<PAGE>
$850,145,000
HONDA AUTO RECEIVABLES 1997-B GRANTOR TRUST
5.95% ASSET BACKED CERTIFICATES, CLASS A
AMERICAN HONDA RECEIVABLES CORP.
SELLER
AMERICAN HONDA FINANCE CORPORATION
SERVICER
--------------
The 5.95% Asset Backed Certificates (the "Certificates") will consist of one
class of senior certificates (the "Class A Certificates") and one class of
subordinated certificates (the "Class B Certificates"). The Class A Certificates
are the only Certificates offered hereby and will evidence in the aggregate an
undivided ownership interest of 94.0% of the Honda Auto Receivables 1997-B
Grantor Trust (the "Trust"). The Trust will be formed pursuant to a Pooling and
Servicing Agreement among American Honda Receivables Corp., as Seller (the
"Seller"), American Honda Finance Corporation, as Servicer ("AHFC" or the
"Servicer"), and Bank of Tokyo - Mitsubishi Trust Company, as Trustee. The Class
B Certificates, which initially will be retained by the Seller, will evidence in
the aggregate an undivided ownership interest of 6.0% of the Trust. The rights
of the Class B Certificateholders to receive distributions with respect to the
assets of the Trust will be subordinated to the rights of the Class A
Certificateholders to the limited extent described herein. See "The Certificates
- -- Subordination of the Class B Certificates; Reserve Fund".
Principal, and interest to the extent of the Pass-Through Rate of 5.95% per
annum, will be distributed to Certificateholders on the fifteenth day of each
month (or, if such day is not a Business Day, the next succeeding Business Day),
beginning November 17, 1997 (each, a "Distribution Date"). The Final Scheduled
Distribution Date will be the May, 2003 Distribution Date. The assets of the
Trust will primarily include a pool of retail installment sale and conditional
sale contracts (the "Receivables") secured by new Honda and Acura automobiles
and sport utility vehicles and Honda minivans financed thereby (the "Financed
Vehicles"), certain monies due or received under the Receivables on and after
October 1, 1997 and security interests in the Financed Vehicles. See "Property
of the Trust".
There currently is no secondary market for the Class A Certificates and
there is no assurance that one will develop. The Underwriters expect, but will
not be obligated, to make a market in the Class A Certificates. There is no
assurance that any such market will develop, or if one does develop, that it
will continue.
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POTENTIAL INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET
FORTH IN "RISK FACTORS" BEGINNING ON PAGE 9.
THE CLASS A CERTIFICATES WILL REPRESENT INTERESTS IN THE TRUST AND WILL NOT
REPRESENT INTERESTS IN OR OBLIGATIONS OF AMERICAN HONDA RECEIVABLES CORP.,
AMERICAN HONDA FINANCE CORPORATION OR ANY OF THEIR RESPECTIVE
AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO THE
PUBLIC(1) COMMISSIONS SELLER(1)(2)
<S> <C> <C> <C>
Per Class A Certificate..................... 99.8954572% .200% 99.6954572%
Total....................................... $849,256,234.61 $1,700,290.00 $847,555,944.61
</TABLE>
(1) Plus accrued interest at the Pass-Through Rate from October 15, 1997.
(2) Before deducting expenses payable by the Seller estimated at $683,000.
------------------
The Class A Certificates are offered by the several Underwriters when, as
and if issued by the Trust, delivered to and accepted by the Underwriters and
subject to their right to reject orders in whole or in part. It is expected that
delivery of the Class A Certificates, in book-entry form, will be made through
the facilities of The Depository Trust Company on or about October 30, 1997,
against payment in immediately available funds.
------------------
MERRILL LYNCH & CO.
CREDIT SUISSE FIRST BOSTON
J.P. MORGAN & CO.
The date of this Prospectus is October 27, 1997.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A CERTIFICATES
INCLUDING OVER-ALLOTMENT TRANSACTIONS, STABILIZING TRANSACTIONS, SYNDICATE
COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING" HEREIN.
--------------
AVAILABLE INFORMATION
The Seller has filed with the Securities and Exchange Commission (the
"Commission") on behalf of the Trust a Registration Statement (together with all
amendments and exhibits thereto, the "Registration Statement"), of which this
Prospectus is a part, under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Class A Certificates being offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which have been omitted in accordance
with the rules and regulations of the Commission. For further information,
reference is made to the Registration Statement which is available for
inspection without charge at the public reference facilities of the Commission
at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
and the regional offices of the Commission at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511, and Seven World Trade Center,
Suite 1300, New York, New York 10048. Copies of such information can be obtained
from the Public Reference Section of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a Web Site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission at http: //www.sec.gov. The Servicer, on behalf of the Trust, will
also file or cause to be filed with the Commission such periodic reports as are
required under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder. The filing
with the Commission of periodic reports with respect to the Trust will cease
following completion of the reporting period required by Rule 15d-1 under the
Exchange Act, which period is expected to end on March 31, 1998.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the Seller on behalf of the Trust
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date of this Prospectus and prior to the termination of the offering of the
Class A Certificates, shall be deemed to be incorporated by reference into this
Prospectus and to be part hereof. Any statement contained in a document
incorporated or deemed to be incorporated by reference in this Prospectus shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained in this Prospectus or in any subsequently
filed document which also is or is deemed to be incorporated by reference in
this Prospectus modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Seller will provide without charge to each person to whom a copy of this
Prospectus is delivered, on the written or oral request of any such person, a
copy of any or all of the documents incorporated herein by reference, except the
exhibits to such documents (unless such exhibits are specifically incorporated
by reference in such documents). Written requests for such copies should be
directed to American Honda Receivables Corp., 700 Van Ness Avenue, Torrance,
California 90501 (Telephone: (310) 781-4376).
REPORTS TO CLASS A CERTIFICATEHOLDERS BY THE TRUSTEE
Bank of Tokyo - Mitsubishi Trust Company, as Trustee, will provide to Class
A Certificateholders (which is expected to be Cede & Co. as the nominee of The
Depository Trust Company ("DTC") unless Definitive Certificates are issued under
the limited circumstances described herein) unaudited monthly and annual reports
concerning the Receivables. See "The Certificates -- Statements to Class A
Certificateholders" and "-- Evidence as to Compliance".
2
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SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. Certain capitalized
terms used and not otherwise defined herein shall have the meanings ascribed
thereto elsewhere in this Prospectus. See the Index of Capitalized Terms at page
52 for the location herein of defined terms.
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Trust............... Honda Auto Receivables 1997-B Grantor Trust.
Seller.............. American Honda Receivables Corp. (the "Seller"), a wholly
owned, limited purpose subsidiary of American Honda
Finance Corporation.
Servicer............ American Honda Finance Corporation ("AHFC" or, in its
capacity as Servicer, the "Servicer"), a wholly owned
subsidiary of American Honda Motor Co., Inc. ("AHMC").
AHMC is the exclusive distributor of Honda and Acura motor
vehicles, Honda motorcycles and power products and Honda
and Acura parts and accessories in the United States and
is a wholly owned subsidiary of Honda Motor Co., Ltd., a
Japanese corporation.
Securities The 5.95% Asset Backed Certificates (the "Certificates")
Offered............ will consist of one class of senior certificates (the
"Class A Certificates") and one class of subordinated
certificates (the "Class B Certificates"). Only the Class
A Certificates are being offered hereby. Each Certificate
will represent a fractional undivided interest in the
Trust. The assets of the Trust will primarily include a
pool of retail installment sale and conditional sale
contracts (the "Receivables") secured by the new Honda and
Acura automobiles and sport utility vehicles and Honda
minivans financed thereby (the "Financed Vehicles"), with
respect to Precomputed Receivables, certain monies due
under the Receivables on and after October 1, 1997 (the
"Cutoff Date"), and, with respect to Simple Interest
Receivables, certain monies received thereunder on or
after the Cutoff Date, security interests in the Financed
Vehicles, certain bank accounts and the proceeds thereof,
proceeds from claims under certain insurance policies in
respect of individual Financed Vehicles or Obligors and
certain rights under the Receivables Purchase Agreement,
to be dated as of October 1, 1997 (the "Receivables
Purchase Agreement"), among the Seller, the Servicer and
Bank of Tokyo - Mitsubishi Trust Company, as trustee (the
"Trustee"). See "Property of the Trust". The Trust will be
formed and the Certificates will be issued pursuant to the
Pooling and Servicing Agreement, to be dated as of October
1, 1997 (the "Agreement"), among the Seller, the Servicer
and the Trustee. The Class A Certificates will be offered
in minimum denominations of $1,000 and integral multiples
thereof.
The Class A Certificates will evidence in the aggregate an
undivided ownership interest (the "Class A Percentage") of
94.0% of the Trust (initially representing $850,145,000)
and the Class B Certificates will evidence in the
aggregate an undivided ownership interest (the "Class B
Percentage") of 6.0% of the Trust (initially representing
$54,264,897). The Class B Certificates will be
subordinated to the Class A Certificates to the limited
extent described under "Summary --
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Subordination of the Class B Certificates; Reserve Fund",
"The Certificates -- Distributions on the Certificates"
and "-- Subordination of the Class B Certificates; Reserve
Fund". The Class B Certificates are not being offered
hereby and initially will be held by the Seller.
Registration of the
Class A
Certificates....... The Class A Certificates will initially be represented by
certificates registered in the name of Cede & Co.
("Cede"), the nominee of DTC. No beneficial owner of an
interest in the Class A Certificates (each, a "Certificate
Owner") will be entitled to receive a definitive
certificate representing such person's interest, except in
the event that Definitive Certificates are issued under
the limited circumstances described under "The
Certificates -- Definitive Certificates". Unless and until
Class A Certificates are issued in definitive form, all
references herein to distributions, notices, reports and
statements to and to actions by and to effects upon Class
A Certificateholders will refer to distributions, no-
tices, reports and statements to and to the same actions
and effects with respect to DTC or Cede, as the case may
be, for the benefit of the Certificate Owners in
accordance with DTC procedures. See "The Certificates --
General" and "-- Book-Entry Registration".
Pass-Through Rate... 5.95% per annum.
Distribution The fifteenth day of each month (or, if such day is not a
Dates.............. Business Day, the next succeeding Business Day), beginning
November 17, 1997. The final scheduled Distribution Date
(the "Final Scheduled Distribution Date") will be the May,
2003 Distribution Date, the Distribution Date in the
seventh month following the maturity of the Receivable
having the latest maturity as of the Cutoff Date. A
"Business Day" means any day other than a Saturday, a
Sunday or a day on which banking institutions in New York,
New York or Los Angeles, California are authorized or
obligated by law, executive order or governmental decree
to be closed.
Interest............ On each Distribution Date, the Trustee will distribute, to
the extent of available funds, pro rata to the holders of
record of the Class A Certificates (the "Class A
Certificateholders") as of the day immediately preceding
such Distribution Date or, if Definitive Certificates are
issued, the last day of the immediately preceding calendar
month (each such date, a "Record Date"), interest in an
amount equal to one-twelfth of the product of the
Pass-Through Rate, calculated on the basis of a 360-day
year consisting of twelve 30-day months, and the Class A
Certificate Balance as of the immediately preceding
Distribution Date (after giving effect to distributions of
principal made on such immediately preceding Distribution
Date) or, in the case of the first Distribution Date, the
Original Class A Certificate Balance. The "Class A
Certificate Balance" will initially equal $850,145,000
(the "Original Class A Certificate Balance") and on each
Distribution Date will equal the Original Class A
Certificate Balance, reduced by all principal distri-
butions made on or prior to such Distribution Date on the
Class A Certificates.
Principal........... On each Distribution Date, the Trustee will distribute, to
the extent of available funds, pro rata to Class A
Certificateholders of record as of
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the related Record Date, an amount equal to the Class A
Percentage of (i) the principal portion of all scheduled
monthly payments (each, a "Scheduled Payment") on
Precomputed Receivables due during the immediately
preceding calendar month (each, a "Collection Period") and
the principal portion of all Scheduled Payments on Simple
Interest Receivables actually received during such
Collection Period; (ii) the principal portion of all
prepayments in full on the Receivables and all partial
prepayments on Simple Interest Receivables, in each case
received by the Servicer during such Collection Period;
(iii) the principal balance of each Receivable that was
purchased by the Servicer or repurchased by the Seller, in
either case under an obligation that arose during such
Collection Period; and (iv) the principal balance of each
Receivable that became a Defaulted Receivable during such
Collection Period. See "The Certificates -- Distributions
on the Certificates -- Calculation of Distributable
Amounts".
The Yield Supplement On or prior to the date of initial issuance of the
Account............ Certificates (the "Closing Date") a yield supplement
account will be established with the Trustee for the
benefit of the Certificateholders (the "Yield Supplement
Account"). The Yield Supplement Account is designed solely
to supplement the interest collections on those
Receivables (the "Discount Receivables") that have APRs
which are less than the sum of (i) the Pass-Through Rate
and (ii) the Servicing Fee Rate (the "Required Rate"). The
Yield Supplement Account will not be part of or otherwise
includible in the Trust and will be a segregated trust
account held by the Trustee for the benefit of the
Certificateholders.
The Yield Supplement Account will be funded on or prior to
the Closing Date by the Seller in an amount (the "Yield
Supplement Account Deposit") to be specified in the
Agreement. The Yield Supplement Account Deposit will equal
the aggregate amount as of the Cutoff Date by which
interest on the Principal Balance of each Discount
Receivable for the remaining term of such Receivable
(assuming no prepayments or delinquencies) at a rate equal
to the Required Rate exceeds interest on such Principal
Balance at the APR of such Receivable; provided, that such
aggregate amount may be discounted at a rate to be
specified in the Agreement.
On each Distribution Date, the Trustee shall withdraw from
monies on deposit in the Yield Supplement Account, for
distribution to Certificateholders, the aggregate amount
by which one month's interest on the Principal Balance as
of the first day of the related Collection Period of each
Discount Receivable (other than a Discount Receivable that
is a Defaulted Receivable) at a rate equal to the Required
Rate, exceeds one month's interest on such Principal
Balance at the APR of each such Receivable (the "Yield
Supplement Deposit Amount").
Amounts on deposit on any Distribution Date in the Yield
Supplement Account in excess of the Maximum Yield
Supplement Amount, after giving effect to all
distributions to be made on such Distribution Date, will
be paid to the Seller and the Certificateholders will have
no further
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5
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rights in, or claims to, such amounts. The Maximum Yield
Supplement Amount will be calculated as described under
"The Certificates -- The Yield Supplement Account".
Subordination of the
Class B
Certificates;
Reserve Fund....... The rights of the holders of record of the Class B
Certificates (the "Class B Certificateholders" and,
together with the Class A Certificateholders, the
"Certificateholders") to receive distributions with
respect to the Receivables will be subordinated to the
rights of the Class A Certificateholders to the limited
extent described herein. This subordination is intended to
enhance the likelihood of timely receipt by Class A
Certificateholders of the full amount of interest and
principal required to be paid to them, and to afford such
Class A Certificateholders limited protection against
losses in respect of the Receivables.
No distribution will be made to the Class B
Certificateholders on any Distribution Date in respect of
(i) interest until the full amount of interest on the
Class A Certificates payable on such Distribution Date has
been distributed to the Class A Certificateholders and
(ii) principal until the full amount of interest on and
principal of the Class A Certificates payable on such
Distribution Date has been distributed to the Class A
Certificateholders. Distributions of interest on the Class
B Certificates, to the extent of collections on or in
respect of the Receivables allocable to interest and
certain available amounts on deposit in the Reserve Fund,
will not be subordinated to the payment of principal on
the Class A Certificates.
The protection afforded to the Class A Certificateholders
by the subordination feature described above will be
effected both by the preferential right of the Class A
Certificateholders to receive, to the limited extent
described herein, current distributions from collections
on or in respect of the Receivables and by the
establishment of a segregated trust account held by the
Trustee for the benefit of the Certificateholders (the
"Reserve Fund"). The Reserve Fund will provide credit
enhancement and liquidity to Certificateholders that will
be available to the extent described herein in the event
that, as a result of defaults or delinquencies,
collections on the Receivables are insufficient to make
distributions on the Certificates. The Reserve Fund will
not be part of or otherwise includible in the Trust and
will be a segregated trust account held by the Trustee for
the benefit of the Certificateholders.
The Reserve Fund will be funded by the Seller on the
Closing Date in an amount equal to $6,783,074.23.
Thereafter, all Excess Amounts will be deposited from time
to time in the Reserve Fund to the extent necessary to
maintain the amount on deposit in the Reserve Fund at the
Specified Reserve Fund Balance. Excess Amounts in respect
of a Distribution Date generally will consist of all
interest collections on or in respect of the Receivables
on deposit in the Certificate Account in respect of such
Distribution Date, after the Servicer has been reimbursed
for any outstanding Advances and has been paid the
Servicing Fee with respect to the related Collection
Period (including any unpaid Servicing Fees with respect
to one or more prior Collection Periods) and after giving
effect to all distributions of interest and principal
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6
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required to be made to the Class A and Class B
Certificateholders on such Distribution Date and deposits
required to be made to the Payahead Account. The Specified
Reserve Fund Balance will be $6,783,074.23, or under
certain circumstances, the amount calculated as described
under "The Certificates--Subordination of the Class B
Certificates; Reserve Fund". On each Distribution Date,
funds will be withdrawn from the Reserve Fund for
distribution, first to Class A Certificateholders to the
extent of shortfalls in the amounts available to make
required distributions of interest on the Class A
Certificates, second to Class B Certificateholders to the
extent of shortfalls in the amounts available to make
required distributions of interest on the Class B
Certificates, third to Class A Certificateholders to the
extent of shortfalls in the amounts available to make
required distributions of principal on the Class A
Certificates and fourth to Class B Certificateholders to
the extent of shortfalls in the amounts available to make
required distributions of principal on the Class B
Certificates. If on any Distribution Date the Class B
Certificate Balance has been reduced to zero and amounts
on deposit in the Reserve Fund have been depleted as a
result of losses in respect of the Receivables, the
protection afforded to the Class A Certificateholders by
the subordination of the Class B Certificates and by the
Reserve Fund will be exhausted and the Class A
Certificateholders will bear directly the risks associated
with ownership of the Receivables. Amounts on deposit in
the Yield Supplement Account will not be available to
Certificateholders in the event that defaults or
delinquencies in collections on or in respect of the
Receivables result in shortfalls in amounts due to
Certificateholders (even in the circumstances described in
the preceding sentence) or for any other purpose other
than withdrawals of the Yield Supplement Deposit Amount on
each Distribution Date.
On each Distribution Date, after giving effect to all
distributions made on such Distribution Date, any amounts
in the Reserve Fund in excess of the Specified Reserve
Fund Balance will be distributed to the Seller and upon
such distribution the Certificateholders will have no
further rights in, or claims to, such amounts. See "The
Certificates -- Subordination of the Class B Certificates;
Reserve Fund".
Advances............ On the Business Day immediately preceding each
Distribution Date, the Servicer will advance to the Trust,
in respect of each (i) Precomputed Receivable, that
portion, if any, of the related Scheduled Payment that was
not timely made (each, a "Precomputed Advance") and (ii)
Simple Interest Receivable, an amount equal to the product
of the principal balance of such Receivable as of the
first day of the related Collection Period and one-twelfth
of its annual percentage rate ("APR"), minus the amount of
interest actually received on such Receivable during such
Collection Period (each, a "Simple Interest Advance" and,
together with Precomputed Advances, the "Advances"). If
such calculation in respect of a Simple Interest
Receivable results in a negative number, an amount equal
to such negative number shall be paid to the Servicer out
of interest collections in respect of the Receivables
during the related Collection Period in reimbursement of
outstanding Simple Interest Advances. The Servicer will be
required to
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make an Advance only to the extent that it determines that
such Advance will be recoverable from future payments and
collections on or in respect of such Receivable. Upon the
determination by the Servicer that such reimbursement is
unlikely, the Servicer will be entitled to recover
Advances from payments and collections on or in respect of
other Receivables. See "The Certificates -- Advances".
Servicing Fee....... The Servicer will receive a monthly fee, payable on each
Distribution Date (the "Servicing Fee"), equal to
one-twelfth of the product of 1.00% (the "Servicing Fee
Rate") and the Pool Balance as of the first day of the
related Collection Period. The Servicer will be entitled
to receive additional servicing compensation in the form
of investment earnings on the amounts on deposit in the
Certificate Account and the Payahead Account plus any late
fees, prepayment charges and other administrative fees and
expenses or similar charges received by the Servicer
during such Collection Period. See "The Certificates --
Servicing Compensation".
Optional The Seller or the Servicer, or any successor to the
Termination........ Servicer, may purchase all the Receivables remaining in
the Trust on the Distribution Date following the last day
of any Collection Period as of which the aggregate unpaid
principal balance of the Receivables is 10% or less of the
Pool Balance as of the Cutoff Date (the "Cutoff Date Pool
Balance"), at a purchase price determined as described
under "The Certificates -- Termination".
Ratings............. It is a condition to the issuance of the Class A
Certificates that they be rated Aaa by Moody's Investors
Service, Inc. ("Moody's") and AAA by Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies,
Inc. ("Standard & Poor's" and, together with Moody's, the
"Rating Agencies"). A security rating is not a
recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by the
assigning rating agency. The ratings on the Class A
Certificates do not assess the likelihood that principal
prepayments on the Receivables will occur, the degree to
which the rate of such prepayments might differ from that
originally anticipated or otherwise address the timing of
distributions of principal of the Class A Certificates
prior to the Final Scheduled Distribution Date. See
"Rating of the Class A Certificates".
Tax Status.......... In the opinion of counsel to the Seller, the Trust will be
classified as a grantor trust for federal income tax
purposes and not as an association taxable as a
corporation. For federal income tax purposes, the Certifi-
cateholders will be considered to own stripped bonds. See
"Federal Income Tax Consequences". Class A
Certificateholders should consult their own tax advisors
as to the proper treatment of original issue discount with
respect to the Receivables and the application of the
stripped bond rules.
ERISA Subject to the conditions described herein, the Class A
Considerations..... Certificates may be purchased by employee benefit plans
subject to the Employee Retirement Income Security Act of
1974, as amended. See "ERISA Considerations".
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RISK FACTORS
Prospective investors should consider the following risk factors in
considering the purchase of Class A Certificates.
RISK OF TRUST NOT HAVING A PERFECTED SECURITY INTEREST IN THE FINANCED VEHICLES
IN ALL STATES
Pursuant to the Receivables Purchase Agreement, AHFC will sell and assign
its security interests in the Financed Vehicles to the Seller and, pursuant to
the Agreement, the Seller will sell and assign its security interests in the
Financed Vehicles to the Trustee. However, because of the administrative burden
and expense, neither AHFC, the Seller nor the Trustee will amend any certificate
of title to identify the Trustee as the new secured party on the certificates of
title relating to the Financed Vehicles. In the absence of such an amendment,
the Trustee may not have a perfected security interest in the Financed Vehicles
in all states.
If the protection provided to the Class A Certificateholders by the
subordination of the Class B Certificates and by the Reserve Fund is
insufficient, the Class A Certificateholders will have to look to payments made
by or on behalf of the Obligors on or in respect of the Receivables, the
proceeds from the repossession and sale of Financed Vehicles which secure
defaulted Receivables and the proceeds of any Dealer Recourse to make
distributions on the Class A Certificates. In such event, certain factors, such
as the possibility that the Trustee may not have a perfected security interest
in the Financed Vehicles in all states, may affect the Trust's ability to
repossess and sell the collateral securing the Receivables or may limit the
amount realized to less than the amount due by the related Obligors. Class A
Certificateholders may thus be subject to delays in payment and may incur losses
on their investment in the Class A Certificates as a result of defaults or
delinquencies by Obligors and because of depreciation in the value of the
related Financed Vehicles. See "The Certificates -- Subordination of the Class B
Certificates; Reserve Fund" and "--Insurance on Financed Vehicles" and "Certain
Legal Aspects of the Receivables".
RISK ASSOCIATED WITH INCREASES IN DELINQUENCIES, REPOSSESSIONS AND NET LOSSES
The number of delinquencies and repossessions and the amount of net losses
in AHFC's portfolio of new Honda and Acura motor vehicle retail installment sale
contracts have increased as the portfolio has grown. As more fully described
under "American Honda Finance Corporation -- Delinquencies, Repossessions and
Net Losses", total delinquencies and repossessions as a percentage of the
principal balance and unearned finance charges of all outstanding installment
sale contracts was 1.92% at March 31, 1997 and net losses as a percentage of the
average principal balance of all outstanding installment sale contracts was
0.57% for the year ended March 31, 1997. AHFC attributes the increased
percentages to the effect of general economic conditions which have been
reflected in increased delinquencies and losses in the consumer finance sector
generally. However, total delinquencies and repossessions decreased during the
five months ended August 31, 1997. Total delinquencies and repossessions as a
percentage of the principal balance and unearned finance charges of all
outstanding installment sale contracts was 1.51% as of August 31, 1997 and net
losses as a percentage of the average principal balance of all outstanding
installment sale contracts was 0.55% as of August 31, 1997. Notwithstanding the
foregoing, if the protection provided to the Class A Certificateholders by the
subordination of the Class B Certificates and by the Reserve Fund is
insufficient, as a result of defaults or delinquencies on the Receivables, Class
A Certificateholders could incur a loss on their investment.
FORMATION OF THE TRUST
The Seller will establish the Trust by selling and assigning the assets of
the Trust to the Trustee in exchange for the Certificates. The Servicer will
service the Receivables pursuant to the Agreement and will be compensated for
such services. See "The Certificates -- Servicing Compensation". To facilitate
servicing and to minimize administrative burden and expense, the Servicer will
be appointed custodian for the Receivables and documents relating thereto by the
Trustee, but will not stamp the Receivables to reflect the sale and assignment
of the Receivables to the Trust, nor amend the certificates of title to the
Financed
9
<PAGE>
Vehicles to reflect the assignment of the security interest in the Financed
Vehicles to the Trustee. In the absence of such an amendment, the Trust's
security interest in the Financed Vehicles may not be perfected in all states.
See "Risk Factors -- Risk of Trust Not Having A Perfected Security Interest in
the Financed Vehicles in All States".
PROPERTY OF THE TRUST
Each Certificate will represent a fractional undivided interest in the
Trust. The property of the Trust will include, among other things, a pool of
retail installment sale contracts for new Honda and Acura automobiles and sport
utility vehicles and Honda minivans between dealers (the "Dealers") and retail
purchasers (the "Obligors") and certain monies due or received thereunder on and
after the Cutoff Date. The Receivables were originated by Dealers in accordance
with AHFC's requirements and subsequently purchased by AHFC. The Receivables
evidence the indirect financing made available by AHFC to the related Obligors.
On or before the Closing Date, AHFC will sell the Receivables to the Seller
pursuant to the Receivables Purchase Agreement. The Seller will, in turn, sell
the Receivables to the Trust on the Closing Date pursuant to the Agreement.
During the term of the Agreement, neither the Seller nor AHFC may substitute
any other retail installment sale contract for any Receivable sold to the Trust.
The assets of the Trust will also include: (i) such amounts as from time to time
may be held in the Certificate Account and the Payahead Account to be
established and initially maintained by the Servicer with the Trustee pursuant
to the Agreement; (ii) security interests in the Financed Vehicles and any
accessions thereto; (iii) the right to receive proceeds from physical damage,
credit life and disability insurance policies, if any, covering individual
Financed Vehicles or Obligors, as the case may be; (iv) the right to receive
proceeds of Dealer Recourse, if any; (v) the rights but not the obligations of
the Seller under the Receivables Purchase Agreement; (vi) the right to realize
upon any property (including the right to receive future proceeds of the
liquidation of Defaulted Receivables) that shall have secured a Receivable and
have been repossessed by or on behalf of the Trustee; and (vii) any and all
proceeds of the foregoing. The Reserve Fund and the Yield Supplement Account
will be maintained for the benefit of the Certificateholders, but will not be
part of the Trust.
Pursuant to agreements between AHFC and the Dealers, each Dealer is
obligated, after purchase by AHFC of retail installment sale contracts from such
Dealer, to repurchase from AHFC such contracts which do not meet certain
representations and warranties made by such Dealer (such Dealer repurchase
obligations, "Dealer Recourse"). Such representations and warranties relate
primarily to the origination of the contracts and the perfection of the security
interests in the related financed vehicles, and do not typically relate to the
creditworthiness of the related obligors or the collectability of such
contracts. Although the Dealer agreements with respect to the Receivables will
not be assigned to the Trustee, the Agreement will require that any recovery by
AHFC pursuant to any Dealer Recourse be deposited in the Certificate Account in
satisfaction of AHFC's repurchase obligations under the Agreement. It is
expected that the sales by the Dealers of installment sale contracts to AHFC do
not generally provide for recourse to the Dealer for unpaid amounts in the event
of a default by an obligor thereunder, other than in connection with the breach
of the foregoing representations and warranties.
THE RECEIVABLES
PAYMENTS ON THE RECEIVABLES
Except as otherwise described under "Selection Criteria", the Scheduled
Payment on each Receivable is a fixed level monthly payment which will amortize
the full amount of the Receivable over its term. Each Receivable provides for
allocation of payments according to (i) the "sum of periodic balances" or "sum
of monthly payments" method (each, a "Rule of 78s Receivable"), (ii) the
"actuarial" method (each, an "Actuarial Receivable" and, together with Rule of
78s Receivables, the "Precomputed Receivables") or (iii) the simple interest
method (each, a "Simple Interest Receivable").
10
<PAGE>
Each Rule of 78s Receivable provides for the payment by the Obligor of a
specified total amount of payments, payable in monthly installments on the
related due date, which total represents the principal amount financed and
finance charges in an amount calculated on the basis of a stated APR for the
term of such Receivable. The rate at which such amount of finance charges is
earned and, correspondingly, the amount of each Scheduled Payment allocated to
reduction of the outstanding principal balance of the related Receivable are
calculated in accordance with the Rule of 78s. Under the "Rule of 78s", the
portion of each payment allocable to interest is higher during the early months
of the term of a Rule of 78s Receivable and lower during later months than that
under a constant yield method for allocating payments between interest and
principal.
An Actuarial Receivable provides for amortization of the loan over a series
of fixed level monthly installments. Each Scheduled Payment is deemed to consist
of an amount of interest equal to 1/12 of the stated APR of the Receivable
multiplied by the scheduled principal balance of the Receivable and an amount of
principal equal to the remainder of the Scheduled Payment.
All payments received by the Servicer on or in respect of Precomputed
Receivables will be allocated pursuant to the Agreement on an actuarial basis,
under which each Scheduled Payment, including the final Scheduled Payment on a
Precomputed Receivable, consists of an amount of interest equal to 1/12 of the
APR of such Receivable multiplied by the unpaid principal balance of such
Receivable, and an amount of principal equal to the remainder of the Scheduled
Payment. No adjustment will be made in the event of early or late payments,
although in the latter case the Obligor will be subject to a late charge.
Payments on Simple Interest Receivables will be applied first to interest
accrued through the date immediately preceding the date of payment and then to
unpaid principal. Accordingly, if an Obligor pays an installment before its due
date, the portion of the payment allocable to interest for the payment period
will be less than if the payment had been made on the due date, the portion of
the payment applied to reduce the principal balance will be correspondingly
greater and the principal balance will be amortized more rapidly than scheduled.
Conversely, if an Obligor pays an installment after its due date, the portion of
the payment allocable to interest for the payment period will be greater than if
the payment had been made on the due date, the portion of the payment applied to
reduce the principal balance will be correspondingly less, and the principal
balance will be amortized more slowly than scheduled, in which case a larger
portion of the principal balance may be due on the final scheduled payment date.
In the event of a prepayment in full (voluntarily or by acceleration) of a
Precomputed Receivable, a "rebate" will be made to the related Obligor of that
portion of the total amount of payments under such Receivable allocable to
"unearned" finance charges. In the event of the prepayment in full (voluntarily
or by acceleration) of a Simple Interest Receivable, a "rebate" will not be made
to such Obligor, but the Obligor will be required to pay interest only to the
date immediately preceding the date of prepayment. The amount of a rebate under
a Precomputed Receivable will always be less than or equal to the remaining
scheduled payments of interest that would have been due under a Simple Interest
Receivable for which all remaining payments were made on schedule.
The amount of a rebate under a Rule of 78s Receivable calculated in
accordance with the Rule of 78s will always be less than had such rebate been
calculated on an actuarial basis. However, Rule of 78s Receivables originated in
certain states, including Colorado and Maryland, require rebates based on the
actuarial method. Distributions to Class A Certificateholders will not be
affected by Rule of 78s rebates under the Rule of 78s Receivables because
pursuant to the Agreement such distributions will be determined using the
actuarial method.
SELECTION CRITERIA
The Receivables were purchased by AHFC from Dealers through its nationwide
branch system in the ordinary course of business in accordance with AHFC's
ordinary underwriting standards. See "American Honda Finance Corporation --
Underwriting of Motor Vehicle Loans". The Receivables were randomly
11
<PAGE>
selected from AHFC's portfolio of retail installment sale contracts that met the
selection criteria described herein and under "The Certificates -- Sale and
Assignment of the Receivables". Such selection criteria included that (i) each
Receivable is secured by a new Honda or Acura automobile or sport utility
vehicle or Honda minivan; (ii) each Receivable was originated in the United
States; (iii) each Receivable provides for level monthly Scheduled Payments that
fully amortize the amount financed over its original term, except that the
payment in the first or last month in the life of the Receivable may be
minimally different from the level payment; (iv) each Receivable was originated
prior to October 1, 1997; (v) each Receivable has an original term of 12 to 60
months and, as of the Cutoff Date, had a remaining term to maturity of not less
than 3 months and not more than 60 months; (vi) each Receivable provides for the
payment of a finance charge based on an APR ranging from 1.90% to 20.06%; (vii)
each Receivable shall not have a payment that is more than 30 days past due as
of the Cutoff Date; (viii) to the best knowledge of the Seller, no Receivable
shall be due from any Obligor who is presently the subject of a bankruptcy
proceeding or is bankrupt or insolvent; and (ix) no Financed Vehicle has been
repossessed without reinstatement as of the Cutoff Date. This Prospectus
contains a summary of the material terms of the Receivables.
The Receivables represent financing of new Honda and Acura automobiles and
sport utility vehicles and Honda minivans. Based on Cutoff Date Pool Balance,
79.56% and 20.44% of the Receivables represented financing of Honda motor
vehicles and Acura motor vehicles, respectively. All of the Financed Vehicles
were manufactured by Honda Motor Co., Ltd. and its affiliates. Based on the
addresses of the originating Dealers, the Receivables were originated in 43
states. Except in the case of any breach of representations and warranties by
the related Dealer, as described under "Property of the Trust", none of the
Receivables provide for recourse to the Dealer who originated the related
Receivable.
12
<PAGE>
The composition, distribution by APR and geographical distribution of the
Receivables are as set forth in the following tables.
COMPOSITION OF THE RECEIVABLES
<TABLE>
<CAPTION>
Cutoff Date Pool Balance.................................... $904,409,897.07
<S> <C>
Number of Receivables....................................... 83,274
Average Cutoff Date Principal Balance....................... $10,860.65
Average Original Amount Financed............................ $15,372.20
Range of Original Amounts Financed........................ $1,303.46 to $88,335.99
Weighted Average APR (1).................................... 7.662%
Range of APRs............................................. 1.90% to 20.06%
Weighted Average Original Maturity (1)...................... 54.57 months
Range of Original Maturities.............................. 12 months to 60 months
Weighted Average Remaining Maturity (1)..................... 43.73 months
Range of Remaining Maturities as of the Cutoff Date....... 3 months to 60 months
</TABLE>
------------------
(1) Weighted by Principal Balance as of the Cutoff Date.
DISTRIBUTION OF THE RECEIVABLES BY APR
<TABLE>
<CAPTION>
NUMBER PERCENTAGE PERCENTAGE
OF OF AGGREGATE CUTOFF DATE OF CUTOFF DATE
RANGE OF APRS RECEIVABLES NUMBER OF RECEIVABLES(1) PRINCIPAL BALANCE POOL BALANCE
- --------------------------------- ------------- ------------------------ ------------------- ---------------
<S> <C> <C> <C> <C>
1.000% to 1.999%............... 264 0.32% $ 835,802 0.09%
2.000% to 2.999%............... 1,283 1.54 17,235,361 1.91
3.000% to 3.999%............... 11,725 14.08 108,521,768 12.00
4.000% to 4.999%............... 7,987 9.59 65,876,852 7.28
5.000% to 5.999%............... 6,364 7.64 100,173,320 11.08
6.000% to 6.999%............... 4,080 4.90 26,772,428 2.96
7.000% to 7.999%............... 11,504 13.81 123,685,481 13.68
8.000% to 8.999%............... 17,436 20.94 203,761,958 22.53
9.000% to 9.999%............... 10,436 12.53 118,578,383 13.11
10.000% to 10.999%............... 5,544 6.66 57,368,529 6.34
11.000% to 11.999%............... 4,899 5.88 62,116,315 6.87
12.000% to 12.999%............... 1,655 1.99 18,473,835 2.04
13.000% to 13.999%............... 48 0.06 503,957 0.06
14.000% to 14.999%............... 19 0.02 193,198 0.02
15.000% to 15.999%............... 16 0.02 179,598 0.02
16.000% to 16.999%............... 7 0.01 75,832 0.01
17.000% to 17.999%............... 3 0.00 26,369 0.00
18.000% to 18.999%............... 2 0.00 17,355 0.00
19.000% to 20.999%............... 2 0.00 13,556 0.00
------ -------- ------------------- ---------------
Total.......................... 83,274 100.00%(1) 904,409,897 100.00%
------ -------- ------------------- ---------------
------ -------- ------------------- ---------------
</TABLE>
- --------------
(1) Percentages may not add up to 100% due to rounding.
13
<PAGE>
DISTRIBUTION OF THE RECEIVABLES BY STATE
<TABLE>
<CAPTION>
PERCENTAGE OF
CUTOFF DATE CUTOFF DATE
STATE(1) PRINCIPAL BALANCE POOL BALANCE
- ---------------------------------------- ------------------- -------------
<S> <C> <C>
Alabama................................. $ 9,106,543 1.01%
Alaska.................................. 368,451 0.04
Arizona................................. 9,627,965 1.06
Arkansas................................ 5,506,286 0.61
California.............................. 254,281,163 28.12
Colorado................................ 6,799,110 0.75
Delaware................................ 3,783,116 0.42
Florida................................. 30,119,149 3.33
Georgia................................. 43,600,891 4.82
Hawaii.................................. 3,766,899 0.42
Idaho................................... 906,900 0.10
Illinois................................ 72,516,084 8.02
Indiana................................. 9,454,546 1.05
Iowa.................................... 3,573,755 0.40
Kansas.................................. 2,992,632 0.33
Kentucky................................ 3,004,018 0.33
Louisiana............................... 13,516,448 1.49
Maryland................................ 60,730,543 6.71
Michigan................................ 12,066,402 1.33
Minnesota............................... 9,229,462 1.02
Mississippi............................. 6,592,061 0.73
Missouri................................ 8,910,780 0.99
Montana................................. 400,779 0.04
Nebraska................................ 1,625,788 0.18
Nevada.................................. 3,244,542 0.36
New Jersey.............................. 42,078,903 4.65
New Mexico.............................. 2,667,896 0.29
North Carolina.......................... 29,816,645 3.30
North Dakota............................ 392,860 0.04
Ohio.................................... 10,559,823 1.17
Oklahoma................................ 2,847,808 0.31
Oregon.................................. 10,250,412 1.13
Pennsylvania............................ 40,861,299 4.52
South Carolina.......................... 13,095,860 1.45
South Dakota............................ 721,551 0.08
Tennessee............................... 21,085,026 2.33
Texas................................... 82,393,977 9.11
Utah.................................... 1,495,776 0.17
Virginia................................ 46,437,759 5.13
Washington.............................. 16,431,157 1.82
West Virginia........................... 782,166 0.09
Wisconsin............................... 6,563,507 0.73
Wyoming................................. 203,159 0.02
------------------- ------
------------------- ------
Total................................. $ 904,409,897 100.00%
------------------- ------
------------------- ------
</TABLE>
- ----------------
(1) Based on the addresses of the originating Dealers.
14
<PAGE>
MATURITY AND PREPAYMENT CONSIDERATIONS
All of the Receivables are prepayable at any time without any penalty.
However, partial prepayments on Precomputed Receivables made by Obligors will
not be distributed on the Distribution Date following the Collection Period in
which they were received but will be retained and applied towards payments due
in one or more future Collection Periods. See "The Certificates -- Collections".
If prepayments in full are received on Precomputed Receivables or if full or
partial prepayments are received on Simple Interest Receivables, the actual
weighted average life of the Receivables can be shorter than the scheduled
weighted average life, which is calculated based on the assumption that payments
will be made as scheduled and that no such prepayments in full will be made. For
this purpose the term "prepayments in full" includes, among other items,
voluntary prepayments in full by Obligors, liquidations due to default, proceeds
from physical damage, credit life and credit disability insurance policies and
repurchases by the Seller or the Servicer, as the case may be, of certain
Receivables as described herein. Weighted average life means the average amount
of time during which each dollar of principal of a Receivable is outstanding.
The rate of prepayments on the Receivables may be influenced by a variety of
economic, social and other factors, including the fact that an Obligor may not
sell or transfer a Financed Vehicle without the consent of the Servicer. Any
reinvestment risk resulting from the rate of prepayments of the Receivables and
the distribution of such prepayments to Class A Certificateholders will be borne
entirely by the Class A Certificateholders. In addition, early retirement of the
Certificates may be effected by the exercise of the option of the Seller or the
Servicer, or any successor to the Servicer, to purchase all of the Receivables
remaining in the Trust when the Pool Balance is 10% or less of the Cutoff Date
Pool Balance. See "The Certificates -- Termination".
No prediction can be made as to the rate of prepayments on the Receivables
in either stable or changing interest rate environments. AHFC maintains limited
records of the historical prepayment experience of the retail installment sale
contracts included in its portfolio and its experience with respect to the
retail installment sale contracts included in its portfolio is insufficient to
draw any specific conclusions with respect to the expected rates of prepayments
in full on the Receivables. AHFC is not aware of any publicly available
statistics for the entire auto finance industry on an aggregate basis that set
forth principal prepayment experience for retail installment sale contracts
similar to the Receivables over an extended period of time.
YIELD CONSIDERATIONS
Interest on the Receivables will be passed through to Class A
Certificateholders on each Distribution Date to the extent of one-twelfth of the
Pass-Through Rate multiplied by the Class A Certificate Balance as of the
immediately preceding Distribution Date (after giving effect to distributions of
principal made on such immediately preceding Distribution Date) or, in the case
of the first Distribution Date, the Original Class A Certificate Balance.
The Receivables have different APRs, and the APR of some of the Receivables
may be less than the sum of (i) the Pass-Through Rate and (ii) the Servicing Fee
Rate. Because the Yield Supplement Account will be created with a deposit of an
amount equal to the aggregate amount as of the Cutoff Date by which interest on
the Principal Balance of each Discount Receivable for the remaining term of such
Receivable (assuming no prepayments or delinquencies) at a rate equal to the
Required Rate exceeds interest on such Principal Balance at the APR of such
Receivable (which aggregate amount may be discounted at a rate to be specified
in the Agreement), disproportionate rates of prepayments between Receivables
with higher and lower APRs should not affect the yield to Class A
Certificateholders on the outstanding principal balance of the Class A
Certificates.
CLASS A POOL FACTOR AND TRADING INFORMATION
The "Class A Pool Factor" will be a seven-digit decimal which the Servicer
will compute each month indicating the Class A Certificate Balance as of the
close of business on the Distribution Date in such month as a fraction of the
Original Class A Certificate Balance. The Class A Pool Factor will initially be
1.0000000; thereafter, it will decline to reflect reductions in the Class A
Certificate Balance. The portion of the Class A
15
<PAGE>
Certificate Balance for a given month allocable to a Class A Certificateholder
can be determined by multiplying the original denomination of the holder's Class
A Certificate by the Class A Pool Factor for that month. The Class A Pool Factor
will be provided to Class A Certificateholders of record on each Distribution
Date.
Pursuant to the Agreement, the Class A Certificateholders will receive
monthly reports concerning the payments received on the Receivables, the Pool
Balance, the Class A Pool Factor and various other items of information. Class A
Certificateholders during each calendar year will be furnished information for
tax reporting purposes not later than the latest date permitted by law. See "The
Certificates -- Statements to Class A Certificateholders".
USE OF PROCEEDS
The net proceeds from the sale of the Class A Certificates (I.E., the
proceeds of the public offering of the Class A Certificates minus expenses
relating thereto) will be applied by the Seller to the purchase of the
Receivables from AHFC pursuant to the Receivables Purchase Agreement.
THE SELLER
The Seller was incorporated in the State of California in August 1992 as a
wholly owned, limited purpose finance subsidiary of AHFC. The principal
executive offices of the Seller are located at 700 Van Ness Avenue, Torrance,
California 90501 and its telephone number is (310) 781-4376.
The Seller was organized primarily for the purpose of acquiring installment
sale contracts similar to the Receivables and associated rights from AHFC,
causing the issuance of certificates similar to the Certificates and engaging in
related transactions. The Seller's articles of incorporation limit the
activities of the Seller to the foregoing purposes and to any activities
incidental to and necessary for such purposes.
AMERICAN HONDA FINANCE CORPORATION
GENERAL
AHFC was incorporated in the State of California in February 1980. AHFC
provides wholesale and retail financing to authorized dealers of Honda and Acura
motor vehicles, Honda motorcycles and power products and Honda and Acura parts
and accessories, and their customers in the United States and Canada. AHFC also
offers retail leasing for Honda and Acura motor vehicles throughout the United
States and Canada, and administers the sale of vehicle service contracts for
AHMC throughout the United States.
AHFC is a wholly owned subsidiary of AHMC, a California corporation that is
the sole authorized distributor of Honda and Acura motor vehicles, Honda
motorcycles and power products and Honda and Acura parts and accessories in the
United States. AHMC is a wholly owned subsidiary of Honda Motor Co., Ltd., a
Japanese corporation which is a worldwide manufacturer of motorcycles, motor
vehicles and a variety of power products.
The principal executive offices of AHFC are located at 700 Van Ness Avenue,
Torrance, California 90501. Its telephone number is (310) 781-4100.
UNDERWRITING OF MOTOR VEHICLE LOANS
AHFC purchases retail installment sale contracts and conditional sales
agreements (collectively, "installment sale contracts") secured by new and used
Honda and Acura automobiles and sport utility vehicles and Honda minivans from
approximately 1,257 Dealers located throughout the United States. In keeping
with the practice of AHFC, the Receivables were originated by Dealers in
accordance with AHFC's requirements under existing agreements with such Dealers.
The Receivables were purchased in accordance with AHFC's underwriting standards,
which emphasize the prospective purchaser's ability to pay and creditworthiness,
as well as the asset value of the motor vehicle to be financed.
16
<PAGE>
Applications submitted to AHFC must list sufficient information to process
the application, including the applicant's income, residential status, monthly
mortgage or rent payment and other personal information. Upon receipt of an
application, AHFC obtains a credit report from an independent credit bureau. The
credit report is reviewed by AHFC to determine the applicant's current credit
status and past credit performance. Factors considered negative generally
include past due credit, repossessions, loans charged off by other lenders and
previous bankruptcy. Positive factors such as amount of credit and favorable
payment history are also considered.
The credit decision is made utilizing a credit scoring system and other
considerations. The credit scoring system includes an assessment of residence
and employment stability and credit bureau information. Other considerations
include income requirements and the ratio of income to total debt. An assessment
is made of the relative degree of credit risk indicated by these criteria
pursuant to AHFC's automated processing system. The system will recommend
approval of applicants scoring above a predetermined threshold and will
recommend rejection for scores below that level, although the underwriting staff
for the appropriate region has the ultimate approval or rejection authority.
AHFC's retail installment sale contract requires that obligors maintain
specific levels and types of insurance coverage, including physical damage
insurance, to protect the related financed vehicle against loss. At the time of
purchase, an obligor signs a statement which indicates that he either has or
will have the necessary insurance, and which shows the name and address of the
insurance company along with a description of the type of coverage. Obligors are
generally required to provide AHFC with evidence of compliance with the
foregoing insurance requirements; however, AHFC performs no ongoing verification
of such insurance coverage.
The amount of a retail installment sale contract secured by a new or used
Honda or Acura motor vehicle generally will not exceed 120% of the dealer
invoice cost of the related vehicle plus optional features at the dealer cost,
sales tax, title and registration fees, insurance premiums for credit life and
credit disability insurance and certain fees for extended service contracts.
SERVICING OF MOTOR VEHICLE LOANS
AHFC considers a retail installment sale contract to be past due or
delinquent for servicing and enforcement of collection purposes when the obligor
fails to make a scheduled payment by the related due date; any portion of a
scheduled payment not paid on the related due date automatically becomes due
with the next scheduled payment. A computer generated delinquency notice is
mailed to the obligor on each of the eleventh and twenty-first day of
delinquency. If the delinquent contract cannot be brought current or completely
collected within approximately 60 days, AHFC generally attempts to repossess the
related vehicle. Repossessed vehicles are held in inventory to comply with
statutory requirements and then are sold (generally within 60 days after
repossession). Any deficiencies remaining after repossession and sale of the
vehicle or after the full charge-off of the related contract are pursued by AHFC
to the extent practicable and legally permitted. See "Certain Legal Aspects of
the Receivables -- Deficiency Judgments and Excess Proceeds". Obligors are
contacted and, when warranted by individual circumstances, repayment schedules
are established and monitored until the deficiencies are either paid in full or
become impractical to pursue.
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES
Set forth below is certain information concerning AHFC's experience with
respect to its portfolio of new Honda and Acura motor vehicle retail installment
sale contracts. Credit losses are an expected cost in the business of extending
credit and are considered in AHFC's rate-setting process. AHFC's strategy is to
minimize credit losses while providing financing support for the sale of Honda
and Acura motor vehicles. Losses and delinquencies are affected by, among other
things, general and regional economic conditions and the supply of and demand
for motor vehicles.
17
<PAGE>
AHFC establishes an allowance for expected credit losses and deducts amounts
reflecting charged-off installment sale contracts against such allowance. For
retail financing, the account balance related to an installment sale contract is
charged against the allowance for credit losses when the contract has been
delinquent for 120 days unless AHFC has repossessed the collateral associated
with the contract. In such cases, the account balances are not charged against
the allowance for credit losses until either AHFC has sold the repossessed
collateral or has held it in repossession inventory for more than 90 days. Any
recoveries from charge offs related to a retail installment sale contract are
credited to the allowance.
The data presented in the following tables are for illustrative purposes
only. There is no assurance that AHFC's delinquency, credit loss and
repossession experience with respect to retail installment sale contracts in the
future, or the experience of the Trust with respect to the Receivables, will be
similar to that set forth below. See "Risk Factors -- Risk Associated with
Increases in Delinquencies, Repossessions and Net Losses".
HISTORICAL DELINQUENCY EXPERIENCE (1)
<TABLE>
<CAPTION>
AT AT MARCH 31,
AUGUST 31, ------------------------------------------
1997 1997 1996 1995 1994
-------------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Principal Balance Outstanding (2)................ $2,315,379 $2,219,282 $1,962,622 $1,280,792 $ 994,020
Delinquencies (3)
30-59 Days..................................... $ 23,300 $ 27,847 $ 15,671 $ 11,136 $ 6,885
60-89 Days..................................... 4,116 4,564 2,381 1,379 748
90 or More Days................................ 2,171 1,870 1,063 587 301
Repossessions (4)................................ 5,348 8,377 4,608 3,063 2,213
Total Delinquencies and Repossessions............ 34,935 42,658 23,723 16,165 10,147
Total Delinquencies and Repossessions as a
Percentage of Principal Balance Outstanding.... 1.51% 1.92% 1.21% 1.26% 1.02%
</TABLE>
- ------------------
(1) Includes contracts that have been sold but are still being serviced by AHFC.
(2) Remaining principal balance and unearned finance charges for all outstanding
contracts.
(3) The period of delinquency is based on the number of days any portion of a
scheduled payment is contractually past due.
(4) Amounts shown represent the outstanding principal balance for contracts for
which the related vehicle had been repossessed and not yet liquidated.
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<PAGE>
NET LOSS AND REPOSSESSION EXPERIENCE (1)
<TABLE>
<CAPTION>
AT OR FOR THE
FIVE MONTHS AT OR FOR THE YEAR ENDED MARCH 31,
ENDED AUGUST ------------------------------------------
31, 1997 1997 1996 1995 1994
-------------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Principal Balance Outstanding (2)................ $2,315,379 $2,219,282 $1,962,622 $1,280,792 $ 994,020
Average Principal Balance Outstanding (3)........ $2,261,655 $2,295,436 $1,752,949 $1,011,659 $ 987,128
Number of Contracts Outstanding.................. 219,698 212,694 174,162 116,438 94,873
Average Number of Contracts Outstanding (3)...... 215,735 209,202 155,230 97,270 92,894
Number of Repossessions.......................... 1,050 2,440 1,810 1,434 1,382
Number of Repossessions as a Percentage of the
Average Number of Contracts Outstanding........ 1.17%(6) 1.17% 1.17% 1.47% 1.49%
Gross Charge-Offs (4)............................ $ 7,552 $ 17,812 $ 11,075 $ 6,970 $ 5,526
Recoveries (5)................................... $ 2,387 $ 4,730 $ 3,427 $ 2,811 $ 1,892
Net Losses....................................... $ 5,165 $ 13,082 $ 7,648 $ 4,159 $ 3,634
Net Losses as a Percentage of Average Principal
Balance Outstanding............................ 0.55%(6) 0.57% 0.44% 0.41% 0.37%
</TABLE>
- ----------------
(1) Includes contracts that have been sold but are still being serviced by AHFC.
(2) Remaining principal balance and unearned finance charges for all outstanding
contracts.
(3) Average of the loan balance or number of contracts, as the case may be,
outstanding at the end of each quarter during the fiscal year.
(4) Amount charged off is the remaining principal balance, excluding any
expenses associated with collection, repossession or disposition of the
related vehicle, plus earned but not yet received finance charges, net of
any proceeds collected prior to charge-off.
(5) Proceeds received on previously charged-off contracts.
(6) Annualized.
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<PAGE>
THE CERTIFICATES
The Class A Certificates offered hereby will be issued pursuant to the
Agreement, a form of which, together with a form of the Receivables Purchase
Agreement, has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. Copies of the Agreement (without exhibits) may be
obtained by Class A Certificateholders upon request in writing to the Trustee at
its Corporate Trust Office. Citations to the relevant sections of the Agreement
appear below in parentheses. The following summary describes the material terms
of the Agreement. The summary does not purport to be complete and is subject to,
and qualified in its entirety by, reference to all of the provisions of the
Agreement. Where particular provisions or terms used in the Agreement are
referred to, the actual provisions (including definitions of terms and section
references) are incorporated by reference as part of such summaries.
GENERAL
The Certificates will evidence fractional undivided interests in the Trust
created pursuant to the Agreement. The Class A Certificates will evidence in the
aggregate an undivided ownership interest of 94.0% of the Trust and the Class B
Certificates will evidence in the aggregate an undivided ownership interest of
6.0% of the Trust. The Class B Certificates, which are not being offered hereby,
will initially be held by the Seller. (Sections 1.01 and 15.03).
The Class A Certificates will be offered for purchase in minimum
denominations of $1,000 and integral multiples thereof in book-entry form. The
Class A Certificates will initially be represented by certificates registered in
the name of Cede, the nominee of DTC. No Certificate Owner will be entitled to
receive a certificate representing such owner's interest, except as set forth
below. Unless and until Class A Certificates are issued in fully registered
certificated form ("Definitive Certificates") under the limited circumstances
described below, all references herein to distributions, notices, reports and
statements to Class A Certificateholders will refer to the same actions made
with respect to DTC or Cede, as the case may be, for the benefit of Certificate
Owners in accordance with DTC procedures. (Sections 15.09 and 15.10). See
"Book-Entry Registration" and "Definitive Certificates".
BOOK-ENTRY REGISTRATION
DTC, New York, New York, will act as securities depository for the Class A
Certificates. The Class A Certificates will be issued as fully registered
securities registered in the name of Cede, the nominee of DTC. One fully
registered Class A Certificate will be issued with respect to each $200 million
in principal amount of Class A Certificates and an additional Class A
Certificate will be issued with respect to the remaining principal amount of
Class A Certificates, other than a minimal amount. As such, it is anticipated
that the only "Class A Certificateholder" will be Cede, the nominee of DTC.
Certificate Owners will not be recognized by the Trustee as "Class A
Certificateholders", as such term will be used in the Agreement, and Certificate
Owners will only be permitted to exercise the rights of Class A
Certificateholders indirectly through DTC and its Participants, as further
described below.
DTC is a limited-purpose trust company organized under the laws of the State
of New York, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code (the "UCC") in effect in the State of New
York and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its
participating members ("Participants") and to facilitate the clearance and
settlement of securities transactions between Participants through electronic
book-entry changes in accounts of its Participants, thereby eliminating the need
for physical movement of certificates. Participants include securities brokers
and dealers (including the Underwriters), banks, trust companies and clearing
corporations. Indirect access to the DTC system also is available to banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (the "Indirect
Participants"). The rules applicable to DTC and its Participants are on file
with the Commission.
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<PAGE>
Certificate Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or an interest in,
Class A Certificates may do so only through Participants and Indirect
Participants. Participants will receive a credit for the Class A Certificates on
DTC's records. The ownership interest of each Certificate Owner will in turn be
recorded on the respective records of Participants and Indirect Participants.
Certificate Owners will not receive written confirmation from DTC of their
purchase of Class A Certificates, but Certificate Owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Participant or Indirect Participant
through which the Certificate Owner entered into the transaction. Transfers of
ownership interests in the Class A Certificates will be accomplished by entries
made on the books of Participants acting on behalf of Certificate Owners.
To facilitate subsequent transfers, all Class A Certificates deposited by
Participants with DTC will be registered in the name of Cede, the nominee of
DTC. The deposit of Class A Certificates with DTC and their registration in the
name of Cede will effect no change in beneficial ownership. DTC will have no
knowledge of the actual Certificate Owners and its records will reflect only the
identity of the Participants to whose accounts such Class A Certificates are
credited, which may or may not be the Certificate Owners. Participants and
Indirect Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Participants, by
Participants to Indirect Participants and by Participants and Indirect
Participants to Certificate Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
DTC's practice is to credit Participants' accounts on each Distribution Date
in accordance with their respective holdings of Class A Certificates shown on
DTC's records unless DTC has reason to believe that it will not receive payment
on such Distribution Date. Payments by Participants and Indirect Participants to
Certificate Owners will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts of customers in
bearer form or registered in "street name", and will be the responsibility of
such Participants and not of DTC, the Trustee or the Seller, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of principal of and interest on the Class A Certificates to DTC will be
the responsibility of the Trustee, disbursement of such payments to Participants
will be the responsibility of DTC and disbursement of such payments to
Certificate Owners will be the responsibility of Participants and Indirect
Participants. As a result, under the book-entry format, Certificate Owners may
experience some delay in their receipt of payments. DTC will forward such
payments to its Participants which thereafter will forward them to Indirect
Participants or Certificate Owners.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Certificate
Owner to pledge Class A Certificates to persons or entities that do not
participate in the DTC system, or otherwise take actions with respect to such
Class A Certificates, may be limited due to the lack of a physical certificate
for such Class A Certificates.
Neither DTC nor Cede will consent or vote with respect to the Class A
Certificates. Under its usual procedures, DTC will mail an omnibus proxy to the
Trustee as soon as possible after each applicable record date for such a consent
or vote. The omnibus proxy will assign Cede's consenting or voting rights to
those Participants to whose accounts the Class A Certificates will be credited
on that record date (identified in a listing attached to the omnibus proxy).
None of the Servicer, the Seller or the Trustee will have any liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests of the Class A Certificates held by Cede, as nominee for
DTC, or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
21
<PAGE>
DEFINITIVE CERTIFICATES
Definitive Certificates will be issued in fully registered, certificated
form to Certificate Owners rather than to DTC, only if (i) DTC is no longer
willing or able to discharge its responsibilities as depository with respect to
the Class A Certificates, and neither the Trustee nor the Seller is able to
locate a qualified successor, (ii) the Seller, at its option, elects to
terminate the book-entry system through DTC or (iii) after an Event of Default,
Certificate Owners representing in the aggregate not less than 51% of the Voting
Interests of the Class A Certificates advise the Trustee through DTC and its
Participants in writing that the continuation of a book-entry system through DTC
or its successor is no longer in the best interest of Certificate Owners.
(Section 15.11).
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all Certificate
Owners, through Participants, of the availability through DTC of Definitive
Certificates. Upon surrender by DTC of the certificates representing all Class A
Certificates and the receipt of instructions for re-registration, the Trustee
will issue Definitive Certificates to Certificate Owners, who thereupon will
become Class A Certificateholders for all purposes of the Agreement.
Distributions on the Class A Certificates will thereafter be made by the
Trustee directly to holders of Definitive Certificates in accordance with the
procedures set forth herein and to be set forth in the Agreement. Interest and
principal payments on the Class A Certificates on each Distribution Date will be
made to holders in whose names the Definitive Certificates were registered at
the close of business on the Record Date with respect to such Distribution Date.
Distributions will be made by check mailed to the address of such holders as
they appear on the register for effecting registration, transfers and exchanges
of Certificates (the "Certificate Register"). The final payment on any Class A
Certificates (whether Definitive Certificates or certificates registered in the
name of Cede representing the Class A Certificates), however, will be made only
upon presentation and surrender of such Class A Certificates or certificates at
the office or agency specified in the notice of final distribution to Class A
Certificateholders. The Trustee or a paying agent will provide such notice to
registered Class A Certificateholders not more than 30 days and not less than 15
days prior to the date on which such final distribution is expected to occur.
(Section 20.01).
Definitive Certificates will be transferable and exchangeable at the offices
of the Trustee or the Certificate Registrar to be set forth in the Agreement. No
service charge will be imposed for any registration of transfer or exchange, but
the Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge imposed in connection therewith. (Section 15.03).
SALE AND ASSIGNMENT OF THE RECEIVABLES
On or prior to the Closing Date, pursuant to the Receivables Purchase
Agreement, AHFC will sell and assign to the Seller, without recourse, its entire
interest in the Receivables, including the security interests in the Financed
Vehicles. On the Closing Date, the Seller will sell and assign to the Trustee,
without recourse, all of its right, title and interest in and to the
Receivables, including its interest in AHFC's security interests in the Financed
Vehicles. (Section 12.01). Each Receivable will be identified in a schedule
referred to in the Receivables Purchase Agreement and the Agreement and on file
with the Trustee (the "Schedule of Receivables"). The Trustee will, concurrently
with such sale and assignment, execute, authenticate and deliver the
Certificates to or upon the order of the Seller in exchange for the Receivables.
(Section 15.02). Thereafter, the Seller will sell the Class A Certificates to
the Underwriters.
As more fully described under "The Receivables -- Selection Criteria", AHFC,
pursuant to the Receivables Purchase Agreement, and the Seller, pursuant to the
Agreement, will make certain representations and warranties with respect to the
Receivables and the Financed Vehicles. In the Receivables Purchase Agreement,
AHFC will additionally represent and warrant to the Seller, and in the
Agreement, the Seller will additionally represent and warrant to the Trustee,
among other things, that (i) the information set forth in the Schedule of
Receivables is true and correct in all material respects; (ii) at the time of
origination of
22
<PAGE>
each Receivable, the related Obligor was required to maintain physical damage
insurance in accordance with AHFC's normal requirements; (iii) on the Cutoff
Date, to the best of its knowledge, the Receivables are free and clear of all
prior security interests, liens, charges and encumbrances and no offsets,
defenses or counterclaims have been asserted or threatened; (iv) on the Cutoff
Date, each of the Receivables is secured by a first priority perfected security
interest in the related Financed Vehicle in favor of AHFC; and (v) each
Receivable at the time it was originated complied, and on the Cutoff Date
complies, in all material respects with applicable state and federal laws,
including, without limitation, consumer credit, truth-in-lending, equal credit
opportunity and disclosure laws. (Section 12.04).
As of the last day of the second Collection Period (or, if the Seller so
elects, the last day of the first Collection Period) following the Collection
Period in which the Seller, the Servicer or the Trustee discovers a breach of
any representation or warranty of the Seller that materially and adversely
affects the interests of the Certificateholders in a Receivable, the Seller,
unless the breach is cured, will repurchase such Receivable (a "Warranty
Receivable") from the Trustee and, pursuant to the Receivables Purchase
Agreement, AHFC will purchase such Receivable from the Seller, at a price equal
to the Warranty Purchase Payment for such Receivable. The "Warranty Purchase
Payment" (1) for a Precomputed Receivable will be equal to (a) the sum of (i)
all remaining Scheduled Payments, (ii) all past due Scheduled Payments for which
an Advance has not been made, (iii) all outstanding Advances made by the
Servicer in respect of such Precomputed Receivable and (iv) an amount equal to
any reimbursements of outstanding Advances made to the Servicer with respect to
such Precomputed Receivable from collections made on or in respect of other
Receivables, minus (b) the sum (i) of all Payments Ahead in respect of such
Precomputed Receivable held by the Servicer or on deposit in the Payahead
Account, (ii) the rebate, calculated on an actuarial basis, that would be
payable to the Obligor on such Precomputed Receivable were the Obligor to prepay
such Precomputed Receivable in full on such day and (iii) any proceeds of the
liquidation of such Precomputed Receivable previously received (to the extent
applied to reduce the Principal Balance of such Precomputed Receivable) and (2)
for a Simple Interest Receivable, will be equal to its unpaid principal balance,
plus interest thereon at a rate equal to the Required Rate to the last day of
the Collection Period relating to such repurchase. This repurchase obligation
will constitute the sole remedy available to the Certificateholders or the
Trustee for any such uncured breach by the Seller. The obligation of the Seller
to repurchase a Receivable will not be conditioned on performance by AHFC of its
obligation to purchase such Receivable from the Seller pursuant to the
Receivables Purchase Agreement. (Sections 12.04 and 12.05).
To assure uniform quality in servicing both the Receivables and the
Servicer's own portfolio of retail installment sale contracts, as well as to
reduce administrative costs, pursuant to the Agreement, the Trustee will appoint
the Servicer as custodian of the Receivables and all documents related thereto.
(Section 12.02). The Receivables will not be physically segregated from other
retail installment sale contracts of the Servicer, or those which the Servicer
services for others, to reflect the transfer to the Trust. However, UCC
financing statements reflecting the sale and assignment of the Receivables by
AHFC to the Seller and by the Seller to the Trustee will be filed, and the
respective accounting records and computer files of AHFC and the Seller will
reflect such sale and assignment. Because the Receivables will remain in the
possession of the Servicer and will not be stamped or otherwise marked to
reflect the assignment thereof to the Trustee, if a subsequent purchaser were
able to take physical possession of the Receivables without knowledge of the
assignment, the Trustee's interest in the Receivables could be defeated. See
"Certain Legal Aspects of the Receivables -- General" and "-- Security Interests
in the Financed Vehicles". In addition, under certain circumstances the
Trustee's security interest in collections that have been received by the
Servicer but not yet remitted to the Certificate Account could be defeated. See
"Collections".
SERVICING PROCEDURES
The Servicer will make reasonable efforts to collect all payments due with
respect to the Receivables and, in a manner consistent with the Agreement, will
continue such collection procedures as it follows with respect to comparable
retail installment sale contracts it services for itself and others. (Section
13.01). The Servicer will be authorized to grant certain rebates, adjustments or
extensions with respect to a Receivable.
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<PAGE>
See "American Honda Finance Corporation -- Servicing of Motor Vehicle Loans".
However, if any such modification of a Receivable alters the APR or the amount
financed or extends the maturity of a Receivable beyond six months after the
scheduled maturity of the Receivable with the latest scheduled maturity as of
the Cutoff Date, the Servicer will be obligated to purchase such Receivable as
described in the immediately succeeding paragraph. (Sections 13.07 and 13.08).
In the Agreement, the Servicer will covenant that except as otherwise
contemplated therein, (i) it will not release any Financed Vehicle from the
security interest created by the related Receivable, (ii) it will do nothing to
impair the rights of the Certificateholders in the Receivables and (iii) except
as otherwise provided in the Agreement, it will not amend any Receivable such
that the total number of Scheduled Payments is extended beyond six months after
the scheduled maturity of the Receivable with the latest scheduled maturity as
of the Cutoff Date, or either the amount financed or the APR is altered. As of
the last day of the second Collection Period (or, if the Servicer so elects, the
last day of the first Collection Period) following the Collection Period in
which the Seller, the Servicer or the Trustee discovers a breach of any such
covenant that materially and adversely affects the interests of the
Certificateholders in a Receivable, the Servicer, unless the breach is cured,
will purchase the Receivable (an "Administrative Receivable") from the Trustee
at a price equal to the Administrative Purchase Payment for such Receivable. The
"Administrative Purchase Payment" (1) for a Precomputed Receivable will be equal
to (a) the sum of (i) all remaining Scheduled Payments, (ii) an amount equal to
any reimbursements of outstanding Advances made by the Servicer with respect to
such Precomputed Receivable from the proceeds of other Receivables and (iii) all
past due Scheduled Payments for which an Advance has not been made, minus (b)
the sum of (i) all Payments Ahead in respect of such Precomputed Receivable held
by the Servicer or on deposit in the Payahead Account and (ii) the rebate,
calculated on an actuarial basis, that would be payable to the Obligor on such
Precomputed Receivable were the Obligor to prepay such Precomputed Receivable in
full on such day of purchase and (2) for a Simple Interest Receivable, will be
equal to its unpaid principal balance, plus interest thereon at a rate equal to
the Required Rate to the last day of the Collection Period relating to such
repurchase. Upon the repurchase of any Administrative Receivable, the Servicer
shall for all purposes of the Agreement be deemed to have released all claims
for the reimbursement of outstanding Advances made in respect of such
Receivable. This repurchase obligation will constitute the sole remedy available
to the Certificateholders or the Trustee for any such uncured breach by the
Servicer. (Sections 13.07 and 13.08).
If the Servicer determines that eventual payment in full of a Receivable is
unlikely, the Servicer will follow its normal practices and procedures to
recover all amounts due upon such Receivable, including the repossession and
disposition of the related Financed Vehicle at a public or private sale, or the
taking of any other action permitted by applicable law. (Section 13.04).
INSURANCE ON FINANCED VEHICLES
Each Receivable requires the related Obligor to maintain insurance covering
physical damage to the Financed Vehicle in an amount not less than the unpaid
principal balance of such Receivable pursuant to which AHFC is named as a loss
payee. Since the Obligors may select their own insurers to provide the requisite
coverage, the specific terms and conditions of their policies may vary. AHFC
does not monitor the maintenance of such insurance. A failure by an Obligor to
maintain such physical damage insurance will constitute a default under the
related Receivable. See "American Honda Finance Corporation -- Underwriting of
Motor Vehicle Loans". In the event that the failure of an Obligor to maintain
any such required insurance results in a shortfall in amounts to be distributed
to Class A Certificateholders and such shortfall is not covered by amounts
otherwise payable to the Class B Certificateholders pursuant to the
subordination of the Class B Certificates or from amounts on deposit in the
Reserve Fund, Class A Certificateholders could suffer a loss on their
investment.
24
<PAGE>
COLLECTIONS
The Servicer will establish two accounts in the name of the Trustee on
behalf of the Certificateholders, the first into which payments made on or in
respect of the Receivables will be deposited and from which all distributions
with respect to the Receivables and the Certificates will be made (the
"Certificate Account") and the second into which, to the extent required by the
Agreement, payments made by Obligors in respect of Precomputed Receivables in
excess of the related Scheduled Payments (each, a "Payment Ahead"), to the
extent that such payments do not constitute a prepayment in full of the related
Precomputed Receivable, will be deposited until the Collection Period in which
such payments become due (the "Payahead Account" and, together with the
Certificate Account, the "Accounts"). The Certificate Account and the Payahead
Account will be maintained with a depository institution or a trust company
(which may include the Trustee) so long as (i) the commercial paper or other
short-term unsecured debt obligations of the Trustee have a rating of Prime-1 by
Moody's and a rating of at least A-1+ by Standard & Poor's (the "Required
Rating") or (ii) such Accounts are maintained in a segregated trust account for
the benefit of the Certificateholders, located in the corporate trust department
of a depository institution or trust company having corporate trust powers
(which may include the Trustee) and a long-term deposit rating from Moody's of
at least Baa3 (or such lower rating as Moody's shall approve in writing).
Initially, the Accounts will be maintained in segregated trust accounts with
Bank of Tokyo - Mitsubishi Trust Company. (Section 14.01).
Funds on deposit in the Certificate Account may, at the direction of the
Servicer, be invested in Permitted Investments that mature on the Business Day
immediately preceding the Distribution Date next succeeding the date of
investment (other than instruments of the entity at which the Accounts are
located, which may mature on such Distribution Date). Funds on deposit in the
Payahead Account may, at the direction of the Servicer, be invested in money
market funds meeting certain criteria established by the Rating Agencies. All
income or other gain from such investments, net of investment expenses and any
loss resulting from such investment, shall be paid to the Servicer as additional
servicing compensation. Investment expenses and net losses resulting from such
investments shall be charged to the related Account and will be borne by the
Certificateholders. (Section 14.01). "Permitted Investments" will be (i)
obligations of, and obligations guaranteed by, the United States or any agency
thereof, backed by full faith and credit of the United States, (ii) securities
issued or guaranteed by the Federal National Mortgage Association or any state
rated in the highest applicable rating category of each Rating Agency (the
"Required Investment Rating"), (iii) securities bearing interest or sold at a
discount of any corporation incorporated in any state or under federal law the
unsecured debt or commercial paper of which has the Required Investment Rating,
(iv) certificates of deposit fully insured by the FDIC or otherwise issued by a
federal or state institution the short term unsecured debt of which has the
Required Investment Rating, (v) certain repurchase obligations with respect to
any security described in clause (i), (ii) or (vi) hereof, (vi) money market
funds meeting certain criteria established by the Rating Agencies or (vii) any
other investment approved by each Rating Agency.
The Servicer will deposit all payments received on or in respect of the
Receivables and all proceeds of Receivables collected into the Certificate
Account not later than two Business Days after receipt. However, the Servicer
may retain such amounts until the Business Day immediately preceding the related
Distribution Date so long as (i) AHFC is the Servicer, (ii) no Event of Default
exists and is continuing and (iii) either (a) the short-term unsecured debt of
AHFC is rated at least Prime-1 by Moody's and A-1+ by Standard & Poor's, or (b)
AHFC obtains a letter of credit, surety bond, insurance policy or otherwise
deposits cash or securities (collectively, the "Servicer Letter of Credit") as
provided in the Agreement under which demands for payment will be made to secure
timely remittance of monthly collections to the Certificate Account. The
Servicer expects to obtain a Servicer Letter of Credit on the Closing Date and,
accordingly, will be permitted to make remittances of collections to the
Certificate Account on a monthly basis. Pending deposit into the Certificate
Account, collections may be invested by the Servicer at its own risk and for its
own benefit and will not be segregated from its own funds. The Seller or the
Servicer, as the case may be, will remit the aggregate Warranty Purchase
Payments and Administrative Purchase Payments of any Receivables to be purchased
from the Trust into the Certificate Account on or before the Business Day
immediately preceding the related Distribution Date. (Sections 14.02 and 14.05).
25
<PAGE>
Collections on or in respect of a Receivable made during a Collection Period
(including Warranty Purchase Payments and Administrative Purchase Payments)
which are not late fees, prepayment charges, extension fees or certain other
similar fees or charges will be applied first to any outstanding Advances made
by the Servicer with respect to such Receivable, and then to the related
Scheduled Payment. Any collections on or in respect of a Receivable remaining
after such applications will be considered an "Excess Payment". Excess Payments
constituting a prepayment in full of Precomputed Receivables and any Excess
Payments relating to Simple Interest Receivables will be applied as a prepayment
of such Receivable (each, a "Prepayment"). All other Excess Payments in respect
of Precomputed Receivables will be held by the Servicer (or if the Servicer has
not satisfied the conditions in clauses (i) through (iii) in the immediately
preceding paragraph, deposited in the Payahead Account) as a Payment Ahead.
(Sections 14.02 and 14.03).
ADVANCES
If the Scheduled Payment due on a Precomputed Receivable is not received in
full by the end of the month in which it is due, whether as the result of any
extension granted to the Obligor or otherwise, the amount of Payments Ahead, if
any, not previously applied with respect to such Precomputed Receivable shall be
applied by the Servicer to the extent of the shortfall and the Payahead Account
shall be reduced accordingly. If any shortfall remains, the Servicer will make a
Precomputed Advance to the Trust in an amount equal to the amount of such
shortfall. In addition, if the Scheduled Payment on a Simple Interest Receivable
is not received in full by the end of the month in which it is due, the Servicer
will be required, subject to the limitations set forth below, to make a Simple
Interest Advance to the Trust in an amount equal to the product of the Principal
Balance of such Simple Interest Receivable as of the first day of the related
Collection Period and one-twelfth of its APR minus the amount of interest
actually received on such Simple Interest Receivable during the related
Collection Period. If such a calculation results in a negative number, an amount
equal to such negative amount shall be paid to the Servicer in reimbursement of
any outstanding Simple Interest Advances. In addition, in the event that a
Simple Interest Receivable becomes a Liquidated Receivable, the amount of
accrued and unpaid interest thereon (but not including interest for the current
Collection Period) shall, up to the amount of all outstanding Simple Interest
Advances in respect thereof, be withdrawn from the Certificate Account and paid
to the Servicer in reimbursement of such outstanding Simple Interest Advances.
No advances of principal will be made with respect to Simple Interest
Receivables.
The obligation of the Servicer to make an Advance (other than a Simple
Interest Advance in respect of an interest shortfall arising from the prepayment
of a Simple Interest Receivable) will be limited to the extent that it
determines, in its sole discretion, that such Advance will be recovered from
subsequent collections on or in respect of such Receivable. In making Advances,
the Servicer will endeavor to maintain monthly payments of interest at the
Pass-Through Rate to Certificateholders rather than to guarantee or insure
against losses. Accordingly, all Advances shall be reimbursable to the Servicer,
without interest, if and when a payment relating to a Receivable with respect to
which an Advance has previously been made is subsequently received. Upon the
determination by the Servicer that reimbursement from the preceding source is
unlikely, it will be entitled to recover unreimbursed Advances from collections
on or in respect of other Receivables. (Section 14.04).
The Servicer will make all Advances by depositing into the Certificate
Account any amount equal to the aggregate of the Precomputed Advances and Simple
Interest Advances due in respect of a Collection Period on the Business Day
immediately preceding the related Distribution Date.
NET DEPOSITS
The Servicer will be permitted to deposit in the Certificate Account only
the net amount distributable to Certificateholders on the related Distribution
Date. The Servicer, however, will account to the Trustee and
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<PAGE>
to the Certificateholders as if all deposits and distributions were made
individually. (Section 14.08). Similarly, so long as the Seller is the only
holder of the Class B Certificates, it will be entitled to net its payment
obligations to the Trustee against any amounts distributable on the Class B
Certificates on the related Distribution Date.
SERVICING COMPENSATION
On each Distribution Date, the Servicer will receive the Servicing Fee for
the related Collection Period equal to one-twelfth of the Servicing Fee Rate
multiplied by the Pool Balance as of the first day of such Collection Period or,
in the case of the first Collection Period, the Cutoff Date Pool Balance. The
Servicing Fee will be calculated and paid based upon a 360-day year consisting
of twelve 30-day months. The Servicer will be entitled to collect and retain as
additional servicing compensation in respect of each Collection Period any late
fees, prepayment charges and other administrative fees and expenses or similar
charges collected during such Collection Period, plus any interest earned during
such Collection Period from the investment of monies on deposit in the Accounts,
net of investment expenses and any losses from such investments. See
"Collections".
The Servicing Fee will compensate the Servicer for performing the functions
of a third party servicer of the Receivables as an agent for the Trustee,
including collecting and posting payments, responding to inquiries of Obligors,
investigating delinquencies, sending payment statements and reporting tax
information to Obligors, paying costs of collections and policing the
collateral. The Servicing Fee will also compensate the Servicer for
administering the Receivables, including making Advances, accounting for
collections, furnishing monthly and annual statements to the Trustee with
respect to distributions and generating federal income tax information and
certain taxes, accounting fees, outside auditor fees, data processing costs and
other costs incurred in connection with administering the Receivables. (Sections
13.01 and 13.09).
The "Pool Balance" will equal the aggregate Principal Balance of the
Receivables (other than Defaulted Receivables). The "Principal Balance" of a
Receivable as of any date will equal the original principal balance of each
Receivable minus the sum of (i) in the case of a Precomputed Receivable, that
portion of all Scheduled Payments due on or prior to such date allocable to
principal, computed in accordance with the actuarial method, (ii) in the case of
a Simple Interest Receivable, that portion of all Scheduled Payments actually
received on or prior to such date allocable to principal, (iii) any Warranty
Purchase Payment or Administrative Purchase Payment with respect to such
Receivable allocable to principal (to the extent not included in clauses (i) and
(ii) above) and (iv) any Prepayments or other payments applied to reduce the
unpaid principal balance of such Receivable (to the extent not included in
clauses (i), (ii) and (iii) above).
DISTRIBUTIONS ON THE CERTIFICATES
On the tenth calendar day of each month or, if such day is not a Business
Day, the immediately succeeding Business Day (each, a "Determination Date"), the
Servicer will inform the Trustee of, among other things, the amount of funds
collected on or in respect of the Receivables, the Yield Supplement Deposit
Amount, if any, the amount of Advances to be made by the Servicer and the
Servicing Fee and other servicing compensation payable to the Servicer, in each
case with respect to the immediately preceding Collection Period. On or prior to
each Determination Date, the Servicer will also determine the Class A
Distributable Amount, the Class B Distributable Amount and, based on the
available funds and other amounts available for distribution on the related
Distribution Date as described below, the amount to be distributed to the Class
A Certificateholders and the Class B Certificateholders.
On each Distribution Date, the Trustee will cause Payments Ahead previously
deposited in the Payahead Account or held by the Servicer in respect of the
related Collection Period to be transferred to the Certificate Account and the
aggregate Yield Supplement Deposit Amount, if any, to be withdrawn from the
Yield Supplement Account and deposited in the Certificate Account. (Sections
14.01 and 14.06).
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<PAGE>
The Trustee shall make distributions to the Certificateholders out of the
amounts on deposit in the Certificate Account. The amount to be distributed to
the Certificateholders shall be determined in the manner described below.
DETERMINATION OF AVAILABLE AMOUNTS. The amount of funds available for
distribution on a Distribution Date will generally equal the sum of Available
Interest and Available Principal.
"Available Interest" for a Distribution Date will equal the sum of the
following amounts allocable to interest received or allocated by the Servicer on
or in respect of the Receivables during the related Collection Period (computed,
in the case of Precomputed Receivables, by the actuarial method and, in the case
of Simple Interest Receivables, by the simple interest method): all (i)
collections on or in respect of the Receivables other than Defaulted Receivables
(including Payments Ahead being applied in such Collection Period but excluding
Payments Ahead to be applied in one or more future Collection Periods); (ii)
proceeds of the liquidation of Defaulted Receivables, net of expenses incurred
by the Servicer in accordance with its customary servicing procedures in
connection with such liquidation ("Net Liquidation Proceeds"); (iii) Advances
made by the Servicer; (iv) Warranty Purchase Payments with respect to Warranty
Receivables repurchased by the Seller and Administrative Purchase Payments with
respect to Administrative Receivables purchased by the Servicer, in either case
in respect of such Collection Period; and (v) the aggregate Yield Supplement
Deposit Amount for the related Distribution Date.
"Available Principal" for a Distribution Date will equal the sum of the
amounts described in clauses (i) through (iv) of the immediately preceding
paragraph received or allocated by the Servicer in respect of principal on or in
respect of the Receivables during the related Collection Period (computed, in
the case of Precomputed Receivables, by the actuarial method and, in the case of
Simple Interest Receivables, by the simple interest method).
Available Interest and Available Principal on any Distribution Date will
exclude (i) amounts received on a particular Receivable (other than a Defaulted
Receivable) to the extent that the Servicer has previously made an unreimbursed
Advance in respect of such Receivable and (ii) Net Liquidation Proceeds with
respect to a particular Receivable to the extent of unreimbursed Advances in
respect of such Receivable. A "Defaulted Receivable" will be a Receivable (other
than an Administrative Receivable or a Warranty Receivable) as to which (a) all
or any part of a Scheduled Payment is 120 or more days past due and the Servicer
has not repossessed the related Financed Vehicle or (b) the Servicer has, in
accordance with its customary servicing procedures, determined that eventual
payment in full is unlikely and has either repossessed and liquidated the
related Financed Vehicle or repossessed and held the related Financed Vehicle in
its repossession inventory for 90 days, whichever occurs first.
CALCULATION OF DISTRIBUTABLE AMOUNTS. The "Class A Distributable Amount"
with respect to a Distribution Date will equal the sum of (i) the "Class A
Principal Distributable Amount", consisting of the Class A Percentage of the
following items: (a) in the case of Precomputed Receivables, the principal
portion of all Scheduled Payments due during the related Collection Period,
computed in accordance with the actuarial method, (b) in the case of Simple
Interest Receivables, the principal portion of all Scheduled Payments actually
received during such Collection Period, (c) the principal portion of all
Prepayments received during the related Collection Period (to the extent such
amounts are not included in clauses (a) and (b) above) and (d) the Principal
Balance of each Receivable that the Servicer became obligated to purchase, the
Seller became obligated to repurchase or that became a Defaulted Receivable
during the related Collection Period (to the extent such amounts are not
included in clauses (a), (b) or (c) above) and (ii) the "Class A Interest
Distributable Amount", consisting of one month's interest at the Pass-Through
Rate on the Class A Certificate Balance as of the immediately preceding
Distribution Date (after giving effect to distributions of principal made on
such immediately preceding Distribution Date) or, in the case of the first
Distribution Date, the Original Class A Certificate Balance.
The "Class B Distributable Amount" with respect to a Distribution Date will
be an amount equal to the sum of (i) the "Class B Principal Distributable
Amount", consisting of the Class B Percentage of the
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amounts set forth under clauses (i)(a) through (i)(d) in the preceding paragraph
with respect to the Class A Principal Distributable Amount and (ii) the "Class B
Interest Distributable Amount", consisting of one month's interest at the
Pass-Through Rate on the Class B Certificate Balance as of the immediately
preceding Distribution Date (after giving effect to distributions of principal
made on such immediately preceding Distribution Date) or, in the case of the
first Distribution Date, the Original Class B Certificate Balance.
The "Class B Certificate Balance" will initially equal $54,264,897 (the
"Original Class B Certificate Balance") and, on any Distribution Date, will
equal the amount by which the Pool Balance on the last day of the related
Collection Period exceeds the Class A Certificate Balance on such Distribution
Date.
PAYMENT OF DISTRIBUTABLE AMOUNTS. Prior to each Distribution Date, the
Servicer will calculate the amount to be distributed to the Certificateholders.
On each Distribution Date, the Trustee will distribute to Certificateholders of
record the following amounts in the following order of priority, to the extent
of funds available for distribution on such Distribution Date:
(i) to the Class A Certificateholders, an amount equal to the Class A
Interest Distributable Amount and any unpaid Class A Interest Carryover
Shortfall, such amount to be paid from Available Interest (as Available
Interest has been reduced by reimbursing the Servicer for the interest
component of any outstanding Advances and paying the Servicer the Servicing
Fee, including any unpaid Servicing Fees with respect to one or more prior
Collection Periods and any additional servicing compensation as described
under "Servicing Compensation"); and if such Available Interest is
insufficient, the Class A Certificateholders will be entitled to receive
such deficiency first from the Class B Percentage of Available Principal and
second, if such amounts are still insufficient, from monies on deposit in
the Reserve Fund;
(ii) to the Class B Certificateholders, an amount equal to the Class B
Interest Distributable Amount and any unpaid Class B Interest Carryover
Shortfall, such amount to be paid from Available Interest (after giving
effect to the reduction in Available Interest described in clause (i)
above); and if such Available Interest is insufficient, the Class B
Certificateholders will be entitled to receive such deficiency from monies
on deposit in the Reserve Fund;
(iii) to the Class A Certificateholders, an amount equal to the Class A
Principal Distributable Amount and any unpaid Class A Principal Carryover
Shortfall, such amount to be paid from Available Principal (as Available
Principal has been reduced by reimbursing the Servicer for the principal
component of any outstanding Precomputed Advances and any reduction in
Available Principal described in clause (i) above); and if such Available
Principal is insufficient, the Class A Certificateholders will be entitled
to receive such deficiency first from Available Interest (after giving
effect to the reduction in Available Interest described in clauses (i) and
(ii) above) and second, if such amounts are still insufficient, from monies
on deposit in the Reserve Fund; and
(iv) to the Class B Certificateholders, an amount equal to the Class B
Principal Distributable Amount and any unpaid Class B Principal Carryover
Shortfall, such amount to be paid from Available Principal (after giving
effect to the reduction in Available Principal described in clauses (i) and
(iii) above); and if such Available Principal is insufficient, the Class B
Certificateholders will be entitled to receive such deficiency first from
Available Interest (after giving effect to the reduction in Available
Interest described in clauses (i), (ii) and (iii) above) and second, if such
amounts are still insufficient, from monies on deposit in the Reserve Fund.
(Section 14.06).
The "Class A Interest Carryover Shortfall" with respect to any Distribution
Date will mean the excess, if any, of the Class A Interest Distributable Amount
for such Distribution Date plus any outstanding Class A Interest Carryover
Shortfall with respect to the immediately preceding Distribution Date, plus
interest on such outstanding Class A Interest Carryover Shortfall, to the extent
permitted by law, at the Pass-Through Rate from such immediately preceding
Distribution Date to but not including the current Distribution Date, over the
amount of interest actually received by the Class A Certificateholders on such
current Distribution Date. The "Class A Principal Carryover Shortfall" with
respect to any Distribution Date will mean the
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<PAGE>
excess, if any, of the Class A Principal Distributable Amount plus any
outstanding Class A Principal Carryover Shortfall with respect to one or more
prior Distribution Dates over the amount of principal that the holders of the
Class A Certificates actually received on such current Distribution Date. The
"Class B Interest Carryover Shortfall" and the "Class B Principal Carryover
Shortfall" shall have meanings correlative to the foregoing.
Any excess amounts in the Certificate Account with respect to any
Distribution Date, after giving effect to the distributions described in clauses
(i) through (iv) of the second preceding paragraph ("Excess Amounts"), will be
distributed in the following amounts and in the following order of priority: (i)
to the Reserve Fund until the amount on deposit therein equals the Specified
Reserve Fund Balance and (ii) to the Seller. (Section 14.06).
THE YIELD SUPPLEMENT ACCOUNT
The Yield Supplement Account is designed solely to supplement interest
collections on the Discount Receivables. The Yield Supplement Account will not
be part of or otherwise includible in the Trust and will be a segregated trust
account held by the Trustee for the benefit of the Certificateholders.
On each Distribution Date, the Trustee will transfer to the Certificate
Account from monies on deposit in the Yield Supplement Account an amount equal
to the Yield Supplement Deposit Amount in respect of the Discount Receivables
for such Distribution Date. See "Distributions on the Certificates". All or a
portion of the monies on deposit in the Yield Supplement Account may be invested
in Permitted Investments. All income and gain realized on such investments shall
be deposited in the Yield Supplement Account and shall be distributed as
required to the Certificate Account. Amounts on deposit on any Distribution Date
in the Yield Supplement Account in excess of the Maximum Yield Supplement
Amount, after giving effect to all distributions to be made on such Distribution
Date, will be paid to the Seller and the Certificateholders will have no further
rights in, or claims to, such amounts. The "Maximum Yield Supplement Amount" for
any Distribution Date will equal the aggregate amount, as of the last day of the
related Collection Period, by which interest on the Principal Balance of each
Discount Receivable (other than any such Receivable that is a Defaulted
Receivable) for the remaining term of such Receivable (assuming no prepayments
or delinquencies) at the Required Rate exceeds interest on such Principal
Balance at the APR of each such Receivable; provided, that such amount may be
discounted at a rate to be specified in the Agreement. Any monies remaining on
deposit in the Yield Supplement Account upon the termination of the Trust
pursuant to its terms will be paid to the Seller. (Section 14.11).
SUBORDINATION OF THE CLASS B CERTIFICATES; RESERVE FUND
The rights of the Class B Certificateholders to receive distributions with
respect to the Receivables will be subordinated to the rights of the Servicer
(to the extent that the Servicer is paid the Servicing Fee with respect to the
related Collection Period, including any unpaid Servicing Fees with respect to
one or more prior Collection Periods and any additional servicing compensation
as described under "Servicing Compensation", and to the extent the Servicer is
reimbursed for certain unreimbursed Advances) and the Class A Certificateholders
to the extent described above. This subordination is intended to enhance the
likelihood of timely receipt by Class A Certificateholders of the full amount of
interest and principal required to be paid to them, and to afford such
Certificateholders limited protection against losses in respect of the
Receivables.
No distribution will be made to the Class B Certificateholders on any
Distribution Date in respect of (i) interest until the full amount of interest
on the Class A Certificates payable on such Distribution Date has been
distributed to the Class A Certificateholders and (ii) principal until the full
amount of interest on and principal of the Class A Certificates payable on such
Distribution Date has been distributed to the Class A Certificateholders.
Distributions of interest on the Class B Certificates, to the extent of
collections on or in respect of the Receivables allocable to interest and
certain available amounts on deposit in the Reserve Fund, will not be
subordinated to the payment of principal on the Class A Certificates.
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<PAGE>
In the event of delinquencies or losses on the Receivables, the protection
afforded to the Class A Certificateholders will be effected by the application
of Available Interest and Available Principal on each Distribution Date in the
priorities specified under "Distributions on the Certificates -- Payment of
Distributable Amounts", and by the establishment of the Reserve Fund. The
Reserve Fund will not be a part of or otherwise includible in the Trust and will
be a segregated trust account held by the Trustee for the benefit of the
Certificateholders. The Reserve Fund will be funded by the Seller on the Closing
Date in an amount equal to $6,783,074.23. Thereafter, all Excess Amounts will be
deposited from time to time in the Reserve Fund to the extent necessary to
maintain the amount in the Reserve Fund at the Specified Reserve Fund Balance.
The "Specified Reserve Fund Balance" with respect to any Distribution Date
will be $6,783,074.23, except that, if on any Distribution Date (i) the average
of the Charge-off Rates for the three preceding Collection Periods exceeds 1.50%
or (ii) the average of the Delinquency Percentages for the three preceding
Collection Periods exceeds 1.50%, then the Specified Reserve Fund Balance will
be an amount equal to a specified percentage of the Pool Balance as of the last
day of the immediately preceding Collection Period. Such percentage shall be
determined by deducting from 9.00% the following fraction, expressed as a
percentage: (a) one minus (b) a fraction, the numerator of which is the Class A
Certificate Balance with respect to such Distribution Date and the denominator
of which is such Pool Balance. Notwithstanding the foregoing, in no event will
the Specified Reserve Fund Balance be more than $27,132,296.92 or more than the
then outstanding Class A Certificate Balance or less than $6,783,074.23. As of
any Distribution Date, the amount of funds actually on deposit in the Reserve
Fund may, in certain circumstances, be less than the Specified Reserve Fund
Balance. Notwithstanding the foregoing, on any Distribution Date as to which the
Pool Balance as of the last day of the related Collection Period is
$271,322,969.12 or less, the Specified Reserve Fund Balance will be the greater
of the applicable balance determined as described above or $13,566,148.46.
The "Charge-off Rate" with respect to a Collection Period will equal the
Aggregate Net Losses with respect to the Receivables expressed, on an annualized
basis, as a percentage of the average of (i) the Pool Balance on the last day of
the immediately preceding Collection Period and (ii) the Pool Balance on the
last day of such current Collection Period. "Aggregate Net Losses" with respect
to a Collection Period will equal the Principal Balance of all Receivables newly
designated during such Collection Period as Defaulted Receivables minus Net
Liquidation Proceeds collected during such Collection Period with respect to all
Defaulted Receivables. The "Delinquency Percentage" with respect to a Collection
Period will equal the number of (a) all outstanding Receivables 61 days or more
delinquent (after taking into account permitted extensions) as of the last day
of such Collection Period, determined in accordance with the Servicer's normal
practices, plus (b) the number of Receivables the related Financed Vehicles of
which have been repossessed but have not been liquidated (to the extent the
related Receivable is not otherwise reflected in clause (a) above or is not a
Defaulted Receivable), expressed as a percentage of the aggregate number of
Current Receivables on the last day of such Collection Period. A "Current
Receivable" will be a Receivable that is not a Defaulted Receivable or a
Liquidated Receivable. A "Liquidated Receivable" will be a Receivable that has
been the subject of a Prepayment in full or otherwise has been paid in full or,
in the case of a Defaulted Receivable, a Receivable as to which the Servicer has
determined that the final amounts in respect thereof have been paid.
The Servicer may, from time to time after the date of this Prospectus,
request each Rating Agency to approve a formula for determining the Specified
Reserve Fund Balance that is different from the one described above and would
result in a decrease in the amount of the Specified Reserve Fund Balance or
change the manner by which the Reserve Fund is funded. If each Rating Agency
delivers a letter to the Trustee to the effect that the use of any such new
formulation will not result in the qualification, reduction or withdrawal of its
then-current rating of the Class A Certificates, then the Specified Reserve Fund
Balance will be determined in accordance with such new formula. The Agreement
will accordingly be amended to reflect such new calculation without the consent
of any Certificateholder. (Section 21.01).
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On each Distribution Date, funds will be withdrawn from the Reserve Fund as
described above for distribution first to Class A Certificateholders to the
extent of shortfalls in the amounts available to make required distributions of
interest on the Class A Certificates, second to Class B Certificateholders to
the extent of shortfalls in the amounts available to make required distributions
of interest on the Class B Certificates, third to Class A Certificateholders to
the extent of shortfalls in the amounts available to make required distributions
of principal on the Class A Certificates and fourth to Class B
Certificateholders to the extent of shortfalls in the amounts available to make
required distributions of principal on the Class B Certificates.
On each Distribution Date, the Trustee will deposit all Excess Amounts into
the Reserve Fund until the amount on deposit therein equals the Specified
Reserve Fund Balance. If the amount on deposit in the Reserve Fund on such
Distribution Date (after giving effect to all deposits thereto or withdrawals
therefrom on such Distribution Date) is greater than the Specified Reserve Fund
Balance, the Trustee will release and distribute such excess, together with any
Excess Amounts not required to be deposited into the Reserve Fund, to the
Seller. Upon any such release of amounts from the Reserve Fund, the
Certificateholders will have no further rights in, or claims to, such amounts.
Any monies remaining on deposit in the Reserve Fund upon the termination of the
Trust pursuant to its terms will be paid to the Seller. (Section 14.07).
Amounts held from time to time in the Reserve Fund will continue to be held
for the benefit of holders of the Certificates. Funds on deposit in the Reserve
Fund may be invested in Permitted Investments. Investment income on monies on
deposit in the Reserve Fund, net of investment expenses and losses on such
investments, will not be available for distribution to Certificateholders or
otherwise subject to any claims or rights of the Certificateholders and will be
paid to the Seller. Investment expenses and any loss on such investments will be
charged to the Reserve Fund. (Section 14.07).
If on any Distribution Date the Class B Certificate Balance has been reduced
to zero and amounts on deposit in the Reserve Fund have been depleted as a
result of losses in respect of the Receivables, the protection afforded to the
Class A Certificateholders by the subordination of the Class B Certificates and
by the Reserve Fund will be exhausted and the Class A Certificateholders will
bear directly the risks associated with ownership of the Receivables. Amounts on
deposit in the Yield Supplement Account will not be available to
Certificateholders in the event that defaults or delinquencies in collections on
the Receivables result in shortfalls in amounts due to Certificateholders (even
in the circumstance described in the preceding sentence) or for any other
purpose other than withdrawals of the Yield Supplement Deposit Account on each
Distribution Date.
Neither the Class B Certificateholders, the Seller nor the Servicer will be
required to refund any amounts properly distributed or paid to them, whether or
not there are sufficient funds on any subsequent Distribution Date to make full
distributions to the Class A Certificateholders.
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EXAMPLE OF DISTRIBUTIONS
The following chart sets forth an example of the application of the
foregoing provisions to the first monthly distribution in respect of the
Certificates:
<TABLE>
<S> <C>
October 1........... CUTOFF DATE. The Pool Balance will equal the aggregate
Principal Balance of the Receivables as of the opening of
business on this date.
October 1 - 31...... COLLECTION PERIOD. The Servicer will receive Scheduled
Payments, Prepayments, Payments Ahead and other payments
made on or in respect of the Receivables.
November 10......... DETERMINATION DATE. On this date, the Servicer will notify
the Trustee of, among other things, the amounts to be
distributed on the Distribution Date.
November 14......... RECORD DATE. Distributions on the Distribution Date will
be made to Certificateholders of record at the close of
business on this date.
November 17......... DISTRIBUTION DATE. On this date, the Trustee will make the
distributions described above.
</TABLE>
STATEMENTS TO CLASS A CERTIFICATEHOLDERS
On each Distribution Date, the Trustee will include with each distribution
to each Class A Certificateholder as of the close of business on the related
Record Date (which shall be Cede as the nominee for DTC unless Definitive
Certificates are issued under the limited circumstances described herein) a
statement, setting forth with respect to the related Collection Period or such
Distribution Date, as the case may be, among other things, the following
information:
(i) the amount of the Class A Certificateholder's distribution allocable
to principal;
(ii) the amount of the Class A Certificateholder's distribution
allocable to interest;
(iii) the Pool Balance as of the close of business on the last day of
such Collection Period;
(iv) the Class A Certificateholder's pro rata portion of the Servicing
Fee and any additional servicing compensation paid to the Servicer with
respect to the related Collection Period;
(v) the amount of the Class A Interest Carryover Shortfall and Class A
Principal Carryover Shortfall, if any, on such Distribution Date and the
change in such amounts from those with respect to the immediately preceding
Distribution Date;
(vi) the Class A Pool Factor as of such Distribution Date;
(vii) the amount otherwise distributable to the Class B
Certificateholders that is being distributed to the Class A
Certificateholders on such Distribution Date;
(viii) the balance on deposit in the Reserve Fund on such Distribution
Date after giving effect to distributions made on such Distribution Date,
the change in such balance from the immediately preceding Distribution Date
and the Specified Reserve Fund Balance;
(ix) the aggregate amount of Payments Ahead on deposit in the Payahead
Account or held by the Servicer and the change in such amount from the
immediately preceding Distribution Date;
(x) the amount of Advances made in respect of such Collection Period and
the amount of unreimbursed Advances on such Distribution Date;
(xi) the Class A Certificate Balance as of such Distribution Date;
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(xii) the Yield Supplement Deposit Amount, the Maximum Yield Supplement
Amount and the amount on deposit in the Yield Supplement Account after
giving effect to distributions made on such Distribution Date; and
(xiii) the amount available under the Servicer Letter of Credit, if any,
and such amount as a percentage of the Pool Balance as of the last day of
such Collection Period.
Each amount set forth pursuant to subclauses (i), (ii), (iv) and (v) above
will be expressed in the aggregate and as a dollar amount per $1,000 of original
principal balance of a Class A Certificate. (Section 14.10). Copies of such
statements may be obtained by Certificate Owners by a request in writing
addressed to the Trustee. (Section 13.15). In addition, within the prescribed
period of time for tax reporting purposes after the end of each calendar year
during the term of the Agreement, the Trustee will mail to each person who at
any time during such calendar year shall have been a Class A Certificateholder a
statement containing the sum of the amounts described in clauses (i), (ii), (iv)
and (v) above for the purposes of such Class A Certificateholder's preparation
of federal income tax returns. (Section 14.10). See "Federal Income Tax
Consequences -- Information Reporting and Backup Withholding".
EVIDENCE AS TO COMPLIANCE
The Agreement will provide that a firm of nationally recognized independent
accountants will furnish to the Trustee on or before June 30 of each year,
beginning June 30, 1998, a statement as to compliance by the Servicer during the
preceding twelve months ended March 31 (or shorter period in the case of the
first such statement) with certain standards relating to the servicing of the
Receivables, the Servicer's accounting records and computer files with respect
thereto and certain other matters. (Section 13.12).
The Agreement will also provide for delivery to the Trustee, on or before
June 30 of such year, beginning June 30, 1998, of a certificate signed by an
officer of the Servicer stating that the Servicer has fulfilled its obligations
under the Agreement throughout the preceding twelve months ended March 31 (or
shorter period in the case of the first such certificate) or, if there has been
a default in the fulfillment of any such obligation, describing each such
default. (Section 13.11).
Copies of such statements and certificates may be obtained by Class A
Certificateholders by a request in writing addressed to the Trustee at 1251
Avenue of the Americas, 10th Floor, New York, New York 10020-1104, Attention:
Corporate Trust Services. (Section 13.15).
CERTAIN MATTERS REGARDING THE SERVICER
The Agreement will provide that the Servicer may not resign from its
obligations and duties as the Servicer thereunder, except upon determination
that its performance of such duties is no longer permissible under applicable
law. No such resignation will become effective until the Trustee or a successor
servicer has assumed the Servicer's servicing obligations and duties under the
Agreement. (Section 17.05).
The Agreement will further provide that neither the Servicer nor any of its
directors, officers, employees or agents will be under any liability to the
Trust or the Certificateholders for taking any action or for refraining from
taking any action required or prohibited by the Agreement, or for errors in
judgment; provided, however, that neither the Servicer nor any such person will
be protected against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance of duties or by
reason of reckless disregard of its obligations and duties thereunder. The
Servicer will be under no obligation to appear in, prosecute or defend any legal
action that is not incidental to its servicing responsibilities under the
Agreement and that, in its opinion, may cause it to incur any expense or
liability. (Section 17.04).
Any corporation into which the Servicer may be merged or consolidated, any
corporation resulting from any merger or consolidation to which the Servicer is
a party or any corporation succeeding to all or substantially all of the
business of the Servicer will be the successor to the Servicer under the
Agreement. (Section 17.03).
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EVENTS OF DEFAULT
"Events of Default" under the Agreement will consist of (i) failure by the
Servicer to deliver to the Trustee the Servicer's Certificate for the related
Collection Period, or any failure of the Servicer (or the Seller, so long as
AHFC is the Servicer) to deliver to the Trustee for distribution to the
Certificateholders any required payment, in each case which continues unremedied
for three Business Days after discovery of such failure by an officer of the
Servicer (or the Seller, so long as AHFC is the Servicer), or written notice of
such failure, requiring the same to be remedied, is given (a) to the Seller or
the Servicer, as the case may be, by the Trustee or (b) to the Seller or the
Servicer, as the case may be, and to the Trustee by holders of Certificates
evidencing not less than 25% of the Voting Interests of the Class A Certificates
and the Class B Certificates, voting together as a single class; (ii) failure by
the Servicer (or the Seller, so long as AHFC is the Servicer) duly to observe or
perform in any material respect any other covenants or agreements in the
Certificates or the Agreement which failure materially and adversely affects the
rights of Certificateholders and which continues unremedied for 90 days after
written notice of such failure, requiring the same to be remedied, is given (a)
to the Seller or the Servicer, as the case may be, by the Trustee or (b) to the
Seller or the Servicer, as the case may be, and to the Trustee by holders of
Certificates evidencing not less than 25% of the Voting Interests of the Class A
Certificates and the Class B Certificates, voting together as a single class; or
(iii) certain events of bankruptcy, insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings and certain actions
by the Servicer (or the Seller, so long as AHFC is the Servicer) indicating its
insolvency, reorganization pursuant to bankruptcy proceedings or inability to
pay its obligations. (Section 18.01).
RIGHTS UPON EVENT OF DEFAULT
As long as an Event of Default remains unremedied, the Trustee or holders of
Certificates evidencing not less than 51% of the Voting Interests of the Class A
Certificates and the Class B Certificates, voting together as a single class,
may terminate all of the rights and obligations of the Servicer under the
Agreement, whereupon the Trustee will succeed, without further action, to all
the responsibilities, duties and liabilities of the Servicer in its capacity as
such under the Agreement and will be entitled to similar compensation
arrangements. If, however, a bankruptcy trustee or similar official has been
appointed for the Servicer and no Event of Default other than such appointment
has occurred, such trustee or official may have the power to prevent the Trustee
or such Certificateholders from effecting a transfer of servicing. In the event
that the Trustee is unwilling or unable so to act, then it may appoint, or
petition a court of competent jurisdiction for the appointment of, a successor
with a net worth of at least $50,000,000 whose regular business includes the
servicing of motor vehicle receivables. The Trustee and such successor Servicer
may agree upon the servicing compensation to be paid, which in no event may be
greater than the servicing compensation to the Servicer under the Agreement.
(Sections 18.02 and 18.03). Notwithstanding such termination, the Servicer shall
be entitled to payment of certain amounts payable to it prior to such
termination for services rendered prior to such termination.
WAIVER OF PAST DEFAULTS
The holders of Certificates evidencing not less than 51% of the Voting
Interests of the Class A Certificates and the Class B Certificates, voting
together as a single class, may waive any default by the Servicer in the
performance of its obligations under the Agreement and its consequences, except
a default in making any required deposits to or payments from the Accounts or
the Reserve Fund in accordance with the Agreement or in respect of a covenant or
provision of the Agreement that cannot be modified or amended without the
consent of each Certificateholder (in which event the related waiver will
require the approval of holders of all of the Certificates). No such waiver will
impair the Certificateholders' rights with respect to subsequent defaults.
(Section 18.05).
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VOTING INTERESTS
The "Voting Interests" of the (i) Class A Certificates will be allocated
among the Class A Certificateholders or Certificate Owners, as the case may be,
in accordance with the Class A Certificate Balance represented thereby and (ii)
Class B Certificates will be allocated among the Class B Certificateholders in
accordance with the Class B Certificate Balance represented thereby; provided,
that, where the Voting Interests are relevant to determine whether the vote of
the requisite percentage of Certificateholders necessary to effect a consent,
waiver, request or demand shall have been obtained, any Class A Certificates or
Class B Certificates, as the case may be, held by the Seller, the Servicer or
any of their respective affiliates shall be excluded from such determination
except in the case of an amendment to the Agreement requiring the consent of the
holders of all of the relevant Class of Certificates as described under
"Amendment".
AMENDMENT
The Agreement may be amended by the Seller, the Servicer and the Trustee,
without the consent of the Certificateholders or any bank or insurance company
issuing the Servicer Letter of Credit (the "Letter of Credit Bank"), (i) to cure
any ambiguity, to correct or supplement any provision therein which may be
inconsistent with any other provision therein, to add, change or eliminate any
other provisions with respect to matters or questions arising under the
Agreement which are not inconsistent with the provisions of the Agreement, to
add or amend any provision therein in connection with permitting transfers of
the Class B Certificates or to add or provide credit enhancement for the Class B
Certificates, (ii) to permit certain changes with respect to the Specified
Reserve Fund Balance, the funding of the Reserve Fund and the remittance
schedule with respect to collections to be deposited into the Accounts or (iii)
to amend or modify any provision in the Agreement relating to the Servicer
Letter of Credit or the acquisition thereof; provided that any such action
pursuant to clause (iii) above will not be made without the consent of the
Letter of Credit Bank, which consent shall not be unreasonably withheld, and
will not, in the opinion of counsel satisfactory to the Trustee, materially and
adversely affect the interest of any Certificateholder and provided, further,
that in connection with any amendment pursuant to clause (ii) or (iii) above,
the Trustee receives a letter from each Rating Agency to the effect that its
then-current rating of the Class A Certificates will not be qualified, reduced
or withdrawn due to such amendment. See "Subordination of the Class B
Certificates; Reserve Fund".
The Agreement may also be amended from time to time by the Seller, the
Servicer and the Trustee with the consent of the holders of Certificates
evidencing not less than 51% of the Voting Interests of all Certificates, voting
together as a single class, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the Agreement or
of modifying in any manner the rights of either Class of Certificateholders or
the Letter of Credit Bank; provided, however, that no such amendment may (i)
except as described above, increase or reduce in any manner the amount of, or
accelerate or delay the timing of, collections of payments on or in respect of
the Receivables or distributions to be made to Certificateholders or to or by
the Letter of Credit Bank or (ii) reduce the aforesaid percentage of the Voting
Interests of which the holders of either Class of Certificates are required to
consent to any such amendment, without the consent of the holders of all of the
relevant Class of Certificates, and provided, further, that in the case of any
such amendment, the Trustee receives a letter from each Rating Agency to the
effect that its then-current rating of the Class A Certificates will not be
qualified, reduced or withdrawn due to such amendment. (Section 21.01).
LIST OF CERTIFICATEHOLDERS
Upon a written request of the Servicer, the Trustee, as Certificate
Registrar, will provide to the Servicer within 15 days after receipt of such
request a list of the names and addresses of all Certificateholders. In
addition, upon written request by three or more Certificateholders or holders of
either Class of Certificates evidencing not less than 25% of the Voting
Interests of such Class, and upon compliance by such Certificateholders with
certain provisions of the Agreement, such Certificateholders may request that
the Trustee, as
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Certificate Registrar, afford such Certificateholders access during business
hours to the current list of Certificateholders for purposes of communicating
with other Certificateholders with respect to their rights under the Agreement.
(Section 15.06).
The Agreement will not provide for the holding of any annual or other
meetings of Certificateholders.
TERMINATION
The respective obligations and responsibilities of the Seller, the Servicer
and the Trustee created by the Agreement will terminate upon the earliest to
occur of (i) the maturity or other liquidation of the last Receivable and the
disposition of any amounts received upon liquidation of any property remaining
in the Trust, (ii) the payment to Certificateholders of all amounts required to
be paid to them pursuant to the Agreement and (iii) the occurrence of the event
described below. In order to avoid excessive administrative expenses, the Seller
or the Servicer, or any successor to the Servicer, will be permitted at its
option to purchase from the Trust, on each Distribution Date following the last
day of any Collection Period as of which the Pool Balance is 10% or less of the
Cutoff Date Pool Balance, the corpus of the Trust at a price equal to the
aggregate Administrative Purchase Payments as of such last day for the
Receivables (including Receivables that became Defaulted Receivables in the
Collection Period preceding the Distribution Date on which such purchase is
effected) plus the related Yield Supplement Deposit Amount and the appraised
value of any other property held as part of the Trust (less liquidation
expenses); provided, however, that the purchase option may not be exercised if
the resulting final distribution on the Class A Certificates would not equal the
sum of the Class A Certificate Balance, the Class A Interest Distributable
Amount and any Class A Interest Carryover Shortfall for such final Distribution
Date. Exercise of such right will effect early retirement of the Certificates.
In the event that both the Seller and the Servicer, or any successor to the
Servicer, elect to purchase the Receivables as described above, the party first
notifying the Trustee (based on the Trustee's receipt of such notice) shall be
permitted to purchase the Receivables. The Trustee will give written notice of
termination to each Certificateholder of record.
The final distribution to any Certificateholder will be made only upon
surrender and cancellation of such Certificateholder's Certificate at an office
or agency of the Trustee specified in the notice of termination. Any funds
remaining in the Trust, after the Trustee has taken certain measures to locate a
Certificateholder and such measures have failed, will be distributed to the
United Negro College Fund. (Sections 20.01 and 20.02).
DUTIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or sufficiency
of the Agreement, the Certificates (other than the execution and authentication
thereof) or of any Receivables or related documents, and will not be accountable
for the use or application by the Seller or the Servicer of any funds paid to
the Seller or the Servicer in respect of the Certificates or the Receivables, or
the investment of any monies by the Servicer before such monies are deposited
into the Certificate Account or the Payahead Account. The Trustee will not
independently verify the Receivables. If no Event of Default has occurred and is
continuing, the Trustee will be required to perform only those duties
specifically required of it under the Agreement. Generally, those duties will be
limited to the receipt of the various certificates, reports or other instruments
required to be furnished to the Trustee under the Agreement, in which case the
Trustee will only be required to examine them to determine whether they conform
to the requirements of the Agreement. The Trustee will not be charged with
knowledge of a failure by the Servicer or the Seller to perform its duties under
the Agreement which failure constitutes an Event of Default unless the Trustee
obtains actual knowledge of such failure as will be specified in the Agreement.
(Sections 19.01 and 19.05).
The Trustee will be under no obligation to exercise any of the rights or
powers vested in it by the Agreement or to make any investigation of matters
arising thereunder or to institute, conduct or defend any litigation thereunder
or in relation thereto at the request, order or direction of any of the
Certificateholders, unless such Certificateholders have offered to the Trustee
reasonable security or indemnity against the costs,
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expenses and liabilities that may be incurred therein or thereby. No
Certificateholder will have any right under the Agreement to institute any
proceeding with respect to the Agreement, unless such holder previously has
given to the Trustee written notice of default and the holders of Certificates
evidencing not less than 25% of the Voting Interests of the Class A Certificates
and the Class B Certificates, voting together as a single class, have made
written request upon the Trustee to institute such proceeding in its own name as
the Trustee thereunder and have offered to the Trustee reasonable indemnity and
the Trustee for 30 days has neglected or refused to institute any such
proceedings. (Section 21.03).
THE TRUSTEE
Bank of Tokyo - Mitsubishi Trust Company will be the Trustee under the
Agreement. The Trustee and any of its affiliates may hold Certificates in their
own names or as pledgees. (Section 19.06). For the purpose of meeting the legal
requirements of certain jurisdictions, the Servicer and the Trustee acting
jointly (or in some instances, the Trustee acting alone) will have the power to
appoint co-trustees or separate trustees of all or any part of the Trust. In the
event of such an appointment, all rights, powers, duties and obligations
conferred or imposed upon the Trustee by the Agreement will be conferred or
imposed upon the Trustee and each such separate trustee or co-trustee jointly,
or, in any jurisdiction in which the Trustee will be incompetent or unqualified
to perform certain acts, singly upon such separate trustee or co-trustee who
will exercise and perform such rights, powers, duties and obligations solely at
the direction of the Trustee. (Section 19.13).
The Trustee may resign at any time, in which event the Servicer will be
obligated to appoint a successor Trustee. The Servicer and the Seller may also
remove the Trustee if the Trustee ceases to be eligible to continue as such
under the Agreement, becomes legally unable to act or becomes insolvent. In such
circumstances, the Servicer will be obligated to appoint a successor Trustee.
Any resignation or removal of the Trustee and appointment of a successor Trustee
will not become effective until acceptance of the appointment by such successor
Trustee. (Section 19.10).
The Agreement will provide that the Servicer will pay the Trustee's fees and
expenses in connection with its duties under the Agreement. (Section 19.07). The
Agreement will further provide that the Trustee will be entitled to
indemnification by the Servicer for, and will be held harmless against, any
loss, liability or expense incurred by the Trustee not resulting from its own
willful misfeasance, bad faith or negligence (other than by reason of a breach
of any of its representations or warranties to be set forth in the Agreement).
(Sections 17.02 and 19.08).
The Trustee's Corporate Trust Office is located at 1251 Avenue of the
Americas, 10th Floor, New York, New York 10020-1104.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
GENERAL
The transfer of the Receivables to the Trustee, the perfection of the
security interests in the Receivables and the enforcement of rights to realize
on the Financed Vehicles as collateral for the Receivables are subject to a
number of federal and state laws, including the UCC as in effect in various
states. The Servicer and the Seller will take such action as is required to
perfect the rights of the Trustee in the Receivables. If, through inadvertence
or otherwise, another party purchases (including the taking of a security
interest in) the Receivables for new value in the ordinary course of its
business, without actual knowledge of the Trust's interest, and takes possession
of the Receivables, such purchaser would acquire an interest in the Receivables
superior to the interest of the Trust.
SECURITY INTERESTS IN THE FINANCED VEHICLES
GENERAL. Retail installment sale contracts such as the Receivables evidence
the credit sale of motor vehicles by dealers to obligors; the contracts also
constitute personal property security agreements and
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include grants of security interests in the related vehicles under the UCC.
Perfection of security interests in motor vehicles is generally governed by
state certificate of title statutes or by the motor vehicle registration laws of
the state in which each vehicle is located. In most states (including California
and Texas, the states in which the largest number of Financed Vehicles are
located), a security interest in a motor vehicle is perfected by notation of the
secured party's lien on the vehicle's certificate of title.
All retail installment sale contracts that AHFC acquires from Dealers name
AHFC as obligee or assignee and as the secured party. AHFC also takes all
actions necessary under the laws of the state in which the related vehicles are
located to perfect its security interest in such vehicles, including, where
applicable, having a notation of its lien recorded on the related certificate of
title and obtaining possession of the certificate of title.
PERFECTION. Pursuant to the Receivables Purchase Agreement, AHFC will sell
and assign its security interests in the Financed Vehicles to the Seller and,
pursuant to the Agreement, the Seller will sell and assign its security
interests in the Financed Vehicles to the Trustee. However, because of the
administrative burden and expense, neither AHFC, the Seller nor the Trustee will
amend any certificate of title to identify the Trustee as the new secured party
on the certificates of title relating to the Financed Vehicles. In the absence
of such an amendment and vehicle reregistration, the Trustee may not have a
perfected security interest in the Financed Vehicles in all states. However, UCC
financing statements with respect to the transfer to the Seller of AHFC's
security interest in the Financed Vehicles and the transfer to the Trustee of
the Seller's security interest in the Financed Vehicles will be filed. In
addition, the Servicer will continue to hold all certificates of title relating
to the Financed Vehicles in its possession as custodian for the Trustee pursuant
to the Agreement. See "Risk Factors -- Risk of Trust Not Having a Perfected
Security Interest in the Financed Vehicles in All States" and "The Certificates
- -- Sale and Assignment of the Receivables".
In most states, assignments such as those under the Receivables Purchase
Agreement and the Agreement are an effective conveyance of a security interest
without amendment of any lien noted on a vehicle's certificate of title, and the
assignee succeeds thereby to the assignor's rights as secured party. In such
states, although reregistration of the vehicle is not necessary to convey a
perfected security interest in the Financed Vehicles to the Trustee, because the
Trustee will not be listed as legal owner on the certificates of title to the
Financed Vehicles, its security interest could be defeated through fraud or
negligence. Moreover, in certain other states, in the absence of such amendment
and reregistration, a perfected security interest in the Financed Vehicles may
not have been effectively conveyed to the Trustee. Except in such event,
however, in the absence of fraud, forgery or administrative error, the notation
of AHFC's lien on the certificates of title will be sufficient to protect the
Trust against the rights of subsequent purchasers of a Financed Vehicle or
subsequent creditors who take a security interest in a Financed Vehicle. In the
Receivables Purchase Agreement, AHFC will represent and warrant, and in the
Agreement, the Seller will represent and warrant, that all action necessary for
AHFC to obtain a perfected security interest in each Financed Vehicle has been
taken. If there are any Financed Vehicles as to which AHFC failed to obtain a
first perfected security interest, its security interest would be subordinate
to, among others, subsequent purchasers of such Financed Vehicles and holders of
perfected security interests therein. Such a failure, however, would constitute
a breach of AHFC's representations and warranties under the Receivables Purchase
Agreement and the Seller's representations and warranties under the Agreement.
Accordingly, pursuant to the Agreement, the Seller would be required to
repurchase the related Receivable from the Trustee and, pursuant to the
Receivables Purchase Agreement, AHFC would be required to purchase such
Receivable from the Seller, in each case unless the breach were cured. See "The
Certificates -- Sale and Assignment of the Receivables". The Seller will assign
its rights under the Receivables Purchase Agreement to the Trustee.
CONTINUITY OF PERFECTION. Under the laws of most states, a perfected
security interest in a vehicle continues for four months after the vehicle is
moved to a new state from the one in which it is initially registered and
thereafter until the owner re-registers such vehicle in the new state. A
majority of states require surrender of the related certificate of title to
re-register a vehicle. In those states (such as California) that require a
secured party to hold possession of the certificate of title to maintain
perfection of the security
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interest, the secured party would learn of the re-registration through the
request from the obligor under the related installment sale contract to
surrender possession of the certificate of title. In the case of vehicles
registered in states providing for the notation of a lien on the certificate of
title but not possession by the secured party (such as Texas), the secured party
would receive notice of surrender from the state of re-registration if the
security interest is noted on the certificate of title. Thus, the secured party
would have the opportunity to re-perfect its security interest in the vehicles
in the state of relocation. However, these procedural safeguards will not
protect the secured party if through fraud, forgery or administrative error, the
debtor somehow procures a new certificate of title that does not list the
secured party's lien. Additionally, in states that do not require a certificate
of title for registration of a vehicle, re-registration could defeat perfection.
In the ordinary course of servicing the Receivables, AHFC will take steps to
effect re-perfection upon receipt of notice of re-registration or information
from the Obligor as to relocation. Similarly, when an Obligor sells a Financed
Vehicle, AHFC must surrender possession of the certificate of title or will
receive notice as a result of its lien noted thereon and accordingly will have
an opportunity to require satisfaction of the related Receivable before release
of the lien. Under the Agreement, the Servicer will be obligated to take
appropriate steps, at its own expense, to maintain perfection of security
interests in the Financed Vehicles.
PRIORITY OF CERTAIN LIENS ARISING BY OPERATION OF LAW. Under the laws of
most states (including California and Texas), liens for repairs performed on a
motor vehicle and liens for unpaid taxes take priority over even a first
perfected security interest in such vehicle. The Internal Revenue Code of 1986,
as amended, also grants priority to certain federal tax liens over the lien of a
secured party. The laws of certain states and federal law permit the
confiscation of motor vehicles by governmental authorities under certain
circumstances if used in unlawful activities, which may result in the loss of a
secured party's perfected security interest in a confiscated vehicle. AHFC will
represent and warrant to the Seller in the Receivables Purchase Agreement and
the Seller will represent and warrant to the Trustee in the Agreement that, as
of the Closing Date, the security interest in each Financed Vehicle is prior to
all other present liens upon and security interests in such Financed Vehicle.
However, liens for repairs or taxes could arise at any time during the term of a
Receivable. No notice will be given to the Trustee or Certificateholders in the
event such a lien or confiscation arises and any such lien or confiscation
arising after the Closing Date would not give rise to the Seller's repurchase
obligation under the Agreement or AHFC's repurchase obligation under the
Receivables Purchase Agreement.
REPOSSESSION
In the event of default by an obligor under a retail installment sale
contract, the holder of such retail installment sale contract has all the
remedies of a secured party under the UCC, except where specifically limited by
other state laws. The UCC remedies of a secured party include the right to
repossession of the related motor vehicle, by self-help means, unless such means
would constitute a breach of the peace. Unless a vehicle is voluntarily
surrendered, self-help repossession is the method employed by AHFC in most cases
and is accomplished simply by taking possession of the related vehicle. In cases
where the obligor objects or raises a defense to repossession, or if otherwise
required by applicable state law, a court order must be obtained from the
appropriate state court, and the vehicle must then be recovered in accordance
with that order. In some jurisdictions, the secured party is required to notify
the debtor of the default and the intent to repossess the collateral and be
given a time period within which to cure the default prior to repossession. In
most states, under certain circumstances after the vehicle has been repossessed,
the obligor may reinstate the related contract by paying the delinquent
installments and other amounts due.
NOTICE OF SALE; REDEMPTION RIGHTS
In the event of default by an obligor under a retail installment sale
contract, some jurisdictions require that the obligor be notified of the default
and be given a time period within which to cure the default prior to
repossession of the related motor vehicle. Generally, this right of cure may
only be exercised on a limited number of occasions during the term of the
related contract.
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The UCC and other state laws require the secured party to provide the
obligor with reasonable notice of the date, time and place of any public sale
and/or the date after which any private sale of the collateral may be held. In
most states, the obligor has the right to redeem the collateral prior to actual
sale by paying the secured party the unpaid principal balance of the obligation,
accrued interest thereon, plus reasonable expenses for repossessing, holding and
preparing the collateral for disposition and arranging for its sale, plus, in
some jurisdictions, reasonable attorneys' fees. In some states, the obligor has
the right to redeem the collateral prior to actual sale by payment of all
delinquent installments or the unpaid balance of the related contract.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of repossessed vehicles generally will be applied
first to the expenses of resale and repossession and then to the satisfaction of
the indebtedness. While some states impose prohibitions or limitations on
deficiency judgments if the net proceeds from resale do not cover the full
amount of the indebtedness, a deficiency judgment can be sought in those states
that do not prohibit or limit such judgments. In addition to the notice
requirement, the UCC requires that every aspect of the sale or other
disposition, including the method, manner, time, place and terms, be
"commercially reasonable". Generally, courts have held that when a sale is not
"commercially reasonable", the secured party loses its right to a deficiency
judgment. In addition, the UCC permits the debtor or other interested party to
recover for any loss caused by noncompliance with the provisions of the UCC.
Also, prior to a sale, the UCC permits the debtor or other interested person to
prohibit the secured party from disposing of the collateral if it is established
that the secured party is not proceeding in accordance with the "default"
provisions under the UCC. However, the deficiency judgment would be a personal
judgment against the obligor for the shortfall, and a defaulting obligor can be
expected to have very little capital or sources of income available following
repossession. Therefore, in many cases, it may not be useful to seek a
deficiency judgment or, if one is obtained, it may be settled at a significant
discount or be uncollectible.
Occasionally, after resale of a repossessed vehicle and payment of all
expenses and indebtedness, there is a surplus of funds. In that case, the UCC
requires the creditor to remit the surplus to any holder of a subordinate lien
with respect to such vehicle or if no such lienholder exists, the UCC requires
the creditor to remit the surplus to the obligor.
CERTAIN BANKRUPTCY CONSIDERATIONS
The Seller has taken steps in structuring the transactions contemplated
hereby that are intended to make it unlikely that the voluntary or involuntary
application for relief by AHFC under the United States Bankruptcy Code or
similar applicable state laws (collectively, "Insolvency Laws") will result in
consolidation of the assets and liabilities of the Seller with those of AHFC.
These steps include the creation of the Seller as a wholly owned, limited
purpose subsidiary pursuant to articles of incorporation containing certain
limitations (including requiring that the Seller must have at least two
independent directors and restrictions on the nature of the Seller's business
and on its ability to commence a voluntary case or proceeding under any
Insolvency Law without the affirmative vote of a majority of its directors,
including each independent director). In addition, to the extent that the Seller
granted a security interest in the Receivables to the Trust, and that interest
was validly perfected before the bankruptcy or insolvency of AHFC and was not
taken or granted in contemplation of insolvency or with the intent to hinder,
delay or defraud AHFC or its creditors, that security interest should not be
subject to avoidance, and payments to the Trust with respect to the Receivables
should not be subject to recovery by a creditor or trustee in bankruptcy of
AHFC. If, notwithstanding the foregoing, (i) a court concluded that the assets
and liabilities of the Seller should be consolidated with those of AHFC in the
event of the application of applicable Insolvency Laws to AHFC or following the
bankruptcy or insolvency of AHFC the security interest in the Receivables
granted by the Seller to the Trustee should be avoided, (ii) a filing were made
under any Insolvency Law by or against the Seller, or (iii) an attempt were made
to litigate any of the foregoing issues, delays in payments on the Certificates
and possible reductions in the amount of such payments could occur. On the
Closing Date,
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Brown & Wood LLP, counsel to AHFC and the Seller, will render an opinion which
concludes that following the bankruptcy of AHFC, a court, applying the
principles set forth in such opinion, should not allow a creditor or trustee in
bankruptcy to consolidate the assets and liabilities of AHFC and the Seller on
the basis of any applicable legal theory theretofore recognized by a court of
competent jurisdiction so as to adversely affect the ultimate payment of all
amounts owing under the Class A Certificates.
AHFC will warrant in the Receivables Purchase Agreement that the sale of the
Receivables by it to the Seller is a valid sale. Notwithstanding the foregoing,
if AHFC were to become a debtor in a bankruptcy case and a creditor or
trustee-in-bankruptcy of such debtor or such debtor itself were to take the
position that the sale of Receivables to the Seller should instead be treated as
a pledge of such Receivables to secure a borrowing of such debtor, then delays
in payments of collections of Receivables to the Seller could occur or (should
the court rule in favor of any such trustee, debtor or creditor) reductions in
the amount of such payments could result. If the transfer of Receivables to the
Seller is treated as a pledge instead of a sale, a tax or government lien on the
property of AHFC arising before the transfer of a Receivable to the Seller may
have priority over the Seller's interest in such Receivable. If the transactions
contemplated herein are treated as a sale, the Receivables would not be part of
AHFC's bankruptcy estate and would not be available to AHFC's creditors, except
under certain limited circumstances. In addition, while AHFC is the Servicer,
cash collections on the Receivables may, under certain circumstances, be
commingled with the funds of AHFC and, in the event of the bankruptcy of AHFC,
the Trust may not have a perfected interest in such collections.
A case (OCTAGON GAS SYSTEMS, INC. V. RIMMER, 995 F.2d 948 (10th Cir.), CERT.
DENIED 114 S.Ct. 554 (1993)) decided by the United States Court of Appeals for
the Tenth Circuit contains language to the effect that under the UCC, accounts
sold by a debtor would remain property of the debtor's bankruptcy estate,
whether or not the sale of accounts was perfected under the UCC. UCC Article 9
applies to the sale of chattel paper as well as the sale of accounts and
although the Receivables constitute chattel paper under the UCC rather than
accounts, perfection of a security interest in both chattel paper and accounts
may be accomplished by the filing of a UCC-1 financing statement. If, following
a bankruptcy of AHFC, a court were to follow the reasoning of the Tenth Circuit
reflected in the case described above, then the Receivables would be included in
the bankruptcy estate of AHFC and delays in payments of collections on or in
respect of the Receivables could occur.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon creditors and servicers involved in
consumer finance. These laws include the Truth-in-Lending Act, the Equal Credit
Opportunity Act, the Federal Trade Commission Act, the Fair Credit Billing Act,
the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the
Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B and Z,
state adaptations of the National Consumer Act and of the Uniform Consumer
Credit Code and state motor vehicle retail installment sale acts, retail
installment sales acts and other similar laws. Also, the laws of certain states
impose finance charge ceilings and other restrictions on consumer transactions
and require contract disclosures in addition to those required under federal
law. These requirements impose specific statutory liabilities upon creditors who
fail to comply with their provisions. In some cases, this liability could affect
the ability of an assignee such as the Trustee to enforce consumer finance
contracts such as the Receivables.
The so-called "Holder-in-Due-Course Rule" of the Federal Trade Commission
(the "FTC Rule"), has the effect of subjecting a seller (and certain related
lenders and their assignees) in a consumer credit transaction to all claims and
defenses which the obligor in the transaction could assert against the seller of
the goods. Liability under the FTC Rule is limited to the amounts paid by the
obligor under the contract, and the holder of the contract may also be unable to
collect any balance remaining due thereunder from the obligor. The FTC Rule is
generally duplicated by the Uniform Consumer Credit Code, other state statutes
or the common law in certain states.
Most of the Receivables will be subject to the requirements of the FTC Rule.
Accordingly, the Trustee, as holder of the Receivables, will be subject to any
claims or defenses that the purchaser of a Financed Vehicle may assert against
the seller of the Financed Vehicle. Such claims are limited to a maximum
liability equal to the amounts paid by the Obligor on the Receivable.
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Any such loss, to the extent not covered by amounts otherwise payable to the
Class B Certificateholders as described herein pursuant to the subordination of
the Class B Certificates or from amounts on deposit in the Reserve Fund, could
result in losses to the Class A Certificateholders. In addition, if an Obligor
were successful in asserting any such claim or defense as described in the two
immediately preceding paragraphs, such claim or defense would constitute a
breach of a representation and warranty under the Receivables Purchase Agreement
and the Agreement and would create an obligation of AHFC and the Seller to
repurchase such Receivable unless the breach were cured. See "The Certificates
- -- Sale and Assignment of the Receivables".
Courts have applied general equitable principles to secured parties pursuing
repossession or litigation involving deficiency balances. These equitable
principles may have the effect of relieving an Obligor from some or all of the
legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protection of the Fourteenth Amendment to the Constitution of the United States.
Courts have generally either upheld the notice provisions of the UCC and related
laws as reasonable or have found that the creditor's repossession and resale do
not involve sufficient state action to afford constitutional protection to
consumers.
From time to time, AHFC has been involved in litigation under consumer
protection laws. In addition, substantially all of the Receivables originated in
California (the "California Receivables") after 1990, having an aggregate
Principal Balance as of the Cutoff Date of approximately $254.3 million, provide
that the Receivable may be rescinded by the related Dealer if such Dealer is
unable to assign the Receivable to a lender within ten days of the date of such
Receivable. As of the date of this Prospectus, the ten day rescission period had
run in respect of all of the California Receivables in which the rescission
provision appears. Although there is authority, which is not binding upon any
court, providing that a conditional sale contract containing such a provision
does not comply with California law and would render the Receivable
unenforceable, to the knowledge of AHFC and the Seller, the issue has not been
presented before any California court. On the Closing Date, the Seller will
receive an opinion of counsel to the effect that all of the California
Receivables are enforceable under California law and applicable federal laws.
AHFC and the Seller will represent and warrant under the Receivables
Purchase Agreement and the Agreement, respectively, that each Receivable
complies with all requirements of law in all material respects. Accordingly, if
an Obligor has a claim against the Trustee for violation of any law or claims
that the related Receivable is unenforceable and such claim materially and
adversely affects the Trustee's interest in a Receivable, such violation would
constitute a breach of such representation and warranty under the Receivables
Purchase Agreement and the Agreement and will create an obligation of AHFC and
the Seller to repurchase such Receivable unless the breach were cured. The
foregoing repurchase obligations would similarly apply in the event that a court
found a California Receivable containing a rescission provision described above
to be unenforceable. See "The Certificates -- Sale and Assignment of the
Receivables".
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a creditor to
realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
creditor from repossessing a motor vehicle, and, as part of the rehabilitation
plan, reduce the amount of the secured indebtedness to the market value of the
motor vehicle at the time of bankruptcy (as determined by the court), leaving
the party providing financing as a general unsecured creditor for the remainder
of the indebtedness. A bankruptcy court may also reduce the monthly payments due
under the related contract or change the rate of interest and time of repayment
of
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the indebtedness. Any such shortfall, to the extent not covered by amounts
otherwise payable to the Class B Certificateholders pursuant to the
subordination of the Class B Certificates as described herein or from amounts on
deposit in the Reserve Fund, could result in losses to the Class A
Certificateholders.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of all material federal income tax
consequences of the purchase, ownership and disposition of the Class A
Certificates. This summary is based upon laws, regulations, rulings and
decisions currently in effect, all of which are subject to change. The
discussion below addresses all material federal income tax consequences of the
purchase, ownership and disposition of the Class A Certificates generally
applicable to investors. However, it does not purport to deal with the federal
income tax consequences applicable to an investor which result from that
investor's own particular federal income tax status or situation. In addition,
this summary is generally limited to investors who will hold the Class A
Certificates as "capital assets" (generally, property held for investment)
within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code"). Investors should consult their own tax advisors to
determine the federal, state, local and other tax consequences of the purchase,
ownership and disposition of the Class A Certificates. Prospective investors
should note that no rulings have been or will be sought from the Internal
Revenue Service (the "IRS") with respect to any of the federal income tax
consequences discussed below, and no assurance can be given that the IRS will
not take contrary positions.
TAX STATUS OF THE TRUST
In the opinion of Brown & Wood LLP, counsel to the Seller, the Trust will be
classified as a grantor trust under subpart E, part I of subchapter J of the
Code and not as an association taxable as a corporation for federal income tax
purposes. Class A Certificateholders will be treated as the owners of the Trust,
except as described below.
In the opinion of Brown & Wood LLP, counsel to the Seller, each Class A
Certificateholder will be required to report on its federal income tax return,
in a manner consistent with its method of accounting, its pro rata share of the
entire gross income of the Trust, including interest or finance charges earned
on the Receivables, and any gain or loss upon collection or disposition of the
Receivables. In computing its federal income tax liability, a Class A
Certificateholder will be entitled to deduct, consistent with its method of
accounting, its pro rata share of reasonable fees payable to the Servicer that
are paid or incurred by the Trust as provided in Sections 162 or 212 of the
Code. If a Class A Certificateholder is an individual, estate or trust, the
deduction for its pro rata share of such fees will be allowed only to the extent
that all of its miscellaneous itemized deductions, including its share of such
fees, exceed 2% of its adjusted gross income. In addition, Code Section 68
provides that itemized deductions otherwise allowable for a taxable year of an
individual taxpayer will be reduced by the lesser of (i) 3% of the excess, if
any, of adjusted gross income over a specified amount or (ii) 80% of the amount
of itemized deductions otherwise allowable for such year. As a result, such
investors holding Class A Certificates, directly or indirectly through a
pass-through entity, may have aggregate taxable income in excess of the
aggregate amount of cash received on such Class A Certificates with respect to
interest at the Pass-Through Rate. A Class A Certificateholder using the cash
method of accounting must take into account its pro rata share of income and
deductions as and when collected by or paid by the Trust. A Class A
Certificateholder using the accrual method of accounting must take into account
its pro rata share of income and deductions as and when such amounts become due
to or payable by the Trust.
Guidance by the IRS suggests that a servicing fee in excess of reasonable
servicing will cause the Receivables to be treated under the stripped bond rules
promulgated by the IRS. It is expected that for federal income tax purposes, the
Seller will be viewed as having retained a portion of each interest payment on
each Receivable sold to the Trust. As a result, the Class A Certificates would
be treated under Code
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Section 1286 as "stripped bonds". For purposes of Code Section 1271 through
1288, Code Section 1286 treats a stripped bond or a stripped coupon as an
obligation issued on the date that such stripped interest is created.
STRIPPED BONDS AND STRIPPED COUPONS
Although the tax treatment of stripped bonds is not entirely clear, based on
guidance by the IRS, each purchaser of a Class A Certificate will be treated as
the purchaser of a stripped bond which generally should be treated as a single
debt instrument issued on the day it is purchased for purposes of calculating
any original issue discount. Generally, under Treasury regulations (the "Section
1286 Treasury Regulations"), if the discount on a stripped bond is larger than a
DE MINIMIS amount (as calculated for purposes of the original issue discount
rules of the Code) such stripped bond will be considered to have been issued
with original issue discount. See "Accrual of Original Issue Discount". Based on
the preamble to the Section 1286 Treasury Regulations, Brown & Wood LLP, counsel
to the Seller, is of the opinion that, although the matter is not entirely
clear, the interest income on the Class A Certificates at the sum of the
Pass-Through Rate and the portion of the Servicing Fee Rate that does not
constitute excess servicing will be treated as "qualified stated interest"
within the meaning of the Section 1286 Treasury Regulations and such income will
be so treated in the Trustee's tax information reporting. The effect of income
being characterized as "qualified stated interest" is described below under
"Accrual of Original Issue Discount".
ACCRUAL OF ORIGINAL ISSUE DISCOUNT
Under the foregoing rules, because the interest income on the Class A
Certificates constitutes qualified stated interest, it is likely that the Class
A Certificates in the hands of an initial purchaser will be considered to be
issued with DE MINIMIS original issue discount, which will therefore be
considered to be zero. If the Class A Certificates are issued with original
issue discount, because the interest income on the Class A Certificates does not
constitute qualified stated interest, the rules described in this paragraph
would apply. Generally, the owner of a stripped bond issued or acquired with
original issue discount must include in gross income the sum of the "daily
portions", as defined below, of the original issue discount on such Class A
Certificate for each day on which it owns a Class A Certificate, including the
date of purchase but excluding the date of disposition. In the case of an
original Class A Certificateholder, the daily portions of original issue
discount with respect to a Class A Certificate generally would be determined as
follows. A calculation will be made of the portion of original issue discount
that accrues on the Class A Certificate during each successive monthly accrual
period (or shorter period in respect of the date of original issue or the final
Distribution Date). This will be done, in the case of each full monthly accrual
period, by adding (i) the present value, as of the close of such accrual period,
of all remaining payments to be received on the Class A Certificate under the
prepayment assumption used in respect of the Class A Certificates and (ii) any
payments received during such accrual period, and subtracting from that total
the "adjusted issued price" of the Class A Certificate at the beginning of such
accrual period. No representation is made, nor is Brown & Wood LLP, counsel to
the Seller, able to give an opinion, that the Receivables will prepay at any
prepayment assumption. The "adjusted issue price" of a Class A Certificate at
the beginning of the first accrual period is its issue price (as determined for
purposes of the original issue discount rules of the Code) and the "adjusted
issue price" of a Class A Certificate at the beginning of a subsequent accrual
period is the "adjusted issued price" at the beginning of the immediately
preceding accrual period plus the amount of original issue discount allocable to
that accrual period and reduced by the amount of any payment made at the end of
or during that accrual period. The original issue discount accruing during such
accrual period will then be divided by the number of days in the period to
determine the daily portion of original issue discount for each day in the
period. With respect to an initial accrual period shorter than a full monthly
accrual period, the daily portions of original issue discount must be determined
using any reasonable method, provided that such method is consistent with the
method used to determine the yield to maturity of the Class A Certificates.
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With respect to the Class A Certificates, the method of calculating original
issue discount as described above will cause the accrual of original issue
discount to either increase or decrease (but never below zero) in any given
accrual period to reflect the fact that prepayments are occurring at a rate
faster or slower than the prepayment assumption used in respect of the Class A
Certificates.
Subsequent purchasers that purchase Class A Certificates at more than a DE
MINIMIS discount should consult their tax advisors with respect to the proper
method to accrue such original issue discount.
PREMIUM
The purchase of a Class A Certificate at more than its adjusted principal
amount will result in the creation of a premium with respect to the interest in
the underlying Receivables of the Trust represented by such Class A Certificate.
A purchaser (who does not hold the Class A Certificate for sale to customers or
in inventory) may elect under Section 171 of the Code to amortize such premium.
Under the Code, premium is allocated among the interest payments on the
Receivables to which it relates and is considered as an offset against (and thus
a reduction of) such interest payments. Such election would apply to all debt
instruments held or subsequently acquired by the electing holder. Absent such an
election, the premium (to the extent attributable to Receivables with respect to
which the Obligor is an individual) will only be deductible as an ordinary loss
pro rata as principal is paid on such Receivables.
Holders of Class A Certificates acquired at a premium are urged to consult
with their own tax advisors regarding the proper treatment of the Class A
Certificates for federal income tax purposes.
SALE OF A CLASS A CERTIFICATE
If a Class A Certificate is sold, gain or loss will be recognized equal to
the difference between the amount realized on the sale (exclusive of amounts
attributable to accrued and unpaid interest, which will be treated as ordinary
interest income) and the Class A Certificateholder's adjusted basis in the Class
A Certificate. A Class A Certificateholder's adjusted basis will equal the Class
A Certificateholder's cost for the Class A Certificate, increased by any
discount previously included in income, and decreased (but not below zero) by
any previously amortized premium and by the amount of payments (other than
qualified stated interest) previously received on the Receivables. Any gain or
loss will be capital gain or loss if the Class A Certificate was held as a
capital asset. A capital gain or loss will generally be long-term or short-term
depending on whether or not the Class A Certificates have been owned for more
than one year. The Taxpayer Relief Act of 1997 (the "Act") reduces the maximum
rates on long-term capital gains recognized on capital assets held by
individuals taxpayers for more than eighteen months as of the date of
disposition (and would further reduce the maximum rates on such gains in the
year 2001 and thereafter for certain individual taxpayers who meet specified
conditions). The Act makes no changes to the capital gain rates for
corporations. Prospective investors should consult their own tax advisors
concerning these tax law changes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Trustee will furnish or make available, within the prescribed period of
time for tax reporting purposes after the end of each calendar year, to each
Class A Certificateholder or each person holding an Class A Certificate on
behalf of a Class A Certificateholder at any time during such year, such
information as the Trustee deems necessary or desirable to assist Class A
Certificateholders in preparing their federal income tax returns. Payments made
on the Class A Certificates and proceeds from the sale of the Class A
Certificates will not be subject to a "backup" withholding tax of 31% unless, in
general, a Class A Certificateholder fails to comply with certain reporting
procedures and is not an exempt recipient under applicable provisions of the
Code.
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FOREIGN CLASS A CERTIFICATEHOLDERS
Interest attributable to Receivables which is received by a foreign Class A
Certificateholder will generally not be subject to the normal 30% withholding
tax imposed with respect to such payments; provided that (i) the foreign Class A
Certificateholder does not own, directly or indirectly, 10% or more of, and is
not a controlled foreign corporation related to, the Seller and (ii) such holder
fulfills certain certification requirements. Under such requirements, the holder
must certify, under penalty of perjury, that is it not a "United States person"
and provide its name and address. Such certification would generally be made on
IRS Form W-8, although in certain cases it may be possible to submit other
documentary evidence. For this purpose, "United States person" means a citizen
or resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof (other than a partnership that is not treated as a United
States person under any applicable Treasury regulations), an estate the income
of which is includible in gross income for United States federal income tax
purposes, regardless of its source or a trust if a court within the United
States is able to exercise primary supervision of the administration of the
trust and one or more United States persons have the authority to control all
substantial decisions of the trust. Notwithstanding the preceding sentence, to
the extent provided in regulations, certain trusts in existence on August 20,
1996 and treated as United States persons prior to such date that elect to
continue to be so treated also shall be considered U.S. Persons. Gain realized
upon the sale of a Class A Certificate by a foreign Class A Certificateholder
generally will not be subject to United States withholding tax. If, however,
such interest or gain is effectively connected to the conduct of a trade or
business within the United States by such foreign Class A Certificateholder,
such holder will be subject to United States federal income tax thereon at
regular rates. Potential investors who are not United States persons should
consult their own tax advisors regarding the specific tax consequences to them
of owing a Class A Certificate.
NEW WITHHOLDING REGULATIONS
On October 6, 1997, the Treasury Department issued new regulations (the "New
Regulations") which make certain modifications to the withholding, backup
withholding and information reporting rules described above. The New Regulations
attempt to unify certification requirements and modify reliance standards. The
New Regulations will generally be effective for payments made after December 31,
1998, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the Code prohibit (i) pension, profit
sharing or other "employee benefit plans" (as defined in Section 3(3) of ERISA)
subject to Title I of ERISA, (ii) "plans" (as defined in Section 4975 (e)(1) of
the Code) subject to Section 4975 of the Code and (iii) entities deemed to be
investing "plan assets" (including but not limited to an insurance company
general account) (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 Plans. ERISA also imposes
certain duties on persons who are fiduciaries of Benefit Plans subject to ERISA.
Under ERISA, any person who exercises any authority or control with respect to
the management or disposition of the assets of a Benefit Plan is considered to
be a fiduciary of such Benefit Plan (subject to certain exceptions not here
relevant). A violation of these "prohibited transaction" rules may result in
liability under ERISA and the Code for such persons.
Neither ERISA nor the Code defines the terms "plan assets". Under Section
2510.3-101 of the United States Department of Labor ("DOL") regulations (the
"Regulation"), a Plan's assets may include an interest in the underlying assets
of an entity (such as a trust) for certain purposes, including the prohibited
transaction provisions of ERISA and the Code, if the Plan acquires an "equity
interest" in such entity. The Seller believes that the Certificates will give
Certificateholders an equity interest in the Trust for purposes of
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the Regulation. Under the Regulation, when a Plan acquires an equity interest
that is neither a "publicly offered security" nor a security issued by an
investment company registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), the underlying assets of the entity will
be considered "plan assets" unless the entity is an "operating company" or
equity participation in the entity by benefit plan investors is not
"significant". For this purpose, such participation is significant if
immediately after the most recent acquisition of any equity interest in the
entity, whether or not from an issuer or an underwriter, 25% or more of the
value of any class of equity interest is held by "benefit plan investors", which
are defined to include both Benefit Plans and employee benefit plans not subject
to Title I of ERISA (E.G., governmental plans).
The Trust will not be an "operating company" as defined in the Regulation,
and it will not be an investment company registered under the Investment Company
Act. The Seller anticipates that the Certificates will not be considered
publicly offered securities within the meaning of the Regulation. Accordingly,
if at any time immediately after the most recent acquisition of any Class A
Certificate, 25% or more of the value of either Class of Certificates is held by
benefit plan investors, then all or some portion of the Receivables and other
assets of the Trust may constitute plan assets. There can be no assurance that
less than 25% of the value of each Class of Certificates will be held by benefit
plan investors.
The DOL has granted to Merrill Lynch, Pierce, Fenner & Smith Incorporated an
administrative exemption (Prohibited Transaction Exemption 90-29 (the
"Exemption"), from certain of the prohibited transaction rules of ERISA with
respect to the initial purchase, the holding and the subsequent resale by
Benefit Plans of certificates representing interests in asset backed
pass-through trusts that consist of certain receivables, loans and other
obligations that meet the conditions and requirements of the Exemption. The
receivables covered by the Exemption include motor vehicle installment
obligations such as the Receivables. The Seller believes that the Exemption will
apply to the acquisition, holding and resale of the Class A Certificates by a
Benefit Plan, provided that specified conditions (certain of which are described
below) are met.
Among the conditions that must be satisfied for the Exemption to apply to
the acquisition by a Benefit Plan of Class A Certificates are the following
(each of which, other than those within the control of the investors, the Seller
believes has been or will be met in connection with the Class A Certificates):
(i) The acquisition of the Class A Certificates by a Benefit Plan is on
terms (including the price for the Class A Certificates) that are at least
as favorable to the Benefit Plan as they would be in an arm's-length
transaction with an unrelated party.
(ii) The rights and interests evidenced by the Class A Certificates
acquired by the Benefit Plan are not subordinated to the rights and
interests evidenced by other certificates of the Trust.
(iii) The Class A Certificates acquired by the Benefit Plan have received
a rating at the time of such acquisition that is in one of the three highest
generic rating categories from Standard & Poor's, Moody's, Duff & Phelps
Inc. or Fitch Investors Service, Inc.
(iv) The Trustee is not an affiliate of any other member of the
"Restricted Group" which consists of the Underwriters, the Seller, the
Servicer, the Trustee and any Obligor with respect to the Receivables
included in the Trust constituting more than 5% of the aggregate unamortized
principal balance of the assets of the Trust as of the date of initial
issuance of the Class A Certificates (I.E., the initial principal amount of
the Certificates), and any affiliate of such parties.
(v) The sum of all payments made to the Underwriters in connection with
the distribution of the Class A Certificates represents not more than
reasonable compensation for underwriting the Class A Certificates. The sum
of all payments made to and retained by the Seller pursuant to the sale of
the Receivables to the Trust represents not more than the fair market value
of such Receivables. The sum of
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all payments made to and retained by the Servicer represents not more than
reasonable compensation for the Servicer's services under the Agreement and
reimbursement of the Servicer's reasonable expenses in connection therewith.
(vi) The Benefit Plan investing in the Class A Certificates is an
"accredited investor" as defined in Rule 501(a)(1) of Regulation D of the
Commission under the Securities Act.
Because the rights and interests evidenced by the Class A Certificates acquired
by a Benefit Plan are not subordinated to the rights and interests evidenced by
other Certificates of the Trust, the second general condition set forth above is
satisfied. It is a condition of the issuance of the Class A Certificates that
they be rated in the highest rating category by Standard & Poor's and Moody's. A
fiduciary of a Benefit Plan contemplating purchasing a Class A Certificate
(other than pursuant to the original issuance of the Class A Certificates) must
make its own determination that at the time of such acquisition, the Class A
Certificates continue to satisfy the third general condition set forth above.
The Seller and the Servicer expect that the fourth general condition set forth
above will be satisfied with respect to the Class A Certificates. A fiduciary of
a Benefit Plan contemplating purchasing a Class A Certificate must make its own
determination that the first, fifth and sixth general conditions set forth above
will be satisfied with respect to the Class A Certificates.
The Trust must also meet the following requirements:
(a) The corpus of the Trust must consist solely of assets of the type
that have been included in other investment pools.
(b) Certificates in such other investment pools must have been rated in
one of the three highest rating categories of Standard & Poor's, Moody's,
Duff & Phelps Inc. or Fitch Investors Service, Inc. for at least one year
prior to the Benefit Plan's acquisition of certificates.
(c) Certificates evidencing interests in such other investment pools
must have been purchased by investors other than Benefit Plans for at least
one year prior to any Benefit Plan's acquisition of certificates.
If the general conditions of the Exemption are satisfied, the Exemption
should provide relief from the restrictions imposed by Sections 406(a) and
407(a) of ERISA as well as the excise taxes imposed by Sections 4975(a) and (b)
of the Code by reason of Section 4975(c)(1)(A) through (D) of the Code, in
connection with the direct or indirect purchase, exchange, transfer or holding
of the Class A Certificates by a Benefit Plan. However, no exemption is provided
from the restrictions of Sections 406(a)(1)(E), 406(a)(2) and 407 of ERISA for
the acquisition or holding of a Class A Certificate on behalf of an Excluded
Plan by any person who has discretionary authority or renders investment advice
with respect to the assets of such Excluded Plan. For purposes of the Class A
Certificates, an "Excluded Plan" is a Benefit Plan sponsored by any member of
the Restricted Group.
If certain other specific conditions of the Exemption are also satisfied,
the Exemption should provide relief from the restrictions imposed by Sections
406(b)(1) and (b)(2) of ERISA and the taxes imposed by Section 4975(a) and (b)
of the Code by reason of Section 4975(c)(1)(E) of the Code in connection with
the direct or indirect sale, exchange, transfer or holding of Class A
Certificates in the initial issuance of Class A Certificates between the Seller
or Underwriter and a Benefit Plan other than an Excluded Plan when the person
who has discretionary authority or renders investment advice with respect to the
investment of Benefit Plan assets in the Class A Certificates is (a) an Obligor
with respect to 5% or less of the fair market value of the Receivables or (b) an
affiliate of such person. Such conditions include, among other requirements,
that (i) a Benefit Plan's investment in the Class A Certificates does not exceed
25% of all of the Class A Certificates outstanding at the time of the
acquisition and (ii) immediately after the acquisition, no more than 25% of the
assets of a Benefit Plan with respect to which a person has discretionary
authority or
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renders investment advice are invested in certificates representing interests in
trusts containing assets sold or serviced by the same entity. The Seller expects
such specific conditions to be satisfied with respect to the issuance of the
Class A Certificates.
The Exemption also applies to transactions in connection with the servicing,
management and operation of the Trust, provided that, in addition to the general
requirements described above, (a) such transactions are carried out in
accordance with the terms of a binding pooling and servicing agreement and (b)
the pooling and servicing agreement is provided to, or described in all material
respects in the prospectus provided to, investing Benefit Plans before their
purchase of Class A Certificates issued by the Trust. The Agreement is a pooling
and servicing agreement as defined in the Exemption. All transactions relating
to the servicing, management and operations of the Trust will be carried out in
accordance with the Agreement. See "The Certificates -- Servicing Procedures"
and " -- Servicing Compensation".
Due to the complexities of these rules and the penalties imposed upon
persons involved in prohibited transactions, it is important that the fiduciary
of a Benefit Plan considering the purchase of Class A Certificates consult with
its counsel regarding the applicability of the prohibited transaction provisions
of ERISA and the Code to such investment. Benefit Plan fiduciaries should also
take into account, among other considerations, whether the fiduciary has the
authority to make the investment; the tax effects of the investment; and whether
under the general fiduciary standards of investment procedure and
diversification an investment in the Class A Certificates is appropriate for the
Benefit Plan, taking into account the overall investment policy of the Benefit
Plan and the composition of the Benefit Plan's investment portfolio.
UNDERWRITING
Subject to the terms and subject to the conditions contained in an
Underwriting Agreement dated October 27, 1997 (the "Underwriting Agreement"),
the Seller has agreed to sell to the Underwriters named below (the
"Underwriters"), for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated is
acting as representative (the "Representative"), and each of the Underwriters
have severally but not jointly agreed to purchase from the Seller the following
respective principal amounts of the Class A Certificates.
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT
- --------------------------------------------- -----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................... 283,381,667.00
Credit Suisse First Boston Corporation....... 283,381,666.50
J.P. Morgan & Co............................. 283,381,666.50
-----------------
Total.................................. $ 850,145,000.00
-----------------
-----------------
</TABLE>
In the Underwriting Agreement the Underwriters have agreed, subject to
certain terms and conditions therein, to purchase all the Class A Certificates
if any are purchased. The Underwriting Agreement provides that, in the event of
a default by an Underwriter, in certain circumstances the purchase commitments
of the non-defaulting Underwriters may be increased or the Underwriting
Agreement may be terminated.
The Seller and AHFC have been advised by the Representative that the
Underwriters propose to offer the Class A Certificates to the public initially
at the public offering price set forth on the cover page of this Prospectus and,
through the Representative, to certain dealers at such price less a concession
not in excess of 0.12% of the principal amount per Class A Certificate, and the
Underwriters and such dealers may allow a concession not in excess of 0.10% of
such principal amount per Class A Certificate on sales to certain other dealers.
After the initial public offering, such prices and concessions may be changed.
Until the distribution of the Class A Certificates is completed, rules of
the Commission may limit the ability of the Underwriters and certain selling
group members to bid for and purchase the Class A Certificates. As an exemption
to these rules, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
50
<PAGE>
Lynch"), on behalf of the Underwriters, is permitted to engage in over-allotment
transactions, stabilizing transactions, syndicate covering transactions and
penalty bids with respect to the Class A Certificates in accordance with
Regulation M under the Exchange Act.
Over-allotment transactions involve syndicate sales in excess of the
offering size, which create syndicate short positions. Stabilizing transactions
permit bids to purchase the Class A Certificates so long as the stabilizing bids
do not exceed a specified maximum. Syndicate covering transactions involve
purchases of the Class A Certificates in the open market after the distribution
has been completed in order to cover syndicate short positions. Penalty bids
permit the Merrill Lynch to reclaim a selling concession from a syndicate member
when the Class A Certificates originally sold by such syndicate member are
purchased in a syndicate covering transaction.
Such over-allotment transactions, stabilizing transactions, syndicate
covering transactions and penalty bids may cause the prices of the Class A
Certificates to be higher than they would otherwise be in the absence of such
transactions. Neither the Seller, AHFC nor any of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Class A
Certificates. In addition, neither the Seller, AHFC nor any of the Underwriters
represent that the Underwriters will engage in any such transactions or that
such tranactions, once commenced, will not be discontinued, without notice.
In the ordinary course of their respective businesses, the Underwriters and
their respective affiliates have engaged and may in the future engage in
investment banking or commercial banking transactions with the Seller, AHFC and
their affiliates.
The Seller and AHFC have agreed to indemnify, jointly and severally, the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or contribute to payments that the Underwriter may be required
to make in respect thereof.
Upon receipt of a request by an investor who has received an electronic
Prospectus from an Underwriter or a request by such investor's representative
within the period during which there is an obligation to deliver a Prospectus,
the Seller or the Underwriter will promptly deliver, or cause to be delivered,
without charge, a paper copy of the Prospectus.
RATING OF THE CLASS A CERTIFICATES
It is a condition to issuance of the Class A Certificates that the Class A
Certificates will have been rated Aaa by Moody's and AAA by Standard & Poor's.
The rating of the Class A Certificates will be based primarily on the value of
the Receivables and the terms of the Class B Certificates and the Reserve Fund.
The ratings of the Class A Certificates should be evaluated independently from
similar ratings on other types of securities. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision or
withdrawal at any time by the assigning rating agency. The ratings on the Class
A Certificates do not assess the likelihood that principal prepayments on the
Receivables will occur, the degree to which the rate of such prepayments might
differ from that originally anticipated or otherwise address the timing of
distributions of principal of the Class A Certificates prior to the Final
Scheduled Distribution Date.
There can be no assurance as to whether any rating agency other than the
Rating Agencies will rate the Class A Certificates, or, if one does, what rating
will be assigned by any such other rating agency.
LEGAL MATTERS
Certain legal matters with respect to the Class A Certificates, including
certain federal income tax consequences with respect thereto, will be passed
upon for the Seller by Brown & Wood LLP, San Francisco, California. Skadden,
Arps, Slate, Meagher & Flom LLP, New York, New York, will act as counsel for the
Underwriters.
51
<PAGE>
INDEX OF CAPITALIZED TERMS
Set forth below is a list of the capitalized or defined terms used in this
Prospectus and the pages on which the definitions of such terms may be found.
<TABLE>
<CAPTION>
TERM PAGE
- ------------------------------------------------------------------------ ------
<S> <C>
Accounts................................................................ 25
Act..................................................................... 46
Actuarial Receivable.................................................... 10
Administrative Purchase Payment......................................... 24
Administrative Receivable............................................... 24
Advances................................................................ 7
Aggregate Net Losses.................................................... 31
Agreement............................................................... 3
AHFC.................................................................... 1,3
AHMC.................................................................... 3
APR..................................................................... 7
Available Interest...................................................... 28
Available Principal..................................................... 28
Benefit Plan............................................................ 47
Business Day............................................................ 4
California Receivables.................................................. 43
Cede.................................................................... 4
Certificate Account..................................................... 25
Certificate Owner....................................................... 4
Certificate Register.................................................... 22
Certificateholders...................................................... 6
Certificates............................................................ 1,3
Charge-off Rate......................................................... 31
Class A Certificate Balance............................................. 4
Class A Certificateholders.............................................. 4
Class A Certificates.................................................... 1,3
Class A Distributable Amount............................................ 28
Class A Interest Carryover Shortfall.................................... 29
Class A Interest Distributable Amount................................... 28
Class A Percentage...................................................... 3
Class A Pool Factor..................................................... 15
Class A Principal Carryover Shortfall................................... 29
Class A Principal Distributable Amount.................................. 28
Class B Certificate Balance............................................. 29
Class B Certificateholders 6
Class B Certificates.................................................... 1,3
Class B Distributable Amount............................................ 28
Class B Interest Carryover Shortfall.................................... 30
Class B Interest Distributable Amount................................... 29
Class B Percentage...................................................... 3
Class B Principal Carryover Shortfall................................... 30
Class B Principal Distributable Amount.................................. 28
Closing Date............................................................ 5
Code.................................................................... 44
Collection Period....................................................... 5
Commission.............................................................. 2
<CAPTION>
TERM PAGE
- ------------------------------------------------------------------------ ------
<S> <C>
Current Receivable...................................................... 31
Cutoff Date............................................................. 3
Cutoff Date Pool Balance................................................ 8
Dealer Recourse......................................................... 10
Dealers................................................................. 10
Defaulted Receivable.................................................... 28
Definitive Certificates................................................. 20
Delinquency Percentage.................................................. 31
Determination Date...................................................... 27
Discount Receivables.................................................... 5
Distribution Date....................................................... 1,4
DOL..................................................................... 47
DTC..................................................................... 2
ERISA................................................................... 47
Events of Default....................................................... 35
Excess Amounts.......................................................... 30
Excess Payment.......................................................... 26
Exchange Act............................................................ 2
Excluded Plan........................................................... 49
Exemption............................................................... 48
Final Scheduled Distribution Date....................................... 4
Financed Vehicles....................................................... 1,3
FTC Rule................................................................ 42
Indirect Participants................................................... 20
Insolvency Laws......................................................... 41
installment sale contracts.............................................. 16
Investment Company Act.................................................. 48
IRS..................................................................... 44
Letter of Credit Bank................................................... 36
Liquidated Receivable................................................... 31
Maximum Yield Supplement Amount......................................... 30
Moody's................................................................. 8
Net Liquidation Proceeds................................................ 28
New Regulations......................................................... 47
Obligors................................................................ 10
Original Class A Certificate Balance.................................... 4
Original Class B Certificate Balance.................................... 29
Participants............................................................ 20
Pass-Through Rate....................................................... 4
Payahead Account........................................................ 25
Payment Ahead........................................................... 25
Permitted Investments................................................... 25
Pool Balance............................................................ 27
Precomputed Advance..................................................... 7
Precomputed Receivables................................................. 10
Prepayment.............................................................. 26
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ------------------------------------------------------------------------ ------
Principal Balance....................................................... 27
<S> <C>
Rating Agencies......................................................... 8
Receivables............................................................. 1,3
Receivables Purchase Agreement.......................................... 3
Record Date............................................................. 4
Registration Statement.................................................. 2
Regulation.............................................................. 47
Representative.......................................................... 50
Required Investment Rating.............................................. 25
Required Rate........................................................... 5
Required Rating......................................................... 25
Reserve Fund............................................................ 6
Restricted Group........................................................ 48
Rule of 78s............................................................. 11
Rule of 78s Receivable.................................................. 10
Schedule of Receivables................................................. 22
Scheduled Payment....................................................... 5
Section 1286 Treasury Regulations....................................... 45
Securities Act.......................................................... 2
Seller.................................................................. 1,3
<CAPTION>
TERM PAGE
- ------------------------------------------------------------------------ ------
<S> <C>
Servicer................................................................ 1,3
Servicer Letter of Credit............................................... 25
Servicing Fee........................................................... 8
Servicing Fee Rate...................................................... 8
Simple Interest Advance................................................. 7
Simple Interest Receivable.............................................. 10
Specified Reserve Fund Balance.......................................... 31
Standard & Poor's....................................................... 8
Trust................................................................... 1,3
Trustee................................................................. 3
UCC..................................................................... 20
Underwriters............................................................ 50
Underwriting Agreement.................................................. 50
Voting Interests........................................................ 36
Warranty Purchase Payment............................................... 23
Warranty Receivable..................................................... 23
Yield Supplement Account................................................ 5
Yield Supplement Account Deposit........................................ 5
Yield Supplement Deposit Amount......................................... 5
</TABLE>
53
<PAGE>
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- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE SELLER,
THE SERVICER OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR
A SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE SELLER OR THE SERVICER SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
Reports to Class A Certificateholders by the Trustee...................... 2
Summary................................................................... 3
Risk Factors.............................................................. 9
Formation of the Trust.................................................... 9
Property of the Trust..................................................... 10
The Receivables........................................................... 10
Yield Considerations...................................................... 15
Class A Pool Factor and Trading Information............................... 15
Use of Proceeds........................................................... 16
The Seller................................................................ 16
American Honda Finance Corporation........................................ 16
The Certificates.......................................................... 20
Certain Legal Aspects of the Receivables.................................. 38
Federal Income Tax Consequences........................................... 44
ERISA Considerations...................................................... 47
Underwriting.............................................................. 50
Rating of the Class A Certificates........................................ 51
Legal Matters............................................................. 51
Index of Capitalized Terms................................................ 52
</TABLE>
--------------
UNTIL JANUARY 26, 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. UPON RECEIPT OF A REQUEST BY AN INVESTOR, OR
SUCH INVESTOR'S REPRESENTATIVE, WITHIN THE PERIOD DURING WHICH THERE IS A
PROSPECTUS DELIVERY OBLIGATION, THE SELLER OR THE UNDERWRITERS WILL TRANSMIT OR
CAUSE TO BE TRANSMITTED PROMPTLY, WITHOUT CHARGE AND IN ADDITION TO ANY SUCH
DELIVERY REQUIREMENTS, A PAPER COPY OF THE PROSPECTUS OR A PROSPECTUS ENCODED IN
AN ELECTRONIC FORMAT.
HONDA AUTO RECEIVABLES
1997-B GRANTOR TRUST
$850,145,000
5.95% ASSET BACKED CERTIFICATES,
CLASS A
AMERICAN HONDA
RECEIVABLES CORP.
SELLER
AMERICAN HONDA
FINANCE CORPORATION
SERVICER
---------------------
P R O S P E C T U S
---------------------
MERRILL LYNCH & CO.
CREDIT SUISSE FIRST BOSTON
J.P. MORGAN & CO.
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