<PAGE>
$693,032,000
Honda Auto Receivables 1999-1 Owner Trust
$179,424,000 4.974% Asset Backed Notes, Class A-1
$195,000,000 5.186% Asset Backed Notes, Class A-2
$208,000,000 5.300% Asset Backed Notes, Class A-3
$110,608,000 5.350% Asset Backed Notes, Class A-4
American Honda Receivables Corp.
Seller
American Honda Finance Corporation
Servicer
The Honda Auto Receivables 1999-1 Owner Trust (the "Trust") will be governed by
an Amended and Restated Trust Agreement to be dated as of January 1, 1999,
between American Honda Receivables Corp. 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 January 1,
1999, 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, certain
monies due or received under the Receivables on or after January
1, 1999 and monies on deposit in the Reserve Fund and the Yield
Supplement Account described herein. The Receivables will be
serviced by American Honda Finance Corporation ("AHFC" or the
"Servicer"). 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 February 16, 1999. 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 February 2000
Distribution Date, (ii) the Class A-2 Notes, the June 2001
Distribution Date, (iii) the Class A-3 Notes, the September 2002
Distribution Date and (iv) the Class A-4 Notes, the October 2004
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 10.
For the purposes hereof, AHFC considers a Receivable to be past due or
delinquent when an obligor fails to make at least 60% of a scheduled monthly
payment on a cumulative basis by the related due date. If a Receivable was
considered delinquent when an obligor failed to pay any portion of a
scheduled monthly payment, AHFC's historical delinquency experience may
have been materially higher than its historical delinquency experience
disclosed in this prospectus. Therefore, AHFC's historical delinquency
experience, as disclosed in this prospectus, may not be comparable
to the historical delinquency information disclosed by other
issuers.
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.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to the
Public(1) Commissions Seller(2)
------------------ ------------------ ------------------
<S> <C> <C> <C>
Per Class A-1 Note.................................... 100.000% 0.145% 99.855%
Per Class A-2 Note.................................... 100.000% 0.200% 99.800%
Per Class A-3 Note.................................... 99.930% 0.220% 99.710%
Per Class A-4 Note.................................... 99.773% 0.250% 99.523%
Total................................................. $692,635,319 $1,384,284 $691,251,035
</TABLE>
(1) Plus accrued interest, if any, from January 28, 1999.
(2) Before deducting expenses payable by the Seller estimated at $1,114,688.
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, Cedelbank and the Euroclear System on or about January 28, 1999,
against payment in immediately available funds.
Credit Suisse First Boston
Chase Securities Inc.
NationsBanc Montgomery Securities LLC
Selling Group Members
Barclays Capital
Salomon Smith Barney
SG Cowen
Utendahl Capital Partners, L.P.
Prospectus dated January 20, 1999.
<PAGE>
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".
--------------
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 so modified or superseded, to constitute a part of this Prospectus.
The Seller will provide without charge to each person to whom a copy of this
Prospectus is delivered, on the written or oral request of any such person, a
copy of any or all of the documents incorporated herein by reference, except the
exhibits to such documents (unless such exhibits are specifically incorporated
by reference in such documents). Written requests for such copies should be
directed to American Honda Receivables Corp., 700 Van Ness Avenue, Torrance,
California 90501 (Telephone: (310) 781-4100).
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 March 31, 1999.
2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. 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 65 for the
location herein of defined terms.
<TABLE>
<S> <C>
Trust............... Honda Auto Receivables 1999-1 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
January 1, 1999 (the "Indenture"), between the Trust and
the Indenture Trustee, as follows: (i) $179,424,000
aggregate principal amount of 4.974% Asset Backed Notes,
Class A-1 (the "Class A-1 Notes"), (ii) $195,000,000
aggregate principal amount of 5.186% Asset Backed Notes,
Class A-2 (the "Class A-2 Notes"), (iii) $208,000,000
aggregate principal amount of 5.300% Asset Backed Notes,
Class A-3 (the "Class A-3 Notes") and (iv) $110,608,000
aggregate principal amount of 5.350% 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 pursuant
to the Indenture.
Each Class of Notes will be issued in minimum
denominations of $1,000 and integral multiples of $1,000
in excess thereof. Definitive Notes will be issued only
under the limited circumstances described herein. See
"Description of the Notes -- Book-Entry Registration" and
"-- Definitive Notes".
Securities Not The Trust will also issue $36,475,751 aggregate principal
Offered............ amount of 5.350% 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 January 1, 1999 (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. The
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<S> <C>
information set forth in this Prospectus regarding the
Certificates is intended only to give the investors in the
Notes a fuller understanding of the 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 January 1, 1999 (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 January 1, 1999 (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 January 1, 1999 (the
"Cutoff Date"), the Receivables had an aggregate unpaid
principal balance of $729,507,751.69 (the "Cutoff Date
Pool Balance"). Based on the Cutoff Date Pool Balance, the
Receivables had a weighted average annual percentage rate
(the "APR") of 7.03%, a weighted average original maturity
of approximately 53 months and a weighted average
remaining maturity of approximately 48 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
February 16, 1999. 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 or, if Definitive Notes
are issued under the limited circumstances described
herein, on the last day of the immediately preceding month
(each, a "Record Date").
A "Business Day" will be any day other than a Saturday, a
Sunday or a day on which banking institutions or trust
companies in New York, New York, Newark, Delaware or Los
Angeles, California are authorized or obligated by law,
regulation, executive order or government decree to remain
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 February 2000 Distribution Date
(the "Class A-1 Final Distribution Date"), (ii) the Class
A-2 Notes will be payable on the June 2001 Distribution
Date (the "Class A-2 Final Distribution Date"), (iii) the
Class A-3 Notes will be payable on the September 2002
Distribution Date (the "Class A-3 Final Distribution
Date") and (iv) the Class A-4 Notes will be payable on the
October 2004 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").
</TABLE>
4
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<S> <C>
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 4.974% per annum (the "Class A-1 Rate"), (ii) the
Class A-2 Notes at the rate of 5.186% per annum (the
"Class A-2 Rate"), (iii) the Class A-3 Notes at the rate
of 5.300% per annum (the "Class A-3 Rate") and (iv) the
Class A-4 Notes at the rate of 5.350% per annum (the
"Class A-4 Rate" and, together with the Class A-1 Rate,
the 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 Period 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, as described under "Certain
Information Regarding the Securities -- Distributions on
the Securities -- Deposits to the Distribution Accounts;
Priority of Payments", principal on the Notes will be
payable generally in an amount equal to the Note Per-
centage of the Principal Distributable Amount. Principal
payments on the Notes will be made from the Available
Amount after the Total Servicing Fee, non-recoverable
Advances and Trust Fees and Expenses have been paid and
after the Note Interest Distributable Amount has been
distributed. 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.
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
Distributable 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, to the extent the remaining
Available Amount is sufficient, include an amount
sufficient to reduce the unpaid principal amount of such
Class of Notes to zero on
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5
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<S> <C>
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 5.350% 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 --
Distributions 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 $36,475,751
(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
limited 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
until the Class A-2, Class A-3 and Class A-4 Notes have
been paid in full, as described under "Certain Information
Regarding the Securities -- Distributions on the
Securities -- Deposits to the Distribution Accounts;
Priority of Payments", principal on the Certificates will
be payable in an amount equal to the Certificate
Percentage of the Principal Distributable Amount.
Principal payments on the Certificates will be made from
the Available Amount after the Total Servicing Fee, non-
recoverable Advances and Trust Fees and Expenses have been
paid, after the Note Distributable Amount has been paid,
after giving effect to any reduction in the Available
Amount by virtue of any deposit into the Reserve Fund and
after payment of interest to Certificateholders on such
Distribution Date.
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6
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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 Distributable 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 prepayment
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 sole 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 $5,471,308.14 (the
"Reserve Fund Initial Deposit"). On each Distribution
Date, any Available Amount remaining after the Total
Servicing Fee, non-recoverable Advances and 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 $5,471,308.14, or under certain
circumstances, the amount calculated as described under
"Certain Information Regarding the Securities -- The
Reserve Fund". On each Distribution Date, funds will be
withdrawn from the Reserve Fund for distribution to
Noteholders to cover any shortfalls in interest and
principal required to be paid on the Notes.
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 Noteholders and the Certificateholders
(collectively, the "Securityholders") (the "Yield
Supplement Account"). The Yield Supplement Account is de-
signed solely to supplement the interest collections on
those Receivables (the "Discount Receivables") that have
APRs which are less than the sum of (i) the Class A-4 Rate
and (ii) the Servicing Fee Rate (the "Required Rate").
The Yield Supplement Account will be funded by the Seller
on the Closing Date with an initial deposit in an amount
(the "Yield Supplement Account Deposit") to be specified
in the Indenture; provided, that such aggregate amount may
be discounted at a rate to be specified in the Sale and
Servicing Agreement.
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 the
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calendar month immediately preceding the month in which
such Distribution Date occurs (the "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 immediately
succeeding Distribution Date (together with the Yield
Supplement Amount, 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 payments on the Discount 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 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 Ac-
counts -- The Yield Supplement Account".
Advances............ On each Deposit Date, the Servicer will advance to the
Trust, in respect of the related Collection Period and
each (i) Precomputed Receivable, that portion, if any, of
the related Scheduled Payment that was not timely made
after application of any Payments Ahead (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 such 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 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 the related Receivable.
Upon the determination by the Servicer that such
reimbursement is unlikely, the Servicer will be entitled
to recover such non-recoverable 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 respect of
each Collection Period in the form of any interest earned
from investment of monies on deposit in the Trust Accounts
(excluding the Yield Supplement Account and the Reserve
Fund) net of investment expenses and any losses from such
investments plus any late fees, prepayment charges and
other administrative fees and expenses or similar charges
received by
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the Servicer during such Collection Period (collectively,
the "Supplemental Servicing Fee" and, together with the
Servicing Fee, the "Total Servicing Fee"). 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 F1+ by Fitch IBCA, Inc. ("Fitch
IBCA"), P-1 by Moody's Investors Service, Inc.
("Moody's"), A-1+ by Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc. ("Standard &
Poor's" and, together with Fitch IBCA and Moody's, the
"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
each of Standard & Poor's and Fitch IBCA. 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. 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
"Certain 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. Any benefit plan fiduciary considering purchasing
Notes should, among other things, consult with its counsel
regarding the availability of an exemption from the
prohibited transaction rules of ERISA and Section 4975 of
the Internal Revenue Code of 1986, as amended, and whether
such purchase is consistent with its fiduciary duties
under ERISA 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>
9
<PAGE>
RISK FACTORS
Prospective investors should consider the following risk factors in
considering the purchase of Notes.
PERFECTION OF 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"), amounts in
deposit in the Yield Supplement Account, 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 Trust's
ability to repossess and sell the collateral securing the Receivables or may
limit the amount realized to less than the amount due by the related Obligors.
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 Securities -- The Reserve
Fund", "-- Insurance on Financed Vehicles" and "Certain Legal Aspects of the
Receivables".
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES
The number of delinquencies and repossessions and the amount of net losses
in AHFC's portfolio of new and used Honda and Acura motor vehicle retail
installment sale and conditional sale contracts ("installment sale contracts")
have increased as the portfolio has grown. See "American Honda Finance
Corporation -- Delinquency, Repossession and Loan Loss Information". If the
protection provided to the Noteholders by the subordination of the Certificates
and by the Reserve Fund is insufficient, as a result of defaults or
delinquencies on the Receivables, Noteholders could incur a loss on their
investment.
AHFC HISTORICAL DELINQUENCY EXPERIENCE MAY BE MATERIALLY HIGHER IF REPORTED
DIFFERENTLY
AHFC considers an installment sale contract to be past due or delinquent for
servicing and enforcement of collection purposes when the obligor fails to make
at least 60% of the scheduled monthly payment on a cumulative basis (after
giving effect to any past due payments) by the related due date. If AHFC
considered an installment sale contract to be delinquent when an obligor failed
to pay any portion of a scheduled monthly payment, then its historical
delinquency experience may have been materially higher in each period for which
historical delinquency information has been disclosed in this prospectus. See
"American Honda Finance Corporation -- Servicing of Motor Vehicle Loans".
RISKS DUE TO POTENTIAL YEAR 2000 ISSUES
The inability of AHFC and its vendors and the parties with whom it contracts
to address the necessary year 2000 modifications of computerized information
systems could result in a significant adverse effect on AHFC's operations and
financial results, including the inability to collect receivables, pay
obligations and process loan and obligor data. Any such inability could have a
material adverse effect on Noteholders. See "American Honda Finance Corporation
- - -- Year 2000 Issues" and "Description of the Notes -- DTC's Year 2000 Efforts".
10
<PAGE>
FORMATION OF THE TRUST
GENERAL
The Trust is a business trust formed under the laws of the State of Delaware
pursuant to the Trust Agreement for the transactions described herein. 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.
On the Closing Date, the Seller will sell and assign the Receivables and the
related assets to the Trust. 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 stamp the Receivables to
reflect the sale and assignment of the Receivables to the Trust 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. 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 Newark, 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....................................... $179,424,000
Class A-2 Notes....................................... 195,000,000
Class A-3 Notes....................................... 208,000,000
Class A-4 Notes....................................... 110,608,000
Certificates.......................................... 36,475,751
-----------
Total............................................. $729,507,751
-----------
-----------
</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".
11
<PAGE>
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 and the related assets to the Seller pursuant to
the Receivables Purchase Agreement. The Seller will, in turn, sell the
Receivables and the related assets 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 Receivables Purchase Agreement and
Sale and Servicing Agreement; (vi) the right to realize upon any property
(including the right to receive future proceeds from liquidating the assets)
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 Trust, 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
12
<PAGE>
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 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.
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 in no event cause the unrebated portion to be less
than 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 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, among
other things, 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 federal, state or local governmental entity; (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
13
<PAGE>
originated prior to January 1, 1999; (v) each Receivable had an original term of
12 to 60 months and, as of the Cutoff Date, had a remaining term to maturity of
not less than 3 months and not more than 60 months; (vi) each Receivable
provides for the payment of a finance charge based on an APR ranging from 1.90%
to 20.31%; (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 the
Cutoff Date Pool Balance, 91.35% and 8.65% of the Receivables represented
financing of Honda motor vehicles and Acura motor vehicles, respectively, and
91.50% and 8.50% 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 48 states, excluding New York and Wisconsin.
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..................... $729,507,751.69
<S> <C>
Number of Receivables....................................... 58,899
Average Cutoff Date Principal Balance....................... $12,385.74
Average Original Amount Financed............................ $14,576.48
Range of Original Amounts Financed........................ $1,176.35 to $55,779.32
Weighted Average APR (1).................................... 7.03%
Range of APRs............................................. 1.90% to 20.31%
Weighted Average Original Maturity (1)...................... 53.38 months
Range of Original Maturities.............................. 12 months to 60 months
Weighted Average Remaining Maturity (1)..................... 47.86 months
Range of Remaining Maturities as of the Cutoff Date....... 3 months to 60 months
</TABLE>
- - --------------
(1) Weighted by Principal Balance as of the Cutoff Date.
14
<PAGE>
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%........................... 3 0.01% $ 12,669.33 0.00%
2.000% to 2.999%........................... 74 0.13 448,658.77 0.06
3.000% to 3.999%........................... 17,091 29.02 194,270,257.80 26.63
4.000% to 4.999%........................... 4,950 8.40 58,670,325.21 8.04
5.000% to 5.999%........................... 4,293 7.29 54,821,018.95 7.51
6.000% to 6.999%........................... 2,230 3.79 31,779,432.74 4.36
7.000% to 7.999%........................... 9,325 15.83 130,821,779.70 17.93
8.000% to 8.999%........................... 7,406 12.57 96,683,659.65 13.25
9.000% to 9.999%........................... 5,013 8.51 62,284,392.00 8.54
10.000% to 10.999%........................... 3,161 5.37 39,596,849.61 5.43
11.000% to 11.999%........................... 3,375 5.73 41,648,844.83 5.71
12.000% to 12.999%........................... 1,106 1.88 11,558,276.89 1.58
13.000% to 13.999%........................... 525 0.89 4,581,155.96 0.63
14.000% to 14.999%........................... 238 0.40 1,696,571.37 0.23
15.000% to 15.999%........................... 95 0.16 543,672.72 0.07
16.000% to 16.999%........................... 6 0.01 33,085.93 0.00
17.000% to 17.999%........................... 5 0.01 38,599.04 0.01
18.000% to 18.999%........................... 1 0.00 4,154.90 0.00
19.000% to 19.999%........................... 1 0.00 4,907.08 0.00
20.000% to 20.999%........................... 1 0.00 9,439.21 0.00
----------- ------ ----------------- ------
Total...................................... 58,899 100.00%(1) $ 729,507,751.69 100.00%(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................................. $ 7,881,354.11 1.08%
Alaska.................................. 78,018.52 0.01
Arizona................................. 7,347,110.72 1.01
Arkansas................................ 2,640,725.50 0.36
California.............................. 248,527,827.10 34.07
Colorado................................ 5,486,565.44 0.75
Connecticut............................. 18,798,613.59 2.58
Delaware................................ 3,038,567.10 0.42
Florida................................. 23,500,561.16 3.22
Georgia................................. 24,186,840.29 3.32
Hawaii.................................. 2,671,042.20 0.37
Idaho................................... 724,993.90 0.10
Illinois................................ 42,114,913.38 5.77
Indiana................................. 6,533,737.06 0.90
Iowa.................................... 2,779,500.47 0.38
Kansas.................................. 2,384,965.41 0.33
Kentucky................................ 3,709,342.74 0.51
Louisiana............................... 8,613,113.44 1.18
Maine................................... 1,813,702.91 0.25
Maryland................................ 34,107,062.10 4.68
Massachusetts........................... 29,951,504.11 4.11
Michigan................................ 13,204,652.71 1.81
Minnesota............................... 7,816,604.49 1.07
Mississippi............................. 2,429,602.24 0.33
Missouri................................ 6,569,839.17 0.90
Montana................................. 290,562.13 0.04
Nebraska................................ 1,069,430.35 0.15
Nevada.................................. 2,393,406.20 0.33
New Hampshire........................... 3,784,101.16 0.52
New Jersey.............................. 42,480,653.05 5.82
New Mexico.............................. 1,772,647.75 0.24
North Carolina.......................... 15,195,717.35 2.08
North Dakota............................ 378,826.35 0.05
Ohio.................................... 15,958,193.30 2.19
Oklahoma................................ 2,018,253.75 0.28
Oregon.................................. 5,779,154.72 0.79
Pennsylvania............................ 27,427,760.23 3.76
Rhode Island............................ 2,214,883.87 0.30
South Carolina.......................... 7,720,751.95 1.06
South Dakota............................ 344,932.63 0.05
Tennessee............................... 10,562,569.97 1.45
Texas................................... 45,919,051.16 6.29
Utah.................................... 2,031,442.59 0.28
Vermont................................. 1,836,126.87 0.25
Virginia................................ 21,774,673.56 2.98
Washington.............................. 10,819,903.76 1.48
West Virginia........................... 637,762.54 0.09
Wyoming................................. 186,186.59 0.03
----------------- ------
Total................................. $ 729,507,751.69 100.00%(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 Notes 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 Balances 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, (b) no defaults,
delinquencies, losses or repurchases occur with respect to the Receivables, (c)
each Scheduled Payment on the Receivables is made on the last day of each month
and each month has 30 days, (d) payments on the Notes are made on each
Distribution Date (and each such date is assumed to be the fifteenth day of each
applicable month) and (e) an Optional Termination occurs at the earliest time
permitted, causing a redemption of the outstanding 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, APR,
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>
REMAINING TERM TO
AGGREGATE MATURITY SEASONING
POOL PRINCIPAL BALANCE APR (IN MONTHS) (IN MONTHS)
- - ------------------------------ ----------------- --------- ----------------------- -----------------
<S> <C> <C> <C> <C>
1 $ 8,474,726.65 9.082% 9 48
2 $ 13,116,391.51 8.678% 17 30
3 $ 63,010,845.11 6.273% 32 7
4 $ 281,820,979.83 5.467% 43 5
5 $ 363,084,808.59 8.275% 56 3
</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%
February 1999............................... 90 88 85 84 81 100
March 1999.................................. 80 75 71 68 63 100
April 1999.................................. 69 63 56 53 47 100
May 1999.................................... 59 51 42 38 31 100
June 1999................................... 49 39 29 24 16 100
July 1999................................... 39 27 15 10 1 100
August 1999................................. 29 16 2 0 0 100
September 1999.............................. 19 4 0 0 0 100
October 1999................................ 9 0 0 0 0 100
November 1999............................... 0 0 0 0 0 100
December 1999............................... 0 0 0 0 0 92
January 2000................................ 0 0 0 0 0 83
February 2000............................... 0 0 0 0 0 75
March 2000.................................. 0 0 0 0 0 67
April 2000.................................. 0 0 0 0 0 59
May 2000.................................... 0 0 0 0 0 51
June 2000................................... 0 0 0 0 0 43
July 2000................................... 0 0 0 0 0 36
August 2000................................. 0 0 0 0 0 28
September 2000.............................. 0 0 0 0 0 21
October 2000................................ 0 0 0 0 0 13
November 2000............................... 0 0 0 0 0 6
December 2000............................... 0 0 0 0 0 0
January 2001................................ 0 0 0 0 0 0
February 2001............................... 0 0 0 0 0 0
March 2001.................................. 0 0 0 0 0 0
April 2001.................................. 0 0 0 0 0 0
May 2001.................................... 0 0 0 0 0 0
June 2001................................... 0 0 0 0 0 0
July 2001................................... 0 0 0 0 0 0
August 2001................................. 0 0 0 0 0 0
September 2001.............................. 0 0 0 0 0 0
October 2001................................ 0 0 0 0 0 0
November 2001............................... 0 0 0 0 0 0
December 2001............................... 0 0 0 0 0 0
January 2002................................ 0 0 0 0 0 0
February 2002............................... 0 0 0 0 0 0
March 2002.................................. 0 0 0 0 0 0
April 2002.................................. 0 0 0 0 0 0
May 2002.................................... 0 0 0 0 0 0
June 2002................................... 0 0 0 0 0 0
July 2002................................... 0 0 0 0 0 0
August 2002................................. 0 0 0 0 0 0
September 2002.............................. 0 0 0 0 0 0
Weighted Average Life (years)(1)............ 0.42 0.35 0.30 0.28 0.25 1.36
<CAPTION>
DISTRIBUTION DATE 1.0% 1.5% 1.7% 2.0%
- - -------------------------------------------- ----- ----- ----- -----
<S> <C> <C> <C> <C>
Closing Date................................ 100% 100% 100% 100%
February 1999............................... 100 100 100 100
March 1999.................................. 100 100 100 100
April 1999.................................. 100 100 100 100
May 1999.................................... 100 100 100 100
June 1999................................... 100 100 100 100
July 1999................................... 100 100 100 100
August 1999................................. 100 100 96 88
September 1999.............................. 100 90 85 76
October 1999................................ 94 79 73 64
November 1999............................... 85 69 62 52
December 1999............................... 75 58 51 40
January 2000................................ 66 48 41 29
February 2000............................... 57 38 30 18
March 2000.................................. 48 29 20 8
April 2000.................................. 40 19 11 0
May 2000.................................... 31 10 1 0
June 2000................................... 22 1 0 0
July 2000................................... 14 0 0 0
August 2000................................. 6 0 0 0
September 2000.............................. 0 0 0 0
October 2000................................ 0 0 0 0
November 2000............................... 0 0 0 0
December 2000............................... 0 0 0 0
January 2001................................ 0 0 0 0
February 2001............................... 0 0 0 0
March 2001.................................. 0 0 0 0
April 2001.................................. 0 0 0 0
May 2001.................................... 0 0 0 0
June 2001................................... 0 0 0 0
July 2001................................... 0 0 0 0
August 2001................................. 0 0 0 0
September 2001.............................. 0 0 0 0
October 2001................................ 0 0 0 0
November 2001............................... 0 0 0 0
December 2001............................... 0 0 0 0
January 2002................................ 0 0 0 0
February 2002............................... 0 0 0 0
March 2002.................................. 0 0 0 0
April 2002.................................. 0 0 0 0
May 2002.................................... 0 0 0 0
June 2002................................... 0 0 0 0
July 2002................................... 0 0 0 0
August 2002................................. 0 0 0 0
September 2002.............................. 0 0 0 0
Weighted Average Life (years)(1)............ 1.16 1.00 0.94 0.86
</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%
February 1999............................... 100 100 100 100 100 100
March 1999.................................. 100 100 100 100 100 100
April 1999.................................. 100 100 100 100 100 100
May 1999.................................... 100 100 100 100 100 100
June 1999................................... 100 100 100 100 100 100
July 1999................................... 100 100 100 100 100 100
August 1999................................. 100 100 100 100 100 100
September 1999.............................. 100 100 100 100 100 100
October 1999................................ 100 100 100 100 100 100
November 1999............................... 100 100 100 100 100 100
December 1999............................... 100 100 100 100 100 100
January 2000................................ 100 100 100 100 100 100
February 2000............................... 100 100 100 100 100 100
March 2000.................................. 100 100 100 100 100 100
April 2000.................................. 100 100 100 100 98 100
May 2000.................................... 100 100 100 100 88 100
June 2000................................... 100 100 100 92 79 100
July 2000................................... 100 100 92 84 71 100
August 2000................................. 100 100 84 76 62 100
September 2000.............................. 100 99 77 68 54 100
October 2000................................ 100 91 69 60 46 100
November 2000............................... 100 84 62 53 38 100
December 2000............................... 99 77 55 45 31 100
January 2001................................ 92 70 48 38 24 100
February 2001............................... 85 63 41 31 17 100
March 2001.................................. 78 57 34 25 11 100
April 2001.................................. 71 50 28 19 5 100
May 2001.................................... 65 44 22 13 0 100
June 2001................................... 58 37 16 7 0 100
July 2001................................... 51 31 10 1 0 100
August 2001................................. 45 25 4 0 0 100
September 2001.............................. 38 19 0 0 0 100
October 2001................................ 32 14 0 0 0 100
November 2001............................... 27 8 0 0 0 100
December 2001............................... 21 3 0 0 0 100
January 2002................................ 16 0 0 0 0 100
February 2002............................... 10 0 0 0 0 100
March 2002.................................. 4 0 0 0 0 100
April 2002.................................. 0 0 0 0 0 98
May 2002.................................... 0 0 0 0 0 88
June 2002................................... 0 0 0 0 0 77
July 2002................................... 0 0 0 0 0 67
August 2002................................. 0 0 0 0 0 57
September 2002.............................. 0 0 0 0 0 0
Weighted Average Life (years)(1)............ 2.54 2.27 2.00 1.89 1.73 3.54
<CAPTION>
DISTRIBUTION DATE 1.0% 1.5% 1.7% 2.0%
- - -------------------------------------------- ----- ----- ----- -----
<S> <C> <C> <C> <C>
Closing Date................................ 100% 100% 100% 100%
February 1999............................... 100 100 100 100
March 1999.................................. 100 100 100 100
April 1999.................................. 100 100 100 100
May 1999.................................... 100 100 100 100
June 1999................................... 100 100 100 100
July 1999................................... 100 100 100 100
August 1999................................. 100 100 100 100
September 1999.............................. 100 100 100 100
October 1999................................ 100 100 100 100
November 1999............................... 100 100 100 100
December 1999............................... 100 100 100 100
January 2000................................ 100 100 100 100
February 2000............................... 100 100 100 100
March 2000.................................. 100 100 100 100
April 2000.................................. 100 100 100 100
May 2000.................................... 100 100 100 100
June 2000................................... 100 100 100 100
July 2000................................... 100 100 100 100
August 2000................................. 100 100 100 100
September 2000.............................. 100 100 100 100
October 2000................................ 100 100 100 100
November 2000............................... 100 100 100 100
December 2000............................... 100 100 100 100
January 2001................................ 100 100 100 100
February 2001............................... 100 100 100 100
March 2001.................................. 100 100 100 100
April 2001.................................. 100 100 100 100
May 2001.................................... 100 100 100 97
June 2001................................... 100 100 100 87
July 2001................................... 100 100 100 77
August 2001................................. 100 100 92 67
September 2001.............................. 100 98 82 58
October 2001................................ 100 89 74 0
November 2001............................... 100 80 66 0
December 2001............................... 100 72 58 0
January 2002................................ 97 64 0 0
February 2002............................... 88 57 0 0
March 2002.................................. 79 0 0 0
April 2002.................................. 71 0 0 0
May 2002.................................... 62 0 0 0
June 2002................................... 0 0 0 0
July 2002................................... 0 0 0 0
August 2002................................. 0 0 0 0
September 2002.............................. 0 0 0 0
Weighted Average Life (years)(1)............ 3.30 3.01 2.86 2.62
</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) 781-4376.
The Seller was organized primarily for the purpose of acquiring installment
sale contracts similar to the Receivables and associated rights from AHFC,
causing the issuance of 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 and
its wholly owned subsidiary, Honda Canada Finance, Inc. ("HCFI"), provide
wholesale and retail financing to authorized dealers of Honda and Acura motor
vehicles, Honda motorcycles, including scooters and all terrain vehicles, and
power products such as lawn and garden products, snow throwers, water pumps,
outboard motors, outboard marine engines and generators, and Honda and Acura
parts and accessories to their customers in the United States and Canada. AHFC
and HCFI also offer retail leasing for Honda and Acura motor vehicles throughout
the United States and Canada. AHFC and its wholly owned subsidiary, American
Honda Service Contracts Corporation, administer the sale of vehicle service
contracts for AHMC throughout the United States. AHFC has three wholly owned
special purpose finance subsidiaries, American Honda Receivables Corp., American
Honda Receivables Corp. II and Honda Titling Inc.
AHFC is a wholly owned subsidiary of AHMC, a California corporation that is
the sole authorized distributor of Honda and Acura motor vehicles, Honda
motorcycles and power products and Honda and Acura parts and accessories in the
United States. AHMC is a wholly owned subsidiary of Honda Motor Co., Ltd., a
Japanese corporation which is a worldwide manufacturer of motorcycles, motor
vehicles and a variety of power products.
The principal executive offices of AHFC are located at 700 Van Ness Avenue,
Torrance, California 90501. Its telephone number is (310) 781-4100.
UNDERWRITING OF MOTOR VEHICLE LOANS
AHFC purchases installment sale contracts secured by new and used Honda and
Acura motor vehicles from approximately 1,256 Dealers located throughout the
United States. In keeping with the practice of AHFC, the Receivables were
originated by Dealers in accordance with AHFC's requirements under existing
agreements with such Dealers. The Receivables were purchased in accordance with
AHFC's underwriting standards, which emphasize the prospective purchaser's
ability to pay and creditworthiness, as well as the asset value of the motor
vehicle to be financed.
Applications submitted to AHFC must list sufficient information to process
the application, including the applicant's income, residential status, monthly
mortgage or rent payment and other personal information. Upon receipt of an
application, AHFC obtains a credit report from an independent credit bureau. The
credit report is reviewed by AHFC to determine the applicant's current credit
status and past credit
21
<PAGE>
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 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 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 an installment sale contract secured or, in the case of used
motor vehicles, the NADA average trade-in value (as adjusted for higher/lower
mileage) 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 an installment sale contract to be past due or delinquent for
servicing and enforcement of collection purposes when the obligor fails to make
at least 60% of a scheduled payment on a cumulative basis (after giving effect
to any past due payments) 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 and twenty-first day of delinquency. If the delinquent
contract cannot be brought current or completely collected within approximately
60 days, AHFC generally attempts to repossess the related vehicle. Repossessed
vehicles are held in inventory to comply with statutory requirements and then
are sold (generally within 60 days after repossession). Any deficiencies
remaining after repossession and sale of the vehicle or after the full
charge-off of the related contract are pursued by AHFC to the extent practicable
and legally permitted. See "Certain Legal Aspects of the Receivables --
Deficiency Judgments and Excess Proceeds". Obligors are contacted and, when
warranted by individual circumstances, repayment schedules are established and
monitored until the deficiencies are either paid in full or become impractical
to pursue. See "Risk Factors -- AHFC Historical Delinquency Experience May Be
Materially Higher If Reported Differently".
YEAR 2000 ISSUES
AHFC has an ongoing program designed to address the potential impact of the
year 2000 on the ability of AHFC's computerized information systems to
accurately process information that may be date sensitive. AHFC has identified
the critical data storage and operating systems and developed plans to ensure
the readiness of AHFC's system to process dates beyond the year 2000. It is
anticipated that AHFC's systems will be year 2000 compliant by the end of 1999.
The inability of AHFC and its vendors and the parties with whom it contracts
to address the necessary year 2000 modifications of computerized information
systems could result in a significant adverse effect on AHFC's operations and
financial results, including the inability to collect receivables, pay
obligations and
22
<PAGE>
process loan and obligor data. Any such inability could have a material adverse
effect on Noteholders. See "Risk Factors -- Risks Due To Potential Year 2000
Issues" and "Description of the Notes -- DTC's Year 2000 Efforts".
FORWARD LOOKING STATEMENTS
Certain statements included or incorporated by reference herein constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, that involve a number of risks and uncertainties.
Certain such forward-looking statements can be identified by the use of forward-
looking terminology such as "believes," "expects," "may," "will," "should,"
"seeks," or "anticipates" or similar expressions or the negative thereof or
other variations thereof or comparable terminology, or by discussions of
strategy, plans or intentions. In addition, all information included herein with
respect to projected or future results of operations, financial condition,
financial performance or other financial or statistical matters constitute such
forward-looking statements. Such forward-looking statements are necessarily
dependent on assumptions, data or methods that may be incorrect or imprecise and
that may be incapable of being realized and in some instances are based on
consensus estimates of analysts not affiliated with the Seller. The following
factors, among others, could cause actual results and other matters to differ
materially from those in such forward-looking statements: increases in defaults
by obligors on installment sale contracts; increases in the provision for credit
losses for installment sale contracts; renewal or prepayment of installment sale
contracts prior to contractual maturity dates; the highly competitive nature of
the motor vehicle financing business; government regulation and tax matters; the
outcome of pending or threatened legal or regulatory disputes and proceedings;
credit and other risks of lending and investment activities; and changes in
regional and national business and economic conditions and inflation.
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 -- AHFC Historical
Delinquency Experience May Be Materially Higher If Reported Differently" and "--
Delinquencies, Repossessions and Net Losses".
23
<PAGE>
IN THE TABLE BELOW, THE PERIOD OF DELINQUENCY IS BASED ON THE NUMBER OF DAYS
MORE THAN 40% OF A SCHEDULED PAYMENT ON A CUMULATIVE BASIS IS CONTRACTUALLY PAST
DUE. IF THE PERIOD OF DELINQUENCY USED BY AHFC WAS BASED ON THE NUMBER OF DAYS
ANY PORTION OF A SCHEDULED PAYMENT ON A CUMULATIVE BASIS WAS CONTRACTUALLY PAST
DUE, THEN ITS HISTORICAL DELINQUENCY EXPERIENCE MAY HAVE BEEN MATERIALLY HIGHER
IN EACH OF THE YEARS PRESENTED BELOW.
DELINQUENCY EXPERIENCE (1)
<TABLE>
<CAPTION>
AT MARCH 31,
AT OCTOBER 31, ------------------------------------------
1998 1998 1997 1996 1995
--------------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Principal Amount Outstanding (2).................... $ 3,958,102 $2,929,360 $2,486,957 $2,149,145 $1,396,919
Delinquencies (3)
30-59 Days........................................ $ 35,173 $ 29,330 $ 37,070 $ 19,222 $ 12,727
60-89 Days........................................ 5,840 4,400 6,327 2,937 1,573
90 or More Days................................... 2,327 1,699 2,911 1,322 636
Repossessions (4)................................... 6,437 7,438 13,334 5,423 3,412
--------------- --------- --------- --------- ---------
Total Delinquencies and Repossessions............... $ 49,777 $ 42,867 $ 59,642 $ 28,904 $ 18,348
Total Delinquencies and Repossessions as a
Percentage of Principal Amount Outstanding........ 1.26% 1.46% 2.40% 1.35% 1.31%
</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
SEVEN MONTHS AT OR FOR THE YEAR ENDED MARCH 31,
ENDED OCTOBER ------------------------------------------
31, 1998 1998 1997 1996 1995
--------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Principal Amount Outstanding (2)................ $ 3,958,102 $2,929,360 $2,486,957 $2,149,145 $1,396,919
Average Principal Amount Outstanding (3)........ $ 3,556,664 $2,675,524 $2,545,288 $1,842,750 $1,173,715
Number of Contracts Outstanding................. 369,625 278,261 235,521 190,042 126,046
Average Number of Contracts Outstanding (3)..... 331,349 252,723 228,287 162,955 109,142
Number of Repossessions......................... 1,743 3,576 3,166 2,175 1,551
Number of Repossessions as a Percentage of the
Average Number of Contracts Outstanding....... 0.90%(6) 1.42% 1.39% 1.34% 1.42%
Gross Charge-Offs (4)........................... $ 14,182 $ 32,598 $ 25,857 $ 14,701 $ 7,927
Recoveries (5).................................. 6,710 8,245 6,014 3,940 2,904
--------------- ---------- --------- --------- ---------
Net Losses...................................... $ 7,472 $ 24,353 $ 19,843 $ 10,761 $ 5,023
Net Losses as a Percentage of Average Principal
Amount Outstanding............................ 0.36%(6) 0.91% 0.78% 0.58% 0.43%
</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, is
calculated for a period by dividing the total monthly amounts by the number
of months in the period.
(4) Amount charged off is the remaining principal balance, excluding any
expenses associated with collection, repossession or disposition of the
related vehicle, plus earned but not yet received finance charges, net of
any proceeds collected prior to charge-off.
(5) Proceeds received on previously charged-off contracts.
(6) Annualized.
24
<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 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 indicating the remaining Certificate Balance, after
giving effect to payments 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 the Total Servicing Fee,
non-recoverable Advances and all accrued and unpaid Trustees' fees, any amounts
due to the Trustees for reimbursement of expenses or in respect of
indemnification and other administrative fees of the Trust ("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.
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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 Principal Distributable Amount and
from amounts on deposit in the Reserve Fund after the Total Servicing Fee,
non-recoverable Advances and 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 New York 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 Servicer in respect of Total Servicing Fee and non-recoverable
Advances, if any; second to the Trustee(s) for amounts due as Trust Fees and
Expenses; 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
the 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
against the costs, expenses and liabilities to be incurred with complying with
such request, (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.
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
Indenture
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Trustee 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 Securityholder, (v) any action that is necessary to maintain
the lien and security interest created by the Indenture shall have been taken
and (vi) the Indenture Trustee has received an officer's certificate and an
opinion of counsel stating that such consolidation or merger complies 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 (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 --
Amendment -- The Indenture" and " -- The Trustees".
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.
Note Owners may hold beneficial interests in the related Notes through DTC
(in the United States), or Cedelbank ("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.
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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
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.
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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 Note 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 Indenture only at the direction of one or more
DTC Participants to whose accounts with DTC the applicable Notes 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 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.
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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 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".
DTC'S YEAR 2000 EFFORTS
DTC management is aware that some computer applications, systems and the
like for processing data ("Systems") that are dependent upon calendar dates,
including dates before, on and after January 1, 2000, may encounter "Year 2000
problems". DTC has informed its Participants and other members of the financial
community (the "Industry") that it has developed and is implementing a program
so that its
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Systems, as the same relate to the timely payment of distributions (including
principal and income payments) to securityholders, book-entry deliveries and
settlement of trades within DTC, continue to function appropriately. This
program includes a technical assessment and a remediation plan, each of which is
complete. Additionally, DTC's plan includes a testing phase, which is expected
to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as third party vendors from whom DTC licenses software and hardware, and
third party vendors on whom DTC relies for information and the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed the Industry that it is contacting (and will
continue to contact) third party vendors from whom DTC acquires services to: (i)
impress upon them the importance of such services being Year 2000 compliant and
(ii) determine the extent of their efforts for Year 2000 remediation (and, as
appropriate, testing) of their services. In addition, DTC is in the process of
developing such contingency plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the Industry for informational purposes only and is not intended to
serve as a representation, warranty or contract modification of any kind.
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.
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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 Certificates have not been registered under the
Securities Act or listed on any securities exchange. 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.
The Certificates are not being offered hereby and initially will be retained by
the Seller. The information set forth in this Prospectus regarding the
Certificates is intended only to give the investors in the Notes a fuller
understanding of the Notes.
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 the Certificates
generally will be made from the Available Amount after non-recoverable Advances,
the Total Servicing Fee and all Trust Fees and Expenses have been paid, after
the Note Distributable Amount has been distributed to Noteholders and after the
amount on deposit in the Reserve Fund equals the Specified Reserve Fund Balance.
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 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 non-recoverable Advances, the Total
Servicing Fee and 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", "-- Insolvency Event" and "-- The Trustees".
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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. Such representations
and warranties will include, among other things, that (i) on the Cutoff Date,
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) 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) 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
Warranty 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 APR 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 other motor vehicle installment sale
contracts serviced by the Servicer, as well as to reduce administrative costs,
the Owner Trustee will appoint the Servicer as custodian of the Receivables and
all
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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 Receivable. See "American Honda
Finance Corporation -- Servicing of Motor Vehicle Loans". However, if any such
modification of a Receivable 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) all past due Scheduled Payments
for which an Advance has not been made, and (iii) an amount equal to any
reimbursements of outstanding Advances made by the Servicer with respect to such
Administrative Receivable from the proceeds of other Receivables 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, (ii) the Rebate and (iii)
any proceeds of the liquidation of such Receivable previously received (to the
extent applied to reduce the Principal Balance of such 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 APR 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.
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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 to the extent
described herein, the 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 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") or, if the Servicer has
satisfied certain conditions set forth under "Collections", the Servicer may
retain such amounts as Payments Ahead.
THE DISTRIBUTION ACCOUNTS. The Servicer will establish and maintain 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"). The Owner Trustee shall
establish and maintain in the name of the Trust an account 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. The Servicer 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 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. See "Summary -- The Yield
Supplement Account".
MAINTENANCE OF TRUST ACCOUNTS. The Collection Account, Payahead Account,
Distribution Accounts, 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) (i) the
commercial paper or other short-term unsecured debt obligations of which is
rated at least P-1 by Moody's and A-1+ by Standard & Poor's or (ii) having
corporate trust powers and organized under the laws of the United States or any
state thereof, the District of Columbia or the Commonwealth of Puerto Rico with
a long-term deposit rating from (A) Moody's of at least Baa3 or (B) Standard and
Poor's of at least BBB- (or such lower rating as
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either Rating Agency 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). With the exception of the
Yield Supplement Account and the Reserve Fund, 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
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, A-1 by Standard & Poor's and F1
by Fitch IBCA 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
clause (b) above, the Indenture 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. 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
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 on Precomputed Receivables will be held by the Servicer as a
Payment Ahead (or if the Servicer has not satisfied the conditions in clauses
(i) through (iii) of the immediately preceding paragraph, deposit in the
Payahead Account) and on Simple Interest Receivables will be applied as a
partial prepayment.
On each Deposit Date, the Indenture Trustee will cause (i) 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 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
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shall be applied by the Servicer to the extent of the shortfall and Payments
Ahead 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 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 the Total Servicing
Fee. 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 Trust,
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.
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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, computed in accordance with the simple interest method,
(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
For so long as AHFC is the Servicer, the Servicer will cause to be deposited
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.
DISTRIBUTIONS ON THE SECURITIES
GENERAL. On or before the tenth calendar day of the month in which such
Distribution Date occurs or, if such day is not a Business Day, the immediately
succeeding Business Day (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) Payments Ahead
and Applied Payments Ahead; (ii) the Total Servicing Fee; (iii) Trust Fees and
Expenses; (iv) 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, Administrative Purchase Payments and Warranty
Purchase Payments); (v) the Administrative Purchase Payments and Warranty
Purchase Payments of all Receivables repurchased by the Seller or the Servicer
during such Collection Period; (vi) the Advances made by the Servicer, the
amounts for which the Servicer is entitled to be reimbursed for unreimbursed
Advances and the amount of nonrecoverable Advances; (vii) the Available Amount;
(viii) the Note Interest Distributable Amount; (ix) the Note Principal
Distributable Amount; (x) the Note Distributable Amount; (xi) the Certificate
Interest Distributable Amount; (xii) the Certificate Principal Distributable
Amount (xiii) the Principal Distributable Amount; (xiv) the Yield Supplement
Deposit Amount, if any; and (xv) the maximum amount required to be on deposit in
the Yield Supplement Account on the immediately succeeding Distribution Date and
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 ("Applied
Payments Ahead") 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
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to Warranty Receivables repurchased by the Seller in respect of such Collection
Period; (v) Administrative Purchase Payments with respect to Administrative
Receivables purchased by the Servicer, in respect of such Collection Period; and
(vi) the Yield Supplement Withdrawal Amount.
"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.
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 Total Servicing Fee, including any unpaid
Servicing Fees with respect to one or more prior Collection Periods, and
non-recoverable Advances;
(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; provided that, until
the Notes have been paid in full, the annual amount paid to the Trustees out
of the Available Amount allocation described in this clause (ii) shall not
exceed $100,000;
(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 Note Principal Distributable Amount 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 Certificate Principal Distributable
Amount 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
Seller.
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Allocations of the Note Principal Distributable Amount will be allocated
among 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 the 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.
Notwithstanding the foregoing, to the extent that the amount on deposit in
the Note Distribution Account with respect to a Distribution Date is less than
the Note Distributable Amount, funds will be withdrawn from the Reserve Fund and
deposited in the Note Distribution Account for distribution to the Noteholders.
In addition, if 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. Furthermore, any Trust Fees and Expenses
shall not be limited as described in clause (ii) above, except to the extent as
may be otherwise provided for in the Indenture, if applicable.
For the purposes hereof, the following terms will have the following
meanings:
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 Monthly Principal Distributable Amount" will mean, with
respect to any Distribution Date, the Certificate Percentage of the Principal
Distributable Amount for such Distribution Date.
The "Certificate Percentage" will mean (i) for each Distribution Date until
the principal amount of the Class A-1 Notes has been paid in full, 0%; (ii) for
each Distribution Date to and including the Distribution Date on which the
principal amount of the Class A-4 Notes is reduced to zero, 5%; and (iii) for
each Distribution Date after the Distribution Date on which the principal amount
of the Class A-4 Notes is reduced to zero, 100%.
The "Certificate Principal Carryover Shortfall" will mean, with respect to
any Distribution Date, the excess of the Certificate Monthly Principal
Distributable Amount plus any outstanding Certificate Principal Carryover
Shortfall for the preceding Distribution Date, over the amount in respect of
principal that is actually deposited in the Certificate Distribution Account on
such Distribution Date.
The "Certificate Principal Distributable Amount" will mean, with respect to
any Distribution Date, the sum of the Certificate Monthly Principal
Distributable Amount for each Distribution Date and any outstanding Certificate
Principal Carryover Shortfall as of the close of the immediately preceding
Distribution Date; provided, however, that the Certificate Principal
Distributable Amount shall not exceed the Certificate Balance. In addition, on
the Certificate Final Distribution Date, the principal required to be deposited
into the Certificate Distribution Account will include the amount necessary to
reduce the Certificate Balance to zero.
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 Dates.
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 Monthly Interest Distributable Amount for such Class for the preceding
Distribution Date plus any outstanding Note Interest Carryover Shortfall for
such Class on
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such preceding Distribution Date, over the amount in respect of interest that is
actually paid on the Notes on such preceding Distribution Date, plus, to the
extent permitted by applicable law, interest on the Note Interest Carryover
Shortfall 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 one or more prior Distribution Dates.
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 amount of the
Notes of each 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 Monthly Principal Distributable Amount" will mean, with respect to
any Distribution Date, the Note Percentage of the Principal Distributable Amount
for such Distribution Date.
The "Note Percentage" will mean (i) for each Distribution Date until the
principal amount of the Class A-1 Notes has been paid in full, 100%; (ii) for
each Distribution Date on or after the principal amount of the Class A-1 Notes
has been paid in full to and including the Distribution Date on which the
principal amount of the Class A-4 Notes is reduced to zero, 95%; and (iii) for
each Distribution Date after the Distribution Date on which the principal amount
of the Class A-4 Notes is reduced to zero, 0%.
The "Note Principal Carryover Shortfall" will mean, with respect to any
Distribution Date, the excess, if any, of the Note Monthly Principal
Distributable Amount plus any outstanding Note Principal Carryover Shortfall for
the preceding Distribution Date over the amount in respect of principal that is
actually paid as principal on the Notes on such Distribution Date.
The "Note Principal Distributable Amount" will mean, with respect to any
Distribution Date, the sum of (i) the Note Monthly Principal Distributable
Amount, (ii) any outstanding Note Principal Carryover Shortfall as of the close
of 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 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, computed in accordance with the simple interest method, (ii) the
principal portion of all Prepayments, and in the case of Simple Interest
Receivables, partial prepayments, received 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 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 non-recoverable
Advances and has not been paid the Total Servicing Fee), the Trustees and
certain other entities (to the extent the Trustees and such other entities have
not received all 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
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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 and the maintenance of amounts
on deposit in the Reserve Fund at the Specified Reserve Fund Balance, 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 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 (net of losses and expenses)
will be paid to the Seller, upon the direction of the Servicer, to the extent
that funds on deposit therein exceed the Specified Reserve Fund Balance.
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 "Specified Reserve Fund Balance" with respect to any Distribution Date
will be $5,471,308.14, except that, if on any Distribution Date (i) the average
of the Charge-off Rates for the three preceding Collection Periods exceeds 2.25%
or (ii) the average of the Delinquency Percentages for the three preceding
Collection Periods exceeds 2.25%, then the Specified Reserve Fund Balance will
be an amount equal to a specified percentage of the Pool Balance as of the last
day of the immediately preceding Collection Period. Such percentage shall be
determined by deducting from 8.00% the following fraction, expressed as a
percentage: (a) one minus (b) a fraction, the numerator of which is the
outstanding principal amount of the Notes with respect to such Distribution Date
and the denominator of which is such Pool Balance. Notwithstanding the
foregoing, in no event will the Specified Reserve Fund Balance be more than
$21,885,232.55 or more than the then outstanding principal amount of the Notes
or less than $5,471,308.14. As of any Distribution Date, the amount of funds
actually on deposit in the Reserve Fund may, in certain circumstances, be less
than the Specified Reserve Fund Balance.
The "Charge-off Rate" with respect to a Collection Period will equal the
Aggregate Net Losses with respect to the Receivables expressed, on an annualized
basis, as a percentage of the average of (i) the Pool Balance on the last day of
the immediately preceding Collection Period and (ii) the Pool Balance on the
last day of such current Collection Period. "Aggregate Net Losses" with respect
to a Collection Period will equal the Principal Balance of all Receivables newly
designated during such Collection Period as Defaulted Receivables minus Net
Liquidation Proceeds collected during such Collection Period with respect to all
Defaulted Receivables. The "Delinquency Percentage" with respect to a Collection
Period will equal the number of (a) all outstanding Receivables 61 days or more
delinquent (after taking into account permitted extensions) as of the last day
of such Collection Period, determined in accordance with the Servicer's normal
practices, plus (b) the number of Receivables the related Financed Vehicles of
which have been repossessed but have not been liquidated (to the extent the
related Receivable is not otherwise reflected in clause (a) above or is not a
Defaulted Receivable), expressed as a percentage of the aggregate number of
Current Receivables on the last day of such Collection Period. A "Current
Receivable" will be a Receivable that is not a Defaulted Receivable or a
Liquidated Receivable. A "Liquidated Receivable" will be a Receivable that
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has been the subject of a Prepayment in full or otherwise has been paid in full
or, in the case of a Defaulted Receivable, a Receivable as to which the Servicer
has determined that the final amounts in respect thereof have been paid.
The Servicer may, from time to time after the date of this Prospectus,
request each Rating Agency to approve a formula for determining the Specified
Reserve Fund Balance 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 Indenture Trustee will
include the amount of such excess in the amounts to be distributed to
Certificateholders pursuant to clauses (vi) and (vii) in the first paragraph
under "-- Distributions on the Securities -- Deposits to the Distribution
Accounts; Priority of 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. Any excess amounts remaining
thereafter shall be paid to the Seller.
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 and the Owner 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) total Payments Ahead and the Applied Payments Ahead;
(ii) the amount of the Total Servicing Fee paid to the Servicer with
respect to such Collection Period;
(iii) the amount of non-recoverable Advances;
(iv) the amount of Trust Fees and Expenses;
(v) the amount of the Noteholder's or Certificateholder's distribution
allocable to interest (stated separately for each Class of Notes and the
Certificates);
(vi) the amount of the Noteholder's or Certificateholder's distribution
allocable to principal (stated separately for each Class of Notes and the
Certificates);
(vii) the Note Distributable Amount;
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(viii) the Certificate Distributable Amount;
(ix) the Available Amount;
(x) the Yield Supplement Withdrawal Amount, if any and the amount on
deposit in the Yield Supplement Account after giving effect to the
distributions made on such Distribution Date;
(xi) the Pool Balance as of the close of business on the last day of
such Collection Period, after giving effect to payments allocated to
principal reported under clause (vi) above;
(xii) 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;
(xiii) the Note Pool Factor for each Class of Notes and the Certificate
Pool Factor, in each case as of such Distribution Date;
(xiv) 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
(xv) 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 (ii), (v), (vi) and (xii) 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 any Noteholder
by a request in writing addressed to the Indenture Trustee or by any
Certificateholder by a request in writing addressed to the Owner Trustee, in
either case addressed to its applicable 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 certain information for
the purposes of such holder's preparation of federal income tax returns. See
"Material Federal Income Tax Consequences".
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 June 30, beginning June
30, 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 any Noteholder
by request in writing addressed to the Indenture Trustee, or by any
Certificateholder by request in writing to the Owner Trustee, in either case
addressed to its applicable 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.
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The Indenture Trustee will be required to mail each year to all related
Noteholders a brief report relating to, among other things, the following events
which may have occurred within the previous 12 months (but if no such event has
occurred no report need be transmitted), any change to 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 the Indenture Trustee or a successor servicer has assumed the Servicer's
servicing obligations and duties under the Sale and Servicing Agreement.
The Sale and Servicing Agreement will further provide that neither the
Servicer nor any of its directors, officers, employees 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. 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.
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 discovery thereof by the Servicer or after the giving of written
notice of such failure to (a) the Servicer by the Indenture Trustee or the Owner
Trustee or (b) the Servicer and the Trustees by holders of Notes or
Certificateholders evidencing not less than 25% of the voting interests thereof,
voting together as a single class, (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 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 or Certificateholders evidencing not less than 25%
of the voting interests thereof, voting together as a single class, or (iii)
certain events of bankruptcy, insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings and
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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 or a successor servicer
appointed by 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 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. 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 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.
AMENDMENT
THE SALE AND SERVICING AGREEMENT. The Sale and Servicing Agreement may be
amended, without the consent of any Securityholders, to cure any ambiguity,
correct or supplement any provision therein which may be inconsistent with any
other provision therein, to add, change or eliminate any other provisions with
respect to matters or questions arising thereunder which are not inconsistent
with the provisions thereof 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
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Servicer Letter of Credit or the acquisition thereof; provided, that any such
action will not, in the opinion of counsel satisfactory to the Trustees,
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 each Rating Agency to the effect that its then-current rating on
each Class of Notes will not be qualified, reduced or withdrawn due to 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; 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
(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.
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;
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 (i)
increase or reduce in any manner the amount of or accelerate or delay the timing
of collections of payments on or in respect of the Receivables or required
distributions on the Notes or the 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.
THE INDENTURE. The Trust and the Indenture Trustee (on behalf of the 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 specified in clause (viii) 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.
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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 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) modify the provisions of the Indenture
except to increase any percentage specified therein or to provide certain
additional provisions in the Indenture or the other related documents cannot be
modified or waived without the consent of all Noteholders affected thereby; (vi)
modify 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.
ACCESS TO NOTEHOLDER LISTS
Three or more holders of Notes 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 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 Sale and Servicing Agreement will provide that the Servicer and the
Seller shall agree not to institute, or cause the Trust to institute, a
proceeding in bankruptcy with respect to the Trust for a period of one year and
one day after the termination of the Sale and Servicing Agreement.
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, each
Certificateholder, 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.
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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 payment to such Securityholders of all amounts
required to be paid to them pursuant to such agreement and (ii) 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 following a
Collection Period as of which the Pool Balance is less than 10% of the Cutoff
Date Pool Balance at a price equal to the aggregate Administrative Purchase
Payments for the Receivables (including Defaulted Receivables), plus the
appraised value of any such other property held by the Trust other than the
Trust Accounts. Notwithstanding the foregoing, no purchase will be permitted
unless the price to be paid is greater than or equal to the sum of the
outstanding principal balance of the Notes and all accrued interest thereon
together with the unpaid principal amount of the Certificates and all accrued
but unpaid interest thereon. 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 Indenture Trustee (based on the Indenture
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 by the Owner Trustee to the Issuer.
Any outstanding Notes will be redeemed concurrently with any Optional
Termination 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
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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 provide that the Seller will pay the fees of the
Owner Trustee and the Indenture will provide that 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 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 Indenture, 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 therein or thereby.
No Noteholder will have any right under the Indenture to institute any
proceeding with respect thereto, unless such holder previously has given to the
Indenture Trustee written notice of default and the holders of Notes evidencing
not less than 25% of the voting interests of all Notes, voting together as a
single class, have made written request upon the Indenture Trustee to institute
such proceeding in its own name as Indenture Trustee thereunder and have offered
to the Indenture Trustee reasonable indemnity and the Indenture Trustee for 60
days has neglected or refused to institute any such proceedings.
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 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
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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, the state in which the largest number of
Receivables were originated), 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.
REPOSSESSION
In the event of default by an obligor, the holder of the related 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
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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.
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
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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 (OCTAGON GAS SYSTEMS, INC. V. RIMMER, 995 F.2d 948 (10th Cir.), CERT.
DENIED 114 S.Ct. 554 (1993)) decided by the United States Court of Appeals for
the Tenth Circuit contains language to the effect that under the UCC, accounts
sold by a debtor would remain property of the debtor's bankruptcy estate,
whether or not the sale of accounts was perfected under the UCC. UCC Article 9
applies to the sale of chattel paper as well as the sale of accounts and
although the receivables constitute chattel paper under the UCC rather than
accounts, perfection of a security interest in both chattel papers 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. Counsel to AHFC has advised AHFC that
the reasoning in the Tenth Circuit case appears to be inconsistent with other
precedent. In addition, the Permanent Editorial Board of the UCC has issued an
official commentary (PEB Commentary No. 14) which characterizes the Tenth
Circuit Court's interpretation of Article 9 of the UCC as erroneous. Such
commentary states that nothing in Article 9 is intended to prevent the transfer
of ownership of accounts or chattel paper.
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
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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 $248.5 million, provide
that the Receivable may be rescinded by the related Dealer if such Dealer is
unable to assign the Receivable to a lender within ten days of the date of such
Receivable. As of the date of this Prospectus, the ten day rescission period had
run in respect of all of the California Receivables in which the rescission
provision appears. Although there is authority, which is not binding upon any
court, providing that a conditional sale contract containing such a provision
does not comply with California law and would render the Receivable
unenforceable, to the knowledge of AHFC and the Seller, the issue has not been
presented before any California court. On the Closing Date, the Seller will
receive an opinion of counsel to the effect that all of the California
Receivables are enforceable under California law and applicable federal laws.
AHFC and the Seller will represent and warrant under the Receivables
Purchase Agreement and the 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
56
<PAGE>
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.
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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").
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 the nature of the income
of the Trust will exempt it from the rule that certain publicly traded
partnerships are taxable as corporations.
If the Trust were taxable as a corporation for federal income tax purposes,
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
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<PAGE>
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 amounts representing accrued interest and accrued market
discount not previously included in income and will generally be long-term
capital gain or loss if the Noteholder held the Notes for more than one year.
Long-term capital gains of non-corporate taxpayers are subject to reduced
maximum tax rates. The use of capital losses is subject to limitations.
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 and the foreign person (i) is not
actually or constructively a "10 percent shareholder", within the meaning of the
Code, of the Trust or the Seller (including a holder of 10% or more of the
outstanding Certificates) or a "controlled foreign corporation" with respect to
which the Trust or the Seller is a "related person" within the meaning of the
Code and (ii) provides the 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 and is not effectively
connected with the conduct of a trade or business within the United States, 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. See
"Annex A-1".
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.
59
<PAGE>
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. See "Annex A-1"
NEW WITHHOLDING REGULATIONS
Recently, the Treasury Department issued new regulations (the "New
Regulations") which make certain modifications to the backup withholding and
information reporting rules described above. The New Regulations attempt to
unify certification requirements and modify reliance standards. The New
Regulations will generally be effective for payments made after December 31,
1999, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
POSSIBLE ALTERNATIVE TREATMENTS OF THE NOTES
If, contrary to the opinion of counsel to the Seller, the IRS successfully
asserted that one or more Classes of 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.
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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) that are subject to Title I of ERISA, (b)
plans described in Section 4975(e)(1) of the Code that are subject to Section
4975 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 the 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 ERISA and Section 4975 of the Code prohibit
certain transactions between a Benefit Plan and Parties-in-Interest or
Disqualified Persons with respect to such Benefit Plan. Violation of these rules
may result in the imposition of excise taxes and other penalties and liabilities
under ERISA and the Code.
PLAN ASSETS AND PROHIBITED TRANSACTIONS ISSUES
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 constitute assets of a Benefit Plan investing in the Notes. 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 Section 4975 of 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 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. Although there can be no assurance in
this regard, 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 (including any holder to whom the Seller transfers
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. These exemptions include 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 transactions
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 Section 4975 of the Code, unless one or more statutory or
administrative exemptions is available.
Prior to making an investment in the Notes, each prospective Benefit Plan
investor should consult with its legal advisors concerning the impact of ERISA
and the Code and the potential consequences of such investment in its 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 prudence 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.
Governmental plans, church plans and foreign plans are not generally subject
to the prohibited transaction rules of ERISA and Section 4975 of the Code.
However, such plans may be subject to similar provisions of state, local and
federal law.
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UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated January 20, 1999 (the "Underwriting Agreement"), the
Underwriters named below (the "Underwriters"), for whom Credit Suisse First
Boston Corporation is acting as 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.......................... $ 89,712,000 $ 97,500,000 $ 104,000,000 $ 55,304,000
Chase Securities Inc.................. 44,856,000 48,750,000 52,000,000 27,652,000
NationsBanc Montgomery
Securities LLC....................... 44,856,000 48,750,000 52,000,000 27,652,000
-------------- -------------- -------------- --------------
Total................................. $ 179,424,000 $ 195,000,000 $ 208,000,000 $ 110,608,000
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</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, 0.087% of the
principal amount per Note, (ii) the Class A-2 Notes, 0.120% of the principal
amount per Note, (iii) the Class A-3 Notes, 0.132% of the principal amount per
Note and (iv) the Class A-4 Notes, 0.150% 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, 0.075% of the principal amount per Note, (ii) the Class A-2
Notes, 0.100% of the principal amount per Note, (iii) the Class A-3 Notes,
0.125% of the principal amount per Note and (iv) the Class A-4 Notes, 0.125% 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.
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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 (ONTARIO PURCHASERS)
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.
ENFORCEMENT OF LEGAL RIGHTS
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 Canadian 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.
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TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Notes should consult their own legal and tax advisors
with respect to the tax consequences of an investment in the Notes in their
particular circumstances and with respect to the eligibility of the Notes for
investment by the purchaser under relevant Canadian legislation.
RATING OF THE NOTES
It is a condition to issuance of the Notes that the Class A-1 Notes will be
rated F1+ by Fitch IBCA, 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 each of Standard & Poor's and Fitch IBCA. 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, Meagher &
Flom LLP, New York, New York will act as counsel for the Underwriters.
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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.................................... 18
Accrual Period................................ 5
Actuarial Receivable.......................... 12
Administrator................................. 51
Administration Agreement...................... 51
Administrative Purchase Payment............... 35
Administrative Receivable..................... 35
Advances...................................... 8
Aggregate Net Losses.......................... 43
AHFC.......................................... 1, 3
AHMC.......................................... 3
APR........................................... 4
Applied Payments Ahead........................ 39
Available Amount.............................. 39
Available Interest............................ 39
Available Principal........................... 40
Benefit Plan.................................. 61
Business Day.................................. 4
California Receivables........................ 56
Cede.......................................... 28
CEDEL......................................... 28
CEDEL Participants............................ 28
Certificate Balance........................... 6
Certificate Distribution Account.............. 36
Certificate Interest Distributable Amount..... 41
Certificate Monthly Principal Distributable
Amount...................................... 41
Certificate Percentage........................ 41
Certificate Pool Factor....................... 25
Certificate Principal Carryover Shortfall..... 41
Certificate Principal Distributable Amount.... 41
Certificate Rate.............................. 6
Certificateholders............................ 6
Certificates.................................. 1, 3
Charge-off Rate............................... 43
Class......................................... 3
Class A-1 Final Distribution Date............. 4
Class A-1 Notes............................... 1, 3
Class A-1 Rate................................ 5
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
<CAPTION>
TERM PAGE
- - ---------------------------------------------- ---------
<S> <C>
Class A-3 Rate................................ 5
Class A-4 Final Distribution Date............. 4
Class A-4 Notes............................... 1, 3
Class A-4 Rate................................ 5
Closing Date.................................. 4
Code.......................................... 58
Collection Account............................ 36
Collection Period............................. 8
Commission.................................... 2
Cooperative................................... 31
Current Receivable............................ 43
Cutoff Date................................... 4
Cutoff Date Pool Balance...................... 4
Dealer Recourse............................... 12
Dealers....................................... 12
Defaulted Receivable.......................... 40
Definitive Notes.............................. 28
Delinquency Percentage........................ 43
Deposit Date.................................. 7
Depositaries.................................. 28
Determination Date............................ 39
Discount Receivables.......................... 7
Distribution Accounts......................... 36
Distribution Date............................. 1, 4
Distribution Date Statement................... 39
DTC........................................... 28
DTC Participants.............................. 29
Equity Interest............................... 61
ERISA......................................... 61
Euroclear..................................... 31
Euroclear Operator............................ 31
Euroclear Participants........................ 28
Events of Default............................. 26
Excess Amounts................................ 7
Excess Payment................................ 37
Exchange Act.................................. 2
Final Distribution Dates...................... 4
Financed Vehicles............................. 4
Fitch IBCA.................................... 9
foreign person................................ 59
FTC Rule...................................... 56
Global Securities............................. A-1
HCFI.......................................... 21
Indenture..................................... 3
Indenture Trustee............................. 3
Indirect Participants......................... 29
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- - ---------------------------------------------- ---------
<S> <C>
Industry...................................... 31
Insolvency Event.............................. 47
Insolvency Laws............................... 54
installment sale contracts.................... 10
Interest Rates................................ 5
IRS........................................... 58
Liquidated Receivable......................... 43
Moody's....................................... 9
Net Liquidation Proceeds...................... 39
New Regulations............................... 60
Note Distributable Amount..................... 41
Note Distribution Account..................... 36
Note Interest Carryover Shortfall............. 41
Note Interest Distributable Amount............ 42
Note Monthly Interest Distributable Amount.... 42
Note Monthly Principal Distributable Amount... 42
Note Owner.................................... 28
Note Percentage............................... 42
Note Pool Factor.............................. 25
Note Principal Carryover Shortfall............ 42
Note Principal Distributable Amount........... 42
Noteholders................................... 5
Notes......................................... 3
Obligors...................................... 10
OID........................................... 58
Omnibus Proxy................................. 30
Optional Termination.......................... 9
Original Certificate Balance.................. 6
Owner Trustee................................. 3
Parties-in-Interest........................... 61
Payahead Account.............................. 36
Payment Ahead................................. 36
Permitted Investments......................... 37
Plan Assets Regulation........................ 61
Pool Balance.................................. 39
Precomputed Advance........................... 8
Precomputed Receivable........................ 12
Prepayment.................................... 37
Principal Balance............................. 39
Principal Distributable Amount................ 42
PTCE.......................................... 61
Rating Agencies............................... 9
Rebate........................................ 34
<CAPTION>
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<S> <C>
Receivables................................... 1,4
Receivables Purchase Agreement................ 4
Record Date................................... 4
Registration Statement........................ 2
Required Rate................................. 7
Reserve Fund.................................. 7
Reserve Fund Initial Deposit.................. 7
Rule of 78s Receivable........................ 12
Sale and Servicing Agreement.................. 4
Schedule of Receivables....................... 34
Scheduled Payment............................. 12
Securities.................................... 3
Securities Act................................ 2
Securityholders............................... 7
Seller........................................ 3
Servicer...................................... 1, 3
Servicer Defaults............................. 46
Servicer Letter of Credit..................... 37
Servicing Fee................................. 8
Servicing Fee Rate............................ 8
Simple Interest Advance....................... 8
Simple Interest Receivable.................... 12
Specified Reserve Fund Balance................ 7,43
Standard & Poor's............................. 9
Statement to Securityholders.................. 44
Supplemental Servicing Fee.................... 9
Systems....................................... 31
Terms and Conditions.......................... 31
Total Servicing Fee........................... 9
Trust......................................... 1,3
Trust Accounts................................ 36
Trust Agreement............................... 3
Trust Fees and Expenses....................... 25
Trustees...................................... 3
UCC........................................... 29
Underwriters.................................. 62
Underwriting Agreement........................ 62
U.S. Person................................... A-3
voting interests.............................. 47
Warranty Purchase Payment..................... 34
Warranty Receivable........................... 34
Yield Supplement Account...................... 7
Yield Supplement Account Deposit.............. 7
Yield Supplement Amount....................... 8
Yield Supplement Withdrawal Amount............ 8
</TABLE>
66
<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 Global Securities 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 valued 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 changes, a new Form W-8 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 holder of
Global Securities 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>
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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.............................................................. 10
Formation of the Trust.................................................... 11
Property of the Trust..................................................... 12
The Receivables........................................................... 12
Weighted Average Life of the Notes........................................ 17
Use of Proceeds........................................................... 21
The Seller................................................................ 21
American Honda Finance Corporation........................................ 21
Pool Factors and Trading Information...................................... 25
Description of the Notes.................................................. 25
Description of the Certificates........................................... 33
Certain Information Regarding the Securities.............................. 34
Certain Legal Aspects of the Receivables.................................. 52
Material Federal Income Tax Consequences.................................. 58
Certain California Income Tax Consequences................................ 60
ERISA Considerations...................................................... 61
Underwriting.............................................................. 62
Notice to Canadian Residents.............................................. 63
Rating of the Notes....................................................... 64
Legal Matters............................................................. 64
Index of Capitalized Terms................................................ 65
Annex I................................................................... A-1
</TABLE>
----------------
Until April 20, 1999 (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
1999-1 Owner Trust
$179,424,000
4.974% Asset Backed Notes,
Class A-1
$195,000,000
5.186% Asset Backed Notes,
Class A-2
$208,000,000
5.300% Asset Backed Notes,
Class A-3
$110,608,000
5.350% 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
Chase Securities Inc.
NationsBanc Montgomery Securities LLC
Selling Group Members
Barclays Capital
Salomon Smith Barney
SG Cowen
Utendahl Capital Partners, L.P.
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