As filed with the Securities and Exchange Commission on November 3, 1998
================================================================================
Registration No. 333-63805
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE
AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
CPS AUTO RECEIVABLES TRUSTS
(Issuer of the Securities)
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. [ ]
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. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Amount of
Title of securities to Amount to be Proposed maximum Proposed maximum registration
be registered registered offering price per certificate* aggregate offering price* fee**
------------- ---------- ------------------------------- ------------------------- -----
<S> <C> <C> <C> <C>
Asset Backed Notes,
Class A $750,000,000 100% $750,000,000 $196,387.79
============================= ================== ================================== ============================ =================
</TABLE>
* Estimated solely for the purpose of calculating the registration fee.
** Previously paid. The amount of Asset Backed Notes being carried forward
from Registration Statement No. 333-25301 pursuant to Rule 429 is
$180,475,401.40, and the registrant previously paid a filing fee with
respect to such notes of $62,232.90 (calculated at the rate of 1/29 of
1% of the amount of notes being registered, the rate in effect at the
time such Registration Statement was filed).
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 such Section 8(a)
may determine.
We hereby file this Pre-Effective Amendment No. 2 to submit to the
Commission the Base Prospectus, dated October 28, 1998, to re-order the
presentation of Amendment No. 1 such that the Plain English form of Prospectus
Supplement (Form C) and Plain English form of Prospectus Supplement relating to
the offering by CPS Auto Receivables Trust 1998-4 appear in Part I thereof, and
to delete the forms of Prospectus Supplement, Forms A and B, filed on September
18, 1998, from this Registration Statement.
<PAGE>
INTRODUCTORY NOTE
This Amended 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 Plain English form of Prospectus Supplement (Form C) relating to
future offerings by a CPS Auto Receivables Trust of a Series of Asset Backed
Securities described therein, and (iii) a Plain English form of Prospectus
Supplement (Form D) relating to the offering by CPS Auto Receivables Trust
1998-4 of the particular Series of Asset Backed Notes described therein. Forms A
and B, previously filed on September 18, 1998, have been deleted and are not
part of this Registration Statement. The forms of Prospectus Supplement relate
only to the securities described therein and are forms that may be used by
Consumer Portfolio Services, Inc. to offer Asset Backed Securities under this
Registration Statement.
<PAGE>
Prospectus Supplement to Prospectus dated [ ]
CPS Auto Receivables Trust 199[ ]-[ ]
[CPS Logo]
CPS RECEIVABLES CORP.
(Seller)
CONSUMER PORTFOLIO SERVICES, INC.
(Servicer)
The trust will issue the following classes of notes [All classes to be
listed]:
Consider carefully the risk factors beginning on page S-[ ] in this prospectus
supplement and on page [ ] in the prospectus.
The notes represent obligations of the trust only and do not represent
obligations of or interests in CPS Receivables Corp. or Consumer Portfolio
Services, Inc. or their affiliates.
This prospectus supplement may be used to offer and sell the notes only if
accompanied by the prospectus.
Class A-1 Notes Class A-2 Notes
--------------- ---------------
Principal Amount
Interest Rate(per annum)
First Payment Date
Final Scheduled Payment Date
Price to Underwriter
Proceeds to Seller 1/
- ----------
1/ Aggregate proceeds to the Seller, after deducting expenses payable to
the Seller estimated at $[ ], will be $[ ].
[Describe Credit Enhancement].
This prospectus supplement and the accompanying prospectus relate only to the
offering of the notes. Certificates representing the residual interest in the
trust will also be issued by the trust. The certificates will be retained
initially by the Seller and are not offered under these documents. The
underwriter proposes to offer the notes at various times in negotiated
transactions or otherwise, at prices to be determined at the time of sale.
Neither the SEC nor any state securities commission has approved these
securities or determined that this prospectus supplement is accurate or
complete. Any representation to the contrary is a criminal offense
[Underwriter]
[ ]
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
We tell you about the notes in two separate documents that
progressively provide more detail: (a) this prospectus supplement, which
describes the specific terms of your series of notes; and (b) the accompanying
prospectus, which provides general information, some of which may not apply to a
particular series of notes, including your series.
If the terms of your series of notes vary between this prospectus
supplement and the prospectus, you should rely on the information in this
prospectus supplement.
You should rely only on the information contained in these documents or
that we have referred you to. We have not authorized anyone to provide you with
information that is different.
We include cross-references in this prospectus supplement and in the
accompanying prospectus to captions in these materials where you can find
further related discussions. The following Table of Contents and the Table of
Contents in the accompanying prospectus provide the pages on which these
captions are located.
You can find a listing of the pages where capitalized terms used in
this prospectus supplement are defined under the caption "Index of Terms"
beginning on page S-[ ] in this prospectus supplement and under the caption
"Index of Terms" beginning on page [ ] in the accompanying prospectus
S-2
<PAGE>
TABLE OF CONTENTS
PAGE
PROSPECTUS SUMMARY..........................................................S-4
RISK FACTORS...............................................................S-13
FORMATION OF THE TRUST.....................................................S-20
THE TRUST ASSETS...........................................................S-20
THE ORIGINATORS' AUTOMOBILE CONTRACT PORTFOLIO.............................S-22
THE RECEIVABLES POOL.......................................................S-32
YIELD CONSIDERATIONS.......................................................S-42
POOL FACTORS AND OTHER INFORMATION.........................................S-42
USE OF PROCEEDS............................................................S-43
DESCRIPTION OF THE SECURITIES..............................................S-43
REGISTRATION OF NOTES......................................................S-45
DESCRIPTION OF THE TRUST DOCUMENTS.........................................S-46
[CREDIT ENHANCEMENT].......................................................S-62
THE [CREDIT ENHANCER]......................................................S-62
FEDERAL INCOME TAX CONSEQUENCES............................................S-62
ERISA CONSIDERATIONS.......................................................S-62
UNDERWRITING...............................................................S-63
LEGAL OPINIONS.............................................................S-64
EXPERTS....................................................................S-65
S-3
<PAGE>
PROSPECTUS SUMMARY
o This summary highlights selected information from this document and
does not contain all of the information that you need to consider in
making your investment decision. To understand all of the terms of an
offering of the notes, read carefully this entire document and the
accompanying prospectus.
o This summary provides an overview of certain calculations, cash flows
and other information to aid your understanding of this investment and
is qualified by the full description of these calculations, cash flows
and other information in this prospectus supplement and the
accompanying prospectus.
OFFERED SECURITIES
CPS Auto Receivables Trust 1998-4 will issue the following securities under this
Prospectus Supplement and the accompanying Prospectus:
o [ %] Asset-Backed Notes, Class A-1 (the "Class A-1 Notes") in the
aggregate original principal amount of [$ ]; and
o [ %] Asset-Backed Notes, Class A-2 (the "Class A-2 Notes" and, together
with the Class A-1 Notes, the "Notes") in the aggregate original
principal amount of [$ ].
The Trust will issue the Notes under an indenture (the "Indenture"), to be dated
October [ ], 1998, between the Trust and Norwest Bank Minnesota, National
Association, as Indenture Trustee. The aggregate original principal amount of
the Notes will be [$ ]. The Notes will be offered for purchase in minimum
denominations of $1,000 and integral multiples of $1,000, in book entry form
only, through the Depository Trust Company. For more information, read
"Description of the Securities Book-Entry Registration" in the Prospectus. The
Trust will also issue certificates that represent interests in the property of
the Trust that remains after full payment to you of interest on and principal of
the Notes. This Prospectus Supplement and the accompanying Prospectus offer only
the Notes.
ISSUER
The issuer of the notes is CPS Auto Receivables Trust 1998-4 (the "Trust"). The
Trust was formed on [ ] under a trust agreement between CPS Receivables Corp.
(the "Seller"), a Delaware corporation that is a wholly-owned, special-purpose
subsidiary of Consumer Portfolio Services, Inc. and [ ], as the owner trustee.
The address and telephone number of Consumer Portfolio Services, Inc. are:
Consumer Portfolio Services, Inc.
2 Ada
Irvine, California 92618
(714) 753-6800
S-4
<PAGE>
CLOSING DATE
On or about [ ] (the "Closing Date").
INDENTURE TRUSTEE
[Name and Address]
OWNER TRUSTEE
[Name and Address]
TERMS OF THE NOTES
The principal terms of the Notes will be as described below:
Payment Dates
Payments on the Notes will be made on the 15th day of each month or, if the 15th
day is not a Business Day under the Indenture, on the next following Business
Day (each such day, a "Payment Date"). The first Payment Date will be [ ].
Payments will be made to holders of record of the Notes as of the close of
business on the record date applicable to such Payment Date. The record date for
a Payment Date will be the 10th calendar day of the month in which such Payment
Date occurs.
Interest Rates
The Class A-1 Notes will bear interest at a rate equal to [ % ]. The Class A-2
Notes will bear interest at a rate equal to [ %]. Interest on the Notes will be
calculated on the basis of a 360-day year of twelve 30-day months. [Describe
other class of Notes, if any.]
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, thirty (30) days of interest at the Class A-1 Interest Rate on the
outstanding principal amount of the Class A-1 Notes at the close of the
preceding 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 the preceding Payment Date. Nevertheless, on the initial Payment Date,
the interest payable to the Noteholders of record of a 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 to and including
S-5
<PAGE>
[ ] (assuming that there are 30 days in each month of the year) and (ii)
the denominator of which is 360. [Describe other classes of Notes, if any].
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 interest rate applicable to such class.
See "Description of the Securities--Payment of Interest" in this Prospectus
Supplement.
Principal
Principal of the Notes will be payable on each Payment Date in an amount equal
to the sum of (i) the Class A Noteholders' Percentage (as of such Payment Date)
of the Principal Distributable Amount and (ii) any principal which was payable
in respect of the Notes on a preceding Payment Date but was not so paid.
Notwithstanding the foregoing, all outstanding principal and interest with
respect to a class of Notes will be payable in full on the Final Scheduled
Payment Date for such class of Notes. See "Description of the Trust
Documents--Distributions" in this Prospectus Supplement.
The "Principal Distributable Amount" with respect to a Payment Date will equal
the sum of the following amounts (without duplication):
(a) collections on Receivables (other than Liquidated Receivables)
allocable to principal including full and partial prepayments;
(b) 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 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;
(c) the Principal Balance of each Receivable that first became a
Liquidated Receivable during the preceding Collection Period;
(d) the aggregate amount of Cram Down Losses with respect to the
Receivables that shall have occurred during the preceding Collection
Period; and
(e) any net proceeds from the liquidation of the Trust Assets pursuant
to an acceleration of the Notes upon an Event of Default.
On each Payment Date, principal payments on the Notes will be applied,
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. [Describe other classes of Notes, if any].
S-6
<PAGE>
Final Scheduled
Payment Dates
All unpaid principal of and accrued interest on each class of the Notes will be
payable in full on the date specified below for such class:
TRUST ASSETS
The primary source of funds to support payments of principal of and interest on
the notes will be the trust assets, which will include:
o a pool of retail installment sale contracts consisting of the right to
receive payments of interest, principal and other money secured by used
and new automobiles, light trucks, vans and minivans;
o the right to receive payments under the installment sale contracts
after specified cutoff dates;
o security interests in the automobiles, light trucks, vans and minivans
securing the installment sale contracts;
o certain bank accounts and the proceeds thereof, including accounts that
will be opened to receive part of the proceeds of this offering and
that will be used by the Trust to buy more retail installment sales
contracts;
o the right to receive proceeds from claims under, or refunds of unearned
premiums from, certain insurance policies and extended service
contracts relating to the vehicles financed under the installment sale
contracts;
o the rights of CPS Receivables Corp. under the contracts by which it
purchases the Trust Assets; and
o certain other property specified herein under "The Trust Assets".
The Receivables
The retail installment sale contracts to be transferred to the Trust will be
secured by new and used automobiles, light trucks, vans and minivans including
the rights to all payments received with respect to such contracts after a
specified cutoff date. Such installment sale contracts arise from loans
originated by automobile dealers, independent finance companies ("IFCs") and
deposit institutions ("Deposit Institutions") for assignment to Consumer
Portfolio Services, Inc., a California corporation ("CPS") and its affiliates
Samco Acceptance Corp., a Delaware corporation ("Samco"), and Linc Acceptance
Company LLC, a Delaware limited liability company ("Linc"). The auto loan
programs of CPS, Samco and Linc target automobile purchasers with marginal
credit ratings who are generally unable to obtain credit from banks or other
low-risk lenders. See "The Originators' Automobile Contract Portfolio--General",
"The Receivables Pool", "Risk Factors--Sub-Prime Obligors" and "Risk
Factors--Servicing" in this Prospectus Supplement and "Risk Factors--Sub-Prime
Obligors" in the Prospectus.
S-7
<PAGE>
The Initial Receivables
On the Closing Date, the Trust will acquire retail installment sale contracts
(the "Initial Receivables") having an aggregate principal balance as of [ ] (the
"Cutoff Date") of approximately [$ ]. For information about the characteristics
of the Initial Receivables as of the Cutoff Date, see "The Receivables Pool" in
this Prospectus Supplement.
[Pre-Funding
In addition to the Initial Receivables, the Trust will (subject to availability
and certain conditions) purchase additional retail installment sale contracts
(the "Subsequent Receivables") from the Seller during a period (the "Funding
Period") beginning on the Closing Date and ending not later than [ ]. The
Subsequent Receivables and the Initial Receivables are collectively referred to
in this Prospectus Supplement as the "Receivables". See "Description of the
Trust Documents--Sale and Assignment of Receivables" in this Prospectus
Supplement.
Subsequent Receivables will be originated under the auto loan programs of CPS,
Samco and Linc but, as these programs are modified from time to time due to
changes in market conditions or otherwise in the judgment of CPS, Samco or Linc,
as applicable, 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--Varying Characteristics of Subsequent
Receivables" and "The Receivables Pool" in this Prospectus Supplement. ]
[The Pre-Funding Account
The purchase of Subsequent Receivables will be funded from amounts in the
Pre-Funding Account. On the Closing Date, the Seller will deposit into the
Pre-Funding Account, out of proceeds from the sale of the Notes, the sum of $[
]. The Funding Period will end earlier than [ ], if the Pre-Funding Account is
reduced to less than $100,000. Until the amounts on deposit in the Pre-Funding
Account are used to purchase Subsequent Receivables, they will be invested
according to certain eligibility criteria. Any Pre-Funded Amount remaining at
the end of the Funding Period will be payable to the holders of the Notes, pro
rata in proportion to the principal balance of each class of Notes, as a
prepayment of principal. See "Description of the Trust Documents--Sale and
Assignment of Receivables" and "--Accounts" in this Prospectus Supplement.]
S-8
<PAGE>
[Interest Reserve Account
In order to provide a source of funds during the Funding Period to cover
anticipated negative carry resulting from the excess of the weighted average
interest rate on the Notes over investment earnings on the Pre-Funded Amount,
the Indenture Trustee will establish the Interest Reserve Account. On the
Closing Date, the Seller will deposit an amount equal to the Requisite Reserve
Amount (as described below) in the Interest Reserve Account. On each of the
[September and October] 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 in this Summary under "Priority of Payments".
The "Requisite Reserve Amount" as of any date during the Funding Period
will equal the product of:
(i) 1/360th of the difference between
(A) the weighted average of each of the Interest
Rates for each class of Notes (based on the
outstanding principal amount of each class on such
date); and
(B) the assumed yield ([ ]% per annum) of investments
of funds in the Pre-Funding Account,
(ii) the Pre-Funded Amount on such date
(iii) the number of days remaining until the Payment Date
in [ ];
provided that, upon the expiration of the Funding Period, the Requisite Reserve
Amount will be zero. See "Description of the Trust Documents--Accounts" in this
Prospectus Supplement.]
SERVICING
After the sale of the Receivables to the Trust, CPS will continue to perform
certain administrative services with respect thereto in its capacity as servicer
of the Trust. Such services will include, among other things, collection of
payments, realization on collateral and monitoring the rate of performance of
the Receivables. In return for CPS's services, the Trust will pay a fee to CPS
out of the interest payments received by the Trust. If CPS is terminated or
resigns as servicer of the Trust, the successor servicer will take over
servicing responsibilities for the Trust. See "Risk Factors--Termination of CPS
as Servicer" and "Description of the Trust Documents--Servicing" in this
Prospectus Supplement.
S-9
<PAGE>
PRIORITY OF PAYMENTS
On each Payment Date, the Indenture Trustee shall make the following
distributions in the following order of priority:
(1) to the Standby Servicer, so long as CPS is the Servicer and [ ] is the
Standby Servicer, the Standby Fee and all unpaid Standby Fees from
prior Collection Periods;
(2) to the Servicer, the Servicing Fee and all unpaid Servicing Fees from
prior Collection Periods;
(3) if the Standby Servicer becomes the successor Servicer, to the Standby
Servicer, to the extent not previously paid by the predecessor Servicer
under the Sale and Servicing Agreement, reasonable transition expenses
(up to a maximum of $50,000) incurred in becoming the successor
Servicer;
(4) to the Indenture Trustee and the Owner Trustee, pro rata, the Trustee
Fees and reasonable out-of-pocket expenses and all unpaid Trustee Fees
and unpaid reasonable out-of-pocket expenses from prior Collection
Periods;
(5) to the Collateral Agent, all fees and expenses payable to the
Collateral Agent with respect to such Payment Date;
(6) to the Noteholders, the Noteholders' Interest Distributable Amount;
(7) to the Noteholders, the Noteholders' Principal Distributable Amount,
plus the Noteholders' Principal Carryover Shortfall, if any;
(8) to the [Credit Enhancer], any amounts due under the terms of the
[Credit Enhancement] Agreement;
(9) if any Person other than the Standby Servicer becomes the successor
Servicer, to such successor Servicer, to the extent not previously paid
by the predecessor Servicer under the Sale and Servicing Agreement,
reasonable transition expenses (up to a maximum of $50,000 for all such
expenses) incurred in becoming the successor Servicer; and
(10) to the Collateral Agent, for deposit into the Spread Account, the
remaining Total Distribution Amount, if any.
Amounts distributed on account of the Noteholders' Principal Distributable
Amount under priority above will be applied, sequentially, to pay principal of
the Class A-1 Notes until the principal amount of the Class A-1 Notes has been
reduced to zero, then to the holders of the Class A-2 Notes until the principal
amount of the Class A-2 Notes has been reduced to zero.
[Describe other classes of Notes, if any].
S-10
<PAGE>
See "Description of the Trust Documents--Distributions--Priority of Distribution
Amounts" in this Prospectus Supplement.
Optional Redemption
The Notes, to the extent still outstanding, may be redeemed in whole, but not in
part, on any Payment Date on which CPS exercises its option to purchase all the
Receivables on or after 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 sum of (i) the aggregate Cutoff Date principal balance of the Initial
Receivables and (ii) the initial Pre-Funded Amount. The redemption price will at
least equal the unpaid principal amount of the Notes, plus accrued and unpaid
interest thereon. See "Description of the Securities--Optional Redemption" in
this Prospectus Supplement.
[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 if any portion of the
Pre-Funded Amount remains on deposit in the Pre-Funding Account after giving
effect to all purchases of all Subsequent Receivables on such Payment Date. The
aggregate principal amount of each class of Notes to be redeemed will be an
amount equal to such class' pro rata share (based on the respective current
outstanding principal amount of each class of Notes) of the Pre-Funded Amount on
such date. The terms of such a mandatory redemption are described in "Risk
Factors--Possible Prepayments as a Result of Pre-Funding" in this Prospectus
Supplement.]
The Notes may be accelerated and subject to immediate payment at par with
accrued interest thereon upon the occurrence of an "Event of Default" under the
Indenture. [So long as the [Credit Enhancer] is not itself in default, an Event
of Default under the 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 an Insurance Agreement, dated as of [ ]. In the case of such an
Event of Default and notice by the [Credit Enhancer], the Notes will
automatically be accelerated and subject to immediate payment at par with
accrued interest. The [Credit Enhancement] does not guarantee payments of any
amounts that become due on an accelerated basis, unless the [Credit Enhancer]
elects, in its sole discretion, to pay such amounts in whole or in part.] See
"Description of the Trust Documents--Events of Default" in this Prospectus
Supplement.
[CREDIT ENHANCEMENT]
[Credit Enhancement to be described].
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. In accepting a Note, each holder of that Note will agree to
treat the Notes as indebtedness for Federal income tax purposes.
S-11
<PAGE>
See "Federal Income Tax Consequences" in the Prospectus and "Federal Income Tax
Consequences" in this Prospectus Supplement for additional information
concerning the application of Federal tax laws to the Trust and the Notes.
ERISA Considerations
Subject to the considerations discussed under "ERISA Considerations", 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 of which is referred to as a "Benefit Plan"). By its acquisition of
a Note, each Benefit Plan shall be deemed to represent that its purchase and
holding of such Note will [not give rise to a non-exempt prohibited
transaction]. See "ERISA Considerations" in this Prospectus Supplement.
Rating of the Notes
It is a condition of issuance that the Notes be rated "[ ]" by Standard & Poor's
Ratings Group, a Division of The McGraw Hill Companies ("Standard & Poor's"),
and "[ ]" by Moody's Investors Service, Inc. ("Moody's", and together with
Standard & Poor's, the "Rating Agencies"). 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.
S-12
<PAGE>
RISK FACTORS
Prospective investors in the Notes should consider the following
factors and the additional factors discussed under "Risk Factors" in the
Prospectus:
[Liquidity
and Capital
Resources of CPS The ability of CPS to maintain existing operations (including
servicing of retail installment sale contracts in the various
securitization trusts serviced by CPS), meet its financial
obligations under the Trust Documents (including repurchasing
Receivables as a result of certain breaches of its
representations and warranties) and fund future growth depends
upon CPS having sufficient liquidity. To a significant degree,
CPS depends for liquidity upon residual cash flow released to
the Seller (and dividended by the Seller to CPS) from the
various securitization trusts (including the Trust) serviced
by CPS. Such residual cash flow represents amounts generated
by the receivables in such securitization trusts in excess of
the amount required to pay principal, interest and other
expenses in respect of the related asset-backed securities. As
a result of deterioration in the performance of the portfolio
of Contracts serviced by CPS, Financial Security is currently
exercising its right to capture all of such residual cash flow
in certain collateral accounts established for the benefit of
Financial Security in connection with its issuance of
financial guaranty insurance policies in respect of the
asset-backed securities issued through such securitization
trusts. The resulting reduction in the residual cash flow
available to be paid to the Seller (and dividended by the
Seller to CPS) means that CPS will require capital from
sources other than such residual cash flows to maintain its
existing operations and fund future growth. In response, CPS
has implemented a plan to raise additional working capital
through the issuance of debt or equity; however, the recent
downgrading of CPS's long-term debt rating to "CCC" from "B+"
by Duff & Phelps Credit Rating Co., together with recent
declines in the market price of CPS's stock and current market
conditions may make it difficult and/or costly for CPS to
raise such additional capital and there can be no assurance
that CPS will be able to do so. Accordingly, although CPS
believes that the current capture of residual cash flows for
the benefit of Financial Security will not have a material
adverse effect on its ability to perform its obligations under
the Trust Documents or any "insurance agreement" under which
Financial Security has issued or issues in the future a
financial guaranty insurance policy in respect of securities
issued by a trust for which CPS is the Servicer, no assurances
can be made to that effect.]
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Sub-Prime
Obligors The Originators' customers generally have marginal
credit and fall into one of two categories:
(1) 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
(2) 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 average interest rate charged by the Originators to such
"sub-prime borrowers" is generally higher than that charged by
commercial banks, financing arms of automobile manufacturers
and other traditional sources of consumer credit, which
typically impose more stringent credit requirements. 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. As a result of the credit profile
of the Obligors and the APRs of the Receivables, the
historical credit loss and delinquency rates on the
Receivables may be higher than those experienced by banks,
captive finance companies of automobile manufacturers and
other traditional sources of consumer credit. If an Obligor
defaults under a Receivable, the only source of repayment may
be liquidation proceeds from the related Financed Vehicle. The
Financed Vehicles securing the Receivables will consist
primarily of used vehicles which are likely to have a
liquidation value substantially below the amount financed by
the related Receivable.
Termination of
CPS as Servicer 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 CPS is
removed or resigns 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. CPS's
appointment as Servicer may be terminated under the following
circumstances:
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(1) The rights and obligations of the Servicer
automatically terminate each March 31, June 30,
September 30 and December 31 unless renewed by the
[Credit Enhancer] for successive quarterly 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.
(2) The [Credit Enhancer] may terminate CPS's
appointment as Servicer upon the occurrence of an
Insurance Agreement Event of Default (under the
Insurance Agreement or any other insurance agreement
under which Financial Security has issued or issues
in the future a financial guaranty insurance policy
in respect of securities issued by a trust for which
CPS is the Servicer). The events constituting an
Insurance Agreement Event of Default may be modified,
amended or waived by Financial Security without
notice to or consent of the Indenture Trustee or any
Noteholder. See "Description of the Trust
Documents--Servicer Termination Events".
(3) CPS may resign as Servicer under the
circumstances specified in the Sale and Servicing
Agreement.
Changes in
Delinquency
and Loan
Loss Experience Although CPS has calculated and presented in this Prospectus
Supplement 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 and Linc's
originations is limited. CPS expects that the delinquency and
net credit loss and repossession experience with respect to
the Receivables originated by Samco and Linc will be similar
to that of CPS's existing portfolio.
Final Scheduled
Payment Dates
of the Notes The Final Scheduled Payment Date for each class of Notes which
is specified on the cover page of this Prospectus Supplement,
is the date by
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which the principal thereof is required to be fully paid. The
Final Scheduled Payment Date for each class of Notes 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 [Credit Enhancement]. 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 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
will be earlier than such class's Final Scheduled Payment
Date.
Possible
Prepayments as
a Result of
Pre-Funding [If the principal amount of eligible Receivables originated by
CPS, Samco and Linc 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. 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 will receive
a prepayment of principal in an amount equal to their pro rata
share (based on the current principal balance of each class of
Notes) 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 Certificateholders.
The Seller will not be able to convey Subsequent Receivables
to the Trust unless CPS, Samco and Linc generate such
Subsequent Receivables. There can be no assurance that CPS,
Samco or Linc will continue to generate receivables that
satisfy the criteria set forth in the related Purchase
Agreement at the same rate as in recent months or that the
[Credit Enhancer], in its sole and absolute discretion, will
approve any such transfer of Subsequent Receivables. If,
during the Funding Period, CPS, Samco and Linc do not generate
and transfer sufficient Subsequent Receivables to the Seller,
the Seller will not be able to sell sufficient Subsequent
Receivables to the Trust. This will result in a partial
prepayment of the Notes as described in the immediately
preceding paragraph.]
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Varying
Characteristics
of Subsequent
Receivables [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.]
Lack of
Perfected
Security
Interests in
Financed
Vehicles Due to the administrative burden and expense, the certificates
of title to the Financed Vehicles securing the Receivables
will not be marked, amended or reissued to reflect the
assignment of the Receivables to the Seller by CPS, Samco or
Linc, as applicable, nor will the certificates of title to any
of the Financed Vehicles (including those securing the Samco
Receivables and the Linc 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 perfected
security interest in the Financed Vehicles securing the
Receivables in some states. To the extent the security
interest of CPS, Samco or Linc 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, Samco or
Linc, and therefore the Trust, could lose the priority of its
security interest or its security interest in a Financed
Vehicle. None of CPS, the Seller 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 results in losing the priority of
the security interest in such Financed Vehicle after the
Closing Date. See "Certain Legal Aspects of the
Receivables--Security Interest in Vehicles" in the Prospectus.
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 [Credit Enhancer] under the [Credit
Enhancement], as described herein. Although the [Credit
Enhancement] will be available on each Payment Date to cover
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shortfalls in distributions of the Noteholders' Distributable
Amount on such Payment Date, if of a [Credit Enhancer]
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. See "Credit
Enhancement", "Description of the Securities--Payment of
Principal", "--Payment of Interest" and "The [Credit
Enhancer]" herein.
[The Pre-Funding Account and the Interest Reserve Account will
only be maintained until the end 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. See "Credit
Enhancement" and "The [Credit Enhancer]" herein.]
Geographic
Concentration As of the Cutoff Date, [ %] of the Initial 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.
Year 2000
Computer
Issue Many computer systems in use today were designed and developed
using two digits, rather than four, to specify the year. As a
result, such systems will recognize the year 2000 as "00".
This could cause many computer applications to fail completely
or create erroneous results unless corrective measures are
taken. The Servicer utilizes some software and related
computer hardware technologies essential to its operations
that will be affected by the Year 2000 issues. The Servicer is
currently making changes and enhancements to eliminate this
problem internally and studying what additional actions will
be necessary to make all of its computer systems Year 2000
compliant. The expense associated with these actions has yet
to be fully determined, but could be material.
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Ratings
of the Notes [The ratings of the Notes are based primarily on the rating of
the [Credit Enhancer]. Upon a [Credit Enhancer] Default, the
rating on the Notes may be lowered or withdrawn entirely.] If
any rating initially assigned to the Notes is subsequently
lowered or withdrawn for any reason, including by reason of a
downgrading of the [Credit Enhancer]'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.
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FORMATION OF THE TRUST
The Trust is a business trust formed under the laws of the State of
Delaware under the Trust Agreement. Before 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 Trust will initially be capitalized by the Seller with equity equal
to $10. The Trust will issue the Notes and the Certificates to or at the
direction of the Seller in exchange for the Receivables and the other Trust
Assets. The Seller will use the proceeds of the initial sale of the Notes to
purchase the Initial Receivables from the Originators and to fund the Initial
Spread Account Deposit, the Pre-Funding Account and the Interest Reserve Account
(described under "Description of the Trust Documents--Accounts" in this
Prospectus Supplement). 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 as
described in the immediately preceding paragraph, 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
[ ] is the Owner Trustee under the Trust Agreement. [ ] is a [ ]
banking corporation and its principal offices are located at [ ]. The Owner
Trustee will perform limited administrative functions under the Trust Agreement.
The Indenture Trustee
[ ] is the Indenture Trustee under the Indenture. It is a national
banking association and its principal offices are located at [ ].
THE TRUST ASSETS
The Trust Assets will include:
(1) retail installment sale contracts on used and new
automobiles, light trucks, vans and minivans between dealers (the
"Dealers"), IFCs or Deposit Institutions and retail purchasers (the
"Obligors") and certain monies received thereunder after the Cutoff
Date (with respect to Initial Receivables) or after the applicable
Subsequent Cutoff Date (with respect to Subsequent Receivables);
(2) amounts held from time to time in one or more trust
accounts established and maintained by the Indenture Trustee under the
Sale and Servicing Agreement (see "Description of the Trust Documents
--Accounts" in this Prospectus Supplement);
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(3) amounts held from time to time in the Pre-Funding Account
or the Interest Reserve Account;
(4) the rights of the Seller under the Purchase Agreements,
including all right, title and interest of the Seller in and to each
purchase agreement under which Subsequent Receivables are transferred
by the Originators to the Seller (each a "Subsequent Purchase
Agreement");
(5) security interests in the Financed Vehicles;
(6) the rights of CPS, Samco and Linc 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;
(7) 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 Financed Vehicles or Obligors; and
(8) any and all proceeds of the foregoing.
In addition, the Seller will cause the [Credit Enhancer] to issue the [Credit
Enhancement] for the benefit of the Noteholders.
THE ORIGINATORS
CPS
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's principal
executive offices are located at 2 Ada, Irvine, California 92718; telephone
(714) 753-6800.
Samco
In March 1996, CPS formed Samco, an 80 percent-owned subsidiary based
in Dallas, Texas. Samco's business plan is to provide CPS's sub-prime auto
finance products to rural areas through IFCs. 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. The principal executive offices of Samco are located at 8150
N. Central Expressway, Dallas, Texas 75206; telephone (800) 544-8802.
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Linc
In May 1996, CPS formed Linc, an 80 percent-owned subsidiary based in
Norwalk, Connecticut. Linc's business plan is to provide sub-prime auto finance
products to deposit institutions such as banks, thrifts and credit unions. CPS
believes that such institutions do not generally make loans to sub-prime
borrowers even though they may have relationships with automobile dealers who
sell vehicles to sub-prime borrowers and may have sub-prime borrowers as deposit
customers. The principal executive offices of Linc are located at One Selleck
Street, Norwalk, Connecticut 06855; telephone (203) 831-8300. For further
information regarding the Seller and CPS, see "The Seller and CPS" in the
Prospectus.
THE SELLER
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 to purchase automobile installment sale contracts from CPS and its
subsidiaries and to transfer the receivables to third parties. The principal
executive offices of the Seller are located at 2 Ada, Irvine, California 92718;
telephone (714) 753-6800.
THE ORIGINATORS' AUTOMOBILE CONTRACT PORTFOLIO
General
On October 1, 1991, CPS began its program of purchasing Contracts from
Dealers and selling them to institutional investors. Through [ ], CPS had
purchased [ ] of Contracts from Dealers and sold $[ ] 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 4,000
dealerships located in 42 states of the United States. CPS purchases Contracts
from Dealers for a fee ranging from $0 to $[ ]. 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. Before the issuance of the Notes, 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, such as
certain late fees, prepayment charges and other administrative fees and similar
charges. 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.
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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.
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 Samco's 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
that CPS 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.
In the year ended [ ], Samco purchased [ ]Contracts with original balances
totaling $[ ]. In the six months ended [ ], Samco purchased [ ] Contracts with
original balances totaling $[ ].
In May 1996, CPS formed Linc, an 80 percent-owned subsidiary based in
Norwalk, Connecticut. Linc's business plan is to provide CPS's sub-prime auto
finance products to deposit institutions such as banks, thrifts and credit
unions ("Deposit Institutions"). CPS believes that such Deposit Institutions do
not generally make loans to sub-prime borrowers even though they may have
relationships with automobile Dealers who sell vehicles to sub-prime borrowers
and may have sub-prime borrowers as deposit customers.
Linc's employees call on various Deposit Institutions and present them
with a financing program that is similar to CPS's Alpha Program (as defined
below). The Linc program is intended to result in a slightly more creditworthy
borrower than CPS's Standard Program by requiring slightly higher income and
lower debt-to-income ratios than CPS requires under its Standard Program. Linc's
customers may offer its financing program to borrowers directly or to local
Dealers. Linc typically purchases Contracts at par, without a fee to the Deposit
Institution. Servicing and collection procedures on Contracts are performed
entirely by CPS using the same personnel, procedures and systems as CPS uses for
its own programs. In the year ended [ ], Linc purchased [ ] Contracts with
original balances totaling $[ ]. In the six months ended [ ], Linc purchased [ ]
Contracts with original balances totaling $[ ].
Underwriting
CPS markets its services to Dealers under five 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"), the
CPS Delta Program (the "Delta Program") and
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the CPS Super Alpha Program (the "Super Alpha Program"). In addition, Samco
offers IFCs essentially the same programs that CPS offers to Dealers, while Linc
offers only its program (the "Linc Program") to Deposit Institutions. 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 Linc Program guidelines are designed for
applicants with slightly better credit than applicants under the Alpha Program
and include requirements such as higher income and lower debt ratio as compared
to the Alpha Program guidelines. 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 had significant credit.
Applicants under the First Time Buyer Program must meet all the requirements of
the Standard Program, as well as slightly higher income and down payment
requirements. The Super Alpha Program guidelines are more stringent than any
other CPS program in categories such as advance rate, age of collateral, credit
history and stability. 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, down payment, 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 [ ]% of the credit applications it receives and
ultimately purchases approximately [ ]% of the received applications.
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CPS has purchased portfolios of Contracts in bulk from other companies
that had previously purchased the Contracts from Dealers. From [ ] to [ ], CPS
made four such bulk purchases aggregating approximately $[ ]. 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 the underwriting standards used by CPS 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, [ ]% of the dealer invoice plus taxes, license fees, insurance and the
cost of the service contract, and in the case of used cars, [ ]% 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 $[ ]. 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 down payment required on the purchase of a vehicle is
generally [ ]% to [ ]% of the purchase price. The down payment 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 [ ]% of the minimum down
payment required, with the proven manufacturer's rebate constituting the
remainder of the down payment. CPS believes that the relatively high down
payment 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.
Before 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's 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 CPS's computerized records. If a policy reaches its expiration date without a
renewal, or if CPS receives a notice that the policy has been canceled before
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
S-25
<PAGE>
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 to IFCs financing programs 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 IFC 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. Before CPS purchases 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.
Linc offers to Deposit Institutions financing programs which are
similar to CPS's Alpha Program. Unlike Samco, which has employees who evaluate
applications and make decisions to purchase Contracts, applications for
Contracts to be purchased by Linc are submitted by the Deposit Institution
directly to CPS, where the approval, underwriting and purchase procedures are
performed by CPS staff who work with Linc as well as with the Dealers to which
CPS markets its programs.
Servicing and Collections
CPS's 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 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's 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's computerized records.
Under the various servicing
S-26
<PAGE>
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.
On April 1, 1997, CPS established a satellite collection facility in
Chesapeake, Virginia. The 16,000 square foot facility was opened with 35 staff
dedicated solely to collections. As of June 30, 1998 the Chesapeake facility had
more than 120 collectors. The Chesapeake facility is on-line with CPS's
automated collection system at its headquarters in Irvine, California.
Chesapeake staff have been trained by Irvine collection management personnel at
both the Chesapeake facility and at CPS's headquarters. Irvine collection
management has the ability to allocate the collection workload between the two
facilities as well as monitor the effectiveness of the collection effort by
office and individual collector. CPS expects to add resources to both collection
locations as its servicing portfolio grows.
Servicing and collection procedures on Contracts owned by Samco and
Linc are performed by CPS at its headquarters in Irvine, California and at its
Chesapeake, Virginia collection facility. 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,
under the Alpha Program in April 1995, under the Linc Program in December 1996
and under the Super Alpha Program in December 1997. CPS has found that the
delinquency and net credit loss and repossession experience with respect to the
Delta Program is somewhat higher than under its Standard Program. CPS has found
that the delinquency and net credit loss and repossession experience with
respect to the Alpha Program,
S-27
<PAGE>
the Linc Program and the Super 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. Before 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 somewhat higher than under the Standard Program. CPS began
servicing Contracts originated by Samco in March 1996 and Linc in November 1996.
Although credit history on Samco's and Linc's originations is limited, CPS
expects that the delinquency and net credit loss and repossession experience
with respect to the Receivables originated by Samco and Linc 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
or any other isolated group of receivables from the CPS portfolio would be
comparable to CPS's experience as shown in the following tables. In particular,
the information in the tables has not been adjusted to eliminate the effects of
the significant growth in the size of CPS's loan portfolio during the periods
shown.
S-28
<PAGE>
CONSUMER PORTFOLIO SERVICES, INC.
DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1995 December 31, 1996 December 31, 1997 June 30, 1997 June 30, 1998
----------------- ----------------- ----------------- ----------------- ------------- -------------
Number Number Number Number Number Number
of Loans Amount of Loans Amount of Loans Amount of Loans Amount of Loans Amount of Loans Amount
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio(1)
Period of
Delinquency(2)
31-60
61-90
91+
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total
Delinquencies
Amount in
Repossession(3)
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total
Delinquencies and
Amount in
Repossession(4)
======== ====== ======== ====== ======== ====== ======== ====== ======== ====== ======== ======
Delinquencies as a
Percent of the
Portfolio
Repo Inventory as
Percent of the
Portfolio -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total
Delinquencies and
Amount in
Repossession as a
Percent of
Portfolio
======== ====== ======== ====== ======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
- ------------------
(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.
S-29
<PAGE>
CONSUMER PORTFOLIO SERVICES, INC.
NET CREDIT LOSS/REPOSSESSION EXPERIENCE
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Six Months Ended Six Months Ended
December 31, 1994 December 31, 1995 December 31, 1996 December 31, 1997 June 30, 1997 June 30, 1998
----------------- ----------------- ----------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Average Amount Outstanding
During the Period (1) $ $ $ $ $ $
Average Number of Loans
Outstanding During the
Period
Number of Repossessions
Gross Charge-Offs (2)
Recoveries (3)
Net Losses
Annualized Repossessions as
a Percentage of Average
Number of Loans Outstanding
Annualized Net Losses as a
Percentage of Average
Amount Outstanding
</TABLE>
- ------------------
(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) Delinquent Contracts for which the related Financed Vehicle has been
repossessed are charged off no later than the end of the calendar
quarter in which the Financed Vehicle was sold. The amount charged off
is the remaining principal balance of the Contract, after the
application of the net proceeds from the liquidation of the Financed
Vehicle. With respect to delinquent Contracts for which the related
Financed Vehicle has not been repossessed, the remaining principal
balance thereof is charged off no later than the 120th day after
delinquency. In any case, amounts charged off do not include 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.
S-30
<PAGE>
Recent Developments
Litigation. On June 30, 1997, CPS was served with summons and
counterclaim in the bankruptcy court for the Northern District of Illinois in
connection with the Chapter 13 bankruptcy of obligors Madeline and Darryl
Brownlee, of Chicago, Illinois. The obligors seek class-action treatment of
their allegation that the cost of an extended service contract on the automobile
they purchased was inadequately disclosed by Joe Cotton Ford of Carol Stream,
Illinois, the automobile dealer who sold them their car. The disclosure is
alleged to violate the Federal Truth in Lending Act and of Illinois consumer
protection statutes. The obligors' claim is directed against both the dealer for
making the allegedly improper disclosures and against CPS as holder of the
purchase contract. The relief sought is damages in an unspecified amount, plus
costs of suit and attorney's fees. The court has not yet ruled on the obligors'
request for class-action treatment.
In another proceeding, arising out of efforts to collect a deficiency
balance from Joseph Barrios of Chicago, Illinois, the debtor has brought suit
against CPS alleging defects in the notice given upon repossession of the
vehicle. This lawsuit was filed on February 18, 1998 in the circuit court of
Cook County, Illinois. Barrios, represented by the same law firm as the Brownlee
obligors, seeks class-action treatment of his allegation that notice of a
fifteen-day period to reinstate his Contract was misleading, in that it did not
refer to an alleged right to redeem collateral up to the date of sale. The
relief sought is damages in an unspecified amount, plus costs of suit and
attorney's fees.
Although the receivables relating to the above litigation matters are
not included in the Receivables Pool, if the request for class action status is
granted in either case, Receivables in the Receivables Pool could become subject
to the litigation. Furthermore, the existence of such litigation, or an adverse
decision in such litigation, could encourage similar actions to be brought
involving Receivables in the Receivables Pool. If an Obligor has a claim against
the Trust as a result of a violation of law relating to a Receivable and such
claim materially and adversely affects the Trust's interest in such Receivable,
such a violation will constitute a breach of the representations and warranties
of CPS and will create an obligation of CPS to repurchase such Receivable unless
the breach is cured. In addition, CPS will be required to indemnify the
Indenture Trustee, the Owner Trustee, the [Credit Enhancer], the Trust and the
Noteholders against all costs, losses, damages, claims and liabilities,
including reasonable fees and expenses of counsel which may be asserted against
or incurred by any of them as a result of a third party claim arising out of
events or facts giving rise to such breach. See "Description of the Trust
Documents--Sale and Assignment of Receivables" in this Prospectus Supplement.
CPS intends to dispute the above-described litigation vigorously and
believes that it has meritorious defenses to each claim made by those obligors.
Nevertheless, the outcome of any litigation is uncertain, and there is the
possibility that damages could be assessed against CPS in amounts that could be
material. It is management's opinion that the above-described litigation will
not have a material adverse effect on CPS's consolidated financial position,
results of operations or liquidity.
[Liquidity and Capital Resources of CPS. As discussed above in "Risk
Factors--Liquidity and Capital Resources of CPS", deterioration in the
performance of the portfolio of Contracts
S-31
<PAGE>
serviced by CPS, has resulted in a reduction of the residual cash flow available
to be paid to the Seller from the various securitization trusts serviced by CPS.
As a result, CPS will require capital from sources other than such residual cash
flows to maintain its existing operations and fund future growth. In response,
CPS has implemented a plan to raise additional working capital through the
issuance of debt or equity; however, as discussed above in "Risk
Factors--Liquidity and Capital Resources of CPS", it may be difficult and/or
costly for CPS to raise such additional capital and there can be no assurance
that it will succeed in doing so.]
THE RECEIVABLES POOL
As of the Cutoff Date, each Initial Receivable:
- has an Obligor whose billing address is in the United States;
- has an original term of not more than [ ] 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 [ ] months or less as of the
Cutoff Date;
- has an outstanding principal balance of not more than [$ ];
- is not more than 30 days past due;
- has an annual percentage rate ("APR") of not less than [ %];
and
- has a scheduled maturity not later than [ ].
As of the date of each Obligor's application for the loan from which
the related Initial Receivable arises, each Obligor
- did not have any material past due credit obligations or any
repossessions or garnishments of property within one year
before the date of application, unless such amounts have been
repaid or discharged through bankruptcy;
- was not the subject of any bankruptcy or insolvency proceeding
that is not discharged; and
- had not been the subject of more than one bankruptcy
proceeding.
The composition, geographic distribution, distribution by APR,
distribution by remaining term, distribution by date of origination,
distribution by original term, distribution by model year, distribution by
original principal balance of the Initial Receivables as of the Cutoff Date,
distribution by new or used Financed Vehicle, distribution by program and
distribution by Originator are set forth in the following tables.
S-32
<PAGE>
Composition of the Initial Receivables as of the Cutoff Date
<TABLE>
<CAPTION>
Weighted Aggregate Number of Weighted Weighted
Average APR Principal Receivables Average Average Average
of Receivables Balance In Pool Principal Balance Remaining Term Original Term
- -------------- ------- ------- ----------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
</TABLE>
S-33
<PAGE>
Geographic Distribution of the Initial Receivables as of the Cutoff Date
Percent of
Aggregate Aggregate Percent of
Principal Principal Number of Number of
State (1) Balance Balance Receivables Receivables
--------- ------- ------- ----------- -----------
Alabama..........................$ % %
California.......................
Florida..........................
Georgia..........................
Hawaii...........................
Illinois.........................
Indiana..........................
Kentucky.........................
Louisiana........................
Maryland.........................
Michigan.........................
Minnesota........................
Mississippi......................
Nevada...........................
New Jersey.......................
New York.........................
North Carolina...................
Ohio.............................
Pennsylvania.....................
South Carolina...................
Tennessee........................
Texas............................
Virginia.........................
Washington.......................
All Others(2)....................
------- ------- ----------- -----------
Total............................$ (3) 100.00%(4) 100.00%(4)
======= ======= =========== ===========
- ----------
(1) Based on billing address of Obligor.
(2) No other state represents a percentage of the aggregate Principal Balance
as of the Initial Cutoff Date in excess of one percent.
(3) Balances may not add up to total because of rounding.
(4) Percentages may not add up to 100% because of rounding.
S-34
<PAGE>
Distribution of the Initial Receivables by APR as of the Cutoff Date
Percent of
Aggregate Aggregate Percent of
Principal Principal Number of Number of
APR Range Balance Balance Receivables Receivables
----------- --------- --------- ----------- -----------
15.501% - 16.000%...............$ % $ %
16.001% - 16.500%...............
16.501% - 17.000%...............
17.001% - 17.500%...............
17.501% - 18.000%...............
18.001% - 18.500%...............
18.501% - 19.000%...............
19.001% - 19.500%...............
19.501% - 20.000%...............
20.001% - 20.500%...............
20.501% - 21.000%...............
21.001% - 21.500%...............
21.501% - 22.000%...............
22.001% - 22.500%...............
22.501% - 23.000%...............
23.001% - 23.500%...............
23.501% - 24.000%...............
24.001% - 24.500%...............
24.501% - 25.000%...............
25.001% - 25.500%...............
25.501% - 26.000%...............
26.001% - 26.500%...............
26.501% - 27.000%...............
27.001% - 27.500%...............
27.501% - 28.000%...............
28.001% - 28.500%...............
28.501% - 29.000%...............
29.001% - 29.500%...............
29.501% - 30.000%...............
--------- --------- ----------- -----------
Total 100.00%(2) (1) 100.00%(2)
========= ========= =========== ===========
- ---------
(1) Balances may not add up to total because of rounding.
(2) Percentages may not add up to 100% because of rounding.
S-35
<PAGE>
Distribution of Initial Receivables by Remaining Term to
Scheduled Maturity as of the Cutoff Date
Percent of
Aggregate Aggregate Percent of
Remaining Term Principal Principal Number of Number of
to Scheduled Maturity Balance Balance Receivables Receivables
- --------------------- --------- --------- ----------- -----------
19-24 months.................. $ % %
25-30 months..................
31-36 months..................
37-42 months..................
43-48 months..................
49-54 months..................
55-60 months..................
--------- --------- ----------- -----------
Total......................... $ (1) %(2) %(2)
========= ========= =========== ===========
- --------
(1) Balances may not add up to total because of rounding.
(2) Percentages may not add up to 100% because of rounding.
S-36
<PAGE>
Distribution of the Initial Receivables by
Date of Origination as of the Cutoff Date
Percent of
Aggregate Aggregate Percent of
Principal Principal Number of Number of
Date of Origination Balance Balance Receivables Receivables
- --------------------- --------- --------- ----------- -----------
05/01/97-05/31/97............. $ % %
06/01/97-06/30/97.............
07/01/97-07/31/97.............
08/01/97-08/31/97.............
09/01/97-09/30/97.............
10/01/97-10/31/97.............
11/01/97-11/30/97.............
12/01/97-12/31/97.............
01/01/98-01/31/98.............
02/01/98-02/28/98.............
03/01/98-03/31/98.............
04/01/98-04/30/98.............
05/01/98-05/31/98.............
06/01/98-06/30/98.............
--------- --------- ----------- -----------
Total................ $ (1) 100.00%(2) 100.00%(2)
========= ========= =========== ===========
- -------
(1) Balances may not add up to total because of rounding.
(2) Percentages may not add up to 100% because of rounding.
S-37
<PAGE>
Distribution of Initial Receivables by Original Term to
Scheduled Maturity as of the Cutoff Date
Percent of
Aggregate Aggregate Percent of
Original Term to Principal Principal Number of Number of
Scheduled Maturity Balance Balance Receivables Receivables
- --------------------- --------- --------- ----------- -----------
19-24 months................. $ % %
25-30 months.................
31-36 months.................
37-42 months.................
43-48 months.................
49-54 months.................
55-60 months.................
55-60 months.................
--------- --------- ----------- -----------
Total............... $ (1) 100.00%(2) 100.00%(2)
========= ========= =========== ===========
- --------
(1) Balances may not add up to total because of rounding.
(2) Percentages may not add up to 100% because of rounding.
Distribution of the Initial Receivables by Model Year of Financed Vehicle
as of the Cutoff Date
Percent of
Aggregate Aggregate Percent of
Principal Principal Number of Number of
Model Year Balance Balance Receivables Receivables
- --------------------- --------- --------- ----------- -----------
1990......................... $ % %
1991.........................
1992.........................
1993.........................
1994.........................
1995.........................
1996.........................
1997.........................
1998.........................
1999.........................
--------- --------- ----------- -----------
Total............... $ (1) 100.00%(2) 100.00%(2)
========= ========= =========== ===========
- -------
(1) Balances may not add up to total because of rounding.
(2) Percentages may not add up to 100% because of rounding.
S-38
<PAGE>
Distribution of Initial Receivables by Original Principal Balance
as of the Cutoff Date
Percent of
Aggregate Aggregate Percent of
Range of Original Principal Principal Number of Number of
Principal Balances Balance Balance Receivables Receivables
- --------------------- --------- --------- ----------- -----------
$ 0.01 - 5,000.00........ $ % %
5,000.01 - 10,000.00........
10,000.01 - 15,000.00........
15,000.01 - 20,000.00........
20,000.01 - 25,000.00........
25,000.01 - 30,000.00........
--------- --------- ----------- -----------
Total................ $ (1) %(2) %(2)
========= ========= =========== ===========
- --------
(1) Balances may not add up to total because of rounding.
(2) Percentages may not add up to 100% because of rounding.
Distribution of Initial Receivables by New or Used Financed Vehicle
as of the Cutoff Date
Percent of
Aggregate Aggregate Percent of
Principal Principal Number of Number of
Financed Vehicle Type Balance Balance Receivables Receivables
- --------------------- --------- --------- ----------- -----------
New......................... $ % %
Used........................
Total............... $ (1) %(2) %(2)
========= ========= =========== ===========
- --------
(1) Balances may not add up to total because of rounding.
(2) Percentages may not add up to 100% because of rounding.
S-39
<PAGE>
Distribution of Initial Receivables by Financing Program
as of the Cutoff Date
Percent of
Aggregate Aggregate Percent of
Principal Principal Number of Number of
Financing Program Balance Balance Receivables Receivables
- --------------------- --------- --------- ----------- -----------
Super Alpha.................. $ % %
Alpha........................
Standard.....................
Delta........................
First Time Buyer.............
Total............... $ (1) %(2) %(2)
========= ========= =========== ===========
- --------
(1) Balances may not add up to total because of rounding.
(2) Percentages may not add up to 100% because of rounding.
Distribution of Initial Receivables by Originator
as of the Cutoff Date
Percent of
Aggregate Aggregate Percent of
Principal Principal Number of Number of
Originator Balance Balance Receivables Receivables
- --------------------- --------- --------- ----------- -----------
CPS.......................... $ % %
Samco........................
Linc.........................
Total............... $ (1) %(2) %(2)
========= ========= =========== ===========
- --------
(1) Balances may not add up to total because of rounding.
(2) Percentages may not add up to 100% because of rounding.
S-40
<PAGE>
Rule of 78's Receivables and Simple Interest Receivables.
As of the Cutoff Date, approximately [ %] of the aggregate Principal
Balance of the Initial Receivables 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 Initial Receivables 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.
If 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
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under 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 can be prepaid at any time without charge. (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. For example, 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 and Certificateholders. See also "Description
of the Securities--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 [ ]% or
less of the sum of (i) the aggregate Cutoff Date Principal Balance of the
Initial Receivables and (ii) the initial Pre-Funded Amount (the sum of (i) and
(ii), the "Original Pool Balance"). See also "Description of the
Securities--Mandatory Redemption" in this Prospectus Supplement regarding the
acceleration of the Notes after the occurrence of an Event of Default.
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 with respect to such
Collection Period, all payments and Purchase Amounts (as defined herein)
remitted by CPS or the Servicer (if the Servicer should be any entity other than
CPS) 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-1 Pool Factor will be 1.0000000 as of the
Closing Date; thereafter, the Class A-1 Pool Factor will decline to reflect
reductions in the principal balance of the Class A-1 Notes. Therefore, if you
are a Class A-1 Noteholder, your share of the principal balance of the Class A-1
Notes is the product of (1) the original denomination of your Note and (2) the
Class A-1 Pool Factor. 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. Therefore, if you are a Class A-2
Noteholder, your share of the principal balance of the Class A-2 Notes is the
product of (1) the
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original denomination of your Note and (2) the Class A-2 Pool Factor. [Describe
other classes of Notes, if any].
Under 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 Seller will use the net proceeds of the sale of the Notes to
purchase the CPS Receivables from CPS, the Samco Receivables from Samco, the
Linc Receivables from Linc and to fund the Pre-Funding Account and the Interest
Reserve Account. CPS, Samco and Linc will apply the net proceeds received from
the Seller to purchase new Contracts or to repay debt incurred to purchase the
Contracts, including the repayment of certain amounts owed by CPS under certain
warehouse loans or other interim financing arrangements which have been used to
fund the acquisition of the Receivables. First Union National Bank ("FUNB"), has
entered into a warehousing arrangement with CPS. Certain of the net proceeds of
the sale of the Notes will be used by CPS to reduce the outstanding indebtedness
of CPS to FUNB under such warehouse arrangement.
DESCRIPTION OF THE SECURITIES
General
The Notes will be issued under the terms of the Indenture, and the
Certificates will be issued under the terms of the Trust Agreement. We have
filed forms of the Indenture and the Trust Agreement as exhibits 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" in this Prospectus Supplement.
Payment of Interest
On each Payment Date, the Class A-1 Noteholders as of the related
record date will be entitled to receive, pro rata, thirty (30) days of interest
at the Class A-1 Interest Rate on the outstanding principal amount of the Class
A-1 Notes at the close of the preceding Payment Date. On each Payment Date, 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 the
preceding Payment Date. Nevertheless, on the initial Payment Date, the interest
payable to the Noteholders of record of a class of Notes will be an amount equal
to the product of (a) the Interest Rate applicable to such class of Notes, (b)
the
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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 to
and including [ ] (assuming that there are 30 days in each month of the year)
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
Class A Interest Rate. See "Description of the Trust Documents--Distributions"
in this Prospectus Supplement.
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 Class A Noteholders' Percentage (as of each Payment Date) multiplied by the
Principal Distributable Amount.
On each Payment Date, the amounts distributed on account of the
Noteholders' Principal Distributable Amount will be applied, 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.
[Describe other classes of Notes, if any].
[Mandatory Redemption
Each class of Notes and the Certificates will be redeemed in part on
the Payment Date on or immediately following the last day of the Funding Period
if 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' pro rata share (based on the respective outstanding
principal amount of each class of Notes and the Certificates) of the remaining
Pre-Funded Amount on such date (such class' "Note Prepayment Amount").
The [Credit Enhancement] does not guarantee payment of the Note
Prepayment Amounts, although the [Credit Enhancement] does guarantee payment of
all unpaid principal and accrued interest in respect of a class of Notes on the
respective Final Scheduled Payment Date for such class. In addition, the ratings
assigned to the Notes by the Rating Agencies do not address the likelihood that
the Note Prepayment Amounts will be paid.
If an Event of Default occurs and a [Credit Enhancer] Default shall not
have occurred and be continuing, the Notes shall become due and payable at par
with accrued interest. 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 direct 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, and to distribute the proceeds of such
liquidation in accordance with the terms of the Indenture. 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
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or any portion of the outstanding amount of the Notes in excess thereof, plus
accrued interest. The [Credit Enhancement] does not guarantee payments of any
amounts that become due on an accelerated basis, unless the [Credit Enhancer]
elects, in its sole discretion to pay such amounts in whole or in part. See
"Description of the Trust Documents--Events of Default" and "[Credit
Enhancement]" herein.]
Optional Redemption
To avoid excessive administrative expense, the Servicer, or its
successor, is permitted at its option to purchase all remaining Receivables from
the Trust (with the consent of the [Credit Enhancer] if such purchase and
redemption would result in a claim under the [Credit Enhancement] or if any
amount owing to the [Credit Enhancer] or on the Notes would remain unpaid). The
Servicer (or its successor) may exercise this repurchase option on or after the
last day of any month on or after which the then outstanding Pool Balance is
equal to [ ]% or less of the Original Pool Balance at a price equal to at least
the aggregate of the unpaid principal amount of the Notes plus accrued and
unpaid interest as of such last day. Exercise of this right will result in the
early retirement of the Notes. Upon declaration of an optional redemption, 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. If the Indenture
Trustee has taken certain measures to locate a Noteholder, and such measures
have failed, the Indenture Trustee will distribute the remaining funds otherwise
payable to the Noteholder to The American Red Cross.
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 under 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.
If you are acquiring beneficial ownership interests in the Notes, you
may hold the Notes directly though DTC if you are a Participant, or you may hold
your interest indirectly through organizations which are Participants. Your
ownership of a book-entry note will be recorded on the records of the brokerage
firm, bank, thrift institution or other financial intermediary (each, a
"Financial Intermediary") that maintains your account for that purpose. In turn
the Financial Intermediary's ownership of such book-entry note will be recorded
on the records of DTC (or of a participating firm that acts as agent for the
Financial Intermediary, whose interest will in turn be
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recorded on the records of DTC, if the beneficial owner's Financial Intermediary
is not a DTC participant). See "Description of the Securities--Book-Entry
Registration" in the Prospectus.
DESCRIPTION OF THE TRUST DOCUMENTS
The following summary describes certain terms of the Purchase
Agreements, the Sale and Servicing Agreement, the Indenture and the Trust
Agreement (together, the "Trust Documents"). We have filed forms of the Trust
Documents as exhibits to the Registration Statement. We will file a copy of the
final Trust Documents with the Commission following the issuance of the
Securities. Because this is a summary of the Trust Documents, it does not
contain all this information that may be important to you. You should read the
Trust Documents in their entirety if you require complete information regarding
their contents.
Sale and Assignment of Receivables
On or before the Closing Date, the Seller will purchase from Samco
under 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
before the Closing Date, the Seller will purchase from Linc under the Linc
Purchase Agreement, without recourse (except as provided in the Linc Purchase
Agreement) Linc's entire interest in the Linc Receivables, together with Linc's
security interests in the related Financed Vehicles. On or before the Closing
Date, the Seller will purchase from CPS under the CPS Purchase Agreement,
without recourse, except as provided in the CPS Purchase Agreement, CPS's entire
interest in the CPS Receivables, together with CPS's security interests in the
related Financed Vehicles. At the time of issuance of the Notes, 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 related 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 Underwriter.
See "Underwriting" in this Prospectus Supplement.
In the CPS Purchase Agreement, CPS will represent and warrant to the
Seller, among other things, that (1) the information provided in the CPS
Purchase Agreement with respect to the Receivables (including, without
limitation, the Samco Receivables and the Linc Receivables) is correct in all
material respects; (2) at the dates of origination of the Receivables, physical
damage insurance covering each Financed Vehicle was in effect in accordance with
the normal requirements of CPS, Samco or Linc, as applicable; (3) 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, IFCs or Deposit Institutions have been asserted
or threatened; (4) 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, Samco or Linc; and (5)
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
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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 the interest of the Trust, the
Indenture Trustee or the [Credit Enhancer], 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. However, CPS will be required to indemnify the Owner Trustee,
the Indenture Trustee, the [Credit Enhancer], the Trust and the Noteholders
against all costs, losses, damages, claims and liabilities, including reasonable
fees and expenses of counsel, which may be asserted against or incurred by any
of them, as a result of third party claims arising out of events or facts giving
rise to such breach.
[Following the Closing Date, under 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 (the "Subsequent
Receivables") originated by CPS or Samco under its auto loan programs and
acquired by the Seller from CPS or Samco 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 payments under the [Credit Enhancement], received with
respect to the related Subsequent Receivables conveyed to the Trust on such
Subsequent Closing Date after the cutoff date designated by the Seller with
respect to such Subsequent Receivables (such date designated by the Seller, the
"Subsequent Cutoff Date"). See "Description of the Trust Documents--Sale and
Assignment of Receivables" herein. On each Subsequent Closing Date, subject to
the conditions set forth in the Trust Documents, the Trust shall purchase from
the Seller, the Subsequent Receivables to be transferred to the Trust on such
Subsequent Closing Date.
Any conveyance of Subsequent Receivables is subject to the
satisfaction, on or before the related Subsequent Transfer Date, of the
following conditions, among others:
(1) each such Subsequent Receivable satisfies the eligibility criteria
specified in the related Purchase Agreement;
(2) the [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;
(3) 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 Cutoff Date and any Subsequent Receivables on the
related Subsequent Cutoff Date: (a) the weighted average APR of such
Receivables will not be less than a specified percentage below the
weighted average APR of the Initial Receivables on the Cutoff Date, (b)
the weighted average
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remaining term of such Receivables will be within a range of a certain
number of months, (c) not more than a specified percentage of the
principal balances of such Receivables will represent used Financed
Vehicles and (d) not more than a specified percentage of the principal
balances of such Receivables which may have an APR in excess of [ ]%,
and the Trust, the Indenture Trustee, the Owner Trustee and the [Credit
Enhancer] shall have received written confirmation from a firm of
certified independent public accountants as to the satisfaction of the
criteria in clauses (a) through (d) above;
(4) 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);
(5) 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 such
Subsequent Receivables; and
(6) the Rating Agencies shall have each notified the Seller, the Owner
Trustee, the Indenture Trustee and the [Credit Enhancer] in writing
that, following the addition of all such Subsequent Receivables, each
of the Class A-1 Notes and the Class A-2 Notes will be rated "[ ]" by
Moody's and "[ ]" by Standard & Poor's.
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--Varying Characteristics of Subsequent
Receivables" and "The Receivables Pool" herein.
On or before the Closing Date, or each Subsequent Closing Date, the
related Contracts will be delivered to the Indenture Trustee as custodian, and
the Indenture Trustee then will maintain physical possession of the Receivables
except as may be necessary for the servicing of the Receivables by the Servicer.
The Receivables will not be stamped to show the ownership thereof by the Trust.
However, CPS's, Samco's and Linc'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.]
Accounts
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 Seller for the benefit of the Noteholders and the [Credit Enhancer] (the
"Post Office Box"). On each Business Day, Bank of America, as the lock-box
processor (the "LockBox 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 Seller for the benefit of the Noteholders and the
[Credit Enhancer] (the "Lock-Box Account"). See "Description
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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 (collectively, the "Collection Account") in the name of the
Indenture Trustee on behalf of the Noteholders and the [Credit Enhancer]. 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 the Collection Account. If, however, any Obligors send their
payments to the Servicer instead of the Lock-Box Processor, then on the first
Business Day after the Servicer receives any such payments, it will deposit
those payments 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,
from which all distributions with respect to the Notes will be made (the "Note
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 Notes. The Pre-Funded Amount will initially equal $[ ] and,
during the Funding Period, will be reduced by 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 that
this will happen. If any Pre-Funded Amount remains at the end of the Funding
Period, such amount will be distributed as a partial prepayment to the
Noteholders as described above under "--Mandatory Prepayment" and "--Mandatory
Redemption".
The Indenture Trustee 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) in
the Interest Reserve Account. On each of the [October and November] 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".]
The Collateral Agent will establish the Spread Account as a segregated
trust account at its office or at another depository institution or trust
company.
Distributions
Priority of Distribution Amounts. On the earlier of (i) the seventh
Business Day of each calendar month and (ii) the fifth Business Day preceding
the Payment Date occurring in such calendar (each such date, a "Determination
Date") the Servicer will instruct the Indenture Trustee
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to make the following distributions from the Total Distribution Amount in the
following order of priority:
(1) to the Standby Servicer, so long as CPS is the Servicer
and [ ] is the Standby Servicer, the Standby Fee and all unpaid Standby
Fees from prior Collection Periods;
(2) to the Servicer, the Servicing Fee and all unpaid
Servicing Fees from prior Collection Periods;
(3) if the Standby Servicer becomes the successor Servicer, to
the Standby Servicer, from the Total Distribution Amount, to the extent
not previously paid by the predecessor Servicer under the Sale and
Servicing Agreement, reasonable transition expenses (up to a maximum of
$50,000) incurred in becoming the successor Servicer;
(4) to the Indenture Trustee and the Owner Trustee, pro rata,
the fees payable thereto for services under the Indenture and the Trust
Agreement (the "Trustee Fees") and reasonable out-of-pocket expenses
thereof (including counsel fees and expenses), and all unpaid Trustee
Fees and unpaid reasonable out-of-pocket expenses (including counsel
fees and expenses) from prior Collection Periods;
(5) to the Collateral Agent, all fees and expenses payable to
the Collateral Agent with respect to such Payment Date;
(6) to the Noteholders, the Noteholders' Interest
Distributable Amount;
(7) to the Noteholders, the Noteholders' Principal
Distributable Amount, plus the Noteholders' Principal Carryover
Shortfall, if any;
(8) to the [Credit Enhancer], any amounts due to the [Credit
Enhancer] under the terms of the Insurance Agreement;
(9) if any Person other than the Standby Servicer becomes the
successor Servicer, to such successor Servicer, to the extent not
previously paid by the predecessor Servicer under the Sale and
Servicing Agreement, reasonable transition expenses (up to a maximum of
$50,000 for all such expenses) incurred in becoming the successor
Servicer; and
(10) to the Collateral Agent, for deposit into the Spread
Account, the remaining Total Distribution Amount, if any.
Amounts distributed on account of the Noteholders' Principal
Distributable Amount under priority (7) above will be applied, sequentially, to
pay principal of the Class A-1 Notes until the principal amount of the Class A-1
Notes has been reduced to zero, then to the holders of the Class A-2 Notes until
the principal amount of the Class A-2 Notes has been reduced to zero. [Describe
other classes of Notes, if any].
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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 related Collection Period
with respect to Receivables that became Liquidated Receivables
during such related Collection Period, 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");
(iii) proceeds from Recoveries with respect to Liquidated
Receivables;
(iv) earnings on investments of funds in the Collection Account
during the related Collection Period;
(v) on the [ ] and [ ] Payment Dates any amounts in excess of the
Requisite Reserve Amount withdrawn from the Interest Reserve
Account; and
(vi) 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.
The [Credit Enhancer] shall at any time, and as often as it chooses,
with respect to a Payment Date, have the option (but shall not be required,
except as required under the [Credit Enhancement]) to deliver amounts to the
Indenture Trustee for deposit into the Collection Account for any of the
following purposes:
o 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;
o 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 Pool Balance as of such Determination Date; or
o 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 [Credit Enhancement].
"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, if the related Financed Vehicle has been repossessed, 210) 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.
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"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 all accrued and
unpaid interest and interest to the end of the month of purchase.
"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.
Calculation of Distributable Amounts. On each Payment Date, the
Noteholders will receive the Noteholders' Distributable Amount. The
"Noteholders' Distributable Amount" for a Payment Date will equal the sum of:
(1) the "Noteholders' Principal Distributable Amount," consisting of
the Class A Noteholders' Percentage of the Principal Distributable Amount; plus
(2) the Noteholders' Principal Carryover Shortfall; and
(3) the Noteholders' Interest Distributable Amount.
On the Class A-1 Final Scheduled Payment Date, the Noteholders'
Principal Distributable Amount will at least equal an amount sufficient to pay
in full the then outstanding principal amount of the Class A-1 Notes. On the
Class A-2 Final Scheduled Payment Date, the Noteholders' Principal Distributable
Amount will at least equal an amount sufficient to pay in full the then
outstanding principal amount of the Class A-2 Notes. [Describe other classes of
Notes, if any].
"Class A Noteholders' Percentage" will be [100%] until the Notes have
been paid in full.
"Class A-1 Noteholders' Interest Carryover Shortfall" means, with
respect to any Payment Date, the excess of the Class A-1 Noteholders' Interest
Distributable Amount for the preceding Payment Date over the amount that was
actually deposited in the Note Distribution Account on such preceding Payment
Date on account of the Class A-1 Noteholders' Interest Distributable Amount.
"Class A-1 Noteholders' Interest Distributable Amount" means, with
respect to any Payment Date, the sum of the Class A-1 Noteholders' Monthly
Interest Distributable Amount for such Payment Date and the Class A-1
Noteholders' Interest Carryover Shortfall for such Payment Date, plus interest
on such Class A-1 Noteholder's Interest Carryover Shortfall, to the extent
permitted by law, at the Class A-1 Interest Rate through the current Payment
Date.
"Class A-1 Noteholders' Monthly Interest Distributable Amount" means
(a) for the first Payment Date, an amount equal to the product
of (i) the Class A-1 Interest Rate, (ii) the initial outstanding
principal amount of the Class A-1 Notes and (iii) a fraction, the
numerator of which is the number of days from and including the Closing
Date to and including [ ] and (ii) the denominator of which is 360; and
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(b) for any Payment Date after the first Payment Date, an
amount equal to the product of (i) one-twelfth of the Class A-1
Interest Rate and (ii) the outstanding principal amount of the Class
A-1 Notes as of the close of the preceding Payment Date (after giving
effect to all distributions on account of principal on such preceding
Payment Date).
"Class A-2 Noteholders' Interest Carryover Shortfall" means, with
respect to any Payment Date, the excess of the Class A-2 Noteholders' Interest
Distributable Amount for the preceding Payment Date over the amount that was
actually deposited in the Note Distribution Account on such preceding Payment
Date on account of the Class A-2 Noteholders' Interest Distributable Amount.
"Class A-2 Noteholders' Interest Distributable Amount" means, with
respect to any Payment Date, the sum of the Class A-2 Noteholders' Monthly
Interest Distributable Amount for such Payment Date and the Class A-2
Noteholders' Interest Carryover Shortfall for such Payment Date, plus interest
on such Class A-2 Noteholder's Interest Carryover Shortfall, to the extent
permitted by law, at the Class A-2 Interest Rate through the current Payment
Date.
"Class A-2 Noteholders' Monthly Interest Distributable Amount" means
(a) for the first Payment Date, an amount equal to the product
of (i) the Class A-2 Interest Rate, (ii) the initial outstanding
principal amount of the Class A-2 Notes and (iii) a fraction, the
numerator of which is the number of days from and including the Closing
Date to and including [ ] and (ii) the denominator of which is 360; and
(b) for any Payment Date after the first Payment Date, an
amount equal to the product of (i) one-twelfth of the Class A-2
Interest Rate and (ii) the outstanding principal amount of the Class
A-2 Notes as of the close of the preceding Payment Date (after giving
effect to all distributions on account of principal on such preceding
Payment Date).
"Cram Down Loss" means, with respect to a Receivable, if a court of
appropriate jurisdiction in an insolvency proceeding shall have issued an order
reducing the amount owed on a Receivable or otherwise modifying or restructuring
Scheduled Payments to be made on a Receivable, an amount equal to such reduction
in Principal Balance of such Receivable or the reduction in 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 Payments as so
modified or restructured. A Cram Down Loss shall be deemed to have occurred on
the date such order is entered.
"Noteholders' Interest Distributable Amount" means, with respect to any
Payment Date, the sum of (a) the Noteholders' Monthly Interest Distributable
Amount for such Payment Date, (b) the Class A-1 Noteholders' Interest Carryover
Shortfall for such Payment Date, plus interest on such Class A-1 Noteholder's
Interest Carryover Shortfall, to the extent permitted by law, at the Class A-1
Interest Rate through the current Payment Date, plus (c) the Class A-2
Noteholders' Interest Carryover Shortfall for such Payment Date, plus interest
on such Class A-2 Noteholders' Interest Carryover Shortfall, to the extent
permitted by law, at the Class A-2 Interest Rate through the current Payment
Date.
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"Noteholders' Monthly Interest Distributable Amount" means, with
respect to any Payment Date, the sum of (i) the Class A-1 Noteholders' Monthly
Interest Distributable Amount for such Payment Date and (ii) the Class A-2
Noteholders' Monthly Interest Distributable Amount for such Payment Date.
[Describe other classes of Notes, if any].
"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
before such day allocable to principal of such Receivable 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 before such day
allocable to principal of such Receivable 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 such Receivable.
"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 under the Sale and Servicing
Agreement or any rescheduling of payments in any insolvency or similar
proceedings).
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 Insurance Agreement Indenture 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. An "Insurance Agreement
Indenture Cross Default" may result from:
o a demand for payment under the [Credit Enhancement];
o an Insolvency Event;
o the Trust becoming taxable as an association (or publicly traded
partnership) taxable as a corporation for federal or state income tax
purposes;
o 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 (1) through (7) under
"Description of the Trust Documents--Distributions--Priority of
Distribution Amounts" herein; and
o 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
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delivered in connection therewith, which 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 Notes shall
become due and payable at par with accrued interest thereon. The [Credit
Enhancer] will have the right, but not the obligation, to instruct 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, and to
distribute the proceeds of such liquidation in accordance with the terms of the
Indenture. 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 in excess thereof, plus accrued
interest thereon. See "[Credit Enhancement]" and "Description of the
Securities--Mandatory Prepayment" herein.
If a [Credit Enhancer] Default has occurred and is continuing, "Events
of Default" will consist of the following events set forth in the Indenture:
o a default for five days or more in the payment of any interest on the
Notes;
o a default for five days or more in the payment of the principal of the
Notes [when the same becomes due and payable];
o a default in
- the observance or performance in any material respect of any
covenant or agreement of the Trust made in the Indenture
- any representation or warranty made by the Trust in the
Indenture
- any certificate delivered in connection with the Indenture, or
such certificate having been incorrect as of the time made
and the continuation of any such default or the failure to cure such
breach of a representation or warranty for a period of 30 days (or such
longer period not in excess of 90 days as is reasonably necessary to
cure such default) after notice thereof is given to the Trust by the
Indenture Trustee or to the Trust and the Indenture Trustee by the
holders of at least 25% in principal amount of the Notes then
outstanding; or
o certain events of bankruptcy, insolvency, receivership or liquidation
of the Trust.
Upon the occurrence of an Event of Default, and so long as a [Credit
Enhancer] Default has occurred and is continuing the Indenture Trustee or the
holders of Notes representing at least a majority of the principal amount of the
Notes then outstanding may declare the principal of the Notes to be immediately
due and payable. Such declaration may, under certain circumstances, be rescinded
by the holders of Notes representing at least a majority of the principal amount
of the
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Notes then outstanding. The Indenture Trustee may also institute proceedings to
collect amounts due or foreclose on the Trust Assets, exercise remedies as a
secured party, sell the related Receivables or elect to have the Trust maintain
possession of such Receivables. If the Indenture Trustee has the right to
liquidate the Trust Estate, because a [Credit Enhancer] Default has occurred and
is continuing, nevertheless, the Indenture Trustee will be prohibited from
selling the related Receivables following an Event of Default unless (i) the
holders of all the outstanding Notes consent to the sale or (ii) the proceeds of
the sale are sufficient to pay in full the principal of and the accrued interest
on such outstanding Notes at the date of the sale.
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:
(1) the amount of the distribution allocable to principal of each class of
Notes;
(2) the amount of the distribution allocable to interest on each class of
Notes;
(3) the Pool Balance and the Pool Factor for each class of Notes as of the
close of business on the last day of the preceding Collection Period;
(4) the aggregate principal balance of each class of Notes and the
Certificates 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 (1) above;
(5) 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;
(6) the amount of the Class A-1 Noteholders' Interest Carryover Shortfall,
Class A-2 Noteholders' Interest Carryover Shortfall and Noteholders'
Principal Carryover Shortfall on such Payment Date and the change in
such amounts from those on the prior Payment Date;
(7) the amount paid to the Noteholders under the [Credit Enhancement] or
from the Spread Account for such Payment Date;
(8) the amount distributable to the [Credit Enhancer] on such Payment Date;
(9) the aggregate amount in the Spread Account and the change in such
amount from the previous Payment Date;
(10) 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 for (a) [ ] to [ ] days, (b) [ ] to [ ] days, (c)
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[ ] to [ ] days, (d) [ ] to [ ] days, (e) [ ] to [ ]
days, (f) [ ] to [ ] days and (g) [ ] days or more;
(11) the number and the aggregate Purchase Amount of Receivables repurchased
by CPS or purchased by the Servicer; and
(12) 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 under subclauses (1), (2), (5), (6), (7) and (11)
above shall be expressed in the aggregate and as a dollar amount per $1,000 of
original principal balance of a Note.
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 (1), (2) and (5) above for the purposes of such
Noteholder's preparation of federal income tax returns. See "Description of the
Trust Documents--Statements to Noteholders" and "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 [Credit Enhancer] on or before July 31 of each year, beginning [ ], 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 [ ].
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 [ ] 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 [ ]). 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
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 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
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and duties under the Sale and Servicing Agreement. If CPS resigns as Servicer or
is terminated as Servicer, the Standby Servicer has agreed under the Servicing
Assumption Agreement to assume the servicing obligations and duties under the
Sale and Servicing Agreement. However, so long as no [Credit Enhancer] Default
shall have occurred and be continuing, the [Credit Enhancer] 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 under the Sale and Servicing Agreement, or for
errors in judgment. However, 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 Sale and Servicing Agreement provides that the rights and
obligations of the Servicer terminate each March 31, June 30, September 30 and
December 31 unless renewed by the [Credit Enhancer] for successive quarterly
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 Agreement has
occurred. See "Description of the Securities--Certain Matters Regarding the
Servicer" in the Prospectus.
Servicing Compensation
The Servicer will be entitled to receive the Servicing Fee on each
Payment Date, equal to the result of one twelfth times [ ]% of the Pool Balance
as of the close of business on the last day of the second preceding Collection
Period. However, with respect to the first Payment Date the Servicer will be
entitled to receive a Servicing Fee equal to the result of one twelfth times [
]% of the Original Pool Balance. As additional servicing compensation, the
Servicer will also be entitled to receive certain late fees, prepayment charges
and other administrative fees or similar charges. 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 which shall (1)
reflect current market practice with respect to compensation of servicers of
receivables comparable to the Receivables and (2) not 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 amounts received upon
payment in full of Rule of 78's
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Receivables in excess of the then outstanding principal balance of such
Receivables and accrued interest (calculated under the actuarial method). The
Servicer will also 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, before 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.
Servicer Termination Events
Any of the following events will constitute a "Servicer Termination
Event" under the Sale and Servicing Agreement:
o 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;
o 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 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;
o 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 under bankruptcy proceedings, or inability to pay its
obligations;
o a claim is made under the [Credit Enhancement]; or
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o the occurrence of an Insurance Agreement Event of Default.
An "Insurance Agreement Event of Default" means an event of default
under the Insurance Agreement or under any other "insurance agreement" under
which Financial Security has issued (or issues in the future) a financial
guaranty insurance policy in respect of securities issued by a trust for which
CPS is the Servicer. The events constituting an Insurance Agreement Event of
Default (including the events of default under any such other insurance
agreements) may be modified, amended or waived by Financial Security without
notice to or consent of the Indenture Trustee or any Noteholder. Remedies
available to Financial Security upon the occurrence of an Insurance Agreement
Event of Default include increasing the amount required to be on deposit in the
Spread Account and terminating CPS's appointment as Servicer. See "Risk
Factors--Sub-Prime Obligors; Servicing".
Rights Upon Servicer Termination Event
Following the occurrence of a Servicer Termination Event that remains
unremedied, either (1) the [Credit Enhancer] (provided no [Credit Enhancer]
Default shall have occurred and be continuing) in its sole and absolute
discretion or (2) if a [Credit Enhancer] Default shall have occurred and be
continuing, 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 [Credit Enhancer] (or, if a [Credit
Enhancer] 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. However, a successor Servicer shall have no liability with
respect to any obligation which was required to be performed by the predecessor
Servicer before the date the 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.
"[Credit Enhancer] Default" shall mean any one of the following events
shall have occurred and be continuing:
o the [Credit Enhancer] fails to make a payment required under the
[Credit Enhancement] in accordance with its terms;
o the [Credit Enhancer]
- 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
- makes a general assignment for the benefit of its creditors,
or
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- 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
o 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
- appointing a custodian, trustee, agent or receiver for the
[Credit Enhancer] or for all or any material portion of its
property or
- authorizing the taking of possession by a custodian, trustee,
agent or receiver of the [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 "Class A Note Majority") may, on behalf of
all Securityholders waive any default by the Servicer in the performance of its
obligations under the Sale and Servicing Agreement and its consequences.
However, a default in making any required deposits to or payments from any of
the Trust Accounts in accordance with the Sale and Servicing Agreement may not
be waived. No waiver of a default by the Servicer shall impair the Noteholders'
rights with respect to subsequent defaults.
The Standby Servicer
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 a [Credit
Enhancer] Default shall have occurred and be continuing, then the Indenture
Trustee may, with the consent of the Class A Note Majority, terminate the rights
and obligations of the Servicer under the Sale and Servicing Agreement. See
"Risk Factors--Termination of CPS as Servicer" and "Description of the Trust
Documents--Servicer Termination Events" in this Prospectus Supplement. If such
event occurs when CPS is the Servicer, or if CPS resigns as Servicer or is
terminated as Servicer by the [Credit Enhancer], Norwest Bank Minnesota,
National Association (in such capacity, the "Standby Servicer") has agreed to
serve as successor Servicer under the Sale and Servicing Agreement pursuant to a
Servicing and Lockbox Processing Assumption Agreement, dated as of [ ], among
CPS, the Standby Servicer and the Indenture Trustee (the "Servicing Assumption
Agreement"). The Standby Servicer will receive a 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 in an
amount equal to one twelfth of the Servicing Fee Rate times the Pool Balance as
of the close of business on the last day of the second preceding Collection
Period. The "Servicing Fee Rate" will be a rate that will (i) reflect current
market practice with respect to compensation of servicers of receivables
comparable to the
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Receivables and (ii) not exceed [ ]% per annum. See "The Standby Servicer" in
this Prospectus Supplement.
[CREDIT ENHANCEMENT]
[Description of Credit Enhancement]
THE [CREDIT ENHANCER]
[Description of Credit Enhancement]
FEDERAL INCOME TAX CONSEQUENCES
Federal Tax Counsel will deliver its opinion that 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 for Federal income tax purposes. See "Federal Income
Tax Consequences" in the Prospectus for additional information concerning the
application of Federal income tax laws to the Trust and the Notes.
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 within the meaning of Section 3(3)
of ERISA, as well as an individual retirement account, a Keogh plan and any
other plan within the meaning of Section 4975 of the Code (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 and other typical equity
S-62
<PAGE>
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 [Credit Enhancer], 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") 96-23, regarding
transactions effected by "in-house asset managers"; PTCE 95-60, regarding
investments by insurance company general accounts; 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
Class A Note, each initial purchaser, transferee and owner of a beneficial
interest will be deemed to represent that either (1) it is not acquiring the
Notes with the assets of a Benefit Plan; or (2) the acquisition and holding 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 [ ] (the "Underwriting Agreement") among CPS, the
Seller, Samco, Linc and the Underwriter, the Seller has agreed to sell to the
Underwriter, and the Underwriter has agreed to purchase, Notes in the following
amounts:
[ ]
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 Notes 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 Notes to or
through dealers and such dealers may receive compensation in the form of
underwriting
S-63
<PAGE>
discounts, concessions or commissions from the Underwriter and any purchasers of
Notes for whom they may act as agent. The Underwriter and any dealers that
participate with the Underwriter in the distribution of 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. In addition, certain fees and expenses
of the Underwriter, including fees and expenses of its counsel, will be paid by
CPS and the Seller.
The Notes are a new issue of securities with no established trading
market. CPS and the Seller do not intend to apply for listing of the Notes on a
national securities exchange. The Underwriter has advised CPS and the Seller
that it intends to act as a market maker for the Notes. However, the Underwriter
is not obligated to do so and may discontinue any market making at any time
without notice. Accordingly, no assurance can be given as to the liquidity of
any trading market for the Notes.
In connection with the offering of the Notes, the Underwriter may
engage in transactions that stabilize, maintain or otherwise affect the market
price of the Notes. Such transactions may include stabilization transactions
effected in accordance with Rule 104 of Regulation M, pursuant to which such
person may bid for or purchase the Notes for the purpose of stabilizing its
market price. In addition, the Underwriter may impose "penalty bids" whereby it
may reclaim from a dealer participating in the offering the selling concession
with respect to the Notes that such dealer distributed in the offering but
subsequently purchased for the account of the Underwriter in the open market.
Any of the transactions described in this paragraph may result in the
maintenance of the price of the Notes at a level above that which might
otherwise prevail in the open market. None of the transactions described in this
paragraph is required, and, if they are taken, may be discontinued at any time
without notice.
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.
[In the ordinary course of their respective businesses, the Underwriter
and its affiliates have engaged and may engage in investment banking and/or
commercial banking transactions with CPS and the Seller and their affiliates.
See "Use of Proceeds" herein and "Plan of Distribution" in the accompanying
Prospectus.]
This Prospectus Supplement and the accompanying Prospectus may be used
by the Underwriter, affiliates of which have an ownership interest in, or
participate in banking transactions with, CPS and the Seller, in connection with
offers and sales related to market making transactions in the Notes. The
Underwriter may act as principal or agent in such transactions. Such sales will
be made at prices related to prevailing market prices at the time of the sale or
otherwise.
LEGAL OPINIONS
Certain legal matters relating to the Securities will be passed upon
for the Seller and the Servicer by Mayer, Brown & Platt, New York, New York.
Certain legal matters relating to the Notes will be passed upon for the
Underwriter by Dewey Ballantine, New York, New York. Certain legal
S-64
<PAGE>
matters related to the [Credit Enhancement] will be passed upon for the [Credit
Enhancer] by [ ], General Counsel of the [Credit Enhancer] or an Associate
General Counsel of the [Credit Enhancer].
EXPERTS
The consolidated balance sheets of [Credit Enhancer] Assurance Inc. and
its subsidiaries as of December 31, 1997 and 1996 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, 1997, incorporated by reference
in this Prospectus Supplement, have been incorporated herein in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
CPS, as originator of the Trust, filed a registration statement
relating to the securities with the United States Securities and Exchange
Commission, (the "SEC"). This Prospectus Supplement is part of the registration
statement, but the registration statement includes additional information.
CPS will file with the SEC all required annual, monthly and special SEC
reports and other information about any Trust it originates.
You may read and copy any reports, statements or other information we
file at the SEC's public reference room at 450 Fifth Street, N.W., Washington,
D.C. 20549. You can request copies of these documents, upon payment of a
duplicating fee, by writing to the SEC. Please call the SEC at (800) SEC-0330
for further information on the operation of the public reference rooms. Our SEC
filings are also available to the public on the SEC internet site
(http://www.sec.gov.).
The SEC allows us to "incorporate by reference" information that CPS
files with it, which means that CPS can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus. Information that CPS files later with
the SEC will automatically update the information in this prospectus. In all
cases, you should rely on the later information over different information
included in this prospectus or the accompanying prospectus supplement. CPS
incorporates by reference any future annual, monthly and special SEC reports and
proxy materials filed by or on behalf of any Trust until we terminate offering
the Notes.
CPS's Annual Report on Form 10-K for the fiscal year ended December 31,
1997 (File No. [ ]) was filed with the SEC under the Securities Exchange Act of
1934 and is incorporated into this prospectus supplement by reference. Since
that time, CPS has not been, and is not currently, required to file reports
under Section 13(a) or 15(d) of the Exchange Act, except for the filing of
Current Reports on Form 8-K in connection with the trusts it originates. [The
Seller's Current Reports on Form 8-K dated [ ], [ ], [ ], and [ ] are
incorporated into this prospectus supplement by reference.]
S-65
<PAGE>
As a recipient of this prospectus, you may request a copy of any
document CPS incorporates by reference, except exhibits to the documents (unless
the exhibits are specifically incorporated by reference), at no cost, by
contacting: Consumer Portfolio Services, Inc., 2 Ada, Irvine, California 92718,
Attention, Jeffrey P. Fritz. Telephone requests for such copies should be
directed to Consumer Portfolio Services, Inc. at (714) 753-6800.
S-66
<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......................................................S-41
Alpha Program..............................................................S-23
APR........................................................................S-32
Benefit Plan.........................................................S-12, S-62
Cede.......................................................................S-45
Class A Note Majority......................................................S-61
Class A Noteholders' Percentage............................................S-52
Class A-1 Noteholders' Interest Carryover Shortfall........................S-52
Class A-1 Noteholders' Interest Distributable Amount.......................S-52
Class A-1 Noteholders' Monthly Interest Distributable Amount...............S-52
Class A-2 Noteholders.......................................................S-5
Class A-2 Noteholders' Interest Carryover Shortfall........................S-53
Class A-2 Noteholders' Interest Distributable Amount.......................S-53
Class A-2 Noteholders' Monthly Interest Distributable Amount...............S-53
Class A-2 Notes.............................................................S-4
Class A-2 Pool Factor......................................................S-42
Closing Date................................................................S-5
Collection Account.........................................................S-49
Contracts..................................................................S-21
CPS.........................................................................S-7
Cram Down Loss.............................................................S-53
Cutoff Date.................................................................S-8
Dealers....................................................................S-20
Delta Program..............................................................S-23
Deposit Institutions..................................................S-7, S-23
Determination Date.........................................................S-49
DTC........................................................................S-43
ERISA......................................................................S-62
Events of Default....................................................S-54, S-55
Federal Tax Counsel........................................................S-11
Financial Intermediary.....................................................S-45
First Time Buyer Program...................................................S-23
Holders....................................................................S-43
IFCs........................................................................S-7
Indenture...................................................................S-4
Insurance Agreement Event of Default.......................................S-60
Insurance Agreement Indenture Cross Default................................S-54
Insurance Agreement............................................S-13, S-15, S-60
Linc........................................................................S-7
Linc Program...............................................................S-24
Liquidated Receivable......................................................S-51
Liquidation Proceeds.......................................................S-51
Lock-Box Account...........................................................S-48
Lock-Box Bank..............................................................S-48
Moody's....................................................................S-12
Note Distribution Account..................................................S-49
S-67
<PAGE>
Note Owners................................................................S-43
Note Prepayment Amount.....................................................S-44
Noteholders................................................................S-43
Noteholders' Distributable Amount..........................................S-52
Noteholders' Interest Distributable Amount.................................S-53
Noteholders' Monthly Interest Distributable Amount.........................S-54
Noteholders' Principal Distributable Amount................................S-44
Notes.......................................................................S-4
Obligors...................................................................S-20
Original Pool Balance......................................................S-42
Participants...............................................................S-45
Payment Date................................................................S-5
Pool Balance...............................................................S-42
Post Office Box............................................................S-48
prepayments................................................................S-42
Principal Balance..........................................................S-54
Principal Distributable Amount..............................................S-6
PTCE.......................................................................S-63
Purchase Amount............................................................S-52
Rating Agencies............................................................S-12
Recoveries.................................................................S-52
Regulation.................................................................S-62
Rule of 78's Receivables...................................................S-41
Samco.......................................................................S-7
Scheduled Receivable Payment...............................................S-54
Seller......................................................................S-4
Servicer Termination Event.................................................S-59
Servicing Assumption Agreement.............................................S-61
Servicing Fee Rate.........................................................S-61
Simple Interest Receivables................................................S-41
Standard & Poor's..........................................................S-12
Standard Program...........................................................S-23
Standby Fee................................................................S-61
Standby Servicer...........................................................S-61
Subsequent Cutoff Date.....................................................S-47
Sub-Prime Borrowers..................................................S-14, S-21
Subsequent Receivables................................................S-8, S-47
Super Alpha Program........................................................S-24
Total Distribution Amount..................................................S-51
Trust.......................................................................S-4
Trust Documents............................................................S-46
Trustee Fees...............................................................S-50
UCC........................................................................S-48
Underwriting Agreement.....................................................S-63
S-68
<PAGE>
CPS Auto Receivables Trust 199[ ] - [ ]
CPS Receivables Corp.
Seller
CONSUMER PORTFOLIO SERVICES, INC.
Servicer
[$ ]
------------------------------------
PROSPECTUS SUPPLEMENT
------------------------------------
[UNDERWRITER]
You should rely only on the information contained in these documents or
that we have referred you to. We have not authorized anyone to provide you with
information that is different.
We are not offering the Notes in any state where the offer is not
permitted.
Until [ ], all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
S-69
<PAGE>
Prospectus Supplement to Prospectus dated October [ ], 1998
CPS Auto Receivables Trust 1998-4
[CPS Logo]
CPS RECEIVABLES CORP.
(Seller)
CONSUMER PORTFOLIO SERVICES, INC.
(Servicer)
The trust will issue the following classes of notes
Consider carefully the risk factors beginning on page S-[ ] in this prospectus
supplement and on page 13 in the prospectus.
The notes represent obligations of the trust only and do not represent
obligations of or interests in CPS Receivables Corp. or Consumer Portfolio
Services, Inc. or their affiliates.
This prospectus supplement may be used to offer and sell the notes only if
accompanied by the prospectus.
Class A-1 Notes Class A-2 Notes
--------------- ---------------
Principal Amount
Interest Rate (per annum)
First Payment Date
Final Scheduled Payment Date
Price to Underwriter
Proceeds to Seller 1/
- ---------------
1/ Aggregate proceeds to the Seller, after deducting expenses payable to
the Seller estimated at $[ ], will be $[ ].
Full and timely payment of interest on and principal of the notes on each
scheduled payment date is unconditionally and irrevocably guaranteed under a
financial guaranty insurance policy (the "Policy") to be issued by Financial
Security Assurance Inc.
[FSA Logo]
This prospectus supplement and the accompanying prospectus relate only to the
offering of the notes. Certificates representing the residual interest in the
trust will also be issued by the trust. The certificates will be retained
initially by the Seller and are not offered under these documents. Wheat First
Securities, Inc., acting through First Union Capital Markets, a division of
Wheat First Securities, Inc., as underwriter, proposes to offer the notes at
various times in negotiated transactions or otherwise, at prices to be
determined at the time of sale.
Neither the SEC nor any state securities commission has approved these
securities or determined that this prospectus supplement is accurate or
complete. Any representation to the contrary is a criminal offense.
First Union Capital Markets
[ ], 1998
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
We tell you about the notes in two separate documents that
progressively provide more detail: (a) this prospectus supplement, which
describes the specific terms of your series of notes; and (b) the accompanying
prospectus, which provides general information, some of which may not apply to a
particular series of notes, including your series.
If the terms of your series of notes vary between this prospectus
supplement and the prospectus, you should rely on the information in this
prospectus supplement.
You should rely only on the information contained in these documents or
that we have referred you to. We have not authorized anyone to provide you with
information that is different.
We include cross-references in this prospectus supplement and in the
accompanying prospectus to captions in these materials where you can find
further related discussions. The following Table of Contents and the Table of
Contents in the accompanying prospectus provide the pages on which these
captions are located.
You can find a listing of the pages where capitalized terms use in this
prospectus supplement are defined under the caption "Index of Terms" beginning
on page S-[ ] in this prospectus supplement and under the caption "Index of
Terms" beginning on page [ ] in the accompanying prospectus
S-2
<PAGE>
TABLE OF CONTENTS
PAGE
PROSPECTUS SUMMARY........................................................S-4
RISK FACTORS.............................................................S-13
FORMATION OF THE TRUST...................................................S-20
THE TRUST ASSETS.........................................................S-20
THE ORIGINATORS' AUTOMOBILE CONTRACT PORTFOLIO...........................S-22
THE RECEIVABLES POOL.....................................................S-32
YIELD CONSIDERATIONS.....................................................S-42
POOL FACTORS AND OTHER INFORMATION.......................................S-42
USE OF PROCEEDS..........................................................S-43
DESCRIPTION OF THE SECURITIES............................................S-43
REGISTRATION OF NOTES....................................................S-45
DESCRIPTION OF THE TRUST DOCUMENTS.......................................S-46
THE POLICY...............................................................S-62
THE INSURER..............................................................S-65
FEDERAL INCOME TAX CONSEQUENCES..........................................S-67
ERISA CONSIDERATIONS.....................................................S-67
UNDERWRITING.............................................................S-69
LEGAL OPINIONS...........................................................S-70
EXPERTS ................................................................S-70
S-3
<PAGE>
PROSPECTUS SUMMARY
o This summary highlights selected information from this document and
does not contain all of the information that you need to consider in
making your investment decision. To understand all of the terms of an
offering of the notes, read carefully this entire document and the
accompanying prospectus.
o This summary provides an overview of certain calculations, cash flows
and other information to aid your understanding of this investment and
is qualified by the full description of these calculations, cash flows
and other information in this prospectus supplement and the
accompanying prospectus.
OFFERED SECURITIES
CPS Auto Receivables Trust 1998-4 will issue the following securities under this
Prospectus Supplement and the accompanying Prospectus:
o [ %] Asset-Backed Notes, Class A-1 (the "Class A-1 Notes") in the
aggregate original principal amount of [$ ]; and
o [ %] Asset-Backed Notes, Class A-2 (the "Class A-2 Notes" and, together
with the Class A-1 Notes, the "Notes") in the aggregate original
principal amount of [$ ].
The Trust will issue the Notes under an indenture (the "Indenture"), to be dated
October [ ], 1998, between the Trust and Norwest Bank Minnesota, National
Association, as Indenture Trustee. The aggregate original principal amount of
the Notes will be [$ ]. The Notes will be offered for purchase in minimum
denominations of $1,000 and integral multiples of $1,000, in book entry form
only, through the Depository Trust Company. For more information, read
"Description of the Securities Book-Entry Registration" in the Prospectus. The
Trust will also issue certificates that represent interests in the property of
the Trust that remains after full payment to you of interest on and principal of
the Notes. This Prospectus Supplement and the accompanying Prospectus offer only
the Notes.
ISSUER
The issuer of the notes is CPS Auto Receivables Trust 1998-4 (the "Trust"). The
Trust was formed on September 11, 1998 under a trust agreement between CPS
Receivables Corp. (the "Seller"), a Delaware corporation that is a wholly-owned,
special-purpose subsidiary of Consumer Portfolio Services, Inc. and Bankers
Trust (Delaware), as the owner trustee.
The address and telephone number of Consumer Portfolio Services, Inc. are:
Consumer Portfolio Services, Inc.
2 Ada
Irvine, California 92618
(714) 753-6800
S-4
<PAGE>
CLOSING DATE
On or about October [ ], 1998 (the "Closing Date").
INDENTURE TRUSTEE
Norwest Bank Minnesota, National Association
OWNER TRUSTEE
Bankers Trust (Delaware)
TERMS OF THE NOTES
The principal terms of the Notes will be as described below:
Payment Dates
Payments on the Notes will be made on the 15th day of each month or, if the 15th
day is not a Business Day under the Indenture, on the next following Business
Day (each such day, a "Payment Date"). The first Payment Date will be November
16, 1998. Payments will be made to holders of record of the Notes as of the
close of business on the record date applicable to such Payment Date. The record
date for a Payment Date will be the 10th calendar day of the month in which such
Payment Date occurs.
Interest Rates
The Class A-1 Notes will bear interest at an annual rate equal to [ % ]. The
Class A-2 Notes will bear interest at an annual rate equal to [ %]. Interest on
the Notes will be calculated on the basis of a 360-day year of twelve 30-day
months.
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, thirty (30) days of interest at the Class A-1 Interest Rate on the
outstanding principal amount of the Class A-1 Notes at the close of the
preceding 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 the preceding Payment Date. Nevertheless, on the initial Payment Date,
the interest payable to the Noteholders of record of a 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 to and including
S-5
<PAGE>
November 14, 1998 (assuming that there are 30 days in each month of the year)
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 interest rate applicable to such class.
See "Description of the Securities--Payment of Interest" in this Prospectus
Supplement.
Principal
Principal of the Notes will be payable on each Payment Date in an amount equal
to the sum of (i) the Class A Noteholders' Percentage (as of such Payment Date)
of the Principal Distributable Amount and (ii) any principal which was payable
in respect of the Notes on a preceding Payment Date but was not so paid.
Notwithstanding the foregoing, all outstanding principal and interest with
respect to a class of Notes will be payable in full on the Final Scheduled
Payment Date for such class of Notes. See "Description of the Trust
Documents--Distributions" in this Prospectus Supplement.
The "Principal Distributable Amount" with respect to a Payment Date will equal
the sum of the following amounts (without duplication):
(a) collections on Receivables (other than Liquidated Receivables)
allocable to principal including full and partial prepayments;
(b) 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 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;
(c) the Principal Balance of each Receivable that first became a
Liquidated Receivable during the preceding Collection Period;
(d) the aggregate amount of Cram Down Losses with respect to the
Receivables that shall have occurred during the preceding Collection
Period; and
(e) any net proceeds from the liquidation of the Trust Assets pursuant
to an acceleration of the Notes upon an Event of Default.
On each Payment Date, principal payments on the Notes will be applied,
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.
S-6
<PAGE>
Final Scheduled
Payment Dates
All unpaid principal of and accrued interest on each class of the Notes will be
payable in full on the date specified below for such class:
o A-1 Notes: [ ]
o A-2 Notes: [ ]
TRUST ASSETS
The primary source of funds to support payments of principal of and interest on
the notes will be the trust assets, which will include:
o a pool of retail installment sale contracts consisting of the right to
receive payments of interest, principal and other money secured by used
and new automobiles, light trucks, vans and minivans;
o the right to receive payments under the installment sale contracts
after specified cutoff dates;
o security interests in the automobiles, light trucks, vans and minivans
securing the installment sale contracts;
o certain bank accounts and the proceeds thereof, including accounts that
will be opened to receive part of the proceeds of this offering and
that will be used by the Trust to buy more retail installment sales
contracts;
o the right to receive proceeds from claims under, or refunds of unearned
premiums from, certain insurance policies and extended service
contracts relating to the vehicles financed under the installment sale
contracts;
o the rights of CPS Receivables Corp. under the contracts by which it
purchases the Trust Assets; and
o certain other property specified herein under "The Trust Assets".
The Receivables
The retail installment sale contracts to be transferred to the Trust will be
secured by new and used automobiles, light trucks, vans and minivans including
the rights to all payments received with respect to such contracts after a
specified cutoff date. Such installment sale contracts arise from loans
originated by automobile dealers, independent finance companies ("IFCs") and
deposit institutions ("Deposit Institutions") for assignment to Consumer
Portfolio Services, Inc., a California corporation ("CPS") and its affiliates
Samco Acceptance Corp., a Delaware corporation ("Samco"), and Linc Acceptance
Company LLC, a Delaware limited liability company ("Linc"). The auto loan
programs of CPS, Samco and Linc target automobile purchasers with marginal
credit ratings who are generally unable to obtain credit from banks or other
low-risk lenders. See "The Originators' Automobile Contract Portfolio--General",
"The
S-7
<PAGE>
Receivables Pool", "Risk Factors--Sub-Prime Obligors" and "Risk
Factors--Servicing" in this Prospectus Supplement and "Risk Factors--Sub-Prime
Obligors" in the Prospectus.
The Initial Receivables
On the Closing Date, the Trust will acquire retail installment sale contracts
(the "Initial Receivables") having an aggregate principal balance as of
September [ ], 1998 (the "Cutoff Date") of approximately [$ ]. For information
about the characteristics of the Initial Receivables as of the Cutoff Date, see
"The Receivables Pool" in this Prospectus Supplement.
Pre-Funding
In addition to the Initial Receivables, the Trust will (subject to availability
and certain conditions) purchase additional retail installment sale contracts
(the "Subsequent Receivables") from the Seller during a period (the "Funding
Period") beginning on the Closing Date and ending not later than [ ], 1999. The
Subsequent Receivables and the Initial Receivables are collectively referred to
in this Prospectus Supplement as the "Receivables". See "Description of the
Trust Documents--Sale and Assignment of Receivables" in this Prospectus
Supplement.
Subsequent Receivables will be originated under the auto loan programs of CPS,
Samco and Linc but, as these programs are modified from time to time due to
changes in market conditions or otherwise in the judgment of CPS, Samco or Linc,
as applicable, 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--Varying Characteristics of Subsequent
Receivables" and "The Receivables Pool" in this Prospectus Supplement.
The Pre-Funding Account
The purchase of Subsequent Receivables will be funded from amounts in the
Pre-Funding Account. On the Closing Date, the Seller will deposit into the
Pre-Funding Account, out of proceeds from the sale of the Notes, the sum of $[
]. The Funding Period will end earlier than [ ], 1999 if the Pre-Funding Account
is reduced to less than $100,000. Until the amounts on deposit in the
Pre-Funding Account are used to purchase Subsequent Receivables, they will be
invested according to certain eligibility criteria. Any Pre-Funded Amount
remaining at the end of the Funding Period will be payable to the holders of the
Notes, pro rata in proportion to the principal balance of each class of Notes,
as a prepayment of principal. See "Description of the Trust Documents--Sale and
Assignment of Receivables" and "--Accounts" in this Prospectus Supplement.
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Interest Reserve Account
In order to provide a source of funds during the Funding Period to cover
anticipated negative carry resulting from the excess of the weighted average
interest rate on the Notes over investment earnings on the Pre-Funded Amount,
the Indenture Trustee will establish the Interest Reserve Account. On the
Closing Date, the Seller will deposit an amount equal to the Requisite Reserve
Amount (as described below) in the Interest Reserve Account. On each of the
[September and October] 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 in this Summary under "Priority of Payments".
The "Requisite Reserve Amount" as of any date during the Funding Period
will equal the product of:
(i) 1/360th of the difference between
(A) the weighted average of each of the Interest
Rates for each class of Notes (based on the
outstanding principal amount of each class on such
date); and
(B) the assumed yield ([ ]% per annum) of investments
of funds in the Pre-Funding Account,
(ii) the Pre-Funded Amount on such date
(iii) the number of days remaining until the Payment Date
in [ ];
provided that, upon the expiration of the Funding Period, the Requisite Reserve
Amount will be zero. See "Description of the Trust Documents--Accounts" in this
Prospectus Supplement.
SERVICING
After the sale of the Receivables to the Trust, CPS will continue to perform
certain administrative services with respect thereto in its capacity as servicer
of the Trust. Such services will include, among other things, collection of
payments, realization on collateral and monitoring the rate of performance of
the Receivables. In return for CPS's services, the Trust will pay a fee to CPS
out of the interest payments received by the Trust. If CPS is terminated or
resigns as servicer of the Trust, Norwest Bank Minnesota, National Association,
or another institution selected as successor servicer will take over servicing
responsibilities for the Trust. See "Risk Factors--Termination of CPS as
Servicer" and "Description of the Trust Documents--Servicing" in this Prospectus
Supplement.
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PRIORITY OF PAYMENTS
On each Payment Date, the Indenture Trustee shall make the following
distributions in the following order of priority:
(1) to the Standby Servicer, so long as CPS is the Servicer and Norwest
Bank Minnesota, National Association is the Standby Servicer, the
Standby Fee and all unpaid Standby Fees from prior Collection Periods;
(2) to the Servicer, the Servicing Fee and all unpaid Servicing Fees from
prior Collection Periods;
(3) if the Standby Servicer becomes the successor Servicer, to the Standby
Servicer, to the extent not previously paid by the predecessor Servicer
under the Sale and Servicing Agreement, reasonable transition expenses
(up to a maximum of $50,000) incurred in becoming the successor
Servicer;
(4) to the Indenture Trustee and the Owner Trustee, pro rata, the Trustee
Fees and reasonable out-of-pocket expenses and all unpaid Trustee Fees
and unpaid reasonable out-of-pocket expenses from prior Collection
Periods;
(5) to the Collateral Agent, all fees and expenses payable to the
Collateral Agent with respect to such Payment Date;
(6) to the Noteholders, the Noteholders' Interest Distributable Amount;
(7) to the Noteholders, the Noteholders' Principal Distributable Amount,
plus the Noteholders' Principal Carryover Shortfall, if any;
(8) to the Insurer, any amounts due under the terms of the Insurance
Agreement;
(9) if any Person other than the Standby Servicer becomes the successor
Servicer, to such successor Servicer, to the extent not previously paid
by the predecessor Servicer under the Sale and Servicing Agreement,
reasonable transition expenses (up to a maximum of $50,000 for all such
expenses) incurred in becoming the successor Servicer; and
(10) to the Collateral Agent, for deposit into the Spread Account, the
remaining Total Distribution Amount, if any.
Amounts distributed on account of the Noteholders' Principal Distributable
Amount under priority above will be applied, sequentially, to pay principal of
the Class A-1 Notes until the principal amount of the Class A-1 Notes has been
reduced to zero, then to the holders of the Class A-2 Notes until the principal
amount of the Class A-2 Notes has been reduced to zero.
See "Description of the Trust Documents--Distributions--Priority of Distribution
Amounts" in this Prospectus Supplement.
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Optional Redemption
The Notes, to the extent still outstanding, may be redeemed in whole, but not in
part, on any Payment Date on which CPS exercises its option to purchase all the
Receivables on or after 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 sum of (i) the aggregate Cutoff Date principal balance of the Initial
Receivables and (ii) the initial Pre-Funded Amount. The redemption price will at
least equal the unpaid principal amount of the Notes, plus accrued and unpaid
interest thereon. See "Description of the Securities--Optional Redemption" in
this Prospectus Supplement.
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 if any portion of the
Pre-Funded Amount remains on deposit in the Pre-Funding Account after giving
effect to all purchases of all Subsequent Receivables on such Payment Date. The
aggregate principal amount of each class of Notes to be redeemed will be an
amount equal to such class' pro rata share (based on the respective current
outstanding principal amount of each class of Notes) of the Pre-Funded Amount on
such date. The terms of such a mandatory redemption are described in "Risk
Factors--Possible Prepayments as a Result of Pre-Funding" in this Prospectus
Supplement.
The Notes may be accelerated and subject to immediate payment at par with
accrued interest thereon upon the occurrence of an "Event of Default" under the
Indenture. So long as the Insurer is not itself in default, 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
an Insurance Agreement, dated as of October [ ], 1998. In the case of such an
Event of Default and notice by the Insurer, the Notes will automatically be
accelerated and subject to immediate payment at par with accrued interest. The
Policy does not guarantee payments of any amounts that become due on an
accelerated basis, unless the Insurer elects, in its sole discretion, to pay
such amounts in whole or in part. See "Description of the Trust
Documents--Events of Default" in this Prospectus Supplement.
THE POLICY
On the Closing Date, Financial Security Assurance Inc. (the "Insurer") will
issue a financial guaranty insurance policy (the "Policy") to the Indenture
Trustee for the benefit of the Noteholders. Under the terms of 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
for each Payment Date (collectively, the "Scheduled Payments"). See "The Policy"
in this Prospectus Supplement.
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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. In accepting a Note, each holder of that Note will agree to
treat the Notes as indebtedness for Federal income tax purposes. See "Federal
Income Tax Consequences" in the Prospectus and "Federal Income Tax Consequences"
in this Prospectus Supplement for additional information concerning the
application of Federal tax laws to the Trust and the Notes.
ERISA Considerations
Subject to the considerations discussed under "ERISA Considerations", 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 of which is referred to as a "Benefit Plan"). By its acquisition of
a Note, each Benefit Plan shall be deemed to represent that its purchase and
holding of such Note will [not give rise to a non-exempt prohibited
transaction]. See "ERISA Considerations" in this Prospectus Supplement.
Rating of the Notes
It is a condition of issuance that the Notes be rated "AAA" by Standard & Poor's
Ratings Group, a Division of The McGraw Hill Companies ("Standard & Poor's"),
and "Aaa" by Moody's Investors Service, Inc. ("Moody's", and together with
Standard & Poor'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
Prospective investors in the Notes should consider the following
factors and the additional factors discussed under "Risk Factors" in the
Prospectus:
Liquidity
and Capital
Resources of CPS The ability of CPS to maintain existing operations (including
servicing of retail installment sale contracts in the various
securitization trusts serviced by CPS), meet its financial
obligations under the Trust Documents (including repurchasing
Receivables as a result of certain breaches of its
representations and warranties) and fund future growth depends
upon CPS having sufficient liquidity. To a significant degree,
CPS depends for liquidity upon residual cash flow released to
the Seller (and dividended by the Seller to CPS) from the
various securitization trusts (including the Trust) serviced
by CPS. Such residual cash flow represents amounts generated
by the receivables in such securitization trusts in excess of
the amount required to pay principal, interest and other
expenses in respect of the related asset-backed securities. As
a result of deterioration in the performance of the portfolio
of Contracts serviced by CPS, Financial Security is currently
exercising its right to capture all of such residual cash flow
in certain collateral accounts established for the benefit of
Financial Security in connection with its issuance of
financial guaranty insurance policies in respect of the
asset-backed securities issued through such securitization
trusts. The resulting reduction in the residual cash flow
available to be paid to the Seller (and dividended by the
Seller to CPS) means that CPS will require capital from
sources other than such residual cash flows to maintain its
existing operations and fund future growth. In response, CPS
has implemented a plan to raise additional working capital
through the issuance of debt or equity; however, the recent
downgrading of CPS's long-term debt rating to "CCC" from "B+"
by Duff & Phelps Credit Rating Co., together with recent
declines in the market price of CPS's stock and current market
conditions may make it difficult and/or costly for CPS to
raise such additional capital and there can be no assurance
that CPS will be able to do so. Accordingly, although CPS
believes that the current capture of residual cash flows for
the benefit of Financial Security will not have a material
adverse effect on its ability to perform its obligations under
the Trust Documents or any "insurance agreement" under which
Financial Security has issued or issues in the future a
financial guaranty insurance policy in respect of securities
issued by a trust for which CPS is the Servicer, no assurances
can be made to that effect.
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Sub-Prime
Obligors The Originators' customers generally have marginal
credit and fall into one of two categories:
(1) 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
(2) 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 average interest rate charged by the Originators to such
"sub-prime borrowers" is generally higher than that charged by
commercial banks, financing arms of automobile manufacturers
and other traditional sources of consumer credit, which
typically impose more stringent credit requirements. 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. As a result of the credit profile
of the Obligors and the APRs of the Receivables, the
historical credit loss and delinquency rates on the
Receivables may be higher than those experienced by banks,
captive finance companies of automobile manufacturers and
other traditional sources of consumer credit. If an Obligor
defaults under a Receivable, the only source of repayment may
be liquidation proceeds from the related Financed Vehicle. The
Financed Vehicles securing the Receivables will consist
primarily of used vehicles which are likely to have a
liquidation value substantially below the amount financed by
the related Receivable.
Termination of
CPS as Servicer 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 CPS is
removed or resigns 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. CPS's
appointment as Servicer may be terminated under the following
circumstances:
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(1) The rights and obligations of the Servicer
automatically terminate each March 31, June 30,
September 30 and December 31 unless renewed by the
Insurer for successive quarterly 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.
(2) The Insurer may terminate CPS's appointment as
Servicer upon the occurrence of an Insurance
Agreement Event of Default (under the Insurance
Agreement or any other insurance agreement under
which Financial Security has issued or issues in the
future a financial guaranty insurance policy in
respect of securities issued by a trust for which CPS
is the Servicer). The events constituting an
Insurance Agreement Event of Default may be modified,
amended or waived by Financial Security without
notice to or consent of the Indenture Trustee or any
Noteholder. See "Description of the Trust
Documents--Servicer Termination Events".
(3) CPS may resign as Servicer under the
circumstances specified in the Sale and Servicing
Agreement.
Changes in
Delinquency
and Loan
Loss Experience Although CPS has calculated and presented in this Prospectus
Supplement 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 and Linc's
originations is limited. CPS expects that the delinquency and
net credit loss and repossession experience with respect to
the Receivables originated by Samco and Linc will be similar
to that of CPS's existing portfolio.
Final Scheduled
Payment Dates
of the Notes The Final Scheduled Payment Date for each class of Notes which
is specified on the cover page of this Prospectus Supplement,
is the date by which the principal thereof is required to be
fully paid. The Final
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Scheduled Payment Date for each class of Notes 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 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 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 will
be earlier than such class's Final Scheduled Payment Date.
Possible
Prepayments as
a Result of
Pre-Funding If the principal amount of eligible Receivables originated by
CPS, Samco and Linc 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. 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 will receive
a prepayment of principal in an amount equal to their pro rata
share (based on the current principal balance of each class of
Notes) 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 Certificateholders.
The Seller will not be able to convey Subsequent Receivables
to the Trust unless CPS, Samco and Linc generate such
Subsequent Receivables. There can be no assurance that CPS,
Samco or Linc will continue to generate receivables that
satisfy the criteria set forth in the related Purchase
Agreement at the same rate as in recent months or that the
Insurer, in its sole and absolute discretion, will approve any
such transfer of Subsequent Receivables. If, during the
Funding Period, CPS, Samco and Linc do not generate and
transfer sufficient Subsequent Receivables to the Seller, the
Seller will not be able to sell sufficient Subsequent
Receivables to the Trust. This will result in a partial
prepayment of the Notes as described in the immediately
preceding paragraph.
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Varying
Characteristics
of Subsequent
Receivables 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.
Lack of
Perfected
Security
Interests in
Financed
Vehicles Due to the administrative burden and expense, the certificates
of title to the Financed Vehicles securing the Receivables
will not be marked, amended or reissued to reflect the
assignment of the Receivables to the Seller by CPS, Samco or
Linc, as applicable, nor will the certificates of title to any
of the Financed Vehicles (including those securing the Samco
Receivables and the Linc 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 perfected
security interest in the Financed Vehicles securing the
Receivables in some states. To the extent the security
interest of CPS, Samco or Linc 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, Samco or
Linc, and therefore the Trust, could lose the priority of its
security interest or its security interest in a Financed
Vehicle. None of CPS, the Seller 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 results in losing the priority of
the security interest in such Financed Vehicle after the
Closing Date. See "Certain Legal Aspects of the
Receivables--Security Interest in Vehicles" in the Prospectus.
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 under the Policy, as described
herein. Although the Policy will be available on each Payment
Date to cover shortfalls in distributions of the Noteholders'
Distributable Amount on such Payment Date, if of an Insurer
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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. See "Credit
Enhancement", "Description of the Securities--Payment of
Principal", "--Payment of Interest" and "The Insurer" herein.
The Pre-Funding Account and the Interest Reserve Account will
only be maintained until the end 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. See "Credit
Enhancement" and "The Insurer" herein.
Geographic
Concentration As of the Cutoff Date, [ %] of the Initial 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.
Year 2000
Computer
Issue Many computer systems in use today were designed and developed
using two digits, rather than four, to specify the year. As a
result, such systems will recognize the year 2000 as "00".
This could cause many computer applications to fail completely
or create erroneous results unless corrective measures are
taken. The Servicer utilizes some software and related
computer hardware technologies essential to its operations
that will be affected by the Year 2000 issues. The Servicer is
currently making changes and enhancements to eliminate this
problem internally and studying what additional actions will
be necessary to make all of its computer systems Year 2000
compliant. The expense associated with these actions has yet
to be fully determined, but could be material.
Ratings
of the Notes 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. If any rating initially
assigned to the Notes is
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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.
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FORMATION OF THE TRUST
The Trust is a business trust formed under the laws of the State of
Delaware under the Trust Agreement. Before 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 Trust will initially be capitalized by the Seller with equity equal
to $10. The Trust will issue the Notes and the Certificates to or at the
direction of the Seller in exchange for the Receivables and the other Trust
Assets. The Seller will use the proceeds of the initial sale of the Notes to
purchase the Initial Receivables from the Originators and to fund the Initial
Spread Account Deposit, the Pre-Funding Account and the Interest Reserve Account
(described under "Description of the Trust Documents--Accounts" in this
Prospectus Supplement). 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 as
described in the immediately preceding paragraph, 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
Bankers Trust (Delaware) is the Owner Trustee under the Trust
Agreement. Bankers Trust (Delaware) is a Delaware banking corporation and its
principal offices are located at 1011 Centre Road, Suite 200, Wilmington,
Delaware 19805-1266. The Owner Trustee will perform limited administrative
functions under the Trust Agreement.
The Indenture Trustee
Norwest Bank Minnesota, National Association is the Indenture Trustee
under the Indenture. It is a national banking association and its principal
offices are located at Sixth Street and Marquette Avenue, Minneapolis, Minnesota
55479-1054.
THE TRUST ASSETS
The Trust Assets will include:
(1) retail installment sale contracts on used and new
automobiles, light trucks, vans and minivans between dealers (the
"Dealers"), IFCs or Deposit Institutions and retail purchasers (the
"Obligors") and certain monies received thereunder after the Cutoff
Date (with respect to Initial Receivables) or after the applicable
Subsequent Cutoff Date (with respect to Subsequent Receivables);
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(2) amounts held from time to time in one or more trust
accounts established and maintained by the Indenture Trustee under the
Sale and Servicing Agreement (see "Description of the Trust Documents
--Accounts" in this Prospectus Supplement);
(3) amounts held from time to time in the Pre-Funding Account
or the Interest Reserve Account;
(4) the rights of the Seller under the Purchase Agreements,
including all right, title and interest of the Seller in and to each
purchase agreement under which Subsequent Receivables are transferred
by the Originators to the Seller (each a "Subsequent Purchase
Agreement");
(5) security interests in the Financed Vehicles;
(6) the rights of CPS, Samco and Linc 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;
(7) 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 Financed Vehicles or Obligors; and
(8) any and all proceeds of the foregoing.
In addition, the Seller will cause the Insurer to issue the Policy for the
benefit of the Noteholders.
THE ORIGINATORS
CPS
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's principal
executive offices are located at 2 Ada, Irvine, California 92718; telephone
(714) 753-6800.
Samco
In March 1996, CPS formed Samco, an 80 percent-owned subsidiary based
in Dallas, Texas. Samco's business plan is to provide CPS's sub-prime auto
finance products to rural areas through IFCs. 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
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representative is most likely to be based. The principal executive offices of
Samco are located at 8150 N. Central Expressway, Dallas, Texas 75206; telephone
(800) 544-8802.
Linc
In May 1996, CPS formed Linc, an 80 percent-owned subsidiary based in
Norwalk, Connecticut. Linc's business plan is to provide sub-prime auto finance
products to deposit institutions such as banks, thrifts and credit unions. CPS
believes that such institutions do not generally make loans to sub-prime
borrowers even though they may have relationships with automobile dealers who
sell vehicles to sub-prime borrowers and may have sub-prime borrowers as deposit
customers. The principal executive offices of Linc are located at One Selleck
Street, Norwalk, Connecticut 06855; telephone (203) 831-8300. For further
information regarding the Seller and CPS, see "The Seller and CPS" in the
Prospectus.
THE SELLER
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 to purchase automobile installment sale contracts from CPS and its
subsidiaries and to transfer the receivables to third parties. The principal
executive offices of the Seller are located at 2 Ada, Irvine, California 92718;
telephone (714) 753-6800.
THE ORIGINATORS' AUTOMOBILE CONTRACT PORTFOLIO
General
On October 1, 1991, CPS began its program of purchasing Contracts from
Dealers and selling them to institutional investors. Through June 30, 1998, CPS
had purchased $1.95 billion of Contracts from Dealers and sold $1.68 billion 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 4,000
dealerships located in 42 states of the United States. CPS purchases Contracts
from Dealers for a fee ranging from $0 to $1,395. 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. Before the issuance of the Notes, 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, such as
certain late fees, prepayment charges and other administrative fees and similar
charges. Generally, CPS sells the Contracts to such institutional investors at
face value and
S-22
<PAGE>
without recourse except that the representations and warranties made to CPS by
the Dealers are similarly made to the investors by CPS.
The principal executive offices of CPS are located at 2 Ada, Irvine,
California 92618. CPS's telephone number is (714) 753-6800.
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 Samco's 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
that CPS 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.
In the year ended December 31, 1997, Samco purchased 2,306 Contracts with
original balances totaling $26.2 million. In the six months ended June 30, 1998,
Samco purchased 2,787 Contracts with original balances totaling $32.7 million.
In May 1996, CPS formed Linc, an 80 percent-owned subsidiary based in
Norwalk, Connecticut. Linc's business plan is to provide CPS's sub-prime auto
finance products to deposit institutions such as banks, thrifts and credit
unions ("Deposit Institutions"). CPS believes that such Deposit Institutions do
not generally make loans to sub-prime borrowers even though they may have
relationships with automobile Dealers who sell vehicles to sub-prime borrowers
and may have sub-prime borrowers as deposit customers.
Linc's employees call on various Deposit Institutions and present them
with a financing program that is similar to CPS's Alpha Program (as defined
below). The Linc program is intended to result in a slightly more creditworthy
borrower than CPS's Standard Program by requiring slightly higher income and
lower debt-to-income ratios than CPS requires under its Standard Program. Linc's
customers may offer its financing program to borrowers directly or to local
Dealers. Linc typically purchases Contracts at par, without a fee to the Deposit
Institution. Servicing and collection procedures on Contracts are performed
entirely by CPS using the same personnel, procedures and systems as CPS uses for
its own programs. In the year ended December 31, 1997, Linc purchased 678
Contracts with original balances totaling $8.9 million. In the six months ended
June 30, 1998, Linc purchased 902 Contracts with original balances totaling
$11.9 million.
S-23
<PAGE>
Underwriting
CPS markets its services to Dealers under five 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"), the
CPS Delta Program (the "Delta Program") and the CPS Super Alpha Program (the
"Super Alpha Program"). In addition, Samco offers IFCs essentially the same
programs that CPS offers to Dealers, while Linc offers only its program (the
"Linc Program") to Deposit Institutions. 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 Linc Program guidelines are designed for applicants with slightly
better credit than applicants under the Alpha Program and include requirements
such as higher income and lower debt ratio as compared to the Alpha Program
guidelines. 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 had significant credit. Applicants under the First Time
Buyer Program must meet all the requirements of the Standard Program, as well as
slightly higher income and down payment requirements. The Super Alpha Program
guidelines are more stringent than any other CPS program in categories such as
advance rate, age of collateral, credit history and stability. 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, down payment, 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
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<PAGE>
approximately 50% of the credit applications it receives and ultimately
purchases approximately 11% 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 the underwriting standards used by CPS 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 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 down payment required on the purchase of a vehicle is
generally 10% to 15% of the purchase price. The down payment 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 down
payment required, with the proven manufacturer's rebate constituting the
remainder of the down payment. CPS believes that the relatively high down
payment 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.
Before 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's 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 CPS's computerized records. If a policy reaches its expiration date without a
renewal, or if CPS receives a notice that the policy has been canceled before
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
S-25
<PAGE>
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 to IFCs financing programs 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 IFC 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. Before CPS purchases 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.
Linc offers to Deposit Institutions financing programs which are
similar to CPS's Alpha Program. Unlike Samco, which has employees who evaluate
applications and make decisions to purchase Contracts, applications for
Contracts to be purchased by Linc are submitted by the Deposit Institution
directly to CPS, where the approval, underwriting and purchase procedures are
performed by CPS staff who work with Linc as well as with the Dealers to which
CPS markets its programs.
Servicing and Collections
CPS's 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 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's 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
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<PAGE>
lock-box account receipts and a simultaneous electronic data transfer to CPS of
the borrower payment data for posting to CPS's computerized records. Under 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.
On April 1, 1997, CPS established a satellite collection facility in
Chesapeake, Virginia. The 16,000 square foot facility was opened with 35 staff
dedicated solely to collections. As of June 30, 1998 the Chesapeake facility had
more than 120 collectors. The Chesapeake facility is on-line with CPS's
automated collection system at its headquarters in Irvine, California.
Chesapeake staff have been trained by Irvine collection management personnel at
both the Chesapeake facility and at CPS's headquarters. Irvine collection
management has the ability to allocate the collection workload between the two
facilities as well as monitor the effectiveness of the collection effort by
office and individual collector. CPS expects to add resources to both collection
locations as its servicing portfolio grows.
Servicing and collection procedures on Contracts owned by Samco and
Linc are performed by CPS at its headquarters in Irvine, California and at its
Chesapeake, Virginia collection facility. 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,
under the Alpha Program in April 1995, under the Linc Program in December 1996
and under the Super Alpha Program in December 1997. CPS has found that the
delinquency and net credit loss and repossession experience with respect to the
Delta
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<PAGE>
Program is somewhat higher than under its Standard Program. CPS has found that
the delinquency and net credit loss and repossession experience with respect to
the Alpha Program, the Linc Program and the Super 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. Before 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 somewhat higher than
under the Standard Program. CPS began servicing Contracts originated by Samco in
March 1996 and Linc in November 1996. Although credit history on Samco's and
Linc's originations is limited, CPS expects that the delinquency and net credit
loss and repossession experience with respect to the Receivables originated by
Samco and Linc 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 or any other isolated group of receivables from
the CPS portfolio would be comparable to CPS's experience as shown in the
following tables. In particular, the information in the tables has not been
adjusted to eliminate the effects of the significant growth in the size of CPS's
loan portfolio during the periods shown.
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<PAGE>
CONSUMER PORTFOLIO SERVICES, INC.
DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1995 December 31, 1996 December 31, 1997
----------------- ----------------- ----------------- -----------------
Number Number Number Number
of Loans Amount of-Loans Amount of-Loans Amount of-Loans Amount
-------- ------ -------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio(1) 14,235 $203,879,000 27,113 $355,965,000 47,187 $604,092,000 83,414 $1,031,573,000
Period of
Delinquency(2)
31-60 243 3,539,000 909 11,520,000 1,801 22,099,000 3,092 36,609,000
61-90 68 1,091,000 203 2,654,000 724 9,068,000 1,243 15,303.000
91+ 56 876,000 272 3,899,000 768 9,906,000 1,393 17,869,000
Total
Delinquencies 367 5,506,000 1,384 18,073,000 3,293 41,073,000 5,728 69,781,000
Amount in
Repossession(3) 271 3,759,000 834 10,151,000 1,168 14,563,000 1,977 24,463,000
Total
Delinquencies and
Amount in
Repossession(4) 638 $9,265,000 2,218 $28,224,000 4,461 $55,636,000 7,705 $94,244,000
Delinquencies as a
Percent of the
Portfolio 2.58% 2.70% 5.10% 5.08% 6.98% 6.80% 6.87% 6.76%
Repo Inventory as
Percent of the
Portfolio 1.90% 1.84% 3.08% 2.85% 2.48% 2.41% 2.37% 2.37%
Total
Delinquencies and
Amount in
Repossession as a
Percent of
Portfolio 4.48% 4.54% 8.18% 7.93% 9.45% 9.21% 9.24% 9.14%
</TABLE>
June 30, 1997 June 30, 1998
------------- -------------
Number Number
of Loans Amount of Loans Amount
-------- ------ -------- ------
Portfolio(1) 63,053 $789,769,000 118,846 $1,452,040,000
Period of
Delinquency(2)
31-60 1,969 23,688,000 2,540 29,454,000
61-90 851 10,693,000 1,103 13,368,000
91+ 819 10,560,000 1,097 13,330,000
Total
Delinquencies 3,639 44,941,000 4,740 56,152,000
Amount in
Repossession(3) 1,293 12,561,000 2,646 29,126,000
Total
Delinquencies and
Amount in
Repossession(4) 4,932 $57,502,000 7,386 $85,278,000
Delinquencies as a
Percent of the
Portfolio 5.77% 5.69% 3.99% 3.87%
Repo Inventory as
Percent of the
Portfolio 2.05% 1.59% 2.23% 2.01%
Total
Delinquencies and
Amount in
Repossession as a
Percent of
Portfolio 7.82% 7.28% 6.21% 5.87%
- ------------------
(1) All amounts and percentages are based on the full amount remaining to
be repaid on each Contract, including, for Rule of 78s 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.
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<PAGE>
CONSUMER PORTFOLIO SERVICES, INC.
NET CREDIT LOSS/REPOSSESSION EXPERIENCE
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Six Months Ended Six Months Ended
December 31, 1994 December 31, 1995 December 31, 1996 December 31, 1997 June 30, 1997 June 30, 1998
----------------- ----------------- ----------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Average Amount Outstanding
During the Period (1) $98,916,991.00 $221,926,489.00 $395,404,669.00 $703,100,136.00 $597,924,905.00 $1,117,385,385.00
Average Number of Loans
Outstanding During the
Period 9,171 20,809 36,998 65,189 55,361 102,426
Number of Repossessions 669 2,018 3,145 6,007 2,430 4,491
Gross Charge-Offs (2) $ 3,166,408.00 $ 11,658,461.00 $ 23,296,775.00 $ 46,649,521.00 $ 19,193,455.00 $ 40,338,499.00
Recoveries (3) $ 347,519.00 $ 1,028,378.00 $ 2,969,143.00 $ 5,534,823.00 $ 2,568,783.00 $ 4,544,769.00
Net Losses $ 2,818,889.00 $ 10,630,083.00 $ 20,327,632.00 $ 41,114,698.00 $ 16,624,672.00 $ 35,793,730.00
Annualized Repossessions as
a Percentage of Average
Number of Loans Outstanding 7.29% 9.70% 8.50% 9.21% 8.78% 8.77%
Annualized Net Losses as a
Percentage of Average
Amount Outstanding 2.85% 4.79% 5.14% 5.85% 5.56% 6.41%
</TABLE>
- ------------------
(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) Delinquent Contracts for which the related Financed Vehicle has been
repossessed are charged off no later than the end of the calendar quarter
in which the Financed Vehicle was sold. The amount charged off is the
remaining principal balance of the Contract, after the application of the
net proceeds from the liquidation of the Financed Vehicle. With respect to
delinquent Contracts for which the related Financed Vehicle has not been
repossessed, the remaining principal balance thereof is charged off no
later than the 120th day after delinquency. In any case, amounts charged
off do not include 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.
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<PAGE>
Recent Developments
Litigation. On June 30, 1997, CPS was served with summons and
counterclaim in the bankruptcy court for the Northern District of Illinois in
connection with the Chapter 13 bankruptcy of obligors Madeline and Darryl
Brownlee, of Chicago, Illinois. The obligors seek class-action treatment of
their allegation that the cost of an extended service contract on the automobile
they purchased was inadequately disclosed by Joe Cotton Ford of Carol Stream,
Illinois, the automobile dealer who sold them their car. The disclosure is
alleged to violate the Federal Truth in Lending Act and of Illinois consumer
protection statutes. The obligors' claim is directed against both the dealer for
making the allegedly improper disclosures and against CPS as holder of the
purchase contract. The relief sought is damages in an unspecified amount, plus
costs of suit and attorney's fees. The court has not yet ruled on the obligors'
request for class-action treatment.
In another proceeding, arising out of efforts to collect a deficiency
balance from Joseph Barrios of Chicago, Illinois, the debtor has brought suit
against CPS alleging defects in the notice given upon repossession of the
vehicle. This lawsuit was filed on February 18, 1998 in the circuit court of
Cook County, Illinois. Barrios, represented by the same law firm as the Brownlee
obligors, seeks class-action treatment of his allegation that notice of a
fifteen-day period to reinstate his Contract was misleading, in that it did not
refer to an alleged right to redeem collateral up to the date of sale. The
relief sought is damages in an unspecified amount, plus costs of suit and
attorney's fees. [As of the date of this Prospectus Supplement, CPS has not been
required to respond to this litigation and has not yet done so.]
Although the receivables relating to the above litigation matters are
not included in the Receivables Pool, if the request for class action status is
granted in either case, Receivables in the Receivables Pool could become subject
to the litigation. Furthermore, the existence of such litigation, or an adverse
decision in such litigation, could encourage similar actions to be brought
involving Receivables in the Receivables Pool. If an Obligor has a claim against
the Trust as a result of a violation of law relating to a Receivable and such
claim materially and adversely affects the Trust's interest in such Receivable,
such a violation will constitute a breach of the representations and warranties
of CPS and will create an obligation of CPS to repurchase such Receivable unless
the breach is cured. In addition, CPS will be required to indemnify the
Indenture Trustee, the Owner Trustee, the Insurer, the Trust and the Noteholders
against all costs, losses, damages, claims and liabilities, including reasonable
fees and expenses of counsel which may be asserted against or incurred by any of
them as a result of a third party claim arising out of events or facts giving
rise to such breach. See "Description of the Trust Documents--Sale and
Assignment of Receivables" in this Prospectus Supplement.
CPS intends to dispute the above-described litigation vigorously and
believes that it has meritorious defenses to each claim made by those obligors.
Nevertheless, the outcome of any litigation is uncertain, and there is the
possibility that damages could be assessed against CPS in amounts that could be
material. It is management's opinion that the above-described litigation will
not have a material adverse effect on CPS's consolidated financial position,
results of operations or liquidity.
S-31
<PAGE>
Liquidity and Capital Resources of CPS. As discussed above in "Risk
Factors--Liquidity and Capital Resources of CPS", deterioration in the
performance of the portfolio of Contracts serviced by CPS, has resulted in a
reduction of the residual cash flow available to be paid to the Seller from the
various securitization trusts serviced by CPS. As a result, CPS will require
capital from sources other than such residual cash flows to maintain its
existing operations and fund future growth. In response, CPS has implemented a
plan to raise additional working capital through the issuance of debt or equity;
however, as discussed above in "Risk Factors--Liquidity and Capital Resources of
CPS", it may be difficult and/or costly for CPS to raise such additional capital
and there can be no assurance that it will succeed in doing so.
THE RECEIVABLES POOL
As of the Cutoff Date, each Initial Receivable:
- has an Obligor whose billing address is 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
[$ ];
- is not more than 30 days past due;
- has an annual percentage rate ("APR") of not less than
[ %]; and
- has a scheduled maturity not later than [ ], 2003.
As of the date of each Obligor's application for the loan from which
the related Initial Receivable arises, each Obligor
- did not have any material past due credit obligations or any
repossessions or garnishments of property within one year
before the date of application, unless such amounts have been
repaid or discharged through bankruptcy;
- was not the subject of any bankruptcy or insolvency proceeding
that is not discharged; and
- had not been the subject of more than one bankruptcy
proceeding.
The composition, geographic distribution, distribution by APR,
distribution by remaining term, distribution by date of origination,
distribution by original term, distribution by model year, distribution by
original principal balance of the Initial Receivables as of the Cutoff Date,
distribution
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<PAGE>
by new or used Financed Vehicle, distribution by program and distribution by
Originator are set forth in the following tables.
Composition of the Initial Receivables as of the Cutoff Date
<TABLE>
<CAPTION>
Weighted Aggregate Number of Weighted Weighted
Average APR Principal Receivables Average Average Average
of Receivables Balance In Pool Principal-Balance Remaining Term Original Term
- -------------- ------- ------- ----------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
</TABLE>
S-33
<PAGE>
Geographic Distribution of the Initial Receivables as of the Cutoff Date
Percent of
Aggregate Aggregate Percent of
Principal Principal Number of Number of
State (1) Balance Balance Receivables Receivables
--------- ------- ------- ----------- -----------
Alabama..........................$ % %
California.......................
Florida..........................
Georgia..........................
Hawaii...........................
Illinois.........................
Indiana..........................
Kentucky.........................
Louisiana........................
Maryland.........................
Michigan.........................
Minnesota........................
Mississippi......................
Nevada...........................
New Jersey.......................
New York.........................
North Carolina...................
Ohio.............................
Pennsylvania.....................
South Carolina...................
Tennessee........................
Texas............................
Virginia.........................
Washington.......................
All Others(2)....................
------- ------- ----------- -----------
Total............................$ (3) 100.00%(4) 100.00%(4)
======= ======= =========== ===========
- ----------
(1) Based on billing address of Obligor.
(2) No other state represents a percentage of the aggregate Principal Balance
as of the Initial Cutoff Date in excess of one percent.
(3) Balances may not add up to total because of rounding.
(4) Percentages may not add up to 100% because of rounding.
S-34
<PAGE>
Distribution of the Initial Receivables by APR as of the Cutoff Date
Percent of
Aggregate Aggregate Percent of
Principal Principal Number of Number of
APR Range Balance Balance Receivables Receivables
----------- --------- --------- ----------- -----------
15.501% - 16.000%...............$ % $ %
16.001% - 16.500%...............
16.501% - 17.000%...............
17.001% - 17.500%...............
17.501% - 18.000%...............
18.001% - 18.500%...............
18.501% - 19.000%...............
19.001% - 19.500%...............
19.501% - 20.000%...............
20.001% - 20.500%...............
20.501% - 21.000%...............
21.001% - 21.500%...............
21.501% - 22.000%...............
22.001% - 22.500%...............
22.501% - 23.000%...............
23.001% - 23.500%...............
23.501% - 24.000%...............
24.001% - 24.500%...............
24.501% - 25.000%...............
25.001% - 25.500%...............
25.501% - 26.000%...............
26.001% - 26.500%...............
26.501% - 27.000%...............
27.001% - 27.500%...............
27.501% - 28.000%...............
28.001% - 28.500%...............
28.501% - 29.000%...............
29.001% - 29.500%...............
29.501% - 30.000%...............
--------- --------- ----------- -----------
Total 100.00%(2) (1) 100.00%(2)
========= ========= =========== ===========
- ---------
(1) Balances may not add up to total because of rounding.
(2) Percentages may not add up to 100% because of rounding.
S-35
<PAGE>
Distribution of Initial Receivables by Remaining Term to
Scheduled Maturity as of the Cutoff Date
Percent of
Aggregate Aggregate Percent of
Remaining Term Principal Principal Number of Number of
to Scheduled Maturity Balance Balance Receivables Receivables
- --------------------- --------- --------- ----------- -----------
19-24 months.................. $ % %
25-30 months..................
31-36 months..................
37-42 months..................
43-48 months..................
49-54 months..................
55-60 months..................
--------- --------- ----------- -----------
Total......................... $ (1) %(2) %(2)
========= ========= =========== ===========
- --------
(1) Balances may not add up to total because of rounding.
(2) Percentages may not add up to 100% because of rounding.
S-36
<PAGE>
Distribution of the Initial Receivables by
Date of Origination as of the Cutoff Date
Percent of
Aggregate Aggregate Percent of
Principal Principal Number of Number of
Date of Origination Balance Balance Receivables Receivables
- --------------------- --------- --------- ----------- -----------
05/01/97-05/31/97............. $ % %
06/01/97-06/30/97.............
07/01/97-07/31/97.............
08/01/97-08/31/97.............
09/01/97-09/30/97.............
10/01/97-10/31/97.............
11/01/97-11/30/97.............
12/01/97-12/31/97.............
01/01/98-01/31/98.............
02/01/98-02/28/98.............
03/01/98-03/31/98.............
04/01/98-04/30/98.............
05/01/98-05/31/98.............
06/01/98-06/30/98.............
--------- --------- ----------- -----------
Total................ $ (1) 100.00%(2) 100.00%(2)
========= ========= =========== ===========
- -------
(1) Balances may not add up to total because of rounding.
(2) Percentages may not add up to 100% because of rounding.
S-37
<PAGE>
Distribution of Initial Receivables by Original Term to
Scheduled Maturity as of the Cutoff Date
Percent of
Aggregate Aggregate Percent of
Original Term to Principal Principal Number of Number of
Scheduled Maturity Balance Balance Receivables Receivables
- --------------------- --------- --------- ----------- -----------
19-24 months................. $ % %
25-30 months.................
31-36 months.................
37-42 months.................
43-48 months.................
49-54 months.................
55-60 months.................
55-60 months.................
--------- --------- ----------- -----------
Total............... $ (1) 100.00%(2) 100.00%(2)
========= ========= =========== ===========
- --------
(1) Balances may not add up to total because of rounding.
(2) Percentages may not add up to 100% because of rounding.
Distribution of the Initial Receivables by Model Year of Financed Vehicle
as of the Cutoff Date
Percent of
Aggregate Aggregate Percent of
Principal Principal Number of Number of
Model Year Balance Balance Receivables Receivables
- --------------------- --------- --------- ----------- -----------
1990......................... $ % %
1991.........................
1992.........................
1993.........................
1994.........................
1995.........................
1996.........................
1997.........................
1998.........................
1999.........................
--------- --------- ----------- -----------
Total............... $ (1) 100.00%(2) 100.00%(2)
========= ========= =========== ===========
- -------
(1) Balances may not add up to total because of rounding.
(2) Percentages may not add up to 100% because of rounding.
S-38
<PAGE>
Distribution of Initial Receivables by Original Principal Balance
as of the Cutoff Date
Percent of
Aggregate Aggregate Percent of
Range of Original Principal Principal Number of Number of
Principal Balances Balance Balance Receivables Receivables
- --------------------- --------- --------- ----------- -----------
$ 0.01 - 5,000.00........ $ % %
5,000.01 - 10,000.00........
10,000.01 - 15,000.00........
15,000.01 - 20,000.00........
20,000.01 - 25,000.00........
25,000.01 - 30,000.00........
--------- --------- ----------- -----------
Total................ $ (1) %(2) %(2)
========= ========= =========== ===========
- --------
(1) Balances may not add up to total because of rounding.
(2) Percentages may not add up to 100% because of rounding.
Distribution of Initial Receivables by New or Used Financed Vehicle
as of the Cutoff Date
Percent of
Aggregate Aggregate Percent of
Principal Principal Number of Number of
Financed Vehicle Type Balance Balance Receivables Receivables
- --------------------- --------- --------- ----------- -----------
New......................... $ % %
Used........................
Total............... $ (1) %(2) %(2)
========= ========= =========== ===========
- --------
(1) Balances may not add up to total because of rounding.
(2) Percentages may not add up to 100% because of rounding.
S-39
<PAGE>
Distribution of Initial Receivables by Financing Program
as of the Cutoff Date
Percent of
Aggregate Aggregate Percent of
Principal Principal Number of Number of
Financing Program Balance Balance Receivables Receivables
- --------------------- --------- --------- ----------- -----------
Super Alpha.................. $ % %
Alpha........................
Standard.....................
Delta........................
First Time Buyer.............
Total............... $ (1) %(2) %(2)
========= ========= =========== ===========
- --------
(1) Balances may not add up to total because of rounding.
(2) Percentages may not add up to 100% because of rounding.
Distribution of Initial Receivables by Originator
as of the Cutoff Date
Percent of
Aggregate Aggregate Percent of
Principal Principal Number of Number of
Originator Balance Balance Receivables Receivables
- --------------------- --------- --------- ----------- -----------
CPS.......................... $ % %
Samco........................
Linc.........................
Total............... $ (1) %(2) %(2)
========= ========= =========== ===========
- --------
(1) Balances may not add up to total because of rounding.
(2) Percentages may not add up to 100% because of rounding.
S-40
<PAGE>
Rule of 78's Receivables and Simple Interest Receivables.
As of the Cutoff Date, approximately [ %] of the aggregate Principal
Balance of the Initial Receivables 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 Initial Receivables 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.
If 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
S-41
<PAGE>
under 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 can be prepaid at any time without charge. (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. For example, 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 and Certificateholders. See also "Description
of the Securities--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% or
less of the sum of (i) the aggregate Cutoff Date Principal Balance of the
Initial Receivables and (ii) the initial Pre-Funded Amount (the sum of (i) and
(ii), the "Original Pool Balance"). See also "Description of the
Securities--Mandatory Redemption" in this Prospectus Supplement regarding the
acceleration of the Notes after the occurrence of an Event of Default.
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 with respect to such
Collection Period, all payments and Purchase Amounts (as defined herein)
remitted by CPS or the Servicer (if the Servicer should be any entity other than
CPS) 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-1 Pool Factor will be 1.0000000 as of the
Closing Date; thereafter, the Class A-1 Pool Factor will decline to reflect
reductions in the principal balance of the Class A-1 Notes. Therefore, if you
are a Class A-1 Noteholder, your share of the principal balance of the Class A-1
Notes is the product of (1) the original denomination of your Note and (2) the
Class A-1 Pool Factor. 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. Therefore, if you are a Class A-2
S-42
<PAGE>
Noteholder, your share of the principal balance of the Class A-2 Notes is the
product of (1) the original denomination of your Note and (2) the Class A-2 Pool
Factor.
Under 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 Seller will use the net proceeds of the sale of the Notes to
purchase the CPS Receivables from CPS, the Samco Receivables from Samco, the
Linc Receivables from Linc and to fund the Pre-Funding Account and the Interest
Reserve Account. CPS, Samco and Linc will apply the net proceeds received from
the Seller to purchase new Contracts or to repay debt incurred to purchase the
Contracts, including the repayment of certain amounts owed by CPS under certain
warehouse loans or other interim financing arrangements which have been used to
fund the acquisition of the Receivables. First Union National Bank ("FUNB"), an
affiliate of the Underwriter has entered into a warehousing arrangement with
CPS. Certain of the net proceeds of the sale of the Notes will be used by CPS to
reduce the outstanding indebtedness of CPS to FUNB under such warehouse
arrangement.
DESCRIPTION OF THE SECURITIES
General
The Notes will be issued under the terms of the Indenture, and the
Certificates will be issued under the terms of the Trust Agreement. We have
filed forms of the Indenture and the Trust Agreement as exhibits 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" in this Prospectus Supplement.
Payment of Interest
On each Payment Date, the Class A-1 Noteholders as of the related
record date will be entitled to receive, pro rata, thirty (30) days of interest
at the Class A-1 Interest Rate on the outstanding principal amount of the Class
A-1 Notes at the close of the preceding Payment Date. On each Payment Date, 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 the
preceding Payment Date. Nevertheless, on the initial Payment Date, the interest
payable to the Noteholders of record of a class of Notes will
S-43
<PAGE>
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 to and including November 14, 1998 (assuming that there are 30
days in each month of the year) 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 Class A Interest Rate. See "Description of
the Trust Documents--Distributions" in this Prospectus Supplement.
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 Class A Noteholders' Percentage (as of each Payment Date) multiplied by the
Principal Distributable Amount.
On each Payment Date, the amounts distributed on account of the
Noteholders' Principal Distributable Amount will be applied, 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.
Mandatory Redemption
Each class of Notes and the Certificates will be redeemed in part on
the Payment Date on or immediately following the last day of the Funding Period
if 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' pro rata share (based on the respective outstanding
principal amount of each class of Notes and the Certificates) of the remaining
Pre-Funded Amount on such date (such class' "Note Prepayment Amount").
The Policy does not guarantee payment of the Note Prepayment Amounts,
although the Policy does guarantee payment of all unpaid principal and accrued
interest in respect of a class of Notes on the respective Final Scheduled
Payment Date for such class. In addition, the ratings assigned to the Notes by
the Rating Agencies do not address the likelihood that the Note Prepayment
Amounts will be paid.
If an Event of Default occurs and an Insurer Default shall not have
occurred and be continuing, the Notes shall become due and payable at par with
accrued interest. So long as an Insurer Default shall not have occurred and be
continuing, the Insurer will have the right (but not the obligation) to direct
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, and to distribute the proceeds of such liquidation in accordance with
the terms of the Indenture. 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
S-44
<PAGE>
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. The
Policy does not guarantee payments of any amounts that become due on an
accelerated basis, unless the Insurer elects, in its sole discretion to pay such
amounts in whole or in part. See "Description of the Trust Documents--Events of
Default" and "The Policy" herein.
Optional Redemption
To avoid excessive administrative expense, the Servicer, or its
successor, is permitted at its option to purchase all remaining Receivables from
the Trust (with the consent of the Insurer if such purchase and redemption would
result in a claim under the Policy or if any amount owing to the Insurer or on
the Notes would remain unpaid). The Servicer (or its successor) may exercise
this repurchase option on or after the last day of any month on or after which
the then outstanding Pool Balance is equal to 10% or less of the Original Pool
Balance at a price equal to at least the aggregate of the unpaid principal
amount of the Notes plus accrued and unpaid interest as of such last day.
Exercise of this right will result in the early retirement of the Notes. Upon
declaration of an optional redemption, 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. If the Indenture Trustee has taken certain measures to
locate a Noteholder, and such measures have failed, the Indenture Trustee will
distribute the remaining funds otherwise payable to the Noteholder to The
American Red Cross.
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 under 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.
If you are acquiring beneficial ownership interests in the Notes, you
may hold the Notes directly though DTC if you are a Participant, or you may hold
your interest indirectly through organizations which are Participants. Your
ownership of a book-entry note will be recorded on the records of the brokerage
firm, bank, thrift institution or other financial intermediary (each, a
"Financial Intermediary") that maintains your account for that purpose. In turn
the Financial Intermediary's ownership of such book-entry note will be recorded
on the records of DTC (or of a participating firm that acts as agent for the
Financial Intermediary, whose interest will in turn be
S-45
<PAGE>
recorded on the records of DTC, if the beneficial owner's Financial Intermediary
is not a DTC participant). See "Description of the Securities--Book-Entry
Registration" in the Prospectus.
DESCRIPTION OF THE TRUST DOCUMENTS
The following summary describes certain terms of the Purchase
Agreements, the Sale and Servicing Agreement, the Indenture and the Trust
Agreement (together, the "Trust Documents"). We have filed forms of the Trust
Documents as exhibits to the Registration Statement. We will file a copy of the
final Trust Documents with the Commission following the issuance of the
Securities. Because this is a summary of the Trust Documents, it does not
contain all this information that may be important to you. You should read the
Trust Documents in their entirety if you require complete information regarding
their contents.
Sale and Assignment of Receivables
On or before the Closing Date, the Seller will purchase from Samco
under 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
before the Closing Date, the Seller will purchase from Linc under the Linc
Purchase Agreement, without recourse (except as provided in the Linc Purchase
Agreement) Linc's entire interest in the Linc Receivables, together with Linc's
security interests in the related Financed Vehicles. On or before the Closing
Date, the Seller will purchase from CPS under the CPS Purchase Agreement,
without recourse, except as provided in the CPS Purchase Agreement, CPS's entire
interest in the CPS Receivables, together with CPS's security interests in the
related Financed Vehicles. At the time of issuance of the Notes, 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 related 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 Underwriter.
See "Underwriting" in this Prospectus Supplement.
In the CPS Purchase Agreement, CPS will represent and warrant to the
Seller, among other things, that (1) the information provided in the CPS
Purchase Agreement with respect to the Receivables (including, without
limitation, the Samco Receivables and the Linc Receivables) is correct in all
material respects; (2) at the dates of origination of the Receivables, physical
damage insurance covering each Financed Vehicle was in effect in accordance with
the normal requirements of CPS, Samco or Linc, as applicable; (3) 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, IFCs or Deposit Institutions have been asserted
or threatened; (4) 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, Samco or Linc; and (5)
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
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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 the interest of the Trust, the
Indenture Trustee or the Insurer, 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.
However, CPS will be required to indemnify the Owner Trustee, the Indenture
Trustee, the Insurer, the Trust and the Noteholders against all costs, losses,
damages, claims and liabilities, including reasonable fees and expenses of
counsel, which may be asserted against or incurred by any of them, as a result
of third party claims arising out of events or facts giving rise to such breach.
Following the Closing Date, under 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 (the "Subsequent
Receivables") originated by CPS or Samco under its auto loan programs and
acquired by the Seller from CPS or Samco 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 payments under the Policy, received with respect to the
related Subsequent Receivables conveyed to the Trust on such Subsequent Closing
Date after the cutoff date designated by the Seller with respect to such
Subsequent Receivables (such date designated by the Seller, the "Subsequent
Cutoff Date"). See "Description of the Trust Documents--Sale and Assignment of
Receivables" herein. On each Subsequent Closing Date, subject to the conditions
set forth in the Trust Documents, the Trust shall purchase from the Seller, the
Subsequent Receivables to be transferred to the Trust on such Subsequent Closing
Date.
Any conveyance of Subsequent Receivables is subject to the
satisfaction, on or before the related Subsequent Transfer Date, of the
following conditions, among others:
(1) each such Subsequent Receivable satisfies the eligibility criteria
specified in the related Purchase Agreement;
(2) the Insurer (so long as no Insurer 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;
(3) 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 Cutoff Date and any Subsequent Receivables on the
related Subsequent Cutoff Date: (a) the weighted average APR of such
Receivables will not be less than a specified percentage below the
weighted average APR of the Initial Receivables on the Cutoff Date, (b)
the weighted average
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remaining term of such Receivables will be within a range of a certain
number of months, (c) not more than a specified percentage of the
principal balances of such Receivables will represent used Financed
Vehicles and (d) not more than a specified percentage of the principal
balances of such Receivables which may have an APR in excess of [ ]%,
and the Trust, the Indenture Trustee, the Owner Trustee and the Insurer
shall have received written confirmation from a firm of certified
independent public accountants as to the satisfaction of the criteria
in clauses (a) through (d) above;
(4) 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);
(5) the Seller shall have delivered certain opinions of counsel to the
Indenture Trustee, the Owner Trustee, Insurer and the Rating Agencies
with respect to the validity of the conveyance of such Subsequent
Receivables; and
(6) the Rating Agencies shall have each notified the Seller, the Owner
Trustee, the Indenture Trustee and Insurer in writing that, following
the addition of all such Subsequent Receivables, each of the Class A-1
Notes and the Class A-2 Notes will be rated "Aaa" by Moody's and "AAA"
by Standard & Poor's.
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--Varying Characteristics of Subsequent
Receivables" and "The Receivables Pool" herein.
On or before the Closing Date, or each Subsequent Closing Date, the
related Contracts will be delivered to the Indenture Trustee as custodian, and
the Indenture Trustee then will maintain physical possession of the Receivables
except as may be necessary for the servicing of the Receivables by the Servicer.
The Receivables will not be stamped to show the ownership thereof by the Trust.
However, CPS's, Samco's and Linc'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.
Accounts
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 Seller for the benefit of the Noteholders and the Insurer (the "Post Office
Box"). On each Business Day, Bank of America, 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 National Trust
and Savings Association (the "Lock-Box Bank") in the name of the Seller for the
benefit of the Noteholders and the Insurer (the "Lock-Box
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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 (collectively, the "Collection Account") in the
name of the Indenture Trustee on behalf of the Noteholders and the Insurer.
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 the Collection Account. If, however, any Obligors
send their payments to the Servicer instead of the Lock-Box Processor, then on
the first Business Day after the Servicer receives any such payments, it will
deposit those payments 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, from which all distributions with respect to the Notes will be made
(the "Note 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 Notes. The Pre-Funded Amount will initially equal $[ ] and,
during the Funding Period, will be reduced by 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 that
this will happen. If any Pre-Funded Amount remains at the end of the Funding
Period, such amount will be distributed as a partial prepayment to the
Noteholders as described above under "--Mandatory Prepayment" and "--Mandatory
Redemption".
The Indenture Trustee 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) in
the Interest Reserve Account. On each of the [October and November] 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".
The Collateral Agent will establish the Spread Account as a segregated
trust account at its office or at another depository institution or trust
company.
Distributions
Priority of Distribution Amounts. On the earlier of (i) the seventh
Business Day of each calendar month and (ii) the fifth Business Day preceding
the Payment Date occurring in such calendar (each such date, a "Determination
Date") the Servicer will instruct the Indenture Trustee
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to make the following distributions from the Total Distribution Amount in the
following order of priority:
(1) to the Standby Servicer, so long as CPS is the Servicer
and Norwest Bank Minnesota, National Association is the Standby
Servicer, the Standby Fee and all unpaid Standby Fees from prior
Collection Periods;
(2) to the Servicer, the Servicing Fee and all unpaid
Servicing Fees from prior Collection Periods;
(3) if the Standby Servicer becomes the successor Servicer, to
the Standby Servicer, from the Total Distribution Amount, to the extent
not previously paid by the predecessor Servicer under the Sale and
Servicing Agreement, reasonable transition expenses (up to a maximum of
$50,000) incurred in becoming the successor Servicer;
(4) to the Indenture Trustee and the Owner Trustee, pro rata,
the fees payable thereto for services under the Indenture and the Trust
Agreement (the "Trustee Fees") and reasonable out-of-pocket expenses
thereof (including counsel fees and expenses), and all unpaid Trustee
Fees and unpaid reasonable out-of-pocket expenses (including counsel
fees and expenses) from prior Collection Periods;
(5) to the Collateral Agent, all fees and expenses payable to
the Collateral Agent with respect to such Payment Date;
(6) to the Noteholders, the Noteholders' Interest
Distributable Amount;
(7) to the Noteholders, the Noteholders' Principal
Distributable Amount, plus the Noteholders' Principal Carryover
Shortfall, if any;
(8) to the Insurer, any amounts due to the Insurer under the
terms of the Insurance Agreement;
(9) if any Person other than the Standby Servicer becomes the
successor Servicer, to such successor Servicer, to the extent not
previously paid by the predecessor Servicer under the Sale and
Servicing Agreement, reasonable transition expenses (up to a maximum of
$50,000 for all such expenses) incurred in becoming the successor
Servicer; and
(10) to the Collateral Agent, for deposit into the Spread
Account, the remaining Total Distribution Amount, if any.
Amounts distributed on account of the Noteholders' Principal
Distributable Amount under priority (7) above will be applied, sequentially, to
pay principal of the Class A-1 Notes until the principal amount of the Class A-1
Notes has been reduced to zero, then to the holders of the Class A-2 Notes until
the principal amount of the Class A-2 Notes has been reduced to zero.
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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 related Collection Period
with respect to Receivables that became Liquidated Receivables
during such related Collection Period, 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");
(iii) proceeds from Recoveries with respect to Liquidated
Receivables;
(iv) earnings on investments of funds in the Collection Account
during the related Collection Period;
(v) on the [ ] and [ ] Payment Dates any amounts in excess of the
Requisite Reserve Amount withdrawn from the Interest Reserve
Account; and
(vi) 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.
The Insurer shall at any time, and as often as it chooses, with respect
to a Payment Date, have the option (but shall not be required, except as
required under the Policy) to deliver amounts to the Indenture Trustee for
deposit into the Collection Account for any of the following purposes:
o 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;
o 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 Pool Balance as of such Determination Date; or
o 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.
"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, if the related Financed Vehicle has been repossessed, 210) 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
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terms thereof including all accrued and unpaid interest and interest to the end
of the month of purchase.
"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.
Calculation of Distributable Amounts. On each Payment Date, the
Noteholders will receive the Noteholders' Distributable Amount. The
"Noteholders' Distributable Amount" for a Payment Date will equal the sum of:
(1) the "Noteholders' Principal Distributable Amount," consisting of
the Class A Noteholders' Percentage of the Principal Distributable Amount; plus
(2) the Noteholders' Principal Carryover Shortfall; and
(3) the Noteholders' Interest Distributable Amount.
On the Class A-1 Final Scheduled Payment Date, the Noteholders'
Principal Distributable Amount will at least equal an amount sufficient to pay
in full the then outstanding principal amount of the Class A-1 Notes. On the
Class A-2 Final Scheduled Payment Date, the Noteholders' Principal Distributable
Amount will at least equal an amount sufficient to pay in full the then
outstanding principal amount of the Class A-2 Notes.
"Class A Noteholders' Percentage" will be 100% until the Notes have
been paid in full.
"Class A-1 Noteholders' Interest Carryover Shortfall" means, with
respect to any Payment Date, the excess of the Class A-1 Noteholders' Interest
Distributable Amount for the preceding Payment Date over the amount that was
actually deposited in the Note Distribution Account on such preceding Payment
Date on account of the Class A-1 Noteholders' Interest Distributable Amount.
"Class A-1 Noteholders' Interest Distributable Amount" means, with
respect to any Payment Date, the sum of the Class A-1 Noteholders' Monthly
Interest Distributable Amount for such Payment Date and the Class A-1
Noteholders' Interest Carryover Shortfall for such Payment Date, plus interest
on such Class A-1 Noteholder's Interest Carryover Shortfall, to the extent
permitted by law, at the Class A-1 Interest Rate through the current Payment
Date.
"Class A-1 Noteholders' Monthly Interest Distributable Amount" means
(a) for the first Payment Date, an amount equal to the product
of (i) the Class A-1 Interest Rate, (ii) the initial outstanding
principal amount of the Class A-1 Notes and (iii) a fraction, the
numerator of which is the number of days from and including the Closing
Date to and including November 14, 1998 and (ii) the denominator of
which is 360; and
(b) for any Payment Date after the first Payment Date, an
amount equal to the product of (i) one-twelfth of the Class A-1
Interest Rate and (ii) the outstanding principal
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amount of the Class A-1 Notes as of the close of the preceding Payment
Date (after giving effect to all distributions on account of principal
on such preceding Payment Date).
"Class A-2 Noteholders' Interest Carryover Shortfall" means, with
respect to any Payment Date, the excess of the Class A-2 Noteholders' Interest
Distributable Amount for the preceding Payment Date over the amount that was
actually deposited in the Note Distribution Account on such preceding Payment
Date on account of the Class A-2 Noteholders' Interest Distributable Amount.
"Class A-2 Noteholders' Interest Distributable Amount" means, with
respect to any Payment Date, the sum of the Class A-2 Noteholders' Monthly
Interest Distributable Amount for such Payment Date and the Class A-2
Noteholders' Interest Carryover Shortfall for such Payment Date, plus interest
on such Class A-2 Noteholder's Interest Carryover Shortfall, to the extent
permitted by law, at the Class A-2 Interest Rate through the current Payment
Date.
"Class A-2 Noteholders' Monthly Interest Distributable Amount" means
(a) for the first Payment Date, an amount equal to the product
of (i) the Class A-2 Interest Rate, (ii) the initial outstanding
principal amount of the Class A-2 Notes and (iii) a fraction, the
numerator of which is the number of days from and including the Closing
Date to and including November 14, 1998 and (ii) the denominator of
which is 360; and
(b) for any Payment Date after the first Payment Date, an
amount equal to the product of (i) one-twelfth of the Class A-2
Interest Rate and (ii) the outstanding principal amount of the Class
A-2 Notes as of the close of the preceding Payment Date (after giving
effect to all distributions on account of principal on such preceding
Payment Date).
"Cram Down Loss" means, with respect to a Receivable, if a court of
appropriate jurisdiction in an insolvency proceeding shall have issued an order
reducing the amount owed on a Receivable or otherwise modifying or restructuring
Scheduled Payments to be made on a Receivable, an amount equal to such reduction
in Principal Balance of such Receivable or the reduction in 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 Payments as so
modified or restructured. A Cram Down Loss shall be deemed to have occurred on
the date such order is entered.
"Noteholders' Interest Distributable Amount" means, with respect to any
Payment Date, the sum of (a) the Noteholders' Monthly Interest Distributable
Amount for such Payment Date, (b) the Class A-1 Noteholders' Interest Carryover
Shortfall for such Payment Date, plus interest on such Class A-1 Noteholder's
Interest Carryover Shortfall, to the extent permitted by law, at the Class A-1
Interest Rate through the current Payment Date, plus (c) the Class A-2
Noteholders' Interest Carryover Shortfall for such Payment Date, plus interest
on such Class A-2 Noteholders' Interest Carryover Shortfall, to the extent
permitted by law, at the Class A-2 Interest Rate through the current Payment
Date.
"Noteholders' Monthly Interest Distributable Amount" means, with
respect to any Payment Date, the sum of (i) the Class A-1 Noteholders' Monthly
Interest Distributable Amount for such
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Payment Date and (ii) the Class A-2 Noteholders' Monthly Interest Distributable
Amount for such Payment Date.
"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
before such day allocable to principal of such Receivable 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 before such day
allocable to principal of such Receivable 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 such Receivable.
"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 under the Sale and Servicing
Agreement or any rescheduling of payments in any insolvency or similar
proceedings).
The Spread Account
As part of the consideration for the issuance of the Policy, the Seller
has agreed to establish 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, the Owner Trustee, any successor Servicer and
the Collateral Agent and all amounts owing to the Insurer on such date 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 under priorities (1) through (8)
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 under such
priorities (1) through (8).
Amounts on deposit in the Spread Account on any Payment Date which
(after all payments required to be made on such Payment Date and distributions
to be made in accordance with the Master Spread Account Agreement have been
made) are in excess of the Requisite Amount will be released to or at the
direction of the Seller on such Payment Date.
So long as no Insurer Default shall 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
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(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, you should not rely on amounts in the Spread Account for payments of
principal or interest on the Notes.
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:
o a demand for payment under the Policy;
o an Insolvency Event;
o the Trust becoming taxable as an association (or publicly traded
partnership) taxable as a corporation for federal or state income tax
purposes;
o 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 (1) through (7) under "Description
of the Trust Documents--Distributions--Priority of Distribution
Amounts" herein; and
o 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, which 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 Notes shall become due
and payable at par with accrued interest thereon. The Insurer will have the
right, but not the obligation, to instruct 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, and to distribute the
proceeds of such liquidation in accordance with the terms of the Indenture.
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" and
"Description of the Securities--Mandatory Prepayment" herein.
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If an Insurer Default has occurred and is continuing, "Events of
Default" will consist of the following events set forth in the Indenture:
o a default for five days or more in the payment of any interest on the
Notes;
o a default for five days or more in the payment of the principal of the
Notes [when the same becomes due and payable];
o a default in
- the observance or performance in any material respect of any
covenant or agreement of the Trust made in the Indenture
- any representation or warranty made by the Trust in the
Indenture
- any certificate delivered in connection with the Indenture, or
such certificate having been incorrect as of the time made
and the continuation of any such default or the failure to cure such
breach of a representation or warranty for a period of 30 days (or such
longer period not in excess of 90 days as is reasonably necessary to
cure such default) after notice thereof is given to the Trust by the
Indenture Trustee or to the Trust and the Indenture Trustee by the
holders of at least 25% in principal amount of the Notes then
outstanding; or
o certain events of bankruptcy, insolvency, receivership or liquidation
of the Trust.
Upon the occurrence of an Event of Default, and so long as an Insurer
Default has occurred and is continuing the Indenture Trustee or the holders of
Notes representing at least a majority of the principal amount of the Notes then
outstanding may declare the principal of the Notes to be immediately due and
payable. Such declaration may, under certain circumstances, be rescinded by the
holders of Notes representing at least a majority of the principal amount of the
Notes then outstanding. The Indenture Trustee may also institute proceedings to
collect amounts due or foreclose on the Trust Assets, exercise remedies as a
secured party, sell the related Receivables or elect to have the Trust maintain
possession of such Receivables. If the Indenture Trustee has the right to
liquidate the Trust Estate, because an Insurer Default has occurred and is
continuing, nevertheless, the Indenture Trustee will be prohibited from selling
the related Receivables following an Event of Default unless (i) the holders of
all the outstanding Notes consent to the sale or (ii) the proceeds of the sale
are sufficient to pay in full the principal of and the accrued interest on such
outstanding Notes at the date of the sale.
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:
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(1) the amount of the distribution allocable to principal of each class of
Notes;
(2) the amount of the distribution allocable to interest on each class of
Notes;
(3) the Pool Balance and the Pool Factor for each class of Notes as of the
close of business on the last day of the preceding Collection Period;
(4) the aggregate principal balance of each class of Notes and the
Certificates 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 (1) above;
(5) 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;
(6) the amount of the Class A-1 Noteholders' Interest Carryover Shortfall,
Class A-2 Noteholders' Interest Carryover Shortfall and Noteholders'
Principal Carryover Shortfall on such Payment Date and the change in
such amounts from those on the prior Payment Date;
(7) the amount paid to the Noteholders under the Policy or from the Spread
Account for such Payment Date;
(8) the amount distributable to the Insurer on such Payment Date;
(9) the aggregate amount in the Spread Account and the change in such
amount from the previous Payment Date;
(10) 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 for (a) 31 to 59 days, (b) 60 to 89 days, (c) 90 to
119 days, (d) 120 to 149 days, (e) 150 to 179 days, (f) 180 to 209 days
and (g) 210 days or more;
(11) the number and the aggregate Purchase Amount of Receivables repurchased
by CPS or purchased by the Servicer; and
(12) 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 under subclauses (1), (2), (5), (6), (7) and (11)
above shall be expressed in the aggregate and as a dollar amount per $1,000 of
original principal balance of a Note.
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 (1), (2) and (5) above for the purposes of such
Noteholder's preparation of
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federal income tax returns. See "Description of the Trust Documents--Statements
to Noteholders" and "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, 1999, 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, 1999.
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, 1999 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, 1999). 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 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. If CPS resigns as Servicer or is
terminated as Servicer, the Standby Servicer has agreed under the Servicing
Assumption Agreement to assume the servicing obligations and duties under the
Sale and Servicing Agreement. However, so long as no Insurer Default shall have
occurred and be continuing, 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 under the Sale and Servicing Agreement, or for
errors in judgment. However, 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.
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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 each March 31, June 30, September 30 and
December 31 unless renewed by the Insurer for successive quarterly 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.
Servicing Compensation
The Servicer will be entitled to receive the Servicing Fee on each
Payment Date, equal to the result of one twelfth times 2.00% of the Pool Balance
as of the close of business on the last day of the second preceding Collection
Period. However, with respect to the first Payment Date the Servicer will be
entitled to receive a Servicing Fee equal to the result of one twelfth times
2.00% of the Original Pool Balance. As additional servicing compensation, the
Servicer will also be entitled to receive certain late fees, prepayment charges
and other administrative fees or similar charges. 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 which shall (1)
reflect current market practice with respect to compensation of servicers of
receivables comparable to the Receivables and (2) not exceed 3.00% 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 amounts received upon
payment in full of Rule of 78's Receivables in excess of the then outstanding
principal balance of such Receivables and accrued interest (calculated under the
actuarial method). The Servicer will also 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, before 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
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fees, data processing costs and other costs incurred in connection with
administering the Receivables.
Servicer Termination Events
Any of the following events will constitute a "Servicer Termination
Event" under the Sale and Servicing Agreement:
o 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;
o 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 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;
o 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 under bankruptcy proceedings, or inability to pay its
obligations;
o a claim is made under the Policy; or
o the occurrence of an Insurance Agreement Event of Default.
An "Insurance Agreement Event of Default" means an event of default
under the Insurance Agreement or under any other "insurance agreement" under
which Financial Security has issued (or issues in the future) a financial
guaranty insurance policy in respect of securities issued by a trust for which
CPS is the Servicer. The events constituting an Insurance Agreement Event of
Default (including the events of default under any such other insurance
agreements) may be modified, amended or waived by Financial Security without
notice to or consent of the Indenture Trustee or any Noteholder. Remedies
available to Financial Security upon the occurrence of an Insurance Agreement
Event of Default include increasing the amount required to be on deposit in the
Spread Account and terminating CPS's appointment as Servicer. See "Risk
Factors--Sub-Prime Obligors; Servicing".
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Rights Upon Servicer Termination Event
Following the occurrence of a Servicer Termination Event that remains
unremedied, either (1) the Insurer (provided no Insurer Default shall have
occurred and be continuing) in its sole and absolute discretion or (2) if an
Insurer Default shall have occurred and be continuing, 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. However, a successor Servicer shall have no liability with
respect to any obligation which was required to be performed by the predecessor
Servicer before the date the 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.
"Insurer Default" shall mean any one of the following events shall have
occurred and be continuing:
o the Insurer fails to make a payment required under the Policy in
accordance with its terms;
o the Insurer
- 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
- makes a general assignment for the benefit of its creditors,
or
- 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
o 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
- appointing a custodian, trustee, agent or receiver for the
Insurer or for all or any material portion of its property or
- 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).
Waiver of Past Defaults
With respect to the Trust, subject to the approval of the Insurer, the
holders of Notes evidencing more than 50% of the outstanding principal balance
of the Notes (the "Class A Note
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Majority") may, on behalf of all Securityholders waive any default by the
Servicer in the performance of its obligations under the Sale and Servicing
Agreement and its consequences. However, a default in making any required
deposits to or payments from any of the Trust Accounts in accordance with the
Sale and Servicing Agreement may not be waived. No waiver of a default by the
Servicer shall impair the Noteholders' rights with respect to subsequent
defaults.
The Standby Servicer
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 Class A Note Majority, terminate the rights and obligations of the Servicer
under the Sale and Servicing Agreement. See "Risk Factors--Termination of CPS as
Servicer" and "Description of the Trust Documents--Servicer Termination Events"
in this Prospectus Supplement. 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 (in such capacity, the "Standby Servicer")
has agreed to serve as successor Servicer under the Sale and Servicing Agreement
pursuant to a Servicing and Lockbox Processing Assumption Agreement, dated as of
October [ ], 1998, among CPS, the Standby Servicer and the Indenture Trustee
(the "Servicing Assumption Agreement"). The Standby Servicer will receive a 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 in an amount equal to one twelfth of the Servicing Fee Rate times
the Pool Balance as of the close of business on the last day of the second
preceding Collection Period. The "Servicing Fee Rate" will be a rate that will
(i) reflect current market practice with respect to compensation of servicers of
receivables comparable to the Receivables and (ii) not exceed 3.00% per annum.
See "The Standby Servicer" in this Prospectus Supplement.
THE POLICY
Because this is a summary, it does not contain all the information that
may be important to you. You should read the entire Policy, including any
accompanying endorsements or exhibits before you make an investment decision.
Simultaneously with the issuance of the Notes, the Insurer will deliver
the Policy to the Indenture Trustee for the benefit of each Class A Noteholder.
Under the Policy, the Insurer unconditionally and irrevocably guarantees to the
Indenture Trustee for the benefit of each Class A 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 (1) the
Noteholders' Interest Distributable Amount and (2) the Noteholders' Principal
Distributable Amount on a Payment Date, in each case,
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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:
o a default by the Issuer;
o an election by the Issuer to pay principal on an accelerated basis
o the occurrence of an Event of Default under the Indenture or
o 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. If the Insurer
does not so elect, the Policy will continue to guarantee Scheduled
Payments due on the Notes in accordance with their original terms.
Scheduled Payments shall also not include, nor shall coverage be provided under
the Policy in respect of:
o any portion of the Noteholders' Interest Distributable Amount due to
Noteholders because a notice and certificate in proper form was not
timely Received by the Insurer, or
o 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 under the
Policy.
Scheduled Payments shall not include any amounts due in respect of the
Notes attributable to any increase in interest rates, penalties or other sums
payable by the Trust by reason of a default or Event of Default in respect of
the Notes, or by reason of a deterioration of the creditworthiness of the Trust,
nor shall Scheduled Payments include, nor shall coverage be provided under the
Policy in respect of, any taxes, withholding or other charges with respect to
any Noteholder imposed by any governmental authority due in connection with the
payment of any Scheduled Payments to a Class A Noteholder.
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 (1) 12:00 noon, New York City time,
on the third Business Day following Receipt of such notice for payment, and (2)
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 under the Order referred to below
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or the first to occur of (a) the fourth Business Day following Receipt by the
Insurer from the Indenture Trustee of
(1) a certified copy of the order (the "Order") of the court or
other governmental body which exercised jurisdiction to the
effect that the Class A 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,
(2) a certificate of the Noteholder that the Order has been
entered and is not subject to any stay, and
(3) an assignment duly executed and delivered by the Class A
Noteholder, in such form as is reasonably required by the
Insurer and provided to the Class A Noteholder by the Insurer,
irrevocably assigning to the Insurer all rights and claims of
the Class A 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 (1), (2) and (3) above if, at least four Business
Days before such date of Receipt, the Insurer shall have received written notice
from the Indenture Trustee 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 Class A Noteholder directly
(unless a Class 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 Class A Noteholder upon proof of such payment reasonably
satisfactory to the Insurer). In connection with the foregoing, the Insurer
shall have the rights provided under 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, before
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 (1) a
Saturday or Sunday or (2) a day on which banking institutions in the City of New
York, New York, Minneapolis, Minnesota, the State in which the principal
corporate trust office of the Indenture Trustee is located, or any other
location of any successor indenture trustee or successor Collateral Agent are
authorized or obligated by law or executive order to be closed.
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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 Class A
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 before 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 1/
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 the 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, 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
- --------
1/ FSA to update.
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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
Under 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, Fitch
IBCA, Inc., Japan Rating and Investment Information, 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 Notes" 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 March 31, 1998 (in thousands):
March 31, 1998
--------------
(Unaudited)
Deferred premium revenue
(net of prepaid reinsurance premiums).......... $ 428,157
Shareholder's equity:
Common stock.................................. 15,000
Additional paid-in capital.................... 618,317
Unrealized gain on investments
(net of deferred income taxes).............. 24,700
Accumulated earnings.......................... 265,030
-----------
Total shareholder's equity............... 923,047
-----------
Total deferred premium revenue and
shareholder's equity................... $1,351,204
===========
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For further information concerning Financial Security, see the
Consolidated Financial Statements of Financial Security Assurance Inc., 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.
Financial Security does not accept any responsibility for the accuracy
or completeness of this Prospectus Supplement or any information or disclosure
contained herein, or omitted herefrom, other than with respect to the accuracy
of the information regarding Financial Security set forth under the heading "The
Insurer".
FEDERAL INCOME TAX CONSEQUENCES
Federal Tax Counsel will deliver its opinion that 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 for Federal income tax purposes. See "Federal Income
Tax Consequences" in the Prospectus for additional information concerning the
application of Federal income tax laws to the Trust and the Notes.
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 within the meaning of Section 3(3)
of ERISA, as well as an individual retirement account, a Keogh plan and any
other plan within the meaning of Section 4975 of the Code (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
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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 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 Insurer, 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") 96-23, regarding
transactions effected by "in-house asset managers"; PTCE 95-60, regarding
investments by insurance company general accounts; 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
Class A Note, each initial purchaser, transferee and owner of a beneficial
interest will be deemed to represent that either (1) it is not acquiring the
Notes with the assets of a Benefit Plan; or (2) the acquisition and holding 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.
S-68
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an
underwriting agreement dated October [ ], 1998 (the "Underwriting Agreement")
among CPS, the Seller, Samco, Linc and the Underwriter, the Seller has agreed to
sell to the Underwriter, and the Underwriter has agreed to purchase, Notes in
the following amounts:
Principal Amount Principal Amount
of Class A-1 Notes of Class A-2 Notes
------------------ ------------------
[$ ] [$ ]
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 Notes 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 Notes 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 Notes for whom they may act as agent. The Underwriter and any
dealers that participate with the Underwriter in the distribution of 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. In addition,
certain fees and expenses of the Underwriter, including fees and expenses of its
counsel, will be paid by CPS and the Seller.
The Notes are a new issue of securities with no established trading
market. CPS and the Seller do not intend to apply for listing of the Notes on a
national securities exchange. The Underwriter has advised CPS and the Seller
that it intends to act as a market maker for the Notes. However, the Underwriter
is not obligated to do so and may discontinue any market making at any time
without notice. Accordingly, no assurance can be given as to the liquidity of
any trading market for the Notes.
In connection with the offering of the Notes, the Underwriter may
engage in transactions that stabilize, maintain or otherwise affect the market
price of the Notes. Such transactions may include stabilization transactions
effected in accordance with Rule 104 of Regulation M, pursuant to which such
person may bid for or purchase the Notes for the purpose of stabilizing its
market price. In addition, the Underwriter may impose "penalty bids" whereby it
may reclaim from a dealer participating in the offering the selling concession
with respect to the Notes that such dealer distributed in the offering but
subsequently purchased for the account of the Underwriter in the open market.
Any of the transactions described in this paragraph may result in the
maintenance of the price of the Notes at a level above that which might
otherwise prevail in the open market. None of the transactions described in this
paragraph is required, and, if they are taken, may be discontinued at any time
without notice.
S-69
<PAGE>
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.
In the ordinary course of their respective businesses, the Underwriter
and its affiliates have engaged and may engage in investment banking and/or
commercial banking transactions with CPS and the Seller and their affiliates.
See "Use of Proceeds" herein [and "Plan of Distribution" in the accompanying
Prospectus]. [In connection with the offering contemplated by this Prospectus
Supplement, First Union Corporation, the parent company of the Underwriter, has
received a fee from the Seller in respect of certain advisory services relating
to the structuring of the transaction.] In addition, on November 24, 1997, CPS
entered into a $150 million credit agreement with First Union National Bank, an
affiliate of the Underwriter, to fund the warehousing of retail installment sale
contracts relating to automobiles, light trucks, vans and minivans.
This Prospectus Supplement and the accompanying Prospectus may be used
by the Underwriter, affiliates of which have an ownership interest in, or
participate in banking transactions with, CPS and the Seller, in connection with
offers and sales related to market making transactions in the Notes. The
Underwriter may act as principal or agent in such transactions. Such sales will
be made at prices related to prevailing market prices at the time of the sale or
otherwise.
LEGAL OPINIONS
Certain legal matters relating to the Securities will be passed upon
for the Seller and the Servicer by Mayer, Brown & Platt, New York, New York.
Certain legal matters relating to the Notes will be passed upon for the
Underwriter by Dewey Ballantine, 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 or an Associate General Counsel of the
Insurer.
EXPERTS
The consolidated balance sheets of Financial Security Assurance Inc.
and its subsidiaries as of December 31, 1997 and 1996 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, 1997,
incorporated by reference in this Prospectus Supplement, have been incorporated
herein in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
CPS, as originator of the Trust, filed a registration statement
relating to the securities with the United States Securities and Exchange
Commission, (the "SEC"). This Prospectus Supplement is part of the registration
statement, but the registration statement includes additional information.
CPS will file with the SEC all required annual, monthly and special SEC
reports and other information about any Trust it originates.
S-70
<PAGE>
You may read and copy any reports, statements or other information we
file at the SEC's public reference room at 450 Fifth Street, N.W., Washington,
D.C. 20549. You can request copies of these documents, upon payment of a
duplicating fee, by writing to the SEC. Please call the SEC at (800) SEC-0330
for further information on the operation of the public reference rooms. Our SEC
filings are also available to the public on the SEC internet site
(http://www.sec.gov.).
The SEC allows us to "incorporate by reference" information that CPS
files with it, which means that CPS can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus. Information that CPS files later with
the SEC will automatically update the information in this prospectus. In all
cases, you should rely on the later information over different information
included in this prospectus or the accompanying prospectus supplement. CPS
incorporates by reference any future annual, monthly and special SEC reports and
proxy materials filed by or on behalf of any Trust until we terminate offering
the Notes.
CPS's Annual Report on Form 10-K for the fiscal year ended December 31,
1997 (File No. [ ]) was filed with the SEC under the Securities Exchange Act of
1934 and is incorporated into this prospectus supplement by reference. Since
that time, CPS has not been, and is not currently, required to file reports
under Section 13(a) or 15(d) of the Exchange Act, except for the filing of
Current Reports on Form 8-K in connection with the trusts it originates. [The
Seller's Current Reports on Form 8-K dated [ ], [ ], [ ], and [ ] are
incorporated into this prospectus supplement by reference.]
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.
("Financial Security") 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 year ended December 31, 1997,
(b) Quarterly Report on Form 10-Q for the period ended March 31, 1998,
and
(c) Quarterly Report on Form 10-Q for the period ended June 30, 1998.
All financial statements of Financial Security and its 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.
The New York State Insurance Department recognizes only statutory
accounting practices for determining and reporting the financial conditions and
results of operations of an insurance company, for determining its solvency
under the New York Insurance Law, and for determining whether its financial
condition warrants the payment of a dividend to its stockholders. No
S-71
<PAGE>
consideration is given by the New York State Insurance Department to financial
statements prepared in accordance with generally accepted accounting principles
in making such determinations.
As a recipient of this prospectus, you may request a copy of any
document CPS incorporates by reference, except exhibits to the documents (unless
the exhibits are specifically incorporated by reference), at no cost, by
contacting: Consumer Portfolio Services, Inc., 2 Ada, Irvine, California 92718,
Attention, Jeffrey P. Fritz. Telephone requests for such copies should be
directed to Consumer Portfolio Services, Inc. at (714) 753-6800.
S-72
<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......................................................S-41
Aggregate risks............................................................S-67
Alpha Program..............................................................S-24
APR........................................................................S-32
Benefit Plan.........................................................S-12, S-67
Business Day...............................................................S-64
Cede.......................................................................S-45
Class A Note Majority......................................................S-62
Class A Noteholders' Percentage............................................S-52
Class A-1 Noteholders' Interest Carryover Shortfall........................S-52
Class A-1 Noteholders' Interest Distributable Amount.......................S-52
Class A-1 Noteholders' Monthly Interest Distributable Amount...............S-52
Class A-2 Noteholders.......................................................S-5
Class A-2 Noteholders' Interest Carryover Shortfall........................S-53
Class A-2 Noteholders' Interest Distributable Amount.......................S-53
Class A-2 Noteholders' Monthly Interest Distributable Amount...............S-53
Class A-2 Notes.............................................................S-4
Class A-2 Pool Factor......................................................S-42
Closing Date................................................................S-5
Collection Account.........................................................S-49
Contracts..................................................................S-21
CPS.........................................................................S-7
Cram Down Loss.............................................................S-53
Cutoff Date.................................................................S-8
Dealers....................................................................S-20
Delta Program..............................................................S-24
Deposit Institutions..................................................S-7, S-23
Determination Date.........................................................S-49
DTC........................................................................S-43
ERISA......................................................................S-67
Events of Default....................................................S-55, S-56
Federal Tax Counsel........................................................S-12
Financial Intermediary.....................................................S-45
Financial Security...................................................S-65, S-71
First Time Buyer Program...................................................S-24
Holders....................................................................S-43
Holdings.............................................................S-65, S-71
IFCs........................................................................S-7
Indenture...................................................................S-4
Insurance Agreement Event of Default.......................................S-60
Insurance Agreement Indenture Cross Default................................S-55
Insurance Agreement............................................S-13, S-15, S-60
Insurer Default............................................................S-61
Insurer..............................................................S-11, S-65
Linc........................................................................S-7
Linc Program...............................................................S-24
S-73
<PAGE>
Liquidated Receivable......................................................S-51
Liquidation Proceeds.......................................................S-51
Lock-Box Account...........................................................S-49
Lock-Box Bank..............................................................S-48
Lock-Box Processor.........................................................S-48
Master Spread Account Agreement............................................S-54
Moody's....................................................................S-12
Note Distribution Account..................................................S-49
Note Owners................................................................S-43
Note Prepayment Amount.....................................................S-44
Noteholders................................................................S-43
Noteholders' Distributable Amount..........................................S-52
Noteholders' Interest Distributable Amount.................................S-53
Noteholders' Monthly Interest Distributable Amount.........................S-53
Noteholders' Principal Distributable Amount................................S-44
Notes.......................................................................S-4
Obligors...................................................................S-20
Order......................................................................S-64
Original Pool Balance......................................................S-42
Participants...............................................................S-45
Payment Date................................................................S-5
Policy................................................................S-1, S-11
Pool Balance...............................................................S-42
Post Office Box............................................................S-48
prepayments................................................................S-42
Principal Balance..........................................................S-54
Principal Distributable Amount..............................................S-6
PTCE.......................................................................S-68
Purchase Amount............................................................S-51
Rating Agencies............................................................S-12
Receipt....................................................................S-64
Received...................................................................S-64
Recoveries.................................................................S-52
Regulation.................................................................S-68
Rule of 78's Receivables...................................................S-41
Samco.......................................................................S-7
Scheduled Payments...................................................S-11, S-62
Scheduled Receivable Payment...............................................S-54
Seller......................................................................S-4
Servicer Termination Event.................................................S-60
Servicing Assumption Agreement.............................................S-62
Servicing Fee Rate.........................................................S-62
Simple Interest Receivables................................................S-41
single risks...............................................................S-67
Spread Account.............................................................S-54
Standard & Poor's..........................................................S-12
Standard Program...........................................................S-24
Standby Fee................................................................S-62
Standby Servicer...........................................................S-62
Sub-Prime Borrowers..................................................S-14, S-21
Subsequent Cutoff Date.....................................................S-47
S-74
<PAGE>
Subsequent Receivables................................................S-8, S-47
Super Alpha Program........................................................S-24
Total Distribution Amount..................................................S-51
Trust.......................................................................S-4
Trust Documents............................................................S-46
Trustee Fees...............................................................S-50
UCC........................................................................S-48
Underwriting Agreement.....................................................S-69
S-75
<PAGE>
CPS Auto Receivables Trust 1998-4
CPS Receivables Corp.
Seller
CONSUMER PORTFOLIO SERVICES, INC.
Servicer
$[ ] [ %] Asset-Backed Notes, Class A-1
$[ ] [ %] Asset-Backed Notes, Class A-2
------------------------------------
PROSPECTUS SUPPLEMENT
------------------------------------
FIRST UNION CAPITAL MARKETS
You should rely only on the information contained in these documents or
that we have referred you to. We have not authorized anyone to provide you with
information that is different.
We are not offering the Notes in any state where the offer is not
permitted.
Until [ ], all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
S-76
<PAGE>
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 including purchasers who are Sub-Prime
Borrowers (as defined herein). See "CPS Automobile Contract Portfolio." The
Trust Assets will be secured by new and used automobiles, light trucks, vans and
minivans financed thereby, and originated by CPS or an Affiliated Originator,
together with all moneys received relating thereto (the "Contracts"). The Trust
Assets will 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") as 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 OCTOBER 28, 1998
<PAGE>
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
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 (the "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.
The Sponsor has also filed with 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. 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 Commission.
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 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
2
<PAGE>
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.
3
<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 interests 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.
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" or "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
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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 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
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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 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 Eligible
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 pursuant to the
related 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
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Supplement will specify the Interest Rate,
or the method for 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 --General Payment Terms of
the Securities."
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 the
related Prospectus Supplement provides only
for Definitive Securities. Securityholders
will only be able to receive Definitive
Securities in the limited circumstances
described herein or in the related
Prospectus Supplement. See "Description of
the Securities -- Definitive Notes".
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
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<PAGE>
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.
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.
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.
See "The Receivables--The Receivables." On
the date of issuance of a Series of
Securities specified in the 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
8
<PAGE>
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, in any case not to exceed
34% of the Trust's Assets or 25% of the
Certificate Balance, if any, initially
deposited into an account (a "Pre-Funding
Account"), such moneys will be used 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"), not to exceed 6 months, 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, underwriting and other
criteria set forth herein and in the related
Prospectus Supplement. Any funds on deposit
in the Pre-Funding Account and not yet
invested in Subsequent Receivables will be
invested in Permitted Investments. See "Risk
Factors--Varying Characteristics 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 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.
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<PAGE>
Such distribution may affect the yield
realized by Securityholders and
Securityholders may not be able to reinvest
those funds in investments realizing
comparable returns. See "Risk
Factors--Distribution of Pre-Funded
Amount--Effect on Yield and Maturity."
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 of
DTC. In such case, Securityholders will not
be entitled to receive definitive securities
representing such Securityholders'
interests. 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 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
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<PAGE>
"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, unless the related Prospectus
Supplement does not so provide, Federal Tax
Counsel to the applicable Trust will deliver
an opinion to the effect that, for Federal
income tax purposes: (i) either (x) the
Notes of such series will be characterized
as debt or (y) the Notes of such series
should be characterized as debt (but if not
characterized as debt, the Notes of such
series will be characterized as interests in
a partnership) and (ii) such Trust will not
be characterized as an association (or
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 income tax laws to
the Notes and Certificates of a series and
to the applicable Trust.
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 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:
Sub-Prime 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.
Effect of Social, Economic and Other Factors on Losses. 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.
Risk of Replacing CPS as Servicer. Servicing receivables of sub-prime
obligors is more difficult than servicing receivables of prime obligors.
Officers and employees of CPS have many years of experience in this type of
servicing. If CPS were to cease acting as Servicer, delays in processing
payments on the Receivables and information in respect thereof could occur and
result in delays in payments to the Securityholders.
Risk of CPS's Inability to Repurchase Receivables. 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."
Effect of Prepayments on Yield and Maturity. 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.
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<PAGE>
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.
Distribution of Pre-Funded Amount -- Effect on Yield and Maturity. 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.
Varying Characteristics 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 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
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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 -- Lack of Perfected Security Interests in Financed
Vehicles. 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
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 of retitling each of the Financed Vehicles in the appropriate state, 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 Financed Vehicle after the Closing Date. See "Certain Legal Aspects of the
Receivables -- Security Interests in the Financed Vehicles."
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."
Non-Consolidation. 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
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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."
True Sale. 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 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.
Risk of Changes in Delinquency Levels. 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. For a discussion and
analysis see "CPS's Automobile Contract Portfolio--Delinquency and Loss
Experience."
Subordination; Limited Assets. To the extent specified in the related
Prospectus Supplement, distributions of interest and principal on one Class of
Notes of a Series may be subordinated in priority of payment to interest and
principal due on other Classes of Notes of a related Series. Moreover, each
Trust will not have,
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nor is it permitted or expected to have, any significant assets or 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.
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.
Priority of Interest in 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 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.
Limitations on the Amount of 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.
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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.
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 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.
Limitations Due to 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."
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.
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 repay indebtedness incurred 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
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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") (including Sub-Prime Borrowers) 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
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 (not to exceed 6 months). Any Subsequent Receivables so conveyed to a
Trust will also be assets of such Trust. The Pre-Funded Amount will not exceed
34% of the Trust Assets nor 25% of the Certificate Balance, if any.
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
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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").
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
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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
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 from those described in the related Prospectus Supplement as Subsequent
Receivables are conveyed to such Trust from time to time during the Funding
Period or Revolving Period; provided that the Trust will not acquire any
Subsequent Receivable on a Subsequent Transfer Date if the addition of such
Subsequent Receivable (giving consideration to all other Subsequent Receivables
acquired by the Trust on or prior to such Subsequent Transfer Date) would result
in any characteristic of the related Receivables Pool varying by more than 5%
from the description of such characteristic in the related Prospectus Supplement
. The Sponsor will file each Subsequent Transfer Agreement with the Commission
on Form 8-K.
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" method (also referred to as
the "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
amount of interest earned in any period is equal to the total finance charge due
under the contract multiplied by a fraction the numerator of which is the
remaining number of periods of the contract and the denominator of which is the
sum of the digits for the term of the contract. For example, on a 36 month
contract in its 17th month, the numerator would be nineteen and the denominator
would be 666 (1+2+3+4....+36=666). 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.
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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 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.
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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.
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 defined in the related
Prospectus Supplement, the "Pool Balance"), each Pool Factor and various other
items of information. In addition,
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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 92718; 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 Mayer, Brown & Platt 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 Mayer, Brown & Platt 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 -- Non-Consolidation."
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
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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, Irvine, California 92718; 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.
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.
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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.
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 Eligible
Investments, including Receivables) for a specified period prior to being used
to fund payments of principal to Securityholders. "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. See
"Description of the Trust Documents -- Accounts."
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 in Receivables,
the related Prospectus Supplement will describe the material terms and
conditions of such certificates.
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Book-Entry Registration
As specified 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.
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. Unless the related Prospectus Supplement provides for
Definitive Securities it is
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anticipated that the only "Securityholder" in respect of any Series will be
Cede, as nominee of DTC, or another 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.
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.
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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
Except to the extent that the related Prospectus Supplement provides for
book-entry Securities, 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 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.
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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
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").
If the related Prospectus Supplement so provides, 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 and any Permitted
Investments purchased with funds not yet invested in Subsequent Receivables.
Monies on deposit in the Pre-Funding Account will not be available to cover
losses on or in respect of the Receivables and any Permitted Investments
purchased with funds not yet invested in Subsequent Receivables. On the Closing
Date,
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the Pre-Funding Account will be funded with the initial Pre-Funded Amount from
the sale proceeds of the Securities.
If the related Prospectus Supplement so provides the Seller will 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 certain Payment Dates to be specified in the related Prospectus
Supplement, 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.
Any other accounts to be established with respect to a Trust, including
any other reserve account, yield supplement account or negative arbitrage
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 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
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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 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 the related Prospectus
Supplement does not so provide, 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.
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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.
Servicing Compensation
As will 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 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 not provided for therein,
distributions in respect of principal of a Class of Securities
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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 will
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.
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.
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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 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
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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 in, and unless not provided for by, 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 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 the related Prospectus
Supplement does not so provide, 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 10% 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, any
outstanding Notes of the related Series will be redeemed concurrently with 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.
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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 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 the related Prospectus Supplement does not so provide, each
Contract will name CPS or the applicable Affiliated Originator as obligee or
assignee and as the secured party. Unless the related Prospectus Supplement does
not so provide, 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. 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 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
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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
the related Prospectus Supplement does not so provide, 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
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
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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 or result in the imposition
of penalties in excess of amounts owing on the Receivables. In some instances,
particularly in actions based upon fraud or unfair and deceptive practices,
damage awards have been large. If the Trust were obligated to pay any such
damages, its assets would be directly reduced, resulting in a potential loss to
the Securityholders.
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 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
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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.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material Federal income tax
consequences of the purchase, ownership and disposition of the Notes and the
Certificates. However, 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 Mayer, Brown & Platt, special
Federal tax counsel to such Trust ("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.
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Tax Characterization of the Trust
Prior to the issuance of Securities by the related Trust, Federal Tax
Counsel will deliver its opinion that the Trust will not be treated as 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 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. Prior to the
sale of Securities by the related Trust, Federal Tax Counsel will deliver its
opinion to the Trust with respect to each series of Notes that either (i) the
Notes of such series will be characterized as debt for Federal income tax
purposes or (ii) the Notes of such series should be characterized as debt for
Federal income tax purposes, but if such Notes are not characterized as debt,
such Notes will be characterized as interests in a partnership. Except as
described below under the heading "--Possible Alternative Treatment of the
Notes" below, the discussion below assumes that the characterization of the
Notes as debt for Federal income tax purposes is correct.
OID. The discussion below assumes that all payments on the Notes are
denominated in U.S. dollars, and that the Notes are not Strip Notes (the Federal
income tax consequences for which will be described in the applicable Prospectus
Supplement). 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 generally 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 generally 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
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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. Capital gains realized by
individual taxpayers from the sale or exchange of capital assets held for more
than 12 months are subject to preferential rates of tax.
Foreign Holders. Interest paid (or accrued) to a Noteholder who is a
nonresident alien, foreign corporation or other person other than a United
States person as defined in the Code and Treasury Regulations (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.
Final regulations dealing with withholding tax on income paid to foreign
persons and related matters (the "New Withholding Regulations") were issued by
the Treasury Department on October 6, 1997. The New Withholding Regulations will
generally be effective for payments made after December 31, 1999, subject to
certain transition rules. Prospective Noteholders who are foreign persons are
strongly urged to consult their own tax advisors with respect to the New
Withholding Regulations.
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
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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 Treatment of the Notes. In the opinion of Federal Tax
Counsel, in the event that any series of Notes were not treated as debt for
Federal income tax purposes, such series of Notes would be characterized for
Federal income tax purposes as interests in a partnership. If any series of the
Notes did constitute interests in such a partnership, it is expected that stated
interest payments on such Notes would be treated either as guaranteed payments
under section 707(c) of the Code or as a preferential allocation of net income
of the Trust (with all other items of Trust income, gain, loss, deduction and
credit being allocated to the holders of the Certificates). Although the Federal
income tax treatment of such Notes for most accrual basis taxpayers should not
differ materially under such characterization from the treatment of such Notes
as debt, such characterization could result in adverse effects for certain
holders of Notes. For example, holders of Notes treated as interests in a
partnership could be subject to tax on income equal to the entire amount of the
stated interest payments on the Notes (plus possibly certain other items) even
though the Trust might not have sufficient cash to make current cash
distributions of such amount. Thus, cash basis holders would in effect be
required to report income in respect of such Notes on the accrual basis and
holders of such Notes could become liable for taxes on Trust income even if they
have not received cash from the Trust to pay such taxes. Moreover, income
allocable to a holder of a Note treated as a partnership interest that is a
pension, profit-sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) would constitute "unrelated
debt-financed income" generally taxable to such a holder under the Code. In
addition, foreign persons holding such Notes could be subject to withholding or
required to file a U.S. Federal income tax return and to pay U.S. Federal income
tax (and, in the case of a corporation, branch profits tax) on their share of
accruals of guaranteed payments and Trust income, and individuals holding such
Notes might be subject to certain limitations on their ability to deduct their
share of Trust expenses.
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 may 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.
The following discussion assumes that all payments on the Certificates are
denominated in U.S. dollars, none of the Certificates are 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
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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
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.
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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.
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 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.
44
<PAGE>
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 issuing Certificates 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 appears under recent
amendments to the Code that the Trust would not be considered to be engaged in
the conduct of a trade or business in the United States for purposes of Federal
withholding taxes with respect to foreign persons, and, although there is no
clear authority dealing with that issue under facts substantially similar to
those described herein, the Trust intends to take the position that it is not
engaged in the conduct of a trade or business in the United States. Foreign
persons that are partners in a partnership that is not engaged in the conduct of
a trade or business in the United States are subject to U.S. withholding tax at
a rate of 30 percent assessed on a gross basis on certain items of fixed or
determinable annual or periodical gains, profits and income earned by the
partnership from U.S. sources that are allocable to such foreign partners. To
the extent that any such income earned by a partnership is allocable to partners
that are foreign persons, such partnership is obligated to withhold such gross
basis tax, unless such tax is eliminated by an income tax treaty to which the
United States is a signatory or another exemption applies. It is not expected
that interest earned by the Trust would qualify as "portfolio interest" that was
not subject to U.S. withholding tax to the extent allocable to a
Certificateholder that was a foreign person. Assuming then that the Trust is not
considered to be engaged in the conduct of a trade or business in the United
States, the Trust would be required to withhold U.S. tax on interest earned by
the Trust on the Receivables that was allocable to Certificateholders that are
foreign persons, unless such tax is eliminated by an income tax treaty. Foreign
persons holding Certificates will therefore be required to provide to the
Trustee an IRS Form 1001 or successor form establishing such non-U.S.
Certificateholder's entitlement to benefits
45
<PAGE>
under an income tax treaty that eliminates U.S. withholding tax on payments of
interest from U.S. sources. Subsequent adoption of Treasury regulations or the
issuance of other administrative pronouncements may require the Trust to change
its withholding procedures.
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 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 and certain Bankruptcy matters, will be passed upon by Mayer, Brown &
Platt, New York, New York, or other counsel specified in the related Prospectus
Supplement.
46
<PAGE>
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. 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.
47
<PAGE>
INDEX OF TERMS
"Accrual Securities".......................................................7
"Actuarial Receivables"...................................................22
"Affiliate Purchase Agreement"............................................20
"Affiliated Originator"................................................9, 23
"APR".....................................................................22
"cash sale differential"..................................................40
"CEDEL Participants"......................................................28
"Cede"....................................................................10
"Certificateholders"......................................................34
"Certificates"..........................................................1, 4
"Class"....................................................................1
"Closing Date".........................................................9, 30
"Code"....................................................................41
"Collection Account"......................................................31
"Collection Period"........................................................6
"Commission"...............................................................2
"Contracts"............................................................1, 23
"Cooperative".............................................................29
"CPS"......................................................................4
"Credit Enhancement"......................................................18
"Credit Enhancer".........................................................18
"Cutoff Date"..............................................................9
"Dealer Agreements".......................................................19
"Dealers".................................................................19
"Definitive Securities"...................................................29
"Depositaries"............................................................27
"Direct Participants".....................................................18
"Distribution Account"....................................................31
"DTC".....................................................................10
"Eligible Deposit Account"................................................32
"Eligible Institution"....................................................32
"Eligible Investments"................................................27, 31
"ERISA"...................................................................12
"Euroclear Operator"......................................................29
"Euroclear Participants"..................................................29
"Exchange Act".........................................................2, 12
"Federal Tax Counsel".....................................................41
"Financed Vehicles".....................................................1, 9
"foreign person"..........................................................43
"FTC Rule"................................................................40
"Funding Period"...........................................................9
"IFC's"...................................................................23
"Indenture Trustee"........................................................4
"Indenture"................................................................4
"Indirect Participants"...............................................18, 27
"Initial Receivables"......................................................9
"Insolvency Event"........................................................36
"Insolvency Laws".........................................................16
48
<PAGE>
"Interest Rate".........................................................2, 7
"Interest Reserve Account"................................................31
"Investment Earnings".....................................................32
"Investment Income".......................................................10
"IRS".....................................................................41
"Issuer"...............................................................4, 19
"Lock-Box Account"........................................................33
"Lock-Box Processor"......................................................33
"national statistical rating organizations"...............................12
"New Withholding Regulations".............................................43
"Noteholders".............................................................34
"Notes".................................................................1, 4
"Obligors"................................................................19
"OID Regulations".........................................................42
"OID".....................................................................42
"Participants"............................................................27
"Payment Date".............................................................5
"Policy"...................................................................1
"Pool Balance"............................................................24
"Pool Factor".............................................................24
"Post Office Box".........................................................33
"Pre-Funded Amount"........................................................9
"Pre-Funding Account"......................................................9
"prepayments".............................................................13
"Prospectus Supplement"....................................................1
"Purchase Agreement"......................................................20
"Purchase Amount".........................................................20
"Receivables Pool"........................................................19
"Receivables"...........................................................1, 8
"Record Date"..............................................................5
"Registration Statement"...................................................2
"Relief Act"..............................................................18
"Residual Interest"........................................................8
"Rule of 78's Receivables"................................................21
"Rule of 78's"............................................................22
"Rules"...................................................................28
"Sale and Servicing Agreement".........................................9, 19
"Securities Act"...........................................................2
"Securities"...............................................................1
"Security Balance".........................................................7
"Securityholders"..........................................................5
"Seller"...................................................................4
"Senior Securities"........................................................7
"Series"...............................................................1, 25
"Servicer Termination Event"..............................................36
"Servicer"..............................................................1, 4
"Servicing Agreement"......................................................4
"Servicing Fee"...........................................................33
"Short-Term Note".........................................................42
"Simple Interest Receivables".............................................22
"Sponsor"..................................................................4
"Standby Servicer"....................................................32, 33
49
<PAGE>
"Strip Securities".........................................................7
"Sub-Prime Borrowers".....................................................23
"sub-prime"...............................................................13
"Subordinate Securities"...................................................7
"Subsequent Receivables"...................................................9
"Subsequent Transfer Date"............................................14, 21
"Subservicer"..............................................................4
"sum of monthly payments".................................................21
"sum of periodic balances"................................................21
"Terms and Conditions"....................................................29
"Trust Accounts"..........................................................31
"Trust Agreement"..........................................................4
"Trust Assets"..........................................................1, 4
"Trust Documents"......................................................5, 30
"Trustee"...............................................................4, 5
"Trust".................................................................1, 4
"Underwriting Agreement"..................................................48
50
<PAGE>
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================================================================================
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 representations 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.
================================================================================
TABLE OF CONTENTS
Prospectus Supplement
PAGE
----
Available Information.....................................................S-2
Incorporation of Certain Documents by Reference...........................S-2
Reports to Noteholders....................................................S-3
Summary...................................................................S-4
Risk Factors.............................................................S-17
Formation of the Trust..................................................S-19
The Trust Assets.........................................................S-20
CPS's Automobile Contract Portfolio......................................S-21
The Receivables Pool.....................................................S-28
Yield Considerations.....................................................S-35
Pool Factors and Other Information.......................................S-35
Use of Proceeds..........................................................S-36
The Seller, CPS, Samco and Linc..........................................S-36
The Standby Servicer.....................................................S-36
Description of the Securities............................................S-36
Registration of Notes....................................................S-38
Description of the Trust Documents.......................................S-39
Credit Enhancement.......................................................S-50
The Policy...............................................................S-50
The Insurer..............................................................S-52
Federal Income Tax Consequences..........................................S-53
ERISA Considerations.....................................................S-53
Underwriting.............................................................S-54
Legal Opinions...........................................................S-55
Experts..................................................................S-55
Index of Terms...........................................................S-56
Prospectus
----------
Prospectus Supplement.......................................................2
Available Information.......................................................2
Incorporation of Certain Documents by Reference.............................2
Report to Securityholders...................................................3
Summary of Terms............................................................4
Risk Factors...............................................................13
The Issuers................................................................18
The Trust Assets...........................................................19
Acquisition of Receivables by the Seller...................................20
The Receivables............................................................20
CPS's Automobile Contract Portfolio........................................22
Pool Factors...............................................................23
Use of Proceeds............................................................23
The Seller and CPS.........................................................23
The Trustee................................................................24
Description of the Securities..............................................25
Description of the Trust Documents.........................................29
Certain Legal Aspects of the Receivables...................................36
Federal Income Tax Consequences............................................40
ERISA Considerations.......................................................46
Plan of Distribution.......................................................46
Legal Opinions.............................................................47
Financial Information......................................................47
Index of Terms.............................................................48
------------------------
Until 90 days after the date of this Prospectus Supplement, all dealers
effecting transactions in the Class A Notes offered hereby, whether or not
participating in this distribution, may be required to deliver this Prospectus
Supplement and the Prospectus. This is in addition and the Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
================================================================================
<PAGE>
PART II
Item 14. Other Expenses of Issuance and Distribution
Registration Fee................................................ $196,387.00
Printing and Engraving.......................................... 40,000.00
Legal Fees and Expenses......................................... 150,000.00
Accountants' Fees and Expenses.................................. 20,000.00
Rating Agency Fees.............................................. 50,000.00
Credit Enhancement Fee.......................................... 101,291.66
Miscellaneous Fees.............................................. 10,000.00
Total........................................................... $567,678.00
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.
II-1
<PAGE>
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-2
<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 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 Sale and Servicing Agreement.*
10.2 --Form of CPS Purchase Agreement*
10.3 --Form of Samco Purchase Agreement*
10.4 --Form of Linc Purchase 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.*
25.1 --Trustee's Statement of Eligibility*
(b) Financial Statements
All financial statements, schedules and historical financial
information have been omitted as they are not applicable.
- --------------------
* Previously filed
II-3
<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.
II-4
<PAGE>
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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Pre-Effective Amendment No. 2 to 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-6
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Pre-Effective Amendment No. 2to Registration Statement has been signed on
November 3, 1998 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
II-7
<PAGE>
/s/ Jeffrey P. Fritz
- -----------------------------
Jeffrey P. Fritz
Chief Financial Officer and Secretary
*By: /s/ Jeffrey P. Fritz
- -----------------------------
Jeffrey P. Fritz
as attorney-in-fact
<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 Sale and Servicing Agreement.*
10.2 -- Form of CPS Purchase Agreement*
10.3 -- Form of Samco Purchase Agreement*
10.4 -- Form of Linc Purchase 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.*
25.1 -- Trustee's Statement of Eligibility*
- -------------------
* Previously filed
II-8
