<PAGE>
As filed with the Securities and Exchange Commission on August 28, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NAVISTAR FINANCIAL RETAIL RECEIVABLES CORPORATION
(Originator of the Trusts described herein)
(Exact name of registrant as specified in its charter)
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Delaware 51-0337491
(Registrant's State or other jurisdiction of (Registrant's I.R.S. Employer
incorporation or organization) Identification No.)
----------------
<TABLE>
<S> <C>
Navistar Financial Retail Receivables Corporation William W. Jones
c/o Corporation Trust Center Navistar Financial Retail Receivables Corporation
1209 Orange Street 2850 West Golf Road
Wilmington, Delaware 19801 Rolling Meadows, IL 60008
(302) 658-7581 (847) 734-4000
(Address, including zip code, and telephone number, (Name, address, including zip code, and telephone number, including
including area code, of Registrant's principal executive offices) area code, of agent for service)
</TABLE>
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Copies to:
Kenneth P. Morrison
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
(312) 861-2000
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Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement as determined by
the Registrant in light of market conditions.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under Securities Act of 1933,
other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================================================
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Aggregate Price Per Unit (1) Aggregate Offering Price (1) Registration Fee
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset Backed Securities $2,500,000,000 100% $2,500,000,000 $737,500
================================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ Information contained herein is subject to completion or amendment. A +
+ registration statement relating to these securities has been filed with the +
+ Securities and Exchange Commission. These securities may not be sold nor may +
+ offers to buy be accepted prior to the time the registration statement +
+ becomes effective. This prospectus shall not constitute an offer to sell or +
+ the solicitation of an offer to buy nor shall there be any sale of these +
+ securities in any state in which such offer, solicitation or sale would be +
+ unlawful prior to registration or qualification under the securities laws of +
+ any such state. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 28, 1998
PROSPECTUS
Navistar Financial Retail Receivables Asset Trusts
Asset Backed Notes
Asset Backed Certificates
----------------
Navistar Financial Retail Receivables Corporation
Seller
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Navistar Financial Corporation
Servicer
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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"). With respect to any series of
Securities of an Owner Trust, the applicable Prospectus Supplement will specify
which classes of Notes or Certificates, if any, of such series will be offered
hereby. 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 Supplement.
The property of each Trust will include a pool of commercial retail loans
evidenced by notes secured by new and used 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.
(continued on next page)
----------------
Prospective investors should consider, among other things, the information set
forth under the heading "Risk Factors" beginning on page 12.
----------------
EXCEPT AS OTHERWISE PROVIDED IN THE RELATED PROSPECTUS SUPPLEMENT, PROCEEDS OF
THE ASSETS OF THE TRUST FOR ANY SERIES OF SECURITIES 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 , 1998.
<PAGE>
(continued from previous page)
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 loans evidenced by notes secured by,
new and used medium and heavy duty trucks, buses and trailers(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.
2
<PAGE>
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 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 Transportation
Corp. ("NITC").
The Trust Property...... The property of each Trust will include a pool of
commercial retail loans evidenced by notes and secured
by new and used medium and heavy duty trucks, buses and
trailers, 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 Purchase
Obligations and any Guaranties, the proceeds from
claims on certain insurance policies, the benefit 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 Receivables 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
satisfaction of certain conditions described in the
applicable 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 purchased 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 Receivables Pools." Information with
respect to each Receivables Pool (excluding any
Subsequent Receivables), including the weighted average
APR of the Receivables and the weighted average
remaining maturity 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 related
Prospectus Supplement).
4
<PAGE>
Indenture Trustee......... The Indenture Trustee specified in the related
Prospectus Supplement.
Owner Trustee............. The Owner Trustee specified in the related Prospectus
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 Prospectus
Supplement, Notes will be available for purchase in
denominations of $1,000 and integral multiples
thereof, and will be available in book-entry form
only. Unless otherwise specified in the related
Prospectus Supplement, Noteholders will be able to
receive Definitive Notes only in the limited
circumstances described herein or in the related
Prospectus Supplement. See "Certain Information
Regarding the Securities--Definitive Securities."
Unless otherwise specified in the related Prospectus
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 Prospectus
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 principal or
interest, or as to which payments of principal 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 Receivables 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 principal 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 specified 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 extent provided
in the related Prospectus Supplement.
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.
5
<PAGE>
Unless otherwise specified in the related Prospectus
Supplement, Owner Certificates will be available for
purchase in minimum denominations of $20,000 and in
integral multiples of $1,000 in excess thereof and
will be available in book-entry form only. Unless
otherwise specified in the related Prospectus
Supplement, holders of Owner Certificates (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 Information
Regarding the Securities--Definitive Securities."
Unless otherwise specified in the related Prospectus
Supplement, each class of Owner Certificates will
have a stated Certificate Balance (as defined in the
related Prospectus Supplement) and will accrue
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, priority
of payment, seniority, allocation of loss, Pass
Through Rate or amount of distributions in respect of
Certificate Balance or interest, or as to which
distributions in respect of Certificate Balance 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) 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 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 respect
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-Funding Account,
Certificateholders may receive a partial prepayment
of principal on or immediately following the end of
the Funding Period in an amount and manner specified
in the related Prospectus Supplement. 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.
6
<PAGE>
Credit Enhancement...... If and to the extent specified in the related
Prospectus Supplement, credit enhancement with respect
to an Owner Trust or any class of Owner Securities may
include any one or more of the following: subordination
of one or more other classes of Securities, a Reserve
Account, overcollateralization, 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 Prospectus Supplement, any form of credit
enhancement will have certain limitations and
exclusions from coverage thereunder, which will be
described in the related Prospectus Supplement.
Reserve Account......... Unless otherwise specified in the related Prospectus
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 Receivables.
Unless otherwise provided in the related Prospectus
Supplement, amounts in the Reserve Account (after
giving effect to all distributions to be made to the
Servicer and the Owner Securityholders) in excess of
the Specified Reserve Account Balance (as defined in
the related Prospectus Supplement) will be paid to the
Seller.
Transfer and Servicing
Agreements............. With respect to each series of Owner Securities, 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
Securities, 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 Agreement
and the Servicer will undertake certain administrative
duties with respect to each Owner Trust under an
Administration Agreement.
TERMS APPLICABLE TO EACH GRANTOR TRUST
Issuer.................. With respect to each series of Grantor Certificates, 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).
7
<PAGE>
Grantor Trustee......... The Grantor Trustee specified in the related Prospectus
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 Certificate will
represent an undivided ownership interest in the
related Grantor Trust. Only the Class A Certificates
will be offered hereby and by the related Prospectus
Supplements. Unless otherwise specified in the related
Prospectus Supplement, the Class A Certificates will be
issued in minimum denominations of $1,000 or integral
multiples thereof.
For any series of Grantor Certificates, the Class A
Certificates will evidence in the aggregate an
undivided ownership interest equal to a percentage set
forth in the related Prospectus Supplement (the "Class
A Percentage") of the related Grantor Trust, and the
Class B Certificates will evidence in the aggregate an
undivided ownership interest equal to a percentage set
forth in the related Prospectus Supplement (the "Class
B Percentage") of the related Grantor Trust.
Unless otherwise specified in the related Prospectus
Supplement, Class A Certificates will be available in
book-entry form only, and Class A Certificateholders
will be able to receive Definitive Certificates only in
the limited circumstances described herein or in the
related Prospectus Supplement. See "Certain Information
Regarding the Securities--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 respect of
the Class A Certificates as specified in the related
Prospectus Supplement.
Interest................ With respect to each series of Class A Certificates, 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 Certificates will accrue from the most recent
Distribution Date on which interest has been paid to
but excluding the current Distribution Date, and will
be payable to the extent of funds available from (i)
the Class A Percentage of the Collected Interest, (ii)
the Subordination Spread Account and (iii) the Class B
Distributable Amount. See "Class A Certificates."
Principal............... With respect to each series of Class A Certificates, 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 Partial 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
8
<PAGE>
the Available Amount. See "Class A Certificates" and
"The Receivables Pools."
Credit Enhancement..... Unless otherwise specified in the related Prospectus
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 related 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:
overcollateralization, 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
Prospectus Supplement, any form of credit enhancement
will have certain limitations and exclusions from
coverage thereunder, which will be described in the
related Prospectus Supplement.
Subordination.......... The rights of the holders of Class B Certificates (the
"Class B Certificateholders") to receive distributions
to which they would otherwise be entitled 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
and in the related Prospectus Supplement.
Subordination Spread
Account............... Unless otherwise specified in the related Prospectus
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 related initial
Distribution Date and having a value equal to the
Subordination Initial Deposit (as defined 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 Subordination Spread Account Balance.
Thereafter, amounts otherwise distributable to the
Class B Certificateholders will be deposited in the
Subordination Spread Account to the extent necessary to
maintain the amount 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 Distribution Date
(after giving effect to all distributions made on such
Distribution Date) in excess of the Specified
Subordination Spread Account Balance for such
Distribution Date generally will be released to the
Class B Certificateholders of the related Grantor
Trust. The "Specified Subordination Spread Account
Balance" 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 Supplement. See "The
Transfer and Servicing Agreements--Credit Enhancement--
Grantor Trust: Subordination of the Class B
Certificates; Subordination Spread Account." In no
event will the Specified Subordination Spread Account
Balance be more than the "Maximum Subordination Spread
Amount" or less than
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the "Minimum Subordination Spread Amount" (each as
defined 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.
Each Subordination Spread Account will be maintained
with the Grantor Trustee as a segregated trust account,
but will not be part of the related Grantor Trust.
Transfer and Servicing
Agreements............. With respect to each series of Grantor Certificates,
the Seller will purchase the Receivables from NFC
pursuant to a Purchase Agreement and the Seller will
transfer such Receivables to the related 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, managing, maintaining custody of and
making collections on the Receivables. Each Grantor
Trust will be created pursuant to a Grantor Trust
Pooling and Servicing Agreement.
ADDITIONAL GENERALLY APPLICABLE TERMS
Monthly Advances........ Unless otherwise specified in the related Prospectus
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 the Servicer does not expect to recover
such advance from subsequent collections or recoveries
on such Receivable. See "The Transfer and Servicing
Agreements--Monthly Advances."
Total Servicing Fee..... Unless otherwise specified in the related Prospectus
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 such Monthly
Period. In addition, the Servicer will be entitled each
month to Supplemental Servicing Fees to the extent
specified herein or in the related Prospectus
Supplement. See "The Transfer and Servicing
Agreements--Servicing Compensation and Payment of
Expenses."
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 Receivables Balance declines
to or below 10% of the sum of the Pre-Funding Amount,
if any, and 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."
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Certain Federal Income Tax
Consequences................... Upon the issuance of each series of
Securities, except as otherwise provided in
the related Prospectus Supplement, Kirkland &
Ellis, special tax counsel 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 association taxable as a
corporation or publicly traded partnership
taxable as a corporation; (b) if identified as
Partnership Certificates, such Certificates
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 specified in the Prospectus
Supplement, the Notes issued by an Owner Trust
and the Class A Certificates issued by a
Grantor Trust will be eligible for purchase by
Benefit Plans.
Unless otherwise specified in the related
Prospectus 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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RISK FACTORS
Risks of Unperfected Security Interests in Financed Vehicles
With respect to each Trust, NFC will assign its security interest in the
Financed Vehicles securing the related Receivables to the Seller pursuant to the
applicable Purchase Agreement, and the Seller will assign its security interest
in the Financed Vehicles securing such Receivables to the Owner Trust or the
Grantor Trustee, as applicable, pursuant to the applicable Pooling and Servicing
Agreement. 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 the applicable Pooling and Servicing
Agreement. See "The Transfer and Servicing Agreements--Sale and Assignment of
Receivables."
In most states, an assignment of the type under 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, negligence or fraud by NFC or the Servicer or administrative
error by state or local agencies, the notation of NFC'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 NFC 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. If NFC, and thus the Trust, does not have a perfected security
interest in a Financed Vehicle, the ability of the Trust to realize on such
Financed Vehicle in the event of a default may be adversely affected. The
failure to have such a perfected security interest, however, would constitute a
breach of the warranties of NFC under the applicable Pooling and Servicing
Agreement and would create an obligation of the Seller 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. 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.
To the extent NFC's, and thus the Trust's, security interest is perfected,
the Trust will have a prior claim over subsequent purchasers of such Financed
Vehicles and holders of subsequently perfected security interests. 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. 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 liens for taxes unpaid by the Obligor or repairs to the related
Financed Vehicle or Financed Vehicles. If and to the extent that the Trust's
security interest is defeated, the ability of the Trust to realize on such
Financed Vehicle in the event of a default may be adversely affected. 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.
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Risks of Bankruptcy
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.
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 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.
Trust's Relationship to NFC, the Seller, the Servicer and their Affiliates
None of NFC, the Seller, the Servicer or their affiliates is generally
obligated to make any payments in respect of any Notes, Certificates or the
Receivables of a given Trust.
However, in connection with the sale of Receivables by NFC to the Seller
pursuant to the applicable Purchase Agreement, NFC will make certain
representations and warranties with respect to the characteristics of such
Receivables. In connection with the sale of Receivables by the Seller to the
applicable Trust, pursuant to the applicable Pooling and Servicing Agreement,
the Seller will assign the representations and warranties of NFC to the Owner
Trust or Grantor Trust, as applicable, and will represent and warrant to such
Trust 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. Upon the discovery of a
breach of any representation or warranty of NFC or the Seller 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. See "The Transfer and Servicing Agreements--Sale and Assignment of
Receivable." Moreover, if NFC were to cease acting as the Servicer, delays in
processing payments on the Receivables and information in respect thereof could
occur and result in delays in payments to the Securityholders.
Subordination; Limited Assets
To the extent specified in the related Prospectus Supplement, distributions
of interest and principal on one or more classes of Notes or Certificates of a
series may be subordinated in priority of payment to interest and principal due
on one or more other classes of Notes or Certificates of such series. Moreover,
each Trust will not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables and, to the
extent provided in the related Prospectus Supplement, a Pre-Funding Account, a
Reserve Account, a Subordination Spread Account and any other credit
enhancement. The Notes of any series will represent obligations solely of, and
the Certificates of any
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series will represent interests solely in, the related Trust and neither the
Notes nor the Certificates of any series will be insured or guaranteed, by NFC,
the Seller, the Servicer, any Trustee, any Indenture Trustee, any of the
affiliates or any other person or entity. Consequently, holders of the
Securities of any series must rely for repayment upon payments on the related
Receivables, if and to the extent available, amounts on deposit in the Pre-
Funding Account (if any), the Subordination Spread Account (if any) and the
Reserve Account (if any) and any other credit enhancement, all as specified in
the related Prospectus Supplement.
If the protection provided to any Securityholder of a given class or series
by the subordination of another class or series of Securities, if any, and by
any Reserve Account, Subordination Spread Account or other credit enhancement
for such class or series is insufficient, such Securityholders would have to
look principally to the Obligors on the related Receivables and the proceeds
from the repossession and sale of Financed Vehicles that secure defaulted
Receivables. In such event, certain factors, such as the applicable Trust not
having perfected security interests in the Financed Vehicles in all states, may
affect the Servicer's 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 of such series. See "The Transfer and Servicing Agreements--
Distributions," "--Credit Enhancement" and "Certain Legal Aspects of the
Receivables."
Maturity and Prepayment Considerations
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. All of the Receivables will be prepayable at any time without penalty
to the Obligor. If a Prospectus Supplement provides that the property of the
related Trust will include a Pre-Funding Account, the related Securities will be
subject to partial redemption or prepayment on or immediately following the end
of the Funding Period in an amount and in the manner specified in the related
Prospectus Supplement. Any reinvestment risks resulting from a faster or slower
incidence of prepayment of Receivables held by a given Trust will be borne
entirely by the Securityholders of the related series of Securities. See "The
Transfer and Servicing Agreements--Termination" regarding the Servicer's option
to purchase the Receivables of a given Receivables Pool and "--Insolvency Event"
regarding the sale of the Receivables owned by an Owner Trust if an Insolvency
Event with respect to the Seller occurs.
In addition, the Servicer is authorized to grant certain rebates,
adjustments or extensions with request 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.
Risk of Commingling
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, upon
the satisfaction of certain requirements, 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
the Business Day preceding the Distribution Date with respect to the
Certificates or the Payment Date with respect to the Notes. See "The Transfer
Servicing Agreement--Collections." 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. If the Servicer were
unable to remit such funds, the applicable Securityholders might incur a loss.
Risk Associated with Subsequent Receivables and the Pre-Funding Account
If so specified in the related Prospectus Supplement, the Seller will be
obligated to sell, and the related Trust will be obligated to purchase,
Subsequent Receivables from time to time during the Funding Period specified in
the related Prospectus Supplement. The ability of the Seller to generate
Subsequent Receivables to be conveyed to such Trust will
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affect the amount on deposit in the related Pre-Funding Account which is not
applied to the conveyance of Subsequent Receivables during the Funding Period.
Amounts on deposit in any Pre-Funding Account may be invested only in Eligible
Investments. Subsequent Receivables may be originated at a later date using
credit criteria different from those which were applied to the Receivables
initially included in the Receivables Pool and may be a different credit quality
and seasoning. In addition, following the transfer of Subsequent Receivables to
the applicable Trust, the characteristics of the entire pool of Receivables
included in such Trust may vary from those of the initial Receivables Pool. As a
result, it is possible that the credit quality of the Receivables in a Trust, as
a whole, may decline as a result of the inclusion of Subsequent Receivables and
may result in earlier payments to the applicable Securityholders as a result of
an increased level of defaults on such Receivables. Securityholders will bear
all reinvestment risk associated with an earlier than expected rate of payment
on the Securities. In addition, an earlier than expected rate of payment may
result in a reduction in the yield to maturity of any class of Securities to
which such payments are distributed. To the extent that amounts on deposit in
the Pre-Funding Account have not been fully applied to the conveyance of
Subsequent Receivables to a Trust by the end of the Fund Period , the
outstanding Notes will be subject to partial redemption, and the
Certificateholders may receive a partial prepayment of principal, on or
immediately following the end of the Funding Period in an amount and manner
specified in the related Prospectus Supplement. Securityholders will bear all
reinvestment risk associated with any such distribution of amounts on deposit in
the Pre-Funding Account after the termination of the applicable Fund Period. Any
such distribution will have the effect of a prepayment on the related
Receivables and may result in a reduction in the yield to maturity of any class
of Securities to which such amounts are distributed.
Year 2000 Compliance
Year 2000 compliance refers to the ability of computer systems to respond
to the problems created by the fact that many computer programs have been
written using two digits rather than four digits to define the applicable year.
As a consequence, unless modified, such systems are not able to differentiate
between 2000 and 1900 and may generate erroneous data. NFC has identified all
significant applications that will require modification to ensure Year 2000
compliance. Internal and external resources are being used to make the required
modifications and test Year 2000 compliance. NFC plans to complete the
modifications and testing process of all significant applications by July 1999,
which is prior to any anticipated impact on its operating systems. Accordingly,
NFC does not anticipate Year 2000 issues with respect to its computer systems to
have a material adverse effect on the Trusts, the Receivables in any Trust or
the servicing of such Receivables. The date on which NFC believes it will
complete the Year 2000 modifications is based on NFC's best estimates, which
were derived utilizing numerous assumptions of future events, including the
continued availability of certain resources, third party modification plans and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific Factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes and similar
uncertainties.
Book-Entry Registration
Unless otherwise specified in the related Prospectus Supplement, each class
of Securities of a given series will be initially represented by one or more
certificates registered in the name of Cede or another nominee for DTC set forth
in the related Prospectus Supplement and will not be registered in the names of
the holders of the Securities of such class or series or their nominees. Because
of this, unless and until Definitive Securities for such class or series are
issued, holders of such Securities will not be recognized by the related Trustee
as "Certificateholders," "Noteholders" or "Securityholders," as the case may be
(as such terms are used herein or in the related Pooling and Servicing Agreement
or related Indenture and Owner Trust Agreement, as applicable). Hence, until
Definitive Securities are issued, holders of such Securities will only be able
to exercise the rights of Securityholders indirectly through DTC and its
Participants. See "Certain Information Regarding the Securities--Book-Entry
Registration" and "--Definitive Securities."
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
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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."
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."
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, Owner Trust Pooling and Servicing 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
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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 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 of such series of Notes and
Owner Certificates evidencing not less than 25% of the voting interests of such
series of Owner Certificates 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 or such 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 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.
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THE RECEIVABLES POOLS
The Receivables have been or will be originated 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
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 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, except 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.
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"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 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.
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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 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 (each a "Noteholder") 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 (each a
"Certificateholder") 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.
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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 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 in 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 originating 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. 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
any related Prospectus Supplement. 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.
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<TABLE>
<CAPTION>
Six Months
Year Ended October 31, Ended April 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 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.
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 in the payments due on or after such date; "Gross Balance Past
Due" means the Gross Balance for all Retail Notes that have installments 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 originated by NFC financing vehicles sold by
NITC dealers may 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. Under current market conditions, in most instances
NFC waives the requirement that a dealer have Dealer Liability with respect to a
Retail Note, and most Retail Notes are nonrecourse to the related dealer. 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
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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 the Limited Liability Amount for such
Retail Note ("NITC Purchase Obligations"). The "Limited Liability Amount" with
respect to any Retail Note is generally equal to the Dealer Liability with
respect to such Retail Note, if any, or if NFC has waived the requirement that
the related dealer have Dealer Liability with respect to a Retail Note, the
amount of Dealer Liability that would have been associated with such Retail Note
but for such waiver. 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
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
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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 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.
Modification of Indenture With Noteholder Consent. With respect to each
Owner Trust, unless otherwise specified in the related Prospectus Supplement,
with the consent of the holders of a majority of the outstanding related Notes
and, if more than one class of Notes in such series is outstanding, the holders
of the majority of the most senior class, 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
installment of principal of or interest on any Note or reduce the principal
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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 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) unless
otherwise specified in the related Prospectus Supplement, Noteholders will be
entitled to ratable repayment of principal on the basis of their respective
unpaid principal balances and (ii)
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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 together with, if more than one class of Notes in such series is
outstanding, the holders of a majority in principal amount of the most senior
class of such Notes 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.
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
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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.
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 the first February 1 after the related Closing Date 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
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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 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.
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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.
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
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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 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.
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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.
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 the Total Servicing Fee paid to the Servicer with
respect to the related Monthly Period;
(d) the amount of Aggregate Losses for the related Monthly Period;
(e) the Delinquency Percentage for the related Monthly Period; and
(f) 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;
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(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;
(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.
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 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,
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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 NFC, (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 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.
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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 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
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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 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
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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.
("Moody's") and a rating of A-1+ by Standard & Poor's Ratings Services
("S&P")(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, 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,
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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 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 S&P and P-1 by Moody's 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 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
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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.
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
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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) in the second
preceding paragraph 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.
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
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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 (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 Securities 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 Securities 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 class or series of Securities may cover one or more other
classes or series of Securities.
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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 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 class or series of Securities,
Securityholders of any such class or series will be subject to the risk that
such credit enhancement will be exhausted by the prior claims of Securityholders
of other class or 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" specified in the applicable Prospectus Supplement. 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 fourth, third and second Monthly
Periods preceding the Monthly Period related to such Distribution Date, minus
the sum of the Liquidation Proceeds for the Monthly Period related to such
Distribution Date and the Monthly Periods which are the first and second 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 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
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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," "--
Certain Matters Regarding the Servicer" and "The Trusts--The Trustees."
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
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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 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
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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 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.
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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 and, if there is
more than one class of Notes in such series outstanding, the holders of a
majority of the most senior class (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, the 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.
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,
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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.
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 sum of the Pre-Funded Amount, if any, and the Initial Aggregate
Receivables Balance, all remaining related Receivables at a price equal
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to (x) if the Servicer's long term unsecured debt rating from Moody's 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 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.
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 new and used 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
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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, negligence or fraud by NFC 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.
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.
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Repossession
In the event of default by vehicle purchasers, the holder of the Retail
Note 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.
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.
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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, 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
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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
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
("OID Regulations").
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, and
assuming the Notes are not issued with OID, 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. In general, OID is the excess of the "stated
redemption price at maturity" of a debt instrument over its "issue price,"
unless such excess falls within a statutorily defined de minimis exception. A
Note's "stated redemption price at maturity" is the aggregate of all payments
required to be made under the Note through maturity except "qualified stated
interest." "Qualified stated interest" is generally interest that is
unconditionally payable
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in cash or property (other than debt instruments of the issuer) at fixed
intervals of one year or less during the entire term of the instrument at
certain specified rates. The Notes' "issue price" will be the first price at
which a substantial amount of the Notes are sold, excluding sales to bond
holders, brokers or similar persons acting as underwriters, placement agents or
wholesalers.
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. For example, under Treasury regulations, interest
payments on Notes may be deemed not to be 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. In
addition, the IRS could take the position under 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.
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 OID 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 OID accrued on the Note in gross income upon a
sale or exchange of the Note 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 OID accrued on such Note. However, a holder may elect to
include OID in income as it accrues on all obligations having a maturity of one
year or less held by the holder in that taxable year or thereafter, in which
case the deferral rule of the preceding sentence will not apply. For purposes of
this paragraph, OID accrues on a Short-Term 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, and market discount 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. Any such gain or loss
will be capital gain or loss if the Note was held as a capital asset, except for
gain representing accrued interest or accrued market discount not previously
included in income. Capital gain or loss will be long-term if the 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
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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.
The IRS has issued new regulations governing the backup withholding and
information reporting requirements. The new regulations are generally effective
for payments made after December 31, 1999. Noteholders should consult their tax
advisors with respect to the impact, if any, of the new regulations.
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 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. The IRS has amended
the transition period relating to recently issued regulations governing backup
withholding and information reporting requirements. Withholding certificates or
statements that are valid on December 31, 1999, may be treated as valid until
the earlier of its expiration or December 31, 2000. All existing certificates or
statements will cease to be effective after December 31, 2000.
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
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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 "--Partnership
Certificates."
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 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.
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,
certain holders could suffer adverse tax consequences. For example, certain
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
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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 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.
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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.
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
apply to all 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
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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 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 classified as 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.
Even if a Tax Partnership were not classified as 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, certain 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
paid or accrued 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 their allocable share of 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 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
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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 contribute 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 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) for the
current and prior taxable years 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 a 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
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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 for greater (less) than its adjusted basis therefor, 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
an 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 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
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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 generally rely on 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.
Backup Withholding. Distributions made on any Partnership Certificates and
proceeds from the 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.
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
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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, 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 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.
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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 an
applicable Underwriter's Exemption as 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 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 purchase of Class A Certificates by Benefit
Plans will subject a Grantor Trust 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:
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(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);
(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 Underwriter's Exemption or any
other exception. An Underwriter's 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 not an Obligor with respect to more than five percent 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.
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An applicable Underwriter's 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 will be 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 will be 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 another
exemption from the prohibited transaction rules 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.
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.
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INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus and
the pages on which the definitions of such terms may be found herein.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Administration Agreement.................................................. 47
Administrative Purchase Payment........................................... 35
Administrative Receivable................................................. 35
Administrator............................................................. 47
Aggregate Losses.......................................................... 32
Aggregate Receivables Balance............................................. 19
APR....................................................................... 19
Available Amount.......................................................... 40
Basic Servicing Fee....................................................... 36
Benefit Plan.............................................................. 62
Business Day.............................................................. 44
Cede...................................................................... 3
Certificate Balance....................................................... 39
Certificate Distribution Account.......................................... 35
Certificateholder.........................................................20, 51
Certificates.............................................................. 2
Class A Certificate Balance............................................... 39
Class A Certificate Pool Factor........................................... 20
Class A Certificateholders................................................ 8
Class A Certificates...................................................... 2
Class A Distributable Amount.............................................. 38
Class A Interest Carryover Shortfall...................................... 39
Class A Interest Distributable Amount..................................... 39
Class A Percentage........................................................ 8
Class A Principal Carryover Shortfall..................................... 40
Class A Principal Distributable Amount.................................... 38
Class B Certificate Balance............................................... 39
Class B Certificateholders................................................ 9
Class B Certificates...................................................... 2
Class B Distributable Amount.............................................. 39
Class B Interest Distributable Amount..................................... 39
Class B Percentage........................................................ 8
Class B Principal Distributable Amount.................................... 39
clearing agency........................................................... 29
clearing corporation...................................................... 29
Closing Date.............................................................. 33
Code...................................................................... 50
Collected Interest........................................................ 40
Collected Principal....................................................... 40
Collection Account........................................................ 35
Commission................................................................ 3
Custodian Agreement....................................................... 16
Cutoff Date............................................................... 4
Dealer Liability.......................................................... 23
Definitive Certificates................................................... 30
Definitive Notes.......................................................... 30
Definitive Securities..................................................... 30
Delinquency Percentage.................................................... 32
Depository................................................................ 29
Designated Accounts....................................................... 35
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Distribution Date......................................................... 28
DOL....................................................................... 62
DTC....................................................................... 3
Eligible Deposit Account.................................................. 36
Eligible Institution...................................................... 36
Eligible Investments...................................................... 35
Equal Payment Balloon Receivables......................................... 18
Equal Payment Fully Amortizing Receivables................................ 18
Equal Payment Skip Receivables............................................ 18
ERISA..................................................................... 62
Events of Default......................................................... 25
Exchange Act.............................................................. 3
Financed Vehicles......................................................... 15
foreign person............................................................ 53
Full Prepayment........................................................... 37
Funding Period............................................................ 2
Grantor Certificateholders................................................ 9
Grantor Certificates...................................................... 2
Grantor Trust............................................................. 2
Grantor Trust Pooling and Servicing Agreement............................. 2
Grantor Trustee........................................................... 2
Gross Balance............................................................. 22
Gross Balance Past Due.................................................... 22
Guaranties................................................................ 16
holder.................................................................... 51
Illinois Replacement Tax.................................................. 60
Indenture................................................................. 2
Indenture Trustee......................................................... 2
Indirect Participants..................................................... 29
Initial Aggregate Receivables Balance..................................... 4
Initial Gross Receivable Balance.......................................... 19
Initial Receivable Balance................................................ 18
Insolvency Event.......................................................... 44
Insolvency Laws........................................................... 13
Interest Rate............................................................. 5
Investment Earnings....................................................... 36
IRS....................................................................... 50
Level Principal Balloon Receivables....................................... 18
Level Principal Fully Amortizing Receivables.............................. 18
Level Principal Skip Receivables.......................................... 18
Limited Liability Amount.................................................. 23
Liquidating Receivable.................................................... 33
Liquidation Expenses...................................................... 37
Liquidation Proceeds...................................................... 33
Liquidations.............................................................. 22
Loss Protection........................................................... 23
Maximum Subordination Spread Amount....................................... 9
Minimum Subordination Spread Amount....................................... 10
Monthly Advance........................................................... 38
Monthly Period............................................................ 36
Moody's................................................................... 36
Net Losses................................................................ 22
NFC....................................................................... 4
NFRRC..................................................................... 4
NIC....................................................................... 44
NITC...................................................................... 4
</TABLE>
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<TABLE>
<S> <C>
NITC Purchase Obligations................................................... 23
Note Distribution Account................................................... 35
Note Pool Factor............................................................ 20
Noteholder.................................................................. 20
Notes....................................................................... 2
Obligor..................................................................... 18
OID......................................................................... 51
OID Regulations............................................................. 51
Optional Purchase Proceeds.................................................. 47
Other Receivables........................................................... 18
Owner Certificateholders.................................................... 6
Owner Certificates.......................................................... 2
Owner Securities............................................................ 2
Owner Securityholders....................................................... 7
Owner Trust................................................................. 2
Owner Trust Agreement....................................................... 2
Owner Trust Certificate Pool Factor......................................... 20
Owner Trust Pooling and Servicing Agreement................................. 7
Owner Trustee............................................................... 2
Partial Prepayment.......................................................... 37
Participants................................................................ 29
Partnership Certificates.................................................... 51
Pass Through Rate........................................................... 6
Payment Date................................................................ 24
Plan Assets Regulation...................................................... 62
Pooling and Servicing Agreement.............................................2,7
Pre-Funded Amount........................................................... 4
Pre-Funding Account......................................................... 2
Prepayment.................................................................. 37
Prepayment Surplus.......................................................... 40
Prospectus Supplement....................................................... 2
PTCE........................................................................ 62
Purchase Agreement.......................................................... 33
Rating Agencies............................................................. 35
Receivable Balance.......................................................... 19
Receivables................................................................. 2
Receivables Pool............................................................ 15
Record Date................................................................. 8
Registration Statement...................................................... 3
Related Documents........................................................... 26
Related Property............................................................ 4
Remaining Gross Balance..................................................... 32
Required Deposit Rating..................................................... 36
Reserve Account............................................................. 41
Restricted Group............................................................ 63
Retail Notes................................................................ 18
Rules....................................................................... 30
S&P......................................................................... 36
Schedule of Receivables..................................................... 34
Scheduled Payment........................................................... 18
Securities.................................................................. 2
Securities Act.............................................................. 3
Security Owner.............................................................. 29
Securityholders............................................................. 17
Seller...................................................................... 2
Servicer.................................................................... 2
</TABLE>
67
<PAGE>
<TABLE>
<S> <C>
Servicer Default.......................................................... 44
Short-Term Note........................................................... 52
Specified Subordination Spread Account Balance............................ 9, 41
Strip Certificates........................................................ 6
Strip Notes............................................................... 5
Subsequent Receivables.................................................... 2
Subsequent Transfer Date.................................................. 34
Supplemental Servicing Fee................................................ 36
Tax Counsel............................................................... 51
Tax Partnership........................................................... 51
Tax Trust................................................................. 51
TIA....................................................................... 27
Total Servicing Fee....................................................... 36
Transfer and Servicing Agreements......................................... 33
Trust..................................................................... 2
Trust Certificates........................................................ 51
Trust Property............................................................ 15
Trustee................................................................... 2
UCC....................................................................... 35
Underwriter's Exemption................................................... 62
Underwriting Agreement.................................................... 64
voting interests.......................................................... 28
Warranty Payment.......................................................... 34
Warranty Receivable....................................................... 34
Specified Reserve Account Balance......................................... 41
</TABLE>
68
<PAGE>
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 and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Seller. Neither the delivery of this 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 does 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.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SUPPLEMENT
<S> <C>
Available Information......................... 3
Reports to Securityholders.................... 3
Owner Trusts/grantor Trusts................... 3
Prospectus Summary............................ 4
Risk Factors.................................. 12
The Trusts.................................... 15
The Receivables Pools......................... 18
Weighted Average Life of the Securities....... 19
Pool Factors and Trading Information.......... 20
Use of Proceeds............................... 20
The Seller.................................... 20
The Servicer.................................. 21
The Notes..................................... 23
Owner Certificates............................ 27
Class a Certificates.......................... 28
Certain Information Regarding the Securities.. 29
The Transfer and Servicing Agreements......... 33
Certain Legal Aspects of the Receivables...... 47
Certain Federal Income Tax Consequences....... 50
Certain State Tax Matters..................... 60
Erisa Considerations.......................... 62
Plan of Distribution.......................... 64
Legal Opinions................................ 64
</TABLE>
69
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses in connection with the
issuance and distribution of the securities being registered, other than
underwriting discounts and commissions. All such expenses will be paid by the
Company.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.... $ 737,500
Accounting fees and expenses........................... *
Legal fees and expenses................................ *
Trustee's fees......................................... *
Printing and engraving................................. *
Blue sky fees and expenses (including counsel)......... *
Rating Agency Fees..................................... *
Miscellaneous.......................................... $ *
---------
Total............................................. $ *
=========
</TABLE>
* To be filed by amendment.
Item 15. Indemnification of Directors and Officers
Each of NIC, NITC, NFC and the Registrant are incorporated under the laws
of Delaware. Section 145 of the Delaware General Corporation Law provides that a
Delaware corporation may indemnify any persons, including officers and
directors, who are, or are threatened to be made, parties to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person was an officer, director,
employee or agent of such corporation, or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best interests
and, for criminal proceedings, had no reasonable cause to believe that his
conduct was illegal. A Delaware corporation may indemnify officers and directors
in an action by or in the right of the corporation under the same conditions,
except that no indemnification is permitted without judicial approval if the
officer or director is adjudged to be liable to the corporation. Where an
officer or director is successful on the merits or otherwise in the defense of
any action referred to above, the corporation must indemnify him against the
expenses which such officer or director actually and reasonably incurred.
Each Certificate of Incorporation with respect to NIC, NITC, NFC and the
Registrant, provide, in effect, that, subject to certain limited exceptions,
each such corporation will indemnify its officers and directors to the extent
permitted by Delaware General Corporation Law. In addition, NIC maintains
insurance providing for payment, subject to certain exceptions, on behalf of
officers and directors of NIC and its subsidiaries of money damages incurred as
a result of legal actions instituted against them in their capacities as such
officers or directors (whether or not such person could be indemnified against
such expense, liability or loss under the Delaware General Corporation Law).
Insofar as indemnification by the Company for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
II-1
<PAGE>
Item 16. Exhibits.
(a) Exhibits:
The exhibits to this Registration Statement are listed in the Exhibit
Index below.
(b) Financial Statements Schedules: Not applicable with respect to the
Registrant.
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, unless the information required to be included in
such post-effective amendment is contained in a periodic report filed with
or furnished to the Securities and Exchange Commission by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934 and incorporated herein by reference;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement, unless the information required to be
included in a post-effective amendment is contained in periodic reports
filed by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated herein by reference.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 15 above, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding)
II-2
<PAGE>
is asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Securities Act of 1933 and
will be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the Indenture Trustee to act under
subsection (a) of section 310 of the Trust Indenture Act ("Act") in accordance
with the rules and regulations prescribed by the Commission under section
305(b)(2) of the Act.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Rolling Meadows, State of Illinois, on August 28,
1998.
NAVISTAR FINANCIAL RETAIL
RECEIVABLES CORPORATION
as originator of the Trusts described
herein, Registrant
By: /s/ John J. Bongiorno
---------------------------------
John J. Bongiorno
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John. J. Bongiorno, R. Wayne Cain and William W.
Jones, and each of them, his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities (including his capacity as a director
and/or officer of Navistar Financial Retail Receivables Corporation), to sign
and file any and all amendments (including post-effective amendments) to this
registration statement or any registration statement relating to this offering
that is to be effective upon filing pursuant to Rule 462(b) under the Securities
Act of 1933, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary in connection with such matters as he might or could do in person and
hereby ratifying and confirming all that each of such attorneys-in-fact and
agents or their or his substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and power of attorney has been signed on August 28, 1998,
by the following persons in the capacities indicated.
<TABLE>
<CAPTION>
Signatures Capacity
- ---------- --------
<S> <C>
/s/ John J. Bongiorno Director, President and Chief Executive Officer
- -----------------------
John J. Bongiorno
/s/ R. Wayne Cain Director, Vice President and Treasurer
- ----------------------- (Principal Financial Officer)
R. Wayne Cain
/s/ Phyllis E. Cochran Director and Controller
- ----------------------- (Principal Accounting Officer)
Phyllis E. Cochran
/s/ Douglas A. Antonik Director
- -----------------------
Douglas A. Antonik
/s/ James G. Froberg Director
- -----------------------
James G. Froberg
/s/ Thomas M. Hough Director
- --------------------
Thomas M. Hough
/s/ Robert C. Lannert Director
- -----------------------
Robert C. Lannert
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement for Notes and Certificates.
*4.1 Form of Certificate Trust of Owner Trust (included in Exhibit 4.4
hereto).
*4.2 Form of Indenture between the Owner Trust and the Indenture
Trustee.
*4.3 Form of Note (included in Exhibit 4.2 hereto).
*4.4 Form of Owner Trust Agreement between Navistar Financial Retail
Receivables Corporation and the Owner Trustee.
*4.5 Form of Owner Certificate (included in Exhibit 4.4 hereto).
*4.6 Form of Class A Certificate (included in Exhibit 99.2 hereto).
**5.1 Opinion of Kirkland & Ellis with respect to legality.
*8.1 Opinion of Kirkland & Ellis with respect to tax matters.
**23.1 Consent of Kirkland & Ellis (included as part of Exhibit 5.1 and
8.1).
24.1 Power of Attorney (included on page II-4).
**25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939 of the Indenture Trustee.
*99.1 Form of Owner Trust Pooling and Servicing Agreement between
Navistar Financial Retail Receivables Corporation, Navistar
Financial Corporation and the Owner Trustee.
*99.2 Form of Grantor Trust Pooling and Servicing Agreement between
Navistar Financial Retail Receivables, Navistar Financial
Corporation and the Grantor Trustee.
*99.3 Form of Purchase Agreement between Navistar Financial Corporation
and Navistar Financial Retail Receivables Corporation.
*99.4 Form of Administration Agreement between Navistar Financial
Corporation, the Owner Trust and the Indenture Trustee.
*99.5 Certificate of Incorporation of Navistar Financial Retail
Receivables Corporation.
*99.6 By-Laws of Navistar Financial Retail Receivables Corporation.
*99.7 Form of Custodian Agreement between Navistar Financial Corporation
and Navistar Financial Retail Receivables Corporation.
</TABLE>
- ----------------
*Incorporated by reference to registrant's Registration Statement No. 33-50291.
**To be filed by amendment.
