<PAGE>
Filed Pursuant to Rule 424(b)(2)
Registration No. 333-92827
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED OCTOBER 13, 2000)
HONDA AUTO RECEIVABLES 2000-1 OWNER TRUST
AMERICAN HONDA RECEIVABLES CORP.,
SELLER
AMERICAN HONDA FINANCE CORPORATION,
SERVICER
$1,053,270,000 ASSET BACKED NOTES
YOU SHOULD REVIEW CAREFULLY THE FACTORS SET FORTH UNDER "RISK FACTORS" BEGINNING
ON PAGE S-15 OF THIS PROSPECTUS SUPPLEMENT AND PAGE 12 IN THE ACCOMPANYING
PROSPECTUS.
The prospectus supplement does not contain complete information about the
offering of the securities. No one may use this prospectus supplement to offer
and sell the securities unless it is accompanied by the prospectus. If any
statements in this prospectus supplement conflict with statements in the
prospectus, the statements in this prospectus supplement will control.
The securities are asset backed securities issued by the trust. The securities
are not obligations of American Honda Receivables Corp., American Honda Finance
Corporation, or any of their respective affiliates. Neither the securities nor
the receivables are insured or guaranteed by any government agency.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
THE SECURITIES OR DETERMINED THAT THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS
IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
- The trust will issue four classes of notes and a class of certificates.
- The notes are backed by a pledge of the trust's assets. The trust's assets
include fixed rate motor vehicle retail installment sales contracts secured by
new and used automobiles and light-duty trucks.
- Only the notes described on the following table are being offered by this
prospectus supplement and the accompanying prospectus.
<TABLE>
Final
Initial Scheduled
Principal Interest Accrual First Interest Payment
Amount Rate(1) Method(1) Payment Date Date
<S> <C> <C> <C> <C> <C>
November 15, November 15,
Class A-1 Notes.... $298,000,000 6.71125% Actual/360 2000 2001
November 15, December 16,
Class A-2 Notes.... $240,000,000 6.650% 30/360 2000 2002
November 15, July 15,
Class A-3 Notes.... $386,000,000 6.620% 30/360 2000 2004
November 15, Janaury 16,
Class A-4 Notes.... $129,270,000 6.670% 30/360 2000 2006
-------------------
(1) Interest generally will accrue on the Class A-1 Notes from payment date to payment date, and on the
Class A-2, Class A-3 and Class A-4 Notes from the 15th day of each month to the 15th day of the
succeeding month.
</TABLE>
The terms of the offering are as follows:
<TABLE>
Initial Public Underwriting Proceeds to
Offering Price(1) Discount Seller(2)
<S> <C> <C> <C>
Per Class A-1 Note................... 100.000000% 0.125% 99.875000%
Per Class A-2 Note................... 99.996415% 0.175% 99.821415%
Per Class A-3 Note................... 99.983969% 0.220% 99.763969%
Per Class A-4 Note................... 99.977383% 0.250% 99.727383%
Total................................ $1,053,170,279.34 $1,964,875.00 $1,051,205,404.34
----------------------------------
(1) Plus accrued interest, if any, from October 25, 2000.
(2) Before deducting expenses payable by the seller, estimated to be $1,100,000. The notes
will be delivered in book-entry form only on or about October 25, 2000.
</TABLE>
- We will not list the notes on any national securities exchange or on any
automated quotation system of any registered securities association such as
NASDAQ.
----------------------------------
JOINT BOOKRUNNERS
CHASE SECURITIES INC. J.P. MORGAN & CO.
CO-MANAGERS
BANC OF AMERICA SECURITIES LLC
BANC ONE CAPITAL MARKETS, INC.
SALOMON SMITH BARNEY
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS OCTOBER 17, 2000.
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
<S> <C>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS... S-5
SUMMARY OF PARTIES TO THE TRANSACTION....................... S-6
SUMMARY OF MONTHLY DEPOSITS TO AND WITHDRAWALS FROM
ACCOUNTS................................................ S-7
SUMMARY OF TERMS............................................ S-8
RELEVANT PARTIES............................................ S-8
Issuer.................................................. S-8
Seller.................................................. S-8
Servicer................................................ S-8
Indenture Trustee....................................... S-8
Owner Trustee........................................... S-8
RELEVANT AGREEMENTS......................................... S-8
Indenture............................................... S-8
Trust Agreement......................................... S-8
Sale and Servicing Agreement............................ S-8
Administration Agreement................................ S-8
Purchase Agreement...................................... S-8
RELEVANT DATES.............................................. S-8
Closing Date............................................ S-8
Cutoff Date............................................. S-8
Payment Dates........................................... S-8
Final Scheduled Payment Dates........................... S-9
Record Date............................................. S-9
DESCRIPTION OF THE SECURITIES............................... S-9
Offered Notes........................................... S-9
Securities Not Offered.................................. S-9
Receivables............................................. S-9
Terms of the Notes...................................... S-10
Optional Redemption..................................... S-12
Credit Enhancement...................................... S-12
Yield Supplement Account................................ S-13
Tax Status.............................................. S-13
ERISA Considerations.................................... S-14
Eligibility for Purchase by Money Market Funds.......... S-14
Ratings................................................. S-14
</TABLE>
S-2
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<TABLE>
<CAPTION>
<S> <C>
RISK FACTORS................................................ S-15
Because the trust has limited assets, there is only
limited protection against potential losses............. S-15
Occurrence of events of default under the indenture may
result in insufficient funds to make payments on your
securities.............................................. S-15
Payment priorities increase risk of loss or delay in
payment to certain notes................................ S-15
The geographic concentration of the obligors and
performance of the receivables may increase the risk of
loss on your investment................................. S-16
Paid-ahead simple interest contracts may affect the
weighted average life of the notes...................... S-16
Prepayments on receivables may cause prepayments on the
notes, resulting in reinvestment risk to you............ S-17
Withdrawal or downgrading of the initial ratings of the
notes will affect the prices for the notes upon
resale.................................................. S-18
The notes are not suitable investments for all
investors............................................... S-18
THE TRUST................................................... S-19
General................................................. S-19
CAPITALIZATION OF THE TRUST................................. S-20
THE OWNER TRUSTEE AND THE INDENTURE TRUSTEE................. S-20
THE RECEIVABLES............................................. S-20
MATURITY AND PREPAYMENT CONSIDERATIONS...................... S-24
DELINQUENCIES, REPOSSESSIONS AND LOAN LOSS INFORMATION...... S-24
WEIGHTED AVERAGE LIFE OF THE NOTES.......................... S-27
NOTE FACTORS................................................ S-33
USE OF PROCEEDS............................................. S-33
THE SELLER AND THE SERVICER................................. S-33
THE NOTES................................................... S-33
General................................................. S-33
Payments of Interest.................................... S-33
Payments of Principal................................... S-34
Indenture............................................... S-35
Notices................................................. S-35
Governing Law........................................... S-35
THE CERTIFICATES............................................ S-35
General................................................. S-35
Payments of Interest.................................... S-36
Payments of Principal................................... S-36
Notices................................................. S-36
Governing Law........................................... S-37
PAYMENTS ON THE NOTES....................................... S-37
Calculation of Available Amounts........................ S-37
</TABLE>
S-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Payment of Distributable Amounts........................ S-38
CREDIT ENHANCEMENT.......................................... S-42
Subordination........................................... S-42
Reserve Fund............................................ S-42
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS........ S-43
The Transfer and Servicing Agreements................... S-43
Sale and Assignment of Receivables...................... S-44
Accounts................................................ S-44
Collections............................................. S-44
Advances................................................ S-45
Servicing Compensation.................................. S-45
Yield Supplement Account................................ S-45
Net Deposits............................................ S-46
Optional Purchase....................................... S-46
Removal of Servicer..................................... S-47
Duties of the Owner Trustee and the Indenture Trustee... S-47
The Owner Trustee and the Indenture Trustee............. S-48
MATERIAL INCOME TAX CONSEQUENCES............................ S-50
Tax Characterization of the Trust....................... S-50
Treatment of the Notes as Indebtedness.................. S-50
California Income Tax Consequences...................... S-50
ERISA CONSIDERATIONS........................................ S-51
UNDERWRITING................................................ S-52
NOTICE TO CANADIAN RESIDENTS................................ S-53
Resale Restrictions..................................... S-53
Representations of Purchasers........................... S-54
Rights of Action (Ontario Purchasers)................... S-54
Enforcement of Legal Rights............................. S-54
Notice to British Columbia Residents.................... S-54
Taxation and Eligibility for Investment................. S-54
LEGAL OPINIONS.............................................. S-54
INDEX OF TERMS.............................................. S-55
ANNEX A GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION
PROCEDURES.............................................. A-1
Initial Settlement...................................... A-1
Secondary Market Trading................................ A-1
Material U.S. Federal Income Tax Documentation
Requirements............................................ A-3
</TABLE>
S-4
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
Information about the securities is provided in two separate documents that
progressively provide varying levels of detail: (1) the accompanying prospectus,
which provides general information, some of which may not apply to a particular
class of securities, including your class; and (2) this prospectus supplement,
which describes the specific terms of your class of securities.
IF THE DESCRIPTION OF THE TERMS OF YOUR SECURITIES VARIES BETWEEN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, YOU SHOULD RELY ON THE
INFORMATION IN THIS PROSPECTUS SUPPLEMENT.
Cross-references are included in this prospectus supplement and in the
accompanying prospectus which direct you to more detailed descriptions of a
particular topic. You can also find references to key topics in the Table of
Contents on page S-2 in this prospectus supplement and the Table of Contents on
page 2 in the accompanying prospectus.
You can find a listing of the pages where capitalized terms used in this
prospectus supplement are defined under the caption "Index of Terms" beginning
on page S-55 in this prospectus supplement and under the caption "Index of
Terms" beginning on page 95 in the accompanying prospectus.
S-5
<PAGE>
SUMMARY OF PARTIES TO THE TRANSACTION*
[LOGO]
* This chart provides only a simplified overview of the relations between the
key parties to the transaction. Refer to this prospectus supplement and the
prospectus for a further description.
S-6
<PAGE>
SUMMARY OF MONTHLY DEPOSITS TO AND
WITHDRAWALS FROM ACCOUNTS*
[LOGO]
* This chart provides only a simplified overview of the monthly flow of funds.
Refer to this prospectus supplement and the prospectus for a further
description.
S-7
<PAGE>
SUMMARY OF TERMS
THE FOLLOWING SUMMARY CONTAINS A BRIEF DESCRIPTION OF THE NOTES. YOU WILL
FIND A DETAILED DESCRIPTION OF THE TERMS OF THE OFFERING OF THE NOTES FOLLOWING
THIS SUMMARY. YOU SHOULD CAREFULLY READ THIS ENTIRE DOCUMENT AND THE
ACCOMPANYING PROSPECTUS TO UNDERSTAND ALL OF THE TERMS OF THE OFFERING OF THE
NOTES. YOU SHOULD CONSIDER BOTH DOCUMENTS WHEN MAKING YOUR INVESTMENT DECISION.
<TABLE>
<S> <C>
RELEVANT PARTIES
ISSUER..................................... Honda Auto Receivables 2000-1 Owner Trust. The trust
will be established by a trust agreement.
SELLER..................................... American Honda Receivables Corp.
SERVICER................................... American Honda Finance Corporation.
INDENTURE TRUSTEE.......................... U.S. Bank National Association.
OWNER TRUSTEE.............................. Bankers Trust (Delaware).
RELEVANT AGREEMENTS
INDENTURE.................................. The indenture between the issuer and the indenture
trustee. The indenture provides for the terms
relating to the notes.
TRUST AGREEMENT............................ The trust agreement among the seller and the owner
trustee. The trust agreement governs the creation of
the trust and provides for the terms relating to the
certificates.
SALE AND SERVICING AGREEMENT............... The sale and servicing agreement between the servicer
and the seller. The sale and servicing agreement
governs the transfer of the receivables by the seller
to the trust and the servicing of the receivables by
the servicer.
ADMINISTRATION AGREEMENT................... The administration agreement between American Honda
Finance Corporation, as administrator, the owner
trustee and the indenture trustee. The administration
agreement governs the provision of reports by the
administrator and the performance by the
administrator of other administrative duties for the
trust.
PURCHASE AGREEMENT......................... The purchase agreement between American Honda Finance
Corporation and the seller. The purchase agreement
governs the sale of the receivables from American
Honda Finance Corporation to the seller.
RELEVANT DATES
CLOSING DATE............................... Expected to be October 25, 2000.
CUTOFF DATE................................ October 1, 2000
PAYMENT DATES.............................. The trust will pay interest and principal on the
securities on the fifteenth day of each month. If the
fifteenth day of the month is not a business day,
payments on the securities will be made on the next
business day.
The date that any payment is made is called a payment
date. The first payment date is November 15, 2000.
</TABLE>
S-8
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<TABLE>
<S> <C>
FINAL SCHEDULED PAYMENT DATES.............. The final principal payment for each class of
securities is scheduled to be made on the final
scheduled payment dates specified on the front cover
of this prospectus supplement.
RECORD DATE................................ So long as the securities are in book-entry form, the
trust will make payments on the securities to the
holders of record on the day immediately preceding
the payment date. If the securities are issued in
definitive form, the record date will be the last day
of the month preceding the payment date.
DESCRIPTION OF THE SECURITIES
OFFERED NOTES.............................. The offered notes consist of the class A-1 notes, the
class A-2 notes, the class A-3 notes and the class
A-4 notes, as described on the cover page.
SECURITIES NOT OFFERED..................... The trust will also issue $46,755,487.15 initial
principal amount of certificates. The trust is not
offering the certificates.
The certificates will represent fractional undivided
interests in the trust. Payments of interest on and
principal of the certificates are subordinated to the
payments of interest on and principal of the notes as
described herein.
The certificates are not being offered by this
prospectus supplement and initially will be retained
by the Seller. Any information in this prospectus
supplement regarding the certificates is intended
only to give you a better understanding of the notes.
RECEIVABLES................................ The trust's main source of funds for making payments
on the notes will be collections on its motor vehicle
retail installment sale contracts, also known as the
receivables.
The principal balance of the receivables on October
1, 2000, referred to as the "cutoff date," was
$1,100,025,487.15. As of the cutoff date, the
receivables had the following characteristics:
- number of receivables....................... 87,294
- average principal balance............... $12,601.39
- weighted average annual percentage rate...... 6.85%
- weighted average remaining term to maturity........
45.35 months
- weighted average original term to maturity... 55.72
months
The receivables owned by the trust are classified as
either precomputed receivables or simple interest
receivables. The portion of the scheduled monthly
payments and prepayments that will be allocable to
principal is different for each of the two types of
receivables. These receivables are described in more
detail in "The Receivables" in the accompanying
prospectus.
WE REFER YOU TO "THE RECEIVABLES" IN THIS PROSPECTUS
SUPPLEMENT FOR MORE INFORMATION ON THE RECEIVABLES.
</TABLE>
S-9
<PAGE>
<TABLE>
<S> <C>
TERMS OF THE NOTES......................... In general, noteholders are entitled to receive
payments of interest and principal from the trust
only to the extent that collections from trust assets
and funds resulting from credit enhancements are
sufficient to make those payments. Interest and
principal collections from trust assets will be
divided among the various classes of securities in
specified proportions. The trust will pay interest
and principal to noteholders of record as of the
preceding record date.
INTEREST:
The interest rate for each class of notes is set
forth on the front cover of this prospectus
supplement.
The class A-1 notes will accrue interest on an
actual/360 basis from (and including) a payment date
to (but excluding) the next payment date, except that
the first interest accrual period will be from (and
including) the closing date to (but excluding)
November 15, 2000. This means that the interest due
on each payment date will be the product of: (i) the
outstanding principal balance of the related class of
notes, (ii) the interest rate, and (iii) the actual
number of days since the previous payment date (or,
in the case of the first payment date, since the
closing date) divided by 360.
The class A-2, class A-3 and class A-4 notes will
accrue interest on a 30/360 basis from (and
including) the 15th day of each calendar month to
(but excluding) the 15th day of the succeeding
calendar month except that the first interest accrual
period will be from (and including) the closing date
to (but excluding) November 15, 2000. This means that
the interest due on each payment date will be the
product of: (i) the outstanding principal balance of
the related class of notes, (ii) the applicable
interest rate, and (iii) 30 (or, in the case of the
first payment date, 20) divided by 360.
If noteholders of any class do not receive all
interest owed to them on a payment date, the trust
will make payments of interest on later payment dates
to make up the shortfall together with interest on
those amounts, to the extent funds from specified
sources are available to cover the shortfall.
PRINCIPAL:
- AMOUNTS ALLOCATED TO THE NOTES: Principal of the
notes will be payable generally in an amount equal to
the noteholders' percentage of the following
amounts referred to as the "principal distributable
amount":
1. principal collections on the receivables during
the prior calendar month;
2. any prepayments (full or partial) on the
receivables allocable to principal received during
the prior calendar month;
</TABLE>
S-10
<PAGE>
<TABLE>
<S> <C>
3. the principal balance of each receivable which the
seller or the servicer purchased with respect to
the prior calendar month; and
4. the principal balance of receivables that became
liquidated receivables during the prior calendar
month.
Principal payments on the notes as described above
will be made from all available amounts after the
servicing fee, non-recoverable advances and trust
fees and expenses have been paid and after payment of
interest on the notes.
- The noteholders' percentage will equal 100% until
the principal amount of the class A-1 notes has been
paid in full. After the principal amount of the
class A-1 notes has been paid in full, the
noteholders' percentage will equal the percent
equivalent of a fraction the numerator of which is
the initial aggregate principal amount of the notes
and the denominator of which is the sum of the
initial aggregate principal amount of the notes and
the initial principal amount of the certificates.
- ORDER OF PAYMENT AMONG CLASSES: No principal
payments will be made (1) on the class A-2 notes
until the class A-1 notes have been paid in full;
(2) on the class A-3 notes until the class A-1 and
A-2 notes have been paid in full; and (3) on the
class A-4 notes until the class A-1 notes, the
class A-2 notes and the class A-3 notes have been
paid in full.
However, upon the acceleration of the notes following
an event of default, the noteholders' percentage will
be 100% until the notes have been paid in full.
Principal payments will be made first to the holders
of the class A-1 notes until they have been paid in
full. After the class A-1 notes have been paid in
full, principal payments will be made to the class
A-2 notes, the class A-3 notes and the class A-4
notes on a pro rata basis based on the outstanding
principal balance of those classes of notes. After
the class A-1 notes, the class A-2 notes, the class
A-3 notes and the class A-4 notes have been paid in
full, principal payments will be made on the
certificates until the certificates have been paid in
full.
- FINAL SCHEDULED PAYMENT DATES: The trust must pay
the outstanding principal balance of each class of
notes by its final scheduled payment date as
specified on the cover page of this prospectus
supplement.
WE REFER YOU TO "PAYMENTS ON THE NOTES--CALCULATION
OF AVAILABLE AMOUNTS" IN THIS PROSPECTUS SUPPLEMENT
FOR MORE DETAILED INFORMATION REGARDING PAYMENTS OF
PRINCIPAL ON THE NOTES.
</TABLE>
S-11
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<TABLE>
<S> <C>
OPTIONAL REDEMPTION........................ The servicer may cause the trust to redeem any
outstanding securities when the outstanding aggregate
principal balance of the receivables declines to 10%
or less of the original aggregate principal balance
of the receivables as of the cut-off date. WE REFER
YOU TO "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--OPTIONAL PURCHASE" in this prospectus
supplement for more detailed information.
CREDIT ENHANCEMENT......................... Credit enhancement is intended to protect you against
losses and delays in payments on your securities by
absorbing losses on the receivables and other
shortfalls in cash flows. The credit enhancement for
the notes will include the certificates, the reserve
fund and the subordination of the seller's right to
receive excess interest.
CERTIFICATES. The certificates have an initial
principal balance of $46,755,487.15 and represent
approximately 4.25% of the initial principal balance
of all the notes and the certificates.
The certificates will be subordinated in priority of
payment to all classes of notes. The certificates
will not receive any interest or principal
distributions on any payment date until all of the
principal and interest owing on the notes on that
payment date have been paid in full and the reserve
fund has been funded to its required level.
RESERVE FUND. On each payment date, the trust will
use funds in the reserve fund to cover shortfalls in
payments of interest and principal required to be
paid on the notes.
The sale and servicing agreement sets forth the
specified reserve fund balance, which is the amount
that is required to be on deposit in the reserve
fund. On the closing date, the seller will cause to
be deposited $5,500,127.44 into the reserve fund,
which is 0.50% of the initial aggregate principal
balance of the receivables as of the cut-off date. On
each payment date, after making required payments to
the servicer and to the holders of the notes, the
trust will make a deposit into the reserve fund to
the extent necessary to maintain the amount on
deposit in the reserve fund at the specified reserve
fund balance.
EXCESS INTEREST. The seller is entitled to receive
payments of interest collected on the receivables
which are not used by the trust to make other
required payments. The seller's right to receive this
excess interest is subordinated to the payment of
principal and interest on the notes, the funding of
the reserve fund and the payment of principal and
interest on the certificates.
FOR MORE DETAILED INFORMATION ABOUT THE RESERVE FUND,
WE REFER YOU TO "SUBORDINATION; RESERVE FUND" IN THIS
PROSPECTUS SUPPLEMENT.
</TABLE>
S-12
<PAGE>
<TABLE>
<S> <C>
YIELD SUPPLEMENT ACCOUNT................... On the closing date, the seller will cause to be
deposited $23,950,083.32 into the yield supplement
account. Neither the seller nor the servicer will
make any additional deposits to the yield supplement
account after the closing date.
On or before each payment date, the indenture trustee
will withdraw from funds on deposit in the yield
supplement account and deposit in the collection
account the aggregate amount by which (1) one month's
interest on the principal balance of each discount
receivable (other than a discount receivable that is
a defaulted receivable) at a rate equal to the time
weighted average note rate plus 1.00% (the servicing
rate) exceeds (2) one month's interest on the
principal balance of each discount receivable at the
annual percentage rate of that receivable. In
addition, the indenture trustee will withdraw from
the yield supplement account and deposit in the
collection account amounts on deposit in the yield
supplement account in excess of the amount required
to be on deposit therein. Discount receivables are
those receivables that have interest rates which are
less than the sum of the time weighted average note
rate and 1.00%.
FOR DETAILED INFORMATION ABOUT THE YIELD SUPPLEMENT
ACCOUNT, WE REFER YOU TO "DESCRIPTION OF THE TRANSFER
AND SERVICING AGREEMENT--YIELD SUPPLEMENT ACCOUNT" IN
THIS PROSPECTUS SUPPLEMENT.
TAX STATUS................................. Subject to important considerations described in this
prospectus supplement and the accompanying
prospectus, Dewey Ballantine LLP, special tax counsel
to the trust, will deliver its opinion that:
1. the notes will be characterized as debt for tax
purposes;
2. the trust will not be characterized as an
association or a publicly traded partnership taxable
as a corporation for federal income and California
income and franchise tax purposes.
If you purchase the notes, you will agree to treat
the notes as debt. The seller and any subsequent
purchaser of the certificates will agree to treat the
trust (1) as a partnership in which the owners of the
certificates are partners or (2) if there is only one
beneficial owner of the certificates, as a
"disregarded entity," for federal income and
California income and franchise tax purposes.
WE REFER YOU TO "MATERIAL INCOME TAX CONSEQUENCES" IN
THIS PROSPECTUS SUPPLEMENT AND "MATERIAL INCOME TAX
CONSEQUENCES--TAX TREATMENT OF OWNER TRUSTS" IN THE
ACCOMPANYING PROSPECTUS.
</TABLE>
S-13
<PAGE>
<TABLE>
<S> <C>
ERISA CONSIDERATIONS....................... The notes are generally eligible for purchase by
employee benefit plans and individual retirement
accounts, subject to those considerations discussed
under "ERISA Considerations" in this prospectus
supplement and in the accompanying prospectus.
WE REFER YOU TO "ERISA CONSIDERATIONS" IN THIS
PROSPECTUS SUPPLEMENT AND IN THE ACCOMPANYING
PROSPECTUS. IF YOU ARE A BENEFIT PLAN FIDUCIARY
CONSIDERING PURCHASE OF THE SECURITIES YOU SHOULD,
AMONG OTHER THINGS, CONSULT WITH YOUR COUNSEL IN
DETERMINING WHETHER ALL REQUIRED CONDITIONS HAVE BEEN
SATISFIED.
ELIGIBILITY FOR PURCHASE BY MONEY MARKET
FUNDS.................................... The class A-1 notes will be eligible for purchase by
money market funds under Rule 2a-7 under the
Investment Company Act of 1940, as amended. A money
market fund should consult its legal advisers
regarding the eligibility of such notes under Rule
2a-7 and whether an investment in such notes
satisfies such fund's investment policies and
objectives.
RATINGS.................................... It is a condition to the issuance of the securities
that the securities will receive the following
ratings from Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc., Moody's
Investors Service, Inc. and Fitch, Inc.:
</TABLE>
<TABLE>
<CAPTION>
STANDARD &
CLASS POOR'S MOODY'S
----- ----------------------- -----------------------
<S> <C> <C> <C>
A-1 A-1+ P-1
A-2 AAA Aaa
A-3 AAA Aaa
A-4 AAA Aaa
<CAPTION>
FITCH
-----------------------
<S> <C>
F-1+
AAA
AAA
AAA
</TABLE>
S-14
<PAGE>
RISK FACTORS
YOU SHOULD CONSIDER THE FOLLOWING RISK FACTORS (AND THE FACTORS SET FORTH
UNDER "RISK FACTORS" IN THE ACCOMPANYING PROSPECTUS) IN DECIDING WHETHER TO
PURCHASE THE SECURITIES OF ANY CLASS.
<TABLE>
<S> <C>
BECAUSE THE TRUST HAS LIMITED The only source of funds for payments on the securities is
ASSETS, THERE IS ONLY LIMITED the assets of the trust and the reserve fund. The securities
PROTECTION AGAINST POTENTIAL are not obligations of, and will not be insured or
LOSSES. guaranteed by, any governmental agency or the seller, the
servicer, any trustee or any of their affiliates. You must
rely solely on payments on the receivables and amounts on
deposit in the reserve fund for payments on the notes.
Although funds in the reserve fund will be available to
cover shortfalls in payments of interest and principal on
each payment date, the amounts deposited in the reserve fund
will be limited. If the entire reserve fund has been used,
the trust will depend solely on current collections on the
receivables to make payments on the notes. Any excess
amounts released from the reserve fund to the seller will no
longer be available to securityholders on any later payment
date. WE REFER YOU TO "SUBORDINATION; RESERVE FUND" IN THIS
PROSPECTUS SUPPLEMENT.
OCCURRENCE OF EVENTS OF Payment defaults or the insolvency or dissolution of the
DEFAULT UNDER THE INDENTURE seller may result in prepayment of the securities, which may
MAY RESULT IN INSUFFICIENT result in losses. If the trust fails to pay principal of the
FUNDS TO MAKE PAYMENTS ON YOUR notes when due, or fails to pay interest on the notes within
SECURITIES. five days of the due date, the indenture trustee or the
holders of the notes outstanding may declare the entire
amount of the notes to be due immediately. If this happens,
the holders of a majority of the notes outstanding then may
direct the indenture trustee to sell the assets of the trust
and prepay the notes. In the event the indenture trustee
sells the receivables under adverse market conditions,
proceeds from the sale of the receivables may not be
sufficient to repay all of the notes and you may suffer a
loss.
PAYMENT PRIORITIES INCREASE Classes of notes that receive payments, particularly
RISK OF LOSS OR DELAY IN principal payments, before other classes will be repaid more
PAYMENT TO CERTAIN NOTES. rapidly than the other classes. In addition, because
principal of each class of notes will be paid sequentially,
classes of notes that have higher sequential numerical class
designation will be outstanding longer and therefore will be
exposed to the risk of losses on the receivables during
periods after other classes have been receiving most or all
amounts payable on their notes, and after which a
disproportionate amount of credit enhancement may have been
applied and not replenished.
As a result, the yields of the class A-2, class A-3 and
class A-4 notes will be relatively more sensitive to losses
on the receivables and the timing of such losses. If the
actual rate and amount of losses exceed your expectations,
and if amounts in the reserve fund are insufficient to cover
the resulting shortfalls, the yield to maturity on your
notes may be lower than anticipated, and you could suffer a
loss.
</TABLE>
S-15
<PAGE>
<TABLE>
<S> <C>
Classes of notes that receive payments earlier than expected
are exposed to greater reinvestment risk and classes of
notes that receive principal later than expected are exposed
to greater risk of loss. In either case, the yields on your
notes could be materially and adversely affected.
Upon the occurrence of an event of default and acceleration
of the notes, principal payments will be made first on the
class A-1 notes until the class A-1 notes have been paid in
full, and thereafter on the class A-2 notes, class A-3 notes
and class A-4 notes pro rata based on the amount outstanding
under each such class. Consequently, even after an event of
default and acceleration of all the notes, the class A-2
noteholders, class A-3 noteholders and class A-4 noteholders
will not receive payments on principal until the class A-1
notes have been paid in full.
THE GEOGRAPHIC CONCENTRATION Economic conditions in the states where obligors reside may
OF THE OBLIGORS AND affect delinquencies, losses and prepayments on the
PERFORMANCE OF THE RECEIVABLES receivables. The following economic conditions may affect
MAY INCREASE THE RISK OF LOSS payments on the receivables:
ON YOUR INVESTMENT.
- unemployment,
- interest rates,
- inflation rates, and
- consumer perceptions of the economy.
If a large number of obligors are located in a particular
state, these conditions could increase the delinquency,
credit loss or repossession experience of the receivables.
If there is a concentration of obligors and receivables in
particular states, any adverse economic conditions in those
states may affect the performance of the securities more
than if this concentration did not exist.
As of the cutoff date, American Honda Finance Corporation's
records indicate that the billing addresses of the
originating dealers of the receivables were concentrated in
the following states:
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
STATE PRINCIPAL BALANCE
----- -------------------
<S> <C> <C>
California 21.24%
New York 8.32%
Texas 7.92%
New Jersey 5.45%
</TABLE>
<TABLE>
<S> <C>
No other state, by billing address, constituted more than 5%
of the aggregate principal balance of the receivables as of
the cutoff date.
FOR A DISCUSSION OF THE BREAKDOWN OF THE RECEIVABLES BY
STATE, WE REFER YOU TO "THE RECEIVABLES" IN THIS PROSPECTUS
SUPPLEMENT.
PAID-AHEAD SIMPLE INTEREST If an obligor on a simple interest contract makes a payment
CONTRACTS MAY AFFECT THE on the contract ahead of schedule (for example, because the
WEIGHTED AVERAGE LIFE OF THE obligor intends to go on vacation), the weighted average
NOTES. life of the
</TABLE>
S-16
<PAGE>
<TABLE>
<S> <C>
securities could be affected. This is because the additional
scheduled payments will be treated as a principal prepayment
and applied to reduce the principal balance of the related
receivable and the obligor will generally not be required to
make any scheduled payments during the period for which it
was paid-ahead. During this paid-ahead period, interest will
continue to accrue on the principal balance of the contract,
as reduced by the application of the additional scheduled
payments, but the obligor's contract would not be considered
delinquent during this period. While the servicer may be
required to make interest advances during this period, no
principal advances will be made. Furthermore, when the
obligor resumes the required payments, the payments so paid
may be insufficient to cover the interest that has accrued
since the last payment by that obligor. This situation will
continue until the regularly scheduled payments are once
again sufficient to cover all accrued interest and to reduce
the principal balance of the receivable.
The payment by the trust of the paid-ahead principal amount
on the notes will generally shorten the weighted average
life of the notes. However, depending on the length of time
during which a paid-ahead simple interest receivable is not
amortizing as described above, the weighted average life of
the notes may be extended. In addition, to the extent the
servicer makes advances on a paid-ahead simple interest
receivable which subsequently goes into default, because
liquidation proceeds for this receivable will be applied
first to reimburse the servicer for its advances, the loss
on this receivable may be larger than would have been the
case had advances not been made.
AHFC's portfolio of retail installment sale contracts has
historically included simple interest receivables which have
been paid-ahead by one or more scheduled monthly payments.
There can be no assurance as to the number of receivables in
the trust which may become paid-ahead simple interest
receivables as described above or the number or the
principal amount of the scheduled payments which may be
paid-ahead.
PREPAYMENTS ON RECEIVABLES MAY You may receive payment of principal on your notes earlier
CAUSE PREPAYMENTS ON THE than you expected. If that happens, you may not be able to
NOTES, RESULTING IN reinvest the principal you receive at a rate as high as the
REINVESTMENT RISK TO YOU. rate on your notes. Prepayments on the receivables will
shorten the life of the notes to an extent that cannot be
predicted. Prepayments may occur for a number of reasons.
Some prepayments may be caused by the obligors under the
receivables. For example, obligors may:
- make early payments, since receivables will generally be
prepayable at any time without penalty;
- default, resulting in the repossession and sale of the
financed vehicle; or
</TABLE>
S-17
<PAGE>
<TABLE>
<S> <C>
- damage the vehicle or become unable to pay due to death or
disability, resulting in payments to the trust under any
existing physical damage, credit life or other insurance.
Some prepayments may be caused by the seller or the
servicer. For example, the seller will make representations
and warranties regarding the receivables, and the servicer
will agree to take or refrain from taking certain actions
with respect to the receivables. If the seller or the
servicer breaches a representation or warranty and the
breach is material and cannot be remedied, it will be
required to purchase the affected receivables from the
trust. This will result, in effect, in the prepayment of the
purchased receivables. In addition, the servicer has the
option to purchase the receivables from the trust when the
total outstanding principal balance of the receivables is
10% or less of the total outstanding principal balance of
the receivables as of the cutoff date.
The rate of prepayments on the receivables may be influenced
by a variety of economic, social and other factors. The
seller has limited historical experience with respect to
prepayments. For these reasons, the seller cannot predict
the actual prepayment rates for the receivables. The seller,
however, believes that the actual rate of prepayments will
result in the weighted average life of the receivables being
shorter than the period from the closing date to the final
scheduled maturity date for the related class of notes. If
this is the case, the weighted average life of each class of
notes will be correspondingly shorter.
WITHDRAWAL OR DOWNGRADING OF A security rating is not a recommendation to buy, sell or
THE INITIAL RATINGS OF THE hold securities. Similar ratings on different types of
NOTES WILL AFFECT THE PRICES securities do not necessarily mean the same thing. You
FOR THE NOTES UPON RESALE. should analyze the significance of each rating independently
from any other rating. A rating agency may change its rating
of the notes after the notes are issued if that rating
agency believes that circumstances have changed. Any
subsequent change in a rating will likely affect the price
that a subsequent purchaser would be willing to pay for the
notes and your ability to resell your notes.
THE NOTES ARE NOT SUITABLE The notes are not a suitable investment for any investor
INVESTMENTS FOR ALL INVESTORS. that requires a regular or predictable schedule of payments
or payment on specific dates. The notes are complex
investments that should be considered only by sophisticated
investors. We suggest that only investors who, either alone
or with their financial, tax and legal advisors, have the
expertise to analyze the prepayment, reinvestment and
default risks, the tax consequences of an investment and the
interaction of these factors should consider investing in
the notes.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
</TABLE>
S-18
<PAGE>
THE TRUST
GENERAL
The Honda Auto Receivables 2000-1 Owner Trust (the "Trust") is a Delaware
business trust to be formed pursuant to the trust agreement (the "Trust
Agreement") between American Honda Receivables Corp., as seller (the "Seller"),
and Bankers Trust (Delaware), as owner trustee (the "Owner Trustee"). After its
formation, the Trust will not engage in any activity other than:
1. acquiring, holding and managing the Receivables and the other assets of
the Trust and proceeds from those assets;
2. issuing the notes and the certificates;
3. making payments on the notes and the certificates; and
4. engaging in other activities that are necessary, suitable or convenient
to accomplish the foregoing or are incidental to or connected with those
activities.
The Trust will initially be capitalized with an amount equal to the
certificate balance of $46,755,487.15 (the "Initial Certificate Balance"),
excluding amounts deposited in the Reserve Fund. The certificates will be
retained by the Seller. The equity of the Trust, together with the net proceeds
from the sale of the notes, will be used by the Trust to purchase the
Receivables from the Seller pursuant to the sale and servicing agreement between
the Servicer and the Seller (the "Sale and Servicing Agreement") and to fund the
Reserve Fund.
American Honda Finance Corporation ("AHFC") will be appointed to act as the
servicer of the Receivables (in that capacity, the "Servicer"). The Servicer
will service the Receivables pursuant to the Sale and Servicing Agreement, the
Administration Agreement and the Trust Agreement and will be compensated for
those services as described under "Description of the Transfer and Servicing
Agreements--Servicing Compensation" in this prospectus supplement and
"Description of the Transfer and Servicing Agreements--Servicing Compensation"
in the accompanying prospectus.
Pursuant to agreements between AHFC and the Dealers, each Dealer will
repurchase from AHFC those contracts that do not meet specified representations
and warranties made by the Dealer. These Dealer repurchase obligations are
referred to in this prospectus supplement as "Dealer Recourse." Those
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 relate to the creditworthiness of the related Obligors or
the collectability of those contracts. Although the Dealer Agreements with
respect to the Receivables will not be assigned to the Owner Trustee, the Sale
and Servicing Agreement will require that any recovery by AHFC in respect of any
Receivable pursuant to any Dealer Recourse be deposited in the Collection
Account to satisfy AHFC's repurchase obligations under the Sale and Servicing
Agreement. The sales by the Dealers of retail installment sale contracts to AHFC
do not generally provide for recourse against the Dealers for unpaid amounts in
the event of a default by an Obligor, other than in connection with the breach
of the foregoing representations and warranties.
Each certificate represents a fractional undivided ownership interest in the
Trust. The Trust property includes the Receivables and monies due or received
under the Receivables on or after the Cutoff Date. The Reserve Fund will be
maintained by the Indenture Trustee for the benefit of the Noteholders and the
Yield Supplement Account will be maintained for the benefit of the Noteholders
and the Certificateholders.
The Trust's principal offices are in Wilmington, Delaware, in care of
Bankers Trust (Delaware), as Owner Trustee, at the address set forth below under
"The Owner Trustee and the Indenture Trustee."
S-19
<PAGE>
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the Trust as of the
Closing Date, as if the issuance and sale of the notes and issuance of the
certificates had taken place on that date:
<TABLE>
<S> <C>
Class A-1 Notes........................................... $ 298,000,000.00
-----------------
Class A-2 Notes........................................... 240,000,000.00
-----------------
Class A-3 Notes........................................... 386,000,000.00
-----------------
Class A-4 Notes........................................... 129,270,000.00
-----------------
Certificates.............................................. 46,755,487.15
-----------------
Total................................................... $1,100,025,487.15
=================
</TABLE>
THE OWNER TRUSTEE AND THE INDENTURE TRUSTEE
Bankers Trust (Delaware) is the Owner Trustee under the Trust Agreement.
Bankers Trust (Delaware)'s principal executive offices are located at 1011
Centre Road, Suite 200, Wilmington, Delaware 19808. The Seller and its
affiliates may maintain normal commercial banking relations with the Owner
Trustee and its affiliates.
U.S. Bank National Association is the trustee under the Indenture (the
"Indenture Trustee" and, together with the Owner Trustee, the "Trustees"). U.S.
Bank National Association is a national banking association and its principal
executive offices are located at One Illinois Center, 111 E. Wacker Drive, Suite
3000, Chicago, Illinois 60601. The Seller and its affiliates may maintain normal
commercial banking relations with the Indenture Trustee and its affiliates.
THE RECEIVABLES
The property of the Trust will consist of a pool of retail installment sale
contracts (the "Receivables") originated on or after March 23, 1996, between
Honda and Acura dealers (the "Dealers") and retail purchasers (the "Obligors").
The Receivables were originated by Dealers in accordance with AHFC's
requirements under agreements with Dealers governing the assignment of the
Receivables to AHFC. The Receivables evidence the indirect financing made
available by AHFC to the Obligors. The Receivables are secured by new or used
Honda and Acura motor vehicles (the "Financed Vehicles") and all principal and
interest payments made on or after October 1, 2000 (the "Cutoff Date") and other
property specified in the Receivables.
AHFC purchased the Receivables from the Dealers in the ordinary course of
business in accordance with AHFC's underwriting standards. On or before the date
of the initial issuance of the securities (the "Closing Date"), AHFC will sell
the Receivables to the Seller. The Seller will, in turn, sell the Receivables to
the Trust on the Closing Date pursuant to the Sale and Servicing Agreement. AHFC
will continue to service the Receivables. The Receivables to be held by the
Trust will be selected from those motor vehicle retail installment sale
contracts in AHFC's portfolio that meet several criteria. These criteria provide
that each Receivable:
1. was originated in the United States and the Obligor is not a federal,
state or local governmental entity;
2. has a contractual Annual Percentage Rate ("APR") ranging from 2.90% to
15.90%;
3. provides for level monthly payments that fully amortize the amount
financed over its original term except that the payment in the first or
last month during the life of the Receivable may be minimally different
from the level payment;
S-20
<PAGE>
4. has a remaining term to maturity of not less than 6 months and not more
than 58 months;
5. is less than 30 days past due;
6. was originated prior to July 1, 2000;
7. has been entered into by an Obligor that was not in bankruptcy
proceedings or is bankrupt or insolvent (according to the records of
AHFC); and
8. is secured by a Financed Vehicle that has not been repossessed
(according to the records of AHFC).
No selection procedures believed to be adverse to the Securityholders will
be utilized in selecting the Receivables from qualifying retail installment sale
contracts. Except as described in item (2) above, the Receivables were not
selected on the basis of their APRs.
The composition, distribution by APR and geographic distribution of the
Receivables as of the Cutoff Date are as set forth in the following tables.
Approximately 1.90% and 98.10% of the Receivables (based on the Pool Balance as
of the Cutoff Date) constitute Precomputed Receivables and Simple Interest
Receivables, respectively. WE REFER YOU TO "THE RECEIVABLES" IN THE ACCOMPANYING
PROSPECTUS FOR A FURTHER DESCRIPTION OF THE CHARACTERISTICS OF PRECOMPUTED
RECEIVABLES AND SIMPLE INTEREST RECEIVABLES.
COMPOSITION OF THE RECEIVABLES
<TABLE>
<S> <C>
Aggregate Principal Balance................................. $1,100,025,487.15
Number of Receivables....................................... 87,294
Average Principal Balance................................... $12,601.39
Average Original Amount Financed............................ $15,545.57
Range of Original Amount Financed......................... $1,410.34 to
$102,461.21
Weighted Average APR(1)..................................... 6.85%
Range of APRs............................................. 2.90% to 15.90%
Weighted Average Original Term to Maturity(1)............... 55.72 months
Range of Original Term to Maturities...................... 18 months to 60
months
Weighted Average Remaining Term to Maturity(1).............. 45.35 months
Range of Remaining Term to Maturities..................... 6 months to 58
months
Percentage by Principal Balance of Receivables of New and
Used Motor Vehicles....................................... 90.30% (New)
9.70% (Used)
Percentage by Principal Balance of Receivables Financed
through Honda and Acura Dealers........................... 93.31% (Honda)
6.69% (Acura)
</TABLE>
------------------------
(1) Weighted by Principal Balance as of the Cutoff Date.
S-21
<PAGE>
DISTRIBUTION OF THE RECEIVABLES BY APR
(PERCENTAGES MAY NOT ADD TO 100.00% DUE TO ROUNDING)
<TABLE>
<CAPTION>
PERCENTAGE
OF AGGREGATE CUTOFF DATE PERCENTAGE
NUMBER OF NUMBER OF PRINCIPAL OF INITIAL
RANGE OF APRS (%) RECEIVABLES RECEIVABLES BALANCE POOL BALANCE
----------------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
2.01% to 3.00%........................... 96 0.11% $ 910,915.50 0.08%
3.01% to 4.00%........................... 8,214 9.41 71,431,453.33 6.49
4.01% to 5.00%........................... 9,764 11.19 104,738,526.74 9.52
5.01% to 6.00%........................... 26,161 29.97 343,641,515.81 31.24
6.01% to 7.00%........................... 17,170 19.67 227,857,726.12 20.71
7.01% to 8.00%........................... 9,756 11.18 131,241,182.49 11.93
8.01% to 9.00%........................... 6,736 7.72 95,133,501.12 8.65
9.01% to 10.00%.......................... 3,607 4.13 49,677,839.06 4.52
10.01% to 11.00%......................... 2,544 2.91 34,573,981.72 3.14
11.01% to 12.00%......................... 2,202 2.52 29,517,050.13 2.68
12.01% to 13.00%......................... 751 0.86 9,129,089.56 0.83
13.01% to 14.00%......................... 231 0.26 1,734,670.04 0.16
14.01% to 15.00%......................... 57 0.07 420,569.49 0.04
15.01% to 16.00%......................... 5 0.01 17,466.04 0.00
------ ------ ----------------- ------
Totals:.................................. 87,294 100.00% $1,100,025,487.15 100.00%
====== ====== ================= ======
</TABLE>
DISTRIBUTION OF THE RECEIVABLES BY STATE
BASED ON THE ADDRESSES OF THE ORIGINATING DEALERS
(PERCENTAGES MAY NOT ADD TO 100.00% DUE TO ROUNDING)
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE PERCENTAGE
NUMBER OF NUMBER OF CUTOFF DATE OF INITIAL
STATE(1) RECEIVABLES RECEIVABLES PRINCIPAL BALANCE POOL BALANCE
-------- ----------- ------------- ----------------- ------------
<S> <C> <C> <C> <C>
Alabama.................................. 1,089 1.25% $ 15,140,359.68 1.38%
Alaska................................... 14 0.02 218,846.83 0.02
Arizona.................................. 914 1.05 12,469,673.20 1.13
Arkansas................................. 646 0.74 8,804,189.35 0.80
California............................... 18,001 20.62 233,667,432.19 21.24
Colorado................................. 814 0.93 10,550,194.43 0.96
Connecticut.............................. 1,871 2.14 22,361,709.55 2.03
Delaware................................. 405 0.46 5,176,131.35 0.47
Florida.................................. 3,779 4.33 49,319,636.78 4.48
Georgia.................................. 2,585 2.96 35,923,063.22 3.27
Hawaii................................... 287 0.33 3,766,205.30 0.34
Idaho.................................... 114 0.13 1,394,018.13 0.13
Illinois................................. 3,310 3.79 40,679,967.52 3.70
Indiana.................................. 961 1.10 11,761,898.62 1.07
Iowa..................................... 451 0.52 5,695,836.32 0.52
Kansas................................... 415 0.48 5,225,562.91 0.48
Kentucky................................. 663 0.76 8,625,019.72 0.78
Louisiana................................ 1,257 1.44 17,334,847.28 1.58
Maine.................................... 162 0.19 1,855,772.50 0.17
</TABLE>
(TABLE CONTINUES ON NEXT PAGE)
S-22
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE PERCENTAGE
NUMBER OF NUMBER OF CUTOFF DATE OF INITIAL
STATE(1) RECEIVABLES RECEIVABLES PRINCIPAL BALANCE POOL BALANCE
-------- ----------- ------------- ----------------- ------------
<S> <C> <C> <C> <C>
Maryland................................. 3,103 3.55 40,811,210.64 3.71
Massachusetts............................ 3,140 3.60 36,685,874.14 3.34
Michigan................................. 1,506 1.73 18,716,791.09 1.70
Minnesota................................ 972 1.11 12,434,867.87 1.13
Mississippi.............................. 322 0.37 4,522,502.78 0.41
Missouri................................. 1,164 1.33 14,200,103.55 1.29
Montana.................................. 76 0.09 972,771.95 0.09
Nebraska................................. 210 0.24 2,508,428.10 0.23
Nevada................................... 332 0.38 4,574,530.76 0.42
New Hampshire............................ 525 0.60 6,074,617.25 0.55
New Jersey............................... 4,899 5.61 59,977,356.94 5.45
New Mexico............................... 262 0.30 3,292,781.48 0.30
New York................................. 8,816 10.10 91,566,312.78 8.32
North Carolina........................... 2,210 2.53 29,464,504.08 2.68
North Dakota............................. 63 0.07 849,548.16 0.08
Ohio..................................... 2,862 3.28 35,024,932.14 3.18
Oklahoma................................. 506 0.58 6,424,177.63 0.58
Oregon................................... 658 0.75 7,859,535.33 0.71
Pennsylvania............................. 3,744 4.29 44,928,118.60 4.08
Rhode Island............................. 277 0.32 3,338,255.39 0.30
South Carolina........................... 965 1.11 12,935,594.73 1.18
South Dakota............................. 156 0.18 1,933,951.37 0.18
Tennessee................................ 1,467 1.68 20,374,762.04 1.85
Texas.................................... 6,144 7.04 87,168,490.62 7.92
Utah..................................... 355 0.41 4,878,865.78 0.44
Vermont.................................. 212 0.24 2,410,882.00 0.22
Virginia................................. 1,998 2.29 25,592,232.44 2.33
Washington............................... 1,282 1.47 16,526,863.68 1.50
West Virginia............................ 132 0.15 1,642,954.49 0.15
Wisconsin................................ 1,171 1.34 12,031,070.29 1.09
Wyoming.................................. 27 0.03 332,234.17 0.03
------ ------ ----------------- ------
Totals:.................................. 87,294 100.00% $1,100,025,487.15 100.00%
====== ====== ================= ======
</TABLE>
------------------------
(1) Based on the addresses of the originating Dealers.
S-23
<PAGE>
MATURITY AND PREPAYMENT CONSIDERATIONS
Information regarding maturity and prepayment considerations with respect to
the securities is set forth under "Weighted Average Life of the Securities" in
the accompanying prospectus and "Risk Factors--You may experience reduced
returns on your investment resulting from prepayments, repurchases or early
termination of the trust" in the accompanying prospectus. Except as otherwise
provided in this prospectus supplement, no principal payments will be made on
the class A-2 notes until the class A-1 notes have been paid in full; no
principal payments will be made on the class A-3 notes until the class A-2 notes
have been paid in full; and no principal payments will be made on the class A-4
notes until the class A-3 notes have been paid in full. In addition, no
principal payments will be made on the certificates until the class A-1 notes
have been paid in full. WE REFER YOU TO "PAYMENTS ON THE NOTES" IN THIS
PROSPECTUS SUPPLEMENT.
Because the rate of payment of principal of each class of notes depends
primarily on the rate of payment (including prepayments) of the principal
balance of the Receivables, final payment of any class of notes could occur
significantly earlier or later than their respective final scheduled Payment
Dates set forth under "Payments on the Notes" (each, a "Final Scheduled Payment
Date") in this prospectus supplement. Securityholders will bear the risk of
being able to reinvest principal payments on the securities at yields at least
equal to the yield on their respective classes of notes. No prediction can be
made as to the rate of prepayments on the Receivables in either stable or
changing interest rate environments.
Although the Receivables have different APRs, disproportionate rates of
prepayments between Receivables with APRs greater than or less than the Required
Rate will generally not affect your yield. However, higher rates of prepayments
of Receivables with higher APRs will decrease the amount available to cover
delinquencies and defaults on the Receivables and may decrease the amounts
available to be deposited in the Reserve Fund.
DELINQUENCIES, REPOSSESSIONS AND LOAN LOSS INFORMATION
Set forth below is information concerning AHFC's experience with respect to
its entire portfolio of new and used Honda and Acura motor vehicle retail
installment sale contracts, which includes contracts sold by but 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 new or used Honda and Acura motor vehicles.
AHFC establishes an allowance for expected credit losses and deducts amounts
reflecting charge offs against such allowance. For retail financing, the account
balance related to a retail 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
these cases, the account balances are not charged against the allowance for
credit losses until AHFC has either sold the repossessed related motor vehicle
or held it in repossession inventory for more than 90 days. AHFC credits any
recoveries from charge-offs related to a retail installment sale contract to the
allowance.
Delinquency, repossession and loss experience may be influenced by a variety
of economic, social and geographic conditions and other factors beyond the
control of AHFC. There is no assurance that AHFC's delinquency, repossession and
loss experience with respect to its retail installment sale contracts, or the
experience of the trust with respect to the contracts, will be similar to that
set forth below.
There can be no assurance that the behavior of the Receivables included in
the Trust will be comparable to AHFC's experience shown in the following tables.
The percentages in the tables below have not been adjusted to eliminate the
effect of the growth of AHFC's portfolio. Accordingly, the
S-24
<PAGE>
delinquency, repossession and net loss percentages would be expected to be
higher than those show if a group of receivables were isolated at a period in
time and the delinquency, repossession and net loss data showed the activity
only for that isolated group over the periods indicated.
In the table below, the period of delinquency for the years ended March 31,
1999, 1998, 1997 and 1996 is based on the number of days more than 40% of a
scheduled payment on a cumulative basis is contractually past due. The period of
delinquency for the reporting periods beginning with the fiscal year ended
March 31, 2000, is based on the number of days more than 10% of a scheduled
payment on a cumulative basis is contractually past due. If the period of
delinquency used by AHFC for prior reporting periods was based on the number of
days more than 10% 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 prior years presented below.
<TABLE>
<CAPTION>
DELINQUENCY EXPERIENCE(1)
(DOLLARS IN THOUSANDS)
AT MARCH 31,
AT JUNE 30, --------------------------------------------------------------
2000 2000 1999 1998 1997 1996
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Principal Amount
Outstanding(2).............. $6,816,456 $5,961,674 $4,011,174 $2,929,360 $2,486,957 $2,149,145
Delinquencies(3)
30-59 Days.................. $ 51,234 $ 46,299 $ 30,781 $ 29,330 $ 37,070 $ 19,222
60-89 Days.................. 10,835 6,693 4,847 4,400 6,327 2,937
90 Days or More............. 2,990 2,463 1,576 1,699 2,911 1,322
Repossessions(4)............ 7,204 8,300 7,968 7,438 13,334 5,423
---------- ---------- ---------- ---------- ---------- ----------
Total Delinquencies and
Repossessions............. $ 72,263 $ 63,755 $ 45,173 $ 42,867 $ 59,642 $ 28,904
Total Delinquencies and
Repossessions as a
Percentage of Principal
Amount Outstanding.......... 1.06% 1.07% 1.13% 1.46% 2.40% 1.35%
</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) For the fiscal years ended March 31, 1999, 1998, 1997 and 1996 the period of
delinquency was based upon the number of days more than 40% of the scheduled
payment was contractually past due. For the reporting periods beginning with
the fiscal year ended March 31, 2000, the period of delinquency is based on
the number of days more than 10% of the 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.
S-25
<PAGE>
<TABLE>
<CAPTION>
NET CREDIT LOSS AND REPOSSESSION EXPERIENCE(1)
(DOLLARS IN THOUSANDS)
AT OR FOR THE
THREE
MONTHS AT OR FOR THE YEAR ENDED MARCH 31,
ENDED --------------------------------------------------------------
JUNE 30, 2000 2000 1999 1998 1997 1996
------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Principal Amount
Outstanding(2)........... $6,816,456 $5,961,674 $4,011,174 $2,929,360 $2,486,957 $2,149,145
Average Principal Amount
Outstanding(3)........... $6,507,061 $5,146,609 $3,727,024 $2,675,524 $2,545,288 $1,842,750
Number of Contracts
Outstanding.............. 604,165 544,143 388,012 278,261 235,521 190,042
Average Number of Contracts
Outstanding(3)........... 581,193 478,517 351,693 252,723 228,287 162,955
Number of Repossessions.... 809 3,092 2,968 3,576 3,166 2,175
Number of Repossessions as
a Percentage of the
Average Number of
Contracts Outstanding.... 0.56%(6) 0.65% 0.84% 1.42% 1.39% 1.34%
Gross Charge-Offs(4)....... $ 5,856 $ 24,626 $ 25,119 $ 32,598 $ 25,857 $ 14,701
Recoveries(5).............. 3,105 10,043 10,719 8,245 6,014 3,940
---------- ---------- ---------- ---------- ---------- ----------
Net Losses................. $ 2,751 $ 14,583 $ 14,399 $ 24,353 $ 19,843 $ 10,761
Net Losses as a Percentage
of Average Principal
Amount Outstanding....... 0.17%(6) 0.28% 0.39% 0.91% 0.78% 0.58%
</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.
S-26
<PAGE>
WEIGHTED AVERAGE LIFE OF THE NOTES
Prepayments on motor vehicle receivables can be measured relative to a
payment standard or model. The model used in this prospectus supplement, 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 in question 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 paid in full. For example, in a pool of
receivables originally containing 10,000 receivables, a 1% ABS rate means that
1% of the 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.
As the rate of the payment of principal of each class of notes will depend
on the rate of payment (including prepayments) of the principal balance of the
Receivables, final payment of any class of notes could occur significantly
earlier than the respective Final Scheduled Payment Dates. Reinvestment risk
associated with early payment of the notes of any class will be borne
exclusively by the holders of such notes.
The tables captioned "Percent of Initial Class A Note Principal at Various
ABS Percentages" (the "ABS Tables") have been prepared on the basis of the
characteristics of the Receivables described under "The Receivables Pool". The
ABS Tables assume that (1) the Receivables prepay in full at the specified
constant percentage of ABS monthly, with no defaults, losses or repurchases,
(2) each scheduled monthly payment on each Receivable is scheduled to be made
and is made on the last day of each month and each month has 30 days,
(3) payments are made on the notes on each Payment Date (and each such date is
assumed to be the fifteenth day of each applicable month), (4) the balance in
the Reserve Fund on each Payment Date is the required amount described under
"Subordination; Reserve Fund" and (5) except as indicated in the ABS Tables, the
Servicer exercises its option to purchase the Receivables on the earliest
Payment Date on which such option may be exercised. The hypothetical pools each
have an assumed a cutoff date of October 1, 2000. The ABS Tables indicate the
projected weighted average life of each class of notes and sets forth the
percent of the initial principal amount of each class of notes that is projected
to be outstanding after each of the Payment 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 scheduled monthly payment for each
of the pools (which is based on the aggregate principal balance, APR, original
term to maturity and remaining term to maturity as of the assumed cutoff date)
will be such that each pool will be fully amortized by the end of its remaining
term to maturity.
<TABLE>
<CAPTION>
ORIGINAL
AGGREGATE REMAINING TERM TO TERM TO
PRINCIPAL MATURITY (IN MATURITY (IN
POOL BALANCE APR MONTHS) MONTHS)
---- --------------- -------- ----------------- ------------
<S> <C> <C> <C> <C>
1 $ 2,360,299.18 7.378% 10 41
2 $ 46,512,361.94 5.340% 21 41
3 $155,534,086.10 5.656% 31 43
4 $442,737,380.96 6.948% 44 57
5 $452,881,358.97 7.320% 54 60
</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
S-27
<PAGE>
diverse terms of receivables within each of the hypothetical pools could produce
slower or faster principal distributions than indicated in the ABS Table 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 amounts outstanding over time and the weighted average life of each
class of notes.
PERCENTAGE OF INITIAL CLASS A-1 NOTE PRINCIPAL AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
PAYMENT DATE 0.5% 1.0% 1.3% 1.5% 1.7%
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Closing Date............................................... 100% 100% 100% 100% 100%
November 2000.............................................. 90 88 87 86 85
December 2000.............................................. 81 77 74 72 70
January 2001............................................... 71 65 61 58 55
February 2001.............................................. 62 54 49 45 41
March 2001................................................. 52 43 36 32 27
April 2001................................................. 43 32 24 19 13
May 2001................................................... 34 21 12 6 0
June 2001.................................................. 24 10 0 0 0
July 2001.................................................. 15 0 0 0 0
August 2001................................................ 6 0 0 0 0
September 2001............................................. 0 0 0 0 0
Weighted Average Life (years)(1)(2)........................ 0.45 0.38 0.34 0.32 0.30
Weighted Average Life (years)(1)(3)........................ 0.45 0.38 0.34 0.32 0.30
</TABLE>
------------------------------
(1) The weighed average life of a note is determined by (x) multiplying the
amount of each principal payment on a note by the number of years from the
date of issuance of the note to the related Payment Date, (y) adding the
results and (z) dividing the sum by the original principal amount of the
note.
(2) This calculation assumes that the Servicer does not exercise its option to
purchase the Receivables.
(3) This calculation assumes that the Servicer exercises its option to purchase
the Receivables.
This Table has been prepared based on the assumptions herein (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.
S-28
<PAGE>
PERCENTAGE OF INITIAL CLASS A-2 NOTE PRINCIPAL AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
PAYMENT DATE 0.5% 1.0% 1.3% 1.5% 1.7%
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Closing Date............................................... 100% 100% 100% 100% 100%
November 2000.............................................. 100 100 100 100 100
December 2000.............................................. 100 100 100 100 100
January 2001............................................... 100 100 100 100 100
February 2001.............................................. 100 100 100 100 100
March 2001................................................. 100 100 100 100 100
April 2001................................................. 100 100 100 100 100
May 2001................................................... 100 100 100 100 100
June 2001.................................................. 100 100 100 92 84
July 2001.................................................. 100 99 87 78 69
August 2001................................................ 100 86 73 64 54
September 2001............................................. 96 74 60 50 39
October 2001............................................... 85 62 47 36 25
November 2001.............................................. 74 50 34 23 11
December 2001.............................................. 64 39 22 10 0
January 2002............................................... 53 27 10 0 0
February 2002.............................................. 42 16 0 0 0
March 2002................................................. 32 4 0 0 0
April 2002................................................. 21 0 0 0 0
May 2002................................................... 11 0 0 0 0
June 2002.................................................. 1 0 0 0 0
July 2002.................................................. 0 0 0 0 0
Weighted Average Life (years)(1)(2)........................ 1.29 1.10 1.00 0.93 0.87
Weighted Average Life (years)(1)(3)........................ 1.29 1.10 1.00 0.93 0.87
</TABLE>
------------------------------
(1) The weighed average life of a note is determined by (x) multiplying the
amount of each principal payment on a note by the number of years from the
date of issuance of the note to the related Payment Date, (y) adding the
results and (z) dividing the sum by the original principal amount of the
note.
(2) This calculation assumes that the Servicer does not exercise its option to
purchase the Receivables.
(3) This calculation assumes that the Servicer exercises its option to purchase
the Receivables.
This Table has been prepared based on the assumptions herein (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.
S-29
<PAGE>
PERCENTAGE OF INITIAL CLASS A-3 NOTE PRINCIPAL AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
PAYMENT DATE 0.5% 1.0% 1.3% 1.5% 1.7%
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Closing Date............................................... 100% 100% 100% 100% 100%
November 2000.............................................. 100 100 100 100 100
December 2000.............................................. 100 100 100 100 100
January 2001............................................... 100 100 100 100 100
February 2001.............................................. 100 100 100 100 100
March 2001................................................. 100 100 100 100 100
April 2001................................................. 100 100 100 100 100
May 2001................................................... 100 100 100 100 100
June 2001.................................................. 100 100 100 100 100
July 2001.................................................. 100 100 100 100 100
August 2001................................................ 100 100 100 100 100
September 2001............................................. 100 100 100 100 100
October 2001............................................... 100 100 100 100 100
November 2001.............................................. 100 100 100 100 100
December 2001.............................................. 100 100 100 100 99
January 2002............................................... 100 100 100 99 91
February 2002.............................................. 100 100 99 91 83
March 2002................................................. 100 100 92 84 75
April 2002................................................. 100 96 84 76 68
May 2002................................................... 100 89 78 69 61
June 2002.................................................. 100 83 71 63 54
July 2002.................................................. 94 76 64 56 47
August 2002................................................ 88 70 58 50 41
September 2002............................................. 82 64 52 44 35
October 2002............................................... 76 58 47 38 30
November 2002.............................................. 71 53 41 33 24
December 2002.............................................. 65 47 36 28 19
January 2003............................................... 59 42 30 22 14
February 2003.............................................. 54 36 25 17 9
March 2003................................................. 48 31 20 13 5
April 2003................................................. 42 26 16 8 0
May 2003................................................... 37 21 11 4 0
June 2003.................................................. 32 17 7 0 0
July 2003.................................................. 28 13 4 0 0
August 2003................................................ 24 9 0 0 0
September 2003............................................. 19 6 0 0 0
October 2003............................................... 15 2 0 0 0
November 2003.............................................. 11 0 0 0 0
December 2003.............................................. 6 0 0 0 0
January 2004............................................... 2 0 0 0 0
February 2004.............................................. 0 0 0 0 0
Weighted Average Life (years)(1)(2)........................ 2.43 2.17 2.00 1.88 1.77
Weighted Average Life (years)(1)(3)........................ 2.43 2.17 2.00 1.88 1.77
</TABLE>
------------------------------
(1) The weighed average life of a note is determined by (x) multiplying the
amount of each principal payment on a note by the number of years from the
date of issuance of the note to the related Payment Date, (y) adding the
results and (z) dividing the sum by the original principal amount of the
note.
(2) This calculation assumes that the Servicer does not exercise its option to
purchase the Receivables.
(3) This calculation assumes that the Servicer exercises its option to purchase
the Receivables.
This Table has been prepared based on the assumptions herein (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.
S-30
<PAGE>
PERCENTAGE OF INITIAL CLASS A-4 NOTE PRINCIPAL AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
PAYMENT DATE 0.5% 1.0% 1.3% 1.5% 1.7%
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Closing Date....................... 100% 100% 100% 100% 100%
November 2000...................... 100 100 100 100 100
December 2000...................... 100 100 100 100 100
January 2001....................... 100 100 100 100 100
February 2001...................... 100 100 100 100 100
March 2001......................... 100 100 100 100 100
April 2001......................... 100 100 100 100 100
May 2001........................... 100 100 100 100 100
June 2001.......................... 100 100 100 100 100
July 2001.......................... 100 100 100 100 100
August 2001........................ 100 100 100 100 100
September 2001..................... 100 100 100 100 100
October 2001....................... 100 100 100 100 100
November 2001...................... 100 100 100 100 100
December 2001...................... 100 100 100 100 100
January 2002....................... 100 100 100 100 100
February 2002...................... 100 100 100 100 100
March 2002......................... 100 100 100 100 100
April 2002......................... 100 100 100 100 100
May 2002........................... 100 100 100 100 100
June 2002.......................... 100 100 100 100 100
July 2002.......................... 100 100 100 100 100
August 2002........................ 100 100 100 100 100
September 2002..................... 100 100 100 100 100
October 2002....................... 100 100 100 100 100
November 2002...................... 100 100 100 100 100
December 2002...................... 100 100 100 100 100
January 2003....................... 100 100 100 100 100
February 2003...................... 100 100 100 100 100
March 2003......................... 100 100 100 100 100
April 2003......................... 100 100 100 100 100
May 2003........................... 100 100 100 100 89
June 2003.......................... 100 100 100 100 79
July 2003.......................... 100 100 100 90 69*
August 2003........................ 100 100 100 81 60
September 2003..................... 100 100 90 71* 52
October 2003....................... 100 100 80 62 44
November 2003...................... 100 95 71* 54 37
December 2003...................... 100 84 62 46 30
January 2004....................... 100 74 53 39 24
February 2004...................... 94 64* 45 32 18
March 2004......................... 82 55 38 26 13
April 2004......................... 69* 46 30 20 9
May 2004........................... 57 37 23 14 5
</TABLE>
(TABLE CONTINUES ON NEXT PAGE)
S-31
<PAGE>
<TABLE>
<CAPTION>
PAYMENT DATE 0.5% 1.0% 1.3% 1.5% 1.7%
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
June 2004.......................... 45 28 17 10 2
July 2004.......................... 39 23 14 7 0
August 2004........................ 34 19 10 4 0
September 2004..................... 28 15 7 1 0
October 2004....................... 23 11 4 0 0
November 2004...................... 17 7 1 0 0
December 2004...................... 12 4 0 0 0
January 2005....................... 6 0 0 0 0
February 2005...................... 1 0 0 0 0
March 2005......................... 0 0 0 0 0
Weighted Average Life
(years)(1)(2).................... 3.73 3.52 3.34 3.19 3.00
Weighted Average Life
(years)(1)(3).................... 3.45 3.27 3.03 2.86 2.70
April Feb. Nov. Sept. July
*Month of optional purchase(3)..... 2004 2004 2003 2003 2003
</TABLE>
------------------------------
(1) The weighed average life of a note is determined by (x) multiplying the
amount of each principal payment on a note by the number of years from the
date of issuance of the note to the related Payment Date, (y) adding the
results and (z) dividing the sum by the original principal amount of the
note.
(2) This calculation assumes that the Servicer does not exercise its option to
purchase the Receivables.
(3) This calculation assumes that the Servicer exercises its option to purchase
the Receivables.
This Table has been prepared based on the assumptions herein (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.
S-32
<PAGE>
NOTE FACTORS
The "Note Pool Factor" with respect to any class of notes will be a
seven-digit decimal indicating the principal amount of that class of notes as of
the close of business on the Payment Date in that month as a fraction of the
respective principal amount thereof as of the Closing Date. The Servicer will
compute the Note Pool Factor each month for each class of notes. Each Note Pool
Factor will initially be 1.0000000 and thereafter will decline to reflect
reductions in the principal amount of each class of notes. The portion of the
principal amount of any class of notes for a given month allocable to a
Noteholder can be determined by multiplying the original denomination of the
holder's note by the related Note Pool Factor for that month.
Pursuant to the Transfer and Servicing Agreements, the Securityholders will
receive monthly reports concerning the payments received on the Receivables, the
Pool Balance, the related Note Pool Factors and various other items of
information pertaining to the Trust. Securityholders of record during each
calendar year will be furnished information by the Indenture Trustee or the
Owner Trustee, as appropriate, for tax reporting purposes not later than the
latest date permitted by law. WE REFER YOU TO "DESCRIPTION OF THE TRANSFER AND
SERVICING AGREEMENTS--STATEMENTS TO SECURITYHOLDERS" IN THE ACCOMPANYING
PROSPECTUS.
USE OF PROCEEDS
The Seller will use the net proceeds from the sale of the Securities to
purchase the Receivables from AHFC pursuant to the Purchase Agreement and to
fund the Reserve Fund and the Yield Supplement Account.
THE SELLER AND THE SERVICER
Information regarding the Seller and the Servicer is set forth under the
captions "The Seller" and "The Servicer" in the accompanying prospectus.
THE NOTES
GENERAL
The notes will be issued pursuant to the terms of the Indenture, a form of
which has been filed as an exhibit to the registration statement. A copy of the
final signed Indenture will be filed with the Security and Exchange Commission
(the "SEC") following the issuance of the Securities. The following summary
describes 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 Indenture are referred to, the actual
provisions (including definitions of terms) are incorporated by reference as
part of the summary. The following summary supplements, and to the extent
inconsistent therewith replaces, the description of the general terms and
provisions of the notes of any given series and the related Indenture set forth
in the accompanying prospectus, to which description reference is hereby made.
PAYMENTS OF INTEREST
Each class of notes will constitute Fixed Rate Securities, as that term is
defined under "Certain Information Regarding the Securities--Fixed Rate
Securities" in the accompanying prospectus. Interest on the principal balances
of the classes of the notes will accrue at the respective per annum interest
rates set forth on the cover of this prospectus supplement (each, an "Interest
Rate") and will be payable to the Noteholders monthly on the fifteenth of each
month (or, if that date is not a Business Day, on the next succeeding Business
Day) (a "Payment Date") commencing November 15, 2000.
S-33
<PAGE>
Interest on the outstanding principal amount of class A-1 notes will accrue
at the related Interest Rate from and including the most recent Payment Date on
which interest has been paid (or from and including the Closing Date with
respect to the first Payment Date) to but excluding the current Payment Date.
Interest on the class A-2, class A-3 and class A-4 notes will accrue at the
related Interest Rate from and including the 15th day of the month (or from and
including the Closing Date with respect to the first Payment Date) to and
excluding the 15th day of the following calendar month.
Interest on the class A-1 notes will be calculated on the basis of the actual
number of days in the related Interest Period divided by 360, and interest on
the class A-2, 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. Interest accrued but
not paid on any Payment Date will be due on the next Payment Date, together with
interest on that amount at the applicable Interest Rate (to the extent lawful).
Interest payments on the notes will generally be made from Available Amounts and
from amounts on deposit in the Reserve Fund, after the Servicing Fee,
non-recoverable Advances and all accrued and unpaid Trustees' fees, and 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. WE REFER YOU TO "SUBORDINATION; RESERVE FUND--RESERVE
FUND" AND "PAYMENTS ON THE NOTES" IN THIS PROSPECTUS SUPPLEMENT.
Interest payments to holders of the class A-1 notes, the class A-2 notes,
the class A-3 notes and the class A-4 notes (collectively, the "Notes") will
have the same priority. Under specified circumstances, the amount available for
interest payments could be less than the amount of interest payable on the notes
on any Payment Date, in which case the holders of the Notes will receive their
ratable share (based upon the aggregate amount of interest due to that class) of
the aggregate amount available to be distributed in respect of interest on the
notes.
PAYMENTS OF PRINCIPAL
Until the notes have been paid in full, principal payments to Noteholders
will be made on each Payment Date in the amount and order of priority described
in this prospectus supplement under "Payments on the Notes--Payment of
Distributable Amounts." On each Payment Date, principal of the notes will be
payable generally in an amount equal to the Noteholders' Percentage of the
Principal Distributable Amount. Principal payments on the notes will be made
from Available Amounts after the Servicing Fee, non-recoverable Advances and
Trust Fees and Expenses have been paid and after the Noteholders' Interest
Distributable Amount has been distributed. Notwithstanding the foregoing, if
amounts actually allocated to the Noteholders on any Payment Date is less than
the Noteholders' Distributable Amount, funds will be withdrawn from the Reserve
Fund so that an amount equal to the Noteholders' Distributable Amount may be
allocated to the Noteholders.
Principal payments will be allocated among the notes so that no principal
payments will be made on:
1. the class A-2 notes until the class A-1 notes have been paid in full;
2. the class A-3 notes until the class A-1 notes and class A-2 notes have
been paid in full; and
3. the class A-4 notes until class A-1 notes, class A-2 notes and
class A-3 notes have been paid in full.
Notwithstanding the foregoing, on each Payment Date after the acceleration
of the notes following an Event of Default, the notes will receive 100% of the
Principal Distributable Amount until the notes are paid in full. That Principal
Distributable Amount will be paid first to holders of record of each of the
class A-1 notes until the class A-1 notes have been paid in full. After the
class A-1 notes have been paid in full principal payments will be made to the
class A-2 notes, the class A-3 notes and the class A-4 notes (together with the
holders of the class A-1 notes, the "Noteholders") on a pro rata basis based on
the principal balance of that class of outstanding notes. Beginning on the
Payment Date
S-34
<PAGE>
on which the Notes have been paid in full, the remainder of the Principal
Distributable Amount, if any, and on each subsequent Payment Date, 100% of the
Principal Distributable Amount, will be paid to the holders of record of the
certificates (the "Certificateholders") until the certificates have been paid in
full.
The actual Payment Date on which the outstanding principal amount of any
class of notes is paid may be significantly earlier than its Final Scheduled
Payment Date based on a variety of factors, including the factors described
under "Weighted Average Life of the Securities" in the accompanying prospectus.
If the principal amount of a class of notes has not been paid in full on or
prior to its Final Scheduled Payment Date, the Noteholders' Principal
Distributable Amount for that Payment Date will, to the extent the remaining
Available Amounts are sufficient, include an amount sufficient to reduce the
unpaid principal amount of that class of notes to zero on that Payment Date. WE
REFER YOU TO "PAYMENT ON THE NOTES--PAYMENT OF DISTRIBUTABLE AMOUNTS" IN THIS
PROSPECTUS SUPPLEMENT.
INDENTURE
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT. Upon an Event of Default,
the Noteholders will have the rights set forth in the prospectus under "The
Notes--Indenture--Events of Default; Rights Upon Event of Default." The
Indenture Trustee may sell the Receivables subject to certain conditions set
forth in the Indenture following an Event of Default, including 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. In the case of an Event of Default not involving any
such default in payment, the Indenture Trustee is prohibited from selling the
Receivables unless one of the conditions set forth in the accompanying
prospectus under "The Notes--Indenture--Events of Default and--Rights Upon Event
of Default" has been satisfied.
NOTICES
Noteholders will be notified in writing by the Indenture Trustee of any
Event of Default, Servicer Default or termination of, or appointment of a
successor to, the Servicer promptly upon a Responsible Officer (as defined in
the Transfer and Servicing Agreements) obtaining actual knowledge of these
events.
If notes are issued other than in book-entry form, those notices will be
mailed to the addresses of Noteholders as they appear in the register maintained
by the Indenture Trustee prior to mailing. Those notices will be deemed to have
been given on the date of that publication or mailing.
GOVERNING LAW
The Indenture and the notes are governed by and shall be construed in
accordance with the laws of the State of California applicable to agreements
made in and to be performed wholly within that jurisdiction.
THE CERTIFICATES
GENERAL
The certificates will be issued pursuant to the terms of the Trust
Agreement, a form of which has been filed as an exhibit to the registration
statement. A copy of the final signed Trust Agreement will be filed with the SEC
following the issuance of the securities. The certificates will evidence
undivided ownership interests in the Trust created pursuant to the Trust
Agreement.
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The following summary describes 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 the provisions of the
certificates and the Trust Agreement. The following summary supplements, and to
the extent inconsistent therewith replaces, the description of the general terms
and provisions of the certificates of any given series and the related Trust
Agreement set forth in the accompanying prospectus, to which description
reference is hereby made.
PAYMENTS OF INTEREST
Interest on the Certificate Balance will accrue during each Interest Period
at 6.67% per annum (the "Pass Through Rate") and will be payable to the
Certificateholders on the related Payment Date.
The certificates will constitute Fixed Rate Securities, as that term is
defined under "Certain Information Regarding the Securities--Fixed Rate
Securities" in the accompanying prospectus. Interest due on a Payment Date will
accrue during the related Interest Period and will be calculated on the basis of
a 360-day year consisting of twelve 30-day months. Interest distributions with
respect to the certificates generally will be made from Available Amounts after:
1. payment of the Servicing Fee; and
2. distribution of the Noteholders' Distributable Amounts to the
Noteholders; and
3. depositing of funds in the Reserve Fund so that the amount on deposit in
the Reserve Fund equals the Specified Reserve Fund Balance.
WE REFER YOU TO "PAYMENTS ON THE NOTES--PAYMENT OF DISTRIBUTABLE AMOUNTS" IN
THIS PROSPECTUS SUPPLEMENT.
Interest payments due for any Payment Date but not paid on that Payment Date
will be due on the next Payment Date increased by an amount equal to interest
accrued on that amount at the Pass Through Rate (to the extent lawful).
PAYMENTS OF PRINCIPAL
No principal payments will be made on the certificates until the class A-1
notes have been paid in full. Thereafter, principal payments of the certificates
will be made on each Payment Date from Available Amounts after payment of
interest on the certificates.
Notwithstanding the foregoing, on each Payment Date after the acceleration
of the notes following an Event of Default, the certificates will not receive
any of the Principal Distributable Amount until the notes have been paid in
full.
NOTICES
Certificateholders will be notified in writing by the Owner Trustee of any
Event of Default, Servicer Default or termination of, or appointment of a
successor to, the Servicer promptly upon an specified officer of the Owner
Trustee obtaining actual knowledge of these events. Except for the monthly and
annual reports to Certificateholders described this prospectus supplement, the
Owner Trustee is not obligated under the Trust Agreement to forward any other
notices to the Certificateholders. There are no provisions in the Trust
Agreement for the regular or special meetings of Certificateholders.
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GOVERNING LAW
The Trust Agreement and the certificates are governed by and shall be
construed in accordance with the laws of the State of Delaware applicable to
agreements made in and to be performed wholly within that jurisdiction.
PAYMENTS ON THE NOTES
On or before the tenth calendar day of each month (or, if the tenth day is
not a Business Day, the next succeeding Business Day (each a "Determination
Date"), the Servicer will inform the Owner Trustee and the Indenture Trustee of,
among other things, the amount of funds collected on or in respect of the
Receivables, the amount of Advances to be made by and reimbursed to the Servicer
and the Servicing Fee and other servicing compensation payable to the Servicer,
in each case with respect to the immediately preceding Collection Period. On or
prior to each Payment Date, the Servicer will also determine the following:
1. Available Amounts;
2. Noteholders' Interest Distributable Amount;
3. Certificateholders' Interest Distributable Amount;
4. Principal Distributable Amount;
5. Yield Supplement Withdrawal Amount, if any; and
6. based on the available funds and other amounts available for payment on
the related Payment Date as described below, the amount to be distributed
to the Noteholders and Certificateholders.
The Indenture Trustee or the Owner Trustee, as the case may be, will make
payments to the Noteholders and Certificateholders out of the amounts on deposit
in the Collection Account. The amounts to be distributed to the Noteholders and
Certificateholders will be determined in the manner described below.
CALCULATION OF AVAILABLE AMOUNTS
The amount of funds available for distribution on a Payment Date will
generally equal the sum of Available Interest and Available Principal
(collectively, "Available Amounts").
"Available Interest" for a Payment Date will equal the sum of the following
amounts (without duplication) allocable to interest received or allocated by the
Servicer on or in respect of the Receivables during the related Collection
Period (which in the case of Precomputed Receivables shall be computed in
accordance with the actuarial method and in the case of the Simple Interest
Receivables shall be calculated in accordance with the simple interest method):
1. all collections on or in respect of the Receivables other than Defaulted
Receivables;
2. all amounts realized on Defaulted Receivables from whatever sources
(including, without limitation) proceeds of any insurance policy), net of
expenses incurred by the Servicer in accordance with its customary
servicing procedures and amounts required by law to be refunded to the
related Obligor ("Net Liquidation Proceeds");
3. all Advances made by the Servicer;
4. all Warranty Purchase Payments with respect to Warranty Receivables
repurchased by the Seller in respect of that Collection Period;
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5. all Administrative Purchase Payments with respect to Administrative
Receivables purchased by the Servicer in respect of that Collection
Period; and
6. any Yield Supplement Withdrawal Amounts.
"Available Principal" for a Payment Date will equal the sum of the amounts
described in clauses (1) through (6) above received or allocated by the Servicer
in respect of principal on or in respect of the Receivables during the related
Collection Period (which in the case of the Precomputed Receivables shall be
computed in accordance with the actuarial method and in the case of the Simple
Interest Receivables shall be calculated in accordance with the simple interest
method).
Available Interest and Available Principal on any Payment Date will exclude
the following amounts:
1. 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 that Receivable; and
2. Net Liquidation Proceeds with respect to a particular Receivable to the
extent of unreimbursed Advances in respect of that Receivable; and
A "Defaulted Receivable" will be a Receivable (other than an Administrative
Receivable or a Warranty Receivable) as to which, (a) all or part of a scheduled
payment is 120 days or more than 120 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 and held in its
repossession inventory for 90 days, whichever occurs first.
PAYMENT OF DISTRIBUTABLE AMOUNTS
Prior to each Payment Date, the Servicer will calculate the amount to be
distributed to the Noteholders and Certificateholders. On each Payment 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 payments and distributions from amounts
on deposit in the Collection Account in the following amounts and order of
priority:
1. to the Servicer, the Servicing Fee, including any unpaid Servicing Fees
with respect to one or more prior Collection Periods, and non-recoverable
Advances;
2. 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 (2) shall not exceed $100,000;
3. to the Noteholders, the Noteholders' Interest Distributable Amount, from
Available Amounts;
4. to the Noteholders, the Noteholders' Principal Distributable Amount,
from Available Amounts;
5. to the Reserve Fund, from Available Amounts remaining (this amount being
the "Excess Amount"), the amount necessary to cause the amount on deposit
in that account to equal the Specified Reserve Fund Balance;
6. to the Certificateholders, the Certificateholders' Interest
Distributable Amount, from Available Amounts;
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7. after the class A-1 notes have been paid in full, to the
Certificateholders, the Certificateholders' Principal Distributable
Amount from Available Amounts;
8. 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; and
9. any Available Amounts remaining, to the Seller.
Noteholders' Principal Distributable Amount will be allocated among the
notes as described above under "The Notes--Payments of Principal."
For the purposes of this prospectus supplement, the following terms will
have the following meanings:
The "Certificateholders' Distributable Amount" will mean, with respect to
any Payment Date, the sum of the Certificateholders' Interest Distributable
Amount plus the Certificateholders' Principal Distributable Amount for that
Payment Date.
The "Certificateholders' Interest Distributable Amount" will mean, with
respect to any Payment Date, the sum of the Certificateholders' Monthly Interest
Distributable Amount and the Certificateholders' Interest Carryover Shortfall
for one or more prior Payment Dates.
The "Certificateholders' Interest Carryover Shortfall" will mean, with
respect to any Payment Date, the excess, if any, of the sum of the
Certificateholders' Monthly Interest Distributable Amount for that class for the
preceding Payment Date plus any outstanding Certificateholders' Interest
Carryover Shortfall on that preceding Payment Date, over the amount of interest
that is actually paid on the certificates on that preceding Payment Date, plus,
to the extent permitted by applicable law, interest on the Certificateholders'
Interest Carryover Shortfall at the Pass Through Rate for the Interest Period.
The "Certificateholders' Monthly Interest Distributable Amount" will mean,
with respect to any Payment Date, interest accrued for the related Interest
Period at the related Pass Through Rate on the Certificate Balance on the
immediately preceding Payment Date, after giving effect to all payments of
principal to Certificateholders on or prior to that Payment Date (or, in the
case of the first Payment Date, on the Initial Certificate Balance). The
"Certificate Balance," for any Payment Date, will equal the Initial Certificate
Balance, reduced by all amounts distributed on or prior to that Payment Date on
the certificates and allocable to principal.
The "Certificateholders' Monthly Principal Distributable Amount" will mean,
with respect to any Payment Date, the Certificateholders' Percentage of the
Principal Distributable Amount for that Payment Date.
The "Certificateholders' Percentage" will mean the following:
1. for each Payment Date until the class A-1 notes have been paid in full,
0%;
2. for each Payment Date to and including the Payment Date on which the
principal amount of the class A-4 notes have been paid in full, the
percent equivalent of a fraction, the numerator of which is the initial
principal amount of the certificates and the denominator of which is the
sum of the initial aggregate principal amount of the notes and the
initial principal amount of the certificates; and
3. thereafter, 100%.
The "Certificateholders' Principal Carryover Shortfall" will mean, with
respect to any Payment Date, the excess of the Certificateholders' Monthly
Principal Distributable Amount plus any outstanding Certificateholders'
Principal Carryover Shortfall for the preceding Payment Date, over the
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amount in respect of principal that is actually distributed to the
Certificateholders on that Payment Date.
The "Certificateholders' Principal Distributable Amount" will mean, with
respect to any Payment Date, the sum of:
1. the Certificateholders' Monthly Principal Distributable Amount for that
Payment Date; and
2. any outstanding Certificateholders' Principal Carryover Shortfall as of
the close of the immediately preceding Payment Date; and
"Interest Period" means (a) with respect to the class A-1 notes, the period
from and including the most recent Payment Date on which interest has been paid
(or, in the case of the first Payment Date, the Closing Date) to but excluding
the next succeeding Payment Date and (b) with respect to the class A-2,
class A-3 and class A-4 notes and the certificates, the period from and
including the 15th day of the calendar month (or, in the case of the first
Payment Date, from and including the Closing Date) to but excluding the 15th day
of the next calendar month.
The "Noteholders' Distributable Amount" will mean, with respect to any
Payment Date, the sum of the Noteholders' Interest Distributable Amount for all
classes of notes plus the Noteholders' Principal Distributable Amount for that
Payment Date.
The "Noteholders' Interest Carryover Shortfall" will mean, with respect to
any Payment Date and a class of notes, the excess, if any, of the sum of the
Noteholders' Monthly Interest Distributable Amount for that class for the
preceding Payment Date plus any outstanding Noteholders' Interest Carryover
Shortfall for that class on that preceding Payment Date, over the amount in
respect of interest that is actually paid on the notes of that class on that
preceding Payment Date, plus, to the extent permitted by applicable law,
interest on the Noteholders' Interest Carryover Shortfall at the related
Interest Rate for the related Interest Period.
The "Noteholders' Interest Distributable Amount" will mean, with respect to
any Payment Date, the sum of the Noteholders' Monthly Interest Distributable
Amount for all classes of notes and the Noteholders' Interest Carryover
Shortfall for all classes of notes.
The "Noteholders' Monthly Interest Distributable Amount" will mean, with
respect to any Payment Date and a class of notes, interest accrued for the
related Interest Period at the related Interest Rate for that class on the
outstanding principal amount of that class on the immediately preceding Payment
Date, after giving effect to all payments of principal to Noteholders of that
class on or prior to that Payment Date (or, in the case of the first Payment
Date, on the original principal amount of that class).
The "Noteholders' Monthly Principal Distributable Amount" will mean, with
respect to any Payment Date, the Noteholders' Percentage of the Principal
Distributable Amount for that Payment Date.
The "Noteholders' Percentage" will mean:
1. for each Payment Date until the principal amounts of the class A-1 notes
have been paid in full, 100%; and
2. for each Payment Date to and including the Payment Date on which the
principal amount of the Class A-4 notes have been paid in full, the
percent equivalent of a fraction, the numerator of which is the initial
aggregate principal amount of the notes and the denominator of which is
the sum of the initial aggregate principal amount of the notes and the
initial principal amount of the certificates.
3. thereafter, 0%.
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The "Noteholders' Principal Carryover Shortfall" will mean, with respect to
any Payment Date and a class of notes, the excess, if any, of the Noteholders'
Monthly Principal Distributable Amount plus any outstanding Noteholders'
Principal Carryover Shortfall for that class of notes for the preceding Payment
Date over the amount in respect of principal that is actually paid as principal
on that class on that Payment Date.
The "Noteholders' Principal Distributable Amount" will mean, with respect to
any Payment Date and a class of notes, the sum of:
1. the Noteholders' Monthly Principal Distributable Amount;
2. any outstanding Noteholders' Principal Carryover Shortfall of that class
as of the close of the immediately preceding Payment Date; and
3. on the Final Scheduled Payment Date for that class of notes, the amount
necessary to reduce the outstanding principal amount of that class of
notes to zero; provided, however, that the Noteholders' Principal
Distributable Amount with respect to a class of notes shall not exceed
the outstanding principal amount of that class.
The "Principal Distributable Amount" will mean, with respect to any Payment
Date and the related Collection Period, the sum of the following amounts:
(1) (a) in the case of Precomputed Receivables, the principal portion of all
scheduled payments due during the relating Collection Period, computed in
accordance the actuarial method and (b) in the case of Simple Interest
Receivables, the principal portion of all scheduled payments actually received
during the related Collection Period, (2) the principal portion of all
Prepayments received for the related Collection Period (to the extent such
amounts are not included in clause (1) and (3) 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 that
Collection Period (to the extent those amounts are not included in clauses
(1) or (2) above).
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CREDIT ENHANCEMENT
The protection afforded to the Noteholders will be effected both by the
preferential right of the Noteholders to receive, to the extent described in
this prospectus supplement, current distributions on the Receivables, the
establishment of the Reserve Fund and the subordination of the Seller's right to
receive excess interest.
SUBORDINATION
The rights of the Certificateholders to receive payments on 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 to
the extent described herein. The Seller is entitled to receive payments of
interest collected on the Receivables which are not used by the trust to make
other required payments. The Seller's right to receive this excess interest is
subordinated to the payment of principal and interest on the notes, the funding
of the Reserve Fund and the payment of principal and interest on the
certificates.
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 $5,500,127.44 (the "Reserve Fund
Initial Deposit"). The Reserve Fund will thereafter be funded by the deposit
therein of all Excess Amounts, if any, for each Payment Date to the extent
necessary to restore or bring the amounts 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 Noteholders and may be invested in Eligible Investments.
Investment income on those 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 in the Reserve Fund exceed the Specified Reserve Fund Balance. If the
amount on deposit in the Reserve Fund on any Payment Date (after giving effect
to all deposits to and withdrawals from the Reserve Fund on that Payment Date)
is greater than the Specified Reserve Fund Balance for that Payment Date,
subject to limitations set forth in the Transfer and Servicing Agreements, the
Indenture Trustee will include the amount of the excess in the amounts to be
distributed to Certificateholders pursuant to clauses (6) and (7) in the first
paragraph under "Payments on the Notes--Payment of Distributable Amounts" in
this prospectus supplement. Any excess amounts remaining thereafter will be paid
to the Seller. The Noteholders will not have any rights in, or claims to,
amounts distributed to the Certificateholders or to the Seller.
The "Specified Reserve Fund Balance" with respect to any Payment Date will
be $8,250,191.15, except that, if on any Payment 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 Payment 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 the then
outstanding principal amount of the Notes. As of any Payment 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
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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) 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) Receivables the related Financed Vehicles
of which have been repossessed but have not been liquidated (to the extent the
related Receivable is not otherwise reflected in clause (a) above or is not a
Defaulted Receivable), expressed as a percentage of the aggregate number of
Current Receivables on the last day of such Collection Period. A "Current
Receivable" will be a Receivable that is not a Defaulted Receivable or a
Liquidated Receivable. A "Liquidated Receivable" will be a Receivable that has
been the subject of a Prepayment in full or otherwise has been paid in full or,
in the case of a Defaulted Receivable, a Receivable as to which the Servicer has
determined that the final amounts in respect thereof have been paid.
The Servicer may, from time to time after the date of this prospectus
supplement, request each rating agency to approve a formula for determining the
Specified Reserve Fund Balance that is different from those described above or
change the manner by which the Reserve Fund is funded. If each rating agency
delivers a letter to the Owner Trustee to the effect that the use of any new
formula will not result in a qualification, reduction or withdrawal of its
then-current rating of any class of the notes, then the Specified Reserve Fund
Balance will be determined in accordance with the new formula. The Sale and
Servicing Agreement will accordingly be amended, without the consent of any
Noteholder, to reflect the new calculation.
Amounts held from time to time in the Reserve Fund will be held for the
benefit of the Noteholders. On each Payment 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 Payment Date is less than the sum of
the Noteholders' Distributable Amount will be deposited in the Note Distribution
Account for distribution to the Noteholders.
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 Payment Date
to make full distributions to the Securityholders.
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, 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 suffer a
temporary shortfall in the amounts distributed to the Noteholders.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
THE TRANSFER AND SERVICING AGREEMENTS
The description of the terms of the Indenture, the Sale and Servicing
Agreement, the Administration Agreement and the Trust Agreement (collectively,
the "Transfer and Servicing Agreements") in this prospectus supplement does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, all the provisions of the Transfer and Servicing Agreements. Forms
of the Transfer and Servicing Agreements have been filed as exhibits to the
Registration Statement. Copies of the final signed Transfer and Servicing
Agreements will be filed with the SEC following the issuance of the securities.
Any description of the Transfer and Servicing Agreements in this prospectus
supplement supplements, and to the extent inconsistent replaces, the description
of the
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general terms and provisions of the Transfer and Servicing Agreements set forth
in the accompanying prospectus, to which description reference is hereby made.
SALE AND ASSIGNMENT OF RECEIVABLES
Information with respect to the conveyance of the Receivables from the
Seller to the Trust on the Closing Date pursuant to the Sale and Servicing
Agreement is set forth under "Description of the Transfer and Servicing
Agreements--Sale and Assignment of Receivables" in the accompanying prospectus.
ACCOUNTS
In addition to the accounts referred to under "Description of the Transfer
and Servicing Agreements--Accounts" in the accompanying prospectus, the Servicer
will also establish and will maintain with the Indenture Trustee the Reserve
Fund in the name of the Indenture Trustee on behalf of the Noteholders.
COLLECTIONS
The Servicer will deposit all payments on Receivables received from Obligors
and all proceeds of Receivables collected during each Collection Period into the
Collection Account not later than two Business Days after receipt. However, so
long as AHFC is the servicer, if each condition to making monthly deposits as
may be required by the Sale and Servicing Agreement (including the satisfaction
of specified ratings criteria by AHFC or AHFC obtaining a letter of credit or
similar agreement and the absence of any Servicer Default) is satisfied, the
Servicer may retain such amounts until the related Deposit Date. The Servicer or
the Seller, as the case may be, will remit the aggregate Warranty Purchase
Payments and Administrative Purchase Payments of Receivables to be purchased
from the Trust into the Collection Account on or before each Deposit Date. The
Servicer will be entitled to withhold, or to be reimbursed from amounts
otherwise payable into or on deposit in the Collection Account, amounts
previously deposited in the Collection Account but later determined to have
resulted from mistaken deposits or postings. Except in certain circumstances
described in the Sale and Servicing Agreement, 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. WE REFER
YOU TO "DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--COLLECTIONS" IN
THE ACCOMPANYING PROSPECTUS.
"Eligible Investments" are specified in the Trust 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 securities.
Collections on or in respect of a Receivable made during a Collection Period
(including Warranty Purchase Payments and Administrative Purchase Payments) will
be applied first to interest accrued to date, second to principal until the
principal balance is brought current, third to reduce the unpaid late charges as
provided in the Receivable and finally to prepay principal of the Receivable. WE
REFER YOU TO "DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--COLLECTIONS"
IN THE ACCOMPANYING PROSPECTUS.
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 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 particular requirements, deposit in the Payahead
Account) and on Simple Interest Receivables will be applied as a partial
prepayment (each, a "Prepayment").
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On each Deposit Date, the Indenture Trustee will cause (1) 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
(2) any Yield Supplement Withdrawal Amount to be deposited into the Collection
Account.
ADVANCES
On or before the Business Day prior to each Payment Date (the "Deposit
Date"), the Servicer will make a payment into the Collection Account for each
Receivable of an amount equal to the product of the principal balance of the
Receivable as of the first day of the related Collection Period and one-twelfth
of its APR minus the amount of interest (and principal in the case of a
Precomputed Receivable) actually received on the Receivable during the
Collection Period (an "Advance"). If the calculation results in a negative
number, an amount equal to the negative amount will be paid to the Servicer in
reimbursement of outstanding Advances. In addition, if a Receivable becomes a
Liquidated Receivable, the amount of accrued and unpaid interest on that
Receivable (but not including interest for the current Collection Period) will,
up to the amount of outstanding Advances in respect thereof, be withdrawn from
the Collection Account and paid to the Servicer in reimbursement of the
outstanding Advances. The Servicer will not be required to make any Advances
(other than the Advance of an interest shortfall arising from a prepaid
Receivable) to the extent that it does not expect to recoup the Advance from
subsequent collections or recoveries. The Servicer will make all Advances by
depositing into the Collection Account an amount equal to the aggregate of the
Precomputed Advances and Simple Interest Advances in respect of a Collection
Period on the Business Day immediately preceding the related Payment Date. WE
REFER YOU TO "DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--ADVANCES" IN
THE ACCOMPANYING PROSPECTUS.
SERVICING COMPENSATION
The servicing fee for the calendar month immediately preceding any Payment
Date (a "Collection Period") will be one-twelfth of 1.00% (the "Servicing Rate")
of the Pool Balance as of the first day of the related Collection Period or, in
the case of the first Payment Date, the Pool Balance as of the Cutoff Date (the
"Servicing Fee"). The Servicing Fee, together with any previously unpaid
Servicing Fee, will be paid on each Payment Date solely to the extent of
Available Interest. The Servicer will be entitled to collect and retain as
additional servicing compensation in respect of each Collection Period any late
fees, prepayment charges and any other administrative fees and expenses or
similar charges collected during that Collection Period, plus any investment
earnings or interest earned during that Collection Period from the investment of
monies on deposit in the Collection Account, the Payahead Account and the Note
Distribution Account. WE REFER YOU TO "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--COLLECTIONS" IN THIS PROSPECTUS SUPPLEMENT AND "DESCRIPTION OF THE
TRANSFER AND SERVICING AGREEMENTS--SERVICING COMPENSATION" IN THE ACCOMPANYING
PROSPECTUS. The Servicer will be paid the Servicing Fee for each Collection
Period on the following Payment Date related to that Collection Period. However,
if it is acceptable to each rating agency without a reduction in the rating of
each class of notes, the Servicing Fee in respect of a Collection Period
(together with any portion of the Servicing Fee that remains unpaid from prior
Payment Dates) will be paid at the beginning of that Collection Period out of
collections of interest on the Receivables for that Collection Period. The
Servicing Fee will be paid from Available Interest prior to the payment of the
Noteholders' Distributable Amounts or Certificateholders' Distributable Amounts.
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 (the "Yield Supplement Account"). The Yield Supplement
Account is designed solely to supplement the interest collections on
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those Receivables (the "Discount Receivables") that have APRs which are less
than the sum of (a) the percent equivalent of a fraction, the numerator of which
is the sum for each note of the product of (1) the Interest Rate for the note,
(2) the original principal balance of the note and (3) the expected weighted
average life for the note at the pricing speed and the denominator of which is
the sum for each note of the product of (1) the original principal balance of
the note and (2) the expected weighted average life for the note at the pricing
speed and (b) the Servicing 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 of $23,950,083.32 (the "Yield Supplement Account Deposit").
On each 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 Payment Date the lesser of
the amount on deposit in the Yield Supplement Account and the sum of (a) the
aggregate amount by which one month's interest on the Principal Balance as of
the first day of the related Collection Period of each Discount Receivable
(other than a Discount Receivable that is a Defaulted Receivable) at a rate
equal to the Required Rate, exceeds one month's interest on such Principal
Balance at the APR of each such Receivable (the "Yield Supplement Amount") and
(b) after giving effect to the withdrawal of the amount described in clause (a)
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 Payment Date (together with the Yield Supplement Amount, the "Yield
Supplement Withdrawal Amount").
On each Payment 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 Payment 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.
NET DEPOSITS
As an administrative convenience and as long as specified conditions are
satisfied, for so long as AHFC is the Servicer, AHFC will be permitted to make
the deposit of collections, aggregate Advances and amounts deposited in respect
of purchases of Receivables by the Seller or the Servicer for or with respect to
the related Collection Period net of payments to be made to the Servicer with
respect to that Collection Period. The Servicer, however, will account to the
Owner Trustee and to the Securityholders as if all of the foregoing deposits and
payments were made individually. WE REFER YOU TO "DESCRIPTION OF THE TRANSFER
AND SERVICING AGREEMENTS--NET DEPOSITS" IN THE ACCOMPANYING PROSPECTUS.
OPTIONAL PURCHASE
The outstanding notes will be redeemed in whole, but not in part, on any
Payment Date on which the Servicer or any successor to the Servicer exercises
its option to purchase the Receivables. The Servicer or any successor to the
Servicer may purchase the Receivables when the Pool Balance shall have declined
to 10% or less of the Pool Balance as of the Cutoff Date, as described in the
accompanying prospectus under "Description of the Transfer and Servicing
Agreements--Termination." The "Redemption Price" for the outstanding notes will
be equal to the unpaid principal amount of the outstanding notes plus accrued
and unpaid interest on the notes and for the certificates will equal the
Certificate Balance on the date of the optional purchase plus accrued and unpaid
interest on the certificates.
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REMOVAL OF SERVICER
The Indenture Trustee or Noteholders evidencing not less than 51% of the
voting interests of the notes then outstanding (or if the notes have been paid
in full and the Indenture has been discharged in accordance with its terms, by
holders of certificates then outstanding evidencing not less than 51% of the
voting interests thereof), may terminate the rights and obligations of the
Servicer under the Sale and Servicing Agreement upon the following events
("Servicer Defaults"):
1. any failure by the Servicer to deliver to the applicable Trustee for
deposit in any Account any required payment or to direct the Indenture
Trustee to make the required payments therefrom and that 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 Owner Trustee or the Indenture Trustee, as
applicable or (b) the Servicer and the Owner Trustee or the Indenture
Trustee, as applicable, of written notice of the failure from not less
than 25% of the outstanding amount of the notes;
2. any failure by the Servicer (or the Seller, as long as AHFC is the
Servicer) to duly observe or perform in any material respect any other
covenants or agreements in the Sale and Servicing Agreement, which
failure materially and adversely affects the rights of the
Securityholders, and which failure continues unremedied for 90 days after
the giving of written notice of the failure to (a) the Servicer or the
Seller, as the case may be, by the Owner Trustee or the Indenture
Trustee, as applicable, or (b) the Servicer or the Seller, as the case
may be, and the Owner Trustee or the Indenture Trustee by the holders of
notes evidencing not less than 25% of the outstanding amount of the
notes; and
3. the occurrence of an Insolvency Event (as defined in the attached
prospectus) of the Seller or the Servicer.
Under those circumstances, authority and power shall, without further
action, pass to and be vested in the Indenture Trustee or a successor Servicer
appointed by the Indenture Trustee under the Sale and Servicing Agreement. The
Indenture Trustee or successor Servicer will succeed to all the
responsibilities, duties and liabilities of the Servicer in its capacity 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 the appointment
of a bankruptcy trustee or similar official has occurred, that 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. Upon payment in full of the principal and interest on
the notes, the Certificateholders will succeed to the rights of the Noteholders
with respect to removal of the Servicer.
DUTIES OF THE OWNER TRUSTEE AND THE INDENTURE TRUSTEE
The Owner Trustee will make no representations as to the validity or
sufficiency of the Trust Agreement, the certificates (other than the
authentication of the certificates), the notes or of any Receivables or related
documents and is not accountable for the use or application by the Seller or the
Servicer of any funds paid to the Seller or the Servicer in respect of the
notes, the certificates or the Receivables, or the investment of any monies by
the Servicer before those monies are deposited into the Collection Account. The
Owner Trustee will not independently verify the Receivables. If no
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Servicer Default has occurred, the Owner Trustee is required to perform only
those duties specifically required of it under the Trust Agreement. In addition
to making distributions to the Certificateholders, those duties generally are
limited to the receipt of the various certificates, reports or other instruments
required to be furnished to the Owner Trustee under the Trust Agreement, in
which case it will only be required to examine them to determine whether they
conform to the requirements of the Trust Agreement. The Owner Trustee shall not
be charged with knowledge of a failure by the Servicer to perform its duties
under the Trust Agreement or the Sale and Servicing Agreement which failure
constitutes a Servicer Default unless the Owner Trustee obtains actual knowledge
of the failure as specified in the Trust Agreement.
The Owner Trustee will be under no obligation to exercise any of the rights
or powers vested in it by the Trust Agreement or to make any investigation of
matters arising under the Trust Agreement or to institute, conduct or defend any
litigation under the Trust Agreement or in relation thereto at the request,
order or direction of any of the Certificateholders, unless those
Certificateholders have offered to the Owner Trustee reasonable security or
indemnity against the costs, expenses and liabilities that may be incurred by
the Owner Trustee in connection with the exercise of those rights.
The Indenture Trustee will make no representations as to the validity or
sufficiency of the Indenture, the certificates, the notes (other than
authentication of the notes) or of any Receivables or related documents, and is
not accountable for the use or application by the Seller or the Servicer of any
funds paid to the Seller or the Servicer in respect of the notes, the
certificates or the Receivables, or the investment of any monies by the Servicer
before those monies are deposited into the Collection Account. The Indenture
Trustee will not independently verify the Receivables. If no Event of Default or
Servicer Default has occurred, the Indenture Trustee is required to perform only
those duties specifically required of it under the Indenture. In addition to
making distributions to the Noteholders, those duties generally are limited to
the receipt of the various certificates, reports or other instruments required
to be furnished to the Indenture Trustee under the indenture, in which case it
will only be required to examine them to determine whether they conform to the
requirements of the Indenture. The Indenture Trustee shall not be charged with
knowledge of a failure by the Servicer to perform its duties under the Trust
Agreement, the Sale and Servicing Agreement or the Administration Agreement
which failure constitutes an Event of Default or Servicer Default unless the
Indenture Trustee obtains actual knowledge of the failure as specified in the
indenture.
The Indenture Trustee will be under no obligation to exercise any of the
rights or powers vested in it by the Indenture or to make any investigation of
matters arising under the Indenture or to institute, conduct or defend any
litigation under the Indenture or in relation thereto at the request, order or
direction of any of the Noteholders, unless those Noteholders have offered to
the Indenture Trustee reasonable security or indemnity against the costs,
expenses and liabilities that may be incurred by the Indenture Trustee in
connection with the exercise of those rights. No Noteholder will have any right
under the Indenture to institute any proceeding with respect to the Indenture,
other than with respect to the failure by the Seller or the Servicer, as
applicable, to remit payment, unless that Noteholder previously has given to the
Indenture Trustee written notice of the Event of Default and (1) the Event of
Default arises from the Servicer's failure to remit payments when due or
(2) the holders of the notes evidencing not less than 25% of the voting
interests of the notes, voting together as a single class, have made written
request upon the Indenture Trustee to institute that proceeding in its own name
as the Indenture Trustee under the Indenture and have offered to the Indenture
Trustee reasonable indemnity and the Indenture Trustee for 60 days has neglected
or refused to institute that proceeding.
THE OWNER TRUSTEE AND THE INDENTURE TRUSTEE
Bankers Trust (Delaware) will be the Owner Trustee under the Trust
Agreement. As a matter of Delaware law, the Trust will be viewed as a separate
legal entity, distinct from the Owner Trustee, and the Trust will be viewed as
the issuer of the certificates. U.S. Bank National Association will be the
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Indenture Trustee under the Indenture. The Owner Trustee, the Indenture Trustee
and any of their respective affiliates may hold certificates in their own names
or as pledgees.
For the purpose of meeting the legal requirements of some jurisdictions, the
Servicer and the Owner Trustee or the Servicer and the Indenture Trustee, in
each case acting jointly (or in some instances, the Owner Trustee or the
Indenture Trustee acting alone), will have the power to appoint co-trustees or
separate trustees of all or any part of the Trust. In the event of an
appointment of co-trustees or separate trustees, all rights, powers, duties and
obligations conferred or imposed upon the Owner Trustee by the Sale and
Servicing Agreement and the Trust Agreement or the Indenture Trustee by the
Indenture will be conferred or imposed upon the Owner Trustee or the Indenture
Trustee and each of their respective separate trustees or co-trustees jointly,
or, in any jurisdiction in which the Owner Trustee or the Indenture Trustee will
be incompetent or unqualified to perform specified acts, singly upon that
separate trustee or co-trustee who will exercise and perform those rights,
powers, duties and obligations solely at the direction of the Owner Trustee or
the Indenture Trustee.
The Owner Trustee and the Indenture Trustee may resign at any time, in which
event the Servicer will be obligated to appoint a successor thereto. The
Servicer may also remove the Owner Trustee or the Indenture Trustee if either
ceases to be eligible to continue as trustee under the Trust Agreement or the
Indenture, as the case may be, becomes legally unable to act or becomes
insolvent. In those circumstances, the Servicer will be obligated to appoint a
successor Owner Trustee or Indenture Trustee, as applicable. Any resignation or
removal of the Owner Trustee or the Indenture Trustee and appointment of a
successor thereto will not become effective until acceptance of the appointment
by the successor.
The Servicer will be obligated to pay the fees of the Owner Trustee and the
Indenture Trustee in connection with their duties under the Trust Agreement and
Indenture, respectively. The Owner Trustee and the Indenture Trustee will be
entitled to indemnification by AHFC and the Seller for, and will be held
harmless against, any loss, liability, fee, disbursement or expense incurred by
the Owner Trustee or the Indenture Trustee not resulting from its own willful
misfeasance, bad faith or negligence (other than by reason of a breach of any of
its representations or warranties set forth in the Trust Agreement or the
Indenture, as the case may be). The Seller and the Servicer will be obligated to
indemnify the Owner Trustee and the Indenture Trustee for specified taxes that
may be asserted in connection with the transaction.
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MATERIAL INCOME TAX CONSEQUENCES
The following is a general discussion of the material federal income tax and
California tax considerations of the purchase, ownership and disposition of the
notes. The discussion is based upon law, regulations, rulings and decisions now
in effect, all of which are subject to change. The discussion below does not
purport to deal with all federal tax and California tax considerations
applicable to all categories of investors. It is recommended that investors
consult their own tax advisors in determining the federal, state, local and any
other tax consequences to them of the purchase, ownership and disposition of the
notes.
We refer you to the discussions under "Material Income Tax Consequences--Tax
Treatment of Owner Trusts" and "--Material State Tax Consequences with respect
to Owner Trusts" in the accompanying prospectus.
TAX CHARACTERIZATION OF THE TRUST
In the opinion of Dewey Ballantine LLP, tax counsel to the Trust, (i) the
notes will be characterized as debt for tax purposes, and (ii) the Trust will
not be characterized as an association (or a publicly traded partnership)
taxable as a corporation for federal income and California income and franchise
tax purposes.
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 the beneficial owners of the certificates
(the "Certificate Owners") could be liable for any such tax that is unpaid by
the Trust.
TREATMENT OF THE NOTES AS INDEBTEDNESS
The Seller, any Certificateholders and the Certificate Owners will agree,
and the beneficial owners of the notes (the "Note Owners") will agree by their
purchase of the notes, to treat the notes as debt for federal income tax
purposes. The Seller and the Servicer will agree, and the Certificate Owners
will agree by their purchase of the certificates, to treat the Trust (i) as a
partnership for purposes of federal and state income tax, franchise tax and any
other tax measured in whole or in part by income, with the assets of the
partnership being the assets held by the Trust, the partners of the partnership
being the Certificate Owners, and the notes being debt of the partnership, or
(ii) if a single beneficial owner owns all of the certificates and none of the
notes are characterized as equity interests in the Trust, as disregarded as an
entity separate from the Certificate Owner for purpose of federal and state
income tax, franchise tax and any other tax measured in whole or in part by
income, with the assets of the Trust and the notes treated as assets and
indebtedness of the Certificate Owner. However, the proper characterization of
the arrangement involving the Trust, the notes, the Seller and the Servicer is
not clear because there is no authority on transactions closely comparable to
the transaction described in this prospectus supplement.
CALIFORNIA INCOME TAX CONSEQUENCES
In the opinion of Dewey Ballantine LLP, tax counsel to the Trust, the Trust
will not be an association taxable as a corporation for California income and
franchise tax purposes. This opinion will be based on the assumption that the
terms of the Trust Agreement and related documents will be followed. Dewey
Ballantine 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. We recommend that investors consult their own tax
advisors to
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determine the state, local and other tax consequences to them of the purchase,
ownership and disposition of the Notes.
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Code prohibit pension,
profit-sharing and other employee benefit plans, as well as individual
retirement accounts and certain types of Keogh Plans (each, a "Benefit Plan"),
from engaging in certain transactions with persons that are "parties in
interest" under ERISA or "disqualified persons" under the Code with respect to
such Benefit Plans. A violation of these "prohibited transaction" rules may
result in an excise tax or other penalties and liabilities under ERISA and the
Code for such persons. Title I of ERISA also requires that fiduciaries of a
Benefit Plan subject to ERISA make investments that are prudent, diversified
(except if prudent not to do so) and in accordance with governing, plan
documents.
Certain transactions involving the trust might be deemed to constitute
prohibited transactions under ERISA and the Code if assets of the trust were
deemed to be assets of a Benefit Plan. Under a regulation issued by the United
States Department of Labor (the "Plan Assets Regulation"), the assets of the
trust would be treated as plan assets of a Benefit Plan for the purposes of
ERISA and the Code only if the Benefit Plan acquired an "equity interest" in the
trust and none of the exceptions contained in the Plan Assets Regulation were
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 is little guidance on the subject, the notes should be treated as
indebtedness without substantial equity features for purposes of the Plan Assets
Regulation. This determination is based in part upon the traditional debt
features of the notes, including the reasonable expectation of purchasers of
notes that the notes will be repaid when due, as well as the absence of
conversion rights, warrants and other typical equity features. The debt
treatment of the notes for ERISA purposes could change if the trust incurred
losses.
However, even if the notes are treated as debt for purposes of the Plan
Assets Regulation, the acquisition or holding of notes by or on behalf of a
Benefit Plan could be considered to give rise to a prohibited transaction if the
trust or any of its 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 plan fiduciary making the decision to
acquire a note. Included among these exemptions are: Prohibited Transaction
Class Exemption ("PTCE") 90- 1, regarding investments by insurance company
pooled separate accounts; PTCE 95-60, regarding investments by insurance company
general accounts; PTCE 91-38, regarding investments by bank collective
investment finds; PTCE 96-23, regarding transactions affected by "in-house asset
managers"; and PTCE 84-14, regarding transactions effected by "qualified
professional asset managers." Each investor using the assets of a Benefit Plan
which acquires the notes, or to whom the notes are transferred, will be deemed
to have represented that the acquisition and continued holding of the notes will
be covered by one of the exemptions listed above or by another Department of
Labor prohibited transaction class exemption.
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements; however, such plans may be subject
to comparable federal, state or local law restrictions.
A plan fiduciary considering the purchase of notes should consult its tax
and/or legal advisors regarding whether the assets of the trust would be
considered plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other related issues and their potential consequences.
The sale of notes to a Benefit Plan is in no respect a representation that
this investment meets all relevant legal requirements with respect to
investments by Benefit Plan generally of by a particular
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Benefit Plan, or that this investment is appropriate for Benefit Plans generally
or any particular Benefit Plan.
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
(the "Underwriting Agreement"), the Seller has agreed to cause the Trust to sell
to each of the underwriters named below (collectively, the "Underwriters"), and
each of the Underwriters has severally but not jointly agreed to purchase, the
principal amount of notes set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITERS CLASS A-1 NOTES CLASS A-2 NOTES CLASS A-3 NOTES CLASS A-4 NOTES
------------ --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Chase Securities Inc........... $104,300,000 $ 84,000,000 $135,250,000 $ 45,135,000
J.P. Morgan Securities Inc..... $104,300,000 $ 84,000,000 $135,250,000 $ 45,135,000
Banc of America Securities
LLC.......................... $ 29,800,000 $ 24,000,000 $ 38,500,000 $ 13,000,000
Banc One Capital Markets,
Inc. ........................ $ 29,800,000 $ 24,000,000 $ 38,500,000 $ 13,000,000
Salomon Smith Barney Inc. ..... $ 29,800,000 $ 24,000,000 $ 38,500,000 $ 13,000,000
------------ ------------ ------------ ------------
Total.......................... $298,000,000 $240,000,000 $386,000,000 $129,270,000
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth in the Underwriting Agreement, to purchase all of
the notes if any of the notes are purchased. This obligation of the Underwriters
is subject to specified conditions precedent set forth in the Underwriting
Agreement.
The Seller has been advised by the Underwriters that they propose to offer
the notes to the public initially at the prices set forth on the cover of this
prospectus supplement, and to specified dealers at these prices less the
concessions and reallowance discounts set forth below:
<TABLE>
<CAPTION>
CLASS SELLING CONCESSION REALLOWANCE DISCOUNT
----- ------------------ --------------------
<S> <C> <C>
A-1............................................... 0.090% 0.070%
A-2............................................... 0.120% 0.100%
A-3............................................... 0.150% 0.120%
A-4............................................... 0.180% 0.140%
</TABLE>
The Seller and AHFC have agreed to indemnify the Underwriters against
specified liabilities, including liabilities under the Securities Act or to
contribute to payments which the Underwriters may be required to make in respect
thereof. However, in the opinion of the SEC, certain indemnification provisions
for liability arising under the federal securities law are contrary to public
policy and therefore unenforceable. In the ordinary course of their respective
businesses, the Underwriters and their respective affiliates have engaged and
may engage in investment banking and/or commercial banking transactions with
AHFC and its affiliates.
The notes are new issues of securities with no established trading market.
The Seller has been advised by the Underwriters that they intend to make a
market in the notes of each class as permitted by applicable laws and
regulations. The Underwriters are not obligated, however, to make a market in
the notes, and that market-making may be discontinued at any time without notice
at the sole discretion of the Underwriters. Accordingly, no assurance can be
given as to the liquidity of, or trading markets for, the notes of any class.
The Trust may, from time to time, invest funds in the Accounts in Eligible
Investments acquired from the Underwriters.
The Underwriters have advised the Seller that, pursuant to Regulation M
under the Securities Act, specified persons participating in this offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
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stabilizing or maintaining the market price of the notes of any class at levels
above those that might otherwise prevail in the open market. A "stabilizing bid"
is a bid for or the purchase of the Securities of any class on behalf of the
Underwriters for the purpose of fixing or maintaining the price of those
Securities. A "syndicate covering transaction" is the bid for or the purchase of
those notes of any class on behalf of the Underwriters to reduce a short
position incurred by the Underwriters in connection with this offering. A
"penalty bid" is an arrangement permitting one of the Underwriters to reclaim
the selling concession otherwise accruing to another Underwriter or syndicate
member in connection with this offering if the notes of any class originally
sold by the other Underwriter or syndicate member are purchased by the
reclaiming Underwriter in a syndicate covering transaction and has therefore not
been effectively placed by the other Underwriter or syndicate member.
Stabilizing bids and syndicate covering transactions may have the effect of
causing the price of the Securities of any class to be higher than it might be
in the absence thereof, and the imposition of penalty bids might also have an
effect on the price of any note to the extent that it discourages resale of that
note. Neither the Seller nor the Underwriters makes any representation or
prediction as to the direction or magnitude of any of that effect on the prices
for the notes. Neither the Seller nor the Underwriters makes any representation
that the Underwriters will engage in any of those transactions or that, once
commenced, any of those transactions will not be discontinued without notice.
It is expected that delivery of the notes will be made against payment
therefor on or about the Closing Date, which is the sixth business day following
the date hereof. Rule 15c6-1 of the Commission under the Exchange Act of 1934
generally requires trades in the secondary market to settle in three business
days, unless the parties to any such trade expressly agree otherwise.
Accordingly, purchasers who wish to trade notes on the date hereof will be
required, by virtue of the fact that the notes initially will settle six
business days after the date hereof, to specify an alternate settlement cycle at
the time of any such trade to prevent a failed settlement. It is suggested that
purchasers of notes who wish to trade notes on the date hereof consult their own
advisors.
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,
AHFC, the Seller, or the Underwriters will promptly deliver, or cause to be
delivered, without charge, a paper copy of the prospectus.
Each Underwriter will represent that (i) it has not offered or sold and will
not offer or sell, prior to the date six months after their date of issuance,
any notes to persons in the United Kingdom, except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted in and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995; (ii) it has complied and will comply with
all applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the notes in, from or otherwise involving the
United Kingdom; and (iii) it has only issued or passed on and will only issue or
pass on in the United Kingdom any document received by it in connection with the
issuance of the notes to a person who is of a kind described in Article 11(3) of
the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1997 or is a person to whom the document can otherwise lawfully be issued or
passed on.
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
S-53
<PAGE>
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.
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.
LEGAL OPINIONS
In addition to the legal opinions described in the accompanying prospectus,
legal matters relating to the notes and federal income tax and California state
income tax and other matters will be passed upon for the Trust by Dewey
Ballantine LLP. Certain legal matters will be passed upon for the Underwriters
by Stroock & Stroock & Lavan LLP.
S-54
<PAGE>
INDEX OF TERMS
<TABLE>
<S> <C>
ABS................................... S-27
ABS Tables............................ S-27
Advance............................... S-45
Aggregate Net Losses.................. S-43
AHFC.................................. S-19
APR................................... S-20
Available Amounts..................... S-37
Available Interest.................... S-37
Available Principal................... S-38
Benefit Plan.......................... S-48
Certificate Balance................... S-39
Certificate Owners.................... S-50
Certificateholders.................... S-35
Certificateholders' Distributable
Amount.............................. S-39
Certificateholders' Interest Carryover
Shortfall........................... S-39
Certificateholders' Interest
Distributable Amount................ S-39
Certificateholders' Monthly Interest
Distributable Amount................ S-39
Certificateholders' Monthly Principal
Distributable Amount................ S-39
Certificateholders' Percentage........ S-39
Certificateholders' Principal
Carryover Shortfall................. S-39
Certificateholders' Principal
Distributable Amount................ S-40
Charge-off Rate....................... S-42
Clearstream Luxembourg................ A-1
Closing Date.......................... S-20
Collection Period..................... S-45
Current Receivable.................... S-43
Cutoff Date........................... S-20
Dealer Recourse....................... S-19
Dealers............................... S-20
Defaulted Receivable.................. S-38
Delinquency Percentage................ S-43
Deposit Date.......................... S-45
Determination Date.................... S-37
Discount Receivables.................. S-46
DTC................................... A-1
Eligible Investments.................. S-44
Euroclear............................. A-1
Excess Amount......................... S-38
Excess Payment........................ S-44
Final Scheduled Payment Date.......... S-24
Financed Vehicles..................... S-20
Global Securities..................... A-1
Indenture Trustee..................... S-20
Initial Certificate Balance........... S-19
Interest Period....................... S-40
Interest Rate......................... S-33
Liquidated Receivable................. S-43
Net Liquidation Proceeds.............. S-37
Non-U.S. Person....................... A-4
Note Owners........................... S-50
Note Pool Factor...................... S-33
Notes................................. S-34
Noteholders........................... S-34
Noteholders' Distributable Amount..... S-40
Noteholders' Interest Carryover
Shortfall........................... S-40
Noteholders' Interest Distributable
Amount.............................. S-40
Noteholders' Monthly Interest
Distributable Amount................ S-40
Noteholders' Monthly Principal
Distributable Amount................ S-40
Noteholders' Percentage............... S-40
Noteholders' Principal Carryover
Shortfall........................... S-40
Noteholders' Principal Distributable
Amount.............................. S-41
Obligors.............................. S-20
Owner Trustee......................... S-19
Pass Through Rate..................... S-36
Payment Date.......................... S-33
penalty bid........................... S-53
Plan Assets Regulation................ S-51
Prepayment............................ S-44
Principal Distributable Amount........ S-41
PTCE.................................. S-51
Receivables........................... S-20
Redemption Price...................... S-46
Required Rate......................... S-46
Reserve Fund Initial Deposit.......... S-42
Sale and Servicing Agreement.......... S-19
SEC................................... S-33
Seller................................ S-19
Servicer.............................. S-19
Servicer Defaults..................... S-47
Servicing Fee......................... S-45
Servicing Rate........................ S-45
Specified Reserve Fund Balance........ S-42
stabilizing bid....................... S-53
syndicate covering transaction........ S-53
Transfer and Servicing Agreements..... S-43
Trust................................. S-19
Trust Agreement....................... S-19
Trust Fees and Expenses............... S-34
Trustees.............................. S-20
Underwriters.......................... S-52
Underwriting Agreement................ S-52
Yield Supplement Account.............. S-45
Yield Supplement Account Deposit...... S-46
Yield Supplement Amount............... S-46
Yield Supplement Withdrawal Amount.... S-46
</TABLE>
S-55
<PAGE>
ANNEX A
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in specified circumstances, the globally offered class A notes (the
"Global Securities") will be available only in book-entry form. Investors in the
Global Securities may hold the Global Securities through The Depository Trust
Company ("DTC"), Clearstream Banking, societe anonyme ("Clearstream,
Luxembourg") or the Euroclear System ("Euroclear"). The Global Securities will
be tradable as home market instruments in both the European and U.S. domestic
markets. Initial settlement and all secondary trades will settle in same-day
funds.
Secondary market trading between investors holding Global Securities through
Clearstream, Luxembourg 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., three calendar day settlement).
Secondary market trading between investors holding Global Securities through
DTC will be conducted according to the rules and procedure applicable to U.S.
corporate debt obligations and prior asset-backed securities issues.
Secondary cross-market trading between Clearstream, Luxembourg or Euroclear
and DTC Participants holding securities will be effected on a
delivery-against-payment basis through the depositaries of Clearstream,
Luxembourg and Euroclear (in that capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless those holders meet specified requirements and
deliver appropriate U.S. 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 & Co. 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, Clearstream, Luxembourg and
Euroclear will hold positions on behalf of their participants through their
depositaries, which in turn will hold those positions in accounts as DTC
Participants.
Investors electing to hold their Global Securities through DTC will follow
DTC settlement practice. 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 Clearstream,
Luxembourg 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 securities custody accounts on the settlement date against payment
in 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 prior
asset-backed securities issues in same-day funds.
A-1
<PAGE>
TRADING BETWEEN CLEARSTREAM, LUXEMBOURG AND/OR EUROCLEAR
PARTICIPANTS. Secondary market trading between Clearstream, Luxembourg
Participants or Euroclear Participants will be settled using the procedures
applicable to conventional eurobonds in same-day funds.
TRADING BETWEEN DTC SELLER AND CLEARSTREAM, LUXEMBOURG OR EUROCLEAR
PARTICIPANTS. When Global Securities are to be transferred from the account of a
DTC Participant to the account of a Clearstream, Luxembourg Participant or a
Euroclear Participant, the purchaser will send instructions to Clearstream,
Luxembourg or Euroclear through a Clearstream, Luxembourg Participant or
Euroclear Participant at least one business day prior to settlement.
Clearstream, Luxembourg or Euroclear will instruct the 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 the
actual number of days in that accrual period and a year assumed to consist of
360 days. For transactions settling on the 31st of the month, payment will
include interest accrued to and excluding the first day of the following month.
Payment will then be made by the respective Depositary to the DTC Participant's
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 Clearstream, Luxembourg Participant's or Euroclear Participant's account.
The securities credit will appear the next day (European time) and the cash debt
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 Clearstream, Luxembourg or Euroclear cash debt will be
valued instead as of the actual settlement date.
Clearstream, Luxembourg 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 Clearstream, Luxembourg or
Euroclear. Under this approach, they may take on credit exposure to Clearstream,
Luxembourg or Euroclear until the Global Securities are credited to their
accounts one day later.
As an alternative, if Clearstream, Luxembourg or Euroclear has extended a
line of credit to them, Clearstream, Luxembourg 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, Clearstream Bank
Participants or Euroclear Participants purchasing Global Securities would incur
overdraft charges for one day, assuming they clear the overdraft when the Global
Securities are 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 those overdraft charges, although
this result will depend on each Clearstream, Luxembourg 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 European Depositary for the benefit of Clearstream, Luxembourg
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 CLEARSTREAM, LUXEMBOURG OR EUROCLEAR SELLER AND DTC
PURCHASER. Due to time zone differences in their favor, Clearstream, Luxembourg
Participants and Euroclear Participants may employ their customary procedures
for transactions in which Global Securities are to be transferred by the
respective clearing system, through the respective Depositary, to a DTC
Participant. The seller will send instructions to Clearstream, Luxembourg or
Euroclear through a Clearstream, Luxembourg Participant or Euroclear Participant
at least one business day prior to settlement. In these cases, Clearstream,
Luxembourg or Euroclear will instruct the Relevant Depositary, as appropriate,
to deliver
A-2
<PAGE>
the Global Securities to the DTC Participant's account against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment to and excluding the settlement date on the basis of the
actual number of days in that accrual period and a year assumed to consist of
360 days. For transactions settling on the 31st of the month, payment will
include interest accrued to and excluding the first day of the following month.
The payment will then be reflected in the account of the Clearstream, Luxembourg
Participant or Euroclear Participant the following day, and receipt of the cash
proceeds in the Clearstream, Luxembourg 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 Clearstream, Luxembourg
Participant or Euroclear Participant have a line of credit with its respective
clearing system and elect to be in debt in anticipation of receipt of the sale
proceeds in its account, the back valuation will extinguish any overdraft
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
Clearstream, Luxembourg Participant's or Euroclear Participant's account would
instead be valued as of the actual settlement date.
Finally, day traders that use Clearstream, Luxembourg or Euroclear and that
purchase Global Securities from DTC Participants for delivery to Clearstream,
Luxembourg 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:
(1) borrowing through Clearstream, Luxembourg or Euroclear for one day
(until the purchase side of the day trade is reflected in their Clearstream,
Luxembourg or Euroclear accounts) in accordance with the clearing system's
customary procedures;
(2) borrowing the Global Securities in the U.S. 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 Clearstream, Luxembourg
or Euroclear account in order to settle the sale side of the trade; or
(3) 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 Clearstream, Luxembourg
Participant or Euroclear Participant.
MATERIAL U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
Clearstream, Luxembourg or Euroclear (or through DTC if the holder has an
address outside the U.S.) will be subject to the 30% U.S. withholding tax that
generally applies to payments of interest (including original issue discount) on
registered debt issued by U.S. Persons (as defined in the accompanying
prospectus), unless (1) 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 that beneficial owner and the
U.S. entity required to withhold tax complies with applicable certification
requirements and (2) that beneficial owner takes one of the following steps to
obtain an exemption or reduced tax rate:
EXEMPTION FOR NON-U.S. PERSONS (FORM W-8BEN). Beneficial owners of Global
Securities that are Non-U.S. Persons generally can obtain a complete exemption
from the withholding tax by filing a signed Form W-8BEN (Certificate of Foreign
Status of Beneficial Owner for United States Withholding). If the information
shown on Form W-8BEN changes, a new Form W-8BEN must be filed within 30 days of
that change.
EXEMPTION FOR NON-U.S. PERSONS WITH EFFECTIVELY CONNECTED INCOME
(FORM W-8ECI). A Non-U.S. Person, including a non-U.S. corporation or bank with
a U.S. branch, for which the interest income is effectively connected with its
conduct of a trade or business in the United States, generally can obtain an
exemption from the withholding tax by filing Form W-ECI (Certificate of Foreign
Person's Claim for
A-3
<PAGE>
Exemption from Withholding 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 W-8BEN). Non-U.S. Persons residing in a country that has a tax treaty with
the United States generally can obtain an exemption or reduced tax rate
depending on the treaty terms) by filing Form W-8BEN. Form W-8BEN may be filed
by the Certificate Owners or their authorized agents.
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 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). A Form W-8BEN on which the beneficial owner
of a Global Security provides a U.S. taxpayer identification number generally
remains in effect until a change in circumstances causes any of the information
on the form to be incorrect. A W-8BEN on which a U.S. taxpayer identification is
not provided and a Form W-8ECI generally remain in effect for three calendar
years, absent a change in circumstances causing any information on the form to
be incorrect.
The term "Non-U.S. Person" means any person who is not a U.S. Person (as
defined in the accompanying prospectus).
This summary does not deal with all aspects of U.S. federal income tax
withholding that may be relevant to foreign holders of Global Securities. It is
suggested that investors consult their tax advisors for specific tax advice
concerning their holding and disposing of Global Securities.
A-4
<PAGE>
PROSPECTUS
HONDA AUTO RECEIVABLES TRUSTS
ASSET BACKED NOTES
ASSET BACKED CERTIFICATES
AMERICAN HONDA RECEIVABLES CORP.,
SELLER
AMERICAN HONDA FINANCE CORPORATION,
SERVICER
THE TRUSTS:
1. A new trust will be formed to issue each series of securities and a
particular trust may issue multiple series of securities;
2. Each trust will consist of:
- a pool of retail installment sale contracts secured by new or used
Honda or Acura motor vehicles; and
- other assets specified in the applicable prospectus supplement.
THE SECURITIES:
1. will be asset-backed securities sold periodically in one or more series;
2. will be paid only from the assets of the related trust and any form of
credit enhancement;
3. will be issued as part of a designated series that may include one or more
classes; and
4. will consist of:
- notes (which will be treated as indebtedness of the trust) and/or
- certificates (which will represent an undivided ownership interest in
the trust).
YOU SHOULD REVIEW CAREFULLY THE FACTORS SET FORTH UNDER "RISK FACTORS" BEGINNING
ON PAGE 12 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE SECURITIES OR DETERMINED THAT THIS
PROSPECTUS OR THE APPLICABLE PROSPECTUS SUPPLEMENT IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The amounts, prices and terms of each offering of securities will be determined
at the time of sale and will be described in a prospectus supplement that will
be attached to this prospectus.
This prospectus may be used to offer and sell any series of securities only if
accompanied by the prospectus supplement for that series.
The date of this prospectus is October 13, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT..... 5
SUMMARY OF TERMS............................................ 6
Trust..................................................... 6
Seller.................................................... 6
Servicer.................................................. 6
Trustee................................................... 6
Indenture Trustee......................................... 6
Securities Offered........................................ 6
The Receivables........................................... 7
The Trust Property........................................ 8
Credit and Cash Flow Enhancement.......................... 8
Servicing Fee............................................. 9
Advances.................................................. 9
Optional Purchase......................................... 10
Tax Status................................................ 10
ERISA Considerations...................................... 11
RISK FACTORS............................................... 12
You must rely for repayment only upon payments from the
trust's assets which may not be sufficient to make full
payments on your securities............................. 12
You may experience reduced returns on your investment
resulting from prepayments, repurchases or early
termination of the trust................................ 12
Interests of other persons in the receivables and financed
vehicles could be superior to the trust's interest,
which may result in reduced payments on your
securities.............................................. 13
Receivables that fail to comply with consumer protection
laws may be unenforceable, which may result in losses on
your investment......................................... 14
The bankruptcy of American Honda Finance Corporation
(servicer) or American Honda Receivables Corp. (seller)
could result in losses or delays in payments on your
securities.............................................. 14
Proceeds of the sale of receivables may not be sufficient
to pay your securities in full.......................... 15
Failure to pay principal on your notes will not constitute
an event of default until maturity...................... 15
Funds held by the servicer that are intended to be used to
make payments on the securities may be exposed to a risk
of loss................................................. 15
If the trust enters into a currency or an interest rate
swap, payments on the securities will be dependent on
payments made under the swap agreement.................. 16
Termination of a swap agreement and the inability to
locate replacement swap counterparty may cause
termination of the trust................................ 17
The rating of a third party credit enhancement provider
may affect the ratings
of the securities....................................... 17
The calculations for the payments of principal or interest
may be based on an index which may result in payments to
you of less principal or interest than a non-indexed
security................................................ 18
You may have difficulty selling your securities and/or
obtaining your desired price due to the absence of a
secondary market........................................ 18
Because the securities are in book-entry form, your rights
can only be exercised indirectly........................ 19
FORMATION OF THE TRUSTS..................................... 20
PROPERTY OF THE TRUSTS...................................... 20
THE RECEIVABLES............................................. 21
Underwriting of Motor Vehicle Loans....................... 22
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Servicing of the Receivables.............................. 23
USE OF PROCEEDS............................................. 23
THE TRUSTEE................................................. 24
THE SELLER.................................................. 24
THE SERVICER................................................ 24
WHERE YOU CAN FIND MORE INFORMATION ABOUT YOUR SECURITIES... 25
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES................. 25
WEIGHTED AVERAGE LIFE OF THE SECURITIES..................... 26
POOL FACTORS AND TRADING INFORMATION........................ 27
THE NOTES................................................... 27
General................................................... 27
Principal and Interest on the Notes....................... 28
The Indenture............................................. 28
THE CERTIFICATES............................................ 33
General................................................... 33
Payments of Principal and Interest........................ 33
CERTAIN INFORMATION REGARDING THE SECURITIES................ 34
Fixed Rate Securities..................................... 34
Floating Rate Securities.................................. 34
Indexed Securities........................................ 43
Interest Rate Swaps....................................... 44
Variable Funding Note..................................... 44
Pro-Rata Pay/Subordinate Securities....................... 44
Revolving Period.......................................... 44
Book-Entry Registration................................... 44
Definitive Securities..................................... 49
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS........ 50
Sale and Assignment of Receivables........................ 50
Accounts.................................................. 51
Servicing Procedures...................................... 53
Insurance on Financed Vehicles............................ 54
Collections............................................... 54
Advances.................................................. 55
Servicing Compensation.................................... 55
Yield Supplement Account; Yield Supplement Agreement...... 56
Distributions on the Securities........................... 57
Credit and Cash Flow Enhancement.......................... 57
Net Deposits.............................................. 59
Statements to Trustees and the Trust...................... 59
Statements to Securityholders............................. 60
Evidence as to Compliance................................. 61
Certain Matters Regarding the Servicer.................... 61
Servicer Default.......................................... 62
Rights Upon Servicer Default.............................. 62
Waiver of Past Defaults................................... 63
Amendment................................................. 63
List of Securityholders................................... 64
Insolvency Event.......................................... 64
Payment of Notes.......................................... 64
Termination............................................... 64
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Administration Agreement.................................. 65
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES.................... 65
General................................................... 65
Security Interests........................................ 66
Repossession.............................................. 68
Notice of Sale; Redemption Rights......................... 68
Deficiency Judgments and Excess Proceeds.................. 68
Certain Bankruptcy Considerations......................... 69
Consumer Protection Laws.................................. 70
Other Limitations......................................... 71
MATERIAL INCOME TAX CONSEQUENCES............................ 72
Tax Treatment of Owner Trusts............................. 72
Tax Treatment of Grantor Trusts........................... 80
Federal Income Tax Treatment of FASITs.................... 87
Material State Tax Consequences With Respect to Owner
Trusts.................................................. 91
Material State Tax Consequences With Respect to Grantor
Trusts.................................................. 92
ERISA CONSIDERATIONS........................................ 93
UNDERWRITING................................................ 94
LEGAL OPINIONS.............................................. 94
INDEX OF TERMS.............................................. 95
</TABLE>
4
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS AND THE
ACCOMPANYING PROSPECTUS SUPPLEMENT
We provide information to you about the securities in two separate documents
that progressively provide varying levels of detail:
- This prospectus, which provides general information, some of which may not
apply to a particular series of securities including your series, and
- The accompanying prospectus supplement, which will describe the specific
terms of the offered securities.
We have started with several introductory sections describing the trust and
the securities in abbreviated form, followed by a more complete description of
the terms. The introductory sections are:
- Summary of Terms--which gives a brief introduction to the securities to be
offered, and
- Risk Factors--which describes briefly some of the risks to investors of a
purchase of the securities.
You can find a listing of the pages where capitalized terms used in this
prospectus are defined under the caption "Index of Terms" beginning on page 96
in this prospectus.
Whenever we use words like "intends," "anticipates" or "expects" or similar
words in this prospectus, we are making a forward-looking statement, or a
projection of what we think will happen in the future. Forward-looking
statements are inherently subject to a variety of circumstances, many of which
are beyond our control and could cause actual results to differ materially from
what we anticipate. Any forward-looking statements in this prospectus speak only
as of the date of this prospectus. We do not assume any responsibility to update
or review any forward-looking statement contained in this prospectus to reflect
any change in our expectation about the subject of that forward-looking
statement or to reflect any change in events, conditions or circumstances on
which we have based any forward-looking statement.
IF THE TERMS OF A PARTICULAR SERIES OF SECURITIES VARY BETWEEN THIS
PROSPECTUS AND THE PROSPECTUS SUPPLEMENT, YOU SHOULD RELY ON THE INFORMATION IN
THE PROSPECTUS SUPPLEMENT.
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SUMMARY OF TERMS
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS
AND PROVIDES A GENERAL OVERVIEW OF RELEVANT TERMS OF THE SECURITIES. YOU SHOULD
READ CAREFULLY THIS ENTIRE DOCUMENT AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
TO UNDERSTAND ALL OF THE TERMS OF THE OFFERING.
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Trust.................................. The trust to be formed for each series of securities. If
the trust issues notes and certificates, it will be
formed by a trust agreement between the seller and the
trustee of the trust. If the trust issues only
certificates, it will be formed by a pooling and
servicing agreement among the seller, the servicer and
the trustee of the trust.
Seller................................. American Honda Receivables Corp., a wholly owned,
limited purpose subsidiary of American Honda Finance
Corporation.
Servicer............................... American Honda Finance Corporation, a wholly owned
subsidiary of American Honda Motor Co., Inc. American
Honda Motor Co., Inc. 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.
Trustee................................ The trustee for each series of securities will be named
in the prospectus supplement for that series.
Indenture Trustee...................... If the trust issues notes, the trustee for the indenture
pursuant to which the notes will be issued will be named
in the prospectus supplement for that series.
Securities Offered..................... NOTES--A series of securities may include one or more
classes of notes. Notes of a series will be issued
pursuant to an indenture.
CERTIFICATES--Each series of securities may include one
or more classes of certificates, whether or not a class
of notes is issued as part of the series. The applicable
prospectus supplement will describe the following:
1. if any notes are issued, the priority of payments
(a) between the notes and certificates and (b) among
different classes of notes; and
2. the priority of payments among different classes of
certificates.
TERMS--The terms of each class of notes and certificates
in a series described in the applicable prospectus
supplement will include the following:
1. the stated principal amount of each class of notes
and the stated certificate balance of each class of
certificates; and
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2. the interest rate (which may be fixed, variable,
adjustable or some combination of these rates) or
method of determining the interest rate.
A class of notes may differ from other classes of notes
and a class of certificates may differ from other
classes of certificates in one or more aspects,
including:
1. timing and priority of payments;
2. seniority;
3. allocation of losses;
4. interest rate or formula for determining the
interest rate;
5. amount of interest or principal payments;
6. whether interest or principal will be payable to
holders of the class if specified events occur;
7. the right to receive collections from designated
portions of the receivables owned by the trust; and
8. The ability of holders of a class to direct the
trustee to take specified remedies.
The Receivables........................ Purchasers of Honda and Acura motor vehicles often
finance their purchases by entering into retail
installment sale contracts with Honda and Acura dealers
who then resell the contracts to American Honda Finance
Corporation. These contracts are referred to as
"receivables," and the underlying vehicles are referred
to as the "financed vehicles." The purchasers of the
financed vehicles are referred to as the "obligors." The
terms of the contracts must meet specified American
Honda Finance Corporation requirements.
On or before the date the securities of a series are
issued, American Honda Finance Corporation will sell a
specified amount of receivables to American Honda
Receivables Corp., the seller. The seller will then sell
those receivables to the trust. The sale by the seller
to the trust will be documented under:
1. a pooling and servicing agreement among the seller,
the servicer and the trustee (if the trust will be
treated as a grantor trust for federal income tax
purposes); or
2. a sale and servicing agreement among the seller, the
servicer and the trust (if the trust will be treated
other than as a grantor trust for federal income tax
purposes).
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The receivables to be sold by American Honda Finance
Corporation will be described in the applicable
prospectus supplement.
The Trust Property..................... The property of each trust:
1. will be described in the applicable prospectus
supplement;
2. will primarily be a pool of receivables secured by
new and used motor vehicles and amounts due or
collected under the receivables on or after a
specified cutoff date; and
3. will include assets related to the receivables
including:
- security interests in the motor vehicles;
- proceeds from claims on related insurance
policies;
- the rights of the seller in rebates of premiums
and other amounts relating to insurance policies
and other items financed under the receivables;
- the rights of the seller in the agreements
identified in the applicable prospectus
supplement;
- amounts deposited in specified bank accounts; and
- proceeds from liquidated assets.
Credit and Cash Flow Enhancement....... The trusts may include features designed to provide
protection from losses on assets of the trust to one or
more classes of securities. These features are referred
to as "credit enhancement." Credit enhancement may
include any one or more of the following:
1. subordination of one or more other classes of
securities;
2. one or more reserve funds;
3. over-collateralization;
4. letters of credit, cash collateral accounts or other
credit or liquidity facilities;
5. surety bonds;
6. guaranteed investment contracts, swap or other
interest rate protections;
7. repurchase obligations;
8. cash deposits; or
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9. other agreements, guarantees or arrangements
providing for other third party payments or other
support.
In addition, the trusts may include features designed to
ensure the timely payment of amounts owed to
securityholders. These features may include any one or
more of the following:
1. yield supplement agreements;
2. liquidity facilities;
3. cash deposits; or
4. other agreements or arrangements providing for other
third party payments or other support.
The specific terms of any credit and cash flow
enhancement applicable to a trust or to the securities
issued by a trust will be described in detail in the
applicable prospectus supplement.
Servicing Fee.......................... American Honda Finance Corporation will act as servicer
for the receivables. In that capacity, the servicer will
handle all collections, administer defaults and
delinquencies and otherwise service the receivables. The
trust will pay the servicer a monthly fee equal to a
percentage of the total principal balance of the
receivables at the beginning of the preceding month
specified in the applicable prospectus supplement. The
servicer may also receive additional servicing
compensation in the form of investment earnings, late
fees, prepayment fees and other administrative fees and
expenses or similar charges received by the servicer
during that month.
Advances............................... The servicer may be obligated to advance to the trust
interest on receivables that is due but unpaid by the
obligor. In addition, the servicer may be obligated to
advance to the trust principal of any receivables that
are classified as precomputed receivables rather than as
simple interest receivables. The servicer will not be
required to make any advance if it determines that it
will not be able to recover an advance from an obligor.
The trust will reimburse the servicer from later
collections on the receivables for which it has made
advances, or from collections generally if the servicer
determines that an advance will not be recoverable with
respect to that receivable.
WE REFER YOU TO "DESCRIPTION OF THE TRANSFER AND
SERVICING AGREEMENTS--ADVANCES" IN THIS PROSPECTUS FOR
MORE DETAILED INFORMATION ON ADVANCES AND REIMBURSEMENT
OF ADVANCES.
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Optional Purchase...................... The servicer may redeem any outstanding securities when
the outstanding aggregate principal balance of the
receivables declines to 10% or less of the original
total principal balance of the receivables as of the
cutoff date.
WE REFER YOU TO "DESCRIPTION OF THE TRANSFER AND
SERVICING AGREEMENTS--TERMINATION" IN THIS PROSPECTUS
FOR MORE DETAILED INFORMATION ON THE SERVICER'S OPTIONAL
PURCHASE OF SECURITIES.
Tax Status............................. GRANTOR TRUSTS--If a trust is nominally referred to as a
"grantor trust" in the applicable prospectus supplement,
special tax counsel to the trust will be required to
deliver an opinion that:
1. the trust will be treated as a grantor trust for
federal income and California franchise and income
tax purposes; and
2. the trust will not be subject to federal income tax.
OWNER TRUSTS--If a trust is nominally referred to as an
"owner trust" in the applicable prospectus supplement,
special tax counsel to the trust will be required to
deliver an opinion for federal income tax purposes and
California income and franchise tax purposes:
1. as to the characterization as debt of the notes
issued by the trust; and
2. that the trust will not be characterized as an
association (or a publicly traded partnership)
taxable as a corporation.
If a trust is nominally referred to as an "owner trust"
in the applicable prospectus supplement:
1. by purchasing a note, you will be agreeing to treat
the note as indebtedness for tax purposes; and
2. by purchasing a certificate, you will be agreeing to
treat the trust (i) as a partnership in which you
are a partner or (ii) if you are the sole beneficial
owner of the certificates, as a "disregarded
entity," for federal income tax purposes and
California income and franchise tax purposes.
Applicable taxing authorities could impose alternative
tax characterizations of the trust and the certificates.
However, these characterizations generally will not
result in material adverse tax consequences to
securityholders.
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WE REFER YOU TO "MATERIAL INCOME TAX CONSEQUENCES" IN
THIS PROSPECTUS AND THE APPLICABLE PROSPECTUS SUPPLEMENT
FOR MORE DETAILED INFORMATION ON THE APPLICATION OF
FEDERAL INCOME TAX LAWS.
ERISA Considerations................... NOTES--Notes will generally be eligible for purchase by
employee benefit plans.
UNSUBORDINATED GRANTOR TRUST CERTIFICATES--Certificates
of a class issued by a grantor trust that are not
subordinated to any other class will generally be
eligible for purchase by employee benefit plans.
OTHER CERTIFICATES--Subordinated classes of certificates
issued by a grantor trust and certificates issued by
owner trusts will not be eligible for purchase by an
employee benefit plan or individual retirement account
unless the related prospectus supplement states
otherwise.
WE REFER YOU TO "ERISA CONSIDERATIONS" IN THIS
PROSPECTUS AND THE APPLICABLE PROSPECTUS SUPPLEMENT FOR
MORE DETAILED INFORMATION REGARDING THE ERISA
ELIGIBILITY OF ANY CLASS OF SECURITIES.
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RISK FACTORS
YOU SHOULD CONSIDER THE FOLLOWING RISK FACTORS AND THE RISKS DESCRIBED IN
THE SECTION CAPTIONED "RISK FACTORS" IN THE APPLICABLE PROSPECTUS SUPPLEMENT IN
DECIDING WHETHER TO PURCHASE SECURITIES OF ANY CLASS.
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YOU MUST RELY FOR REPAYMENT The securities represent interests solely in the trust or
ONLY UPON PAYMENTS FROM THE indebtedness of the trust and will not be insured or
TRUST'S ASSETS WHICH MAY NOT guaranteed by American Honda Finance Corporation (the
BE SUFFICIENT TO MAKE FULL servicer), American Honda Receivables Corp. (the seller), or
PAYMENTS ON YOUR SECURITIES. any of their respective affiliates, or the related trustee
or any other person or entity other than the trust. The only
source of payment on your securities are payments received
on the receivables and, if and to the extent available, any
credit or cash flow enhancement for the trust, including
amounts on deposit in the reserve fund established for that
trust. However, although funds in the reserve fund will be
available to cover shortfalls in distributions of interest
on and principal of your securities, funds to be deposited
in this account are limited. If the funds in this account
are exhausted, your securities will be paid solely from
current distributions on the receivables. In limited
circumstances, the trust will also have access to the funds
in the yield supplement account.
WE REFER YOU TO "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--YIELD SUPPLEMENT ACCOUNT; YIELD SUPPLEMENT
AGREEMENT" IN THIS PROSPECTUS.
YOU MAY EXPERIENCE REDUCED You may receive payment of principal on your securities
RETURNS ON YOUR INVESTMENT earlier than you expected for the reasons set forth below.
RESULTING FROM PREPAYMENTS, As a result, you may not be able to reinvest the principal
REPURCHASES OR EARLY paid to you earlier than you expected at a rate of return
TERMINATION OF THE TRUST. that is equal to or greater than the rate of return on your
securities. Prepayments on the receivables by the related
obligors and purchases of the receivables by the seller and
the servicer will shorten the life of the securities to an
extent that cannot be fully predicted.
In addition, a trust may contain a feature known as a
prefunding account from which specified funds will be used
to purchase additional receivables after the date the
securities are issued. To the extent all of those funds are
not used by the end of the specified period to purchase new
receivables, those funds will be used to make payments on
the securities. In that event, you would receive payments on
your securities earlier than expected. Also, the seller will
be required to repurchase receivables from the trust if
there is a breach of a representation or warranty relating
to those receivables that materially adversely affects those
receivables. American Honda Finance Corporation, as
servicer, will also be required to purchase receivables from
the trust if it breaches its servicing obligations with
respect to those receivables. The servicer shall be
permitted to purchase all remaining receivables from the
trust when the outstanding aggregate principal balance of
the receivables is 10% or less of the initial aggregate
principal balance of the receivables as of the related
cutoff date.
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Further, the receivables included in the trust may be
prepaid, in full or in part, voluntarily or as a result of
defaults, theft of or damage to the related vehicles or for
other reasons. The rate of prepayments on the receivables
may be influenced by a variety of economic, social and other
factors in addition to those described above. The servicer
has limited historical experience with respect to
prepayments on receivables. In addition, the servicer is not
aware of publicly available industry statistics that detail
the prepayment experience for contracts similar to the
receivables. For these reasons, the servicer cannot predict
the actual prepayment rates for the receivables. You will
bear all reinvestment risk resulting from prepayments on the
receivables and the corresponding acceleration of payments
on the securities.
The final payment of each class of securities is expected to
occur prior to its scheduled final payment date because of
the prepayment and purchase considerations described above.
If sufficient funds are not available to pay any class of
notes in full on its final scheduled payment date, an event
of default will occur and final payment of that class of
notes may occur later than that date.
INTERESTS OF OTHER PERSONS Another person could acquire an interest in a receivable
IN THE RECEIVABLES AND that is superior to the trust's interest in that receivable
FINANCED VEHICLES COULD BE because the receivables will not be segregated or marked as
SUPERIOR TO THE TRUST'S belonging to the trust. The seller will cause financing
INTEREST, WHICH MAY RESULT statements to be filed with the appropriate governmental
IN REDUCED PAYMENTS ON YOUR authorities to perfect the trust's interest in the
SECURITIES. receivables. However, the servicer will continue to hold the
receivables. If another party purchases (or takes a security
interest in) one or more receivables for new value in the
ordinary course of business and obtains possession of those
receivables without actual knowledge of the trust's interest
because of the failure to segregate or mark those
receivables, the new purchaser (or secured party) will
acquire an interest in those receivables superior to the
interest of the trust.
Another person could acquire an interest in a vehicle
financed by a receivable that is superior to the trust's
interest in the vehicle because of the failure to identify
the trust as the secured party on the related certificate of
title. While American Honda Finance Corporation, as
originator, will assign its security interest in the
financed vehicles to the seller, and the seller will assign
to the trust its security interests in the financed
vehicles, the servicer will continue to hold the
certificates in the capacity of an administrative lienholder
of title or ownership for the vehicles. However, for
administrative reasons, the servicer will not endorse or
otherwise amend the certificates of title or ownership to
identify the trust as the new secured party. Because the
trust will not be identified as the secured party on any
certificates of title or ownership, the security interest of
the trust in the vehicles may be defeated through fraud,
forgery, negligence or error and as a result the trust may
not have a perfected security interest in the financed
vehicles in every state.
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The possibility that the trust may not have a perfected
security interest in the financed vehicles may affect the
trust's ability to repossess and sell the financed vehicles
or may limit the amount realized to less than the amount due
by the related obligors. Therefore, you may be subject to
delays in payment and may incur losses on your investment in
the securities as a result of defaults or delinquencies by
obligors and because of depreciation in the value of the
related financed vehicles. WE REFER YOU TO "CERTAIN LEGAL
ASPECTS OF THE RECEIVABLES--SECURITY INTERESTS" IN THIS
PROSPECTUS.
RECEIVABLES THAT FAIL TO Many federal and state consumer protection laws regulate
COMPLY WITH CONSUMER consumer contracts such as the receivables. If any of the
PROTECTION LAWS MAY BE receivables do not comply with one or more of these laws,
UNENFORCEABLE, WHICH MAY the servicer may be prevented from or delayed in collecting
RESULT IN LOSSES ON YOUR amounts due on the receivables. If that happens, payments on
INVESTMENT. the securities could be delayed or reduced. Each of American
Honda Receivables Corp. and American Honda Finance
Corporation will make representations and warranties
relating to the receivables' compliance with law and the
trust's ability to enforce the contracts. If American Honda
Receivables Corp. or American Honda Finance Corporation
breaches any of these representations or warranties, the
trust's sole remedy will be to require American Honda
Receivables Corp. to repurchase the affected receivables. WE
REFER YOU TO "CERTAIN LEGAL ASPECTS OF THE RECEIVABLES--
CONSUMER PROTECTION LAWS" IN THIS PROSPECTUS.
THE BANKRUPTCY OF AMERICAN If either American Honda Finance Corporation, the servicer,
HONDA FINANCE CORPORATION or American Honda Receivables Corp., the seller, become
(SERVICER) OR AMERICAN HONDA subject to bankruptcy proceedings, you could experience
RECEIVABLES CORP. (SELLER) losses or delays in the payments on your securities.
COULD RESULT IN LOSSES OR American Honda Finance Corporation will sell the receivables
DELAYS IN PAYMENTS ON YOUR to American Honda Receivables Corp., and American Honda
SECURITIES. Receivables Corp. will in turn transfer the receivables to
the trust. However, if American Honda Finance Corporation or
American Honda Receivables Corp. becomes subject to a
bankruptcy proceeding, the court in the bankruptcy
proceeding could conclude that American Honda Finance
Corporation or American Honda Receivables Corp. still owns
the receivables by concluding that the sale to the seller or
the trust was not a "true sale" or, in the case of a
bankruptcy of American Honda Finance Corporation, that the
seller should be consolidated with American Honda Finance
Corporation for bankruptcy purposes. If a court were to
reach this conclusion, you could experience losses or delays
in payments on your securities as a result of, among other
things:
(1) the "automatic stay," which prevents secured creditors
from exercising remedies against a debtor in bankruptcy
without permission from the court and provisions of the
U.S. Bankruptcy Code that permit substitution for
collateral in limited circumstances;
(2) tax or government liens on American Honda Finance
Corporation's or American Honda Receivables Corp.'s
property (that arose prior to the transfer of a
receivable to the trust) having a prior claim on
collections before the collections are used to make
payments on your securities; and
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(3) the trust not having a perfected security interest in
(a) one or more of the financed vehicles securing the
receivables or (b) any cash collections held by American
Honda Finance Corporation at the time American Honda
Finance Corporation becomes the subject of a bankruptcy
proceeding.
The seller will take steps in structuring each transaction
described in this prospectus and the applicable prospectus
supplement to minimize the risk that a court would
consolidate the seller with American Honda Finance
Corporation for bankruptcy purposes or conclude that the
sale of receivables to the seller was not a "true sale." WE
REFER YOU TO "CERTAIN LEGAL ASPECTS OF THE
RECEIVABLES--CERTAIN BANKRUPTCY CONSIDERATIONS" IN THIS
PROSPECTUS.
PROCEEDS OF THE SALE OF If so directed by the holders of the requisite percentage of
RECEIVABLES MAY NOT BE outstanding notes of a series, following an acceleration of
SUFFICIENT TO PAY YOUR the notes upon an event of default, the indenture trustee
SECURITIES IN FULL. will sell the receivables owned by the trust only in limited
circumstances. However, there is no assurance that the
market value of those receivables will at any time be equal
to or greater than the aggregate principal amount of the
notes or the sum of the aggregate principal amount of the
notes and the aggregate principal balance of the
certificates. Therefore, upon an event of default, there can
be no assurance that sufficient funds will be available to
repay you in full. This deficiency will be exacerbated in
the case of any securities where the aggregate principal
balance of the securities exceeds the aggregate principal
balance of the receivables.
FAILURE TO PAY PRINCIPAL ON The amount of principal required to be paid to the
YOUR NOTES WILL NOT noteholders will generally be limited to amounts available
CONSTITUTE AN EVENT OF in the collection account (and the reserve fund or other
DEFAULT UNTIL MATURITY. forms of credit or cash flow enhancement, if any).
Therefore, the failure to pay principal of your notes
generally will not result in the occurrence of an event of
default until the final scheduled payment date for your
notes. WE REFER YOU TO "THE NOTES--THE INDENTURE--EVENTS OF
DEFAULT; RIGHTS UPON EVENT OF DEFAULT" IN THIS PROSPECTUS.
FUNDS HELD BY THE SERVICER The servicer generally may retain all payments and proceeds
THAT ARE INTENDED TO BE USED collected on the receivables during each collection period.
TO MAKE PAYMENTS ON THE The servicer is generally not required to segregate those
SECURITIES MAY BE EXPOSED TO funds from its own accounts until the funds are deposited in
A RISK OF LOSS. the collection account on each payment date. Until any
collections or proceeds are deposited into the collection
account, the servicer will be able to invest those amounts
for its own benefit at its own risk. The trust and
securityholders are not entitled to any amount earned on the
funds held by the servicer. If the servicer does not deposit
the funds in the collection account as required on any
payment date, the trust may be unable to make the payments
owed on your securities.
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IF THE TRUST ENTERS INTO A If the trust enters into a currency swap, interest rate swap
CURRENCY OR AN INTEREST RATE or a combined currency and interest rate swap, its ability
SWAP, PAYMENTS ON THE to protect itself from shortfalls in cash flow caused by
SECURITIES WILL BE DEPENDENT currency or interest rate changes will depend to a large
ON PAYMENTS MADE UNDER THE extent on the terms of the swap agreement and whether the
SWAP AGREEMENT. swap counterparty performs its obligations under the swap.
If the trust does not receive the payments it expects from
the swap, the trust may not have adequate funds to make all
payments to securityholders when due, if ever.
If the trust issues securities denominated in a currency
other than U.S. dollars, the trust will need to make
payments on the securities in a currency other than U.S.
dollars, as described in the applicable prospectus
supplement. Payments collected on the receivables, however,
will be in U.S. dollars. In this circumstance, the trust may
enter into a currency swap to reduce its exposure to changes
in currency exchange rates. A currency swap requires one
party to provide a specified amount of a currency to the
other party at specified times in exchange for the other
party providing a different currency at a predetermined
exchange ratio. For example, if the trust issues securities
denominated in swiss francs, it might enter into a swap
agreement with another party, the "swap counterparty", under
which the trust would use the collections on the receivables
to pay U.S. dollars to the swap counterparty in exchange for
receiving swiss francs at a predetermined exchange rate to
make the payments owed on the securities. If the trust
issues securities with adjustable interest rates, interest
will be due on the securities at adjustable rates, while
interest will be earned on the receivables at fixed rates.
In this circumstance, the trust may enter into an interest
rate swap to reduce its exposure to changes in interest
rates. An interest rate swap requires one party to make
payments to the other party in an amount calculated by
applying an interest rate (for example a floating rate) to a
specified notional amount in exchange for the other party
making a payment calculated by applying a different interest
rate (for example a fixed rate) to the same notional amount.
For example, if the trust issues $100 million of securities
bearing interest at a floating LIBOR rate, it might enter
into a swap agreement under which the trust would pay
interest to the swap counterparty in an amount equal to an
agreed upon fixed rate on $100 million in exchange for
receiving interest on $100 million at the floating LIBOR
rate. The $100 million would be the "notional" amount
because it is used simply to make the calculation. In an
interest rate swap, no principal payments are exchanged.
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TERMINATION OF A SWAP A swap agreement may be terminated if particular events
AGREEMENT AND THE INABILITY occur. Most of these events are generally beyond the control
TO LOCATE REPLACEMENT SWAP of the trust or the swap counterparty. If an event of
COUNTERPARTY MAY CAUSE default under swap agreement occurs and the trustee is not
TERMINATION OF THE TRUST. able to assign the swap agreement to another party, obtain a
swap agreement on substantially the same terms or is unable
to establish any other arrangement satisfactory to the
rating agencies, the trustee may terminate the swap
agreement. In addition, the trust may terminate and the
trustee would then sell the assets of the trust. In this
type of situation, it is impossible to predict how long it
would take to sell the assets of the trust. Some of the
possible adverse consequences of a sale of the assets of the
trust are:
1. the proceeds from the sale of assets under those
circumstances may not be sufficient to pay all amounts
owed to you;
2. amounts available to pay you will be further reduced if
the trust is required to make a termination payment to
the swap counterparty;
3. termination of the swap agreement may expose the trust
to currency or interest rate risk, further reducing
amounts available to pay you;
4. the sale may result in payments to you significantly
earlier than expected; and
5. a significant delay in arranging a sale of the trust's
assets could result in a delay in principal payments.
This would, in turn, increase the weighted average life
of the securities and could reduce the return on your
securities.
Additional information about termination of the trust and
sale of the trust's assets, including a description of how
the proceeds of a sale would be distributed will be included
in the applicable prospectus supplement. Any swap agreement
involves a high degree of risk. A trust will be exposed to
this risk should it use this mechanism. For this reason,
only investors capable of understanding these risks should
invest in the securities. You are strongly urged to consult
with your financial advisors before deciding to invest in
the securities if a swap is involved.
THE RATING OF A THIRD PARTY If a trust enters into any third party credit enhancement
CREDIT ENHANCEMENT PROVIDER arrangement, the rating agencies that rate the trust's
MAY AFFECT THE RATINGS OF securities will consider the provisions of arrangement and
THE SECURITIES. the rating of any third party credit enhancement provided.
If a rating agency downgrades the debt rating of any third
party credit provided, it is also likely to downgrade the
rating of the securities. Any downgrade in the rating of the
securities could have severe adverse consequences on their
liquidity or market value.
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THE CALCULATIONS FOR THE The calculation of interest or principal on a series of
PAYMENTS OF PRINCIPAL OR securities may be based on a currency, commodity, interest
INTEREST MAY BE BASED ON AN rate or other index. In this situation, the amount of
INDEX WHICH MAY RESULT IN principal or interest payable on the securities may be less
PAYMENTS TO YOU OF LESS than that payable on a conventional debt security issued at
PRINCIPAL OR INTEREST THAN A the same time, including the possibility that no interest or
NON-INDEXED SECURITY. principal will be paid. In addition, if the formula for
calculating the payments on the securities includes a
feature that multiplies the effect of any change in the
index, changes to the index could result in even greater
changes in the value of the securities or the payments to be
made on the securities.
You may not be able to easily trade these types of
securities after you purchase them. This is referred to as a
"secondary market." It cannot be predicted whether there
will be a secondary market for these types of securities or
if one develops, how liquid it would be. The secondary
market for these types of securities will be affected by a
number of factors that are not dependent on the performance
of the trust and its assets. These factors include the
complexity and volatility of the index, the method of
calculating the principal and interest payments on the
securities, the time remaining to the maturity of the
securities, the outstanding amount of the securities and
market interest rates. The value of the index will depend on
a number of interrelated factors which cannot be controlled
by the trust, including economic, financial and political
events. For these reasons, you may not be able to readily
sell your securities or receive the price you expected for
their sale.
In recent years, many indices have been highly volatile, and
the volatility may continue in the future. You should review
carefully the historical experience of any index to which a
series of securities are pegged, but should not take that
historical experience as a predictor of future performance
of the index during the term of any security. The credit
ratings assigned to the securities do not reflect the
potential impact of the factors discussed above, or what the
impact may be on your securities' market value at any time.
For this reason, only investors capable of understanding the
risks involved should invest in indexed securities. In
addition, investors whose investment activities are
restricted by law or subject to regulation may not be able
to purchase these types of securities. Investors are
responsible for determining whether they may purchase
indexed securities. You are strongly urged to consult with
your financial advisors before deciding to invest in indexed
securities.
YOU MAY HAVE DIFFICULTY The securities are not expected to be listed on any
SELLING YOUR SECURITIES securities exchange. Therefore, in order to sell your
AND/OR OBTAINING YOUR securities, you must first locate a willing purchaser. In
DESIRED PRICE DUE TO THE addition, currently, no secondary market exists for the
ABSENCE OF A SECONDARY securities. We cannot assure you that a secondary market
MARKET. will develop. The underwriters of any series of securities
may make a secondary market for the securities by offering
to buy the securities from investors that wish to sell.
However, any underwriters agreeing to do so will not be
obligated to offer to buy the securities and they may stop
making offers at any time.
</TABLE>
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<TABLE>
<S> <C>
BECAUSE THE SECURITIES ARE Because the securities will be issued in book-entry form,
IN BOOK-ENTRY FORM, YOUR you will be required to hold your interest in the securities
RIGHTS CAN ONLY BE EXERCISED through The Depository Trust Company in the United States,
INDIRECTLY. or Clearstream Banking, societe anonyme, or the Euroclear
System in Europe. Transfers of interests in the securities
within DTC, Clearstream, Luxembourg or Euroclear must be
made in accordance with the usual rules and operating
procedures of those systems. So long as the securities are
in book-entry form, you will not be entitled to receive a
physical note or certificate representing your interest. The
securities will remain in book-entry form except in the
limited circumstances described under the caption "Certain
Information Regarding the Securities--Book-Entry
Registration." Unless and until the securities cease to be
held in book-entry form, the trustee will not recognize you
as a "Securityholder", as such term is used in the trust
agreement. As a result, you will only be able to exercise
the rights of securityholders indirectly through The
Depository Trust Company (if in the United States) and its
participating organizations, or Clearstream, Luxembourg and
Euroclear (in Europe) and their participating organizations.
Holding the securities in book-entry form could also limit
your ability to pledge your securities to persons or
entities that do not participate in The Depository Trust
Company, Clearstream, Luxembourg or Euroclear and to take
other actions that require a physical note or certificate
representing the securities.
Interest and principal on the securities will be paid by the
trust to The Depository Trust Company as the record holder
of the securities while they are held in book-entry form.
The Depository Trust Company will credit payments received
from the trust to the accounts of its participants which, in
turn, will credit those amounts to securityholders either
directly or indirectly through indirect participants. This
process may delay your receipt of principal and interest
payments from the trust.
</TABLE>
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FORMATION OF THE TRUSTS
American Honda Receivables Corp. (the "Seller") will establish each trust
(each, a "Trust") pursuant to a Trust Agreement (as amended and supplemented
from time to time, the "Trust Agreement") or a Pooling and Servicing Agreement
(as amended from time to time, the "Pooling and Servicing Agreement"), as
applicable.
The terms of each series of notes or certificates issued by each Trust and
additional information concerning the assets of each Trust and any applicable
credit or cash flow enhancement will be set forth in a supplement to this
prospectus (a "prospectus supplement"). The notes and certificates are
collectively referred to in this prospectus as the "Securities."
PROPERTY OF THE TRUSTS
The property of each Trust will consist of a pool (each, a "Receivables
Pool") of retail installment sale contracts originated on or after the date
indicated in the applicable prospectus supplement between Honda and Acura
dealers (the "Dealers") and retail purchasers (the "Obligors"). These contracts
are referred to as the "Receivables" and evidence the indirect financing made
available by American Honda Finance Corporation ("AHFC") to the Obligors. The
Receivables will be secured by new or used Honda and Acura motor vehicles (the
"Financed Vehicles") and all principal and interest payments made on or after
the applicable cutoff date (each, a "Cutoff Date") and other property, all as
specified in the applicable prospectus supplement. "New" vehicles may include
"demonstration" vehicles, which are not titled in some states and may be
classified as new vehicles in those states.
The Receivables will be originated by Dealers in accordance with AHFC's
requirements under agreements with Dealers governing the assignment of the
Receivables to AHFC (the "Dealer Agreements"). AHFC will purchase the
Receivables of each Receivables Pool in the ordinary course of business pursuant
to the Dealer Agreements.
On or before the date of the initial issuance of any series of Securities
(each, a "Closing Date"), AHFC will sell the Receivables comprising the related
Receivables Pool to the Seller, and the Seller will sell those Receivables to
the Trust pursuant to, if the Trust is to be treated other than as a grantor
trust for federal income tax purposes, the related Sale and Servicing Agreement
among the Seller, the Servicer and the Trust (as amended and supplemented from
time to time, the "Sale and Servicing Agreement") or, if the Trust is to be
treated as a grantor trust for federal income tax purposes, the related Pooling
and Servicing Agreement. AHFC will continue to service the Receivables.
In addition to the Receivables, the property of each Trust will also include
the following:
1. amounts that may be held in separate trust accounts established and
maintained by the Servicer with the Trustee pursuant to the related Sale
and Servicing Agreement or Pooling and Servicing Agreement;
2. security interests in the Financed Vehicles and any related property;
3. the rights to proceeds from claims on physical damage, credit life and
disability insurance policies covering the Financed Vehicles or the
Obligors;
4. AHFC's right to receive payments from Dealers obligated to repurchase
Receivables from AHFC which do not meet specified representations made by
the Dealers ("Dealer Recourse");
5. the Seller's right under, as applicable, the Sale and Servicing
Agreement, the Pooling and Servicing Agreement, the Purchase Agreement
and the Yield Supplement Agreement, if any;
6. the Seller's right to realize upon any property (including the right to
receive future net liquidation proceeds) that secured a Receivable; and
7. all proceeds of the foregoing.
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Various forms of credit and cash flow enhancement may be used to benefit
holders of the related Securities, including a Reserve Fund. In limited
circumstances, a Trust will also have access to the funds in a Yield Supplement
Account.
THE RECEIVABLES
AHFC will purchase the Receivables from the Dealers in the ordinary course
of business in accordance with AHFC's underwriting standards. The Receivables to
be held by each Trust will be randomly selected from those motor vehicle retail
installment sale contracts in AHFC's portfolio that meet several criteria. The
Seller will not use selection procedures adverse to Securityholders when
selecting the Receivables from qualifying retail installment sale contracts.
These criteria provide that each Receivable:
1. was originated in the United States and the Obligor is not a federal,
state or local governmental entity;
2. provides for level monthly payments which provide interest at the annual
percentage rate ("APR") and fully amortize the amount financed over an
original term to maturity no greater than the number of months specified
in the applicable prospectus supplement;
3. is attributable to the purchase of a new or used Honda or Acura motor
vehicle and is secured by that vehicle; and
4. satisfies the other criteria, if any, set forth in the applicable
prospectus supplement.
Each Receivable will provide for the allocation of payments (each, a
"Scheduled Payment") according to (i) the simple interest method ("Simple
Interest Receivables"), (ii) the "actuarial" method ("Actuarial Receivables") or
(iii) the "sum of periodic balances" or "sum of monthly payments" method ("Rule
of 78s Receivables" and, together with the Actuarial Receivables, the
"Precomputed Receivables").
SIMPLE INTEREST RECEIVABLES. 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. No adjustment to the scheduled
monthly payments is made in the event of early or late payments, although in the
case of late payments the Obligor may be subject to a late charge.
ACTUARIAL RECEIVABLES. An Actuarial Receivable provides for amortization of
the contract over a series of fixed level monthly installments. Each scheduled
payment is deemed to consist of an amount of interest equal to 1/12 of the
stated APR of the Receivable multiplied by the scheduled principal balance of
the Receivable and an amount of principal equal to the remainder of the
Scheduled Payment. No adjustment to the scheduled monthly payments is made in
the event of early or late payments, although in the case of late payments the
Obligor may be subject to a late charge.
RULE OF 78S RECEIVABLES. A 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
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basis of the related APR for the term of that Receivable. The rate at which the
amount of finance charges is earned and, correspondingly, the amount of each
Scheduled Payment allocated to reduction of the outstanding principal balance of
a Rule of 78s Receivable are calculated in accordance with the Rule of 78s.
Under the Rule of 78s, the portion of each payment allocable to interest is
higher during the early months of the term of a Rule of 78s Receivable and lower
during later months than that under a constant yield method for allocating
payments between interest and principal. Notwithstanding the foregoing, all
payments received by the Servicer on or in respect of the Rule of 78s
Receivables will be allocated pursuant to the related Transfer and Servicing
Agreement, as the case may be, on an actuarial basis. No adjustment is made in
the event of early or late payments, although in the case of late payments the
Obligor may be subject to a late charge.
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 the Receivable allocable to "unearned"
interest charges. In the event of the prepayment in full (voluntarily or by
acceleration) of a Simple Interest Receivable, a "rebate" will not be made to
the Obligor, but the Obligor will be required to pay interest only to the date
immediately preceding the date of prepayment. The amount of a rebate under a
Precomputed Receivable will always be less than or equal to the remaining
scheduled payments of interest that would have been due under a Simple Interest
Receivable for which all remaining payments were made on schedule. Payments to
Securityholders will not be affected by rebates under the Rule of 78s
Receivables because pursuant to the related Transfer and Servicing Agreement the
payments will be determined using the actuarial method.
Unless otherwise provided in the related prospectus supplement, each Trust
will account for the Rule of 78s Receivables as if those Receivables were
Actuarial Receivables. Amounts received upon prepayment in full of a Rule of 78s
Receivable in excess of the then outstanding principal balance of the Receivable
and accrued interest thereon (calculated pursuant to the actuarial method) will
not be paid to the Noteholders or passed through to the Certificateholders of
the applicable series but will be deemed to be an excess amount and released to
the Seller or otherwise applied as set forth in the related prospectus
supplement.
Additional information with respect to each Receivables Pool will be set
forth in the related prospectus supplement, including, to the extent
appropriate, the composition, the distribution by APR and by the states of
origination, the portion of the Receivables Pool consisting of Precomputed
Receivables and of Simple Interest Receivables and the portion of the
Receivables Pool secured by new and used vehicles.
UNDERWRITING OF MOTOR VEHICLE LOANS
AHFC purchases retail installment sale contracts secured by new or used
Honda and Acura motor vehicles from approximately 1,270 Dealers, as of June
2000, located throughout the United States. These contracts are underwritten
using AHFC's standard underwriting procedures. The Receivables are originated by
Dealers in accordance with AHFC's requirements under existing Dealer Agreements
and will be purchased in accordance with AHFC's underwriting procedures which
emphasize, among other factors, the applicant's willingness and ability to pay
and the value of the vehicle to be financed.
AHFC requires that applications received from Dealers be signed by the
applicant and contain, among other information, the applicant's name, address,
social security number, residential status, source and amount of monthly income
and amount of monthly rent or mortgage payment. Upon receipt of the above
information, AHFC obtains a credit report from an independent credit bureau
reporting agency. AHFC reviews the credit report to determine the applicant's
current credit status and past credit performance. AHFC considers both negative
factors including past due credit, repossessions, loans charged off by other
lenders and previous bankruptcy and also positive factors such as amount of
credit and favorable payment history.
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AHFC's credit decision is influenced by, among other things, a credit
scoring system and other considerations. The credit scoring process considers
residence and employment stability, credit bureau information, application and
contract information. The credit scoring process also takes into account income
requirements and the ratio of income to total debt. AHFC makes its final credit
decision based upon the degree of credit risk perceived and the amount of credit
requested.
AHFC's retail installment sale contract requires that Obligors maintain
specific levels and types of insurance coverage to protect the Financed Vehicle
against loss. At the time of purchase, an Obligor signs a statement which
indicates that he or she 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. AHFC generally requires Obligors to provide
it with evidence of compliance with the foregoing insurance requirements;
however, AHFC performs no ongoing verification of insurance coverage. AHFC will
not be obligated to make payments to a Trust for any loss when third party
insurance has not been maintained.
The amount of a retail installment sale contract secured by a new or used
Honda or Acura motor vehicle generally will not exceed 120% of the dealer
invoice cost of the related vehicle plus select accessories 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 contract or,
in the case of used motor vehicles, the NADA average trade-in value (as adjusted
for higher/lower mileage).
SERVICING OF THE RECEIVABLES
AHFC considers a retail installment sale contract to be past due or
delinquent for servicing and enforcement of collection purposes when the Obligor
fails to make at least 90% 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. AHFC mails a computer generated delinquency
notice to the Obligor on the eleventh and twenty-first days of delinquency. If
the delinquent receivable cannot be brought current or completely collected
within 60 days, AHFC generally attempts to repossess the vehicle. AHFC holds
repossessed vehicles in inventory to comply with any applicable statutory
requirements for reinstatement and then sells those vehicles (generally within
60 days after repossession). AHFC's Marketing Department handles motor vehicle
sales for AHFC, including the sale of repossessed vehicles. AHFC consigns the
repossessed vehicles to a local auction or to an independent transport company
for transport to another auction location. Each motor vehicle undergoes an
auction condition report, which is sent to AHFC. Each auction site is expected
to sell the motor vehicle within 60 days of taking the motor vehicle into
inventory. Any deficiencies remaining after repossession and sale of the vehicle
or after the full charge-off of the receivable are pursued by or on behalf of
AHFC to the extent practicable and legally permitted. WE REFER YOU TO "CERTAIN
LEGAL ASPECTS OF THE RECEIVABLES--DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS."
AHFC attempts to contact Obligors and establish and monitor repayment schedules
until the deficiencies are either paid in full or become impractical to pursue.
USE OF PROCEEDS
Each Trust will use the net proceeds from the sale of the Securities of a
given series to purchase Receivables from the Seller and to fund any related
Reserve Fund or other accounts of the Trust. The Seller will purchase
Receivables from AHFC from the net proceeds it receives from any Trust.
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THE TRUSTEE
The trustee for each Trust (the "Trustee") or the trustee under any
Indenture pursuant to which notes are issued (the "Indenture Trustee") will be
specified in the applicable prospectus supplement. The Trustee's or the
Indenture Trustee's liability in connection with the issuance and sale of the
related Securities is limited solely to the express obligations of that Trustee
or Indenture Trustee set forth in the related Trust Agreement, Pooling and
Servicing Agreement, Sale and Servicing Agreement or Indenture, as applicable. A
Trustee or Indenture Trustee may resign at any time, in which event the
Servicer, or its successor, will be obligated to appoint a successor thereto.
The Administrator of a Trust that is not a grantor trust may also remove a
Trustee or Indenture Trustee that becomes insolvent or otherwise ceases to be
eligible to continue in that capacity under the related Trust Agreement, Sale
and Servicing Agreement or Indenture, as applicable. The Servicer for a Trust
that is a grantor trust may remove a Trustee that becomes insolvent or otherwise
ceases to be eligible to continue in that capacity under the related Pooling and
Servicing Agreement. In those circumstances, the Servicer or, in the case of a
series that includes notes, the Administrator, as the case may be, will be
obligated to appoint a successor thereto. Any resignation or removal of a
Trustee or Indenture Trustee and appointment of a successor trustee will not
become effective until acceptance of the appointment by the successor.
THE SELLER
The Seller is a wholly owned, limited purpose finance subsidiary of AHFC and
was incorporated in the State of California in August 1992. The Seller's
principal executive offices are located at 700 Van Ness Avenue, Torrance,
California 90501 and its telephone number is (310) 781-6131.
The Seller was organized primarily for the purpose of acquiring retail
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 those purposes.
THE SERVICER
American Honda Finance Corporation ("AHFC" or the "Servicer") was
incorporated in the State of California in February 1980. AHFC's principal
executive offices are located at 700 Van Ness Avenue, Torrance, California
90501. Its telephone number is (310) 781-4100. AHFC and its Canadian subsidiary,
Honda Canada Finance, Inc. ("HCFI"), provide wholesale and retail financing to
authorized dealers in the United States and Canada for the following:
(1) Honda and Acura automobiles, minivans and sport utility vehicles;
(2) Honda motorcycles (including scooters and all terrain vehicles); and
(3) Honda power equipment including lawn and utility tractors, lawnmowers,
snow throwers, water pumps, portable outboard motors, outboard marine
engines and generators. Receivables related to these assets are not
included as assets of the Trust.
AHFC and HCFI also offer retail leasing for Honda and Acura motor vehicles
or Honda motorcycles throughout the United States and Canada. AHFC (and through
its wholly owned subsidiary, American Honda Service Contract Corporation, in
Florida) administers the sale of vehicle service contracts throughout the United
States for American Honda Motor Co., Inc. ("AHMC"), a California corporation.
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AHFC has the following wholly owned special purpose finance subsidiaries:
- American Honda Receivables Corp., a California corporation,
- American Honda Receivables Corp. II, a California corporation,
- Honda Titling Inc., a Delaware corporation, and
- Honda Funding Inc., a Delaware corporation.
AHFC is a wholly owned subsidiary of AHMC. AHMC is a wholly owned subsidiary
of Honda Motor Co., Ltd., a Japanese corporation which is a worldwide
manufacturer and distributor of motor vehicles, motorcycles and power equipment.
AHMC is the sole authorized distributor in the United States of the following:
(1) Honda and Acura motor vehicles and Honda motorcycles;
(2) Honda power equipment; and
(3) Honda and Acura parts and accessories.
WHERE YOU CAN FIND MORE INFORMATION ABOUT YOUR SECURITIES
THE TRUST--The Trustee will provide to securityholders ("Securityholders")
(which shall be Cede & Co. ("Cede") as the nominee of DTC unless Definitive
Securities are issued under the limited circumstances described in this
prospectus) unaudited monthly and annual reports concerning the Receivables and
other specified matters. We refer you to "Description of the Transfer and
Servicing Agreements--Statements to Securityholders" and "--Evidence as to
Compliance" in this prospectus. Copies of these reports may be obtained at no
charge at the offices specified in the applicable prospectus supplement.
THE SELLER--AHRC, as Seller of the Receivables, has filed with the
Securities and Exchange Commission (the "SEC") a registration statement on Form
S-3 under the Securities Act of 1933 (the "Securities Act") of which this
prospectus forms a part. The registration statement is available for inspection
without charge at the public reference facilities maintained at the principal
office of the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the regional offices of the SEC at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade
Center, Suite 1300, New York, New York 10048. You may obtain information on the
operation of the SEC's public reference rooms by calling the SEC at
(800) SEC-0330. You may obtain copies of SEC filings at prescribed rates by
writing to the Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. The SEC also maintains a website (http://
www.sec.gov) that contains reports, registration statements, proxy and
information statements and other information regarding issuers that file
electronically with the SEC.
Copies of the operative agreements relating to the Securities will also be
filed with the SEC.
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES
Information concerning AHFC's experience pertaining to delinquencies,
repossessions and net losses on its portfolio of new and used retail motor
vehicle receivables (including receivables previously sold that AHFC continues
to service) will be set forth in each prospectus supplement. There can be no
assurance that the delinquency, repossession and net loss experience on any
Receivables Pool will be comparable to prior experience or to the information in
any prospectus supplement.
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WEIGHTED AVERAGE LIFE OF THE SECURITIES
The weighted average life of the Securities of any series will generally be
influenced by the rate at which the principal balances of the related
Receivables are paid, which payment may be in the form of scheduled amortization
or prepayments. For this purpose, the term "prepayments" includes prepayments in
full, partial prepayments (including those related to rebates of extended
warranty contract costs and insurance premiums), liquidations due to default as
well as receipts of proceeds from physical damage, credit life and disability
insurance policies and repurchases or purchases by the Seller or AHFC, as the
case may be, of particular Receivables for administrative reason or for breaches
of representations and warranties. The term "weighted average life" means the
average amount of time during which each dollar of principal of a Receivable is
outstanding.
All of the Receivables will be prepayable at any time without penalty to the
Obligor. However, partial prepayments on the Precomputed Receivables made by
Obligors will not be paid on the Payment Date following the Collection Period in
which they were received but will be retained and applied towards payments due
in later Collection Periods. If prepayments in full are received on the
Precomputed Receivables or if full or partial prepayments are received on the
Simple Interest Receivables, the actual weighted average life of the Receivables
may be shorter than the scheduled weighted average life of the Receivables set
forth in the related prospectus supplement. The rate of prepayment of motor
vehicle retail installment sale contracts are influenced by a variety of
economic, social and other factors, including the fact that an Obligor generally
may not sell or transfer the Financed Vehicle securing a Receivable without the
consent of the Servicer.
No prediction can be made as to the rate of prepayment 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. However, no assurance can
be given that prepayments on the Receivables will conform to historical
experience and no prediction can be made as to the actual prepayment experience
on the Receivables. The rate of prepayment on the Receivables may also be
influenced by the structure of the related contract. In addition, under some
circumstances, the Seller or Servicer will be obligated to repurchase
Receivables from a given Trust pursuant to the related Sale and Servicing
Agreement or Pooling and Servicing Agreement as a result of breaches of
particular representations and warranties or covenants. WE REFER YOU TO
"DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--SALE AND ASSIGNMENT OF
RECEIVABLES" AND "--SERVICING PROCEDURES". WE ALSO REFER YOU TO "DESCRIPTION OF
THE TRANSFER AND SERVICING AGREEMENTS--TERMINATION" REGARDING THE SERVICER'S
OPTION TO PURCHASE THE RECEIVABLES FROM A GIVEN TRUST. Any reinvestment risk
resulting from the rate of prepayments of the Receivables and the payment of
prepayments to Securityholders will be borne entirely by the Securityholders. In
addition, early retirement of the Securities may be effected by the exercise of
the option of the Servicer, or any successor to the Servicer, to purchase all of
the Receivables remaining in the Trust when the Pool Balance is 10% or less of
the Pool Balance as of the Cutoff Date.
In addition, pursuant to agreements between AHFC and the Dealers, each
Dealer is obligated to repurchase from AHFC contracts which do not meet
particular representations and warranties made by that Dealer (these Dealer
repurchase obligations are referred to in this prospectus as "Dealer Recourse").
These representations and warranties relate primarily to the origination of the
retail installment sale 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 the contracts.
Although the Dealer Agreements with respect to the Receivables will not be
assigned to the Trustee, the related Sale and Servicing Agreement or Pooling and
Servicing Agreement will require that AHFC deposit any recovery in respect of
any Receivable pursuant to any Dealer Recourse in the related Collection
Account. The sales by the Dealers of retail installment sale contracts to AHFC
do not generally provide for recourse against the Dealers 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
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warranties. WE REFER YOU TO "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--SALE AND ASSIGNMENT OF RECEIVABLES" AND "--SERVICING PROCEDURES."
In light of the above considerations, there can be no assurance as to the
amount of principal payments to be made on the Securities of a given series on
each Payment Date, since the amount of principal payments will depend, in part,
on the amount of principal collected on the related Receivables Pool during the
applicable Collection Period. No prediction can be made as to the actual
prepayment experience on the Receivables, and any reinvestment risks resulting
from a faster or slower rate of prepayment of Receivables will be borne entirely
by the Securityholders of a given series. WE REFER YOU TO "RISK FACTORS--YOU MAY
EXPERIENCE REDUCED RETURNS ON YOUR INVESTMENT RESULTING FROM PREPAYMENTS,
REPURCHASES OR EARLY TERMINATION OF THE TRUST" IN THIS PROSPECTUS.
The applicable prospectus supplement may set forth additional information
regarding the maturity and prepayment considerations applicable to the
particular Receivables Pool and the related series of Securities.
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 payment with respect to that class
of notes. The Note Pool Factor represents the remaining outstanding principal
amount of that class of notes, as of the close of business on the last day of
the applicable Collection Period, as a fraction of the initial outstanding
principal amount of that class of notes. The "Certificate Pool Factor" for each
class of certificates will be a seven-digit decimal which the Servicer will
compute prior to each payment with respect to that class of certificates
indicating the remaining Certificate Balance of that class of certificates, as
of the close of business on the last day of the applicable Collection Period, as
a fraction of the Original Certificate Balance of that class of certificates.
The "Certificate Balance" for any class of certificates as of any Payment Date
will equal the Original Certificate Balance of that class, as reduced by all
amounts distributed on or prior to that Payment Date on that class of
certificates and allocable to principal. The "Original Certificate Balance" for
each class of certificates will be stated in the applicable prospectus
supplement.
Each Note Pool Factor and each Certificate Pool Factor will initially be
1.0000000 and thereafter will decline to reflect reductions in the outstanding
principal amount of the applicable class of notes, or the reduction of the
Certificate Balance of the applicable class of certificates, as the case may be.
A Noteholder's portion of the aggregate outstanding principal amount of the
related class of notes is the product of (1) the original denomination of that
Noteholder's note and (2) the applicable Note Pool Factor. A Certificateholder's
portion of the aggregate outstanding Certificate Balance for the related class
of certificates is the product of (1) the original denomination of that
Certificateholder's certificate and (2) the applicable Certificate Pool Factor.
The Securityholders will receive monthly reports concerning payments
received on the Receivables, the Pool Balance, each Certificate Pool Factor or
Note Pool Factor, as applicable, and various other items of information.
THE NOTES
GENERAL
With respect to each Trust that issues notes, one or more classes (each, a
"class") of notes of the related series will be issued pursuant to the terms of
an indenture (the "Indenture"). A form of the Indenture has been filed as an
exhibit to the registration statement of which this prospectus is a part. The
following 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.
Each class of notes will initially be represented by one or more notes, in
each case registered in the name of the nominee of DTC, except as set forth
below. Notes will be available for purchase in the denominations specified in
the applicable prospectus supplement in book-entry form only. The Seller
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has been informed by DTC that DTC's nominee will be Cede, unless another nominee
is specified in the applicable prospectus supplement. Accordingly, that nominee
is expected to be the holder of record of the notes (a "Noteholder") of each
class. No Noteholder will be entitled to receive a physical certificate
representing a note until Definitive Notes are issued under the limited
circumstances described in this prospectus or in the applicable prospectus
supplement. All references in this prospectus and in the applicable prospectus
supplement to actions by Noteholders refer to actions taken by DTC upon
instructions from its participating organizations (the "DTC Participants") and
all references in this prospectus and in the applicable prospectus supplement to
payments, notices, reports and statements to Noteholders refer to payments,
notices, reports and statements to DTC or its nominee, as the registered holder
of the notes, for distribution to Noteholders in accordance with DTC's
procedures. WE REFER YOU TO "CERTAIN INFORMATION REGARDING THE
SECURITIES--BOOK-ENTRY REGISTRATION" AND "--DEFINITIVE SECURITIES."
PRINCIPAL AND INTEREST ON THE NOTES
The applicable prospectus supplement will describe the timing and priority
of payment, seniority, allocations of losses, interest rate (the "Interest
Rate") and amount of or method of determining payments of principal and interest
on each class of notes of a given series. The rights of holders of any class of
notes to receive payments of principal and interest may be senior or subordinate
to the rights of holders of any other class or classes of notes of that series.
Payments of interest on a class of notes will generally be made prior to
payments of principal on the class. A series may include one or more classes of
notes (the "Strip Notes") entitled to (1) principal payments with
disproportionate, nominal or no interest payments or (2) interest payments with
disproportionate, nominal or no principal payments. Each class of notes may have
a different Interest Rate, which may be a fixed, variable or adjustable Interest
Rate (and which may be zero for some classes of Strip Notes), or any combination
of the foregoing. The applicable prospectus supplement will specify the Interest
Rate for each class of notes of a given series or the method for determining the
Interest Rate. WE REFER YOU TO "CERTAIN INFORMATION REGARDING THE
SECURITIES--FIXED RATE SECURITIES" AND "--FLOATING RATE SECURITIES." One or more
classes of notes of a series may be redeemable in whole or in part, including as
a result of the Servicer exercising its option to purchase the related
Receivables Pool or other early termination of the related trust.
One or more classes of notes of a given series may have fixed principal
payment schedules, in the manner and to the extent set forth in the applicable
prospectus supplement. Noteholders of those notes would be entitled to receive
as payments of principal on any given Payment Date the amounts set forth on that
schedule with respect to those notes.
To the extent provided in the related prospectus supplement, payments of
interest to Noteholders of two or more classes within a series may have the same
priority. Under some circumstances, on any Payment Date the amount available for
those payments could be less than the amount of interest payable on the notes.
If this is the case, each class of Noteholders will receive its ratable share
(based upon the aggregate amount of interest due to that class of Noteholders)
of the aggregate amount of interest available for payment on the notes. WE REFER
YOU TO "DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--DISTRIBUTIONS ON
THE SECURITIES" AND "--CREDIT AND CASH FLOW ENHANCEMENT."
If a series of notes includes two or more classes of notes, the sequential
order and priority of payment in respect of principal and interest, and any
schedule or formula or other provisions, of each of those classes will be set
forth in the applicable prospectus supplement. Payments of principal and
interest within any class of notes will be made on a pro rata basis among all
the Noteholders of that class.
THE INDENTURE
MODIFICATION OF INDENTURE. If a Trust has issued notes pursuant to an
Indenture, the Trust and the Indenture Trustee may, with the consent of the
holders of a majority of the outstanding notes of the related series (or
relevant class or classes of notes of the series), execute a supplemental
indenture to
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add provisions to, change in any manner or eliminate any provisions of, the
related Indenture, or modify (except as provided below) in any manner the rights
of the related Noteholders.
Without the consent of the holder of each outstanding affected note, no
supplemental indenture will:
1. change (A) the due date of any installment of principal of or interest
on that note or reduce the principal amount of that note, (B) the
Interest Rate for that note or the redemption price for that note,
(C) provisions of the Indenture relating to the application of
collections on, or proceeds of a sale of, the Trust Estate to payments of
principal and interest on the note, or (D) any place of payment where or
the coin or currency in which that note or any interest on that note is
payable;
2. impair the right to institute suit for the enforcement of specified
provisions of the related Indenture regarding payment;
3. reduce the percentage of the aggregate amount of the outstanding notes
of a series of notes, the consent of the holders of which is required for
any supplemental indenture or any waiver of compliance with specified
provisions of the related Indenture or of specified defaults and their
consequences as provided for in that Indenture;
4. modify or alter the provisions of the related Indenture regarding the
voting of notes held by the applicable Trust, any other obligor on those
notes, the Seller or an affiliate of any of them;
5. reduce the percentage of the aggregate outstanding amount of notes, the
consent of the holders of which is required to direct the related
Indenture Trustee to sell or liquidate the Receivables if the proceeds of
that sale would be insufficient to pay the principal amount of and
accrued but unpaid interest on the outstanding notes of that series;
6. reduce the percentage of the aggregate principal amount of notes
required to amend the sections of the related Indenture that specify the
applicable percentage of aggregate principal amount of the notes of a
series necessary to amend the Indenture or other specified agreements; or
7. permit the creation of any lien ranking prior to or on a parity with the
lien of the related Indenture with respect to any of the collateral for
that note or, except as otherwise permitted or contemplated in the
Indenture, terminate the lien of that Indenture on any of the collateral
or deprive the holder of any note of the security afforded by the lien of
the Indenture.
The Trust and the applicable Indenture Trustee may also enter into
supplemental indentures, without obtaining the consent of the Noteholders of the
related series, for the purpose of, among other things, adding any provisions to
or changing in any manner or eliminating any of the provisions of the related
Indenture or of modifying in any manner the rights of those Noteholders;
provided that that action will not adversely affect in any material respect the
interest of any of those Noteholders.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT. With respect to the notes
of a given series in the related prospectus supplement, "Events of Default"
under the related Indenture will consist of:
1. a default for five days or more in the payment of any interest on any of
the notes when the same becomes due and payable;
2. a default in the payment of the principal of or any installment of the
principal of any of the notes when the same becomes due and payable;
3. a default in the observance or performance of any covenant or agreement
of the applicable Trust made in the related Indenture and the
continuation of the default for a period of 30 days after notice is given
to that Trust by the applicable Indenture Trustee or to that Trust and
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the applicable Indenture Trustee by the holders of at least 25% in
principal amount of the notes then outstanding acting together as a
single class;
4. any representation or warranty made by the applicable Trust in the
related 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 breach not having been cured within 30 days after
written notice is given to that Trust by the applicable Indenture Trustee
or to that Trust and the applicable Indenture Trustee by the holders of
at least 25% in principal amount of the notes then outstanding acting
together as a single class;
5. particular events of bankruptcy, insolvency, receivership or liquidation
of the applicable Trust; or
6. other events, if any, set forth in the related prospectus supplement.
However, the amount of principal required to be paid to Noteholders of an
affected series under the related Indenture will generally be limited to amounts
available to be deposited in the Collection Account. Therefore, the failure to
pay any principal on any class of notes generally will not result in the
occurrence of an Event of Default until the final scheduled Payment Date for
that class of notes. The failure to pay interest to holders of a subordinated
class of notes on a particular Payment Date will generally not constitute an
Event of Default. In addition, as described below, following the occurrence of
an Event of Default (other than the Events of Default described in (1) and (2)
above) and acceleration of the maturity of the notes, the Indenture Trustee is
not required to sell the assets of the Trust, and the Indenture Trustee may sell
the assets of the Trust only after meeting requirements specified in the
Indenture. Under those circumstances, even if the maturity of the notes has been
accelerated, there may not be any funds to pay the principal owed on the notes.
If an Event of Default should occur and be continuing with respect to the
notes of any series, the related Indenture Trustee or holders of a majority in
principal amount of the most senior notes then outstanding (or relevant class or
classes of notes) may declare the notes to be immediately due and payable. This
declaration may, under specified circumstances, be rescinded by the holders of a
majority in principal amount of the most senior notes then outstanding (or
relevant class or classes of notes).
If the notes of any series are due and payable following an Event of Default
with respect thereto, the related Indenture Trustee may (1) institute
proceedings to collect amounts due or foreclose on Trust property, (2) exercise
remedies as a secured party, (3) sell the assets of the related trust, or
(4) elect to have the applicable Trust maintain possession of those Receivables
and continue to apply collections on those Receivables as if there had been no
declaration of acceleration. Unless otherwise specified in the applicable
prospectus supplement, however, the Indenture Trustee is prohibited from selling
the assets of the related trust following an Event of Default (other than a
default in the payment of any principal on any note of a particular series or a
default for five days or more in the payment of any interest on the most senior
notes of a particular series), unless:
1. the holders of the notes of the related series then outstanding (or
relevant class or classes of notes) consent to the sale; or
2. the proceeds of the sale are sufficient to pay in full the principal of
and the accrued interest on all outstanding notes of the related series
at the date of the sale; or
3. the Indenture Trustee determines that the proceeds from the sale of the
Trust Estate will not be sufficient on an ongoing basis to make all
payments on the outstanding notes of the related series as those payments
would have become due if the obligations had not been declared due and
payable, and the Indenture Trustee obtains the consent of the holders of
66 2/3% of the aggregate outstanding amount of the most senior notes then
of the related series outstanding (or relevant class or classes of
notes).
Subject to the provisions of the applicable Indenture relating to the duties
of the related Indenture Trustee, if an Event of Default occurs and is
continuing with respect to a series of notes, the Indenture
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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 that might be incurred
by it in complying with the request. Subject to the provisions for
indemnification and other limitations contained in the related Indenture, the
holders of a majority of the aggregate principal amount of the most senior notes
of the related series then outstanding (or relevant class or classes of notes of
the series) will have the right to direct the time, method and place of
conducting any proceeding or any remedy available to the applicable Indenture
Trustee, and the holders of at least 51% of the aggregate principal amount of
the most senior notes of the related series then outstanding (or relevant class
or classes of notes) may, in some cases, waive a default, except a default in
the deposit of collections or other required amounts, any required payment from
amounts held in any trust account in respect of amounts due on the notes,
payment of principal or interest or a default in respect of a covenant or
provision of the Indenture which cannot be modified without the waiver or
consent of all the holders of the outstanding notes of the related series.
Unless otherwise specified in the related prospectus supplement, no holder
of a note of any series will have the right to institute any proceeding with
respect to the related Indenture, unless:
1. the holder of a note or notes previously has given to the applicable
Indenture Trustee written notice of a continuing Event of Default;
2. the Event of Default arises from the Servicer's failure to remit
payments when due or the holders of not less than 25% of the aggregate
principal amount of the most senior notes of the related series then
outstanding (or relevant class or classes of notes) have requested in
writing that the Indenture Trustee institute the proceeding in its own
name as Indenture Trustee;
3. the holder or holders of notes have offered the Indenture Trustee
reasonable indemnity; and
4. the Indenture Trustee has for 60 days failed to institute a proceeding;
In addition, each Indenture Trustee and the related Noteholders, by
accepting the related notes, will covenant that they will not at any time
institute against the applicable Trust any bankruptcy, reorganization or other
proceeding under any federal or state bankruptcy or similar law.
With respect to any Trust, neither the related Indenture Trustee nor the
related Trustee in its individual capacity, nor any holder of a certificate
representing an ownership interest in that Trust nor any of their respective
owners, beneficiaries, agents, officers, directors, employees, affiliates,
successors or assigns will, in the absence of an express agreement to the
contrary, be personally liable for the payment of the principal of or interest
on the related notes or for the agreements of that Trust contained in the
applicable Indenture.
PARTICULAR COVENANTS. Each Indenture will provide that the related Trust
may not consolidate with or merge into any other entity, unless, among other
things,
1. the entity formed by or surviving the consolidation or merger is
organized under the laws of the United States or any state;
2. that entity expressly assumes the Trust's obligation to make due and
punctual payments upon the notes of the related series and the
performance or observance of every agreement and covenant of the Trust
under the Indenture;
3. no Event of Default shall have occurred and be continuing immediately
after the merger or consolidation;
4. each rating agency delivers a letter to the Indenture Trustee to the
effect that the consideration or merger will not result in a
qualification, reduction or withdrawal of its then current rating on any
class of notes;
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5. that Trust has received an opinion of counsel to the effect that the
consolidation or merger would have no material adverse tax consequence to
the Trust or to any related Noteholder or Certificateholder;
6. the parties take any action necessary to maintain the lien and security
interest created by the Indenture; and
7. the Indenture Trustee has received an officer's certificate and an
opinion of counsel stating that the consolidation or merger comply with
the terms of the Indenture and all conditions precedent provided in the
Indenture have been complied with.
Each Trust will not, among other things,
- except as expressly permitted by the applicable Indenture, the applicable
Transfer and Servicing Agreements or other specified documents with
respect to that Trust (collectively, the "Related Documents"), sell,
transfer, exchange or otherwise dispose of any of the assets of the Trust
unless directed to do so by the Indenture Trustee;
- claim any credit on or make any deduction from the principal of and
interest payable on the notes of the related series (other than amounts
withheld under the Code or applicable state law) or assert any claim
against any present or former holder of those notes because of the
payment of taxes levied or assessed upon the Trust;
- except as expressly permitted by the Related Documents, dissolve or
liquidate in whole or in part;
- permit the validity or effectiveness of the related 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 by the Indenture;
- permit any lien 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 in the assets of the Trust or the proceeds of
those assets; or
- assume or incur any indebtedness other than the related notes or as
expressly permitted by the related Indenture or the Related Documents.
No Trust may engage in any activity other than as specified in this
prospectus or in the applicable prospectus supplement.
ANNUAL COMPLIANCE STATEMENT. Each Trust will be required to file annually
with the related Indenture Trustee a written statement as to the fulfillment of
its obligations under the related Indenture.
INDENTURE TRUSTEE'S ANNUAL REPORT. The Indenture Trustee for each Trust
will be required to mail each year to all related Noteholders a brief report
relating to its eligibility and qualification to continue as Indenture Trustee
under the related Indenture, any amounts advanced by it under the Indenture, the
amount, interest rate and maturity date of specified indebtedness owing by the
Trust to the applicable Indenture Trustee in its individual capacity, the
property and funds physically held by the Indenture Trustee and any action taken
by it that materially affects the related notes and that has not been previously
reported.
SATISFACTION AND DISCHARGE OF INDENTURE. An Indenture will be discharged
with respect to the collateral securing the related notes upon the delivery to
the related Indenture Trustee for cancellation of all of those notes or, with
specified limitations, upon deposit with the Indenture Trustee of funds
sufficient for the payment in full of all the notes.
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THE CERTIFICATES
GENERAL
With respect to each Trust that issues certificates, one or more classes
(each, a "class") of certificates of the related series will be issued pursuant
to the terms of a Trust Agreement or a Pooling and Servicing Agreement, a form
of each of which has been filed as an exhibit to the Registration Statement of
which this prospectus forms a part. The following 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 certificates and the Trust Agreement or Pooling and
Servicing Agreement, as applicable.
Except for the certificates, if any, of a given series purchased by the
Seller, each class of certificates will initially be represented by one or more
certificates registered in the name of the nominee for DTC, except as set forth
below. Except for the certificates, if any, of a given series purchased by the
Seller, the certificates will be available for purchase in the denominations
specified in the applicable prospectus supplement in book-entry form only. The
Seller has been informed by DTC that DTC's nominee will be Cede, unless another
nominee is specified in the applicable prospectus supplement. Accordingly, that
nominee is expected to be the holder of record of the certificates (a
"Certificateholder") of any series that are not purchased by the Seller. No
Certificateholder (other than a Trust) will be entitled to receive a physical
certificate representing a certificate until Definitive Certificates are issued
under the limited circumstances described in this prospectus or in the
applicable prospectus supplement. All references in this prospectus and in the
applicable prospectus supplement to actions by Certificateholders refer to
actions taken by DTC upon instructions from DTC Participants and all references
in this prospectus and in the applicable prospectus supplement to distributions,
notices, reports and statements to Certificateholders refer to distributions,
notices, reports and statements given, made or sent to DTC or its nominee, as
the case may be, as the registered holder of the certificates, for distribution
to Certificateholders in accordance with DTC's procedures with respect thereto.
WE REFER YOU TO "CERTAIN INFORMATION REGARDING THE SECURITIES--BOOK-ENTRY
REGISTRATION" AND "--DEFINITIVE SECURITIES." Any certificates of a given series
owned by the Seller or its affiliates will be entitled to equal and
proportionate benefits under the applicable Trust Agreement, except that those
certificates will be deemed not to be outstanding for the purpose of determining
whether the requisite percentage of Certificateholders have given any request,
demand, authorization, direction, notice, consent or other action under the
Related Documents (other than the commencement by the related Trust of a
voluntary proceeding in bankruptcy as described under "Description of the
Transfer and Servicing Agreements--Insolvency Event").
PAYMENTS OF PRINCIPAL AND INTEREST
The timing and priority of payments, seniority, allocations of losses, pass
through rate (the "Pass Through Rate") and amount of or method of determining
payments with respect to principal and interest of each class of certificates
will be described in the applicable prospectus supplement. Payments of interest
on those certificates will be made on the dates specified in the applicable
prospectus supplement (each, a "Payment Date"). To the extent provided in the
applicable prospectus supplement, a series may include one or more classes of
certificates (the "Strip Certificates") entitled to (1) payments in respect of
principal with disproportionate, nominal or no interest payments or (2) interest
payments with disproportionate, nominal or no payments in respect of principal.
Each class of certificates may have a different Pass Through Rate, which may be
a fixed, variable or adjustable Pass Through Rate (and which may be zero for
some classes of Strip Certificates) or any combination of the foregoing. The
applicable prospectus supplement will specify the Pass Through Rate for each
class of certificates of a given series or the method for determining the Pass
Through Rate. WE ALSO REFER YOU TO "CERTAIN INFORMATION REGARDING THE
SECURITIES--FIXED RATE SECURITIES" AND "--FLOATING RATE SECURITIES." Payments in
respect of the certificates of a given series that includes notes may be
subordinate to
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payments in respect of the notes of that series as more fully described in the
applicable prospectus supplement. The rights of holders of any class of
certificates to receive payments of principal and interest may also be senior or
subordinate to the rights of holders of any other class or classes of
certificates of that series as more fully described in the applicable prospectus
supplement. Payments in respect of principal of and interest on any class of
certificates will be made on a pro rata basis among all the Certificateholders
of that class.
In the case of a series of certificates that includes two or more classes of
certificates, the timing, sequential order, priority of payment or amount of
payments in respect of interest and principal, and any schedule or formula or
applicable other provisions, of each class shall be as set forth in the
applicable prospectus supplement.
If and as provided in the applicable prospectus supplement, amounts
remaining on deposit in the Collection Account after all required payments to
the related Securityholders have been made may be released to the Seller, AHFC
or one or more third party credit or liquidity enhancement providers.
CERTAIN INFORMATION REGARDING THE SECURITIES
FIXED RATE SECURITIES
Any class of Securities (other than some classes of Strip Notes or Strip
Certificates) may bear interest at a fixed rate per annum ("Fixed Rate
Securities") or at a variable or adjustable rate per annum ("Floating Rate
Securities"), as more fully described below and in the applicable prospectus
supplement. Each class of Fixed Rate Securities will bear interest at the
applicable per annum Interest Rate or Pass Through Rate, as the case may be,
specified in the applicable prospectus supplement. Interest on each class of
Fixed Rate Securities will be computed on the basis of a 360-day year consisting
of twelve 30-day months or other day count basis as is specified in the
applicable prospectus supplement. WE REFER YOU TO "THE NOTES--PRINCIPAL AND
INTEREST ON THE NOTES" AND "THE CERTIFICATES--PAYMENTS OF PRINCIPAL AND
INTEREST."
FLOATING RATE SECURITIES
INTEREST RATE BASIS. Each class of Floating Rate Securities will bear
interest during each applicable Interest Period at a rate per annum determined
by reference to an interest rate basis (the "Base Rate"), plus or minus the
Spread, if any, or multiplied by the Spread Multiplier, if any, in each case as
specified in the applicable prospectus supplement. The "Spread" is the number of
basis points to be added to or subtracted from the related Base Rate applicable
to the Floating Rate Securities. The "Spread Multiplier" is the percentage of
the related Base Rate applicable to the Floating Rate Securities by which that
Base Rate will be multiplied to determine the applicable interest rate on those
Floating Rate Securities. The applicable prospectus supplement will designate
one of the following Base Rates as applicable to a particular Floating Rate
Security:
- LIBOR (a "LIBOR Security");
- the Commercial Paper Rate (a "Commercial Paper Rate Security");
- the Treasury Rate (a "Treasury Rate Security");
- the Federal Funds Rate (a "Federal Funds Rate Security");
- the CD Rate (a "CD Rate Security"); or
- any other Base Rate that is set forth in the applicable prospectus
supplement.
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"Business Day" as used in this prospectus means, unless otherwise specified
in the applicable prospectus supplement:
1. for United States dollar denominated Securities for which LIBOR is not an
applicable Interest Rate Basis:
- any day other than a Saturday or Sunday, that is neither a legal
holiday nor a day on which commercial banks are authorized or required
by law, regulation or executive order to close in The City of New York
(a "New York Business Day");
2. for United States dollar denominated Securities for which LIBOR is an
applicable Interest Rate Basis:
- a day that is both (1) a day on which commercial banks are open for
business, including dealings in the designated Index Currency (as
defined below) in London (a "London Business Day") and (2) a New York
Business Day;
3. for non-United States dollar denominated Securities (other than Securities
denominated in euro) for which LIBOR is not an applicable Interest Rate
Basis:
- a day that is both (1) a day other than a day on which commercial banks
are authorized or required by law, regulation or executive order to
close in the Principal Financial Center (as defined below) of the
country issuing the Specified Currency (as defined below) (a "Principal
Financial Center Business Day") and (2) a New York Business Day;
4. for non-United States dollar denominated Securities (other than Securities
denominated in euro) for which LIBOR is an applicable Interest Rate Basis:
- a day that is all of (1) a Principal Financial Center Business Day;
(2) a New York Business Day; and (3) a London Business Day;
5. for euro denominated Securities for which LIBOR is not an applicable
Interest Rate Basis:
- a day that is both (1) a day on which the Trans-European Automated
Real-time Gross Settlement Express Transfer (TARGET) System is open (a
"TARGET Business Day") and (2) a New York Business Day;
6. for euro denominated Securities for which LIBOR is an applicable Interest
Rate Basis:
- a day that is all of (1) a TARGET Business Day; (2) a New York Business
Day; and (3) a London Business Day.
"Principal Financial Center" means, unless otherwise specified in the
applicable prospectus supplement:
- the capital city of the country issuing the Specified Currency except that
with respect to United States dollars, Australian dollars, Canadian
dollars, Deutsche marks, Dutch guilders, South African rand and Swiss
francs, the Principal Financial Center will be The City of New York,
Sydney and Melbourne, Toronto, Frankfurt, Amsterdam, Johannesburg and
Zurich, respectively; or
- the capital city of the country to which the Index Currency relates,
except that with respect to United States dollars, Canadian dollars,
Deutsche marks, Dutch guilders, Portuguese escudos, South African rand and
Swiss francs, the Principal Financial Center will be the The City of New
York, Toronto, Frankfurt, Amersterdam, London, Johannesburg and Zurich,
respectively.
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"Specified Currency" means the currency in which a particular Security is
denominated (or, if the currency is no longer legal tender for the payment of
public and private debts, any other currency of the relevant country which is
then legal tender for the payment of such debts).
"Index Currency" means the currency specified in the applicable prospectus
supplement as the currency for which LIBOR will be calculated. If no currency is
specified in the applicable prospectus supplement, the Index Currency will be
United States dollars.
INTEREST RESET DATES. Each applicable prospectus supplement will specify
whether the rate of interest on the related Floating Rate Securities will be
reset daily, weekly, monthly, quarterly, semiannually, annually or some other
specified period (each, an "Interest Reset Period") and the dates on which that
Interest Rate will be reset (each, an "Interest Reset Date"). Unless otherwise
specified in the applicable prospectus supplement, the Interest Reset Date will
be, in the case of Floating Rate Securities which reset:
(1) daily, each Business Day;
(2) weekly, the Wednesday of each week (with the exception of weekly reset
Treasury Rate Securities which will reset the Tuesday of each week except
as described below);
(3) monthly, the third Wednesday of each month;
(4) quarterly, the third Wednesday of March, June, September and December of
each year;
(5) semiannually, the third Wednesday of the two months specified in the
applicable prospectus supplement;
(6) annually, the third Wednesday of the month specified in the applicable
prospectus supplement; or
(7) any other Interest Reset Date set forth in the applicable prospectus
supplement.
Unless otherwise specified in the related prospectus supplement, if any
Interest Reset Date for any Floating Rate Security would otherwise be a day that
is not a Business Day, the applicable Interest Reset Date will be postponed to
the next succeeding day that is a Business Day, except that in the case of a
Floating Rate Security as to which LIBOR is an applicable Base Rate, if that
Business Day falls in the next succeeding calendar month, that Interest Reset
Date will be the immediately preceding Business Day. In addition, in the case of
a Floating Rate Security for which the Treasury Rate is an applicable Interest
Rate Basis, if the Interest Determination Date would otherwise fall on an
Interest Reset Date, then the applicable Interest Reset Date will be postponed
to the next succeeding Business Day.
Except as set forth above or in the applicable prospectus supplement, the
interest rate in effect on each date will be:
- if the date is an Interest Reset Date, the interest rate determined on the
related Interest Determination Date, as defined below, immediately
preceding that Interest Reset Date, or
- if the day is not an Interest Reset Date, the interest rate determined on
the related Interest Determination Date immediately preceding the most
recent Interest Reset Date.
INTEREST PAYMENTS. The interest Payment Dates will be specified in the
applicable prospectus supplement. Unless otherwise specified in the related
prospectus supplement, if any Payment Date for a Floating Rate Security (other
than the final Payment Date) would otherwise be a day that is not a Business
Day, that Payment Date will be the next succeeding day that is a Business Day
except that in the case of a Floating Rate Security as to which LIBOR is the
applicable Base Rate, if the Business Day falls in the next succeeding calendar
month, the applicable Payment Date will be the immediately
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<PAGE>
preceding Business Day. If the final Payment Date of a Floating Rate Security
falls on a day that is not a Business Day, the payment of principal, premium, if
any, and interest will be made on the next succeeding Business Day, and no
interest on that payment shall accrue for the period from and after that
scheduled Payment Date.
Each Floating Rate Security will accrue interest on an "Actual/360" basis,
an "Actual/Actual" basis, or a "30/360" basis, in each case as specified in the
applicable prospectus supplement. For Floating Rate Securities calculated on an
Actual/360 basis and Actual/Actual basis, accrued interest for each Interest
Period will be calculated by multiplying:
(1) the face amount of the Floating Rate Security;
(2) the applicable interest rate; and
(3) the actual number of days in the related Interest Period, and dividing
the resulting product by 360 or 365, as applicable (or, with respect to
an Actual/Actual basis Floating Rate Security, if any portion of the
related Interest Period falls in a leap year, the product of (1) and (2)
above will be multiplied by the sum of (x) the actual number of days in
that portion of that Interest Period falling in a leap year divided by
366 and (y) the actual number of days in that portion of that Interest
Period falling in a non-leap year divided by 365).
For Floating Rate Securities calculated on a 30/360 basis, accrued interest
for an Interest Period will be computed on the basis of a 360-day year
consisting of twelve 30-day months, irrespective of how many days are actually
in that Interest Period. With respect to any Floating Rate Security that accrues
interest on a 30/360 basis, if any Payment Date, including the related final
Payment Date, falls on a day that is not a Business Day, the related payment of
principal or interest will be made on the next succeeding Business Day as if
made on the date that payment was due, and no interest will accrue on the amount
so payable for the period from and after that Payment Date.
The "Interest Period" with respect to any class of Floating Rate Securities
will be set forth in the applicable prospectus supplement.
INTEREST DETERMINATION DATES. The interest rate applicable to each Interest
Reset Period beginning on the Interest Reset Date with respect to that Interest
Reset Period will be the rate determined on the applicable "Interest
Determination Date," as follows unless otherwise specified in the applicable
prospectus supplement:
- The Interest Determination Date for the CD Rate, the Commercial Paper Rate
and the Federal Funds Rate will be the second Business Day preceding each
Interest Reset Date for the related Floating Rate Security;
- The Interest Determination Date for LIBOR will be the second London
Banking Day preceding each Interest Reset Date;
- The Interest Determination Date for the Treasury Rate will be the day in
the week in which the related Interest Reset Date falls on which day
Treasury Bills, as defined below, are normally auctioned. Treasury Bills
are normally sold at auction on Monday of each week, unless that day is a
legal holiday, in which case the auction is normally held on the following
Tuesday, except that the auction may be held on the preceding Friday;
provided, however, that if an auction is held on the Friday of the week
preceding the related Interest Reset Date, the related Interest
Determination Date will be that preceding Friday; and provided further,
that if an auction falls on any Interest Reset Date, then the related
Interest Reset Date will instead be the first Business Day following that
auction.
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As used in this prospectus, "London Banking Day" means any day on which
commercial banks are open for business (including dealings in designated Index
Currency) in London.
MAXIMUM AND MINIMUM INTEREST RATES. As specified in the applicable
prospectus supplement, Floating Rate Securities of a given class may also have
either or both of the following (in each case expressed as a rate per annum):
(1) a maximum limitation, or ceiling, on the rate at which interest may accrue
during any Interest Period, which may be an available funds cap rate, and (2) a
minimum limitation, or floor, on the rate at which interest may accrue during
any Interest Period. In addition to any maximum interest rate that may be
applicable to any class of Floating Rate Securities, the interest rate
applicable to any class of Floating Rate Securities will in no event be higher
than the maximum rate permitted by applicable law, as the same may be modified
by United States law of general application.
CALCULATION AGENT. Each Trust with respect to which a class of Floating
Rate Securities will be issued will appoint, and enter into agreements with, a
calculation agent (each, a "Calculation Agent") to calculate Interest Rates on
each class of Floating Rate Securities. The applicable prospectus supplement
will set forth the identity of the Calculation Agent for each class of Floating
Rate Securities of a given series, which may be the related Trustee or Indenture
Trustee with respect to that series. All determinations of interest by the
Calculation Agent shall, in the absence of manifest error, be conclusive for all
purposes and binding on the holders of Floating Rate Securities of a given
class. All percentages resulting from any calculation on Floating Rate
Securities will be rounded to the nearest one hundred-thousandth of a percentage
point, with five one millionths of a percentage point rounded upwards (e.g.,
9.876545% (or .09876545) would be rounded to 9.87655% (or .0987655)), and all
dollar amounts used in or resulting from that calculation on Floating Rate
Securities will be rounded to the nearest cent (with one-half cent being rounded
upwards).
CALCULATION DATE. Unless specified otherwise in the applicable prospectus
supplement, the "Calculation Date," if applicable, pertaining to any Interest
Determination Date, will be the earlier of:
- the tenth calendar day after the applicable Interest Determination Date,
or, if that day is not a Business Day, the next succeeding Business Day,
or
- the Business Day preceding the applicable Interest Payment Date or final
scheduled Payment Date, as the case may be.
INDEX MATURITY means the period to maturity of the instrument or obligation
with respect to which the Base Rate will be calculated.
CD RATE SECURITIES. Each CD Rate Security will bear interest at the rates
calculated with reference to the CD Rate and the Spread or Spread Multiplier, if
any, specified in that CD Rate Security and in the applicable prospectus
supplement.
Unless otherwise specified in the applicable prospectus supplement, "CD
Rate" means the rate on the applicable Interest Determination Date for
negotiable United States dollar certificates of deposit having the Index
Maturity designated in the applicable prospectus supplement as published in
H.15(519) (as defined below) under the heading "CDs (secondary market)."
The following procedures will be followed if the CD Rate cannot be
determined as described above:
(1) If the rate referred to above is not published prior to 3:00 P.M., New York
City time, on the related Calculation Date, then the CD Rate on the
applicable Interest Determination Date will be the rate for negotiable
United States dollar certificates of deposit of the Index Maturity
designated in the applicable prospectus supplement as published in H.15
Daily Update (as defined below), or
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other recognized electronic source used for the purpose of displaying the
applicable rate, under the heading "CDs (secondary market)."
(2) If the rate referred to in clause (1) above is not so published by 3:00
P.M., New York City time, on the related Calculation Date, then the CD Rate
for the applicable Interest Determination Date will be the rate calculated
by the Calculation Agent as the arithmetic mean of the secondary market
offered rates as of 10:00 A.M., New York City time, on the applicable
Interest Determination Date of three leading nonbank dealers in negotiable
United States dollar certificates of deposit in The City of New York
selected by the Calculation Agent for negotiable United States dollar
certificates of deposit of major United States money market banks for
negotiable certificates of deposit with a remaining maturity closest to the
Index Maturity designated in the applicable prospectus supplement in an
amount that is representative for a single transaction in that market at
that time.
(3) If the dealers selected by the Calculation Agent are not quoting as set
forth in clause (2) above, the CD Rate on the applicable Interest
Determination Date will be the rate in effect on the applicable Interest
Determination Date.
"H.15(519)" means the weekly statistical release designated as H.15(519) or
any successor publication, published by the Board of Governors of the Federal
Reserve System.
"H.15 Daily Update" means the daily update of H.15(519), available through
the world-wide-web site of the Board of Governors of the Federal Reserve System
at http://www.bog.frb.fed.us/releases/ h15/update, or any successor site or
publication.
COMMERCIAL PAPER RATE SECURITIES. Each Commercial Paper Rate Security will
bear interest at the rates calculated with reference to the Commercial Paper
Rate and the Spread or Spread Multiplier, if any, specified in that Commercial
Paper Rate Security and in the applicable prospectus supplement.
Unless otherwise provided in the applicable prospectus supplement,
"Commercial Paper Rate" means the Money Market Yield (as defined below) on the
applicable Interest Determination Date of the rate for commercial paper having
the Index Maturity specified in the applicable prospectus supplement, as
published in H.15(519) under the heading "Commercial Paper--Nonfinancial".
The following procedures will be followed if the Commercial Paper Rate
cannot be determined as described above:
(1) If the rate referred to above is not published by 3:00 P.M., New York City
time, on the related Calculation Date, then the Commercial Paper Rate will
be the Money Market Yield on the applicable Interest Determination Date of
the rate for commercial paper having the Index Maturity specified in the
applicable prospectus supplement published in H.15 Daily Update, or other
recognized electronic source for the purpose of displaying the applicable
rate under the heading "Commercial Paper--Nonfinancial."
(2) If by 3:00 P.M. New York City time, on the related Calculation Date, the
Commercial Paper Rate is not yet published in either H.15(519) or H.15 Daily
Update, then the Commercial Paper Rate for the applicable Interest
Determination Date will be calculated by the Calculation Agent as the Money
Market Yield of the arithmetic mean of the offered rates at approximately
11:00 A.M., New York City time, on the applicable Interest Determination
Date of three leading dealers of United States commercial paper in The City
of New York selected by the Calculation Agent for commercial paper having
the Index Maturity specified in the applicable prospectus supplement placed
for industrial issuers whose bond rating is "Aa" or the equivalent, by a
nationally recognized securities rating organization.
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<PAGE>
(3) If the dealers selected by the Calculation Agent are not quoting as
mentioned in clause (2) above, the Commercial Paper Rate determined on the
applicable Interest Determination Date will be the rate in effect on the
applicable Interest Determination Date.
"Money Market Yield" means a yield (expressed as a percentage rounded
upwards to the nearest one hundred-thousandth of a percentage point) calculated
in accordance with the following formula:
<TABLE>
<S> <C> <C>
D x 360
-------------------
Money Market Yield = 360 - (D x M) x 100
</TABLE>
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the Interest Period for which interest is being calculated.
FEDERAL FUNDS RATE SECURITIES. Each Federal Funds Rate Security will bear
interest at the rates calculated with reference to the Federal Funds Rate and
the Spread or Spread Multiplier, if any, specified in that Federal Funds Rate
Security and in the applicable prospectus supplement.
Unless otherwise provided in the applicable prospectus supplement, "Federal
Funds Rate" means the rate on the applicable Interest Determination Date for
United States dollar federal funds as published in H.15(519) under the heading
"Federal Funds (Effective)" as displayed on Bridge Telerate, Inc. or any
successor service on page 120 or any other page as may replace the applicable
page on the service ("Telerate Page 120").
The following procedures will be followed if the Federal Funds Rate cannot
be determined as described above:
(1) If the rate referred above does not appear on Telerate Page 120 or is not
published prior to 3:00 P.M., New York City time, on the related Calculation
Date, the Federal Funds Rate for the applicable Interest Determination Date
will be the rate on the applicable Interest Determination Date for United
States dollar federal funds published in H.15 Daily Update, or other
recognized electronic source for the purpose of displaying the applicable
rate under the heading "Federal Funds (Effective)."
(2) If the Federal Funds Rate is not so published by 3:00 P.M., New York City
time, on the related Calculation Date, the Federal Funds Rate for the
applicable Interest Determination Date will be calculated by the Calculation
Agent as the arithmetic mean of the rates for the last transaction in
overnight United States dollar federal funds arranged by three leading
brokers of United States dollar federal funds transactions in The City of
New York selected by the Calculation Agent before 9:00 A.M., New York City
time, on the applicable Interest Determination Date
(3) If brokers so selected by the Calculation Agent are not quoting as mentioned
in clause (2) above, the Federal Funds Rate for the applicable Interest
Determination Date will be the Federal Funds Rate in effect on the
applicable Interest Determination Date.
LIBOR SECURITIES. Each LIBOR Security will bear interest at the rates
calculated with reference to LIBOR and the Spread or Spread Multiplier, if any,
specified in that LIBOR Security and in the applicable prospectus supplement.
Unless otherwise provided in the applicable prospectus supplement, "LIBOR"
means:
1. if "LIBOR Telerate" is specified in the applicable prospectus
supplement, or if neither "LIBOR Reuters" nor "LIBOR Telerate" is
specified in the applicable prospectus supplement as the method for
calculating LIBOR, LIBOR will be the rate for deposits in the Index
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Currency having the Index Maturity designated in the applicable
prospectus supplement, commencing on the second London Banking Day
immediately following the applicable Interest Determination Date that
appears on the Designated LIBOR Page specified in the applicable
prospectus supplement as of 11:00 A.M. London time, on the applicable
Interest Determination Date, or
2. If "LIBOR Rueters" is specified in the applicable prospectus supplement,
LIBOR will be the arithmetic mean of the offered rates for deposits in
the Index Currency having the Index Maturity designated in the applicable
prospectus supplement, commencing on the second London Banking Day
immediately following the applicable Interest Determination Date, that
appear on the Designated LIBOR Page specified in the applicable
prospectus supplement as of 11:00 A.M. London time on the applicable
Interest Determination Date, if at least two offered rates appear (except
as provided in the following sentence). If the Designated LIBOR Page by
its terms provides for only a single rate, then the single rate will be
used.
The following procedures will be followed if LIBOR cannot be determined as
described above:
1. With respect to an Interest Determination Date on which fewer than two
offered rates appear, or no rate appears, as the case may be, on the
applicable Designated LIBOR Page, LIBOR for the applicable Interest
Determination Date will be the rate calculated by the Calculation Agent
as the arithmetic mean of at least two quotations obtained by the
Calculation Agent after requesting the principal London offices of each
of four major reference banks in the London interbank market, as selected
by the Calculation Agent, to provide the Calculation Agent with their
offered quotations for deposits in the Index Currency for the period of
the Index Maturity designated in the applicable prospectus supplement,
commencing on the second London Banking Day immediately following the
applicable Interest Determination Date, to prime banks in the London
interbank market at approximately 11:00 A.M., London time, on the
applicable Interest Determination Date and in a principal amount that is
representative for a single transaction in the applicable Index Currency
in that market at that time. If at least two quotations are provided,
LIBOR determined on the applicable Interest Determination Date will be
the arithmetic mean of those quotations.
2. If fewer than two quotations referred to in clause (1) above are
provided, LIBOR determined on the applicable Interest Determination Date
will be rate calculated by the Calculation Agent as the arithmetic mean
of the rates quoted at approximately 11:00 A.M. (or another time
specified in the applicable prospectus supplement), in the applicable
Principal Financial Center, on the applicable Interest Determination
Date, by three major banks, in that Principal Financial Center selected
by the Calculation Agent for loans in the Index Currency to leading
European banks, having the Index Maturity designated in the applicable
prospectus supplement and in a principal amount that is representative
for a single transaction in the Index Currency in that market at that
time.
3. If the banks so selected by the Calculation Agent are not quoting as
mentioned in clause (2) above, LIBOR for the applicable Interest
Determination Date will be LIBOR in effect on the applicable Interest
Determination Date.
"Designated LIBOR Page" means either:
- if "LIBOR Telerate" is designated in the applicable prospectus supplement
or neither "LIBOR Reuters" nor "LIBOR Telerate" is specified in the
applicable prospectus supplement as the method for calculating LIBOR, the
display on Bridge Telerate, Inc., or any successor service on the page
designated in the applicable prospectus supplement or any page as may
replace the
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designated page on that service for the purpose of displaying the London
interbank rates of major banks for the applicable Index Currency.
- if "LIBOR Reuters" is designated in the applicable prospectus supplement,
the display on Reuters Monitor Money Rates Service or any successor
service on the page designated in the applicable prospectus supplement or
any page that may replace that designated page on that service for the
purpose of displaying London interbank rates of major banks for the
applicable Index Currency, or
TREASURY RATE SECURITIES. Each Treasury Rate Security will bear interest
calculated with reference to the Treasury Rate and the Spread or Spread
Multiplier, if any, specified in the Treasury Rate Security and in the
applicable prospectus supplement.
Unless otherwise provided in the applicable prospectus supplement, "Treasury
Rate" means the rate from the auction held on the applicable Interest
Determination Date ("Auction") of direct obligations of the United States
("Treasury Bills") having the Index Maturity specified in the applicable
prospectus supplement, under the heading "INVESTMENT RATE" on the display on
Bridge Telerate, Inc., or any successor service on page 56 or any other page as
may replace page 56 of that service ("Telerate Page 56") or page 57 or any other
page as may replace page 57 of that service ("Telerate Page 57").
The following procedures will be followed if the Treasury Rate cannot be
determined as described above:
1. If the rate described above is not so published by 3:00 P.M., New York
City time, on the related Calculation Date, the Treasury Rate for the
applicable Interest Determination Date will be the Bond Equivalent Yield
(as defined below) of the rate for the applicable Treasury Bills as
published in H.15 Daily Update, or other recognized electronic source
used for the purpose of displaying the applicable rate, under the caption
"U.S. Government Securities/ Treasury Bills/Auction High."
2. If the rate described in clause (1) above is not so published by
3:00 P.M., New York City time, on the related Calculation Date, the
Treasury Rate for the applicable Interest Determination Date will be the
Bond Equivalent Yield of the auction rate of the applicable Treasury
Bills announced by the United States Department of the Treasury.
3. If the rate described in clause (2) above is not announced by the United
States Department of the Treasury, or if the Auction is not held, the
Treasury Rate for the applicable Interest Determination Date will be the
Bond Equivalent Yield of the rate on the applicable Interest
Determination Date of Treasury Bills having the Index Maturity specified
in the applicable prospectus supplement published in H.15(519) under the
caption "U.S. Government Securities/Treasury Bills/ Secondary Market."
4. If the rate described in clause (3) above is not so published by
3:00 P.M., New York City time, on the related Calculation Date, the
Treasury Rate for the applicable Interest Determination Date will be the
rate on the applicable Interest Determination Date of the applicable
Treasury Bills as published in H.15 Daily Update, or other recognized
electronic source used for the purpose of displaying the applicable rate,
under the caption "U.S. Government Securities/ Treasury Bills/ Secondary
Market."
5. If the rate described in clause (4) above is not so published by 3:00
P.M., New York City time, on the related Calculation Date, the Treasury
Rate for the applicable Interest Determination Date will be the rate for
the applicable Interest Determination Date calculated by the Calculation
Agent as the Bond Equivalent Yield of the arithmetic mean of the
secondary market bid rates, as of approximately 3:30 P.M., New York City
time, on the applicable Interest Determination Date, of three primary
United States government securities dealers, selected by the Calculation
Agent, for the issue of Treasury Bills with a remaining maturity closest
to the Index Maturity specified in the applicable prospectus supplement.
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6. If the dealers selected by the Calculation Agent are not quoting as
described in clause(s) above, the Treasury Rate for the applicable
Interest Determination Date will be the rate in effect on the applicable
Interest Determination Date.
"Bond Equivalent Yield" means a yield calculated in accordance with the
following formula and expressed as a percentage:
<TABLE>
<S> <C> <C>
D x N
-------------------
Bond Equivalent Yield = 360 - (D x M) x 100
</TABLE>
where "D" refers to the applicable per annum rate for Treasury Bills quoted on a
bank discount basis, "N" refers to 365 or 366, as the case may be, and "M"
refers to the actual number of days in the interest period for which interest is
being calculated.
INDEXED SECURITIES
To the extent specified in any prospectus supplement, any class of
Securities of a given series may consist of Securities ("Indexed Securities") in
which the principal amount payable on the final scheduled Payment Date for that
class (the "Indexed Principal Amount") and/or the interest payable on any
Payment Date is determined by reference to a measure (the "Index") which will be
related to (1) the exchange rates of one or more currencies; (2) the price or
prices of specified commodities; (3) specified stocks, which may be based on
U.S. or foreign stocks, on specified dates specified in the applicable
prospectus supplement; or (4) another price, interest rate, exchange rate or
other financial index or indices as are described in the applicable prospectus
supplement. Holders of Indexed Securities may receive a principal amount on the
related final scheduled Payment Date that is greater than or less than the face
amount of the Indexed Securities depending upon the relative value on the
related final scheduled Payment Date of the specified indexed item. The
applicable prospectus supplement will also contain information as to the method
for determining the principal amount payable on the related final scheduled
Payment Date, if any, and, where applicable, historical information with respect
to the specific indexed item or items and special tax considerations associated
with investment in Indexed Securities. Notwithstanding anything to the contrary
in this prospectus, for purposes of determining the rights of a holder of a
Security indexed as to principal in respect of voting for or against amendments
to the related Trust Agreement, Indenture, or other related agreements, as the
case may be, and modifications and the waiver of rights under those agreements,
the principal amount of that Indexed Security shall be deemed to be the face
amount thereof upon issuance less any payments allocated to principal of that
Indexed Security.
If the determination of the Indexed Principal Amount of an Indexed Security
is based on an Index calculated or announced by a third party and that third
party either suspends the calculation or announcement of that Index or changes
the basis upon which that Index is calculated (other than changes consistent
with policies in effect at the time that Indexed Security was issued and
permitted changes described in the applicable prospectus supplement), then that
Index shall be calculated for purposes of that Indexed Security by an
independent calculation agent named in the applicable prospectus supplement on
the same basis, and subject to the same conditions and controls, as applied to
the original third party. If for any reason that Index cannot be calculated on
the same basis and subject to the same conditions and controls as applied to the
original third party, then the Indexed Principal Amount of that Indexed Security
shall be calculated in the manner set forth in the applicable prospectus
supplement. Any determination of that independent calculation agent shall, in
the absence of manifest error, be binding on all parties.
The applicable prospectus supplement will describe whether the principal
amount of the related Indexed Security, if any, that would be payable upon
redemption or repayment prior to the applicable final scheduled Payment Date
will be the face amount of that Indexed Security, the Indexed Principal
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Amount of that Indexed Security at the time of redemption or repayment or
another amount described in that prospectus supplement.
INTEREST RATE SWAPS
The Trust may also include a derivative arrangement for the payment of
interest on the Securities of a series or any class of Securities. A derivative
arrangement may include a guaranteed rate agreement, a maturity liquidity
facility, a tax protection agreement, an interest rate cap or floor agreement,
an interest rate or currency swap agreement or any other similar arrangement.
The type of derivative arrangement, if any, for a series of Securities or class
of Securities will be described in the applicable prospectus supplement.
VARIABLE FUNDING NOTE
The applicable prospectus supplement for a Trust may provide that the Trust
issue one or more series of Securities having particular maturity dates and at
the same time the Trust may issue amortizing floating notes, known as "variable
funding notes", which relate to those particular maturity dates. These
Securities may have a balance that may (1) decrease based on the amortization of
the related Receivables or (2) increase based on principal collections used to
purchase additional Receivables.
INTEREST RATE FLEXIBILITY FOR A VARIABLE FUNDING NOTE. The prospectus
supplement may provide that the Securities issued in connection with a variable
funding note may have different rates of interest which may be fixed or
floating. The related prospectus supplement will specify the interest rate for
each series or class of Securities and the method, if any, for determining
subsequent changes to the interest rate.
PRO-RATA PAY/SUBORDINATE SECURITIES
The applicable prospectus supplement for a Trust may provide that one or
more classes of Securities will be payable on an interest only or principal only
basis. In addition, the Securities may include two or more classes that differ
as to timing, sequential order, priority of payment, interest rate or amount of
distributions of principal or interest or both. Distributions of principal or
interest or both on any class of Securities may be made upon the occurrence of
specified events, in accordance with a schedule or formula, or on the basis of
collections from designated assets of the Trust. A series may include one or
more classes of Securities, as to which accrued interest will not be distributed
but rather will be added to the principal or specified balance of the Security
on each Payment Date.
REVOLVING PERIOD
The applicable prospectus supplement for a Trust may provide that all or a
portion of the principal collected on the Receivables may be applied by the
Trustee to the acquisition of subsequent Receivables during a specified period
rather than used to distribute payments of principal to Securityholders during
that period. These Securities would then possess an interest only period, also
commonly referred to as a "revolving period", which will be followed by an
"amortization period", during which principal would be paid. Any interest only
or revolving period may terminate prior to the end of the specified period and
result in earlier than expected principal repayment of the Securities.
BOOK-ENTRY REGISTRATION
Each class of Securities offered by this prospectus will be represented by
one or more certificates registered in the name of Cede, as nominee of The
Depository Trust Company ("DTC"). Securityholders may hold beneficial interests
in Securities through DTC (in the United States) or Clearstream Banking, societe
anonyme (formerly Cedelbank, referred to herein as "Clearstream, Luxembourg") or
the Euroclear System ("Euroclear") (in Europe or Asia) directly if they are
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<PAGE>
participants of those systems, or indirectly through organizations which are
participants in those systems.
No Securityholder will be entitled to receive a certificate representing
that person's interest in the Securities, except as set forth below. Unless and
until Securities of a class are issued in fully registered certificated form
("Definitive Securities") under the limited circumstances described below, all
references in this prospectus to actions by Noteholders, Certificateholders or
Securityholders shall refer to actions taken by DTC upon instructions from DTC
Participants, and all references in this prospectus to distributions, notices,
reports and statements to Noteholders, Certificateholders or Securityholders
shall refer to distributions, notices, reports and statements to Cede, as the
registered holder of the Securities, for distribution to Securityholders in
accordance with DTC procedures. Therefore, it is anticipated that the only
Noteholder, Certificateholder or Securityholder will be Cede, as nominee of DTC.
Securityholders will not be recognized by the related Trustee as Noteholders,
Certificateholders or Securityholders as those terms will be used in the
relevant agreements, and Securityholders will only be permitted to exercise the
rights of holders of Securities of the related class indirectly through DTC and
DTC Participants, as further described below.
Clearstream, Luxembourg and Euroclear will hold omnibus positions on behalf
of their participants (referred to herein as "Clearstream, Luxembourg
Participants" and "Euroclear Participants", respectively) through customers'
securities accounts in their respective names on the books of their respective
depositaries (collectively, the "Depositaries") which in turn will hold those
positions in customers' securities accounts in the Depositaries' names on the
books of DTC.
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between Clearstream, Luxembourg Participants and Euroclear
Participants will occur in accordance with their applicable rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Clearstream,
Luxembourg Participants or Euroclear Participants, on the other, will be
effected in DTC in accordance with DTC rules on behalf of the relevant European
international clearing system by its Depositary. However, each of these
cross-market transactions will require delivery of instructions to the relevant
European international clearing system by the counterparty in that system in
accordance with its rules and procedures and within its established deadlines.
The relevant European international clearing system will, if the transaction
meets its settlement requirements, deliver instructions to its Depositary to
take action to effect final settlement on its behalf by delivering or receiving
securities in DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. Clearstream,
Luxembourg Participants and Euroclear Participants may not deliver instructions
directly to the Depositaries.
Because of time-zone differences, credits of securities received in
Clearstream, Luxembourg 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. Those credits or any
transactions in those securities settled during that processing will be reported
to the relevant Euroclear Participant or Clearstream, Luxembourg Participant on
that business day. Cash received in Clearstream, Luxembourg or Euroclear as a
result of sales of Securities by or through a Clearstream, Luxembourg
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
Clearstream, Luxembourg or Euroclear cash account only as of the business day
following settlement in DTC.
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 New York Uniform Commercial Code and a "clearing agency"
registered pursuant to Section 17A of the Exchange Act of 1934. DTC
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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-entries, thereby
eliminating the need for physical movement of certificates. DTC Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations which may include underwriters, agents or dealers with respect to
the Securities of any class or series. Indirect access to the DTC system also is
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a DTC Participant,
either directly or indirectly (the "Indirect DTC Participants"). The rules
applicable to DTC and DTC Participants are on file with the SEC.
Securityholders that are not DTC Participants or Indirect DTC Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Securities may do so only through DTC Participants and Indirect
DTC Participants. DTC Participants will receive a credit for the Securities on
DTC's records. The ownership interest of each Securityholder will in turn be
recorded on respective records of the DTC Participants and Indirect DTC
Participants. Securityholders will not receive written confirmation from DTC of
their purchase, but Securityholders 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 DTC
Participant through which the Securityholder entered into the transaction.
Transfers of ownership interests in the Securities of any class will be
accomplished by entries made on the books of DTC Participants acting on behalf
of Securityholders.
To facilitate subsequent transfers, all Securities deposited by DTC
Participants with DTC will be registered in the name of Cede, as nominee of DTC.
The deposit of Securities 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 Securityholders and its records will reflect only the identity of the DTC
Participants to whose accounts those Securities are credited, which may or may
not be the Securityholders. DTC Participants and Indirect DTC Participants will
remain responsible for keeping account of their holdings on behalf of their
customers. While the Securities of a series are held in book-entry form,
Securityholders will not have access to the list of Securityholders of that
series, which may impede the ability of Securityholders to communicate with each
other.
Conveyance of notices and other communications by DTC to DTC Participants,
by DTC Participants to Indirect DTC Participants and by DTC Participants and
Indirect DTC Participants to Securityholders will be governed by arrangements
among them, subject to any statutory or regulatory requirements that may be in
effect from time to time.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among DTC
Participants on whose behalf it acts with respect to the Securities and is
required to receive and transmit payments of principal of and interest on the
Securities. DTC Participants and Indirect DTC Participants with which
Securityholders have accounts with respect to the Securities similarly are
required to make book-entry transfers and receive and transmit those payments on
behalf of their respective Securityholders.
DTC's practice is to credit DTC Participants' accounts on each Payment Date
in accordance with their respective holdings shown on its records, unless DTC
has reason to believe that it will not receive payment on that Payment Date.
Payments by DTC Participants and Indirect DTC Participants to Securityholders
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 that DTC
Participant and not of DTC, the related Indenture Trustee or Trustee (or any
paying agent appointed by the Indenture Trustee or Trustee), the Seller or the
Servicer, subject to any statutory or regulatory requirements that may be in
effect from time to time. Payment of principal of and interest on each class of
Securities to DTC will be the responsibility of the related Indenture Trustee or
Trustee (or any paying agent), disbursement of those payments to DTC
Participants will be the responsibility of DTC and disbursement of those
payments to the related Securityholders will be
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the responsibility of DTC Participants and Indirect DTC Participants. DTC will
forward those payments to its DTC Participants which thereafter will forward
them to Indirect DTC Participants or Securityholders.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect DTC Participants and some other banks, a Securityholder may
be limited in its ability to pledge Securities to persons or entities that do
not participate in the DTC system, or otherwise take actions with respect to
those Securities due to the lack of a physical certificate for those Securities.
DTC has advised the Seller that it will take any action permitted to be
taken by a Securityholder only at the direction of one or more DTC Participants
to whose account with DTC the Securities are credited. Additionally, DTC has
advised the Seller that it will take those actions with respect to specified
percentages of the Securityholders' interest only at the direction of and on
behalf of DTC Participants whose holdings include undivided interests that
satisfy those specified percentages. DTC may take conflicting actions with
respect to other undivided interests to the extent that those actions are taken
on behalf of DTC Participants whose holdings include those undivided interests.
Neither DTC nor Cede will consent or vote with respect to the Securities.
Under its usual procedures, DTC will mail an "Omnibus Proxy" to the related
Indenture Trustee or Trustee as soon as possible after any applicable record
date for that consent or vote. The Omnibus Proxy will assign Cede's consenting
or voting rights to those DTC Participants to whose accounts the related
Securities are credited on that record date (which record date will be
identified in a listing attached to the Omnibus Proxy).
Clearstream Banking, societe anonyme, 67 Bd Grande-Duchesse Charlotte,
L-2967 Luxembourg, was incorporated in 1970 as "Cedel S.A.", a company with
limited liability under Luxembourg law (a societe anonyme). Cedel S.A.
subsequently changed its name to Cedelbank. On 10 January 2000, Cedelbank's
parent company, Cedel International, societe anonyme ("CI") merged its clearing,
settlement and custody business with that of Deutsche Borse Clearing AG ("DBC").
The merger involved the transfer by CI of substantially all of its assets and
liabilities (including its shares in CB) to a new Luxembourg company, New Cedel
International, societe anonyme ("New CI"), which is 50% owned by CI and 50%
owned by DBC's parent company Deutsche Borse AG. The shareholders of these two
entities are banks, securities dealers and financial institutions. Cedel
International currently has 92 shareholders, including U.S. financial
institutions or their subsidiaries. No single entity may own more than
5 percent of Cedel International's stock.
Further to the merger, the Board of Directors of New Cedel International
decided to re-name the companies in the group in order to give them a cohesive
brand name. The new brand name that was chosen is "Clearstream". With effect
from 14 January 2000 New CI has been renamed "Clearstream International, societe
anonyme". On 18 January 2000, Cedelbank was renamed "Clearstream Banking,
societe anonyme", and Cedel Global Services was renamed "Clearstream Services,
societe anonyme".
On 17 January 2000 DBC was renamed "Clearstream Banking AG". This means that
there are now two entities in the corporate group headed by Clearstream
International which share the name "Clearstream Banking", the entity previously
named "Cedelbank" and the entity previously named "Deutsche Borse Clearing AG".
Clearstream, Luxembourg holds securities for its customers and facilitates
the clearance and settlement of securities transactions between Clearstream,
Luxembourg customers through electronic book-entry changes in accounts of
Clearstream, Luxembourg customers, thereby eliminating the need for physical
movement of certificates. Transactions may be settled by Clearstream, Luxembourg
in any of 36 currencies, including United States dollars. Clearstream,
Luxembourg provides to its customers, among other things, services for
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. Clearstream, Luxembourg also
deals with domestic securities markets in over 30 countries through established
depository and custodial
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relationships. Clearstream, Luxembourg is registered as a bank in Luxembourg,
and as such is subject to regulation by the Commission de Surveillance du
Secteur Financier, "CSSF", which supervises Luxembourg banks. Clearstream,
Luxembourg's customers are world-wide financial institutions including
underwriters, securities brokers and dealers, banks, trust companies and
clearing corporations. Clearstream, Luxembourg's U.S. customers are limited to
securities brokers and dealers, and banks. Currently, Clearstream, Luxembourg
has approximately 2,000 customers located in over 80 countries, including all
major European countries, Canada, and the United States. Indirect access to
Clearstream, Luxembourg is available to other institutions that clear through or
maintain a custodial relationship with an account holder of Clearstream,
Luxembourg. Clearstream, Luxembourg has established an electronic bridge with
Morgan Guaranty Trust Company of New York as the Operator of the Euroclear
System in Brussels to facilitate settlement of trades between Clearstream,
Luxembourg and Euroclear.
Euroclear was created in 1968 to hold securities for participants of the
Euroclear System and to clear and settle transactions between Euroclear
Participants through simultaneous electronic book-entry delivery against
payment, thereby eliminating the need for physical movement of certificates and
any risk from lack of simultaneous transfers of securities and cash.
Transactions may now be settled in any of 27 currencies, including United States
dollars. The Euroclear System includes various other services, including
securities lending and borrowing, and interfaces with domestic markets in
several countries generally similar to the arrangements for cross-market
transfers with DTC described above. 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
on behalf of Euroclear Participants. Euroclear Participants include banks
(including central banks), securities brokers and dealers and other professional
financial intermediaries and may include any underwriters, agents or dealers
with respect to any class or series of Securities offered by this prospectus.
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. Therefore, 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, withdrawals 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.
Payments with respect to Securities held through Clearstream, Luxembourg or
Euroclear will be credited to the cash accounts of Clearstream, Luxembourg
Participants or Euroclear Participants in accordance with the relevant system's
rules and procedures, to the extent received by its Depositary. Those payments
will be subject to tax withholding in accordance with relevant United States tax
laws and regulations. We refer you to "Material Income Tax Consequences."
Clearstream, Luxembourg or the Euroclear Operator, as the case may be, will take
any other action permitted to be taken by a Securityholder on behalf of a
Clearstream, Luxembourg Participant or Euroclear Participant only in
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accordance with its relevant rules and procedures and subject to its
Depositary's ability to effect those actions on its behalf through DTC.
Although DTC, Clearstream, Luxembourg and Euroclear have agreed to the
foregoing procedures in order to facilitate transfers of Securities among DTC
Participants, Clearstream Luxembourg Participants and Euroclear Participants,
they are under no obligation to perform or continue to perform those procedures
and those procedures may be discontinued at any time.
DEFINITIVE SECURITIES
The notes, if any, and the certificates of a given series will be issued in
fully registered, certificated form ("Definitive Notes" and "Definitive
Certificates", respectively, and collectively referred to in this prospectus as
"Definitive Securities") to Noteholders or Certificateholders or their
respective nominees, rather than to DTC or its nominee, only if:
1. DTC is no longer willing or able to discharge properly its
responsibilities as depository with respect to those Securities and the
Seller, the Administrator or the Trustee is unable to locate a qualified
successor (and if it is the Seller or the Administrator that has made
that determination, the Seller or that Administrator so notifies the
applicable Trustee in writing);
2. the Seller or the Administrator or the Trustee, as applicable, at its
option, elects to terminate the book-entry system through DTC; or
3. after the occurrence of an Event of Default or a Servicer Default with
respect to those Securities, holders representing at least a majority of
the outstanding principal amount of the notes or the certificates, as the
case may be, of that series, acting together as a single class, advise
the applicable Trustee through DTC in writing that the continuation of a
book-entry system through DTC (or a successor thereto) with respect to
those notes or certificates is no longer in the best interests of the
holders of those Securities.
Upon the occurrence of any event described in the immediately preceding
paragraph, the applicable Trustee or Indenture Trustee will be required to
notify all applicable Securityholders of a given series through DTC Participants
of the availability of Definitive Securities. Upon surrender by DTC of the
Definitive Certificates representing the corresponding Securities and receipt of
instructions for re-registration, the applicable Trustee or Indenture Trustee
will reissue those Securities as Definitive Securities to those Securityholders.
Payments of principal of, and interest on, the Definitive Securities will
thereafter be made by the applicable Trustee or Indenture Trustee in accordance
with the procedures set forth in the related Indenture or the related Trust
Agreement or Pooling and Servicing Agreement, as applicable, directly to holders
of Definitive Securities in whose names the Definitive Securities were
registered at the close of business on the applicable record date specified for
those Securities in the applicable prospectus supplement. Those payments will be
made by check mailed to the address of that holder as it appears on the register
maintained by the applicable Trustee or Indenture Trustee. The final payment on
any Definitive Security, however, will be made only upon presentation and
surrender of that Definitive Security at the office or agency specified in the
notice of final payment to the applicable Securityholders. The applicable
Trustee or the Indenture Trustee will provide notice to the applicable
Securityholders not less than 15 nor more than 30 days prior to the date on
which final payment is expected to occur.
Definitive Securities will be transferable and exchangeable at the offices
of the applicable Trustee or of a registrar named in a notice delivered to
holders of Definitive Securities. No service charge will be imposed for any
registration of transfer or exchange, but the applicable Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
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DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes material terms of each Sale and Servicing
Agreement or Pooling and Servicing Agreement pursuant to which a Trust will
purchase Receivables from the Seller and the Servicer will agree to service
those Receivables, each Trust Agreement (or in the case of a grantor trust, the
Pooling and Servicing Agreement) pursuant to which a Trust will be created and
certificates will be issued and each Administration Agreement pursuant to which
AHFC will undertake specified administrative duties with respect to a Trust that
issues notes (collectively, the "Transfer and Servicing Agreements"). Forms of
the Transfer and Servicing Agreements have been filed as exhibits to the
registration statement of which this prospectus forms a part. The provisions of
any of the Transfer and Servicing Agreements may differ from those described in
this prospectus and, if so, will be described in the applicable prospectus
supplement. This summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all the provisions of the Transfer
and Servicing Agreements.
SALE AND ASSIGNMENT OF RECEIVABLES
On or prior to the closing date specified with respect to any given Trust in
the applicable prospectus supplement (the "Closing Date"), AHFC will sell and
assign to the Seller, without recourse, pursuant to a Purchase Agreement (the
"Purchase Agreement"), its entire interest in the Receivables comprising the
related Receivables Pool, including the security interests in the Financed
Vehicles. On the Closing Date, the Seller will transfer and assign to the
applicable Trustee on behalf of the Trust, without recourse, pursuant to a Sale
and Servicing Agreement or a Pooling and Servicing Agreement, as applicable, its
entire interest in the Receivables comprising the related Receivables Pool,
including its security interests in the related Financed Vehicles. Each
Receivable will be identified in a schedule appearing as an exhibit to the
related Sale and Servicing Agreement or Pooling and Servicing Agreement (a
"Schedule of Receivables"), but the existence and characteristics of the related
Receivables will not be verified by the related Trustee. The applicable Trustee
will, concurrently with the transfer and assignment, on behalf of the Trust,
execute and deliver the related notes and/or certificates. The net proceeds
received from the sale of the certificates and the notes of a given series will
be applied to the purchase of the related Receivables from the Seller and, to
the extent specified in the applicable prospectus supplement, to make any
required initial deposit into the Reserve Fund and the Yield Supplement Account,
if any. The Seller will initially retain the most subordinated class of
Securities of the related series.
AHFC, pursuant to a Purchase Agreement, and the Seller, pursuant to a Sale
and Servicing Agreement or a Pooling and Servicing Agreement, will represent and
warrant, among other things, that:
1. the information provided in the related Schedule of Receivables is true
and correct in all material respects;
2. at the time of origination of each Receivable, the related Obligor on
each Receivable is required to maintain physical damage insurance
covering the Financed Vehicle in accordance with AHFC's normal
requirements;
3. as of the applicable Closing Date, each of those Receivables is or will
be secured by a first priority perfected security interest in favor of
AHFC in the Financed Vehicle;
4. to the best of its knowledge, as of the applicable Closing Date, the
related Receivables are free and clear of all security interests, liens,
charges and encumbrances and no offsets, defenses or counterclaims have
been asserted or threatened;
5. each related Receivable, at the time it was originated, complied and, as
of the applicable Closing Date, complies in all material respects with
applicable federal and state laws, including, consumer credit, truth-
in-lending, equal credit opportunity and disclosure laws; and
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6. any other representations and warranties that may be set forth in the
applicable prospectus supplement are true and correct in all material
respects.
Unless otherwise provided for in the related prospectus supplement, as of
the last day of the second (or, if the Seller so elects, the first) Collection
Period following the discovery by or notice to the Seller of a breach of any
representation or warranty of the Seller that materially and adversely affects
the interests of the related Securityholders in any Receivable, the Seller,
unless the breach is cured, will repurchase that Receivable (a "Warranty
Receivable") from that Trust and, pursuant to the related Purchase Agreement,
AHFC will purchase that Warranty Receivable from the Seller, at a price equal to
the Warranty Purchase Payment for that Receivable. The "Warranty Purchase
Payment" for (1) 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 the Precomputed Receivable and (iv) an amount equal to
any reimbursements of outstanding Advances made to the Servicer with respect to
the Precomputed Receivable from collections made on or in respect of other
Receivables, minus (b) the sum of (i) of all Payments Ahead in respect to 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 the Precomputed Receivable were the Obligor to prepay the Precomputed
Receivable in full on that day (a "Rebate") and (iii) any proceeds of the
liquidation of the Precomputed Receivable previously received (to the extent
applied to reduce the Principal Balance of the Precomputed Receivable) and
(2) 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 the repurchase. This repurchase obligation will
constitute the sole remedy available to the Securityholders or the Trust for any
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 that Receivable from the Seller pursuant to the related Purchase
Agreement.
Pursuant to each Sale and Servicing Agreement or Pooling and Servicing
Agreement, the Seller and each Trust will designate the Servicer as custodian to
maintain possession as that Trust's agent of the related retail installment sale
contracts and any other documents relating to the Receivables. To assure uniform
quality in servicing both the Receivables and the Servicer's own portfolio of
motor vehicle retail installment sale contracts, as well as to facilitate
servicing and reduce administrative costs, the documents evidencing the
Receivables will not be physically segregated from other motor vehicle retail
installment sale contracts of the Servicer, or those which the Servicer services
for others, or marked to reflect the transfer to the related Trust as long as
AHFC is servicing the Receivables. However, Uniform Commercial Code ("UCC")
financing statements reflecting the sale and assignment of the Receivables by
AHFC to the Seller and by the Seller to the applicable Trust will be filed, and
the respective accounting records and computer files of AHFC and the Seller will
reflect that sale and assignment. Because the Receivables will remain in the
Servicer's possession and will not be stamped or otherwise marked to reflect the
assignment to the Trustee, 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. In addition, in some cases, the
Trustee's security interest in collections that have been received by the
Servicer but not yet remitted to the related Collection Account could be
defeated. WE REFER YOU TO "CERTAIN LEGAL ASPECTS OF THE RECEIVABLES--SECURITY
INTERESTS" IN THIS PROSPECTUS.
ACCOUNTS
With respect to each Trust that issues notes, the Servicer will establish
and maintain with the related Trustee or Indenture Trustee one or more accounts
(each, a "Collection Account"), in the name of the Trustee or Indenture Trustee
on behalf of the related Securityholders, into which payments made on or with
respect to the related Receivables and amounts released from any Yield
Supplement Account, Reserve Fund or other form of credit enhancement will be
deposited for payment to the
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related Securityholders. With respect to each Trust that does not issue notes,
the Servicer will also establish and maintain a Collection Account and any other
Account in the name of the related Trustee on behalf of the related
Certificateholders.
If so provided in the related prospectus supplement, the Servicer will
establish for each series of Securities an additional account (the "Payahead
Account"), in the name of the related Trustee or, if that Trust issues notes,
the Indenture Trustee, into which, to the extent required by the Sale and
Servicing Agreement or Pooling and Servicing Agreement, early payments by or on
behalf of Obligors on Precomputed Receivables ("Payments Ahead") will be
deposited until the time as the related payment becomes due. Until that time as
Payments Ahead are transferred from the Payahead Account to a Collection
Account, they will not constitute collected interest or collected principal and
will not be available for payment to the applicable Noteholders or
Certificateholders. The Payahead Account will initially be maintained with the
applicable Indenture Trustee or Trustee.
Any other accounts to be established with respect to a Trust, including any
Yield Supplement Account or any Reserve Fund, will be described in the
applicable prospectus supplement.
For any series of Securities, funds in the related Collection Account, any
Yield Supplement Account, the Reserve Fund and other accounts that may be
identified in the applicable prospectus supplement (collectively, the
"Accounts") will be invested as provided in the related Sale and Servicing
Agreement or Pooling and Servicing Agreement in Eligible Investments. "Eligible
Investments" are generally limited to investments acceptable to the rating
agencies rating the Securities as being consistent with the rating of those
Securities (including obligations of the Servicer and its affiliates, to the
extent consistent with that rating). Except as described below or in the related
prospectus supplement, Eligible Investments are limited to obligations or
securities that mature on or before the next Payment Date for that series.
However, to the extent permitted by the rating agencies, funds in any Account
(other than the Collection Account) may be invested in obligations or securities
that will not mature prior to the next Payment Date with respect to those
certificates or notes and will not be sold to meet any shortfalls. Thus, the
amount of cash in any Reserve Fund or the Yield Supplement Account at any time
may be less than the balance of the Reserve Fund or the Yield Supplement
Account, as the case may be. If the amount required to be withdrawn from any
Reserve Fund or the Yield Supplement Account to cover shortfalls in collections
on the related Receivables (as provided in the applicable prospectus supplement)
exceeds the amount of cash in the Reserve Fund or the Yield Supplement Account,
as the case may be, a temporary shortfall in the amounts paid to the related
Noteholders or Certificateholders could result, which could, in turn, increase
the average life of the notes or the certificates of that series. Investment
earnings on funds deposited in the Accounts, net of losses and investment
expenses, shall be released to the Servicer or the Seller on each Payment Date
and shall be the property of the Servicer or the Seller, as the case may be.
For each Trust, the Accounts will be maintained with the related Indenture
Trustee or the Trustee so long as it is an "Eligible Institution," which is a
depository institution or trust company,
1. the short-term unsecured debt obligations of which have a rating of
"P-1" by Moody's Investors Service, Inc. ("Moody's") and a rating of
"A-1+" by Standard & Poor's Ratings Services, a division of The McGraw
Hill Companies, Inc. ("Standard & Poor's") (the "Required Deposit
Rating"); or
2. having corporate trust powers and organized under the laws of the United
States, any state thereof, the District of Columbia or the Commonwealth
of Puerto Rico which has a long-term deposit rating from (A) Moody's of
at least "Baa3" or (B) Standard & Poor's of at least "BBB-" (or such
lower rating as either rating agency shall approve in writing).
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If the related Indenture Trustee or the Trustee, as the case may be, ceases
to be an Eligible Institution, then the Servicer shall, with the assistance of
the Indenture Trustee or the Trustee as may be necessary, cause each Account to
be moved to an Eligible Institution.
SERVICING PROCEDURES
The Servicer will make reasonable efforts to collect all payments due with
respect to the Receivables held by any Trust and will, consistent with the
related Sale and Servicing Agreement or Pooling and Servicing Agreement, follow
the collection procedures it follows with respect to comparable motor vehicle
retail 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. However, if any modification of a
Receivable extends the maturity of a Receivable beyond the final scheduled
maturity date set forth in the applicable prospectus supplement (the "Final
Scheduled Maturity Date") the Servicer will be obligated to purchase the
Receivable as described below.
In addition, the Servicer will covenant that, except as otherwise
contemplated in the related agreement (including the provisions in the
immediately two preceding paragraphs):
1. it will not release any Financed Vehicle from the security interest
granted in the related Receivable;
2. it will do nothing to impair the rights of the Securityholders in the
Receivables;
3. it will not alter the APR of any Receivable;
4. it will not modify the number of payments under a Receivable or the
maturity of a Receivable beyond the Final Scheduled Maturity Date unless
it is making advances corresponding to reduction in Scheduled Payments as
described above; and
5. it will not alter the amount financed under a Receivable.
The Servicer or the Trustee shall inform the other party and the Indenture
Trustee promptly upon the discovery of any breach by the Servicer of the above
obligations that would materially and adversely affect any Receivable. Unless
the breach is cured by the last day of the second Collection Period following
the discovery (or, if the Servicer so elects, the last day of the first
Collection Period following the discovery), the Servicer is required to purchase
any Receivable materially and adversely affected by the breach (an
"Administrative Receivable") from the Trust at a price equal to the
Administrative Purchase Payment for that Receivable. The "Administrative
Purchase Payment" (1) for a Precomputed Receivable, will be equal to (a) the sum
of (i) all remaining Scheduled Payments (plus any applicable yield maintenance
payments), (ii) an amount equal to any reimbursements of Advances made by the
Servicer with respect to the Precomputed Receivable from collections on or in
respect of other Receivables and (iii) all past due Scheduled Payments for which
an Advance has not been made, minus (b) all Payments Ahead in respect of the
Precomputed Receivable held by the Servicer or on deposit in the Payahead
Account and (2) for a Simple Interest Receivable, will be equal to its unpaid
Principal Balance, plus interest thereon at a rate equal to the sum of the
Interest Rate or Pass Through Rate specified in the related Sale and Servicing
Agreement or Pooling and Servicing Agreement and the Servicing Fee Rate to the
last day of the Collection Period relating to that purchase. Upon the purchase
of any Administrative Receivable, the Servicer will for all purposes of the
related Sale and Servicing Agreement or the Pooling and Servicing Agreement, as
applicable, be deemed to have released all claims for the reimbursement of
outstanding Advances made in respect of that Administrative Receivable. This
purchase obligation will constitute the sole remedy available to the
Certificateholders or the Trustee for any uncured breach by the Servicer.
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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 that Receivable, including repossessing and
disposing of the related Financed Vehicle at a public or private sale, or taking
any other action permitted by applicable law. We refer you to "Certain Legal
Aspects of the Receivables."
INSURANCE ON FINANCED VEHICLES
Each Receivable requires the related Obligor to maintain specific levels and
types of insurance coverage to protect the Financed Vehicle against losses. AHFC
requires evidence of insurance coverage by the Obligors at the time of
origination of the Receivables, but performs no verification of continued
coverage after origination. AHFC will not be obligated to make payments to the
Trust for any loss as to which third party insurance has not been maintained,
except to the extent of its obligations under the related Purchase Agreement.
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 insurance. A failure by an Obligor to
maintain physical damage insurance will constitute a default under the related
Receivable. We refer you to "The Receivables--Underwriting of Motor Vehicle
Loans". In the event that the Obligor fails to maintain any required insurance
and this failure results in a shortfall in amounts to be distributed to
Noteholders which is not covered by amounts on deposit in the Reserve Fund or by
subordination of payments on the certificates to the extent described in this
prospectus, the Securityholders could suffer a loss on their investment.
COLLECTIONS
With respect to each Trust, the Servicer will deposit all payments on
Receivables received from Obligors and all proceeds of Receivables collected
during the collection period specified in the applicable prospectus supplement
(each, a "Collection Period") into the Collection Account not later than two
Business Days after receipt. However, so long as AHFC is the Servicer, if each
condition to making monthly deposits as may be required by the related Sale and
Servicing Agreement or Pooling and Servicing Agreement (including, the
satisfaction of specified ratings criteria by AHFC and the absence of any
Servicer Default) is satisfied, the Servicer may retain these amounts until the
Business Day immediately preceding the related Payment Date. The Servicer will
be entitled to withhold, or to be reimbursed from amounts otherwise payable into
or on deposit in the Collection Account, amounts previously deposited in the
Collection Account but later determined to have resulted from mistaken deposits
or postings. Except in some circumstances described in the related Sale and
Servicing Agreement or Pooling and Servicing Agreement, pending deposit into the
Collection Account, collections may be employed by the Servicer at its own risk
and for its own benefit and will not be segregated from its own funds.
The Servicer or the Seller, as the case may be, will remit the aggregate
Warranty Purchase Payments and Administrative Purchase Payments of Receivables
to be purchased from the Trust to the Collection Account on the Business Day
immediately preceding the related Payment Date.
If the Servicer were unable to remit the funds as described above,
Securityholders might incur a loss. To the extent set forth in the applicable
prospectus supplement, the Servicer may, in order to satisfy the requirements
described above, obtain a letter of credit or other security for the benefit of
the related Trust to secure timely remittances of collections on the related
Receivables and payment of the aggregate Warranty Purchase Payments and
Administrative Purchase Payments with respect to Receivables required to be
repurchased by the Seller or the Servicer, as applicable.
Collections on or in respect of a Receivable made during a Collection Period
(including Warranty Purchase Payments and Administrative Purchase Payments)
which are not late fees, extension fees or certain other similar fees or charges
will be applied first to any outstanding Advances made by the
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Servicer with respect to the Receivable, and then to the related Scheduled
Payment. Any collections on or in respect of a Receivable remaining after those
applications will be considered an "Excess Payment". Excess Payments
constituting a prepayment in full of Precomputed Receivables and any Excess
Payments relating to Simple Interest Receivables will be applied as a prepayment
in respect of the Receivable (each, a "Prepayment"). All other Excess Payments
in respect of Precomputed Receivables will be held by the Servicer (or if the
Servicer has not satisfied particular requirements, deposited in the Payahead
Account), as a Payment Ahead.
ADVANCES
Unless otherwise provided in the related prospectus supplement, if the
Scheduled Payment due on a Precomputed Receivable (other than an Administrative
Receivable or a Warranty 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 the Precomputed Receivable, shall be applied by the
Servicer to the extent of the shortfall and the Payments Ahead shall be reduced
accordingly. If any shortfall remains, the Servicer will make an advance to the
Trust in an amount equal to the shortfall (each, a "Precomputed Advance"). The
Servicer will not be obligated to make a Precomputed Advance to the extent that
it determines, in its sole discretion, that the Precomputed Advance will not be
recovered from subsequent collections on or in respect of the related
Precomputed Receivable. All Precomputed Advances shall be reimbursable to the
Servicer, without interest, if and when a payment relating to a Receivable with
respect to which a Precomputed Advance has previously been made is subsequently
received (other than from Administrative Purchase Payments). Upon the
determination by the Servicer that reimbursement from the preceding source is
unlikely, it will be entitled to recover unreimbursed Precomputed Advances from
collections on or in respect of other Precomputed Receivables.
In addition, if the Scheduled Payment on a Simple Interest Receivable (other
than an Administrative Receivable or a Warranty Receivable) is not received in
full by the end of the month in which it is due, the Servicer shall, subject to
the limitations set forth below, advance to the Trust in an amount with respect
to the Simple Interest Receivable equal to the product of the Principal Balance
of the 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 the Simple Interest Receivable during the related Collection Period (each, a
"Simple Interest Advance", and together with the Precomputed Advances, the
"Advances"). If 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 related Collection Account and paid to
the Servicer in reimbursement of the outstanding Simple Interest Advances. No
advances of principal will be made with respect to Simple Interest Receivables.
The Servicer will not be obligated to make a Simple Interest Advance (other than
in respect of an interest shortfall arising from the prepayment of a Simple
Interest Receivable) to the extent that it determines, in its sole discretion,
that Simple Interest Advance will not be recovered from subsequent collections
on or in respect of the related Simple Interest Receivable.
The Servicer will make all Advances by depositing into the related
Collection Account an amount equal to the aggregate of the Precomputed Advances
and Simple Interest Advances due in respect of a Collection Period on the
Business Day immediately preceding the related Payment Date.
SERVICING COMPENSATION
Unless otherwise provided in the applicable prospectus supplement, the
Servicer will be entitled to receive a basic servicing fee for each Collection
Period in an amount equal to a specified percent per
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annum (as set forth in the applicable prospectus supplement, the "Servicing Fee
Rate") of the Pool Balance as of the first day of the related Collection Period
(the "Base Servicing Fee"). The Base Servicing Fee (together with any portion of
the Base Servicing Fee that remains unpaid from prior Payment Dates) will be
paid solely to the extent of amounts available for that purpose as set forth in
the applicable prospectus supplement. However, the Base Servicing Fee will be
paid prior to the payment of available amounts to the Noteholders or the
Certificateholders of the given series.
Unless otherwise provided in the applicable prospectus supplement, the
Servicer will also be entitled to collect and retain any late fees, prepayment
charges and other administrative fees or similar charges allowed by applicable
law with respect to the related Receivables and any interest earned during a
Collection Period from the investment of monies in the Collection Account as
additional servicing compensation (the "Supplemental Servicing Fee" and,
together with the Base Servicing Fee, the "Total Servicing Fee"). Payments by or
on behalf of Obligors will be allocated to scheduled payments and late fees and
other charges in accordance with the Servicer's normal practices and procedures.
In addition, the Servicer will be entitled to reimbursement from any given Trust
for specified liabilities. The Servicer will be paid the Base Servicing Fee for
each Collection Period on the Payment Date related to that Collection Period
prior to the payment of interest on any class of notes or certificates. However,
if each rating agency for a series of notes or certificates confirms that it
will not reduce the rating of any class of notes or certificates in that series,
as the case may be, the Base Servicing Fee in respect of a Collection Period
(together with any portion of the Base Servicing Fee that remains unpaid from
the prior Payment Dates) will be paid at the beginning of that Collection Period
out of collections of interest on the related Receivables.
The Total Servicing Fee will compensate the Servicer for performing the
functions of a third party servicer of motor vehicle receivables as an agent for
the beneficial owner of those Receivables, including collecting and posting all
payments, responding to inquiries of Obligors on the Receivables, investigating
delinquencies, sending payment statements to Obligors, reporting tax information
to Obligors, paying costs of collections and policing the collateral. The Total
Servicing Fee also will compensate the Servicer for administering the particular
Receivables Pool, including making Advances, accounting for collections and
furnishing monthly statements to the related Trustee and Indenture Trustee with
respect to payments. The Total Servicing Fee also will reimburse the Servicer
for specified taxes, the fees of the related Trustee and Indenture Trustee, if
any, accounting fees, outside auditor fees, data processing costs and other
costs incurred in connection with administering the applicable Receivables Pool.
The "Pool Balance" will equal the aggregate Principal Balance of the
Receivables. The "Principal Balance" of a Receivable as of any date will equal
the original principal balance of the Receivable minus the sum of (i) in the
case of a Precomputed Receivable, that portion of all Scheduled Payments due on
or prior to that 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 that date allocable
to principal, (iii) any Warranty Purchase Payment or Administrative Purchase
Payment with respect to the Receivable allocable to principal (to the extent not
included in clauses (i) and (ii) above and (iv) any Prepayments or other
payments applied to reduce the unpaid principal balance of the Receivable (to
the extent not included in clauses (i), (ii) and (iii) above).
YIELD SUPPLEMENT ACCOUNT; YIELD SUPPLEMENT AGREEMENT
YIELD SUPPLEMENT ACCOUNT. A "Yield Supplement Account" may be established
with respect to any class or series of Securities. The terms relating to any of
Yield Supplement Account will be set forth in the applicable prospectus
supplement. Each Yield Supplement Account will be designed to hold funds to be
applied by the related Trustee or, if that Trust issues notes, the related
Indenture Trustee, to
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provide payments to Securityholders in respect of Receivables that have APRs
less than the sum of the Pass Through Rate or Interest Rate specified in the
applicable prospectus supplement plus the Servicing Fee Rate specified in the
applicable prospectus supplement (the "Required Rate"). Unless otherwise
specified in the applicable prospectus supplement, each Yield Supplement Account
will be maintained with the same entity with which the related Collection
Account is maintained and will be created on the related Closing Date with an
initial deposit in an amount and by the Seller or other person specified in the
applicable prospectus supplement.
On each Payment Date, the related Trustee or Indenture Trustee will transfer
to the Collection Account from monies on deposit in the Yield Supplement Account
an amount specified in the applicable prospectus supplement (the "Yield
Supplement Deposit") in respect of the Receivables having APRs less than the
Required Rate for that Payment Date. Unless otherwise specified in the
applicable prospectus supplement, amounts on deposit on any Payment Date in the
Yield Supplement Account in excess of the "Required Yield Supplement Amount"
specified in the applicable prospectus supplement, after giving effect to all
payments to be made on that Payment Date, will be released to the Seller. The
Seller or other person specified in the applicable prospectus supplement will
not have any obligation after the related Closing Date to deposit any amounts
into the Yield Supplement Account after the related Closing Date even if the
amount on deposit in that account is less than the Required Yield Supplement
Amount for any Payment Date. Monies on deposit in the Yield Supplement Account
may be invested in Eligible Investments under the circumstances and in the
manner described in the related Pooling and Servicing Agreement or Trust
Agreement.
DISTRIBUTIONS ON THE SECURITIES
With respect to each series of Securities, beginning on the Payment Date
specified in the applicable prospectus supplement, payments of principal of and
interest (or, where applicable, of principal or interest only) on each class of
those Securities entitled thereto will be made by the applicable Indenture
Trustee to the Noteholders and by the applicable Trustee to the
Certificateholders of that series. The timing, calculation, allocation, order,
source, priorities of and requirements for all payments to each class of
Noteholders and all payments to each class of Certificateholders of that series
will be set forth in the applicable prospectus supplement.
With respect to each Trust, on each Payment Date, collections on the related
Receivables will be withdrawn from the related Collection Account and will be
paid to the Noteholders and/or Certificateholders to the extent provided in the
applicable prospectus supplement. Credit enhancement, such as a Reserve Fund,
may be available to cover any shortfalls in the amount available for payment to
the Securityholders on that date to the extent specified in the applicable
prospectus supplement. As more fully described in the applicable prospectus
supplement,
1. payments of principal of a class of Securities of a given series will be
subordinate to payments of interest on that class;
2. payments in respect of one or more classes of certificates of that
series may be subordinate to payments in respect of notes, if any, of
that series or other classes of certificates of that series; and
3. payments in respect of one or more classes of notes of that series may
be subordinated to payments in respect of other classes of notes of that
series.
CREDIT AND CASH FLOW ENHANCEMENT
The amounts and types of credit and cash flow enhancement arrangements and
the applicable provider, with respect to each class of Securities of a given
series, if any, will be set forth in the applicable prospectus supplement. If
and to the extent provided in the applicable prospectus
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supplement, credit and cash flow enhancement may be in the form of subordination
of one or more classes of Securities, Reserve Funds, over-collateralization,
letters of credit, credit or liquidity facilities, surety bonds, guaranteed
investment contracts, swaps or other interest rate protection agreements,
repurchase obligations, yield supplement agreements, other agreements with
respect to third party payments or other support, cash deposits or other
arrangements that may be described in the applicable prospectus supplement or
any combination of the foregoing. If specified in the applicable prospectus
supplement, credit or cash flow enhancement for a class of Securities may cover
one or more other classes of Securities of the same series, and credit or cash
flow enhancement for a series of Securities may cover one or more other series
of Securities.
The presence of a Reserve Fund and other forms of credit enhancement for the
benefit of any class or series of Securities is intended to enhance the
likelihood of receipt by the Securityholders of that class or series of the full
amount of principal and interest due on those Securities and to decrease the
likelihood that that Securityholders will experience losses. Credit or cash flow
enhancement for a class or series of Securities will not provide protection
against all risks of loss and will not guarantee repayment of the entire
principal of and interest on those Securities. If losses occur which exceed the
amount covered by any credit enhancement or which are not covered by any credit
enhancement, Securityholders of any class or series will bear their allocable
share of deficiencies, as described in the applicable prospectus supplement. In
addition, if a form of credit enhancement covers more than one class or series
of Securities, Securityholders of any of that class or series will be subject to
the risk that that credit enhancement will be exhausted by the claims of
Securityholders of other classes or series.
RESERVE FUND. If provided in the applicable prospectus supplement, pursuant
to the related Sale and Servicing Agreement or Pooling and Servicing Agreement,
the Seller or a third party will establish for a series or class of Securities
an account, as specified in the applicable prospectus supplement, which may be
designated as a "Reserve Fund" (the "Reserve Fund"), which will be maintained
with the related Trustee or Indenture Trustee, as applicable. Unless otherwise
specified in the prospectus supplement, the Reserve Fund will be funded by an
initial deposit by the Seller or a third party on the Closing Date in the amount
set forth in the applicable prospectus supplement (the "Reserve Fund Initial
Deposit"). To the extent provided in the applicable prospectus supplement, the
amount on deposit in the Reserve Fund will be increased on each Payment Date
thereafter up to the Specified Reserve Fund Balance (as defined in the
applicable prospectus supplement) by the deposit in the Reserve Fund of the
amount of collections on the related Receivables remaining on each Payment Date
after all specified payments on that date are made. The applicable prospectus
supplement will describe the circumstances and manner under which payments may
be made out of the Reserve Fund, either to holders of the Securities covered by
that prospectus supplement or to the Seller or a third party. Monies on deposit
in the Reserve Fund may be invested in Eligible Investments under the
circumstances and in the manner described in the related Sale and Servicing
Agreement or the Pooling and Servicing Agreement.
SURETY BOND. The prospectus supplement may provide that the Trust enter
into agreements with an insurer such that the insurer may guarantee payments of
principal and/or interest on the Securities. If, on the date so specified in the
prospectus supplement, the amount on deposit in the Collection Account after
giving effect to all amounts deposited to or payable from a Payahead Account, a
prefunding account or a capitalized interest agreement with respect to the
related Payment Date, is less than the sum of the Base Servicing Fee, and
amounts due to Securityholders on the related Payment Date, the Trustee by
delivering a notice to the insurer shall demand payment under the surety bond in
an amount equal to the deficiency. The applicable prospectus supplement will
describe the circumstances and manner under which payments may be made under the
surety bond, either to Securityholders, or the Trustee or the Indenture Trustee,
as the case may be.
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PRE-FUNDING FEATURE. A Trust may enter into an agreement with the Seller,
in which the Seller will sell additional Receivables to the Trust after the
Closing Date. The transfer of Receivables to the Trust after the Closing Date is
known as a pre-funding feature. Any subsequent Receivables will be required to
conform to the requirements described in the related prospectus supplement. If a
pre-funding feature is used, the Trustee will be required to deposit all or a
portion of the proceeds of the sale of the Securities of the series in a
segregated account. The subsequent Receivables will be transferred to the Trust
in exchange for money released from that segregated account. Any transfer of
Receivables must occur within a specified period, not to exceed one year. If a
Trust elects federal income tax treatment as a grantor trust, the pre-funding
period will be limited to three months. If all of the monies originally
deposited in the segregated account are not used by the end of the specified
period, all remaining monies will be applied as a mandatory prepayment of a
designated class or classes of Securities.
CASH COLLATERAL ACCOUNT. The prospectus supplement may provide that upon
the occurrence of an event of default by the Servicer, a segregated cash
collateral account may be established as security for the Servicer's obligations
under the Sale and Servicing Agreement or the Pool and Servicing Agreement, as
the case may be.
NET DEPOSITS
As an administrative convenience, as long as specified conditions are
satisfied, the Servicer will be permitted to make the deposit of collections,
aggregate Advances and Administrative Purchase Payments for any Trust for or
with respect to the related Collection Period net of payments to be made to the
Servicer with respect to that Collection Period. The Servicer may cause to be
made a single, net transfer to the Collection Account. The Servicer, however,
will account to the Trustee, any Indenture Trustee, the Noteholders, if any, and
the Certificateholders with respect to each Trust as if all deposits, payments
and transfers were made individually. With respect to any Trust that issues both
certificates and notes, if the related Payment Dates are not the same for all
classes of Securities, all distributions, deposits or other remittances made on
a Payment Date will be treated as having been distributed, deposited or remitted
on the same Payment Date for the applicable Collection Period for purposes of
determining other amounts required to be distributed, deposited or otherwise
remitted on a Payment Date.
STATEMENTS TO TRUSTEES AND THE TRUST
On or prior to each Payment Date (each, a "Determination Date" to be
specified in the applicable prospectus supplement), the Servicer will provide to
the applicable Indenture Trustee, if any, and the applicable Trustee a statement
setting forth with respect to a series of Securities substantially the same
information that is required to be provided in the periodic reports provided to
Securityholders of that series described under "--Statements to Securityholders"
below.
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STATEMENTS TO SECURITYHOLDERS
With respect to each series of Securities that includes notes, on or prior
to each Payment Date, the Servicer will prepare and provide to the related
Indenture Trustee a statement to be delivered to the related Noteholders on that
Payment Date. In addition, on or prior to each Payment Date, the Servicer will
prepare and provide to the related Trustee of each Trust, a statement to be
delivered to the Certificateholders. Each statement to be delivered to
Securityholders will include (to the extent applicable) the following
information (and any other information so specified in the applicable prospectus
supplement) as to the notes of that series and as to the certificates of that
series with respect to that Payment Date:
1. the amount of the payment allocable to the principal amount of each
class of those notes and to the Certificate Balance of each class of
those certificates;
2. the amount of the payment allocable to interest on each class of
Securities of that series;
3. the amount of the distribution allocable to the Yield Supplement
Deposit, if any;
4. the Pool Balance as of the close of business on the last day of the
related Collection Period after giving effect to payments allocated to
principal reported under clause (1) above;
5. the amount of the total Servicing Fee paid to the Servicer with respect
to the related Collection Period;
6. the Interest Rate or Pass Through Rate for the Interest Period relating
to the succeeding Payment Date for any class of notes or certificates of
that series with variable or adjustable rates;
7. the Noteholders' Interest Carryover Shortfall, the Noteholders'
Principal Carryover Shortfall, the Certificateholders' Interest Carryover
Shortfall and the Certificateholders' Principal Carryover Shortfall (each
as defined in the applicable prospectus supplement), if any, in each case
as applicable to each class of Securities;
8. the Note Pool Factor for each class of those notes, and the Certificate
Balance and the Certificate Pool Factor for each class of those
certificates, each after giving effect to all payments reported under
clause (1) above on that date;
9. the amount of non-recoverable Advances on that Payment Date;
10. the balance of any related Reserve Fund on that date, after giving
effect to changes thereto on that date and the amount of those changes;
11. the amount of Trust fees and expenses;
12. the Available Amounts, as that term is defined in the prospectus
supplement;
13. the amount available under the Servicer's letter of credit, surety bond
or insurance policy (the "Servicer Letter of Credit") as provided in the
Sale and Servicing Agreement, if any, and the amount as a percentage of
the Pool Balance as of the last day of that Collection Period; and
14. payments to and from third party credit enhancement providers, if any.
Each amount set forth in subclauses (1), (2), (5) and (7) above will be
expressed in the aggregate and as a dollar amount per $1,000 of the original
principal amount of each class of notes or the Original Certificate Balance of
each class of certificates, as the case may be.
Copies of the statements may be obtained by the Securityholders by
delivering a request in writing addressed to the applicable Trustee at its
address set forth in the applicable prospectus supplement.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of each Trust, the applicable Trustee
will mail to each person who at any time during that calendar year has been a
Securityholder with respect to that Trust and received any payment a statement
containing information for the purposes of that Securityholder's preparation of
federal income tax returns. WE REFER YOU TO "MATERIAL INCOME TAX CONSEQUENCES."
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EVIDENCE AS TO COMPLIANCE
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
provide that a firm of independent public accountants will furnish to the
related Trust and Indenture Trustee or Trustee, as applicable, annually a
statement as to compliance in all material respects by the Servicer during the
preceding twelve months (or, in the case of the first statement, from the
applicable Closing Date, which may be longer than twelve months) with specified
standards relating to the servicing of the applicable Receivables.
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
also provide for delivery to the related Trust and Indenture Trustee or Trustee,
as applicable, substantially simultaneously with the delivery of those
accountants' statement referred to above, of a certificate signed by an officer
of the Servicer stating that the Servicer has fulfilled its obligations under
the Sale and Servicing Agreement or Pooling and Servicing Agreement, as
applicable, throughout the preceding twelve months (or, in the case of the first
certificate, from the Closing Date) in all material respects or, if there has
been a default in the fulfillment of any obligation, describing each default.
The Servicer has agreed to give each Indenture Trustee and each Trustee notice
of specified Servicer Defaults under the related Sale and Servicing Agreement or
Pooling and Servicing Agreement, as applicable.
Copies of the statements and certificates may be obtained by Securityholders
by a request in writing addressed to the applicable Trustee.
CERTAIN MATTERS REGARDING THE SERVICER
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
provide that AHFC may not resign from its obligations and duties as Servicer
under those documents, except upon AHFC's determination that its performance of
those duties is no longer permissible under applicable law. No resignation will
become effective until the related Indenture Trustee or Trustee, as applicable,
or a successor servicer has assumed AHFC's servicing obligations and duties
under the related Sale and Servicing Agreement or Pooling and Servicing
Agreement.
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
further provide that neither the Servicer nor any of its directors, officers,
employees or agents will be under any liability to the related Trust or the
related Noteholders or Certificateholders for taking any action or for
refraining from taking any action pursuant to the related Sale and Servicing
Agreement or Pooling and Servicing Agreement or for errors in judgment; except
that neither the Servicer nor any 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 the Servicer's duties under that document or by
reason of reckless disregard of its obligations and duties under that document.
In addition, each Sale and Servicing Agreement and Pooling and Servicing
Agreement will provide that the Servicer is not obligated to appear in,
prosecute or defend any legal action that is not incidental to the Servicer's
servicing responsibilities under the related Sale and Servicing Agreement or
Pooling 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 related Sale
and Servicing Agreement or Pooling and Servicing Agreement, the rights and
duties of the parties thereto and the interests of the Securityholders under the
applicable agreement. In that event, the legal expenses and costs of that action
and any liability resulting therefrom will be expenses, costs and liabilities of
the Servicer, and the Servicer will not be entitled to be reimbursed therefor.
Under the circumstances specified in each Sale and Servicing Agreement and
Pooling and Servicing Agreement, any entity into which the Servicer may be
merged or consolidated, or any entity resulting from any merger or consolidation
to which the Servicer is a party, or any entity succeeding to all or
substantially all of the business of the Servicer will be the successor of the
Servicer under the related Sale and Servicing Agreement or Pooling and Servicing
Agreement.
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SERVICER DEFAULT
Except as otherwise provided in the related prospectus supplement, "Servicer
Default" under each Sale and Servicing Agreement and Pooling and Servicing
Agreement will consist of the following:
1. any failure by the Servicer to deposit in or credit to any Account any
required payment or make the required payments therefrom and that failure
continues unremedied for three Business Days after discovery thereof by
the Servicer or after the giving of written notice of the failure to (a)
the Servicer by the Trustee or the Indenture Trustee, as applicable or
(b) the Servicer and the Trustee or the Indenture Trustee, as applicable,
of written notice of the failure from not less than 25% of the voting
interests of the most senior class of Securities then outstanding;
2. any failure by the Servicer (or the Seller, as long as AHFC is the
Servicer) to duly observe or perform in any material respect any other
covenants or agreements in the Sale and Servicing Agreement or the
Pooling and Servicing Agreement, which failure materially and adversely
affects the rights of the Securityholders, and which failure continues
unremedied for 90 days after the giving of written notice of the failure
to (a) the Servicer or the Seller, as the case may be, by the Trustee or
the Indenture Trustee, as applicable, or (b) the Servicer or the Seller,
as the case may be, and the Trustee or the Indenture Trustee by the
holders of not less than 25% of the voting interests of the most senior
class of Securities then outstanding; and
3. the occurrence of events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings with respect
to the Seller (as long as AHFC is the Servicer) Servicer indicating its
insolvency, reorganization pursuant to bankruptcy proceedings or
inability to pay its obligations (any of these events with respect to the
Servicer being an "Insolvency Event").
RIGHTS UPON SERVICER DEFAULT
In the case of any Trust that has issued notes, unless otherwise provided in
the related prospectus supplement, so long as a Servicer Default under a Sale
and Servicing Agreement remains unremedied, the related Indenture Trustee or
holders of notes of the related series evidencing not less than 25% of the
principal amount of the most senior class of notes then outstanding may
terminate all the rights and obligations of the Servicer under the Sale and
Servicing Agreement, and at that time the Indenture Trustee or a successor
servicer appointed by the Indenture Trustee will succeed to all the
responsibilities, duties and liabilities of the Servicer under the Sale and
Servicing Agreement and will be entitled to similar compensation arrangements.
In the case of any Trust that has not issued notes, or the notes have been
discharged in accordance with their terms, unless otherwise provided in the
related prospectus supplement, as long as a Servicer Default under the related
Sale and Servicing Agreement or Pool and Servicing Agreement remains unremedied,
the related Trustee or holders of certificates of the related series evidencing
not less than 25% of the principal amount of the certificates then outstanding
(but excluding for purposes of that calculation and action all certificates held
by the Seller, the Servicer or any of their affiliates), acting together as a
single class, may terminate all the rights and obligations of the Servicer under
the related Sale and Servicing Agreement or Pooling and Servicing Agreement, and
at that time the Trustee or a successor servicer appointed by the Trustee will
succeed to all the responsibilities, duties and liabilities of the Servicer in
its capacity under the Sale and Servicing Agreement and will be entitled to
similar compensation arrangements.
However, if a bankruptcy trustee or similar official has been appointed for
the Servicer, and no Servicer Default other than the appointment of a bankruptcy
trustee or similar official has occurred, that bankruptcy trustee or official
may have the power to prevent that Indenture Trustee, those Noteholders, that
Trustee or those Certificateholders, as applicable, from effecting a transfer of
servicing as described above. If that Indenture Trustee or Trustee is unwilling
or unable to so act, it may appoint, or petition a court of competent
jurisdiction for the appointment of, a successor servicer with a net worth of at
least $50,000,000 and whose regular business includes the servicing of motor
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vehicle and motorcycle receivables. The related Indenture Trustee or the
Trustee, or any person appointed as successor servicer, will be the successor in
all respects to the predecessor Servicer under the related Sale and Servicing
Agreement or Pooling and Servicing Agreement and all references in the related
Sale and Servicing Agreement or Pooling and Servicing Agreement to the Servicer
shall apply to that successor servicer. The related Indenture Trustee or Trustee
may make arrangements for compensation to be paid, but the compensation for the
successor servicer may not be greater than the Base Servicing Fee under the
related Sale and Servicing Agreement or Pooling and Servicing Agreement.
Notwithstanding termination, the Servicer will be entitled to payment of
specified amounts payable to it prior to the termination for services it
rendered prior to the termination. Upon payment in full of the principal of and
interest on the notes, the Certificateholders will succeed to the rights of the
Noteholders with respect to removal of the Servicer.
WAIVER OF PAST DEFAULTS
With respect to each Trust that has issued notes, unless otherwise provided
in the applicable prospectus supplement, (1) the holders of not less than a
majority of the most senior class of Securities then outstanding or (2) in the
case of any Servicer Default that does not adversely affect the related
Indenture Trustee or the related Noteholders, the holders of certificates of
that series (or relevant class or classes of certificates of the series)
evidencing a majority of the aggregate Certificate Balance of those certificates
then outstanding (but excluding for purposes of calculation and action all
certificates held by the Seller, the Servicer or any of their affiliates), may,
on behalf of all those Noteholders or Certificateholders, waive any default by
the Servicer in the performance of its obligations under the related Sale and
Servicing Agreement and its consequences, except a Servicer Default in making
any required deposits to the related Collection Account in accordance with that
Sale and Servicing Agreement. With respect to each Trust that has not issued
notes, holders of certificates of that series evidencing a majority of the
aggregate Certificate Balance of those certificates then outstanding (or
relevant class or classes of certificates but excluding for purposes of
calculation and action all certificates held by the Seller, the Servicer or any
of their affiliates), may, on behalf of all those Certificateholders, waive any
default by the Servicer in the performance of its obligations under the related
Pooling and Servicing Agreement, except a Servicer Default in making any
required deposits to the related Account in accordance with the related Pooling
and Servicing Agreement. No waiver will impair those Noteholders' or
Certificateholders' rights with respect to subsequent defaults.
AMENDMENT
Unless otherwise provided in the related prospectus supplement, each of the
Transfer and Servicing Agreements may be amended by the parties to the related
Agreements, without the consent of the related Noteholders or Certificateholders
(a) to cure any ambiguity, correct or supplement any provision in the related
Transfer and Servicing Agreement that may be inconsistent with any other
provision in that agreement, or make any other provisions with respect to
matters or questions arising under that agreement that are not inconsistent with
the provisions of that agreement or (b) to change the formula for amounts
required to be on deposit in a Reserve Fund, the remittance schedule for
deposits to Accounts and the requirements to allow the Servicer to remit funds
monthly provided that the amendment will not materially and adversely affect the
interest of any Noteholder or Certificateholder, in the case of amendments
pursuant to clause (a) above, as evidenced by an opinion of counsel and in the
case of amendments pursuant to clause (b) above, letters from the rating
agencies that the amendment will not result in a downgrade of any notes.
Each of the Transfer and Servicing Agreements may also be amended by the
parties to the related Agreement thereto with the consent of:
1. the holders of notes evidencing a majority of the principal amount of
the then outstanding notes, if any, of the related series (or relevant
class or classes of notes of the series); or
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2. in the case of any amendment that does not adversely affect the related
Indenture Trustee or the related Noteholders, the holders of the
certificates of that series evidencing a majority of the outstanding
Certificate Balance (or relevant class or classes of certificates of the
series, but excluding for purposes of calculation and action all
certificates held by the Seller, the Servicer or any of their
affiliates), for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of the related Transfer
and Servicing Agreement or of modifying in any manner the rights of those
Noteholders or Certificateholders.
No amendment of a Transfer and Servicing Agreement, however, shall:
(A) increase or reduce in any manner the amount of, or accelerate or delay
the timing of, collections of payments on the related Receivables or
distributions that are required to be made for the benefit of those
Noteholders or Certificateholders without the consent of each of the
"adversely affected" Noteholder or Certificateholder; or
(B) reduce the aforesaid percentage of the principal amount of the then
outstanding notes or certificates of that series which is required to
consent to any amendment, without the consent of the holders of all the
then outstanding notes or certificates of each affected class.
LIST OF SECURITYHOLDERS
Three or more holders of the certificates of any class in a series or one or
more holders of those certificates of that class evidencing not less than 51% of
the Certificate Balance of those certificates may, by written request to the
related Trustee, obtain access to the list of all Certificateholders maintained
by that Trustee for the purpose of communicating with other Certificateholders
with respect to their rights under the related Trust Agreement or Pooling and
Servicing Agreement or under those certificates.
No Transfer and Servicing Agreement will provide for the holding of annual
or other meetings of Securityholders.
INSOLVENCY EVENT
Each Trust Agreement will provide that the related Trustee does not have the
power to commence a voluntary proceeding in bankruptcy with respect to the
related Trust without the unanimous prior approval of all Certificateholders
(including the Seller) of that Trust and the delivery to that Trustee by each
Certificateholder (including the Seller) of a certificate certifying that that
Certificateholder reasonably believes that that Trust is insolvent.
PAYMENT OF NOTES
Upon the payment in full of all outstanding notes of a given series and the
satisfaction and discharge of the related Indenture, the related Trustee will
succeed to all the rights of the Indenture Trustee, and the Certificateholders
of that series will succeed to all the rights of the Noteholders of that series,
under the related Sale and Servicing Agreement, except as otherwise provided in
the Sale and Servicing Agreement.
TERMINATION
The respective obligations of the Seller, the Servicer, AHFC (so long as
AHFC has rights or obligations under the related Transfer and Servicing
Agreement), the related Trustee and the related Indenture Trustee, as the case
may be, pursuant to a Transfer and Servicing Agreement will terminate upon the
earlier of:
- the maturity or other liquidation of the last Receivable and the
disposition of any amounts received upon liquidation of any remaining
Receivables;
- the payment to Securityholders of all amounts required to be paid to them
pursuant to the related agreement; or
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- the election by the Servicer to purchase the corpus of the Trust as
described below.
The Trustee will give written notice of termination to each Securityholder
of record. The final distribution to any Securityholder will be made only upon
surrender and cancellation of that holder's Security at any office or agency of
the Trustee specified in the notice of termination. Any funds remaining in the
Trust, after the Trustee has taken measures to locate a Securityholder set forth
in the related Transfer and Servicing Agreement and those measures have failed,
will be distributed, subject to applicable law, to the Seller.
Unless otherwise provided in the applicable prospectus supplement, in order
to avoid excessive administrative expense, the Servicer will have the option to
purchase from each Trust, as of the end of any applicable Collection Period, if
the then outstanding Pool Balance with respect to the Receivables held by that
Trust is 10% or less of the Pool Balance as of the related Cutoff Date, the
corpus of the Trust at a price equal to the aggregate Administrative Purchase
Payments for the Receivables (including Receivables that became defaulted
receivables in the Collection Period preceding the Payment Date on which that
purchase is effected) (less liquidation expenses). The related Trustee and
related Indenture Trustee, if any, will give written notice of termination to
each Securityholder.
Upon termination of any Trust, the assets of that Trust will be liquidated
and the proceeds from any liquidation (and amounts held in related Accounts)
will be applied to pay the notes and the certificates of the related series in
full, to the extent of amounts available.
As more fully described in the applicable prospectus supplement, any
outstanding notes of the related series will be redeemed concurrently with any
of the events specified above and the subsequent payment to the related
Certificateholders of all amounts required to be paid to them pursuant to the
applicable Trust Agreement or Pooling and Servicing Agreement will effect early
retirement of the certificates of that series.
ADMINISTRATION AGREEMENT
AHFC, in its capacity as administrator (the "Administrator"), will enter
into an agreement (as amended and supplemented from time to time, an
"Administration Agreement") with each Trust that issues notes and the related
Indenture Trustee pursuant to which the Administrator will agree, to the extent
provided in that Administration Agreement, to provide the notices and to perform
other administrative obligations required by the related Indenture. As
compensation for the performance of the Administrator's obligations under the
applicable Administration Agreement and as reimbursement for its expenses
related thereto, the Administrator will be entitled to a monthly administration
fee in an amount that may be set forth in the applicable prospectus supplement
(the "Administration Fee"), which fee will be paid by the Servicer.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
GENERAL
The transfer of the Receivables to the applicable 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 the action described below to
perfect the rights of the applicable Trustee in the Receivables. If 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, that purchaser
would acquire an interest in the Receivables superior to the interest of the
Trust.
SECURITY INTERESTS
GENERAL. In states in which 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 vehicles under the applicable UCC.
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Perfection of security interests in financed motor vehicles is generally
governed by the motor vehicle registration laws of the state in which the
vehicle is located. In most states, a security interest in a motor vehicle is
perfected by obtaining possession of the certificate of title to the motor
vehicle or notation of the secured party's lien on the motor vehicle's
certificate of title.
All retail installment sale contracts acquired by AHFC 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 Financed
Vehicle is located to perfect its security interest in that Financed Vehicle,
including, where applicable, having a notation of its lien recorded on the
related certificate of title and obtaining possession of that certificate of
title. Because AHFC continues to service the contracts as Servicer under the
Sale and Servicing Agreement or the Pooling and Servicing Agreement, as
applicable, the Obligors on the contracts will not be notified of the sale from
AHFC to the Seller or the sale from the Seller to the related Trust.
PERFECTION. Pursuant to the related Purchase Agreement, AHFC will sell and
assign its security interest in the Financed Vehicles to the Seller and, with
respect to each Trust, pursuant to the related Sale and Servicing Agreement or
Pooling and Servicing Agreement, as applicable, the Seller will assign its
security interest in the Financed Vehicles to that Trust. However, because of
the administrative burden and expense, none of AHFC, the Seller or the related
Trustee will amend any certificate of title to identify that Trust as the new
secured party on that certificate of title relating to a Financed Vehicle.
However, UCC financing statements with respect to the transfer to the Seller of
AHFC's security interest in the Financed Vehicles and the transfer to the
Trustee of the Seller's security interest in the Financed Vehicles will be
filed. In addition, the Servicer will continue to hold any certificates of title
relating to the Financed Vehicles in its possession as custodian for that Trust
pursuant to the related Sale and Servicing Agreement or Pooling and Servicing
Agreement. WE REFER YOU TO "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--SALE AND ASSIGNMENT OF RECEIVABLES."
In most states, an assignment such as that under each Purchase Agreement or
each Sale and Servicing Agreement or Pooling and Servicing Agreement is an
effective conveyance of a security interest without amendment of any lien noted
on a motor vehicle's certificate of title, and the assignee succeeds to the
assignor's rights as secured party. Although re-registration of the motor
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 lienholder on the
certificates of title, the security interest of that Trust in the vehicle could
be defeated through fraud or negligence. In those states, in the absence of
fraud or forgery by the motor vehicle owner or the Servicer or administrative
error by state or local agencies, the notation of AHFC's lien on the
certificates of title will be sufficient to protect that Trust against the
rights of subsequent purchasers of a Financed Vehicle or subsequent lenders who
take a security interest in a Financed Vehicle. In each Purchase Agreement, AHFC
will represent and warrant, and in each Sale and Servicing Agreement or Pooling
and Servicing Agreement, the Seller will represent and warrant, that it has
taken all action necessary to obtain a perfected security interest in each
Financed Vehicle. If there are any Financed Vehicles as to which AHFC failed to
obtain and assign to the Seller a perfected security interest, the security
interest of the Seller would be subordinate to, among others, subsequent
purchasers of the Financed Vehicles and holders of perfected security interests
in the Financed Vehicles. To the extent that failure has a material and adverse
effect on the Trust's interest in the related Receivables, however, it would
constitute a breach of the warranties of AHFC under the related Purchase
Agreement or the Seller under the related Sale and Servicing Agreement or
Pooling and Servicing Agreement. Accordingly, pursuant to the related Sale and
Servicing Agreement or Pooling and Servicing Agreement, the Seller would be
required to repurchase the related Receivable from the Trust and, pursuant to
the related Purchase Agreement, AHFC would be required to purchase that
Receivable from the Seller, in each case unless the breach was cured. Pursuant
to each Sale and Servicing Agreement and Pooling and Servicing Agreement, the
Seller will assign to the related Trust its rights to cause AHFC to purchase
that Receivable under the related Purchase Agreement. WE REFER YOU TO
"DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--SALE AND ASSIGNMENT OF
RECEIVABLES" AND
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"RISK FACTORS--INTERESTS OF OTHER PERSONS IN THE RECEIVABLES AND FINANCED
VEHICLES COULD BE SUPERIOR TO THE TRUST'S INTEREST, WHICH MAY RESULT IN REDUCED
PAYMENTS ON YOUR SECURITIES."
CONTINUITY OF PERFECTION. Under the laws of most states, the perfected
security interest in a motor vehicle would continue for four months after the
motor vehicle is moved to a state that is different from the one in which it is
initially registered and thereafter until the owner re-registers the motor
vehicle in the new state. A majority of states generally require surrender of a
certificate of title to re-register a motor 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 sales contract to surrender possession of the
certificate of title. In the case of motor vehicles registered in states
providing for the notation of a lien on the certificate of title but not
possession by the secured party (such as Texas), the secured party would receive
notice of surrender from the state of re-registration if the security interest
is noted on the certificate of title. Thus, the secured party would have the
opportunity to re-perfect its security interest in the vehicle 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 motor 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 on the certificate of title and accordingly
will have an opportunity to require satisfaction of the related Receivable
before release of the lien. Under each Sale and Servicing Agreement and Pooling
and Servicing Agreement, the Servicer will be obligated to take appropriate
steps, at the Servicer's expense, to maintain perfection of security interests
in the Financed Vehicles and will be obligated to purchase the related
Receivable if it fails to do so and that failure has a material and adverse
effect on the Trust's interest in the Receivable.
PRIORITY OF LIENS ARISING BY OPERATION OF LAW. Under the laws of most
states (including California), liens for repairs performed on a motor vehicle
and liens for unpaid taxes take priority over even a perfected security interest
in a Financed Vehicle. The Code also grants priority to specified federal tax
liens over the lien of a secured party. The laws of some states and federal law
permit the confiscation of motor vehicles by governmental authorities under some
circumstances if used in unlawful activities, which may result in the loss of a
secured party's perfected security interest in the confiscated vehicle. AHFC
will represent and warrant to the Seller in each Purchase Agreement, and the
Seller will represent and warrant to the Trust in each Sale and Servicing
Agreement and Pooling and Servicing Agreement, that, as of the related Closing
Date, each security interest in a Financed Vehicle is prior to all other present
liens (other than tax liens and other liens that arise by operation of law) upon
and security interests in that Financed Vehicle. However, liens for repairs or
taxes could arise, or the confiscation of a Financed Vehicle could occur, at any
time during the term of a Receivable. No notice will be given to the Trustee,
any Indenture Trustee, any Noteholders or any Certificateholders in respect of a
given Trust if a lien arises or confiscation occurs that would not give rise to
the Seller's repurchase obligation under the related Sale and Servicing
Agreement or Pooling and Servicing Agreement or AHFC's repurchase obligation
under the related Purchase Agreement.
REPOSSESSION
In the event of default by an obligor, the holder of the related retail
installment sale contract has all the remedies of a secured party under the UCC,
except where specifically limited by other state laws. Among the UCC remedies,
the secured party has the right to perform repossession by self-help means,
unless it would constitute a breach of the peace or is otherwise limited by
applicable state law. Unless a motor vehicle financed by AHFC is voluntarily
surrendered, self-help repossession is the
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method employed by AHFC in most states and is accomplished simply by retaking
possession of the Financed Vehicle. In cases where an 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 that vehicle
must then be recovered in accordance with that order. In some jurisdictions, the
secured party is required to notify that obligor of the default and the intent
to repossess the collateral and to give that obligor a time period within which
to cure the default prior to repossession. In some states, an obligor has the
right to reinstate its contract and recover the collateral by paying the
delinquent installments and other amounts due.
NOTICE OF SALE; REDEMPTION RIGHTS
In the event of default by an obligor under a retail installment sale
contract, some jurisdictions require that the obligor be notified of the default
and be given a time period within which to cure the default prior to
repossession. 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 an obligor
with reasonable notice of the date, time and place of any public sale and/or the
date after which any private sale of the collateral may be held. In most states,
an 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 on the obligation plus reasonable expenses for repossessing, holding
and preparing the collateral for disposition and arranging for its sale, plus,
in some jurisdictions, reasonable attorneys' fees. In some states, an obligor
has the right to redeem the collateral prior to actual sale by payment of
delinquent installments or the unpaid balance.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of motor 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 those judgments. In addition to the notice requirement
described above, 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. 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. In addition, the UCC permits the obligor 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 obligor 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.
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 that vehicle or if no lienholder exists, the UCC requires the
creditor to remit the surplus to the obligor.
CERTAIN BANKRUPTCY CONSIDERATIONS
In structuring the transactions contemplated by this prospectus, the Seller
has taken steps 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
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include the creation of the Seller as a wholly owned, limited purpose subsidiary
pursuant to articles of incorporation and bylaws containing limitations
(including restrictions on the nature of the Seller's business and on its
ability to commence a voluntary case or proceeding under any Insolvency Law
without the unanimous affirmative vote of all of its directors). 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.
However, delays in payments on the Securities and possible reductions in the
amount of those payments could occur if:
(A) a court were to conclude 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;
(B) a filing were made under any Insolvency Law by or against the Seller; or
(C) an attempt were to be made to litigate any of the foregoing issues.
On each Closing Date, counsel to the Seller will give an opinion to the
effect that, based on a reasoned analysis of analogous case law (although there
is no precedent based on directly similar facts), and, subject to facts,
assumptions and qualifications specified in the opinion and applying the
principles set forth in the opinion, in the event of a voluntary or involuntary
bankruptcy case in respect of AHFC under Title 11 of the United States
Bankruptcy Code at a time when AHFC was insolvent, the property of the Seller
would not properly be substantively consolidated with the property of the estate
of AHFC. Among other things, that opinion will assume that each of the Seller
and AHFC will follow specified procedures in the conduct of its affairs,
including maintaining records and books of account separate from those of the
other, refraining from commingling its assets with those of the other, and
refraining from holding itself out as having agreed to pay, or being liable for,
the debts of the other. The Seller and AHFC intend to follow these and other
procedures related to maintaining their separate corporate identities. However,
there can be no assurance that a court would not conclude that the assets and
liabilities of the Seller should be consolidated with those of AHFC.
AHFC will warrant in each Purchase Agreement that the sale of the related
Receivables by it to the Seller is a valid sale. Notwithstanding the foregoing,
if AHFC were to become a debtor in a bankruptcy case, a court could take the
position that the sale of Receivables to the Seller should instead be treated as
a pledge of those Receivables to secure a borrowing of AHFC. If a court were to
reach such conclusions, or a filing were made under any Insolvency Law by or
against the Seller, or if an attempt were made to litigate any of the foregoing
issues, delays in payments on the certificates (and possible reductions in the
amount of payments) could occur. In addition, 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 that Receivable. Also, while
AHFC is the Servicer, cash collections on the Receivables may be commingled with
general funds of AHFC and, in the event of a bankruptcy of AHFC, a court may
conclude that the Trust does not have a perfected interest in those collections.
AHFC and the Seller will treat the transactions described in this prospectus
as a sale of the Receivables to the Seller, so that the automatic stay
provisions of the United States Bankruptcy Code should not apply to the
Receivables if AHFC were to become a debtor in a bankruptcy case.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon lenders 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
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Warranty Act, the Federal Reserve Board's Regulations B and Z, the Soldiers' and
Sailors' Civil Relief Act of 1940, the Texas Consumer Credit Code, state
adoptions of the National Consumer Act and of the Uniform Consumer Credit Code
and state motor vehicle retail installment sales acts and other similar laws.
Also, state laws impose finance charge ceilings and other restrictions on
consumer transactions and require contract disclosures in addition to those
required under federal law. These requirements impose specific statutory
liabilities upon creditors who fail to comply with their provisions. In some
cases, this liability could affect an assignee's ability to enforce consumer
finance contracts such as the Receivables.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade Commission
(the "FTC Rule"), the provisions of which are generally duplicated by the
Uniform Consumer Credit Code, other statutes or the common law in some states,
has the effect of subjecting a seller (and specified creditors and their
assignees) in a consumer credit transaction to all claims and defenses that the
obligor in the transaction could assert against the seller of the goods.
Liability under the FTC Rule is limited to the amounts paid by the obligor under
the contract, and the holder of the contract may also be unable to collect any
balance remaining due under that contract 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, each Trust, as holder of the related Receivables, will be subject
to any claims or defenses that the purchaser of the applicable Financed Vehicle
may assert against the seller of the related Financed Vehicle. As to each
Obligor, these claims are limited to a maximum liability equal to the amounts
paid by the Obligor on the related Receivable. Under most state motor vehicle
dealer licensing laws, sellers of motor vehicles are required to be licensed to
sell motor vehicles at retail sale. Furthermore, federal odometer regulations
promulgated under the Motor Vehicle Information and Cost Savings Act require
that all sellers of new and used vehicles furnish a written statement signed by
the seller certifying the accuracy of the odometer reading. If the seller is not
properly licensed or if a written odometer disclosure statement was not provided
to the purchaser of the related Financed Vehicle, an obligor may be able to
assert a defense against the seller of the vehicle. If an Obligor were
successful in asserting any of those claims or defenses, that claim or defense
would constitute a breach of the Seller's representations and warranties under
the related Sale and Servicing Agreement or Pooling and Servicing Agreement and
a breach of AHFC's warranties under the related Purchase Agreement and would, if
the breach materially and adversely affects the Receivable or the interests of
the Securityholders, create an obligation of the Seller and AHFC, respectively,
to repurchase the Receivable unless the breach is cured. WE REFER YOU TO
"DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS--SALE AND ASSIGNMENT OF
RECEIVABLES."
Courts have applied general equitable principles to secured parties pursuing
repossession and litigation involving deficiency balances. These equitable
principles may have the effect of relieving an obligor from some or all of the
legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. Courts have generally upheld the notice provisions of the UCC and
related laws as reasonable or have found that the repossession and resale by the
creditor do not involve sufficient state action to afford constitutional
protection to borrowers.
From time to time, AHFC has been involved in litigation under consumer
protection laws. In addition, substantially all of the motor vehicle contracts
originated by AHFC in California after 1990 (the "California Contracts")
provided that the contract may be rescinded by the related Dealer if the Dealer
is unable to assign the contract to a lender within ten days of the date of the
contract. As of the date of this prospectus, the ten-day rescission period had
run in respect of all of the California Contracts 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
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with California law and would render the contract unenforceable, to the Seller's
and AHFC's knowledge, 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 Contracts are enforceable under California law
and applicable federal laws.
AHFC and the Seller will represent and warrant under each Purchase Agreement
and each Sale and Servicing Agreement and Pooling and Servicing Agreement, as
applicable, that each Receivable complies with all requirements of law in all
material respects. Accordingly, if an Obligor has a claim against a Trust for
violation of any law and that claim materially and adversely affects that
Trust's interest in a Receivable, that violation would constitute a breach of
the representations and warranties of AHFC under the Purchase Agreement and the
Seller under the related Sale and Servicing Agreement or Pooling and Servicing
Agreement and would create an obligation of AHFC and the Seller to repurchase
the Receivable unless the breach is cured. WE REFER YOU TO "DESCRIPTION OF THE
TRANSFER AND SERVICING AGREEMENTS--SALE AND ASSIGNMENT OF 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 secured party
to realize upon collateral or to enforce a deficiency judgment. For example, in
a Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
creditor from repossessing a motor vehicle and, as part of the rehabilitation
plan, reduce the amount of the secured indebtedness to the market value of the
vehicle at the time of bankruptcy (as determined by the court), leaving the
creditor as a general unsecured creditor for the remainder of the indebtedness.
A bankruptcy court may also reduce the monthly payments due under a contract or
change the rate of interest and time of repayment of the indebtedness.
Under the terms of the Soldiers' and Sailors' Relief Act of 1940 (the
"Relief Act"), an Obligor who enters the military service after the origination
of that Obligor's Receivable (including an Obligor who is a member of the
National Guard or is in reserve status at the time of the origination of the
Obligor's Receivable and is later called to active duty) may not be charged
interest above an annual rate of 6% during the period of that Obligor's active
duty status, unless a court orders otherwise upon application of the lender. In
addition, some states, including California, allow members of its national guard
to extend payments on any contract obligation if called into active service by
the Governor for a period exceeding 7 days. It is possible that the foregoing
could have an effect on the ability of the Servicer to collect the full amount
of interest owing on some of the Receivables. In addition, both the Relief Act
and the laws of some states, including California, New York and New Jersey,
imposes limitations that would impair the ability of the Servicer to repossess
the released Financed Vehicle during the Obligor's period of active duty status.
Thus, if that Receivable goes into default, there may be delays and losses
occasioned by the inability to exercise the Trust's rights with respect to the
Receivable and the related Financed Vehicle in a timely fashion.
Any shortfall pursuant to either of the two preceding paragraphs, to the
extent not covered by amounts payable to the Securityholders from amounts on
deposit in the related Reserve Fund or from coverage provided under any other
credit enhancement mechanism, could result in losses to the Securityholders.
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MATERIAL INCOME TAX CONSEQUENCES
The following general discussion of the anticipated material federal income
tax consequences of the purchase, ownership and disposition of the notes and the
certificates of any series, to the extent it relates to matters of law or legal
conclusions with respect thereto, represents the opinion of tax counsel to each
Trust with respect to the related series on the material matters associated with
those consequences, subject to the qualifications set forth in this prospectus.
"Tax Counsel" with respect to each Trust will be specified in the applicable
prospectus supplement. The summary does not purport to deal with federal income
tax consequences applicable to all categories of investors, some of which may be
subject to special rules. For example, it does not discuss the tax treatment of
Noteholders or Certificateholders that are insurance companies, regulated
investment companies or dealers in securities. Moreover, there are no cases or
Internal Revenue Service ("IRS") rulings on similar transactions involving both
debt and equity interests issued by a trust with terms similar to those of the
notes and the certificates. As a result, the IRS may disagree with all or a part
of the discussion below. It is suggested that prospective investors consult
their own tax advisors in determining the federal, state, local, foreign and any
other tax consequences to them of the purchase, ownership and disposition of the
notes and the certificates.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated under the Code and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. Each Trust will be provided
with an opinion of Tax Counsel regarding the federal income tax matters
discussed below. An opinion of Tax Counsel, however, is not binding on the IRS
or the courts. No ruling on any of the issues discussed below will be sought
from the IRS. For purposes of the following summary, references to the Trust,
the notes, the certificates and related terms, parties and documents shall be
deemed to refer to each Trust and the notes, certificates and related terms,
parties and documents applicable to that Trust. The federal income tax
consequences to Certificateholders will vary depending on whether the Trust is
treated as a partnership (or a "disregarded entity," in the event that there is
a single beneficial owner of the Certificates) or a grantor trust under the
Code. The prospectus supplement for each series of certificates will specify
whether the Trust will be treated as a partnership (or a disregarded entity) or
a grantor trust.
TAX TREATMENT OF OWNER TRUSTS
TAX CHARACTERIZATION OF THE TRUST
The following general discussion of the anticipated federal income tax
consequences of the purchase, ownership and disposition of the notes and the
certificates of a Trust nominally referred to as an "owner trust" in the
applicable prospectus supplement (an "Owner Trust"), to the extent it relates to
matters of law or legal conclusions with respect thereto, represents the opinion
of Tax Counsel to each Owner Trust with respect to the related series on the
material matters associated with those consequences, subject to the
qualifications set forth in this prospectus. In addition, Tax Counsel has
prepared or reviewed the statements in this prospectus under the heading
"Material Income Tax Consequences - Tax Treatment of Owner Trusts," and is of
the opinion that those statements are correct in all material respects. Those
statements are intended as an explanatory discussion of the related tax matters
affecting investors generally, but do not purport to furnish information in the
level of detail or with the attention to an investor's specific tax
circumstances that would be provided by an investor's own tax advisor.
Accordingly, it is suggested that each investor consult its own tax advisor with
regard to the tax consequences to it of investing in notes or certificates.
Tax Counsel will deliver its opinion that an Owner Trust will not be an
association or publicly traded partnership taxable as a corporation for federal
income tax purposes. This opinion will be based on the assumption that the terms
of the Related Documents will be complied with, and on Tax
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Counsel's conclusion that the nature of the income of the Trust will exempt it
from the rule that some publicly traded partnerships are taxable as
corporations.
If the Owner Trust were taxable as a corporation for federal income tax
purposes, the Trust would be subject to corporate income tax on its taxable
income. The Trust's taxable income would include all its income on the
Receivables, possibly reduced by its interest expense on the notes. Any
corporate income tax could materially reduce cash available to make payments on
the notes and the certificates, and Certificateholders could be liable for any
tax of this type that is not paid by the Trust.
TAX CONSEQUENCES TO OWNERS OF THE NOTES
TREATMENT OF THE NOTES AS INDEBTEDNESS. The Seller and any Noteholders will
agree, and the beneficial owners of the notes (the "Note Owners") will agree by
their purchase of notes, to treat the notes as debt for federal income tax
purposes. Except as otherwise provided in the related prospectus supplement, Tax
Counsel will deliver its 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, INDEXED SECURITIES, ETC. The discussion below assumes that all
payments on the notes are denominated in U.S. dollars, and that the notes are
not Indexed Securities or Strip Notes (as defined in this prospectus). Moreover,
the discussion assumes that the interest formula for the notes meets the
requirements for "qualified stated interest" under Treasury regulations (the
"OID regulations") relating to 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 determining their
term), all within the meaning of the OID regulations. In determining whether any
OID on the notes is de minimis, the Seller expects to use a reasonable
assumption regarding prepayments (a "Prepayment Assumption") to determine the
weighted average maturity of the notes. If these conditions are not satisfied
with respect to any given series of notes, additional tax considerations with
respect to those notes will be disclosed in the applicable prospectus
supplement.
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 on the notes will be taxable to a Note Owner as
ordinary interest income when received or accrued in accordance with that Note
Owner's method of tax accounting. Under the OID regulations, the Note Owner of a
note issued with a de minimis amount of OID must include that OID in income, on
a pro rata basis, as principal payments are made on the note. A purchaser who
buys a note for more or less than its principal amount will generally be
subject, respectively, to the premium amortization or market discount rules of
the Code.
The Note Owner of a note that has a fixed maturity date of not more than one
year from the issue date of that Note (a "Short-Term Note") may be subject to
special rules. An accrual basis Note Owner of a Short-Term Note (and some cash
method Note Owners, including regulated investment companies, as set forth in
Section 1281 of the Code) generally would be required to report interest income
as interest accrues on a straight-line basis or under a constant yield method
over the term of each interest period. Other cash basis Note Owners of a
Short-Term Note would, in general, be required to report interest income as
interest is paid (or, if earlier, upon the taxable disposition of the Short-Term
Note). However, a cash basis Note Owner of a Short-Term Note reporting interest
income as it is paid may be required to defer a portion of any interest expense
otherwise deductible on indebtedness incurred to purchase or carry the
Short-Term Note until the taxable disposition of the Short-Term Note. A cash
basis Note Owner that is not required to report interest income as it accrues
under Section 1281 may elect to accrue interest income on all nongovernment debt
obligations with a term of one year or less, in which case the Note Owner would
not be subject to the interest expense deferral rule referred to in
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the preceding sentence. Certain special rules apply if a Short-Term Note is
purchased for more or less than its principal amount.
SALE OR OTHER DISPOSITION. If a Note Owner sells a note, the Note Owner
will recognize gain or loss in an amount equal to the difference between the
amount realized on the sale and the Note Owner's adjusted tax basis in the note.
The adjusted tax basis of a note to a particular Note Owner will equal the Note
Owner's cost for the note, increased by any market discount, acquisition
discount, OID and gain previously included in income by that Note Owner with
respect to the note and decreased by the amount of bond premium, if any,
previously amortized and by the amount of payments of principal and OID
previously received by that Note Owner with respect to that note. Any gain or
loss, and any gain or loss recognized on a prepayment of the notes, will be
capital gain or loss if the note was held as a capital asset, except for gain
representing accrued interest and accrued market discount not previously
included in income. Capital losses generally may be used only to offset capital
gains.
FOREIGN OWNERS. Interest paid (or accrued) to a Note Owner who is not a
U.S. Person (a "Foreign Owner") 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 Owner
and:
1. the Foreign Owner is not actually or constructively a "10 percent
shareholder" of the Trust or the Seller (including a holder of 10% of the
outstanding certificates issued by the Trust) or a "controlled foreign
corporation" with respect to which the Trust or the Seller is a "related
person" within the meaning of the Code;
2. the Foreign Owner is not a bank receiving interest described in Section
881(c)(3)(A) of the Code;
3. the interest is not contingent interest described in Section 871(h)(4)
of the Code; and
4. the Foreign Owner does not bear specified relationships to any
Certificateholder.
To qualify for the exemption from taxation, the Foreign Owner must provide
the applicable 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-8BEN
or a similar form), signed under penalty of perjury, certifying that the Note
Owner is a Foreign Owner and providing the Foreign Owner's name and address. If
a note is held through a securities clearing organization or other financial
institution, the organization or may provide the relevant signed statement to
the withholding agent; in that case, however, the signed statement must be
accompanied by a Form W-8BEN or substitute form provided by the Foreign Owner
and the Foreign Owner must notify the financial institution acting on its behalf
of any changes to the information on the Form W-8BEN (or substitute form) within
30 days of that change. If interest paid to a Foreign Owner is not considered
portfolio interest, then it will be subject to United States federal income and
withholding tax at a rate of 30 percent, unless reduced or eliminated pursuant
to an applicable tax treaty. In order to claim the benefit of any applicable tax
treaty, the Foreign Owner must provide the applicable Trustee or other person
who is required to withhold U.S. tax with respect to the notes with an
appropriate statement (on Form W-8BEN or a similar form), signed under penalties
of perjury, certifying that the Foreign Owner is entitled to benefits under the
treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a Foreign Owner will be exempt from United
States federal income and withholding tax, provided that (1) the gain is not
effectively connected with the conduct of a trade or business in the United
States by the Foreign Owner and (2) in the case of an individual Foreign Owner,
the Foreign Owner is not present in the United States for 183 days or more
during the taxable year of disposition.
As used in this prospectus, a "U.S. Person" means:
1. a citizen or resident of the United States;
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2. a corporation or a partnership organized in or under the laws of the
United States or any political subdivision thereof;
3. an estate, the income of which from sources outside the United States is
includible in gross income for federal income tax purposes regardless of
its connection with the conduct of a trade or business within the United
States; or
4. a trust if (a) a court within the U.S. is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have authority to control all substantial decisions of the
trust or (b) such trust was in existence on August 20, 1996 and is
eligible to elect, and has made a valid election, to be treated as a U.S.
Person despite not meeting the requirements of clause (a).
BACKUP WITHHOLDING. Each Note Owner (other than an exempt Note Owner such
as a corporation, tax-exempt organization, qualified pension and profit- sharing
trust, individual retirement account or nonresident alien who provides
certification as to status as a nonresident) will be required to provide, under
penalties of perjury, a certificate (on Form W-9) providing the Note Owner's
name, address, correct federal taxpayer identification number and a statement
that the Note Owner is not subject to backup withholding. Should a nonexempt
Note Owner fail to provide the required certification, the Trust will be
required to withhold 31 percent of the amount otherwise payable to the Note
Owner, and remit the withheld amount to the IRS. Any such amount withheld would
be credited against the Note Owner's federal income tax liability.
NEW WITHHOLDING REGULATIONS. Recently, the Treasury Department issued new
regulations (the "New Regulations") which make certain modifications to the
withholding, backup withholding and information reporting rules described above.
The New Regulations attempt to unify certification requirements and modify
reliance standards. The New Regulations will generally be effective for payments
made after December 31, 2000, subject to certain transition rules. It is
suggested that prospective investors consult their own tax advisors regarding
the New Regulations.
POSSIBLE ALTERNATIVE TREATMENTS OF THE NOTES. If, contrary to the opinion
of Tax Counsel, the IRS successfully asserted that one or more of the notes did
not represent debt for federal income tax purposes, the notes might be treated
as equity interests in the Trust. If so treated, the Trust might be taxable as a
corporation with the adverse consequences described above (and the taxable
corporation would not be able to reduce its taxable income by deductions for
interest expense on notes recharacterized as equity). Alternatively, and most
likely in the view of Tax Counsel, the Trust might be treated as a publicly
traded partnership that would not be taxable as a corporation because it would
meet specified qualifying income tests. Nonetheless, treatment of the notes as
equity interests in a publicly traded partnership could have adverse tax
consequences to some Note Owners. For example, income to some tax-exempt
entities (including pension funds) may be "unrelated business taxable income,"
income to Foreign Owners may be subject to U.S. tax and cause Foreign Owners to
be subject to U.S. tax return filing and withholding requirements, and
individual Note Owners might be subject to some limitations on their ability to
deduct their share of trust expenses.
TAX CONSEQUENCES TO OWNERS OF THE CERTIFICATES
TREATMENT OF THE TRUST AS A PARTNERSHIP. The Seller and the Servicer will
agree, and the beneficial owners of the certificates (the "Certificate Owners")
will agree by their purchase of certificates, to treat the Owner Trust as a
partnership (or as an entity disregarded as separate from the Certificate Owner
in the event that there is a single Certificate Owner) for purposes of federal
and state income tax, franchise tax and any other tax measured in whole or in
part by income. If the Owner Trust is treated as a partnership, the assets of
the partnership would be the assets held by the Trust, the partners of the
partnership would be the Certificate Owners (including the Seller in its
capacity as recipient of payments from the Reserve Fund), and the notes would be
debt of the partnership. However, the
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proper characterization of the arrangement involving the Trust, the
certificates, the notes, the Seller and the Servicer is not clear because there
is no authority on transactions closely comparable to that contemplated in this
prospectus.
A variety of alternative characterizations are possible. For example,
because the certificates have features characteristic of debt, the certificates
might be considered debt of the Seller or the Trust. Any characterization of
this type generally would not result in materially adverse tax consequences to
Certificate Owners as compared to the consequences from treatment of the
certificates as equity in a partnership, described below. The following
discussion assumes that the certificates represent equity interests in a
partnership.
INDEXED SECURITIES, ETC. The following discussion assumes that all payments
on the certificates are denominated in U.S. dollars, none of the certificates
are Indexed Securities or Strip Certificates, and that a series of Securities
includes a single class of certificates. If these conditions are not satisfied
with respect to any given series of certificates, additional tax considerations
with respect to those certificates will be disclosed in the applicable
prospectus supplement.
PARTNERSHIP TAXATION. As a partnership, the Owner Trust will not be subject
to federal income tax. Rather, each Certificate Owner will be required to
separately take into account that Owner's allocated share of income, gains,
losses, deductions and credits of the Owner Trust. The Trust's income will
consist primarily of interest and finance charges earned on the Receivables
(including appropriate adjustments for market discount, OID and bond premium)
and any gain upon collection or disposition of Receivables. The Trust's
deductions will consist primarily of interest accruing with respect to the
notes, servicing and other fees, and losses or deductions upon collection or
disposition of Receivables.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (here, the
Trust Agreement and related documents). In the Trust Agreement, the Certificate
Owners will agree that the yield on a certificate is intended to qualify as a
"guaranteed payment" and not as a distributive share of partnership income. A
guaranteed payment would be treated by a Certificate Owner as ordinary income,
but may well not be treated as interest income. The Trust Agreement will provide
that, to the extent that the treatment of the yield on a Certificate as a
guaranteed payment is not respected, the Certificate Owners of each class of
certificates will be allocated taxable income of the Trust for each month equal
to the sum of:
1. the interest that accrues on the certificates in accordance with their
terms for that month, including interest accruing at the Pass Through
Rate for that month and interest on amounts previously due on the
certificates but not yet paid;
2. any Trust income attributable to discount on the Receivables that
corresponds to any excess of the principal amount of the certificates
over their initial issue price;
3. prepayment premium payable to the Certificate Owners for that month; and
4. any other amounts of income payable to the Certificate Owners for that
month.
That allocation will be reduced by any amortization by the Trust of premium
on Receivables that corresponds to any excess of the initial issue price of
certificates over their initial principal amount. All remaining taxable income
of the Trust will be allocated to the Seller. Except as provided below, losses
and deductions generally will be allocated to the Certificate Owners only to the
extent the Certificate Owners are reasonably expected to bear the economic
burden of those losses or deductions. Any losses allocated to Certificate Owners
could be characterized as capital losses, and the Certificate Owners generally
would only be able to deduct those losses against capital gain income, and
deductions would be subject to the limitations set forth below. Accordingly, a
Certificate Owner's taxable income from the Trust could exceed the cash it is
entitled to receive from the Trust.
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Based on the economic arrangement of the parties, this approach for
allocating Trust income and loss should be permissible under applicable Treasury
regulations, although no assurance can be given that the IRS would not require a
greater amount of income to be allocated to Certificate Owners. Moreover, even
under the foregoing method of allocation, Certificate Owners may be allocated
income equal to the entire Pass Through Rate plus the other items described
above even though the Trust might not have sufficient cash to make current cash
payments of that amount. Thus, cash basis Certificate Owners will, in effect, be
required to report income from the certificates on the accrual basis and
Certificate Owners may become liable for taxes on Trust income even if they have
not received cash from the Trust to pay those taxes. In addition, because tax
allocations and tax reporting will be done on a uniform basis for all
Certificate Owners but Certificate Owners may be purchasing certificates at
different times and at different prices, Certificate Owners may be required to
report on their tax returns taxable income that is greater or less than the
amount reported to them by the Trust.
For each taxable year of the Certificate Owner, the Certificate Owner will
be required to report items of income, loss and deduction allocated to them by
the Owner Trust for the Trust's taxable year that ends on or before the last day
of that taxable year of the Certificate Owner. The Code prescribes rules for
determining the taxable year of the Trust. It is likely that, under these rules,
the taxable year of the Trust will be the calendar year. However, in the event
that all of the Certificate Owners possessing a 5 percent or greater interest in
the equity or profits of the Trust share a taxable year that is other than the
calendar year, the Trust could be required to use that year as its taxable year.
A significant portion of the taxable income allocated to a Certificate Owner
that is a pension, profit sharing or employee benefit plan or other tax-exempt
entity (including an individual retirement account) generally will constitute
"unrelated business taxable income" taxable to that Certificate Owner under the
Code.
An individual taxpayer's share of expenses of the Owner Trust (including
fees to the Servicer but not interest expense) would be miscellaneous itemized
deductions. Those deductions might be disallowed to the individual in whole or
in part and might result in that Certificate Owner being taxed on an amount of
income that exceeds the amount of cash actually paid to that Certificate Owner
over the life of the Trust.
The Owner Trust intends to make all tax calculations relating to income and
allocations to Certificate Owners on an aggregate basis. If the IRS were to
require that those calculations be made separately for each Receivable, the
Trust might be required to incur additional expense but it is believed that
there would not be a material adverse effect on Certificate Owners.
DISCOUNT AND PREMIUM. It is believed that the Receivables were not issued
with OID, and, therefore, the Owner Trust should not have OID income. However,
the purchase price paid by the Trust for the Receivables may be greater or less
than the remaining principal balance of the Receivables at the time of purchase.
If so, the Receivables will have been acquired at a premium or discount, as the
case may be. (As indicated above, the Trust will make this calculation on an
aggregate basis, but might be required to recompute it on a
Receivable-by-Receivable basis.)
If the Owner Trust acquires the Receivables at a market discount or premium,
the Trust will elect to include that discount in income currently as it accrues
over the life of the Receivables or to offset the premium against interest
income on the Receivables. As indicated above, a portion of the market discount
income or premium deduction may be allocated to Certificate Owners.
SECTION 708 TERMINATION. Under Section 708 of the Code, the Owner Trust
will be deemed to terminate for federal income tax purposes if 50% or more of
the capital and profits interests in the Trust are sold or exchanged within a
12-month period. If that termination occurs, the Trust will be considered to
transfer all of it assets and liabilities to a new partnership in exchange for
an interest in the new partnership, after which the Trust would be deemed to
distribute interests in the new
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partnership to Certificate Owners (including the purchasing partner who caused
the termination) in liquidation of the terminated partnership. The Trust will
not comply with technical requirements that might apply when a constructive
termination occurs. As a result, the Trust may be subject to tax penalties and
may incur additional expenses if it is required to comply with those
requirements. Furthermore, the Trust might not be able to comply due to lack of
data.
DISPOSITION OF CERTIFICATES. Generally, capital gain or loss will be
recognized on a sale of certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the certificates sold.
A Certificate Owner's tax basis in a certificate will generally equal the
Certificate Owner's cost increased by the Certificate Owner's share of Trust
income (includible in income) and decreased by any payments received with
respect to that certificate. In addition, both the tax basis in the certificates
and the amount realized on a sale of a certificate would include the Certificate
Owner's share of the notes and other liabilities of the Trust. A Certificate
Owner acquiring certificates at different prices may be required to maintain a
single aggregate adjusted tax basis in those certificates, and, upon sale or
other disposition of some of the certificates, allocate a portion of that
aggregate tax basis to the certificates sold (rather than maintaining a separate
tax basis in each certificate for purposes of computing gain or loss on a sale
of that certificate).
Any gain on the sale of a certificate attributable to the holder's share of
unrecognized accrued market discount on the Receivables would generally be
treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The Owner Trust does not expect to have any other assets
that would give rise to those special reporting requirements. Thus, to avoid
those special reporting requirements, the Trust will elect to include market
discount in income as it accrues.
If a Certificate Owner is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the certificates that exceeds the aggregate
cash payments with respect thereto, the excess will generally give rise to a
capital loss upon the retirement of the certificates.
ALLOCATIONS BETWEEN TRANSFERORS AND TRANSFEREES. In general, the Owner
Trust's taxable income and losses will be determined monthly and the tax items
for a particular calendar month will be apportioned among the Certificate Owners
in proportion to the principal amount of certificates owned by them as of the
close of the last day of that month. As a result, a Certificate Owner purchasing
certificates may be allocated tax items (which will affect its tax liability and
tax basis) attributable to periods before the Certificate Owner actually owned
the certificates.
The use of a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Owner Trust might be reallocated among the Certificate Owners. The Seller
is authorized to revise the Owner Trust's method of allocation between
transferors and transferees to conform to a method permitted by future
regulations.
SECTION 754 ELECTION. In the event that a Certificate Owner sells its
certificates at a profit (loss), the purchasing Certificate Owner will generally
have a higher (or lower) basis in the certificates than the selling Certificate
Owner had. The tax basis of the Owner Trust's assets will not be adjusted to
reflect that higher (or lower) basis unless the Trust were to file an election
under Section 754 of the Code. In order to avoid the administrative complexities
that would be involved in keeping accurate accounting records, as well as
potentially onerous information reporting requirements, the Owner Trust will not
make that election. As a result, Certificate Owners might be allocated a greater
or lesser amount of Trust income than would be appropriate based on their own
purchase price for certificates.
ADMINISTRATIVE MATTERS. The Trustee is required to keep or have kept
complete and accurate books of the Owner Trust. These books will be maintained
for financial reporting and tax purposes on an accrual basis and the fiscal year
of the Trust will be set forth in the applicable prospectus supplement.
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The Trustee will file a partnership information return (IRS Form 1065) with the
IRS for each taxable year of the Trust during which the Owner Trust is treated
as a partnership for federal income tax purposes, and for each such taxable year
will report each Certificate Owner's allocable share of items of Trust income
and expense to holders and the IRS on Schedule K-1. The Trust will provide the
Schedule K-1 information to nominees that fail to provide the Trust with the
information statement described below and those nominees will be required to
forward that information to the Certificate Owners. Generally, Certificate
Owners must file tax returns that are consistent with the information return
filed by the Trust or be subject to penalties unless the Certificate Owner
timely notifies the IRS of all those inconsistencies.
Under Section 6031 of the Code, any person that holds certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing specified information on the nominee, the Certificate
Owners and the certificates so held. The information includes (1) the name,
address and taxpayer identification number of the nominee and (2) as to each
Certificate Owner (x) the name, address and identification number of that
person, (y) whether that person is a U.S. person, a tax-exempt entity or a
foreign government, an international organization, or any wholly-owned agency or
instrumentality of any of the foregoing, and (z) specified information on
certificates that were held, bought or sold on behalf of that person throughout
the year. In addition, brokers and financial institutions that hold certificates
through a nominee are required to furnish directly to the Trust information as
to themselves and their ownership of certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any information
statement of this type to the Trust. The information referred to above for any
calendar year must be furnished to the Trust on or before the following January
31. Nominees, brokers and financial institutions that fail to provide the Trust
with the information described above may be subject to penalties.
The Seller will be designated as the tax matters partner in the related
Trust Agreement, and as such is designated to receive notice on behalf of, and
to provide notice to those Certificate Owners not receiving notice from, the
IRS, and to represent the Certificate Owners in certain disputes with the IRS.
The Code provides for administrative examination of a partnership as if the
partnership were a separate and distinct taxpayer. Generally, the statute of
limitations for partnership items does not expire before three years after the
date on which the partnership information return is filed. Any adverse
determination following an audit of the return of the Trust by the appropriate
taxing authorities could result in an adjustment of the returns of the
Certificate Owners, and, under some circumstances, a Certificate Owner may be
precluded from separately litigating a proposed adjustment to the items of the
Trust. As the tax matters partner, the Seller may enter into a binding
settlement on behalf of all Certificate Owners with a less than 1 percent
interest in the Trust (except for any group of those Certificate Owners with an
aggregate interest of 5 percent or more in Trust profits that elects to form a
notice group or Certificate Owners who otherwise notify the IRS that the Seller
is not authorized to settle on their behalf). In the absence of a proceeding at
the Trust level, a Certificate Owner under some circumstances may pursue a claim
for credit or refund on his own behalf by filing a request for administrative
adjustment of a Trust item. It is suggested that each Certificate Owner consult
its own tax advisor with respect to the impact of these procedures on its
particular case. An adjustment could also result in an audit of a Certificate
Owner's returns and adjustments of items not related to the income and losses of
the Trust.
TAX CONSEQUENCES TO FOREIGN CERTIFICATE OWNERS. It is not clear whether the
Trust would be considered to be engaged in a trade or business in the United
States for purposes of federal withholding taxes with respect to Certificate
Owners who are not U.S. Persons ("Foreign Certificate Owners") because there is
no clear authority dealing with that issue under facts substantially similar to
those described in this prospectus. Although it is not expected that the Owner
Trust would be engaged in a trade or business in the United States for those
purposes, the Trust will withhold as if it were so engaged in order to protect
the Trust from possible adverse consequences of a failure to withhold. The
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Trust expects to withhold on the portion of its taxable income that is allocable
to Foreign Certificate Owners pursuant to Section 1446 of the Code, as if that
income were effectively connected to a U.S. trade or business, at a rate of 35%
for Foreign Certificate Owners that are taxable as corporations and 39.6% for
all other Foreign Certificate Owners. Subsequent adoption of Treasury
regulations or the issuance of other administrative pronouncements may require
the Trust to change its withholding procedures. In determining a holder's
withholding status, the Trust may rely on IRS Form W-8BEN (or any applicable
successor form), IRS Form W-9 or the holder's certification of nonforeign status
signed under penalties of perjury.
Each Foreign Certificate Owner might be required to file a U.S. individual
or corporate income tax return (including, in the case of a corporation, the
branch profits tax) on its share of the Trust's income. Each Foreign Certificate
Owner must obtain a taxpayer identification number from the IRS and submit that
number to the Trust on Form W-8BEN (or any applicable successor form) in order
to assure appropriate crediting of the taxes withheld. A Foreign Certificate
Owner generally would be entitled to file with the IRS a claim for refund with
respect to taxes withheld by the Trust, taking the position that no taxes were
due because the Trust was not engaged in a U.S. trade or business. However,
interest payments made (or accrued) to a Foreign Certificate Owner generally
will be considered guaranteed payments to the extent those payments are
determined without regard to the income of the Trust. If these interest payments
are properly characterized as guaranteed payments, then the interest will not be
considered "portfolio interest," in which case Certificate Owners would be
subject to United States federal income tax and withholding tax at a rate of 30
percent, unless reduced or eliminated pursuant to an applicable treaty. In that
case, a Foreign Certificate Owner would only be entitled to claim a refund for
that portion of the taxes, if any, in excess of the taxes that should be
withheld with respect to the guaranteed payments.
BACKUP WITHHOLDING. Payments made on the certificates and proceeds from the
sale of the certificates will be subject to a backup withholding tax of 31% if,
in general, the Certificate Owner fails to comply with specified identification
procedures, unless the holder is an exempt recipient under applicable provisions
of the Code. WE REFER YOU TO "--TAX CONSEQUENCES TO OWNERS OF THE NOTES--BACKUP
WITHHOLDING" ABOVE.
TAX TREATMENT OF GRANTOR TRUSTS
TAX CHARACTERIZATION OF THE TRUST AS A GRANTOR TRUST. The following general
discussion of the anticipated federal income tax consequences of the purchase,
ownership and disposition of the certificates of a Trust nominally referred to
as a "grantor trust" in the applicable prospectus supplement (a "Grantor
Trust"), to the extent it relates to matters of law or legal conclusions with
respect thereto, represents the opinion of Tax Counsel to each Grantor Trust
with respect to the related series on the material matters associated with those
consequences, subject to the qualifications set forth in this prospectus. In
addition, Tax Counsel has prepared or reviewed the statements in this prospectus
under the heading "Material Income Tax Consequences--Tax Treatment of Grantor
Trusts," and is of the opinion that those statements are correct in all material
respects. Those statements are intended as an explanatory discussion of the
possible effects of the classification of any Trust as a grantor trust for
federal income tax purposes on investors generally and of related tax matters
affecting investors generally, but do not purport to furnish information in the
level of detail or with the attention to an investor's specific tax
circumstances that would be provided by an investor's own tax advisor.
Accordingly, it is suggested that each investor consult its own tax advisors
with regard to the tax consequences to it of investing in certificates of a
Grantor Trust ("Grantor Trust Certificates").
Tax Counsel will deliver its opinion that the Grantor Trust will not be
classified as an association taxable as a corporation and that the Trust will be
classified as a grantor trust under subpart E, Part I of subchapter J of Chapter
1 of Subtitle A of the Code. In this case, beneficial owners of Grantor Trust
Certificates (referred to as "Grantor Trust Certificateholders") could be
considered to own either (1)
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an undivided interest in a single debt obligation held by the Grantor Trust and
having a principal amount equal to the total stated principal amount of the
Receivables and an interest rate equal to the relevant Pass Through Rate or (2)
an interest in each of the Receivables and any other Trust property.
The determination of whether the economic substance of a property transfer
is a sale or a loan secured by the transferred property has been made by the IRS
and the courts on the basis of numerous factors designed to determine whether
the transferor has relinquished (and the transferee has obtained) substantial
incidents of ownership in the property. Among those factors, the primary factors
examined are whether the transferee has the opportunity to gain if the property
increases in value, and has the risk of loss if the property decreases in value.
The relevant pooling and servicing agreement will express the intent of the
Seller to sell, and the Grantor Trust Certificateholders to purchase, the
Receivables, and the Seller and each Grantor Trust Certificateholder, by
accepting a beneficial interest in a Grantor Trust Certificate, will agree to
treat the Grantor Trust Certificates as ownership interests in the Receivables
and any other Trust property.
TREATMENT AS DEBT OBLIGATION. If a Grantor Trust Certificateholder was
considered to own an undivided interest in a single debt obligation, the
principles described under "--Tax Treatment of Owner Trusts--Tax Consequences to
Owners of the Notes" would apply. Each Grantor Trust Certificateholder, rather
than reporting its share of the interest accrued on each Receivable, would, in
general, be required to include in income interest accrued or received on the
principal amount of the Grantor Trust Certificates at the relevant Pass Through
Rate in accordance with its usual method of accounting.
The Grantor Trust Certificates would be subject to OID rules, described
below under "--Stripped Bonds and Stripped Coupons" and "--Original Issue
Discount." In determining whether any OID on the Grantor Trust Certificates is
de minimis, the Seller expects to use a reasonable Prepayment Assumption to
determine the weighted average life of the Grantor Trust Certificates. OID
includible in income for any accrual period (generally, the period between
payment dates) would generally be calculated using a Prepayment Assumption and
an anticipated yield established as of the date of initial sale of the Grantor
Trust Certificates, and would increase or decrease to reflect prepayments at a
faster or slower rate than anticipated. The Grantor Trust Certificates would
also be subject to the market discount provisions of the Code to the extent that
a Grantor Trust Certificateholder purchased those certificates at a discount
from the initial issue price (as adjusted to reflect prior accruals of OID).
The remainder of the discussion in this prospectus assumes that a Grantor
Trust Certificateholder will be treated as owning an interest in each Receivable
(and the proceeds therefrom), any right to receive Yield Supplement Deposits and
any other Trust property, although for administrative convenience, the Servicer
will report information on an aggregate basis (as though all of the Receivables
and the Yield Supplement Agreement were a single obligation). The amount and, in
some instances, character, of the income reported to a Grantor Trust
Certificateholder may differ under this method for a particular period from that
which would be reported if income were reported on a precise asset-by-asset
basis.
CHARACTERIZATION. Each Grantor Trust Certificateholder will be treated as
the owner of a pro rata undivided interest in the interest and principal
portions of the Trust represented by the Grantor Trust Certificates and will be
considered the equitable owner of a pro rata undivided interest in each of the
Receivables in the Trust, any right to receive Yield Supplement Deposits, and
any other Trust property. Any amounts received by a Grantor Trust
Certificateholder in lieu of amounts due with respect to any Receivable because
of a default or delinquency in payment will be treated for federal income tax
purposes as having the same character as the payments they replace.
For federal income tax purposes, the Seller will be treated as having
retained a fixed portion of the interest due on each Receivable having an annual
percentage rate in excess of the sum of the
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applicable Pass Through Rate and the Servicing Rate (each, a "High Yield
Receivable") equal to the difference between (1) the annual percentage rate of
the Receivable and (2) the sum of the applicable Pass Through Rate and the
Servicing Rate (the "Retained Yield"). The Retained Yield will be treated as
"stripped coupons" within the meaning of Section 1286 of the Code, and the
Stripped Receivables will be treated as "stripped bonds." WE REFER YOU TO
"--STRIPPED BONDS AND STRIPPED COUPONS" BELOW. Accordingly, each Grantor Trust
Certificateholder will be treated as owning its pro rata percentage interest in
(1) payments received under any Yield Supplement Agreement, and (2) the
principal of, and interest payable on, each Receivable (minus the Retained Yield
on the High Yield Receivables).
Those Receivables that bear interest at a rate which is less than or equal
to the sum of the applicable Pass Through Rate and the Servicing Rate (the "Low
Yield Receivables") will not be treated as stripped bonds. Instead, Yield
Supplement Deposits will be payable to eliminate the difference between the
actual yield on each Low Yield Receivable and the yield the Receivable would
have had if its interest rate had equaled the sum of the applicable Pass Through
Rate and the Servicing Rate. WE REFER YOU TO "--YIELD SUPPLEMENT DEPOSITS"
BELOW.
Each Grantor Trust Certificateholder will be required to report on its
federal income tax return in accordance with that Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire income
from the Receivables in the Trust represented by Grantor Trust Certificates,
including interest, OID (if any), prepayment fees, assumption fees, any gain
recognized upon an assumption, late payment charges received by the Servicer and
any gain recognized upon collection or disposition of the Receivables (but not
including any portion of the Retained Yield). A Grantor Trust Certificateholder
will also be required to report under its usual method of accounting any
payments received under any Yield Supplement Agreement to the extent that these
payments are treated as income. Under Sections 162 or 212, each Grantor Trust
Certificateholder will be entitled to deduct its pro rata share of Base
Servicing Fees, prepayment fees, assumption fees, any loss recognized upon an
assumption and late payment charges retained by the Servicer, provided that
those amounts are reasonable compensation for services rendered to the Trust.
Grantor Trust Certificateholders that are individuals, estates or trusts will be
entitled to deduct their share of expenses only to the extent those expenses
plus all other Section 212 expenses exceed two percent of its adjusted gross
income. In addition, Grantor Trust Certificateholders who are individuals may be
subject to additional deduction limitations based on adjusted gross income.
A Grantor Trust Certificateholder using the cash method of accounting must
take into account its pro rata share of income and deductions as and when
collected by or paid to the Servicer. A Grantor Trust Certificateholder using an
accrual method of accounting must take into account its pro rata share of income
and deductions as they become due or are paid to the Servicer, whichever is
earlier. Because (1) interest accrues on the Receivables over differing monthly
periods and is paid in arrears and (2) interest collected on a Receivable
generally is paid to Certificateholders in the following month, the amount of
interest accruing to a Grantor Trust Certificateholder during any calendar month
will not equal the interest distributed in that month. The actual amount of
discount on a Receivable will be includible in income as principal payments are
received on the Receivables. If the Base Servicing Fees paid to the Servicer are
deemed to exceed reasonable servicing compensation, the amount of that excess
could be considered as an ownership interest retained by the Servicer (or any
person to whom the Servicer assigned for value all or a portion of the Base
Servicing Fees) in a portion of the interest payments on the Receivables. The
Receivables would then be subject to the "stripped bond" and "stripped coupons"
rules of the Code discussed below.
DISCOUNT AND PREMIUM. In determining whether a Grantor Trust
Certificateholder has purchased its interest in the Receivables (or any
Receivable) held by the related Trust at a discount or premium and whether the
Receivables (or any Receivable) have OID, market discount, or amortizable
premium, a portion of the purchase price of a Certificate should be allocated to
the Grantor Trust Certificateholder's undivided interest in accrued but unpaid
interest, amounts collected at the time of
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purchase but not distributed, and rights to receive Yield Supplement Deposits.
As a result, the portion of the purchase price allocable to a Grantor Trust
Certificateholder's undivided interest in the Receivables (or any Receivable)
will be increased or decreased, as applicable, and the potential OID, market
discount, or amortizable premium on the Receivables (or any Receivable) could be
increased or decreased accordingly.
PREMIUM. A Grantor Trust Certificateholder that acquires an interest in
Receivables at a premium over the "stated redemption price at maturity" of the
Receivables may elect to amortize that premium under a constant interest method.
Amortizable bond premium will be treated as an offset to interest income on that
Grantor Trust Certificate. The basis for that Grantor Trust Certificate will be
reduced to the extent that amortizable premium is applied to offset interest
payments. It is not clear whether a reasonable prepayment assumption should be
used in computing amortization of premium allowable under Section 171. With some
exceptions, a Grantor Trust Certificateholder that makes this election for a
Grantor Trust Certificate that is acquired at a premium will be deemed to have
made an election to amortize bond premium with respect to all debt instruments
having amortizable bond premium that the Grantor Trust Certificateholder holds
during the year of the election or thereafter. Absent an election to amortize
bond premium, the premium will be deductible as an ordinary loss upon
disposition of the Certificate or pro rata as principal is paid on the
Receivables.
If a premium is not subject to amortization using a reasonable prepayment
assumption, the holder of a Grantor Trust Certificate acquired at a premium
should recognize a loss if a Receivable prepays in full, equal to the difference
between the portion of the prepaid principal amount of that Receivable that is
allocable to the Grantor Trust Certificate and the portion of the adjusted basis
of the Grantor Trust Certificate that is allocable to that Receivable. If a
reasonable prepayment assumption is used to amortize that premium, it appears
that that loss would be available, if at all, only if prepayments have occurred
at a rate faster than the reasonable assumed prepayment rate. It is not clear
whether any other adjustments would be required to reflect differences between
an assumed prepayment rate and the actual rate of prepayments.
STRIPPED BONDS AND STRIPPED COUPONS. Although the tax treatment of stripped
bonds is not entirely clear, based on recent guidance from the IRS, each
purchaser of a Grantor Trust Certificate will be treated as the purchaser of a
stripped bond (to the extent that the Receivables consist of High Yield
Receivables) which generally should be treated as a single debt instrument
issued on the day it is purchased for purposes of calculating any original issue
discount. Generally, under applicable Treasury regulations (the "Section 1286
Treasury Regulations"), if the discount on a stripped bond is larger than a de
minimis amount (as calculated for purposes of the OID rules of the Code), that
stripped bond will be considered to have been issued with OID. WE REFER YOU TO
"--ORIGINAL ISSUE DISCOUNT." Based on the preamble to the Section 1286 Treasury
Regulations, Tax Counsel is of the opinion that, although the matter is not
entirely clear, the interest income on the certificates at the sum of the Pass
Through Rate and the portion of the Servicing Rate that does not constitute
excess servicing will be treated as "qualified stated interest" within the
meaning of the Section 1286 Treasury Regulations. The Trustee will treat that
income in this manner for tax information reporting purposes. In this case, the
amount of OID on a High Yield Receivable will equal the amount by which the
purchase price of a High Yield Receivable is less than the portion of the
remaining principal balance of the Receivable allocable to the interest
acquired.
ORIGINAL ISSUE DISCOUNT. The IRS has stated in published rulings that, in
circumstances similar to those described in this prospectus, the special rules
of the Code relating to OID will be applicable to a Grantor Trust
Certificateholder's interest in those Receivables meeting the conditions
necessary for these rules to apply. Generally, a Grantor Trust Certificateholder
that acquires an undivided interest in a Receivable issued or acquired with OID
must include in gross income the sum of the "daily portions," as defined below,
of the OID on that Receivable for each day on which it owns a Grantor
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Trust Certificate, including the date of purchase but excluding the date of
disposition. In the case of an original Grantor Trust Certificateholder, the
daily portions of OID with respect to a Receivable generally would be determined
as follows. A calculation will be made of the portion of OID that accrues on the
Receivable during each successive monthly accrual period (or shorter period in
respect of the date of original issue or the final Payment Date). This will be
done, in the case of each full monthly accrual period, by adding (1) the present
value of all remaining payments to be received on the Receivable under the
Prepayment Assumption used in respect of the Receivables and (2) any payments
received during that accrual period, and subtracting from that total the
"adjusted issue price" of the Receivable at the beginning of that accrual
period. No representation is made that the Receivables will prepay at any
prepayment assumption. The "adjusted issue price" of a Receivable at the
beginning of the first accrual period is the amount of the purchase price paid
by the Grantor Trust Certificateholder for the Grantor Trust Certificate that is
allocable to the Receivable, and the "adjusted issue price" of a Receivable at
the beginning of a subsequent accrual period is the "adjusted issue price" at
the beginning of the immediately preceding accrual period plus the amount of OID
allocable to that accrual period and reduced by the amount of any payment on the
Receivable (other than "qualified stated interest") made at the end of or during
that accrual period. The OID accruing during that accrual period will then be
divided by the number of days in the period to determine the daily portion of
OID for each day in the period. With respect to an initial accrual period
shorter than a full monthly accrual period, the daily portions of OID must be
determined according to a reasonable method, provided that that method is
consistent with the method used to determine the yield to maturity of the
Receivables.
If the amount of OID is de minimis under the rule set forth above, a High
Yield Receivable would not be treated as having OID. The actual amount of
discount on a High Yield Receivable would be includible in income as principal
payments are received on the Receivable, in the proportion that each principal
payment bears to the total principal amount of the Receivable.
With respect to the Receivables, the method of calculating OID as described
above will cause the accrual of OID to either increase or decrease (but never
below zero) in any given accrual period to reflect the fact that prepayments are
occurring at a faster or slower rate than the prepayment assumption used in
respect of the Receivables. Subsequent purchasers that purchase Receivables at
more than a de minimis discount should consult their tax advisors with respect
to the proper method to accrue that OID.
YIELD SUPPLEMENT DEPOSITS. The proper Federal income tax characterization
of the Yield Supplement Deposits is not clear. Moreover, the sum of the income
and deductions properly reportable by a Grantor Trust Certificateholder in any
taxable year may not equal the amounts that would be reportable if a Grantor
Trust Certificateholder held instead of an interest in the Receivables and in
the Yield Supplement Agreement either (1) a debt instrument bearing interest at
the applicable Pass Through Rate or (2) an interest in a trust holding
Receivables each of which bears interest at a rate at least equal to the sum of
the Pass Through Rate plus the Servicing Rate. It is likely that the right to
receive Yield Supplement Deposits will be treated as a separate asset purchased
by each Grantor Trust Certificateholder, in which case a portion of each Grantor
Trust Certificateholder's purchase price or other tax basis in the Grantor Trust
Certificate equal to the fair market value of the right to receive the Yield
Supplement Deposits should be allocated to the right to receive payments of
Yield Supplement Deposits. The right to receive Yield Supplement Deposits may be
treated as a loan made by a Grantor Trust Certificateholder to the Seller in an
amount equal to the present value, discounted at a rate equal to the sum of the
applicable Pass Through Rate and the Servicing Rate, of the projected Yield
Supplement Deposits. In that event, a portion of the Yield Supplement Deposits
generally representing a yield equal to the applicable Pass Through Rate plus
the Servicing Rate on such discounted value should be treated as interest
includible in income as accrued or received, and the remainder should be treated
as a return of the principal amount of the deemed loan. Alternatively, it is
possible that the
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entire amount of each Yield Supplement Deposit should be included in income as
accrued or received, in which event a Grantor Trust Certificateholder should
also be entitled to amortize the portion of its purchase price allocable to its
right to receive Yield Supplement Deposits. The method of calculating that
amortization is unclear, and could result in the inclusion of greater amounts of
income than a Grantor Trust Certificateholder's actual yield on a Receivable.
Alternatively, it is possible that the Yield Supplement Deposits could be
treated as payments adjusting the purchase price of the Low Yield Receivables,
rather than as a separate asset. In that event, a Grantor Trust
Certificateholder could be treated as having purchased each Low Yield Receivable
at a discount (which may consist of imputed interest, market discount, or both)
that, combined with the actual coupon rate of the Receivable, produces a yield
equal to the sum of the applicable Pass Through Rate and the Servicing Rate. It
is not clear whether, and to what extent, the amounts includible in income or
amortizable under any of these methods would be adjusted to take account of
prepayments on the Receivables. Moreover, it is possible that the IRS might
contend that none of the above methods is appropriate, and that income with
respect to the Yield Supplement Agreement should be reported by a Grantor Trust
Certificateholder in some other manner. In addition, to the extent that the
amounts payable pursuant to Yield Supplement Agreement decline during any period
by reason of prepayments on the Receivables, it is possible that a portion of
the amount amortizable by the Grantor Trust Certificateholder during that period
would be treated as a capital loss (which would not offset ordinary income),
rather than as an ordinary deduction. It is suggested that Grantor Trust
Certificateholders consult their tax advisors regarding the appropriate method
of accounting for income attributable to the Yield Supplement Agreement.
MARKET DISCOUNT. A Grantor Trust Certificateholder that acquires an
undivided interest in Receivables may be subject to the market discount rules of
Sections 1276 through 1278 to the extent an undivided interest in a Receivable
is considered to have been purchased at a "market discount." Generally, the
amount of market discount is equal to the excess of the portion of the principal
amount of that Receivable allocable to that Grantor Trust Certificateholder's
undivided interest in the Receivable over that holder's tax basis in that
interest. Market discount with respect to a Receivable will be considered to be
zero if the amount allocable to the Receivable is less than 0.25% of the
Receivable's stated redemption price at maturity multiplied by the weighted
average maturity remaining after the date of purchase. Treasury regulations
implementing the market discount rules have not yet been issued; therefore, it
is suggested that investors consult their own tax advisors regarding the
application of these rules and the advisability of making any of the elections
allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled payment or
a prepayment) or any gain on disposition of a market discount bond shall be
treated as ordinary income to the extent that it does not exceed the accrued
market discount at the time of that payment. The amount of accrued market
discount for purposes of determining the tax treatment of subsequent principal
payments or dispositions of the market discount bond is to be reduced by the
amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue regulations
providing for the computation of accrued market discount on debt instruments,
the principal of which is payable in more than one installment. While the
Treasury Department has not yet issued regulations, rules described in the
relevant legislative history will apply. Under those rules, the holder of a
market discount bond may elect to accrue market discount either on the basis of
a constant interest rate or according to one of the following methods. If a
Grantor Trust Certificate is issued with respect to which there is OID, the
amount of market discount that accrues during any accrual period would be equal
to the product of (1) the total remaining market discount and (2) a fraction,
the numerator of which is the OID accruing during the period and the denominator
of which is the total remaining OID at the beginning of the accrual period. If a
Grantor Trust Certificate is issued with respect to which there is no OID, the
amount of market discount that accrues during a period is equal to the product
of (1) the total
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remaining market discount and (2) a fraction, the numerator of which is the
amount of stated interest paid during the accrual period and the denominator of
which is the total amount of stated interest remaining to be paid at the
beginning of the accrual period. For purposes of calculating market discount
under any of the above methods in the case of instruments (such as the Grantor
Trust Certificates) that provide for payments that may be accelerated by reason
of prepayments of other obligations securing those instruments, the same
prepayment assumption applicable to calculating the accrual of OID will apply.
Because the regulations described above have not been issued, it is impossible
to predict what effect those regulations might have on the tax treatment of a
Grantor Trust Certificate purchased at a discount or premium in the secondary
market.
A Grantor Trust Certificate holder who acquired a Grantor Trust Certificate
at a market discount also may be required to defer a portion of its interest
deductions for the taxable year attributable to any indebtedness incurred or
continued to purchase or carry that Grantor Trust Certificate purchased with
market discount. For these purposes, the de minimis rule referred to above
applies. Any deferred interest expense would not exceed the market discount that
accrues during that taxable year and is, in general, allowed as a deduction not
later than the year in which the market discount is includible in income. If
that holder elects to include market discount in income currently as it accrues
on all market discount instruments acquired by the holder in that taxable year
or thereafter, the interest deferral rule described above will not apply.
ELECTION TO TREAT ALL INTEREST AS OID. The OID regulations permit a Grantor
Trust Certificateholder to elect to accrue all interest, discount (including de
minimis market or original issue discount) and premium in income as interest,
based on a constant yield method. If that election were to be made with respect
to a Grantor Trust Certificate with market discount, the Grantor Trust
Certificateholder would be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that that Grantor Trust Certificateholder acquires during the
year of the election or thereafter. Similarly, a Grantor Trust Certificateholder
that makes this election for a Grantor Trust Certificate that is acquired at a
premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that that
Grantor Trust Certificateholder owns or acquires. WE REFER YOU TO "--PREMIUM"
ABOVE. THE ELECTION TO ACCRUE INTEREST, DISCOUNT AND PREMIUM ON A CONSTANT YIELD
METHOD WITH RESPECT TO A GRANTOR TRUST CERTIFICATE IS IRREVOCABLE EXCEPT WITH
THE APPROVAL OF THE IRS.
SALE OR EXCHANGE OF A GRANTOR TRUST CERTIFICATE. Sale or exchange of a
Grantor Trust Certificate prior to its maturity will result in gain or loss
equal to the difference, if any, between the amount received and the owner's
adjusted basis in the Grantor Trust Certificate. The adjusted basis generally
will equal the seller's purchase price for the Grantor Trust Certificate,
increased by any market discount, OID and gain previously included in the
seller's gross income with respect to the Grantor Trust Certificate, and reduced
by the amount of any premium, if any, previously amortized and by the amount of
any payments of principal and OID on the Grantor Trust Certificate previously
received by the seller. That gain or loss will be capital gain or loss to an
owner for which a Grantor Trust Certificate is a "capital asset" within the
meaning of Section 1221, and will be long-term or short-term depending on
whether the Grantor Trust Certificate has been owned for the long-term capital
gain holding period (currently more than one year).
A Grantor Trust Certificate will be an "evidence of indebtedness" within the
meaning of Section 582(c)(1), so that gain or loss recognized from the sale of a
Grantor Trust Certificate by a bank or a thrift institution to which that
section applies will be treated as ordinary income or loss.
FOREIGN PERSONS. Generally, interest or OID paid by the person required to
withhold tax under Section 1441 or 1442 to (1) a Grantor Trust Certificateholder
that is not a U.S. Person (as defined under "--Tax Treatment of Owner
Trusts--Tax Consequences to Owners of the Notes--Foreign
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Owners") (a "Foreign Grantor Trust Certificateholder") or (2) a person holding
on behalf of a Foreign Grantor Trust Certificateholder, as well as accrued OID
recognized by the Foreign Grantor Trust Certificateholder on the sale or
exchange of that Grantor Trust Certificate, will not be subject to withholding
to the extent that a Grantor Trust Certificate evidences ownership in
Receivables issued after July 18, 1984 by natural persons, if that Foreign
Grantor Trust Certificateholder complies with specified identification
requirements (including delivery of a statement, signed by the Foreign Grantor
Trust Certificateholder under penalties of perjury, certifying that that Foreign
Grantor Trust Certificateholder is not a U.S. Person and providing the name and
address of that Foreign Grantor Trust Certificateholder). Additional
restrictions apply to Receivables where the obligor is not a natural person in
order to qualify for the exemption from withholding.
Although it is not entirely clear, it is likely that amounts received by a
Foreign Grantor Trust Certificateholder that are attributable to payments of
Yield Supplement Deposits received pursuant to any Yield Supplement Agreement
generally would not be subject to withholding tax. It is suggested that Foreign
Grantor Trust Certificateholders consult their tax advisors regarding the
withholding tax consequences of amounts received on the Grantor Trust
Certificates that are attributable to payments of Yield Supplement Deposits
received pursuant to any Yield Supplement Agreement.
INFORMATION REPORTING AND BACKUP WITHHOLDING. The Servicer will furnish or
make available, within a reasonable time after the end of each calendar year, to
each person who was a Grantor Trust Certificateholder at any time during that
year, that information as may be deemed necessary or desirable to assist Grantor
Trust Certificateholders in preparing their federal income tax returns, or to
enable holders to make that information available to beneficial owners or
financial intermediaries that hold Grantor Trust Certificates as nominees on
behalf of beneficial owners. If a holder, beneficial owner, financial
intermediary or other recipient of a payment on behalf of a beneficial owner
fails to supply a certified taxpayer identification number or if the Secretary
of the Treasury determines that that person has not reported all interest and
dividend income required to be shown on its federal income tax return, 31%
backup withholding may be required with respect to any payments. Any amounts
deducted and withheld from a payment to a recipient would be allowed as a credit
against that recipient's federal income tax liability.
FEDERAL INCOME TAX TREATMENT OF FASITS
TREATMENT OF THE TRUST FOR FEDERAL INCOME TAX PURPOSES
Many aspects of the federal income tax treatment of a particular series of
certificates will depend upon whether an election is made to treat your Trust,
or one or more segregated pools of trust assets, as a financial asset
securitization investment trust (a "FASIT"). The accompanying prospectus
supplement will indicate whether a FASIT election or elections will be made with
respect to your Trust. For each series in which one or more FASIT elections are
to be made, Tax Counsel will deliver a separate opinion generally to the effect
that, assuming timely filing of a FASIT election or elections and compliance
with the documents specified in the opinion, the Trust, or one or more
segregated pools of trust assets, will qualify as one or more FASITs.
The FASIT provisions of the Code became effective on September 1, 1997.
Investors should note that the FASIT discussion contained herein constitutes
only a summary of the United States federal income tax consequences to holders
of certificates issued by FASITs ("FASIT Certificateholders"). With respect to
each series of FASIT certificates, the related prospectus supplement will
provide a detailed discussion regarding the federal income tax consequences
associated with the particular transaction.
FASIT interests will be classified as either FASIT regular interests, which
generally will be treated as debt for federal income tax purposes, or a single
FASIT ownership interest, which is not treated as debt for such purposes, but
rather as representing rights and responsibilities with respect to the taxable
income or loss of the related FASIT. The prospectus supplement for each series
of certificates will
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indicate which certificates of such series will be designated as regular
interests, and which will be designated as the ownership interest.
FASIT QUALIFICATION
A trust fund will qualify as a FASIT if (1) a FASIT election is in effect,
(2) certain tests concerning the composition of the FASIT's assets (the "asset
test") and the nature of the investors' interests in the FASIT (the "interests
test") are met on a continuing basis, and (3) the trust fund is not a "regulated
investment company" ("RIC") as described in Section 851(a) of the Code.
THE INTERESTS TEST. All interests in a FASIT must be designated as either
regular interests or as the ownership interest. A FASIT can have only one
ownership interest and it must be held directly at all times by an "eligible
corporation" (i.e., a domestic "C" corporation that is subject to tax and that
is not a RIC, a "real estate investment trust" (within the meaning of Section
856 of the Code), a "real estate mortgage investment conduit" (within the
meaning of Section 860D of the Code), or a subchapter T cooperative).
A FASIT regular interest generally qualifies as a regular interest if (1) it
is designated as a regular interest, (2) it has a stated maturity of no greater
than 30 years (including options to renew), (3) it unconditionally entitles its
holder to a specified principal amount, (4) the issue price of the interest does
not exceed 125% of its stated principal amount, (5) the yield to maturity of the
interest is less than the applicable federal rate published by the IRS for the
month of issue plus 5 percentage points, and (6) if it pays interest, such
interest is payable at either (a) a fixed rate with respect to the principal
amount of the regular interest or (b) certain permissible variable rates with
respect to such principal amount.
If an interest in a FASIT fails to meet one or more of the requirements set
out in clauses (3), (4) or (5) in the immediately preceding paragraph, but
otherwise meets all requirements to be treated as a FASIT, it may still qualify
as a type of regular interest known as a "high-yield interest." In addition, if
an interest in a FASIT fails to meet the requirement of clause (6) above, but
the interest payable on the interest consists of a specified portion of the
interest payments on permitted assets and that portion does not vary over the
life of the security, the interest will also qualify as a high-yield interest. A
high-yield interest may only be held by domestic C corporations that are fully
subject to corporate income tax, other FASITs, and dealers in securities who
acquire such interests exclusively for sale to customers in the ordinary course
of business, rather than for investment. In addition, holders of high-yield
interests are subject to limitations on offsetting income derived from such
interest. WE REFER YOU TO "FEDERAL INCOME TAX TREATMENT OF FASITS--TAX TREATMENT
OF FASIT CERTIFICATEHOLDERS--TAXATION OF HOLDERS OF HIGH-YIELD INTERESTS" BELOW.
One interest will be designated as the sole ownership interest in the FASIT.
The ownership interest may not be owned by any entity other than an eligible
corporation. The ownership interest need not have any particular economic
characteristics.
THE ASSET TEST. In order for a Trust to qualify as a FASIT, substantially
all of its assets must be "permitted assets" as of the close of the third month
following the date of its formation, and at all times thereafter. "Permitted
assets" include (1) cash and cash equivalents, (2) any debt instrument that
provides for interest payments which (A) are payable based on a fixed rate or
certain variable rates, or (B) consist of a specified portion of the interest
payments on the Trust assets, which portion does not vary during the period such
interest is outstanding, (3) foreclosure property, (4) certain hedging
instruments (i.e., swap contracts, futures contracts, and guarantee
arrangements) intended to hedge against the risks associated with being the
obligor on FASIT regular interests, (5) contract rights to acquire debt
instruments described in (2) above or hedges described in (4) above, and (6) any
regular interest in a REMIC or in another FASIT. The term "permitted asset" does
not, however, include any debt instrument issued by the holder of the ownership
interest or any person related to such holder.
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CONSEQUENCES OF DISQUALIFICATION
If a trust or segregated pool of trust assets fails to comply with one or
more ongoing requirements for FASIT status during any taxable year, the Code
provides that its FASIT status may be lost for that year and thereafter. If
FASIT status is lost, the federal income tax treatment of the former FASIT and
the related former FASIT Certificateholders is uncertain. Although the Code
authorizes the Treasury to issue regulations that address situations where a
failure to meet the requirements for FASIT status occurs inadvertently and in
good faith, such regulations have not yet been issued. It is possible that
disqualification relief might be accompanied by sanctions, such as the
imposition of a corporate tax on all or a portion of the FASIT's income for the
period of time in which requirements for FASIT status are not satisfied.
TAX TREATMENT OF FASIT CERTIFICATEHOLDERS
FASIT regular interests generally will be subject to the same rules of
taxation as apply to debt instruments generally, except that holders of FASIT
regular interests must report income from their securities under the accrual
method of accounting, even if they otherwise would have used the cash receipts
and disbursement method. The sale or other disposition of a FASIT regular
security generally will be subject to the same rules as apply to debt
instruments generally. WE REFER YOU TO "--TAX TREATMENT OF OWNER TRUSTS--TAX
CONSEQUENCES TO OWNERS OF THE NOTES."
TAXATION OF HOLDERS OF HIGH-YIELD INTERESTS. High-yield interests are
subject to special rules regarding the eligibility of holders of those
interests, and the ability of the holders to offset income derived from those
interests with losses. High-yield interests only may be held by eligible
corporations, other FASITs, and dealers in securities which acquire such
interests as inventory. If a securities dealer (other than an eligible
corporation) initially acquires a high-yield interest as inventory, but later
begins to hold it for investment, the dealer will be subject to an excise tax
equal to the income from the high-yield interest multiplied by the highest
corporate tax rate. In addition, transfers of high-yield interests to
disqualified holders will be disregarded for federal income tax purposes, and
the transferor will continue to be treated as the holder of the high-yield
interest.
The holder of a high-yield interest may not use non-FASIT current losses or
net operating loss carryforwards or carrybacks to offset any income derived from
the high-yield interest, for either regular federal income tax purposes or for
alternative minimum tax purposes. In addition, the FASIT provisions contain an
anti-abuse rule that imposes corporate income tax on income derived from a FASIT
regular interest that is held by a pass-through entity (other than another
FASIT) that issues debt or equity securities backed by the FASIT regular
interest and that have the same features as high-yield interests.
TAXATION OF HOLDERS OF FASIT OWNERSHIP INTERESTS. A FASIT ownership
interest represents the residual equity interest in a FASIT. As such, the holder
of a FASIT ownership interest determines its taxable income by taking into
account all assets, liabilities, and items of income, gain, deduction, loss and
credit of the related FASIT. In general the character of the income to the
holder of a FASIT ownership interest will be the same as the character of such
income to the FASIT, except that any tax-exempt interest income taken into
account by the holder of a FASIT ownership interest is treated as ordinary
income. In determining that taxable income, the holder of a FASIT ownership
interest must use a constant yield methodology and an accrual method of
accounting and generally will be subject to the same rules of taxation for OID,
market discount, and amortizable premium as apply to debt instruments generally.
In addition, a holder of a FASIT ownership interest is subject to the same
limitations on its ability to use non-FASIT losses to offset income from the
FASIT ownership interest as are holders of high-yield interests. WE REFER YOU TO
"--TAX TREATMENT OF OWNER TRUSTS--TAX CONSEQUENCES TO OWNERS OF THE
CERTIFICATES--DISCOUNT AND PREMIUM."
Particular "wash sale" rules will apply to FASIT ownership interests.
Specifically, losses on dispositions of a FASIT ownership interest generally
will be disallowed where within six months before
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or after the disposition, the seller of such interest acquires any other FASIT
ownership interest that is economically comparable to the disposed FASIT
ownership interest. In addition, if any security that is sold or contributed to
a FASIT by the holders of the related FASIT ownership interest was required to
be marked to market under section 475 of the Code by such holder, then section
475 of the Code generally will continue to apply to such security.
The holder of a FASIT ownership interest will be subject to a tax equal to
100% of the net income derived by the FASIT from any "prohibited transactions."
Prohibited transactions include (1) the receipt of income derived from assets
that are not permitted assets, (2) certain dispositions of permitted assets, (3)
the receipt of any income derived from any loan originated by a FASIT, and (4)
in certain cases, the receipt of income representing a servicing fee or other
compensation. Any series of securities for which a FASIT election is made
generally will be structured to avoid application of the prohibited transaction
tax.
TAX CONSEQUENCES TO FOREIGN FASIT CERTIFICATEHOLDERS
Interest or OID paid to or accrued by a FASIT regular interest holder who is
not a U.S. Person (as defined under "--Tax Treatment of Owner Trusts--Tax
Consequences to Owners of the Notes--Foreign Owners") generally will be
considered "portfolio interest" and will not be subject to United States federal
income or withholding tax if the holder meets the same requirements that are
applicable to foreign holders of REMIC regular interests. WE REFER YOU TO "--TAX
TREATMENT OF OWNER TRUSTS--TAX CONSEQUENCES TO OWNERS OF THE NOTES--FOREIGN
OWNERS."
The 30% withholding tax will apply, however, in certain situations where
"contingent interest" is paid or the IRS determines that withholding is required
in order to prevent tax evasion by United States persons. If the 30% withholding
tax is applicable, payments of contingent interest made to FASIT regular
interest holders who are foreign persons will be subject to withholding. In
addition, a tax equal to 30% of the OID accrued with respect to a certificate
since the last payment of interest thereon will be withheld from each interest
payment made to a foreign person. The Code provides, for purposes of determining
the amount of OID subject to the withholding tax on foreign persons, that OID
shall accrue at a constant interest rate pursuant to the rules applicable to
United States persons. FASIT Certificateholders to whom withholding with respect
to foreign persons applies will also be subject to a 30% tax on the portion of
any accrued OID that has not previously been subject to withholding upon the
payment by the issuer of principal on a security or upon the sale or exchange of
a security.
The 30% withholding tax imposed on a foreign person may be subject to
reduction or elimination under applicable tax treaties and does not apply if the
interest, OID or gain treated as ordinary income, as the case may be, is
effectively connected with the conduct by such foreign person of a trade or
business within the United States.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of FASIT certificates by a foreign person will be exempt
from United States income and withholding tax, provided that (1) the gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (2) in the case of an individual, the
individual is not present in the United States for 183 days or more in the
taxable year.
BACKUP WITHHOLDING
A holder of a FASIT regular interest will be subject to the same backup
withholding rules that apply to holders of debt instruments generally. WE REFER
YOU TO "--TAX TREATMENT OF OWNER TRUSTS--TAX CONSEQUENCES TO OWNERS OF THE
NOTES--BACKUP WITHHOLDING."
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THE NEW WITHHOLDING REGULATIONS
The Treasury Department has enacted new withholding regulations that
generally will be effective after December 31, 2000. WE REFER YOU TO "--TAX
TREATMENT OF OWNER TRUSTS--TAX CONSEQUENCES TO OWNERS OF THE NOTES--NEW
WITHHOLDING REGULATIONS."
TAX INFORMATION REPORTING
The securities will represent collateralized debt obligations for purposes
of the information reporting requirements set out in the Treasury regulations.
As required by those regulations, the Trustee will provide to FASIT
Certificateholders information concerning the interest paid and OID accrued on
the securities as specified in the prospectus supplement.
MATERIAL STATE TAX CONSEQUENCES WITH RESPECT TO OWNER TRUSTS
The activities to be undertaken by the Servicer in servicing and collecting
the Receivables will take place in California. The State of California imposes a
state individual income tax and a corporate franchise tax on corporations,
partnerships and other entities doing business in the State of California. This
discussion relates only to Owner Trusts and is based upon present provisions of
California statutes and the regulations promulgated under those statutes, and
applicable judicial or ruling authority, all of which are subject to change,
which change may be retroactive.
Because of the variation in each state's tax laws based in whole or in part
upon income, it is impossible to predict tax consequences to holders of notes
and certificates in all of the state taxing jurisdictions in which they are
already subject to tax. It is suggested that Note Owners and Certificate Owners
consult their own tax advisors with respect to state tax consequences arising
out of the purchase, ownership and disposition of notes and certificates.
For purposes of the following summary, references to the Trust, the notes,
the certificates and related terms, parties and documents shall be deemed to
refer to each Owner Trust and the notes, certificates and related terms, parties
and documents applicable to that Trust.
TAX CONSEQUENCES WITH RESPECT TO THE NOTES. It is expected that Tax Counsel
will advise each Owner Trust that issues notes that, assuming the notes will be
treated as debt for federal income tax purposes, the notes will be treated as
debt for California income and franchise tax purposes. Accordingly, Note Owners
not otherwise subject to taxation in California would not become subject to
taxation in California solely because of a holder's ownership of notes. However,
a Note Owner already subject to California's income tax or franchise tax could
be required to pay additional California tax as a result of the Note Owner's
ownership or disposition of notes.
TAX CONSEQUENCES WITH RESPECT TO THE CERTIFICATES ISSUED BY AN OWNER
TRUST. Based on regulations issued by the Franchise Tax Board with respect to
the California tax characterization of an owner trust as a partnership and not
as an association taxable as a corporation or other taxable entity, Tax Counsel
will opine that an Owner Trust for which no election to be treated as a
corporation is made will not be an association (or publicly traded partnership)
treated as a corporation for California tax purposes. In that case, the
resulting constructive partnership should not be treated as doing business in
California but rather should be viewed as a passive holder of investments and,
as a result, should not be subject to the California franchise tax (which, if
applicable, could possibly result in reduced payments to Certificate Owners).
Under current law, Certificate Owners that are nonresidents of California
and are not otherwise subject to California income tax may be subject to
California income tax on the income from the constructive partnership. In any
event, classification of the arrangement as a "partnership" would not
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cause a Certificate Owner not otherwise subject to taxation in California to pay
California tax on income beyond that derived from the certificates.
It is not clear whether the Trust would be considered to be engaged in a
trade or business in the United States for purposes of California withholding
taxes with respect to Certificate Owners that are Foreign Owners because there
is no clear authority dealing with that issue under facts substantially similar
to those described in this prospectus. Although it is not expected that the
Trust would be engaged in a trade or business in the United States for those
purposes, the Trust will withhold on amounts paid to Certificate Owners that are
Foreign Owners as if it were so engaged in order to protect the Trust from
possible adverse consequences of a failure to withhold. The Trust expects to
withhold on the portion of its taxable income from California sources that is
allocable to Certificate Owners that are Foreign Owners pursuant to Section
18666 of California's Revenue and Taxation Code, as if that income were
effectively connected to a U.S. trade or business, at the maximum appropriate
rate.
If the certificates are instead treated as ownership interests in an
association taxable as a corporation or a "publicly traded partnership" taxable
as a corporation, then the hypothetical entity should not be subject to the
California franchise tax (which, if applicable, could result in reduced payments
to Certificate Owners). A Certificate Owner not otherwise subject to tax in
California would not become subject to California tax as a result of its mere
ownership of that interest.
MATERIAL STATE TAX CONSEQUENCES WITH RESPECT TO GRANTOR TRUSTS
It is expected that Tax Counsel will advise each Grantor Trust that the
Trust will be treated as a grantor trust for California tax purposes, and that,
for California tax purposes, Grantor Trust Certificateholders could be
considered to own either (1) an undivided interest in a single debt obligation
held by the Trust and having a principal amount equal to the total stated
principal amount of the Receivables and an interest rate equal to the related
Pass Through Rate or (2) an interest in each of the Receivables and any other
Trust assets.
It is suggested that Grantor Trust Certificateholders consult their tax
advisors regarding the state tax consequences associated with the purchase,
ownership and disposition of the Grantor Trust Certificates.
THE FEDERAL AND STATE TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON YOUR
PARTICULAR TAX SITUATION. IT IS SUGGESTED THAT YOU CONSULT YOUR TAX ADVISOR WITH
RESPECT TO THE TAX CONSEQUENCES TO YOU OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF NOTES AND CERTIFICATES, INCLUDING THE TAX CONSEQUENCES UNDER
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN
FEDERAL OR OTHER TAX LAWS.
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ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan, as well as individual retirement
accounts and some types of Keogh Plans (each a "Benefit Plan"), from engaging in
transactions involving "plan assets" with persons that are "parties in interest"
under ERISA or "disqualified persons" under the Code with respect to that
Benefit Plan. ERISA also imposes duties on persons who are fiduciaries of
Benefit Plans subject to ERISA and prohibits specified transactions between a
Benefit Plan and parties in interest with respect to those Benefit Plans. Under
ERISA, any person who exercises any authority or control with respect to the
management or disposition of the assets of a Benefit Plan is considered to be a
fiduciary of that Benefit Plan (subject to exceptions not here relevant). A
violation of these "prohibited transaction" rules may result in an excise tax or
other penalties and liabilities under ERISA and the Code for those persons.
Certain exemptions from the prohibited transaction rules could be applicable to
the purchase and holding of Securities by a Benefit Plan depending on the type
and circumstances of the plan fiduciary making the decision to acquire the
Securities. Potentially available exemption would include, without limitation,
Prohibited Transaction Class Exemption ("PTCE") 90-1, which exempts certain
transactions involving insurance company pooled separate accounts; PTCE 95-60,
which exempts certain transactions involving insurance company general accounts;
PTCE 91-38, which exempts certain transactions involving bank collective
investment funds; PTCE 84-14, which exempts certain transactions effected on
behalf of a plan by a "qualified professional asset manager"; and PTCE 96-23,
which exempts certain transactions effected on behalf of a plan by an "in-house
asset manager." Insurance company general accounts should also discuss with
their legal counsel the availability of exemptive relief under Section 401(c) of
ERISA. A purchaser of Securities should be aware, however, that even if the
conditions specified in one or more exemptions are met, the scope of the relief
provided by the applicable exemption or exemptions might not cover all acts that
might be construed as prohibited transactions.
Some transactions involving a Trust might be deemed to constitute prohibited
transactions under ERISA and the Code with respect to a Benefit Plan that
purchased notes or certificates if assets of the Trust were deemed to be assets
of the Benefit Plan. Under a regulation issued by the United States Department
of Labor (the "Plan Assets Regulation"), the assets of a Trust would be treated
as plan assets of a Benefit Plan for the purposes of ERISA and the Code only if
the Benefit Plan acquired an "equity interest" in the Trust and none of the
exceptions contained in the Plan Assets Regulation was applicable. An equity
interest is defined under the Plan Assets Regulation as an interest other than
an instrument which is treated as indebtedness under applicable local law and
which has no substantial equity features. The likely treatment in this context
of notes and certificates of a given series will be discussed in the applicable
prospectus supplement.
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA) and some church plans (as defined in Section 3(33) of ERISA) are
not subject to ERISA requirements nor to Section 4975 of the Code. However,
governmental plans may be subject to state or local laws that impose similar
requirements. In addition, governmental plans and church plans that are
"qualified" under Section 401(a) of the Code are subject to restrictions with
respect to prohibited transactions under Section 503(a)(1)(B) of the Code, the
sanction for violation being loss of "qualified" status.
Due to the complexities of the "prohibited transaction" rules and the
penalties imposed upon persons involved in prohibited transactions, it is
important that the fiduciary of any Benefit Plan considering the purchase of
Securities consult with its tax and/or legal advisors regarding whether the
assets of the related Trust would be considered plan assets, the possibility of
exemptive relief from the prohibited transaction rules and other issues and
their potential consequences.
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UNDERWRITING
On the terms and conditions set forth in an underwriting agreement with
respect to the notes, if any, of a given series and an underwriting agreement
with respect to the certificates of that series (collectively, the "Underwriting
Agreements"), the Seller will agree to cause the related Trust to sell to the
underwriters named in the Underwriting Agreements (the "Underwriters") and in
the applicable prospectus supplement, and each of those Underwriters will
severally agree to purchase, the principal amount of each class of notes and
certificates, as the case may be, of the related series set forth in the
Underwriting Agreements and in the applicable prospectus supplement.
In each of the Underwriting Agreements with respect to any given series of
Securities, the several Underwriters will agree, subject to the terms and
conditions set forth in the Underwriting Agreements, to purchase all the notes
and certificates, as the case may be, described in the Underwriting Agreements
which are offered by this prospectus and by the applicable prospectus supplement
if any of those notes and certificates, as the case may be, are purchased.
Each prospectus supplement will either (1) set forth the price at which each
class of notes and certificates, as the case may be, being offered by that
prospectus supplement will be offered to the public and any concessions that may
be offered to some dealers participating in the offering of those notes and
certificates or (2) specify that the related notes and certificates, as the case
may be, are to be resold by the underwriters in negotiated transactions at
varying prices to be determined at the time of that sale. After the initial
public offering of those notes and certificates, those public offering prices
and those concessions may be changed.
Each Underwriting Agreement will provide that AHFC and the Seller will
indemnify the Underwriters against specified civil liabilities, including
liabilities under the Securities Act, or contribute to payments the several
Underwriters may be required to make in respect thereof.
Each Trust may, from time to time, invest the funds in its Accounts in
Eligible Investments acquired from the Underwriters or from the Seller.
Pursuant to each Underwriting Agreement with respect to a given series of
Securities, the closing of the sale of any class of Securities subject to that
Underwriting Agreement will be conditioned on the closing of the sale of all
other classes of Securities of that series.
The place and time of delivery for the Securities in respect of which this
prospectus is delivered will be set forth in the applicable prospectus
supplement.
LEGAL OPINIONS
Certain legal matters relating to the Securities of any series will be
passed upon for the related Trust, the Seller and the Servicer by counsel
specified in the applicable prospectus supplement. In addition, certain United
States federal and California state tax and other matters will be passed upon
for the related Trust by counsel specified in the applicable prospectus
supplement. Certain legal matters will be passed upon for the Underwriters by
counsel specified in the applicable prospectus supplement.
94
<PAGE>
INDEX OF TERMS
<TABLE>
<S> <C>
Accounts............................. 52
Actuarial Receivables................ 21
Administration Agreement............. 65
Administration Fee................... 65
Administrative Purchase Payment...... 53
Administrative Receivable............ 53
Administrator........................ 65
Advances............................. 55
AHFC................................. 20, 24
AHMC................................. 24
APR.................................. 21
asset test........................... 88
Auction.............................. 42
Base Rate............................ 34
Base Servicing Fee................... 56
Benefit Plan......................... 93
Bond Equivalent Yield................ 43
Business Day......................... 35
Calculation Agent.................... 38
Calculation Date..................... 38
California Contracts................. 71
CI................................... 47
CD Rate.............................. 38
CD Rate Security..................... 34
Cede................................. 25
Certificate Balance.................. 27
Certificate Owners................... 75
Certificate Pool Factor.............. 27
Certificateholder.................... 33
class................................ 27, 33
Clearstream, Luxembourg.............. 44
Clearstream, Luxembourg
Participants....................... 45
Closing Date......................... 20, 50
Code................................. 72
Collection Account................... 51
Collection Period.................... 54
Commercial Paper Rate................ 39
Commercial Paper Rate Security....... 34
Cooperative.......................... 48
Cutoff Date.......................... 20
DBC.................................. 47
Dealer Agreements.................... 20
Dealer Recourse...................... 20, 26
Dealers.............................. 20
Definitive Certificates.............. 49
Definitive Notes..................... 49
Definitive Securities................ 45, 49
Depositaries......................... 45
Designated LIBOR Page................ 41
Determination Date................... 59
DTC.................................. 44
DTC Participants..................... 28, 46
Eligible Investments................. 52
equity interest...................... 93
ERISA................................ 93
Euroclear............................ 44, 48
Euroclear Operator................... 48
Euroclear Participants............... 45
Events of Default.................... 29
Excess Payment....................... 55
FASIT................................ 87
FASIT Certificateholders............. 87
Federal Funds Rate................... 40
Federal Funds Rate Security.......... 34
Final Scheduled Maturity Date........ 53
Financed Vehicles.................... 20
Fixed Rate Securities................ 34
Floating Rate Securities............. 34
Foreign Certificate Owners........... 80
Foreign Grantor Trust
Certificateholder.................. 87
Foreign Owner........................ 74
FTC Rule............................. 70
Grantor Trust........................ 80
Grantor Trust Certificateholders..... 80
Grantor Trust Certificates........... 80
H.15(519)............................ 39
H.15 Daily Update.................... 39
HCFI................................. 24
High Yield Receivable................ 82
Indenture............................ 27
Indenture Trustee.................... 24
Index................................ 43
Index Currency....................... 36
Index Maturity....................... 38
Indexed Principal Amount............. 43
Indexed Securities................... 43
Indirect DTC Participants............ 46
Insolvency Event..................... 62
Insolvency Laws...................... 69
Interest Determination Date.......... 37
Interest Period...................... 37
Interest Rate........................ 28
Interest Reset Date.................. 36
Interest Reset Period................ 36
interests test....................... 88
IRS.................................. 72
LIBOR................................ 40
LIBOR Security....................... 34
London Banking Day................... 38
London Business Day.................. 35
Low Yield Receivables................ 82
Money Market Yield................... 40
Moody's.............................. 52
New CI............................... 47
New York Business Day................ 35
New Regulations...................... 75
Note Owners.......................... 73
Note Pool Factor..................... 27
Noteholder........................... 28
Obligors............................. 20
OID.................................. 73
OID regulations...................... 73
Original Certificate Balance......... 27
Owner Trust.......................... 72
Pass Through Rate.................... 33
Payahead Account..................... 52
Payment Date......................... 33
Payments Ahead....................... 52
</TABLE>
95
<PAGE>
<TABLE>
<S> <C>
permitted assets..................... 88
Plan Assets Regulation............... 93
Pool Balance......................... 56
Pooling and Servicing Agreement...... 20
Precomputed Advance.................. 55
Precomputed Receivables.............. 21
Prepayment........................... 55
Prepayment Assumption................ 73
Principal Balance.................... 56
Principal Financial Center........... 35
Principal Financial Center Business
Day................................ 35
prospectus supplement................ 20
PTCE................................. 93
Purchase Agreement................... 50
Rebate............................... 51
Receivables.......................... 20
Receivables Pool..................... 20
Related Documents.................... 32
Relief Act........................... 71
Required Deposit Rating.............. 52
Required Rate........................ 57
Required Yield Supplement Amount..... 57
Reserve Fund......................... 58
Reserve Fund Initial Deposit......... 58
Retained Yield....................... 82
RIC.................................. 88
Rule of 78s Receivables.............. 21
Sale and Servicing Agreement......... 20
Schedule of Receivables.............. 50
Scheduled Payment.................... 21
SEC.................................. 25
Section 1286 Treasury Regulations.... 83
Securities........................... 20
Securities Act....................... 25
Securityholders...................... 25
Seller............................... 20
Servicer............................. 24
Servicer Default..................... 62
Servicer Letter of Credit............ 60
Servicing Fee Rate................... 56
Short-Term Note...................... 73
Simple Interest Advance.............. 55
Simple Interest Receivables.......... 21
Specified Currency................... 36
Spread............................... 34
Spread Multiplier.................... 34
Standard & Poor's.................... 52
Strip Certificates................... 33
Strip Notes.......................... 28
Supplemental Servicing Fee........... 56
TARGET Business Day.................. 35
Tax Counsel.......................... 72
Telerate Page 56..................... 42
Telerate Page 57..................... 42
Telerate Page 120.................... 40
Terms and Conditions................. 48
Total Servicing Fee.................. 56
Transfer and Servicing Agreements.... 50
Treasury Bills....................... 42
Treasury Rate........................ 42
Treasury Rate Security............... 34
Trust................................ 20
Trust Agreement...................... 20
Trustee.............................. 24
U.S. Person.......................... 74
UCC.................................. 51
Underwriters......................... 94
Underwriting Agreements.............. 94
Warranty Purchase Payment............ 51
Warranty Receivable.................. 51
weighted average life................ 26
Yield Supplement Account............. 56
Yield Supplement Deposit............. 57
</TABLE>
96
<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.
AMERICAN HONDA
RECEIVABLES CORP.
SELLER
AMERICAN HONDA
FINANCE CORPORATION
SERVICER
UNTIL JANUARY 15, 2001 (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
2000-1 OWNER TRUST
$298,000,000
6.71125% ASSET BACKED NOTES,
CLASS A-1
$240,000,000
6.650% ASSET BACKED NOTES,
CLASS A-2
$386,000,000
6.620% ASSET BACKED NOTES,
CLASS A-3
$129,270,000
6.670% ASSET BACKED NOTES,
CLASS A-4
--------------------------------
PROSPECTUS SUPPLEMENT
--------------------------------
CHASE SECURITIES INC.
J.P. MORGAN & CO.
BANC OF AMERICA SECURITIES LLC
BANC ONE CAPITAL MARKETS, INC.
SALOMON SMITH BARNEY
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