franchise tax purposes,
the Trust Certificates will represent an equity interest in the Tax Trust. The
Seller and each Certificateholder, by acquiring an interest in any such Trust
Certificate, will agree to treat such Trust Certificates as an equity interest
in the Tax Trust, for federal, state and local income and franchise tax
purposes. However, the proper characterization of the arrangement involving
the Tax Trust, the Trust Certificates, the Seller and the Servicer is not
clear because there is no authority on transactions closely comparable to that
contemplated herein.
Although, as described above, Tax Counsel will opine that each such Tax
Trust should properly be characterized as a grantor trust for federal income
tax purposes, such opinion is not binding on the IRS or the courts and no
assurance can be given that this characterization would prevail. If the IRS
were to contend successfully that any such Tax Trust is not a grantor trust,
such Tax Trust should be classified for federal income tax purposes as a
partnership which is not taxable as a corporation. The income reportable by
the holders of such Trust Certificates as partners could differ from the
income reportable by the holders of such Trust Certificates as grantors of a
grantor trust. However, it is not expected that such differences would be
material. See discussion of Partnership Certificates below.
If, however, the IRS were to contend successfully that a Tax Trust is an
association taxable as a corporation for federal income tax purposes, such Tax
Trust would be subject to federal and state income tax at corporate rates on
the income from the Receivables (reduced by deductions, including interest on
any Notes unless the Notes were treated as an equity interest). Any such
corporate income tax could materially reduce or eliminate cash that would
otherwise be distributable with respect to the related Trust Certificates and
any related Notes. The Certificateholders and, if the Notes were also treated
as an equity interest in the taxable corporation, the
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Noteholders could be liable for any such tax to the extent it is not paid by
the related Tax Trust. However, as described above, in the opinion of Tax
Counsel, each Tax Trust will not be classified as an association taxable as a
corporation because it will not have certain characteristics necessary for a
trust to constitute an association taxable as a corporation.
If a Tax Trust were classified for federal income tax purposes as a
partnership, the IRS might contend that it is a "publicly traded partnership"
taxable as a corporation. However, in the opinion of Tax Counsel, even if a
Tax Trust were treated as a publicly traded partnership, such Tax Trust would
not be taxable as a corporation because it would meet certain qualifying
income tests. Nonetheless, if the Tax Trust were treated as a publicly traded
partnership and the Notes were treated as equity interests in such a
partnership, certain holders could suffer adverse tax consequences. For
example, income to certain tax-exempt entities (including pension funds) would
likely be "unrelated business taxable income," and individual holders might be
subject to certain limitations on their ability to deduct their share of such
Tax Trust's expenses.
Despite Tax Counsel's opinion that a Tax Trust should be classified as a
grantor trust, the lack of cases or rulings on similar transactions, as
discussed above, permits a variety of alternative characterizations in
addition to the position to be taken that the Trust Certificates represent
equity interests in a grantor trust. For example, because Trust Certificates
will have certain features characteristic of debt, the Trust Certificates
might be considered indebtedness of a Tax Trust, the Seller or the Issuer.
Except as described above, any such characterization would not result in
materially adverse tax consequences to Certificateholders as compared to the
consequences from treatment of Trust Certificates as equity in a trust,
described below. The following discussion assumes that Trust Certificates
represent equity interests in a grantor trust.
Grantor Trust Treatment. As a grantor trust, a Tax Trust will not be subject
to federal income tax. Assuming that the Receivables are not characterized as
"stripped bonds" or otherwise recharacterized, in Tax Counsel's opinion each
Certificateholder will be required to report on its federal income tax return
its pro rata share of the entire income from the Receivables and any other
property in the related Tax Trust for the period during which it owns a Trust
Certificate, including interest or finance charges earned on the Receivables
and any gain or loss upon collection or disposition of the Receivables, in
accordance with such Certificateholder's method of accounting. A
Certificateholder using the cash method of accounting should take into account
its pro rata share of income as and when received by the Trustee. A
Certificateholder using an accrual method of accounting should take into
account its pro rata share of income as it accrues or is received by the
Trustee, whichever is earlier.
Assuming that the market discount rules do not apply, the portion of each
payment to a Certificateholder that is allocable to principal on the
Receivables will represent a recovery of capital, which will reduce the tax
basis of such Certificateholder's undivided interest in the Receivables. In
computing its federal income tax liability, a Certificateholder will be
entitled to deduct, consistent with its method of accounting, its pro rata
share of interest paid on any related Notes, reasonable servicing fees, and
other fees paid or incurred by the related Tax Trust as provided in Section
162 or 212 of the Code. If a Certificateholder is an individual, estate or
trust, the deduction for such Certificateholder's pro rata share of such fees
will be allowed only to the extent that all of such Certificateholder's
miscellaneous itemized deductions, including such fees, exceed 2% of such
Certificateholder's adjusted gross income. In addition, in the case of
Certificateholders who are individuals, certain otherwise allowable itemized
deductions will be reduced, but not by more than 80%, by an amount equal to 3%
of the Certificateholder's adjusted gross income in excess of a statutorily
defined threshold (which was $117,950 in the case of a married couple filing
jointly for a taxable year beginning in 1996). Because the Servicer will not
report to Certificateholders the amount of income or deductions attributable
to miscellaneous charges, such a Certificateholder may effectively underreport
its net taxable income. See "Treatment of Fees" below for a discussion of
other possible consequences if amounts paid to the Servicer exceed reasonable
compensation for services rendered.
Treatment of Fees. The Servicer intends to report income to
Certificateholders on the assumption that the Certificateholders own a 100%
interest in all of the principal and interest derived from the related
Receivables. However, a portion of the amounts paid to the Servicer or the
Seller may exceed reasonable fees for services
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rendered, by reason of the extent to which either the weighted average APR of
the Receivables, or the individual stated APRs of some of the Receivables,
exceeds the Pass Through Rate. There are no authoritative guidelines, for
federal income tax purposes, as to the maximum amount of compensation that may
be considered reasonable for servicing the Receivables or performing other
services, in the context of this or similar transactions; accordingly, Tax
Counsel is unable to give an opinion on this issue. If amounts paid to the
Servicer or the Seller exceed reasonable compensation for services provided,
the Servicer or the Seller or both may be viewed as having retained, for
federal income tax purposes, an ownership interest in a portion of each
interest payment with respect to certain Receivables. As a result, such
Receivables may be treated as "stripped bonds" within the meaning of the Code.
To the extent that the Receivables were characterized as "stripped bonds,"
the income and deductions of the related Tax Trust allocable to
Certificateholders would not include the portion of the interest on the
Receivables treated as having been retained by the Servicer or the Seller, as
the case may be, and such Tax Trust's deductions would be limited to
reasonable servicing fees, interest paid on any related Notes and other fees.
In addition, a Certificateholder would not be subject to the market discount
and premium rules discussed below with respect to the stripped Receivables,
but instead would be subject to the OID rules of the Code. However, if the
price at which a Certificateholder were deemed to have acquired a stripped
Receivable is less than the remaining principal balance of such Receivable by
an amount which is less than a statutorily defined de minimis amount, such
Receivable would not be treated as having OID. In general, under Treasury
regulations it appears that the amount of OID on a Receivable treated as a
"stripped bond" will be de minimis if it is less than 1/4 of 1% for each full
year remaining after the purchase date until the final maturity of the
Receivable, although the IRS could take the position that the weighted average
maturity date, rather than the final maturity date, should be used in
performing this calculation. If the amount of OID is de minimis under this
rule, the actual amount of discount on such a Receivable would be includible
in income as principal payments are received on the Receivable.
If the OID on a Receivable were not treated as de minimis, a
Certificateholder would be required to include any OID in income as it
accrues, regardless of when cash payments are received, using a method
reflecting a constant yield on the Receivables. It is possible that the IRS
could assert that a prepayment assumption should be used in computing the
yield of a stripped Receivable. If a stripped Receivable is deemed to be
acquired by a Certificateholder at a significant discount, such prepayment
assumption could accelerate the accrual of income by a Certificateholder. No
representation is made, nor is Tax Counsel able to give an opinion, that
Receivables will prepay at any particular rate. Prospective investors are
urged to consult their own tax advisors regarding the likelihood that a
portion of the amounts paid to the Servicer or Seller might be characterized
other than as compensation for services rendered for federal income tax
purposes.
It is also possible that any fees deemed to be excessive could be
recharacterized as deferred purchase price payable to the Seller by
Certificateholders in exchange for the related Receivables. The likely effect
of such recharacterization would be to increase current taxable income to a
Certificateholder.
Discount and Premium. The following discussion generally assumes that the
fees and other amounts payable to the Servicer and the Seller will not be
recharacterized as being retained ownership interests in the Receivables (as
discussed above). A purchaser of a Trust Certificate should be treated as
purchasing an interest in each Receivable and any other property in the
related Tax Trust at a price determined by allocating the purchase price paid
for the Trust Certificate among the Receivables and other property in
proportion to their fair market values at the time of purchase of the Trust
Certificate.
It is believed that the Receivables were not and will not be issued with OID
and, therefore, a Tax Trust should not have OID income. However, the purchase
price paid by said Tax Trust for the Receivables may be greater or less than
the remaining principal balance of the Receivables at the time of purchase. If
so, the Receivables will have been acquired at a premium or market discount,
as the case may be. The market discount on a Receivable will be considered to
be zero if it is less than the statutorily defined de minimis amount.
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Any gain on the sale of a Trust Certificate attributable to the holder's
share of unrecognized accrued market discount on the related Receivables would
generally be treated as ordinary income to the holder and would give rise to
special tax reporting requirements. Moreover, a holder who acquires a Trust
Certificate representing an interest in Receivables acquired at a market
discount may be required to defer a portion of any interest expense otherwise
deductible with respect to indebtedness incurred or maintained to purchase or
carry the Trust Certificate until the holder disposes of the Trust Certificate
in a taxable transaction. Instead of recognizing market discount, if any, upon
a disposition of Trust Certificates (and deferring any applicable interest
expense), a holder may elect to include market discount in income currently as
the discount accrues. The current inclusion election, once made, applies to
all market discount obligations acquired on or after the first day of the
first taxable year to which the election applies, and may not be revoked
without the consent of the IRS.
In the event that a Receivable is treated as purchased at a premium (i.e.,
the allocable portion of the Certificateholder's purchase price for the
related Trust Certificate exceeds the remaining principal balance of the
Receivable), such premium will be amortizable by a Certificateholder as an
offset to interest income (with a corresponding reduction in basis) under a
constant yield method over the term of the Receivable if the Certificateholder
makes an election under Section 171 of the Code with respect to the
Receivables. Any such election will also apply to debt instruments held by the
Certificateholder during the year in which the election is made and to all
debt instruments acquired thereafter.
Disposition of Trust Certificates. Generally, capital gain or loss will be
recognized on a sale of Trust Certificates in an amount equal to the
difference between the amount realized and the seller's tax basis in the Trust
Certificates sold. A Certificateholder's tax basis in a Trust Certificate will
generally equal his cost increased by his share of the Tax Trust's income
(includible in his income) and decreased by any distributions received with
respect to such Trust Certificate. Any gain on the sale of a Trust Certificate
attributable to the holder's share of unrecognized accrued market discount on
the related Receivables would generally be treated as ordinary income to the
holder and would give rise to special tax reporting requirements, unless a
Certificateholder makes the special election described under "Discount and
Premium" above.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Trust Certificates that exceeds the
aggregate cash distributions with respect thereto, such excess will generally
give rise to a capital loss upon the retirement of the Trust Certificates.
Backup Withholding. Distributions made on Trust Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding
tax of 31% if, as discussed above with respect to the Notes, the
Certificateholder fails to comply with certain identification procedures,
unless the holder is an exempt recipient under applicable provisions of the
Code.
Tax Consequences to Foreign Trust Certificateholders. Interest attributable
to Receivables which is received by a Certificateholder which is a foreign
person will generally not be subject to the normal 30% withholding tax imposed
with respect to such payments, provided that such Certificateholder is not
engaged in a trade or business in the United States and that such
Certificateholder fulfills the certification requirements discussed above
under "--The Notes: Tax Consequences to Foreign Noteholders."
PARTNERSHIP CERTIFICATES
Classification of Partnerships and Partnership Certificates. With respect to
each series of Certificates identified in the related Prospectus Supplement as
Partnership Certificates, the Seller and the Servicer will agree, and the
Certificateholders will agree by their purchase of such Partnership
Certificates, to treat the Tax Partnership as a partnership for purposes of
federal, state and local income and franchise tax purposes, with the partners
of such Partnership being the Certificateholders and the Seller (in its
capacity as recipient of distributions from the Reserve Account), and any
related Notes being debt of such Tax Partnership. However, the proper
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characterization of the arrangement involving the Tax Partnership, the
Partnership Certificates, the Seller and the Servicer is not clear because
there is no authority on transactions closely comparable to that contemplated
herein.
If the Tax Partnership were an association taxable as a corporation for
federal income tax purposes, such Tax Partnership would be subject to
corporate income tax. Any such corporate income tax could materially reduce or
eliminate cash that would otherwise be distributable with respect to the
Partnership Certificates (and Certificateholders could be liable for any such
tax that is unpaid by such Tax Partnership). However, upon the issuance of
each series of Partnership Certificates, Tax Counsel will deliver its opinion
generally to the effect that such Tax Partnership will not be classified as an
association taxable as a corporation because it will not have certain
characteristics necessary for a trust to be an association taxable as a
corporation.
Even if a Tax Partnership were not an association taxable as a corporation,
it would be subject to corporate income tax if it were a "publicly traded
partnership" taxable as a corporation. However, in the opinion of Tax Counsel,
even if such Tax Partnership were treated as a publicly traded partnership, it
would not be taxable as a corporation because it would meet certain qualifying
income tests. Nonetheless, if a Tax Partnership were treated as a publicly
traded partnership and the Partnership Certificates were treated as equity
interests in such a partnership, certain holders could suffer adverse
consequences. For example, income to certain tax-exempt entities (including
pension funds) would likely be "unrelated business taxable income," and
individual holders might be subject to certain limitations on their ability to
deduct their share of the Tax Partnership's expenses.
Despite Tax Counsel's opinion that a Tax Partnership will be classified as a
partnership and not as an association or publicly traded partnership taxable
as a corporation, the lack of cases or rulings on similar transactions, as
discussed above, permits a variety of alternative characterizations in
addition to the position to be taken that the Partnership Certificates
represent equity interests in a partnership. For example, because the
Partnership Certificates will have certain features characteristic of debt,
the Partnership Certificates might be considered indebtedness of the Tax
Partnership, the Seller or the Issuer. Except as described above, any such
characterization would not result in materially adverse tax consequences to
Certificateholders as compared to the consequences from treatment of the
Partnership Certificates as equity in a partnership, described below. The
following discussion assumes that the Partnership Certificates represent
equity interests in a partnership.
Partnership Taxation. As a partnership, a Tax Partnership will not be
subject to federal income tax, but each Certificateholder will be required to
take into account separately such holder's allocated share of income, gains,
losses, deductions and credits of such Tax Partnership. The Tax Partnership's
income will consist primarily of interest and finance charges earned on the
related Receivables (including appropriate adjustments for market discount,
OID, and bond premium) and any gain upon collection or disposition of such
Receivables. The Tax Partnership's deductions will consist primarily of
interest accruing with respect to any related Notes, servicing and other fees,
and losses or deductions upon collection or disposition of the related
Receivables.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (with
respect to any series of Partnership Certificates, the Owner Trust Agreement
and related documents). Each Owner Trust Agreement for a Tax Partnership will
provide that the Certificateholders will be allocated taxable income of the
related Tax Partnership for each month equal to the sum of (i) the Pass
Through Rate on the related Partnership Certificates for such month; (ii) an
amount equivalent to interest that accrues during such month on amounts
previously due on such Partnership Certificates but not yet distributed; (iii)
any Tax Partnership income attributable to discount on the related Receivables
that corresponds to any excess of the principal amount of the Partnership
Certificates over their initial issue price; and (iv) any Prepayment Surplus
payable to holders of the Partnership Certificates for such month. If the Tax
Partnership issues any Strip Notes or Strip Certificates, it will also provide
that the related Certificateholders will be allocated taxable income of such
Tax Partnership for each month in the amounts described in the related
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Prospectus Supplement. All taxable income of the Tax Partnership remaining
after the allocations to the Certificateholders will be allocated to the
Seller. It is believed that the allocations to Certificateholders will be
valid under applicable Treasury regulations, although no assurance can be
given that the IRS would not require a greater amount of income to be
allocated to Certificateholders. Moreover, even under the foregoing method of
allocation, Certificateholders may be allocated income equal to the entire
Pass Through Rate plus the other items described above, and holders of Strip
Notes or Strip Certificates may be allocated income equal to the amount
described in the related Prospectus Supplement, even though the related Tax
Partnership might not have sufficient cash to make current cash distributions
of such amount. Thus, cash method holders will in effect be required to report
income from the Partnership Certificates on the accrual method. In addition,
because tax allocations and tax reporting will be done on a uniform basis for
all Certificateholders but Certificateholders may be purchasing Partnership
Certificates at different times and at different prices, Certificateholders
may be required to report on their tax returns taxable income that is greater
or less than the amount reported to them by the related Tax Partnership.
Additionally, all of the taxable income allocated to a Certificateholder
that is a pension, profit sharing or employee benefit plan or other tax-exempt
entity (including an individual retirement account) will likely constitute
"unrelated business taxable income" generally taxable to such a holder under
the Code.
An individual taxpayer may generally deduct miscellaneous itemized
deductions (which do not include interest expense) only to the extent they
exceed two percent of adjusted gross income and certain additional limitations
may apply. Those limitations would apply to an individual Certificateholder's
share of expenses of a Tax Partnership (including fees to the Servicer) and
might result in such holder being taxed on an amount of income that exceeds
the amount of cash actually distributed to such holder over the life of such
Tax Partnership.
Each Tax Partnership intends to make all tax calculations relating to income
and allocations to Certificateholders on an aggregate basis. If the IRS were
to require that such calculations be made separately for each Receivable, a
Tax Partnership might be required to incur additional expense but it is
believed that there would not be a material adverse effect on
Certificateholders.
Discount and Premium. It is believed that the Receivables were not and will
not be issued with OID and, therefore, a Tax Partnership should not have OID
income. However, the purchase price paid by such Tax Partnership for the
related Receivables may be greater or less than the remaining principal
balance of such Receivables at the time of purchase. If so, such Receivables
will have been acquired at a premium or market discount, as the case may be.
(As indicated above, each Tax Partnership will make this calculation on an
aggregate basis, but might be required to recompute it on a Receivable by
Receivable basis.)
Each Tax Partnership will make an election that will result in any market
discount on the related Receivables being included in income currently as such
discount accrues over the life of such Receivables. As indicated above, a
portion of such market discount income will be allocated to
Certificateholders.
Section 708 Termination. Under Section 708 of the Code, a Tax Partnership
will be deemed to terminate for federal income tax purposes if 50% or more of
the capital and profits interests in such Tax Partnership are sold or
exchanged within a 12-month period. If such a termination occurs, a Tax
Partnership will be considered to distribute its assets to the partners (i.e.,
Certificateholders and the Seller), who would then be treated as
recontributing those assets to a Tax Partnership, as a new partnership.
Proposed regulations would treat a termination as a contribution by the Tax
Partnership of all of its assets to a new partnership followed by a
liquidation of the original Tax Partnership. A Tax Partnership will not comply
with certain technical requirements that might apply when such a constructive
termination occurs. As a result, such Tax Partnership may be subject to
certain tax penalties and may incur additional expenses if it is required to
comply with those requirements. Furthermore, a Tax Partnership might not be
able to comply due to lack of data.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale or other taxable disposition of Partnership Certificates
in an amount equal to the difference between the amount realized and
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the seller's tax basis in the Partnership Certificates sold. A
Certificateholder's tax basis in a Partnership Certificate will generally
equal his cost increased by his share of the related Tax Partnership's income
(includible in his income) and decreased by any distributions received with
respect to such Partnership Certificate. In addition, both tax basis in the
Partnership Certificates and the amount realized on a sale of a Partnership
Certificate would include the holder's share of any related Notes and other
liabilities of such Tax Partnership. A holder acquiring Partnership
Certificates of the same series at different prices may be required to
maintain a single aggregate adjusted tax basis in such Partnership
Certificates, and, upon sale or other taxable disposition of some of the
Partnership Certificates, allocate a pro rata portion of such aggregate tax
basis to the Partnership Certificates sold (rather than maintaining a separate
tax basis in each Partnership Certificate for purposes of computing gain or
loss on a sale or other taxable disposition of that Partnership Certificate).
Any gain on the sale or other taxable deposition of a Partnership
Certificate attributable to the holder's share of unrecognized accrued market
discount on the related Receivables would generally be treated as ordinary
income to the holder and would give rise to special tax reporting
requirements. No Tax Partnership expects to have any other assets that would
give rise to such special reporting requirements. Thus, to avoid those special
reporting requirements, each Tax Partnership will elect to include market
discount in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Partnership Certificates that exceeds
the aggregate cash distributions with respect thereto, such excess will
generally give rise to a capital loss upon the retirement of the Partnership
Certificates.
Allocations Between Transferors and Transferees. In general, each Tax
Partnership's taxable income and losses will be determined monthly and the tax
items for a particular calendar month will be apportioned among the
Certificateholders in proportion to the principal amount of the Partnership
Certificates or a fractional share of the Strip Notes or Strip Certificates
owned by them as of the first Record Date following the end of such month. As
a result, a holder purchasing Partnership Certificates may be allocated tax
items (which will affect its tax liability and tax basis) attributable to
periods before its actual purchase.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or
losses of a Tax Partnership might be reallocated among the Certificateholders.
The Trustee is authorized to revise a Tax Partnership's method of allocation
between transferors and transferees to conform to a method permitted by future
regulations.
Section 754 Election. In the event that a Certificateholder sells its
Partnership Certificate at a profit (loss), the purchasing Certificateholder
will have a higher (lower) basis in the Partnership Certificates than the
selling Certificateholder had. The tax basis of the related Tax Partnership's
assets would not be adjusted to reflect that higher (or lower) basis unless
such Tax Partnership were to file an election under Section 754 of the Code.
In order to avoid the administrative complexities that would be involved in
keeping accurate accounting records, as well as potentially onerous
information reporting requirements, a Tax Partnership will not make such
election. As a result, Certificateholders might be allocated a greater or
lesser amount of Tax Partnership income than would be based on their own
purchase price for Partnership Certificates.
Administrative Matters. For each Tax Partnership, the related Trustee is
required to keep or have kept complete and accurate books of each Tax
Partnership. Such books will be maintained for financial reporting and tax
purposes on an accrual basis and the fiscal year of each Tax Partnership will
be the calendar year. The Trustee will file a partnership information return
(IRS Form 1065) with the IRS for each taxable year of such Tax Partnership and
will report each Certificateholder's allocable share of items of Tax
Partnership income and expense to holders and the IRS on Schedule K-1. Each
Tax Partnership will provide the Schedule
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K-1 information to nominees that fail to provide such Tax Partnership with the
information statement described below and such nominees will be required to
forward such information to the beneficial owners of the related Partnership
Certificates. Generally, holders must file tax returns that are consistent
with the information return filed by the related Tax Partnership or be subject
to penalties unless the holder notifies the IRS of all such inconsistencies.
Under Code Section 6031, any person that holds Partnership Certificates as a
nominee at any time during a calendar year is required to furnish the related
Tax Partnership with a statement containing certain information on the
nominee, the beneficial owners and the Partnership Certificates so held. Such
information includes (i) the name, address and taxpayer identification number
of the nominee and (ii) as to each beneficial owner (x) the name, address and
taxpayer identification number of such person, (y) whether such person is a
United States person, a tax-exempt entity or a foreign government, an
international organization, or any wholly-owned agency or instrumentality of
any of the foregoing, and (z) certain information on Partnership Certificates
that were held, bought or sold on behalf of such person throughout the year.
In addition, brokers and financial institutions that hold Partnership
Certificates through a nominee are required to furnish directly to the related
Tax Partnership information as to themselves and their ownership of
Partnership Certificates. A clearing agency registered under Section 17A of
the Exchange Act is not required to furnish any such information statement to
a Tax Partnership. The information referred to above for any calendar year
must be furnished to the related Tax Partnership on or before the following
January 31. Nominees, brokers and financial institutions that fail to provide
the Tax Partnership with the information described above may be subject to
penalties.
The Seller, as the tax matters partner for each Tax Partnership, will be
responsible for representing the Certificateholders in any dispute with the
IRS. The Code provides for administrative examination of a partnership as if
the partnership were a separate and distinct taxpayer. Generally, the statute
of limitations for partnership items does not expire before three years after
the date on which the partnership information return is filed. Any adverse
determination following an audit of the return of a Tax Partnership by the
appropriate taxing authorities could result in an adjustment of the returns of
the Certificateholders and, under certain circumstances, a Certificateholder
may be precluded from separately litigating a proposed adjustment to the items
of the related Tax Partnership. An adjustment could result in an audit of a
Certificateholder's returns and adjustments of items not related to the income
and losses of the related Tax Partnership.
Tax Consequences to Foreign Certificateholders. It is not clear whether any
Tax Partnership would be considered to be engaged in a trade or business in
the United States for purposes of Federal withholding taxes with respect to
non-U.S. persons because there is no clear authority regarding that issue
under facts substantially similar to those described herein. Although it is
not expected that any Tax Partnership would be engaged in a trade or business
in the United States for such purposes, such Tax Partnership will withhold as
if it were so engaged in order to protect such Tax Partnership from possible
adverse consequences of a failure to withhold. It is expected that each Tax
Partnership will withhold on the portion of its taxable income that is
allocable to foreign Certificateholders pursuant to Code Section 1446, as if
such income were effectively connected to a U.S. trade or business, at a rate
of 35% for foreign holders that are taxable as corporations and 39.6% for all
other foreign holders. Subsequent adoption of Treasury regulations or issuance
of other administrative pronouncements may require a Tax Partnership to change
its withholding procedures. In determining a holder's nonforeign status, a Tax
Partnership may rely on IRS Form W-8, IRS Form W-9 or the holder's
certification of nonforeign status signed under penalties of perjury.
Each foreign holder might be required to file a U.S. individual or corporate
income tax return and pay tax (including, in the case of a corporation, the
branch profits tax) on its share of the related Tax Partnership's income. Each
foreign holder must obtain a taxpayer identification number from the IRS and
submit that number to the related Tax Partnership on Form W-8 in order to
assure appropriate crediting of the taxes withheld. A foreign holder generally
would be entitled to file with the IRS a claim for refund with respect to
taxes withheld by the related Partnership, taking the position that no taxes
were due because such Tax Partnership was not engaged in a U.S. trade or
business. However, the IRS may assert that the tax liability should be based
on gross income, and no assurance can be given as to the appropriate amount of
tax liability.
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Backup Withholding. Distributions made on any Partnership Certificates and
proceeds from sale of such Partnership Certificates will be subject to a
"backup" withholding tax of 31% if, as discussed above with respect to the
Notes, the Certificateholder fails to comply with certain identification
procedures, unless the holder is an exempt recipient under applicable
provisions of the Code.
The United States Treasury Department has issued proposed regulations that,
if finalized, would impose certain new requirements for establishing an
exemption from backup withholding.
CERTAIN STATE TAX MATTERS
The State of Illinois imposes a state income tax on individuals,
corporations, partners in partnerships and beneficiaries of trusts earning
income in, or as residents of, the State of Illinois. The State of Illinois
imposes a Personal Property Replacement Income Tax ("Illinois Replacement
Tax") on individuals, corporations, partnerships and trusts earning income in,
or as residents of, the State of Illinois. The State of Illinois also imposes
a franchise tax on corporations doing business in Illinois. Most of the
activities to be undertaken by the Servicer in servicing and collecting the
Receivables will take place in Illinois and, if such activities were
attributed to a Tax Partnership, could result in the imposition of the
Illinois Replacement Tax on such Tax Partnership. This discussion is based
upon present provisions of Illinois statutes and the regulations promulgated
thereunder, and applicable judicial or ruling authority, all of which are
subject to change, which change may be retroactive. No ruling on any of the
issues discussed below will be sought from the Illinois Department of Revenue.
THE NOTES
If the Notes are characterized as indebtedness for federal income tax
purposes, in the opinion of Tax Counsel, although the matter is not free from
doubt, this treatment would also apply for Illinois tax purposes. If the Notes
are characterized as debt, Noteholders not otherwise subject to taxation in
Illinois will not, although the matter is not free from doubt, become subject
to such taxes solely because of their ownership of Notes. Noteholders already
subject to taxation in Illinois, however, could be required to pay tax on or
measured by interest income (including original issue discount, if any)
generated by, and on gain from the disposition of, Notes.
TRUST CERTIFICATES
If the arrangement created by the Trust Agreement is a Tax Trust which is
treated as a grantor trust under Sections 671 through 679 of the Code for
federal income tax purposes, in the opinion of Tax Counsel, although the
matter is not free from doubt, the same treatment would also apply for
Illinois tax purposes. In such case, the Tax Trust should not be treated as
earning income in the State of Illinois, but rather should be viewed as a
passive holder of investments and, as a result, should not be subject to the
Illinois Replacement Tax (which, if applicable, could possibly result in
reduced distributions to Noteholders and Certificateholders).
PARTNERSHIP CERTIFICATES
If the arrangement created by the Trust Agreement is a Tax Partnership which
is treated as a partnership (not taxable as a corporation) for federal income
tax purposes, in the opinion of Tax Counsel, although the matter is not free
from doubt, the same treatment would also apply for Illinois tax purposes. In
such case, the Tax Partnership should not be treated as earning income in the
State of Illinois but rather should be viewed as a passive holder of
investments and, as a result, should not be subject to the Illinois
Replacement Tax (which, if applicable, could possibly result in reduced
distributions to Noteholders and Certificateholders).
Under current law, Certificateholders that are nonresidents of the State of
Illinois and are not otherwise subject to Illinois income tax and Illinois
Replacement Tax should not be subject to Illinois income tax and Illinois
Replacement Tax on income from a Tax Trust or a Tax Partnership. In any event,
classification of the arrangement as a "grantor trust" or a "partnership"
would not cause a Certificateholder not otherwise
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subject to taxation in Illinois to pay Illinois tax on income beyond that
derived from the Certificates. Certificateholders already subject to taxation
in Illinois, however, could be required to pay tax on or measured by interest
income (including original issue discount, if any) generated by, and on gain
from the disposition of, Notes and Certificates.
RISKS OF ALTERNATIVE CHARACTERIZATION
If Trust Certificates or Partnership Certificates were instead treated as
ownership interests in an association taxable as a corporation or a "publicly
traded partnership" taxable as a corporation for federal income tax purposes,
then the hypothetical entity could be subject to the Illinois income tax, the
Illinois Replacement Tax, or the Illinois franchise tax (which, if applicable,
could result in reduced distributions to Certificateholders). A Noteholder or
Certificateholder not otherwise subject to tax in Illinois should not itself
become subject to Illinois income tax or Illinois Replacement Tax as a result
of its mere ownership of such an interest.
OTHER STATES
Certain servicing and collection activities will be undertaken by the
Servicer in other jurisdictions throughout the United States, including
California, Georgia, New Jersey, Ohio, Texas and Wisconsin, and by the
Indenture Trustee in Delaware. The above discussion does not address the tax
treatment of any Tax Trust, Tax Partnership, Notes, Certificates, Noteholders
or Certificateholders under any of these, or any other, state or local tax
laws. Prospective investors are urged to consult with their own tax advisors
regarding the state and local tax treatment of any Tax Trust or Tax
Partnership, as well as any state and local tax consequences to them of
purchasing, holding and disposing of Notes or Certificates.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the Code prohibit a pension, profit
sharing or other employee benefit plan, as well as individual retirement
accounts and certain types of Keogh Plans, all as defined at Section 3(3) of
ERISA or described in Section 4975(e)(i) of the Code (each a "BENEFIT PLAN",
collectively, "Benefit Plans"), from engaging in certain transactions with
persons that are "parties in interest" under ERISA or "disqualified persons"
under the Code with respect to such Benefit Plan. A violation of these
"prohibited transaction" rules may generate excise tax and other liabilities
under ERISA and the Code for such persons. For purposes of the "prohibited
transaction" rules and the following discussion, certain insurance company
accounts, bank collective funds and other entities whose assets include
significant investment by Benefit Plans are treated as if they are investing
directly on behalf of each such Benefit Plan, under a regulation issued by the
DOL (the "PLAN ASSETS REGULATION").
The acquisition or holding of Securities by or on behalf of a Benefit Plan
could in some circumstances be considered to give rise to a prohibited
transaction if the Seller, the applicable Trustee, the Servicer or any of
their respective affiliates is or becomes a party in interest or a
disqualified person with respect to such Benefit Plan. Certain exemptions from
the prohibited transaction rules granted by the U.S. Department of Labor
("DOL") could be applicable to the purchase and holding of Securities by a
Benefit Plan depending on the type and circumstances of the plan fiduciary
making the decision to acquire such Securities. Included among these
exemptions are: Prohibited Transaction Class Exemption ("PTCE") 90-1,
regarding investments by insurance company pooled separate accounts; PTCE 91-
38, regarding investments by bank collective investment funds; and PTCE 84-14,
regarding transactions effected by "qualified professional asset managers." In
addition, it is anticipated that the Underwriter's Exemption discussed below
will apply to the purchase of Class A Certificates.
Certain transactions involving a Trust might also be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Benefit
Plan that purchased Securities if assets of the Trust were
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deemed to be assets of the Benefit Plan. Under the Plan Assets Regulation, the
assets of the Trust would be treated as plan assets of a Benefit Plan for the
purposes of ERISA and the Code only if the Benefit Plan acquired an "equity
interest" in the Trust and none of the exceptions contained in the Plan Assets
Regulation was applicable. An equity interest is defined under the Plan Assets
Regulation as an interest other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features.
The likely treatment under the Plan Assets Regulation of Owner Securities is
discussed in the related Prospectus Supplement. It is anticipated that Notes
issued by an Owner Trust will not be subject to the Plan Assets Regulation and
that they will therefore be available for investment by a Benefit Plan subject
to a determination by the fiduciary of such Benefit Plan that such purchase
will not constitute a nonexempt prohibited transaction and is otherwise an
appropriate investment. It is not anticipated that Owner Certificates will be
available for purchase by a Benefit Plan.
It is anticipated that the Class A Certificates will be subject to the Plan
Assets Regulation. However, unless otherwise provided in an applicable
Prospectus Supplement, Class A Certificates issued by a Grantor Trust will be
made available for purchase by a Benefit Plan in reliance on an administrative
exemption (an "UNDERWRITER'S EXEMPTION") which has been granted by the DOL to
the underwriter specified in the related Prospectus Supplement. The
Underwriter's Exemption prevents the application of certain of the prohibited
transaction and conflict of interest rules of ERISA with respect to the
initial purchase, the holding and the subsequent resale by Benefit Plans of
certificates in pass-through trusts with respect to which such underwriter is
the sole underwriter or the manager or co-manager of the underwriting
syndicate and that consist of certain receivables, loans and other obligations
that meet the conditions and requirements of such Underwriter's Exemption. The
receivables covered by an Underwriter's Exemption include motor vehicle
installment obligations such as the Receivables. An Underwriter's Exemption
will apply only if specific conditions (certain of which are described below)
are met. Unless otherwise provided in the related Prospectus Supplement, the
Seller believes that an Underwriter's Exemption will apply to the acquisition
and holding of each series of Class A Certificates by Benefit Plans and that
all conditions of such Underwriter's Exemption other than those within the
control of the investors have been or will be met.
Among the conditions which must be satisfied for an Underwriter's Exemption
to apply to the acquisition by a Benefit Plan of Class A Certificates are the
following:
(1) The acquisition of the Class A Certificates by a Benefit Plan is on
terms (including the price for the Certificates) that are at least as
favorable to the Benefit Plan as they would be in an arm's-length
transaction with an unrelated party;
(2) The rights and interests evidenced by the Class A Certificates
acquired by the Benefit Plan are not subordinated to the rights and
interests evidenced by other certificates of the related Grantor Trust;
(3) The Class A Certificates acquired by the Benefit Plan have received a
rating at the time of such acquisition that is in one of the three highest
generic rating categories from Standard & Poor's Corporation, Moody's
Investors Service, Inc., Duff & Phelps Credit Rating Co. or Fitch Investors
Service, Inc.;
(4) The sum of all payments made to the related underwriters in
connection with the distribution of such Class A Certificates represents
not more than reasonable compensation for underwriting such Class A
Certificates. The sum of all payments made to and retained by the Seller
pursuant to the sale of the Receivables to the related Grantor Trust
represents not more than the fair market value of such Receivables. The sum
of all payments made to and retained by the Servicer represents not more
than reasonable compensation for the Servicer's services as servicer under
the related Agreement and reimbursement of the Servicer's reasonable
expenses in connection therewith;
(5) The Grantor Trustee is not an "affiliate" (as defined in the
Exemption) of any other member of the Restricted Group (as defined below);
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(6) The Benefit Plan investing in the Class A Certificates is an
"accredited investor" as defined in Rule 501(a)(1) of Regulation D of the
Commission under the Securities Act; and
(7) The related Grantor Trust satisfies the following requirements:
(a) the corpus of such Grantor Trust consists solely of assets of the
type which have been included in other investment pools,
(b) certificates in such other investment pools have been rated in
one of the three highest generic rating categories of Standard & Poor's
Corporation, Moody's Investors Service, Inc., Duff & Phelps Credit
Rating Co. or Fitch Investors Service, Inc. for at least one year prior
to the Benefit Plan's acquisition of Class A Certificates, and
(c) certificates evidencing interests in such other investment pools
have been purchased by investors other than Benefit Plans for at least
one year prior to any Benefit Plan's acquisition of Class A
Certificates.
Certain transactions are not covered by an applicable exemption. An
Exemption does not exempt the acquisition and holding of Class A Certificates
by Benefit Plans sponsored by the Seller, the underwriters, the Grantor
Trustee, the Servicer or any "obligor" (as defined in the Exemption) with
respect to Receivables included in the related Grantor Trust constituting more
than 5% of the aggregate unamortized principal balance of the assets in such
Grantor Trust or any affiliate of such parties (the "RESTRICTED GROUP").
Unless otherwise provided in the related Prospectus Supplement, as of the date
thereof, Receivables attributable to a single Obligor included in any Grantor
Trust will not constitute more than five percent of the aggregate unamortized
principal balance of such Grantor Trust. Moreover, the exemptive relief from
the self-dealing/conflict of interest prohibited transaction rules of ERISA is
available only if, among other requirements (i) the person who has
discretionary authority or renders investment advice with respect to the
investment of a Benefit Plan's assets in the Class A Certificates (or such
person's affiliate) is an Obligor with respect to five percent or less of the
fair market value of the assets contained in the related Grantor Trust, (ii) a
Benefit Plan's investment in such Class A Certificates does not exceed 25% of
all of the Class A Certificates of such series outstanding at the time of the
acquisition, (iii) immediately after the acquisition, no more than 25% of the
assets of a Benefit Plan with respect to which the person who has
discretionary authority or renders investment advice are invested in
certificates representing an interest in a trust containing assets sold or
serviced by the same entity and (iv) in the case of the acquisition of Class A
Certificates in connection with their initial issuance, at least 50% of such
Class A Certificates are acquired by persons independent of the Restricted
Group and at least 50% of the aggregate interest in the related Grantor Trust
is acquired by persons independent of the Restricted Group.
An applicable Exemption will also apply to transactions in connection with
the servicing, management and operation of the related Grantor Trust, provided
that, in addition to the general requirements described above, (a) such
transactions are carried out in accordance with the terms of a binding pooling
and servicing agreement and (b) the pooling and servicing agreement is
provided to, or described in all material respects in the prospectus or
private placement memorandum provided to investing Benefit Plans before the
Plans purchase Class A Certificates issued by the related Grantor Trust. Each
Grantor Trust Pooling and Servicing Agreement is a pooling and servicing
agreement as defined in the Underwriter's Exemption. All transactions relating
to the servicing, management and operations of each Grantor Trust will be
carried out in accordance with the related Grantor Trust Pooling and Servicing
Agreement, which Grantor Trust Pooling and Servicing Agreement is described in
all material respects in "The Transfer and Servicing Agreements" and in the
related Prospectus Supplement.
Any Benefit Plan fiduciary considering the purchase of Securities should
consult with its counsel with respect to whether a Trust will be deemed to
hold plan assets and the applicability of the Underwriter's Exemption or other
exemption from the prohibited transaction rule and determine on its own
whether all conditions have been satisfied and whether the Securities are an
appropriate investment for a Benefit Plan under ERISA and the Code.
64
<PAGE>
PLAN OF DISTRIBUTION
Upon on the terms and subject to the conditions set forth in an underwriting
agreement (the "UNDERWRITING AGREEMENT") with respect to each Trust, the
Seller will agree to sell to each of the underwriters named therein and in the
related Prospectus Supplement, and each of such underwriters will severally
agree to purchase from the Seller, the principal amount of each class of
Securities of the related series set forth therein and in the related
Prospectus Supplement.
In each Underwriting Agreement, the several underwriters will agree, subject
to the terms and conditions set forth therein, to purchase all the Securities
described therein which are offered hereby and by the related Prospectus
Supplement if any of such Securities are purchased. In the event of a default
by any such underwriter, each Underwriting Agreement will provide that, in
certain circumstances, purchase commitments of the nondefaulting underwriters
may be increased or the Underwriting Agreement may be terminated.
Each Prospectus Supplement will either (i) set forth the price at which each
class of Securities being offered thereby will be offered to the public and
any concessions that may be offered to certain dealers participating in the
offering of such Securities or (ii) specify that the related Securities are to
be resold by the Underwriters in negotiated transactions at varying prices to
be determined at the time of such sale. After the initial public offering of
any Securities, the public offering price and such concessions may be changed.
Each Underwriting Agreement will provide that NFC and the Seller will
indemnify the underwriters against certain liabilities, including liabilities
under the Securities Act.
The Indenture Trustee may, from time to time, invest the funds in the
Designated Accounts in Eligible Investments acquired from the underwriters.
Under each Underwriting Agreement, the closing of the sale of any class of
Securities subject thereto will be conditioned on the closing of the sale of
all other such classes.
The place and time of delivery for the Securities in respect of which this
Prospectus is delivered will be set forth in the related Prospectus
Supplement.
LEGAL OPINIONS
Certain legal matters relating to the Notes and the Certificates will be
passed upon for each Trust, the Seller and the Servicer by William W. Jones,
Esq., General Counsel of the Seller and the Servicer, and by Kirkland & Ellis,
special counsel to the Seller, each Trust and the Servicer. Certain federal
income tax matters will be passed upon for the Servicer, each Trust and the
Seller by Kirkland & Ellis.
65
<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>
<CAPTION>
PAGE
------
<S> <C>
Administration Agreement................................................. 47
Administrative Purchase Payment.......................................... 33
Administrative Receivable................................................ 33
Administrator............................................................ 47
Aggregate Losses......................................................... 30
Aggregate Receivables Balance............................................ 15
APR...................................................................... 16
Available Amount......................................................... 39
Basic Servicing Fee...................................................... 35
Benefit Plan............................................................. 62
Business Day............................................................. 44
Cede..................................................................... 2
Certificate Balance...................................................... 38
Certificate Distribution Account......................................... 34
Certificateholders....................................................... 17, 51
Certificates............................................................. 1
Class A Certificate Balance.............................................. 37
Class A Certificate Pool Factor.......................................... 16
Class A Certificateholders............................................... 8
Class A Certificates..................................................... 1
Class A Distributable Amount............................................. 37
Class A Interest Carryover Shortfall..................................... 38
Class A Interest Distributable Amount.................................... 37
Class A Percentage....................................................... 2, 8
Class A Principal Carryover Shortfall.................................... 38
Class A Principal Distributable Amount................................... 37
Class B Certificate Balance.............................................. 38
Class B Certificateholders............................................... 9
Class B Certificates..................................................... 1
Class B Distributable Amount............................................. 37
Class B Interest Distributable Amount.................................... 37
Class B Percentage....................................................... 8
Class B Principal Distributable Amount................................... 37
clearing agency.......................................................... 27
clearing corporation..................................................... 27
Closing Date............................................................. 31
Code..................................................................... 50
Collected Interest....................................................... 39
Collected Principal...................................................... 39
Collection Account....................................................... 33
Commission............................................................... 3
Custodian Agreement...................................................... 12
Cutoff Date.............................................................. 4
Dealer Liability......................................................... 20
Definitive Certificates.................................................. 28
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Definitive Notes......................................................... 28
Definitive Securities.................................................... 28
Delinquency Percentage................................................... 30
Depository............................................................... 27
Designated Accounts...................................................... 34
Distribution Date........................................................ 25
DOL...................................................................... 62
DTC...................................................................... 3
Eligible Deposit Account................................................. 34
Eligible Institution..................................................... 35
Eligible Investments..................................................... 34
Equal Payment Balloon Receivables........................................ 14
Equal Payment Fully Amortizing Receivables............................... 14
Equal Payment Skip Receivables........................................... 14
ERISA.................................................................... 62
Events of Default........................................................ 22, 23
Exchange Act............................................................. 3
Financed Vehicles........................................................ 12
foreign person........................................................... 52
Full Prepayment.......................................................... 36
Funding Period........................................................... 2
Grantor Certificateholders............................................... 9
Grantor Certificates..................................................... 1
Grantor Trust............................................................ 1
Grantor Trust Pooling and Servicing Agreement............................ 2
Grantor Trustee.......................................................... 2
Gross Balance............................................................ 19
Gross Balance Past Due................................................... 20
Guaranties............................................................... 12
holder................................................................... 51
Illinois Replacement Tax................................................. 61
Indenture................................................................ 2
Indenture Trustee........................................................ 2
Indirect Participants.................................................... 27
Initial Aggregate Receivables Balance.................................... 4
Initial Gross Receivable Balance......................................... 15
Initial Receivable Balance............................................... 15
Insolvency Event......................................................... 44
Insolvency Laws.......................................................... 17
Interest Rate............................................................ 5
Investment Earnings...................................................... 34
IRS...................................................................... 50
Level Principal Balloon Receivables...................................... 15
Level Principal Fully Amortizing Receivables............................. 14
Level Principal Skip Receivables......................................... 15
Liquidating Receivable................................................... 31
Liquidation Expenses..................................................... 36
Liquidation Proceeds..................................................... 31
Liquidations............................................................. 20
Loss Protection.......................................................... 20
Maximum Subordination Spread Amount...................................... 10
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Minimum Subordination Spread Amount........................................ 10
Monthly Advance............................................................ 36
Monthly Period............................................................. 35
Net Losses................................................................. 20
NFC........................................................................ 4
NFRRC...................................................................... 4
NIC........................................................................ 43
NITC....................................................................... 4
NITC Purchase Obligations.................................................. 20
Note Distribution Account.................................................. 34
Note Pool Factor........................................................... 16
Noteholders................................................................ 17
Notes...................................................................... 1
Obligor.................................................................... 15
OID........................................................................ 51
OID Regulations............................................................ 51
Optional Purchase Proceeds................................................. 46
Other Receivables.......................................................... 15
Owner Certificateholders................................................... 6
Owner Certificates......................................................... 1
Owner Securities........................................................... 1
Owner Securityholders...................................................... 7
Owner Trust................................................................ 1
Owner Trust Agreement...................................................... 2
Owner Trust Certificate Pool Factor........................................ 16
Owner Trust Pooling and Servicing Agreement................................ 7
Owner Trustee.............................................................. 2
Partial Prepayment......................................................... 36
Participants............................................................... 27
Partnership Certificates................................................... 51
Pass Through Rate.......................................................... 6
Payment Date............................................................... 21
Plan Assets Regulation..................................................... 62
Pooling and Servicing Agreement............................................ 2, 7
Pre-Funded Amount.......................................................... 4
Pre-Funding Account........................................................ 1
Prepayment................................................................. 36
Prepayment Surplus......................................................... 39
Prospectus Supplement...................................................... 1
PTCE....................................................................... 62
Purchase Agreement......................................................... 31
Rating Agencies............................................................ 34
Receivable Balance......................................................... 15
Receivables................................................................ 1
Receivables Pool........................................................... 12
Record Date................................................................ 8
Registration Statement..................................................... 3
Related Documents.......................................................... 24
Remaining Gross Balance.................................................... 30
Required Deposit Rating.................................................... 34
Reserve Account............................................................ 40
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Restricted Group......................................................... 64
Retail Notes............................................................. 14
Rules.................................................................... 27
Schedule of Receivables.................................................. 32
Scheduled Payment........................................................ 15
Securities............................................................... 1
Securities Act........................................................... 3
Securityholders.......................................................... 13
Security Owner........................................................... 27
Seller................................................................... 1, 2
Servicer................................................................. 2
Servicer Default......................................................... 43
Short-Term Note.......................................................... 52
Specified Subordination Spread Account Balance........................... 10, 40
Strip Certificates....................................................... 6
Strip Notes.............................................................. 5
Subsequent Receivables................................................... 2
Subsequent Transfer Date................................................. 32
Supplemental Servicing Fee............................................... 35
Tax Counsel.............................................................. 51
Tax Partnership.......................................................... 51
Tax Trust................................................................ 51
TIA...................................................................... 25
Total Servicing Fee...................................................... 35
Transfer and Servicing Agreements........................................ 4, 31
Trust.................................................................... 1
Trust Certificates....................................................... 51
Trust Property........................................................... 12
Trustee.................................................................. 2
UCC...................................................................... 33
Underwriter's Exemption.................................................. 63
Underwriting Agreement................................................... 65
voting interests......................................................... 26
Warranty Payment......................................................... 33
Warranty Receivable...................................................... 32
</TABLE>
69
<PAGE>
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE SELLER OR THE UNDERWRITERS. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE SELLER OR THE RECEIVABLES SINCE THE DATE
THEREOF. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE ANY SUCH OFFER
OR SOLICITATION.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Supplement
Summary.................................................................... S-3
The Trust.................................................................. S-7
The Receivables Pool....................................................... S-7
Use of Proceeds............................................................ S-9
The Servicer............................................................... S-10
The Notes.................................................................. S-11
The Transfer and Servicing Agreements...................................... S-12
Certain Federal Income Tax Consequences.................................... S-16
ERISA Considerations....................................................... S-16
Underwriting............................................................... S-16
Legal Opinions............................................................. S-17
Index of Terms............................................................. S-18
Prospectus
Available Information...................................................... 3
Reports to Securityholders................................................. 3
Owner Trusts/Grantor Trusts................................................ 3
Prospectus Summary......................................................... 4
The Trusts................................................................. 12
The Receivables Pools...................................................... 14
Weighted Average Life of the Securities.................................... 16
Pool Factors and Trading Information....................................... 16
Use of Proceeds............................................................ 17
The Seller................................................................. 17
The Servicer............................................................... 19
The Notes.................................................................. 21
Owner Certificates......................................................... 25
Class A Certificates....................................................... 26
Certain Information Regarding the Securities............................... 27
The Transfer and Servicing Agreements...................................... 31
Certain Legal Aspects of the Receivables................................... 47
Certain Federal Income Tax Consequences.................................... 50
Certain State Tax Matters.................................................. 61
ERISA Considerations....................................................... 62
Plan of Distribution....................................................... 65
Legal Opinions............................................................. 65
Index of Terms............................................................. 66
</TABLE>
UNTIL AUGUST 18, 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT),
ALL DEALERS EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND A
PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- - -------------------------------------------------------------------------------
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PROSPECTUS SUPPLEMENT
$500,864,370.04
NAVISTAR FINANCIAL
1998-A OWNER TRUST
$483,334,000.00 CLASS A
5.94% ASSET BACKED NOTES
$17,530,370.04 CLASS B
6.10% ASSET BACKED NOTES
NAVISTAR FINANCIAL RETAIL
RECEIVABLES CORPORATION
SELLER
NAVISTAR FINANCIAL CORPORATION
SERVICER
UNDERWRITERS OF THE CLASS A NOTES
CHASE SECURITIES INC.
BANCAMERICA ROBERTSON STEPHENS
FIRST CHICAGO CAPITAL MARKETS, INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
UNDERWRITER OF THE CLASS B NOTES
CHASE SECURITIES INC.
MAY 20, 1998
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