As filed with the Securities and Exchange Commission on April __, 1997
Registration No. [ ]
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM S-3
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
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CPS AUTO RECEIVABLES TRUSTS
(Issuer of the Securities)
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CONSUMER PORTFOLIO SERVICES, INC.
(Originator of the Trust described herein)
(Exact name of registrant as specified in its charter)
California 33-0459135
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
2 Ada, Suite 100
Irvine, California 92618
(714) 753-6800
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Charles E. Bradley, Jr.
Consumer Portfolio Services, Inc.
2 Ada, Suite 100
Irvine, California 92618
(714) 753-6800
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
Laura A. DeFelice, Esq.
MAYER, BROWN & PLATT
1675 Broadway
New York, New York 10019
(212) 506-2500
Approximate date of commencement of proposed sale to the public:
From time to time on or after the effective date of this registration
statement, as determined by 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. o
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 the
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 of 1933, 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 of 1933, please 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. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Title of securities to Amount to be Proposed maximum Proposed maximum Amount of
be registered registered offering price per certificate* aggregate offering price* registration fee
<S> <C> <C> <C> <C> <C>
Asset Backed Notes,
Class A $1,000,000 100% $1,000,000 $344.83
<FN>
* Estimated solely for the purpose of calculating the registration fee.
</FN>
</TABLE>
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 the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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INTRODUCTORY NOTE
This Registration Statement contains (i) a form of Prospectus relating
to the offering of Series of Asset Backed Notes by various CPS Auto Receivables
Trusts created from time to time by Consumer Portfolio Services, Inc., (ii) a
form of Prospectus Supplement (Form A) relating to future offerings by a CPS
Auto Receivables Trust of a Series of Asset Backed Securities described therein,
and (iii) a form of Prospectus Supplement (Form B) relating to the offering by
CPS Auto Receivables Trust 1997 - 2 of the particular Series of Asset Backed
Notes described therein. The forms of Prospectus Supplement relate only to the
securities described therein and are forms that may be used, among others, by
Consumer Portfolio Services, Inc. to offer Asset Backed Securities under this
Registration Statement.
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PROSPECTUS
CPS Auto Receivables Trusts
Auto Receivables Backed Notes and Certificates Issuable in Series
CPS Receivables Corp.
Seller
Consumer Portfolio Services
Sponsor and Servicer
This Prospectus describes certain Auto Receivables Backed Notes (the
"Notes") and Auto Receivables Backed Certificates (the "Certificates" and,
together with the Notes, the "Securities") that may be sold from time to time in
one or more series (each a "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 (each, a "Prospectus Supplement"). Each Series of Securities may
include one or more classes of Notes and one or more classes of Certificates,
which will be issued by a trust to be formed by the Seller for the purpose of
issuing one or more Series of such Securities (each, a "Trust"). A Trust issuing
Securities as described in this Prospectus and the related Prospectus Supplement
shall be referred to herein as the "Issuer".
Each class of Securities of any Series will evidence beneficial
ownership in a segregated pool of assets (the "Trust Assets") (such Securities,
Certificates) or will represent indebtedness of the Issuer secured by the Trust
Assets (such Securities, Notes), as described herein and in the related
Prospectus Supplement. The Trust Assets may consist of any combination of retail
installment sales contracts between manufacturers, dealers or certain other
originators and retail purchasers secured by new and used automobiles, light
trucks, vans and minivans financed thereby, or participation interests therein,
together with all moneys received relating thereto (the "Contracts"). The Trust
Assets may also include a security interest in the underlying new and used
automobiles light trucks, vans and minivans and property relating thereto,
together with the proceeds thereof (the "Financed Vehicles" together with the
Contracts, the "Receivables"). If and to the extent specified in the related
Prospectus Supplement, credit enhancement with respect to the Trust Assets or
any class of Securities may include any one or more of the following: a
financial guaranty insurance policy (a "Policy") issued by an insurer specified
in the related Prospectus Supplement, a reserve account, letters of credit,
credit or liquidity facilities, third party payments or other support, cash
deposits or other arrangements. In addition to or in lieu of the foregoing,
credit enhancement may be provided by means of subordination, cross-support
among the Receivables or over-collateralization. See "Description of the Trust
Documents -- Credit and Cash Flow Enhancement." Except to the extent that a
Prospectus Supplement for a series provides for a pre-funding period, the
Receivables included in the Trust Assets for a Series will have been originated
or acquired by CPS or an Affiliated Originator on or prior to the date of
issuance of the related Securities, as described herein and in the related
Prospectus Supplement. The Receivables included in a Trust will be serviced by a
servicer (the "Servicer") described in the related Prospectus Supplement.
Each Series of Securities may include one or more classes (each, a
"Class"). A Series may include one or more Classes of Securities entitled to
principal distributions, with disproportionate, nominal or no interest
distributions, or to interest distributions, with disproportionate, nominal or
no principal distributions. The rights of one or more Classes of Securities of
any Series may be senior or subordinate to the rights of one or more of the
other Classes of Securities. A Series may include two or more Classes of
Securities which may differ as to the timing, order or priority of payment,
interest rate or amount of distributions of principal or interest or both.
Information regarding each Class of Securities of a Series, together with
certain characteristics of the related Receivables, will be set forth in the
related Prospectus Supplement. The rate of payment in respect of principal of
the Securities of any Class will depend on the priority of payment of such Class
and the rate and timing of payments (including prepayments, defaults,
liquidations or 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. See "Description of the Securities."
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" BEGINNING ON PAGE [13] HEREIN AND IN THE RELATED PROSPECTUS SUPPLEMENT.
THE NOTES OF A GIVEN SERIES REPRESENT OBLIGATIONS OF THE ISSUER ONLY AND DO NOT
REPRESENT OBLIGATIONS OF CPS, ANY SELLER, ANY SERVICER OR ANY OF THEIR
RESPECTIVE AFFILIATES. THE CERTIFICATES OF A GIVEN SERIES REPRESENT BENEFICIAL
INTERESTS IN THE RELATED TRUST ONLY AND DO NOT REPRESENT INTERESTS IN OR
OBLIGATIONS OF CPS, ANY SELLER, ANY SERVICER OR ANY OF THEIR RESPECTIVE
AFFILIATES. NEITHER THE SECURITIES NOR THE UNDERLYING RECEIVABLES WILL BE
GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY CPS,
ANY SELLER, ANY SERVICER, ANY TRUSTEE 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.
Offers of the Securities may be made through one or more different
methods, including offerings through underwriters as more fully described under
"Plan of Distribution" herein and in the related Prospectus Supplement. Prior to
issuance, there will have been no market for the Securities of any Series, and
there can be no assurance that a secondary market for the Securities will
develop, or if it does develop, it will continue.
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of Securities unless accompanied by a Prospectus
Supplement.
The date of this Prospectus is May [ ], 1997.
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PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Securities to be
offered hereunder, among other things, will set forth with respect to such
Series of Securities: (i) a description of the Class or Classes of such
Securities, (ii) the rate of interest, the "Interest Rate" or other applicable
rate (or the manner of determining such rate) and authorized denominations of
each Class of such Securities; (iii) certain information concerning the
Receivables and insurance polices, cash accounts, letters of credit, financial
guaranty insurance policies, third party guarantees or other forms of credit
enhancement, if any, relating to one or more pools of Receivables or all or part
of the related Securities; (iv) the specified interest, if any, of each Class of
Securities in, and manner and priority of, the distributions from the Trust
Assets; (v) information as to the nature and extent of subordination with
respect to such Series of Securities, if any; (vi) the payment date to
Securityholders; (vii) information regarding the Servicer(s) for the related
Receivables; (viii) the circumstances, if any, under which the Trust Assets may
be subject to early termination; (ix) information regarding tax considerations;
and (x) additional information with respect to the method of distribution of
such Securities.
AVAILABLE INFORMATION
The Sponsor 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, 14th Floor, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, 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.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Securities offered
hereby and thereby, nor an offer of the Securities to any person in any state or
other jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus at any time does not imply that information herein is correct as of
any time subsequent to its date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by the Sponsor with respect to the
Registration Statement, either on its own behalf or on behalf of a Trust,
relating to any Series of Securities referred to in the accompanying Prospectus
Supplement, with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), after the
date of this Prospectus and prior to the termination of any offering of the
Securities issued by the Issuer, shall be deemed to be incorporated by reference
in this Prospectus and to be a part of this Prospectus from the date of the
filing of such documents. Any statement contained herein or in a document
incorporated
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or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein (or in the accompanying Prospectus Supplement) or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein, modifies or replaces such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
REPORTS TO SECURITYHOLDERS
So long as the Securities of a Series are in book-entry form, monthly
and annual reports concerning the Securities and the Trust will be sent by the
applicable Trustee to Cede & Co., as the nominee of DTC and as registered holder
of the Securities pursuant to the related Indenture. DTC will supply such
reports to Securityholders in accordance with its procedures. To the extent
required by the Securities Exchange Act of 1934, as amended, each Trust will
provide financial information to the Securityholders which has been examined and
reported upon, with an opinion expressed by, an independent public accountant;
to the extent not so required, such financial information will be unaudited.
Each Trust will be formed to own the Receivables, hold and administer the
Pre-Funding Account, if any, to issue the Securities and to acquire the
Subsequent Receivables, if available. No Trust will have any assets or
obligations prior to issuance of the Securities and no Trust will engage in any
activities other than those described herein. Accordingly, no financial
statements with respect to the related Trust will be included in any Prospectus
Supplement.
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<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to the Securities of any Series contained in the
related Prospectus Supplement to be prepared and delivered in connection with
the offering of such Securities. Certain capitalized terms used in the summary
are defined elsewhere in the Prospectus on the pages indicated in the "Index of
Terms."
Issuer........................With respect to any Series of Securities, a trust
(each, a "Trust") to be formed pursuant to a trust
agreement (the "Trust Agreement" ) between the
Seller and the trustee for such trust. A Trust
issuing Securities pursuant to this Prospectus and
the related Prospectus Supplement shall be
referred to herein as the "Issuer" with respect to
the related Securities.
Seller........................CPS Receivables Corp. or another special-purpose
subsidiary of CPS (each, a "Seller"). See "The
Seller and CPS".
Sponsor.......................Consumer Portfolio Services, Inc. ("CPS" or the
"Sponsor"). See "CPS's Automobile Contract
Portfolio" and "The Seller and CPS".
Servicer......................The entity named as Servicer in the related
Prospectus Supplement (the "Servicer"). Each
Prospectus Supplement will specify whether the
Servicer will service the Receivables in the
related Receivables Pool directly or indirectly
through one or more subservicers (each, a
"Subservicer").
Trustee.......................The Trustee for each Series of Securities will be
specified in the related Prospectus Supplement. In
addition, a Trust may separately enter into an
Indenture and may issue Notes pursuant to such
Indenture; in any such case, the Trust and the
Indenture will be administered by separate,
independent trustees as required by the rules and
regulations under the Trust Indenture Act of 1939
and the Investment Company Act of 1940.
The Securities................Each Class of Securities of any Series will either
evidence beneficial ownership in a segregated pool
of assets (the "Trust Assets") (such Securities,
"Certificates") or will represent indebtedness of
the Trust secured by the Trust Assets (such
Securities, "Notes"), as described herein and in
the related Prospectus Supplement.
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With respect to Securities that represent debt
issued by the Trust, the Trust will enter into an
indenture (each, an "Indenture") by and between
the Trust and the trustee named in such Indenture
(the "Indenture Trustee"). Each Indenture will
describe the related pool of Receivables
comprising the Trust Assets and securing the debt
issued by the related Issuer. The Receivables
comprising the Trust Assets will be serviced by
the Servicer pursuant to a servicing agreement
(each, a "Servicing Agreement") by and between the
Servicer and the related Issuer. In the case of
the Trust Assets of any class of Securities, the
contractual arrangements relating to the
establishment of a Trust, if any, the servicing of
the related Receivables and the issuance of the
related Securities may be contained in a single
agreement, or in several agreements which combine
certain aspects of the Trust Agreement, the
Servicing Agreement and the Indenture described
above (for example, a servicing and collateral
management agreement). For purposes of this
Prospectus, the term "Trust Documents" as used
with respect to Trust Assets means, collectively,
and except as otherwise described in the related
Prospectus Supplement, any and all agreements
relating to the establishment of a Trust, if any,
the servicing of the related Receivables and the
issuance of the related Securities. The term
"Trustee" means any and all persons acting as a
trustee pursuant to a Trust Agreement.
Securities Will Be Non-Recourse. The Securities
will not be obligations, either recourse or
non-recourse, of CPS, any Seller, the related
Servicer or any person other than the related
Issuer. The Notes of a given Series represent
obligations of the Issuer, and the Certificates of
a given Series represent beneficial interests in
the related Issuer only and do not represent
interests in or obligations of CPS, any Seller,
the related Servicer or any of their respective
affiliates other than the related Issuer. In the
case of Securities that represent beneficial
ownership interest in the related Issuer, such
Securities will represent the beneficial ownership
interests in such Issuer and the sole source of
payment will be the assets of such Issuer. In the
case of Securities that represent debt issued by
the related Issuer, such Securities will be
secured by assets in the related Trust Assets.
Notwithstanding the foregoing, and as to be
described in the related Prospectus Supplement,
certain types of
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credit enhancement, such as a letter of credit,
financial guaranty insurance policy or reserve
fund may constitute a full recourse obligation of
the issuer of such credit enhancement.
General Payment Terms of Securities. As provided
in the related Trust Documents and as described in
the related Prospectus Supplement, the holders of
the Securities ("Securityholders") will be
entitled to receive payments on their Securities
on specified dates (each, a "Payment Date").
Payment Dates with respect to Securities will
occur monthly, quarterly or semi-annually, as
described in the related Prospectus Supplement.
The related Prospectus Supplement will describe a
date (the "Record Date") preceding such Payment
Date, as of which the Trustee or its paying agent
will fix the identity of the Securityholders for
the purpose of receiving payments on the next
succeeding Payment Date. As described in the
related Prospectus Supplement, the Payment Date
will be a specified day of each month, (or, in the
case of quarterly-pay Securities, a specified day
of every third month; and in the case of
semi-annual pay Securities, a specified day of
every sixth month) and the Record Date will be the
close of business as of a specified day preceding
such Payment Date. Each Indenture and Trust
Agreement will describe a period (each, a
"Collection Period") preceding each Payment Date
(for example, in the case of monthly-pay
Securities, the calendar month preceding the month
in which a Payment Date occurs). As more fully
described in the related Prospectus Supplement,
collections received on or with respect to the
related Receivables constituting Trust Assets
during a Collection Period will be required to be
remitted by the Servicer to the related Trustee
prior to the related Payment Date and will be used
to fund payments to Securityholders on such
Payment Date. As may be described in the related
Prospectus Supplement, the related Trust Documents
may provide that all or a portion of the payments
collected on or with respect to the related
Receivables may be applied by the related Trustee
to the acquisition of additional Receivables
during a specified period (rather than be used to
fund payments of principal to Securityholders
during such period), with the result that the
related Securities will possess an interest-only
period, also commonly referred to as a revolving
period, which will be followed by an amortization
period. Any such interest only or
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revolving period may, upon the occurrence of
certain events to be described in the related
Prospectus Supplement, terminate prior to the end
of the specified period and result in the earlier
than expected amortization of the related
Securities. In addition, and as may be described
in the related Prospectus Supplement, the related
Trust Documents may provide that all or a portion
of such collected payments may be retained by the
Trustee (and held in certain temporary
investments, including Receivables) for a
specified period prior to being used to fund
payments of principal to Securityholders. Such
retention and temporary investment by the Trustee
of such collected payments may be required by the
related Trust Documents for the purpose of (a)
slowing the amortization rate of the related
Securities relative to the installment payment
schedule of the related Receivables, or (b)
attempting to match the amortization rate of the
related Securities to an amortization schedule
established at the time such Securities are
issued. Any such feature applicable to any
Securities may terminate upon the occurrence of
events to be described in the related Prospectus
Supplement, resulting in distributions to the
specified Securityholders and an acceleration of
the amortization of such Securities. As more fully
specified in the related Prospectus Supplement,
neither the Securities nor the underlying
Receivables will be guaranteed or insured by any
governmental agency or instrumentality or CPS, any
Seller, the related Servicer, any Trustee, or any
of their respective affiliates.
Each Series of Securities will be issued pursuant
to the related Indenture, in the case of the
Notes, and Trust Agreement, in the case of the
Certificates. The related Prospectus Supplement
will specify which Class or Classes of Securities
of the related Series are being offered thereby.
Each Class of Securities will have a stated
security balance (the "Security Balance") and will
accrue interest on such Security Balance at a
specified rate (with respect to each Class of
Securities the "Interest Rate") as set forth in
the related Prospectus Supplement. Each Class of
Securities 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, or the method for
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determining the applicable Interest Rate, for each
Class of Securities.
A Series of Securities may include two or more
Classes of Securities that differ as to timing and
priority of distributions, seniority, allocations
of losses, Interest Rate or amount of
distributions in respect of principal or interest.
Additionally, distributions in respect of
principal or interest in respect of any such Class
or Classes may or may not be made upon the
occurrence of specified events or on the basis of
collections from designated portions of the
related Receivables Pool. If specified in the
related Prospectus Supplement, one or more Classes
of Securities ("Strip Securities") may be entitled
to (i) principal distributions with
disproportionate, nominal or no interest
distributions or (ii) interest distributions with
disproportionate, nominal or no principal
distributions. If specified in the related
Prospectus Supplement a Series may include one or
more Classes of Securities ("Accrual Securities"),
as to which certain accrued interest will not be
distributed but rather will be added to the
principal balance (or nominal balance, in the case
of Accrual Securities which are also Strip
Securities) thereof on each Payment Date or in the
manner described in the related Prospectus
Supplement. If so provided in the related
Prospectus Supplement, a Series may include one or
more other Classes of Securities (collectively,
the "Senior Securities") that are senior to one or
more other Classes of Securities (collectively,
the "Subordinate Securities") in respect of
certain distributions of principal and interest
and allocations of losses on Receivables. In
addition, certain Classes of Senior (or
Subordinate) Securities may be senior to other
Classes of Senior (or Subordinate) Securities in
respect of such distributions or losses. See
"Description of the Securities--Distributions of
Principal and Interest".
Securities will be available for purchase in the
minimum denomination specified in the related
Prospectus Supplement and will be available in
book-entry form unless otherwise specified in the
related Prospectus Supplement. Securityholders
will be able to receive Definitive Securities only
in the limited circumstances described herein or
in the related Prospectus Supplement. See "Certain
Information Regarding the Securities--Definitive
Securities".
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If the Servicer or any Subservicer exercises its
option to purchase the Receivables of a Trust (or
if not and, if and to the extent provided in the
related Prospectus Supplement, satisfactory bids
for the purchase of such Receivables are
received), in the manner and on the respective
terms and conditions described under "Description
of the Trust Documents--Termination", the
Securities will be prepaid as set forth in the
related Prospectus Supplement. In addition, if the
related Prospectus Supplement provides that the
property of a Trust will include a Pre-Funding
Account that will be used to purchase additional
Receivables after the applicable Closing Date, one
or more Classes of Securities may be subject to a
partial prepayment of principal at or immediately
following the end of the period specified in such
Prospectus Supplement for the purchase of such
additional Receivables, in the manner and to the
extent specified in the related Prospectus
Supplement.
No Investment Companies.......None of CPS, any Seller or any Trust will register
as an "investment company" under the Investment
Company Act of 1940, as amended (the "Investment
Company Act").
The Residual Interest.......With respect to each Trust, the "Residual
Interest" at any time represents the rights to the
related Trust Assets in excess of the
Securityholders' interest of all Series then
outstanding that were issued by such Trust. The
Residual Interest in any Trust Assets will
fluctuate as the aggregate Pool Balance (as
hereinafter defined) of such Trust changes from
time to time. A portion of the Residual Interest
in any Trust may be sold separately in one or more
public or private transactions.
Master Trusts; Issuance of
Additional Series.............As may be described in the related Prospectus
Supplement, CPS may cause one or more of the
Trusts (such a Trust, a "Master Trust") to issue
additional Series of Securities from time to time.
Under each Indenture or Trust Agreement relating
to a Master Trust (each, a "Master Trust
Agreement"), CPS may determine the terms of any
such new Series. See "Description of the
Securities -- Master Trusts."
CPS may cause the related Trustee to offer any
such new Series to the public or other investors,
in
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transactions either registered under the
Securities Act or exempt from registration
thereunder, directly or through one or more
underwriters or placement agents, in fixed-price
offerings or in negotiated transactions or
otherwise. A new Series to be issued by a Master
Trust which has a Series outstanding may only be
issued upon satisfaction of the conditions
described herein under "Description of the
Securities -- Master Trusts". Securities secured
by Receivables held by a Master Trust shall be
entitled to moneys received relating to such
Receivables on a pari passu basis with other
Securities issued pursuant to the other Indentures
or Trust Agreements by such Master Trust.
Cross-Collateralization.......As described in the related Trust Documents and
the related Prospectus Supplement, the source of
payment for Securities of each Series will be the
assets of the related Trust only. However, as may
be described in the related Prospectus Supplement,
a Series or Class of Securities may include the
right to receive moneys from a common pool of
credit enhancement which may be available for more
than one Series of Securities, such as a master
reserve account, master insurance policy or a
master collateral pool consisting of similar
Receivables. Notwithstanding the foregoing, and as
described in the related Prospectus Supplement, no
payment received on any Receivable held by any
Trust may be applied to the payment of Securities
issued by any other Trust (except to the limited
extent that certain collections in excess of the
amounts needed to pay the related Securities may
be deposited in a common master reserve account or
an overcollateralization account that provides
credit enhancement for more than one Series of
Securities issued pursuant to the related Trust
Documents).
Trust Assets..................The property of each Trust will include a pool of
simple interest or Rule of 78's motor vehicle
installment sale contracts or motor vehicle
installment loans secured by new and used
automobiles, light trucks, vans and minivans (the
"Receivables"), including the right to receive
payments received or due on or with respect to
such Receivables on or after the date or dates
specified in the related Prospectus Supplement
(each, a "Cutoff Date"), security interests in the
vehicles financed thereby (the "Financed
Vehicles"), and any proceeds from claims under
certain related insurance policies. On the date of
issuance of a Series of Securities specified in
the
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related Prospectus Supplement (the "Closing Date"
for such Series), the applicable Seller will
convey Receivables having the aggregate principal
balance specified in such Prospectus Supplement as
of the Cutoff Date specified therein to such Trust
pursuant to a sale and servicing agreement (the
"Sale and Servicing Agreement") among the Seller,
the Servicer and the Trustee of such Trust. The
property of each Trust also will include amounts
on deposit in, or certain rights with respect to,
certain trust accounts, including the related
Collection Account, any Pre- Funding Account and
any other account identified in the applicable
Prospectus Supplement. See "Description of the
Trust Documents--Accounts".
If the related Prospectus Supplement provides that
the property of a Trust will include moneys
initially deposited into an account (a
"Pre-Funding Account") to purchase additional
Receivables after the Closing Date, the Seller
will be obligated pursuant to the Sale and
Servicing Agreement to sell additional Receivables
(the "Subsequent Receivables") to the related
Trust, subject only to the availability thereof,
having an aggregate principal balance
approximately equal to the amount deposited to the
Pre-Funding Account on the Closing Date (the
"Pre-Funded Amount"), and the Trust will be
obligated to purchase such Subsequent Receivables
(subject to the satisfaction of certain conditions
set forth in the related Trust Documents) from
time to time during the period (the "Funding
Period") specified in such Prospectus Supplement
for the purchase of such Subsequent Receivables.
Any Subsequent Receivables conveyed to a Trust
will have been acquired by the Seller, directly or
indirectly, from CPS or a subsidiary of CPS (such
subsidiary, an "Affiliated Originator") and will
meet all of the credit and other criteria set
forth set forth herein and in the related
Prospectus Supplement. See "Risk Factors--Sales of
Subsequent Receivables", "The Receivables", and
"Description of the Trust Documents--Sale and
Assignment of Receivables" herein and "The
Receivables Pool" in the related Prospectus
Supplement.
As used in this Prospectus, the term Receivables
will include the Receivables transferred to a
Trust on the related Closing Date (such
Receivables, the "Initial Receivables") as well as
any Subsequent Receivables
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transferred to such Trust during the related
Funding Period, if any.
Amounts on deposit in any Pre-Funding Account
during the related Funding Period will be invested
by the Trustee (as directed by the Servicer) in
Eligible Investments, and any resultant investment
income, less any related investment expenses
("Investment Income"), will be added, on the
Payment Date immediately following the date on
which such Investment Income is paid to the Trust,
to interest collections on the Receivables for the
related Collection Period and distributed in the
manner specified in the related Prospectus
Supplement. Any funds remaining in a Pre-Funding
Account at the end of the related Funding Period
will be distributed as a prepayment or early
distribution of principal to holders of one or
more classes of the Securities of the related
Series of Securities, in the amounts and in
accordance with the payment priorities specified
in the related Prospectus Supplement. See "Risk
Factors--Pre- Funding Accounts".
Registration of Securities....Securities may be represented by global securities
registered in the name of Cede & Co. ("Cede"), as
nominee of The Depository Trust Company ("DTC"),
or another nominee. In such case, Securityholders
will not be entitled to receive definitive
securities representing such Securityholders'
interests, except in certain circumstances
described in the related Prospectus Supplement.
See "Description of the Securities -- Book-Entry
Registration" herein.
Credit and Cash Flow
Enhancement...................If and to the extent specified in the related
Prospectus Supplement, credit enhancement with
respect to the Trust Assets or any Class of
Securities may include any one or more of the
following: subordination of one or more other
classes of Securities of the same Series, reserve
funds, spread accounts, surety bonds, insurance
policies, letters of credit, credit or liquidity
facilities, cash collateral accounts, over-
collateralization, guaranteed investment
contracts, swaps or other interest rate protection
agreements, repurchase obligations, other
agreements with respect to third party payments or
other support, cash deposits, or other
arrangements. To the extent specified in the
related Prospectus Supplement, a form of credit
enhancement with respect to a Trust or a
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Class or Classes of Securities may be subject to
certain limitations and exclusions from coverage
thereunder.
Repurchase Obligations and
the Receivables Acquisition
Agreement.....................As more fully described in the related Prospectus
Supplement, CPS will be obligated to acquire from
the related Trust Assets any Receivable which was
transferred pursuant to a Sale and Servicing
Agreement or Purchase Agreement or pledged
pursuant to an Indenture if the interest of the
Securityholders therein is materially adversely
affected by a breach of any representation or
warranty made by CPS with respect to such
Receivable, which breach has not been cured. In
addition, if so specified in the related
Prospectus Supplement, CPS may from time to time
reacquire certain Receivables of the Trust Assets,
subject to specified conditions set forth in the
related Trust Documents.
Servicer's Compensation.......The Servicer shall be entitled to receive a fee
for servicing the Trust Assets equal to a
specified percentage of the value of such Trust
Assets, as set forth in the related Prospectus
Supplement. See "Description of the Trust
Documents -- Servicing Compensation" herein and in
the related Prospectus Supplement.
Optional Termination..........The Servicer, CPS, or, if specified in the related
Prospectus Supplement, certain other entities may,
at their respective options, effect early
retirement of a Series of Securities under the
circumstances and in the manner set forth herein
under "Description of The Trust Documents --
Termination" and in the related Prospectus
Supplement.
Mandatory Termination.........The Trustee, the Servicer or certain other
entities specified in the related Prospectus
Supplement may be required to effect early
retirement of all or any portion of a Series of
Securities by soliciting competitive bids for the
purchase of the Trust Assets or otherwise, under
the circumstances and in the manner specified in
"Description of The Trust Documents --
Termination" and in the related Prospectus
Supplement.
Tax Considerations............Upon the issuance of each series of Securities,
except as otherwise provided in the related
Prospectus Supplement, Federal Tax Counsel to the
applicable
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Trust will deliver an opinion to the effect that,
for Federal income tax purposes: (i) the Notes of
such series will be characterized as debt and (ii)
such Trust will not be characterized as an
association (or a publicly traded partnership)
taxable as a corporation. Each Noteholder, by the
acceptance of a Note of a given series, will agree
to treat such Note as indebtedness, and each
Certificateholder, by the acceptance of a
Certificate of a given series, will agree to treat
the related Trust as a partnership in which such
Certificateholder is a partner for Federal income
tax purposes. Alternative characterizations of
such Trust and such Certificates are possible, but
would not result in materially adverse tax
consequences to Certificateholders. See "Certain
Federal Income Tax Consequences" for additional
information concerning the application of Federal
tax laws.
ERISA Considerations..........The Prospectus Supplement for each Series of
Securities will summarize, subject to the
limitations discussed therein, considerations
under the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), relevant to the
purchase of such Securities by employee benefit
plans and individual retirement accounts. See
"ERISA Considerations" in the related Prospectus
Supplement.
Ratings.......................Each Class of Securities offered pursuant to this
Prospectus and the related Prospectus Supplement
will, unless otherwise specified in the related
Prospectus Supplement, be rated in one of the four
highest rating categories by one or more "national
statistical rating organizations", as defined in
the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and commonly referred to as
"Rating Agencies". Such ratings will address, in
the opinion of such Rating Agencies, the
likelihood that the Issuer will be able to make
timely payment of all amounts due on the related
Securities in accordance with the terms thereof.
Such ratings will neither address any prepayment
or yield considerations applicable to any
Securities nor constitute a recommendation to buy,
sell or hold any Securities. The ratings expected
to be received with respect to any Securities will
be set forth in the related Prospectus Supplement.
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RISK FACTORS
Prospective Securityholders should consider, among other things, the
following factors in connection with the purchase of the Securities:
Limited Liquidity. There can be no assurance that a secondary market
for the Securities of any Series or Class will develop or, if it does develop,
that it will provide Securityholders with liquidity of investment or that it
will continue for the life of such Securities. The Prospectus Supplement for any
Series of Securities may indicate that an underwriter specified therein intends
to establish and maintain a secondary market in such Securities; however, no
underwriter will be obligated to do so.
The Securities will not be listed on any securities exchange.
Pre-Funding Accounts. If so provided in the related Prospectus
Supplement, on the Closing Date the Seller will deposit the Pre-Funded Amount
specified in such Prospectus Supplement into the Pre-Funding Account. The
Pre-Funded Amount will be used to purchase Subsequent Receivables from the
Seller (which, in turn, will acquire such Subsequent Receivables from CPS or an
Affiliated Originator specified in the related Prospectus Supplement) from time
to time during the related Funding Period. During the related Funding Period and
until such amounts are applied by the Trustee to purchase Subsequent
Receivables, amounts on deposit in the Pre-Funding Account will be invested by
the Trustee (as instructed by the Servicer) in Eligible Investments, and any
investment income with respect thereto (net of any related investment expenses)
will be added to amounts received on or in respect of the Receivables during the
related Collection Period and allocated to interest and will be distributed on
the Payment Date pursuant to the payment priorities specified in the related
Prospectus Supplement.
To the extent that the entire Pre-Funded Amount has not been applied to
the purchase of Subsequent Receivables by the end of the related Funding Period,
any amounts remaining in the Pre- Funding Account will be distributed as a
prepayment of principal to Securityholders on the Payment Date at or immediately
following the end of the Funding Period, in the amounts and pursuant to the
priorities set forth in the related Prospectus Supplement. Any such prepayment
of principal could have the effect of shortening the weighted average life of
the Securities of the related Series. In addition, holders of the related
Securities will bear the risk that they may be unable to reinvest any such
principal prepayment at yields at least equal to the yield on such Securities.
Sales of Subsequent Receivables. If so provided in the related
Prospectus Supplement, the Seller will be obligated pursuant to the Trust
Documents to sell Subsequent Receivables to the Trust, and the Trust will be
obligated to purchase such Subsequent Receivables, subject only to the
satisfaction of certain conditions set forth in the Trust Documents and
described in the related Prospectus Supplement. If the principal amount of the
eligible Subsequent Receivables acquired by the Seller from CPS or an Affiliated
Originator during a Funding Period is less than the Pre-Funded Amount, the
Seller may have insufficient Subsequent Receivables to transfer to a Trust and
holders of one or more Classes of the related Series of Securities may receive a
prepayment or early distribution of principal at the end of the Funding Period
as described above under "Pre-Funding Accounts".
Any conveyance of Subsequent Receivables to a Trust is subject to the
satisfaction, on or before the related transfer date (each, a "Subsequent
Transfer Date"), of the following conditions precedent, among others: (i) each
such Subsequent Receivable must satisfy the eligibility criteria specified in
the related Purchase Agreement; (ii) the Seller shall not have selected such
Subsequent Receivables in a manner that is adverse to the interests of holders
of the related Securities; (iii) as of
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the respective Cutoff Dates for such Subsequent Receivables, all of the
Receivables in the Trust, including the Subsequent Receivables to be conveyed to
the Trust as of such date, must satisfy the parameters described under "The
Receivables Pools" herein and "The Receivables Pool" in the related Prospectus
Supplement; and (iv) the Seller must execute and deliver to such Trust a written
assignment conveying such Subsequent Receivables to such Trust. In addition, as
and to the extent specified in the related Prospectus Supplement, the conveyance
of Subsequent Receivables to a Trust is subject to the satisfaction of the
condition precedent, among others, that the Seller deliver certain legal
opinions to the related Trustee with respect to the validity of the conveyance
of the Subsequent Receivables to the Trust. If any such conditions precedent are
not met with respect to any Subsequent Receivables, CPS or the Seller, as
specified in the related Prospectus Supplement, will be required to repurchase
such Subsequent Receivables from the related Trust, at a purchase price equal to
the related Purchase Amounts therefor.
Except as described herein and in the related Prospectus Supplement,
there will be no other required characteristics of Subsequent Receivables.
Therefore, the characteristics of the entire Receivables Pool included in any
Trust may vary significantly as Subsequent Receivables are conveyed to such
Trust from time to time during the Funding Period or Revolving Period. See "The
Receivables" herein.
Certain Legal Aspects--Consumer Protection Laws. Federal and state
consumer protection laws impose requirements on creditors in connection with
extensions of credit and collections of retail installment loans, and certain of
these laws make an assignee of such a loan (such as a Trust) liable to the
obligor thereon for any violation by the lender. To the extent specified herein
and in the related Prospectus Supplement, CPS will be obligated to repurchase
any Receivable that fails to comply with such legal requirements from the Seller
and the Seller shall be obligated to repurchase such Receivable from the Trust,
and the Seller and the Servicer will undertake to enforce such obligation on
behalf of the Trust. See "Certain Legal Aspects of the Receivables--Consumer
Protection Laws".
Nature of Obligors. The Obligors on the Receivables to be conveyed to a
Trust will include "sub-prime" borrowers who have limited or adverse credit
histories, low income or past credit problems and, therefore, are unable to
obtain financing from traditional sources of consumer credit. The average
interest rate charged by CPS to such "sub-prime" borrowers is generally higher
than that charged to more creditworthy customers. The payment experience on
receivables of obligors with this credit profile is likely to be different from
that on receivables of traditional auto financing sources in that default rates
are likely to be higher. In addition, the payment experience on such receivables
is likely to be more sensitive to changes in the economic climate in the areas
in which such obligors reside. As a result of the credit profile of the obligors
and the APRs of such receivables, the historical credit loss and delinquency
rates on such receivables are generally higher than those experienced by banks
and the captive finance companies of the automobile manufacturers.
Ownership of Receivables. In connection with the issuance of any Series
of Securities, CPS will originate Receivables. The Seller will warrant in a Sale
and Servicing Agreement that the transfer of the Contracts to such Trust is
either a valid assignment, transfer and conveyance of the Receivables to the
Trust or the Trustee on behalf of the Securityholders has a valid security
interest in such Receivables. As will be described in the related Prospectus
Supplement, the related Trust Documents will provide that the Trustee will be
required to maintain possession of such original copies of all Receivables that
constitute chattel paper; provided that the Servicer may take possession of such
original copies as necessary for the enforcement of any Receivables. If the
Servicer, the Trustee or other third party, while in possession of any
Receivable, sells or pledges and delivers such
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Receivable to another party, in violation of the Sale and Servicing Agreement,
there is a risk that such other party could acquire an interest in such
Receivable having a priority over the Trust's interest. Furthermore, if the
Servicer or a third party, while in possession of any Receivable, is rendered
insolvent, such an event of insolvency may result in competing claims to
ownership or security interests in such Receivable. Such an attempt, even if
unsuccessful, could result in delays in payments on the Securities. If
successful, such attempt could result in losses to the Securityholders or an
acceleration of the repayment of the Securities. CPS will be obligated to
repurchase any Receivable if there is a breach of CPS's representations and
warranties that materially and adversely affects the interests of the Trust in
such Receivable and such breach has not been cured.
Social, Economic and Other Factors. The ability of the Obligors to make
payments on the Receivables, as well as the prepayment experience thereon, will
be affected by a variety of social and economic factors. Economic factors
include interest rates, unemployment levels, the rate of inflation and consumer
perceptions of economic conditions generally. However, the Seller is unable to
determine and has no basis to predict whether or to what extent economic or
social factors will affect the Receivables.
Certain Legal Aspects. The transfer of the Receivables by the
applicable Seller to the Trustee pursuant to the related Sale and Servicing
Agreement, perfection of the security interests in the Receivables and the
enforcement of rights to realize on the Financed Vehicles as collateral for the
Receivables are subject to a number of federal and state laws, including the UCC
as in effect in various states. To the extent specified in a Prospectus
Supplement, no action will be taken to perfect the rights of the Trustee in
proceeds of any VSI insurance policy insurance policies covering individual
Financed Vehicles or Obligors. Therefore, the rights of a third party with an
interest in such proceeds could prevail against the rights of the Trust prior to
the time such proceeds are deposited by the Servicer into a Trust Account (as
hereinafter defined). See "Certain Legal Aspects of the Receivables".
In connection with each sale of Receivables, security interests in the
Financed Vehicles securing the Receivables will be assigned by CPS and each
Affiliated Originator to the Seller. Due to the administrative burden and
expense, the certificates of title to the Financed Vehicles will not be amended
or reissued to reflect the assignment to the Trust. In the absence of such an
amendment or reissuance, the Trust may not have a perfected security interest in
the Financed Vehicles securing the Receivables in some states. By virtue of the
assignment of the applicable Purchase Agreement to the related Trust, CPS will
be obligated to repurchase any Receivable sold to the Trust by CPS or an
Affiliated Originator as to which there did not exist on the Closing Date a
perfected security interest in the name of CPS or the relevant Affiliated
Originator in the Financed Vehicle, and the Servicer will be obligated to
purchase any Receivable sold to the Trust as to which it failed to maintain a
perfected security interest in the name of CPS or the relevant Affiliated
Originator in the Financed Vehicle securing such Receivable if, in either case,
such breach materially and adversely affects such Receivable and if such failure
or breach is not cured prior to the expiration of the applicable cure period. To
the extent the security interest of CPS or the Affiliated Originator is
perfected, the Trust will have a prior claim over subsequent purchasers of such
Financed Vehicle and holders of subsequently perfected security interests.
However, as against liens for repairs of a Financed Vehicle or for taxes unpaid
by an Obligor under a Receivable, or through fraud, forgery, negligence or
error, CPS or the Affiliated Originator, and therefore the Trust, could lose the
priority of its security interest or its security interest in a Financed
Vehicle. Neither CPS nor the Servicer will have any obligation to purchase a
Receivable as to which a lien for repairs of a Financed Vehicle or for taxes
unpaid by an Obligor under a Receivable result in losing the priority of the
security interest in such
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Financed Vehicle after the Closing Date. See "Certain Legal Aspects of the
Receivables--Security Interest in Vehicles". Federal and state consumer
protection laws impose requirements upon creditors in connection with extensions
of credit and collections of retail installment loans and certain of these laws
make an assignee of such a loan liable to the obligor thereon for any violation
by the lender. Pursuant to the applicable Purchase Agreement, CPS will be
obligated to repurchase any Receivable materially and adversely affected by the
failure to comply with such requirements. See "Certain Legal Aspects of the
Receivables".
Each Seller has taken or will take steps in structuring the
transactions contemplated hereby that are intended to ensure that the voluntary
or involuntary application for relief by CPS under the United States Bankruptcy
Code or similar state laws ("Insolvency Laws") will not result in consolidation
of the assets and liabilities of the Seller with those of CPS. These steps
include the creation of each Seller as a separate, limited-purpose subsidiary
pursuant to articles 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 prior unanimous affirmative vote of all of its directors).
However, there can be no assurance that the activities of a Seller would not
result in a court concluding that the assets and liabilities of such Seller
should be consolidated with those of CPS in a proceeding under any Insolvency
Law. If a court were to reach such a conclusion, then delays in distributions on
the related Securities could occur or reductions in the amounts of such
distributions could result. See "The Seller and CPS".
CPS will warrant to the Seller in each Purchase Agreement that the sale
of the Receivables by it or an Affiliated Originator to the Seller is a valid
sale of such Receivables to such Seller. In addition, CPS, each Affiliated
Originator and each Seller will treat the transactions described herein as a
sale of the Receivables to the Seller, and each Seller has taken and will take
all actions that are required to perfect the Seller's ownership interest in the
Receivables. Notwithstanding the foregoing, if CPS or an Affiliated Originator
were to become a debtor in a bankruptcy case and a creditor or
trustee-in-bankruptcy of CPS (or such Affiliated Originator) or CPS (or such
Affiliated Originator) itself were to take the position that the sale of
Receivables to the Seller should be recharacterized as a pledge of such
Receivables to secure a borrowing of such Seller, then delays in payments of
collections of Receivables to the Seller could occur or, should the court rule
in favor of any such trustee, debtor or creditor, reductions in the amount of
such payments could result. If the transfer of Receivables to the Seller is
recharacterized as a pledge or a tax or government lien on the property of CPS
or an Affiliated Originator arising before the transfer of a Receivable to the
Seller may have priority over the Seller's interest in such Receivable. If the
transactions contemplated herein are treated as a sale, the Receivables would
not be part of the bankruptcy estate of CPS or the Affiliated Originator, as
applicable, and would not be available to creditors of CPS or the Affiliated
Originator, as applicable.
The U.S. Court of Appeals for the Tenth Circuit issued its opinion in
Octagon Gas Systems, Inc. v. Rimmer (In re Meridian Reserve, Inc.) (decided May
27, 1993) in which it concluded (noting that its position is in contrast to that
taken by another court) that accounts receivable sold by the debtor prior to the
filing for bankruptcy remain property of the debtor's bankruptcy estate.
Although the Receivables are likely to be viewed as "chattel paper", as defined
under the Uniform Commercial Code, rather than as accounts, the rationale behind
the Octagon holding is equally applicable to chattel paper. The circumstances
under which the Octagon ruling would apply are not fully known, and the extent
to which the Octagon decision will be followed in other courts or outside of the
Tenth Circuit is not certain. If the holding in the Octagon case were applied in
a bankruptcy of CPS or an
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Affiliated Originator, however, even if the transfers of Receivables to the
Seller and to the Trust were treated as sales, the Receivables would be part of
the bankruptcy estate and would be subject to claims of certain creditors and
delays and reductions in payments to the Securityholders could result. CPS will
warrant in the Purchase Agreement that the sale of the Receivables to the Seller
(including Receivables sold by an Affiliated Originator) is a valid sale of the
Receivables to the Seller, and the Seller will warrant in the Sale and Servicing
Agreement that the sale of the Receivables to the Trust is a valid sale of the
Receivables to the Trust.
Restrictions on Recoveries. Unless specific limitations are described
on the related Prospectus Supplement with respect to specific Receivables, all
Receivables will provide that the obligations of the Obligors thereunder are
absolute and unconditional, regardless of any defense, set-off or abatement
which the Obligor may have against CPS or any other person or entity whatsoever.
CPS will warrant that no claims or defenses have been asserted or threatened
with respect to the Receivables and that all requirements of applicable law with
respect to the Receivables have been satisfied.
In the event that CPS or the Trustee must rely on repossession and
disposition of Financed Vehicles to recover scheduled payments due on Defaulted
Receivables (as defined in the related Sale and Servicing Agreement), the Issuer
may not realize the full amount due on a Receivable (or may not realize the full
amount on a timely basis). Other factors that may affect the ability of the
Issuer to realize the full amount due on a Receivable include whether amendments
to certificates of title relating to the Financed Vehicles had been filed,
depreciation, obsolescence, damage or loss of any financed Vehicle, and the
application of Federal and state bankruptcy and insolvency laws. As a result,
the Securityholders may be subject to delays in receiving payments and suffer
loss of their investment in the Securities.
Insurance on Financed Vehicles. Each Receivable generally requires the
Obligor to maintain insurance covering physical damage to the Financed Vehicle
in an amount not less than the unpaid principal balance of such Receivable
pursuant to which CPS is named as a loss payee. Since the Obligors select their
own insurers to provide the requisite coverage, the specific terms and
conditions of their policies vary.
In addition, although each Receivable generally gives CPS the right to
force place insurance coverage in the event the required physical damage
insurance on a Vehicle is not maintained by an Obligor, neither CPS nor the
Servicer is obligated to place such coverage. In the event insurance coverage is
not maintained by Obligors and coverage is not force placed, then insurance
recoveries may be limited in the event of losses or casualties to Financed
Vehicles included in the Trust Assets, as a result of which Securityholders
could suffer a loss on their investment.
Delinquencies. There can be no assurance that the historical levels of
delinquencies and losses experienced by CPS on its respective loan and vehicle
portfolio will be indicative of the performance of the Contracts included in the
Trust or that such levels will continue in the future. Delinquencies and losses
could increase significantly for various reasons, including changes in the
federal income tax laws, changes in the local, regional or national economies or
due to other events.
Subordination; Limited Assets. To the extent specified in the related
Prospectus Supplement, distributions of interest and principal on one Class of
Securities of a Series may be subordinated in priority of payment to interest
and principal due on other Classes of Securities of a related Series. Moreover,
each Trust will not have, nor is it permitted or expected to have, any
significant assets or
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sources of funds other than the related Receivables and, to the extent provided
in the related Prospectus Supplement, the related reserve account, spread
account, and any other Credit Enhancement. The Securities represent beneficial
interests in the related Trust only and will not represent a recourse obligation
to other assets of CPS or the Seller. No Securities of any Series will be
insured or guaranteed by CPS, the Seller, the Servicer, or the applicable
Trustee. Consequently, holders of the Securities of any Series must rely for
repayment primarily upon payments on the Receivables and, if and to the extent
available, any Credit Enhancement, all as specified in the related Prospectus
Supplement.
Master Trusts. As may be described in the related Prospectus
Supplement, a Master Trust may issue from time to time more than one Series.
While the terms of any additional Series will be specified in a supplement to
the related Master Trust Agreement, the provisions of such supplement and,
therefore, the terms of any additional Series, will not be subject to prior
review by, or consent of, holders of the Securities of any Series previously
issued by such Master Trust. Such terms may include methods for determining
applicable investor percentages and allocating collections, provisions creating
different or additional security or credit enhancements and any other provisions
which are made applicable only to such Series. The obligation of the related
Trustee to issue any new Series is subject to the condition, among others, that
such issuance will not result in any Rating Agency reducing or withdrawing its
rating of the Securities of any outstanding Series (any such reduction or
withdrawal is referred to herein as a "Ratings Effect"). There can be no
assurance, however, that the terms of any Series might not have an impact on the
timing or amount of payments received by a Securityholder of another Series
issued by the same Master Trust. See "Description of the Securities -- Master
Trusts."
Book-Entry Registration. Issuance of the Securities in book-entry form
may reduce the liquidity of such Securities in the secondary trading market
since investors may be unwilling to purchase Securities for which they cannot
obtain definitive physical securities representing such Securityholders'
interests, except in certain circumstances described in the related Prospectus
Supplement.
Since transactions in Securities will, in most cases, be effected only
through DTC, direct or indirect participants in DTC's book-entry system ("Direct
Participants" or "Indirect Participants") or certain banks, the ability of a
Securityholder to pledge a Security to persons or entities that do not
participate in the DTC system, or otherwise to take actions in respect to such
Securities, may be limited due to lack of a physical security representing the
Securities.
Securityholders may experience some delay in their receipt of
distributions of interest on and principal of the Securities since distributions
may be required to be forwarded by the Trustee to DTC and, in such case, DTC
will be required to credit such distributions to the accounts of its
Participants which thereafter will be required to credit them to the accounts of
the applicable Class of Securityholders either directly or indirectly through
Indirect Participants. See "Description of the Securities--Book-Entry
Registration".
Security Rating. The rating of Securities credit enhanced by a letter
of credit, financial guaranty insurance policy, reserve fund, credit or
liquidity facilities, cash deposits or other forms of credit enhancement
(collectively "Credit Enhancement") will depend primarily on the
creditworthiness of the issuer of such external Credit Enhancement device (a
"Credit Enhancer"). Any reduction in the rating assigned to the claims-paying
ability of the related Credit Enhancer to honor its obligations
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pursuant to any such Credit Enhancement below the rating initially given to the
Securities would likely result in a reduction in the rating of the Securities.
Maturity and Prepayment Considerations. All of the Receivables are
prepayable at any time. The rate of prepayments on the Receivables may be
influenced by a variety of economic, social and other factors, including the
fact that an Obligor generally may not sell or transfer the Financed Vehicle
securing a receivable without the consent of CPS. (For this purpose the term
"prepayments" includes prepayments in full, certain partial prepayments related
to refunds of extended service contract costs and unearned insurance premiums,
liquidations due to default, as well as receipts of proceeds from physical
damage, credit life and credit accident and health insurance policies and
certain other Receivables repurchased for administrative reasons.) The rate of
prepayment on the Receivables may also be influenced by the structure of the
loan, the nature of the Obligors and the Financed Vehicles and servicing
decisions as discussed above. In addition, under certain circumstances, CPS is
obligated to repurchase Receivables as a result of breaches of representations
and warranties, and under certain circumstances the Servicer is obligated to
purchase Receivables pursuant to the Sale and Servicing Agreement as a result of
breaches of certain covenants. Subject to certain conditions, the Servicer also
has the right to purchase the Receivables when the aggregate principal balance
thereof is 10% or less of the aggregate principal balance thereof on the Cutoff
Date. Any reinvestment risks resulting from a faster or slower incidence of
prepayment of Receivables will be borne entirely by the Securityholders.
The rate of prepayments of Receivables cannot be predicted and is
influenced by a wide variety of economic, social, and other factors, including
prevailing interest rates, the availability of alternate financing and local and
regional economic conditions. Therefore, no assurance can be given as to the
level of prepayments that a Trust will experience.
Securityholders should consider, in the case of Securities purchased at
a discount, the risk that a slower than anticipated rate of prepayments on the
Receivables could result in an actual yield that is less than the anticipated
yield and, in the case of any Securities purchased at a premium, the risk that a
faster than anticipated rate of prepayments on the Receivables could result in
an actual yield that is less than the anticipated yield.
Limitations on Interest Payments and Foreclosures. Generally, under the
terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended (the
"Relief Act"), or similar state legislation, an Obligor who enters military
service after the origination of the related Receivable (including an Obligor
who is a member of the National Guard or is in reserve status at the time of the
origination of the Receivable and is later called to active duty) may not be
charged interest (including fees and charges) above an annual rate of 6% during
the period of such Obligor's active duty status, unless a court orders otherwise
upon application of the lender. It is possible that such action could have an
effect, for an indeterminate period of time, on the ability of the Servicer to
collect full amounts of interest on certain of the Receivables. In addition, the
Relief Act imposes limitations that would impair the ability of the Servicer to
foreclose on an affected Receivable during the Obligor's period of active duty
status. Thus, in the event that such a Receivable goes into default, there may
be delays and losses occasioned by the inability of the Servicer to realize upon
the Financed Vehicle in a timely fashion.
Financial Condition of CPS. CPS is generally not obligated to make any
payments in respect of the Securities or the Receivables of a specific Trust. If
CPS were to cease acting as Servicer,
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delays in processing payments on the Receivables and information in respect
thereof could occur and result in delays in payments to the Securityholders.
In certain circumstances, CPS will be required to acquire Receivables
from the related Trust with respect to which such representations and warranties
have been breached. In the event that CPS is incapable of complying with its
repurchase obligations and no other party is obligated to perform or satisfy
such obligations, Securityholders of the applicable Trust may be subject to
delays in receiving payments and suffer loss of their investment in the
Securities.
The related Prospectus Supplement will set forth certain information
regarding CPS. In addition, CPS is subject to the information requirements of
the Exchange Act and, in accordance therewith, files reports and other
information with the Commission. For further information regarding CPS reference
is made to such reports and other information which are available as described
under "Available Information".
THE ISSUERS
With respect to each Series of Securities, the Seller will establish a
separate Trust that will issue such Securities pursuant to the related Trust
Documents. For purposes of this Prospectus and the related Prospectus
Supplement, the related Trust, if a Trust issues the related Securities, shall
be referred to as the "Issuer" with respect to such Securities.
Upon the issuance of the Securities of a given Series, the proceeds
from such issuance will be used by CPS to originate Receivables. The Servicer
will service the related Receivables pursuant to a sale and servicing agreement
(the "Sale and Servicing Agreement"), and will be compensated for acting as the
Servicer. To facilitate servicing and to minimize administrative burden and
expense, the Servicer may be appointed custodian for the related Receivables by
each Trustee and CPS, as may be set forth in the related Prospectus Supplement.
If the protection provided to the Securityholders of a given class by
the subordination of another Class of Securities of such Series and by the
availability of the funds in the reserve account, if any, or any other Credit
Enhancement for such Series is insufficient, the Trust must rely solely on the
payments from the Obligors on the related Contracts, and the proceeds from the
sale of Financed Vehicles which secure the Defaulted Contracts. In such event,
certain factors may affect such Trust's ability to realize on the collateral
securing such Contracts, and thus may reduce the proceeds to be distributed to
the Securityholders of such Series.
THE TRUST ASSETS
To the extent specified in the Prospectus Supplement for a Trust, the
Trust Assets of a Trust will include a pool (a "Receivables Pool") of retail
installment sale contracts between dealers (the "Dealers") in new and used
automobiles, light trucks, vans and minivans and retail purchasers (the
"Obligors") and, with respect to Rule of 78's Receivables, certain moneys due
thereunder after the applicable Cutoff Date, and, with respect to Simple
Interest Receivables, certain moneys received thereunder after the applicable
Cutoff Date. Pursuant to agreements between the Dealers and CPS ("Dealer
Agreements"), the Receivables will be purchased by CPS. As further described in
the related Prospectus Supplement, the Trust Assets of a Trust will also include
(i) such amounts as from time to time may be held in one or more trust accounts
established and maintained by the Trustee pursuant to the Trust Agreement or
Indenture; (ii) the rights of the Seller under the Sale and
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Servicing Agreement; (iii) security interests in the Financed Vehicles; (iv) the
rights of the Seller to receive any proceeds with respect to the Receivables
from claims on physical damage, credit life and credit accident and health
insurance policies covering the Financed Vehicles or the Obligors, as the case
may be; (v) the rights of the Seller to refunds for the costs of extended
service contracts and to refunds of unearned premiums with respect to credit
life and credit accident and health insurance policies covering the Financed
Vehicles or Obligors, as the case may be; and (vi) any and all proceeds of the
foregoing. If so specified in the related Prospectus Supplement, the Trust
Assets also will include the Credit Enhancement provided for the benefit of
Securityholders of such Trust.
If so provided in the related Prospectus Supplement, the property of a
Trust may also include a Pre-Funded Amount, which the Seller will deposit to the
Pre-Funding Account on the Closing Date and which will be used by the Trust to
purchase Subsequent Receivables from the Seller during the related Funding
Period. Any Subsequent Receivables so conveyed to a Trust will also be assets of
such Trust.
If the protection provided to Securityholders, if any, by any such
Credit Enhancement is insufficient, such Securityholders will have to look to
payments by or on behalf of Obligors on the related Receivables and the proceeds
from the repossession and sale of Financed Vehicles that secure defaulted
Receivables for distributions of principal and interest on the Securities. In
such event, certain factors, such as the applicable Trust's not having perfected
security interests in all of the Financed Vehicles, may limit the ability of a
Trust to realize on the collateral securing the related Receivables, or may
limit the amount realized to less than the amount due under the related
Receivables. Securityholders may thus be subject to delays in payment on, or may
incur losses on their investment in, such Securities as a result of defaults or
delinquencies by Obligors and depreciation in the value of the related Financed
Vehicles. See "Description of the Trust Documents--Credit and Cash Flow
Enhancement" and "Certain Legal Aspects of the Receivables".
The Receivables comprising the Trust Assets will, as specifically
described in the related Prospectus Supplement, be either (i) originated by CPS
or an Affiliated Originator, (ii) originated by various manufacturers (or their
captive finance companies) and acquired by CPS or an Affiliated Originator,
(iii) originated by various Dealers and acquired by CPS or an Affiliated
Originator or (iv) acquired by CPS or an Affiliated Originator from other
originators or owners of Receivables. Such Receivables will generally have been
originated or acquired by CPS or an Affiliated Originator in accordance with
CPS's specified underwriting criteria. The underwriting criteria applicable to
the Receivables included in any Trust will be described in all material respects
in the related Prospectus Supplement.
The Receivables included in the Trust Assets will be selected from
those Receivables held by CPS or an Affiliated Originator based on the criteria
specified in the applicable Purchase Agreement or Affiliate Purchase Agreement
and described herein or in the related Prospectus Supplement.
ACQUISITION OF RECEIVABLES BY THE SELLER
On or prior to each Closing Date, CPS will, and an Affiliated
Originator may, sell and assign to the Seller, without recourse, except as
provided in the related Purchase Agreement, its entire interest in the
applicable Receivables, together with its security interests in the Financed
Vehicles, pursuant to a purchase agreement between CPS and the Seller (a
"Purchase Agreement") or pursuant to a purchase agreement between an Affiliated
Originator and the Seller (an "Affiliate Purchase Agreement").
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In each Purchase Agreement, CPS will represent and warrant to the
Seller, among other things, that (i) the information provided with respect to
the applicable Receivables is correct in all material respects; (ii) at the date
of issuance of the Securities, physical damage insurance covering each Financed
Vehicle is in effect in accordance with CPS's normal requirements; (iii) at the
date of issuance of the applicable Securities, the related Receivables are free
and clear of all security interests, liens, charges, and encumbrances and no
offsets, defenses, or counterclaims against Dealers have been asserted or
threatened; (iv) at the date of issuance of the Securities, each of the
Receivables is or will be secured by a first-priority perfected security
interest in the Financed Vehicle in favor of CPS or the applicable Affiliated
Originator; and (v) each Receivable, at the time it was originated, complied
and, at the date of issuance of the Securities, complies in all material
respects with applicable federal and state laws, including, without limitation,
consumer credit, truth in lending, equal credit opportunity and disclosure laws.
As of the last day of the second (or, if CPS elects, the first) month following
the discovery by or notice to the Seller and CPS of a breach of any
representation or warranty that materially and adversely affects a Receivable,
unless the breach is cured, CPS will purchase such Receivable from the Trust for
the Purchase Amount. The "Purchase Amount" equals the unpaid principal balance
owed by the Obligor plus interest thereon at the respective APR to the last day
of the month of repurchase. The repurchase obligation will constitute the sole
remedy available to the Securityholders, the Credit Enhancer (if any) or the
Trustee for any such uncured breach.
THE RECEIVABLES
Receivables Pools
Information with respect to the Receivables in the related Receivables
Pool will be set forth in the related Prospectus Supplement, including, to the
extent appropriate, the composition of such Receivables and the distribution of
such Receivables by geographic concentration, payment frequency and current
principal balance as of the applicable Cutoff Date.
If so provided in the related Prospectus Supplement, the Seller will be
obligated pursuant to the Sale and Servicing Agreement to sell Subsequent
Receivables to the Trust, and the Trust will be obligated to purchase such
Subsequent Receivables, subject only to the satisfaction of certain conditions
set forth in the Sale and Servicing Agreement. If the principal amount of the
eligible Subsequent Receivables acquired by the Seller from CPS or an Affiliated
Originator during a Funding Period is less than the Pre-Funded Amount, the
Seller may have insufficient Subsequent Receivables to transfer to a Trust and
holders of one or more Classes of the related Series of Securities may receive a
prepayment or early distribution of principal at the end of the Funding Period
as described above under "Risk Factors--Pre-Funding Accounts".
Any conveyance of Subsequent Receivables to a Trust is subject to the
satisfaction, on or before the related transfer date (each, a "Subsequent
Transfer Date"), of the following conditions precedent, among others: (i) each
such Subsequent Receivable must satisfy the eligibility criteria specified in
the related Sale and Servicing Agreement; (ii) the Seller shall not have
selected such Subsequent Receivables in a manner that is adverse to the
interests of holders of the related Securities; (iii) as of the respective
Cutoff Dates for such Subsequent Receivables, all of the Receivables in the
Trust, including the Subsequent Receivables to be conveyed to the Trust as of
such date, must satisfy the parameters described under "The Receivables Pool" in
the related Prospectus Supplement; and (iv) the Seller must execute and deliver
to such Trust a written assignment conveying such Subsequent Receivables to such
Trust. In addition, as and to the extent specified in the related Prospectus
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Supplement, the conveyance of Subsequent Receivables to a Trust is subject to
the satisfaction of the condition subsequent, among others, which must be
satisfied within the applicable time period specified in the related Prospectus
Supplement, that the Seller deliver certain legal opinions to the related
Trustee with respect to the validity of the conveyance of the Subsequent
Receivables to the Trust. If any such conditions precedent are not met with
respect to any Subsequent Receivables within the time period specified in the
related Prospectus Supplement, CPS or the Seller, as specified in the related
Prospectus Supplement, will be required to repurchase such Subsequent
Receivables from the related Trust, at a purchase price equal to the related
Purchase Amounts therefor.
Except as described herein and in the related Prospectus Supplement,
there will be no other required characteristics of Subsequent Receivables.
Therefore, the characteristics of the entire Receivables Pool included in any
Trust may vary significantly as Subsequent Receivables are conveyed to such
Trust from time to time during the Funding Period or Revolving Period.
The Receivables
As specified in the related Prospectus Supplement, the Receivables may
consist of any combination of Rule of 78's Receivables, Actuarial Receivables or
Simple Interest Receivables. Generally, "Rule of 78's Receivables" provide for
fixed level monthly payments which will amortize the full amount of the
Receivable over its term. The Rule of 78's Receivables provide for allocation of
payments according to the "sum of periodic balances" or "sum of monthly
payments" method (the "Rule of 78's"). Each Rule of 78's Receivable provides for
the payment by the Obligor of a specified total amount of payments, payable in
monthly installments on the related due date, which total represents the
principal amount financed and finance charges in an amount calculated on the
basis of a stated annual percentage rate ("APR") for the term of such
Receivable. The rate at which such amount of finance charges is earned and,
correspondingly, the amount of each fixed monthly payment allocated to reduction
of the outstanding principal balance of the related Receivable are calculated in
accordance with the Rule of 78's. Under the Rule of 78's, the portion of each
payment allocable to interest is higher during the early months of the term of a
Receivable and lower during later months than that under a constant yield method
for allocating payments between interest and principal. Notwithstanding the
foregoing, as specified in the related Prospectus Supplement, all payments
received by the Servicer on or in respect of the Rule of 78's Receivables may be
allocated on an actuarial or simple interest basis.
Generally, "Actuarial Receivables" provide for monthly payments with a
final fixed value payment which is greater than the scheduled monthly payments.
An Actuarial Receivable provides for amortization of the amount financed over a
series of fixed level payment monthly installments, but also requires a final
fixed value payment due after payment of such monthly installments which may be
satisfied by (i) payment in full in cash of such amount, (ii) transfer of the
Financed Vehicle to CPS, provided certain conditions are satisfied or (iii)
refinancing the fixed value payment in accordance with certain conditions.
"Simple Interest Receivables" provide for the amortization of the
amount financed under the Receivable over a series of fixed level monthly
payments. However, unlike the monthly payment under Rule of 78's Receivables,
each monthly payment consists of an installment of interest which is calculated
on the basis of the outstanding principal balance of the receivable multiplied
by the stated APR and further multiplied by the period elapsed (as a fraction of
a calendar year) since the preceding payment of interest was made. As payments
are received under a Simple Interest Receivable, the amount received is applied
first to interest accrued to the date of payment and the
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balance is applied to reduce the unpaid principal balance. Accordingly, if an
Obligor pays a fixed monthly installment before its scheduled due date, the
portion of the payment allocable to interest for the period since the preceding
payment was made will be less than it would have been had the payment been made
as scheduled, and the portion of the payment applied to reduce the unpaid
principal balance will be correspondingly greater. Conversely, if an Obligor
pays a fixed monthly installment after its scheduled due date, the portion of
the payment allocable to interest for the period since the preceding payment was
made will be greater than it would have been had the payment been made as
scheduled, and the portion of the payment applied to reduce the unpaid principal
balance will be correspondingly less. In either case, the Obligor pays a fixed
monthly installment until the final scheduled payment date, at which time the
amount of the final installment is increased or decreased as necessary to repay
the then outstanding principal balance.
If an Obligor elects to prepay a Rule of 78's Receivable in full, it is
entitled to a rebate of the portion of the outstanding balance then due and
payable attributable to unearned finance charges. If a Simple Interest
Receivable is prepaid, rather than receive a rebate, the Obligor is required to
pay interest only to the date of prepayment. The amount of a rebate under a Rule
of 78's Receivable calculated in accordance with the Rule of 78's will always be
less than had such rebate been calculated on an actuarial basis and generally
will be less than the remaining scheduled payments of interest that would be due
under a Simple Interest Receivable for which all payments were made on schedule.
Distributions to Securityholders may not be affected by Rule of 78's rebates
under the Rule of 78's Receivable because, as specified in the related
Prospectus Supplement, such distributions may be determined using the actuarial
or simple interest method.
Delinquencies, Repossessions, And Net Losses
Certain information relating to CPS's delinquency, repossession and net
loss experience with respect to Receivables it has originated or acquired will
be set forth in each Prospectus Supplement. This information may include, among
other things, the experience with respect to all Receivables in CPS's portfolio
during certain specified periods. There can be no assurance that the
delinquency, repossession and net loss experience with respect to any Trust will
be comparable to CPS's prior experience.
Maturity And Prepayment Considerations
As more fully described in the related Prospectus Supplement, if a
Receivable permits prepayment, such payment, together with accelerated payments
resulting from defaults, will shorten the weighted average life of the related
pool of Receivables and the weighted average life of the related Securities. The
rate of prepayments on the Receivables may be influenced by a variety of
economic, financial and other factors. In addition, under certain circumstances,
CPS will be obligated to acquire Receivables from the related Trust pursuant to
the applicable Purchase Agreement as a result of breaches of representations and
warranties. Any reinvestment risks resulting from a faster or slower
amortization of the related Securities which results from prepayments will be
borne entirely by the related Securityholders.
The related Prospectus Supplement will set forth certain additional
information with respect to the maturity and prepayment considerations
applicable to a particular pool of Receivables and the related Series of
Securities, together with a description of any applicable prepayment penalties.
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CPS'S AUTOMOBILE CONTRACT PORTFOLIO
General
CPS was incorporated in the State of California on March 8, 1991. CPS
and its subsidiaries engage primarily in the business of purchasing, selling and
servicing retail automobile installment sales contracts ("Contracts") originated
by Dealers located primarily in California, Florida, Pennsylvania, Texas,
Illinois and Nevada. CPS specializes in Contracts with borrowers ("Sub-Prime
Borrowers") who generally would not be expected to qualify for traditional
financing such as that provided by commercial banks or automobile manufacturers'
captive finance companies. Sub-Prime Borrowers generally have limited credit
history, lower than average income or past credit problems.
CPS and certain of its subsidiaries (each such subsidiary, an
"Affiliated Originator") purchase Contracts from Dealers or independent finance
companies ("IFC's") with the intent to resell them. CPS and Affiliated
Originators may also purchase Contracts from third parties that have been
originated by others. Prior to the issuances of the Securities, Contracts have
been sold to institutional investors either as bulk sales or as private
placements or public offerings of securities collateralized by the Contracts.
Purchasers of Contracts receive a pass-through rate of interest set at the time
of the sale, and CPS receives a base servicing fee for its duties relating to
the accounting for and collection of the Contracts. In addition, CPS is entitled
to certain excess servicing fees that represent collection on the Contracts in
excess of those required to pay principal and interest due to the investor at
face value and without recourse except that the representations and warranties
made to CPS by the Dealers are similarly made to the investors by CPS. CPS has
some credit risk with respect to the excess servicing fees it receives in
connection with the sale of contracts to investors and its continued servicing
function since the receipt by CPS of such excess servicing fees is dependent
upon the credit performance of the Contracts. Additional information with
respect to CPS's automobile contract portfolio, including information regarding
CPS's underwriting criteria and servicing and collection procedures, will be set
forth in each Prospectus Supplement.
The principal executive offices of CPS are located at 2 Ada, Irvine,
California 92618. CPS's telephone number is (714) 753-6800.
For further information about CPS see "CPS's Automobile Contract
Portfolio" in the Prospectus Supplement.
POOL FACTORS
The "Pool Factor" for each Class of Securities will be a seven-digit
decimal, which the Servicer will compute prior to each distribution with respect
to such Class of Securities, indicating the remaining outstanding principal
balance of such Class of Securities as of the applicable Payment Date, as a
fraction of the initial outstanding principal balance of such Class of
Securities. Each Pool Factor will be initially 1.0000000, and thereafter will
decline to reflect reductions in the outstanding principal balance of the
applicable Class of Securities. A Securityholder's portion of the aggregate
outstanding principal balance of the related Class of Securities is the product
of (i) the original aggregate purchase price of such Securityholder's Securities
and (ii) the applicable Pool Factor.
As more specifically described in the related Prospectus Supplement
with respect to each Series of Securities, the related Securityholders of record
will receive reports on or about each Payment Date concerning the payments
received on the Receivables, the Pool Balance (as such term is
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defined in the related Prospectus Supplement, the "Pool Balance"), each Pool
Factor and various other items of information. In addition, Securityholders of
record during any calendar year will be furnished information for tax reporting
purposes not later than the latest date permitted by law.
USE OF PROCEEDS
Unless otherwise provided in the related Prospectus Supplement, the net
proceeds from the sale of the Securities of a Series will be applied by the
applicable Trust to the purchase of the Receivables from the applicable Seller
and to make the deposit of the Pre-Funded Amount, if any, to the Pre-Funding
Account. CPS will use the portion of such proceeds paid to it for general
corporate purposes.
THE SELLER AND CPS
Each Seller will be a wholly-owned subsidiary of CPS. CPS Receivables
Corp. was incorporated in the State of California in June of 1994. CPS
Receivables Corp. was, and each other Seller will be, organized for the limited
purpose of purchasing automobile installment sale contracts from CPS and
transferring such receivables to third parties and any activities incidental to
and necessary or convenient for the accomplishment of such purposes. The
principal executive offices of CPS Receivables Corp. are located at 2 Ada, Suite
100, Irvine, California 92618; telephone (714) 753-6800.
The Seller has taken steps in structuring the transaction contemplated
hereby that are intended to make it unlikely that the voluntary or involuntary
petition for relief by CPS under any Insolvency Law will result in consolidation
of the assets and liabilities of the Seller or the Trust with those of CPS.
These steps include the creation of the Seller as a separate, limited-purpose
subsidiary pursuant to articles 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 prior unanimous affirmative vote of all of its
directors). However, there can be no assurance that the activities of the Seller
would not result in a court concluding that the assets and liabilities of the
Seller should be consolidated with those of CPS in a proceeding under any
Insolvency Law.
The Seller has received the advice of counsel to the effect that,
subject to certain facts, assumptions and qualifications, in a properly
presented case under current law, in the event that CPS becomes a debtor in a
case under the Bankruptcy Code, a United States Bankruptcy Court would not order
the substantive consolidation of the assets and liabilities of the Seller with
those of CPS. Among other things, it is assumed by counsel that the Seller will
follow certain procedures in the conduct of its affairs, including maintaining
records and books of account separate from those of CPS, refraining from
commingling its assets with those of CPS and refraining from holding itself out
as having agreed to pay, or being liable for, the debts of CPS. The Seller
intends to follow and has represented to such counsel that it will follow these
and other procedures related to maintaining its separate corporate identity.
However, in the event that the Seller did not follow these procedures, and in
certain other circumstances, there can be no assurance that a court would not
conclude that the assets and liabilities of the Seller should be consolidated
with those of CPS. If a court were to reach such a conclusion, or a filing were
made to litigate any of the foregoing issues, delays in distributions on the
Securities (and possible reductions in the amount of such distributions) could
occur. See "Risk Factors--Certain Legal Aspects".
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CPS was incorporated in the State of California on March 8, 1991. On
October 22, 1992, CPS completed a public offering of 1,300,000 shares
(approximately 31% of the shares then outstanding) of its common stock at an
initial price of $5.00 per share. Prior to that time, 100% of the common stock
of CPS was owned by CPS Holdings, Inc., a holding company the majority of the
shares of which are owned by Charles E. Bradley, Sr. On March 6, 1995, CPS
completed a second public offering of 1,000,000 shares (approximately 18.5% of
the shares then outstanding) of its common stock at $14.75 per share. CPS and
its subsidiaries engage primarily in the business of purchasing, selling and
servicing Contracts originated by Dealers located primarily in California,
Florida, Pennsylvania, Texas, Illinois and Nevada. CPS specializes in Contracts
with Sub-Prime Borrowers who generally would not be expected to qualify for
traditional financing such as that provided by commercial banks or automobile
manufacturers' captive finance companies. Sub-Prime Borrowers generally have
limited credit history, lower than average income or past credit problems. CPS
also provides accounting and collection services to third party owners of
automobile loan portfolios that were not originated by CPS. CPS's executive
offices are located at 2 Ada, Suite 100, Irvine, California 92618; telephone
(714) 753-6800.
THE TRUSTEE
The Trustee for each Series of Securities will be specified in the
related Prospectus Supplement. The Trustee's liability in connection with the
issuance and sale of the related Securities is limited solely to the express
obligations of such Trustee set forth in the related Trust Documents.
With respect to each Series of Securities, the procedures for the
resignation or removal of the Trustee and the appointment of a successor Trustee
shall be specified in the related Prospectus Supplement.
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DESCRIPTION OF THE SECURITIES
General
The Securities will be issued in series (each a "Series"). Each Series
of Securities (or, in certain instances, two or more Series of Securities) will
be issued pursuant to a Trust Agreement and, if Notes are issued, an Indenture.
The following summaries (together with additional summaries under "The
Description of the Trust Documents" below) describe all material terms and
provisions relating to the Securities common to each Trust Agreement and
Indenture. The summaries do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all of the provisions of the
Trust Documents for the related Securities and the related Prospectus
Supplement.
All of the Securities offered pursuant to this Prospectus and the
related Prospectus Supplement will be rated in one of the four highest rating
categories by one or more Rating Agencies.
The Securities may either represent beneficial ownership interests in
the related Receivables held by the related Trust or debt secured by certain
assets of the related Trust.
Each Series or Class of Securities offered pursuant to this Prospectus
may have a different Interest Rate, which may be a fixed or adjustable interest
rate. The related Prospectus Supplement will specify the Interest Rate for each
Series or Class of Securities described therein, or the initial interest rate
and the method for determining subsequent changes to the Interest Rate.
A Series may include one or more Classes of Strip Securities entitled
(i) to principal distributions, with disproportionate, nominal or no interest
distributions, or (ii) to interest distributions, with disproportionate, nominal
or no principal distributions. In addition, a Series of Securities may include
two or more Classes of Securities that differ as to timing, sequential order,
priority of payment, Interest Rate or amount of distribution of principal or
interest or both, or as to which distributions of principal or interest or both
on any Class may be made upon the occurrence of specified events, in accordance
with a schedule or formula, or on the basis of collections from designated
portions of the related pool of Receivables. Any such Series may include one or
more Classes of Accrual Securities, as to which certain accrued interest will
not be distributed but rather will be added to the principal balance (or nominal
balance, in the case of Accrual Securities which are also Strip Securities)
thereof on each Payment Date, as hereinafter defined, or in the manner described
in the related Prospectus Supplement.
If so provided in the related Prospectus Supplement, a Series may
include one or more other Classes of Senior Securities that are senior to one or
more other Classes of Subordinate Securities in respect of certain distributions
of principal and interest and allocations of losses on Receivables.
In addition, certain Classes of Senior (or Subordinate) Securities may
be senior to other Classes of Senior (or Subordinate) Securities in respect of
such distributions or losses.
General Payment Terms of Securities
As provided in the related Trust Documents and as described in the
related Prospectus Supplement, Securityholders will be entitled to receive
payments on their Securities on the specified Payment Dates. Payment Dates with
respect to the Securities will occur monthly, quarterly or semi-- annually, as
described in the related Prospectus Supplement.
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The related Prospectus Supplement will describe the Record Date
preceding such Payment Date, as of which the Trustee or its paying agent will
fix the identity of the Securityholders for the purpose of receiving payments on
the next succeeding Payment Date. As more fully described in the related
Prospectus Supplement, the Payment Date will be a specified day of each month
(or, in the case of quarterly-pay Securities, a specified day of every third
month; and in the case of semi-annual pay Securities, a specified day of every
sixth month) and the Record Date will be the close of business as of a specified
day preceding such Payment Date.
Each Trust Agreement and Indenture will describe a Collection Period
preceding each Payment Date (for example, in the case of monthly-pay Securities,
the calendar month preceding the month in which a Payment Date occurs). As more
fully provided in the related Prospectus Supplement, collections received on or
with respect to the related Receivables held by a Trust during a Collection
Period will be required to be remitted by the Servicer to the related Trustee
prior to the related Payment Date and will be used to fund payments to
Securityholders on such Payment Date. As may be described in the related
Prospectus Supplement, the related Trust Documents may provide that all or a
portion of the payments collected on or with respect to the related Receivables
may be applied by the related Trustee to the acquisition of additional
Receivables during a specified period (rather than be used to fund payments of
principal to Securityholders during such period) with the result that the
related Securities will possess an interest-only period, also commonly referred
to as a revolving period, which will be followed by an amortization period. Any
such interest only or revolving period may, upon the occurrence of certain
events to be described in the related Prospectus Supplement, terminate prior to
the end of the specified period and result in the earlier than expected
amortization of the related Securities.
In addition, and as may be described in the related Prospectus
Supplement, the related Trust Documents may provide that all or a portion of
such collected payments may be retained by the Trustee (and held in certain
temporary investments, including Receivables) for a specified period prior to
being used to fund payments of principal to Securityholders.
Such retention and temporary investment by the Trustee of such
collected payments may be required by the related Trust Documents for the
purposes of (a) slowing the amortization rate of the related Securities relative
to the installment payment schedule of the related Receivables, or (b)
attempting to match the amortization rate of the related Securities to an
amortization schedule established at the time such Securities are issued. Any
such feature applicable to any Securities may terminate upon the occurrence of
events to be described in the related Prospectus Supplement, resulting in
distributions to the specified Securityholders and an acceleration of the
amortization of such Securities.
Neither the Securities nor the underlying Receivables will be
guaranteed or insured by any governmental agency or instrumentality or CPS, any
Seller, the Servicer, any Trustee or any of their respective affiliates unless
specifically set forth in the related Prospectus Supplement.
As may be described in the related Prospectus Supplement, Securities of
each Series will either evidence specified beneficial ownership interests in the
Trust Assets or represent debt secured by the related Trust Assets. To the
extent that any Trust Assets include certificates of interest or participations
in Receivables, the related Prospectus Supplement will describe the material
terms and conditions of such certificates or participations.
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Master Trusts
As may be described in the related Prospectus Supplement, each Trust
Agreement or Indenture may provide that, pursuant to any one or more supplements
thereto, CPS may direct the related Trustee to issue from time to time new
Series subject to the conditions described below (each such issuance a "Master
Trust New Issuance"). Each Master Trust New Issuance will have the effect of
decreasing the Residual Interest in the related Master Trust. Under each such
Master Trust Agreement, CPS may designate, with respect to any newly issued
Series: (i) its name or designation; (ii) its initial principal amount (or
method for calculating such amount); (iii) its Interest Rate (or formula for the
determination thereof); (iv) the Payment Dates and the date or dates from which
interest shall accrue; (v) the method for allocating collections to
Securityholders of such Series; (vi) any bank accounts to be used by such Series
and the terms governing the operation of any such bank accounts; (vii) the
percentage used to calculate monthly servicing fees; (viii) the provider and
terms of any form of Credit Enhancement with respect thereto; (ix) the terms on
which the Securities of such Series may be repurchased or remarketed to other
investors; (x) the number of Classes of Securities of such Series, and if such
Series consists of more than one Class, the rights and priorities of each such
Class; (xi) the extent to which the Securities of such Series will be issuable
in book-entry form; (xii) the priority of such Series with respect to any other
Series; and (xiii) any other relevant terms. None of CPS, the Servicer, the
related Trustee or any Master Trust is required or intends to obtain the consent
of any Securityholder of any outstanding Series to issue any additional Series.
Each Master Trust Agreement provides that CPS may designate terms such
that each Master Trust New Issuance has an amortization period which may have a
different length and begin on a different date than such periods for any Series
previously issued by the related Master Trust and then outstanding. Moreover,
each Master Trust New Issuance may have the benefits of Credit Enhancements
issued by enhancement providers different from the providers of the Credit
Enhancement, if any, with respect to any Series previously issued by the related
Master Trust and then outstanding. Under each Master Trust Agreement, the
related Trustee shall hold any such Credit Enhancement only on behalf of the
Securityholders to which such Credit Enhancement relates. CPS will have the
option under each Master Trust Agreement to vary among Series the terms upon
which a Series may be repurchased by the Trust or remarketed to other investors.
As more fully described in a related Prospectus Supplement, there is no limit to
the number of Master Trust New Issuances that CPS may cause under a Master Trust
Agreement. Each Master Trust will terminate only as provided in the related
Master Trust Agreement. There can be no assurance that the terms of any Master
Trust New Issuance might not have an impact on the timing and amount of payments
received by Securityholders of another Series issued by the same Master Trust.
Under each Master Trust Agreement and pursuant to a related supplement,
a Master Trust New Issuance may only occur upon the satisfaction of certain
conditions provided in each such Master Trust Agreement. The obligation of the
related Trustee to authenticate the Securities of any such Master Trust New
Issuance and to execute and deliver the supplement to the related Master Trust
Agreement is subject to the satisfaction of the following conditions: (a) on or
before the date upon which the Master Trust New Issuance is to occur, CPS shall
have given the related Trustee, the Servicer, the Rating Agency and certain
related providers of Credit Enhancement, if any, written notice of such Master
Trust New Issuance and the date upon which the Master Trust New Issuance is to
occur; (b) CPS shall have delivered to the related Trustee a supplement to the
related Master Trust Agreement, in form satisfactory to such Trustee, executed
by each party to the related Master Trust Agreement other than such Trustee; (c)
CPS shall have delivered to the related Trustee any related Credit Enhancement
agreement; (d) the related Trustee shall have received confirmation from the
Rating Agency that such Master Trust New Issuance will not result in any Rating
Agency reducing or withdrawing its rating with respect to any other Series or
Class of such Trust (any such reduction or
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withdrawal is referred to herein as a "Ratings Effect"); (e) CPS shall have
delivered to the related Trustee, the Rating Agency and certain providers of
Credit Enhancement, if any, an opinion of counsel acceptable to the related
Trustee that for federal income tax purposes (i) following such Master Trust New
Issuance the related Master Trust will not be deemed to be an association (or
publicly traded partnership) taxable as a corporation, (ii) such Master Trust
New Issuance will not affect the tax characterization as debt of Securities of
any outstanding Series or Class issued by such Master Trust that were
characterized as debt at the time of their issuance and (iii) such Master Trust
New Issuance will not cause or constitute an event in which gain or loss would
be recognized by any Securityholders or the related Master Trust; and (f) any
other conditions specified in any supplement. Upon satisfaction of the above
conditions, the related Trustee shall execute the supplement to the related
Master Trust Agreement and issue the Securities of such new Series.
Indexed Securities
To the extent so specified in any Prospectus Supplement, any class of
Securities of a given Series may consist of Securities ("Indexed Securities") in
which the principal amount payable at the final scheduled Payment Date (the
"Indexed Principal Amount") is determined by reference to a measure (the
"Index") which will be related to (i) the difference in the rate of exchange
between United States dollars and a currency or composite currency (the "Indexed
Currency") specified in the applicable Prospectus Supplement (such Indexed
Securities, "Currency Indexed Securities"); (ii) the difference in the price of
a specified commodity (the "Indexed Commodity") on specified dates (such Indexed
Securities, "Commodity Indexed Securities"); (iii) the difference in the level
of a specified stock index (the "Stock Index"), which may be based on U.S. or
foreign stocks, on specified dates (such Indexed Securities, "Stock Indexed
Securities"); or (iv) such other objective price or economic measures as are
described in the applicable Prospectus Supplement. The manner of determining the
Indexed Principal Amount of an Indexed Security and historical and other
information concerning the Indexed Currency, the Indexed Commodity, the Stock
Index or other price or economic measures used in such determination will be set
forth in the applicable Prospectus Supplement, together with information
concerning tax consequences to the holders of such Indexed Securities.
If the determination of the Indexed Principal Amount of an Indexed
Security is based on an Index calculated or announced by a third party and such
third party either suspends the calculation or announcement of such Index or
changes the basis upon which such Index is calculated (other than changes
consistent with policies in effect at the time such Indexed Security was issued
and permitted changes described in the applicable Prospectus Supplement), then
such Index shall be calculated for purposes of such Indexed Security by an
independent calculation agent named in the applicable Prospectus Supplement on
the same basis, and subject to the same conditions and controls, as applied to
the original third party. If for any reason such index cannot be calculated on
the same basis and subject to the same conditions and controls as applied to the
original third party, then the Indexed Principal Amount of such Indexed Security
shall be calculated in the manner set forth in the applicable Prospectus
Supplement. Any determination of such independent calculation agent shall in the
absence of manifest error be binding on all parties.
Interest on an Indexed Security will be payable based on the amount
designated in the applicable Prospectus Supplement (the "Face Amount"). The
applicable Prospectus Supplement will describe whether the principal amount of
the related Indexed Security, if any, that would be payable upon redemption or
repayment prior to the applicable final scheduled Payment Date will be the Face
Amount of such Indexed Security, the Indexed Principal Amount of such Indexed
Security at the time of redemption or repayment or another amount described in
such Prospectus Supplement.
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Book-Entry Registration
Unless otherwise stated in the related Prospectus Supplement,
Securityholders of a given Series may hold their Securities through DTC (in the
United States) or CEDEL or Euroclear (in Europe) if they are participants of
such systems, or indirectly through organizations that are participants in such
systems.
Cede, as nominee for DTC, will hold the global Securities in respect of
a given Series. CEDEL and Euroclear will hold omnibus positions on behalf of the
CEDEL Participants (as defined below) and the Euroclear Participants (as defined
below) (collectively, the "Participants"), respectively, through customers'
securities accounts in CEDEL's and Euroclear's names on the books of their
respective depositaries (collectively, the "Depositaries") which in turn will
hold such positions in customers' securities accounts in the Depositaries' names
on the books of DTC.
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 notes or certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations. Indirect access to the DTC system also is available to
others such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants").
Transfers between DTC Participants will occur in accordance with DTC
rules. Transfers between CEDEL Participants and Euroclear Participants will
occur in the ordinary way in accordance with their applicable rules and
operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. CEDEL Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant CEDEL
Participant or Euroclear Participant on such business day. Cash received in
CEDEL or Euroclear as a result of sales of securities by or through a CEDEL
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
CEDEL or Euroclear cash account only as of the business day following settlement
in DTC.
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The Securityholders of a given Series that are not Participants or
Indirect Participants but desire to purchase, sell or otherwise transfer
ownership of, or other interests in, Securities of such Series may do so only
through Participants and Indirect Participants. In addition, Securityholders of
a given Series will receive all distributions of principal and interest through
the Participants who in turn will receive them from DTC. Under a book-entry
format, Securityholders of a given Series may experience some delay in their
receipt of payments, since such payments will be forwarded by the applicable
Trustee to Cede, as nominee for DTC. DTC will forward such payments to its
Participants, which thereafter will forward them to Indirect Participants or
such Securityholders. It is anticipated that the only "Securityholder" in
respect of any Series will be Cede, as nominee of DTC. Securityholders of a
given Series will not be recognized as Securityholders of such Series, and such
Securityholders will be permitted to exercise the rights of Securityholders of
such Series only indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
of Securities of a given Series among Participants on whose behalf it acts with
respect to such Securities and to receive and transmit distributions of
principal of, and interest on, such Securities. Participants and Indirect
Participants with which the Securityholders of a given Series have accounts with
respect to such Securities similarly are required to make book-entry transfers
and receive and transmit such payments on behalf of their respective
Securityholders of such Series. Accordingly, although such Securityholders will
not possess Securities, the Rules provide a mechanism by which Participants will
receive payments and will be able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder of a given Series to pledge Securities of such Series 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 will advise the Trustee in respect of each Series that it will take
any action permitted to be taken by a Securityholder of the related Series only
at the direction of one or more Participants to whose accounts with DTC the
Securities of such Series 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.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
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Euroclear was created in 1968 to hold securities for participants of
the Euroclear System ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of certificates and any risk from lack of simultaneous transfers of
securities and cash. Transactions may now be settled in any of 28 currencies,
including United States dollars. The Euroclear System includes various other
services, including securities lending and borrowing and interfaces with
domestic markets in several countries generally similar to the arrangements for
cross-market transfers with DTC described above. Euroclear is operated by Morgan
Guaranty Trust Company of New York, Brussels, Belgium office, under contract
with Euroclear Clearance System, S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the "Euroclear Operator" (as
defined below), and all Euroclear securities clearance accounts and Euroclear
cash accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policy for the Euroclear System on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries
and may include the Underwriters. Indirect access to the Euroclear System is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The "Euroclear Operator" is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no record
of relationship with persons holding through Euroclear Participants.
Except as required by law, the Trustee in respect of a Series will not
have any liability for any aspect of the records relating to or payments made or
account of beneficial ownership interests of the related Securities held by
Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Definitive Notes
Unless otherwise stated in the related Prospectus Supplement, the
Securities will be issued in fully registered, certificated form ("Definitive
Securities") to the Securityholders of a given Series or their nominees, rather
than to DTC or its nominee, only if (i) the Trustee in respect of the related
Series advises in writing that DTC is no longer willing or able to discharge
properly its responsibilities as depository with respect to such Securities and
such Trustee is unable to locate a qualified successor, (ii) such Trustee, at
its option, elects to terminate the book-entry-system through DTC or (iii) after
the occurrence of an "Event of Default" under the related Indenture or a default
by the Servicer under the related Trust Documents, Securityholders representing
at least a majority of the outstanding principal amount of such Securities
advise the applicable Trustee through DTC in writing
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that the continuation of a book-entry system through DTC (or a successor
thereto) is no longer in such Securityholders' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the applicable Trustee will be required to notify all such
Securityholders through Participants of the availability of Definitive
Securities. Upon surrender by DTC of the definitive certificates representing
such Securities and receipt of instructions for re-registration, the applicable
Trustee will reissue such Securities as Definitive Securities to such
Securityholders.
Distributions of principal of, and interest on, such Securities will
thereafter be made by the applicable Trustee in accordance with the procedures
set forth in the related Indenture or Trust Agreement directly to holders of
Definitive Securities in whose names the Definitive Securities were registered
at the close of business on the applicable Record Date specified for such
Securities in the related Prospectus Supplement. Such distributions will be made
by check mailed to the address of such holder as it appears on the register
maintained by the applicable Trustee. The final payment on any such Security,
however, will be made only upon presentation and surrender of such Security at
the office or agency specified in the notice of final distribution to the
applicable Securityholders.
Definitive Securities in respect of a given Series of Securities will
be transferable and exchangeable at the offices of the applicable Trustee or of
a certificate registrar named in a notice delivered to holders of such
Definitive Securities. No service charge will be imposed for any registration of
transfer or exchange, but the applicable Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith.
Reports to Securityholders
With respect to each Series of Securities, on or prior to each Payment
Date for such Series, the Servicer or the related Trustee will forward or cause
to be forwarded to each holder of record of such class of Securities a statement
or statements with respect to the related Trust Assets setting forth the
information specified in the related Prospectus Supplement.
In addition, within the prescribed period of time for tax reporting
purposes after the end of each calendar year, the applicable Trustee will
provide to the Securityholders a statement containing information required by
applicable tax laws, for the purpose of the Securityholders' preparation of
federal income tax returns.
DESCRIPTION OF THE TRUST DOCUMENTS
The following summary describes certain terms of the Trust Documents
pursuant to which a Trust will be created and the related Securities in respect
of such Trust will be issued. For purposes of this Prospectus, the term "Trust
Documents" as used with respect to a Trust means, collectively, and except as
otherwise specified, any and all agreements relating to the establishment of the
related Trust, the servicing of the related Receivables and the issuance of the
related Securities, including without limitation the Indenture, (i.e. pursuant
to which any Notes shall be issued). A form of the Trust Agreement has been
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part. This summary does not purport to be complete. It is qualified in its
entirety by reference to the provisions of the Trust Documents.
Sale and Assignment of Receivables
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On or prior to the closing date specified with respect to any given
Series of securities ( the "Closing Date"), CPS or an Affiliated Originator will
sell and assign to a Seller, without recourse, except as otherwise provided in
the applicable Purchase Agreement or Affiliate Purchase Agreement, its entire
interest in the Receivables to be included in such Trust, together with its
security interests in the Financed Vehicles. At the time of issuance of the
Securities, such Seller will either transfer such Receivables to a Trust
pursuant to a Sale and Servicing Agreement. The obligations of the Seller and
the Servicer under the related Sale and Servicing Agreement include those
specified below and in the related Prospectus Supplement.
As more fully described in the related Prospectus Supplement, CPS will
be obligated to acquire from the related Trust its interest in any Receivable
transferred to a Trust or pledged to a Trustee on behalf of Securityholders if
the interest of the Securityholders therein is materially adversely affected by
a breach of any representation or warranty made by CPS with respect to such
Receivable, which breach has not been cured following the discovery by or notice
to CPS of the breach. In addition, if so specified in the related Prospectus
Supplement, CPS may from time to time reacquire certain Receivables or
substitute other Receivables for such Receivable subject to specified conditions
set forth in the related Purchase Agreement.
Accounts
With respect to each Series of Securities issued by a Trust, the
Servicer will establish and maintain with the applicable Trustee one or more
accounts, in the name of such Trustee on behalf of the related Securityholders,
into which all payments made on or with respect to the related Receivables will
be deposited (the "Collection Account"). The Servicer will also establish and
maintain with such Trustee separate accounts, in the name of such Trustee on
behalf of such Securityholders, in which amounts released from the Collection
Account and the reserve account or other Credit Enhancement, if any, for
distribution to such Securityholders will be deposited and from which
distributions to such Securityholders will be made (the "Distribution Account").
Any other accounts to be established with respect to a Trust, including
any reserve account, will be described in the related Prospectus Supplement.
For any Series of Securities, funds in the Collection Account, the
Distribution Account, any Pre-Funding Account, any reserve account and other
accounts identified as such in the related Prospectus Supplement (collectively,
the "Trust Accounts") shall be invested as provided in the related Trust
Agreement or Indenture in Eligible Investments. "Eligible Investments" are
generally limited to investments acceptable to the Rating Agencies as being
consistent with the rating of such Securities. Subject to certain conditions,
Eligible Investments may include securities issued by CPS, the Servicer or their
respective affiliates or other trusts created by CPS or its affiliates. Except
as described below or in the related Prospectus Supplement, Eligible Investments
are limited to obligations or securities that mature not later than the business
day immediately preceding the related Payment Date. However, subject to certain
conditions, funds in the reserve account may be invested in securities that will
not mature prior to the date of the next distribution and will not be sold to
meet any shortfalls. Thus, the amount of cash in any reserve account at any time
may be less than the balance of such reserve account. If the amount required to
be withdrawn from any reserve account to cover shortfalls in collections on the
related Receivables exceeds the amount of cash in such reserve account a
temporary shortfall in the amounts distributed to the related Securityholders
could result, which could, in turn, increase the average life of the Securities
of such Series. Except as otherwise
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specified in the related Prospectus Supplement, investment earnings on funds
deposited in the applicable Trust Accounts, net of losses and investment
expenses (collectively, "Investment Earnings"), shall be deposited in the
applicable Collection Account on each Payment Date and shall be treated as
collections of interest on the related Receivables.
The Trust Accounts will be maintained as Eligible Deposit Accounts.
"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 has 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 related 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), which (i) (A) has either
(w) a long-term unsecured debt rating acceptable to the Rating Agencies or (x) a
short-term unsecured debt rating or certificate of deposit rating acceptable to
the Rating Agencies or (B) the parent corporation of which has either (y) a
long-term unsecured debt rating acceptable to the Rating Agencies or (z) 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.
The Servicer
The Servicer under each Sale and Servicing Agreement will be named in
the related Prospectus Supplement. The entity serving as Servicer may be CPS or
an affiliate of CPS and may have other business relationships with CPS or CPS's
affiliates. The Servicer with respect to each Series will service the
Receivables contained in the Trust for such Series. Any Servicer may delegate
its servicing responsibilities to one or more subservicers, but will not be
relieved of its liabilities with respect thereto.
The Servicer will make certain representations and warranties regarding
its authority to enter into, and its ability to perform its obligations under,
the related Sale and Servicing Agreement. An uncured breach of such a
representation or warranty that in any respect materially and adversely affects
the interests of the Securityholders will constitute a default by the Servicer
under the related Sale and Servicing Agreement.
A Sale and Servicing Agreement may contain provisions providing for a
standby servicer ("Standby Servicer") to serve as successor servicer in the
event the Servicer is terminated or resigns as Servicer pursuant to the terms of
such Sale and Servicing Agreement. A Standby Servicer will receive a fee on each
Payment Date for agreeing to stand by as successor Servicer and for performing
certain other functions. If the Standby Servicer becomes the Servicer under a
Sale and Servicing Agreement, it will receive compensation as a Servicer in an
amount set forth in such Sale and Servicing Agreement.
Servicing Procedures
Each Sale and Servicing Agreement will provide that the Servicer will
follow its then- employed standards, or such more exacting standards as the
Servicer employs in the future, in
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servicing the Receivables that are part of the Trust. Each Sale and Servicing
Agreement will provide that the Servicer will make reasonable efforts to collect
all payments due with respect to the Receivables that are part of the Trust and,
in a manner consistent with such Sale and Servicing Agreement, will continue
such collection procedures as it follows with respect to automotive retail
installment sale contracts it services for itself and others. Consistent with
its normal procedures, the Servicer may, in its sole discretion, arrange with
the Obligor on a Receivable to extend the payment schedule; provided, however,
that the Servicer may be limited as to the number of times an extension may be
granted and as to the timing of such extensions. No such arrangement will, for
purposes of a Sale and Servicing Agreement, modify the original due dates or the
amount of the scheduled payments, or extend the final payment date on any
Receivable beyond the last day of the penultimate Collection Period before the
Final Schedule Payment Date under the related Trust Documents. If the Servicer
grants an extension with respect to a Receivable other than in accordance with
the aforementioned limitations, the Servicer will be required to purchase the
Receivable. Following any such purchase of a Receivable by the Servicer, such
Receivable will be released from the Trust and conveyed to the Servicer. The
Servicer may sell the Vehicle securing the respective defaulted Receivable, if
any, at a public or private sale, or take any other action permitted by
applicable law.
See "Certain Legal Aspects of the Receivables".
The material aspects of any particular Servicer's collections and other
relevant procedures will be set forth in the related Prospectus Supplement.
Payments on Receivables
With respect to each Series of Securities, unless otherwise specified
in the related Prospectus Supplement, the Servicer will notify each Obligor that
payments made by such Obligor after the Cutoff Date with respect to a Receivable
must be mailed directly to the Post Office Box set forth in the Sale and
Servicing Agreement relating to such Receivable. On each Business Day, the
Lock-Box Processor set forth in the Sale and Servicing Agreement relating to
such Receivable (the "Lock-Box Processor") will transfer any such payments
received in the applicable post office box in the name of the applicable Trustee
for the benefit of the Securityholders and the related Credit Enhancer (if any)
(the "Post Office Box") to the applicable segregated lock-box account in the
name of the applicable Trustee for the benefit of the Securityholders and the
related Credit Enhancer (if any) (the "Lock-Box Account"). Any payments received
by the Servicer from an Obligor or from a source other than an Obligor must be
deposited in the applicable Lock-Box Account or the applicable Collection
Account upon receipt. The Servicer will, following the receipt of funds in such
Lock-Box Account, direct the Lock-Box Bank to transfer such funds to the
applicable Collection Account. Prior to the applicable Payment Date, the
applicable Trustee, on the basis of instructions provided by the Servicer, will
transfer funds held in such Collection Account to the applicable Payahead
Account if such payments constitute Payaheads or to the applicable Distribution
Account for distribution to, the Securityholders of the related Series.
Collections on a Rule of 78's Receivable made during a Collection
Period will be applied first, to the scheduled payment on such Rule of 78's
Receivable, and second, to any late fees accrued with respect to such Rule of
78's Receivable.
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Servicing Compensation
As may be described in the related Prospectus Supplement with respect
to any Series of Securities issued by a Trust, the Servicer will be entitled to
receive a servicing fee on each Payment Date (the "Servicing Fee"), equal to the
product of one-twelfth of the specified percentage per annum and the Pool
Balance (each as set forth in the related Prospectus Supplement) as of the close
of business on the last day of the second preceding Collection Period; provided,
however, that with respect to the first Payment Date, the Servicing Fee will
equal the product of one-twelfth of the Servicing Fee Rate and the original Pool
Balance. So long as CPS is Servicer, a portion of the Servicing Fee will be
payable to the Standby Servicer, if any (as set forth in the related Prospectus
Supplement), for agreeing to stand by as successor Servicer and for performing
certain other functions. If the Standby Servicer, or any other entity serving at
the time as Standby Servicer, becomes the successor Servicer, it will receive
compensation for acting in such capacity. See "Standby Servicer" in the related
Prospectus Supplement. The Servicer will also collect and retain, as additional
servicing compensation, any late fees, prepayment charges, including, in the
case of a Rule 78's Receivable that is part of the Trust and that is prepaid in
full, to the extent not required by law to be remitted to the related Obligor,
the difference between the principal balance of such Receivable computed on an
actuarial basis plus accrued interest to the date of prepayment and the
principal balance of such Receivable computed according to the Rule of 78's, and
other administrative fees or similar charges allowed by applicable law with
respect to the Receivables that are part of the Trust, and will be entitled to
reimbursement from the Trust for certain liabilities. Payments by or on behalf
of Obligors will be allocated to scheduled payments, late fees and other charges
and principal and interest in accordance with the Servicer's normal practices
and procedures. The Servicing Fee will be paid out of collections from the
Receivables, prior to distributions to Securityholders of the related Series.
The Servicing Fee and additional servicing compensation will compensate
the Servicer for performing the functions of a third party servicer of
automotive receivables as an agent for their beneficial owner, including
collecting and posting all payments, responding to inquiries of Obligors on the
Receivables that are part of the Trust, investigating delinquencies, sending
payment coupons to Obligors, reporting tax information to Obligors, paying costs
of disposition of defaults and policing the collateral. The Servicing Fee also
will compensate the Servicer for administering the Receivables that are part of
the Trust, including accounting for collections and furnishing monthly and
annual statements as required with respect to a Series of Securities regarding
distributions and generating federal income tax information. The Servicing Fee
also will reimburse the Servicer for certain taxes, accounting fees, outside
auditor fees, data processing costs and other costs incurred in connection with
administering the Receivables that are part of the Trust.
Distributions
With respect to each Series of Securities, beginning on the Payment
Date specified in the related Prospectus Supplement, distributions of principal
and interest (or, where applicable, of principal or interest only) on each Class
of such Securities entitled thereto will be made by the applicable Indenture
Trustee to the holders of Notes (the "Noteholders") and by the applicable
Trustee to the holders of Certificates (the "Certificateholders") of such
Series. The timing, calculation, allocation, order, source, priorities of and
requirements for each class of Noteholders and all distributions to each class
of Certificateholders of such Series will be set forth in the related Prospectus
Supplement.
With respect to each Series of Securities, on each Payment Date
collections on the related Receivables will be transferred from the Collection
Account to the Distribution Account for
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distribution to Securityholders, respectively, to the extent provided in the
related Prospectus Supplement. Credit Enhancement, such as a reserve account,
may be available to cover any shortfalls in the amount available for
distribution on such date, to the extent specified in the related Prospectus
Supplement. As more fully described in the related Prospectus Supplement, and
unless otherwise specified therein, distributions in respect of principal of a
Class of Securities of a given Series will be subordinate to distributions in
respect of interest on such Class, and distributions in respect of the
Certificates of such Series may be subordinate to payments in respect of the
Notes of such Series.
Credit and Cash Flow Enhancements
The amounts and types of Credit Enhancement arrangements, if any, and
the provider thereof, if applicable, with respect to each class of Securities of
a given Series 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 a Policy, subordination of one or more Classes of Securities,
reserve accounts, overcollateralization, letters of credit, credit or liquidity
facilities, third party payments or other support, surety bonds, guaranteed 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 of Securities may cover one or more other Classes of Securities of the
same Series, and Credit Enhancement for a Series of Securities may cover one or
more other Series of Securities.
The presence of Credit Enhancement for the benefit of any Class or
Series of Securities is intended to enhance the likelihood of receipt by the
Securityholders or such Class or Series of the full amount of principal and
interest due thereon and to decrease the likelihood that such Securityholders
will experience losses. As more specifically provided in the related Prospectus
Supplement, the credit enhancement for a Class or Series of Securities may not
provide protection against all risks of loss and may not guarantee repayment of
the entire principal balance 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 of any Class or Series will bear their
allocable share of deficiencies, as described in the related Prospectus
Supplement. In addition, if a form of Credit Enhancement covers more than one
Series of Securities, Securityholders of any such Series will be subject to the
risk that such Credit Enhancement will be exhausted by the claims of
Securityholders of other Series.
Statements to Indenture Trustees and Trustees
Prior to each Payment Date with respect to each Series of Securities,
the Servicer will provide to the applicable Indenture Trustee and/or the
applicable Trustee and Credit Enhancer as of the close of business on the last
day of the preceding related Collection Period a statement setting forth
substantially the same information as is required to be provided in the periodic
reports provided to Securityholders of such Series described under "Description
of the Securities--Reports to Securityholders".
Evidence as to Compliance
Each Sale and Servicing Agreement will provide that a firm of
independent public accountants will furnish to the related Trust and/or the
applicable Indenture Trustee and Credit Enhancer, annually, a statement as to
compliance by the Servicer during the preceding twelve months (or, in the case
of the first such certificate, the period from the applicable Closing Date) with
certain standards relating to the servicing of the Receivables.
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Each Sale and Servicing Agreement will also provide for delivery to the
related Trust and the applicable Indenture Trustee of a certificate signed by an
officer of the Servicer stating that the Servicer either has fulfilled its
obligations under such Sale and Servicing Agreement in all material respects
throughout the preceding 12 months (or, in the case of the first such
certificate, the period from the applicable Closing Date) or, if there has been
a default in the fulfillment of any such obligation in any material respect,
describing each such default. The Servicer also will agree to give each
Indenture Trustee and each Trustee notice of certain Servicer Termination Events
(as hereinafter defined) under the related Sale and Servicing Agreement.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the applicable Indenture
Trustee or the applicable Trustee.
Certain Matters Regarding the Servicers
Each Sale and Servicing Agreement will provide that the Servicer may
not resign from its obligations and duties as Servicer thereunder except upon
determination that its performance of such duties is no longer permissible under
applicable law and under certain other circumstances. No such resignation will
become effective until a successor servicer has assumed the servicing
obligations and duties under the applicable Sale and Servicing Agreement. In the
event CPS resigns as Servicer or is terminated as Servicer, the Standby
Servicer, if any, will agree to assume the servicing obligations and duties
under the Sale and Servicing Agreement.
Each Sale and Servicing Agreement will further provide that neither the
Servicer nor any of its directors, officer, employees, and agents will be under
any liability to the Trust or the Securityholders of the related Series for
taking any action or for refraining from taking any action pursuant to such Sale
and Servicing Agreement, or for errors in judgment; provided, however, that
neither the Servicer nor any such person will be protected against any liability
that would otherwise be imposed by reason of willful misfeasance, bad faith or
negligence in the performance of duties or by reason of reckless disregard of
obligations and duties thereunder. In addition, each Sale 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 its servicing
responsibilities under the applicable Sale and Servicing Agreement and that, in
its opinion, may cause it to incur any expense or liability.
Under the circumstances specified in each Sale and Servicing Agreement
any entity into which the Servicer may be merged or consolidated, or any entity
resulting from any merger or consolidation to which the Servicer is a party, or
any entity succeeding to the business of the Servicer, which corporation or
other entity in each of the foregoing cases assumes the obligations of the
Servicer, will be the successor to the Servicer under the applicable Sale and
Servicing Agreement.
Servicer Termination Event
Except as otherwise provided in the related Prospectus Supplement,
"Servicer Termination Event" under the related Trust Documents will include (i)
any failure by the Servicer to deliver to the applicable Trustee for deposit in
any of the related Trust Accounts any required payment or to direct such Trustee
to make any required distributions therefrom, which failure continues unremedied
for more than three (3) Business Days after written notice from such Trustee is
received by the Servicer or after discovery by the Servicer; (ii) any failure by
the Servicer duly to observe or perform in any material respect any other
covenant or agreement in such Trust Documents, which failure materially and
adversely affects the rights of the related Securityholders and which continues
unremedied for
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more than thirty (30) days after the giving of written notice of such failure
(1) to the Servicer by the applicable Trustee or (2) to the Servicer, and to the
applicable Trustee by holders of the related Securities, as applicable,
evidencing not less than 50% of the voting rights of such outstanding
Securities; (iii) any Insolvency Event; and (iv) any claim being made on a
Policy issued as Credit Enhancement. An "Insolvency Event" shall mean financial
insolvency, readjustment of debt, marshaling of assets and liabilities, or
similar proceedings with respect to the Servicer and certain actions by the
Servicer indicating its insolvency, reorganization pursuant to bankruptcy
proceedings, or inability to pay its obligations.
Rights upon Servicer Termination Event
As more fully described and except as otherwise provided in the related
Prospectus Supplement, as long as a Servicer Termination Event under the related
Trust Documents remains unremedied, the applicable Trustee, Credit Enhancer or
holders of Notes of the related Series evidencing not less than 50% of the
voting rights of such then outstanding Notes or, after the Notes have been paid
in full, holders of Certificates of the related Series evidencing not less than
50% of the voting rights of such then outstanding Certificates may terminate all
the rights and obligations of the Servicer, if any, under such Sale and
Servicing Agreement, whereupon a successor servicer appointed by such Trustee or
such Trustee will succeed to all the responsibilities, duties and liabilities of
the Servicer under such Trust Documents 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 Termination Event other
than such appointment has occurred, such bankruptcy trustee or official may have
the power to prevent the applicable Trustee or such Securityholders from
effecting a transfer of servicing.
Waiver of Past Defaults
With respect to each Trust, except as otherwise provided in the related
Prospectus Supplement and subject to the approval of any Credit Enhancer, the
holders of Notes evidencing at least a majority of the voting rights of such
then outstanding Securities may, on behalf of all Securityholders of the related
Securities, waive any default by the Servicer in the performance of its
obligations under the related Trust Documents and its consequences, except a
default in making any required deposits to or payments from any of the Trust
Accounts in accordance with such Trust Documents. No such waiver shall impair
the Securityholders' rights with respect to subsequent defaults.
Amendments
As more fully described, except as otherwise provided in the related
Prospectus Supplement, each of the Trust Documents may be amended by the parties
thereto, without the consent of the related Securityholders, for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of such Trust Documents or of modifying in any manner the rights of
such Securityholders; provided that such action will not, in the opinion of
counsel satisfactory to the applicable Trustee, materially and adversely affect
the interests of any such Securityholder and subject to the approval of any
Credit Enhancer. As may be described in the related Prospectus Supplement, the
Trust Documents may also be amended by CPS, the Servicer, and the applicable
Trustee with the consent of the holders of Notes evidencing at least a majority
of the voting rights of such then outstanding Notes or, after the Notes have
been paid in full, holders of Certificates of the related Series evidencing not
less than 50% of the voting rights of such then outstanding Certificates for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions
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of such Trust Documents or of modifying in any manner the rights of such
Securityholders; provided, however, that no such amendment may (i) increase or
reduce in any manner the amount or priority of, or accelerate or delay the
timing of, collections of payments on the related Receivables or distributions
that are required to be made for the benefit of such Securityholders or (ii)
reduce the aforesaid percentage of the Securities of such Series which are
required to consent to any such amendment, without the consent of the
Securityholders of such Series.
Termination
With respect to each Trust, the obligations of the Servicer, CPS and
the applicable Trustee pursuant to the related Trust Documents will terminate
upon the earlier to occur 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 and (ii) the payment to Securityholders of the
related Series of all amounts required to be paid to them pursuant to such Trust
Documents. As more fully described in the related Prospectus Supplement, in
order to avoid excessive administrative expense, the Servicer will be permitted
in respect of the applicable Trust Assets, unless otherwise specified in the
related Prospectus Supplement, at its option to purchase from such Trust Assets,
as of the end of any Collection Period immediately preceding a Payment Date, if
the Pool Balance of the related Contracts is less than a specified percentage
(set forth in the related Prospectus Supplement) of the initial Pool Balance in
respect of such Trust Assets, all such remaining Receivables at a price equal to
the aggregate of the Purchase Amounts thereof as of the end of such Collection
Period. The related Securities will be redeemed following such purchase.
If and to the extent provided in the related Prospectus Supplement with
respect to the Trust Assets, the applicable Trustee will, within ten days
following a Payment Date as of which the Pool Balance is equal to or less than
the percentage of the initial Pool Balance specified in the related Prospectus
Supplement, solicit bids for the purchase of the Receivables remaining in such
Trust, in the manner and subject to the terms and conditions set forth in such
Prospectus Supplement. If such Trustee receives satisfactory bids as described
in such Prospectus Supplement, then the Receivables remaining in such Trust
Assets will be sold to the highest bidder.
If and to the extent provided in the related Prospectus Supplement, any
outstanding Notes of the related Series will be redeemed concurrently with
either of the events specified above and the subsequent distribution to the
related Securityholders of all amounts required to be distributed to them
pursuant to the applicable Trust Documents may effect the prepayment of the
Certificates of such Series.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
General
The transfer of Receivables by the Seller to the Trust pursuant to the
related Sale and Servicing Agreement, the perfection of the security interests
in the Receivables and the enforcement of rights to realize on the Financed
Vehicles as collateral for the Receivables are subject to a number of federal
and state laws, including the UCC as in effect in various states. As specified
in each Prospectus Supplement, the Servicer will take such action as is required
to perfect the rights of the Trustee in the Receivables. If, through
inadvertence or otherwise, a third party were to purchase (including the taking
of a security interest in) a Receivable for new value in the ordinary course of
its business, without actual knowledge of the Trust's interest, and take
possession of a Receivable, the
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purchaser would acquire an interest in such Receivable superior to the interest
of the Trust. Unless specified in a Prospectus Supplement, no action will be
taken to perfect the rights of the Trustee in proceeds of any insurance policies
covering individual Financed Vehicles or Obligors. Therefore, the rights of a
third party with an interest in such proceeds could prevail against the rights
of the Trust prior to the time such proceeds are deposited by the Servicer into
a Trust Account.
Security Interests in the Financed Vehicles
In states in which retail installment sale contracts such as the
Receivables evidence the credit sale of automobiles, light trucks, vans and
minivans by dealers to Obligors, the contracts also constitute personal property
security agreements and include grants of security interests in the vehicles
under the applicable UCC. Perfection of security interests in the financed
automobiles, light trucks, vans and minivans is generally governed by the motor
vehicle registration laws of the state in which the vehicle is located. In all
states in which the Receivables have been originated, a security interest in
automobiles, light trucks, vans and minivans is perfected by obtaining the
certificate of title to the Financed Vehicle or notation of the secured party's
lien on the vehicles' certificate of title (in addition, in Louisiana, a copy of
the installment sale contract must be filed with the appropriate governmental
recording office).
Unless otherwise specified in the related Prospectus Supplement, each
Contract will name CPS or the applicable Affiliated Originator as obligee or
assignee and as the secured party. Unless otherwise specified in the related
Prospectus Supplement, CPS will have represented and warranted that it has taken
all actions necessary under the laws of the state in which the Financed Vehicle
is located to perfect CPS's or such Affiliated Originator's security interest in
the Financed Vehicle, including, where applicable, having a notation of its lien
recorded on such vehicle's certificate of title. Unless otherwise specified in
the related Prospectus Supplement, the Obligors on the Contracts will not be
notified of the sale from CPS or an Affiliated Originator, directly or
indirectly, to the Seller, or the sale from the Seller to the Trust, and no
action will be taken to record the transfer of the security interest from CPS or
such Affiliated Originator, directly or indirectly, to the Seller or from the
Seller to the Trust by amendment of the certificates of title for the Financed
Vehicles or otherwise.
CPS or the related Affiliated Originator will transfer and assign its
security interest in the related Financed Vehicles directly or indirectly to the
Seller, and the Seller will transfer and assign its security interest in such
Financed Vehicles to the related Trust pursuant to a Sale and Servicing
Agreement. However, because of the administrative burden and expense, neither
CPS nor the Seller will amend the certificates of title of such Financed
Vehicles to identify the related Trust as the new secured party.
In most states, an assignment such as that under each Sale 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. However, by
not identifying such Trust as the secured party on the certificate of title, the
security interest of such Trust in the vehicle could be defeated through fraud
or negligence.
Under the laws of most states, the perfected security interest in a
vehicle continues for four months after the vehicle is moved to a state other
than the state in which it is initially registered and thereafter until the
owner thereof 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
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party must surrender possession if it holds the certificate of title to the
vehicle or, in the case of a vehicle registered in a state providing for the
notation of a lien on the certificate of title but not possession by the secured
party, the secured party will receive notice of surrender if the security
interest is noted on the certificate of title. Thus, the secured party will have
the opportunity to re- perfect its security interest in the vehicle in the state
of relocation. In states that do not require a certificate of title for
registration of a motor vehicle, re-registration could defeat perfection. Unless
otherwise specified in the related Prospectus Supplement, under each Sale and
Servicing Agreement, the Servicer will be obligated to take appropriate steps,
at the Servicer's expense, to maintain perfection of security interests in the
Financed Vehicles and will be obligated to purchase the related Receivable if it
fails to do so.
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 vehicles by government 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
vehicle.
Repossession
In the event of default by vehicle purchasers, the holder of the motor
vehicle retail installment sale contract has all the remedies of a secured party
under the UCC, except where specifically limited by other state laws. Among the
UCC remedies, the secured party has the right to perform self-help repossession
unless such act would constitute a breach of the peace. Unless otherwise
specified in the related Prospectus Supplement, self-help is the most likely
method to be used by the Servicer 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 within which he may 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.
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 delinquent 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. 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
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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 exits or there are remaining funds, the UCC
requires the creditor to remit the surplus to the former owner of the vehicle.
Consumer Protection Laws
Numerous federal and state consumer protection laws and related
regulations impose substantial requirements upon lenders and servicers involved
in consumer finance, including requirements regarding the adequate disclosure of
loan terms (including finance charges and deemed finance charges), and
limitations on loan terms (including the permitted finance charge or deemed
finance charge), collection practices and creditor remedies. The application of
these laws to particular circumstances is not always certain and some courts and
regulatory authorities have shown a willingness to adopt novel interpretations
of such laws. These laws include the Truth-in-Lending Act, the Equal Credit
Opportunity Act, the Federal Trade Commission Act, the Fair Credit Billing Act,
the Fair Credit Reporting Act, the Fair Debt Collection Procedures Act, the
Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B and Z, the
Solders' and Sailors' Civil Relief Act of 1940, state adoptions of the National
Consumer Act and the Uniform Consumer Credit Code, and state motor vehicle
retail installment sales act, retail installment sales acts and other similar
laws. Also, state laws impose finance charge ceilings and other restrictions on
consumer transactions and require contract disclosures in addition to those
required under federal law. These requirements impose specific statutory
liabilities upon creditors who fail to comply with their provisions. In some
cases, this liability could affect an assignee's ability to enforce consumer
finance contracts such as the Receivables.
Under the laws of certain states, finance charges with respect to motor
vehicle retail installment contracts may include the additional amount, if any,
that a purchaser pays as part of the purchase price for a vehicle solely because
the purchaser is buying on credit rather than for cash (a "cash sale
differential"). If a dealer charges such a differential, applicable finance
charge ceilings could be exceeded.
To so-called "Holder-in-Due-Course" Rule of the Federal Trade
Commission (the "FTC Rule"), the provisions of which are generally duplicated by
the Uniform Consumer Credit Code, other statutes or the common law, has the
effect of subjecting an assignee of a seller of goods in a consumer credit
transaction (and certain related creditors) to all claims and defenses that the
obligor in the transaction could assert against the seller of the goods.
Liability under the FTC Rule is limited to the amounts paid by the obligor under
the contract and the holder of the contract may also be unable to collect any
balance remaining due thereunder from the obligor.
Most of the Receivables will be subject to the requirements of the FTC
Rule. Accordingly, each Trust, as holder of the related Receivables, will be
subject to any claims or defenses that the purchaser of the applicable Financed
Vehicle may assert against the seller of the Financed Vehicle. Such claims are
limited to a maximum liability equal to the amounts paid by the Obligor on the
Receivable. If an Obligor were successful in asserting any such claim or
defense, such claim or
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defense would constitute a breach of CPS's warranties under the related Purchase
Agreement and would create an obligation of CPS to repurchase the Receivable
unless the breach is cured. See "Description of the Trust Documents--Sale and
Assignment of Receivables".
Courts have applied general equitable principles to secured parties
pursuing repossession and litigation involving deficiency balances. These
equitable principles may have the effect of relieving an obligor from some or
all of the legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies
of secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. Courts have generally upheld the notice provisions of the UCC and
related laws as reasonable or have found that the repossession and resale by the
creditor do not involve sufficient state action to afford constitutional
protection to borrowers.
Under most state vehicle dealer licensing laws, sellers of automobiles,
light trucks, vans and minivans are required to be licensed to sell vehicles at
retail sale. In addition, with respect to used vehicles, the Federal Trade
Commission's Rule on Sale of Used Vehicles requires that all sellers of used
vehicles prepare, complete and display a "Buyer's Guide" which explains the
warranty coverage for such vehicles. Furthermore, Federal Odometer Regulations
promulgated under the Motor Vehicle Information and Cost Savings Act and the
motor vehicle title laws of most states require that all sellers of used
vehicles furnish a written statement signed by the seller certifying the
accuracy of the odometer reading. If a seller is not properly licensed or if
either a Buyer's Guide or Odometer Disclosure Statement was not provided to the
purchaser of a Financed Vehicle, the Obligor may be able to assert a defense
against the seller of the Financed Vehicle. If an Obligor on a Receivable were
successful in asserting any such claim or defense, the Servicer would pursue on
behalf of the related Trust any reasonable remedies against the seller or the
manufacturer of the vehicle, subject to certain limitations as to the expense of
any such action to be specified in the related Sale and Servicing Agreements.
Under each Purchase Agreement, CPS will have represented and warranted
that each Receivable complies with all requirements of law in all material
respects. Accordingly, if an Obligor has a claim against a 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 the warranties of
CPS and would create an obligation of CPS to repurchase the Receivable unless
the breach is cured.
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 repossession a vehicle and, as part of the rehabilitation plan,
may reduce the amount of the secured indebtedness to the market value of the
vehicle at the time of bankruptcy (as determined by the court), 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 contract or
change the rate of interest and time of repayment of the indebtedness.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of certain Federal income tax
consequences of the purchase, ownership and disposition of the Notes and the
Certificates. The summary does not purport to deal with Federal income tax
consequences applicable to all categories of holders, some of which may be
subject to special rules. For example, it does not discuss the tax treatment of
Noteholders or Certificateholders that are insurance companies, regulated
investment companies or dealers in securities. This discussion is directed to
prospective purchasers who purchase Notes or Certificates in the initial
distribution thereof and who hold the Notes or Certificates as "capital assets"
within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code"). Prospective investors are urged to consult their own tax
advisors in determining the Federal, state, local, foreign and any other tax
consequences to them of the purchase, ownership and disposition of the Notes and
the Certificates.
The following summary is based upon current provisions of the Code, the
Treasury regulations promulgated thereunder, judicial authority, and ruling
authority, all of which are subject to change, which change may be retroactive.
Each Trust will be provided with an opinion of special Federal tax counsel to
such Trust specified in the related Prospectus Supplement ("Federal Tax
Counsel") regarding certain Federal income tax matters discussed below. An
opinion of Federal Tax Counsel, however, is not binding on the Internal Revenue
Service (the "IRS") or the courts. Moreover, there are no cases or IRS rulings
on similar transactions involving both debt and equity interests issued by a
trust with terms similar to those of the Notes and the Certificates. As a
result, the IRS may disagree with all or a part of the discussion below. No
ruling on any of the issues discussed below will be sought from the IRS. For
purposes of the following summary, references to the Trust, the Notes, the
Certificates and related terms, parties and documents shall be deemed to refer,
unless otherwise specified herein, to each Trust and the Notes, Certificates and
related terms, parties and documents applicable to such Trust.
Tax Characterization of the Trust
Federal Tax Counsel will deliver its opinion that the Trust will not be
an association (or publicly traded partnership) taxable as a corporation for
Federal income tax purposes. This opinion will be based on the assumption that
the terms of the Trust Documents will be complied with, and on counsel's
conclusions that (1) the Trust will not have certain characteristics necessary
for a business trust to be classified as an association taxable as a corporation
and (2) the nature of the income of the Trust will exempt it from the rule that
certain publicly traded partnerships are taxable as corporations.
If the Trust were taxable as a corporation for Federal income tax
purposes, the Trust would be subject to corporate income tax on its taxable
income. The Trust's taxable income would include all its income on the
Receivables, possibly reduced by its interest expense on the Notes. Any such
corporate income tax could materially reduce cash available to make payments on
the Notes and distributions on the Certificates, and Certificateholders could be
liable for any such tax that is unpaid by the Trust.
Tax Consequences to Holders of the Notes
Treatment of the Notes as Indebtedness. The Seller will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for Federal, state and local income and franchise tax purposes. Federal Tax
Counsel will, except as otherwise provided in the related Prospectus Supplement,
advise the Trust that the Notes will be classified as debt for Federal income
tax purposes. The discussion below assumes this characterization of the Notes is
correct.
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OID, Indexed Securities, etc. The discussion below assumes that all
payments on the Notes are denominated in U.S. dollars, and that the Notes are
not Indexed Securities or Strip Notes. Moreover, the discussion assumes that the
interest formula for the Notes meets the requirements for "qualified stated
interest" under Treasury regulations (the "OID Regulations") relating to debt
instruments issued with original issue discount ("OID"), and that any OID on the
Notes (i.e., any excess of the principal amount of the Notes over their issue
price) is de minimis (i.e., less than 1/4% of their principal amount multiplied
by the weighted average maturity of the Notes), all within the meaning of the
OID Regulations. If these conditions are not satisfied with respect to any given
series of Notes and as a result the Notes are treated as issued with OID,
additional tax considerations with respect to such Notes will be disclosed in
the applicable Prospectus Supplement.
Interest Income on the Notes. Based on the above assumptions, except as
discussed below, the Notes will not be considered issued with OID. The stated
interest thereon will be taxable to a Noteholder as ordinary interest income
when received or accrued in accordance with such Noteholder's method of tax
accounting. Under the OID Regulations, a holder of a Note issued with a de
minimis amount of OID must include such OID in income, on a pro rata basis, as
principal payments are made on the Note. It is believed that any prepayment
premium paid as a result of a mandatory redemption will be taxable as contingent
interest when it becomes fixed and unconditionally payable. A purchaser who buys
a Note for more or less than its principal amount will generally be subject,
respectively, to the premium amortization or market discount rules of the Code.
A holder of a Note that has a fixed maturity date of not more than one
year from the issue date of such Note (a "Short-Term Note") may be subject to
special rules. Under the OID Regulations, all stated interest will be treated as
OID. An accrual basis holder of a Short-Term Note (and certain cash basis
holders, including regulated investment companies, as set forth in Section 1281
of the Code) generally would be required to report interest income as OID
accrues on a straight-line basis over the term of each interest period. Other
cash basis holders of a Short-Term Note would, in general, be required to report
interest income as interest is paid (or, if earlier, upon the taxable
disposition of the Short-Term Note). However, a cash basis holder of a
Short-Term Note reporting interest income as it is paid may be required to defer
a portion of any interest expense otherwise deductible on indebtedness incurred
to purchase or carry the Short-Term Note until the taxable disposition of the
Short-Term Note. A cash basis taxpayer may elect under Section 1281 of the Code
to accrue interest income on all nongovernment debt obligations with a term of
one year or less, in which case the taxpayer would include OID on the Short-Term
Note in income as it accrues, but would not be subject to the interest expense
deferral rule referred to in the preceding sentence. Certain special rules apply
if a Short-Term Note is purchased for more or less than its principal amount.
Sale or Other Disposition. 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 a Note to a particular Noteholder will equal the holder's
cost for the Note, increased by any market discount, OID and gain previously
included by such Noteholder in income with respect to the Note and decreased by
the amount of premium (if any) previously amortized and by the amount of
principal payments previously received by such Noteholder with respect to such
Note. Any such gain or loss will be capital gain or loss, except for gain
representing accrued interest and accrued market discount not previously
included in income. Capital losses 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.
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Foreign Holders. Interest paid (or accrued) to a Noteholder who is a
nonresident alien, foreign corporation or other non-United States person (a
"foreign person") generally will be considered "portfolio interest," and
generally will not be subject to United States Federal income tax and
withholding tax, if the interest is not effectively connected with the conduct
of a trade or business within the United States by the foreign person and the
foreign person (i) is not actually or constructively a "10 percent shareholder"
of the Trust or the Seller (including a holder of 10% of the outstanding
Certificates) or a "controlled foreign corporation" with respect to which the
Trust or the Seller is a "related person" within the meaning of the Code and
(ii) provides the Trustee or other person who is otherwise required to withhold
U.S. tax with respect to the Notes with an appropriate statement (on Form W-8 or
a similar form), signed under penalties of perjury, certifying that the
beneficial owner of the Note is a foreign person and providing the foreign
person's name and address. If the information provided in this statement
changes, the foreign person must inform the Trust within 30 days of such change.
If a Note is held through a securities clearing organization or certain other
financial institutions, the organization or institution may provide the relevant
signed statement to the withholding agent; in that case, however, the signed
statement must be accompanied by a Form W-8 or substitute form provided by the
foreign person that owns the Note. If such interest is not portfolio interest,
then it will be subject to United States Federal income and withholding tax at a
rate of 30%, unless reduced or eliminated pursuant to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States Federal income and withholding tax; provided that (i) such 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.
Backup Withholding. Each holder of a Note (other than an exempt holder
such as a corporation, tax-exempt organization, qualified pension and
profit-sharing trust, individual retirement account or nonresident alien who
provides certification as to status as a nonresident) will be required to
provide, under penalties of perjury, a certificate containing the holder's name,
address, correct Federal taxpayer identification number and a statement that the
holder is not subject to backup withholding. Should a nonexempt Noteholder fail
to provide the required certification, the Trust will be required to withhold
31% of the amount otherwise payable to the holder, and remit the withheld amount
to the IRS as a credit against the holder's Federal income tax liability.
Possible Alternative Treatments of the Notes. If, contrary to the
opinion of Federal Tax Counsel, the IRS successfully asserted that one or more
of the Notes did not represent debt for Federal income tax purposes, the Notes
might be treated as equity interests in the Trust. If so treated, the Trust
might be taxable as a corporation with the adverse consequences described above
(and the taxable corporation would not be able to reduce its taxable income by
deductions for interest expense on Notes recharacterized as equity).
Alternatively, and most likely in the view of Federal Tax Counsel, the Trust
might be treated as a publicly traded partnership that would not be taxable as a
corporation because it would meet certain qualifying income tests. Nonetheless,
treatment of the Notes as equity interests in such a publicly traded partnership
could have adverse tax consequences to certain holders. For example, income to
foreign holders might be subject to U.S. tax and U.S. tax return filing and
withholding requirements, and individual holders might be subject to certain
limitations on their ability to deduct their share of Trust expenses.
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Tax Consequences to Holders of the Certificates
Treatment of the Trust as a Partnership. The Seller and the Servicer
will agree, and the Certificateholders will agree by their purchase of
Certificates, to treat the Trust as a partnership for purposes of Federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income, with the assets of the partnership being the assets held by the
Trust, the partners of the partnership being the Certificateholders (including
the Seller in its capacity as recipient of distributions from the Spread Account
and any other account specified in the related Prospectus Supplement in which
the Seller has an interest), and the Notes being debt of the partnership.
However, the proper characterization of the arrangement involving the Trust, the
Certificates, the Notes, the Seller and the Servicer is not clear because there
is no authority on transactions closely comparable to that contemplated herein.
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Seller or the Trust. Any such
characterization should not result in materially adverse tax consequences to
Certificateholders as compared to the consequences from treatment of the
Certificates as equity in a partnership, described below. The following
discussion assumes that the Certificates represent equity interests in a
partnership.
Indexed Securities, etc. The following discussion assumes that all
payments on the Certificates are denominated in U.S. dollars, none of the
Certificates are Indexed Securities or Strip Certificates and a series of
Securities includes a single class of Certificates. If these conditions are not
satisfied with respect to any given series of Certificates, additional tax
considerations with respect to such Certificates will be disclosed in the
applicable Prospectus Supplement.
Partnership Taxation. As a partnership, the Trust will not be subject
to Federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's accruals of guaranteed payments from
the Trust and its allocated share of other income, gains, losses, deductions and
credits of the Trust. The Trust's income will consist primarily of interest and
finance charges earned on the Receivables (including appropriate adjustments for
market discount, OID and premium) and any gain upon collection or disposition of
Receivables. The Trust's deductions will consist primarily of interest accruing
with respect to the Notes, guaranteed payments on the Certificates, servicing
and other fees, and losses or deductions upon collection or disposition of
Receivables.
Under the Trust Agreement, stated interest payments on the Certificates
(including interest on amounts previously due on the Certificates but not yet
distributed) will be treated as "guaranteed payments" under Section 707(c) of
the Code. Guaranteed payments are payments to partners for the use of their
capital and, in the present circumstances, are treated as deductible to the
Trust and ordinary income to the Certificateholders. The Trust will have a
calendar year tax year and will deduct the guaranteed payments under the accrual
method of accounting. Certificateholders with a calendar year tax year are
required to include the accruals of guaranteed payments in income in their
taxable year that corresponds to the year in which the Trust deducts the
payments, and Certificateholders with a different taxable year are required to
include the payments in income in their taxable year that includes the December
31 of the Trust year in which the Trust deducts the payments. It is possible
that guaranteed payments will not be treated as interest for all purposes of the
Code.
In addition, the Trust Agreement will provide, in general, that the
Certificateholders will be allocated taxable income of the Trust for each
Collection Period equal to the sum of (i) any Trust income attributable to
discount on the Receivables that corresponds to any excess of the principal
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amount of the Certificates over their initial issue price; (ii) prepayment
premium, if any, payable to the Certificateholders for such month and (iii) any
other amounts of income payable to the Certificateholders for such month. Such
allocation will be reduced by any amortization by the Trust of premium on
Receivables that corresponds to any excess of the issue price of Certificates
over their principal amount. All remaining items of income, gain, loss and
deduction of the Trust will be allocated to the Seller.
Based on the economic arrangement of the parties, this approach for
accruing guaranteed payments and allocating Trust income should be permissible
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 subject to tax on income equal to the entire amount of
stated interest payments on the Certificates plus the other items described
above even though the Trust might not have sufficient cash to make current cash
distributions of such amount. Thus, cash basis holders will in effect be
required to report income from the Certificates on the accrual basis and
Certificateholders may become liable for taxes on Trust income even if they have
not received cash from the Trust to pay such taxes. In addition, because tax
allocations and tax reporting will be done on a uniform basis for all
Certificateholders but Certificateholders may be purchasing 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 Trust.
Most of the guaranteed payments and 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
constitute "unrelated debt-financed income" generally taxable to such a holder
under the Code.
An individual taxpayer's share of expenses of the Trust (including fees
to the Servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or in
part 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
the Trust. It is not clear whether these rules would be applicable to a
Certificateholder accruing guaranteed payments.
The Trust 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, the Trust
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. The purchase price paid by the 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 discount, as the case may be. (As indicated above, the
Trust will make this calculation on an aggregate basis, but might be required to
recompute it on a Receivable-by-Receivable basis.)
If the Trust acquires the Receivables at a market discount or premium,
the Trust will elect to include any such discount in income currently as it
accrues over the life of the Receivables or to offset any such premium against
interest income on the Receivables. As indicated above, a portion of such market
discount income or premium deduction may be allocated to Certificateholders.
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Section 708 Termination. Under Section 708 of the Code, the Trust will
be deemed to terminate for Federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, the Trust will be considered to
distribute its assets to the partners, who would then be treated as
recontributing those assets to the Trust, as a new partnership. The Trust will
not comply with certain technical requirements that might apply when such a
constructive termination occurs. As a result, the Trust may be subject to
certain tax penalties and may incur additional expenses if it is required to
comply with those requirements. Furthermore, the Trust 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 of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
holder's cost increased by the holder's share of Trust income and accruals of
guaranteed payments (includible in income) and decreased by any distributions
received with respect to such Certificate. In addition, both the tax basis in
the Certificates and the amount realized on a sale of a Certificate would
include the holder's share of the Notes and other liabilities of the Trust. A
holder acquiring Certificates at different prices may be required to maintain a
single aggregate adjusted tax basis in such Certificates, and, upon sale or
other disposition of some of the Certificates, allocate a pro rata portion of
such aggregate tax basis to the Certificates sold (rather than maintaining a
separate tax basis in each Certificate for purposes of computing gain or loss on
a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's
share of unrecognized accrued market discount on the Receivables would generally
be treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The Trust does not expect to have any other assets that
would give rise to such special reporting requirements. Thus, to avoid those
special reporting requirements, the Trust 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 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 Certificates.
Allocations Between Transferors and Transferees. In general, the
Trust's taxable income and losses will be determined monthly and the tax items
and accruals of guaranteed payments for a particular calendar month will be
apportioned among the Certificateholders in proportion to the principal amount
of Certificates owned by them as of the close of the last day of such month. As
a result, a holder purchasing Certificates may be allocated tax items and
accruals of guaranteed payments (which will affect its tax liability and tax
basis) attributable to periods before the actual transaction.
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
and accruals of guaranteed payments of the Trust might be reallocated among the
Certificateholders. The Company is authorized to revise the Trust'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
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder had.
The tax basis of the Trust's assets will not be adjusted to reflect that
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higher (or lower) basis unless the Trust 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, the Trust will not make such election. As a
result, Certificateholders might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
Administrative Matters. The Trustee is required to keep or have kept
complete and accurate books of the Trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust will be the calendar year. The Trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
Trust and will report each Certificateholder's accruals of guaranteed payments
and allocable share of items of Trust income and expense to holders and the IRS
on Schedule K-1. The Trust will provide the Schedule K-1 information to nominees
that fail to provide the Trust with the information statement described below
and such nominees will be required to forward such information to the beneficial
owners of the Certificates. Generally, holders must file tax returns that are
consistent with the information return filed by the Trust or be subject to
penalties unless the holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing certain information on the nominee, the beneficial owners
and the 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 either of the foregoing and (z) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Trust information as
to themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any such
information statement to the Trust. The information referred to above for any
calendar year must be furnished to the Trust on or before the following January
31. Nominees, brokers and financial institutions that fail to provide the Trust
with the information described above may be subject to penalties.
The Seller will be designated as the tax matters partner in the Trust
Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Trust 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 Trust. An adjustment could
also result in an audit of a Certificateholder's returns and adjustments of
items not related to the income and losses of the Trust.
Tax Consequences to Foreign Certificateholders. It is not clear whether
the Trust 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 dealing with that issue under facts
substantially similar to those described herein. Although it is not expected
that
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the Trust would be engaged in a trade or business in the United States for such
purposes, the Trust will withhold as if it were so engaged in order to protect
the Trust from possible adverse consequences of a failure to withhold. The Trust
expects to withhold on the portion of its taxable income that is allocable to
foreign Certificateholders pursuant to Section 1446 of the Code, 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 the issuance of
other administrative pronouncements may require the Trust to change its
withholding procedures. In determining a holder's nonforeign status, the Trust
may rely on IRS Form W-8, IRS Form W-9 or the holder's certification of
nonforeign status signed under penalties of perjury.
Each foreign holder might be required to file a U.S. individual or
corporate income tax return and pay U.S. income tax on the amount computed
therein (including, in the case of a corporation, the branch profits tax) on its
share of accruals of guaranteed payments and the Trust's income. Each foreign
holder must obtain a taxpayer identification number from the IRS and submit that
number to the Trust 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 Trust, taking the
position that no taxes were due because the Trust was not engaged in a U.S.
trade or business. However, the IRS may assert that additional taxes are due,
and no assurance can be given as to the appropriate amount of tax liability.
Backup Withholding. Distributions made on the Certificates and
proceeds from the sale of the Certificates will be subject to a "backup"
withholding tax of 31% if, in general, the Certificateholder fails to comply
with certain identification procedures, unless the holder is an exempt recipient
under applicable provisions of the Code. See "Tax Consequences to Holders of the
Notes--Backup Withholding."
ERISA CONSIDERATIONS
The Prospectus Supplement for each Series of Securities will summarize,
subject to the limitations discussed therein, considerations under ERISA
relevant to the purchase of such Securities by employee benefit plans and
individual retirement accounts.
PLAN OF DISTRIBUTION
CPS may sell Securities (i) through underwriters or dealers: (ii)
directly to one or more purchasers: or (iii) through agents. The related
Prospectus Supplement in respect of a Series offered hereby will set forth the
terms of the offering of such Securities, including the name or names of any
underwriters, the purchase price of such Securities and the proceeds to CPS from
such sale, any underwriting discounts and other items constituting underwriters'
compensation, any initial offering price and any discounts or concessions
allowed or reallowed or paid to dealers. Only underwriters so named in such
Prospectus Supplement shall be deemed to be underwriters in connection with the
Securities offered thereby.
Subject to the terms and conditions set forth in an underwriting
agreement (an "Underwriting Agreement") to be entered into with respect to each
Series of Securities, CPS 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 CPS, the principal amount of Securities
set forth
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<PAGE>
therein and in the related Prospectus Supplement (subject to proportional
adjustment on the terms and conditions set forth in the related Underwriting
Agreement in the event of an increase or decrease in the aggregate amount of
Securities offered hereby and by 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 offered hereby and by the related Prospectus Supplement if any of
such Securities are purchased. In the event of a default by any 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 Underwriting Agreement will provide that CPS will indemnify the
related underwriters and, in certain limited circumstances, the underwriters
will indemnify CPS against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
The place and time of delivery for any Series of Securities in respect
of which this Prospectus is delivered will be set forth in the accompanying
Prospectus Supplement.
LEGAL OPINIONS
Certain legal matters relating to the issuance of the Securities of any
Series, including certain federal and state income tax consequences with respect
thereto, will be passed upon by Mayer, Brown & Platt, New York, New York, or
other counsel specified in the related Prospectus Supplement.
FINANCIAL INFORMATION
Certain specified Trust Assets will secure each Series of Securities,
no Trust will engage in any business activities or have any assets or
obligations prior to the issuance of the related Series of Securities, except
for serial issuances by a Master Trust. Accordingly, no financial statements
with respect to any Trust Assets will be included in this Prospectus or in the
related Prospectus Supplement.
A Prospectus Supplement may contain the financial statements of the
related Credit Enhancer, if any.
ADDITIONAL INFORMATION
This Prospectus, together with the Prospectus Supplement for each
Series of Securities, contains a summary of the material terms of the applicable
exhibits to the Registration Statement and the documents referred to herein and
therein. Copies of such exhibits are on file at the offices of the Securities
and Exchange Commission in Washington, D.C., and may be obtained at rates
prescribed by the Commission upon request to the Commission and may be
inspected, without charge, at the Commission's offices.
-58-
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the Seller
or the Underwriters. This Prospectus Supplement and the Prospectus do not
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction. Neither the delivery of this
Prospectus Supplement or the Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that the information herein is correct
as of any time subsequent to the date hereof or that there has been no change in
the affairs of the Trust or the Receivables since such date.
-59-
<PAGE>
UNTIL (90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT), ALL
DEALERS EFFECTING TRANSACTIONS IN THE CERTIFICATES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
$[ ]
CPS AUTO RECEIVABLES TRUST 1997-2
[ ]% ASSET-BACKED CERTIFICATES, CLASS A
CPS RECEIVABLES CORP.
(SELLER)
CONSUMER PORTFOLIO SERVICES, INC.
(SERVICER)
PROSPECTUS SUPPLEMENT
ALEX. BROWN & SONS
INCORPORATED
BLACK DIAMOND SECURITIES, LLC
May [ ], 1997
-60-
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Prospectus Supplement.....................................................2
Available Information.....................................................2
Incorporation of Certain Documents by Reference...........................2
Reports to Securityholders................................................3
Summary of Terms..........................................................4
Risk Factors.............................................................16
The Issuers..............................................................23
The Trust Assets.........................................................24
Acquisition of Receivables by the Seller.................................25
The Receivables..........................................................25
CPS's Automobile Contract Portfolio......................................28
Pool Factors.............................................................29
Use of Proceeds..........................................................29
The Seller and CPS.......................................................29
The Trustee..............................................................30
Description of the Securities............................................31
Description of the Trust Documents.......................................39
Certain Legal Aspects of the Receivables.................................48
Certain Tax Considerations...............................................52
Erisa Considerations.....................................................60
Plan of Distribution.....................................................60
Legal Opinions...........................................................61
Financial Information....................................................61
Additional Information...................................................61
Index of Terms............................................................i
-i-
<PAGE>
INDEX OF TERMS
--------------
Accrual Securities.........................................................8
Actuarial Receivables.....................................................27
Affiliate Purchase Agreement..............................................25
Affiliated Originator.................................................12, 28
APR ........................................................26
Buyer's Guide ........................................................51
cash sale differential....................................................51
Cede ........................................................12
CEDEL Participants....................................................35, 36
Certificateholders........................................................43
Certificates ......................................................1, 5
chattel paper ........................................................20
Class .........................................................1
clearing agency ........................................................35
clearing corporation......................................................35
Closing Date ....................................................11, 39
Collection Account........................................................39
Collection Period .........................................................6
Commission .........................................................2
Commodity Indexed Securities..............................................34
Contracts .....................................................1, 28
Cooperative ........................................................37
CPS .........................................................4
Credit Enhancement........................................................22
Credit Enhancer ........................................................22
Currency Indexed Securities...............................................34
Cutoff Date ........................................................11
Dealer Agreements ........................................................24
Dealers ........................................................24
Debt Securities ........................................................14
Definitive Securities.....................................................38
Depositaries ........................................................35
Direct Participants.......................................................21
Distribution Account......................................................39
DTC ........................................................12
Eligible Deposit Account..................................................40
Eligible Institution......................................................40
Eligible Investments......................................................40
ERISA ........................................................14
Euroclear Operator........................................................37
Euroclear Participants....................................................37
Event of Default ........................................................38
Exchange Act .....................................................2, 14
Face Amount ........................................................35
Federal Tax Counsel.......................................................52
Finance Subsidiary.........................................................4
Financed Vehicles .....................................................1, 11
FTC Rule ........................................................51
-i-
<PAGE>
INDEX OF TERMS (cont.)
----------------------
Funding Period ........................................................11
Holder-in-Due-Course......................................................51
IFC's ........................................................28
Indenture .........................................................5
Indenture Trustee .........................................................5
Index ........................................................34
Indexed Commodity ........................................................34
Indexed Currency ........................................................34
Indexed Principal Amount..................................................34
Indexed Securities........................................................34
Indirect Participants.................................................21, 35
Initial Receivables.......................................................12
Insolvency Event ........................................................45
Insolvency Laws ........................................................19
Interest Rate ......................................................2, 8
investment company.........................................................9
Investment Company Act.....................................................9
Investment Earnings.......................................................40
Investment Income ........................................................12
Issuer ..................................................1, 4, 23
Lock-Box Account ........................................................42
Lock-Box Processor........................................................41
Master Trust ........................................................10
Master Trust Agreement....................................................10
Master Trust New Issuance.................................................33
national statistical rating organizations.................................14
Noteholders ........................................................43
Notes ......................................................1, 5
Obligors ........................................................24
Participants ........................................................35
Partnership Interests.....................................................14
Payment Date .........................................................6
Policy .........................................................1
Pool Balance ........................................................29
Pool Factor ........................................................29
Post Office Box ........................................................42
Pre-Funded Amount ........................................................11
Pre-Funding Account.......................................................11
prepayment ........................................................22
Prospectus Supplement......................................................1
Purchase Agreement........................................................25
Purchase Amount ........................................................25
Rating Agencies ........................................................14
Ratings Effect ....................................................21, 34
Receivables .....................................................1, 11
Receivables Pool ........................................................24
-ii-
<PAGE>
INDEX OF TERMS (cont.)
----------------------
Record Date .........................................................6
Registration Statement.....................................................2
Relief Act ........................................................22
Residual Interest .........................................................9
Rule of 78's ........................................................26
Rule of 78's Receivables..................................................26
Rules ........................................................36
Sale and Servicing Agreement..............................................25
Securities .........................................................1
Securities Act .........................................................2
Security Balance .........................................................8
Securityholder .....................................................6, 36
Securityholders .........................................................6
Seller .........................................................4
Senior Securities .........................................................8
Series .....................................................1, 31
Servicer ......................................................1, 4
Servicer Default ........................................................45
Servicing Agreement........................................................5
Servicing Fee ........................................................42
Simple Interest Receivables...............................................27
Sponsor .........................................................4
Standby Servicer ........................................................41
Stock Index ........................................................34
Stock Indexed Securities..................................................34
Strip Securities .........................................................8
sub-prime ........................................................17
Sub-Prime Borrowers.......................................................28
Subordinate Securities.....................................................8
Subsequent Receivables....................................................11
Subsequent Transfer Date..................................................16
Subservicer .........................................................4
sum of monthly payments...................................................26
sum of periodic balances..................................................26
Terms and Conditions......................................................37
The Receivables Pool......................................................17
Trust ......................................................1, 4
Trust Accounts ........................................................40
Trust Agreement .........................................................4
Trust Assets ......................................................1, 5
Trust Documents .....................................................5, 39
Trustee .........................................................5
Underwriting Agreement....................................................52
-iii-
<PAGE>
Registration No. [ ]
Form of Prospectus Supplement
To Prospectus Dated [ ], 1997
[$ ]
CPS Auto Receivables Trust 199[ ]-[ ]
[$ ][ %] Asset-Backed Notes, Class A-1
[$ ][ %] Asset-Backed Notes, Class A-2
[$ ] Floating Rate Asset-Backed Notes, Class A-3
[$ ][ %] Asset-Backed Certificates
CPS Receivables Corp.
(Seller)
Consumer Portfolio Services, Inc.
(Servicer)
-------
CPS Auto Receivables Trust 199[ ]-[ ] (the "Trust") will be formed
pursuant to a Trust Agreement to be dated as of [ ] between CPS Receivables
Corp., as seller (the "Seller"), and [ ], as owner trustee (the "Owner
Trustee"). The [ %] Asset Backed Notes, Class A-1 (the "Class A-1 Notes"), the [
%] Asset-Backed Notes, Class A-2 (the "Class A-2 Notes") and the Floating Rate
Asset-Backed Notes, Class A-3 (the "Class A-3 Notes", and, together with the
Class A-1 Notes and Class A-2 Notes, the "Notes"), will be issued pursuant to an
Indenture (the "Indenture") to be dated as of [ ] between the Trust and [ ], as
indenture trustee (in such capacity, the "Indenture Trustee"). The Trust also
will issue [$ ] aggregate principal amount of [ %] Asset Backed Certificates
[which are not offered hereby but will initially be retained by the Seller](the
"Certificates" and, together with the Notes, the "Securities").
-------
The Trust Assets will include a pool of retail installment sale
contracts and all rights thereunder, certain monies due or received thereunder,
security interests in the new and used automobiles, light trucks, vans and
minivans securing the Receivables (as defined herein), certain bank accounts and
the proceeds thereof, the [Credit Enhancement] with respect to the Notes, and
the right of CPS to receive certain insurance proceeds and certain other
property, as more fully described herein. The Receivables will be purchased by
the Seller from CPS and from CPS's subsidiary, [Affiliated Originator] on or
prior to the date of the issuance of the Securities.
[It is intended that from time to time on or before [ ] the Trust will
purchase from the Seller (or an Affiliated Originator) additional retail
installment sale contracts having an aggregate principal balance of up to $[ ]
with funds on deposit in the Pre-Funding Account (as defined herein).]
The Underwriter has agreed to purchase from the Seller the Notes at a
purchase price equal to [ %] of the principal amount thereof, subject to the
terms and conditions set forth in the Underwriting Agreement referred to herein
under "Underwriting". The aggregate proceeds to the Seller, after deducting
expenses payable by the Seller, estimated at [$ ] will be [$ ].
-------
The Underwriter proposes to offer the Notes from time to time in
negotiated transactions or otherwise, at varying prices to
be determined at the time of sale. For further information with respect to the
plan of distribution and any discounts, commissions or profits that may be
deemed underwriting discounts or commissions, see "Underwriting" herein.
-------
[Credit Enhancement] with respect to the Notes ["Credit Enhancement"])
will be provided by [Credit Enhancer] on each Payment Date.
-------
For a discussion of certain factors relating to the transaction, see
"Risk Factors" at page S-[ ] herein and page [ ] in the accompanying prospectus.
-------
THE NOTES REPRESENT OBLIGATIONS OF AND THE CERTIFICATES REPRESENT INTERESTS IN,
THE TRUST ONLY AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE SELLER,
THE SERVICER OR ANY AFFILIATE THEREOF. THE 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
SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
[UNDERWRITER]
The date of this Prospectus
Supplement is [ ].
1
<PAGE>
AVAILABLE INFORMATION
CPS 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
Notes offered pursuant to this Prospectus Supplement. 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
office at 500 West Madison, 14th Floor, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, 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 web site at http://www.sec.gov containing reports,
proxy statements, information statements and other information regarding
registrants, including CPS, that file electronically with the Commission. The
Servicer, on behalf of the Trust, will also file or cause to be filed with the
Commission such periodic reports as may be required under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations of the Commission thereunder. Upon the receipt of a request by an
investor who has received an electronic Prospectus Supplement and Prospectus
from the Underwriters (as defined herein) or a request by such investor's
representative within the period during which there is an obligation to deliver
a Prospectus Supplement and Prospectus, CPS, the Seller or the Underwriters will
promptly deliver, or cause to be delivered, without charge, a paper copy of the
Prospectus Supplement and Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by CPS with the Registration
Statement, either on its own behalf or on behalf of the Trust, relating to the
Notes, with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act, after the date of this Prospectus Supplement and prior to the
termination of the offering of the Notes offered hereby, shall be deemed to be
incorporated by reference in this Prospectus Supplement and to be a part of this
Prospectus Supplement from the date of the filing of such documents. Any
statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus Supplement to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein, modifies or replaces such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
CPS will provide without charge to each person to whom this Prospectus
Supplement is delivered, on the written or oral request of such person, a copy
of any or all of the documents referred to above that have been or may be
incorporated by reference in this Prospectus Supplement (not including exhibits
to the information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
Supplement incorporates). Written requests for such copies should be directed
to: Consumer Portfolio Services, Inc., 2 Ada, Suite 100, Irvine, California
92718, Attention: Jeffrey P. Fritz. Telephone requests for such copies should be
directed to Consumer Portfolio Services, Inc. at (714) 753-6800.
REPORTS TO SECURITYHOLDERS
Unless and until Definitive Securities are issued, periodic reports
containing information concerning the Receivables will be prepared by the
Servicer and sent on behalf of the Trust only to Cede & Co., as nominee of The
Depository Trust Company ("DTC") and registered holder of the Securities. Such
reports will not constitute financial statements prepared in accordance with
generally accepted
2
<PAGE>
accounting principles. The Servicer will file with the Commission such periodic
reports as are required under the Exchange Act, and the rules and regulations
thereunder and as are otherwise agreed to by the Commission. Copies of such
periodic reports may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
3
<PAGE>
SUMMARY
This Summary is qualified in its entirety by reference to the more
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms used herein are defined
elsewhere in this Prospectus Supplement on the pages indicated in the "Index of
Terms" or, to the extent not defined herein, have the meaning assigned to such
terms in the Prospectus.
Issuer........................CPS Auto Receivables Trust 199[ ]-[ ] (the "Trust"
or the "Issuer").
Seller........................CPS Receivables Corp. (the "Seller"). See "The
Seller and CPS" in this Prospectus Supplement.
Servicer......................Consumer Portfolio Services, Inc. ("CPS" or, in
its capacity as the servicer, the "Servicer"). See
"CPS's Automobile Contract Portfolio" and "The
Seller and CPS" in this Prospectus Supplement.
Indenture Trustee.............[Name and Address]
Owner Trustee.................[Name and Address]
[Credit Enhancer].............[Name and Address]
Closing Date..................On or about [ ] (the "Closing Date").
The Trust.....................The Trust will be a business trust established
under the laws of the State of Delaware. The
activities of the Trust are limited by the terms
of the Trust Agreement dated as of [ ] between the
Seller and the Owner Trustee (the "Trust
Agreement").
The Notes.....................The Trust will issue [ ]% Class A-1 Asset-Backed
Notes (the "Class A-1 Notes") in the aggregate
original principal amount of $[ ], [ ]% Class A-2
Asset-Backed Notes (the "Class A-2 Notes") in the
original aggregate principal amount of $[ ] and
Floating Rate Asset-Backed Notes (the "Class A-3
Notes") in the original aggregate principal amount
of $[ ]. The Trust will also issue the
Certificates. The Notes and the Certificates are
referred to herein collectively as the
"Securities". The Notes will be issued pursuant to
an Indenture dated as of [ ], 1997 (the
"Indenture"). The Notes will be offered for
purchase in minimum denominations of [$ ] and
integral multiples of $1,000 in excess thereof, in
book entry form only. See "Description of the
Securities-Book Entry Registration" in the
Prospectus.
The Notes will be secured by the Trust Assets as,
and to the extent, provided in the Indenture.
The Certificates..............The Trust will issue [ %] Asset-Backed
Certificates (the "Certificates") with an
aggregate initial Certificate Balance (as defined
herein) of [$ ]. The Certificates will represent
fractional undivided interests in the Trust. The
Certificates will be issued pursuant to the Trust
Agreement. The Certificates will be offered
4
<PAGE>
for purchase in denominations of $1,000 and
integral multiples thereof in book-entry form
only. See "Certain Information Regarding the Notes
[and the Certificates]-Book Entry Registration"
and "-Definitive Notes" in the Prospectus.
Trust Assets..................The property of the Trust (the "Trust Assets")
will include (i) a pool of retail installment sale
contracts (collectively, the "Receivables")
secured by the new and used automobiles, light
trucks, vans and minivans financed thereby (the
"Financed Vehicles"), (ii) with respect to
Receivables that are Rule of 78's Receivables, all
payments due thereon after [ ] (the "Cutoff
Date"), and, with respect to Receivables that are
Simple Interest Receivables, all payments received
thereunder after the Cutoff Date, (iii) security
interests in the Financed Vehicles, (iv) certain
bank accounts and the proceeds thereof, (v) the
right of the Seller to receive proceeds from
claims under, or refunds of unearned premiums
from, certain insurance policies and extended
service contracts, (vi) all right, title and
interest of the Seller in and to the Purchase
Agreement, (vii) the [Credit Enhancement] issued
by the [Credit Enhancer] with respect to the
Notes, and (viii) certain other property, as more
fully described herein. See "Formation of the
Trust" in this Prospectus Supplement and "The
Trust Assets" in the Prospectus. Certain of the
Receivables will be purchased by the Seller from
CPS pursuant to the Purchase Agreement (such
Receivables, the "CPS Receivables") [and certain
of the Receivables will be purchased by the Seller
from CPS's subsidiary, [Affiliated Originator],
pursuant to the [Affiliate Purchase Agreement]
(such Receivables, the "[Affiliated Originator]
Receivables")] on or prior to the Closing Date [or
each Subsequent Closing Date (as defined herein)].
The Receivables arise from loans originated by
automobile dealers or IFCs (as defined herein) for
assignment to CPS or a subsidiary of CPS pursuant
to CPS's auto loan programs.
The Receivables...............As of the Cutoff Date, the aggregate outstanding
principal balance of the Receivables was [$ ] (the
"Original Pool Balance"). The Receivables consist
of retail installment sale contracts secured by
new and used automobiles, light trucks, vans and
minivans including, with respect to Rule of 78's
Receivables, the rights to all payments due with
respect to such Receivables after the Cutoff Date,
and, with respect to Simple Interest Receivables,
the rights to all payments received with respect
to such Receivables after the Cutoff Date. As of
the Cutoff Date, approximately [ %] of the
aggregate principal balance of the Receivables
represented financing of used vehicles. The
Receivables arise from loans originated by
automobile dealers or independent finance
companies ("IFCs") for assignment to CPS or a
subsidiary of CPS pursuant to CPS's auto loan
programs. The auto loan programs target automobile
purchasers with marginal credit ratings who are
generally unable to obtain credit from banks or
other low-risk lenders. See "CPS's Automobile
Contract Portfolio-General" in this Prospectus
Supplement and "Risk Factors-Nature of Obligors"
in the Prospectus. The Receivables
5
<PAGE>
have been selected from the contracts owned by CPS
based on the criteria specified in the Purchase
Agreement and described herein.
[Following the Closing Date, pursuant to the Sale
and Servicing Agreement, the Seller will be
obligated, subject only to the availability
thereof, to sell, and the Trust will be obligated
to purchase, subject to the satisfaction of
certain conditions set forth therein, additional
Receivables originated by CPS [or an Affiliated
Originator] under its auto loan programs and
acquired by the Seller from CPS [or an Affiliated
Originator] (the "Subsequent Receivables") from
time to time during the Funding Period (as defined
below) having an aggregate Principal Balance equal
to approximately $[ ]. Subsequent Receivables will
be conveyed to the Trust on dates specified by the
Seller (each date on which Subsequent Receivables
are conveyed being referred to as a "Subsequent
Closing Date") occurring during the Funding
Period. After any Subsequent Closing Date, the
Trust Assets will include payments [other than
Credit Enhancement] received with respect to the
related Subsequent Receivables after the cutoff
date designated by the Seller with respect to such
Subsequent Closing Date (such date designated by
the Seller, the "Subsequent Cutoff Date" with
respect to the Subsequent Receivables conveyed to
the Trust on such Subsequent Closing Date). See
"Description of the Trust Documents -- Sale and
Assignment of Receivables; Subsequent Receivables"
herein. On each Subsequent Closing Date, subject
to the conditions set forth in the Trust
Documents, the Trustee shall purchase from the
Seller (or an Affiliated Originator) the
Subsequent Receivables to be transferred to the
Trust on such Subsequent Closing Date.]
Pre-Funding Account...........[The Initial Receivables and the Subsequent
Receivables will be selected from motor vehicle
retail installment sale contracts in CPS's
portfolio based on the criteria specified in the
Purchase Agreement and described in this
Prospectus Supplement. No Receivable will have a
scheduled maturity date later than [ ].
Subsequent Receivables will be originated under
CPS's auto loan programs [or through an Affiliated
Originator] but, as these programs are modified
from time to time by CPS due to changes in market
conditions or otherwise in the judgment of CPS,
such Subsequent Receivables may be originated
using credit criteria different from the criteria
applied with respect to the Initial Receivables
and may be of a different credit quality and
seasoning. However, CPS believes that the
inclusion of the Subsequent Receivables in the
pool of Receivables will not materially adversely
affect the performance or other characteristics of
the pool of Receivables. In addition, following
the transfer of Subsequent Receivables to the
Trust, the characteristics of the entire pool of
Receivables included in the Trust may vary from
those of the Initial Receivables. See "Risk
Factors -- The Receivables and the Pre-Funding
Account" and "The Receivables Pool" herein.
6
<PAGE>
On the Closing Date, the Seller will deposit into
the Pre-Funding Account (as defined below), from
the proceeds from the sale of the Securities, the
sum of $[ ] (such amount, as reduced from time to
time by the aggregate Principal Balances of all
Subsequent Receivables purchased by the Trust
during the Funding Period (the "Pre-Funded
Amount"). During the period (the "Funding Period")
from and including the Closing Date until the
earliest of (i) the Record Date on which (a) the
Pre-Funded Amount is less than $100,000, (b) an
Event of Default has occurred under the Indenture
or a Servicer Termination Event has occurred under
the Sale and Servicing Agreement, (c) certain
events of insolvency have occurred with respect to
the Seller or the Servicer or (ii) the close of
business on the [ ] Payment Date, the Pre-Funded
Amount will be maintained as an account in the
name of the Indenture Trustee (the "Pre-Funding
Account"). The Pre-Funded Amount is expected to
initially equal approximately $[ ] and, during the
Funding Period will be reduced by the principal
balance of Subsequent Receivables purchased by the
Trust from time to time in accordance with the
Sale and Servicing Agreement. The Seller expects
that the Pre-Funded Amount will be reduced to less
than $100,000 by the [ ] Payment Date. Any
Pre-Funded Amount remaining at the end of the
Funding Period will be payable to the Noteholders
and Certificateholders pro rata in proportion to
the respective principal balances of each class of
Notes and the Certificate Balance.]
Interest Reserve Account......[During the Funding Period, funds will be held in
an account (the "Interest Reserve Account") to
cover any shortfalls due to investment earnings on
funds in the Pre-Funding Account being less than
the interest due on the Notes and the
Certificates. See "Description of the Trust
Documents -- Accounts"].
Terms of the Notes............The principal terms of the Notes will be as
described below:
A. Payment Dates.............Payments of interest and principal on the Notes
will be made on the 15th day of each month or, if
such 15th day is not a Business Day, on the next
following Business Day (each a "Payment Date"),
commencing [ ]. Payments will be made to holders
of record of the Notes (the "Noteholders") as of
the close of business on the Record Date
applicable to such Payment Date. A "Business Day"
is a day other than a Saturday, a Sunday or a day
on which banking institutions in the City of New
York, New York, the State in which the Corporate
Trust Office is located, the State in which the
executive offices of the Servicer are located or
the State in which the principal place of business
of the [Credit Enhancer] is located are authorized
or obligated by law, executive order or
governmental decree to be closed.
B. Final Scheduled
Payment Dates........[ ].
C. Interest Rates...........The Class A-1 Notes will bear interest at a rate
equal to [ %] per annum (the "Class A-1 Interest
Rate"). The Class A-2 Notes will
7
<PAGE>
bear interest at a rate equal to [ %] per annum
(the "Class A-2 Interest Rate"). The Class A-3
Notes will bear interest at a rate equal to [one
month] [two month] [three month] [six-month] LIBOR
[other] plus [ %] (the "Class A-3 Interest Rate").
[See "Description of the Notes -- Determination of
LIBOR" in this Prospectus Supplement.] [Additional
classes of Notes may be added.] Each such interest
rate for a Class of Notes is referred to as an
"Interest Rate". Interest on the Notes, [other
than the Class A-1 Notes,] will be calculated on
the basis of a 360 day year consisting of twelve
30 day months. [Interest on the Class A-1 Notes
will be calculated on the basis of the actual
number of days in a 365-day year.]
D. Interest.................[On each Payment Date, the holders of record of
the Class A-1 (the "Class A-1 Noteholders")] will
be entitled to receive, pro rata, interest at the
Class A-1 Interest Rate for the number of days
elapsed from and including the most recent Payment
Date (or in the case of the initial Payment Date,
from and including the Closing Date) to but
excluding the current Payment Date, on the
outstanding principal amount of the Class A-1
Notes at the close of business on the last day of
the related Collection Period.] On each Payment
Date, the holders of record of the Class A-2 Notes
(the "Class A-2 Noteholders") as of the related
Record Date will be entitled to receive, pro rata,
thirty (30) days of interest at the Class A-2
Interest Rate on the outstanding principal amount
of the Class A-2 Notes at the close of business on
the last day of the related Collection Period. On
each Payment Date, the holders of record of the
Class A-3 Notes (the "Class A-3 Noteholders") as
of the related Record Date will be entitled to
receive, pro rata, thirty (30) days of interest at
the Class A-3 Interest Rate on the outstanding
principal amount of the Class A-3 Notes at the
close of business on the last day of the related
Collection Period. [Additional classes of Notes
may be added]. Notwithstanding the foregoing, on
the first Payment Date, the interest payable to
the Noteholders of record of each Class of Notes
will be an amount equal to the product of (a) the
Interest Rate applicable to such Class of Notes,
(b) the initial principal amount of such Class of
Notes and (c) a fraction (i) the numerator of
which is the number of days from and including the
Closing Date through and including [ ] 14, 199[ ]
and (ii) the denominator of which is 360. Interest
on the Notes which is due but not paid on any
Payment Date will be payable on the next Payment
Date together with, to the extent permitted by
law, interest on such unpaid amount at the
applicable Interest Rate. See "Description of the
Notes--Payments of Interest" in this Prospectus
Supplement.
E. Principal..................Principal of the Notes will be payable on each
Payment Date in an amount equal to the
Noteholders' Principal Distributable Amount for
the related Collection Period. The "Noteholders'
Principal Distributable Amount" is equal to the
product of (a) the Noteholders' Percentage of the
Principal Distributable Amount and (b) any unpaid
portion of the amount described in clause (a) with
respect to a prior Payment Date.
8
<PAGE>
The "Noteholders' Percentage" will be [ %] until
the Notes have been paid in full and, thereafter,
will be zero. Principal payments on the Notes will
be applied on each Payment Date, sequentially, to
pay principal of the Class A-1 Notes until the
principal balance of the Class A-1 Notes has been
reduced to zero, then to the holders of the Class
A-2 Notes until the principal balance of the Class
A-2 Notes has been reduced to zero, then to the
holders of the Class A-3 Notes until the principal
balance of the Class A-3 Notes has been reduced to
zero [additional classes of Notes may be added].
The "Principal Distributable Amount" for a Payment
Date shall equal the sum of (a) the principal
portion of all Scheduled Receivable Payments
received during the preceding Collection Period on
Rule of 78's Receivables and all payments of
principal received on Simple Interest Receivables
during the preceding Collection Period; (b) the
principal portion of all prepayments (without
duplication of amounts included in (a) above and
(d) below); (c) the portion of the Purchase Amount
allocable to principal of each Receivable that was
repurchased by CPS or purchased by the Servicer as
of the last day of the related Collection Period
(without duplication of the amounts referred to in
(a) and (b) above); (d) the Principal Balance of
each Receivable that first became a Liquidated
Receivable during the preceding Collection Period
(without duplication of the amounts included in
(a) and (b) above); and (e) the aggregate amount
of Cram Down Losses that shall have occurred
during the preceding Collection Period (without
duplication of amounts included in (a) through (d)
above). In addition, the outstanding principal
amount of the Notes of any Class, to the extent
not previously paid, will be payable on the
respective Final Scheduled Payment Date for such
Class.
A "Collection Period" with respect to a Payment
Date will be the calendar month preceding the
month in which such Payment Date occurs; provided,
however, that with respect to the first Payment
Date, the "Collection Period" will be the period
from and excluding the Cutoff Date to and
including [ ].
F. Optional Redemption........The Notes, to the extent still outstanding, may be
redeemed in whole, but not in part, on any Payment
Date on which the Servicer exercises its option to
purchase all the Receivables as of the last day of
any Collection Period on or after which the
aggregate Principal Balance of the Receivables is
equal to 10% or less of the Original Pool Balance,
at a redemption price equal to the unpaid
principal amount of the Notes, plus accrued and
unpaid interest thereon; provided that the
Servicer's right to exercise such option will be
subject to the prior approval of the [Credit
Enhancer], but only if, after giving effect
thereto, a claim on the [Credit Enhancement] would
occur or any amount owing to the [Credit Enhancer]
or the holders of the Notes would remain unpaid.
See "Description of the Notes-Optional Redemption"
in this Prospectus Supplement.
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<PAGE>
G. Mandatory Redemption.......[Each class of Notes will be redeemed in part on
the Payment Date on or immediately following the
last day of the Funding Period in the event that
any portion of the Pre-Funded Amount remains on
deposit in the Pre-Funding Account after giving
effect to the purchase of all Subsequent
Receivables, including any such purchase on such
date (a "Mandatory Redemption"). The aggregate
principal amount of each class of Notes to be
redeemed will be an amount equal to such class's
pro rata share (based on the respective current
principal balance of each class of Notes and the
Certificate Balance) of the Pre-Funded Amount on
such date (such class's "Note Prepayment Amount").
A limited recourse mandatory prepayment premium
(the "Note Prepayment Premium") will be payable by
the Trust to the Noteholders if the Pre-Funded
Amount at the end of the Funding Period exceeds
$100,000. The Note Prepayment Premium for each
class of Notes will equal the excess, if any,
discounted as described below, of (i) the amount
of interest that would have accrued on such
class's Note Prepayment Amount at the applicable
Interest Rate during the period commencing on and
including the Payment Date on which such Note
Prepayment Amount is required to be distributed to
Noteholders of such class to but excluding [ ], in
the case of the Class A-1 Notes, [ ], in the case
of the Class A-2 Notes, [ ] and in the case of the
Class A-3 Notes, [ ], over (ii) the amount of
interest that would have accrued on the applicable
Note Prepayment Amount over the same period at a
per annum rate of interest equal to the bond
equivalent yield to maturity on the Record Date
preceding such Payment Date on the United States
Treasury Bill due [ ], in the case of the Class
A-1 Notes, the [ ]% United States Treasury Note
due [ ], in the case of the Class A-2 Notes, the [
]% United States Treasury Note due [ ], and in the
case of the Class A-3 Notes, the [ ]% United
States Treasury Note due [ ]. Such excess shall be
discounted to present value to such Payment Date
at the applicable yield described in clause (ii)
above. The Trust's obligation to pay the Note
Prepayment Premium shall be limited to funds which
are received from the Seller under the Purchase
Agreement [or an Affiliate Purchase Agreement] as
liquidated damages for the failure to deliver
Subsequent Receivables. No other assets of the
Trust will be available for the purpose of making
such payment. [The Credit Enhancement does not
guarantee payment of the Note Prepayment Amounts
or the Note Prepayment Premiums.] In addition, the
ratings assigned to the Securities by the Rating
Agencies do not address the likelihood that the
Note Prepayment Amounts or the Note Prepayment
Premiums will be paid.]
The Notes may be accelerated and subject to
immediate payment at par upon the occurrence of an
Event of Default under the Indenture. [So long as
no [Credit Enhancement Default] shall have
occurred and be continuing, an Event of Default
under the Event Indenture will occur only upon
delivery by the [Credit Enhancer] to the Indenture
Trustee of notice of the occurrence of certain
events of default under
10
<PAGE>
the [Credit Enhancement] Agreement dated as of [ ]
]. In the case of such an of Default, the Notes
will automatically be accelerated and subject to
immediate payment at par. See "Description of the
Trust Documents-Events of Default" in this
Prospectus Supplement.
Terms of the Certificates.....The principal terms of the Certificates will be as
described below:
A. Payment Dates.............Distributions with respect to the Certificates
will be made on each Payment Date, commencing [ ].
Distributions will be made to holders of record of
the Certificates (the "Certificateholders" and,
together with the Noteholders, the
"Securityholders") as of the related Record Date.
B. Pass-Through Rate.........[ %] per annum (the "Pass-Through Rate") payable
monthly at one- twelfth of the annual rate,
calculated on the basis of a 360-day year
consisting of twelve 30 day months.
C. Subordination of
Certificates...........[The Certificates will not receive any
distribution with respect to a Payment Date until
the full amount of the Noteholders' Distributable
Amount with respect to such Payment Date has been
deposited in the Distribution Account.]
D. Interest..................On each Payment Date, the Owner Trustee will
distribute to Certificateholders their pro rata
share of interest distributable with respect to
the Certificates. Interest in respect of a Payment
Date will accrue from the preceding Payment Date
(or, in the case of the first Payment Date, from
the Closing Date) or to but excluding the current
Payment Date. Interest on the Certificates for any
Payment Date due but not paid on such Payment Date
will be due on the next Payment Date together with
interest on such amount at one-twelfth of the
Pass-Through Rate. The amount of interest
distributable on the Certificates on each Payment
Date will equal 30 days' interest (or in the case
of the first Payment Date, interest accrued from
and including the Closing Date to but excluding [
]) at the Pass- Through Rate on the Certificate
Balance as of the last day of the related
Collection Period (or, in the case of the first
Payment Date, as of the Closing Date).
[Distributions of interest on the Certificates are
subordinated to payments of interest and principal
on the Notes, as described above under
"Subordination of Certificates."] See "Description
of the Trust Documents-- Distributions" herein.
E. Principal.................On each Payment Date [on or after the date on
which the Notes have been paid in full,] principal
of the Certificates will be payable in an amount
equal to the Certificateholders' Principal
Distributable Amount for the Monthly period
preceding such Payment Date. The
Certificateholders' Principal Distributable Amount
will equal the Certificateholders' Percentage of
the Principal Distributable Amount for such
Payment Date. See "Description of the Trust
Documents-Distributions" herein.
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<PAGE>
The remaining Certificate Balance, if any, will be
payable in full on the Final Scheduled Payment
Date.
F. Optional Prepayment.......If the Seller or Servicer exercises its option to
purchase the Receivables, which, subject to
certain provisions in the Sale and Servicing
Agreement, can occur after the aggregate Principal
Balance of the Receivables declines to 10% or less
of the Original Pool Balance, the
Certificateholders will receive an amount in
respect of the Certificates equal to the remaining
Certificate Balance together with accrued interest
at the Pass-Through Rate, and the Certificates
will be retired.
G. Mandatory Prepayment......[The Certificates will be prepaid in part, on a
pro rata basis, on the Payment Date on or
immediately following the last day of the Funding
Period in the event that any portion of the
Pre-Funded Amount remains on deposit in the
Pre-Funding Account after giving effect to the
purchase of all Subsequent Receivables, including
any such purchase on such date (a "Mandatory
Prepayment"). The aggregate principal amount of
Certificates to be prepaid will be an amount equal
to the Certificateholders' pro rata share (based
on the respective current Principal Balance of
each class of Notes and the Certificate Balance)
of the Pre-Funded Amount (the "Certificate
Prepayment Amount").]
[A limited recourse mandatory prepayment premium
(the "Certificate Prepayment Premium") will be
payable by the Trust to the Certificateholders if
the Pre-Funded Amount at the end of the Funding
Period exceeds $100,000. The Certificate
Prepayment Premium will equal the excess, if any,
discounted as described below, of (i) the amount
of interest that would have accrued on the
Certificate Prepayment Amount at the Pass-Through
Rate during the period commencing on and including
the Payment Date on which such Certificate
Prepayment Amount is required to be distributed to
Certificateholders to but excluding [ ], over (ii)
the amount of interest that would have accrued on
such Certificate Prepayment Amount over the same
period at a per annum rate of interest equal to
the bond equivalent yield to maturity on the
Record Date preceding such Payment Date on the [
]% United States Treasury Note due [ ]. Such
excess shall be discounted to present value to
such Payment Date at the yield described in clause
(ii) above. The Trust's obligation to pay the
Certificate Prepayment Premium shall be limited to
funds which are received from the Seller under the
Purchase Agreement [or an Affiliate Purchase
Agreement] as liquidated damages for the failure
to deliver Subsequent Receivables. No other assets
of the Trust will be available for the purpose of
making such payment. [The Credit Enhancement does
not guarantee payment of the Certificate
Prepayment Amount or the Certificate Prepayment
Premium.] In addition, the ratings assigned to the
Certificates by the Rating Agencies do not address
the likelihood that the Certificate Prepayment
Amount or the Certificate Prepayment Premium will
be paid.]
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<PAGE>
Priority of Payments..........[On each Payment Date, the Indenture Trustee shall
make the following distributions in the following
order of priority:
(i) to the Servicer, the Servicing Fee and all
unpaid Servicing Fees from prior Collection
Periods; provided, however, that as long as CPS is
the Servicer and [ ] is the Standby Servicer, the
Indenture Trustee will first pay to the Standby
Servicer out of the Servicing Fee otherwise
payable to CPS an amount equal to the Standby Fee;
(ii) in the event the Standby Servicer or any
other party becomes the successor Servicer, to the
Standby Servicer or such other successor servicer,
reasonable transition expenses (up to a maximum of
[$ ] incurred in acting as successor Servicer;
(iii) to the Indenture Trustee and the Owner
Trustee, pro rata, the Indenture Trustee Fee (as
defined herein) and reasonable out-of-pocket
expenses and all unpaid Trustee Fees and unpaid
reasonable out-of-pocket expenses from prior
Collection Periods;
(iv) to the Collateral Agent, all fees and
expenses payable to the Collateral Agent with
respect to such Payment Date;
(v) to the Noteholders, the Noteholders' Interest
Distributable Amount, to be distributed as
described under "Description of the Notes -
Payments of Interest";
(vi) to the Noteholders, the Noteholders'
Principal Distributable Amount, to be distributed
as described under "Description of the Notes -
Payments of Principal";
(vii) to the Certificateholders, the
Certificateholders' Interest Distributable Amount;
(viii) after the Notes have been paid in full to
the Certificateholders, the Certificateholders'
Principal Distributable Amount (as defined
herein);
(ix) to the [Credit Enhancer], any amounts due to
the [Credit Enhancer] under the terms of the
[Credit Enhancement Agreement] (as defined
herein);
(x) to the Collateral Agent, for deposit into the
Spread Account, the remaining Total Distribution
Amount, if any. See "Description of the Trust
Documents-Distributions-Priority of Distribution
Amounts" in this Prospectus Supplement; and
(xi) to the Seller, or as otherwise specified in
the Trust Documents, any remaining funds.
Spread Account................[As part of the consideration for the issuance of
the [Credit Enhancement], the Seller has agreed to
cause the "Spread Account"
13
<PAGE>
to be established with the Collateral Agent for
the benefit of the [Credit Enhancer] and the
Indenture Trustee on behalf of the Noteholders.
Any portion of the Total Distribution Amount
remaining on any Payment Date after payment of all
fees and expenses due on such date to the
Servicer, the Standby Servicer, the Indenture
Trustee, the Owner Trustee, the Collateral Agent,
the [Credit Enhancer], any successor Servicer and
all principal and interest payments due to the
Noteholders on such Payment Date, will be
deposited in the Spread Account and held by the
Collateral Agent for the benefit of the Indenture
Trustee, on behalf of the Noteholders, and the
[Credit Enhancer]. Amounts on deposit in the
Spread Account on any Payment Date which (after
all payments required to be made on such date have
been made) are in excess of the requisite amount
determined from time to time in accordance with
certain portfolio performance tests agreed upon by
the [Credit Enhancer] and the Seller as a
condition to the issuance of the [Credit
Enhancement] (such requisite amount, the
"Requisite Amount") will be released to or at the
direction of the Seller. See "Description of the
Trust Documents-Distributions-The Spread Account"
in this Prospectus Supplement.]
[Describe any other Spread Account arrangement.]
Record Dates..................The record date applicable to each Payment Date
(each, a "Record Date") will be the 10th day of
the calendar month in which such Payment Date
occurs.
Repurchases and Purchases of
Certain Receivables...........PS has made certain representations and warranties
relating to the Receivables to the Seller in the
Purchase Agreement, and the Seller has made such
representations and warranties for the benefit of
the Trust and the [Credit Enhancer] in the Sale
and Servicing Agreement. The Indenture Trustee, as
acknowledged assignee of the repurchase
obligations of CPS under the Purchase Agreement,
will be entitled to require CPS to repurchase any
Receivable if such Receivable is materially
adversely affected by a breach of any
representation or warranty made by CPS with
respect to the Receivable and such breach has not
been cured as of the last day of the second (or,
if CPS elects, the first) month following
discovery thereof by the Seller or CPS or notice
to the Seller or CPS. See "Description of the
Trust Documents-Sale and Assignment of
Receivables" in the Prospectus.
Certain Legal Aspects
of the Receivables..........The Servicer will be obligated to repurchase any
Receivable if, among other things, it extends the
date for final payment by the Obligor of such
Receivable beyond the last day of the penultimate
Collection Period preceding the Final Scheduled
Payment Date or fails to maintain a perfected
security interest in the Financed Vehicle. See
"Description of the Trust Documents-Servicing
Procedures" in this Prospectus Supplement and
"Description of the Trust Documents-Servicing
Procedures" in the Prospectus.
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<PAGE>
Certain Legal Aspects
of the Receivables...........In connection with the sale of the Receivables,
security interests in the Financed Vehicles
securing the CPS Receivables will be assigned by
CPS to the Seller pursuant to the Purchase
Agreement and by the Seller to the Trustee
pursuant to the Sale and Servicing Agreement.
Certain of the Receivables (the "[Affiliated
Originator] Receivables"), representing
approximately [ %] of the aggregate principal
balance of the Receivables as of the Cutoff Date,
have been originated by CPS's subsidiary,
[Affiliated Originator], and will be purchased by
the Seller from [Affiliated Originator] pursuant
to the [Affiliate Purchase Agreement] and will be
transferred by the Seller to the Trust pursuant to
the Sale and Servicing Agreement. [Additional
Affiliated Originators may be added.] The
certificates of title to the Financed Vehicles
securing the [Affiliated Originator] Receivables
show [Affiliated Originator] as the lienholder.
Due to the administrative burden and expense, the
certificates of title to the Financed Vehicles
securing the [Affiliated Originator] Receivables
will not be amended or reissued to reflect the
assignment thereof to Seller, nor will the
certificates of title to any Financed Vehicles
(including those securing the [Affiliated
Originator] Receivables) be amended or reissued to
reflect the assignment thereof to the Trustee. In
the absence of such an amendment, the Trustee may
not have a perfected security interest in the
Financed Vehicles securing the Receivables in some
states. The Seller will be obligated to purchase
any Receivable sold to the Trust as to which there
did not exist on the Closing Date a perfected
security interest in the name of CPS or
[Affiliated Originator] in the Financed Vehicle,
and the Servicer will be obligated to purchase any
Receivable sold to the Trust as to which it failed
to maintain a perfected security interest in the
name of CPS or [Affiliated Originator] in the
Financed Vehicle securing such Receivable (which
perfected security interest has been assigned to,
and is for the benefit of, the Trustee) if, in
either case, such breach materially and adversely
affects the interest of the Trust, the Indenture
Trustee or the [Credit Enhancer] in such
Receivable and if such failure or breach is not
cured by the last day of the second (or, if CPS or
the Servicer, as the case may be, elects, the
first) month following the discovery by or notice
to CPS or the Servicer, as the case may be, of
such breach. To the extent the security interest
of CPS or [Affiliated Originator] is perfected,
the Trust will have a prior claim over subsequent
purchasers of such Financed Vehicle and holders of
subsequently perfected security interest. However,
as against liens for repairs of a Financed Vehicle
or for unpaid storage charges or for taxes unpaid
by an Obligor under a Receivable, or through
fraud, forgery or negligence or error, CPS or
[Affiliated Originator], and therefore the Trust,
could lose its prior perfected security interest
in a Financed Vehicle. Neither CPS nor the
Servicer will have any obligation to purchase a
Receivable as to which a lien for repairs of a
Financed Vehicle or for taxes unpaid by an Obligor
under a Receivable result in losing the priority
of the security interest in such Financed Vehicle
after the Closing Date. See "Risk Factors-Certain
Legal Aspects" in this Prospectus Supplement and
in the Prospectus.
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<PAGE>
[Credit Enhancement]..........[Credit Enhancement to be described.]
Servicing.....................The Servicer will be responsible for servicing,
managing and making collections on the
Receivables. On or prior to the next billing
period after the Cutoff Date [and each Subsequent
Cutoff Date], the Servicer will notify each
Obligor to make payments with respect to the
Receivables after the Cutoff Date directly to a
post office box in the name of the Indenture
Trustee for the benefit of the Noteholders and the
[Credit Enhancer] (the "Post Office Box"). On each
Business Day, [ ] as the lock-box processor (the
"Lock-Box Processor"), will transfer any such
payments received in the Post Office Box to a
segregated lock-box account at [ ] (the "Lock-Box
Bank") in the name of the Indenture Trustee for
the benefit of the Noteholders and the [Credit
Enhancer] (the "Lock-Box Account"). Within two
Business Days of receipt of funds into the
Lock-Box Account, the Servicer is required to
direct the Lock-Box Bank to effect a transfer of
funds from the Lock-Box Account to one or more
accounts established with the Indenture Trustee.
See "Description of the Trust Documents --
Accounts" in this Prospectus Supplement and
"Description of the Trust Documents - Payments on
Receivables" in the Prospectus.
Standby Servicer..............[Name and Address].
If a Servicer Termination Event occurs and remains
unremedied, [(1) provided no [Credit Enhancer]
Default has occurred and is continuing, then the
[Credit Enhancer] in its sole and absolute
discretion, or (2) if an [Credit Enhancer] Default
shall have occurred and be continuing,] then the
Indenture Trustee [may, with the consent of the
[Credit Enhancer] (so long as an [Credit Enhancer]
Default shall not have occurred and be continuing)
or] shall, at the direction of the [Credit
Enhancer] (or, if an [Credit Enhancer] Default
shall have occurred and be continuing, at the
direction of the Note Majority) terminate the
rights and obligations of the Servicer under the
Sale and Servicing Agreement. If such event occurs
when CPS is the Servicer, or if CPS resigns as
Servicer or is terminated as Servicer, by the
[Credit Enhancer], [ ] (in such capacity, the
"Standby Servicer") has agreed to serve as
successor Servicer under the Sale and Servicing
Agreement pursuant to a Servicing Assumption
Agreement dated as of [ ], among CPS, the Standby
Servicer and the Indenture Trustee (the "Servicing
Assumption Agreement"). The Standby Servicer will
receive a portion of the Servicing Fee (the
"Standby Fee") for agreeing to stand by as
successor Servicer and for performing other
functions. If the Standby Servicer or any other
entity serving at the time as Standby Servicer
becomes the successor Servicer, it will receive
compensation at a Servicing Fee Rate not to exceed
[ %] per annum. See "The Standby Servicer" in this
Prospectus Supplement.
Servicing Fee.................The Servicer will be entitled to receive a
Servicing Fee on each Payment Date equal to the
product of one-twelfth times [ %] (the "Servicing
Fee Rate") of the Pool Balance as of the close of
business
16
<PAGE>
on the last day of the second preceding Collection
Period; provided, however, that with respect to
the first Payment Date the Servicer will be
entitled to receive a Servicing Fee equal to the
product of one-twelfth times [ %] of the Original
Pool Balance. As additional servicing
compensation, the Servicer will also be entitled
to certain late fees, prepayment charges and other
administrative fees or similar charges. For so
long as CPS is Servicer, a portion of the
Servicing Fee, equal to the Standby Fee, will be
payable to the Standby Servicer.
Book-Entry Registration.......The Securities initially will be represented by
one or more notes registered in the name of Cede &
Co. ("Cede") as the nominee of The Depository
Trust Company ("DTC"), and will only be available
in the form of book-entries on the records of DTC
and participating members thereof. Securities will
be issued in definitive form only under the
limited circumstances described herein. All
references herein to "holders" of the Notes [or
the Certificates] or "Noteholders" [or
"Certificateholders"] shall reflect the rights of
beneficial owners of the Notes (the "Note Owners")
[or of the Certificates ("Certificate Owners")] as
they may indirectly exercise such rights through
DTC and participating members thereof, except as
otherwise specified herein. See "Registration of
Notes and Certificates" in this Prospectus
Supplement and "Certain Information Regarding the
Notes [and the Certificates]-Book Entry
Registration" and "-Definitive Notes" in the
Prospectus.
Tax Status....................In the opinion of Mayer, Brown & Platt ("Federal
Tax Counsel"), for Federal income tax purposes the
Notes will be characterized as debt and the Trust
will not be characterized as an association (or
publicly traded partnership) taxable as a
corporation. Each Noteholder, by the acceptance of
a Note, will agree to treat the Notes as
indebtedness and each Certificateholder, by the
acceptance of a Certificate, will agree to treat
the Trust as a partnership in which such
Certificateholder is a partner for Federal income
tax purposes. See "Certain Federal Income Tax
Consequences" in the Prospectus for additional
information concerning the application of Federal
tax laws to the Trust and the Notes.
ERISA Considerations..........Subject to the conditions and considerations
discussed under "ERISA Considerations" in this
Prospectus Supplement, the Notes are eligible for
purchase by pension, profit-sharing or other
employee benefit plans, as well as individual
retirement accounts and certain types of Keogh
Plans (each, a "Benefit Plan"). See "ERISA
Considerations" in this Prospectus Supplement.
[The Certificates may not be acquired by any
employee benefit plan, individual retirement
account or Keogh Plan subject to either Title I of
ERISA or the Internal Revenue Code of 1986, as
amended. See
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ERISA Considerations" in this Prospectus
Supplement and in the Prospectus.]
Legal Investment..............[The Class A-1 Notes will be eligible securities
for purchase by money market funds under Rule 2A-7
under the Investment Company Act of 1940, as
amended.]
Rating of the
Notes and Certificates........It is a condition of issuance that the Notes be
rated [ ] [ ], on the basis of the issuance of the
[Credit Enhancement] by the [Credit Enhancer]. [It
is a condition of issuance that the Certificates
be rated at least [ ] by [ ].] A security rating
is not a recommendation to buy, sell or hold
securities and may be revised or withdrawn at any
time by the assigning Rating Agency. See "Risk
Factors-Ratings of the Notes and the Certificates"
in this Prospectus Supplement.
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RISK FACTORS
In addition to the other information in this Prospectus Supplement and
the Prospectus, prospective Noteholders and Certificateholders should consider
the following factors, as well as those matters discussed in "Risk Factors" in
the Prospectus, in evaluating an investment in the Notes or the Certificates:
[The Receivables and the Pre-Funding Account
On the Closing Date, approximately $[ ] of Initial Receivables will be
transferred to the Trust by the Seller and the approximately $[ ] Pre-Funded
Amount will be deposited by the Trust in the Pre-Funding Account. If the
principal amount of eligible Receivables originated by CPS [or an Affiliated
Originator] during the Funding Period is less than the Pre-Funded Amount, the
Seller will have insufficient Receivables to sell to the Trust on the Subsequent
Transfer Dates, thereby resulting in a prepayment of principal to the
Noteholders and the Certificateholders as described in the following paragraph.
See "--Trust's Relationship to the Seller and CPS" below. In addition, any
conveyance of Subsequent Receivables is subject to the satisfaction, on or
before the related Subsequent Transfer Date, of the following conditions, among
others: (i) each such Subsequent Receivable satisfies the eligibility criteria
specified in the Purchase Agreement; (ii) [Credit Enhancer (so long as no
[Credit Enhancer] Default shall have occurred and be continuing) shall in its
sole and absolute discretion have approved the transfer of such Subsequent
Receivables to the Trust] (iii) as of the applicable Subsequent Cutoff Date, the
Receivables in the Trust, together with the Subsequent Receivables to be
conveyed by the Seller as of such Subsequent Cutoff Date, meet the following
criteria (computed based on the characteristics of the Initial Receivables on
the initial Cutoff Date and any Subsequent Receivables as of the related
Subsequent Cutoff Date): [specify conditions]; (iv) the Seller shall have
executed and delivered to the Trust (with a copy to the Indenture Trustee) a
written assignment (a "Subsequent Transfer Agreement") conveying such Subsequent
Receivables to the Trust (including a schedule identifying such Subsequent
Receivables); (v) the Seller shall have delivered certain opinions of counsel to
the Indenture Trustee, the Owner Trustee, [the Credit Enhancer] and the Rating
Agencies with respect to the validity of the conveyance of all such Subsequent
Receivables; and (vi) the Rating Agencies shall have notified the Seller, the
Owner Trustee, the Indenture Trustee and [the Credit Enhancer] in writing that,
following the addition of such Subsequent Receivables, the Class A-1 Notes the
Class A-2 Notes, the Class A-3 Notes will each be rated [ ] by [ ] and the
Certificates will be rated [ ] by [ ]. Such confirmation of the ratings of the
Notes [and the Certificates] may depend on factors other than the
characteristics of the Subsequent Receivables, including the delinquency,
repossession and net loss experience on the Receivables in the Receivables Pool.
To the extent that the Pre-Funded Amount has not been fully applied to
the purchase of Subsequent Receivables by the Trust during the Funding Period,
the Noteholders and the Certificateholders will receive, on the Payment Date on
or immediately following the last day of the Funding Period, a prepayment of
principal in an amount equal to their pro rata share (based on the current
principal balance of each class of Notes and the Certificate Balance) of any
remaining Pre-Funded Amount following the purchase of any Subsequent Receivables
on such Payment Date. It is anticipated that the principal amount of Subsequent
Receivables sold to the trust will not be exactly equal to the original
Pre-Funded Amount and, therefore, there will be at least a nominal amount of
principal prepaid to the Noteholders and to the Certificateholders.
Each Subsequent Receivable must satisfy the eligibility criteria
specified in the Purchase Agreement. However, Subsequent Receivables may have
been originated using credit criteria different from the criteria applied with
respect to the Initial Receivables and may be of a different credit quality and
seasoning. See "The Receivables Pool" in this Prospectus Supplement.
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Trust Relationship to the Seller and CPS
Neither the Seller nor CPS is generally obligated to make any payments
in respect of the Notes, the Certificates or the Receivables. However, the
ability of the Seller to convey Subsequent Receivables on a Subsequent Transfer
Date is completely dependent upon the generation of additional receivables by
CPS [or an Affiliated Originator]. If, during the Funding Period, CPS [or an
Affiliated Originator] is unable to generate or does not transfer sufficient
Receivables to the Seller, the ability of the Seller to sell Subsequent
Receivables to the Trust would be adversely affected. There can be no assurance
that CPS [or an Affiliated Originator] will continue to generate receivables
that satisfy the criteria set forth in the Purchase Agreement at the same rate
as in recent months or that [Credit Enhancer], in its sole and absolute
discretion, will approve any such transfer of Subsequent Receivables. The
Trust's obligation to pay prepayment premiums on the Notes and Certificates, if
required at the end of the Funding Period, is limited to amounts received from
the Seller for that purpose, and the Seller's obligation to pay such amounts is
limited to amounts received from the Seller for that purpose, and the Seller's
obligation to pay such amounts is limited to amounts received from CPS as
liquidated damages under the Purchase Agreement.
In connection with each sale of Receivables by CPS [or an Affiliated
Originator] to the Seller and by the Seller to the Trust, each of CPS and the
Seller will make representations and warranties with respect to the
characteristics of such Receivables. In certain circumstances, CPS is required
to repurchase Receivables with respect to which such representations or
warranties are not true as of the date made. Neither CPS nor the Seller is
otherwise obligated with respect to the Notes or the Certificates. See
"Description of the Trust Documents -- Sale and Assignment of the Receivables"
in the accompanying Prospectus.]
Nature of Obligors; Servicing
CPS purchases loans originated for assignment to CPS or a subsidiary
through automobile dealers or IFCs. CPS services its dealers through a network
of employee and independent marketing representatives and through its
subsidiary, [Affiliated Originator]. CPS's customers are generally considered to
have marginal credit and fall into one of two categories: customers with
moderate income, limited assets and other income characteristics which cause
difficulty in borrowing from banks, captive finance companies of automakers or
other traditional sources of auto loan financing; and customers with a
derogatory credit record including a history of irregular employment, previous
bankruptcy filings, repossessions of property, charged-off loans and garnishment
of wages. The payment experience on Receivables of Obligors with marginal credit
is likely to be different than that on receivables of traditional auto financing
sources and is likely to be more sensitive to changes in the economic climate in
the areas in which such Obligors reside.
The servicing of receivables of customers with marginal credit requires
special skill and diligence. The Servicer believes that its credit loss and
delinquency experience reflects in part its trained staff and collection
procedures. If a Servicer Termination Event occurs and CPS is removed as
Servicer or, if CPS resigns or is terminated by the [Credit Enhancer] as
Servicer, the Standby Servicer has agreed to assume the obligations of successor
Servicer under the Sale and Servicing Agreement. See "Description of the Trust
Documents--Rights Upon Servicer Termination Event" in this Prospectus
Supplement. There can be no assurance, however, that collections with respect to
the Receivables will not be adversely affected by any change in Servicer. See
"The Standby Servicer" in this Prospectus Supplement.
The Sale and Servicing Agreement provides that the rights and
obligations of the Servicer terminate after 90 days unless renewed by the
[Credit Enhancer] for successive 90-day periods. The [Credit Enhancer] will
agree to grant continuous renewals so long as (i) no Servicer Termination Event
under the Sale and Servicing Agreement has occurred and (ii) no event of default
under the insurance and indemnity agreement among CPS, the Seller and the
[Credit Enhancer] (the "Insurance Agreement") has occurred.
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Geographic Concentration
As of the Cutoff Date, [ %] of the Receivables by Principal Balance had
Obligors residing in the State of California. Economic conditions in the State
of California may affect the delinquency, loan loss and repossession experience
of the Trust with respect to the Receivables. See "The Receivables Pool" in this
Prospectus Supplement.
Ratings of the Notes and the Certificates
It is a condition to the issuance of the Notes that the Notes be rated
[ ] by [ ] [on the basis of the issuance of the [Credit Enhancement] by the
[Credit Enhancer]] [and it is a condition to the issuance of the Certificates
that they be rated at least [ ] by [ ]]. A rating is not a recommendation to
purchase, hold or sell the Notes, inasmuch as such rating does not comment as to
market price or suitability for a particular investor. The Rating Agencies do
not evaluate, and the ratings do not address, the possibility that Noteholders
may receive a lower than anticipated yield. There is no assurance that a rating
will remain for any given period of time or that a rating will not be lowered or
withdrawn entirely by a Rating Agency if in its judgment circumstances in the
future so warrant. [The ratings of the Notes [and the Certificates] are based
primarily on the rating of the [Credit Enhancer].] Upon an [Credit Enhancer]
Default, the rating on the Notes may be lowered or withdrawn entirely. [In the
event that any rating initially assigned to the Notes were subsequently lowered
or withdrawn for any reason, including by reason of a downgrading of the [Credit
Enhancer], no person or entity will be obligated to provide any additional
credit enhancement with respect to the Notes or the Certificates. Any reduction
or withdrawal of a rating may have an adverse effect on the liquidity and market
price of the Notes and the Certificates.
Limited Assets
The Trust does not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables and amounts on
deposit in certain accounts held by the Indenture Trustee on behalf of the
Noteholders and the Certificates. The Notes represent obligations solely of, and
the Certificates represents interests solely in, the Trust and are not
obligations of, and will not be insured or guaranteed by, the Seller, the
Servicer, the Indenture Trustee or any other person or entity except for the
guaranty provided with respect to the Notes by the [Credit Enhancer] pursuant to
the [Credit Enhancement], as described herein. The Seller will take such steps
as are necessary for the [Credit Enhancer] to issue the [Credit Enhancement] to
the Indenture Trustee for the benefit of the Noteholders. Under the [Credit
Enhancement], the [Credit Enhancer] will unconditionally and irrevocably
guarantee to the Noteholders full and complete payment of the scheduled payments
on each Payment Date. In the event of an [Credit Enhancer] Default, the
Noteholders and Certificateholders must rely on the collections on the
Receivables, and the proceeds from the repossession and sale of Financed
Vehicles which secure defaulted Receivables. In such event, certain factors,
such as the Indenture Trustee not having perfected security interests in the
Financed Vehicles, may affect the Trust's ability to realize on the collateral
securing the Receivables and thus may reduce the proceeds to be distributed to
Noteholders or Certificateholders on a current basis.
[The Pre-Funding Account and the Interest Reserve Account] will only be
maintained until the Payment Date on or immediately following the last day of
the Funding Period. The Pre-Funded Amount on deposit in the Pre-Funding Account
will be used solely to purchase Subsequent Receivables and is not available to
cover losses on the Receivables. The Interest Reserve Account is designed to
cover obligations of the Trust relating to that portion of its assets not
invested in Receivables and is not designed to provide substantial protection
against losses on the Receivables. [Similarly, although the Credit Enhancement
will be available on each Payment Date to cover shortfalls in distributions of
the Noteholders' Distributable Amount and the Certificateholders' Distributable
Amount on such Payment
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Date, if the Credit Enhancer defaults in its obligations under the applicable
[Credit Enhancement], the Trust will depend on current distribution on the
Receivables to make payments on the Notes and the Certificates. See "[Credit
Enhancement]" and "[The Credit Enhancer]" herein.]
Distributions of interest and principal on the Securities will be
dependent primarily upon collections on the Receivables and amounts paid
pursuant to the [Credit Enhancement]. See "Description of the Notes and the
Certificates in this Prospectus Supplement.
Subordination of Certificates
[Distributions of interest and principal on the Certificates will be
subordinated in priority of payment to interest and principal due on the Notes.
Consequently, the Certificateholders will not receive any distributions with
respect to a Collection Period until the full amount of interest and principal
payable on the Notes on such Payment Date has been deposited in the Distribution
Account. The Certificateholders will not receive any distributions of principal
before the Payment Date on which the Class A-1 Notes have been paid in full.
If the Notes are accelerated following an Event of Default under the
Indenture, the Notes must be paid in full prior to the distribution of any
amounts on the Certificates.]
Delinquency and Loan Loss Experience
CPS began purchasing Contracts from Dealers in October 1991. Although
CPS has calculated and presented herein its net loss experience with respect to
its servicing portfolio, there can be no assurance that the information
presented will reflect actual experience with respect to the Receivables. In
addition, there can be no assurance that the future delinquency or loan loss
experience of the Trust with respect to the Receivables will be better or worse
than that set forth herein with respect to CPS's servicing portfolio. See "CPS's
Automobile Contract Portfolio-Delinquency and Loss Experience" in this
Prospectus Supplement. Although credit history on [Affiliated Originator]'s
originations is limited, CPS expects that the delinquency and net credit loss
and repossession experience with respect to the Receivables originated by
[Affiliated Originator] will be similar to that of CPS's existing portfolio.
Final Scheduled Payment Dates of the Notes and the Certificates
The Final Scheduled Payment Date for each class of Notes and the
Certificates, which is specified at page S-2 herein, is the date by which the
principal thereof is required to be fully paid. The Final Scheduled Payment Date
for each class of Notes and the Certificates has been determined so that
distributions on the underlying Receivables will be sufficient to retire each
such class on or before its respective Final Scheduled Payment Date without the
necessity of a claim on the applicable Policy. However, because (i) some
prepayments of the Receivables are likely and (ii) certain of the Receivables
have terms to maturity that are shorter than the term to maturity assumed in
calculating each class's Final Scheduled Payment Date, the actual payment of any
class of Notes or the Certificates likely will occur earlier, and could occur
significantly earlier, than such class's Final Scheduled Payment Date.
Nevertheless, there can be no assurance that the final distribution of principal
of any or all classes of Notes or the Certificates will be earlier than such
class's Final Scheduled Payment Date.
Certain Legal Aspects
Due to the administrative burden and expense, the certificates of title
to the Financed Vehicles securing the [Affiliated Originator] Receivables will
not be amended or reissued to reflect the assignment of such Receivables to the
Seller nor will the certificates of title to any of the Financed Vehicles
(including those securing the [Affiliated Originator] Receivables) be amended or
reissued to reflect the assignment to the Trust. In the absence of such an
amendment or reissuance, the Trust may not have a
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<PAGE>
perfected security interest in the Financed Vehicles securing the Receivables in
some states. By virtue of the assignment of the Purchase Agreement [or the
Affiliate Purchase Agreement] to the related Trust, CPS will be obligated to
repurchase any Receivable sold to the Trust as to which there did not exist on
the Closing Date a perfected security interest in the name of CPS or [Affiliated
Originator] in the Financed Vehicle, and the Servicer will be obligated to
purchase any Receivable sold to the Trust as to which it failed to maintain a
perfected security interest in the name of CPS or [Affiliated Originator] in the
Financed Vehicle securing such Receivable if, in either case, such breach
materially and adversely affects such Receivable and if such failure or breach
is not cured prior to the expiration of the applicable cure period. To the
extent the security interest of CPS or [Affiliated Originator] is perfected, the
Trust will have a prior claim over subsequent purchasers of such Financed
Vehicle and holders of subsequently perfected security interests. However, as
against liens for repairs of a Financed Vehicle or for taxes unpaid by an
Obligor under a Receivable, or through fraud, forgery, negligence or error, CPS
or [Affiliated Originator], and therefore the Trust, could lose the priority of
its security interest or its security interest in a Financed Vehicle. Neither
CPS nor the Servicer will have any obligation to purchase a Receivable as to
which a lien for repairs of a Financed Vehicle or for taxes unpaid by an Obligor
under a Receivable result in losing the priority of the security interest in
such Financed Vehicle after the Closing Date. See "Certain Legal Aspects of the
Receivables" in this Prospectus Supplement and "Certain Legal Aspects of the
Receivables-Security Interest in Vehicles" in the Prospectus.
FORMATION OF THE TRUST
The Issuer, CPS Auto Receivables Trust 199[ ]-[ ], is a business trust
formed under the laws of the State of Delaware pursuant to the Trust Agreement.
Prior to the sale and assignment of the Trust Assets to the Trust, the Trust
will have no assets or obligations or any operating history. The Trust will not
engage in any business other than (i) acquiring, holding and managing the
Receivables, the other assets of the Trust and any proceeds thereof, (ii)
issuing the Notes and the Certificates, (iii) making payments in respect of the
Notes and the Certificates and (iv) engaging in other activities that are
necessary, suitable or convenient to accomplish the foregoing or are incidental
thereto.
The Servicer will initially service the Receivables pursuant to the
Sale and Servicing Agreement and will be compensated for acting as the Servicer.
See "Description of the Trust Documents--Servicing Compensation" in this
Prospectus Supplement. The Indenture Trustee will be appointed custodian for the
Receivables and the certificates of title relating to the Financed Vehicles, and
the Receivables and such certificates of title will be delivered to and held in
physical custody by the Indenture Trustee. However, the Receivables will not be
marked or stamped to indicate that they have been sold to the Trust, and the
certificates of title of the Financed Vehicles will not be endorsed or otherwise
amended to identify the Trust or the Indenture Trustee as the new secured party.
In the absence of amendments to the certificates of title, the Indenture Trustee
may not have perfected security interests in the Financed Vehicles securing the
Receivables originated in some states. See "Certain Legal Aspects of the
Receivables" in the Prospectus.
The Trust will initially be capitalized by the Seller with equity equal
to [$ ] and Certificates equal to such amount will be issued to the Seller. The
equity of the Trust, together with the proceeds of the initial sale of the
Notes, will be used by the Trust to purchase the Receivables from the Seller.
The Trust will not acquire any assets other than the Trust Assets, and it is not
anticipated that the Trust will have any need for additional capital resources.
Because the Trust will have no operating history upon its establishment and will
not engage in any business other than acquiring and holding the Trust Assets,
issuing the Securities and distributing payments on the Certificates, no
historical or pro forma financial statements or ratios of earnings to fixed
charges with respect to the Trust have been included herein.
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The Owner Trustee
[ ], the Owner Trustee under the Trust Agreement, is a Delaware banking
corporation and its principal offices are located at [ ]. The Owner Trustee will
perform limited administrative functions under the Trust Agreement. The Owner
Trustee's duties in connection with the issuance and sale of the Securities is
limited solely to the express obligations of the Owner Trustee set forth in the
Trust Agreement and the Sale and Servicing Agreement.
The Indenture Trustee
[ ], a [ ], is the Indenture Trustee under the Indenture. The principal
offices of the Indenture Trustee are located at [ ]. The Indenture Trustee's
duties in connection with the Notes and the Certificates are limited solely to
its express obligations under the Indenture and the Sale and Servicing
Agreement.
THE TRUST ASSETS
The Trust Assets include retail installment sale contracts in new and
used automobiles, light trucks, vans and minivans between dealers (the
"Dealers") or IFCs and retail purchasers (the "Obligors") and, with respect to
Rule of 78's Receivables, certain monies due thereunder after the Cutoff Date,
and, with respect to Simple Interest Receivables, certain monies received
thereunder after the Cutoff Date. The Receivables were originated by the Dealers
or IFCs for assignment to CPS or [an Affiliated Originator]. Pursuant to
agreements between the Dealers and CPS ("Dealer Agreements") or between the IFCs
and [an Affiliated Originator], the Receivables were purchased by CPS or [an
Affiliated Originator] and, prior to the Closing Date, evidenced financing made
available by CPS or [an Affiliated Originator] to the Obligors. The Trust Assets
also include (i) such amounts as from time to time may be held in one or more
trust accounts established and maintained by the Indenture Trustee pursuant to
the Indenture, as described below; see "Description of the Notes [and the
Certificates]-Accounts" in this Prospectus Supplement; (ii) the rights of the
Seller under the Purchase Agreement; (iii) security interests in the Financed
Vehicles; (iv) the rights of the Seller to receive any proceeds with respect to
the Receivables from claims on physical damage, credit life and credit accident
and health insurance policies covering the Financed Vehicles or the Obligors, as
the case may be; (v) the rights of the Seller to refunds for the costs of
extended service contracts and to refunds of unearned premiums with respect to
credit life and credit accident and health insurance policies covering the
Financed Vehicles or Obligors, as the case may be; and (vi) any and all proceeds
of the foregoing. The Trust Assets also will include the [Credit Enhancement]
for the benefit of the Securityholders.
CPS'S AUTOMOBILE CONTRACT PORTFOLIO
General
CPS was incorporated in the State of California on March 8, 1991. CPS
and its subsidiaries engage primarily in the business of purchasing, selling and
servicing retail automobile installment sales contracts ("Contracts") originated
by Dealers located primarily in California, Florida, Pennsylvania, Texas,
Illinois and Nevada. CPS specializes in Contracts with borrowers ("Sub-Prime
Borrowers") who generally would not be expected to qualify for traditional
financing such as that provided by commercial banks or automobile manufacturers'
captive finance companies. Sub-Prime Borrowers generally have limited credit
history, lower than average income or past credit problems.
On May 31, 1991, CPS acquired 100% of the stock of G&A Financial
Services, Inc., a consumer loan servicing company, whose assets consisted
primarily of servicing contracts with respect to loan portfolios owned by third
parties. G&A Financial Services, Inc. has subsequently been dissolved. On
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September 1, 1991, CPS was engaged to act as a servicer for loan portfolios
aggregating $16.5 million by two companies who had purchased such portfolios
from the Resolution Trust Corp. As of December 31, 1994, CPS had terminated all
such third-party servicing arrangements. On October 1, 1991, CPS began its
program of purchasing Contracts from Dealers and selling them to institutional
investors. Through December 31, 1996, CPS had purchased $729.1 million of
Contracts from Dealers and sold $713.0 million of Contracts to institutional
investors. CPS continues to service all of the Contracts it has purchased,
including those it has re-sold.
CPS has relationships and is party to Dealer Agreements with over 2,177
dealerships located in 41 states of the United States. CPS purchases Contracts
from Dealers for a fee ranging from $0 to $1,195. A Dealer Agreement does not
obligate a Dealer to submit Contracts for purchase by CPS, nor does it obligate
CPS to purchase Contracts offered by the Dealers.
CPS purchases Contracts from Dealers with the intent to resell them.
CPS also purchases Contracts from third parties that have been originated by
others. Prior to the issuance of the Certificates, Contracts have been sold to
institutional investors either as bulk sales or as private placements or public
offerings of securities collateralized by the Contracts. Purchasers of the
Contracts receive a pass-through rate of interest set at the time of the sale,
and CPS receives a base servicing fee for its duties relating to the accounting
for and collection of the Contracts. In addition, CPS is entitled to certain
excess servicing fees that represent collections on the Contracts in excess of
those required to pay principal and interest due to the investor and the base
servicing fee to CPS. Generally, CPS sells the Contracts to such institutional
investors at face value and without recourse except that the representations and
warranties made to CPS by the Dealers are similarly made to the investors by
CPS. CPS has some credit risk with respect to the excess servicing fees it
receives in connection with the sale of Contracts to investors and its continued
servicing function since the receipt by CPS of such excess servicing fees is
dependent upon the credit performance of the Contracts.
In March 1996, CPS formed [Affiliated Originator] Acceptance Corp.
("[Affiliated Originator]"), an 80 percent-owned subsidiary based in Dallas,
Texas. [Affiliated Originator]'s business plan is to provide the Company's
sub-prime auto finance products to rural areas through independently owned
finance companies. CPS believes that many rural areas are not adequately served
by other industry participants due to their distance from large metropolitan
areas where a Dealer marketing representative is most likely to be based.
[Discussion of any additional Affiliated Originators.]
[Affiliated Originator] employees call on IFCs primarily in the
southeastern United States and present them with financing programs that are
essentially identical to those which CPS markets directly to Dealers through its
marketing representatives. CPS believes that a typical rural IFC has
relationships with many local automobile purchasers as well as Dealers but,
because of limitations of financial resources or capital structure, such IFCs
generally are unable to provide 36, 48 or 60 month financing for an automobile.
IFCs may offer [Affiliated Originator]'s financing programs to borrowers
directly or indirectly through local Dealers. [Affiliated Originator] purchases
contracts from the IFCs after its credit personnel have performed all of the
same underwriting and verification procedures and have applied all the same
credit criteria that CPS performs and applies for Contracts it purchases from
Dealers. [Affiliated Originator] purchases Contracts at a discount ranging from
0% to 8% of the total amount financed under such Contracts. In addition,
[Affiliated Originator] generally charges IFCs an acquisition fee to defray the
direct administrative costs associated with the processing of Contracts that are
ultimately purchased by [Affiliated Originator]. Servicing and collection
procedures on Contracts owned by [Affiliated Originator] are performed by CPS at
its headquarters in Irvine, California. As of December 31, 1996, [Affiliated
Originator] had purchased 399 Contracts with original balances of $4.7 million.
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The principal executive offices of CPS are located at 2 Ada, Irvine,
California 92618. CPS's telephone number is (714) 753-6800.
Underwriting
CPS markets its services to Dealers under four programs: the CPS
standard program (the "Standard Program"), the CPS First Time Buyer Program (the
"First Time Buyer Program"), the CPS Alpha Program (the "Alpha Program") and the
CPS Delta Program (the "Delta Program"). CPS applies underwriting standards in
purchasing loans on new and used vehicles from Dealers based upon the particular
program under which the loan was submitted for purchase. The Alpha Program
guidelines are designed to accommodate applicants who meet all the requirements
of the Standard Program and exceed such requirements in respect of job
stability, residence stability, income level or the nature of the credit
history. The Delta Program guidelines are designed to accommodate applicants who
may not meet all of the requirements of the Standard Program but who are deemed
by CPS to be generally as creditworthy as Standard Program applicants. The First
Time Buyer Program guidelines are designed to accommodate applicants who have
not previously financed an automobile; such applicants must meet all the
requirements of the Standard Program, as well as slightly higher income and down
payment requirements. CPS uses the degree of the applicant's creditworthiness
and the collateral value of the financed vehicle as the basic criteria in
determining whether to purchase an installment sales contract from a Dealer.
Each credit application provides current information regarding the applicant's
employment and residence history, bank account information, debts, credit
references, and other factors that bear on an applicant's creditworthiness. Upon
receiving from the Dealer the completed application of a prospective purchaser
and a one-page Dealer summary of the proposed financing, generally by facsimile
copy, CPS obtains a credit report compiling credit information on the applicant
from three credit bureaus. The credit report summarizes the applicant's credit
history and paying habits, including such information as open accounts,
delinquent payments, bankruptcy, repossessions, lawsuits and judgments. At this
point a CPS loan officer will review the credit application, Dealer summary and
credit report and will either conditionally approve or reject the application.
Such conditional approval or rejection by the loan officer usually occurs within
one business day of receipt of the credit application. The loan officer
determines the conditions to his or her approval of a credit application based
on many factors such as the applicant's residential situation, downpayment, and
collateral value with regard to the loan, employment history, monthly income
level, household debt ratio and the applicant's credit history. Based on the
stipulations of the loan officer, the Dealer and the applicant compile a more
complete application package which is forwarded to CPS and reviewed by a
processor for deficiencies. As part of this review, references are checked,
direct calls are made to the applicant and employment income and residence
verification is done. Upon the completion of his or her review, the processor
forwards the application package to an underwriter for further review. The
underwriter will confirm the satisfaction of any remaining deficiencies in the
application package. Finally, before the loan is funded, the application package
is checked for deficiencies again by a loan review officer. CPS conditionally
approves approximately 50% of the credit applications it receives and ultimately
purchases approximately 13% of the received applications.
CPS has purchased portfolios of Contracts in bulk from other companies
that had previously purchased the Contracts from Dealers. From July 1, 1994 to
July 31, 1995, CPS made four such bulk purchases aggregating approximately $22.9
million. In considering bulk purchases, CPS carefully evaluates the credit
profile and payment history of each portfolio and negotiates the purchase price
accordingly. The credit profiles of the Contracts in each of the portfolios
purchased are consistent with those in the underwriting standards used by the
Company in its normal course of business. Bulk purchases were made at a purchase
price approximately equal to a 7.0% discount from the aggregate principal
balance of the Contracts. CPS has not purchased any portfolios of Contracts in
bulk since July 31, 1995, but may consider doing so in the future.
Generally, the amount funded by CPS will not exceed, in the case of new
cars, 110% of the dealer invoice plus taxes, license fees, insurance and the
cost of the service contract, and in the case of
26
<PAGE>
used cars, 115% of the value quoted in industry-accepted used car guides (such
as the Kelley Wholesale Blue Book) plus the same additions as are allowed for
new cars. The maximum amount that will be financed on any vehicle generally will
not exceed $25,000. The maximum term of the Contract depends primarily on the
age of the vehicle and its mileage. Vehicles having in excess of 80,000 miles
will not be financed.
The minimum downpayment required on the purchase of a vehicle is
generally 10% to 15% of the purchase price. The downpayment may be made in cash,
and/or with a trade-in car and, if available, a proven manufacturer's rebate.
The cash and trade-in value must equal at least 50% of the minimum downpayment
required, with the proven manufacturer's rebate constituting the remainder of
the downpayment. CPS believes that the relatively high downpayment requirement
will result in higher collateral values as a percentage of the amount financed
and the selection of buyers with stronger commitment to the vehicle.
Prior to purchasing any Contract, CPS verifies that the Obligor has
arranged for casualty insurance by reviewing documentary evidence of the policy
or by contacting the insurance company or agent. The policy must indicate that
CPS is the lien holder and loss payee. The insurance company's name and policy
expiration date are recorded in CPS' computerized system for ongoing monitoring.
As loss payee, CPS receives all correspondence relevant to renewals or
cancellations on the policy. Information from all such correspondence is updated
to the computerized records. In the event that a policy reaches its expiration
date without a renewal, or if CPS receives a notice that the policy has been
canceled prior to its expiration date, a letter is generated to advise the
borrower of its obligation to continue to provide insurance. If no action is
taken by the borrower to insure the vehicle, two successive and more forceful
letters are generated, after which the collection department will contact the
borrower telephonically to further counsel the borrower, including possibly
advising them that CPS has the right to repossess the vehicle if the borrower
refuses to obtain insurance. Although it has the right, CPS rarely repossesses
vehicles in such circumstances. In addition, CPS does not force place a policy
and add the premium to the borrower's outstanding obligation, although it also
has the right to do so. Rather in such circumstances the account is flagged as
not having insurance and continuing efforts are made to get the Obligor to
comply with the insurance requirement in the Contract. CPS believes that
handling non-compliance with insurance requirements in this manner ultimately
results in better portfolio performance because it believes that the increased
monthly payment obligation of the borrower which would result from force placing
insurance and adding the premium to the borrower's outstanding obligation would
increase the likelihood of delinquency or default by such borrower on future
monthly payments.
[Affiliated Originator] offers financing programs to IFCs which are
essentially identical to those offered by CPS. The IFCs may offer [Affiliated
Originator]'s financing programs to borrowers directly or indirectly through
local Dealers. Upon submission of applications to [Affiliated Originator],
[Affiliated Originator] credit personnel, who have been trained by CPS, use
CPS's proprietary systems to evaluate the borrower and the proposed Contract
terms. [Affiliated Originator] purchases contracts from the IFCs after its
credit personnel have performed all of the underwriting and verification
procedures and have applied all the same credit criteria that CPS performs and
applies for Contracts it purchases from Dealers. Prior to CPS [or an affiliate]
purchasing a Contract from [Affiliated Originator], CPS personnel perform
procedures intended to verify that such Contract has been underwritten and
originated in conformity with the requirements applied by CPS with respect to
Contracts acquired by it directly from Dealers.
27
<PAGE>
Servicing and Collections
CPS' servicing activities, both with respect to portfolios of Contracts
sold by it to investors and with respect to portfolios of other receivables
owned or originated by third parties, consist of collecting, accounting for and
posting of all payments received with respect to such Contracts or other
receivables, responding to borrower inquiries, taking steps to maintain the
security interest granted in the Financed Vehicle or other collateral,
investigating delinquencies, communicating with the borrower, repossessing and
liquidating collateral when necessary, and generally monitoring each Contract or
other receivable and related collateral. CPS maintains sophisticated data
processing and management information systems to support its Contract and other
receivable servicing activities.
Upon the sale of a portfolio of Contracts to an investor, or upon the
engagement of CPS by another receivable portfolio owner for CPS' services, CPS
mails to borrowers monthly billing statements directing them to mail payments on
the Contracts or other receivables to a lock-box account which is unique for
each investor or portfolio owner. CPS engages an independent lock-box processing
agent to retrieve and process payments received in the lock-box account. This
results in a daily deposit to the investor or portfolio owner's account of the
day's lock-box account receipts and a simultaneous electronic data transfer to
CPS of the borrower payment data for posting to CPS' computerized records.
Pursuant to the various servicing agreements with each investor or portfolio
owner, CPS is required to deliver monthly reports reflecting all transaction
activity with respect to the Contracts or other receivables.
If an account becomes six days past due, CPS's collection staff
typically attempts to contact the borrower with the aid of a high- penetration
auto-dialing computer. A collection officer tries to establish contact with the
customer and obtain a promise by the customer to make the overdue payment within
seven days. If payment is not received by the end of such seven-day period, the
customer is called again through the auto dialer system and the collection
officer attempts to elicit a second promise to make the overdue payment within
seven days. If a second promise to make the overdue payment is not satisfied,
the account automatically is referred to a supervisor for further action. In
most cases, if payment is not received by the tenth day after the due date, a
late fee of approximately 5% of the delinquent payment is imposed. If the
customer cannot be reached by a collection officer, a letter is automatically
generated and the customer's references are contacted. Field agents (who are
independent contractors) often make calls on customers who are unreachable or
whose payment is thirty days or more delinquent. A decision to repossess the
vehicle is generally made after 30 to 90 days of delinquency or three
unfulfilled promises to make the overdue payment. Other than granting such
limited extensions as are described under the heading "Description of the Trust
Documents-Servicing Procedures" in the Prospectus, CPS does not modify or
rewrite delinquent Contracts.
Servicing and collection procedures on Contracts owned by [Affiliated
Originator] are performed by CPS at its headquarters in Irvine, California.
However, [Affiliated Originator] may solicit aid from the related IFC in
collecting past due accounts with respect to which repossession may be
considered.
Delinquency and Loss Experience
Set forth on the following page is certain information concerning the
experience of CPS pertaining to retail new and used automobile, light truck, van
and minivan receivables, including those previously sold, which CPS continues to
service. Contracts were first originated under the Delta Program in August 1994
and under the Alpha Program in April 1995. CPS has found that the delinquency
and net credit loss and repossession experience with respect to the Delta
Program is somewhat greater than under its Standard Program. CPS has found that
the delinquency and net credit loss and repossession experience with respect to
the Alpha Program is somewhat lower than that experienced under the Standard
Program. CPS has purchased Contracts representing financing for first-time
purchasers of automobiles since the inception of its Contract purchasing
activities in 1991. Prior to the establishment of the First Time Buyer
28
<PAGE>
Program in July 1996, CPS purchased such Contracts under its Standard Program
guidelines. CPS expects that the delinquency and net credit loss and
repossession experience with respect to loans originated under the First Time
Buyer Program will be similar to that under the Standard Program. CPS began
servicing Contracts originated by [Affiliated Originator] in March 1996.
Although credit history on [Affiliated Originator]'s originations is limited,
CPS expects that the delinquency and net credit loss and repossession experience
with respect to the Receivables originated by [Affiliated Originator] will be
similar to that of CPS's existing portfolio. There can be no assurance, however,
that the delinquency and net credit loss and repossession experience on the
Receivables will continue to be comparable to CPS' experience shown in the
following tables.
29
<PAGE>
<TABLE>
<CAPTION>
Consumer Portfolio Services, Inc.
Delinquency Experience1/
December 31, 1994 December 31, 1995 December 31, 1996
----------------- ----------------- -----------------
Number Number Number
of Loans Amount of Loans Amount of Loans Amount
<S> <C> <C> <C> <C>
Portfolio (1).................. 14,235 $203,879,000 27,113 $355,965,000 47,187 $604,092,000
Period of Delinquency (2)
31-60.................... 243 3,539,000 909 11,520,000 1,801 22,099,000
61-90.................... 68 1,091,000 203 2,654,000 724 9,068,000
91+...................... 56 876,000 272 3,899,000 768 9,906,000
Total Delinquencies............ 367 5,506,000 1,384 18,073,000 3,293 41,073,000
Amount in Repossession
(3)......................... 271 3,759,000 834 10,151,000 1,168 14,563,000
Total Delinquencies and
Amount in
Repossession (4)............ 638 $9,265,000 2,218 $28,224,000 4,461 $55,636,000
Delinquencies as a
Percent of the Portfolio.... 2.58% 2.70% 5.10% 5.08% 6.98% 6.80%
Repo Inventory as a
Percent of the Portfolio.... 1.90% 1.84% 3.08% 2.85% 2.48% 2.41%
Total Delinquencies and
Amount in
Repossession as a
Percent of Portfolio........ 4.48% 4.54% 8.18% 7.93% 9.45% 9.21%
- -----------
(1) All amounts and percentages are based on the full amount remaining to
be repaid on each Contract, including, for Rule of 78's Contracts, any
unearned finance charges. The information in the table represents all
Contracts originated by CPS including sold Contracts CPS continues to
service.
(2) CPS considers a Contract delinquent when an obligor fails to make at
least 90% of a contractually due payment by the due date. The period of
delinquency is based on the number of days payments are contractually
past due.
(3) Amount in Repossession represents Financed Vehicles which have been repossessed but not yet
liquidated.
(4) Amounts shown do not include Contracts which are less than 31 days delinquent.
- --------
1/ Add first quarter numbers
30
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consumer Portfolio Services, Inc.
Net Credit Loss/Repossession Experience1/
Year Ended Year Ended Year Ended
December 31, 1994 December 31, 1995 December 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Average Amount Outstanding During the
Period (1)........................................ $98,916,991 $221,926,489 $395,404,669
Average Number of Loans Outstanding
During the Period........................ 9,171 20,809 36,998
Number of Repossessions........................... 669 2,018 3,145
Gross Charge-Offs (2)............................. $3,166,408 $11,658,461 $23,296,775
Recoveries (3).................................... $347,519 $1,028,378 $2,969,143
Net Losses........................................ $2,818,889 $10,630,083 $20,327,632
Annualized Repossessions as a Percentage
of Average Number of Loans
Outstanding.............................. 7.29% 9.70% 8.50%
Annualized Net Losses as a Percentage of
Average Amount Outstanding............... 2.85% 4.79% 5.14%
- -----------
(1) All amounts and percentages are based on the principal amount scheduled
to be paid on each Contract. The information in the table represents
all Contracts originated by CPS including sold Contracts which CPS
continues to service.
(2) Amount charged off includes the remaining principal balance, after the
application of the net proceeds from the liquidation of the vehicle,
excluding accrued and unpaid interest.
(3) Recoveries are reflected in the period in which they are realized and may pertain to charge offs from prior
periods.
- --------
1/ Add first quarter numbers
31
</TABLE>
<PAGE>
THE RECEIVABLES POOL
The Receivables Pool existing as of the Cutoff Date consists of
Receivables selected from CPS's Portfolio by several criteria, including the
following: each Receivable was originated, based on the billing address of the
Obligors, in the United States, has an original term of not more than 60 months,
provides for level monthly payments which fully amortize the amount financed
over the original term (except for the last payment, which may be different from
the level payment for various reasons, including late or early payments during
the term of the Contract), has a remaining maturity of 60 months or less as of
the Cutoff Date, has an outstanding principal balance of not more than [$ ] as
of the Cutoff Date, is not more than 30 days past due as of the Cutoff Date and
has an APR of not less than [ %]. As of the date of each Obligor's application
for the loan from which the related Receivable arises, each Obligor (i) did not
have any material past due credit obligations or any repossessions or
garnishments of property within one year prior to the date of application,
unless such amounts have been repaid or discharged through bankruptcy, (ii) was
not the subject of any bankruptcy or insolvency proceeding that is not
discharged, and (iii) had not been the subject of more than one bankruptcy
proceeding. As of the Cutoff Date, the latest scheduled maturity of any
Receivable is not later than [ ].
As of the Cutoff Date, approximately [ %] of the aggregate principal
balance of the Receivables, constituting [ %] of the number of Contracts,
represents financing of used vehicles; the remainder of the Receivables
represent financing of new vehicles. Approximately [ %] of the aggregate
principal balance of the Receivables were originated under the Delta Program,
approximately [ %] of the aggregate principal balance of the Receivables were
originated under the Alpha Program, approximately [ %] of the aggregate
principal balance of the Receivables were originated under the First Time Buyer
Program and approximately [ %] of the aggregate principal balance of the
Receivables represent financing under the Standard Program. As of the Cutoff
Date, approximately [ %] of the aggregate principal balance of the Receivables
were originated by unaffiliated third parties and purchased by CPS in the
ordinary course of its business. As of the Cutoff Date, [ %] of the Principal
Balance of the Receivables were [Affiliated Originator] Receivables. The
composition, geographic distribution, distribution by APR, distribution by
remaining term, distribution by date of origination, distribution by original
term, distribution by model year and distribution by original principal balance
of the Receivables as of the Cutoff Date are set forth in the following tables.
<TABLE>
<CAPTION>
Composition of the Receivables as of the Cutoff Date
<S> <C> <C> <C> <C>
Weighted Aggregate Number of Average Weighted Weighted
Average APR Principal Receivables Principal Average Average
of Receivables Balance in Pool Balance Remaining Term Original Term
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Geographic Distribution of the Receivables as of the Cutoff Date
Percent of Percent of
Aggregate Aggregate Number of Number of
State(1) Principal Balance Principal Balance Receivables Receivables
<S> <C> <C> <C> <C>
all others(2)................................ % %
-------- ---- ---- -
TOTAL........................................ $
100.00%(3) 100.00%(3)
======= =============== ====== ==========
- -----------
(1) Based on billing address of Obligor.
(2) No other state represents a percent of the aggregate Principal Balance
as of the Cutoff Date in excess of one percent.
(3) Percentages may not add up to 100% because of rounding.
</TABLE>
<TABLE>
<CAPTION>
Distribution of the Receivables by APR as of the Cutoff Date
Percent of Percent of
APR Aggregate Aggregate Number of Number of
Range Principal Balance Principal Balance Receivables Receivables
<S> <C> <C> <C> <C>
all others(2).............................. % %
-------- ---- ---- -
TOTAL...................................... $
100.00%(1) 100.00%(1)
======= =============== ====== ==========
- -----------
(1) Percentages may not add up to 100% because of rounding.
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Distribution of Receivables by Remaining Term to
Scheduled Maturity as of the Cutoff Date
Percent of Percent of
Remaining Term to Aggregate Aggregate Number of Number of
Scheduled Maturity Principal Balance Principal Balance Receivables Receivables
<S> <C> <C> <C> <C>
TOTAL...................................... $ 100.00%(1) 100.00%(1)
- -----------
(1) Percentages may not add up to 100% because of rounding.
</TABLE>
<TABLE>
<CAPTION>
Distribution of Receivables by
Date of Origination as of the Cutoff Date
Percent of Percent of
Aggregate Aggregate Number of Number of
Date of Origination Principal Balance Principal Balance Receivables Receivables
<S> <C> <C> <C> <C>
TOTAL........................................ $ 100.00%(1) 100.00%(1)
- -----------
(1) Percentages may not add up to 100% because of rounding.
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Distribution of Receivables by Original Term to
Scheduled Maturity as of the Cutoff Date
Percent of Percent of
Original Term to Aggregate Aggregate Number of Number of
Scheduled Maturity Principal Balance Principal Balance Receivables Receivables
<S> <C> <C> <C> <C>
TOTAL........................................ $ 100.00%(1) 100.00%(1)
- -----------
(1) Percentages may not add up to 100% because of rounding.
</TABLE>
<TABLE>
<CAPTION>
Distribution of Receivables by Model Year of Financed Vehicle
as of the Cutoff Date
Percent of Percent of
Aggregate Aggregate Number of Number of
Model Year Principal Balance Principal Balance Receivables Receivables
<S> <C> <C> <C> <C>
TOTAL........................................ $ 100.00%(1) 100.00%(1)
- -----------
(1) Percentages may not add up to 100% because of rounding.
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Distribution of Receivables by Original Principal Balance
as of the Cutoff Date
Percent of Percent of
Range of Original Aggregate Aggregate Number of Number of
Principal Balances Principal Balance Principal Balance Receivables Receivables
<S> <C> <C> <C> <C>
TOTAL........................................ $ 100.00%(1) 100.00%(1)
- -----------
(1) Percentages may not add up to because of rounding.
</TABLE>
36
<PAGE>
As of the Cutoff Date, approximately [ %] of the aggregate Principal
Balance of the Receivables in the Receivables Pool provide for allocation of
payments according to the "sum of periodic balances" or "sum of monthly
payments" method, similar to the "Rule of 78's" ("Rule of 78's Receivables")
and, approximately [ %] of the aggregate Principal Balance of the Receivables in
the Receivables Pool provide for allocation of payments according to the "simple
interest" method ("Simple Interest Receivables"). A Rule of 78's Receivable
provides for payment by the Obligor of a specified total amount of payments,
payable in equal monthly installments on each due date, which total represents
the principal amount financed and add-on interest in an amount calculated on the
basis of the stated APR for the term of the Receivable. The rate at which such
amount of add-on interest is earned and, correspondingly, the amount of each
fixed monthly payment allocated to reduction of the outstanding principal are
calculated in accordance with the "Rule of 78's". A Simple Interest Receivable
provides for the amortization of the amount financed under the Receivable over a
series of fixed level monthly payments. Each monthly payment consists of an
installment of interest which is calculated on the basis of the outstanding
principal balance of the Receivable multiplied by the stated APR and further
multiplied by the period elapsed (as a fraction of a calendar year) since the
preceding payment of interest was made. As payments are received under a Simple
Interest Receivable, the amount received is applied first to interest accrued to
the date of payment and the balance is applied to reduce the unpaid principal
balance. Accordingly, if an Obligor pays a fixed monthly installment before its
scheduled due date, the portion of the payment allocable to interest for the
period since the preceding payment was made will be less than it would have been
had the payment been made as scheduled, and the portion of the payment applied
to reduce the unpaid principal balance will be correspondingly greater.
Conversely, if an Obligor pays a fixed monthly installment after its scheduled
due date, the portion of the payment allocable to interest for the period since
the preceding payment was made will be greater than it would have been had the
payment been made as scheduled, and the portion of the payment applied to reduce
the unpaid principal balance will be correspondingly less. In either case, the
Obligor pays a fixed monthly installment until the final scheduled payment date,
at which time the amount of the final installment is increased or decreased as
necessary to repay the then outstanding principal balance.
In the event of the prepayment in full (voluntarily or by acceleration)
of a Rule of 78's Receivable, under the terms of the contract, a "refund" or
"rebate" will be made to the Obligor of the portion of the total amount of
payments then due and payable under the contract allocable to "unearned" add-on
interest, calculated in accordance with a method equivalent to the Rule of 78's.
If a Simple Interest Receivable is prepaid, rather than receive a rebate, the
Obligor is required to pay interest only to the date of prepayment. The amount
of a rebate under a Rule of 78's Receivable generally will be less than the
remaining scheduled payments of interest that would have been due under a Simple
Interest Receivable for which all payments were made on schedule.
The Trust will account for the Rule of 78's Receivables as if such
Receivables provided for amortization of the loan over a series of fixed level
payment monthly installments ("Actuarial Receivables"). Amounts received upon
prepayment in full of a Rule of 78's Receivable in excess of the then
outstanding Principal Balance of such Receivable and accrued interest thereon
(calculated pursuant to the actuarial method) will not be passed through to
Noteholders but will be paid to the Servicer as additional servicing
compensation.
YIELD CONSIDERATIONS
All of the Receivables are prepayable at any time. (For this purpose
"prepayments" include prepayments in full, liquidations due to default, as well
as receipts of proceeds from physical damage, credit life and credit accident
and health insurance policies and certain other Receivables repurchased for
administrative reasons.) The rate of prepayments on the Receivables may be
influenced by a variety of economic, social, and other factors, including the
fact that an Obligor generally may not sell or transfer the Financed Vehicle
securing a Receivable without the consent of CPS. In addition, the rate of
prepayments on the Receivables may be affected by the nature of the Obligors and
the Financed Vehicles
37
<PAGE>
and servicing decisions. See "Risk Factors-Nature of Obligors; Servicing" in
this Prospectus Supplement. Any reinvestment risks resulting from a faster or
slower incidence of prepayment of Receivables will be borne entirely by the
Noteholders. See also "Description of the Notes and the Certificates -- Optional
Redemption" in this Prospectus Supplement regarding the Servicer's option to
purchase the Receivables and redeem the Notes when the aggregate principal
balance of the Receivables is less than or equal to 10% of the Original Pool
Balance.
POOL FACTORS AND OTHER INFORMATION
The "Pool Balance" at any time represents the aggregate principal
balance of the Receivables at the end of the preceding Collection Period, after
giving effect to all payments received from Obligors, all payments and Purchase
Amounts remitted by CPS or the Servicer, as the case may be, all for such
Collection Period, all losses realized on Receivables liquidated during such
Collection Period and any Cram Down Losses with respect to such Receivables. The
Pool Balance is computed by allocating payments to principal and to interest,
with respect to Rule of 78's Receivables, using the constant yield or actuarial
method, and with respect to Simple Interest Receivables, using the simple
interest method. The "Class A-1 Pool Factor" is a seven digit decimal which the
Servicer will compute each month indicating the principal balance of the Class
A-1 Notes as a fraction of the initial principal balance of the Class A-1 Notes.
The "Class A-2 Pool Factor" is a seven-digit decimal which the Servicer will
compute each month indicating the principal balance of the Class A-2 Notes as a
fraction of the initial principal balance of the Class A-2 Notes. The Class A-2
Pool Factor will be 1.0000000 as of the Closing Date; thereafter, the Class A-2
Pool Factor will decline to reflect reductions in the principal balance of the
Class A-2 Notes. An individual Noteholder's share of the principal balance of
the Class A-2 Notes is the product of (i) the original denomination of the
Noteholder's Note and (ii) the Class A-2 Pool Factor. The "Class A-3 Pool
Factor" is a seven-digit decimal which the Servicer will compute each month
indicating the principal balance of the Class A-3 Notes as a fraction of the
initial principal balance of the Class A-3 Notes. The Class A-3 Pool Factor will
be 1.0000000 as of the Closing Date; thereafter, the Class A-3 Pool Factor will
decline to reflect reductions in the principal balance of the Class A-3 Notes.
An individual Noteholder's share of the principal balance of the Class A-3 Notes
is the product of (i) the original denomination of the Noteholder's Note and
(ii) the Class A-3 Pool Factor. [Other Classes to be added.] Pool Factors will
be made available on or about the eighth business day of each month.
Pursuant to the Indenture, the Noteholders will receive monthly reports
concerning the payments received on the Receivables, the Pool Balance, the Pool
Factors and various other items of information. Noteholders of record during any
calendar year will be furnished information for tax reporting purposes not later
than the latest date permitted by law. See "Description of the Trust Documents -
Statements to Noteholders" in this Prospectus Supplement.
USE OF PROCEEDS
The net proceeds to be received by the Seller from the sale of the
Notes will be applied to the purchase of the CPS Receivables from CPS and the
[Affiliated Originator] Receivables from [Affiliated Originator]. CPS will apply
the net proceeds received from the Seller to purchase new Contracts or to repay
debt incurred to purchase the Contracts.
THE SELLER AND CPS
The Seller is a wholly-owned subsidiary of CPS. The Seller was
incorporated in the State of California in June of 1994. The Seller was
organized for the limited purpose of purchasing automobile installment sale
contracts from CPS and transferring such receivables to third parties and any
activities incidental to and necessary or convenient for the accomplishment of
such purposes. The principal executive offices of the Seller are located at 2
Ada, Suite 100, Irvine, California 92618; telephone (714)
38
<PAGE>
753-6800. For further information regarding the Seller and CPS, see "The Seller
and CPS" in the Prospectus.
THE STANDBY SERVICER
If CPS is terminated or resigns as Servicer, Norwest Bank Minnesota,
National Association (in such capacity, the "Standby Servicer") will serve as
successor Servicer. The Standby Servicer will receive a fee on each Payment Date
for agreeing to stand by as successor Servicer and for performing certain other
functions. Such fee will be payable to the Standby Servicer from the Servicing
Fee payable to CPS. If the Standby Servicer, or any other entity serving at the
time as Standby Servicer, becomes the successor Servicer, it will receive
compensation at a Servicing Fee Rate not to exceed 2.12% per annum.
DESCRIPTION OF THE NOTES
General
The Notes will be issued pursuant to the terms of the Indenture, a form
of which has been filed as an exhibit to the Registration Statement.
The Notes initially will be represented by notes registered in the name
of Cede as the nominee of The Depository Trust Company ("DTC"), and will only be
available in the form of book-entries on the records of DTC and participating
members thereof in denominations of $1,000. All references to "holders" or
"Noteholders" and to authorized denominations, when used with respect to the
Notes, shall reflect the rights of beneficial owners of the Notes ("Note
Owners"), and limitations thereof, as they may be indirectly exercised through
DTC and its participating members, except as otherwise specified herein. See
"Registration of Notes and Certificates" in this Prospectus Supplement.
Payment of Interest
On each Payment Date, the holders of record of the Class A-1 Notes (the
"Class A-1 Noteholders") as of the related Record Date will be entitled to
receive, pro rata, interest at the Class A-1 Note Rate, on the outstanding
principal balance of the Class A-1 Notes as of the last day of the related
Collection Period, based on the number of days elapsed from and including the
preceding Payment Date (or, in the case of the initial Payment Date, from and
including the Closing Date) to but excluding the current Payment Date. On each
Payment Date, the holders of record of the Class A-2 Notes (the "Class A-2
Noteholders") as of the related Record Date will be entitled to receive, pro
rata, thirty (30) days of interest at the Class A-2 Interest Rate on the
outstanding principal amount of the Class A-2 Notes at the close of business on
the last day of the related Collection Period. On each Payment Date, the holders
of record of the Class A-3 Notes (the "Class A-3 Noteholders") as of the related
Record Date will be entitled to receive, pro rata, thirty (30) days of interest
at the Class A-3 Interest Rate on the outstanding principal amount of the Class
A-3 Notes at the close of business on the last day of the related Collection
Period. [Additional classes, if any, to be added]. Notwithstanding the
foregoing, on the first Payment Date, the interest payable to the Noteholders of
record of each class of Notes will be an amount equal to the product of (a) the
Interest Rate applicable to such class of Notes, (b) the initial principal
amount of such class of Notes and (c) a fraction (i) the numerator of which is
the number of days from and including the Closing Date through and including [ ]
14, 1997 and (ii) the denominator of which is 360. Interest on the Notes which
is due but not paid on any Payment Date will be payable on the next Payment Date
together with, to the extent permitted by law, interest on such unpaid amount at
the applicable Interest Rate.
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Determination of LIBOR
Pursuant to the Indenture, the Indenture Trustee will determine LIBOR
for purposes of calculating the Interest Rate for the Class A-3 Notes for each
given Collection Period on the second business day prior to the commencement of
each Collection Period (each, a "LIBOR Determination Date"). For purposes of
calculating LIBOR, a business day means a Business Day and a day on which
banking institutions in the City of London, England are not required or
authorized by law to be closed.
"LIBOR" means, with respect to any Interest Period, the London
interbank offered rate for deposits in U.S. dollars having a maturity of one
month commencing on the related LIBOR Determination Date (the "Index Maturity")
which appears on Telerate Page 3750 as of 11:00 a.m., London time, on such LIBOR
Determination Date. If such rate does not appear on the Telerate Page 3750, the
rate for that day will be determined on the basis of the rates at which deposits
in U.S. dollars, having the Index Maturity and in a principal amount of not less
than U.S. $1,000,000, are offered at approximately 11:00 a.m., London time, on
such LIBOR Determination Date to prime banks in the London interbank market by
the Reference Banks. The Indenture Trustee will request the principal London
office of each of such Reference Banks to provide a quotation of its rate. If at
least two such quotations are provided, the rate for the day will be the
arithmetic mean, rounded upward, if necessary, to the nearest 1/100,000 of 1%
(0.0000001), with five one-millionths of a percentage point rounded upward, of
all such quotations. If fewer than two such quotations are provided, the rate
for that day will be the arithmetic mean, rounded upward, if necessary, to the
nearest 1/100,000 of 1% (0.0000001), with five one-millionths of a percentage
point rounded upward, of the offered per annum rates that one or more leading
banks in New York City, selected by the Indenture Trustee, are quoting as of
approximately 11:00 a.m., New York City time, on such LIBOR Determination Date
to leading European banks for United States dollar deposits for the Index
Maturity; provided that if the banks selected as aforesaid are not quoting as
mentioned in this sentence, LIBOR in effect for the applicable Interest Period
will be LIBOR in effect for the previous Interest Period.
"Telerate Page 3750" means the display page so designated on the Dow
Jones Telerate Service (or such other page as may replace that page on that
service for the purpose of displaying comparable rates or prices).
"Reference Banks" means four major banks in the London interbank market
selected by the Master Servicer.
Payment of Principal
Principal of the Notes will be payable on each Payment Date in an
amount equal to the Noteholders' Principal Distributable Amount for the related
Collection Period. The "Noteholders' Principal Distributable Amount" is equal to
the product of (a) the Noteholders' Percentage of the Principal Distributable
Amount and (b) any unpaid portion of the amount described in clause (a) with
respect to a prior Payment Date.
Mandatory Redemption
[Each class of Notes will be redeemed in part on the Payment Date on or
immediately following the last day of the Funding Period in the event that any
portion of the Pre-Funded Amount remains on deposit in the Pre-Funding Account
after giving effect to the purchase of all Subsequent Receivables, including any
such purchase on such date (a "Mandatory Redemption"). The aggregate principal
amount of each class of Notes to be redeemed will be an amount equal to such
class's pro rata share (based on the respective current Principal Balance of
each class of Notes and the Certificate Balance) of the remaining Pre-Funded
Amount on such date (such class's "Note Prepayment Amount").]
[A Note Prepayment Premium will be payable by the Trust to the
Noteholders of each class if the Pre-Funded Amount at the end of the Funding
Period exceeds $100,000. The Note Prepayment
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Premium for a class of Notes will equal the excess, if any, discounted as
described below, of (i) the amount of interest that would have accrued on such
class's Note Prepayment Amount at the Interest Rate borne by such class of Notes
during the period commencing on and including the Payment Date on which such
class's Note Prepayment Amount is required to be distributed to the Noteholders
of such class to but excluding [ ], in the case of the Class A-1 Notes, [ ], in
the case of the Class A-2 Notes, [ ] in the case of the Class A-3 Notes, over
(ii) the amount of interest that would have accrued on such class's Note
Prepayment Amount over the same period at a per annum rate of interest equal to
the bond equivalent yield to maturity on the Record Date preceding such Payment
Date on the United States Treasury Bill due [ ], in the case of the Class A-1
Notes, the [ ]% United States Treasury Note due [ ], in the case of the Class
A-2 Notes, the [ ]% United States Treasury Note due [ ], and in the case of the
Class A-3 Notes, the [ ]% United States Treasury Note due [ ]. Such excess shall
be discounted to present value to such Payment Date at the applicable yield
described in clause (ii) above. The Trust's obligation to pay the Note
Prepayment Premiums shall be limited to funds which are received from the Seller
under the Sale and Servicing Agreement [or an Affiliate Purchase Agreement] as
liquidated damages for the failure to deliver Subsequent Receivables. No other
assets of the Trust will be available for the purpose of making such payment.
[The Credit Enhancement does not guarantee payment of the Note Prepayment
Premiums or the Note Prepayment Amounts, although the [Credit Enhancement] does
guarantee payment of the Noteholders' Interest Distributable Amount and the
Noteholders' Principal Distributable Amount with respect to each class of Notes
on its respective Final Scheduled Payment Date.] In addition, the ratings
assigned to the Notes by the Rating Agencies do not address the likelihood that
the Note Prepayment Amounts or the Note Prepayment Premiums will be paid.]
Optional Redemption
In order to avoid excessive administrative expense, the Servicer, or
its successor, is permitted at its option to purchase from the Trust (with the
consent of the [Credit Enhancer] if such purchase would result in a claim under
the [Credit Enhancement] or any amount owing to the [Credit Enhancer] or on the
Certificates would remain unpaid), as of the last day of any month as of which
the then outstanding Pool Balance is equal to 10% or less of the Original Pool
Balance, all remaining Receivables at a price equal to the aggregate of the
Purchase Amounts thereof as of such last day. Exercise of such right will effect
early retirement of the Notes. The Indenture Trustee will give written notice of
termination to each Noteholder of record. The final distribution to any
Noteholder will be made only upon surrender and cancellation of such holder's
Note at the office or agency of the Indenture Trustee specified in the notice of
termination. Any funds remaining with the Indenture Trustee, after the Indenture
Trustee has taken certain measures to locate a Noteholder and such measures have
failed, will be distributed to The American Red Cross.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued pursuant to the terms of the Trust
Agreement, a form of which has been filed as an exhibit to the Registration
Statement.
The Certificates initially will be represented by certificates
registered in the name of Cede as the nominee of DTC and will only be available
in the form of book-entries on the records of DTC and participating members
thereof in denominations of $1,000. All references to "holders" or
"Certificateholders" and to authorized denominations, when used with respect to
the Certificates, shall reflect the rights of beneficial owners of the
Certificates ("Certificate Owners"), and limitations thereof, as they may be
indirectly exercised through DTC and its participating members, except as
otherwise specified herein. See "Registration of Notes and Certificates" in this
Prospectus Supplement.
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On each Payment Date, the Certificateholders will, subject to the
availability of funds, be entitled to distributions (the "Certificateholders'
Interest Distributable Amount") in an amount equal to the amount of interest
accrued on the Certificate Balance at the Pass-Through Rate. Interest
distributable on a Payment Date will accrue from and including the preceding
Payment Date (or, in the case of the initial Payment Date, the Closing Date) to
but excluding the current Payment Date and will be calculated on the basis of a
360-day year consisting of twelve 30-day months. Interest distributions due on
any Payment Date but not distributed on such Payment Date will be due on the
next Payment Date, together with interest on such amount at the Pass-Through
Rate (to the extent permitted by law). See "Description of the Trust
Documents-Distributions" in this Prospectus Supplement.
Principal of the Certificates will be payable on each Payment Date in
an amount equal to the Certificateholders' Principal Distributable Amount for
the related Collection Period. The "Certificateholders' Principal Distributable
Amount" is equal to the product of (a) the Certificateholder's Percentage of the
Principal Distributable Amount and (b) any unpaid portion of the amount
described in clause (a) with respect to a prior Payment Date.
Mandatory Prepayment
[The Certificates will be prepaid in part, on a pro rata basis, on the
Payment Date on or immediately following the last day of the Funding Period in
the event that any portion of the Pre-Funded Amount remains on deposit in the
Pre-Funding Account after giving effect to the purchase of all Subsequent
Receivables, including any purchase on such date (a "Mandatory Prepayment"). The
aggregate principal amount of the Certificates to be prepaid will be an amount
equal to the Certificateholders' pro rata share (based on the respective current
Principal Balance of each class of Notes and the Certificate Balance) of the
remaining Pre-Funded Amount (the "Certificate Prepayment Amount").]
[The Certificate Prepayment Premium will be payable by the Trust to the
Certificateholders if the Pre-Funded Amount at the end of the funding Period
exceeds $100,000. The Certificate Prepayment Premium will equal the excess, if
any, discounted as described below, of (i) the amount of interest that would
have accrued on the certificate Prepayment Amount at the Pass-Through Rate
during the period commencing on and including the Payment Date on which such
Certificate Prepayment Amount is required to be distributed to
Certificateholders to but excluding [ ], over (ii) the amount of interest that
would have accrued on such Certificate Prepayment Amount over the same period at
a per annum rate of interest equal to the bond equivalent yield to maturity on
the Record Date preceding such Payment Date on the [ ]% United States Treasury
Note due [ ]. Such excess shall be discounted to present value to such Payment
Date at the yield described in clause (ii) above. The Trust's obligation to pay
the Certificate Prepayment Premium shall be limited to funds which are received
from the Seller under the Sale and Servicing Agreement [or an Affiliated
Purchase Agreement] as liquidated damages for the failure to deliver Subsequent
Receivables. No other assets of the Trust will be available for the purpose of
making such payment. The [Credit Enhancement] does not guarantee payment of the
Certificate Prepayment Amount or the Certificate Prepayment Premium, although
the [Credit Enhancement] does guarantee payment of the Certificateholders'
Interest Distributable Amount and the Certificateholders' Principal
Distributable Amount on the Final Scheduled Payment Date. In addition, the
ratings assigned to the Certificates by the Rating Agencies do not address the
likelihood that the Certificate Prepayment Amount or the Certificate Prepayment
Premium will be paid.]
Optional Prepayment
If the Seller or the Servicer exercises its option to purchase the
Receivables when the aggregate Principal Balance declines to 10% or less of the
Original Pool Balance, Certificateholders will receive an amount in respect of
the Certificates equal to the outstanding Principal Balance of the Certificates
together with accrued interest at the Pass-Through Rate, which distribution will
effect early retirement
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of the Certificates. See "Description of the Trust Documents -- Termination" in
the accompanying Prospectus.
Subordination of the Certificates
[No distribution of interest or principal will be made to
Certificateholders on any Payment Date until the Noteholders have been paid the
Noteholders' Interest Distributable Amount and the Noteholders' Principal
Distributable Amount for such Payment Date. This subordination is intended to
enhance the likelihood of timely receipt by the Noteholders of the full amount
of interest and principal distributable to them on each Payment Date and to
afford the Noteholders limited protection against losses in respect of the
Receivables.]
REGISTRATION OF NOTES AND CERTIFICATES
[The Notes and the Certificates will initially be registered in the
name of Cede & Co. ("Cede"), the nominee of DTC. 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 Uniform Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended.
DTC accepts securities for deposit from its participating organizations
("Participants") and facilitates the clearance and settlement of securities
transactions between Participants in such securities through electronic
book-entry changes in accounts of Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks and trust companies and clearing corporations and may include
certain other organizations. Indirect access to the DTC system is also 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. See "Certain Information Regarding the Notes-Book-Entry
Registration" in the Prospectus.]
DESCRIPTION OF THE TRUST DOCUMENTS
The following summary describes certain terms of the [Affiliate
Purchase Agreement] and the Purchase Agreement, the Indenture and the Trust
Agreement (together, the "Trust Documents"). Forms of the [Affiliate Purchase
Agreement] and the Trust Documents have been filed as exhibits to the
Registration Statement. A copy of the [Affiliate Purchase Agreement] and the
Trust Documents will be filed with the Commission following the issuance of the
Securities. The summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all the provisions of the [Affiliate
Purchase Agreement] and the Trust Documents. The following summary supplements,
the description of the general terms and provisions of the [Affiliate Purchase
Agreement] and the Trust Documents (as such terms are used in the accompanying
Prospectus) set forth in the accompanying Prospectus, to which description
reference is hereby made.
Sale and Assignment of Receivables; Subsequent Receivables
On or prior to the Closing Date, the Seller will purchase from
[Affiliated Originator] pursuant to an agreement (the "[Affiliate Purchase
Agreement]"), without recourse, except as provided in the [Affiliate Purchase
Agreement], [Affiliated Originator's] entire interest in the [Affiliated
Originator] Receivables, together with [Affiliated Originator]'s security
interests in the related Financed Vehicles. On or prior to the Closing Date, CPS
will, pursuant to the Purchase Agreement, sell and assign to the Seller, without
recourse, except as provided in the Purchase Agreement, its entire interest in
the CPS Receivables, together with its security interests in the related
Financed Vehicles. At the time of issuance of the Securities, the Seller will
sell and assign to the Trust, without recourse except as provided in the Sale
and Servicing Agreement, its entire interest in the Receivables, together with
its security interests in the Financed Vehicles. Each Receivable will be
identified in a schedule appearing as an exhibit to the
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Purchase Agreement. The Indenture Trustee will, concurrently with such sale and
assignment, execute, authenticate, and deliver the Securities to the Seller in
exchange for the Receivables. The Seller will sell the Notes to the
Underwriters. See "Underwriting" in this Prospectus Supplement.
In the Purchase Agreement, CPS will represent and warrant to the
Seller, among other things, that (i) the information provided in the Purchase
Agreement with respect to the Receivables (including, without limitation, the
[Affiliated Originator] Receivables) is correct in all material respects; (ii)
at the dates of origination of the Receivables, physical damage insurance
covering each Financed Vehicle was in effect in accordance with CPS's normal
requirements; (iii) at the date of issuance of the Securities, the Receivables
are free and clear of all security interests, liens, charges, and encumbrances
and no offsets, defenses, or counterclaims against Dealers or IFCs have been
asserted or threatened; (iv) at the date of issuance of the Securities, each of
the Receivables is or will be secured by a first-priority perfected security
interest in the related Financed Vehicle in favor of CPS or [Affiliated
Originator]; and (v) each Receivable, at the time it was originated, complied
and, at the date of issuance of the Securities, complies in all material
respects with applicable federal and state laws, including, without limitation,
consumer credit, truth in lending, equal credit opportunity and disclosure laws.
As of the last day of the second (or, if CPS elects, the first) month following
the discovery by or notice to the Seller and CPS of a breach of any
representation or warranty that materially and adversely affects a Receivable,
unless the breach is cured, CPS will purchase such Receivable from the Trust for
the Purchase Amount. The repurchase obligation will constitute the sole remedy
available to the Noteholders, the [Credit Enhancer], the Owner Trustee or the
Indenture Trustee for any such uncured breach.
[During the Funding Period, on each Subsequent Transfer Date, subject
to the conditions described below, the Seller will sell and assign to the Trust,
without recourse, the Seller's entire interest in the Subsequent Receivables
designated by the Seller as of the related Subsequent Cutoff Date and identified
in a schedule attached to a Subsequent Transfer Agreement relating to such
Subsequent Receivables executed on such date by the Seller. Upon the conveyance
of Subsequent Receivables to the Trust on a Subsequent Transfer Date, (i) the
aggregate Principal Balance will increase in an amount equal to the aggregate
principal balances of the Subsequent Receivables, (ii) the Class A-1 Holdback
Amount (described under "--Accounts" below), if any, for such Subsequent
Transfer Date will be withdrawn from the Pre-Funding Account and deposited in
the Class A-1 Holdback Subaccount (described under "--Accounts" below), and
(iii) an amount equal to the aggregate principal balances of such Subsequent
Receivables less the Class A-1 Holdback Amount will be paid to or upon the order
of the Seller.]
Any conveyance of Subsequent Receivables is subject to the
satisfaction, on or before the related Subsequent Transfer Date, of the
following conditions, among others: (i) each such Subsequent Receivable
satisfies the eligibility criteria specified in the Purchase Agreement; (ii)
[Credit Enhancer] (so long as no [Credit Enhancer] Default shall have occurred
and be continuing) shall in its absolute and sole discretion have approved the
transfer of such Subsequent Receivables to the Trust; (iii) as of each
applicable Subsequent Cutoff Date, the Receivables in the Trust together with
the Subsequent Receivables to be conveyed by the Seller as of such Subsequent
Cutoff Date, meet the following criteria (computed based on the characteristics
of the Initial Receivables on the Initial Cutoff Date and any Subsequent
Receivables on the related Subsequent Cutoff Date: [Conditions to be specified];
(iv) the Seller shall have executed and delivered to the Trust (with a copy to
the Indenture Trustee) a Subsequent Transfer Agreement conveying such Subsequent
Receivables to the Trust (including a schedule identifying such Subsequent
Receivables); [(v) the Class A-1 Holdback Amount, if any, shall have been
deposited in the Class A-1 Holdback Subaccount (described under "--Accounts"
below);] (vi) the Seller shall have delivered certain opinions of counsel to the
Indenture Trustee, the Owner Trustee, [Credit Enhancer] and the Rating Agencies
with respect to the validity of the conveyance of such Subsequent Receivables;
and (vii) the Rating Agencies shall have each notified the Seller, the Owner
Trustee, the Indenture Trustee and [Credit Enhancer] in writing that, following
the addition of all such Subsequent Receivables, the Class A-1 Notes, the Class
A-2 Notes and the Class A-3 Notes [and the Certificates] will be rated [ ] by [
].
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Subsequent Receivables may have been originated by CPS at a later date
using credit criteria different from the criteria applied with respect to the
Initial Receivables. See "Risk Factors--The Receivables and the Pre-Funding
Account" and "The Receivables Pool" herein.]
On or prior to the Closing Date [or each Subsequent Closing Date], the
related Contracts will be delivered to the Indenture Trustee as custodian, and
the Indenture Trustee thereafter will maintain physical possession of the
Receivables except as may be necessary for the servicing thereof by the
Servicer. The Receivables will not be stamped to show the ownership thereof by
the Trust. However, CPS's and [Affiliated Originator]'s accounting records and
computer systems will reflect each sale and assignment of the Receivables to the
Seller, and Uniform Commercial Code ("UCC") financing statements reflecting such
sales and assignments will be filed. See "Formation of the Trust" in this
Prospectus Supplement and "Certain Legal Aspects of the Receivables" in the
Prospectus.
Accounts
A segregated lock-box account will be established and maintained with [
] in the name of the Indenture Trustee for the benefit of the Noteholders[, the
Certificateholders] and the [Credit Enhancer], into which all payments made by
Obligors on or with respect to the Receivables must be deposited by the Lock-Box
Processor (the "Lock-Box Account"). See "Description of the Trust
Documents-Payments on Receivables" in the Prospectus. The Indenture Trustee will
also establish and maintain initially with itself one or more accounts, in the
name of the Indenture Trustee on behalf of the Noteholders and the [Credit
Enhancer], into which all amounts previously deposited in the Lock-Box Account
will be transferred within two Business Days of the receipt of funds therein
(the "Collection Account"). Upon receipt, the Servicer will deposit all amounts
received by it in respect of the Receivables in the Lock-Box Account or the
Collection Account. The Indenture Trustee will also establish and maintain
initially with itself one or more accounts, in the name of the Indenture Trustee
on behalf of the Noteholders[, the Certificateholders] and the [Credit
Enhancer], from which all distributions with respect to the Securities and
payments to the [Credit Enhancer] will be made (the "Distribution Account").
[The Pre-Funding Account will be maintained with the Indenture Trustee
and is intended solely to hold funds to be applied by the Indenture Trustee
during the Funding Period to pay to the Seller the purchase price for Subsequent
Receivables. Monies on deposit in the Pre-Funding Account will not be available
to cover losses on or in respect of the Receivables. On the Closing Date, the
Pre-Funding Account will be funded with the initial Pre-Funded Amount from the
sale proceeds of the Securities. The Pre-Funded Amount will initially equal $[ ]
and, during the Funding Period, will be reduced by the [Class A Percentage] of
the Principal Balances of all Subsequent Receivables purchased by the Trust from
time to time in accordance with the provisions of the Sale and Servicing
Agreement.
The Seller expects that the Pre-Funded Amount will be reduced to less
than $100,000 by the [ ] Payment Date, although no assurances can be given in
this regard. If any Pre-Funded Amount remains at the end of the Funding Period,
such amount will be distributed as a partial prepayment to the Securityholders
as described above under "-- Mandatory Prepayment" and "--Mandatory
Redemption".]
[The Seller will also establish and maintain an account (the "Interest
Reserve Account") in the name of the Indenture Trustee on behalf of the
Noteholders and Certificateholders. On the Closing Date, the Seller will deposit
an amount equal to the Requisite Reserve Amount (as described below) as of the
Closing Date in the Interest Reserve Account. On each of the [ ] and [ ] Payment
Dates, funds on deposit in the Interest Reserve Account which are in excess of
the Requisite Reserve Amount for such Payment Date will be withdrawn from the
Interest Reserve Account and deposited in the Distribution Account for
distribution in accordance with the priorities set forth under the heading
"Description of the Trust Documents - Distributions - Priority of Distribution
Amounts".]
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[The "Requisite Reserve Amount" as of any date during the Funding
Period will equal the product of (i) the difference between (A) the weighted
average of the Interest Rates for each class of Notes and the Pass-Through Rate
(based on the outstanding principal amount of each class of Notes and the
Certificate Balance on such date) and (B) the assumed yield (2.5% per annum) of
investments of funds in the Pre-Funding Account, divided by 360, (ii) the
Pre-Funded Amount on such date and (iii) the number of days remaining until the
Payment Date in [ ].]
[In addition, on any Subsequent Transfer Date a "Class A-1 Holdback
Amount" (as defined in the Sale and Servicing Agreement, and determined by the
amount, if any, by which the actual Principal Balance of Subsequent Receivables
transferred to the Trust on or prior to such date is less than the amount set
forth in a schedule of assumed amounts), if any, will be withheld from funds int
he Pre- Funding Account that would otherwise be paid to the Seller on such
Subsequent Transfer Date and will be deposited into a subaccount (the "Class A-1
Holdback Subaccount") of the Spread Account. The Class A-1 Holdback Subaccount
is intended to ensure that, notwithstanding a slower than expected delivery of
Subsequent Receivables by the Seller during the Funding Period, sufficient funds
will be available to retire the Class A-1 Notes on the Class A-1 Final Scheduled
Payment Date. Any funds in the Class A-1 Holdback Subaccount (less the amount,
if any, required to be applied to reduce the principal balance of the Class A-1
Notes to zero on the Class A-1 Final Scheduled Payment Date) will be released to
CPS on the Payment Date on which the Class A-1 Notes are paid in full, and funds
in the Class A-1 Holdback Subaccount will not be available for any other
purpose.]
[The Collateral Agent will establish the Spread Account as a segregated
trust account at its office or at another depository institution or trust
company.]
Servicing Compensation
The Servicer will be entitled to receive the Servicing Fee on each
Payment Date, equal to the product of one-twelfth of the Servicing Fee Rate and
the Pool Balance as of the close of business on the last day of the second
preceding Collection Period; provided, however, that with respect to the first
Payment Date, the Servicing Fee will equal the product of one-twelfth of the
Servicing Fee Rate and the Pool Balance as of the Cutoff Date (the "Servicing
Fee"). So long as CPS is Servicer, a portion of the Servicing Fee, equal to the
Standby Fee, will be payable to the Standby Servicer for agreeing to stand by as
successor Servicer and for performing certain other functions. If the Standby
Servicer, or any other entity serving at the time as Standby Servicer, becomes
the successor Servicer, it will receive compensation at a Servicing Fee Rate not
to exceed [ %] per annum. See "The Standby Servicer" in this Prospectus
Supplement. The Servicer will also collect and retain, as additional servicing
compensation, any late fees, prepayment charges and other administrative fees or
similar charges allowed by applicable law with respect to the Receivables, and
will be entitled to reimbursement from the Trust for certain liabilities.
Payments by or on behalf of Obligors will be allocated to scheduled payments,
late fees and other charges and principal and interest in accordance with the
Servicer's normal practices and procedures. The Servicing Fee will be paid out
of collections from the Receivables, prior to distributions to Noteholders.
The Servicing Fee and additional servicing compensation will compensate
the Servicer for performing the functions of a third party servicer of
automotive 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 disposition of defaults
and policing the collateral. The Servicing Fee also will compensate the Servicer
for administering the Receivables, including accounting for collections and
furnishing monthly and annual statements to the Indenture Trustee and the
[Credit Enhancer] with respect to distributions and generating federal income
tax information. The Servicing Fee also will reimburse the Servicer for certain
taxes, accounting fees, outside auditor fees, data processing costs and other
costs incurred in connection with administering the Receivables.
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Distributions
No later than 10:00 a.m., Minneapolis time, on each Determination Date,
the Servicer will inform the Indenture Trustee of the amount of aggregate
collections on the Receivables, and the aggregate Purchase Amount of Receivables
to be repurchased by CPS or to be purchased by the Servicer, in each case, with
respect to the related Collection Period.
The Servicer will determine prior to such Determination Date the Total
Distribution Amount, the Noteholders' Interest Distributable Amount and the
Noteholders' Principal Distributable Amount.
The "Determination Date" applicable to any Payment Date will be the
earlier of (i) the seventh Business Day of the month of such Payment Date and
(ii) the fifth Business Day preceding such Payment Date.
Determination of Total Distribution Amount. The "Total Distribution
Amount" for a Payment Date (being the funds available for distribution to the
Securityholders with respect to such Payment Date in accordance with the
priorities described below) will be the sum of the following amounts with
respect to the preceding Collection Period: (i) all collections on Receivables;
(ii) all proceeds received during the Collection Period with respect to
Receivables that became Liquidated Receivables during the Collection Period in
accordance with the Servicer's customary servicing procedures, net of the
reasonable expenses incurred by the Servicer in connection with such liquidation
and any amounts required by law to be remitted to the Obligor on such Liquidated
Receivable ("Liquidation Proceeds") in accordance with the Servicer's customary
servicing procedures; (iii) proceeds from Recoveries with respect to Liquidated
Receivables; (iv) any amount withdrawn from the Interest Reserve Account for
deposit in the Collection Account with respect to such Payment Date[; and (v)
earnings on investments of funds in the Collection Account and the Pre-Funding
Account during the related Collection Period, and (v) the Purchase Amount of
each Receivable that was repurchased by CPS or purchased by the Servicer as of
the last day of the related Collection Period.
"Liquidated Receivable" means a Receivable (i) which has been
liquidated by the Servicer through the sale of the Financed Vehicle, or (ii) for
which the related Financed Vehicle has been repossessed and 90 days have elapsed
since the date of such repossession, or (iii) as to which an Obligor has failed
to make more than 90% of a scheduled payment of more than ten dollars for 120 or
more days as of the end of a Collection Period, or (iv) with respect to which
proceeds have been received which, in the Servicer's judgment, constitute the
final amounts recoverable in respect of such Receivable.
"Purchase Amount" means, with respect to a Receivable, the amount, as
of the close of business on the last day of a Collection Period, required to
prepay in full such Receivable under the terms thereof including interest to the
end of the month of purchase.
"Principal Balance" of a Receivable, as of the close of business on the
last day of a Collection Period, means the amount financed minus the sum of the
following amounts without duplication: (i) in the case of a Rule of 78's
Receivable, that portion of all Scheduled Receivable Payments received on or
prior to such day allocable to principal using the actuarial or constant yield
method; (ii) in the case of a Simple Interest Receivable, that portion of all
Scheduled Receivable Payments received on or prior to such day allocable to
principal using the Simple Interest Method; (iii) any payment of the Purchase
Amount with respect to the Receivable allocable to principal; (iv) any Cram Down
Loss in respect of such Receivable; and (v) any prepayment in full or any
partial prepayment applied to reduce the Principal Balance of the Receivable.
"Recoveries" means, with respect to a Liquidated Receivable, the monies
collected from whatever source, during any Collection Period following the
Collection Period in which such Receivable became
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a Liquidated Receivable, net of the reasonable costs of liquidation plus any
amounts required by law to be remitted to the Obligor.
"Scheduled Receivable Payment" means, for any Collection Period for any
Receivable, the amount indicated in such Receivable as required to be paid by
the Obligor in such Collection Period (without giving effect to deferments of
payments granted to Obligors by the Servicer pursuant to the Sale and Servicing
Agreement or any rescheduling of payments in any insolvency or similar
proceedings).
Calculation of Distribution Amounts. The Noteholders will be entitled
to receive the "Noteholders' Distributable Amount" with respect to each Payment
Date. The "Noteholders' Distributable Amount" with respect to a Payment Date
will be an amount equal to the sum of: (i) the "Noteholders' Principal
Distributable Amount", consisting of the Noteholders' Percentage of the
following: (a) the principal portion of all Scheduled Receivable Payments due
during the preceding Collection Period and all prior Collection Periods and
received during the preceding Collection Period on Rule of 78's Receivables and
all payments of principal received on Simple Interest Receivables during such
Collection Period; (b) the principal portion of all prepayments received during
the preceding Collection Period; (c) the portion of the Purchase Amount
allocable to principal of each Receivable that was repurchased by CPS or
purchased by the Servicer in each case as of the last day of the preceding
Collection Period and at the option of the [Credit Enhancer], the Principal
Balance of each Receivable that was required to be but was not so purchased or
repurchased (except to the extent included in (a) and (b) above); (d) the
Principal Balance of each Liquidated Receivable which became such during the
preceding Collection Period (except to the extent included in (a) and (b)
above); and (e) the aggregate amount of Cram Down Losses that occurred during
the preceding Collection Period (a "Cram Down Loss" means with respect to a
Receivable, if a court of appropriate jurisdiction in an insolvency proceeding
has issued an order reducing the amount owed on a Receivable or otherwise
modifying or restructuring the Scheduled Receivable Payments to be made on a
Receivable, an amount equal to such reduction in Principal Balance of such
Receivable or the net present value (using as the discount rate the lower of the
contract rate or the rate of interest specified by the court in such order) of
the Scheduled Receivable Payments as so modified; a Cram Down Loss shall be
deemed to have occurred on the date of issuance of such order) (the amounts set
forth in (a) through (e), the "Principal Distributable Amount"); (ii) the
"Noteholders' Interest Distributable Amount", consisting of thirty (30) days'
interest at the applicable Note Rate on the principal balance of each Class of
Notes as of the close of business on the last day of the related Collection
Period; provided, however, that on the first Payment Date, the Noteholders'
Interest Distributable Amount will include interest from and including the
Closing Date through and including [ ] 14, 199[ ]; (iii) the Noteholders'
Principal Carryover Shortfall; plus (iv) the Noteholders' Interest Carryover
Shortfall..
On the Final Scheduled Payment Date, the Noteholders' Principal
Distributable Amount will equal the then outstanding principal balance of the
Notes.
The "Noteholders' Percentage" will be [ %] until the Notes have been
paid in full and, thereafter, will be zero. Principal payments on the Notes will
be applied on each Payment Date, sequentially, to pay principal of the Class A-1
Notes, the Class A-2 Notes and the Class A-3 Notes [and the Class [ ] Notes,] in
that order, until the respective principal amount of each such Class of Notes
has been paid in full.
[On each Payment Date on or after the Notes have been paid in full, the
Certificateholders will be entitled to receive the "Certificateholders'
Distributable Amount". The "Certificateholders' Distributable Amount" with
respect to a Payment Date will be an amount equal to the sum of : (i) the
"Certificateholders' Principal Distributable Amount" in an amount equal to the
Certificateholders' Percentage of the Principal Distributable Amount for such
Payment Date; (ii) the "Certificateholders' Interest Distributable Amount",
consisting of 30 days interest at the Pass-Through Rate on the Certificate
Balance as of the last day of the related Collections Period; provided, however
that on the first Payment
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Date, the Certificateholders' Interest Distributable Amount will include
interest from and including the Closing Date through and including [ ] 14,
199[]; (iii) the Certificateholders' Principal Carryover Shortfall; plus (iv)
the Certificateholders' Interest Carryover Shortfall. Distributions to the
Certificateholders will be paid to the extent of the portion of the Total
Distribution Amount remaining after payment of items (i) through (vii) under
"-Priority of Distribution Amounts". See "-Distributions" herein.]
On the Final Scheduled Payment Date, the Certificateholders' Principal
Distributable Amount will equal the then outstanding Certificate Balance.
The "Certificateholders' Percentage" will be [ %].
Priority of Distribution Amounts. On each Determination Date, the
Servicer will calculate the amount to be distributed to the Noteholders.
On each Payment Date, the Indenture Trustee (based on the Servicer's
determination made on the related Determination Date) shall make the following
distributions in the following order of priority:
[(i) to the Servicer, from the Total Distribution Amount, the
Servicing Fee and all unpaid Servicing Fees from prior Collection
Periods; provided, however, that as long as CPS is the Servicer and
Norwest Bank Minnesota, National Association, is the Standby Servicer,
the Indenture Trustee will first pay to the Standby Servicer out of the
Servicing Fee otherwise payable to CPS an amount equal to the Standby
Fee;
(ii) in the event the Standby Servicer or any other party
becomes the successor Servicer, to the Standby Servicer or such other
successor servicer, from the Total Distribution Amount (as such Total
Distribution Amount has been reduced by payments pursuant to clause (i)
above), to the extent not previously paid by the predecessor Servicer
pursuant to the Sale and Servicing Agreement, reasonable transition
expenses (up to a maximum of $50,000) incurred in acting as successor
Servicer;
(iii) to the Indenture Trustee and the Owner Trustee, from the
Total Distribution Amount (as such Total Distribution Amount has been
reduced by payments pursuant to clauses (i) and (ii) above), the fees
payable thereto for services pursuant to the Indenture and the Trust
Agreement (the "Trustee Fee") and reasonable out-of-pocket expenses
thereof, (including counsel fees and expenses) and all unpaid Trustee
Fees and all unpaid reasonable out-of-pocket expenses (including
counsel fees and expenses) from prior Collection Periods; provided,
however, that unless an Event of Default shall have occurred and be
continuing, expenses payable to the Indenture Trustee pursuant to this
clause (iii) and expenses payable to the Collateral Agent pursuant to
clause (iv) below shall be limited to a total of $50,000 per annum;
(iv) to the Collateral Agent, from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (iii) above), all fees and expenses
payable to the Collateral Agent with respect to such Payment Date;
(v) to the Noteholders, from the Total Distribution Amount (as
such Total Distribution Amount has been reduced by payments pursuant to
clauses (i) through (iv) above) the Noteholders' Interest Distributable
Amount and any Noteholders' Interest Carryover Shortfall as of the
close of the preceding Payment Date;
(vi) to the Noteholders, from the Total Distribution Amount
(as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (v) above),
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the Noteholders' Principal Distributable Amount and any Noteholders'
Principal Carryover Shortfall as of the close of the preceding Payment
Date;
(vii) to the Certificateholders, the Certificateholders'
Interest Distributable Amount;
(viii) to the Certificateholders, the Certificateholders'
Principal Distributable Amount (as defined herein);
(ix) to the [Credit Enhancer], from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
made pursuant to clauses (i) through (vi) above), any amounts due to
the [Credit Enhancer] under the terms of the Trust Agreement and under
the [Credit Enhancement] Agreement; and
(x) to the Collateral Agent, for deposit into the Spread
Account, the remaining Total Distribution Amount, if any;
(xi) to the Owner Trustee or as specified in the Trust
Documents, any remaining funds.]
For purposes hereof, the following terms shall have the following
meanings:
"Certificateholders' Interest Carryover Shortfall" means, with respect
to any Payment Date, the excess of the Certificateholders' Interest
Distributable Amount for the preceding Payment Date, over the amount in respect
of interest on the Certificates that was actually deposited in the Distribution
Account on such preceding Payment Date, plus interest on such excess, to the
extent permitted by law, at the Pass- Through Rate from such preceding Payment
Date to be excluding the current Payment Date.
"Certificateholders' Principal Carryover Shortfall" means, as of the
close of any Payment Date, the excess of the Certificateholders' Principal
Distributable Amount for the preceding Payment Date, over the amount in respect
of principal that was actually deposited in the Distribution Account on such
Payment Date.
"Noteholders' Interest Carryover Shortfall" means, as of the close of
any Payment Date, the excess of the Noteholders' Interest Distributable Amount
for such Payment Date, plus any outstanding Noteholders' Interest Carryover
Shortfall from the preceding Payment Date, plus interest on such outstanding
Noteholders' Interest Carryover Shortfall, to the extent permitted by law, at
the applicable Interest Rate from such preceding Payment Date through the
current Payment Date, over the amount of interest distributed to the Noteholders
on such current Payment Date.
"Noteholders' Principal Carryover Shortfall" means, as of the close of
any Payment Date, the excess of the Noteholders' Principal Distributable Amount
plus any outstanding Noteholders' Principal Carryover Shortfall from the
preceding Payment Date over the amount of principal distributed to the
Noteholders on such current Payment Date.
On the third business day prior to a Payment Date, the Indenture
Trustee will determine, based on a certificate from the Servicer, whether there
are amounts sufficient, after payment of amounts as set forth in the priorities
of distribution in the Indenture, to distribute the Noteholders' Distributable
Amount.
[The Spread Account. As part of the consideration for the issuance of
the [Credit Enhancement], the Seller has agreed to cause to be established with
[ ] (in such capacity, the "Collateral Agent") an account (the "Spread Account")
for the benefit of the [Credit Enhancer] and the Indenture Trustee on behalf of
the Noteholders. Any portion of the Total Distribution Amount remaining on any
Payment Date after payment of all fees and expenses due on such date to the
Servicer, the Standby
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Servicer, the Indenture Trustee and the Collateral Agent and all principal and
interest payments due to the Noteholders on such Payment Date, will be deposited
in the Spread Account and held by the Collateral Agent for the benefit of the
[Credit Enhancer] and the Indenture Trustee on behalf of the Noteholders. If on
any Payment Date, the Total Distribution Amount is insufficient to pay all
distributions required to be made on such day pursuant to priorities (i) through
(vii) under "-Priority of Distribution Amounts", then amounts on deposit in the
Spread Account will be applied to pay the amounts due on such Payment Date
pursuant to such priorities (i) through (vii).
Amounts on deposit in the Spread Account on any Payment Date which
(after all payments required to be made on such Payment Date have been made) are
in excess of the Requisite Amount will be released to the Certificateholders on
such Payment Date.
So long as a [Credit Enhancer] Default shall not have occurred and be
continuing, the [Credit Enhancer] will be entitled to exercise in its sole
discretion all rights under the master spread account agreement among the
Seller, the [Credit Enhancer], the Indenture Trustee and the Collateral Agent
(the "Master Spread Account Agreement") with respect to the Spread Account and
any amounts on deposit therein and will have no liability to the Indenture
Trustee or the Noteholders for the exercise of such rights. The [Credit
Enhancer] (so long as a [Credit Enhancer] Default shall not have occurred and be
continuing) may, with the written consent of CPS, the Seller and the Collateral
Agent but without the consent of the Indenture Trustee or any Noteholder, reduce
the Requisite Amount or modify any term of the Master Spread Account Agreement
(including terminating the Master Spread Account Agreement and releasing all
funds on deposit in the Spread Account). Because the Requisite Amount or the
existence of the Spread Account may be modified or terminated by the [Credit
Enhancer] as described above, there is no assurance that funds will be available
in the Spread Account to pay principal of or interest on the Notes in the event
that collections on the Receivables and other amounts available under the
Indenture are insufficient to make any distribution of principal of or interest
on the Notes on any Payment Date.
Events of Default
[Unless a [Credit Enhancer] Default shall have occurred and be
continuing, "Events of Default" under the Indenture will consist of those events
defined in the Insurance Agreement as [Credit Enhancement] Cross Defaults, and
will constitute an Event of Default under the Indenture only if the [Credit
Enhancer] shall have delivered to the Indenture Trustee a written notice
specifying that any such Insurance Agreement Indenture Cross Default constitutes
an Event of Default under the Indenture. A "[Credit Enhancement] Cross Default"
may result from: (i) a demand for payment under the [Credit Enhancement]; (ii)
an Insolvency Event (as defined herein); (iii) the Trust becomes taxable as an
association (or publicly traded partnership) taxable as a corporation for
federal or state income tax purposes; (iv) the sum of the Total Distribution
Amount with respect to any Payment Date plus the amount (if any) available from
certain collateral accounts maintained for the benefit of the [Credit Enhancer]
is less than the sum of the amounts described in clauses (i) through (vii) under
"Description of the Notes [and the Certificates]-Distributions" herein; and (v)
any failure to observe or perform in any material respect any other covenants,
representation, warranty or agreements of the Trust in the Indenture, any
certificate or other writing delivered in connection therewith, and such failure
continues for 30 days after written notice of such failure or incorrect
representation or warranty has been given to the Trust and the Indenture Trustee
by the [Credit Enhancer].]
Upon the occurrence of an Event of Default, and so long as a [Credit
Enhancer] Default shall not have occurred and be continuing, the [Credit
Enhancer] will have the right but not the obligation, to cause the Indenture
Trustee to liquidate the Trust Assets, in whole or in part, on any date or dates
following the acceleration of the Notes due to such Event of Default as the
[Credit Enhancer], in its sole discretion, shall elect, and to distribute the
proceeds of such liquidation in accordance with the terms of the Indenture. The
[Credit Enhancer] may not, however, cause the Indenture Trustee to liquidate the
Trust Assets, in whole or in part, if the proceeds of such liquidation would not
be sufficient to pay all
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outstanding principal and accrued interest on the Notes, unless such Event of
Default arose from a claim being made on the [Credit Enhancement] or from
certain events of bankruptcy, insolvency, receivership or liquidation of the
Trust. Following the occurrence of any Event of Default, the Indenture Trustee
will continue to submit claims as necessary under the [Credit Enhancement] for
any shortfalls in the scheduled payments on the Notes, except that the [Credit
Enhancer], in its sole discretion, may elect to pay all or any portion of the
outstanding amount of the Notes, plus accrued interest thereon. See ["Credit
Enhancement"] herein.
Statements to Securityholders
On each Payment Date, the Indenture Trustee will include with each
distribution to each Noteholder [and Certificateholder] of record as of the
close of business on the applicable Record Date and each Rating Agency that is
currently rating the Notes [or the Certificates] a statement (prepared by the
Servicer) setting forth the following information with respect to the preceding
Collection Period, to the extent applicable: (i) the amount of the distribution
allocable to principal of the Notes; (ii) the amount of the distribution
allocable to interest on the Notes [and the Certificates, respectively]; (iii)
the Pool Balance and the Pool Factor for each Class of Securities as of the
close of business on the last day of the preceding Collection Period; (iv) the
aggregate principal balance of each Class of Securities as of the close of
business on the last day of the preceding Collection Period, after giving effect
to payments allocated to principal reported under (i) above; (v) the amount of
the Servicing Fee paid to the Servicer with respect to the related Collection
Period (inclusive of the Standby Fee), the amount of any unpaid Servicing Fees
and the change in such amount from that of the prior Payment Date; (vi) the
amount of the Noteholders' Interest Carryover Shortfall, if applicable, and
Noteholders' Principal Carryover Shortfall, if applicable, [the
Certificateholders' Interest Carryover Shortfall, if applicable, and the
Certificateholders' Principal Carryover Shortfall, if applicable,] on such
Payment Date and the change in such amounts from those on the prior Payment
Date; (vii) the amount paid to the Noteholders under the [Credit Enhancement]
for such Payment Date; (viii) the amount distributable to the [Credit Enhancer]
on such Payment Date; (ix) the aggregate amount in the Spread Account and the
change in such amount from the previous Payment Date; (x) the number of
Receivables and the aggregate gross amount scheduled to be paid thereon,
including unearned finance and other charges, for which the related Obligors are
delinquent in making scheduled payments between 31 and 59 days and 60 days or
more; (xi) the number and the aggregate Purchase Amount of Receivables
repurchased by CPS or purchased by the Servicer; and (xii) the cumulative
Principal Balance of all Receivables that have become Liquidated Receivables,
net of Recoveries, during the period from the Cutoff Date to the last day of the
related Collection Period.
Each amount set forth pursuant to subclauses (i), (ii), (v) and (vi)
above shall be expressed in the aggregate and as a dollar amount per $1,000 of
original principal balance of a Certificate.
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year during the term of the Sale and Servicing
Agreement, the Indenture Trustee will mail to each person who at any time during
such calendar year shall have been a Securityholder and received any payment on
such holder's Securities, a statement (prepared by the Servicer) containing the
sum of the amounts described in (i), (ii) and (v) above for the purposes of such
Securityholder's preparation of federal income tax returns. See "Description of
the Notes [and the Certificates]-Statements to Securityholders" and "Certain
Federal Income Tax Consequences" in the Prospectus.
Evidence as to Compliance
The Sale and Servicing Agreement will provide that a firm of
independent certified public accountants will furnish to the Indenture Trustee
and the [Credit Enhancer] on or before July 31 of each year, beginning July 31,
[ ], a report as to compliance by the Servicer during the preceding twelve
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months ended March 31 with certain standards relating to the servicing of the
Receivables (or in the case of the first such certificate, the period from the
Cutoff Date to July 31, [ ]).
The Sale and Servicing Agreement will also provide for delivery to the
Indenture Trustee and the [Credit Enhancer], on or before July 31 of each year,
commencing July 31, [ ] of a certificate signed by an officer of the Servicer
stating that the Servicer has fulfilled its obligations under the Sale and
Servicing Agreement throughout the preceding twelve months ended March 31 or, if
there has been a default in the fulfillment of any such obligation, describing
each such default (or in the case of the first such certificate, the period from
the Cutoff Date to July 31, [ ]). The Servicer has agreed to give the Indenture
Trustee and the [Credit Enhancer] notice of any Events of Default under the Sale
and Servicing Agreement.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the Indenture Trustee.
Certain Matters Regarding the Servicer
The Sale and Servicing Agreement will provide that the Servicer may not
resign from its obligations and duties as Servicer thereunder except upon
determination that its performance of such duties is no longer permissible under
applicable law and with the consent of the [Credit Enhancer]. No such
resignation will become effective until a successor servicer has assumed the
servicing obligations and duties under the Sale and Servicing Agreement. In the
event CPS resigns as Servicer or is terminated as Servicer, the Standby Servicer
has agreed pursuant to the Servicing Assumption Agreement to assume the
servicing obligations and duties under the Sale and Servicing Agreement.
The Sale 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 Trust or the Noteholders for taking any action or for
refraining from taking any action pursuant to the Sale and Servicing Agreement,
or for errors in judgment; provided, however, that neither the Servicer nor any
such person will be protected against any liability that would otherwise be
imposed by reason of willful misfeasance, bad faith or negligence in the
performance of duties or by reason of reckless disregard of obligations and
duties thereunder. In addition, the Sale 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 its servicing responsibilities under the
Sale and Servicing Agreement and that, in its opinion, may cause it to incur any
expense or liability.
Under the circumstances specified in the Sale and Servicing Agreement
any entity into which the Servicer may be merged or consolidated, or any entity
resulting from any merger or consolidation to which the Servicer is a party, or
any entity succeeding to the business of the Servicer which corporation or other
entity in each of the foregoing cases assumes the obligations of the Servicer,
will be the successor of the Servicer under the Sale and Servicing Agreement.
The Servicer is retained for an initial term commencing on the Closing
Date and ending on [ ], which term may be extended in ninety day increments by
the [Credit Enhancer]. In the absence of an Event of Default under the Sale and
Servicing Agreement, the [Credit Enhancer] has agreed to extend such term. See
"Description of the Notes [and the Certificates]-Certain Matters Regarding the
Servicer" in the Prospectus.
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Servicer Termination Events
Any of the following events will constitute a "Servicer Termination
Event" under the Sale and Servicing Agreement: (i) any failure by the Servicer
to deliver to the Indenture Trustee for distribution to the Securityholders any
required payment, which failure continues unremedied for two Business Days, or
any failure to deliver to the Indenture Trustee the annual accountants' report,
the annual statement as to compliance or the statement to the Securityholders,
in each case, within five days of the date it is due; (ii) any failure by the
Servicer duly to observe or perform in any material respect any other covenant
or agreement in the Sale and Servicing Agreement which failure materially and
adversely affects the rights of the related Securityholders (without regard to
the availability of funds from the [Credit Enhancement]) and continues
unremedied for 30 days after the giving of written notice of such failure (1) to
the Servicer or the Seller, as the case may be, by the [Credit Enhancer] or by
the Indenture Trustee, or (2) to the Servicer or the Seller, as the case may be,
and to the Indenture Trustee and the [Credit Enhancer] by the holders of Notes
evidencing not less than 25% of the outstanding principal balance of the Notes;
[or, after the Notes have been paid in full, the holders of Certificates
evidencing not less than 25% of the Certificate Balance,] (iii) certain events
of insolvency, readjustment of debt, marshaling of assets and liabilities, or
similar proceedings with respect to the Servicer or, so long as CPS is Servicer,
of any of its affiliates, and certain actions by the Servicer, the Seller or, so
long as CPS is Servicer, of any of its affiliates, indicating its insolvency,
reorganization pursuant to bankruptcy proceedings, or inability to pay its
obligations; (iv) a claim is made under the [Credit Enhancement]; or (v) the
occurrence of an Event of Default under the Insurance Agreement.
Rights Upon Servicer Termination Event
As long as a Servicer Termination Event remains unremedied, (x)
provided no [Credit Enhancer] Default shall have occurred and be continuing, the
[Credit Enhancer] in its sole and absolute discretion or (y) if an [Credit
Enhancer] Default shall have occurred and be continuing, then the Indenture
Trustee or the holders of Notes evidencing not less than 25% of the outstanding
principal balance of the Notes [or, after the Notes have been paid in full, the
holders of Certificates evidencing not less than 25% of the Certificate
Balance,] may terminate all the rights and obligations of the Servicer under the
Sale and Servicing Agreement, whereupon the Standby Servicer, or such other
successor Servicer as shall be or have been appointed by the [Credit Enhancer]
(or, if an [Credit Enhancer] Default shall have occurred and be continuing, by
the Indenture Trustee, the Noteholders, [or the Certificateholders,] as
described above) will succeed to all the responsibilities, duties and
liabilities of the Servicer under the Sale and Servicing Agreement; provided,
however, that such successor Servicer shall have no liability with respect to
any obligation which was required to be performed by the predecessor Servicer
prior to the date such successor Servicer becomes the Servicer or the claim of a
third party (including a Securityholder) based on any alleged action or inaction
of the predecessor Servicer as Servicer.
["Credit Enhancer Default" shall mean any one of the following events
shall have occurred and be continuing: (i) the [Credit Enhancer] fails to make a
payment required under the [Credit Enhancement] in accordance with its terms;
(ii) the [Credit Enhancer] (A) files any petition or commences any case or
proceeding under any provision or chapter of the United States Bankruptcy Code
or any other similar federal or state law relating to insolvency, bankruptcy,
rehabilitation, liquidation or reorganization, (B) makes a general assignment
for the benefit of its creditors, or (C) has an order for relief entered against
it under the United States Bankruptcy Code or any other similar federal or state
law relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization which is final and nonappealable; or (iii) a court of competent
jurisdiction, the New York Department of Insurance or other competent regulatory
authority enters a final and nonappealable order, judgment or decree (A)
appointing a custodian, trustee, agent or receiver for the [Credit Enhancer] or
for all or any material portion of its property or (B) authorizing the taking of
possession by a custodian, trustee, agent or receiver of the
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[Credit Enhancer] (or the taking of possession of all or any material portion of
the property of the [Credit Enhancer]).]
Waiver Of Past Defaults
With respect to the Trust, subject to the approval of the [Credit
Enhancer], the holders of Notes evidencing more than 50% of the outstanding
principal balance of the Notes (the "Note Majority") [or, after the Notes have
been paid in full, the holders of Certificates evidencing more than 50% of the
Certificate Balance (the "Certificate Majority")] may, on behalf of all
Noteholders waive any default by the Servicer in the performance of its
obligations under the Sale and Servicing Agreement and its consequences, except
a default in making any required deposits to or payments from any of the Trust
Accounts in accordance with the Sale and Servicing Agreement. No such waiver
shall impair the Noteholders' rights with respect to subsequent defaults.
CREDIT ENHANCEMENT
[Description of Credit Enhancement]
THE CREDIT ENHANCER
[Description of Credit Enhancer]
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
In all states in which the Receivables have been originated, a security
interest in automobiles, light trucks, vans and minivans is perfected by
notation of the secured party's lien on the vehicles's certificate of title and
the filing of the certificate of title with the state motor vehicle department.
The Contracts representing the [Affiliated Originator] Receivables name
[Affiliated Originator] as obligee and as the secured party. [Affiliated
Originator] also takes all actions necessary under the laws of the state in
which the financed vehicle is located to perfect [Affiliated Originator's]
security interest in the Financed Vehicle, including, where applicable, having a
notation of its lien recorded on such vehicle's certificate of title and filed
with the state motor vehicle department.
Pursuant to the [Affiliated Purchase Agreement], [Affiliated
Originator] will sell and assign to the Seller its interests in the Financed
Vehicles securing the [Affiliated Originator] Receivables, and pursuant to the
Trust Agreement, the Seller will assign its interests in such Financed Vehicles
to the Trustee. However, because of the administrative burden and expense, the
certificates of title for the Financed Vehicles securing the [Affiliated
Originator] Receivables will not be amended or reissued to reflect the
assignment thereof to the Seller, nor will the certificates of title to any
Financed Vehicles (including those securing the [Affiliated Originator]
Receivables) be amended or reissued to identify the Trust as the new secured
party on the certificate of title relating to the Financed Vehicles. The
Indenture provides that the Indenture Trustee, however, will hold any
certificates of title relating to the Financed Vehicles in its possession
pursuant to the Indenture.
In most states, an assignment such as that under the Sale and Servicing
Agreement and such as that under the Purchase Agreement and [Affiliated Purchase
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. By not identifying the Seller
as the secured party on the certificates of title for the Financed Vehicles
securing the [Affiliated Originator] Receivables,
55
<PAGE>
the security interest of the Seller (and, therefore, the security interest of
the Trust) could be defeated through fraud or negligence on the part of
[Affiliated Originator]. Similarly, by not identifying the Trust as the secured
party on the certificate of title, the security interest of the Trust in the
Financed Vehicle could be defeated through fraud or negligence on the part of
the Servicer. In the absence of fraud or forgery by the vehicle owner, the
Servicer or (with respect to [Affiliated Originator] Receivables) [the
Affiliated Originator], or administrative error by state or local agencies, the
notation of [Affiliated Originator's] lien on the certificates of title for the
Financed Vehicles financed under the [Affiliated Originator] Receivables, and
the notation of CPS's lien on the certificates of title for all other Financed
Vehicles, will be sufficient to protect the Trust against the rights of
subsequent purchasers of a vehicle or subsequent lenders who take a security
interest in a vehicle securing a Receivable. If there are any Financed Vehicles
as to which CPS or [Affiliated Originator] failed to obtain and assign to the
Seller or the Trust a perfected security interest, the security interest of CPS
or [Affiliated Originator], as applicable, would be subordinate to, among
others, subsequent purchasers of such Financed Vehicles and holders of perfected
security interests therein. Such a failure, however, would constitute a breach
of the warranties of CPS under the Purchase Agreement and would create an
obligation of CPS to repurchase the related Receivables unless the breach is
cured. The Seller will assign its rights pursuant to the Sale and Servicing
Agreement to the Trust. See "Description of the Trust Documents-Sale and
Assignment of Receivables; Subsequent Receivables" in this Prospectus
Supplement.
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 an individual
retirement account and a Keogh plan (each a "Benefit Plan"), 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 result in an excise tax or
other penalties and liabilities under ERISA and the Code for such persons or the
fiduciaries of the Benefit Plan. In addition, Title I of ERISA also requires
fiduciaries of a Benefit Plan subject to ERISA to make investments that are
prudent, diversified and in accordance with the governing plan documents.
Certain transactions involving the Trust might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Benefit Plan
that purchased Class A-2 Notes if assets of the Trust were deemed to be assets
of the Benefit Plan. Under a regulation issued by the United States Department
of Labor (the "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 Regulation was applicable. An equity interest is
defined under the Regulation as an interest other than an instrument which is
treated as indebtedness under applicable local law and which has no substantial
equity features. Although there is little guidance on the subject, the Seller
believes that, at the time of their issuance, the Notes should be treated as
indebtedness of the Trust without substantial equity features for purposes of
the Regulation. This determination is based in part upon the traditional debt
features of the Notes, including the reasonable expectation of purchasers of
Notes that the Notes will be repaid when due, as well as the absence of
conversion rights, warrants and other typical equity features. The debt
treatment of the Notes for ERISA purposes could change if the Trust incurred
losses.
However, without regard to whether the Notes are treated as an equity
interest for purposes of the Regulation, the acquisition or holding of Notes by
or on behalf of a Benefit Plan could be considered to give rise to a prohibited
transaction if the Trust, the Seller, the Servicer or the Owner Trustee is or
becomes a party in interest or a disqualified person with respect to such
Benefit Plan. Certain exemptions from the prohibited transaction rules could be
applicable to the purchase and holding of Notes by a Benefit Plan depending on
the type and circumstances of the plan fiduciary making the decision to acquire
such Notes. Included among these exemptions are: Prohibited Transaction Class
Exemption ("PTCE")
56
<PAGE>
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." By acquiring a Note, each purchaser will be deemed to represent that
either (i) it is not acquiring the Notes with the assets of a Benefit Plan; or
(ii) the acquisition of the Notes will not give rise to a nonexempt prohibited
transaction under Section 406(a) of ERISA or Section 4975 of the Code.
The Certificates may not be acquired by (a) an employee benefit plan
(as defined in Section 3(3) of ERISA) that is subject to the provisions of Title
I of ERISA, (b) a plan described in Section 4975(e)(1) of the Code or (c) any
entity whose underlying assets include plan assets by reason of a plan's
investment in the entity. By its acceptance of a Certificate, each
Certificateholder will be deemed to have represented and warranted that it is
not subject to the foregoing limitation. For additional information regarding
treatment of the Certificates under ERISA, see "ERISA Considerations" in the
accompanying Prospectus.
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements, however governmental plans may be
subject to comparable state law restrictions.
A plan fiduciary considering the purchase of Notes should consult its
legal advisors regarding whether the assets of the related Trust would be
considered plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other issues and their potential consequences.
UNDERWRITING
Under the terms and subject to the conditions contained in an
underwriting agreement dated [ ], (the "Underwriting Agreement") among CPS, the
Seller, and [ ] (the "Underwriter"), the Seller has agreed to cause the Seller
to sell to the Underwriter, and the Underwriter has agreed to purchase, Notes
[and Certificates] in the following respective amounts:
Underwriter Principal Amount
Total..........................................................................
The Underwriting Agreement provides that the obligations of the
Underwriter are subject to certain conditions precedent and that the Underwriter
will purchase all the Notes offered hereby if any of such Notes are purchased.
CPS and the Seller have been advised by the Underwriter that the
Underwriter proposes to offer the Securities from time to time for sale in
negotiated transactions or otherwise, at varying prices to be determined at the
time of sale. The Underwriter may effect such transactions by selling the
Securities to or through dealers and such dealers may receive compensation in
the form of underwriting discounts, concessions or commissions from the
Underwriter and any purchasers of Securities for whom they may act as agents.
The Underwriter and any dealers that participate with the Underwriter in the
distribution of the Securities may be deemed to be underwriters, and any
discounts or commissions received by them and any profit on the resale of
Securities by them may be deemed to be underwriting discounts or commissions,
under the Securities Act.
57
<PAGE>
The Securities are a new issue of securities with no established
trading market. The Underwriter has advised CPS and the Seller that it intends
to act as a market maker for the Securities. However, the Underwriter is not
obligated to do so and may discontinue any market making at any time without
notice. No assurance can be given as to the liquidity of any trading market for
the Securities.
CPS and the Seller have agreed to indemnify the Underwriter against
certain liabilities, including civil liabilities under the Securities Act, or
contribute to payments which the Underwriter may be required to make in respect
thereof.
LEGAL OPINIONS
Certain legal matters relating to the Securities will be passed upon
for CPS and the Underwriter by Mayer, Brown & Platt, New York, New York.
58
<PAGE>
INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus
Supplement and the pages on which the definitions of such terms may be found
herein.
Actuarial Receivables.....................................................37
[Affiliate Purchase Agreement]............................................43
[Affiliated Originator] Receivables....................................5, 15
[Affiliated Originator]...................................................25
Alpha Program ........................................................26
Benefit Plan ....................................................18, 56
Business Day .........................................................7
Cede ....................................................17, 43
Certificate Majority......................................................54
Certificate Owners....................................................17, 41
Certificate Prepayment Amount.........................................12, 42
Certificate Prepayment Premium............................................12
Certificateholders' Distributable Amount..................................48
Certificateholders' Interest Distributable Amount.........................42
Certificateholders' Percentage............................................49
Certificateholders' Principal Distributable Amount....................42, 48
Certificates ......................................................1, 4
Class A-1 Holdback Amount.................................................46
Class A-1 Interest Rate....................................................8
Class A-1 Noteholders..................................................8, 39
Class A-1 Notes .........................................................1
Class A-1 Pool Factor.....................................................38
Class A-2 Interest Rate....................................................8
Class A-2 Noteholders......................................................8
Class A-2 Notes .........................................................1
Class A-2 Pool Factor.....................................................38
Class A-3 Interest Rate....................................................8
Class A-3 Noteholders.....................................................39
Class A-3 Notes ......................................................1, 4
Class A-3 Pool Factor.....................................................38
Closing Date .........................................................4
Collateral Agent ........................................................50
Collection Account........................................................45
Collection Period .........................................................9
Commission .........................................................2
Contracts ........................................................24
CPS .........................................................4
CPS Receivables .........................................................5
Cram Down Loss............................................................48
Cutoff Date .........................................................5
Dealer Agreements ........................................................24
Dealers ........................................................24
Delta Program ........................................................26
Determination Date........................................................47
Distribution Account......................................................45
DTC .................................................2, 17, 39
ERISA ........................................................56
i
<PAGE>
INDEX OF TERMS (cont.)
Events of Default ........................................................51
Exchange Act .........................................................2
Financed Vehicles .........................................................5
First Time Buyer Program..................................................26
Funding Period .........................................................7
holders ................................................17, 39, 41
IFCs .........................................................5
Indenture Trustee .........................................................1
Indenture ......................................................1, 4
Index Maturity ........................................................40
Insurance Agreement.......................................................20
Interest Rate .........................................................8
Interest Reserve Account...............................................7, 45
IRS ........................................................18
Issuer .........................................................4
LIBOR Determination Date..................................................40
Liquidated Receivable.....................................................47
Liquidation Proceeds......................................................47
Lock-Box Account ....................................................16, 45
Lock-Box Bank ........................................................16
Lock-Box Processor........................................................16
Mandatory Prepayment..................................................12, 42
Mandatory Redemption..................................................10, 40
Master Spread Account Agreement...........................................51
Note Majority ........................................................54
Note Owners ....................................................17, 39
Note Prepayment Amount................................................10, 40
Note Prepayment Premium...................................................10
Noteholders .................................................7, 17, 39
Noteholders' Distributable Amount.........................................48
Noteholders' Interest Carryover Shortfall.................................50
Noteholders' Percentage................................................9, 48
Noteholders' Principal Carryover Shortfall................................50
Notes .........................................................1
Obligors ........................................................24
Original Pool Balance......................................................5
Owner Trustee .........................................................1
Participants ........................................................43
Pass-Through Rate ........................................................11
Payment Date .........................................................7
Pool Balance ........................................................38
Post Office Box ........................................................16
prepayments ........................................................37
Pre-Funded Amount .........................................................7
Pre-Funding Account........................................................7
Principal Balance ........................................................47
Principal Distributable Amount.........................................9, 48
PTCE ........................................................56
Purchase Amount ........................................................47
Receivables .........................................................5
ii
<PAGE>
INDEX OF TERMS (cont.)
Recoveries ........................................................47
Reference Banks ........................................................40
Registration Statement.....................................................2
Regulation ........................................................56
Requisite Amount ........................................................14
Requisite Reserve Amount..................................................46
Rule of 78's Receivables..................................................37
Scheduled Receivable Payment..............................................48
Securities ......................................................1, 4
Securities Act .........................................................2
Securityholders ........................................................11
Seller ......................................................1, 4
Servicer .........................................................4
Servicer Termination Event................................................53
Servicing Assumption Agreement............................................17
Servicing Fee ........................................................46
Servicing Fee Rate........................................................17
Simple Interest Receivables...............................................37
Spread Account ....................................................14, 50
Standard Program ........................................................26
Standby Fee ........................................................17
Standby Servicer ....................................................17, 39
Sub-Prime Borrowers.......................................................24
Subsequent Closing Date....................................................6
Subsequent Cutoff Date.....................................................6
Subsequent Receivables.....................................................6
Subsequent Transfer Agreement.............................................19
Telerate Page 3750........................................................40
Total Distribution Amount.................................................47
Trust ......................................................1, 4
Trust Agreement .........................................................4
Trust Assets .........................................................5
Trustee Fee ........................................................49
UCC ........................................................45
Underwriter ........................................................57
Underwriting Agreement....................................................57
[Credit Enhancement] Cross Default........................................51
iii
<PAGE>
No person has been authorized in connection with the offering made
hereby to give any information or to make any representation not contained in
this Prospectus Supplement or the Prospectus and, if given or made, such
information or representation must not be relied upon as having been authorized
by CPS, the Seller or any Underwriter. This Prospectus Supplement and the
Prospectus do not constitute an offer to sell or a solicitation of an offer to
buy any of the securities offered hereby to any person or by anyone in any
jurisdiction in which it is unlawful to make such offer or solicitation. Neither
the delivery of this Prospectus Supplement or the Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any date subsequent to the date
hereof.
-----------
iv
<PAGE>
TABLE OF CONTENTS
Page
----
Prospectus Supplement
Summary ..................................................................S-4
Risk Factors..............................................................S-19
Formation of the Trust....................................................S-23
The Trust Assets..........................................................S-24
CPS's Automobile Contract Portfolio.......................................S-24
The Receivables Pool......................................................S-32
Yield Considerations......................................................S-37
Pool Factors and Other Information........................................S-38
Use of Proceeds...........................................................S-38
The Seller and CPS........................................................S-38
The Standby Servicer......................................................S-39
Description of the Notes..................................................S-39
Description of the Certificates...........................................S-41
Registration of Notes and Certificates....................................S-43
Description of the Trust Documents........................................S-43
Credit Enhancement........................................................S-55
The Credit Enhancer.......................................................S-55
Certain Legal Aspects of the Receivables..................................S-55
ERISA Considerations......................................................S-56
Underwriting..............................................................S-57
Legal Opinions............................................................S-58
Index of Terms.............................................................S-i
Prospectus
Prospectus Supplement.................................................. 2
Available Information.................................................. 2
Incorporation of Certain Documents by Reference........................ 2
Reports to Securityholders............................................. 3
Summary of Terms....................................................... 4
Risk Factors........................................................... 16
The Issuers............................................................ 23
The Trust Assets....................................................... 24
Acquisition of Receivables by the Seller............................... 25
The Receivables........................................................ 25
CPS's Automobile Contract Portfolio.................................... 28
Pool Factors........................................................... 29
Use of Proceeds........................................................ 29
The Seller and CPS..................................................... 29
Description of the Securities.......................................... 31
Description of the Trust Documents..................................... 39
v
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Certain Legal Aspects of the Receivables............................... 48
Certain Tax Considerations............................................. 52
ERISA Considerations................................................... 60
Plan of Distribution................................................... 60
Legal Opinions......................................................... 61
Financial Information.................................................. 61
Additional Information................................................. 61
Index of Terms......................................................... i
-----------
Until 90 days after the date of this Prospectus Supplement, all dealers
effecting transactions in the Certificates offered hereby, whether or not
participating in this distribution, may be required to deliver this Prospectus
Supplement and the Prospectus. This is in addition to the obligation of dealers
to deliver this Prospectus Supplement and the Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
[$ ]
CPS AUTO RECEIVABLES TRUST 1997-A
[ %] ASSET-BACKED
NOTES
CPS RECEIVABLES CORP.
(SELLER)
CONSUMER PORTFOLIO
SERVICES, INC.
(SERVICER)
----------
PROSPECTUS SUPPLEMENT
----------
ALEX. BROWN & SONS BLACK DIAMOND SECURITIES, LLC
INCORPORATED
[ ], 1997
vi
<PAGE>
Prospectus Supplement
To Prospectus Dated [ ], 1997
[$ ]
CPS Auto Receivables Trust 1997-2
[$ ][ %] Asset-Backed Notes
CPS Receivables Corp.
(Seller)
Consumer Portfolio Services, Inc.
(Servicer)
-------
CPS Auto Receivables Trust 1997-2 (the "Trust") will be formed pursuant
to a Trust Agreement to be dated as of [ ], 1997 between CPS Receivables Corp.,
as seller (the "Seller"), and [ ], as owner trustee (the "Owner Trustee"). The [
%] Asset Backed Notes, Class A (the "Class A Notes"), [additional classes of
notes to be specified (the "Class [ ] Notes", and, together with the Class A
Notes and the Class [ ] Notes, the "Notes")], will be issued pursuant to an
Indenture (the "Indenture") to be dated as of April [ ], 1997 between the Trust
and Norwest Bank Minnesota, National Association, as indenture trustee (in such
capacity, the "Indenture Trustee"). The Trust also will issue [$ ] aggregate
principal amount of [ %] Asset Backed Certificates which are not offered hereby
but will initially be retained by the Seller (the "Certificates" and, together
with the Notes, the "Securities").
-------
The Trust Assets will include a pool of retail installment sale
contracts and all rights thereunder, certain monies due or received thereunder,
security interests in the new and used automobiles, light trucks, vans and
minivans securing the Receivables (as defined herein), certain bank accounts and
the proceeds thereof, the Policy with respect to the Notes, and the right of CPS
to receive certain insurance proceeds and certain other property, as more fully
described herein. The Receivables will be purchased by the Seller from CPS and
from CPS's subsidiary, Samco Acceptance Corp. on or prior to the date of the
issuance of the Securities.
-------
The Underwriters have agreed to purchase from the Seller the Notes at a
purchase price equal to [ %] of the principal amount thereof, subject to the
terms and conditions set forth in the Underwriting Agreement referred to herein
under "Underwriting". The aggregate proceeds to the Seller, after deducting
expenses payable by the Seller, estimated at [$ ] will be [$ ].
-------
The Underwriters propose to offer the Notes from time to time in
negotiated transactions or otherwise, at varying prices to
be determined at the time of sale. For further information with respect to the
plan of distribution and any discounts, commissions or profits that may be
deemed underwriting discounts or commissions, see "Underwriting" herein.
-------
Full and timely payment of the Scheduled Payments in respect of the
Notes on each Payment Date is unconditionally and irrevocably guaranteed
pursuant to a financial guaranty insurance policy (the "Policy") to be issued by
[FSA Logo]
-------
For a discussion of certain factors relating to the
transaction, see "Risk Factors" at page S-[ ]
herein and page [ ] in the accompanying
prospectus.
-------
THE NOTES REPRESENT OBLIGATIONS OF AND THE CERTIFICATES REPRESENT INTERESTS IN,
THE TRUST ONLY AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE SELLER,
THE SERVICER OR ANY AFFILIATE THEREOF. THE 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
SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-------
The Notes are offered hereby by the Underwriters when, as and if
issued by the Seller, delivered to and accepted by them and subject to the right
of the Underwriters to reject any order in whole or in part. It is expected that
delivery of the Notes will be made on or about [ ], only through The Depository
Trust Company. -------
ALEX BROWN & SONS BLACK DIAMOND SECURITIES, LLC
INCORPORATED
The date of this Prospectus Supplement is [ ], 1997.
1
<PAGE>
AVAILABLE INFORMATION
CPS 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
Notes offered pursuant to this Prospectus Supplement. 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
office at 500 West Madison, 14th Floor, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, 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 web site at http://www.sec.gov containing reports,
proxy statements, information statements and other information regarding
registrants, including CPS, that file electronically with the Commission. The
Servicer, on behalf of the Trust, will also file or cause to be filed with the
Commission such periodic reports as may be required under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations of the Commission thereunder. Upon the receipt of a request by an
investor who has received an electronic Prospectus Supplement and Prospectus
from the Underwriters (as defined herein) or a request by such investor's
representative within the period during which there is an obligation to deliver
a Prospectus Supplement and Prospectus, CPS, the Seller or the Underwriters will
promptly deliver, or cause to be delivered, without charge, a paper copy of the
Prospectus Supplement and Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by CPS with the Registration
Statement, either on its own behalf or on behalf of the Trust, relating to the
Notes, with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act, after the date of this Prospectus Supplement and prior to the
termination of the offering of the Notes offered hereby, shall be deemed to be
incorporated by reference in this Prospectus Supplement and to be a part of this
Prospectus Supplement from the date of the filing of such documents. Any
statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus Supplement to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein, modifies or replaces such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
In addition to the documents described above and in the accompanying
Prospectus under "Incorporation of Certain Documents by Reference", the
consolidated financial statements of Financial Security Assurance Inc. and its
Subsidiaries included in, or as exhibits to, the following documents, which have
been filed with the Commission by Financial Security Assurance Holdings Ltd.
("Holdings"), are hereby incorporated by reference in this Prospectus
Supplement:
(a) Annual Report on Form 10-K for the period ended December 31, 1996,
(b) Quarterly Report on Form 10-Q for the period ended March 31, 1997,
All financial statements of Financial Security Assurance Inc.
("Financial Security") and Subsidiaries included in documents filed by Holdings
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date of this Prospectus Supplement and prior to the termination of the
offering of the Notes shall be deemed to be incorporated by reference into this
Prospectus Supplement and to be a part hereof from the respective dates of
filing of such documents.
2
<PAGE>
The Seller on behalf of the Trust hereby undertakes that, for purposes
of determining any liability under the Securities Act, each filing of the
Trust's annual report pursuant to Section 13(a) or 15(d) of the Exchange Act and
each filing of the financial statements of Financial Security included in or as
an exhibit to the annual report of Holdings filed pursuant to Section 13(a) or
15(d) of the Exchange Act that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
Class A Certificates offered hereby, and the offering of such Class A
Certificates at that time shall be deemed to be the initial bona fide offering
thereof.
CPS will provide without charge to each person to whom this Prospectus
Supplement is delivered, on the written or oral request of such person, a copy
of any or all of the documents referred to above that have been or may be
incorporated by reference in this Prospectus Supplement (not including exhibits
to the information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
Supplement incorporates). Written requests for such copies should be directed
to: Consumer Portfolio Services, Inc., 2 Ada, Suite 100, Irvine, California
92718, Attention: Jeffrey P. Fritz. Telephone requests for such copies should be
directed to Consumer Portfolio Services, Inc. at (714) 753-6800.
REPORTS TO SECURITYHOLDERS
Unless and until Definitive Securities are issued, periodic reports
containing information concerning the Receivables will be prepared by the
Servicer and sent on behalf of the Trust only to Cede & Co., as nominee of The
Depository Trust Company ("DTC") and registered holder of the Securities. Such
reports will not constitute financial statements prepared in accordance with
generally accepted accounting principles. The Servicer will file with the
Commission such periodic reports as are required under the Exchange Act, and the
rules and regulations thereunder and as are otherwise agreed to by the
Commission. Copies of such periodic reports may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
3
<PAGE>
SUMMARY
This Summary is qualified in its entirety by reference to the more
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms used herein are defined
elsewhere in this Prospectus Supplement on the pages indicated in the "Index of
Terms" or, to the extent not defined herein, have the meaning assigned to such
terms in the Prospectus.
Issuer...........................
CPS Auto Receivables Trust 1997-2 (the "Trust" or the
"Issuer").
Seller...........................
CPS Receivables Corp. (the "Seller"). See "The Seller
and CPS" in this Prospectus Supplement.
Servicer.........................
Consumer Portfolio Services, Inc. ("CPS" or, in its
capacity as the servicer, the "Servicer"). See "CPS's
Automobile Contract Portfolio" and "The Seller and
CPS" in this Prospectus Supplement.
Indenture Trustee ...........
Norwest Bank Minnesota, National Association, a
national banking association, located at Sixth Street
and Marquette Avenue, Minneapolis, Minnesota.
Owner Trustee..............[Name and Address]
Insurer..........................
Financial Security Assurance, Inc., a financial
guaranty insurance company incorporated under the
laws of the State of New York (the "Insurer"). See
"The Insurer" in this Prospectus Supplement.
Closing Date.....................
On or about [ ], 1997 (the "Closing Date").
The Trust........................
The Trust will be a business trust established under
the laws of the State of Delaware. The activities of
the Trust are limited by the terms of the Trust
Agreement dated as of [ ], 1997 between the Seller
and the Owner Trustee (the "Trust Agreement"). The
Trust will issue Notes in the aggregate original
principal amount of [$ ]. The Trust will also issue
the Certificates, which are not offered hereby and
which will initially be retained by the Seller. The
Notes will be issued pursuant to an Indenture dated
as of [ ], 1997 (the "Indenture"). The Notes will be
offered for purchase in minimum denominations of [$ ]
and integral multiples of $1,000 in excess thereof,
in book entry form only. See "Description of the
Securities -- Book-Entry Registration" in the
Prospectus.
The Notes will be secured by the Trust Assets as, and
to the extent, provided in the Indenture.
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Trust Assets.....................
The property of the Trust (the "Trust Assets") will
include (i) a pool of retail installment sale
contracts (collectively, the "Receivables") secured
by the new and used automobiles, light trucks, vans
and minivans financed thereby (the "Financed
Vehicles"), (ii) with respect to Receivables that are
Rule of 78's Receivables, all payments due thereon
after [ ], 1997 (the "Cutoff Date"), and, with
respect to Receivables that are Simple Interest
Receivables, all payments received thereunder after
the Cutoff Date, (iii) security interests in the
Financed Vehicles, (iv) certain bank accounts and the
proceeds thereof, (v) the right of the Seller to
receive proceeds from claims under, or refunds of
unearned premiums from, certain insurance policies
and extended service contracts, (vi) all right, title
and interest of the Seller in and to the Sale and
Servicing Agreement, (vii) the Policy issued by the
Insurer with respect to the Notes, and (viii) certain
other property, as more fully described herein. See
"Formation of the Trust" in this Prospectus
Supplement and "The Trust Assets" in the Prospectus.
Certain of the Receivables will be purchased by the
Seller from CPS pursuant to the Purchase Agreement
(such Receivables, the "CPS Receivables") and certain
of the Receivables will be purchased by the Seller
from CPS's subsidiary, Samco Acceptance Corp.
pursuant to the Samco Purchase Agreement (such
Receivables, the "Samco Receivables") on or prior to
the Closing Date. The Receivables arise from loans
originated by automobile dealers or IFCs (as defined
herein) for assignment to CPS or a subsidiary of CPS
pursuant to CPS's auto loan programs.
The Receivables..................
As of the Cutoff Date, the aggregate outstanding
principal balance of the Receivables was [$ ] (the
"Original Pool Balance"). The Receivables consist of
retail installment sale contracts secured by new and
used automobiles, light trucks, vans and minivans
including, with respect to Rule of 78's Receivables,
the rights to all payments due with respect to such
Receivables after the Cutoff Date, and, with respect
to Simple Interest Receivables, the rights to all
payments received with respect to such Receivables
after the Cutoff Date. As of the Cutoff Date,
approximately [ %] of the aggregate principal balance
of the Receivables represented financing of used
vehicles. The Receivables arise from loans originated
by automobile dealers or independent finance
companies ("IFCs") for assignment to CPS or a
subsidiary of CPS pursuant to CPS's auto loan
programs. The auto loan programs target automobile
purchasers with marginal credit ratings who are
generally unable to obtain credit from banks or other
low-risk lenders. See "CPS's Automobile Contract
Portfolio -- General" in this Prospectus Supplement
and "Risk Factors -- Nature of Obligors" in the
Prospectus. The Receivables have been selected from
the contracts owned by CPS or Samco based on the
criteria specified in the Purchase Agreement and
described herein.
Terms of the Notes...............
The principal terms of the Notes will be as described
below:
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A. Payment Dates................
Payments of interest and principal on the Notes will
be made on the 15th day of each month or, if such
15th day is not a Business Day, on the next following
Business Day (each a "Payment Date"), commencing [ ].
Payments will be made to holders of record of the
Notes (the "Noteholders") as of the close of business
on the Record Date applicable to such Payment Date. A
"Business Day" is a day other than a Saturday, a
Sunday or a day on which banking institutions in the
City of New York, New York, the State in which the
Corporate Trust Office is located, the State in which
the executive offices of the Servicer are located or
the State in which the principal place of business of
the Insurer is located are authorized or obligated by
law, executive order or governmental decree to be
closed.
B. Final Scheduled
Payment Dates.......[ ].
C. Interest Rates..............
The Class A Notes will bear interest at a rate equal
to [ %] per annum (the "Class A Interest Rate").
[Additional classes to be added.] Each such interest
rate for a Class of Notes is referred to as an
"Interest Rate".
D. Interest....................
On each Payment Date, the holders of record of the
Class A Notes (the "Class A Noteholders") as of the
related Record Date will be entitled to receive, pro
rata, thirty (30) days of interest at the Class A
Interest Rate on the outstanding principal amount of
the Class A Notes at the close of business on the
last day of the related Collection Period.
[Additional classes, if any, to be added].
Notwithstanding the foregoing, on the first Payment
Date, the interest payable to the Noteholders of
record of each Class of Notes will be an amount equal
to the product of (a) the Interest Rate applicable to
such Class of Notes, (b) the initial principal amount
of such Class of Notes and (c) a fraction (i) the
numerator of which is the number of days from and
including the Closing Date through and including July
14, 1997 and (ii) the denominator of which is 360.
Interest on the Notes which is due but not paid on
any Payment Date will be payable on the next Payment
Date together with, to the extent permitted by law,
interest on such unpaid amount at the applicable
Interest Rate. See "Description of the Notes --
Payments of Interest" in this Prospectus Supplement.
E. Principal.....................
Principal of the Notes will be payable on each
Payment Date in an amount equal to the Noteholders'
Principal Distributable Amount for the related
Collection Period. The "Noteholders' Principal
Distributable Amount" is equal to the product of (a)
the Noteholders' Percentage of the Principal
Distributable Amount and (b) any unpaid portion of
the Noteholders' Principal Distributable Amount with
respect to a prior Payment Date.
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The "Noteholders' Percentage" will be [ %] until the
Notes have been paid in full and, thereafter, will be
zero. Principal payments on the Notes will be applied
on each Payment Date, sequentially, to pay principal
of the Class A Notes [and the Class [ ] Notes,] in
that order, until the respective principal amount of
each such Class of Notes has been paid in full.
The "Principal Distributable Amount" for a Payment
Date shall equal the sum of (a) the principal portion
of all Scheduled Receivable Payments received during
the preceding Collection Period on Rule of 78's
Receivables and all payments of principal received on
Simple Interest Receivables during the preceding
Collection Period; (b) the principal portion of all
prepayments (without duplication of amounts included
in (a) above and (d) below); (c) the portion of the
Purchase Amount allocable to principal of each
Receivable that was repurchased by CPS or purchased
by the Servicer as of the last day of the related
Collection Period (without duplication of the amounts
referred to in (a) and (b) above); (d) the Principal
Balance of each Receivable that first became a
Liquidated Receivable during the preceding Collection
Period (without duplication of the amounts included
in (a) and (b) above); and (e) the aggregate amount
of Cram Down Losses that shall have occurred during
the preceding Collection Period (without duplication
of amounts included in (a) through (d) above). In
addition, the outstanding principal amount of the
Notes of any Class, to the extent not previously
paid, will be payable on the respective Final
Scheduled Payment Date for such Class.
A "Collection Period" with respect to a Payment Date
will be the calendar month preceding the month in
which such Payment Date occurs; provided, however,
that with respect to the first Payment Date, the
"Collection Period" will be the period from and
excluding the Cutoff Date to and including [ ], 1997.
F. Optional Redemption...........
The Notes, to the extent still outstanding, may be
redeemed in whole, but not in part, on any Payment
Date on which the Servicer exercises its option to
purchase all the Receivables as of the last day of
any Collection Period on or after which the aggregate
Principal Balance of the Receivables is equal to 10%
or less of the Original Pool Balance, at a redemption
price equal to the unpaid principal amount of the
Notes, plus accrued and unpaid interest thereon;
provided that the Servicer's right to exercise such
option will be subject to the prior approval of the
Insurer, but only if, after giving effect thereto, a
claim on the Policy would occur or any amount owing
to the Insurer or the holders of the Notes would
remain unpaid. See "Description of the Notes --
Optional Redemption" in this Prospectus Supplement.
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G. Mandatory Redemption..........
The Notes may be accelerated and subject to immediate
payment at par upon the occurrence of an Event of
Default under the Indenture. So long as no Insurer
shall have occurred and be continuing, an Event of
Default under the Indenture will occur only upon
delivery by the Insurer to the Indenture Trustee of
notice of the occurrence of certain events of default
under the Insurance Agreement dated as of [ ]. In the
case of such an Event of Default, the Notes will
automatically be accelerated and subject to immediate
payment at par. See "Description of the Notes --
Events of Default" in this Prospectus Supplement.
Priority of Payments.............
On each Payment Date, the Indenture Trustee shall
make the following distributions in the following
order of priority:
(i) to the Servicer, the Servicing Fee and all unpaid
Servicing Fees from prior Collection Periods;
provided, however, that as long as CPS is the
Servicer and Norwest Bank Minnesota, National
Association is the Standby Servicer, the Indenture
Trustee will first pay to the Standby Servicer out of
the Servicing Fee otherwise payable to CPS an amount
equal to the Standby Fee;
(ii) in the event the Standby Servicer or any other
party becomes the successor Servicer, to the Standby
Servicer or such other successor servicer, reasonable
transition expenses (up to a maximum of $50,000)
incurred in acting as successor Servicer;
(iii) to the Indenture Trustee and the Owner Trustee,
pro rata, the Indenture Trustee Fee (as defined
herein) and reasonable out-of-pocket expenses and all
unpaid Trustee Fees and unpaid reasonable
out-of-pocket expenses from prior Collection Periods;
(iv) to the Collateral Agent, all fees and expenses
payable to the Collateral Agent with respect to such
Payment Date;
(v) to the Noteholders, the Noteholders' Interest
Distributable Amount, to be distributed as described
under "Description of the Notes -- Payments of
Interest";
(vi) to the Noteholders, the Noteholders' Principal
Distributable Amount, to be distributed as described
under "Description of the Notes -- Payments of
Principal";
(vii) to the Insurer, any amounts due to the Insurer
under the terms of the Sale and Servicing Agreement
and under the Insurance Agreement (as defined
herein);
(viii) unless the Notes have been paid in full, to
the Collateral Agent, for deposit into the Spread
Account, the remaining Total Distribution Amount, if
any. See "Description of the Notes -- Distributions
on Notes -- Priority of Distribution Amounts" in this
Prospectus Supplement;
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(ix) to the Certificateholders, from amounts released
from the Spread Account, the Certificateholders'
Interest Distributable Amount;
(x) to the Certificateholders, from amounts released
from the Spread Account, the Certificateholders'
Principal Distributable Amount (as defined herein);
and
(xi) to the Owner Trustee, or as specified in the
Trust Documents, any remaining funds.
Spread Account...................
As part of the consideration for the issuance of the
Policy, the Seller has agreed to cause the Spread
Account to be established with the Collateral Agent
for the benefit of the Insurer and the Indenture
Trustee on behalf of the Noteholders. Any portion of
the Total Distribution Amount remaining on any
Payment Date after payment of all fees and expenses
due on such date to the Servicer, the Standby
Servicer, the Indenture Trustee, the Owner Trustee,
the Collateral Agent, the Insurer, any successor
Servicer and all principal and interest payments due
to the Noteholders on such Payment Date, will be
deposited in the Spread Account and held by the
Collateral Agent for the benefit of the Indenture
Trustee, on behalf of the Noteholders, and the
Insurer. Amounts on deposit in the Spread Account on
any Payment Date which (after all payments required
to be made on such date have been made) are in excess
of the requisite amount determined from time to time
in accordance with certain portfolio performance
tests agreed upon by the Insurer and the Seller as a
condition to the issuance of the Policy (such
requisite amount, the "Requisite Amount") will be
released to or at the direction of the Owner Trustee.
See "Description of the Notes -- Distributions on
Notes -- The Spread Account" in this Prospectus
Supplement.
Record Dates.....................
The record date applicable to each Payment Date
(each, a "Record Date") will be the 10th day of the
calendar month in which such Payment Date occurs.
Repurchases and Purchases
of Certain Receivables........
CPS has made certain representations and warranties
relating to the Receivables to the Seller in the
Purchase Agreement, and the Seller has made such
representations and warranties for the benefit of the
Trust and the Insurer in the Sale and Servicing
Agreement. The Indenture Trustee, as acknowledged
assignee of the repurchase obligations of CPS under
the Purchase Agreement, will be entitled to require
CPS to repurchase any Receivable if such Receivable
is materially adversely affected by a breach of any
representation or warranty made by CPS with respect
to the Receivable and such breach has not been cured
as of the last day of the second (or, if CPS elects,
the first) month following discovery thereof by the
Seller or CPS or notice to the Seller or CPS. See
"Description of the Trust Documents -- Sale and
Assignment of Receivables" in the Prospectus.
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<PAGE>
The Servicer will be obligated to repurchase any
Receivable if, among other things, it extends the
date for final payment by the Obligor of such
Receivable beyond the last day of the penultimate
Collection Period preceding the Final Scheduled
Payment Date or fails to maintain a perfected
security interest in the Financed Vehicle. See
"Description of the Notes -- Servicing Procedures" in
this Prospectus Supplement and "Description of the
Trust Documents -- Servicing Procedures" in the
Prospectus.
The Policy.......................
On the Closing Date, the Insurer will issue the
Policy to the Indenture Trustee for the benefit of
the Noteholders (the "Policy"). Pursuant to the
Policy, the Insurer will unconditionally and
irrevocably guarantee to the Noteholders payment of
the Noteholders' Interest Distributable Amount and
the Noteholders' Principal Distributable Amount
(collectively, the "Scheduled Payments") on each
Payment Date.
Servicing........................
The Servicer will be responsible for servicing,
managing and making collections on the Receivables.
On or prior to the next billing period after the
Cutoff Date, the Servicer will notify each Obligor to
make payments with respect to the Receivables after
the Cutoff Date directly to a post office box in the
name of the Indenture Trustee for the benefit of the
Noteholders and the Insurer (the "Post Office Box").
On each Business Day, Cash Flex, L.P., as the
lock-box processor (the "Lock-Box Processor"), will
transfer any such payments received in the Post
Office Box to a segregated lock-box account at Bank
of America (the "Lock-Box Bank") in the name of the
Indenture Trustee for the benefit of the Noteholders
and the Insurer (the "Lock-Box Account"). Within two
Business Days of receipt of funds into the Lock-Box
Account, the Servicer is required to direct the
Lock-Box Bank to effect a transfer of funds from the
Lock-Box Account to one or more accounts established
with the Indenture Trustee. See "Description of the
Notes -- Accounts" in this Prospectus Supplement and
"Description of the Trust Documents -- Payments on
Receivables" in the Prospectus.
Standby Servicer.................
Norwest Bank Minnesota, National Association, a
national banking association, located at Sixth Street
and Marquette Avenue, Minneapolis, Minnesota.
If a Servicer Termination Event occurs and remains
unremedied, (1) provided no Insurer Default has
occurred and is continuing, then the Insurer in its
sole and absolute discretion, or (2) if an Insurer
Default shall have occurred and be continuing, then
the Indenture Trustee may, with the consent of the
Insurer (so long as an Insurer Default shall not have
occurred and be continuing) or shall, at the
direction of the Insurer (or, if an Insurer Default
shall have occurred and be continuing, at the
direction of the Note Majority) terminate the rights
and obligations of the Servicer under the Sale and
Servicing Agreement. If such event occurs when CPS is
the Servicer, or if CPS resigns as Servicer or is
terminated as Servicer by the Insurer, Norwest Bank
Minnesota, National Association
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(in such capacity, the "Standby Servicer") has agreed
to serve as successor Servicer under the Sale and
Servicing Agreement pursuant to a Servicing
Assumption Agreement dated as of [ ], 1997 among CPS,
the Standby Servicer and the Indenture Trustee (the
"Servicing Assumption Agreement"). The Standby
Servicer will receive a portion of the Servicing Fee
(the "Standby Fee") for agreeing to stand by as
successor Servicer and for performing other
functions. If the Standby Servicer or any other
entity serving at the time as Standby Servicer
becomes the successor Servicer, it will receive
compensation at a Servicing Fee Rate not to exceed
2.12% per annum. See "The Standby Servicer" in this
Prospectus Supplement.
Servicing Fee....................
The Servicer will be entitled to receive a Servicing
Fee on each Payment Date equal to the product of
one-twelfth times 2.12% (the "Servicing Fee Rate") of
the Pool Balance as of the close of business on the
last day of the second preceding Collection Period;
provided, however, that with respect to the first
Payment Date the Servicer will be entitled to receive
a Servicing Fee equal to the product of one- twelfth
times 2.12% of the Original Pool Balance. As
additional servicing compensation, the Servicer will
also be entitled to certain late fees, prepayment
charges and other administrative fees or similar
charges. For so long as CPS is Servicer, a portion of
the Servicing Fee, equal to the Standby Fee, will be
payable to the Standby Servicer.
Certain Legal Aspects
of the Receivables ............
In connection with the sale of the Receivables,
security interests in the Financed Vehicles securing
the CPS Receivables will be assigned by CPS to the
Seller pursuant to the Purchase Agreement and by the
Seller to the Trustee pursuant to the Sale and
Servicing Agreement. The Samco Receivables,
representing approximately [ %] of the aggregate
principal balance of the Receivables as of the Cutoff
Date, have been originated by CPS's 80% owned
subsidiary, Samco, and will be purchased by the
Seller from Samco prior to consummation of the
transfer of Receivables contemplated in the Sale and
Servicing Agreement. The certificates of title to the
Financed Vehicles securing the CPS Receivables show
CPS as the lienholder and the certificates of title
to the Samco Receivables show Samco as the
lienholder. Due to the administrative burden and
expense, the certificates of title to the Financed
Vehicles securing the Receivables will not be amended
or reissued to reflect the assignment thereof to the
Seller, nor will the certificates of title to any
Financed Vehicles be amended or reissued to reflect
the assignment thereof to the Trust. In the absence
of such an amendment, the Trust may not have a
perfected security interest in the Financed Vehicles
securing the Receivables in some states. The Seller
will be obligated to purchase any Receivable sold
11
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by the Seller to the Trust as to which there did not
exist on the Closing Date a perfected security
interest in the name of CPS or Samco in the Financed
Vehicle, and the Servicer will be obligated to
purchase any Receivable sold to the Trust as to which
it failed to maintain a perfected security interest
in the name of CPS or Samco in the Financed Vehicle
securing such Receivable (which perfected security
interest has been assigned to, and is for the benefit
of, the Trust) if, in either case, such breach
materially and adversely affects the interest of the
Trust, the Indenture Trustee or the Certificate
Insurer in such Receivable and if such failure or
breach is not cured by the last day of the second
(or, if CPS or the Servicer, as the case may be,
elects, the first) month following the discovery by
or notice to CPS or the Servicer, as the case may be,
of such breach. To the extent the security interest
of CPS or Samco is perfected, the Trust will have a
prior claim over subsequent purchasers of such
Financed Vehicle and holders of subsequently
perfected security interests. However, as against
liens for repairs of a Financed Vehicle or for unpaid
storage charges or for taxes unpaid by an Obligor
under a Receivable, or through fraud, forgery or
negligence or error, CPS or Samco, and therefore the
Trust, could lose its prior perfected security
interest in a Financed Vehicle. Neither CPS nor the
Servicer will have any obligation to purchase a
Receivable as to which a lien for repairs of a
Financed Vehicle or for taxes unpaid by an Obligor
under a Receivable result in losing the priority of
the security interest in such Financed Vehicle after
the Closing Date. See "Risk Factors -- Certain Legal
Aspects" in this Prospectus Supplement and in the
Prospectus.
Book-Entry Notes.................
The Notes initially will be represented by one or
more notes registered in the name of Cede & Co.
("Cede") as the nominee of The Depository Trust
Company ("DTC"), and will only be available in the
form of book-entries on the records of DTC and
participating members thereof. Notes will be issued
in definitive form only under the limited
circumstances described herein. All references herein
to "holders" of the Notes or "Noteholders" shall
reflect the rights of beneficial owners of the Notes
(the "Note Owners") as they may indirectly exercise
such rights through DTC and participating members
thereof, except as otherwise specified herein. See
"Description of the Notes Registration of Notes" in
this Prospectus Supplement and "Description of the
Securities -- Book- Entry Registration" and "--
Definitive Notes" in the Prospectus.
Tax Status.......................
In the opinion of Mayer, Brown & Platt ("Federal Tax
Counsel"), for Federal income tax purposes the Notes
will be characterized as debt and the Trust will not
be characterized as an association (or publicly
traded partnership) taxable as a corporation. Each
Noteholder, by the acceptance of a Note, will agree
to treat the Notes as indebtedness and each
Certificateholder, by the acceptance of a
Certificate, will agree to treat the Trust as a
partnership im which such Certificateholder is a
partner for Federal income tax purposes. See "Certain
Federal Income Tax Consequences" in the Prospectus
for additional information concerning the application
of Federal tax laws to the Trust and the Notes.
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ERISA Considerations.............
Subject to the conditions and considerations
discussed under "ERISA Considerations" in this
Prospectus Supplement, the Notes are eligible for
purchase by pension, profit-sharing or other employee
benefit plans, as well as individual retirement
accounts and certain types of Keogh Plans (each, a
"Benefit Plan"). See "ERISA Considerations" in this
Prospectus Supplement.
Rating of the
Notes............................
It is a condition of issuance that the Notes be rated
"Aaa" by Moody's Investors Service, Inc. ("Moody's")
and "AAA" by Standard & Poor's Rating Services
("Standard & Poor's" and together with Moody's, the
"Rating Agencies"), on the basis of the issuance of
the Policy by the Insurer. A security rating is not a
recommendation to buy, sell or hold securities and
may be revised or withdrawn at any time by the
assigning Rating Agency. See "Risk Factors -- Ratings
of the Notes" in this Prospectus Supplement.
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RISK FACTORS
In addition to the other information in this Prospectus Supplement and
the Prospectus, prospective Noteholders should consider the following factors,
as well as those matters discussed in "Risk Factors" in the Prospectus, in
evaluating an investment in the Notes:
Nature of Obligors; Servicing
CPS purchases loans originated for assignment to CPS or a subsidiary
through automobile dealers or IFCs. CPS services its dealers through a network
of employee and independent marketing representatives and through its 80% owned
subsidiary, Samco Acceptance Corp. ("Samco"). CPS's customers are generally
considered to have marginal credit and fall into one of two categories:
customers with moderate income, limited assets and other income characteristics
which cause difficulty in borrowing from banks, captive finance companies of
automakers or other traditional sources of auto loan financing; and customers
with a derogatory credit record including a history of irregular employment,
previous bankruptcy filings, repossessions of property, charged-off loans and
garnishment of wages. The payment experience on Receivables of Obligors with
marginal credit is likely to be different than that on receivables of
traditional auto financing sources and is likely to be more sensitive to changes
in the economic climate in the areas in which such Obligors reside.
The servicing of receivables of customers with marginal credit requires
special skill and diligence. The Servicer believes that its credit loss and
delinquency experience reflects in part its trained staff and collection
procedures. If a Servicer Termination Event occurs and CPS is removed as
Servicer or, if CPS resigns or is terminated by the Insurer as Servicer, the
Standby Servicer has agreed to assume the obligations of successor Servicer
under the Sale and Servicing Agreement. See "Description of the Notes- Rights
Upon Servicer Termination Event" in this Prospectus Supplement. There can be no
assurance, however, that collections with respect to the Receivables will not be
adversely affected by any change in Servicer. See "The Standby Servicer" in this
Prospectus Supplement.
The Sale and Servicing Agreement provides that the rights and
obligations of the Servicer terminate after 90 days unless renewed by the
Insurer for successive 90-day periods. The Insurer will agree to grant
continuous renewals so long as (i) no Servicer Termination Event under the Sale
and Servicing Agreement has occurred and (ii) no event of default under the
insurance and indemnity agreement among CPS, the Seller and the Insurer (the
"Insurance Agreement") has occurred.
Geographic Concentration
As of the Cutoff Date, [ %] of the Receivables by Principal Balance had
Obligors residing in the State of California. Economic conditions in the State
of California may affect the delinquency, loan loss and repossession experience
of the Trust with respect to the Receivables. See "The Receivables Pool" in this
Prospectus Supplement.
Ratings of the Notes
It is a condition to the issuance of the Notes that the Notes be rated
"Aaa" by Moody's and "AAA" by Standard & Poor's on the basis of the issuance of
the Policy by the Insurer. A rating is not a recommendation to purchase, hold or
sell the Notes, inasmuch as such rating does not comment as to market price or
suitability for a particular investor. The Rating Agencies do not evaluate, and
the ratings do not address, the possibility that Noteholders may receive a lower
than anticipated yield. There is no assurance that a rating will remain for any
given period of time or that a rating will not be lowered or withdrawn entirely
by a Rating Agency if in its judgment circumstances in the future so warrant.
The ratings of the Notes are based primarily on the rating of the Insurer. Upon
an Insurer Default the rating on the Notes may be lowered or withdrawn entirely.
In the event that any rating initially assigned to the
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Notes were subsequently lowered or withdrawn for any reason, including by reason
of a downgrading of the Insurer's claims-paying ability, no person or entity
will be obligated to provide any additional credit enhancement with respect to
the Notes. Any reduction or withdrawal of a rating may have an adverse effect on
the liquidity and market price of the Notes.
Limited Assets
The Trust does not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables and amounts on
deposit in certain accounts held by the Indenture Trustee on behalf of the
Noteholders. The Notes represent obligations solely of the Trust and are not
obligations of, and will not be insured or guaranteed by, the Seller, the
Servicer, the Indenture Trustee or any other person or entity except for the
guaranty provided with respect to the Notes by the Insurer pursuant to the
Policy, as described herein. The Seller will take such steps as are necessary
for the Insurer to issue the Policy to the Indenture Trustee for the benefit of
the Noteholders. Under the Policy, the Insurer will unconditionally and
irrevocably guarantee to the Noteholders full and complete payment of the
Scheduled Payments on each Payment Date. In the event of an Insurer Default, the
Noteholders must rely on the collections on the Receivables, and the proceeds
from the repossession and sale of Financed Vehicles which secure defaulted
Receivables. In such event, certain factors, such as the Trust not having
perfected security interests in the Financed Vehicles, may affect the Trust's
ability to realize on the collateral securing the Receivables and thus may
reduce the proceeds to be distributed to Noteholders on a current basis.
Distributions of interest and principal on the Notes will be dependent
primarily upon collections on the Receivables and amounts paid pursuant to the
Policy. See "Description of the Notes -- Distributions on Notes" in this
Prospectus Supplement.
Delinquency and Loan Loss Experience
CPS began purchasing Contracts from Dealers in October 1991. Although
CPS has calculated and presented herein its net loss experience with respect to
its servicing portfolio, there can be no assurance that the information
presented will reflect actual experience with respect to the Receivables. In
addition, there can be no assurance that the future delinquency or loan loss
experience of the Trust with respect to the Receivables will be better or worse
than that set forth herein with respect to CPS's servicing portfolio. See "CPS's
Automobile Contract Portfolio-Delinquency and Loss Experience" in this
Prospectus Supplement. Although credit history on Samco's originations is
limited, CPS expects that the delinquency and net credit loss and repossession
experience with respect to the Receivables originated by Samco will be similar
to that of CPS's existing portfolio.
Certain Legal Aspects
Due to the administrative burden and expense, the certificates of title
to the Financed Vehicles securing the Receivables will not be amended or
reissued to reflect the assignment of the Receivables to the Seller by CPS or
Samco, as applicable, nor will the certificates of title to any of the Financed
Vehicles be amended or reissued to reflect the assignment to the Trust. In the
absence of such an amendment or reissuance, the Trust may not have a perfected
security interest in the Financed Vehicles securing the Receivables in some
states. By virtue of the assignment of the Purchase Agreement to the Trust, CPS
will be obligated to repurchase any Receivable sold to the Trust by the Seller
(including any Samco Receivable) as to which there did not exist on the Closing
Date a perfected security interest in the name of CPS or Samco in the Financed
Vehicle, and the Servicer will be obligated to purchase any Receivable sold to
the Trust as to which it failed to maintain a perfected security interest in the
name of CPS or Samco in the Financed Vehicle securing such Receivable if, in
either case, such breach materially and adversely affects such Receivable and if
such failure or breach is not cured prior to the expiration of the applicable
cure period. To the extent the security interest of CPS or Samco is perfected,
the Trust
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<PAGE>
will have a prior claim over subsequent purchasers of such Financed Vehicle and
holders of subsequently perfected security interests. However, as against liens
for repairs of a Financed Vehicle or for taxes unpaid by an Obligor under a
Receivable, or through fraud, forgery, negligence or error, CPS or Samco, and
therefore the Trust, could lose the priority of its security interest or its
security interest in a Financed Vehicle. Neither CPS nor the Servicer will have
any obligation to purchase a Receivable as to which a lien for repairs of a
Financed Vehicle or for taxes unpaid by an Obligor under a Receivable result in
losing the priority of the security interest in such Financed Vehicle after the
Closing Date. See "Certain Legal Aspects of the Receivables" in this Prospectus
Supplement and "Certain Legal Aspects of the Receivables -- Security Interest in
Vehicles" in the Prospectus.
FORMATION OF THE TRUST
The Issuer, CPS Auto Receivables Trust 1997-2, is a business trust
formed under the laws of the State of Delaware pursuant to the Trust Agreement.
Prior to the sale and assignment of the Trust Assets to the Trust, the Trust
will have no assets or obligations or any operating history. The Trust will not
engage in any business other than (i) acquiring, holding and managing the
Receivables, the other assets of the Trust and any proceeds thereof, (ii)
issuing the Notes and the Certificates, (iii) making payments in respect of the
Notes and the Certificates and (iv) engaging in other activities that are
necessary, suitable or convenient to accomplish the foregoing or are incidental
thereto.
The Servicer will initially service the Receivables pursuant to the
Sale and Servicing Agreement and will be compensated for acting as the Servicer.
See "Description of the Notes -- Servicing Compensation" in this Prospectus
Supplement. The Indenture Trustee will be appointed custodian for the
Receivables and the certificates of title relating to the Financed Vehicles, and
the Receivables and such certificates of title will be delivered to and held in
physical custody by the Indenture Trustee. However, the Receivables will not be
marked or stamped to indicate that they have been sold to the Trust, and the
certificates of title of the Financed Vehicles will not be endorsed or otherwise
amended to identify the Trust or the Indenture Trustee as the new secured party.
In the absence of amendments to the certificates of title, the Indenture Trustee
may not have perfected security interests in the Financed Vehicles securing the
Receivables originated in some states. See "Certain Legal Aspects of the
Receivables" in the Prospectus.
The Trust will initially be capitalized by the Seller with equity equal
to [$ ] and Certificates equal to such amount will be issued to the Seller. The
equity of the Trust, together with the proceeds of the initial sale of the
Notes, will be used by the Trust to purchase the Receivables from the Seller.
The Trust will not acquire any assets other than the Trust Assets, and it is not
anticipated that the Trust will have any need for additional capital resources.
Because the Trust will have no operating history upon its establishment and will
not engage in any business other than acquiring and holding the Trust Assets,
issuing the Securities and distributing payments on the Securities, no
historical or pro forma financial statements or ratios of earnings to fixed
charges with respect to the Trust have been included herein.
The Owner Trustee
[ ], the Owner Trustee under the Trust Agreement, is a Delaware banking
corporation and its principal offices are located at [ ]. The Owner Trustee will
perform limited administrative functions under the Trust Agreement. The Owner
Trustee's duties in connection with the issuance and sale of the Securities is
limited solely to the express obligations of the Owner Trustee set forth in the
Trust Agreement and the Sale and Servicing Agreement.
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<PAGE>
The Indenture Trustee
Norwest Bank Minnesota, National Association, a national banking
association, is the Indenture Trustee under the Indenture. The principal offices
of the Indenture Trustee are located at Sixth Street and Marquette Avenue,
Minneapolis, Minnesota. The Indenture Trustee's duties in connection with the
Notes are limited solely to its express obligations under the Indenture and the
Sale and Servicing Agreement.
THE TRUST ASSETS
The Trust Assets include retail installment sale contracts on new and
used automobiles, light trucks, vans and minivans between dealers (the
"Dealers") or IFCs and retail purchasers (the "Obligors") and, with respect to
Rule of 78's Receivables, certain monies due thereunder after the Cutoff Date,
and, with respect to Simple Interest Receivables, certain monies received
thereunder after the Cutoff Date. The Receivables were originated by the Dealers
or IFCs for assignment to CPS or Samco. Pursuant to agreements between the
Dealers and CPS ("Dealer Agreements") or between the IFCs and Samco, the
Receivables were purchased by CPS or Samco and, prior to the Closing Date,
evidenced financing made available by CPS or Samco to the Obligors. The Trust
Assets also include (i) such amounts as from time to time may be held in one or
more trust accounts established and maintained by the Indenture Trustee pursuant
to the Sale and Servicing Agreement, as described below; see "Description of the
Notes -- Accounts" in this Prospectus Supplement; (ii) the rights of the Seller
under the Purchase Agreement; (iii) security interests in the Financed Vehicles;
(iv) the rights of the Seller to receive any proceeds with respect to the
Receivables from claims on physical damage, credit life and credit accident and
health insurance policies covering the Financed Vehicles or the Obligors, as the
case may be; (v) the rights of the Seller to refunds for the costs of extended
service contracts and to refunds of unearned premiums with respect to credit
life and credit accident and health insurance policies covering the Financed
Vehicles or Obligors, as the case may be; and (vi) any and all proceeds of the
foregoing. The Trust Assets also will include the Policy for the benefit of the
Noteholders.
CPS'S AUTOMOBILE CONTRACT PORTFOLIO
General
CPS was incorporated in the State of California on March 8, 1991. CPS
and its subsidiaries engage primarily in the business of purchasing, selling and
servicing retail automobile installment sales contracts ("Contracts") originated
by Dealers located primarily in California, Florida, Pennsylvania, Texas,
Illinois and Nevada. CPS specializes in Contracts with borrowers ("Sub-Prime
Borrowers") who generally would not be expected to qualify for traditional
financing such as that provided by commercial banks or automobile manufacturers'
captive finance companies. Sub-Prime Borrowers generally have limited credit
history, lower than average income or past credit problems.
On May 31, 1991, CPS acquired 100% of the stock of G&A Financial
Services, Inc., a consumer loan servicing company, whose assets consisted
primarily of servicing contracts with respect to loan portfolios owned by third
parties. G&A Financial Services, Inc. has subsequently been dissolved. On
September 1, 1991, CPS was engaged to act as a servicer for loan portfolios
aggregating $16.5 million by two companies who had purchased such portfolios
from the Resolution Trust Corp. As of December 31, 1994, CPS had terminated all
such third-party servicing arrangements. On October 1, 1991, CPS began its
program of purchasing Contracts from Dealers and selling them to institutional
investors. Through December 31, 1996, CPS had purchased $729.1 million of
Contracts from Dealers and sold $713.0 million of Contracts to institutional
investors. CPS continues to service all of the Contracts it has purchased,
including those it has re-sold.
CPS has relationships and is party to Dealer Agreements with over 2,177
dealerships located in 41 states of the United States. CPS purchases Contracts
from Dealers for a fee ranging from $0 to
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<PAGE>
$1,195. A Dealer Agreement does not obligate a Dealer to submit Contracts for
purchase by CPS, nor does it obligate CPS to purchase Contracts offered by the
Dealers.
CPS purchases Contracts from Dealers with the intent to resell them.
CPS also purchases Contracts from third parties that have been originated by
others. Contracts have been sold by CPS to institutional investors either as
bulk sales or as private placements or public offerings of securities
collateralized by the Contracts. Purchasers of the Contracts receive a
pass-through rate of interest set at the time of the sale, and CPS receives a
base servicing fee for its duties relating to the accounting for and collection
of the Contracts. In addition, CPS is entitled to certain excess servicing fees
that represent collections on the Contracts in excess of those required to pay
principal and interest due to the investor and the base servicing fee to CPS.
Generally, CPS sells the Contracts to such institutional investors at face value
and without recourse except that the representations and warranties made to CPS
by the Dealers are similarly made to the investors by CPS. CPS has some credit
risk with respect to the excess servicing fees it receives in connection with
the sale of Contracts to investors and its continued servicing function since
the receipt by CPS of such excess servicing fees is dependent upon the credit
performance of the Contracts.
In March 1996, CPS formed Samco Acceptance Corp. ("Samco"), an 80
percent-owned subsidiary based in Dallas, Texas. Samco's business plan is to
provide the Company's sub-prime auto finance products to rural areas through
independently owned finance companies. CPS believes that many rural areas are
not adequately served by other industry participants due to their distance from
large metropolitan areas where a Dealer marketing representative is most likely
to be based.
Samco employees call on IFCs primarily in the southeastern United
States and present them with financing programs that are essentially identical
to those which CPS markets directly to Dealers through its marketing
representatives. CPS believes that a typical rural IFC has relationships with
many local automobile purchasers as well as Dealers but, because of limitations
of financial resources or capital structure, such IFCs generally are unable to
provide 36, 48 or 60 month financing for an automobile. IFCs may offer Samco's
financing programs to borrowers directly or indirectly through local Dealers.
Samco purchases contracts from the IFCs after its credit personnel have
performed all of the same underwriting and verification procedures and have
applied all the same credit criteria that CPS performs and applies for Contracts
it purchases from Dealers. Samco purchases Contracts at a discount ranging from
0% to 8% of the total amount financed under such Contracts. In addition, Samco
generally charges IFCs an acquisition fee to defray the direct administrative
costs associated with the processing of Contracts that are ultimately purchased
by Samco. Servicing and collection procedures on Contracts owned by Samco are
performed by CPS at its headquarters in Irvine, California. As of December 31,
1996, Samco had purchased 399 Contracts with original balances of $4.7 million.
The principal executive offices of CPS are located at 2 Ada, Irvine,
California 92618. CPS's telephone number is (714) 753-6800.
Underwriting
CPS markets its services to Dealers under four programs: the CPS
standard program (the "Standard Program"), the CPS First Time Buyer Program (the
"First Time Buyer Program"), the CPS Alpha Program (the "Alpha Program") and the
CPS Delta Program (the "Delta Program"). CPS applies underwriting standards in
purchasing loans on new and used vehicles from Dealers based upon the particular
program under which the loan was submitted for purchase. The Alpha Program
guidelines are designed to accommodate applicants who meet all the requirements
of the Standard Program and exceed such requirements in respect of job
stability, residence stability, income level or the nature of the credit
history. The Delta Program guidelines are designed to accommodate applicants who
may not meet all of the requirements of the Standard Program but who are deemed
by CPS to be generally as creditworthy as Standard Program applicants. The First
Time Buyer Program guidelines are designed to accommodate
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<PAGE>
applicants who have not previously financed an automobile; such applicants must
meet all the requirements of the Standard Program, as well as slightly higher
income and down payment requirements. CPS uses the degree of the applicant's
creditworthiness and the collateral value of the financed vehicle as the basic
criteria in determining whether to purchase an installment sales contract from a
Dealer. Each credit application provides current information regarding the
applicant's employment and residence history, bank account information, debts,
credit references, and other factors that bear on an applicant's
creditworthiness. Upon receiving from the Dealer the completed application of a
prospective purchaser and a one-page Dealer summary of the proposed financing,
generally by facsimile copy, CPS obtains a credit report compiling credit
information on the applicant from three credit bureaus. The credit report
summarizes the applicant's credit history and paying habits, including such
information as open accounts, delinquent payments, bankruptcy, repossessions,
lawsuits and judgments. At this point a CPS loan officer will review the credit
application, Dealer summary and credit report and will either conditionally
approve or reject the application. Such conditional approval or rejection by the
loan officer usually occurs within one business day of receipt of the credit
application. The loan officer determines the conditions to his or her approval
of a credit application based on many factors such as the applicant's
residential situation, downpayment, and collateral value with regard to the
loan, employment history, monthly income level, household debt ratio and the
applicant's credit history. Based on the stipulations of the loan officer, the
Dealer and the applicant compile a more complete application package which is
forwarded to CPS and reviewed by a processor for deficiencies. As part of this
review, references are checked, direct calls are made to the applicant and
employment income and residence verification is done. Upon the completion of his
or her review, the processor forwards the application package to an underwriter
for further review. The underwriter will confirm the satisfaction of any
remaining deficiencies in the application package. Finally, before the loan is
funded, the application package is checked for deficiencies again by a loan
review officer. CPS conditionally approves approximately 50% of the credit
applications it receives and ultimately purchases approximately 13% of the
received applications.
CPS has purchased portfolios of Contracts in bulk from other companies
that had previously purchased the Contracts from Dealers. From July 1, 1994 to
July 31, 1995, CPS made four such bulk purchases aggregating approximately $22.9
million. In considering bulk purchases, CPS carefully evaluates the credit
profile and payment history of each portfolio and negotiates the purchase price
accordingly. The credit profiles of the Contracts in each of the portfolios
purchased are consistent with those in the underwriting standards used by the
Company in its normal course of business. Bulk purchases were made at a purchase
price approximately equal to a 7.0% discount from the aggregate principal
balance of the Contracts. CPS has not purchased any portfolios of Contracts in
bulk since July 31, 1995, but may consider doing so in the future.
Generally, the amount funded by CPS will not exceed, in the case of new
cars, 110% of the dealer invoice plus taxes, license fees, insurance and the
cost of the servicer contract, and in the case of used cars, 115% of the value
quoted in industry-accepted used car guides (such as the Kelley Wholesale Blue
Book) plus the same additions as are allowed for new cars. The maximum amount
that will be financed on any vehicle generally will not exceed $25,000. The
maximum term of the Contract depends primarily on the age of the vehicle and its
mileage. Vehicles having in excess of 80,000 miles will not be financed.
The minimum downpayment required on the purchase of a vehicle is
generally 10% to 15% of the purchase price. The downpayment may be made in cash,
and/or with a trade-in car and, if available, a proven manufacturer's rebate.
The cash and trade-in value must equal at least 50% of the minimum downpayment
required, with the proven manufacturer's rebate constituting the remainder of
the downpayment. CPS believes that the relatively high downpayment requirement
will result in higher collateral values as a percentage of the amount financed
and the selection of buyers with stronger commitment to the vehicle.
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<PAGE>
Prior to purchasing any Contract, CPS verifies that the Obligor has
arranged for casualty insurance by reviewing documentary evidence of the policy
or by contacting the insurance company or agent. The policy must indicate that
CPS is the lien holder and loss payee. The insurance company's name and policy
expiration date are recorded in CPS' computerized system for ongoing monitoring.
As loss payee, CPS receives all correspondence relevant to renewals or
cancellations on the policy. Information from all such correspondence is updated
to the computerized records. In the event that a policy reaches its expiration
date without a renewal, or if CPS receives a notice that the policy has been
canceled prior to its expiration date, a letter is generated to advise the
borrower of its obligation to continue to provide insurance. If no action is
taken by the borrower to insure the vehicle, two successive and more forceful
letters are generated, after which the collection department will contact the
borrower telephonically to further counsel the borrower, including possibly
advising them that CPS has the right to repossess the vehicle if the borrower
refuses to obtain insurance. Although it has the right, CPS rarely repossesses
vehicles in such circumstances. In addition, CPS does not force place a policy
and add the premium to the borrower's outstanding obligation, although it also
has the right to do so. Rather in such circumstances the account is flagged as
not having insurance and continuing efforts are made to get the Obligor to
comply with the insurance requirement in the Contract. CPS believes that
handling non-compliance with insurance requirements in this manner ultimately
results in better portfolio performance because it believes that the increased
monthly payment obligation of the borrower which would result from force placing
insurance and adding the premium to the borrower's outstanding obligation would
increase the likelihood of delinquency or default by such borrower on future
monthly payments.
Samco offers financing programs to IFCs which are essentially identical
to those offered by CPS. The IFCs may offer Samco's financing programs to
borrowers directly or indirectly through local Dealers. Upon submission of
applications to Samco, Samco credit personnel, who have been trained by CPS, use
CPS's proprietary systems to evaluate the borrower and the proposed Contract
terms. Samco purchases contracts from the IFCs after its credit personnel have
performed all of the underwriting and verification procedures and have applied
all the same credit criteria that CPS performs and applies for Contracts it
purchases from Dealers. Prior to CPS [or an affiliate] purchasing a Contract
from Samco, CPS personnel perform procedures intended to verify that such
Contract has been underwritten and originated in conformity with the
requirements applied by CPS with respect to Contracts acquired by it directly
from Dealers.
Servicing and Collections
CPS' servicing activities, both with respect to portfolios of Contracts
sold by it to investors and with respect to portfolios of other receivables
owned or originated by third parties, consist of collecting, accounting for and
posting of all payments received with respect to such Contracts or other
receivables, responding to borrower inquiries, taking steps to maintain the
security interest granted in the Financed Vehicle or other collateral,
investigating delinquencies, communicating with the borrower, repossessing and
liquidating collateral when necessary, and generally monitoring each Contract or
other receivable and related collateral. CPS maintains sophisticated data
processing and management information systems to support its Contract and other
receivable servicing activities.
Upon the sale of a portfolio of Contracts to an investor, or upon the
engagement of CPS by another receivable portfolio owner for CPS' services, CPS
mails to borrowers monthly billing statements directing them to mail payments on
the Contracts or other receivables to a lock-box account which is unique for
each investor or portfolio owner. CPS engages an independent lock-box processing
agent to retrieve and process payments received in the lock-box account. This
results in a daily deposit to the investor or portfolio owner's account of the
day's lock-box account receipts and a simultaneous electronic data transfer to
CPS of the borrower payment data for posting to CPS' computerized records.
Pursuant
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to the various servicing agreements with each investor or portfolio owner, CPS
is required to deliver monthly reports reflecting all transaction activity with
respect to the Contracts or other receivables.
If an account becomes six days past due, CPS's collection staff
typically attempts to contact the borrower with the aid of a high- penetration
auto-dialing computer. A collection officer tries to establish contact with the
customer and obtain a promise by the customer to make the overdue payment within
seven days. If payment is not received by the end of such seven-day period, the
customer is called again through the auto dialer system and the collection
officer attempts to elicit a second promise to make the overdue payment within
seven days. If a second promise to make the overdue payment is not satisfied,
the account automatically is referred to a supervisor for further action. In
most cases, if payment is not received by the tenth day after the due date, a
late fee of approximately 5% of the delinquent payment is imposed. If the
customer cannot be reached by a collection officer, a letter is automatically
generated and the customer's references are contacted. Field agents (who are
independent contractors) often make calls on customers who are unreachable or
whose payment is thirty days or more delinquent. A decision to repossess the
vehicle is generally made after 30 to 90 days of delinquency or three
unfulfilled promises to make the overdue payment. Other than granting such
limited extensions as are described under the heading "Description of the Trust
Documents-Servicing Procedures" in the Prospectus, CPS does not modify or
rewrite delinquent Contracts.
Servicing and collection procedures on Contracts owned by Samco are
performed by CPS at its headquarters in Irvine, California. However, Samco may
solicit aid from the related IFC in collecting past due accounts with respect to
which repossession may be considered.
Delinquency and Loss Experience
Set forth on the following page is certain information concerning the
experience of CPS pertaining to retail new and used automobile, light truck, van
and minivan receivables, including those previously sold, which CPS continues to
service. Contracts were first originated under the Delta Program in August 1994
and under the Alpha Program in April 1995. CPS has found that the delinquency
and net credit loss and repossession experience with respect to the Delta
Program is somewhat greater than under its Standard Program. CPS has found that
the delinquency and net credit loss and repossession experience with respect to
the Alpha Program is somewhat lower than that experienced under the Standard
Program. CPS has purchased Contracts representing financing for first-time
purchasers of automobiles since the inception of its Contract purchasing
activities in 1991. Prior to the establishment of the First Time Buyer Program
in July 1996, CPS purchased such Contracts under its Standard Program
guidelines. CPS expects that the delinquency and net credit loss and
repossession experience with respect to loans originated under the First Time
Buyer Program will be similar to that under the Standard Program. CPS began
servicing Contracts originated by Samco in March 1996. Although credit history
on Samco's originations is limited, CPS expects that the delinquency and net
credit loss and repossession experience with respect to the Receivables
originated by Samco will be similar to that of CPS's existing portfolio. There
can be no assurance, however, that the delinquency and net credit loss and
repossession experience on the Receivables will continue to be comparable to
CPS' experience shown in the following tables.
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<TABLE>
<CAPTION>
Consumer Portfolio Services, Inc.
Delinquency Experience
December 31, 1994 December 31, 1995 December 31, 1996
----------------- ----------------- -----------------
Number Number Number
of Loans Amount of Loans Amount of Loans Amount
-------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Portfolio (1)................... 14,235 $203,879,000 27,113 $355,965,000 47,187 $604,092,000
Period of Delinquency (2)
31-60 243 3,539,000 909 11,520,000 1,801 22,099,000
61-90 68 1,091,000 203 2,654,000 724 9,068,000
91+............................. 56 876,000 272 3,899,000 768 9,906,000
Total Delinquencies............. 367 5,506,000 1,384 18,073,000 3,293 41,073,000
Amount in Repossession (3)...... 271 3,759,000 834 10,151,000 1,168 14,563,000
Total Delinquencies and
Amount in Repossession (4)...... 638 $9,265,000 2,218 $28,224,000 4,461 $55,636,000
========== ================= ============= ================== ============== =================
Delinquencies as a Percent of
the Portfolio................... 2.58% 2.70% 5.10% 5.08% 6.98% 6.80%
Repo Inventory as a Percent
of the Portfolio................ 1.90% 1.84% 3.08% 2.85% 2.48% 2.41%
Total Delinquencies and
Amount in Repossession as a
Percent of Portfolio 4.48% 4.54% 8.18% 7.93% 9.45% %
</TABLE>
<TABLE>
<CAPTION>
March 31, 1996 March 31, 1997
- -------------- --------------
Number Number
of Loans Amount of Loans Amount
- -------- ------ -------- ------
<S> <C> <C> <C>
$ $
$ $
======== ======== =========== ========
% % % %
% % % %
% % % %
(1) All amounts and percentages are based on the full amount remaining to
be repaid on each Contract, including, for Rule of 78's Contracts, any
unearned finance charges. The information in the table represents all
Contracts originated by CPS including sold Contracts CPS continues to
service.
(2) CPS considers a Contract delinquent when an obligor fails to make at
least 90% of a contractually due payment by the due date. The period of
delinquency is based on the number of days payments are contractually
past due.
(3) Amount in Repossession represents Financed Vehicles which have been
repossessed but not yet liquidated.
(4) Amounts shown do not include Contracts which are less than 31 days
delinquent.
</TABLE>
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<TABLE>
<CAPTION>
Consumer Portfolio Services, Inc.
Net Credit Loss/Repossession Experience
Three Three
Year Ended Year Ended Year Ended Months Ended Months Ended
December 31, 1994 December 31, 1995 December 31, 1995 March 31, 1996 March 31, 1997
<S> <C> <C> <C> <C> <C>
Average Amount Outstanding During the
Period (1)................................. $98,916,991 $221,926,489 $395,404,669
Average Number of Loans Outstanding
During the Period........................ 9,171 20,809 36,998
Number of Repossessions.................... 669 2,018 3,145
Gross Charge-Offs (2)...................... $3,166,408 $11,658,461 $23,296,775
Recoveries (3)............................. $347,519 $1,028,378 $2,969,143
Net Losses................................. $2,818,889 $10,630,083 $20,327,632
Annualized Repossessions as a
Percentage of Average Number
of Loans Outstanding..................... 7.29% 9.70% 8.50%
Annualized Net Losses as a Percentage
of Average Amount Outstanding............ 2.85% 4.79% 5.14%
- -----------
(1) All amounts and percentages are based on the principal amount scheduled
to be paid on each Contract. The information in the table represents
all Contracts originated by CPS including sold Contracts which CPS
continues to service.
(2) Amount charged off includes the remaining principal balance, after the
application of the net proceeds from the liquidation of the vehicle,
excluding accrued and unpaid interest.
(3) Recoveries are reflected in the period in which they are realized and
may pertain to charge offs from prior periods.
</TABLE>
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THE RECEIVABLES POOL
The Receivables Pool existing as of the Cutoff Date consists of
Receivables selected from CPS's Portfolio by several criteria, including the
following: each Receivable was originated, based on the billing address of the
Obligors, in the United States, has an original term of not more than 60 months,
provides for level monthly payments which fully amortize the amount financed
over the original term (except for the last payment, which may be different from
the level payment for various reasons, including late or early payments during
the term of the Contract), has a remaining maturity of 60 months or less as of
the Cutoff Date, has an outstanding principal balance of not more than [$ ] as
of the Cutoff Date, is not more than 30 days past due as of the Cutoff Date and
has an APR of not less than [ %]. As of the date of each Obligor's application
for the loan from which the related Receivable arises, each Obligor (i) did not
have any material past due credit obligations or any repossessions or
garnishments of property within one year prior to the date of application,
unless such amounts have been repaid or discharged through bankruptcy, (ii) was
not the subject of any bankruptcy or insolvency proceeding that is not
discharged, and (iii) had not been the subject of more than one bankruptcy
proceeding. As of the Cutoff Date, the latest scheduled maturity of any
Receivable is not later than [ ].
As of the Cutoff Date, approximately [ %] of the aggregate principal
balance of the Receivables, constituting [ %] of the number of Contracts,
represents financing of used vehicles; the remainder of the Receivables
represent financing of new vehicles. Approximately [ %] of the aggregate
principal balance of the Receivables were originated under the Delta Program,
approximately [ %] of the aggregate principal balance of the Receivables were
originated under the Alpha Program, approximately [ %] of the aggregate
principal balance of the Receivables were originated under the First Time Buyer
Program and approximately [ %] of the aggregate principal balance of the
Receivables represent financing under the Standard Program. As of the Cutoff
Date, approximately [ %] of the aggregate principal balance of the Receivables
were originated by unaffiliated third parties and purchased by CPS in the
ordinary course of its business. As of the Cutoff Date, [ %] of the Principal
Balance of the Receivables were Samco Receivables. The composition, geographic
distribution, distribution by APR, distribution by remaining term, distribution
by date of origination, distribution by original term, distribution by model
year and distribution by original principal balance of the Receivables as of the
Cutoff Date are set forth in the following tables.
<TABLE>
<CAPTION>
Composition of the Receivables as of the Cutoff Date
<S> <C> <C> <C> <C>
Weighted Aggregate Number of Average Weighted Weighted
Average APR Principal Receivables Principal Average Average
of Receivables Balance in Pool Balance Remaining Term Original Term
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Geographic Distribution of the Receivables as of the Cutoff Date
Percent of Percent of
Aggregate Aggregate Number of Number of
State(1) Principal Balance Principal Balance Receivables Receivables
<S> <C> <C> <C> <C>
all others(2)................... % %
-------- ---- ---- ----
TOTAL...........................$
100.00%(3) 100.00%(3)
======= =============== ====== ==========
- -----------
(1) Based on billing address of Obligor.
(2) No other state represents a percent of the aggregate Principal Balance
as of the Cutoff Date in excess of one percent.
(3) Percentages may not add up to 100% because of rounding.
</TABLE>
<TABLE>
<CAPTION>
Distribution of the Receivables by APR as of the Cutoff Date
Percent of Percent of
APR Aggregate Aggregate Number of Number of
Range Principal Balance Principal Balance Receivables Receivables
<S> <C> <C> <C> <C>
all others(2)................... % %
-------- ---- ----
TOTAL...........................$
100.00%(1) 100.00%(1)
======== =============== ====== ==========
- -----------
(1) Percentages may not add up to 100% because of rounding.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Distribution of Receivables by Remaining Term to
Scheduled Maturity as of the Cutoff Date
Percent of Percent of
Remaining Term to Aggregate Aggregate Number of Number of
Scheduled Maturity Principal Balance Principal Balance Receivables Receivables
<S> <C> <C> <C> <C>
TOTAL........................... $ 100.00%(1) 100.00%(1)
- -----------
(1) Percentages may not add up to 100% because of rounding.
</TABLE>
<TABLE>
<CAPTION>
Distribution of Receivables by
Date of Origination as of the Cutoff Date
Percent of Percent of
Aggregate Aggregate Number of Number of
Date of Origination Principal Balance Principal Balance Receivables Receivables
<S> <C> <C> <C> <C>
TOTAL........................ $ 100.00%(1) 100.00%(1)
- -----------
(1) Percentages may not add up to 100% because of rounding.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Distribution of Receivables by Original Term to
Scheduled Maturity as of the Cutoff Date
Percent of Percent of
Original Term to Aggregate Aggregate Number of Number of
Scheduled Maturity Principal Balance Principal Balance Receivables Receivables
<S> <C> <C> <C> <C>
TOTAL........................... $ 100.00%(1) 100.00%(1)
- -----------
(1) Percentages may not add up to 100% because of rounding.
</TABLE>
<TABLE>
<CAPTION>
Distribution of Receivables by Model Year of Financed Vehicle
as of the Cutoff Date
Percent of Percent of
Aggregate Aggregate Number of Number of
Model Year Principal Balance Principal Balance Receivables Receivables
<S> <C> <C> <C> <C>
TOTAL........................... $ 100.00%(1) 100.00%(1)
- -----------
(1) Percentages may not add up to 100% because of rounding.
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Distribution of Receivables by Original Principal Balance
as of the Cutoff Date
Percent of Percent of
Range of Original Aggregate Aggregate Number of Number of
Principal Balances Principal Balance Principal Balance Receivables Receivables
<S> <C> <C> <C> <C>
TOTAL........................... $ 100.00%(1) 100.00%(1)
- -----------
(1) Percentages may not add up to because of rounding.
</TABLE>
28
<PAGE>
As of the Cutoff Date, approximately [ %] of the aggregate Principal
Balance of the Receivables in the Receivables Pool provide for allocation of
payments according to the "sum of periodic balances" or "sum of monthly
payments" method, similar to the "Rule of 78's" ("Rule of 78's Receivables")
and, approximately [ %] of the aggregate Principal Balance of the Receivables in
the Receivables Pool provide for allocation of payments according to the "simple
interest" method ("Simple Interest Receivables"). A Rule of 78's Receivable
provides for payment by the Obligor of a specified total amount of payments,
payable in equal monthly installments on each due date, which total represents
the principal amount financed and add-on interest in an amount calculated on the
basis of the stated APR for the term of the Receivable. The rate at which such
amount of add-on interest is earned and, correspondingly, the amount of each
fixed monthly payment allocated to reduction of the outstanding principal are
calculated in accordance with the "Rule of 78's". A Simple Interest Receivable
provides for the amortization of the amount financed under the Receivable over a
series of fixed level monthly payments. Each monthly payment consists of an
installment of interest which is calculated on the basis of the outstanding
principal balance of the Receivable multiplied by the stated APR and further
multiplied by the period elapsed (as a fraction of a calendar year) since the
preceding payment of interest was made. As payments are received under a Simple
Interest Receivable, the amount received is applied first to interest accrued to
the date of payment and the balance is applied to reduce the unpaid principal
balance. Accordingly, if an Obligor pays a fixed monthly installment before its
scheduled due date, the portion of the payment allocable to interest for the
period since the preceding payment was made will be less than it would have been
had the payment been made as scheduled, and the portion of the payment applied
to reduce the unpaid principal balance will be correspondingly greater.
Conversely, if an Obligor pays a fixed monthly installment after its scheduled
due date, the portion of the payment allocable to interest for the period since
the preceding payment was made will be greater than it would have been had the
payment been made as scheduled, and the portion of the payment applied to reduce
the unpaid principal balance will be correspondingly less. In either case, the
Obligor pays a fixed monthly installment until the Final Scheduled Payment date,
at which time the amount of the final installment is increased or decreased as
necessary to repay the then outstanding principal balance.
In the event of the prepayment in full (voluntarily or by acceleration)
of a Rule of 78's Receivable, under the terms of the contract, a "refund" or
"rebate" will be made to the Obligor of the portion of the total amount of
payments then due and payable under the contract allocable to "unearned" add-on
interest, calculated in accordance with a method equivalent to the Rule of 78's.
If a Simple Interest Receivable is prepaid, instead of receiving a rebate, the
Obligor is required to pay interest only to the date of prepayment. The amount
of a rebate under a Rule of 78's Receivable generally will be less than the
remaining Scheduled Receivable Payments of interest that would have been due
under a Simple Interest Receivable for which all payments were made on schedule.
The Trust will account for the Rule of 78's Receivables as if such
Receivables provided for amortization of the loan over a series of fixed level
payment monthly installments ("Actuarial Receivables"). Amounts received upon
prepayment in full of a Rule of 78's Receivable in excess of the then
outstanding Principal Balance of such Receivable and accrued interest thereon
(calculated pursuant to the actuarial method) will not be passed through to
Noteholders but will be paid to the Servicer as additional servicing
compensation.
YIELD CONSIDERATIONS
On each Payment Date, interest will be paid to the Noteholders to the
extent of thirty (30) days' interest at the applicable Interest Rate; provided,
however, that on the first Payment Date, the interest payable to the Noteholders
of record of each Class of Notes will be an amount equal to the product of (a)
the Interest Rate applicable to such Class of Notes, (b) the initial principal
amount of such Class of Notes and (c) a fraction (i) the numerator of which is
the number of days from and including the Closing Date through and including [ ]
14, 1997 and (ii) the denominator of which is 360.
29
<PAGE>
All of the Receivables are prepayable at any time. (For this purpose
"prepayments" include prepayments in full, liquidations due to default, as well
as receipts of proceeds from physical damage, credit life and credit accident
and health insurance policies and certain other Receivables repurchased for
administrative reasons.) The rate of prepayments on the Receivables may be
influenced by a variety of economic, social, and other factors, including the
fact that an Obligor generally may not sell or transfer the Financed Vehicle
securing a Receivable without the consent of CPS. In addition, the rate of
prepayments on the Receivables may be affected by the nature of the Obligors and
the Financed Vehicles and servicing decisions. See "Risk Factors -- Nature of
Obligors; Servicing" in this Prospectus Supplement. Any reinvestment risks
resulting from a faster or slower incidence of prepayment of Receivables will be
borne entirely by the Noteholders. See also "Description of the Notes --
Optional Redemption" in this Prospectus Supplement regarding the Servicer's
option to purchase the Receivables and redeem the Notes when the aggregate
principal balance of the Receivables is less than or equal to 10% of the
Original Pool Balance.
POOL FACTORS AND OTHER INFORMATION
The "Pool Balance" at any time represents the aggregate principal
balance of the Receivables at the end of the preceding Collection Period, after
giving effect to all payments received from Obligors, all payments and Purchase
Amounts remitted by CPS or the Servicer, as the case may be, all for such
Collection Period, all losses realized on Receivables liquidated during such
Collection Period and any Cram Down Losses with respect to such Receivables. The
Pool Balance is computed by allocating payments to principal and to interest,
with respect to Rule of 78's Receivables, using the constant yield or actuarial
method, and with respect to Simple Interest Receivables, using the simple
interest method. The "Class A Pool Factor" is a seven-digit decimal which the
Servicer will compute each month indicating the principal balance of the Class A
Notes as a fraction of the initial principal balance of the Class A Notes. The
Class A Pool Factor will be 1.0000000 as of the Closing Date; thereafter, the
Class A Pool Factor will decline to reflect reductions in the principal balance
of the Class A Notes. An individual Noteholder's share of the principal balance
of the Class A Notes is the product of (i) the original denomination of the
Noteholder's Note and (ii) the Class A Pool Factor. Pool Factors will be made
available on or about the eighth business day of each month. [Other classes of
Notes, if any, to be added.]
Pursuant to the Indenture, the Noteholders will receive monthly reports
concerning the payments received on the Receivables, the Pool Balance, the Pool
Factors and various other items of information. Noteholders of record during any
calendar year will be furnished information for tax reporting purposes not later
than the latest date permitted by law. See "Description of the Notes --
Statements to Noteholders" in this Prospectus Supplement.
USE OF PROCEEDS
The net proceeds to be received by the Seller from the sale of the
Notes will be applied to the purchase of the CPS Receivables from CPS and the
Samco Receivables from Samco. CPS will apply the net proceeds received from the
Seller to purchase new Contracts or to repay debt incurred to purchase the
Contracts.
THE SELLER AND CPS
The Seller is a wholly-owned subsidiary of CPS. The Seller was
incorporated in the State of California in June of 1994. The Seller was
organized for the limited purpose of purchasing automobile installment sale
contracts from CPS and transferring such receivables to third parties and any
activities incidental to and necessary or convenient for the accomplishment of
such purposes. The principal executive offices of the Seller are located at 2
Ada, Suite 100, Irvine, California 92718; telephone (714)
30
<PAGE>
753-6800. For further information regarding the Seller and CPS, see "The Seller
and CPS" in the Prospectus.
THE STANDBY SERVICER
If CPS is terminated or resigns as Servicer, Norwest Bank Minnesota,
National Association (in such capacity, the "Standby Servicer") will serve as
successor Servicer. The Standby Servicer will receive a fee on each Payment Date
for agreeing to stand by as successor Servicer and for performing certain other
functions. Such fee will be payable to the Standby Servicer from the Servicing
Fee payable to CPS. If the Standby Servicer, or any other entity serving at the
time as Standby Servicer, becomes the successor Servicer, it will receive
compensation at a Servicing Fee Rate not to exceed 2.12% per annum.
DESCRIPTION OF THE NOTES
General
The Notes will be issued pursuant to the terms of the Indenture, a form
of which has been filed as an exhibit to the Registration Statement.
The Notes initially will be represented by notes registered in the name
of Cede as the nominee of The Depository Trust Company ("DTC"), and will only be
available in the form of book-entries on the records of DTC and participating
members thereof in denominations of $1,000. All references to "holders" or
"Noteholders" and to authorized denominations, when used with respect to the
Notes, shall reflect the rights of beneficial owners of the Notes ("Note
Owners"), and limitations thereof, as they may be indirectly exercised through
DTC and its participating members, except as otherwise specified herein.
See " -- Registration of Certificates" below.
On each Payment Date, the holders of record of the Class A Notes (the
"Class A Noteholders") as of the related Record Date will be entitled to
receive, pro rata, thirty (30) days of interest at the Class A Interest Rate on
the outstanding principal amount of the Class A Notes at the close of business
on the last day of the related Collection Period. [Additional classes, if any,
to be added]. Notwithstanding the foregoing, on the first Payment Date, the
interest payable to the Noteholders of record of each Class of Notes will be an
amount equal to the product of (a) the Interest Rate applicable to such Class of
Notes, (b) the initial principal amount of such Class of Notes and (c) a
fraction (i) the numerator of which is the number of days from and including the
Closing Date through and including [ ] 14, 1997 and (ii) the denominator of
which is 360. Interest on the Notes which is due but not paid on any Payment
Date will be payable on the next Payment Date together with, to the extent
permitted by law, interest on such unpaid amount at the applicable Interest
Rate. See "Description of the Notes -- Payments of Interest" in this Prospectus
Supplement.
Principal of the Notes will be payable on each Payment Date in an
amount equal to the Noteholders' Principal Distributable Amount for the related
Collection Period. The "Noteholders' Principal Distributable Amount" is equal to
the product of (a) the Noteholders' Percentage of the Principal Distributable
Amount and (b) any unpaid portion of the Noteholders' Principal Distributable
Amount with respect to a prior Payment Date.
Registration of Notes
The Notes will initially be registered in the name of Cede & Co.
("Cede"), the nominee of DTC. 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 Uniform Commercial
Code, and a "clearing agency" registered pursuant to the provisions of Section
17A of the Securities Exchange Act of 1934, as amended. DTC accepts securities
for deposit from its participating
31
<PAGE>
organizations ("Participants") and facilitates the clearance and settlement of
securities transactions between Participants in such securities through
electronic book-entry changes in accounts of Participants, thereby eliminating
the need for physical movement of certificates. Participants include securities
brokers and dealers, banks and trust companies and clearing corporations and may
include certain other organizations. Indirect access to the DTC system is also
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. See "Certain Information Regarding the Notes --
Book-Entry Registration" in the Prospectus.
Sale and Assignment of Receivables
On or prior to the Closing Date, the Seller will purchase from Samco
pursuant to a purchase agreement (the "Samco Purchase Agreement"), without
recourse, except as provided in the Samco Purchase Agreement, Samco's entire
interest in the Samco Receivables, together with Samco's security interests in
the related Financed Vehicles. On or prior to the Closing Date, CPS will,
pursuant to the Purchase Agreement, sell and assign to the Seller, without
recourse, except as provided in the Purchase Agreement, its entire interest in
the CPS Receivables, together with its security interests in the related
Financed Vehicles. At the time of issuance of the Securities, the Seller will
sell and assign to the Trust, without recourse except as provided in the Sale
and Servicing Agreement, its entire interest in the Receivables, together with
its security interests in the Financed Vehicles. Each Receivable will be
identified in a schedule appearing as an exhibit to the Purchase Agreement. The
Indenture Trustee will, concurrently with such sale and assignment, execute,
authenticate, and deliver the Securities to the Seller in exchange for the
Receivables. The Seller will sell the Notes to the Underwriters. See
"Underwriting" in this Prospectus Supplement.
In the Purchase Agreement, CPS will represent and warrant to the
Seller, among other things, that (i) the information provided in the Purchase
Agreement with respect to the Receivables (including, without limitation, the
Samco Receivables) is correct in all material respects; (ii) at the dates of
origination of the Receivables, physical damage insurance covering each Financed
Vehicle was in effect in accordance with CPS's normal requirements; (iii) at the
date of issuance of the Securities, the Receivables are free and clear of all
security interests, liens, charges, and encumbrances and no offsets, defenses,
or counterclaims against Dealers or IFCs have been asserted or threatened; (iv)
at the date of issuance of the Securities, each of the Receivables is or will be
secured by a first-priority perfected security interest in the related Financed
Vehicle in favor of CPS or Samco; and (v) each Receivable, at the time it was
originated, complied and, at the date of issuance of the Securities, complies in
all material respects with applicable federal and state laws, including, without
limitation, consumer credit, truth in lending, equal credit opportunity and
disclosure laws. As of the last day of the second (or, if CPS elects, the first)
month following the discovery by or notice to the Seller and CPS of a breach of
any representation or warranty that materially and adversely affects a
Receivable, unless the breach is cured, CPS will purchase such Receivable from
the Trust for the Purchase Amount. The repurchase obligation will constitute the
sole remedy available to the Noteholders, the Insurer, the Owner Trustee or the
Indenture Trustee for any such uncured breach.
On or prior to the Closing Date, the Contracts will be delivered to the
Indenture Trustee as custodian, and the Indenture Trustee thereafter will
maintain physical possession of the Receivables except as may be necessary for
the servicing thereof by the Servicer. The Receivables will not be stamped to
show the ownership thereof by the Trust. However, CPS's and Samco's accounting
records and computer systems will reflect the sale and assignment of the
Receivables to the Seller, and Uniform Commercial Code ("UCC") financing
statements reflecting such sales and assignments will be filed. See "Formation
of the Trust" in this Prospectus Supplement and "Certain Legal Aspects of the
Receivables" in the Prospectus.
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<PAGE>
Accounts
A segregated lock-box account will be established and maintained with
Bank of America in the name of the Indenture Trustee for the benefit of the
Noteholders and the Insurer, into which all payments made by Obligors on or with
respect to the Receivables must be deposited by the Lock-Box Processor (the
"Lock-Box Account"). See "Description of the Trust Documents-Payments on
Receivables" in the Prospectus. The Indenture Trustee will also establish and
maintain initially with itself one or more accounts, in the name of the
Indenture Trustee on behalf of the Noteholders and the Insurer, into which all
amounts previously deposited in the Lock-Box Account will be transferred within
two Business Days of the receipt of funds therein (the "Collection Account").
Upon receipt, the Servicer will deposit all amounts received by it in respect of
the Receivables in the Lock-Box Account or the Collection Account. The Indenture
Trustee will also establish and maintain initially with itself one or more
accounts, in the name of the Indenture Trustee on behalf of the Noteholders and
the Insurer, from which all distributions with respect to the Securities and
payments to the Insurer will be made (the "Distribution Account").
The Collateral Agent will establish the Spread Account as a segregated
trust account at its office or at another depository institution or trust
company.
Servicing Compensation
The Servicer will be entitled to receive the Servicing Fee on each
Payment Date, equal to the product of one-twelfth of the Servicing Fee Rate and
the Pool Balance as of the close of business on the last day of the second
preceding Collection Period; provided, however, that with respect to the first
Payment Date, the Servicing Fee will equal the product of one-twelfth of the
Servicing Fee Rate and the Pool Balance as of the Cutoff Date (the "Servicing
Fee"). So long as CPS is Servicer, a portion of the Servicing Fee, equal to the
Standby Fee, will be payable to the Standby Servicer for agreeing to stand by as
successor Servicer and for performing certain other functions. If the Standby
Servicer, or any other entity serving at the time as Standby Servicer, becomes
the successor Servicer, it will receive compensation at a Servicing Fee Rate not
to exceed 2.12% per annum. See "The Standby Servicer" in this Prospectus
Supplement. The Servicer will also collect and retain, as additional servicing
compensation, any late fees, prepayment charges and other administrative fees or
similar charges allowed by applicable law with respect to the Receivables, and
will be entitled to reimbursement from the Trust for certain liabilities.
Payments by or on behalf of Obligors will be allocated to Scheduled Receivable
Payments, late fees and other charges and principal and interest in accordance
with the Servicer's normal practices and procedures. The Servicing Fee will be
paid out of collections from the Receivables, prior to distributions to
Noteholders.
The Servicing Fee and additional servicing compensation will compensate
the Servicer for performing the functions of a third party servicer of
automotive 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 disposition of defaults
and policing the collateral. The Servicing Fee also will compensate the Servicer
for administering the Receivables, including accounting for collections and
furnishing monthly and annual statements to the Indenture Trustee and the
Insurer with respect to distributions and generating federal income tax
information. The Servicing Fee also will reimburse the Servicer for certain
taxes, accounting fees, outside auditor fees, data processing costs and other
costs incurred in connection with administering the Receivables.
Distributions
No later than 10:00 a.m., Minneapolis time, on each Determination Date,
the Servicer will inform the Indenture Trustee of the amount of aggregate
collections on the Receivables, and the aggregate
33
<PAGE>
Purchase Amount of Receivables to be repurchased by CPS or to be purchased by
the Servicer, in each case, with respect to the related Collection Period.
The Servicer will determine prior to such Determination Date the Total
Distribution Amount, the Noteholders' Interest Distributable Amount and the
Noteholders' Principal Distributable Amount.
The "Determination Date" applicable to any Payment Date will be the
earlier of (i) the seventh Business Day of the month of such Payment Date and
(ii) the fifth Business Day preceding such Payment Date.
Determination of Total Distribution Amount. The "Total Distribution
Amount" for a Payment Date will be the sum of the following amounts with respect
to the preceding Collection Period: (i) all collections on Receivables; (ii) all
proceeds received during the Collection Period with respect to Receivables that
became Liquidated Receivables during the Collection Period in accordance with
the Servicer's customary servicing procedures, net of the reasonable expenses
incurred by the Servicer in connection with such liquidation and any amounts
required by law to be remitted to the Obligor on such Liquidated Receivable
("Liquidation Proceeds") in accordance with the Servicer's customary servicing
procedures; (iii) proceeds from Recoveries with respect to Liquidated
Receivables and (iv) the Purchase Amount of each Receivable that was repurchased
by CPS or purchased by the Servicer as of the last day of the related Collection
Period.
"Liquidated Receivable" means a Receivable (i) which has been
liquidated by the Servicer through the sale of the Financed Vehicle, or (ii) for
which the related Financed Vehicle has been repossessed and 90 days have elapsed
since the date of such repossession, or (iii) as to which an Obligor has failed
to make more than 90% of a Scheduled Receivable Payment of more than ten dollars
for 120 or more days as of the end of a Collection Period, or (iv) with respect
to which proceeds have been received which, in the Servicer's judgment,
constitute the final amounts recoverable in respect of such Receivable.
"Purchase Amount" means, with respect to a Receivable, the amount, as
of the close of business on the last day of a Collection Period, required to
prepay in full such Receivable under the terms thereof including interest to the
end of the month of purchase.
"Principal Balance" of a Receivable, as of the close of business on the
last day of a Collection Period, means the amount financed minus the sum of the
following amounts without duplication: (i) in the case of a Rule of 78's
Receivable, that portion of all Scheduled Receivable Payments received on or
prior to such day allocable to principal using the actuarial or constant yield
method; (ii) in the case of a Simple Interest Receivable, that portion of all
Scheduled Receivable Payments received on or prior to such day allocable to
principal using the Simple Interest Method; (iii) any payment of the Purchase
Amount with respect to the Receivable allocable to principal; (iv) any Cram Down
Loss in respect of such Receivable; and (v) any prepayment in full or any
partial prepayment applied to reduce the Principal Balance of the Receivable.
"Recoveries" means, with respect to a Liquidated Receivable, the monies
collected from whatever source, during any Collection Period following the
Collection Period in which such Receivable became a Liquidated Receivable, net
of the reasonable costs of liquidation plus any amounts required by law to be
remitted to the Obligor.
"Scheduled Receivable Payment" means, for any Collection Period for any
Receivable, the amount indicated in such Receivable as required to be paid by
the Obligor in such Collection Period (without giving effect to deferments of
payments granted to Obligors by the Servicer pursuant to the Sale and Servicing
Agreement or any rescheduling of payments in any insolvency or similar
proceedings).
34
<PAGE>
Calculation of Distribution Amounts. The Noteholders will be entitled
to receive the "Noteholders' Distributable Amount" with respect to each Payment
Date. The "Noteholders' Distributable Amount" with respect to a Payment Date
will be an amount equal to the sum of: (i) the "Noteholders' Principal
Distributable Amount", consisting of the Noteholders' Percentage of the
following: (a) the principal portion of all Scheduled Receivables Payments due
during the preceding Collection Period and all prior Collection Periods and
received during the preceding Collection Period on Rule of 78's Receivables and
all payments of principal received on Simple Interest Receivables during such
Collection Period; (b) the principal portion of all prepayments received during
the preceding Collection Period; (c) the portion of the Purchase Amount
allocable to principal of each Receivable that was repurchased by CPS or
purchased by the Servicer in each case as of the last day of the preceding
Collection Period and at the option of the Insurer, the Principal Balance of
each Receivable that was required to be but was not so purchased or repurchased
(except to the extent included in (a) and (b) above); (d) the Principal Balance
of each Liquidated Receivable which became such during the preceding Collection
Period (except to the extent included in (a) and (b) above); and (e) the
aggregate amount of Cram Down Losses that occurred during the preceding
Collection Period (a "Cram Down Loss" means with respect to a Receivable, if a
court of appropriate jurisdiction in an insolvency proceeding has issued an
order reducing the amount owed on a Receivable or otherwise modifying or
restructuring the Scheduled Receivable Payments to be made on a Receivable, an
amount equal to such reduction in Principal Balance of such Receivable or the
net present value (using as the discount rate the lower of the contract rate or
the rate of interest specified by the court in such order) of the Scheduled
Receivable Payments as so modified; a Cram Down Loss shall be deemed to have
occurred on the date of issuance of such order) (the amounts set forth in (a)
through (e), the "Principal Distributable Amount"); plus (ii) the "Noteholders'
Interest Distributable Amount", consisting of thirty (30) days' interest at the
applicable Note Rate on the principal balance of each Class of Notes as of the
close of business on the last day of the related Collection Period; provided,
however, that on the first Payment Date, the Noteholders' Interest Distributable
Amount will include interest from and including the Closing Date through and
including [ ] 14, 1997.
On the Final Scheduled Payment Date with respect to each Class of
Notes, the Noteholders' Principal Distributable Amount will equal the then
outstanding principal balance of the Notes of each Class.
The "Noteholders' Percentage" will be [ %] until the Notes have been
paid in full and, thereafter, will be zero. Principal payments on the Notes will
be applied on each Payment Date, sequentially, to pay principal of the Class A
Notes [and the Class [ ] Notes,] in that order, until the respective principal
amount of each such Class of Notes has been paid in full.
In addition to the foregoing, the Insurer may with respect to any
Payment Date exercise its option to make an Insurer Optional Deposit, to be
distributed in accordance with the direction of the Insurer.
"Insurer Optional Deposit" means, with respect to a Payment Date, an
amount delivered by the Insurer, at its sole option, to the Indenture Trustee
for deposit into the Collection Account for any of the following purposes: (i)
to provide funds in respect of the payment of fees or expenses of any provider
of services to the Trust with respect to such Payment Date; (ii) to distribute
as a component of the Noteholders' Principal Distributable Amount to the extent
that the principal balance of the Notes as of the Determination Date preceding
such Payment Date exceeds the Noteholders' Percentage of the Pool Balance as of
such Determination Date; or (iii) to include such amount as part of the Total
Distribution Amount for such Payment Date to the extent that without such amount
a draw would be required to be made on the Policy.
Priority of Distribution Amounts. On each Determination Date, the
Servicer will calculate the amount to be distributed to the Noteholders.
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On each Payment Date, the Indenture Trustee (based on the Servicer's
determination made on the related Determination Date) shall make the following
distributions in the following order of priority:
(i) to the Servicer, from the Total Distribution Amount, the
Servicing Fee and all unpaid Servicing Fees from prior Collection
Periods; provided, however, that as long as CPS is the Servicer and
Norwest Bank Minnesota, National Association, is the Standby Servicer,
the Indenture Trustee will first pay to the Standby Servicer out of the
Servicing Fee otherwise payable to CPS an amount equal to the Standby
Fee;
(ii) in the event the Standby Servicer or any other party
becomes the successor Servicer, to the Standby Servicer or such other
successor servicer, from the Total Distribution Amount (as such Total
Distribution Amount has been reduced by payments pursuant to clause (i)
above), to the extent not previously paid by the predecessor Servicer
pursuant to the Sale and Servicing Agreement, reasonable transition
expenses (up to a maximum of $50,000) incurred in acting as successor
Servicer;
(iii) to the Indenture Trustee and the Owner Trustee, from the
Total Distribution Amount (as such Total Distribution Amount has been
reduced by payments pursuant to clauses (i) and (ii) above), the fees
payable thereto for services pursuant to the Indenture and the Trust
Agreement (the "Trustee Fee") and reasonable out-of-pocket expenses
thereof, (including counsel fees and expenses) and all unpaid Trustee
Fees and all unpaid reasonable out-of-pocket expenses (including
counsel fees and expenses) from prior Collection Periods; provided,
however, that unless an Event of Default shall have occurred and be
continuing, expenses payable to the Indenture Trustee and the Owner
Trustee pursuant to this clause (iii) and expenses payable to the
Collateral Agent pursuant to clause (iv) below shall be limited to a
total of $50,000 per annum;
(iv) to the Collateral Agent, from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (iii) above), all fees and expenses
payable to the Collateral Agent with respect to such Payment Date;
(v) to the Noteholders, from the Total Distribution Amount (as
such Total Distribution Amount has been reduced by payments pursuant to
clauses (i) through (iv) above) the Noteholders' Interest Distributable
Amount and any Noteholders' Interest Carryover Shortfall
as of the close of the preceding Payment Date;
(vi) to the Noteholders, from the Total Distribution Amount
(as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (v) above), the Noteholders' Principal
Distributable Amount and any Noteholders' Principal Carryover
Shortfall as of the close of the preceding Payment Date;
(vii) to the Insurer, from the Total Distribution Amount (as
such Total Distribution Amount has been reduced by payments made
pursuant to clauses (i) through (vi) above), any amounts due to the
Insurer under the terms of the Trust Agreement and under the Insurance
Agreement;
(viii) unless the Notes have been paid in full, to the
Collateral Agent, for deposit into the Spread Account, the remaining
Total Distribution Amount, if any;
(ix) to the Certificateholders, from amounts, if any, released
from the Spread Account, the Certificateholders' Interest Distributable
Amount;
(x) to the Certificateholders, from amounts, if any, released
from the Spread Account, the Certificateholders' Principal
Distributable Amount (as defined herein); and
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(xi) to the Owner Trustee, or as specified in the Trust
Documents, any remaining funds.
For purposes hereof, the following terms shall have the following
meanings:
"Noteholders' Interest Carryover Shortfall" means, as of the close of
any Payment Date, the excess of the Noteholders' Interest Distributable Amount
for such Payment Date, plus any outstanding Noteholders' Interest Carryover
Shortfall from the preceding Payment Date, plus interest on such outstanding
Noteholders' Interest Carryover Shortfall, to the extent permitted by law, at
the applicable Interest Rate from such preceding Payment Date through the
current Payment Date, over the amount of interest distributed to the Noteholders
on such current Payment Date.
"Noteholders' Principal Carryover Shortfall" means, as of the close of
any Payment Date, the excess of the Noteholders' Principal Distributable Amount
plus any outstanding Noteholders' Principal Carryover Shortfall from the
preceding Payment Date over the amount of principal distributed to the
Noteholders on such current Payment Date.
On the third business day prior to a Payment Date, the Indenture
Trustee will determine, based on a certificate from the Servicer, whether there
are amounts sufficient, after payment of amounts as set forth in the priorities
of distribution in the Indenture, to distribute the Noteholders' Distributable
Amount.
The Spread Account. As part of the consideration for the issuance of
the Policy, the Seller has agreed to cause to be established with Norwest Bank
Minnesota, National Association (in such capacity, the "Collateral Agent") an
account (the "Spread Account") for the benefit of the Insurer and the Indenture
Trustee on behalf of the Noteholders. Any portion of the Total Distribution
Amount remaining on any Payment Date after payment of all fees and expenses due
on such date to the Servicer, the Standby Servicer, the Indenture Trustee and
the Collateral Agent and all principal and interest payments due to the
Noteholders on such Payment Date, will be deposited in the Spread Account and
held by the Collateral Agent for the benefit of the Insurer and the Indenture
Trustee on behalf of the Noteholders. If on any Payment Date, the Total
Distribution Amount is insufficient to pay all distributions required to be made
on such day pursuant to priorities (i) through (vii) under " -- Priority of
Distribution Amounts", then amounts on deposit in the Spread Account will be
applied to pay the amounts due on such Payment Date pursuant to such priorities
(i) through (vii).
Amounts on deposit in the Spread Account on any Payment Date which
(after all payments required to be made on such Payment Date have been made) are
in excess of the Requisite Amount will be released to the Owner Trustee on such
Payment Date.
So long as an Insurer Default shall not have occurred and be
continuing, the Insurer will be entitled to exercise in its sole discretion all
rights under the master spread account agreement among the Seller, the Insurer,
the Indenture Trustee and the Collateral Agent (the "Master Spread Account
Agreement") with respect to the Spread Account and any amounts on deposit
therein and will have no liability to the Indenture Trustee or the Noteholders
for the exercise of such rights. The Insurer (so long as an Insurer Default
shall not have occurred and be continuing) may, with the written consent of CPS,
the Seller and the Collateral Agent but without the consent of the Indenture
Trustee or any Noteholder, reduce the Requisite Amount or modify any term of the
Master Spread Account Agreement (including terminating the Master Spread Account
Agreement and releasing all funds on deposit in the Spread Account). Because the
Requisite Amount or the existence of the Spread Account may be modified or
terminated by the Insurer as described above, there is no assurance that funds
will be available in the Spread Account to pay principal of or interest on the
Notes in the event that collections on the Receivables and other amounts
available under the Indenture are insufficient to make any distribution of
principal of or interest on the Notes on any Payment Date.
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Events of Default
Unless an Insurer Default shall have occurred and be continuing,
"Events of Default" under the Indenture will consist of those events defined in
the Insurance Agreement as Insurance Agreement Indenture Cross Defaults, and
will constitute an Event of Default under the Indenture only if the Insurer
shall have delivered to the Indenture Trustee a written notice specifying that
any such Insurance Agreement Indenture Cross Default constitutes an Event of
Default under the Indenture. An "Insurance Agreement Indenture Cross Default"
may result from: (i) a demand for payment under the Policy; (ii) an Insolvency
Event (as defined herein); (iii) the Trust becoming taxable as an association
(or publicly traded partnership) taxable as a corporation for federal or state
income tax purposes; (iv) the sum of the Total Distribution Amount with respect
to any Payment Date plus the amount (if any) available from certain collateral
accounts maintained for the benefit of the Insurer is less than the sum of the
amounts described in clauses (i) through (vii) under "Description of the Notes
- -- Distributions" herein; and (v) any failure to observe or perform in any
material respect any other covenants, representation, warranty or agreements of
the Trust in the Indenture, any certificate or other writing delivered in
connection therewith, and such failure continues for 30 days after written
notice of such failure or incorrect representation or warranty has been given to
the Trust and the Indenture Trustee by the Insurer.
Upon the occurrence of an Event of Default, and so long as an Insurer
Default shall not have occurred and be continuing, the Insurer will have the
right but not the obligation, to cause the Indenture Trustee to liquidate the
Trust Assets, in whole or in part, on any date or dates following the
acceleration of the Notes due to such Event of Default as the Insurer, in its
sole discretion, shall elect, and to distribute the proceeds of such liquidation
in accordance with the terms of the Indenture. The Insurer may not, however,
cause the Indenture Trustee to liquidate the Trust Assets, in whole or in part,
if the proceeds of such liquidation would not be sufficient to pay all
outstanding principal and accrued interest on the Notes, unless such Event of
Default arose from a claim being made on the Policy or from certain events of
bankruptcy, insolvency, receivership or liquidation of the Trust. Following the
occurrence of any Event of Default, the Indenture Trustee will continue to
submit claims as necessary under the Policy for any shortfalls in the Scheduled
Payments on the Notes, except that the Insurer, in its sole discretion, may
elect to pay all or any portion of the outstanding amount of the Notes in excess
thereof, plus accrued interest thereon. See "The Policy" herein.
Statements to Noteholders
On each Payment Date, the Indenture Trustee will include with each
distribution to each Noteholder of record as of the close of business on the
applicable Record Date and each Rating Agency that is currently rating the Notes
a statement (prepared by the Servicer) setting forth the following information
with respect to the preceding Collection Period, to the extent applicable: (i)
the amount of the distribution allocable to principal of the Notes; (ii) the
amount of the distribution allocable to interest on the Notes; (iii) the Pool
Balance and the Pool Factor as of the close of business on the last day of the
preceding Collection Period; (iv) the aggregate principal balance of each Class
of Notes as of the close of business on the last day of the preceding Collection
Period, after giving effect to payments allocated to principal reported under
(i) above; (v) the amount of the Servicing Fee paid to the Servicer with respect
to the related Collection Period (inclusive of the Standby Fee), the amount of
any unpaid Servicing Fees and the change in such amount from that of the prior
Payment Date; (vi) the amount of the Noteholders' Interest Carryover Shortfall,
if applicable, and Noteholders' Principal Carryover Shortfall, if applicable, on
such Payment Date and the change in such amounts from those on the prior Payment
Date; (vii) the amount paid to the Noteholders under the Policy for such Payment
Date; (viii) the amount distributable to the Insurer on such Payment Date; (ix)
the aggregate amount in the Spread Account and the change in such amount from
the previous Payment Date; (x) the number of Receivables and the aggregate gross
amount scheduled to be paid thereon, including unearned finance and other
charges, for which the related Obligors are delinquent in making Scheduled
Receivable Payments between 31 and 59 days and 60 days or more; (xi) the number
and the aggregate Purchase Amount of Receivables
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repurchased by CPS or purchased by the Servicer; and (xii) the cumulative
Principal Balance of all Receivables that have become Liquidated Receivables,
net of Recoveries, during the period from the Cutoff Date to the last day of the
related Collection Period.
Each amount set forth pursuant to subclauses (i), (ii), (v) and (vi)
above shall be expressed in the aggregate and as a dollar amount per $1,000 of
original principal balance of a Certificate.
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year during the term of the Sale and Servicing
Agreement, the Indenture Trustee will mail to each person who at any time during
such calendar year shall have been a Noteholder and received any payment on such
holder's Notes, a statement (prepared by the Servicer) containing the sum of the
amounts described in (i), (ii) and (v) above for the purposes of such
Noteholder's preparation of federal income tax returns. See "Description of the
Notes-Statements to Noteholders" and "Certain Federal Income Tax Consequences"
in this Prospectus Supplement.
Evidence as to Compliance
The Sale and Servicing Agreement will provide that a firm of
independent certified public accountants will furnish to the Indenture Trustee
and the Insurer on or before July 31 of each year, beginning July 31, 1998, a
report as to compliance by the Servicer during the preceding twelve months ended
March 31 with certain standards relating to the servicing of the Receivables (or
in the case of the first such certificate, the period from the Cutoff Date to
March 31, 1998).
The Sale and Servicing Agreement will also provide for delivery to the
Indenture Trustee and the Insurer, on or before July 31 of each year, commencing
July 31, 1998 of a certificate signed by an officer of the Servicer stating that
the Servicer has fulfilled its obligations under the Sale and Servicing
Agreement throughout the preceding twelve months ended March 31 or, if there has
been a default in the fulfillment of any such obligation, describing each such
default (or in the case of the first such certificate, the period from the
Cutoff Date to March 31, 1998). The Servicer has agreed to give the Indenture
Trustee and the Insurer notice of any Events of Default under the Sale and
Servicing Agreement.
Copies of such statements and certificates may be obtained by
Noteholders by a request in writing addressed to the Indenture Trustee.
Certain Matters Regarding the Servicer
The Sale and Servicing Agreement will provide that the Servicer may not
resign from its obligations and duties as Servicer thereunder except upon
determination that its performance of such duties is no longer permissible under
applicable law and with the consent of the Insurer. No such resignation will
become effective until a successor servicer has assumed the servicing
obligations and duties under the Sale and Servicing Agreement. In the event CPS
resigns as Servicer or is terminated as Servicer, the Standby Servicer has
agreed pursuant to the Servicing Assumption Agreement to assume the servicing
obligations and duties under the Sale and Servicing Agreement; however, so long
as an Insurer Default shall not have occurred and be outstanding, the Insurer in
its sole and absolute discretion may appoint a successor Servicer other than the
Standby Servicer.
The Sale 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 Trust or the Noteholders for taking any action or for
refraining from taking any action pursuant to the Sale and Servicing Agreement,
or for errors in judgment; provided, however, that neither the Servicer nor any
such person will be protected against any liability that would otherwise be
imposed by reason of willful misfeasance, bad faith or negligence in the
performance of duties or by reason of reckless disregard of obligations and
duties thereunder. In addition, the Sale and Servicing Agreement will provide
that the Servicer is under no
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obligation to appear in, prosecute, or defend any legal action that is not
incidental to its servicing responsibilities under the Sale and Servicing
Agreement and that, in its opinion, may cause it to incur any expense or
liability.
Under the circumstances specified in the Sale and Servicing Agreement
any entity into which the Servicer may be merged or consolidated, or any entity
resulting from any merger or consolidation to which the Servicer is a party, or
any entity succeeding to the business of the Servicer which corporation or other
entity in each of the foregoing cases assumes the obligations of the Servicer,
will be the successor of the Servicer under the Sale and Servicing Agreement.
The Sale and Servicing Agreement provides that the rights and
obligations of the Servicer terminate after 90 days unless renewed by the
Insurer for successive 90-day periods. The Insurer will agree to grant
continuous renewals so long as (i) no Servicer Termination Event under the Sale
and Servicing Agreement has occurred and (ii) no event of default under the
Insurance Agreement has occurred. See "Description of the Securities -- Certain
Matters Regarding the Servicer" in the Prospectus.
Servicer Termination Events
Any of the following events will constitute a "Servicer Termination
Event" under the Sale and Servicing Agreement: (i) any failure by the Servicer
to deliver to the Indenture Trustee for distribution to the Securityholders any
required payment, which failure continues unremedied for two Business Days (or,
in the case of a payment or deposit to be made no later than a Payment Date, the
failure to make such payment or deposit by such Payment Date), or any failure to
deliver to the Indenture Trustee the annual accountants' report, the annual
statement as to compliance or the statement to the Noteholders, in each case,
within five days of the date it is due; (ii) any failure by the Servicer duly to
observe or perform in any material respect any other covenant or agreement in
the Sale and Servicing Agreement and continues unremedied for 30 days after the
giving of written notice of such failure (1) to the Servicer or the Seller, as
the case may be, by the Insurer or by the Indenture Trustee, or (2) to the
Servicer or the Seller, as the case may be, and to the Indenture Trustee and the
Insurer by the holders of Notes evidencing not less than 25% of the outstanding
principal balance of the Notes; (iii) certain events of insolvency, readjustment
of debt, marshaling of assets and liabilities, or similar proceedings with
respect to the Servicer or, so long as CPS is Servicer, of any of its
affiliates, and certain actions by the Servicer, the Seller or, so long as CPS
is Servicer, of any of its affiliates, indicating its insolvency, reorganization
pursuant to bankruptcy proceedings, or inability to pay its obligations; (iv) a
claim is made under the Policy; or (v) the occurrence of an Event of Default
under the Insurance Agreement.
Rights Upon Servicer Termination Event
Following the occurrence a Servicer Termination Event remains
unremedied, (x) provided no Insurer Default shall have occurred and be
continuing, the Insurer in its sole and absolute discretion or (y) if an Insurer
Default shall have occurred and be continuing, then the Indenture Trustee or the
holders of Notes evidencing not less than 25% of the outstanding principal
balance of the Notes may terminate all the rights and obligations of the
Servicer under the Sale and Servicing Agreement, whereupon the Standby Servicer,
or such other successor Servicer as shall be or have been appointed by the
Insurer (or, if an Insurer Default shall have occurred and be continuing, by the
Indenture Trustee or the Noteholders, as described above) will succeed to all
the responsibilities, duties and liabilities of the Servicer under the Sale and
Servicing Agreement; provided, however, that such successor Servicer shall have
no liability with respect to any obligation which was required to be performed
by the predecessor Servicer prior to the date such successor Servicer becomes
the Servicer or the claim of a third party (including a Noteholder) based on any
alleged action or inaction of the predecessor Servicer as Servicer.
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"Insurer Default" shall mean any one of the following events shall have
occurred and be continuing: (i) the Insurer fails to make a payment required
under the Policy in accordance with its terms; (ii) the Insurer (A) files any
petition or commences any case or proceeding under any provision or chapter of
the United States Bankruptcy Code or any other similar federal or state law
relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization, (B) makes a general assignment for the benefit of its creditors,
or (C) has an order for relief entered against it under the United States
Bankruptcy Code or any other similar federal or state law relating to
insolvency, bankruptcy, rehabilitation, liquidation or reorganization which is
final and nonappealable; or (iii) a court of competent jurisdiction, the New
York Department of Insurance or other competent regulatory authority enters a
final and nonappealable order, judgment or decree (A) appointing a custodian,
trustee, agent or receiver for the Insurer or for all or any material portion of
its property or (B) authorizing the taking of possession by a custodian,
trustee, agent or receiver of the Insurer (or the taking of possession of all or
any material portion of the property of the Insurer).
Optional Redemption
In order to avoid excessive administrative expense, the Servicer, or
its successor, is permitted at its option to purchase from the Trust (with the
consent of the Insurer if such purchase would result in a claim under the Policy
or any amount owing to the Insurer or on the Notes would remain unpaid), as of
the last day of any month as of which the then outstanding Pool Balance is equal
to 10% or less of the Original Pool Balance, all remaining Receivables at a
price equal to the aggregate of the Purchase Amounts thereof as of such last
day. Exercise of such right will effect early retirement of the Notes. The
Indenture Trustee will give written notice of termination to each Noteholder of
record. The final distribution to any Noteholder will be made only upon
surrender and cancellation of such holder's Note at the office or agency of the
Indenture Trustee specified in the notice of termination. Any funds remaining
with the Indenture Trustee, after the Indenture Trustee has taken certain
measures to locate a Noteholder and such measures have failed, will be
distributed to The American Red Cross.
CREDIT ENHANCEMENT
The Policy
Concurrently with the issuance of the Securities, the Insurer will
issue the Policy to the Indenture Trustee for the benefit of the Noteholders.
Under the Policy, the Insurer will unconditionally and irrevocably guarantee the
full, complete and timely payment of (i) the Noteholders' Interest Distributable
Amount and (ii) the Noteholders' Principal Distributable Amount. See "The
Policy" in this Prospectus Supplement.
Subordination of the Certificates
No distribution of interest or principal will be made to
Certificateholders on any Payment Date until the Notes have been paid the
Noteholders' Interest Distributable Amount and the Noteholders' Principal
Distributable Amount for such Payment Date. This subordination is intended to
enhance the likelihood of timely receipt by the Noteholders of the full amount
of interest and principal distributable to them on each Payment Date and to
afford the Noteholders limited protection against losses in respect of the
Receivables.
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THE POLICY
The following summary of the terms of the Policy does not purport to be
complete and is qualified in its entirety by reference to the Policy.
Simultaneously with the issuance of the Notes, the Insurer will deliver
the Policy to the Indenture Trustee for the benefit of each Noteholder. Under
the Policy, the Insurer unconditionally and irrevocably guarantees to the
Indenture Trustee for the benefit of each Noteholder the full and complete
payment of (i) Scheduled Payments (as defined below) on the Notes and (ii) any
Scheduled Payment which subsequently is avoided in whole or in part as a
preference payment under applicable law.
"Scheduled Payments" means payments that are scheduled to be made on
the Notes during the term of the Policy in an amount equal to the sum of (i) the
Noteholders' Interest Distributable Amount and (ii) the Noteholders' Principal
Distributable Amount on a Payment Date, in each case, in accordance with the
original terms of the Notes when issued and without regard to any amendment or
modification of the Notes or the Indenture which has not been consented to by
the Insurer. Scheduled Payments do not include payments which become due on an
accelerated basis as a result of (a) a default by the Issuer, (b) an election by
the Issuer to pay principal on an accelerated basis, (c) the occurrence of an
Event of Default under the Indenture or (d) any other cause, unless the Insurer
elects, in its sole discretion, to pay in whole or in part such principal due
upon acceleration, together with any accrued interest to the date of
acceleration. In the event the Insurer does not so elect, the Policy will
continue to guarantee Scheduled Payments due on the Notes. Scheduled Payments
shall not include, nor shall coverage be provided under the Policy in respect
of, (i) any portion of a Noteholders' Interest Distributable Amount due to
Noteholders because a notice and certificate in proper form was not timely
Received by the Insurer, (ii) any portion of the Noteholders' Interest
Distributable Amount due to Noteholders representing interest on any
Noteholders' Interest Carryover Shortfall accrued from and including the date of
payment of the amount of such Noteholders' Interest Carryover Shortfall pursuant
to the Policy, or (iii) any taxes, withholding or other charge imposed with
respect to any Noteholder by any governmental authority.
Payment of claims on the Policy made in respect of Scheduled Payments
will be made by the Insurer following Receipt by the Insurer of the appropriate
notice for payment on the later to occur of (a) 12:00 noon, New York City time,
on the third Business Day following Receipt of such notice for payment, and (b)
12:00 noon, New York City time, on the Payment Date on which such payment was
due on the Notes.
If payment of any amount avoided as a preference under applicable
bankruptcy, insolvency, receivership or similar law is required to be made under
the Policy, the Insurer shall cause such payment to be made on the later of the
date when due to be paid pursuant to the Order referred to below or the first to
occur of (a) the fourth Business Day following Receipt by the Insurer from the
Indenture Trustee of (i) a certified copy of the order (the "Order") of the
court or other governmental body which exercised jurisdiction to the effect that
the Noteholder is required to return the amount of any Scheduled Payment
distributed with respect to the Notes during the term of the Policy because such
distributions were avoidable as preference payments under applicable bankruptcy
law, (ii) a certificate of the Noteholder that the Order has been entered and is
not subject to any stay, and (iii) an assignment duly executed and delivered by
the Noteholder, in such form as is reasonably required by the Insurer and
provided to the Noteholder by the Insurer, irrevocably assigning to the Insurer
all rights and claims of the Noteholder relating to or arising under the Notes
against the debtor which made such preference payment or otherwise with respect
to such preference payment, or (b) the date of Receipt by the Insurer from the
Indenture Trustee of the items referred to in clauses (i), (ii) and (iii) above
if, at least four Business Days prior to such date of Receipt, the Insurer shall
have received written notice from the Indenture Trustee
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that such items were to be delivered on such date and such date was specified in
such notice. Such payment shall be disbursed to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the Order and not to the
Indenture Trustee or any Noteholder directly (unless a Noteholder has previously
paid such amount to the receiver, conservator, debtor-in-possession or trustee
in bankruptcy named in the Order, in which event, such payment shall be
disbursed to the Indenture Trustee for distribution to such Noteholder upon
proof of such payment reasonably satisfactory to the Insurer). In connection
with the foregoing, the Insurer shall have the rights provided pursuant to the
Indenture.
The terms "Receipt" and "Received" with respect to the Policy, shall
mean actual delivery to the Insurer and to its fiscal agent, if any, prior to
12:00 noon, New York City time, on a Business Day; delivery either on a day that
is not a Business Day or after 12:00 noon, New York City time, shall be deemed
to be Receipt on the next succeeding Business Day. If any notice or certificate
given under the Policy by the Indenture Trustee is not in proper form or is not
properly completed, executed or delivered, it shall be deemed not to have been
Received, and the Insurer or its fiscal agent shall promptly so advise the
Indenture Trustee and the Indenture Trustee may submit an amended notice.
Under the Policy, "Business Day" means any day other than (i) a
Saturday or Sunday or (ii) a day on which banking institutions in the City of
New York, New York or Minneapolis, Minnesota, or any other location of any
successor Trustee or successor Collateral Agent are authorized or obligated by
law or executive order to be closed.
The Insurer's obligations under the Policy in respect of the Scheduled
Payments shall be discharged to the extent funds are transferred to the
Indenture Trustee as provided in the Policy whether or not such funds are
properly applied by the Indenture Trustee.
The Insurer shall be subrogated to the rights of each Noteholder to
receive payments of principal and interest to the extent of any payment by the
Insurer under the Policy.
Claims under the Policy constitute direct, unsecured and unsubordinated
obligations of the Insurer ranking not less than pari passu with other unsecured
and unsubordinated indebtedness of the Insurer for borrowed money. Claims
against the Insurer under the Policy and claims against the Insurer under each
other financial guaranty insurance policy issued thereby constitute pari passu
claims against the general assets of the Insurer. The terms of the Policy cannot
be modified or altered by any other agreement or instrument, or by the merger,
consolidation or dissolution of the Trust. The Policy may not be canceled or
revoked prior to distribution in full of all Scheduled Payments with respect to
the Notes. The Policy is not covered by the Property/Casualty Insurance Security
Fund specified in Article 76 of the New York Insurance Law. The Policy is
governed by the laws of the State of New York.
THE INSURER
General
Financial Security Assurance Inc. (the "Insurer" and, for purposes of
this Section, "Financial Security") is a monoline insurance company incorporated
in 1984 under the laws of the State of New York. Financial Security is licensed,
to engage in financial guaranty insurance business in all 50 states, the
District of Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged in the business of
writing financial guaranty insurance, principally in respect of securities
offered in domestic and foreign markets. In general, financial guaranty
insurance consists of the issuance of a guaranty of Scheduled Payments of an
issuer's securities-thereby enhancing the credit rating of those securities in
consideration for the payment of a premium to the insurer. Financial Security
and its subsidiaries principally insure asset-backed,
43
<PAGE>
collateralized and municipal securities. Asset-backed securities are generally
supported by residential mortgage loans, consumer or trade receivables,
securities or other assets having an ascertainable cash flow or market value.
Collateralized securities include public utility first mortgage bonds and
sale/leaseback obligation bonds. Municipal securities consist largely of general
obligation bonds, special revenue bonds and other special obligations of state
and local governments. Financial Security insures both newly issued securities
sold in the primary market and outstanding securities sold in the secondary
market that satisfy Financial Security's underwriting criteria.
Financial Security is a wholly-owned subsidiary of Financial Security
Assurance Holdings Ltd. ("Holdings"), a New York Stock Exchange listed company.
Major shareholders of Holdings include Fund American Enterprise Holdings, Inc.,
U S WEST Capital Corporation and The Tokio Marine and Fire Insurance Co., Ltd.
No shareholder of Holdings is obligated to pay any debt of Financial Security or
any claim under any insurance policy issued by Financial Security or to make any
additional contribution to the capital of Financial Security.
The principal executive offices of Financial Security are located at
350 Park Avenue, New York, New York 10022, and its telephone number at that
location is (212) 826-0100.
Reinsurance
Pursuant to an intercompany agreement, liabilities on financial
guaranty insurance written or reinsured from third parties by Financial Security
or any of its domestic operating insurance company subsidiaries are reinsured
among such companies on an agreed-upon percentage substantially proportional to
their respective capital, surplus and reserves, subject to applicable statutory
risk limitations. In addition, Financial Security reinsures a portion of its
liabilities under certain of its financial guaranty insurance policies with
other reinsurers under various quota share treaties and on a
transaction-by-transaction basis. Such reinsurance is utilized by Financial
Security as a risk management device and to comply with certain statutory and
rating agency requirements; it does not alter or limit Financial Security's
obligations under any financial guaranty insurance policy.
Rating of Claims-Paying Ability
Financial Security's claims-paying ability is rated "Aaa" by Moody's
Investors Service, Inc. and "AAA" by Standard & Poor's Ratings Services, a
division of McGraw-Hill, Inc., Nippon Investors Service Inc. and Standard &
Poor's (Australia) Pty. Ltd. Such ratings reflect only the views of the
respective rating agencies, are not recommendations to buy, sell or hold
securities and are subject to revision or withdrawal at any time by such rating
agencies. See "Risk Factors-Ratings of the Certificates" in this Prospectus
Supplement.
Capitalization
The following table sets forth the capitalization of Financial Security
and its wholly owned subsidiaries on the basis of generally accepted accounting
principles as of December 31, 1996 (in thousands):
December 31, 1996
(audited)
Deferred Premium Revenue (net of prepaid reinsurance premiums)..
Shareholder's Equity:
Common Stock.................................................
Additional Paid-In Capital...................................
Unrealized Gain on Investments (net of deferred income taxes)
Accumulated Earnings.........................................
44
<PAGE>
Total Shareholder's Equity .....................................
Total Deferred Premium Revenue and Shareholder's Equity ........
For further information concerning Financial Security, see the
Consolidated Financial Statements of Financial Security and Subsidiaries, and
the notes thereto, incorporated by reference herein. Copies of the statutory
quarterly and annual statements filed with the State of New York Insurance
Department by Financial Security are available upon request to the State of New
York Insurance Department.
Insurance Regulation
Financial Security is licensed and subject to regulation as a financial
guaranty insurance corporation under the laws of the State of New York, its
state of domicile. In addition, Financial Security and its insurance
subsidiaries are subject to regulation by insurance laws of the various other
jurisdictions in which they are licensed to do business. As a financial guaranty
insurance corporation licensed to do business in the State of New York,
Financial Security is subject to Article 69 of the New York Insurance Law which,
among other things, limits the business of each insurer to financial guaranty
insurance and related lines, requires that each such insurer maintain a minimum
surplus to policyholders, establishes contingency, loss and unearned premium
reserve requirements for each such insurer, and limits the size of individual
transactions ("single risks") and the volume of transactions ("aggregate risks")
that may be underwritten by each such insurer. Other provisions of the New York
Insurance Law, applicable to non-life insurance companies such as Financial
Security, regulate, among other things, permitted investments, payment of
dividends, transactions with affiliates, mergers, consolidations, acquisitions
or sales of assets and incurrence of liability for borrowings.
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 an individual
retirement account and a Keogh plan (each a "Benefit Plan"), 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 result in an excise tax or
other penalties and liabilities under ERISA and the Code for such persons or the
fiduciaries of the Benefit Plan. In addition, Title I of ERISA also requires
fiduciaries of a Benefit Plan subject to ERISA to make investments that are
prudent, diversified and in accordance with the governing plan documents.
Certain transactions involving the Trust might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Benefit Plan
that purchased Notes if assets of the Trust were deemed to be assets of the
Benefit Plan. Under a regulation issued by the United States Department of Labor
(the "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 Regulation was applicable. An equity interest is defined under the
Regulation as an interest other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features. Although there is little guidance on the subject, the Seller believes
that, at the time of their issuance, the Notes should be treated as indebtedness
of the Trust without substantial equity features for purposes of the Regulation.
This determination is based in part upon the traditional debt features of the
Notes, including the reasonable expectation of purchasers of Notes that the
Notes will be repaid when due, as well as the absence of conversion rights,
warrants
45
<PAGE>
and other typical equity features. The debt treatment of the Notes for ERISA
purposes could change if the Trust incurred losses.
However, without regard to whether the Notes are treated as an equity
interest for purposes of the Regulation, the acquisition or holding of Notes by
or on behalf of a Benefit Plan could be considered to give rise to a prohibited
transaction if the Trust, the Seller, the Servicer, the Owner Trustee or the
Indenture Trustee is or becomes a party in interest or a disqualified person
with respect to such Benefit Plan. Certain exemptions from the prohibited
transaction rules could be applicable to the purchase and holding of Notes by a
Benefit Plan depending on the type and circumstances of the plan fiduciary
making the decision to acquire such Notes. 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." By acquiring a Note, each
purchaser will be deemed to represent that either (i) it is not acquiring the
Notes with the assets of a Benefit Plan; or (ii) the acquisition of the Notes
will not give rise to a nonexempt prohibited transaction under Section 406(a) of
ERISA or Section 4975 of the Code.
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements, however governmental plans may be
subject to comparable state law restrictions.
A plan fiduciary considering the purchase of Notes should consult its
legal advisors regarding whether the assets of the Trust would be considered
plan assets, the possibility of exemptive relief from the prohibited transaction
rules and other issues and their potential consequences.
UNDERWRITING
Under the terms and subject to the conditions contained in an
underwriting agreement dated [ ], 1997 (the "Underwriting Agreement") among CPS,
the Seller, Alex. Brown & Sons Incorporated and Black Diamond Securities, LLC
(the "Underwriters"), the Seller has agreed to cause the Seller to sell to the
Underwriters, and the Underwriters have agreed to purchase, Notes in the
following respective amounts:
Underwriters Principal Amount
Alex. Brown & Sons Incorporated.............................
Black Diamond Securities, LLC...............................
Total.......................................................
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all the Notes offered hereby if any of such Notes are
purchased.
CPS and the Seller have been advised by the Underwriters that the
Underwriters propose to offer the Notes from time to time for sale in negotiated
transactions or otherwise, at varying prices to be determined at the time of
sale. The Underwriters may effect such transactions by selling the Notes to or
through dealers and such dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Underwriters and any
purchasers of Notes for whom they may act as agents. The Underwriters and any
dealers that participate with the Underwriters in the distribution of
46
<PAGE>
the Notes may be deemed to be underwriters, and any discounts or commissions
received by them and any profit on the resale of Notes by them may be deemed to
be underwriting discounts or commissions, under the Securities Act.
The Notes are a new issue of securities with no established trading
market. The Underwriters have advised CPS and the Seller that they intend to act
as a market maker for the Notes. However, the Underwriters are not obligated to
do so and may discontinue any market making at any time without notice. No
assurance can be given as to the liquidity of any trading market for the Notes.
CPS and the Seller have agreed to indemnify the Underwriters against
certain liabilities, including civil liabilities under the Securities Act, or
contribute to payments which the Underwriters may be required to make in respect
thereof.
LEGAL OPINIONS
Certain legal matters relating to the Securities will be passed upon by
Mayer, Brown & Platt, New York, New York. Certain legal matters related to the
Policy will be passed upon for the Insurer by Bruce E. Stern, Esq., General
Counsel of the Insurer.
EXPERTS
The consolidated balance sheets of the Insurer and Subsidiaries as of
December 31, [1996], 1995 and 1994 and the related consolidated statements of
income, changes in shareholder's equity and cash flows for each of the three
years in the period ended December 31, 1996, incorporated by reference in this
Prospectus Supplement, have been incorporated herein in reliance on the report
of Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
47
<PAGE>
INDEX OF TERMS (cont.)
INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus
Supplement and the pages on which the definitions of such terms may be found
herein.
Actuarial Receivables........................................................29
Alpha Program ...........................................................18
Benefit Plan .......................................................13, 45
Business Day ........................................................6, 43
Cede .......................................................12, 31
Certificates ............................................................1
Closing Date ............................................................4
Collateral Agent ...........................................................37
Collection Account...........................................................33
Collection Period ............................................................7
Commission ............................................................2
Contracts ...........................................................17
CPS Receivables ............................................................5
CPS ............................................................4
Cram Down Loss ...........................................................35
Cutoff Date ............................................................5
Dealer Agreements ...........................................................17
Dealers ...........................................................17
Delta Program ...........................................................18
Determination Date...........................................................34
Distribution Account.........................................................33
DTC ....................................................3, 12, 31
ERISA ...........................................................45
Events of Default ...........................................................38
Exchange Act ............................................................2
Financed Vehicles ............................................................5
Financial Security........................................................2, 43
First Time Buyer Program.....................................................18
holders .......................................................12, 31
Holdings ........................................................2, 44
IFCs ............................................................5
Indenture Trustee ............................................................1
Indenture .........................................................1, 4
Insurance Agreement..........................................................14
Insurer ........................................................4, 43
Insurer Default ...........................................................40
Insurer Optional Deposit.....................................................35
Interest Rate ............................................................6
IRS ...........................................................13
Issuer ............................................................4
Liquidated Receivable........................................................34
Liquidation Proceeds.........................................................34
Lock-Box Account .......................................................10, 33
Lock-Box Bank ...........................................................10
Lock-Box Processor...........................................................10
Master Spread Account Agreement..............................................37
Moody's ...........................................................13
i
<PAGE>
INDEX OF TERMS (cont.)
Note Majority ...........................................................41
Note Owners .......................................................12, 31
Noteholders ....................................................6, 12, 31
Noteholders' Distributable Amount............................................35
Noteholders' Interest Carryover Shortfall....................................37
Noteholders' Percentage...................................................6, 35
Noteholders' Principal Carryover Shortfall...................................37
Notes ............................................................1
Obligors ...........................................................17
Order ...........................................................42
Original Pool Balance.........................................................5
Owner Trustee ............................................................1
Participants ...........................................................32
Payment Date ............................................................6
Policy ........................................................1, 10
Pool Balance ...........................................................30
Post Office Box ...........................................................10
prepayments ...........................................................30
Principal Balance ...........................................................34
Principal Distributable Amount............................................7, 35
PTCE ...........................................................46
Purchase Amount ...........................................................34
Rating Agencies ...........................................................13
Receipt ...........................................................43
Receivables ............................................................4
Received ...........................................................43
Record Date ............................................................9
Recoveries ...........................................................34
Registration Statement........................................................2
Regulation ...........................................................45
Requisite Amount ............................................................9
Rule of 78's Receivables.....................................................29
Samco .......................................................14, 18
Samco Receivables ............................................................5
Scheduled Payment ...........................................................42
Scheduled Receivable Payment.................................................34
Securities ............................................................1
Securities Act ............................................................2
Seller .........................................................1, 4
Servicer ............................................................4
Servicer Termination Event...................................................40
Servicing Assumption Agreement...............................................11
Servicing Fee ...........................................................33
Servicing Fee Rate...........................................................11
Simple Interest Receivables..................................................29
Spread Account ...........................................................37
Standard & Poor's ...........................................................13
Standard Program ...........................................................18
Standby Fee ...........................................................11
Standby Servicer .......................................................11, 31
Sub-Prime Borrowers..........................................................17
Total Distribution Amount....................................................34
ii
<PAGE>
INDEX OF TERMS (cont.)
Trust .........................................................1, 4
Trust Agreement ............................................................4
Trust Assets ............................................................4
Trustee Fee ...........................................................36
UCC ...........................................................32
Underwriters ...........................................................46
Underwriting Agreement.......................................................46
iii
<PAGE>
===============================================
No person has been authorized in connection with the offering made
hereby to give any information or to make any representation not contained in
this Prospectus Supplement or the Prospectus and, if given or made, such
information or representation must not be relied upon as having been authorized
by CPS, the Seller or any Underwriter. This Prospectus Supplement and the
Prospectus do not constitute an offer to sell or a solicitation of an offer to
buy any of the securities offered hereby to any person or by anyone in any
jurisdiction in which it is unlawful to make such offer or solicitation. Neither
the delivery of this Prospectus Supplement or the Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any date subsequent to the date
hereof.
-----------
iv
<PAGE>
TABLE OF CONTENTS
Page
Prospectus Supplement
Summary ............................................................... S-4
Risk Factors............................................................ S-14
Formation of the Trust.................................................. S-16
The Trust Assets........................................................ S-16
CPS's Automobile Contract Portfolio..................................... S-17
The Receivables Pool.................................................... S-24
Yield Considerations.................................................... S-29
Pool Factor and Other Information....................................... S-30
Use of Proceeds......................................................... S-30
The Seller and CPS...................................................... S-31
The Standby Servicer.................................................... S-31
Description of the Notes................................................ S-31
Credit Enhancements..................................................... S-41
The Policy.............................................................. S-42
The Insurer............................................................. S-44
ERISA Considerations.................................................... S-47
Underwriting............................................................ S-49
Legal Opinions.......................................................... S-50
Experts ............................................................... S-50
Index of Terms.......................................................... S-i
Prospectus
Prospectus Supplement................................................... 2
Available Information................................................... 2
Incorporation of Certain Documents by Reference......................... 2
Reports to Securityholders.............................................. 3
Summary of Terms........................................................ 4
Risk Factors............................................................ 16
The Issuers............................................................. 23
The Trust Assets........................................................ 24
Acquisition of Receivables by the Seller................................ 25
The Receivables......................................................... 25
CPS's Automobile Contract Portfolio..................................... 28
Pool Factors............................................................ 29
Use of Proceeds......................................................... 29
The Seller and CPS...................................................... 29
Description of the Securities........................................... 31
Description of the Trust Documents...................................... 39
Certain Legal Aspects of the Receivables................................ 45
v
<PAGE>
Certain Tax Considerations............................................... 52
ERISA Considerations..................................................... 60
Plan of Distribution..................................................... 60
Legal Opinions........................................................... 61
Financial Information.................................................... 61
Additional Information................................................... 61
Index of Terms........................................................... i
-----------
Until 90 days after the date of this Prospectus Supplement, all dealers
effecting transactions in the Certificates offered hereby, whether or not
participating in this distribution, may be required to deliver this Prospectus
Supplement and the Prospectus. This is in addition to the obligation of dealers
to deliver this Prospectus Supplement and the Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
[$ ]
CPS AUTO RECEIVABLES TRUST 1997-2
[ %] ASSET-BACKED
NOTES
CPS RECEIVABLES CORP.
(SELLER)
CONSUMER PORTFOLIO
SERVICES, INC.
(SERVICER)
-
PROSPECTUS SUPPLEMENT
-
ALEX. BROWN & SONS BLACK DIAMOND SECURITIES, LLC
INCORPORATED
[ ], 1997
vi
<PAGE>
PART II
Item 14. Other Expenses of Issuance and Distribution
Trustee's Fees............................................... $[_____]
Registration Fee............................................. [_____]
Printing and Engraving....................................... [_____]
Legal Fees and Expenses...................................... [_____]
Blue Sky Fees and Expenses................................... [_____]
Accountants' Fees and Expenses............................... [_____]
Rating Agency Fees........................................... [_____]
Credit Enhancement Fee....................................... [_____]
Miscellaneous Fees........................................... [_____]
Total........................................................ $[_____]
Item 15. Indemnification of Directors and Officers
Indemnification. Under the laws which govern the organization of the
registrant, the registrant has the power and in some instances may be required
to provide an agent, including an officer or director, who was or is a party or
is threatened to be made a party to certain proceedings, with indemnification
against certain expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with such person's status as an
agent of Consumer Portfolio Services, Inc., if that person acted in good faith
and in a manner reasonably believed to be in the best interests of Consumer
Portfolio Services, Inc. and, in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of that person was unlawful.
Article IV of the Articles of Incorporation and Section 2 of Article VI
of the Amended and Restated By-Laws of Consumer Portfolio Services, Inc.
provides that all officers and directors of the corporation shall be indemnified
by the corporation from and against all expenses, judgments, fines, settlements
and other amounts actually and reasonably incurred in connection with such
person's status as an agent of Consumer Portfolio Services, Inc., if that person
acted in good faith and in a manner reasonably believed to be in the best
interests of Consumer Portfolio Services, Inc. and, in the case of a criminal
proceeding, had no reasonable cause to believe the conduct of that person was
unlawful.
The form of the Underwriting Agreement, to be filed as an exhibit to
this Registration Statement, will provide that Consumer Portfolio Services, Inc.
will indemnify and reimburse the underwriter(s) and each controlling person of
the underwriter with respect to certain expenses and liabilities, including
liabilities under the 1933 Act or other federal or state regulations or under
the common law, which arise out of or are based on certain material
misstatements or omissions in the Registration Statement. In addition, the
Underwriting Agreement will provide that the underwriter(s) will similarly
indemnify and reimburse Consumer Portfolio Services, Inc. with respect to
certain material misstatements or omissions in the Registration Statement which
are based on certain written information furnished by the underwriter(s) for use
in connection with the preparation of the Registration Statement.
Insurance. As permitted under the laws which govern the organization of
the registrant, the registrant's Amended and Restated By-Laws permit the board
of directors to purchase and maintain insurance on behalf of the registrant's
agents, including its officers and directors, against any liability asserted
against them in such capacity or arising out of such agents' status as such,
whether or not the registrant would have the power to indemnify them against
such liability under applicable law.
II-1
<PAGE>
Item 16. Exhibits and Financial Statements
(a) Exhibits
1.1 --Form of Underwriting Agreement.*
4.1 --Form of Trust Agreement, and certain other related agreements as
Exhibits thereto.*
4.2 --Form of Indenture, and certain other related agreement as Exhibits
thereto.*
5.1 --Opinion of Mayer, Brown & Platt with respect to legality.*
8.1 --Opinion of Mayer, Brown & Platt with respect to tax matters.*
10.1 --Form of Sale and Servicing Agreement.*
23.1 --Consent of Mayer, Brown & Platt (included in its opinions filed as
Exhibit 5.1 and Exhibit 8.1).*
24.1 --Powers of Attorney.
(b) Financial Statements
All financial statements, schedules and historical financial
information have been omitted as they are not applicable.
- ----------
* To be filed pursuant to an amendment to this Registration Statement.
II-2
<PAGE>
Item 17. Undertakings
A. Undertaking pursuant to Rule 415
The undersigned registrant hereby undertakes as follows:
(a) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(1) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(2) to reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or 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;
(3) to include any material information with respect to the
plan of distribution not previously disclosed in the Registration Statement or
any material change of such information in the Registration Statement; provided,
however, that paragraphs (1) and (2) do not apply if the information required to
be included in the post-effective amendment is contained in periodic reports
filed by the Issuer pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the Registration
Statement.
(b) 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.
(c) 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. Undertaking pursuant to Rule 415
(a) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) under the
Securities Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus 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. Undertaking in respect of indemnification
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of the registrant pursuant to the provisions
described under 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 such Securities Act 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) 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 questions whether such indemnification by it is against public
policy as expressed in such Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the capacities
indicated.
CONSUMER PORTFOLIO SERVICES, INC., as
sponsor and manager of the Trust
(Registrant)
By /s/ Jeffrey P. Fritz
-------------------------------
Name: Jeffrey P. Fritz
Title: Senior Vice President
II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed on April __, 1997 by the following
persons in the capacities indicated.
Signatures
----------
Title
-----
*
-----------------------------
Charles E. Bradley, Sr.
Director
/s/ Charles E. Bradley, Jr.
-----------------------------
Charles E. Bradley, Jr.
President and Director
*
-----------------------------
William B. Roberts
Director
*
-----------------------------
John G. Poole
Director
*
-----------------------------
Thomas L. Chrystie
Director
*
-----------------------------
Robert A. Simms
Director
/s/ Jeffrey P. Fritz
-----------------------------
Jeffrey P. Fritz
Chief Financial Officer and Secretary
*By: /s/ Jeffrey P. Fritz
-----------------------------
Jeffrey P. Fritz
as attorney-in-fact
II-5
<PAGE>
EXHIBIT INDEX
1.1 -- Form of Underwriting Agreement.*
4.1 -- Form of Trust Agreement, and certain other related agreements
as Exhibits thereto.*
4.2 -- Form of Indenture, and certain other related agreements as
Exhibits thereto.*
5.1 -- Opinion of Mayer, Brown & Platt with respect to legality.*
8.1 -- Opinion of Mayer, Brown & Platt with respect to tax matters.*
10.1 -- Form of Receivables Purchase Agreement.*
10.2 -- Form of Sale and Servicing Agreement.*
23.1 -- Consent of Mayer, Brown & Platt (included in its opinions filed
as Exhibit 5.1 and Exhibit 8.1).*
24.1 -- Powers of Attorney.
- ----------
* To be filed pursuant to an amendment to this Registration Statement.
II-6
<PAGE>
CONSUMER PORTFOLIO SERVICES, INC.
Power of Attorney
Each of the undersigned persons, in his or her capacity as an officer
or director, or both, of Consumer Portfolio Services, Inc. ("CPS"), hereby
appoints Jeffrey P. Fritz as his or her attorney-in-fact and agent for the
following purposes:
1. To sign for him or her, in his or her name and in his or
her capacity as an officer or director, or both, of the Bank, a
Registration Statement on Form S-3 and any amendments and
post-effective amendments thereto (collectively, the "Registration
Statement"), for the registration under the Securities Act of 1933, as
amended (the "Act"), of asset backed notes (the "Notes") representing
debt of, and certificates (the "Certificates" and, together with the
Notes, the "Securities") representing undivided interests in, a trust,
the property of which includes automobile receivables originated or
acquired by CPS;
2. To file or cause to be filed such Registration Statement
with the Securities and Exchange Commission;
3. To take all such other action as any such attorney-in-fact,
or his or her substitute, may deem necessary or desirable in order to
effect and maintain the registration of the Certificates; and
4. To sign for him or her, in his or her name and in his or
her capacity as an officer or director, or both, of CPS, all such
documents and instruments as any such attorney-in-fact, or his or her
substitute, may deem necessary or advisable in connection with the
registration, qualification or exemption of the Securities under the
securities laws of any state or other jurisdiction.
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<PAGE>
This power of attorney shall be effective as of April [ ], 1997 and
shall continue in full force and effect until revoked by the undersigned in a
writing filed with the Secretary of the Bank.
/s/ Charles E. Bradley, Sr.
---------------------------
Charles E. Bradley, Sr.
/s/ Charles E. Bradley, Jr
--------------------------
Charles E. Bradley, Jr.
/s/ William B. Roberts
----------------------
William B. Roberts
/s/ John G. Poole
-----------------
John G. Poole
/s/ Thomas L. Chrystie
----------------------
Thomas L. Chrystie
/s/ Robert A. Simms
-------------------
Robert A. Simms
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