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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 10, 1998
REGISTRATION NO. 333-30037
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-3*
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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HONDA AUTO RECEIVABLES 1998-1 OWNER TRUST
(Issuer with respect to the Securities)
AMERICAN HONDA RECEIVABLES CORP.
(Originator of the Trust described herein)
(Exact name of Co-Registrant as specified in its charter)
CALIFORNIA 6146 33-0526079
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
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700 VAN NESS AVENUE
TORRANCE, CALIFORNIA 90501
(310) 781-4100
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(Address, including zip code, and telephone number, including
area code, of Originator's principal executive offices)
Y. KOHAMA
700 VAN NESS AVENUE
TORRANCE, CALIFORNIA 90501
(310) 781-4100
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(Name, address, including zip code, and telephone number, including
area code, of agent for service with respect to the originator)
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COPIES TO:
Dale W. Lum, Esq. C. Thomas Kunz, Esq.
Brown & Wood LLP Skadden, Arps, Slate, Meager & Flom
LLP
555 California Street 919 Third Avenue
San Francisco, California 94104 New York, New York 10022
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
* This Registration Statement was initially filed on Form S-1.
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
PROPOSED TITLE OF AMOUNT TO AGGREGATE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PRICE PER UNIT OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Asset Backed Notes.................. $1,000,000.00 100%(1) $1,000,000.00(1) $303.03(2)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee on the
basis of the proposed maximum offering price per unit.
(2) Previously paid.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED JULY , 1998
$
Honda Auto Receivables 1998-1 Owner Trust
$ % Asset Backed Notes, Class A-1
$ % Asset Backed Notes, Class A-2
$ % Asset Backed Notes, Class A-3
$ % Asset Backed Notes, Class A-4
American Honda Receivables Corp.
Seller
American Honda Finance Corporation
Servicer
THE HONDA AUTO RECEIVABLES 1998-1 OWNER TRUST (THE "TRUST") WILL BE GOVERNED BY
AN AMENDED AND RESTATED TRUST AGREEMENT TO BE DATED AS OF JULY , 1998,
BETWEEN AMERICAN HONDA RECEIVABLES CORP. (THE "SELLER") AND THE BANK OF
NEW YORK (DELAWARE), AS OWNER TRUSTEE. THE TRUST WILL ISSUE FOUR CLASSES
OF NOTES (RESPECTIVELY, THE "CLASS A-1 NOTES", THE "CLASS A-2 NOTES",
THE "CLASS A-3 NOTES" AND THE "CLASS A-4 NOTES") PURSUANT TO AN
INDENTURE TO BE DATED AS OF JULY 1, 1998, BETWEEN THE TRUST AND
BANKERS TRUST COMPANY, AS INDENTURE TRUSTEE. THE TRUST WILL ALSO
ISSUE ONE CLASS OF CERTIFICATES WHICH WILL REPRESENT FRACTIONAL
UNDIVIDED INTERESTS IN THE TRUST (THE "CERTIFICATES"). THE
CERTIFICATES ARE NOT BEING OFFERED HEREBY. THE ASSETS OF
THE TRUST WILL PRIMARILY INCLUDE A POOL OF RETAIL
INSTALLMENT SALE CONTRACTS (THE "RECEIVABLES") SECURED
BY THE NEW OR USED HONDA AND ACURA MOTOR VEHICLES
FINANCED THEREBY (THE "FINANCED VEHICLES"),
CERTAIN MONIES DUE OR RECEIVED UNDER THE
RECEIVABLES ON OR AFTER JULY 1, 1998, SECURITY
INTERESTS IN THE RECEIVABLES AND MONIES ON
DEPOSIT IN THE RESERVE FUND AND THE YIELD
SUPPLEMENT ACCOUNT DESCRIBED HEREIN.
THE NOTES WILL BE SECURED BY THE
ASSETS OF THE TRUST PURSUANT TO
THE INDENTURE.
INTEREST ON THE NOTES AT THE RELATED INTEREST RATES SPECIFIED ABOVE WILL BE
DISTRIBUTED TO NOTEHOLDERS ON THE FIFTEENTH DAY OF EACH MONTH OR, IF ANY
SUCH DAY IS NOT A BUSINESS DAY, ON THE IMMEDIATELY SUCCEEDING BUSINESS
DAY (EACH, A "DISTRIBUTION DATE"), COMMENCING AUGUST 17, 1998.
PRINCIPAL ON THE NOTES WILL BE PAYABLE ON EACH DISTRIBUTION DATE
TO THE EXTENT DESCRIBED HEREIN; HOWEVER, UNLESS THE NOTES HAVE
BEEN ACCELERATED FOLLOWING AN EVENT OF DEFAULT UNDER THE
INDENTURE, NO PRINCIPAL PAYMENTS WILL BE MADE ON THE (I)
CLASS A-2 NOTES UNTIL THE CLASS A-1 NOTES HAVE BEEN PAID
IN FULL, (II) CLASS A-3 NOTES UNTIL THE CLASS A-1 AND
CLASS A-2 NOTES HAVE BEEN PAID IN FULL OR (III)
CLASS A-4 NOTES UNTIL THE CLASS A-1, CLASS A-2 AND
CLASS A-3 NOTES HAVE BEEN PAID IN FULL. PAYMENTS
IN RESPECT OF THE CERTIFICATES WILL BE
SUBORDINATED TO PAYMENTS ON THE NOTES TO
THE EXTENT DESCRIBED HEREIN.
TO THE EXTENT NOT PREVIOUSLY PAID PRIOR TO SUCH DATES, THE OUTSTANDING PRINCIPAL
AMOUNT OF EACH CLASS OF NOTES WILL BE PAYABLE IN
FULL ON THE FOLLOWING DATES, IN THE CASE OF (I) THE CLASS A-1 NOTES,
THE DISTRIBUTION DATE, (II) THE CLASS A-2 NOTES,
THE DISTRIBUTION DATE, (III) THE CLASS A-3 NOTES,
THE DISTRIBUTION DATE AND (IV) THE CLASS A-4
NOTES, THE DISTRIBUTION DATE.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN THE NOTES, SEE "RISK FACTORS" ON PAGE 11.
THE NOTES WILL REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES WILL REPRESENT
BENEFICIAL INTERESTS IN, THE TRUST AND WILL NOT REPRESENT OBLIGATIONS OF
OR INTERESTS IN AMERICAN HONDA RECEIVABLES CORP., AMERICAN HONDA
FINANCE CORPORATION OR ANY OF THEIR RESPECTIVE
AFFILIATES.
THE NOTES 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 COMMISSIONS SELLER(1)
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PER CLASS A-1 NOTE.................................... % % %
PER CLASS A-2 NOTE....................................
PER CLASS A-3 NOTE....................................
PER CLASS A-4 NOTE....................................
TOTAL................................................. $ $ $
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(1) BEFORE DEDUCTING EXPENSES PAYABLE BY THE SELLER ESTIMATED AT $ .
THE NOTES 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
NOTES, IN BOOK-ENTRY FORM, WILL BE MADE THROUGH THE FACILITIES OF THE DEPOSITORY
TRUST COMPANY, CEDEL BANK, SOCIETE ANONYME AND THE EUROCLEAR SYSTEM ON OR ABOUT
JULY , 1998, AGAINST PAYMENT IN IMMEDIATELY AVAILABLE FUNDS.
Credit Suisse First Boston
THE DATE OF THIS PROSPECTUS IS JULY , 1998.
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Certain persons participating in this offering may engage in transactions
that stabilize, maintain or otherwise affect the price of any Class of Notes.
Such transactions may include stabilizing. For a description of these
activities, see "Underwriting".
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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 Notes 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.
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 Securities Exchange Act of
1934, as amended (the "Exchange Act"), subsequent to the date of this Prospectus
and prior to the termination of the offering of the Notes 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 that 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 to 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) 781-4100).
REPORTS TO NOTEHOLDERS
The Servicer, on behalf of the Trust, will prepare and the Indenture Trustee
will provide to Noteholders of record (which shall be Cede & Co. as the nominee
of DTC unless Definitive Notes are issued under the limited circumstances
described herein) monthly and annual unaudited reports concerning the
Receivables. The Seller, as originator of the Trust, will also file or cause to
be filed with the Commission such periodic reports as are required under 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 , 1999.
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<PAGE>
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 Index of Capitalized Terms at page 63
for the location herein of defined terms.
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Trust............... Honda Auto Receivables 1998-1 Owner Trust (the "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.
Owner Trustee....... The Bank of New York (Delaware) (the "Owner Trustee").
Indenture Trustee... Bankers Trust Company (the "Indenture Trustee" and,
together with the Owner Trustee, the "Trustees").
Securities The Trust will issue four classes of Notes (each, a
Offered............ "Class") pursuant to an indenture to be dated as of July
1, 1998 (the "Indenture"), between the Trust and the
Indenture Trustee, as follows: (i) $ aggregate
principal amount of % Asset Backed Notes, Class A-1
(the "Class A-1 Notes"), (ii) $ aggregate principal
amount of % Asset Backed Notes, Class A-2 (the "Class
A-2 Notes"), (iii) $ aggregate principal amount of
% Asset Backed Notes, Class A-3 (the "Class A-3 Notes")
and (iv) $ aggregate principal amount of % Asset
Backed Notes, Class A-4 (the "Class A-4 Notes" and,
together with the Class A-1 Notes, the Class A-2 Notes and
the Class A-3 Notes, the "Notes"). Payments of principal
and interest on the Notes will be made in accordance with
the priorities set forth under "Certain Information
Regarding the Securities -- Distributions on the
Securities" -- Deposits to the Distribution Accounts;
Priority of Payments". The Notes will be secured by the
assets of the Trust (other than the Certificate
Distribution Account) pursuant to the Indenture.
The Trust will issue $ aggregate principal amount
of % Asset Backed Certificates (the "Certificates" and,
together with the Notes, the "Securities") pursuant to an
amended and restated trust agreement to be dated as of
July , 1998 (the "Trust Agreement"), between the Seller
and the Owner Trustee. The Certificates will represent
fractional undivided interests in the Trust. Payments in
respect of the Certificates will be subordinated to
payments on the Notes to the limited extent described
herein. The Certificates are not being offered hereby and
initially will be retained by the Seller.
Each Class of Notes will be issued in minimum
denominations of $1,000 and integral multiples of $1,000
in excess thereof. Definitive
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Securities will be issued only under the limited
circumstances described herein. See "Description of the
Notes -- Book-Entry Registration" and "-- Definitive
Notes".
The Receivables..... On the date of initial issuance of the Securities (the
"Closing Date"), pursuant to a sale and servicing
agreement to be dated as of July 1, 1998 (the "Sale and
Servicing Agreement"), among the Trust, the Seller and the
Servicer, the Trust will purchase from the Seller a pool
of retail installment sale contracts (the "Receivables")
secured by the new or used Honda and Acura motor vehicles
financed thereby (the "Financed Vehicles"). The
Receivables will be purchased by the Seller from AHFC
pursuant to a receivables purchase agreement, to be dated
as of July 1, 1998 (the "Receivables Purchase Agreement"),
between the Seller and AHFC, providing for such purchase
on or prior to the Closing Date. The Receivables will be
selected by AHFC from its portfolio of retail motor
vehicle installment sale contracts based upon the criteria
to be specified in the Sale and Servicing Agreement and
described herein. As of July 1, 1998 (the "Cutoff Date"),
the Receivables had an aggregate unpaid principal balance
of $ (the "Cutoff Date Pool Balance"). Based on
Cutoff Date Pool Balance, the Receivables had a weighted
average annual percentage rate (the "APR") of
approximately %, a weighted average original maturity
of approximately months and a weighted average
remaining maturity of approximately months. See "The
Receivables".
Distribution Distributions of interest and principal on the Securities
Dates.............. will be made on the fifteenth day of each month or, if any
such day is not a Business Day, on the next succeeding
Business Day (each, a "Distribution Date"), commencing
August 17, 1998. Payments on the Securities on each
Distribution Date will be paid to the holders of record of
the related Securities on the Business Day immediately
preceding such Distribution Date (each, a "Record Date").
A "Business Day" will be any day other than a Saturday, a
Sunday or a day on which banking institutions in New York,
New York, Wilmington, Delaware or Los Angeles, California
are authorized or obligated by law, executive order or
government decree to be closed.
To the extent not previously paid prior to such dates, the
outstanding principal amount of (i) the Class A-1 Notes
will be payable on the Distribution Date (the
"Class A-1 Final Distribution Date"), (ii) the Class A-2
Notes will be payable on the Distribution Date
(the "Class A-2 Final Distribution Date"), (iii) the Class
A-3 Notes will be payable on the Distribution
Date (the "Class A-3 Final Distribution Date") and (iv)
the Class A-4 Notes will be payable on the
Distribution Date (the "Class A-4 Final Distribution Date"
and, together with the Class A-1 Final Distribution Date,
the Class A-2 Final Distribution Date and the Class A-3
Final Distribution Date, the "Final Distribution Dates").
Terms of the The principal terms of the Notes will be as described
Notes.............. below:
A. Interest Rates... Interest will be borne on (i) the Class A-1 Notes at the
rate of % per annum (the "Class A-1 Rate"), (ii) the
Class A-2 Notes at the rate of
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% per annum (the "Class A-2 Rate"), (iii) the Class A-3
Notes at the rate of % per annum (the "Class A-3 Rate")
and (iv) the Class A-4 Notes at the rate of % per annum
(the "Class A-4 Rate" and, together with the Class A-1
Rate, Class A-2 Rate and the Class A-3 Rate, the "Interest
Rates"). Interest on the Class A-1 Notes and the Class A-2
Notes will be calculated on the basis of the actual number
of days in the related accrual divided by 360 and interest
on the Class A-3 Notes and the Class A-4 Notes will be
calculated on the basis of a 360-day year consisting of
twelve 30-day months.
B. Interest......... Interest on the outstanding principal amount of each Class
of Notes will accrue at the related Interest Rate from and
including the most recent Distribution Date on which
interest has been paid (or from and including the Closing
Date with respect to the first Distribution Date) to but
excluding the current Distribution Date (each, an "Accrual
Period"). Interest on the Notes for any Distribution Date
due but not paid on such Distribution Date will be due on
the immediately succeeding Distribution Date, together
with, to the extent permitted by applicable law, interest
on such shortfall at the related Interest Rate. See
"Description of the Notes -- Payments of Interest" and
"Certain Information Regarding the Securities --
Distributions on the Securities" -- Deposits to the
Distribution Accounts; Priority of Payments".
C. Principal........ On each Distribution Date, principal on the Notes will be
payable, to the extent of the Principal Payment Amount, as
follows: (i) on each Distribution Date until the Class A-1
Notes are paid in full, 100% of the Principal Payment
Amount to the Class A-1 Notes, (ii) on each Distribution
Date on or after the Distribution Date on which the Class
A-1 Notes have been paid in full and until the Adjustment
Time, after giving effect to any reduction in the
Principal Payment Amount by virtue of any payment pursuant
to clause (i) above and any deposit into the Reserve Fund
or payment of interest to Certificateholders as described
under "Certain Information Regarding the Securities --
Distributions on the Securities -- Deposits to the
Distribution Accounts; Priority of Payments", 100% of the
remaining Principal Payment Amount to the Certificates,
(iii) on the Distribution Date on which the Adjustment
Time occurs, the remaining Principal Payment Amount to the
Notes and (iv) on each Distribution Date after the
Distribution Date on which the Adjustment Time occurs
until the Class A-4 Notes have been paid in full, 94% of
the Principal Payment Amount to the outstanding Notes. See
"Certain Information Regarding the Securities --
Distributions on the Securities -- Deposits to the
Distribution Accounts; Priority of Payments". The
"Adjustment Time" will be the first time that the
principal balance of the Certificates has been reduced to
6% of the principal balance of all outstanding Securities.
Allocations of principal payments will be made to the
Notes so that no principal payments will be made on the
(i) Class A-2 Notes until the Class A-1 Notes have been
paid in full, (ii) Class A-3 Notes until the Class A-1 and
Class A-2 Notes have been paid in full or (iii) Class A-4
Notes until the Class A-1, Class A-2 and Class A-3 Notes
have been paid in full.
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Notwithstanding the foregoing, on each Distribution Date
after the Notes have been accelerated following an Event
of Default, the Notes will receive 100% of the Principal
Payment Amount until the Notes have been paid in full.
Such principal payments will be made to holders of record
of the Notes (the "Noteholders") on a pro rata basis based
on the principal balance of each Class of outstanding
Notes.
If the principal amount of a Class of Notes has not been
paid in full prior to its Final Distribution Date, the
Note Principal Distributable Amount for such Final
Distribution Date will include an amount sufficient to
reduce the unpaid principal amount of such Class of Notes
to zero on such Final Distribution Date. See "Description
of the Notes -- Payments of Principal" and "Certain
Information Regarding the Securities -- Distributions on
the Securities -- Deposits to the Distribution Accounts;
Priority of Payments".
D. Optional In the event of an Optional Termination, each Class of
Redemption......... outstanding Notes will be redeemed in whole, but not in
part, at a redemption price equal to the unpaid principal
amount of such Class of Notes plus accrued interest
thereon at the related Interest Rate. See "Summary --
Optional Termination" and "Description of the Notes --
Optional Redemption".
Terms of the The principal terms of the Certificates will be as
Certificates....... described below:
A. Interest......... On each Distribution Date, the Owner Trustee or the Paying
Agent will distribute to holders of record of the
Certificates (the "Certificateholders") as of the related
Record Date accrued interest for the related Accrual
Period at the rate of % per annum (the "Certificate
Rate") on the Certificate Balance as of the immediately
preceding Distribution Date (after giving effect to
distributions of principal to be made on such immediately
preceding Distribution Date) or, in the case of the first
Distribution Date, the Original Certificate Balance.
Interest on the Certificates will be calculated on the
basis of a 360-day year consisting of twelve 30-day
months. See "Description of the Certificates -- Distri-
butions of Interest" and "Certain Information Regarding
the Securities -- Distributions on the Securities" --
Deposits to the Distribution Accounts; Priority of
Payments".
The "Certificate Balance" will initially equal $
(the "Original Certificate Balance") and on any
Distribution Date will equal the Original Certificate
Balance reduced by all distributions of principal
previously made in respect of the Certificates.
Distributions on the Certificates will be subordinated to
payments of interest and principal on the Notes to the
extent described under "Description of the Certificates"
and "Certain Information Regarding the Securities --
Distributions on the Securities".
B. Principal........ No principal will be paid on the Certificates until the
Distribution Date on which the principal amount of the
Class A-1 Notes has been reduced to zero. On such
Distribution Date and each Distribution Date thereafter,
principal on the Certificates will be payable, generally
to the extent of the Principal Payment Amount, as follows:
(i) on each Distribution Date on or after the Distribution
Date on which the Class A-1 Notes
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have been paid in full, after giving effect to any payment
of the Principal Payment Amount to pay the Class A-1 Notes
in full and any reduction in the Principal Payment Amount
by virtue of any deposit into the Reserve Fund or payment
of interest to Certificateholders as described under
"Description of the Securities -- Distributions on the
Securities -- Deposits to the Distribution Accounts;
Priority of Payments", 100% of the remaining Principal
Payment Amount to the Certificates until the Adjustment
Time, (ii) on each Distribution Date after the
Distribution Date on which the Adjustment Time occurs
until the Class A-2, Class A-3 and Class A-4 Notes have
been paid in full, 6% of the Principal Payment Amount,
after giving effect to any reduction in the Principal
Payment Amount by virtue of any deposit into the Reserve
Fund or payment of interest to Certificateholders as
described under "Certain Information Regarding the
Securities -- Distributions on the Securities -- Deposits
to the Distribution Accounts; Priority of Payments", to
the Certificates and (iii) on each Distribution Date
thereafter, 100% of the Principal Payment Amount to the
Certificates. See "Certain Information Regarding the
Securities -- Distributions on the Securities -- Deposits
to the Distribution Accounts; Priority of Payments".
Notwithstanding the foregoing, on each Distribution Date
after the Notes have been accelerated following an Event
of Default, the Certificates will not receive any of the
Principal Payment Amount until the Notes have been paid in
full.
C. Optional In the event of an Optional Termination, the Certificates
Prepayment......... will be prepaid in whole, but not in part, at a repayment
price equal to the Certificate Balance plus accrued
interest thereon at the Certificate Rate. See "Summary --
Optional Termination" and "Description of the Certificates
-- Optional Prepayment".
The Reserve Fund.... The Noteholders will be afforded certain limited
protection, to the extent described herein, against losses
in respect of the Receivables by the establishment of a
segregated trust account in the name of the Indenture
Trustee for the benefit of the Noteholders (the "Reserve
Fund").
The Reserve Fund will be funded by the Seller on the
Closing Date in an amount equal to $ (the
"Reserve Fund Initial Deposit"). On each Distribution
Date, any Available Funds remaining after all Trust Fees
and Expenses have been paid and after the Noteholders have
been paid all interest and principal required to be paid
("Excess Amounts") will be deposited in the Reserve Fund
to the extent necessary to maintain the amount on deposit
in the Reserve Fund at the Specified Reserve Fund Balance.
The "Specified Reserve Fund Balance" for any Distribution
Date will be $ until such time as the amount on
deposit in the Reserve Fund equals or exceeds the
aggregate unpaid principal amount of the Notes, at which
time the Specified Reserve Fund Balance will equal such
unpaid principal amount. On each Distribution Date, funds
will be withdrawn from the
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Reserve Fund for distribution to Noteholders to cover any
shortfalls in interest and principal required to be paid
on the Notes. See "Certain Information Regarding the
Securities -- The Reserve Fund".
The Yield Supplement
Account............ On or prior to the Closing Date, a yield supplement
account will be established with the Indenture Trustee for
the benefit of the Securityholders (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 Weighted Average
Interest Rate and (ii) the Servicing Fee Rate (the
"Required Rate").
The "Weighted Average Interest Rate" will mean, with
respect to any calendar month (each, a "Collection
Period") and the related Distribution Date, a per annum
rate equal to (i) the sum of (a) the product of the
Interest Rate for each outstanding Class of Notes and the
aggregate principal amount of such Class of Notes as of
the immediately preceding Distribution Date (or, in the
case of the first Distribution Date, the aggregate initial
principal amount of the Notes) and (b) the product of the
Certificate Rate and the Certificate Balance as of the
immediately preceding Distribution Date (or in the case of
the first Distribution Date, the Original Certificate
Balance) divided by (ii) the sum of the aggregate
principal amount of the Notes and the Certificate Balance
as of the immediately preceding Distribution Date (or, in
the case of the first Distribution Date, the aggregate
initial principal amount of the Notes and the Original
Certificate Balance), in each case after giving effect to
any principal payment made on such preceding Distribution
Date.
The Yield Supplement Account will be funded on the Closing
Date with an initial deposit in an amount (the "Yield
Supplement Account Deposit") to be specified in the
Indenture.
On the Business Day immediately preceding each
Distribution Date (each, a "Deposit Date"), the Indenture
Trustee shall withdraw from monies on deposit in the Yield
Supplement Account and deposit into the Collection Account
to be included in amounts distributed on the related
Distribution Date (i) the aggregate amount by which one
month's interest on the Principal Balance as of the first
day of such 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 Amount")
and (ii) after giving effect to the withdrawal of the
amount described in clause (i) above, the amount by which
the amount on deposit in the Yield Supplement Account
exceeds the maximum amount required to be on deposit
therein on the related Distribution Date (collectively,
the "Yield Supplement Withdrawal Amount"). On each
Distribution Date, the amount required to be on deposit in
the Yield Supplement Account will decline and be equal to
the sum of all Yield Supplement Amounts for all future
Distribution Dates, assuming that future scheduled pay-
ments on the Discount Receivables are made on the date on
which they
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
are scheduled as being due. The amount on deposit in the
Yield Supplement Account will decrease as payments are
made with respect to the Yield Supplement Amount and funds
in excess of the maximum required balance are released as
described above. See "Certain Information Regarding the
Securities -- The Accounts -- The Yield Supplement
Account".
Advances............ On the Business Day immediately preceding each
Distribution Date (each, a "Deposit 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
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 make an Advance
only to the extent that it determines 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
"Certain Information Regarding the Securities --
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
Trust Accounts plus any late fees, prepayment charges and
other administrative fees and expenses or similar charges
received by the Servicer during such Collection Period.
See "Certain Information Regarding the Securities --
Servicing Compensation".
Optional The Seller or the Servicer, or any successor to the
Termination........ Servicer, may purchase all the Receivables 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 Cutoff Date Pool
Balance, at a purchase price determined as described under
"Certain Information Regarding the Securities --
Termination". The exercise of such purchase option is
referred to herein as an "Optional Termination".
Ratings............. It is a condition to the issuance of the Notes that the
Class A-1 Notes be rated P-1 by Moody's Investors Service,
Inc. ("Moody's") and A-1+ by Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies, Inc.
("Standard & Poor's" and, together with Moody's, the
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
"Rating Agencies"), and that the Class A-2, Class A-3 and
Class A-4 Notes each be rated Aaa by Moody's and AAA by
Standard & Poor's. 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 as-
signing rating agency. The ratings on the Notes 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 on the Notes prior to their
respective Final Distribution Dates. See "Rating of the
Notes".
Tax Status.......... In the opinion of counsel to the Seller, for both federal
and California income tax purposes, the Notes will be
characterized as debt, and the Trust will not be
characterized as an association (or a publicly traded
partnership) taxable as a corporation. Each Noteholder, by
the acceptance of a Note (or a beneficial interest
therein), will agree to treat the Notes as indebtedness.
See "Material Federal Income Tax Consequences" and
"Material California Income Tax Consequences".
ERISA Subject to the considerations discussed under "ERISA
Considerations..... Considerations", the Notes may, in general, be purchased
by or on behalf of employee benefit plans that are subject
to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). Any benefit plan fiduciary considering
purchase of the Notes should, among other things, consult
with its counsel in determining whether all required
conditions have been satisfied. See "ERISA
Considerations".
Legal Investment.... The Class A-1 Notes have been structured to be eligible
securities for purchase by money market funds under Rule
2a-7 of the Investment Company Act of 1940, as amended. A
money market fund should consult its legal advisors
regarding the eligibility of the Class A-1 Notes under
Rule 2a-7, the fund's investment policies and objectives
and an investment in the Class A-1 Notes.
</TABLE>
10
<PAGE>
RISK FACTORS
Prospective investors should consider the following risk facts in
considering the purchase of Notes.
PERFECTED SECURITY INTERESTS IN THE FINANCED VEHICLES
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 Sale and Servicing Agreement, the Seller will sell and assign its security
interests in the Financed Vehicles to the Trust. However, because of the
administrative burden and expense, neither AHFC, the Seller nor the Trustees
will amend any certificate of title to identify the Trust as the new secured
party on the certificates of title relating to the Financed Vehicles. In the
absence of such an amendment, the Trust may not have a perfected security
interest in the Financed Vehicles in all states.
If the protection provided to the Noteholders by the Reserve Fund and by the
subordination of payments on the Certificates to the extent described herein is
insufficient, the Noteholders will have to look to payments made by or on behalf
of the obligors on or in respect of the Receivables (the "Obligors"), 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 Notes. In such event, certain factors, such as the
possibility that the Trust may not have a perfected security interest in the
Financed Vehicles in all states, may affect the Trustee'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. Noteholders may
thus be subject to delays in payment and may incur losses on their investment in
the Notes as a result of defaults or delinquencies by Obligors and because of
depreciation in the value of the related Financed Vehicles. See "Certain
Information Regarding the Notes -- The Reserve Fund", "-- Insurance on Financed
Vehicles" and "Certain Legal Aspects of the Receivables".
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES
The amount of net losses in AHFC's portfolio of new and used Honda and Acura
motor vehicle retail installment sale contracts generally has increased as the
portfolio has grown. As more fully described under "American Honda Finance
Corporation -- Delinquency and Loan Loss Information", although total
delinquencies and repossessions as a percentage of the principal balance of all
outstanding installment sale contracts serviced by AHFC decreased for the fiscal
year ended March 31, 1998 to 1.46%, a 39.2% decrease from the 2.40% level
experienced for the fiscal year ended March 31, 1997 and net losses as a
percentage of the principal amount outstanding increased to 0.91% for fiscal
1998 compared to from 0.78% for fiscal 1997. AHFC attributes the increased
percentages to the effect of general economic conditions, which have resulted in
increased losses in the consumer finance sector generally. If the protection
provided to the Noteholders by the Reserve Fund and by the subordination of
payments on the Certificates to the extent described herein is insufficient, as
a result of defaults or delinquencies on the Receivables, the Noteholders could
incur a loss on their investment.
FORMATION OF THE TRUST
GENERAL
The Trust will be a business trust formed under the laws of the State of
Delaware pursuant to the Trust Agreement for the transactions described herein.
After its formation, the Trust will not engage in any activity other than (i)
acquiring, holding and managing the Receivables and the other assets of the
Trust and proceeds therefrom; (ii) issuing the Notes and the Certificates; (iii)
making payments on the Notes and the Certificates; and (iv) engaging in other
activities that are necessary, suitable or convenient to accomplish the
foregoing purposes or are incidental thereto or connected therewith.
11
<PAGE>
On the Closing Date, the Seller will sell and assign the assets of the Trust
to the Trust or the Owner Trustee. AHFC will act as Servicer of the Receivables
and will be compensated for such services. To facilitate servicing and to
minimize administrative burden and expense, pursuant to the Sale and Servicing
Agreement, the Servicer will be appointed custodian for the Receivables and
documents relating thereto by the Owner Trustee but will not physically
segregate the Receivables from the other retail installment sale contracts owned
or serviced by it nor amend the certificates of title to the Financed Vehicles
to reflect the assignment of the security interest in the Financed Vehicles to
the Trust, although the Servicer will stamp the Receivables to reflect the sale
and assignment of the Receivables to the Trust. In the absence of such an
amendment, the Trust's security interest in the Financed Vehicles may not be
perfected in all states. See "Certain Information Regarding the Securities --
Sale and Assignment of the Receivables" and "Certain Legal Aspects of the
Receivables -- Security Interests in the Financed Vehicles".
The Trust's principal offices will be in Wilmington, Delaware in care of The
Bank of New York (Delaware), as Owner Trustee, at the address listed below under
"The Owner Trustee".
CAPITALIZATION
The following table illustrates the capitalization of the Trust as of the
Closing Date, as if the issuance and sale of the Securities had taken place on
such date:
<TABLE>
<S> <C>
Class A-1 Notes.......................................... $
Class A-2 Notes..........................................
Class A-3 Notes..........................................
Class A-4 Notes..........................................
Certificates.............................................
---------
Total................................................ $
---------
---------
</TABLE>
THE OWNER TRUSTEE
The Bank of New York (Delaware) will be the Owner Trustee under the Trust
Agreement. The Bank of New York (Delaware) is a Delaware corporation and its
Corporate Trust Office is located at White Clay Center, Route 273, Newark,
Delaware 19711.
The Owner Trustee will have the rights and duties set forth herein under
"Certain Information Regarding the Securities -- The Trustees" and "-- Duties of
the Trustees".
PROPERTY OF THE TRUST
Each Note will represent an obligation of, and each Certificate will
represent a fractional undivided interest in, the Trust. The property of the
Trust will include, among other things, the Receivables and certain monies due
thereunder on and after the Cutoff Date. The Receivables were originated by
motor vehicle dealers (the "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
pursuant to the Sale and Servicing Agreement.
During the term of the Sale and Servicing 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 Trust Accounts; (ii)
security interests in the Financed Vehicles and any accessions thereto; (iii)
the rights to 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 of the Seller under the
12
<PAGE>
Receivables Purchase Agreement and Sale and Servicing Agreement; (vi) the right
to realize upon any property (including the right to receive future Liquidation
Proceeds) that shall have secured a Receivable and have been repossessed on
behalf of the Trust; and (vii) any and all proceeds of the foregoing. The
Reserve Fund will be maintained for the benefit of the Noteholders and the Yield
Supplement Account will be maintained for the benefit of the Securityholders.
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 Sale and Servicing Agreement will require
that any recovery by AHFC pursuant to any Dealer Recourse be deposited in the
Collection Account in satisfaction of its repurchase obligations under the
Receivables Purchase Agreement. It is expected that substantially all sales by
the Dealers of installment sale contracts to AHFC do not 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
monthly payment on each Receivable (each, a "Scheduled Payment") 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").
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 one-twelfth 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 Sale and Servicing Agreement on an
actuarial basis, under which each Scheduled Payment, including the final
Scheduled Payment, consists of an amount of interest equal to one-twelfth 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.
13
<PAGE>
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 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
the 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 require rebates based on the actuarial method. Distributions to
Noteholders will not be affected by Rule of 78s rebates under the Rule of 78s
Receivables because pursuant to the Sale and Servicing 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
underwriting standards. See "American Honda Finance Corporation -- Underwriting
of Motor Vehicle Loans". The Receivables were randomly selected from AHFC's
portfolio of motor vehicle retail installment sale contracts that met the
selection criteria described herein and under "Certain Information Regarding the
Securities -- Sale and Assignment of the Receivables". Such selection criteria
included that (i) each Receivable is secured by a new or used Honda or Acura
motor vehicle; (ii) each Receivable was originated in the United States and the
Obligor is not a governmental agency; (iii) each Receivable provides for level
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 , 199 ; (v) each Receivable had an
original term of to months and, as of the Cutoff Date, had a remaining
term to maturity of not less than months and not more than months; (vi)
each Receivable provides for the payment of a finance charge based on an APR
ranging from % to %; (vii) no portion of any payment on each Receivable
shall be 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 and used Honda and Acura motor
vehicles manufactured by Honda Motor Co., Ltd. and its affiliates. Based on
Cutoff Date Pool Balance, % and % of the Receivables represented
financing of Honda motor vehicles and Acura motor vehicles, respectively, and
% and % of the Receivables represented financing of new and used motor
vehicles, respectively. Based on the addresses of the originating Dealers, the
Receivables were originated in states.
14
<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>
Aggregate Cutoff Date Principal Balance..................... $
<S> <C>
Number of Receivables.......................................
Average Cutoff Date Principal Balance....................... $
Average Original Amount Financed............................ $
Range of Original Amounts Financed........................ $ to $
Weighted Average APR (1).................................... %
Range of APRs............................................. % to %
Weighted Average Original Maturity (1)...................... months
Range of Original Maturities.............................. months to months
Weighted Average Remaining Maturity (1)..................... months
Range of Remaining Maturities as of the Cutoff Date....... months to months
</TABLE>
- - --------------
(1) Weighted by Principal Balance as of the Cutoff Date.
DISTRIBUTION OF THE RECEIVABLES BY APR
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
AGGREGATE CUTOFF DATE CUTOFF DATE
NUMBER OF NUMBER OF PRINCIPAL POOL
RANGE OF APRS RECEIVABLES RECEIVABLES BALANCE BALANCE
- - ------------------------------------------- ----------- ------------- ----------------- -------------
<S> <C> <C> <C> <C>
1.000% to 1.999%......................... % $ %
2.000% to 2.999%.........................
3.000% to 3.999%.........................
4.000% to 4.999%.........................
5.000% to 5.999%.........................
6.000% to 6.999%.........................
7.000% to 7.999%.........................
8.000% to 8.999%.........................
9.000% to 9.999%.........................
10.000% to 10.999%.........................
11.000% to 11.999%.........................
12.000% to 12.999%.........................
13.000% to 13.999%.........................
14.000% to 14.999%.........................
15.000% to 15.999%.........................
16.000% to 16.999%.........................
17.000% to 17.999%.........................
18.000% to 18.999%.........................
19.000% to 19.999%.........................
20.000% to 20.999%.........................
----------- ------------- ----------------- -------------
Total.................................... 100.00%(1) $ 100.00%(1)
----------- ------------- ----------------- -------------
----------- ------------- ----------------- -------------
</TABLE>
- - --------------
(1) Percentages may not add up to 100% due to rounding.
15
<PAGE>
DISTRIBUTION OF THE RECEIVABLES BY STATE
<TABLE>
<CAPTION>
PERCENTAGE OF
CUTOFF DATE
CUTOFF DATE POOL
STATE(1) PRINCIPAL BALANCE BALANCE
- - ---------------------------------------- ----------------- -------------
<S> <C> <C>
Alabama................................. $ %
Alaska..................................
Arizona.................................
Arkansas................................
California..............................
Colorado................................
Connecticut.............................
Delaware................................
District of Columbia....................
Florida.................................
Georgia.................................
Hawaii..................................
Idaho...................................
Illinois................................
Indiana.................................
Iowa....................................
Kansas..................................
Kentucky................................
Louisiana...............................
Maine...................................
Maryland................................
Massachusetts...........................
Michigan................................
Minnesota...............................
Mississippi.............................
Missouri................................
Montana.................................
Nebraska................................
Nevada..................................
New Hampshire...........................
New Jersey..............................
New Mexico..............................
New York................................
North Carolina..........................
North Dakota............................
Ohio....................................
Oklahoma................................
Oregon..................................
Pennsylvania............................
Rhode Island............................
South Carolina..........................
South Dakota............................
Tennessee...............................
Texas...................................
Utah....................................
Vermont.................................
Virginia................................
Washington..............................
West Virginia...........................
Wisconsin...............................
Wyoming.................................
----------------- -------------
Total................................. $ 100.00%(2)
----------------- -------------
----------------- -------------
</TABLE>
- - --------------
(1) Based on the addresses of the originating Dealers.
(2) Percentages may not add up to 100% due to rounding.
16
<PAGE>
WEIGHTED AVERAGE LIFE OF THE NOTES
The weighted average life of the Notes will generally be influenced by the
rate at which the principal balances of the Receivables are paid, which payment
may be in the form of scheduled amortization or prepayments.
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 "Certain Information Regarding the
Securities -- 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, repurchases by the Seller or the Servicer, as the case may
be, of certain Receivables and the sale of the Receivables and other property of
the Trust following the occurrence of certain specified Events of Default, 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 generally 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 Noteholders will be borne entirely by
the Noteholders. In addition, early retirement of the Securities 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 in
connection with an Optional Termination. See "Certain Information Regarding the
Securities -- 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 motor vehicle retail
installment sale contracts included in its portfolio and its experience 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.
Prepayments on motor vehicle receivables can be measured relative to a
prepayment standard or model. The model used herein, the Absolute Prepayment
Model ("ABS"), represents an assumed rate of prepayment each month relative to
the original number of receivables in a pool of receivables. ABS further assumes
that all the receivables are the same size and amortize at the same rate and
that each receivable in each month of its life will either be paid as scheduled
or be prepaid in full. For example, in a pool of receivables originally
containing 10,000 receivables, a 1% ABS rate means that 100 receivables prepay
each month. ABS does not purport to be an historical description of prepayment
experience or a prediction of the anticipated rate of prepayment of any pool of
receivables, including the Receivables.
In light of the foregoing considerations, there can be no assurance as to
the amount of principal payments to be made on the Notes on each Distribution
Date since such amount will depend, in part, on the amount of principal
collected on the related Receivables during the related Collection Period.
Unless the Notes have been accelerated following an Event of Default, no
principal payments will be made on the (i) Class A-2 Notes until the Class A-1
Notes have been paid in full, (ii) Class A-3 Notes until the Class A-1 and Class
A-2 Notes have been paid in full and (iii) the Class A-4 Notes until the Class
A-1, Class A-2 and Class A-3 Notes have been paid in full. Additionally, no
principal payments will be made on the Certificates until the Class A-1 Notes
have been paid in full.
17
<PAGE>
Because the rate of distribution of principal on the Notes will depend on
the rate of payment (including prepayments) on the Receivables, the final
distribution on each Class of Notes could occur significantly earlier than the
related Final Distribution Date. Any reinvestment risk resulting from a faster
or slower incidence of payments on the Receivables will be borne entirely by the
related Noteholders.
The tables captioned "Percent of Initial Class A-1 Note and Class A-2 Note
Principal Balances at Various ABS Percentages" and "Percent of Initial Class A-3
Note and Class A-4 Note Principal Balance at Various ABS Percentages" (the "ABS
Tables") have been prepared on the basis of the characteristics of the
Receivables. The ABS Tables assume that (a) the Receivables prepay in full at
the specified constant percentage of ABS monthly, with no defaults, losses or
repurchases, (b) each scheduled monthly payment on the Receivables is made on
the last day of each month and each month has 30 days, (c) payments on the Notes
are made on each Distribution Date (and each such date is assumed to be the 15th
day of each applicable month) and (d) an Optional Termination occurs, causing a
redemption of the Class A-4 Notes. The ABS Tables indicate the projected
weighted average life of each Class of Notes and set forth the percent of the
initial principal amount of each class of Notes that is projected to be
outstanding after each of the Distribution Dates shown at various constant ABS
percentages.
The ABS Tables also assume that the Receivables have been aggregated into
hypothetical pools with all of the Receivables within each such pool having the
following characteristics and that the level of scheduled monthly payment for
each of the pools (which is based on its aggregate principal balance, Contract
Rate, original number of scheduled payments and remaining number of scheduled
payments as of the Cutoff Date) will be such that each pool will be fully
amortized by the end of its remaining term to maturity. Each hypothetical pool
has an assumed cutoff date of the Cutoff Date.
<TABLE>
<CAPTION>
AGGREGATE REMAINING TERM TO
PRINCIPAL MATURITY SEASONING
POOL BALANCE CONTRACT RATE (IN MONTHS) (IN MONTHS)
- - --------------------------- ---------------- ------------- ------------------------- -------------------
<S> <C> <C> <C> <C>
1 $ %
2 $ %
3 $ %
4 $ %
</TABLE>
The actual characteristics and performance of the Receivables will differ
from the assumptions used in constructing the ABS Tables. The assumptions used
are hypothetical and have been provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the Receivables will prepay at a constant
level of ABS until maturity or that all of the Receivables will prepay at the
same level of ABS. Moreover, the diverse terms of Receivables within each of the
hypothetical pools could produce slower or faster principal distributions than
indicated in the ABS Tables at the various constant percentages of ABS
specified, even if the original and remaining terms to maturity of the
Receivables are as assumed. Any difference between such assumptions and the
actual characteristics and performance of the Receivables, or actual prepayment
experience, will affect the percentages of initial balances outstanding over
time and the weighted average lives of each class of Notes.
THE FOLLOWING ABS TABLES HAVE BEEN PREPARED BASED ON THE ASSUMPTIONS
DESCRIBED ABOVE (INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND
PERFORMANCE OF THE RECEIVABLES, WHICH WILL DIFFER FROM THE ACTUAL
CHARACTERISTICS AND PERFORMANCE THEREOF) AND SHOULD BE READ IN CONJUNCTION
THEREWITH.
18
<PAGE>
PERCENT OF INITIAL CLASS A-1 NOTE AND CLASS A-2 NOTE PRINCIPAL BALANCES AT
VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
CLASS A-2
CLASS A-1 NOTES NOTES
--------------------------------------------------------------- -----------
DISTRIBUTION DATE 0.5% 1.0% 1.5% 1.7% 2.0% 0.5%
- - -------------------------------------------- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Closing Date................................ 100% 100% 100% 100% 100% 100%
August 1998.................................
September 1998..............................
October 1998................................
November 1998...............................
December 1998...............................
January 1999................................
February 1999...............................
March 1999..................................
April 1999..................................
May 1999....................................
June 1999...................................
July 1999...................................
August 1999.................................
September 1999..............................
October 1999................................
November 1999...............................
December 1999...............................
January 2000................................
February 2000...............................
March 2000..................................
April 2000..................................
May 2000....................................
June 2000...................................
July 2000...................................
August 2000.................................
September 2000..............................
October 2000................................
November 2000...............................
December 2000...............................
January 2001................................
February 2001...............................
March 2001..................................
April 2001..................................
May 2001....................................
June 2001...................................
July 2001...................................
August 2001.................................
September 2001..............................
October 2001................................
November 2001...............................
December 2001...............................
January 2002................................
February 2002...............................
March 2002..................................
April 2002..................................
May 2002....................................
June 2002...................................
July 2002...................................
August 2002.................................
September 2002..............................
October 2002................................
November 2002...............................
December 2002...............................
Weighted Average Life (years)(1)............
<CAPTION>
DISTRIBUTION DATE 1.0% 1.5% 1.7% 2.0%
- - -------------------------------------------- ----- ----- ----- -----
<S> <C> <C> <C> <C>
Closing Date................................ 100% 100% 100% 100%
August 1998.................................
September 1998..............................
October 1998................................
November 1998...............................
December 1998...............................
January 1999................................
February 1999...............................
March 1999..................................
April 1999..................................
May 1999....................................
June 1999...................................
July 1999...................................
August 1999.................................
September 1999..............................
October 1999................................
November 1999...............................
December 1999...............................
January 2000................................
February 2000...............................
March 2000..................................
April 2000..................................
May 2000....................................
June 2000...................................
July 2000...................................
August 2000.................................
September 2000..............................
October 2000................................
November 2000...............................
December 2000...............................
January 2001................................
February 2001...............................
March 2001..................................
April 2001..................................
May 2001....................................
June 2001...................................
July 2001...................................
August 2001.................................
September 2001..............................
October 2001................................
November 2001...............................
December 2001...............................
January 2002................................
February 2002...............................
March 2002..................................
April 2002..................................
May 2002....................................
June 2002...................................
July 2002...................................
August 2002.................................
September 2002..............................
October 2002................................
November 2002...............................
December 2002...............................
Weighted Average Life (years)(1)............
</TABLE>
- - ------------------
(1) The weighted average life of a Note is determined by (a) multiplying the
amount of each principal payment of such Note by the number of years from
the date of the issuance of such Note to the related Distribution Date, (b)
adding the results and (c) dividing the sum by the related initial principal
amount of such Note.
19
<PAGE>
PERCENT OF INITIAL CLASS A-3 NOTE AND CLASS A-4 NOTE PRINCIPAL BALANCES AT
VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
CLASS A-4
CLASS A-3 NOTES NOTES
--------------------------------------------------------------- -----------
DISTRIBUTION DATE 0.5% 1.0% 1.5% 1.7% 2.0% 0.5%
- - -------------------------------------------- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Closing Date................................ 100% 100% 100% 100% 100% 100%
August 1998.................................
September 1998..............................
October 1998................................
November 1998...............................
December 1998...............................
January 1999................................
February 1999...............................
March 1999..................................
April 1999..................................
May 1999....................................
June 1999...................................
July 1999...................................
August 1999.................................
September 1999..............................
October 1999................................
November 1999...............................
December 1999...............................
January 2000................................
February 2000...............................
March 2000..................................
April 2000..................................
May 2000....................................
June 2000...................................
July 2000...................................
August 2000.................................
September 2000..............................
October 2000................................
November 2000...............................
December 2000...............................
January 2001................................
February 2001...............................
March 2001..................................
April 2001..................................
May 2001....................................
June 2001...................................
July 2001...................................
August 2001.................................
September 2001..............................
October 2001................................
November 2001...............................
December 2001...............................
January 2002................................
February 2002...............................
March 2002..................................
April 2002..................................
May 2002....................................
June 2002...................................
July 2002...................................
August 2002.................................
September 2002..............................
October 2002................................
November 2002...............................
December 2002...............................
Weighted Average Life (years)(1)............
<CAPTION>
DISTRIBUTION DATE 1.0% 1.5% 1.7% 2.0%
- - -------------------------------------------- ----- ----- ----- -----
<S> <C> <C> <C> <C>
Closing Date................................ 100% 100% 100% 100%
August 1998.................................
September 1998..............................
October 1998................................
November 1998...............................
December 1998...............................
January 1999................................
February 1999...............................
March 1999..................................
April 1999..................................
May 1999....................................
June 1999...................................
July 1999...................................
August 1999.................................
September 1999..............................
October 1999................................
November 1999...............................
December 1999...............................
January 2000................................
February 2000...............................
March 2000..................................
April 2000..................................
May 2000....................................
June 2000...................................
July 2000...................................
August 2000.................................
September 2000..............................
October 2000................................
November 2000...............................
December 2000...............................
January 2001................................
February 2001...............................
March 2001..................................
April 2001..................................
May 2001....................................
June 2001...................................
July 2001...................................
August 2001.................................
September 2001..............................
October 2001................................
November 2001...............................
December 2001...............................
January 2002................................
February 2002...............................
March 2002..................................
April 2002..................................
May 2002....................................
June 2002...................................
July 2002...................................
August 2002.................................
September 2002..............................
October 2002................................
November 2002...............................
December 2002...............................
Weighted Average Life (years)(1)............
</TABLE>
- - ------------------
(1) The weighted average life of a Note is determined by (a) multiplying the
amount of each principal payment of such Note by the number of years from
the date of the issuance of such Note to the related Distribution Date, (b)
adding the results and (c) dividing the sum by the related initial principal
amount of such Note.
20
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Notes (I.E., the proceeds of the
public offering of the Notes minus expenses relating thereto) will be applied by
the Seller to the purchase of the Receivables from AHFC.
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) 781-4100.
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 securities similar to the Securities 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
automobiles, minivans, sport utility vehicles and light-duty trucks, Honda
motorcycles (including scooters and all terrain vehicles) and Honda power
equipment, such as lawn and utility tractors, lawnmowers, snow throwers, water
pumps, portable outboard motors, outboard marine engines and generators, 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, power
equipment, 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 and distributor of motor vehicles and power equipment.
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 motor vehicles from approximately 1,255 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 automobile to be financed.
Applications submitted to AHFC must list sufficient information to process
the application, including the applicant's income, residential status, monthly
mortgage or rent payment, bank account(s) 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 and
the decision to grant or deny credit is made at
21
<PAGE>
the appropriate management level. 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 the eleventh day of delinquency and a follow up
telephone call is made on the fifteenth 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.
DELINQUENCY, REPOSSESSION AND LOAN LOSS INFORMATION
Set forth below is certain information concerning AHFC's experience with
respect to its portfolio of new and used Honda and Acura motor vehicle
installment sale contracts, which includes contracts that have been sold but are
still being serviced by AHFC. 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.
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 an 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 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 -- Delinquencies,
Repossessions and Net Losses".
22
<PAGE>
HISTORICAL DELINQUENCY EXPERIENCE (1)
<TABLE>
<CAPTION>
AT MARCH 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Principal Amount Outstanding (2)........................ $2,929,360 $2,486,957 $2,149,145 $1,396,919 $1,027,492
Delinquencies (3)
30-59 Days............................................ $ 29,330 $ 37,070 $ 19,222 $ 12,727 $ 7,158
60-89 Days............................................ 4,400 6,327 2,937 1,573 748
90 or More Days....................................... 1,699 2,911 1,322 636 301
Repossessions (4)....................................... 7,438 13,334 5,423 3,412 2,098
---------- ---------- ---------- ---------- ----------
Total Delinquencies and Repossessions................... $ 42,866 $ 59,642 $ 28,904 $ 18,349 $ 10,305
Total Delinquencies and Repossessions as a Percentage of
Principal Amount Outstanding.......................... 1.46% 2.40% 1.35% 1.31% 1.00%
</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 more than 40% 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.
NET CREDIT LOSS AND REPOSSESSION EXPERIENCE (1)
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED MARCH 31,
---------------------------------------------------------------
1998 1997 1996 1995 1994
--------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Principal Amount Outstanding (2).............. $ 2,929,360 $2,486,957 $2,149,145 $1,396,919 $1,027,492
Average Principal Amount Outstanding (3)...... $ 2,675,524 $2,545,288 $1,842,750 $1,173,715 $ 995,606
Number of Contracts Outstanding............... 278,261 235,521 190,042 126,046 97,783
Average Number of Contracts Outstanding (3)... 252,723 228,287 162,955 109,142 93,580
Number of Repossessions....................... 3,576 3,166 2,175 1,551 1,069
Number of Repossessions as a Percentage of the
Average Number of Contracts Outstanding..... 1.42% 1.39% 1.34% 1.42% 1.14%
Gross Charge-Offs (4)......................... $ 32,598 $ 25,857 $ 14,701 $ 7,927 $ 5,555
Recoveries (5)................................ $ 8,245 $ 6,014 $ 3,940 $ 2,904 $ 1,891
--------------- ---------- ---------- ---------- ----------
Net Losses.................................... $ 24,353 $ 19,843 $ 10,761 $ 5,023 $ 3,664
Net Losses as a Percentage of Average
Principal Amount Outstanding................ 0.91% 0.78% 0.58% 0.43% 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.
Total delinquencies and repossessions as a percentage of the principal
amount outstanding for contracts serviced by AHFC decreased during the fiscal
year ended March 31, 1998 to 1.46%, which represents a 39.2% decrease from the
2.40% experienced during the fiscal year ended March 31, 1997, which followed a
77.8% increase over the 1.35% experienced during the fiscal year ended March 31,
1996. The increase in total delinquencies and repossessions as a percentage of
the principal balance of outstanding installment sale contracts serviced by AHFC
for the fiscal year ended March 31, 1997 resulted primarily from an increase in
the number of bankruptcies and a decline in general economic conditions,
including a weaker market for sales of used vehicles. As a result, AHFC's
inventory of repossessed vehicles was larger until the used vehicle resale
market strengthened during the latter part of the fiscal year ending March 31,
1998.
Net losses as a percentage of the average principal amount outstanding
increased from 0.58% for the fiscal year ended March 31, 1996 to 0.78% for
fiscal year ended March 31, 1997 and 0.91% for fiscal year ended March 31, 1998,
which represents increases of 34.9%, 34.5% and 16.7%, respectively. AHFC
attributes these increases to the effect of the general economic conditions
referenced above, which have resulted in increased losses in the consumer
finance sector generally.
23
<PAGE>
POOL FACTORS AND TRADING INFORMATION
The "Note Pool Factor" for each Class of Notes will be a seven-digit decimal
which the Servicer will compute prior to each Distribution Date with respect to
the Notes indicating the unpaid principal amount of such Class of Notes, after
giving effect to payments to be made on such Distribution Date, as a fraction of
the initial outstanding principal amount of such Class of Notes. The
"Certificate Pool Factor" for the Certificates will be a seven-digit decimal
which the Servicer will compute prior to each Distribution Date with respect to
the Certificates indicating the remaining Certificate Balance, after giving
effect to distributions to be made on such Distribution Date, as a fraction of
the Original Certificate Balance. Each Note Pool Factor and the Certificate Pool
Factor will be 1.0000000 as of the Closing Date, and thereafter will decline to
reflect reductions in the outstanding principal amount of the applicable Class
of Notes, or the reduction in the Certificate Balance, as the case may be. A
Noteholder's portion of the aggregate outstanding principal amount of the
related Class of Notes will be the product of (i) the original denomination of
such Noteholder's Note and (ii) the applicable Note Pool Factor at the time of
determination.
Noteholders will receive reports on or about each Distribution Date
concerning payments received on the Receivables, the Pool Balance, each Note
Pool Factor, the Certificate Pool Factor and various other items of information.
In addition, Noteholders of record during any calendar year will be furnished
information for tax reporting purposes not later than the latest date permitted
by law. See "Certain Information Regarding the Securities -- Statements to
Securityholders".
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to the Indenture, a form of which has been
filed as an exhibit to the Registration Statement. Copies of the Indenture
(without exhibits) may be obtained by Noteholders upon request in writing to the
Indenture Trustee at its Corporate Trust Office. The following summary describes
the material terms of the Notes and the Indenture. The summary does not purport
to be complete and is subject to, and is qualified in its entirety by reference
to, all the provisions of the Notes and the Indenture. Where particular
provisions or terms used in the Notes or the Indenture are referred to, the
actual provisions of such documents (including definitions of terms) are
incorporated by reference as part of such summaries.
PAYMENTS OF INTEREST
Interest on the outstanding principal amount of each Class of Notes will
accrue during each Accrual Period at the applicable Interest Rate and will be
payable to the Noteholders of such Class on the related Distribution Date.
Interest accrued but not paid on any Distribution Date will be due on the
immediately succeeding Distribution Date, together with, to the extent permitted
by applicable law, interest on such shortfall at the related Interest Rate.
Interest payments on the Notes generally will be made from the Available Amount
and from amounts on deposit in the Reserve Fund after all accrued and unpaid
Trustees' fees and other administrative fees of the Trust and payment of all
applicable servicing compensation to the Servicer (collectively, "Trust Fees and
Expenses") have been paid. See "Certain Information Regarding the Securities --
Distributions on the Securities -- Deposits to the Distribution Accounts;
Priority of Payments".
Interest payments to all Classes of Notes will have the same priority. Under
certain circumstances, the amount available for interest payments on any
Distribution Date could be less than the amount of interest due on the Notes, in
which case each Class of Notes will receive their ratable share (based on the
aggregate amount of interest due on such Class of Notes) of the aggregate amount
available to be distributed in respect of interest on the Notes, and an Event of
Default will occur if the full amount of interest due is not paid within five
days.
24
<PAGE>
PAYMENTS OF PRINCIPAL
Until the Notes have been paid in full, principal payments to Noteholders
will be made on each Distribution Date in the amount and order of priority
described under "Summary -- Terms of the Notes -- Principal" and "Certain
Information Regarding the Securities -- Distributions on the Securities --
Deposits to the Distribution Accounts; Priority of Payments". Principal payments
on the Notes generally will be made from the Available Amount and from amounts
on deposit in the Reserve Fund after all Trust Fees and Expenses have been paid
and after the Note Interest Distributable Amount has been distributed to
Noteholders.
The principal amount of each Class of Notes, to the extent not previously
paid, will be payable on the related Final Distribution Date. The actual
Distribution Date on which the outstanding principal amount of any Class of
Notes is paid may be significantly earlier than its Final Distribution Date
based on a variety of factors, including the factors described under "Weighted
Average Life of the Notes".
OPTIONAL REDEMPTION
Each Class of outstanding Notes will be subject to redemption in whole, but
not in part, on any Distribution Date relating to an Optional Termination. The
redemption price will equal the unpaid principal amount of such Class of Notes
plus accrued interest thereon at the applicable Interest Rate. See "Certain
Information Regarding the Securities -- Termination".
THE INDENTURE TRUSTEE
Bankers Trust Company will be the Indenture Trustee. The Indenture Trustee
is a Delaware banking corporation and its Corporate Trust Office is located at
Four Albany Street, 10th Floor, New York, New York 10006.
The Indenture Trustee will have the rights and duties set forth under
"Certain Information Regarding the Securities -- The Trustees" and " -- Duties
of the Trustees".
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
"Events of Default" under the Indenture will consist of: (i) a default for
five days or more in the payment of any interest on the Notes of any Class when
the same becomes due and payable; (ii) a default in the payment of the principal
of or any installment of the principal of the Notes of any Class when the same
becomes due and payable; (iii) a default in the observance or performance of any
covenant or agreement of the Trust made in the Indenture or any representation
or warranty made by the Trust in the Indenture or in any certificate delivered
pursuant thereto or in connection therewith having been incorrect in a material
respect as of the time made, and the continuation of any such default for a
period of 30 days after notice thereof is given to the Trust by the Indenture
Trustee or to the Trust and the Indenture Trustee by the holders of Notes
evidencing at least 25% of the voting interests thereof, voting together as a
single class; and (iv) certain events of bankruptcy, insolvency, receivership or
liquidation relating to the Trust. However, the amount of principal required to
be paid to Noteholders under the Indenture will generally be limited to amounts
available to be deposited in the Note Distribution Account and amounts on
deposit in the Reserve Fund. Therefore, the failure to pay principal on a Class
of Notes generally will not result in the occurrence of an Event of Default
until the related Final Distribution Date.
Upon the occurrence of an Event of Default, the Indenture Trustee may, or if
so requested in writing by holders of Notes evidencing a majority of the voting
interests thereof, voting together as a single class, shall, declare the Notes
to be immediately due and payable. Notwithstanding the foregoing, such
declaration may, under certain circumstances, be rescinded by the holders of
Notes evidencing a majority of the voting interests thereof, voting together as
a single class.
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If the Notes have been declared due and payable following an Event of
Default, the Indenture Trustee may institute proceedings to collect amounts due
or foreclose on the property of the Trust, exercise remedies as a secured party,
sell the Receivables and other property of the Trust or elect to have the Trust
maintain possession and continue to apply collections on or in respect of the
Receivables as if there had been no event of acceleration. Notwithstanding the
foregoing, the Indenture Trustee will be prohibited from selling the Receivables
and other property of the Trust following an Event of Default, other than a
default in the payment of any principal of or a default for five days or more in
the payment of any interest on any Note, unless (i) holders of Notes evidencing
100% of the voting interests thereof, voting together as a single class, consent
to such sale or liquidation, (ii) the proceeds of such sale are sufficient to
pay in full the principal of and accrued interest on the Notes at the date of
such sale or (iii) the Indenture Trustee determines that the proceeds of the
Receivables would not be sufficient on an ongoing basis to make all payments on
the Notes as such payments would have become due if such obligations had not
been declared due and payable, and the Indenture Trustee obtains the consent of
holders of Notes evidencing 66 2/3% of the voting interests thereof, voting
together as a single class.
In the event of the sale of the property of the Trust following the
occurrence of an Event of Default, the proceeds of such sale will be distributed
first to the Indenture Trustee for amounts due as compensation or indemnity
payments pursuant to the Indenture; second, to the Servicer for amounts due in
respect of unpaid Servicing Fees; third, to the Noteholders for interest which
is due and unpaid; and fourth, to the Noteholders for principal which is due and
unpaid. Any remaining amounts will be distributed to the Certificateholders for
amounts due and unpaid in accordance with the Trust Agreement and the Sale and
Servicing Agreement.
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee, if an Event of Default occurs and is continuing, the
Indenture Trustee will be under no obligation to exercise any of the rights or
powers under the Indenture at the request or direction of any of the holders of
such Notes, if the Indenture Trustee reasonably believes it will not be
adequately indemnified against the costs, expenses and liabilities which might
be incurred by it in complying with such request. Subject to the provisions for
indemnification and certain limitations contained in the Indenture, the holders
of Notes evidencing at least a majority of the voting interests thereof, voting
together as a single class, will have the right to direct the time, method and
place of conducting any proceeding or any remedy available to the Indenture
Trustee, and the holders of Notes evidencing at least a majority of the voting
interests thereof, voting together as a single class, may, in certain cases,
waive any default with respect thereto, except a default in the payment of
principal or interest or a default in respect of a covenant or provision of such
Indenture that cannot be modified without the waiver or consent of all holders
of outstanding Notes.
No holder of a Note will have the right to institute any proceeding with
respect to the related Indenture, unless (i) such holder previously has given to
the Indenture Trustee written notice of a continuing Event of Default, (ii) the
holders of Notes evidencing at least 25% of the voting interests thereof, voting
together as a single class, have made written request to the Indenture Trustee
to institute such proceeding in its own name as Indenture Trustee, (iii) such
holder or holders have offered the Indenture Trustee reasonable indemnity, (iv)
the Indenture Trustee has for 60 days failed to institute such proceeding and
(v) no direction inconsistent with such written request has been given to the
Indenture Trustee during such 60-day period by the holders of Notes evidencing
at least a majority of the voting interests thereof, voting together as a single
class.
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CERTAIN COVENANTS
The Indenture will provide that the Trust may not consolidate with or merge
into any other entity, unless (i) the entity formed by or surviving such
consolidation or merger is organized under the laws of the United States, any
state or the District of Columbia and such entity expressly assumes the Trust's
obligation to make due and punctual payments upon the Notes and the performance
or observance of every agreement and covenant of the Trust under the Indenture,
(ii) no Event of Default shall have occurred and be continuing immediately after
such merger or consolidation, (iii) each Rating Agency delivers a letter to the
Trustees to the effect that such consolidation or merger will not result in a
qualification, reduction or withdrawal of its then-current rating on any Class
of Notes, (iv) the Trust has received an opinion of counsel to the effect that
such consolidation or merger would have no material adverse tax consequence to
the Trust or to any Noteholder, (v) any action that is necessary to maintain the
lien and security interest created by the Indenture shall have been taken and
(vi) the trust has received an officer's certificate and an opinion of counsel
stating that such consolidation or merger and such supplemental indenture comply
with the terms of the Indenture and all conditions precedent provided in the
Indenture relating to such transaction have been taken.
The Trust will not, among other things, (i) except as expressly permitted by
the Indenture, Sale and Servicing Agreement or certain related documents with
respect to the Trust, sell, transfer, exchange or otherwise dispose of any of
its assets, (ii) claim any credit on or make any deduction from the principal
and interest payable in respect of the Notes of the related series (other than
amounts withheld under the Code or applicable state law) or assert any claim
against any present or former holder of Notes because of the payment of taxes
levied or assessed upon the Trust, (iii) dissolve or liquidate in whole or in
part, (iv) permit the validity or effectiveness of the Indenture to be impaired
or permit any person to be released from any covenants or obligations with
respect to the Notes under the Indenture except as may be expressly permitted
thereby or (v) permit any lien, charge, excise, claim, security interest,
mortgage or other encumbrance to be created on or extend to or otherwise arise
upon or burden the assets of the Trust or any part thereof, or any interest
therein or the proceeds thereof.
SATISFACTION AND DISCHARGE OF INDENTURE
The Indenture will be discharged with respect to the collateral securing the
Notes upon the delivery to the Indenture Trustee for cancellation of all the
Notes or, with certain limitations, upon deposit with such Indenture Trustee of
funds sufficient for the payment in full of all the Notes.
ADDITIONAL INFORMATION
Certain additional information regarding the Indenture and the Indenture
Trustee may be found under "Certain Information Regarding the Securities --
Evidence as to Compliance -- The Indenture" and " -- Amendment -- Amendment of
the Indenture".
BOOK-ENTRY REGISTRATION
Each Class of Notes will be offered for purchase in denominations of $1,000
and integral multiples thereof in book-entry form. Each Class of Notes will
initially be represented by certificates registered in the name of Cede & Co.
("Cede"), the nominee of The Depository Trust Company ("DTC"). No beneficial
owner of a Note (a "Note Owner") will be entitled to receive a certificate
representing such owner's interest, except as set forth below. Unless and until
Notes are issued in fully registered certificated form ("Definitive Notes")
under the limited circumstances described below, all references herein to
distributions, notices, reports and statements to Noteholders will refer to the
same actions made with respect to DTC or Cede, as the case may be, for the
benefit of the related Note Owners in accordance with DTC procedures. Note
Owners will only be permitted to exercise the rights of Noteholders indirectly
through DTC and its Participants, as more fully described below.
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Note Owners may hold beneficial interests in the related Notes through DTC
(in the United States), or Cedel Bank, societe anonyme ("CEDEL") or Euroclear
(in Europe), which in turn hold through DTC, if they are participants in such
systems, or indirectly through organizations that are participants in such
systems. CEDEL and Euroclear will hold omnibus positions on behalf of the
participants in CEDEL ("CEDEL Participants") and Euroclear ("Euroclear
Participants"), respectively, through customers' securities accounts in Cedel's
and Euroclear's names on the books of their respective depositories
(collectively, the "Depositaries") which in turn will hold such positions in
customers' securities accounts in the names of the Depositaries on the books of
DTC. For additional information regarding clearance and settlement procedures,
see Annex I hereto.
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 ("DTC Participants") and to facilitate the clearance and
settlement of securities transactions between DTC Participants through
electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of certificates. DTC 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 DTC
Participants are on file with the Commission.
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of CEDEL or Euroclear by its Depositary.
However, each such cross-market transaction will require delivery of
instructions to the relevant European international clearing system by the
counterparty in such system in accordance with its rules and procedures and
within its established deadlines (European time). CEDEL or Euroclear will, if
the transaction meets its settlement requirements, deliver instructions to its
Depositary to take action to effect final settlement on its behalf by delivering
or receiving securities in DTC, and making or receiving payment in accordance
with normal procedures for same-day funds settlement applicable to DTC. CEDEL
Participants and Euroclear Participants may not deliver instructions directly to
the related Depositaries.
Because of time-zone differences, credits of securities received in CEDEL or
Euroclear as a result of a transaction with a DTC Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant CEDEL
Participants or Euroclear Participants on such business day. Cash received in
CEDEL or Euroclear as a result of sales of Securities by or through a CEDEL
Participant or Euroclear Participant to a DTC Participant will be received with
value on the DTC settlement date but will be available in the relevant CEDEL or
Euroclear cash account only as of the business day following settlement in DTC.
Note Owners that are not DTC Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or an interest in,
Notes may do so only through DTC Participants and Indirect Participants. DTC
Participants will receive a credit for the related Notes on DTC's records. The
ownership interest of each Note Owner will in turn be recorded on the respective
records of Participants and Indirect Participants. Note Owners will not receive
written confirmation from DTC of their purchase, but Note Owners are expected to
receive written confirmations providing details of the transaction, as well as
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periodic statements of their holdings, from the DTC Participant or Indirect
Participant through which the Note Owner entered into the transaction. Transfers
of ownership interests in the Notes will be accomplished by entries made on the
books of DTC Participants acting on behalf of Note Owners.
To facilitate subsequent transfers, all Notes deposited by DTC Participants
with DTC will be registered in the name of Cede, as nominee of DTC. The deposit
of Notes 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 Note
Owners and its records will reflect only the identity of the DTC Participants to
whose accounts such Notes are credited, which may or may not be the Note Owners.
DTC 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 DTC Participants,
by DTC Participants to Indirect Participants and by DTC Participants and
Indirect Participants to Security Owners will be governed by arrangements among
them, subject to any statutory or regulatory requirements as may be in effect
from time to time.
Neither DTC nor Cede will consent or vote with respect to the Notes. Under
its usual procedures, DTC will mail an "Omnibus Proxy" to the Indenture Trustee
or the Owner Trustee, as the case may be, 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 DTC Participants to whose accounts
the related Notes will be credited on that record date (identified in a listing
attached to the Omnibus Proxy).
Payments on the Notes will be made to DTC. DTC's practice is to credit DTC
Participants' accounts on each Distribution Date in accordance with their
respective holdings of Notes shown on DTC's records unless DTC has reason to
believe that it will not receive payment on such Distribution Date. Payments by
DTC Participants and Indirect Participants to Note 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 DTC Participant or Indirect
Participant and not of DTC, the Indenture 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 Notes to DTC will be the
responsibility of the Indenture Trustee, disbursement of such payments to DTC
Participants will be the responsibility of DTC and disbursement of such payments
to Note Owners will be the responsibility of DTC Participants and Indirect
Participants. As a result, under the book-entry format, Note Owners may
experience some delay in their receipt of payments. DTC will forward such
payments to its DTC Participants which thereafter will forward them to Indirect
Participants or Note Owners.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Note Owner
to pledge Notes to persons or entities that do not participate in the DTC
system, or otherwise take actions with respect to such Notes, may be limited due
to the lack of a physical certificate for such Notes.
DTC has advised the Seller that it will take any action permitted to be
taken by a Noteholder under the related Indenture only at the direction of one
or more DTC Participants to whose accounts with DTC the applicable Notes or
Certificates are credited. DTC may take conflicting actions with respect to
other undivided interests to the extent that such actions are taken on behalf of
DTC Participants whose holdings include such undivided interests.
Except as required by law, none of the Administrator, the Servicer, the
Seller, the Indenture Trustee or the Owner Trustee will have any liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests of the Notes held by Cede, as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for CEDEL Participants and facilitates the
clearance and settlement of securities transactions between CEDEL Participants
through electronic book-entry changes in accounts of CEDEL Participants, thereby
eliminating the need for physical movement of certificates. Transactions may be
settled in CEDEL in
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any of 28 currencies, including United States dollars. CEDEL provides to its
CEDEL Participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. CEDEL interfaces with domestic markets in
several countries. As a professional depository, CEDEL is subject to regulation
by the Luxembourg Monetary Institute. CEDEL Participants are recognized
financial institutions around the world, including underwriters, securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations and may include the Underwriters. Indirect access to CEDEL
is also available to others, such as banks, brokers and dealers and trust
companies that clear through or maintain a custodial relationship with a CEDEL
Participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for Euroclear
Participants and to clear and settle transactions between Euroclear Participants
through simultaneous electronic book-entry delivery against payment, thereby
eliminating the need for physical movement of certificates and any risk from
lack of simultaneous transfers of securities and cash. Transactions may now be
settled in Euroclear in any of 32 currencies, including United States dollars.
The Euroclear System includes various other services, including securities
lending and borrowing, and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC. The
Euroclear System is operated by Morgan Guaranty Trust Company of New York,
Brussels, Belgium office (the "Euroclear Operator" or "Euroclear"), under
contract with Euroclear Clearance System, S.C., a Belgian cooperative
corporation (the "Cooperative"). All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policy for the Euroclear System. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries and may include the Underwriters.
Indirect access to the Euroclear System is also available to other firms that
clear through or maintain a custodial relationship with a Euroclear Participant,
either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no record
of or relationship with persons holding through Euroclear Participants.
Distributions with respect to Notes held through CEDEL or Euroclear will be
credited to the cash accounts of CEDEL Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by its Depositary. Such distributions will be subject to tax reporting
in accordance with relevant United States tax laws and regulations. See
"Material Federal Income Tax Consequences". CEDEL or the Euroclear Operator, as
the case may be, will take any other action permitted to be taken by a
Noteholder under the related agreement on behalf of a CEDEL Participant or
Euroclear Participant only in accordance with its relevant rules and procedures
and subject to its Depositary's ability to effect such actions on its behalf
through DTC.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of Notes among participants of DTC, CEDEL and
Euroclear, they are under no obligation to perform or continue to perform such
procedures and such procedures may be discontinued at any time. In
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the event that any of DTC, Cedel or Euroclear should discontinue its services,
the Administrator would seek an alternative depository (if available) or cause
the issuance of Definitive Notes to the owners thereof or their nominees in the
manner described under "-- Definitive Notes".
DEFINITIVE NOTES
Definitive Notes representing any Class of Notes will be issued to the
related Note 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 Notes,
and neither the Indenture Trustee nor the Administrator is able to locate a
qualified successor, (ii) the Administrator, at its option, elects to terminate
the book-entry system through DTC or (iii) after an Event of Default or Servicer
Default, as described under "-- Events of Default; Rights Upon Event of Default"
and "Certain Information Regarding the Securities -- Servicer Default", Note
Owners evidencing not less than 51% of the voting interests of the related Notes
advise the related 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 the related Note Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Indenture Trustee will be required to notify the
related Note Owners, through DTC Participants, of the availability through DTC
of Definitive Notes. Upon surrender by DTC of the certificates representing all
Notes of any affected Class and the receipt of instructions for re-registration,
the Trustee will issue Definitive Notes to the related Note Owners, who
thereupon will become Noteholders for all purposes of the Indenture.
Distributions on the Definitive Notes will thereafter be made by the
Indenture Trustee directly to holders of such Definitive Notes in accordance
with the procedures described herein and to be set forth in the Indenture.
Interest payments and any principal payments on the Notes on each Distribution
Date will be made to holders in whose names the Definitive Notes 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 specified in the Indenture. The final payment on
any Notes (whether Definitive Notes or Notes registered in the name of Cede),
however, will be made only upon presentation and surrender of such Notes at the
office or agency specified in the notice of final distribution to Noteholders.
The Indenture Trustee will mail such notice to registered Noteholders within
five Business Days of receipt from the Servicer of notice of termination of the
Trust.
Definitive Notes will be transferable and exchangeable at the offices of the
Indenture Trustee (or any security registrar appointed thereby), as will be set
forth in the Indenture. No service charge will be imposed for any registration
of transfer or exchange, but the Indenture Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Trust Agreement, a form of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. Copies of the Trust Agreement (without exhibits) may be
obtained by holders of Notes upon request in writing to the Owner Trustee at its
Corporate Trust Office. The following summary describes the material terms of
the Certificates and the Trust 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 Certificates and the Trust Agreement. Where particular
provisions or terms used in the Trust Agreement are referred to, the actual
provisions (including definitions of terms and section references) are
incorporated by reference as part of such summaries.
DISTRIBUTIONS OF INTEREST
Interest on the Certificate Balance will accrue during each Accrual Period
at the Certificate Rate and will be payable to Certificateholders on the related
Distribution Date. Interest distributions with respect to
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the Certificates generally will be made from the Available Amount after all
Trust Fees and Expenses have been paid and after the Note Distributable Amount
has been distributed to Noteholders. See "Certain Information Regarding the
Securities -- Distributions on the Securities -- Deposits to the Distribution
Accounts; Priority of Payments".
DISTRIBUTIONS OF PRINCIPAL
No principal will be paid on the Certificates until the Distribution Date on
which the principal amount of the Class A-1 Notes has been paid in full. On such
Distribution Date and each Distribution Date thereafter, principal payments to
Certificateholders will be made on each Distribution Date in the amount and
order of priority described under "Summary -- Terms of the Certificates --
Principal" and "Certain Information Regarding the Securities -- Distributions on
the Securities -- Deposits to the Distribution Accounts; Priority of Payments".
Distributions with respect to principal payments generally will be made from a
designated portion of the Available Amount remaining after all Trust Fees and
Expenses have been paid, the Note Distributable Amount has been distributed to
the Noteholders, the amount on deposit in the Reserve Fund equals the Specified
Reserve Fund Balance and after the Certificate Interest Distributable Amount has
been distributed to Certificateholders.
OPTIONAL PREPAYMENT
The Certificates will be subject to prepayment in whole, but not in part, on
any Distribution Date relating to an Optional Termination. Certificateholders
will receive an amount in respect of the Certificates equal to the Certificate
Balance, together with accrued interest at the Certificate Rate. Any such
distribution will effect early retirement of the Certificates. See "Certain
Information Regarding the Securities -- Termination".
ADDITIONAL INFORMATION
Certain additional information regarding the Trust Agreement and the Owner
Trustee may be found under "Certain Information Regarding the Securities --
Evidence as to Compliance -- The Trust Agreement", "-- Insolvency Event" and "--
Amendment -- Amendment of the Trust Agreement".
CERTAIN INFORMATION REGARDING THE SECURITIES
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, pursuant to the Sale and Servicing Agreement, the
Seller will sell and assign to the Trust, without recourse, all of its right,
title and interest in and to the Receivables, including its security interests
in the Financed Vehicles. Each Receivable will be identified in a schedule
referred to in the Sale and Servicing Agreement and the Trust Agreement and on
file with the Trustees (the "Schedule of Receivables"). The applicable Trustee
will, concurrently with such transfer and assignment, execute, authenticate and
deliver the Notes or the Certificates, as the case may be, to or upon the order
of the Seller. Thereafter, the Seller will sell the Notes 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
Sale and Servicing 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 Sale and Servicing Agreement, the Seller will additionally represent
and warrant to the Owner 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 each Receivable, the related
Obligor was required to maintain physical damage insurance in accordance with
AHFC's normal requirements; (iii) on the Cutoff
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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 Closing
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 Closing 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.
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 Owner Trustee discovers a breach
of any representation or warranty of the Seller that materially and adversely
affects the interests of the Noteholders 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 (a "Rebate") 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
Noteholders and the Indenture 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.
Pursuant to the Sale and Servicing Agreement, to assure uniform quality in
servicing both the Receivables and the Servicer's own portfolio of motor vehicle
installment sale contracts, as well as to reduce administrative costs, the Owner
Trustee will appoint the Servicer as custodian of the Receivables and all
documents related thereto. The Receivables will not be physically segregated
from other motor vehicle 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 Trust 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 Trust, if a subsequent purchaser were able
to take physical possession of the Receivables without knowledge of the
assignment, the Trust'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 Trust's
security interest in collections that have been received by the Servicer but not
yet remitted to the Collection 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 Sale and
Servicing Agreement, will continue such collection procedures as it follows with
respect to comparable motor vehicle installment sale contracts it services for
itself and others. The Servicer will be authorized to grant certain rebates,
adjustments or extensions with respect to a
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Receivable. 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.
In the Sale and Servicing 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 Trust in the Receivables and (iii) except as
otherwise provided in the Sale and Servicing Agreement, it will not amend any
Receivable such that the total number of Scheduled Payments, the amount financed
or the APR is altered or the maturity of a Receivable is extended beyond six
months after the scheduled maturity of the Receivable with the latest scheduled
maturity as of the Cutoff Date. 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
Owner Trustee discovers a breach of any such covenant that materially and
adversely affects the interests of the Noteholders in a Receivable, the
Servicer, unless the breach is cured, will purchase the Receivable (an
"Administrative Receivable") from the Owner 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 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 Sale and
Servicing 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 Noteholders and the
Indenture Trustee for any such uncured breach by the Servicer.
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.
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 of their policies may vary. AHFC will not be
required to 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 Noteholders and such shortfall is not covered by amounts on deposit in the
Reserve Fund or by subordination of payments on the Certificates, the related
Noteholders could suffer a loss on their investment.
THE ACCOUNTS
THE COLLECTION AND PAYAHEAD ACCOUNTS. The Servicer will establish and
maintain in the name of the Indenture Trustee on behalf of the Securityholders,
(i) one or more accounts into which all payments made on or in respect of the
Receivables will be deposited (the "Collection Account") and (ii) an account
into
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which payments made by Obligors in excess of the related Scheduled Payments on
Precomputed Receivables (each, a "Payment Ahead"), to the extent that such
payments do not constitute a prepayment in full of the related Receivable, will
be deposited until the Deposit Date relating to the Collection Period in which
such payments become due (the "Payahead Account").
THE DISTRIBUTION ACCOUNTS. The Servicer will establish and maintain (i) an
account, in the name of the Indenture Trustee on behalf of the Noteholders, in
which amounts released from the Collection Account for distribution to
Noteholders will be deposited and from which all distributions to Noteholders
will be made (the "Note Distribution Account") and (ii) an account, in the name
of the Owner Trustee on behalf of the Certificateholders, in which amounts
released from the Collection Account for distribution to Certificateholders will
be deposited and from which all distributions to Certificateholders will be made
(the "Certificate Distribution Account" and, together with the Note Distribution
Account, the "Distribution Accounts").
THE YIELD SUPPLEMENT ACCOUNT. On or prior to the Closing Date, the Seller
will establish and maintain the Yield Supplement Account in the name of the
Indenture Trustee for the benefit of the Securityholders. The Yield Supplement
Account is designed solely to supplement the interest collections on the
Discount Receivables that have APRs which are less than the Required Rate.
The Yield Supplement Account will be funded on the Closing Date with the
Yield Supplement Deposit Amount. On each Distribution Date, the amount required
to be on deposit in the Yield Supplement Account will decline and be equal to
the sum of all projected Yield Supplement Amounts for all future Distribution
Dates, assuming that future scheduled payments on the Receivables are made on
the date on which they are scheduled as being due. The amount on deposit in the
Yield Supplement Account will decrease on each Deposit Date as the Yield
Supplement Withdrawal Amount is deposited into the Collection Account for
distribution on the related Distribution Date.
MAINTENANCE OF TRUST ACCOUNTS. The Collection Account, Payahead Account,
Distribution Accounts, the Yield Supplement Account and the Reserve Fund
(collectively, the "Trust Accounts") will be maintained with a depository
institution or a trust company (which may include the related Trustee) so long
as (i) the commercial paper or other short-term unsecured debt obligations of
such entity is rated at least P-1 by Moody's and A-1+ by Standard & Poor's or
(ii) such Trust Accounts are maintained in a segregated trust account for the
benefit of the related Securityholders, located in the corporate trust
department of a depository institution or trust company (which may include the
related Trustee) with a long-term deposit rating from Moody's of at least Baa3
(or such lower rating as Moody's shall approve in writing). Initially, all Trust
Accounts other than the Certificate Distribution Account will be maintained with
the Indenture Trustee and the Certificate Distribution Account will be
maintained with the Owner Trustee.
INVESTMENT OF TRUST ACCOUNT MONIES. Funds on deposit in the Trust Accounts
may, at the direction of the Servicer, be invested in Permitted Investments that
mature on the Deposit Date immediately succeeding the date of investment (other
than instruments of the entity at which the related Trust Account is located,
which may mature on the related Distribution Date). All income or other gain
from such investments, net of any loss and investment expenses resulting from
such investment, shall be paid to the Servicer as additional servicing
compensation. Any net loss and investment expenses resulting from such
investment shall be charged to the related Trust Account. "Permitted
Investments" will be specified in the Sale and Servicing Agreement and will be
limited to investments which meet the criteria of each Rating Agency from time
to time as being consistent with its then-current ratings of the Notes.
COLLECTIONS
The Servicer will deposit all payments on or in respect of the Receivables
received from or on behalf of Obligors and all proceeds of Receivables collected
during each Collection Period into the Collection Account not later than two
Business Days after receipt. However, the Servicer may retain such amounts until
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the related Deposit Date so long as (i) AHFC is the Servicer, (ii) no Servicer
Default exists and is continuing and (iii) either (a) the short-term unsecured
debt of AHFC is rated at least P-1 by Moody's and A-1 by Standard & Poor's, or
(b) AHFC obtains a letter of credit, surety bond or insurance policy (the
"Servicer Letter of Credit") as provided in the Sale and Servicing Agreement
under which demands for payment will be made to secure timely remittance of
monthly collections to the Collection Account and, in the case of either clause
(a) or (b) above, the Owner Trustee is provided with a letter from each Rating
Agency to the effect that the utilization of such alternative remittance
schedule will not result in a qualification, reduction or withdrawal of its
then-current rating of any Class of Notes. In the event that the Servicer is
permitted to make remittances of collections to the Collection Account on a
monthly basis pursuant to satisfaction of the conditions described above, the
Sale and Servicing Agreement will be modified, to the extent necessary, without
the consent of any Securityholder. Pending deposit into the Collection 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 Administrative Purchase
Payments and Warranty Purchase Payments of any Receivables to be repurchased
from the Trust into the Collection Account on or before each Deposit Date.
Collections on or in respect of a Receivable made during a Collection Period
(including Administrative Purchase Payments and Warranty 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 the related Receivable will be applied as a
prepayment in full of such Receivable (each, a "Prepayment") and all other
Excess Payments will be deposited in the Payahead Account as a Payment Ahead.
On each Deposit Date, (i) the Servicer 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 Collection Account and (ii)
the Indenture Trustee will cause the Yield Supplement Withdrawal Amount to be
deposited into the Collection Account.
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 such 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
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 Collection 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
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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 to Securityholders at the related Interest Rate or Certificate Rate
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.
The Servicer will make all Advances by depositing into the Collection
Account any amount equal to the aggregate of the Precomputed Advances and Simple
Interest Advances due in respect of a Collection Period on the related Deposit
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 Trust
Accounts, net of investment expenses and any losses from such investments. The
Servicer shall pay all expenses incurred by it in connection with its servicing
activities under the Sale and Servicing Agreement and shall not be entitled to
reimbursement of such expenses except to the extent they constitute liquidation
expenses or expenses recoverable under an applicable insurance policy.
The Servicing Fee will compensate the Servicer for performing the functions
of a third party servicer of the Receivables as an agent for the Indenture
Trustee and the Owner Trustee, including collecting and posting all 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
Indenture Trustee and the Owner 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.
The "Pool Balance" will equal the aggregate Principal Balance of the
Receivables (exclusive of all Administrative Receivables for which the Servicer
has paid the Administrative Purchase Payment, Warranty Receivables for which the
Seller has paid the Warranty Purchase Payment and Defaulted Receivables). The
"Principal Balance" of a Receivable as of any date will equal the original
principal balance of such Receivable minus the sum of the following amounts (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 and (iv)
any Prepayments or other payments applied to reduce the unpaid principal balance
of such Receivable.
NET DEPOSITS
Unless the Servicer is required to remit collections daily, the Servicer
will be permitted to deposit into the Trust Accounts only the net amount
distributable to Securityholders on the related Distribution Date. The Servicer,
however, will account to the Trustees and the Securityholders as if all deposits
and distributions were made individually.
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DISTRIBUTIONS ON THE SECURITIES
GENERAL. On or before the fifth Business Day prior to each Distribution
Date (each, a "Determination Date"), the Servicer will deliver to the Indenture
Trustee, the Owner Trustee and each Rating Agency a statement (the "Distribution
Date Statement") setting forth, among other things, the following amounts with
respect to such Distribution Date: (i) the amount of funds in the Collection
Account allocable to collections on or in respect of the Receivables during the
related Collection Period (excluding any Advances and Repurchase Payments); (ii)
the Administrative Purchase Payments and Warranty Purchase Payments of all
Receivables repurchased by the Seller or the Servicer during such Collection
Period; (iii) the Advances made by the Servicer and the amounts for which the
Servicer is entitled to be reimbursed for unreimbursed Advances; (iv) the amount
of Available Funds; (v) the Note Interest Distributable Amount; (vi) the Note
Principal Distributable Amount; (vii) the Certificate Interest Distributable
Amount; (viii) the Certificate Principal Distributable Amount; (ix) the
Principal Payment Amount; (x) the Servicing Fee; (xi) the Yield Supplement
Deposit Amount, if any; and (xii) the Yield Supplement Withdrawal Amount, if
any.
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 (collectively, the "Available Amount").
"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; (v) Administrative Purchase Payments with
respect to Administrative Receivables purchased by the Servicer, in either case
in respect of such Collection Period; and (vi) the Yield Supplement Withdrawal
Amount for the related Distribution Date.
"Available Principal" for a Distribution Date will equal the sum of the
amounts described in clauses (i) through (v) 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, in accordance with 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.
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DEPOSITS TO THE DISTRIBUTION ACCOUNTS; PRIORITY OF PAYMENTS. On each
Distribution Date, the Servicer will allocate amounts on deposit in the
Collection Account with respect to the related Collection Period as described
below and will instruct the Indenture Trustee to make the following deposits and
distributions in the following amounts and order of priority:
(i) to the Servicer, the Servicing Fee, including any unpaid Servicing
Fees with respect to one or more prior Collection Periods;
(ii) to the Indenture Trustee and the Owner Trustee, any accrued and
unpaid Trust Fees and Expenses, in each case to the extent such fees and
expenses have not been previously paid by the Servicer;
(iii) to the Note Distribution Account, from the Available Amount (after
giving effect to the reduction in the Available Amount described in clauses
(i) and (ii) above), the Note Interest Distributable Amount to be
distributed to the holders of the Notes at their respective Interest Rates;
(iv) to the Note Distribution Account, from the Available Amount (after
giving effect to the reduction in the Available Amount described in clauses
(i) through (iii) above), the portion of the Principal Payment Amount
payable to the Noteholders as described under "Summary -- Terms of the Notes
-- Principal" to be distributed to the related Noteholders;
(v) to the Reserve Fund, from the Available Amount (after giving effect
to the reduction in the Available Amount described in clauses (i) through
(iv) above), an amount until the amount on deposit therein equals the
Specified Reserve Fund Balance;
(vi) to the Certificate Distribution Account, from the Available Amount
(after giving effect to the reduction in the Available Amount described in
clauses (i) through (v) above), the Certificate Interest Distributable
Amount to be distributed to the Certificateholders;
(vii) to the Certificate Distribution Account, from the Available Amount
(after giving effect to the reduction in the Available Amount described in
clauses (i) through (vi) above), the portion of the Principal Payment Amount
payable to the Certificateholders as described under "Summary -- Terms of
the Notes -- Principal" to be distributed to the Certificateholders; and
(viii) any Available Amount remaining after giving effect to the reduction
in the Available Amount described in clauses (i) through (vii) above, to the
Certificateholders.
Notwithstanding the foregoing, at any time that the Notes have not been paid
in full and the principal balance of the Notes has been declared due and payable
following the occurrence of an Event of Default under the Indenture, until such
time as the Notes have been paid in full or such declaration has been rescinded
and any continuing Events of Default have been waived pursuant to the Indenture,
no amounts will be distributed to the Certificateholders. Any such amounts
otherwise distributable to the Certificateholders will be distributed instead as
payments of principal on the Notes.
For the purposes hereof, the following terms will have the following
meanings:
The "Certificate Distributable Amount" will mean, with respect to any
Distribution Date, the sum of the Certificate Interest Distributable Amount and
the Certificate Principal Distributable Amount for such Distribution Date.
The "Certificate Interest Distributable Amount" will mean, with respect to
any Distribution Date, interest accrued for the related Accrual Period at the
Certificate Rate on the Certificate Balance on the immediately preceding
Distribution Date, after giving effect to all payments of principal to
Certificateholders on or prior to such Distribution Date (or, in the case of the
first Distribution Date, on the Original Certificate Balance).
The "Certificate Principal Distributable Amount" will mean, with respect to
any Distribution Date, (i) the Principal Distributable Amount Component of the
Available Amount less (ii) the sum of (a) the Note
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Principal Distributable Amount, (b) any amount that has been deposited into the
Reserve Fund as described in clause (v) in the first paragraph under "--
Deposits to the Distribution Accounts; Priority of Payments" and (c) the
Certificate Interest Distributable Amount.
The "Note Distributable Amount" will mean, with respect to any Distribution
Date, the sum of the Note Interest Distributable Amount and the Note Principal
Distributable Amount for such Distribution Date.
The "Note Interest Carryover Shortfall" will mean, with respect to any
Distribution Date and a Class of Notes, the excess, if any, of the sum of the
Note Interest Distributable Amount for such Class for the immediately preceding
Distribution Date plus any outstanding Note Interest Carryover Shortfall for
such Class on such preceding Distribution Date, over the amount in respect of
interest that is actually deposited in the Note Distribution Account with
respect to such Class on such preceding Distribution Date, plus, to the extent
permitted by applicable law, interest on the amount of interest due but not paid
to Noteholders of such Class on such preceding Distribution Date at the related
Interest Rate for the related Accrual Period.
The "Note Interest Distributable Amount" will mean, with respect to any
Distribution Date and a Class of Notes, the sum of the Note Monthly Interest
Distributable Amount and the Note Interest Carryover Shortfall for such Class of
Notes for such Distribution Date.
The "Note Monthly Interest Distributable Amount" will mean, with respect to
any Distribution Date, interest accrued for the related Accrual Period at the
related Interest Rate for each Class of Notes on the outstanding principal
amount of the Notes of such Class on the immediately preceding Distribution
Date, after giving effect to all payments of principal to Noteholders of such
Class on or prior to such Distribution Date (or, in the case of the first
Distribution Date, on the original principal amount of such Class of Notes).
The "Note Principal Carryover Shortfall" will mean, as of the close of
business on any Distribution Date, the excess of the Note Principal
Distributable Amount over the amount in respect of principal that is actually
deposited in the Note Distribution Account on such Distribution Date.
The "Note Principal Distributable Amount" will mean, with respect to any
Distribution Date, the sum of (i) the Principal Distributable Amount, (ii) any
outstanding Note Principal Carryover Shortfall for the immediately preceding
Distribution Date and (iii) on the Final Distribution Date for a Class of Notes,
the amount necessary to reduce the outstanding principal amount of such Class of
Notes to zero; provided, however, that the Note Principal Distributable Amount
with respect to a Class of Notes shall not exceed the outstanding principal
amount of such Class of Notes.
The "Principal Distributable Amount" will mean, with respect to any
Distribution Date and the related Collection Period, the sum of the following
amounts (i) in the case of (a) Precomputed Receivables, the principal portion of
all Scheduled Payments due during such Collection Period, computed in accordance
with the actuarial method, and (b) Simple Interest Receivables, the principal
portion of all Scheduled Payments actually received during such Collection
Period, (ii) the principal portion of all Scheduled Payments due during such
Collection Period (to the extent such amounts are not included in clause (i)
above) and (iii) 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 such Collection Period (to the extent such
amounts are not included in clauses (i) or (ii) above).
The "Principal Payment Amount" will mean, with respect to any Distribution
Date, the lesser of (i) the Note Principal Distributable Amount and (ii) the
Available Amount remaining after all Trust Fees and Expenses have been paid and
after the Noteholders have been paid the Note Interest Distributable Amount.
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THE RESERVE FUND
GENERAL. The rights of the Noteholders to receive distributions with
respect to the Receivables will be subordinated to the rights of the Servicer
(to the extent that the Servicer has not been reimbursed for any outstanding
Advances and has not been paid all Servicing Fees), the Trustees and certain
other entities (to the extent the Trustees and such other entities have not
received all other Trust Fees and Expenses payable to them). In addition, the
rights of the Noteholders to receive distributions with respect to the
Receivables will be subject to the priorities set forth under "Distributions on
the Securities -- Deposits to the Distribution Accounts; Priority of Payments",
and the rights of the Certificateholders to receive distributions with respect
to the Receivables will be subordinated to the rights of the Noteholders, in
each case to the extent described herein.
The foregoing protection afforded to the Noteholders will be effected both
by the preferential right of the Noteholders to receive, to the extent described
herein, current distributions with respect to the Receivables and by the
establishment of the Reserve Fund. The Reserve Fund will be a segregated trust
account in the name of the Indenture Trustee. The Reserve Fund will be created
with an initial deposit by the Seller on the Closing Date of an amount equal to
the Reserve Fund Initial Deposit. The Reserve Fund will thereafter be funded by
the deposit therein of all Excess Amounts, if any, in respect of each
Distribution Date to the extent necessary to restore the amount on deposit in
the Reserve Fund to the Specified Reserve Fund Balance.
Amounts held from time to time in the Reserve Fund will continue to be held
for the benefit of holders of the Notes and may be invested in Permitted
Investments. Investment income on such investments will be paid to the Servicer
as additional servicing compensation and any loss on such investment and
investment expenses will be charged to the Reserve Fund.
The Reserve Fund and the subordination of the Certificates are intended to
enhance the likelihood of receipt by Noteholders of the full amount of principal
and interest due them and to decrease the likelihood that the Noteholders will
experience losses. However, in certain circumstances, the Reserve Fund could be
depleted. If the amount required to be deposited into or required to be
withdrawn from the Reserve Fund to cover shortfalls in collections on the
Receivables exceeds the amount of available cash in the Reserve Fund,
Noteholders could incur losses or a temporary shortfall in the amounts
distributed to the Noteholders could result.
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 or funding the Reserve Fund that is different from that
described above and would result in a decrease in the amount of the Specified
Reserve Fund Balance or the manner by which the Reserve Fund is funded. If each
Rating Agency delivers a letter to the Indenture Trustee and the Owner Trustee
to the effect that the use of any such new formulation will not in and of itself
result in a qualification, reduction or withdrawal of its then-current rating of
any Class of Notes, then the Specified Reserve Fund Balance or the funding of
the Reserve Fund, as the case may be, will be determined in accordance with such
new formula. The Sale and Servicing Agreement will accordingly be amended to
reflect such new calculation without the consent of any Securityholder.
WITHDRAWALS. Amounts held from time to time in the Reserve Fund will be
held for the benefit of the Noteholders. On each Distribution Date, funds will
be withdrawn from the Reserve Fund to the extent that the amount on deposit in
the Note Distribution Account with respect to such Distribution Date is less
than the Note Distributable Amount and will be deposited in the Note
Distribution Account for distribution to the Noteholders.
If the amount on deposit in the Reserve Fund on any Distribution Date (after
giving effect to all deposits thereto and withdrawals therefrom on such
Distribution Date) is greater than the Specified Reserve Fund Balance for such
Distribution Date, subject to certain limitations, the Servicer shall instruct
the Indenture Trustee to include the amount of such excess in the amounts to be
distributed to Certificateholders pursuant to clauses (vi), (vii) and (viii) in
the first paragraph under "Certain Information Regarding the Securities --
Distributions on the Securities -- Deposits to the Distribution Accounts;
Priority of
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Payments". Upon any distribution to the Certificateholders of amounts in excess
of the Specified Reserve Fund Balance, the Noteholders will not have any rights
in, or claims to, such amounts. The initial Certificateholders may at any time,
without consent of the Noteholders, sell, transfer, convey or assign in any
manner its rights to and interests in distributions from the Reserve Fund
provided that certain conditions are satisfied, including: (i) such action will
not result in a reduction or withdrawal of the rating of any Class of Notes,
(ii) the Certificateholders provide to the Owner Trustee and the Indenture
Trustee an opinion of independent counsel that such action will not cause the
Trust to be treated as an association (or publicly traded partnership) taxable
as a corporation for Federal income tax purposes and (iii) such transferee or
assignee agrees to take positions for tax purposes consistent with tax positions
agreed to be taken by the Certificateholders.
None of the Securityholders, the Indenture Trustee, the Owner Trustee or the
Seller 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 Securityholders.
STATEMENTS TO SECURITYHOLDERS
On or prior to each Distribution Date, the Servicer will prepare and provide
to the Indenture Trustee a statement to be delivered to each Noteholder on such
Distribution Date (the "Statement to Securityholders"), setting forth with
respect to the related Distribution Date or Collection Period, as applicable,
among other things, the following information:
(i) the amount of the Noteholder's or Certificateholder's distribution
allocable to principal (stated separately for each Class of Notes and the
Certificates);
(ii) the amount of the Noteholder's or Certificateholder's distribution
allocable to interest (stated separately for each Class of Notes and the
Certificates);
(iii) the Yield Supplement Amount, if any, and the Yield Supplement
Withdrawal Amount, if any;
(iv) the Pool Balance as of the close of business on the last day of
such Collection Period;
(v) the amount of the Servicing Fee paid to the Servicer with respect to
such Collection Period;
(vi) the amount of any Note Interest Carryover Shortfall and Note
Principal Carryover Shortfall on such Distribution Date and the change in
such amounts from those with respect to the immediately preceding
Distribution Date;
(vii) the Note Pool Factor for each Class of Notes and the Certificate
Pool Factor, in each case as of 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,
and the change in such balance from the immediately preceding Distribution
Date; and
(ix) 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), (iii), (v) and (vi)
above will be expressed in the aggregate and as a dollar amount per $1,000 of
original principal amount of a Note or the original Certificate Balance of a
Certificate, as the case may be. Copies of such statements may be obtained by
Securityholders by a request in writing addressed to the related Trustee at its
Corporate Trust Office. In addition, within the prescribed period of time for
tax reporting purposes after the end of each calendar year during the term of
the Sale and Servicing Agreement, the Indenture Trustee will mail to each person
who at any time during such calendar year shall have been a Noteholder a
statement containing the sum of the amounts described in clauses (i), (ii),
(iii), (v) and (vi) above for the purposes of such holder's preparation of
federal income tax returns. See "Material Federal Income Tax Consequences".
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EVIDENCE AS TO COMPLIANCE
THE SALE AND SERVICING AGREEMENT. The Sale and Servicing Agreement will
provide that a firm of independent public accountants will furnish to the
Indenture Trustee and the Owner Trustee, on or before 90 days after the end of
each fiscal year of the Servicer, beginning with the fiscal year ended March 31,
1999, a statement as to compliance by the Servicer during the preceding fiscal
year (or since the Closing Date in the case of the first such statement) with
certain standards relating to the servicing of the Receivables.
The Sale and Servicing Agreement will also provide for delivery to the
Indenture Trustee and the Owner Trustee, on or before 90 days after the end of
each fiscal year of the Servicer, commencing with the fiscal year ended March
31, 1999, of a certificate signed by an officer of the Servicer stating that the
Servicer has fulfilled its obligations under the Sale and Servicing Agreement
throughout the preceding fiscal year (or since the Closing Date 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.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the related Trustee at its
Corporate Trust Office.
THE INDENTURE. The Trust will be required to file annually with the
Indenture Trustee a written statement as to the fulfillment of its obligations
under the Indenture.
The Indenture Trustee will be required to mail each year to all related
Noteholders a brief report relating to, among other things, its eligibility and
qualification to continue as Indenture Trustee under the Indenture, any amounts
advanced by it under the Indenture, the amount, interest rate and maturity date
of certain indebtedness owing by the Trust to the Indenture Trustee in its
individual capacity, the property and funds physically held by such Indenture
Trustee as such and any action taken by it that materially affects the Notes and
that has not been previously reported.
CERTAIN MATTERS REGARDING THE SERVICER
The Sale and Servicing Agreement will provide that the Servicer may not
resign from its obligations and duties as Servicer thereunder except upon
determination that the Servicer's performance of such duties is no longer
permissible under applicable law. No such resignation will become effective
until (i) the Indenture Trustee or a successor servicer has assumed the
Servicer's servicing obligations and duties under the Sale and Servicing
Agreement and (ii) each Rating Agency confirms that the selection of such
successor servicer will not result in the qualification, reduction or withdrawal
of its then-current rating of any Class of Notes.
The Sale and Servicing Agreement will further provide that neither the
Servicer nor any of its directors, officers, employees or agents shall be under
any liability to the Trust or the Securityholders for taking any action or for
refraining from taking any action pursuant to the Sale and Servicing Agreement,
or for errors in judgment; provided, however, that neither the Servicer nor any
such person will be protected against any liability that would otherwise be
imposed by reason of willful misfeasance, bad faith or negligence in the
performance of duties or by reason of reckless disregard of obligations and
duties thereunder. 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 Sale and Servicing Agreement and that, in its
opinion, may cause it to incur any expense or liability. The Servicer may,
however, undertake any reasonable action that it may deem necessary or desirable
in respect of the Sale and Servicing Agreement and the rights and duties of the
parties thereto and the interests of the Securityholders thereunder. In any
event, the legal expenses and costs of such action and any liability resulting
therefrom will be expenses, costs and liabilities of the Trust, and the Servicer
will be entitled to be reimbursed therefor out of funds on deposit in the
Collection Account. Any such indemnification or reimbursement could reduce the
amount otherwise available for distribution to Noteholders.
Any corporation into which the Servicer may be merged or consolidated, or
any corporation resulting from any merger, conversion 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 of the Servicer under
the Sale and Servicing Agreement.
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SERVICER DEFAULT
"Servicer Defaults" under the Sale and Servicing Agreement will consist of
(i) any failure by the Servicer to deposit in or credit to any Trust Account any
amount required to be so deposited or credited or to make the required
distributions therefrom, which failure continues unremedied for three Business
Days after written notice from the Indenture Trustee or the Owner Trustee is
received by the Servicer or discovery by an officer of the Servicer, (ii) any
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 covenant or agreement in
the Sale and Servicing Agreement, which failure materially and adversely affects
the rights of Securityholders, the Indenture Trustee or the Owner Trustee and
which continues unremedied for 90 days after the giving of written notice of
such failure (A) to the Servicer or the Seller, as the case may be, by the Owner
Trustee or the Indenture Trustee or (B) to the Servicer or the Seller, as the
case may be, and to the Indenture Trustee or the Owner Trustee by holders of
Notes evidencing not less than 25% of the voting interests thereof, voting
together as a single class, or, if the Notes have been paid in full, by the
holders of Certificates evidencing not less than 25% of the voting interests
thereof 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 or similar proceedings or
inability to pay its obligations (each, an "Insolvency Event").
RIGHTS UPON SERVICER DEFAULT
As long as a Servicer Default remains unremedied, the Indenture Trustee or
holders of Notes representing not less than 25% of the voting interests thereof,
voting together as a single class (or, if the Notes have been paid in full and
the Indenture has been discharged in accordance with its terms, by holders of
Certificates evidencing not less than 25% of the voting interests thereof), may
terminate all the rights and obligations of the Servicer under the Sale and
Servicing Agreement, whereupon the Indenture Trustee will succeed to all the
responsibilities, duties and liabilities of the Servicer in its capacity as such
under the Sale and Servicing 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 Servicer Default other than such
appointment has occurred, such trustee or official may have the power to prevent
the Indenture Trustee or the Noteholders (or Certificateholders) from effecting
a transfer of servicing. In the event that the Indenture Trustee is unwilling or
unable so to act, it may appoint or petition a court of competent jurisdiction
to appoint a successor with a net worth of at least $50,000,000 and whose
regular business includes the servicing of motor vehicle receivables. The
Indenture Trustee may make such arrangements for compensation to be paid, which
in no event may be greater than the servicing compensation paid to the Servicer
under the Sale and Servicing Agreement. 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 Notes evidencing at least a majority of the voting interests
thereof, voting together as a single class (or the holders of Certificates
evidencing not less than a majority of the voting interests thereof, in the case
of any Servicer Default that does not adversely affect the related Indenture
Trustee or the Noteholders), may, on behalf of all Securityholders, waive any
default by the Servicer in the performance of its obligations under the Sale and
Servicing Agreement and its consequences, except a default in making any
required deposits to or payments from any Trust Account in accordance with the
Sale and Servicing Agreement or in respect of a covenant or provision of the
Sale and Servicing Agreement that cannot be modified or amended without the
consent of each Securityholder (in which event the related waiver will require
the approval of holders of all of the Securities). No such waiver will impair
the Securityholders' rights with respect to subsequent Servicer Defaults.
VOTING INTERESTS
The "voting interests" of the (i) Notes of a Class or Classes will be
allocated among the Noteholders or related Note Owners, as the case may be, in
accordance with the unpaid principal amount of the Notes of
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such Class or Classes represented thereby and (ii) Certificates will be
allocated among the Certificateholders or related Certificate Owners, as the
case may be, in accordance with the Certificate Balance represented thereby;
provided, that, where the voting interests are relevant to determine whether the
vote of the requisite percentage of Securityholders necessary to effect a
consent, waiver, request or demand shall have been obtained, any Class of Notes
or 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 Sale and Servicing Agreement requiring the
consent of the holders of all of the relevant Class of Securities as described
under "--Amendment".
AMENDMENT
AMENDMENT OF THE SALE AND SERVICING AGREEMENT. The Sale and Servicing
Agreement may be amended, without the consent of any Securityholders or the bank
issuing any Servicer Letter of Credit (the "Letter of Credit Bank"), to cure any
ambiguity, correct or supplement any provision therein which may be inconsistent
with any other provision therein, to add any other provisions with respect to
matters or questions arising under such agreement which are not inconsistent
with the provisions thereof, to add or provide for any credit enhancement for
any Class of Securities or to permit certain changes with respect to the
Specified Reserve Fund Balance, the funding of the Reserve Fund, the remittance
schedule with respect to collections to be deposited into the Trust Accounts or
the Servicer Letter of Credit or the acquisition thereof; provided, that any
such action will not, in the opinion of counsel satisfactory to the related
Trustee, materially and adversely affect the interests of any such
Securityholder, and provided further, that in the case of a change with respect
to the Specified Reserve Fund Balance or any Servicer Letter of Credit, the
Trustee receives a letter from Standard & Poor's to the effect that its
then-current rating on each Class of Notes will not be qualified, reduced or
withdrawn due to such amendment and the Servicer shall provide Moody's notice of
such amendment.
The Sale and Servicing Agreement may also be amended from time to time with
the consent of the holders of Notes evidencing at least a majority of the voting
interests thereof, voting together as a single class, and the holders of
Certificates evidencing at least a majority of the voting interests thereof, for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of such agreement or of modifying in any manner the rights
of the related Securityholders of each Class or the Letter of Credit Bank;
provided, 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, required
distributions on the Notes or the Certificates or to or by the Letter of Credit
Bank, or the Specified Reserve Fund Balance or the manner in which the Reserve
Fund is funded or to or by the Letter of Credit Bank or (ii) reduce the
aforesaid percentage of the voting interests of which the holders of any Class
of Securities are required to consent to any such amendment, without the consent
of the holders of all of the relevant Class of Securities.
AMENDMENT OF THE TRUST AGREEMENT. The Trust Agreement may be amended,
without the consent of the Securityholders, to cure any ambiguity, to correct or
supplement any provision therein which may be inconsistent with any other
provision therein, to add any other provisions with respect to matters or
questions arising thereunder which are not inconsistent with the provisions
thereof or to delete certain provisions relating to an Insolvency Event of the
Seller; provided, that any such action will not, in the opinion of counsel
satisfactory to the related Trustee, materially and adversely affect the
interests of any Securityholder.
The Trust Agreement may also be amended from time to time with the consent
of the holders of Notes evidencing at least a majority of the voting interests
thereof, voting together as a single class, and the holders of Certificates
evidencing at least a majority of the voting interests thereof, for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of such agreement or of modifying in any manner the rights of the
Noteholders or the Certificateholders; provided, that no such amendment may
increase or reduce in any manner the amount of or accelerate or delay the timing
of (i) collections of payments on or in respect of the Receivables or required
distributions on the Notes or the
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Certificates or any Interest Rate or the Certificate Rate or (ii) reduce the
aforesaid percentage of the voting interests of which the holders of any Class
of Securities are required to consent to any such amendment, without the consent
of the holders of all of the relevant Class of Securities.
AMENDMENT OF THE INDENTURE. The Trust and the Indenture Trustee (on behalf
of such Trust) may, without the consent of the Noteholders, enter into one or
more supplemental indentures for any of the following purposes: (i) to correct
or amplify the description of the property subject to the lien of the Indenture
or to subject additional property to the lien of the Indenture; (ii) to provide
for the assumption of the Notes and the Indenture obligations by a permitted
successor to the Trust; (iii) to add additional covenants for the benefit of the
related Noteholders or to surrender any rights or powers conferred upon the
Trust; (iv) to convey, transfer, assign, mortgage or pledge any property to the
Indenture Trustee; (v) to cure any ambiguity or correct or supplement any
provision in the Indenture or in any supplemental indenture which may be
inconsistent with any other provision in the Indenture, any supplemental
indenture, the Sale and Servicing Agreement or certain other agreements;
provided, that any such action shall not adversely affect the interests of any
Noteholder, (vi) to provide for the acceptance of the appointment of a successor
Indenture Trustee or to add to or change any of the provisions of the Indenture
as shall be necessary and permitted to facilitate the administration by more
than one trustee; (vii) to modify, eliminate or add to the provisions of the
Indenture in order to comply with the Trust Indenture Act of 1939, as amended;
and (viii) to add any provisions to, change in any manner, or eliminate any of
the provisions of, the Indenture or modify in any manner the rights of
Noteholders under the Indenture; provided that any such action shall not, as
evidenced by any opinion of counsel, adversely affect in any material respect
the interests of any Noteholder unless such Noteholder's consent is otherwise
obtained as described below.
Without the consent of the holder of each outstanding Note affected thereby,
no supplemental indenture may: (i) change the due date of any installment of
principal of or interest on any Note or reduce the principal amount thereof, the
Interest Rate thereon (or the method by which such interest or principal is
calculated) or the redemption price with respect thereto or change any place of
payment where or the coin or currency in which any such Note or any interest
thereon is payable or impair the right to institute suit for the enforcement of
provisions of the Indenture regarding payment; (ii) reduce the percentage of the
voting interests of the Notes, the consent of the holders of which is required
for any such supplemental indenture or the consent of the holders of which is
required for any waiver of compliance with certain provisions of the Indenture
or of certain defaults thereunder and their consequences as provided for in the
Indenture; (iii) modify or alter the provisions of the Indenture regarding the
voting of Notes held by the Trust, any other obligor on such Notes, the Seller
or any of their respective affiliates; (iv) reduce the percentage of the voting
interests of the Notes, the consent of the holders of which is required to
direct the Indenture Trustee to sell or liquidate the property of the Trust if
the proceeds of such sale or liquidation would be insufficient to pay the
principal amount and accrued but unpaid interest on the outstanding Notes; (v)
decrease the percentage of the voting interests of the Notes required to amend
the provisions of the Indenture which specify the applicable percentage of
voting interests of the Notes necessary to amend the Indenture or certain other
related agreements; (vi) modify or alter the provisions of the Indenture to
affect the calculation of the amount of any payment of interest or principal due
on any Note on any Distribution Date or to affect the rights of Noteholders to
the benefits of any mandatory redemption of the Notes contained in the
Indenture; or (vii) permit the creation of any lien ranking prior to or on a
parity with the lien of the Indenture with respect to any of the collateral for
the Notes or, except as otherwise permitted or contemplated in the Indenture,
terminate the lien of the Indenture on any such collateral or deprive the holder
of any such Note of the security afforded by the lien of the Indenture.
LIST OF NOTEHOLDERS
Three or more holders of Notes or holders of Notes evidencing not less than
25% of the voting interests thereof, voting together as a single class, may, by
written request to the Indenture Trustee, obtain access to the list of all
Noteholders maintained by such Indenture Trustee for the purpose of
communicating with the other Noteholders with respect to their rights under the
Indenture or under the Notes. The Indenture
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Trustee may elect not to afford the requesting Noteholders access to the list of
Noteholders if it agrees to mail the desired communication or proxy, on behalf
of and at the expense of the requesting Noteholders, to all Noteholders.
Neither the Trust Agreement nor the Indenture will provide for the holding
of any annual or other meetings of Securityholders.
INSOLVENCY EVENT
The Trust Agreement will provide that the Owner Trustee will not have the
power to commence a voluntary proceeding in bankruptcy with respect to the Trust
without the unanimous prior approval of all Certificateholders (including the
Seller) and the delivery to the Trustee by each such Certificateholder of a
certificate certifying that such Certificateholder reasonably believes that the
Trust is insolvent.
The Trust Agreement will provide that the Owner Trustee and each
Certificateholder, and the Indenture will provide that the Indenture Trustee and
each Noteholder, shall agree that they will not at any time institute, or join
in any institution against, the Trust or the Seller, any bankruptcy proceedings
relating to the Certificates, the Notes, the Trust Agreement, the Indenture or
certain other agreements.
PAYMENT IN FULL OF NOTES
Upon the payment in full of all outstanding Notes and the satisfaction and
discharge of the Indenture, the Owner Trustee will succeed to all the rights of
the Indenture Trustee, and the Certificateholders will succeed to all the rights
of the Noteholders, under the Sale and Servicing Agreement, except as otherwise
provided therein.
TERMINATION
The obligations of the Servicer, the Seller, the Owner Trustee and the
Indenture Trustee with respect to the related Securityholders pursuant to the
Trust Agreement, Sale and Servicing Agreement or Indenture 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 such Securityholders of all
amounts required to be paid to them pursuant to such agreement and (iii) the
occurrence of the event described below.
In order to avoid excessive administrative expenses, the Seller, the
Servicer, or any successor to the Servicer will be permitted to purchase the
remaining Receivables from the Trust on any Distribution Date as of which the
Pool Balance is less than 10% of the Cutoff Date Pool Balance at a price equal
to the aggregate unpaid principal balances of the related Receivables, together
with accrued interest thereon at the related APRs to the last day in the
Collection Period in which such purchase occurs. 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 Owner Trustee
(based on the Owner Trustee's receipt of such notice) shall be permitted to
purchase the Receivables. The related Trustee will give written notice of
termination to each Securityholder of record.
The Owner Trustee and Indenture Trustee will give written notice of
termination to each Securityholder of record. The final distribution to each
Securityholder will be made only upon surrender and cancellation of such
holder's Securities at the office or agency of the related Trustee specified in
the notice of termination. Any funds remaining in the Trust, after such Trustee
has taken certain measures to locate a Securityholder and such measures have
failed, will be distributed to a charity designated by the Servicer.
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Any outstanding Notes will be redeemed concurrently with any Optional
Purchase described above, and the subsequent distribution to the related
Certificateholders of all amounts required to be distributed to them pursuant to
the Trust Agreement will effect early retirement of the Certificates.
THE TRUSTEES
A Trustee may resign at any time, in which event the Administrator, or its
successor, will be obligated to appoint a successor trustee. The Administrator
may also remove the Owner Trustee or the Indenture Trustee, in each case if such
Trustee becomes insolvent or ceases to be eligible to continue as such under the
Trust Agreement or Indenture, as the case may be. In such event, the
Administrator will be obligated to appoint a successor Trustee. Any resignation
or removal of a Trustee and appointment of a successor Trustee will not become
effective until acceptance of the appointment by the successor Trustee.
Each Trustee and any of its affiliates may hold Securities in their own
names or as pledgees. For the purpose of meeting the legal requirements of
certain jurisdictions, the Administrator and the Owner Trustee or Indenture
Trustee acting jointly (or in some instances, the Owner Trustee and Indenture
Trustee acting without the Administrator) 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 related Trustee by the Indenture, Sale and Servicing Agreement
or Trust Agreement will be conferred or imposed upon such Trustee and such
separate trustee or co-trustee jointly, or, in any jurisdiction in which such
Trustee will be incompetent or unqualified to perform certain acts, singly upon
such separate trustee or cotrustee who will exercise and perform such rights,
powers, duties and obligations solely at the direction of such Trustee.
The Trust Agreement will further provide that the Seller will pay the fees
of the Owner Trustee and the Trust will, or will cause the Administrator to, pay
the fees of the Indenture Trustee. The Trust Agreement will further provide that
the Owner Trustee will be entitled to indemnification by the Servicer for, and
will be held harmless against, any loss, liability or expense incurred by such
Trustee not resulting from its own willful misconduct, bad faith or negligence
(other than by reason of a breach of any of its representations or warranties
set forth in such agreement). The Indenture will further provide that the
Indenture Trustee will be entitled to indemnification by the Trust or the
Administrator for any loss, liability or expense incurred by such Trustee not
resulting from its own willful misconduct, negligence or bad faith.
DUTIES OF THE TRUSTEES
Neither Trustee will make any representations as to the validity or
sufficiency of the Trust Agreement or the Indenture, the Securities issued
pursuant thereto (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 such Securities or the related Receivables, or the
investment of any monies by the Servicer before such monies are deposited into
the Collection Account. The Trustees will not independently verify the existence
or characteristics of the Receivables. If no Event of Default or Servicer
Default has occurred and is continuing, each Trustee will be required to perform
only those duties specifically required of it under the Indenture, Trust
Agreement or the Sale and Servicing Agreement, as the case may be. Generally
those duties will be limited to the receipt of the various certificates and
reports or other instruments required to be furnished to such Trustee under such
agreements, in which case it will only be required to examine them to determine
whether they conform to the requirements of such agreements. No Trustee will be
charged with knowledge of a failure by the Servicer to perform its duties under
the relevant agreements which failure constitutes an Event of Default or a
Servicer Default unless such Trustee obtains actual knowledge of such failure as
specified in such agreements.
No Trustee will be under any obligation to exercise any of the rights or
powers vested in it by the Trust Agreement or Sale and Servicing Agreement, as
the case may be, 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 Securityholders, unless such
Securityholders have offered to such Trustee reasonable security or indemnity
against the costs, expenses and liabilities that may be incurred
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therein or thereby. No Securityholder will have any right under any such
agreement to institute any proceeding with respect to such agreement, unless
such holder previously has given to such Trustee written notice of default and
(i) the default arises from the Servicer's failure to remit payments when due or
(ii) the holders of Securities evidencing not less than 25% of the voting
interests of all Securities, voting together as a single class, have made
written request upon such Trustee to institute such proceeding in its own name
as Trustee thereunder and have offered to such Trustee reasonable indemnity and
such Trustee for 60 days has neglected or refused to institute any such
proceedings.
SELLER LIABILITY
The Trust Agreement will require the Seller to agree to be liable directly
to an injured party for the entire amount of any losses, claims, damages or
liabilities (other than those incurred by a Securityholder in the capacity of an
investor with respect to the Trust) arising out of or based on the arrangement
created by the Trust Agreement as though such arrangement created a partnership
under the Delaware Revised Uniform Limited Partnership Act in which the Seller
was a general partner. The foregoing provision may be deleted from the Trust
Agreement, if the inclusion of such provision is not necessary in order to
obtain the opinion of counsel to the Seller to the effect that, for federal and
California income tax purposes, the Trust will not be characterized as an
association (or a publicly traded partnership) taxable as a corporation.
ADMINISTRATION AGREEMENT
AHFC, in its capacity as administrator (the "Administrator"), will enter
into an agreement (the "Administration Agreement") with the Trust, the Seller
and the Indenture Trustee pursuant to which the Administrator will agree, to the
extent provided in the Administration Agreement, to provide the notices and to
perform other administrative obligations required to be provided or performed by
the Trust or the Owner Trustee under the Indenture. As compensation for the
performance of the Administrator's obligations under the Administration
Agreement and as reimbursement for its expenses related thereto, the
Administrator will be entitled to a monthly administration fee payable by the
Seller.
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CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
GENERAL
The transfer of the Receivables to the Owner 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 Owner 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 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, the state in which the
largest number of Financed Vehicles is 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 Sale and Servicing Agreement, the Seller will sell and assign
its security interests in the Financed Vehicles to the Trust. However, because
of the administrative burden and expense, neither AHFC, the Seller nor either
Trustee will amend any certificate of title to identify the Trust 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 Trust 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 Trust
of the Seller's security interest in the Financed Vehicles will be filed. In
addition, the Servicer will continue to hold any certificates of title relating
to the Financed Vehicles in its possession as custodian for the Owner Trustee
pursuant to the Sale and Servicing Agreement. See "Risk Factors -- Perfection of
Security Interests in the Financed Vehicles" and "Certain Information Regarding
the Securities -- Sale and Assignment of the Receivables".
In most states, assignments such as those under the Receivables Purchase
Agreement and the Sale and Servicing 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 re-registration of the vehicle is not necessary
to convey a perfected security interest in the Financed Vehicles to the Trust,
because the Trust 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 Trust. 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
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Agreement, AHFC will represent and warrant, and in the Sale and Servicing
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 Sale and
Servicing Agreement. Accordingly, pursuant to the Sale and Servicing Agreement,
the Seller would be required to repurchase the related Receivable from the Trust
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 "Certain Information Regarding the Securities -- Sale and Assignment
of the Receivables". The Seller will assign its rights under the Receivables
Purchase Agreement to the Trust.
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 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, 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 Sale and Servicing
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), 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 in the Receivables Purchase Agreement and the Seller will
represent and warrant in the Sale and Servicing 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 Trustees or Securityholders 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 Sale and Servicing Agreement or AHFC's repurchase
obligation under the Receivables Purchase Agreement.
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REPOSSESSION
In the event of default by an obligor, the holder of the related 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 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 the obligor, 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. Generally, this right of cure may only
be exercised on a limited number of occasions during the term of the related
contract.
The UCC and other state laws require the secured party to provide the
obligor with reasonable notice of the date, time and place of any public sale
and/or the date after which any private sale of the collateral may be held. The
obligor has the right to redeem the collateral prior to actual sale by paying
the secured party the unpaid principal balance of the obligation, 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 or in some states, by payment of
delinquent installments or the unpaid balance.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of the 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.
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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 maintenance 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 Owner 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
Securities and possible reductions in the amount of such payments could occur.
On the Closing Date, counsel to 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 Securities.
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,
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 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.
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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, the
Soldiers' and Sailors' Civil Relief Act of 1940, the Military Reservist Relief
Act, 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 Indenture 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 Trust, 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.
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 Sale and Servicing Agreement and would create an
obligation of AHFC and the Seller to repurchase such Receivable unless the
breach were cured, See "Certain Information Regarding the Securities -- 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 $ 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.
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AHFC and the Seller will represent and warrant under the Receivables
Purchase Agreement and the Sale and Servicing Agreement, respectively, that each
Receivable complies with all requirements of law in all material respects.
Accordingly, if an Obligor has a claim against the Trust for violation of any
law or claims that the related Receivable is unenforceable and such claim
materially and adversely affects the Owner Trustee's interest in a Receivable,
such violation would constitute a breach of such representation and warranty
under the Receivables Purchase Agreement and the Sale and Servicing 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
"Certain Information Regarding the Securities -- 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 the indebtedness.
MATERIAL 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 Notes. This
summary is based upon laws, regulations, rulings and decisions currently in
effect, all of which are subject to change. The discussion does not deal with
all federal tax consequences applicable to all categories of investors, some of
which may be subject to special rules. In addition, this summary is generally
limited to investors who will hold the Notes 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 Notes. 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. Moreover,
there are no cases or IRS rulings on transactions similar to those described
herein with respect to the Trust, involving both debt and equity interests
issued by a trust with terms similar to those of the Notes and the Certificates.
Prospective investors are urged to consult their own tax advisors in determining
the federal, state, local, foreign and any other tax consequences to them of the
purchase, ownership and disposition of the Notes.
TAX CHARACTERIZATION OF TRUST
In the opinion of Brown & Wood LLP, counsel to the Seller, the Trust will
not be an association (or a publicly traded partnership) taxable as a
corporation for federal income tax purposes. This opinion will be based on the
assumption that the terms of the Trust Agreement and related documents will be
complied with, and on such counsel's conclusions that (i) the Trust will not
have certain characteristics necessary for a business trust to be classified as
an association taxable as a corporation and (ii) the nature of the income of the
Trust will exempt it from the rule that certain publicly traded partnerships are
taxable as corporations.
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If the Trust were taxable as a corporation for federal income tax purposes,
it would be subject to corporate income tax on its taxable income. The Trust's
taxable income would include all its income on the related Receivables, which
may be reduced by its interest expense on the Notes. Any such corporate income
tax could materially reduce cash available to make payments on the Notes and
distributions on the Certificates, and Certificateholders could be liable for
any such tax that is unpaid by the Trust.
TREATMENT OF THE NOTES AS INDEBTEDNESS
The Seller will agree, and the Noteholders will agree by their purchase of
Notes, to treat the Notes as debt for federal income tax purposes. Brown & Wood
LLP, counsel to the Seller, will render an opinion that the Notes will be
classified as debt for federal income tax purposes. The discussion below assumes
this characterization of the Notes is correct.
OID
The discussion below assumes that all payments on the Notes are denominated
in U.S. dollars. Moreover, the discussion assumes that the interest formula for
the Notes meets the requirements for "qualified stated interest" under Treasury
regulations relating to original issue discount ("OID"), and that any OID on the
Notes (I.E., any excess of the principal amount of the Notes over their issue
price) does not exceed a DE MINIMIS amount (I.E., 1/4% of their principal amount
multiplied by the number of full years included in their term), all within the
meaning of such OID regulations.
INTEREST INCOME ON THE NOTES
Based on the above assumptions, except as discussed in the following
paragraph, the Notes will not be considered issued with OID. The stated interest
thereon will be taxable to a Noteholder as ordinary interest income when
received or accrued in accordance with such Noteholder's method of tax
accounting. Under the OID regulations, a holder of a Note issued with a DE
MINIMIS amount of OID must include such OID in income, on a pro rata basis, as
principal payments are made on the Note. A purchaser who buys a Note for more or
less than its principal amount will generally be subject, respectively, to the
premium amortization or market discount rules of the Code.
However, because a failure to pay interest currently on the Notes is not a
default and does not give rise to a penalty, under the OID regulations the Notes
might be viewed as having been issued with OID. This interpretation would not
significantly affect accrual basis holders of Notes, although it would somewhat
accelerate taxable income to cash basis holders by in effect requiring them to
report interest income on the accrual basis.
SALE OR OTHER DISPOSITION
If a Noteholder sells a Note, the holder will recognize gain or loss in an
amount equal to the difference between the amount realized on the sale and the
holder's adjusted tax basis in the Note. The adjusted tax basis of a Note to a
particular Noteholder will equal the holder's cost for the Note, increased by
any market discount, acquisition discount, OID and gain previously included by
such Noteholder in income with respect to the Note and decreased by the amount
of bond premium (if any) previously amortized and by the amount of principal
payments previously received by such Noteholder with respect to such Note. Any
such gain or loss will be capital gain or loss if the Note was held as a capital
asset, except for gain representing accrued interest and accrued market discount
not previously included in income. Capital losses generally may be used only to
offset capital gains.
FOREIGN HOLDERS
Interest payments made (or accrued) to a Noteholder who is a nonresident
alien, foreign corporation or other non-United States person (a "foreign
person") generally will be considered "portfolio interest", and generally will
not be subject to United States federal income tax and withholding tax, if the
interest is not effectively connected with the conduct of a trade or business
within the United States by the foreign person
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and the foreign person (i) is not actually or constructively a "10 percent
shareholder" of the Trust or the Seller (including a holder of 10% of
outstanding Certificates) or a "controlled foreign corporation" with respect to
which the Trust or the Seller is a "related person" within the meaning of the
Code and (ii) provides the Owner Trustee or other person who is otherwise
required to withhold U.S. tax with respect to the Notes with an appropriate
statement (on Form W-8 or a similar form), signed under penalty of perjury,
certifying that the beneficial owner of the Note is a foreign person and
providing the foreign person's name and address. If a Note is held through a
securities clearing organization or certain other financial institutions, the
organization or institution may provide the relevant signed statement to the
withholding agent; in that case, however, the signed statement must be
accompanied by a Form W-8 or substitute form provided by the foreign person that
owns the Note. If such interest is not portfolio interest, then it will be
subject to United States federal income and withholding tax at a rate of 30%,
unless reduced or eliminated pursuant to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) such gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year and certain other requirements are satisfied.
BACKUP WITHHOLDING
Each holder of a Note (other than an exempt holder such as a corporation,
tax exempt organization, qualified pension and profit sharing trust, individual
retirement account or nonresident alien who provides certification as to status
as a nonresident) will be required to provide, under penalty of perjury, a
certificate containing the holder's name, address, correct federal taxpayer
identification number and a statement that the holder is not subject to backup
withholding. Should a nonexempt Noteholder fail to provide the required
certification, the Trust will be required to withhold 31% of the amount
otherwise payable to the holder, and remit the withheld amount to the IRS as a
credit against the holder's federal income tax liability.
POSSIBLE ALTERNATIVE TREATMENTS OF THE NOTES
If, contrary to the opinion of counsel to the Seller, the IRS successfully
asserted that one or more of the Notes did not represent debt for federal income
tax purposes, the Notes might be treated as equity interests in the Trust. In
the view of counsel to the Seller, the Trust would be treated as a partnership
that would not be taxable as a corporation (even if the recharacterization of
the Notes caused it to be treated as a publicly traded partnership) because it
would meet certain qualifying income tests. Nonetheless, treatment of the Notes
as equity interests in such a partnership could have adverse tax consequences to
certain holders. For example, income to certain tax-exempt entities (including
pension funds) could be "unrelated business taxable income" on such
recharacterized Notes if some but not all Notes outstanding were
recharacterized, income to foreign holders generally would be subject to United
States tax and withholding requirements and possibly United States tax return
filing requirements and individual holders would be subject to certain
limitations on their ability to deduct their share of Trust expenses.
CERTAIN CALIFORNIA INCOME TAX CONSEQUENCES
In the opinion of Brown & Wood LLP, counsel to the Seller, the Trust will
not be an association taxable as a corporation for California income tax
purposes. This opinion will be based on the assumption that the terms of the
Trust Agreement and related documents will be followed. Brown & Wood LLP will
further render an opinion that Noteholders who are not residents of or otherwise
subject to tax in California will not, solely by reason of their acquisition of
an interest in any Class of Notes, be subject to California income, franchise,
excise or similar taxes with respect to interest on any Class of Notes.
Investors should consult their own tax advisors to determine the state,
local and other tax consequences to them of the purchase, ownership and
disposition of the Notes.
57
<PAGE>
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain restrictions on (a) employee benefit plans (as
defined in Section 3(3) of ERISA), (b) plans described in Section 4975(e)(1) of
the Code, including individual retirement accounts or Keogh Plans, (c) any
entities whose underlying assets include plan assets by reason of a plan's
investment in such entities (each of (a), (b) and (c) a "Benefit Plan") and (d)
persons who have certain specified relationships to a Benefit Plan
("Parties-in-Interest" under ERISA and "Disqualified Persons" under the Code).
Moreover, based on the reasoning of the United States Supreme Court in JOHN
HANCOCK LIFE INS. CO. v. HARRIS TRUST AND SAV. BANK, 114 S.Ct. 517 (1993), the
general account of an insurance company may be deemed to include assets of
Benefit Plans investing in its general account (e.g., through the purchase of an
annuity contract), and the insurance company might be treated as a
Party-in-Interest with respect to a Benefit Plan by virtue of such an
investment. ERISA also imposes certain duties on persons who are fiduciaries of
Benefit Plans subject to ERISA and prohibits certain transactions between a
Benefit Plan and Parties-in-Interest or Disqualified Persons with respect to
such Benefit Plan.
Certain transactions involving the Trust might be deemed to constitute
prohibited transactions under ERISA and the Code if assets of the Trust were
deemed to be assets of a Benefit Plan. Under a regulation issued by the United
States Department of Labor (the "Plan Assets Regulation"), the assets of the
Trust would be treated as plan assets of a Benefit Plan for purposes of ERISA
and the Code only if the Benefit Plan acquires an "Equity Interest" in the Trust
and none of the exceptions contained in the Plan Assets Regulation (discussed
below) is applicable. An Equity Interest is defined under the Plan Assets
Regulation as an interest other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features. The Seller believes that the Notes should be treated as indebtedness
without substantial equity features for purposes of the Plan Assets Regulation.
However, without regard to whether the Notes are treated as an Equity Interest
for such purposes, the acquisition or holding of Notes by or on behalf of a
Benefit Plan could be considered to give rise to a prohibited transaction if the
Trust, the Owner Trustee, the Indenture Trustee, any holder of the Certificates
or any of their respective affiliates, is or becomes a party in interest or a
disqualified person with respect to such Benefit Plan. In such case, certain
exemptions from the prohibited transaction rules could be applicable depending
on the type and circumstances of the Benefit Plan fiduciary making the decision
to acquire a Note. Included among these exemptions are: Prohibited Transaction
Class Exemption ("PTCE") 90-1, regarding investments by insurance company pooled
separate accounts; PTCE 91-38, regarding investments by bank collective
investment funds; PTCE 84-14, regarding transactions effected by "qualified
professional asset managers"; PTCE 95-60, regarding investments by insurance
company general accounts and PTCE 96-23, regarding investments effected by
in-house asset managers. A violation of the prohibited transaction rules may
result in the imposition of an excise tax and other liabilities under ERISA and
the Code, unless one or more statutory or administrative exemptions is
available.
Prior to making an investment in the Notes, prospective Benefit Plan
investors should consult with their legal advisors concerning the impact of
ERISA and the Code and the potential consequences of such investment with
respect to their specific circumstances. Moreover, each Benefit Plan fiduciary
should take into account, among other considerations, whether the fiduciary has
the authority to make the investment; the composition of the Benefit Plan's
portfolio with respect to diversification by type of asset; the Benefit Plan's
funding objectives; the tax effects of the investment; and whether under the
general fiduciary standards of investment procedure and diversification an
investment in the Notes 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.
58
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated July , 1998 (the "Underwriting Agreement"), the Underwriters
named below (the "Underwriters"), for whom Credit Suisse First Boston
Corporation is acting as representative (the "Representative"), have severally
but not jointly agreed to purchase, from the Seller the principal amount of the
Notes set forth opposite its name below:
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
UNDERWRITERS NOTES NOTES NOTES NOTES
- - ----------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Credit Suisse First Boston Corporation $ $ $ $
----------- ----------- ----------- -----------
Total...................................................... $ $ $ $
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all of the Notes, 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 Underwriter may be
increased or the Underwriting Agreement may be terminated.
The Seller has been advised by the Underwriters that the Underwriters
propose to offer the Notes to the public initially at the offering price set
forth on the cover page of this Prospectus, and to certain dealers at such price
less a concession of, in the case of (i) the Class A-1 Notes, % of the
principal amount per Note, (ii) the Class A-2 Notes, % of the principal
amount per Note, (iii) the Class A-3 Notes, % of the principal amount per
Note and (iv) the Class A-4 Notes, % of the principal amount per Note and the
Underwriters and such dealers may allow a discount of, in the case of (i) the
Class A-1 Notes, % of the principal amount per Note, (ii) the Class A-2
Notes, % of the principal amount per Note, (iii) the Class A-3 Notes, % of
the principal amount per Note and (iv) the Class A-4 Notes, % of the principal
amount per Note.
There currently is no secondary market for any Class of Notes and there is
no assurance that one will develop. The Underwriters expect, but will not be
obligated, to make a market in each Class of Notes. There is no assurance that
any such market will develop, or if one does develop, that it will continue or
that it will provide sufficient liquidity.
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 Underwriters may be required
to make in respect thereof.
Until the distribution of the Notes is completed, rules of the Commission
may limit the ability of the Underwriters and certain selling group members to
bid for and purchase the Notes. As an exemption to these rules, the Underwriters
are permitted to engage in certain transactions that stabilize the price of each
Class of Notes. Such transactions may consist of bids or purchases for the
purpose of pegging, fixing or maintaining the price of the Notes. The closing of
the sale of the Notes is conditioned upon the closing of the sale of the
Certificates.
Neither the Seller nor any Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the prices of the Notes. In addition, neither the
Seller nor any Underwriter makes any representation the Underwriters will engage
in such transactions or that such transactions, once commenced, will not be
discontinued without notice.
59
<PAGE>
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.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Notes in Canada is being made only on a private
placement basis exempt from the requirement that the Seller, on behalf of the
Trust, prepare and file a prospectus with the securities regulatory authorities
in each province where trades of Notes are effected. Accordingly, any resale of
the Notes in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or pursuant
to a discretionary exemption granted by the applicable Canadian securities
regulatory authority. Purchasers are advised to seek legal advice prior to any
resale of the Notes.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Notes in Canada who receives a purchase confirmation will
be deemed to represent to the Seller, the Servicer, the related Trustee, the
Trust and the dealer from whom such purchase confirmation is received that (i)
such purchaser is entitled under applicable provincial securities laws to
purchase such Notes without the benefit of a prospectus qualified under such
securities laws, (ii) where required by law, that such purchaser is purchasing
as principal and not as agent, and (iii) such purchaser has reviewed the text
above under "Resale Restrictions".
RIGHTS OF ACTION AND ENFORCEMENT
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Section 32 of the Regulation under the SECURITIES ACT (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Ontario purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Notes to whom the SECURITIES ACT (British Columbia) applies
is advised that such purchaser is required to file with the British Columbia
Securities Commission a report within ten days of the sale of any Notes acquired
by such purchaser pursuant to this offering. Such report must be in the form
attached to British Columbia Securities Commission Blanket Order BOR #95/17, a
copy of which may be obtained from the Seller. Only one such report must be
filed in respect of Notes acquired on the same date and under the same
prospectus exemption.
60
<PAGE>
RATING OF THE NOTES
It is a condition to issuance of the Notes that the Class A-1 Notes will be
rated P-1 by Moody's and A-1+ by Standard & Poor's, and that each of the Class
A-2, Class A-3 and Class A-4 Notes will be rated Aaa by Moody's and AAA by
Standard & Poor's. The ratings of the Notes will be based primarily on the value
of the Receivables, the terms of the Notes and the Reserve Fund and the
subordination of the Certificates to the extent described herein. The ratings of
the Notes 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 Notes 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 on the Notes prior to
their respective Final Distribution Dates.
There can be no assurance as to whether any rating agency other than the
Rating Agencies will rate the Notes, or, if one does, what rating will be
assigned by any such other rating agency. A rating on any or all of the Notes by
other rating agencies, if assigned at all, may be lower than the rating assigned
to such Notes by the Rating Agencies.
LEGAL MATTERS
Certain legal matters with respect to the Notes, 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, Meager &
Flom LLP, New York, New York will act as counsel for the Underwriters.
61
<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>
ABS........................................... 17
ABS Tables.................................... 17
Accrual Period................................ 5
Actuarial Receivable.......................... 12
Adjustment Time............................... 5
Administrator................................. 49
Administration Agreement...................... 49
Administrative Purchase Payment............... 34
Administrative Receivable..................... 34
Advances...................................... 9
AHFC.......................................... 3
AHMC.......................................... 3
APR........................................... 4
Available Amount.............................. 38
Available Interest............................ 38
Available Principal........................... 38
Benefit Plan.................................. 58
Business Day.................................. 4
California Receivables........................ 54
Cede.......................................... 27
CEDEL......................................... 27
CEDEL Participants............................ 27
Certificates.................................. 3
Certificate Balance........................... 6
Certificate Distributable Amount.............. 39
Certificate Distribution Account.............. 35
Certificate Interest Distributable Amount..... 39
Certificate Pool Factor....................... 24
Certificate Principal Distributable Amount.... 39
Certificate Rate.............................. 6
Certificateholders............................ 6
Certificates.................................. 1, 3
Class......................................... 3
Class A-1 Final Distribution Date............. 4
Class A-1 Notes............................... 1, 3
Class A-1 Rate................................ 4
Class A-2 Final Distribution Date............. 4
Class A-2 Notes............................... 1, 3
Class A-2 Rate................................ 5
Class A-3 Final Distribution Date............. 4
Class A-3 Notes............................... 1, 3
Class A-3 Rate................................ 5
Class A-4 Final Distribution Date............. 4
Class A-4 Notes............................... 1, 3
Class A-4 Rate................................ 5
<CAPTION>
TERM PAGE
- - ---------------------------------------------- ---------
<S> <C>
Closing Date.................................. 4
Code.......................................... 55
Collection Account............................ 34
Collection Period............................. 7
Commission.................................... 2
Cooperative................................... 30
Cutoff Date................................... 4
Cutoff Date Pool Balance...................... 4
Dealer Recourse............................... 13
Dealers....................................... 12
Defaulted Receivable.......................... 37
Definitive Notes.............................. 27
Deposit Date.................................. 8
Depositaries.................................. 27
Determination Date............................ 38
Discount Receivables.......................... 8
Disqualified Persons.......................... 59
Distribution Accounts......................... 35
Distribution Date............................. 1, 4
Distribution Date Statement................... 38
DTC........................................... 27
DTC Participants.............................. 28
Equity Interest............................... 59
ERISA......................................... 10,58
Euroclear..................................... 30
Euroclear Operator............................ 30
Euroclear Participants........................ 27
Events of Default............................. 25
Excess Amounts................................ 7
Excess Payment................................ 36
Exchange Act.................................. 2
Final Distribution Dates...................... 4
Financed Vehicles............................. 1, 4
foreign person................................ 56
FTC Rule...................................... 54
Indenture..................................... 3
Indenture Trustee............................. 3
Indirect Participants......................... 28
Insolvency Event.............................. 44
Insolvency Laws............................... 53
installment sale contracts.................... 21
Interest Rates................................ 5
IRS........................................... 55
Letter of Credit Bank......................... 45
Moody's....................................... 9
Net Liquidation Proceeds...................... 38
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- - ---------------------------------------------- ---------
<S> <C>
Note Distributable Amount..................... 40
Note Distribution Account..................... 35
Note Interest Carryover Shortfall............. 40
Note Interest Distributable Amount............ 40
Note Monthly Interest Distributable Amount.... 40
Note Owner.................................... 27
Note Pool Factor.............................. 24
Note Principal Carryover Shortfall............ 40
Note Principal Distributable Amount........... 40
Noteholders................................... 6
Notes......................................... 3
Obligors...................................... 11
OID........................................... 56
Omnibus Proxy................................. 29
Optional Termination.......................... 9
Original Certificate Balance.................. 6
Owner Trustee................................. 3
Parties in Interest........................... 58
Payahead Account.............................. 35
Payment Ahead................................. 35
Permitted Investments......................... 35
Plan Asset Regulation......................... 58
Pool Balance.................................. 37
Precomputed Advance........................... 9
Precomputed Receivable........................ 15
Prepayment.................................... 36
Principal Balance............................. 36
Principal Distributable Amount................ 40
Principal Payment Amount...................... 40
PTCE.......................................... 58
Rating Agencies............................... 10
Rebate........................................ 33
Receivables................................... 1,4
Receivables Purchase Agreement................ 4
Record Date................................... 4
Registration Statement........................ 2,60
<CAPTION>
TERM PAGE
- - ---------------------------------------------- ---------
<S> <C>
Representative................................ 60
Required Rate................................. 7
Reserve Fund.................................. 7
Reserve Fund Initial Deposit.................. 7
Rule of 78s Receivable........................ 13
Sale and Servicing Agreement.................. 4
Schedule of Receivables....................... 32
Scheduled Payment............................. 13
Securities.................................... 3
Securities Act................................ 2
Securityholders............................... 8
Seller........................................ 1,3
Servicer...................................... 3
Servicer Defaults............................. 44
Servicer Letter of Credit..................... 36
Servicing Fee................................. 9
Servicing Fee Rate............................ 9
Simple Interest Advance....................... 9
Simple Interest Receivable.................... 13
Specified Reserve Fund Balance................ 7
Standard & Poor's............................. 10
Statement to Securityholders.................. 42
Terms and Conditions.......................... 30
Trust......................................... 1,3
Trust Accounts................................ 35
Trust Agreement............................... 3
Trust Fees and Expenses....................... 24
Trustees...................................... 3
UCC........................................... 27
Underwriting Agreement........................ 60
Underwriters.................................. 60
voting interests.............................. 45
Warranty Purchase Payment..................... 33
Warranty Receivable........................... 33
Weighted Average Interest Rate................ 8
Yield Supplement Account...................... 8
Yield Supplement Account Deposit.............. 8
Yield Supplement Withdrawal Amount............ 8
</TABLE>
63
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Notes (the
"Global Securities") will be available only in book-entry form. Investors in the
Global Securities may hold such Global Securities through any of DTC, CEDEL or
Euroclear. The Global Securities will be tradeable as home market instruments in
both the European and United States domestic markets. Initial settlement and all
secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities through
CEDEL and Euroclear will be conducted in the ordinary way in accordance with
their normal rules and operating procedures and in accordance with conventional
eurobond practice (I.E., seven calendar day settlement).
Secondary market trading between investors holding Global Securities through
DTC will be conducted according to the rules and procedures applicable to United
States corporate debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of CEDEL and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to United States withholding taxes unless such holders meet certain requirements
and deliver appropriate United States tax documents to the securities clearing
organizations or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede, as nominee of DTC. Investors' interests in the Global Securities will be
represented through financial institutions acting on their behalf as direct and
indirect Participants in DTC. As a result, CEDEL and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to conventional eurobonds, except that there
will be no temporary global security and no "lock-up" or restricted period.
Investor securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in the
same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
TRADING BETWEEN DTC PARTICIPANTS. Secondary market trading between DTC
Participants will be settled using the procedures applicable to book-entry
securities in same-day funds.
TRADING BETWEEN CEDEL AND/OR EUROCLEAR PARTICIPANTS. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
TRADING BETWEEN DTC SELLER AND CEDEL OR EUROCLEAR PURCHASER. When Global
Securities are to be transferred from the account of a DTC Participant to the
accounts of a CEDEL Participant or a Euroclear Participant, the purchaser will
send instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day prior to settlement. CEDEL or Euroclear
will instruct the
A-1
<PAGE>
respective Depositary, as the case may be, to receive the Global Securities
against payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment date to and excluding the settlement
date, on the basis of actual days elapsed and a 360 day year. Payment will then
be made by the respective Depositary to the DTC Participant account against
delivery of the Global Securities. After settlement has been completed, the
Global Securities will be credited to the respective clearing system and by the
clearing system, in accordance with its usual procedures, to the CEDEL
Participant's or Euroclear Participant's account. The Global Securities credit
will appear the next day (European time) and the cash debit will be back-valued
to, and the interest on the Global Securities will accrue from, the value date
(which would be the preceding day when settlement occurred in New York). If
settlement is not completed on the intended value date (I.E., the trade fails),
the CEDEL or Euroclear cash debit will be valued instead as of the actual
settlement date.
CEDEL Participants and Euroclear Participants will need to make available to
the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within CEDEL or Euroclear. Under this approach,
they may take on credit exposure to CEDEL or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL Participants or Euroclear Participants can elect not to pre-position
funds and allow that credit line to be drawn upon to finance settlement. Under
this procedure, CEDEL Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each CEDEL Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective Depositary for the benefit of CEDEL Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participants a cross-market transaction will
settle no differently than a trade between two DTC Participants.
TRADING BETWEEN CEDEL OR EUROCLEAR SELLER AND DTC PURCHASER. Due to time
zone differences in their favor, CEDEL Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing systems, through the
respective Depositaries, to a DTC Participant. The seller will send instructions
to CEDEL or Euroclear through a CEDEL Participant or Euroclear Participant at
least one business day prior to settlement. In these cases, CEDEL or Euroclear
will instruct the respective Depositaries, as appropriate, to deliver the bonds
to the DTC Participant's account against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment date
to and excluding the settlement date on the basis of actual days elapsed and a
360 day year. The payment will then be reflected in the account of the CEDEL
Participant or Euroclear Participant the following day, and receipt of the cash
proceeds in the CEDEL Participant's or Euroclear Participant's account would be
back-valued to the value date (which would be the preceding day, when settlement
occurred in New York). Should the CEDEL Participant or Euroclear Participant
have a line of credit with its respective clearing system and elect to be in
debit in anticipation of receipt of the sale proceeds in its account, the
back-valuation will extinguish any overdraft charges incurred over that one-day
period. If settlement is not completed on the intended value date (i.e., the
trade fails), receipt of the cash proceeds in the CEDEL Participant's or
Euroclear Participant's account would instead be value as of the actual
settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase Global
Securities from DTC Participants for delivery to CEDEL Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
A-2
<PAGE>
(a) borrowing through CEDEL or Euroclear for one day (until the purchase
side of the day trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the United States from a DTC
Participant no later than one day prior to settlement, which would give the
Global Securities sufficient time to be reflected in their CEDEL or
Euroclear account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at least
one day prior to the value date for the sale to the CEDEL Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding through CEDEL or Euroclear
(or through DTC if the holder has an address outside the United States) will be
subject to the 30% United States withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business in the chain of intermediaries between such beneficial owner and the
United States entity required to withhold tax complies with applicable
certification requirements and (ii) such beneficial owner takes one of the
following steps to obtain an exemption or reduced tax rate:
EXEMPTION FOR NON-U.S. PERSONS (FORM W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 or the Tax Certificate changes, a new Form W-8
or Tax Certificate, as the case may be, must be filed within 30 days of such
change.
EXEMPTION FOR NON-U.S. PERSON WITH EFFECTIVELY CONNECTED INCOME (FORM
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a
United States branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a Trade
or Business in the United States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY COUNTRIES
(FORM 1001). Non-U.S. Persons that are beneficial owners of Global Securities
residing in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing Form
1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty provides
only for a reduced rate, withholding tax will be imposed at that rate unless the
filer alternatively files Form W-8. Form 1001 may be filed by the Certificate
Owner or his agent.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. The beneficial owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds
(the clearing agency, in the case of persons holding directly on the books of
the clearing agency). Form W-8 and form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United States,
(ii) a corporation or partnership organized in or under the laws of the United
States or any political subdivision thereof or (iii) an estate or trust the
income of which is includible in gross income for United States tax purposes,
regardless of its source. This summary does not deal with all aspects of United
States Federal income tax withholding that may be relevant to foreign holders of
the Global Securities. Investors are advised to consult their own tax advisors
for specific tax advice concerning their holding and disposing of the Global
Securities.
A-3
<PAGE>
- - -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE SELLER OR ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE SELLER OR THE RECEIVABLES SINCE
THE DATE THEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION
BY ANYONE IN ANY STATE IN WHICH SUCH 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.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
Reports to Noteholders.................................................... 2
Summary................................................................... 3
Risk Factors.............................................................. 11
Formation of the Trust.................................................... 11
Property of the Trust..................................................... 12
The Receivables........................................................... 13
Weighted Average Life of the Notes........................................ 17
Use of Proceeds........................................................... 21
The Seller................................................................ 21
American Honda Finance Corporation........................................ 21
Pool Factors and Trading Information...................................... 24
Description of the Notes.................................................. 24
Description of the Certificates........................................... 31
Certain Information Regarding the Securities.............................. 32
Certain Legal Aspects of the Receivables.................................. 50
Material Federal Income Tax Consequences.................................. 55
Certain California Income Tax Consequences................................ 57
ERISA Considerations...................................................... 58
Underwriting.............................................................. 59
Notice to Canadian Residents.............................................. 60
Rating of the Notes....................................................... 61
Legal Matters............................................................. 61
Index of Capitalized Terms................................................ 62
Annex I................................................................... A-1
</TABLE>
--------------
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT 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.
$
Honda Auto Receivables
1998-1 Owner Trust
$
% Asset Backed Notes,
Class A-1
$
% Asset Backed Notes,
Class A-2
$
% Asset Backed Notes,
Class A-3
$
% Asset Backed Notes,
Class A-4
American Honda
Receivables Corp.
Seller
American Honda
Finance Corporation
Servicer
P R O S P E C T U S
Credit Suisse First Boston
- - -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Expenses in connection with the offering of the Securities being registered
hereby are estimated as follows:
<TABLE>
<S> <C>
SEC registration fee.............................................. $ *
Legal fees and expenses........................................... *
Accounting fees and expenses...................................... *
Blue sky fees and expenses........................................ *
Rating agency fees................................................ *
Trustee's fees and expenses....................................... *
Printing and engraving............................................ *
Miscellaneous..................................................... *
-----------
Total........................................................... $ *
-----------
-----------
</TABLE>
- - --------------
* To be completed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 317(b) of the California Corporations Code (the "Corporations Code")
provides that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any "proceeding" (as defined in Section 317(a)
of the Corporations Code), other than an action by or in the right of the
corporation to procure a judgment in its favor, by reason of the fact that such
person is or was a director, officer, employee or other agent of the corporation
(collectively, an "Agent"), against expenses, judgments, fines, settlements and
other amounts actually and reasonably incurred in connection with such
proceeding if the Agent acted in good faith and in a manner the Agent reasonably
believed to be in the best interest of the corporation and, in the case of a
criminal proceeding, had no reasonable cause to believe the conduct was
unlawful.
Section 317(c) of the Corporations Code provides that a corporation shall
have power to indemnify any Agent who was or is a party or is threatened to be
made a party to any threatened, pending or completed action by or in the right
of the corporation to procure a judgment in its favor by reason of the fact that
such person is or was an Agent, against expenses actually and reasonably
incurred by the Agent in connection with the defense or settlement of such
action if the Agent acted in good faith and in a manner such Agent believed to
be in the best interest of the corporation and its shareholders.
Section 317(c) further provides that no indemnification may be made
thereunder for any of the following: (i) in respect of any matter as to which an
Agent shall have been adjudged to be liable to the corporation, unless the court
in which such proceeding is or was pending shall determine that such Agent is
fairly and reasonably entitled to indemnity for expenses, (ii) amounts paid in
settling or otherwise disposing of a pending action without court approval and
(iii) expenses incurred in defending a pending action which is settled or
otherwise disposed of without court approval.
Section 317(d) of the Corporations Code requires that an Agent be
indemnified against expenses actually and reasonably incurred to the extent the
Agent has been successful on the merits in the defense of proceedings referred
to in subdivisions (b) or (c) of Section 317.
Except as provided in Section 317(d), and pursuant to Section 317(e),
indemnification under Section 317 shall be made by the corporation only if
authorized in the specific case, upon a determination that indemnification is
proper in the circumstances because the Agent has met the applicable standard of
conduct, by any of the following: (i) a majority vote of a quorum consisting of
directors who are not parties to
II-1
<PAGE>
the proceeding, (ii) if such a quorum of directors is not obtainable, by
independent legal counsel in a written opinion, (iii) approval of the
shareholders, provided that any shares owned by the Agent may not vote thereon,
or (iv) the court in which such proceeding is or was pending.
Pursuant to Section 317(f) of the Corporations Code, the corporation may
advance expenses incurred in defending any proceeding upon receipt of an
undertaking by the Agent to repay such amount if it is ultimately determined
that the Agent is not entitled to be indemnified.
Section 317(h) provides, with certain exceptions, that no indemnification
shall be made under Section 317 where it appears that it would be inconsistent
with a provision of the corporation's articles, bylaws, a shareholder resolution
or an agreement which prohibits or otherwise limits indemnification, or where it
would be inconsistent with any condition expressly imposed by a court in
approving a settlement.
Section 317(i) authorizes a corporation to purchase and maintain insurance
on behalf of an Agent for liabilities arising by reason of the Agent's status,
whether or not the corporation would have the power to indemnify the Agent
against such liability under the provisions of Section 317.
Reference is also made to Section of the Underwriting Agreement among the
underwriters named therein, the Registrant and American Honda Finance
Corporation (see Exhibit 1.1), which provides for indemnification of the
Registrant under certain circumstances.
Article IX of the Articles of Incorporation of the Registrant provides for
the indemnification of the directors of the Registrant to the fullest extent
permissible under California law.
Article IV, Section 4.01 of the Bylaws of the Registrant (see Exhibit 3.2)
requires that the Registrant indemnify, and, in certain instances, advance
expenses to, its agents, with respect to certain costs, expenses, judgments,
fines, settlements and other amounts incurred in connection with any proceeding,
to the full extent permitted by applicable law.
In addition, Article IV, Section 4.03 of the Bylaws of the Registrant
authorizes the Registrant to purchase and maintain insurance to the extent
provided by Section 3.17(i) of the Corporations Code.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
A. EXHIBITS:
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement*
4.1 Form of Trust Agreement between American Honda Receivables Corp., as
Seller, and The Bank of New York (Delaware), as Owner Trustee
(including form of Certificates)*
4.2 Form of Indenture between Honda Auto Receivables 1998-1 Owner Trust
and Bankers Trust Company, as Indenture Trustee (including forms of
Notes)*
5.1 Opinion of Brown & Wood LLP with respect to legality*
8.1 Opinion of Brown & Wood LLP with respect to tax matters*
10.1 Form of Sale and Servicing Agreement between American Honda
Receivables Corp. and The Bank of New York (Delaware), as Owner
Trustee*
10.2 Form of Administration Agreement among Honda Auto Receivable 1998-1
Owner Trust, American Honda Finance Corporation, American Honda
Receivables Corp. and Bankers Trust Company, as Indenture Trustee*
23.1 Consent of Brown & Wood LLP (included as part of Exhibit 5.1)*
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
23.2 Consent of Brown & Wood LLP (included as part of Exhibit 8.1)*
24.1 Power of Attorney of Y. Kohama, John I. Weisickle and S. Ulm**
24.2 Power of Attorney of S. Moriguchi
24.3 Power of Attorney of S. Nelson
25.1 Statement of Eligibility and Qualification of Indenture Trustee*
</TABLE>
- - --------------
* To be filed by amendment.
**Previously filed.
B. FINANCIAL STATEMENT SCHEDULES:
Not applicable.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes as follows:
(a) For purposes of determining any liability under the Securities Act
of 1933 (the "Act"), each filing of the Registrant's annual report pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in this registration statement shall be deemed to
be a new registration statement relating to the securities offered herein,
and the offering of such securities at the time shall be deemed to be the
intitial BONA FIDE offering thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of such Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(c) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act will be deemed to be part of this registration
statement as of the time it was declared effective.
(d) For purposes of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus will be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time will be deemed to
be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment
No. 2 to the Registration Statement on Form S-3 to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Torrance and State of
California, on the 10th day of July 1998.
AMERICAN HONDA RECEIVABLES CORP.,
By: /s/ Y. KOHAMA
------------------------------------------
Y. Kohama
President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - ----------------------------------------------- ----------------------------------------------- ---------------
<C> <C> <S>
/s/ Y. KOHAMA Director and President (Principal Executive
------------------------------------- Officer) July 10, 1998
Y. Kohama
* Director and Secretary-Treasurer (Principal
------------------------------------- Financial and Accounting Officer) July 10, 1998
John I. Weisickle
*
------------------------------------- Director July 10, 1998
S. Moriguchi
*
------------------------------------- Director July 10, 1998
Scott J. Nelson
*
------------------------------------- Director July 10, 1998
Scott J. Ulm
</TABLE>
* By: /s/ Y. KOHAMA
----------------------------------------
Y. Kohama
ATTORNEY-IN-FACT
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- - -----------
<C> <S>
1.1 Form of Underwriting Agreement*
4.1 Form of Trust Agreement between American Honda Receivables Corp., as Seller, and The Bank of New York
(Delaware), as Owner Trustee (including form of Certificates)*
4.2 Form of Indenture between Honda Auto Receivables 1998-1 Owner Trust and Bankers Trust Company, as
Indenture Trustee (including forms of Notes)*
5.1 Opinion of Brown & Wood LLP with respect to legality*
8.1 Opinion of Brown & Wood LLP with respect to tax matters*
10.1 Form of Sale and Servicing Agreement between American Honda Receivables Corp. and The Bank of New York
(Delaware), as Owner Trustee*
10.2 Form of Administration Agreement among Honda Auto Receivable 1998-1 Owner Trust, American Honda Finance
Corporation, American Honda Receivables Corp. and Bankers Trust Company, as Indenture Trustee*
23.1 Consent of Brown & Wood LLP (included as part of Exhibit 5.1)*
23.2 Consent of Brown & Wood LLP (included as part of Exhibit 8.1)*
24.1 Power of Attorney of Y. Kohama, John I. Weisickle and Scott J. Ulm (included on page II-4)**
24.2 Power of Attorney of S. Moriguchi
24.3 Power of Attorney of Scott J. Nelson
25.1 Statement of Eligibility and Qualification of Indenture Trustee*
</TABLE>
- - --------------
* To be filed by amendment.
** Previously filed.
<PAGE>
Exhibit 24.2
POWER OF ATTORNEY
I, S. Moriguchi, am a member of the Board of Directors of American Honda
Receivables Corp. ("AHRC"). I hereby constitute and appoint Y. Kohama and
John I. Weisickle, and each of them, my true and lawful attorney-in-fact and
agent, with full powers of substitution, for me and in my name, place and
stead, in any and all capacities, to sign and to file any and all amendments,
including post-effective amendments, to the Registration Statement of the
Honda Auto Receivables 1998-1 Owner Trust, as issuer, and AHRC, as
co-registrant, with the Securities and Exchange Commission, granting to said
attorney-in-fact full power and authority to perform any other act on my
behalf required to be done in connection therewith.
Dated this 8th day of July, 1998. By:/s/ S. MORIGUCHI
--- -----------------
S. Moriguchi
Director
<PAGE>
Exhibit 24.3
POWER OF ATTORNEY
I, Scott J. Nelson, am a member of the Board of Directors of American Honda
Receivables Corp. ("AHRC"). I hereby constitute and appoint Y. Kohama and
John I. Weisickle, and each of them, my true and lawful attorney-in-fact and
agent, with full powers of substitution, for me and in my name, place and
stead, in any and all capacities, to sign and to file any and all amendments,
including post-effective amendments, to the Registration Statement of the
Honda Auto Receivables 1998-1 Owner Trust, as issuer, and AHRC, as
co-registrant, with the Securities and Exchange Commission, granting to said
attorney-in-fact full power and authority to perform any other act on my
behalf required to be done in connection therewith.
Dated this 8th day of July, 1998. By:/s/ SCOTT J. NELSON
--- -------------------
Scott J. Nelson
Director
