As filed with the Securities and Exchange Commission on October 20, 1998
Registration No. 333-63805
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE
AMENDMENT NO. 1 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>
<PAGE>
* 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. 1 to incorporate the
Trustee's Statement of Eligibility into the Registration Statement as Exhibit
25.1 thereto, to submit the Prospectus Supplement and Form of Prospectus
Supplement, each in Plain English pursuant to 17 C.F.R. 228, et. seq., as Form C
and Form D thereto, and to delete the words "among others" from the final
sentence of the Introductory Note.
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<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 form of Prospectus Supplement (Form A) relating to future offerings
by a CPS Auto Receivables Trust of a Series of Asset Backed Securities described
therein, (iii) a form of Prospectus Supplement (Form B) relating to the offering
by CPS Auto Receivables Trust 1998-4 of the particular Series of Asset Backed
Notes described therein, (iv) 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 in substitution for Form A,
and (v) 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 in substition for Form B. 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>
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.
Insurance. As permitted under the laws which govern the organization of
the registrant, the registrant's Amended and Restated By-Laws permit the board
of directors to purchase and maintain insurance on behalf of the registrant's
agents, including its officers and directors, against any liability asserted
against them in such capacity or arising out of such agents' status as such,
whether or not the registrant would have the power to indemnify them against
such liability under applicable law.
II-1
<PAGE>
Item 16. Exhibits and Financial Statements
(a) Exhibits
1.1 --Form of Underwriting Agreement.*
4.1 --Form of Trust Agreement, and certain other related agreements as
Exhibits thereto.*
4.2 --Form of Indenture, and certain other related 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-2
<PAGE>
Item 17. Undertakings
A. Undertaking pursuant to Rule 415
The undersigned registrant hereby undertakes as follows:
(a) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(1) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(2) to reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(3) to include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change of such information in the
Registration Statement; provided, however, that paragraphs (1) and (2)
do not apply if the information required to be included in the
post-effective amendment is contained in periodic reports filed by the
Issuer pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
B. Undertaking pursuant to Rule 415
(a) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) under the
Securities Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
C. Undertaking in respect of indemnification
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of the registrant pursuant to the provisions
described under Item 15 above, or otherwise, the registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the questions whether such indemnification by it is against public
policy as expressed in such Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Pre-Effective Amendment No. 1 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-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Pre-Effective Amendment No. 1 to Registration Statement has been signed on
October 20, 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
/s/ Jeffrey P. Fritz
- ---------------------------
Jeffrey P. Fritz
Chief Financial Officer and Secretary
*By:/s/ Jeffrey P. Fritz
------------------------
Jeffrey P. Fritz
as attorney-in-fact
II-5
<PAGE>
EXHIBIT INDEX
1.1 -- Form of Underwriting Agreement.*
4.1 -- Form of Trust Agreement, and certain other related agreements as
Exhibits thereto.*
4.2 -- Form of Indenture, and certain other related agreements as
Exhibits thereto.*
5.1 -- Opinion of Mayer, Brown & Platt with respect to legality.*
8.1 -- Opinion of Mayer, Brown & Platt with respect to tax matters.*
10.1 -- Form of 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-6
<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.
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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 [ ] 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].
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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.
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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.
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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
[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.
S-22
<PAGE>
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
S-23
<PAGE>
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.
S-24
<PAGE>
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
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<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.
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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.
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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.
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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.
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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.
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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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<PAGE>
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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<PAGE>
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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<PAGE>
- 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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<PAGE>
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
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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
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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.
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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
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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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<PAGE>
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
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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.
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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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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
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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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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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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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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.
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) $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.
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. [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
S-32
<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
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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
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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
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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 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.
S-64
<PAGE>
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.
S-65
<PAGE>
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
===========
S-66
<PAGE>
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
S-67
<PAGE>
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
EX-25.1 Statement of Eligibility
Filing pursuant to Registration
Statement Number 333-63805
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
-----------------------------
__CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b) (2)
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
A U.S. National Banking Association 41-1592157
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national Identification No.)
bank)
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
(Address of principal executive offices) (Zip code)
Stanley S. Stroup, General Counsel
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
(612) 667-1234
(Name, address and telephone number of Agent for Service)
-----------------------------
CPS Auto Receivables Trust 1998-4
(Exact name of obligor as specified in its charter)
Delaware To Be Applied For
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Bankers Trust
1011 Centre Road
Suite 200
Wilmington, DE 19805-1266
(Address of principal executive offices) (Zip code)
-----------------------------
Asset Backed Notes of CPS Auto Receivables Trust 1998-4
(Title of the indenture securities)
================================================================================
<PAGE>
Item 1. General Information. Furnish the following information as to the
trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Comptroller of the Currency
Treasury Department
Washington, D.C.
Federal Deposit Insurance Corporation
Washington, D.C.
The Board of Governors of the Federal Reserve System
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with Obligor. If the obligor is an affiliate of the
trustee, describe each such affiliation.
None with respect to the trustee.
No responses are included for Items 3-14 of this Form T-1, pursuant to General
Instruction B, because the obligor is not in default as provided under Item 13.
Item 15. Foreign Trustee. Not applicable.
Item 16. List of Exhibits. List below all exhibits filed as a part of
this Statement of Eligibility.
Exhibit 1. a. A copy of the Articles of Association of the
trustee now in effect.*
Exhibit 2. a. A copy of the certificate of authority of
the trustee to commence business issued June
28, 1872, by the Comptroller of the Currency
to The Northwestern National Bank of
Minneapolis.*
b. A copy of the certificate of the Comptroller
of the Currency dated January 2, 1934,
approving the consolidation of The
Northwestern National Bank of Minneapolis
and The Minnesota Loan and Trust Company of
Minneapolis, with the surviving entity being
titled Northwestern National Bank and Trust
Company of Minneapolis.*
c. A copy of the certificate of the Acting
Comptroller of the Currency dated January
12, 1943, as to change of corporate title of
Northwestern National Bank and Trust Company
of Minneapolis to Northwestern National Bank
of Minneapolis.*
d. A copy of the letter dated May 12, 1983 from
the Regional Counsel, Comptroller of the
Currency, acknowledging receipt of notice of
name change effective May 1, 1983 from
Northwestern National Bank of Minneapolis to
Norwest Bank Minneapolis, National
Association.*
<PAGE>
e. A copy of the letter dated January 4, 1988
from the Administrator of National Banks for
the Comptroller of the Currency certifying
approval of consolidation and merger
effective January 1, 1988 of Norwest Bank
Minneapolis, National Association with
various other banks under the title of
"Norwest Bank Minnesota, National
Association."*
Exhibit 3. A copy of the authorization of the trustee to
exercise corporate trust powers issued January 2,
1934, by the Federal Reserve Board.*
Exhibit 4. Copy of By-laws of the trustee as now in effect.*
Exhibit 5. Not applicable.
Exhibit 6. The consent of the trustee required by Section 321(b)
of the Act.
Exhibit 7. Consolidated Reports of Condition and Income of the
trustee as of June 30, 1998*
Exhibit 8. Not applicable.
Exhibit 9. Not applicable.
* Incorporated by reference to the corresponding numbered exhibits to the
form T-1 filed as Exhibit 25 to registration statement number 33-66026.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the
trustee, Norwest Bank Minnesota, National Association, a national banking
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Minneapolis and State of Minnesota on the 22nd day of September, 1998.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ Shana Stephens Murray
-------------------------
Shana Stephens Murray
Corporate Trust Officer
<PAGE>
EXHIBIT 6
September 22, 1998
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In accordance with Section 321(b) of the Trust Indenture Act of 1939, as
amended, the undersigned hereby consents that reports of examination of the
undersigned made by Federal, State, Territorial, or District authorities
authorized to make such examination may be furnished by such authorities to the
Securities and Exchange Commission upon its request therefor.
Very truly yours,
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ Shana Stephens Murray
-------------------------
Shana Stephens Murray
Corporate Trust Officer
